PENN Entertainment, Inc. Q2 FY2024 Earnings Call

Greetings, and welcome to the PENN Entertainment Second Quarter 2024 Results Call. I would now like to turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead.

Thanks, Angela. Good morning, everyone, and thank you for joining PENN Entertainment’s 2024 Second Quarter Conference Call. We’ll get to management’s presentation and comments momentarily as well as your questions and answers. During the Q&A session, we ask that everyone please limit themselves to one question and one follow-up. Now, I’ll review the Safe Harbor disclosure and we’ll get into the call. 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 terminology 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 the 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 Entertainment 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. 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. With that, it’s now my pleasure to turn the call over to PENN Entertainment’s CEO, Jay Snowden. Jay, please go ahead.

Thanks, Joe. Good morning, everyone. I’m here in Wyomissing, with our CFO, Felicia Hendrix; our Head of Operations, Todd George; and for the first time, we’re joined by Aaron LaBerge, our new Chief Technology Officer. Welcome, Aaron.

Thank you, Jay.

Aaron officially joined PENN on July 1, and as we’ve shared, he’s responsible for driving our technology strategy and execution as well as serving as the key business leader for our Interactive division. As most of you know, Aaron comes to us from Disney, where he had a terrific over 20-year career. In addition to his many accomplishments and accolades throughout his time there, Aaron was deeply involved in ESPN’s technology due diligence on PENN Interactive. While he’s only been on the ground at PENN for a few weeks, I thought it’d be good to open the call today with some of his early thoughts and key takeaways. Aaron?

Thanks. It’s really great to be here with everyone, and I’m very excited to have officially joined the PENN family. During my first couple of weeks, I’ve had the opportunity to do a deep dive with our Interactive teams in Toronto and Philadelphia, focusing on our product roadmap and growth strategies. I continue to be so impressed with this team, their world-class capabilities, and the robust and scalable technology stack they’ve built. We’re currently live in 19 jurisdictions across North America, with New York going live in late August, pending regulatory approval. We currently have a user database of nearly 4 million unique digital bettors that was built over the past 3.5 years. This strong foundation positions us well for continued growth and innovation. And, while we’re proud of our rapid expansion, we know we have some ground to make up, particularly in key feature categories such as parlays and player props. This is a consequence of the laser focus that we placed on our platform migration, rebranding, and new state launches. However, I see this as an exciting opportunity to collaborate with our engineering and product teams to create a best-in-class experience for our customers. As we will touch on later, we recently introduced some significant product improvements, with several more in the pipeline for the coming months, and I am confident that we’ll continue to close the gap with our competitors. Our goal here is simple. We want to create the best product for sports fans by elevating how they find, place, and track their bets, both within ESPN BET and across the entire ESPN ecosystem. By delivering here, we’ll drive our monetization through enhanced engagement, retention, and reactivation. ESPN and PENN share a common vision. We want to make ESPN BET America’s sportsbook. Sports betting is a key pillar of ESPN’s future growth because sports betting content and connectivity drive user engagement. Collectively, we have a truly unique opportunity to create a frictionless ecosystem for fans to enjoy the sports they love and engage in sports betting. We are both deeply committed to making ESPN BET a top name in sports betting over the coming years. We don’t just want to compete here; we want to win. And with that, I’ll turn it back over to Jay.

Thanks, Aaron. We are planning to host a meeting with investors during G2E at our M Resort property in Las Vegas on October 7. So, you can see firsthand the construction activity for the new hotel tower and property expansion there and of course, get a chance to meet Aaron in person and hear a Company update from him and the rest of our Executive Management team. With that, let me turn back to the results for the quarter. As you’ll see on Slide 5 in our Investor Presentation, our retail business delivered solid quarterly results as our industry-leading operators continue to execute across our portfolio. I’m extremely proud of the results our property teams continue to deliver in the face of ongoing competition and new supply. This quarter, we benefited from strong market share growth in several markets, including Ohio, Maryland, and Iowa, coupled with continued momentum at some of our flagship properties, including Hollywood Casino at Greektown and M Resort in Las Vegas. We included a case study on Greektown on Slide 6, to illustrate how our recent hotel room renovations and the introduction of our first ESPN BET retail sportsbook have delivered impressive revenue and market share growth at this downtown Detroit property. You’ll recall, we successfully opened our first ESPN BET retail sportsbook for a multi-day NFL activation at Greektown, including live draft coverage at the casino by ESPN personalities. Revenues at the property are up more than 6.5% year-over-year, and we saw a 90 basis point increase in year-over-year market share growth during the quarter. We also included a case study on our Ohio properties on Slide 7, illustrating how our ongoing investments there, including refreshed casino floors, expanded high-limit areas, best-in-class sportsbooks, and new food and beverage offerings have resulted in strong year-over-year growth. Our Columbus property continues to be a standout performer, and we’re very excited about our ongoing hotel project there and the upcoming rebranding of our sportsbook to ESPN BET. Speaking of retail sportsbooks, on Slide 8, we listed the other upcoming brand conversions to ESPN BET across our portfolio in sports-centric markets. These will help to further our brand connectivity and create meaningful cross-sell opportunities in order to capitalize on the incredible growth we have seen in our database. As you’ll see on Slide 9, we are also making great progress on our exciting new growth projects, all of which remain on budget and on track to open by the first half of '26. We will provide some additional information about these projects at G2E. In our Interactive segment, top-of-funnel growth, improved risk and trading execution, and refined promotional strategies contributed to record quarterly NGR, which helped narrow our Interactive segment losses quarter-over-quarter despite a seasonally slower second quarter sports calendar. Our revenues, excluding the tax gross-up, were up by more than 65% compared to the first quarter, and we saw a $93 million adjusted EBITDA improvement from our first quarter results. As highlighted on Slide 11, ESPN BET continues to drive meaningful growth in both our digital database and our active user base, providing a strong foundation for future growth as we introduce new product improvements.

Thanks, Jay. Second quarter retail revenue results of $1.4 billion and adjusted EBITDAR of $497 million reflects continued solid performance at our brick-and-mortar casinos. April was the weakest month of the quarter with improvement through May and June. For our Interactive segment, adjusted revenues excluding our skin tax gross-up were $151 million, a 65% sequential improvement over the first quarter of 2024. Interactive adjusted EBITDA in the quarter was a loss of $103 million, up $93 million quarter-over-quarter, and higher than the midpoint of our guidance reflecting top-of-funnel growth, improved risk and trading execution, and refined promotional strategies. As usual, you will find on Page 8 of our earnings release a table that summarizes our cash expenditures in the quarter, including cash payments to our REIT landlords, cash taxes, cash interest, and total CapEx. Of our total $88 million of CapEx in the quarter, $43 million was project CapEx primarily related to our four development projects. We ended the second quarter of 2024 with total liquidity of $1.9 billion, inclusive of $878 million in cash and cash equivalents. Our liquidity will remain strong through 2024. As you know, we have no debt maturities until 2026, which are our $330 million convertible notes. We continue to expect our lease-adjusted net leverage to peak in the third quarter of 2024, which is largely a function of our net leverage calculation including our trailing 12-month EBITDA, which captures the outside adjusted EBITDA loss we recorded in Interactive in the fourth quarter of 2023 as we were launching ESPN BET. As a reminder, on February 15, we received covenant relief under our credit agreement for the four quarters of 2024, and we continue to expect to exit the relief period by the end of this year as we will significantly delever starting in the fourth quarter and throughout 2025. By 2026, our Interactive segment will generate meaningful adjusted EBITDA, which will augment our strong cash flow in our core retail business inclusive of the four retail growth projects.

All right. Thanks, Felicia. I want to take a moment to recognize the incredible work of Justin Carter, our Chair of our Diversity Committee here at PENN, and all of our property leaders and team members across the enterprise. Our annual PENN Diversity Scholarship Fund recently awarded over $1 million in scholarships to the children of our team members, and we look forward to celebrating the graduating class of 44 scholars from the inaugural year of the scholarship program. This quarter, we also kicked off our annual corporate Days of Listening to gather feedback from team members on all matters of diversity and inclusion, and we were honored to be named by Diversity Magazine as one of the Best of the Best 2024 Top Diverse Employers. In closing, I want to reiterate that while 2024 is an investment year at PENN, our biggest losses in digital are now behind us. Looking ahead, 2025 will be a year of deleveraging the balance sheet as monetization improves with ESPN BET, and we launch our standalone Hollywood iCasino app early in the year. By 2026, we expect all four of our growth projects to be open, and we will begin generating positive cash flow from our Interactive unit, as Felicia mentioned. Again, with Aaron’s addition to our team, we’re confident that we can build a market-leading product that will allow us to realize the power of our portfolio of leading digital brands. In summary, we’re all very excited for what the future holds in store for PENN Entertainment and its valued shareholders. And with that, Angela, if we could open up the lines for questions.

We’ll take our first question from Carlo Santarelli with Deutsche Bank. Please go ahead.

Hey, everyone. Good morning. Jay, Aaron, whoever wants to take this one, one of your competitors obviously talked about a very good customer acquisition market in the 2Q. You guys seemingly remained promotionally disciplined in the 2Q and obviously outperformed kind of your expectations, guidance, etcetera. As we move though into August and start of college football season with a lot of the stuff that you guys are doing and acknowledging that you just provided 3Q guidance, how are you guys thinking about the customer acquisition push in 3Q, and then maybe how that bleeds over into 4Q from the perspective of trying to get more people in the funnel to experience with the newer product and a lot of the new amenities that have been added?

Yes, it’s a great question, Carlo. Our assumption around customer acquisition obviously is completely built into the guidance for the rest of the year that Felicia provided. And, the environment right now is actually quite good. It doesn’t mean that we’re going to be super aggressive. It means that with the guidance that we provided, we think that we can continue to drive top-of-funnel, understanding, of course, that the most valuable and most efficient top-of-funnel we have is our partnership with ESPN. And, the deep integrations that we not only have today, but are going to have by the start of football season, a lot of enhancements in the ESPN media app, and then, of course, Fantasy, which we have a few slides on. So, I would say that with the environment being healthy right now, that allows us to continue to focus on top-of-funnel mostly through our relationship with ESPN. We’ll do some spending around that, but again, that’s all built into our guidance for the rest of the year. And remember, we have a digital database of almost 4 million, and a lot of those digital customers only bet on football. So, there’s a huge reactivation opportunity for us, and we think with the much improved product that we have and all of the new features that Aaron and I and Todd will talk about, I’m sure, throughout this call. We feel like we have an opportunity to drive better engagement, deeper loyalty and retention and monetization as we move forward.

Great. Thanks. And, then just if I could follow up on the brick-and-mortar side. You guys it seems as though kind of margins have broadly stabilized in this 34% to 35% range. Obviously, summer months do tend to be a little bit more margin friendly. But, as you think about the back half of the year, and then if you could just provide some color on the back half of the year, and then if you could, kind of, talk about what you think that the brick-and-mortar net revenue environment needs to look like in 2025 for margins to be flat or perhaps inflect favorably?

Yes. Todd, do you want to grab that?

Sure. Thanks, Jay. And Carlo, great question. This quarter, obviously, there was a little bit of noise. In the South, we did have some disruption related to some weather impact from primary feeder markets. We also had a little bit of impact from hotel construction at our Lake Charles property. And then, in the Northeast, just a little bit of some accounting adjustments, some favorable last year, unfavorable this year, as well as some table game hold percentage. I think when we think about the remainder of the year, the margins that we’re carrying right now, we feel comfortable going through the remainder of this year. As we look into next year, with the improvements we’re seeing in technology, a lot of our technology initiatives are offsetting some of the payroll creep we’ve seen. I think you may see a little bit in Michigan that was pretty highly publicized. But again, we do a case study on that; we’re offsetting a lot of that with the revenue growth. So, from a net revenue standpoint, I think we’ve weathered the storm with a lot of the new competition introductions. And, we’re looking at a pretty stable environment, not only for the back half of this year but going into next year.

Okay, Todd. Sorry. And, just as related to something you said, obviously, it looks like the OpEx in the Northeast segment specifically spiked pretty aggressively in the second quarter, but was very calm in the first quarter. Obviously, the contract looking at last year kind of insinuates that if you smooth it out, things were pretty stable. Is a lot of that just as you mentioned, some of the accounting stuff and things of that nature that might have shifted quarter-to-quarter and this uplift is not a run rate uplift in OpEx, I should say, is not a run rate for the second half of the year?

Correct.

Thank you. Good morning. Jay, I wanted to see if you could maybe comment or share, on say, the retail conversion of the new digital customers that you’ve experienced since launching ESPN BET. Are these new unique customers to the whole PENN ecosystem, or are they retail customers essentially reopening, say an ESPN that account? And then, I’m wondering if you could comment maybe on the Pennsylvania Supreme Court case that could be somewhat favorable to you in Pennsylvania and whether or not we’ve seen this pattern certainly in other states, Kentucky, Virginia, and whether or not you think maybe this could also occur in other states in terms of a source of growth going forward?

Joe, do you want to clarify the second part of that question again? I wasn’t following that.

Yes, just the pending case in Pennsylvania Supreme Court on skill-based games, determining if they’re legal or not, is what I meant to ask.

Okay, got it. We’ll take a stab at that. I think the first part of your question with regard to the ESPN BET users and this pickup in our database, the lion’s share, 90% plus of the ESPN BET pickup are really new to PENN, which is great for us. We detailed in our last quarterly call how many of them live proximate to our properties, which I think lays out a great opportunity for us, and especially as we convert more and more of our retail sportsbooks and rebrand them to ESPN BET, the name and brand recognition makes cross-sell even smoother. So, that’s all been good news and we would anticipate going into football season that will continue to be the case. Obviously, we have a huge land-based database that we can market to for ESPN BET in the states where it’s legal, of course, iCasino as well. But, we have an opportunity to continue to grow through the integrations that we mentioned earlier and all the cross-sell that we’re getting from ESPN. So, really good news in terms of incrementality to PENN and the brands and the awareness of that brand of ESPN. The Pennsylvania skill base, it’s a very interesting topic. We have been very vocal in our position that those skill-based games sound, look, and smell like a slot machine, and there’s a lot of concern around that. Obviously, we continue to fight against what has been a rapid expansion of skill-based games in Pennsylvania through the court system. We think that we have a very strong position there. Our industry is very much aligned on fighting against the expansion of skill-based games, not just in Pennsylvania, but around the country. So, we’ll see how things play out in Pennsylvania, but I think that my comments speak for themselves in terms of our position.

Okay, thanks. And just maybe one quick follow-up, is there any best guess as to when a ruling may come out?

No. We would be completely guessing on that one, Joe. Not really comfortable putting out a date range.

Good morning, everybody. Thanks for taking my question. Maybe first going back to Slide 10, Jay or Felicia, the sequential pickup in adjusted revenue was impressive. I was hoping maybe you could split that out between OSB and iGaming, and where you saw those relative growth rates in the quarter?

Yes, happy to. Most of that growth because we’re talking NGR here was on the sports betting side. There is growth on the iCasino side as well, but we didn’t really have a whole lot of promo spend against iCasino last quarter relative to what it was in Q2. So, the biggest delta that you see there in growth in revenue is driven by more efficient revenue from on the growth side being that it’s flowing through to net as our promotional costs from the initial launch continue to come down. And, I think us just continuing to get smarter in terms of the promotions that we have out there for new users as well. So, really a combination of those two, but more driven by OSB.

Thanks for that, Jay. And then, a different question. One of your competitors announced a potential gaming surcharge to be launched for them in 2025. I know it’s not been out there for a long time, and so you probably haven’t had a ton of time to mull it over. Could you just provide your initial reaction to that news?

Yes. We find it to be very interesting. It was unexpected from our perspective, but definitely interesting. I mean, you really, as you think about PENN’s view on this, you should expect us to be observers. We have a lot going on in front of us right now over the coming quarters. So, I would say, when you’re talking about a potential tax surcharge in early ‘25, like that’s it’s not even on our radar. It doesn’t mean that I hesitate to ever say never. It just means that we’re really focused on continuing to improve the product, continuing to drive top-of-funnel and loyalty and retention. And so, we would not be a first mover on something like that. We’re going to stay very close to it. We’ll observe, we’ll see what the reaction is assuming that it does launch in early ‘25, and then we’ll probably have more to share with all of you on our quarterly earnings calls throughout 2025.

Good morning, everybody. Good morning, Aaron. Jay, can you talk about maybe how your new user acquisition strategies or tactics have changed or evolved given DraftKings’ recent plans to increase new user promos? And how do you compete against that at the same time you’re launching an enhanced ESPN BET platform in front of the football season?

Yes. I hit on it a little bit earlier, Joe, in terms of how we’re thinking about driving acquisition on top-of-funnel. We’re in this great position where we’ve got the deeper integrations with ESPN and their core digital products with ESPN media app as well as Fantasy. Fantasy is all brand new going into this fall season. And, even the deep links that we have in the ESPN media app, they’re going to be now, no longer just in Gamecast, but on the scores tab, on the home screen, really anywhere where you see a score of an event of the major sports, you’re going to have that six-pack of odds and deep links with ESPN BET. So, we’re in a very fortunate position where, obviously, that will drive top-of-funnel and a lot of engagement with our app. And so, that is extremely efficient for us and that’s going to be the biggest driver of acquisition. There is some other acquisition outside of ESPN that we’ll continue to pursue, but the lion’s share of acquisition for us is going to be through that ESPN channel. I would anticipate that the acquisition environment will, from our perspective, be healthy but be cost-effective as well. And, we talked a little bit about New York in our prepared remarks. And, we’re going to continue to take a different approach in terms of launching in New York versus what we did when we launched across 17 states in the fourth quarter of last year, and really lean a lot more on the product improvements, the integrations, of course, the connection that ESPN has with millions and millions of New York-based sports fans. And so, that’s going to really be our approach where we think that based on everything that we covered and I just highlighted that we’ll have a steady flow of top-of-funnel. But the biggest opportunity to be very clear, and mentioned this earlier also, is going to be around reactivation. We have this significant database. A lot of them are in the app. You see that in the Sensor Tower data. But, we need to continue to drive better retention and higher share of wallet. And, we think with all the product enhancements that we’re launching between now and the end of the month. And then, of course, throughout the football season, when you get to later in the fourth quarter, we talked about being able to have account linking done with ESPN. That’s going to take personalization to a whole different level. So, the great thing about our relationship with ESPN is it’s a driver of both top-of-funnel as well as ongoing retention.

Great. Thank you for your thoughts there, Jay. Separate topic, some of the financial media and even some of the gaming trade rags have reported a while back, and there’s been a lot of stuff reported in the Fantasy media with respect to you guys. But my specific question is, are you looking at selling individual assets, properties? And, if that is a focus, can you talk about maybe what the strategic rationale might be there?

Well, I guess at a high level, Joe, and you’d expect this answer that we don’t comment, we haven’t commented and won’t comment on market rumors and speculation. What I will say is that as a Company and as a Board, we’re always and always have, and always will evaluate opportunities to enhance value and we’ll continue to take actions that we believe are in the best interest of the Company and our shareholders. With that said, we’re very confident in our strategy and the value that it’s going to deliver for shareholders over the short-term, medium-term, and long-term. So, that’s the way I would answer that question. And, I would say, don’t believe everything you read. And, with regard to your specific question on assets, just remember that our assets, land-based assets are all part of different leases, and so it’s not as simple and easy as just selling off an asset. So, I don’t want to comment any further than that because then you are commenting on something that you said you’re not going to comment on. So, I’m just going to leave it at that.

Hey, guys. Had one for Aaron. Welcome, Aaron. I know you just started, but curious if you have any early thoughts about how you see putting your imprint on the company and the ESPN BET strategy?

I think Jay, I mean, Jay touched on a lot of them. I think we’re super excited about the integration with ESPN. We’re talking about Fantasy this year. Jay just talked about account linking that’s going to come in November, which if you think about ESPN’s digital and social reach today, I think last month it was 181 million users. So, when you think about knowing the fanability, personalization, usage preferences of all those people and then being able to target them, whether it’s introducing them to sports betting or people that are already sports bettors, giving them personalized offers and then moving them seamlessly between the apps with no friction, it is a massive opportunity. And what we know is no matter what platform that you bet on today, you place your bet and then you’re on ESPN tracking your bet and consuming information to try to piece together where you’re at in a parlay or whatever. And being able to place a bet on ESPN BET and then seamlessly package together the way to track that bet and make it more efficient and frictionless, we think is going to be a huge competitive advantage for us and something that no one else can do, and we’re really focused on that. That’s very exciting. And the teams are already working together in a way where it doesn’t even feel like they’re separate teams. So, it’s coming from ESPN, I think that’s super exciting. I think the opportunity someone mentioned in the previous question with the land-based casinos and the size of that database, which I don’t actually know if we share that, but it is actually quite massive and being able to take people from that environment, move them into ESPN BET and then further move them into our iCasino products is super exciting, too. So beyond that, focusing on product experience, making sure that when people interact with our products, it feels good, it’s frictionless, and it’s fun to use is what I’m going to be focused on.

Yes, I’ll respond to that, Todd, and feel free to add your comments. There has been no change from what we have communicated in previous quarters. We observed consistent trends in the second quarter reflected in our results. Keep in mind that July experienced calendar shifts. Many people overlook this aspect. In July, there was a loss of a Saturday and Sunday but an addition of a Tuesday and Wednesday, which will affect our top-line results. In August, we benefit from another calendar shift, so I expect that year-over-year, August will perform better than July. Interestingly, we have been hearing from lodging companies and the air travel sector about some weaknesses among lower-end consumers. However, we are not observing any additional concerns in regional gaming or in our digital trends. This creates an interesting situation: if people are traveling less, whether by air or in hotels, it tends to favor regional gaming since individuals are likely staying closer to home. Additionally, gas prices are currently quite stable. Overall, this points to a potentially stable environment for us. At the moment, we don’t have any concerns from an incremental standpoint.

Yes. The only thing I’d add, that little more detail, that 50 to 99, even the 100, 399, 400 plus, all very stable throughout the quarter year-over-year. And then just a little bit, I think Carlo touched on this in his question, but we did see really decent play from our unrated segment. So that kind of offset anything that we saw in the lower segment, that 0 to 49. But even that was stable. And even though it’s early in August, we’re seeing really positive trends the first few days of August.

Hi, good morning, everyone. Aaron, maybe a strategic question for you to lead off and then welcome. My question is really at this rate. As we think about the digital side here, kind of feel like there’s two major technology areas. One is going to be the marketing side, targeting, retargeting, AB testing, all that stuff. The other is going to be the pure engineering side and I think Jay has done a great job of outlining some of the product improvement. I’m curious given your background in streaming, could you talk a little bit about how you think about allocating resources between, let’s call it, marketing and advertising tech versus core engineering? And kind of where do you lean and what are you most excited about as you kind of take your streaming skills and think about betting?

Great question. Well, so what I’m most excited about, and I got a view of this as we were doing the partnership with PENN, is the underlying foundational infrastructure that powers ESPN BET is incredibly sound, super sophisticated, and is the foundational piece in which we’re going to build everything on top of. And so, this isn’t an engineering project to come in and fix something that’s broken. It’s something that we’re going to build on top of. And so right now, and I mentioned in our remarks, we sort of lagged our competitive set in terms of full features and functionality, and being able to quickly build on top of that foundation to iterate the product, I think, is super exciting. I think marketing and acquisition is just part of the business. We’re going to continue to get smarter and better there, and I think some of our results show that we’re already doing that. So, to me, it’s about building the best product and then really taking advantage of the integration opportunities with ESPN, which will also require some technical sophistication, and of course, that’s one of the best teams in the world as well. So, just super excited about all of it.

Yes. Really, it was a combination of the two. Our promotional reinvestment as a percentage of handle came down from Q1 to Q2. Obviously, we had a slide that we shared there on the hold percentage. So, it was a combination of those two things. We anticipate when you kind of look out to 2025, our promo reinvestment rate being between 2% and 3%, like, right in that mid-market range. We don’t expect to be high or low. We just want to be really at market as a percentage of handle. It’s hard to anticipate exactly what it’s going to be in the third quarter just because you do have the New York launch and again, we’re approaching it very differently. It might tick up a little bit, but nothing material and then probably come back down again in Q4 is what I would anticipate.

Good morning. Thanks for taking my question. It’s been some time since we’ve spoken about it, but the three Cs initiative, I believe that remains an important initiative for the company. So, can you just kind of give us an update on how that’s performing at the properties, financially, operationally, etcetera?

Sure. This is Todd. Great question. And we will talk more about this also at our G2E event. But basically, we’re seeing really nice adoption from all levels. And that was one of our priorities as we’re going in. We didn’t want this just to be for that younger cohort. So, we’ve seen that go across all levels regardless of age and level of play. So, you get this great advantage of greater time on device, removing friction from every transaction, taking people out of line, keeping them at whether it’s a slot machine or a table game. Rich Primus and the team have just done a remarkable job of with each iteration, making it easier and easier for adoption. So, I think as we go through, we’re probably over about 80% of our EBITDA driving properties right now, and we’ll look to see where we go next. But it’s both on the revenue side and then I think I touched on earlier with technology used to offset some of the payroll expense.

The next question comes from Ryan Sigdahl with Craig Hallum.

Hey, great. Thanks for taking my question. Just one following on that launch timing. So, a lot of the innovation and enhancements and integrations similar to what you’re talking about three months ago, we haven’t seen much integrated thus far effective in the app. But I guess how much was the intention all along to launch everything all at once versus phased updates in the app to users?

Yes. Ryan, I think you’ll see there was actually some that went live yesterday, and you’re going to see it sort of happen over the course weekly between now and the end of the month. But everything that we have in those few slides that talks about product, ESPN BET, product enhancements, all of the enhancements around parlay and same game parlay and player props, all of those integrations. What we laid out in our deck here is what you’re going to have when we go live for football this year, so in the next few weeks. There’s a lot of testing that goes on behind the scenes. We want to make sure that we’re very comfortable when we go live that it’s going to be seamless and very user-friendly. So that’s where the work has been over the last couple of months. But you’ll start seeing these go live really weekly between now and the end of the month.

Hey, thank you. I guess as we have a little bit more time under the belt with regard to customer acquisition and ramping of customer spend, what is the typical maturation of player economics as we think about revenue and profit contribution? And then in the guidance, I think you’ve got flat digital contribution in the fourth quarter. Do you anticipate being profitable in New York by that point or longer term?

Your acquisition question, I think we’ll tackle that at G2E. That’s a little bit more detailed, so I want to give a thoughtful response to that. With regard to New York, the tax rate is high, as you know, and so we’re going to be very thoughtful, as I mentioned earlier, around user acquisition and really lean in on the ESPN BET ecosystem—tremendous millions of fans that are connected to ESPN and their products that we’re going to really work to cross over into ESPN BET. I don’t want to give a timeframe on exactly when that’s going to inflect to profitability only because we need to see how things go. So again, that might be one that we can answer a little bit more intelligently at the meeting in October because we’ll have been live for a month and a half by that time in New York. And also, of course, we’ll have some KPIs to share with all of you from the first few weeks of the football season.

Okay. Our last question comes from Stephen Grambling with Morgan Stanley.

Hey, thank you. I guess as we have a little bit more time under the belt with regard to customer acquisition and ramping of customer spend, what is the typical maturation of player economics as we think about revenue and profit contribution? And then in the guidance, I think you’ve got flat digital contribution in the fourth quarter. Do you anticipate being profitable in New York by that point or longer term?

All right. Thanks, Stephen, and thanks, everybody, for joining the call. We look forward to speaking with you, many of you at G2E in Las Vegas in October and again talking to you in November on our next earnings call. Thanks.

This does conclude today’s program. Thank you for your participation. You may disconnect at any time.