Greetings, and welcome to the Penn National Gaming first quarter conference call. It is now my pleasure to turn the conference over to Joe Jaffoni. Please go ahead.

Thank you, Tina, and good morning, everyone, and thank you again for joining Penn National Gaming's 2021 First Quarter Conference Call. We'll get to management's presentation and comments momentarily as well as your questions and answers, but first, I'll review the safe harbor disclosure. In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties. These statements can be identified by the use of forward-looking terminologies such as expects, believes, estimates, projects, intends, plans, seeks, may, will, should or anticipates or the negative or other variations of these or similar words or by discussions of future events, strategies or risks and uncertainties, including future plans, strategies, performance, developments, acquisitions, capital expenditures and operating results. Such forward-looking statements reflect the company's current expectations and beliefs but are not guarantees of future performance. As such, actual results may vary materially from expectations. The risks and uncertainties associated with the forward-looking statements are described in today's news announcement and in the company's filings with the Securities and Exchange Commission, including the company's reports on Form 10-K and Form 10-Q. Penn National Gaming assumes no obligation to publicly update or revise any forward-looking statements. Today's call and webcast will also include non-GAAP financial measures within the meaning of SEC Regulation G. And when required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release as well as on the company's website. Thank you for your patience with that. And it's now my pleasure to turn the call over to Penn National's CEO, Jay Snowden. Jay, please go ahead.

Thank you, Joe. Good morning, everyone, and thanks for joining us. Here with me in Wyomissing for her first official Penn earnings call, at least on this side, is our new CFO, Felicia Hendrix. So welcome, Felicia. We also have Todd George, our Head of Operations, here to help answer questions about our core business as well as other members of my executive team, who can help respond to your follow-up questions as needed. As you can see from our earnings release, our core business results are very strong and still ramping as we sit here in the second quarter. Meanwhile, our new online and retail Barstool Sportsbooks and iCasino offerings in Michigan and Pennsylvania continue to perform very well. Further, we managed to fully integrate our industry-leading mychoice player loyalty program across all of our retail and digital offerings in time to take advantage of this momentum, which has significantly bolstered our unique omnichannel strategy and competitive advantages. At our land-based operations, the momentum has continued following the rollout of vaccines and the ongoing relaxation of COVID-19-related restrictions across the country. Our record first quarter results highlight the robust recovery in our land-based business. Benefiting from many actions taken in 2020, we generated adjusted EBITDAR growth of 7% on a revenue decline of 6% over 1Q '19, despite COVID-related property closures in January at a handful of our Midwest and Northeast properties, nearly a full closure of Zia Park in New Mexico and some harsh winter weather in the South in February. More impressive is our performance in March and April, which reflects the additional easing of restrictions and an increase in the percentage of people vaccinated. Revenues grew 8% over the same 2-month period in 2019, while adjusted EBITDAR accelerated 29% to $410 million and EBITDAR margins increased 650 basis points to nearly 40%. We also note that spend per visit is much higher than it was pre-COVID. In fact, our visitation is now at or near 2019 levels in most of our markets. Importantly, the younger demographic continues to view gaming as a compelling entertainment option, while the 55 and over age group has been steadily returning to our casinos. We illustrate this point in our slide deck on Page 7, where you can see that our 55-plus age segment continues to gain momentum, particularly in April, while growth from our younger age segments, 21 to 44, has accelerated since the beginning of the year. Further, unrated play is demonstrating unprecedented growth, which has provided us with the opportunity to convert these players to our mychoice loyalty program through new member programs and incentives. Our rated play trends continue to accelerate. This strong top line demand, coupled with the structural changes we put in place at the start of the pandemic, has resulted in remarkable and sustainable margin improvement even as our interactive business continues to scale. As it relates to our partners at Barstool Sports, they've been able to maintain their incredible momentum from 2020 into the new year with strong financial performance in audience growth. Barstool's promotion of Penn National's retail sportsbooks has driven significant awareness and visitation to our land-based properties. This is especially true of those properties that have introduced Barstool-branded sportsbooks, and we plan to open six more of them by the end of this year. In addition, progress continues on the development of several stand-alone Barstool-branded sports bar locations. We're really excited about these projects, and we're providing much more information along with our partners at Barstool in the next couple of months. On March 11, we successfully launched the Barstool Sportsbook app in Illinois ahead of the 2021 NCAA basketball tournament and just ahead of the return of the in-person registration requirement in the state. The initial results for the first 30 days of operations exceeded our expectations, thanks in large part to the loyal following of stoolies in the Chicago land area with better first-time deposit conversions relative to what we had generated in Pennsylvania or Michigan. During this period, we registered 54,700 new customers and generated total handle and gaming revenue of 67 million. The power of Barstool's social media reach was on full display upon the reinstatement of the in-person registration requirement in Illinois, as they were able to help us drive an incredible 20,000 registrations during just a 36-hour period. Meanwhile, Barstool's creative promotions, exclusive bets, and custom parlays have led to a leading position in Pennsylvania and Michigan based on handle, GGR, and NGR, life-to-date market share, despite limited external marketing spend. We expect our low customer acquisition costs, strong retention rates, unique promotions, exclusive betting features, and high adoption among casual bettors will drive outsized profitability over the long term. We continue to over-index a bit on GGR and NGR compared to handle, and we anticipate this continuing to be a trend in the aggregate over the long term. The power of our mychoice customer base, combined with the fierce loyalty of Barstool's audience, has allowed us to successfully cross-sell our online offerings. In Michigan, for example, over 50% of our online sports betting monthly uniques placed a wager on our iCasino product during the month of March, which was above our initial expectations. As we highlight on Slide 17, our experience in Michigan has shown that a customer's value increases significantly when they play on multiple channels, which highlights the benefits of our 100% owned and controlled omnichannel strategy. With the introduction of online gaming, we've been able to generate twice as much combined revenue as we have traditionally generated at Greektown by engaging with consumers on our digital products in addition to the physical property. We are really excited about yesterday's launch of the Barstool iCasino product in Pennsylvania, which we believe will greatly expand our penetration and aggregate revenue in the state, particularly in the Philadelphia MSA, where we currently do not have a land-based presence. Although we are pleased with the initial results of our first-generation Barstool iCasino product, we are really just scratching the surface of our potential in this space. Over the next few months, we will be adding significantly more third-party content to our Barstool Sportsbook app, which will help increase conversion of our mychoice database in both Michigan and Pennsylvania. In addition, we recently acquired Hit Point Studios, which will serve as the centerpiece of our newly formed Penn Game Studios and allow us to create customized Barstool themes as well as casino-branded content that we believe will lead to even greater cross-sell opportunities. Before I hand it over to Felicia for a summary of our first quarter results and a review of our financials, I want to call special attention to the continued strides we're making on the ESG front. As you know, this is a topic that's very personal to me, and I know our Board of Directors and my executive team share my same level of commitment and enthusiasm on taking care of our people, our host communities, and our planet. Highlights from this quarter include the launch of a new $1 million annual diversity scholarship program. We're looking forward to providing up to 65, 2 and 4-year scholarships this year to the children of our team members, which reflects our commitment to equity in post-secondary education. In addition, we implemented a supplier diversity initiative with the goal of developing new opportunities for minority-owned businesses. And last month, we hosted company-wide days of listening to gather feedback from our team members on all matters of diversity and inclusion. Finally, on May 15, which is Armed Forces Day, we'll be launching a new initiative to honor our active duty military, veterans, and first responders. We're calling it the myheroes program, which is an exclusive fully integrated extension of our mychoice rewards program, and it's to provide our nation's heroes access to exclusive discounts and offers at all of our properties across the country. With that, I'll pause and turn it over to Felicia.

Thanks, Jay. It's great being here and being part of this tremendously talented team. Over the past few months, I've been asked by many of you what the biggest surprise was for me once I joined Penn. Having covered the company for over 20 years, I would say that there were more pleasant discoveries than surprises, and three stand out. The first is the depth of the bench across the entire company. The level of talent, creativity, and commitment to excellence at Penn is seen in every aspect of the company and at every level. The second is transparency. Jay's commitment to transparent communication is well-known and respected by the investment community, and that ethos is no different internally. And finally, Penn's commitments to diversity and inclusion and community service is certainly inspiring. So with that being said, we're very proud of our first quarter results, especially given COVID-related closures in January and the late in the quarter reopening of Zia Park. Revenues of $1.27 billion and adjusted EBITDAR of $447 million after corporate overhead of $24 million, which, as you know, is reported in the other segment, represented 94% of 2019 revenues and 107% of 2019 EBITDAR pro forma for a full quarter of Greektown, which is above our previously stated goals. Pro forma margins increased 434 basis points. Adjusting for the COVID-related closures and excluding Penn Interactive, our EBITDAR flow-through was even more impressive as our adjusted EBITDAR increased 12% compared to the first quarter of '19 on a 9% decline in revenues. On this adjusted basis, pro forma EBITDA margins increased more than 700 basis points. Our Midwest and South regions reported record EBITDAR and margins in the quarter despite COVID-related closures in January and uncharacteristically harsh weather in the South in February. Our performance in the South segment was particularly noteworthy as the region generated margin improvement of 1,100 basis points compared to the same period in the first quarter of '19. While cost savings, efficiencies, and a rational marketing and promotional environment certainly benefited results, the less restricted COVID protocols drove revenue growth as compared to the first quarter of '19, which bodes well for the remainder of our portfolio as regions continue to reduce restrictions and open back up. Last week, for example, Mississippi removed all mandatory restrictions in the state. In the Midwest, adjusting for our property closures in the first quarter, that segment also reported an impressive EBITDA margin gain of nearly 900 basis points despite competitively unfavorable COVID restrictions in certain markets. Our balance sheet remains a key strength for us. Total liquidity as of March 31, 2021, was $2.7 billion, consisting of over $2 billion in cash and a fully undrawn revolver. Traditional net debt was $353 million compared to $578 million as of 12/31/2020. Our lease-adjusted net leverage was 4.5x based on 2019 adjusted EBITDAR. CapEx in the quarter was $25.7 million, of which $9.1 million pertains to our Hollywood York project that we expect to open in August, and $1.7 million for our Hollywood Casino Morgantown development that we plan to open by the end of the year. Despite the ramp in vaccine distribution, the U.S. remains in a pandemic, which creates uncertainty. As such, we will continue our pause on providing guidance, which we will reevaluate quarter-to-quarter. I'll now turn it back to Jay.

Thanks, Felicia. In addition to these impressive results, we had many other notable accomplishments in the quarter, including being added to the S&P 500. And just last week, Moody's upgraded our senior secured rating one notch and moved our outlook to stable. As I look ahead, I remain excited about really every aspect of our business. The recovery is well underway at our land-based casinos, as evidenced by the strong trends we saw in March, which continued into the second quarter. Meanwhile, at Barstool, they remain focused on driving top-of-the-funnel growth. Our differentiated strategy has earned us market-leading positions in Michigan and Pennsylvania in terms of handle, GGR, and NGR, and we remain on track to be live in eight states by football season and ten or more states before the end of this year. Further, we remain busy at work on a variety of growth initiatives, all with a focus on driving shareholder value well into the future. With that, Tina, I'd like to turn it over to you and open the line up for questions.

And that first question comes from Joe Greff of JPMorgan.

Jay, on the digital side, maybe you can just kind of start with maybe what you have learned over the last several months here in the states in which you've launched with respect to customer engagement, acquisition, and promotion, what have you learned about the technology component side of things and any views of acquiring or bringing that technology in-house?

Thank you for the question, Joe. We've gained a lot of insights since our launch in September. We completed our first football season and March Madness, and we are currently operational in three states. In just a few weeks, we'll expand into Indiana for the Indy 500 and the NBA playoffs, and we're planning to be live in a total of eight states by the next football season. This places us in a much stronger position compared to September of last year. We've discovered that our unique strategy, particularly our media partnership with Barstool, allows us to achieve the best customer acquisition costs in the industry. Our costs are significantly below $100 across the states we operate in, providing us with financial flexibility for future growth. As we approach the upcoming football season, we'll be more aggressive in our customer acquisition compared to last year since we now have a broader market reach, launching in eight states instead of just one. It's important to focus not just on the monthly handle but also on our strategic differentiation and the margin profile in the short, medium, and long term. Our business has scaled well, and we've grown our Penn Interactive team while maintaining a break-even position in our first quarter, a feat not many can claim. While we may not break even every quarter, our approach to spending and customer acquisition will remain flexible and opportunistic as we head into football season. Our customer demographics are also promising, with the majority of our online audience being younger, aged between 21 and 27 years, which is advantageous for the future growth of both our online and physical casino operations. Our Barstool-branded retail sportsbooks have successfully captured market share in states like Indiana, enhancing both our sportsbook and casino performance. We've learned that our unique promotions, content, and retention strategies set us apart from competitors, and we see this as beneficial for our long-term success. We've drawn from the U.K. market, particularly models like Sky Bet, which achieved significant progress from 2008 to 2010 with a similar differentiated approach that gained recognition over time. Lastly, we're committed to improving our product and technology. We have solid partnerships in Kambi and White Hat Gaming, but we aim to exert more control over our tech stack in the future, especially regarding user interaction. The increase in corporate expenses from Q4 to Q1 reflects our active pursuit of potential M&A opportunities and partnerships, as well as our ongoing efforts in lobbying states like New York and Florida to ensure our operational presence as regulations evolve. Overall, we have a differentiated strategy that is proving effective, as shown by our low-teen market share without incurring losses while scaling the business. This positions us well for the future.

Great. And then just a follow-up. You have $2.7 billion of liquidity, incredibly low leverage. How do you use that to your advantage? Are there larger scale acquisitions? I mean, not things like Perryville, but something that's more needle moving? In which areas are there potential external growth opportunities driven by M&A?

Yes. Felicia, feel free to add your thoughts. I am really pleased with our current balance sheet position. We've never been in such a strong situation since we spun off our real estate. Having net traditional leverage of around $300 million is impressive, and our leverage levels are at 4.5x. We are quite busy, Joe, and there are still several areas we want to explore concerning our technology stack. We see potential opportunities that vary in size—small, medium, or large—depending on what we pursue. There may also be international opportunities linked to our technology strategy that could be promising for the long term. We will continue to seek out various possibilities for expansion and acquisition. The Barstool partnership has been extremely beneficial for us, and I believe there are other media organizations or offerings that could synergize well with our efforts, strengthening our competitive edge. We are actively exploring many options, and you can expect us to remain quite active this year as we move into next year.

If I may add, thank you for the question about our balance sheet. In my prepared remarks, I mentioned some positive findings, and I want to highlight another point that has become clear to me since I arrived. I believe it's an important aspect that the investment community may not be fully considering. It’s the strength of our operating leverage and our leading levels of free cash flow conversion, which will improve as we increase revenues and EBITDA. Given our minimal and stable cash requirements, as our revenue increases, our EBITDA will rise, and our free cash flow is likely to grow even more significantly. This will enhance our balance sheet and put us in a better position to reinvest in our business and pursue the strategic growth opportunities that have been discussed.

The next question comes from Bernie McTernan of Needham & Co.

Just a follow-up. And Jay, you mentioned being more aggressive to acquire customers in the upcoming NFL season. I was wondering if you could just provide any color on what you expect it to mean. You mentioned the virtual sportsbook early on in your prepared remarks, but does this mean more promo, TV spots, other external marketing or something else?

Sure, Bernie. I believe you should continue to expect less traditional strategies from us. While they may seem unorthodox, we find these approaches to be highly effective. We have discussed the Barstool-branded sportsbooks in the casino and the stand-alone sports bars in key markets. We will have more information to share on those initiatives soon. We are investing in Barstool and seeking new talents, potential verticals, and possible media partnerships or acquisitions. Additionally, we plan to be more aggressive in securing influencers and affiliates. There are sponsorship and partnership opportunities that could benefit both our digital and core business. The benefit of our omnichannel approach is that we maintain control over everything, allowing us to attract more people into our ecosystem. This enables us to invest in our core business, stand-alone on-prem options, and digital media. As long as these efforts broaden our reach and draw more people in, we are confident we can maintain healthy margins across all aspects of our business. We don’t mind where people choose to spend their time and money with us. However, I wouldn’t expect us to compete with linear TV and radio. During my visit to Pennsylvania this week, I’ve noticed that sports talk radio is inundated with advertisements for sports betting, which is confusing and overwhelming. We’re not interested in that space as it offers low returns and generates no loyalty. It simply shifts customers around who are looking for the next promotion. The concept of lifetime value is often miscalculated; it assumes customer loyalty that isn’t realistic, especially in sports betting where switching takes just a few minutes. Over time, I believe the companies with genuine strategic advantages, integrated media, and loyal audiences—like Barstool's—will hold significant market share. In contrast, those overly reliant on commercials will likely see their customers moving from app to app. That’s my perspective. Nonetheless, we will adopt a more aggressive approach as we enter the football season, but we will do so in innovative ways.

Great. Appreciate that. And I do think this is the year that the Sixers will probably get the better of my Celtics for what it's worth. And then just a follow-up on iGaming. Do you think there's the same opportunity to kind of, let's call it, Barstool iGaming? If we think about sports betting in Illinois, 54% of bettors using the Barstool exclusives. So showing the content-driven acquisition strategy is working in sports betting. Is there that same opportunity at iGaming? Like I'd imagine some sort of live deal with Barstool personalities could be pretty interesting? Or is the opportunity really about converting the mychoice customers?

Yes. Bernie, you would have felt right at home in our boardroom during those discussions. As you may have seen, we announced the creation of Penn Studios and our acquisition of HitPoint. This aligns perfectly with our vision, and we’ve been collaborating with HitPoint to develop unique content in partnership with Barstool. You can expect to see Dave Portnoy along with Blackjack and Big Cat with craps, roulette, and their interactions will be engaging and entertaining. We have plenty of exciting plans in store. Additionally, we launched iCasino in Michigan to seize the opportunity and help users transition from sports betting to casino games. We acknowledge that our iCasino product isn't where it needs to be yet; it's somewhat basic, currently offering about 60 titles in slots and table games, which is significantly less than our competitors. We aim to enhance our offerings by next football season, around September, to include not only well-known content from established games but also original content from our studio. For context, while BetMGM has converted a higher percentage of their sports betting audience to iCasino, we’re currently at 50%. In comparison, their numbers are likely around 70% to 90%. We recognize the need for improved content, and that’s our focus. Expect us to approach this similarly to our sports betting strategy by leveraging the loyalty associated with the Barstool brand.

The next question comes from Shaun Kelley of Bank of America.

Welcome Felicia. Good to hear your voice.

Thanks, Shaun.

So Jay, two things I wanted to touch on. First, just to stick with online and digital. You talked about the low-teen market share. And I think we've all been kind of staring at some of the sequential market share patterns. And I just wanted to get your kind of thoughts on when you guys launch in some of these new markets, you seem to do exceptionally well, given the Barstool penetration, then we tend to see things kind of level out a little bit over time just given that where you are in the market versus not and probably some of the follow-through there. Just how are you kind of thinking about that pattern as it moves over time as you start to gain a little bit more scale across markets? And what should investors expect kind of as you look at it, what KPIs are you watching to really judge how your assets are performing?

Yes, that's a great question, Shaun. We discuss this daily, and there are a few key points to consider. For example, in Michigan, marketing costs are extremely high right now. There's a competitive rush to spend on attracting customers who are using multiple apps. We are not participating in that race at the moment. As we approach the 2021 football season, we expect to have more scale, which makes it more sensible for us to invest aggressively in marketing on a regional and national level, rather than focusing on expensive local efforts that yield limited long-term returns. Secondly, each market has its own dynamics. In Pennsylvania, for instance, our market share has remained consistently in the low-teens, around 12% to 15%, across various metrics since we launched last September. We have not seen much fluctuation there; it's been relatively stable month over month. I should also note that the Barstool demographic, particularly figures like Portnoy and Big Cat, tend to favor football as their primary sport. Our launch in Michigan coincided with the end of the football season, which limited our initial traction. We were able to capitalize only on the AFC and NFC championship games and the Super Bowl before transitioning to basketball and hockey. While we expect to be competitive in those sports, our strongest performance is likely to occur from September to January during the football season. As for the potential decline in Michigan, I believe it will begin to self-correct with the return of football season, particularly with additional marketing efforts and increased scale. I want to emphasize the importance of focusing on long-term outcomes. There seems to be an overreaction to monthly performance figures, and it's essential to consider the broader strategy, margin profile, and overall business model over an extended period. Let's get through another full football season; we've learned a lot, and we're confident about the direction things will take.

And maybe just to switch gears, but we made it, I think, this far without talking too much about the core brick-and-mortar business. I think what investors are asking us a lot about is just trying to understand how much of what we're seeing in March and April is truly sustainable in our eyes versus a lack of entertainment options, some of the stimulus funding, possibly some sort of onetime pent-up demand. You guys seem to have a lot of data around that. You've broken it out by cohorts for us. So I just want to get your thoughts and if you kind of tailor it to both revenues and a little bit on the margin front too, just trying to kind of get our arms around what's real and repeating versus what's onetime?

Yes. Todd, do you want to grab that one?

Thanks, Jay. Thanks, Shaun. Great question. And I think it's what everyone has been asked in our industry as we've kind of gone through this. So obviously, we're encouraged by the revenue and the EBITDA performance trends. Revenue, it's a combination of many things. There is obviously pent-up demand. There's stimulus money in the marketplace. There are a lot of things driving that as well as you acknowledge the lack of entertainment offerings. But I would also point to, we're seeing it across all different groups, and that's everyone from unrated all the way to the high-end customers, which are more of your core gamers. Q1 and definitely March and April, the trends are even more encouraging. In the South, Mississippi, as they removed really any restrictions, we're seeing volumes, visitation, handle drop well over 100% of 2019 numbers. Similarly, in Louisiana, there was a group of us last week that went to Louisiana and visited four of our properties. It was amazing to see. In a big way, you wouldn't even realize that there was a pandemic going on. So it was really encouraging to see people out there enjoying themselves, having a great time being at the pool, spending time at tables, dining in restaurants. So it was really where we see the rest of the country going. To your point on margin, in the past, we've kind of provided a framework of 9,100. And with a goal of saying that on 90% of 2019 volumes, we could get to 100% of 2019 EBITDA, which really, when you do the math, equates to about a 350 basis point margin improvement. We obviously feel that that number is now a little conservative. This has been discussed internally, maybe more than any other performance metric coming out of the first quarter. I think we all got to a point where we feel the margin performance will continue to be driven by volumes. And as we're holding on to the younger demographic, as we're seeing the 55-plus come in after vaccines, those volumes remain steady. And through the first now five days of May, the trend continues from April. So very optimistic, very encouraged as we move into the rest of the year.

Yes. Well said, Todd. One thing I would add, and Todd sort of highlighted it is, you should anticipate our margin profile looking a lot like it does right now as long as the revenues continue to be what they've been in the last couple of months. That's what we're seeing right now. It's tough to predict what's going to be in this environment three months, six months, 12 months, 15 months from now. But the margin profile, thanks to Todd and the operations team out in the field, we feel great about how sustainable it is as well as long as the volumes are there.

The next question comes from John DeCree of Union Gaming.

Congratulations, Felicia, for hopping on the other side of this conference call.

Thanks, John.

Jay, there's a slide in your deck that talks about your GGR market share at a couple of properties where you have a rebranded Barstool Sportsbook. And I was wondering if you could talk a little bit about, if you've seen anything early on, the crossover play from retail sports betting to online sports betting, places where you have a rebranded sportsbook. Are you seeing those customers play in the retail location? And then go home and play online? Or are they two very different customers? I know it's early, but I was wondering if you could kind of talk about the value of that retail sportsbook presence.

Yes. And Todd, you can help me with this one. Here's what we're seeing is that customers that are coming in to bet in these Barstool-branded retail sportsbooks, many of them, most of them have never been to the property. And while they're on property, they're engaging in table games, mostly a little bit in slots actually and a lot in food and beverage, not surprisingly. I think what's most interesting for us is that one of the things we have not been able to do really at all since we acquired Barstool, and this is something that Dave and Erika and Big Cat and others at Barstool are the most excited about, as are we, is this on-prem activation of their audience. So even though we've opened these Barstool-branded sportsbooks, it's still with very limited capacity Blackjack games that are every other seat and slots through every other slot, and bars are half shut down or entirely shut down. When you think about we're seeing early results that are very encouraging, but I get a lot more excited thinking about how much stronger those volumes can be when we can really activate the audience. Todd?

Yes. Well said, Jay. The only thing I would add, John, really the stickiness to your question now that everybody is in the mychoice program. So whether you're spending time with us online or actually at the property, you're earning loyalty, you're earning rewards. So we've seen a nice uptick from there. So obviously, the brand loyalty, I think, as people find their way back into the casinos, they are over-indexing if they're gambling with us online as well as in the Sportsbook. So it's a really encouraging trend and definitely saw a nice increase after everything was folded into the loyalty program.

That's great. That's great, helpful color. If I could ask one more, Jay and Felicia on a high level, going back to one of Felicia's comments before as revenue ticks up in a recovery, EBITDAR will tick up and ultimately, your free cash flow accelerate and where the balance sheet is today in a position that it hasn't been as long as we can remember. Jay, I think you were pretty clear in where you would spend investment dollars in kind of unique kind of tuck-in acquisitions like your content acquisition earlier this week. But the big picture, the amount of cash flow that we see you guys being able to generate in our model. How do you think about uses of cash and deploying that cash, the different buckets? I mean, is there an opportunity to continue to grow and invest in your digital business and perhaps think about shareholder returns or dividends or even pay down a little bit of debt you have? Just want to kind of get your sense as cash flow accelerates here, how you'd look to deploy it in addition to reinvesting in the digital business?

Yes. Thanks, John. I think for now, you've all heard Jay talk many times and also today, right, about investing in the business, and that's inclusive of growing our online channel and solving for our tech stack. So that's really where we are today. Our cash balance certainly gives us a lot of dry powder to pursue a number of different growth strategies. But over time, regarding return of capital, that's definitely something we'll consider down the road. It's something discussed. But right now, we're very much focused on our growth.

If we look at the results for March and April, we saw around a little over $200 million in EBITDAR at the corporate level and nearly $100 million in free cash flow for each of those two months. While I don't suggest you project these figures long-term given that March is typically a strong month and we aren't certain how sustainable the current trends are, the operational leverage of this business is significant. Regarding the conversion of EBITDAR to free cash flow, I believe it will be among the highest or very close to the highest in the industry.

The next question comes from Stephen Grambling of Goldman Sachs.

Jay, you gave the Sky Bet analogy on the online sportsbook. As you look at your metrics in that segment across things like size of bet frequency and customer concentration. Without perhaps disclosing those stats specifically, how do you think you compare to peers in the market? And can you provide any color on how you think about how fragmented your customer base is as we think about more of a mass market customer versus perhaps peers more concentrated?

Yes, that's a great question. I can share what we know based on our insights and what we've gathered from our competitors, though some of this may be speculative. From our perspective, the majority of sports bettors in our ecosystem are quite young, primarily between 21 and 29 years old. This demographic skews younger compared to what I hear from competitors, who report an average age of around 30 to 35, while our average age is 25. As for average bet sizes, we are observing lower amounts particularly in Michigan, whereas in Illinois and Pennsylvania, things are aligning with our expectations. However, our hold rates in Michigan are greater, with a significant number of parlay bets and recreational betting happening there. This trend aligns with what Sky Bet has experienced in the U.K. over many years. Historically, Sky Bet has shown higher hold percentages and gross gaming revenue relative to handle. While it’s still early to predict exactly how this will evolve for us, our hold rates have been superior compared to our competition in the states where we operate, including Illinois. This is likely because we attract a younger and more casual betting demographic. In terms of lifetime value, I prefer having an average bettor at 25 years old rather than older, as they remain within our ecosystem. I can't say precisely how we compare to others, but based on our findings and market observations, this highlights why we align closely with the Sky Bet model in the U.K.

That's helpful. And then as a follow-up, this is perhaps asking Shaun's question on the sustainability of results in a different way. I think you had previously talked about achieving 2019 levels of EBITDA, 10% lower revenues. Is that still how we should think about maybe sustainable levels of margin improvement? Or has your view changed longer term, given what you've seen in the business?

I think Todd said it pretty well, Stephen, earlier. That now feels conservative based on what we're seeing in the business. If revenue levels are sort of at where they're at now and that's sustained, I think you're going to see us pumping out margins like we're pumping out now. That's the way you should think about it.

The next question comes from Barry Jonas of Truist.

I had a question about Vegas. With the sale of Tropicana to another operator, how do you think about the need to be back in that market longer term, specifically the Strip?

Yes, I believe the Vegas Strip is a fantastic market. Considering the Penn story, it's possible to envision a hub-and-spoke model in relation to our on-prem retail strategy in the future. It’s essential that any asset we consider is in the right location and represents a destination that we want to promote. We faced some challenges with Tropicana, which are now behind us. It wasn't due to a lack of effort or issues with database conversion; I think we performed quite well overall. Ultimately, the property needs to be in a prime location and competitive in terms of amenities. Based on our company’s current activities, pursuing this is not urgent and we don't have a specific timeline. However, we will certainly evaluate any quality assets that become available in Vegas. Given our balance sheet and database, we are confident in making an investment if the right opportunity arises, but nothing is immediate. We are not actively making offers, but we will definitely consider good assets if they come onto the market.

Okay. Great. And then just as a follow-up, I think a few quarters ago, you mentioned live in-game betting was lagging some of your internal goals out. Actually, I think it was Felicia's question. But curious where that is now.

Yes. So I think probably for the market, as you look at how popular in-game betting is over in Europe. And I don't think we get to those levels in the U.S., and part of why in-game is so popular there is because soccer is the most popular sport, which lends itself to in-game betting. Basketball would blow your head off trying to do in-game and football with hurry-up offense can be more challenging as well. But I do think that you're probably going to end up somewhere north of 50% in-game, and we're not there. We're more in that 35% right now, which is a little higher than the last time we reported. I think it's going to take a little bit of time. And honestly, I think it's going to take having great content and great product. We talked about creating more specialized bespoke content both within iCasino and sports now that we have created a studio and so that's going to be very focused on in-game over time. I think you'll see those numbers continue to grow.

The next question comes from Ryan Sigdahl of Craig-Hallum Group.

Jay, you mentioned sub-100 CPA, very impressive there relative to the industry. I guess, I just want to break that down. I know we've talked a lot about this to be very clear, I guess, because there's a lot of misinformation, I think, about promotions reported by states on a monthly basis versus external marketing. So how do you think about spend between those two promotions and external marketing? And then has your strategy changed there versus your initial expectations kind of from your early learnings in Pennsylvania, Michigan, Illinois, et cetera?

Yes. No, happy to share that. I mean, look, I view those two as very different. I mean, by definition, CPA is cost per acquisition. And so that's very much focused on how much did you have to spend to get that customer to download your app and to place a bet. I think that from our standpoint, the promotional spend is much more about retention. We are laser-focused on retention. And that's why I think you'll see us maybe spend a little bit more on promos as it relates to a percentage of GGR. It's also very tax-efficient in a number of these markets. As you're looking at spending hard cash on paid media that maybe is attracting a little bit more of a promiscuous customer versus investing in somebody who's already in your ecosystem and making sure they have compelling reasons and compelling content and compelling promotions to stay within the ecosystem. We view those two things very differently. So CPA for us, obviously, being as low as it is, begs the question of, well, what should it be? I think it should be higher, but we just want to make sure that we're being thoughtful around what we spend, where we spend it, and that it's going to create long-term ROI. We'll be as aggressive as we need to be as long as we believe we're attracting customers that we can keep within our ecosystem.

Great. And then just on New York, mobile sports betting, a fairly complex and confusing licensing structure there, also expensive. I guess, do you think there's an ROI opportunity for a competitive bid in the state?

I think you said it well, Ryan. We view it the same way. It's a conundrum, and we'll have to see how this plays out. We're very active right now. And talking to a number of our comps there because the way that this was structured, you can actually go in on bids with multiple platform providers. So it is complicated. I think money can be made, but the tax rate is obviously going to be hugely important, and we'll have to see how that plays out. I would say that if anybody can sort of monetize in an environment like that, I think that we're set up better than anybody because of our low CPAs and the fact that we have such a loyal audience that we don't have to spend money attracting to get into our ecosystem. So I don't want a high tax rate, trust me, and I don't think a high tax rate benefits the state at all. But if it's a higher-than-average tax rate, I think that is an environment we know we can still create long-term value and profitability.

Our final question comes from Steve Wieczynski of Stifel.

Felicia, welcome. I'm surprised that you don't want to discuss cruise operators in this environment anymore. Anyway, Jay, I'd like to ask a broader question regarding sports betting. There are a lot of varying estimates for the total addressable market. Specifically, I'm curious about how you perceive the challenge of addressing the gray market. How do you plan to convert those participants from the gray market into a legal operation like yours or another one? Do you see this as a long-term risk, where converting those individuals may prove to be more challenging than initially anticipated?

It's a great question. I believe this involves the entire industry, not just Penn. Our competitors are actively advertising in legal markets to inform people that betting is now legal and straightforward, with transactions taking just three minutes. We all face competition from illegal operators who have established quality products over the years. Therefore, we need to focus on providing an excellent user interface and experience, ensuring our features are as effective, if not better, than those of offshore services. Surveys conducted by AGA and internally at Penn show that many people are unaware of betting legality; they do want to bet, but often don’t know the difference between legal and illegal options. Over time, I think people will begin to recognize the legal and regulated options, but this won't happen immediately. Our goal is to convert gray market bettors to legal platforms, and I expect this will improve as more states legalize betting and the industry gains scale. Ultimately, this is a collective effort across the industry rather than solely a challenge for Penn.

Got it. And then, Jay, I thought it was interesting when you mentioned being a disruptor to the gaming industry. To me, that almost sounds like a threat. So, can you elaborate a little more on what you meant by that statement?

Well, I don't view it as a threat. So I'll be clear on that. I view it as the way that we look at the space. We were a first mover in a lot of areas. We were a first mover in creating the industry's first REITs. We were a first mover on investing in social casino businesses. We were a first mover in pursuing route operations when it was at its infancy. When we acquired Barstool, that raised a lot of eyebrows as, wow, is that going to work? And so I think what we're saying, Steve, or attempting to say is that we've been disruptive. We're going to continue to be disruptive. I think this current environment of convergence of different industries and verticals is a very comfortable place for us. We like when it's sort of chaotic, and somebody's got to step through the chaos and figure out how to create a compelling strategy and vision. We think we're set up really well as a team to do that. We live and breathe this every day. When I say this, it's not just gaming; it's sports, it's entertainment, it's media, it's tech. It's all of the adjacent industries that we see coming together. We think we're set up really well, and we've got some ideas on how we can really, like I said, sort of make the moat that we've built wider and deeper, and you should be expecting to hear more from us on that.

I'll turn the call back over to you for any closing remarks.

That's all I have. Really appreciate everybody taking the time to join us this morning, and we'll be in touch with all of you soon. Thank you.

Thank you. That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you and have a good day.