Penn National Gaming, Inc. Aktie

Greetings, and welcome to the PENN Entertainment First Quarter 2026 Earnings Call.

I would now like to turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead.

Thank you, Chelsea. Good morning, and thank you for joining PENN Entertainment's 2026 First Quarter Conference Call and Webcast. We'll get to management's comments and presentation momentarily as well as your questions and answers. [Operator Instructions]

I'll now review the safe harbor disclosure. 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's CEO, Jay Snowden. Jay, please go ahead.

Thanks, Joe. Good morning. I'm pleased to report PENN's diversified retail portfolio delivered another solid quarter as Retail segment adjusted EBITDA grew year-over-year. Our property performance was encouraging across the portfolio with particular strength in the West segment reflecting the ongoing ramp of M Resort's new Hotel Tower and impressive results from the team at Ameristar Black Hawk.

In the Midwest segment, we delivered strong revenue and EBITDAR growth led by our properties in the Saint Louis market as well as continued momentum at the new Hollywood Joliet in Illinois. Results thus far from our first 2 development projects provide us continued confidence in the anticipated success from the upcoming openings of the Hollywood Columbus Hotel Tower on June 12 and the new Hollywood Casino Aurora on June 24, in addition to our new Council Bluffs property scheduled to open in 2028, all of which are subject to final regulatory approvals.

As we've said previously, we anticipate our 4 development projects will generate 15% plus cash-on-cash returns on our aggregate project cost of $800 million, which is net of the $50 million contribution from the City of Aurora. Overall, increases in both visitation and spend per visit company-wide supported year-over-year theoretical revenue growth across all of our rated worth segments, representing the larger quarterly increase in 3 years for the Retail segment.

Looking ahead, we continue to see solid trends into April despite higher gas prices and ongoing geopolitical uncertainty. Importantly, we are also beginning to see improving trends in those regions where we are anniversarying new supply, particularly in Bossier City, Louisiana and Council Bluffs, Iowa.

Turning to the Interactive segment, we saw significant adjusted EBITDA improvement of approximately $78 million year-over-year in Q1, driven by nearly 15% year-over-year growth in iCasino revenue and approximately 5% year-over-year growth in online sports betting revenue and a significant reduction in marketing spend, coupled with continued cost management. This marks the first full quarter under our realigned digital strategy, which is focused primarily on our U.S. iCasino states and Canada, while operating under a more efficient cost structure overall.

We're continuing to see positive trends in Ontario, including year-over-year growth in average monthly active users, online sports betting revenue and iCasino revenue. These results reflect the ongoing strength of theScore Bet brand in Canada and our realigned digital strategy, which we think bodes well for the anticipated July 13 launch of regulated iCasino and online sports betting in the province of Alberta. TheScore Bet has been approved as a registered gaming operator by the AGLC, and preregistration efforts have begun in the province.

We expect our Alberta launch to result in a $20 million loss in 2026, within the range we previously provided on our quarterly earnings call in February. As Felicia will discuss in a moment, the resulting change to our prior breakeven guidance for 2026 Interactive adjusted EBITDA is entirely attributable to this $20 million investment in Alberta. Said differently, outside of Alberta, our breakeven interactive guide for the year is unchanged.

Slide 5 of our investor presentation underscores our continued focus on our major pillars of growth as our Retail and Interactive segments along with our recently optimized corporate structure and maintenance CapEx spend drives significant improvement in free cash flow generation in 2026, which in turn strengthens our balance sheet as leverage declines and sets us up for an even stronger free cash flow story in 2027.

I'll now turn it over to Felicia.

Thanks, Jay. Our Retail segment generated revenues of $1.4 billion, adjusted EBITDAR of $471.4 million and segment adjusted EBITDAR margins of 33.2%. Our adjusted EBITDAR results benefited from a onetime favorable adjustment related to a legal accrual, which nets out to a $5 million benefit primarily in the South region.

As it relates to 2026 guidance, based on our better-than-expected first quarter Retail results, we are increasing the midpoint of our 2026 retail revenue and adjusted EBITDAR guidance by $20 million and $12 million, respectively, to reflect the upside generated in the quarter. As a result, our revised guidance ranges are $5.73 billion to $5.86 billion for revenue and $1.88 billion to $1.98 billion for adjusted EBITDAR.

As you think about the second quarter, as Jay mentioned, we continue to see stable strength trends carrying into April. And while this is the case, as we noted on our February earnings call, we do expect some temporary disruption in the quarter as the legacy Aurora Riverboat will be closed for about 2 weeks due to regulatory requirements prior to opening the new Hollywood Casino Aurora on June 24. The second half of 2026 should benefit from the contribution of all 4 of our development projects, and we expect adjusted EBITDAR to grow year-over-year in the mid-single digits.

Our Interactive segment in the first quarter generated revenues of $358.3 million, including a tax gross-up of $185.8 million and adjusted EBITDA loss of $10.8 million. We now expect 2026 interactive revenues of approximately $1.6 billion, inclusive of an estimated tax gross up of about $820 million and an adjusted EBITDA loss of $20 million which, as Jay just mentioned, is entirely attributable to the Alberta launch.

On the revenue side, our revised guidance now takes into consideration the online sports betting promotional spending associated with launching in a new market, particularly in the third quarter as well as further fine-tuning our online sports betting expectations for the year. Importantly, we are also seeing better-than-expected performance in stand-alone iCasino and in Canada, which is somewhat offsetting the factors I just mentioned, and is consistent with our Interactive segment strategic priorities.

We continue to expect small losses in the second and third quarter, but note that the loss in the third quarter will be the largest loss of the year due to the Alberta launch. We expect the fourth quarter of 2026 to be profitable in the interactive segment. Overall, our first quarter '26 Interactive segment performance and outlook reflect the benefits of our increased emphasis on U.S. iCasino states and Canada as well as our more rationalized and nimble cost structure.

We expect the other category adjusted EBITDAR to be negative $119 million 2026, unchanged from our original guidance back in late February. The table on Page 8 of our earnings release summarizes our cash expenditures in the quarter, including cash payments to our REIT landlords, cash taxes, cash interest on traditional debt and total CapEx. Of our total $95 million CapEx in the quarter, $65 million was project CapEx, primarily related to our 4 development projects.

As we remain focused on delevering and strengthening our balance sheet, in March, we issued $600 million of unsecured notes due 2031 at an interest rate of 6.75% and use the proceeds to repay borrowings under our revolver. Accordingly, we ended the first quarter '26 with total liquidity of $1.7 billion, inclusive of $708 million in cash and cash equivalents.

Subsequent to quarter end, on April 16, we refinanced our $1 billion revolving credit facility and refinanced approximately $447 million of our Term Loan A. In June, we expect to receive approximately $225 million in funding from GLPI for the new Hollywood Casino Aurora, which opens on June 24, and the remaining $21 million from the City of Aurora by the end of the year. We have elected not to take GLPI capital in connection with the construction of our Hollywood Columbus Hotel Tower [indiscernible] June 12.

As we highlight on Slide 5 of our earnings deck, we expect to delever by at least 1 full turn for lease adjusted net leverage and by at least 2 full turns for traditional net leverage at year-end, driven by strong free cash flow generation throughout the year and more optimized CapEx spend. Total 2026 CapEx is now expected to be $420 million, down from our prior guidance of $445 million, that total includes $200 million of project CapEx and down from our prior guidance of $225 million and $220 million of maintenance CapEx, which is unchanged.

The reduction in project CapEx reflects the timing shift in CapEx moving from '26 to '27 for the Council Bluffs relocation project, which is now expected to be completed in 2028. Importantly, this is only a change in our planned or date with no changes to scope or budget. We continue to expect total cash payments under our triple net lease to be $1 billion in 2026, and for cash interest expense, net of interest income, we now project $150 million, reflecting our $600 million notes offering and current interest rates.

For cash taxes, our outlook is unchanged. We do not expect to be a cash taxpayer in 2026, given the favorable tax deductions enabled by the 1 big beautiful bill in addition to our acquired NOLs and various tax credits. Our basic can at the end of the first quarter was 133.4 million shares. We also have 4.5 million potential dilutive shares from the remaining convertible notes stub and about 1 million dilutive shares from RSUs and stock options.

And now I'll turn it back to Jay.

All right. Thanks, Felicia. I said during our last earnings call that 2026 would be a year of strong execution for PENN, while we have the rest of the year still to deliver, I'm happy to report we're off to a great start.

Looking ahead, we will remain laser-focused on improving our free cash flow generation while optimizing our corporate overhead and remaining disciplined with our capital.

With that, let me please open the line for our first question, Chelsea.

[Operator Instructions] Our first question will come from Barry Jonas with Truist Securities.

Jay, if we look outside of your development projects, what do you think is driving your strong retail trends? I think the consumer is benefiting from higher tax refunds. But as you mentioned, they do have higher gas prices in general macro uncertainty to deal with.

Yes. I think it's really what you laid out, Barry. It's hard for us to know exactly what the drivers are. There's definitely puts and takes. Gas prices are higher. Although as I've said in the past, as you look at regional gaming over the last several decades, the -- really, the economic indicator that most closely correlates to behavior on the regional gaming side is going to be employment. And employment actually continues to be a really good story in the U.S. So gas prices may be a little bit of noise and headwind. The vast majority of our customers in the regional portfolio come within a 30-minute drive. So you're probably not making a decision on the price of gas as to whether you're visiting a casino once every week or 2 weeks or once a month because it's not going to cost you much to get there.

And I would say, no doubt, we're seeing some benefit from tax refunds being higher year-over-year in that from what I read, 11%, 12%. And which is helpful. And I think we'll probably continue to see and feel that. I would say that April feels very much through the first 3 weeks, like a continuation of Q1, which is good. So we're not seeing any cracks in the armor. We're actually feeling really good as we look out for the remainder of the year. And remember, as it relates specifically to PENN in our portfolio, we're now fully anniversaried around the Bossier City new supply, which opened in February of last year. So you probably feel an impact through maybe March, but now that we're here in April, we're starting to see some nice trends on a year-over-year basis out of Bossier City. And then Council Bluffs, Iowa, we saw incremental supply hitting the Nebraska market across the state line probably through about now last year. So by the time you get to the second half of the year, feeling pretty good. You don't see any new supply really impacting us. There's a little bit of renovation competition in Baton Rouge, but that's not going to impact us by much, given our asset quality there in that market.

And we're going to have all 4 of our growth projects up and running, 2 of them fully ramping with M Resort Hotel and Joliet, 2 just opened. I think the learnings we have from the hotel expansion at M and the water to land conversion at Joliet are going to make the Columbus and Aurora ramps probably a bit stronger and faster. It's going to take time, but there are learnings we're applying there.

So overall, I think we're feeling good about the consumer generally, and we're feeling really good about the setup for PENN specifically as we move throughout the remainder of the year.

Great. And then just for a follow-up, maybe for Felicia. I think your free cash flow targets look very strong this year. How confident are you in hitting them and then maybe growing off these levels into 2027 and beyond? And then just sneaking in, how should we think about potential uses?

Yes. We feel confident. That, it's kind of in a asking us about the confidence in our guidance, and we feel good about it. As Jay just said, we feel good about the consumer generally and specifically. And we are -- and we've talked about our pillars, and one of those pillars of growth is increasing our free cash flow production into going forward, especially given our rightsized CapEx and all the other kind of resizing of our overall core structure. So we're in a good place.

Obviously, we've had -- we continue to improve in our Interactive segment. generating smaller losses throughout the year as we get into the fourth quarter generating profitability. So again, we feel good on our free cash flow profile and our free cash flow growth looking forward.

And then as we get into 2027, and we think about our return of capital, right, obviously, looking at share repurchases, continuing to delever. As you can see on Slide 5 of our -- the earnings slides this morning, we expect to generate net lease adjusted net leverage in the ranges of 5.3 to 5.7x this year. So that's a significant decrease from 2025 over a turn lower in our traditional net leverage over 2x lower in 2026. We expect that to continue to decrease into 2027. And then we're in a very good place as we look at typical -- ou typical uses of capital, inclusive of share repurchases and investing growth into our -- investing in our continued growth pipeline and then clearly continued delevering.

Yes. I would just -- I mean, sort of take a step back, we're going to generate $3 plus of free cash flow per share this year. Our stock is trading just under $15 as of yesterday. So you've got a 20% free cash flow yield. A tremendous amount of confidence in the ability to deliver on that this year. And in every category, the story gets better in '27. So we're not going to guide yet for '27, but you should assume everything looks better, which means that free cash flow story and the free cash flow yield is even more compelling as you look out to what is now not that far away, given we're in April '26.

Our next question will come from Brandt Montour with Barclays.

So I just wanted to start off with digital. I was hoping you could talk, Jay, a little bit more about how that business progressed throughout the first quarter. Presumably, you continue to build iGaming stand-alone momentum and perhaps some further cost rationalizations. But we did see the industry iGaming growth slow in March. And so just wondering how you would sort of characterize how your contribution margin exited the first quarter in terms of your trajectory toward breakeven?

Yes. Happy to Brent, and I guess the backdrop here, again, specifically for PENN is that we really have shifted our focus, the last, call it, 6 months and certainly, throughout Q1 from the OSB only states in the U.S. to much more of a focus. And when I say focus, that's going to be prioritization of OpEx and customer acquisition is on Canada.as well as the states in the U.S. that offer both iGaming as well as OSB. So from our perspective, the progression through the quarter looked quite good. Actually, February was kind of like the one softish month that we had. January was solid. March was solid. And we continue to see really good momentum on the stand-alone Hollywood iCasino side of things.

So overall, I'd say we're feeling comfortable. I think we're focused in the right areas. And there is some pressure on the customer acquisition cost side as it relates to U.S. sports betting, and that's been, I think, well covered because of prediction markets and then others in online sports betting space kind of stepping up to respond to that. That's not really a big focus of ours right now. Our focus is on, as I mentioned, Canada, getting ready for the Alberta launch. We feel really good about the setup there. We've done obviously a lot of analysis on what worked for us with the Ontario launch. What maybe didn't, we're doing more of the right things, and we expect to deliver market share results in Alberta that would look very similar to what we've generated in Ontario, where we continue to have momentum.

So I think our story may be a bit unique, and Canada is really in a lot of our results Hollywood stand-alone iCasino in the U.S., driving results in OSB being maybe less important overall to the Interactive story. So we're feeling good about the momentum we have internally at PENN.

Aaron, feel free to add.

Yes, Canada growth in March was very strong. And I just think it's important to note our stand-alone casino growth is very heavy. We're setting record revenues there. Growth in acquisition continues to be strong. As Jay said, we're seeing some softness on the OSB side, but we're offsetting that with our disciplined spend and reinvestment in the areas that matter, as Jay said, casino, specifically stand-alone in Canada, both look really good. going out of this quarter and to last quarter..

Yes. And then lastly, and I think it's implied by what Aaron and I just covered, but our retention really in the U.S. post rebrand is exactly where we expected it to be. It's been very strong with our higher worth customers, which has been the primary focus. We've lost some of the unprofitable and lower worth. That was by design as we pulled back on reinvestment and some key strategic areas, and we're feeling really good about having a handle on everything, which is important as we look out through the remainder of the year.

We knew when we put out the original guide for Interactive that we had some wiggle room on the marketing spend, reinvestment cost structure. And so it's -- we can make adjustments real time, which is what we're doing in Q1 and we'll continue to do throughout the year. I think you'll see really nice momentum in Canada and the U.S. as we close out the year with a profitable fourth quarter.

That's great. Just following on to that because the last bit of that answer, Jay, you talked about marketing spend. In the deck, I think it says marketing spend was down 65%, over 65%. I think we were looking for 50%. And so is that that is sort of efficiencies that you found in the quarter? Or is that sort of timing? How should we think about the rest of the year in terms of that sort of extra savings that you've outlined for the first quarter?

You want to take the first, Aaron? .

Yes. Well, the decrease in marketing spend is also inclusive of what we're spending with ESPN, and the rest of that is just focused efficiency across the markets that are working as we just talked about. So clearly, we were spending a lot more in OSB only states, which weren't as profitable for us. So we've shifted that -- were focused in hybrid states that have both iCasino and sports betting. And of course, stand-alone is showing a lot of great momentum. So we're spending there. And then Canada is starting to pick up as well, so we're spending there. So as Jay said, we have a lot of levers to move around to make sure our marketing is working in the best way for us, and that's what we've been doing.

But there's nothing really onetime driving that decrease year-over-year. Brandt. I think it's just us continuing to get better and smarter and be more judicious in terms of where we're allocating marketing dollars every week, every month, every quarter. [indiscernible] will continue. There'll be a little bit of noise as you get to Q3 just with the Alberta launch. So I wouldn't say bake it in for the rest of the year because of third quarter a little bit of noise.

But we're feeling really good about having a handle on the cost structure, the marketing, the reinvestment, delivering the best returns, where to invest in customer acquisition, where to maybe pull back a bit, and all that with a focus on getting this thing to breakeven or better as we move throughout the remainder of the year and into

2027.

Yes. We're just continually monitoring results, and we're investing where we see opportunity and where it's effective, and we'll continue to do that throughout the year.

Our next question will come from Dan Politzer with JPMorgan.

First, just kind of general on kind of the regional gaming landscape as you see it. Obviously, there's been news flow on potential M&A. I guess where do you stand as you think about your balance sheet and leverage improving relative to potential opportunities if there were assets to come on the market or fall out of any large transaction?

Yes. I would say, Dan, we're obviously staying close to the headlines as you guys are, and we'll see what does or doesn't develop here. Feel better about our balance sheet today than I felt in years, and that's great. And as you look out to the end of the year for us to have our lease-adjusted net leverage back into the [ mid-5 ], call it, the midpoint of what we have here is at [ 5.5 ], maybe a little bit better and traditional net leverage in the low 2s. And then you look out to 2027, whereas if you were looking at doing something from an M&A perspective, it's probably going to take you out to [ 27 ] just because it takes time in our highly regulated industry to transact. So you're looking at leverage levels that would be lower, low eyes on a lease-adjusted basis and into the high 1s, somewhere in that range from a traditional net leverage.

So we're going to have -- it doesn't mean that we would pursue. It'd have to be the right price, the right asset, right market or plural for each one of those. But it does mean that we're going to have more capacity. And we know that -- the history of PENN, M&A is very accretive, just given our overall operating structure. We have the industry's best tax adjusted EBITDAR margins in the space. We've got a great asset portfolio, a very valuable database that can help improve the results of assets that we can acquire.

So we would definitely be interested in taking a look at the right asset, at the right -- in the right market at the right price. And we're going to have the optionality to do that. So I wouldn't say it's going to be something that we're placing calls to do proactively, but if there's assets on the market that are exciting and interesting and attractive from a price perspective, we'll definitely take a look.

Got it. And then just turning to Interactive in the quarter, your iCasino net revenue is up 15%, the online sports book up 5%. How should we think about over the course of the year? It seems likely that iGaming is going to be up more, but I don't if you can kind of put some parameters how to think about the growth of each of those segments for maybe the full year.

Yes. We obviously have assumptions built out in our model and our guide for the rest of the year. I think you will definitely see higher growth from iCasino than you will from OSB. And it really depends also on where the -- how the market is growing. But I would expect for us to be at or above market growth in iCasino and OSB, probably -- again, on a net basis, probably close to where market growth is, handle definitely lower. But we think on a net revenue basis at that market is probably the right way to think about it.

Our next question will come from Joe Stauff with Susquehanna.

Jay, I wanted to ask if you could just maybe an update on Joliet and the progress thus far, maybe in the in the months and the outlook in terms of the ramp? And then the second question is on Alberta. I know the the launch dates kind of moving around. But illustrating, let's say, early July, what are you allowed to do going into that launch really to leverage, obviously, your brand in Canada, especially around the NHL playoffs with Edmonton being built, I guess, 1/3 of the population.

Yes, I'll take the Joliet question. And then, Aaron, you can respond to Alberta. Joliet, we continue to feel really good about it, Joe. I would say that every month, we feel a little bit better because not only are we really seeing strong results on the revenue side. You saw the slide where we share we're continuing to break records from a gaming revenue and non-gaming revenue perspective every quarter and then the end of the quarter in March was our best month ever for Joliet, both in slots and tables. So same thing [indiscernible]. We're feeling really good about these investments and our ability to generate incremental revenue and incremental EBITDAR and EBITDA.

I would say, based on our learnings for Joliet, by the time we hit the 12-month mark in August, we're going to be feeling pretty good about the margin improvement as well from pre versus post. Whereas the first kind of 6 to 9 months revenues are much higher, but you're figuring things out on the cost side, and you've got all your restaurants open and entertainment programs most days of the week. And then you start to dial it back with your learnings.

And so we're in that dial back and optimization phase with Joliet while continuing to see database trends improve. Very excited about month-to-date, what we're seeing in Joliet in April, in addition to what we saw in Q1. So I think we're right where we expect it to be, and it's a good template for what we expect with Aurora applying those same learnings and the time frame to ramp again about 12 months. And then again, M Resorts, there's a lot of learnings that we can apply to our Columbus hotel that's going to open here at the end of June as well.

Yes. And then in Alberta, look, we feel really good about our launch there. Obviously, theScore brand in Canada is very strong. It's actually the #1 media sports brand in the market. We have as many people on the score in Alberta as we do in Ontario, so it's very strong. But we have a, look, full-scale marketing plan that we're building towards that's going to start in July. The date is no longer moving around, it's July 13. So we will have a full-scale launch then. We're already in market with preregistration.

We're going to be active from a brand and performance marketing perspective. And look, we've launched in Ontario and enjoy a very nice market share there today. It's a big part of our gaming business, and we expect to see similar market share there based on the investments we're going to make. So we feel really good about everything that's going on there.

And look, we have a great partnership with the [indiscernible], which ultimately is a national team there as well. And so we're going to be leaning on that. So I think if you were in Region Day, if you're in Ontario, you're starting to see theScore brand all around the city and the same thing is going to continue in Alberta, and we're going to leverage all of our assets, and we're expecting a very successful launch.

Our next question will come from Jordan Bender with Citizens.

It looks like you have the Washington D.C. sports betting market. I guess following the rebrand and now what you see in the business with its settling. Any change to philosophy around operating in certain states, whether size or tax rates?

Good question, Jordan. That's something that we're always evaluating. I would say, generally speaking, that staying in OSB only markets. If we can get those to be close to breakeven from a contribution margin perspective is going to make sense for us. As you think about iGaming, maybe eventually passing from a legislative perspective in many of these states, if not eventually all of those states. Your #1 feeder into iGaming is the cross-sell from online sports betting, 60% of our online gaming business and the states that offer both came from or sourced from online sports betting initiation. So that's obviously compelling.

And if you're not losing money in a state and you've got volume of customer activation and retention and you've cultivated relationships, it makes sense to stay in those markets. That's certainly our view of it, but we're going to continue to look at each market individually. DC, we didn't have much volume. So it didn't make sense for us there. But I would say everywhere else, as of the last time we analyzed, it made sense to stay in the game.

I mean that's the beauty of having a scale platform that we do is you can launch and operate at an efficiency level that is even or better than it doesn't really cost you anything to stay there. D.C. was really the only obvious thing for us to look at currently. There's no really plans to change our footprint right now.

Understood. Felicia, I think your comments from last call, [ 0.2 ] sports betting and gaming margins maybe being a little bit under what you expected for the quarter. Is it fair to assume there was a couple of million of bad holds in the EBITDAR number in 1Q?

Yes. I think that's fair.

Yes. We came in at 8.4% versus a structural hold of 9%. So that was some of the impact in Q1. But overall, we were pretty close to where we expected to be. So we didn't really call it out. And generally speaking, March Madness just doesn't hold as well as other sports because you don't have the same game parlay volumes there that you do with NBA, that you do with NFL, that you do with [indiscernible] . So we weren't disappointed. But I think Q2, it's more likely to be sort of at that structural hold number of 9% or better depending on how things go for the playoffs in NBA and NHL.

Our next question will come from John DeCree with CBRE.

Jay, you probably touched on this a little bit, but maybe to ask directly on the kind of progress of an omnichannel strategy. Can you talk a little bit about where your kind of iGaming customers are coming from? Are there cross-selling from OSB? Is that kind of activating the retail database? Just kind of curious as to how that strategy is going and kind of how customers are kind of coming into the system and bring around?

Yes. It's obviously been a big focus continue to be for us, John, given where the industry is, and I think important where it continues to head I think having a digital and a retail relationship with your consumer is absolutely critical [indiscernible].

So we're happy today with our ability to execute on that. Specific question on iGaming. I mentioned roughly 60% of that business comes directly from online sports betting, and you should assume that in the states where we have a retail footprint, so less to New Jersey, but more on the Pennsylvania and Michigan side that most of the rest of our business does come from our Retail database. And then you've got some organic, of course, through the brands and through performance marketing efforts and customer acquisition investment, things of that nature.

So I would say overall, we're continuing to get better. We have -- we're continuing to work on our system integrations to make it a lot more automated, and that's going to be better for the customer experience from an omnichannel perspective. The ideal scenario, and I don't think we're that far away from it, would be one platform, one app and one wallet for everything. And obviously, it all integrates with your retail experience when you're on-premise.

So feeling really good about omnichannel execution. I think we do it very well relative to the rest of the market. And that story is only going to get better as we continue to invest in resources and capital allocation over time.

Yes. And look, we've got a lot of early growth from our database as Jay mentioned, Pennsylvania, Michigan. But the brand is really strong. And so as we start doing brand and performance marketing to continue that growth, which you see in our numbers, it's just really building on itself. So it's a nice kind of 1, 2 punch to leverage your database and then support that with marketing and then pulling new users. And we're not seeing signs of that stuffing based on our marketing spend. And so - you can see that in our casino growth numbers, and we expect to continue that success especially in hybrid states.

Our next question will come from Shaun Kelley with Bank of America.

Jay or Aaron, I just want to build on that last question a little bit. I think, Jay, you mentioned 60% of iGaming coming from some form of sports betting cross-sell. I mean maybe just more broadly or overall, I think we've seen this slowdown in OSB trends, and you can see it in the 5% growth rate number. So kind of what's the offset for PENN? Because, again, I'd say your data looks like it is outperforming what we're seeing in the broader market. We're seeing that the correlation between OSB slowdown and iGaming down a little bit for those that rely on cross-sell. So what's kind of working for you guys to kind of stay above that trend? It sounds like Ontario is [ 1 point ], but anything else you could provide for color there would be helpful.

Yes. Well, I'll jump in and then you can go ahead to jump in. I would say overall, the way to think about it would be we're -- Ontario clearly is an area of strength for us. And then the launch of the Hollywood stand-alone casino. We haven't -- we're just now starting to anniversary those launches from late Q4 and early Q1 of '24 into 25. And so for us, it's still being relatively new as a stand-alone with that brand lead. And for us, that's very compelling given that's the flag on our properties, brick-and-mortar properties in Pennsylvania and Michigan, and we're continuing to put some extra weight into Canada.

So in the areas where you would expect us to have some brand equity and we do have brand equity in those markets. We're leaning in and why we're seeing maybe performance a little bit better than the market. We would expect that to continue because we're we're continuing to learn what's working, what's not, but it's definitely Ontario and Hollywood stand-alone driving most of that.

Yes. I mean, Ontario, obviously, the strength of theScore brand really helps us, so the sports book is growing, and therefore, that cross-sell number, which is really high, drives gaming revenue. But we actually have seen growth in our stand-alone score casino as well, which we're investing in. So that's a nice kind of 1,2 punch in Canada.

In the U.S., obviously, cross-sell is important, but if you're getting lower gaming volumes, then it's going to affect your casino revenue on that cross-sell which is why we've been offset somewhat by the success we've seen in Hollywood. So we're moderating between the two. They're both still super important to a healthy business, but we are seeing more growth on the casino-only side. But we're really focused on making sure that we can still continue to drive OSB in hybrid states because the cross-sell is important.

And then just as a quick follow-up, could we just get a quick legislative update on -- there are a few proposals out there, maybe as many as in years past, but still things, I think, on the [indiscernible] Michigan around potential iGaming OSB tax increases, some proposal in Ohio, discussions around, I think, Massachusetts and Arizona. So some of these are maybe not as big of a focus as you kind of focus a little bit more purely in iGaming, with Michigan in particular? And then Maine as well, if you could just give us a couple of quick thoughts.

Happy to. I would say, generally speaking, on the states that you mentioned, it's still relatively early in the process. We need to see how it plays out. I would say that since prediction markets have really gotten aggressive on spending, and it appears there's some impact, at least on the customer acquisition cost side and potentially on the OSB handle side of things, the legislators at the state level and lawmakers, the leaders that we're speaking to, understand that now would not be a good time to be thinking about raising taxes on the incumbent operators, especially on the brick-and-mortar side. So I would say those conversations have been ongoing but productive.

As it relates to Maine, there is litigation pending with regard to the iGaming legislation that passed the -- we'll see how that plays out. We're obviously not happy with how that was put together in Maine as one of the two land-based operators who have paid hundreds of millions of dollars in taxes and invested a lot of money and employ a lot of Mainers in the state. So if that does end up being implemented the way that it was proposed [indiscernible] PENN to be investing X to 0 in the state of Maine going forward.

Our next question will come from Chad Beynon with Macquarie.

Wanted to ask about the Chicago market. I know the VGT bill to permit restaurants in [indiscernible] County and Chicago was passed. And it looks like restaurants can start that in the third and fourth quarter. Just given your presence in the area, I know you're a little further out kind of into the burbs, but do you think there will be any impact from this? And is anything factored into the guidance in the back half?

I would say, no, in terms of impact, just given where our properties are located, to your point, chain in the burbs. Aurora, our primary competitor is [indiscernible] and we don't really compete with folks that live or would plan on spending the majority of their gaming budget in downtown Chicago, just given the traffic and commuter dynamics in Chicago lands. And same thing with Joliet, our primary competitors, [indiscernible] in Joliet, that won't change.

If anything, I would say we're excited about being able to -- remember, we have a Prairie State Gaming VGT Route Operation business in Illinois that does quite well for us, continues to grow both on the top line and on the bottom line. So we anticipate actually participating in the expansion of VGTs in the Greater Chicago area, and that should be overall for us. We think that positive.

Interesting. And then just with the increase that you've seen on the retail customer, what's the current status or update on cashless gaming. I know you guys were a leader with that. It's taking a little bit longer to kind of hit maybe some of the returns. We did hear from a strip operator this quarter that's kind of stepping away from that. But do you think this will continue to progress and maybe with some of that retail business coming back, you could see some more green shoots there?

Yes. I would say the dynamic on the cashless side for us is the customers who are engaged with cashless love it and use it almost every time they visit us in our retail properties, and we see a lot stronger retention and LTV with those customers. So we're not planning to do anything wildly different.

We're looking to continue to improve the experience overall. And that won't change. I think we continue to make the experience better, particularly as we think about new openings like Joliet and Aurora and what adoption looks like. It's probably more an education thing than anything else. I think those that, like I said earlier, have engaged with our cashless product, do like it. But the percentage is overall of those that do engage is still below where we want it to be. So we're continuing work on that.

But overall, I would expect adoption to continue to improve over time.

Our next question will come from Jeff Stantial with Stifel.

Just one from us on the retail business. It seems to us just looking at news flow that there's a bit more pushback recently against on regulated skill gains and other [indiscernible] ray market distributed gaming. You saw pretty recently the rate Governor [indiscernible]. [indiscernible] seems to be starting some legal enforcement, is the court case makes like Pennsylvania? .

Jay, just curious to get your sort of high-level views on this trend, if you agree that seems to be shifting against these machines. And in particular, how much of a tailwind that you think this could be if machine counts go down materially in any of these key states?

Yes. I would say that we're feeling better about where seeing sit in states like Pennsylvania and Missouri than we probably ever have. The still game legal case is going to be in front of Pennsylvania State Supreme Court in the next couple of months. We'll see how that goes. But we obviously have a very strong opinion as to skill games and legality and from our perspective, legality of those devices in most of these markets, if not all. And in the case of Missouri, you've got an attorney general there that we think is doing a fantastic job of really stepping up and shutting these devices down.

The argument is always interesting to me that you've got, in many cases, bar and tavern owners that have these machines, they say, "Well, we need the machines or else, we may not have a profitable operation." But the reality is these are -- they're illegal. I don't think that we would make that argument in really any other areas of life. So if you're operating illegal machines and the State Attorney General says shut them down, they need to be shut down, and they probably should never have been in operation in the first place.

So we're definitely feeling encouraged by what we're seeing in Pennsylvania and Missouri. There's still time for things to play out. So we'll stay close to that. And clearly, if that moves in the direction that we hope it does, it would create some sort of a tailwind for us on the retail side. It's hard to measure given a variety of variables that we would have to see how it plays once implemented. But I would imagine that would be ultimately a tailwind for us.

Our next question will come from Ben Chaiken with Mizuho.

A few on Aurora. I guess, how long will you be in transition? Presumably, there'll be some downtime from your comments? I'm guessing it's largely in May. And then is there anything notable that this opening and project versus Joliet uliet. I guess my perception is that the surrounding area around Aurora is a little more developed versus Joliet. And then lastly, what are some of the learnings you alluded to earlier in the Q&A, I think you described it, if I caught you correctly, Jay, it's potentially stronger and faster?

Yes. Happy to, Ben. The Aurora project, you're correct, it will be roughly a 2-week operational shutdown. That will happen in June, and it happens literally right before we open. So you should expect that to happen maybe a little bit late May, but the rest of that is going to be in June. It will be entirely in the second quarter of 2026.

And I would say having done it once before and worked with closely with the Illinois regulators, we expect this to go smoothly given that the Joliet transition also went smoothly. The biggest difference between Aurora and Joliet, definitely surrounding area, to your point, the rock run development around Joliet, it's just now starting to come out of the ground. We have 250 residential units that are going up adjacent to our Joliet property that will be open, we believe, by the end of this calendar year. There's a 250-plus room hotel that's going to be opening soon or breaking ground soon, excuse me, in '26 and opening by the end of '27 is what we're told. That will be walking distance to Joliet.

So it's going to be, I think, for Joliet, a really good long tail in terms of the upside for that property as good as the start has been. It should just get better and better over time.

Aurora, we're expecting there to be a ramp that's going to continue to improve over time as most new openings do. But I think the biggest difference is that it is a more mature area. We're adjacent to the Chicago premium outlet mall, which generates millions of visits a year. We're going to have a hotel at Joliet, over 200 rooms with suites, a spa. We don't have that at Joliet. The casino floor is going to be larger. We're going to have more F&B entertainment space, outdoor entertainment. So think about Aurora just being sort of a bigger and a few more amenities offer versus Joliet, but in an area that's very mature, and it's right off the interstate. So we're feeling pretty bullish about that Aurora opening given what we've seen in Joliet so far.

Okay. That's super helpful. And then one just on Alberta. What were some of the considerations when you're thinking about customer acquisition and marketing? You talked about strategies that worked and didn't work with Ontario. And then related, are there any nuances you can share about your expectations, whether that's player behavior or market size?

Well, the consideration that when we launched in Ontario, it was a lot less competitive. So there's a lot more applicants and people in market for Alberta. So that was -- that's a factor that we're looking at. And of course, leaning on theScore brand, I think, is going to help us break through some of that noise.

And then in terms of the players, it's hard to tell because we don't -- they're not playing today. So right now, we're modeling them as similar behaviors as what we see in Ontario, and we'll adapt from that.

Our next question will come from Trey Bowers with Wells Fargo.

I just wanted to dig back in a little on digital. Just as we look through the balance of the year, is there any kind of incremental detail you can give us on the cadence. When you say a small loss, should we look to Q1 is kind of a good idea of what Q2 and Q3 should look like and then get to a Q4 level of kind of exit profits? Just any further detail to kind of set some bogeys out there would be great.

Yes. Happy to, Trey. I think Q2, looking very similar to Q1, maybe a touch better, but right in that range of Q1 in terms of small loss. Q3 would be a loss a little bit larger just because you have the Alberta launch sitting in Q3 for the first 3 months of that market. And then Q4, to be profitable and get us to a total loss for the year of $20 million. So that's the cadence that I'd be thinking about.

Okay. Perfect. And then as a follow-up, just going back to your comments on M&A earlier in the call. Just with the shares where they are, how do you think of kind of a hurdle rate for M&A just versus buying your own stock, especially given you even referenced the 20% plus free cash flow yield?

Yes. Trey, you can appreciate this is a topic that we spend a lot of time on at the Board level, and we'll continue to. We're constantly evaluating what those options are for us from a capital allocation perspective. You would imagine that something on the M&A side would have to look really cash -- free cash flow accretive to us, to invest there. And it's not to say that we wouldn't find something, it's just to say that if you've got a free cash flow yield at 20-plus percent, that's what you have to measure it against. And there's some different variables that you would add to the equation. But generally speaking, that's pretty straightforward. And we think that there could be potentially depending on the market and the value that our database could deliver and our operating cost structure could to an acquisition, that you can get a really nice return in that same neighborhood, but there's no doubt that our stock is very attractive at these levels and especially as you look out to 2027.

Our next question will come from Bernie McTernan with Needham & Co.

Want to start on the retail guidance rates for this year was really only flowing through the 1Q beat. So I was just hoping you can talk about that. And was it just a earlier than expected impact from the growth projects? Or just any other color you can provide could be helpful.

Yes, happy to, Bernie. I would say it's still early in the year. So we're feeling really good about what we see in April, but didn't want to get ahead of ourselves. There's a lot of geopolitical macro noise, and it seems every day, every week, the markets are fluctuating. So I would just say, based on where we are in the calendar year, was more of a factor than anything if the trends that we're seeing -- that we saw in Q1 and are seeing in April continue, then we would have guided higher than what we ultimately did, but we just wanted -- want some more time under our boat. Obviously, we want to get the two new properties opened up, with Columbus and Aurora, and then we'll have more share. The next time we're on the call will be in August, and we'll be in a position to, I think, be even more clear about what the rest of the year looks like.

Okay. And I was hoping we asked a question on OSB and maybe peel back the onion a little bit. OSB revenue growing 5% this quarter. It seems like MAUs were down. So presumably, handle was down. So the growth in higher GGR hold and in lower promotional intensity. And so I was just hoping you could frame what the runway would be if MAU trends and handle trends stay this way, >what the runway would be to keep stable to slightly growing that OSB revenue base would be?

Well, I mean, you hit it. I mean hold is helping us as our volumes are down. But obviously, we're going to focus on maintaining volumes and growing them slightly. Although our plan was to our volumes were going to go down as part of our new structure and our new focus. So obviously, casino volumes are important. Canada is important. And OSB and hybrid [indiscernible] are important. But we are focused on getting volumes up in flat. If flat, to up. So that's going to be our continued focus here. But we did see that softness as you noted.

But luckily, we held well and we continue to make improvements in our risk and trading. We have a lot of confidence in and how we're holding and improvements we're making as we move forward. So we think [indiscernible] is going to continue to help us as well as volumes are flat.

I would just say, too, that as you look on a year-over-year basis, that the MAU declines have been pretty consistent. So it's not as though these are further accelerating in the wrong direction. It's been very stable on a year-over-year basis from a post rebrand perspective as you look throughout Q1. So the goal really is to do that here in 2026, have stability and then to start to hopefully see some growth in those MAUs and continue to see growth in [indiscernible] as you move throughout this year and next year.

And we're very focused on our higher worth customers on the sports betting side. That's working for us. Retention in those areas has been, I'll say, fantastic, and we expect that to continue. So we want to be above the flat mark in terms of OSB net revenue. We accomplished that here in Q1. We want to continue to accomplish that as we move through the rest of the year and into '27.

Why don't we take one more question, Chelsea?

All right. Our last question will come from Stephen Grambling with Morgan Stanley.

Just sticking with the OSB or actually really just the overall digital, a clarification on turning profitable in the fourth quarter. Would you anticipate that you could be profitable even if we kind of strip out the licensing or skin revenue? And then as we look longer term, what are some of the ways that you think through how Canada versus the U.S. kind of ex the skins will contribute to EBITDAR going forward, if there's any kind of puts and takes to think about in each?

Yes. Look, Stephen, we'll have a lot more to share on those questions as we move throughout the year. Overall, for Q4, based on what we're anticipating right now, obviously profitable overall inclusive of the skin revenue. And I would say probably pretty close to breakeven without the skin revenue. It's not a little bit positive. Again, we just need more time under our belt from a post rebrand perspective. But that sets up very nicely as we head into 2027. We obviously want to get this business to profitability overall. And then you want to get to profitability after skin revenue. And we're going to do that.

Obviously, the trends are moving in the right direction from an NGR, from a cost structure and from a contribution profit perspective, and that will continue to get stronger and stronger every quarter as we move forward as we conclude the year and then head into '27.

And maybe I know you're going to have more data under your belt, and we'll see where our market share kind of continues to track. But is there any reason to believe that the margin structure kind of long term would be different in Canada versus the U.S. as we think about them on an apples-to-apples basis kind of excess skin revenue?

Yes. I mean, look, Canada is going to be our strongest margin market in North America, and part of that is driven by volume and market share, and part of that is driven by tax rate and the fact that you have iCasino and OSB. So there's no doubt, Canada for us is going to be market #1 from a margin and profitability perspective. But obviously, we're in a lot more markets in the U.S. And the states that have both OSB and iCasino, we're going to see much stronger margins than the OSB only states. But again, we're of the opinion it's probably a matter of time before many of these OSB only states turn to some form of iGaming and we want to stay in the business and be ready when that day comes.

Thank you. We've now reached our allotted time for questions. So I'd like to turn the call back over to management for any additional or closing remarks.

All right. Thanks, everyone, for dialing in. I know it's a busy morning in the space. And Chelsea, thank you, and we look forward to speaking to all of you again in August.

Thank you, ladies and gentlemen. This brings us to the end of today's meeting. We appreciate your time and participation, and you may now disconnect.

Greetings and welcome to the PENN Entertainment Fourth Quarter 2025 Earnings Call. I would now like to turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead.

Thank you, Nicky. Good morning, everyone, and thank you for joining PENN Entertainment's 2025 Fourth Quarter Conference Call. We'll get to management's comments and presentation momentarily as well as your Q&A. During the Q&A session, we ask that everyone please limit themselves to 1 question and 1 follow-up. Now I'll review the safe harbor disclosure. 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 the company's CEO, Jay Snowden. Jay, please go ahead.

Thanks, Joe. Good morning, everyone. I'm joined here in Wyomissing by Felicia Hendrix and Aaron Laberge as well as other members of our senior executive team. I'm pleased to report PENN's diversified retail portfolio delivered another solid quarter during which retail adjusted EBITDA grew year-over-year after adjusting for poor weather in December. In our Interactive segment, we successfully rebranded our U.S. online sportsbook to the Score Bet on December 1 and achieved positive adjusted EBITDA in December, driven by continued momentum from our iCasino products disciplined cost management and strong online sports betting hold rates. 2026 is an exciting year for us in which we expect to generate year-over-year segment adjusted EBITDAR growth of 20%. And we are well positioned to benefit from the strategic investments we have made over the last several years and are laser-focused on improving free cash flow generation, deleveraging and opportunistically returning capital to shareholders. I want to highlight the foundation that set us up nicely to deliver on our goals for this year and beyond, which are summarized on Slide 6 of our investor presentation.

First, our diverse retail business is healthy and growing, generating sustainable free cash flow. In addition to anniversarying much of the new supply in several of our key markets, we will have 2 more retail growth projects opening by the end of the second quarter this year. and we're seeing continued momentum at 2 that we opened last year. Second, we expect our Interactive segment to inflect to breakeven adjusted EBITDA for the full year, which would represent a $268 million year-over-year improvement. Third, we have rightsized our maintenance capital spend on a go-forward basis, which we'll touch upon more later. And fourth, we will begin to realize synergies from our corporate restructuring and cost optimization initiatives. The new organizational structure we announced in early January will allow us to become a leaner and flatter organization, enabling business leaders to be more empowered and drive greater productivity.

All in all, we expect to save over $10 million in annualized run rate expenses for the company as we streamline the organization, which will mostly phase in over the first half of the year. The operational benefits are already in flight. In terms of rightsizing our property maintenance CapEx, we have done an excellent job over the last 6 years of upgrading our casinos, refreshing our slot floors and investing in non-gaming amenities like updated hotel rooms, new tel sports books, new restaurants and entertainment venues. In addition, our dockside to land-based growth projects are expected to meaningfully reduce our maintenance CapEx cost going forward. With the improvements we have made to our properties, we feel comfortable with bringing our recurring maintenance CapEx levels down by $20 million and returning to near pre-COVID level spending.

Slide 7 really drives some of the significant free cash flow we expect to generate in 2026 and beyond. Importantly, this growth in free cash flow will enable us to delever meaningfully in 2026 and opportunistically return capital to shareholders. In fact, we expect to generate more than $3 per share of free cash flow in 2026 and reduce our lease-adjusted net leverage by more than 1 turn. Returning now to our results for the quarter. On the retail side, we experienced another quarter of year-over-year growth in theoretical revenue across all rated worth and age segments with our older demographics and VIP play contributing meaningfully to these results. The bad weather in December negatively impacted segment adjusted EBITDA by approximately $7 million. In addition, our segment was negatively impacted by new supply, Bossier City and New Orleans, in those markets in Louisiana and our Midwest segment was impacted by new supply in Council Bluffs, Iowa.

Core business trends were otherwise stable across the portfolio with regional strength in Ohio and St. Louis as well as our LaBerge, Lake Charles property. We're seeing continued momentum at our new hotel tower at M Resort in Las Vegas, which is capturing previously unmet demand including booking 2 of the largest groups in the property's history recently. In December, the property achieved record gaming volumes. And in January, we generated record net revenue at M. Meanwhile, the new Hollywood Casino Joliet is delivering strong results both from new and reactivated customers with a nearly 13% year-over-year increase in the number of active players helping to drive meaningful increases in both gaming and nongaming revenues. The early performance of these projects provides us continued confidence in the anticipated success from the upcoming ownings of the Hollywood Columbus Hotel Tower and the new Hollywood Casino Aurora, in addition to our new council properties scheduled to open in late 2027 or early 2028.

As we said previously, we anticipate all of these development projects to generate approximately 15% plus cash-on-cash returns. On the interactive side, we experienced rec gaming revenue in the fourth quarter driven by the continued growth of our stand-alone Hollywood Eye Casino products and increased cross-sell as well as improvements in our online sportsbook product offering and operations. Revenue growth, excluding tax gross-up of 52% year-over-year was primarily attributable to iCasino growth of 40% plus and online sports book growth of 73%. including strong revenue and positive adjusted EBITDA in December, our first month operating as theScore bet in the U.S. Additionally, adjusted EBITDA improved $70 million year-over-year in the fourth quarter, driven by strong adjusted flow-through of 95%. We are encouraged by the upward trajectory of the interactive business. Our sports book is maturing through a more disciplined regionally focused marketing strategy that prioritizes iCasino jurisdictions.

Our reduced fixed media spend provides us much more marketing flexibility to strategically invest more in Canada as well as the U.S. hybrid states with both iCasino and online sports betting and in customer cohorts with more compelling returns, particularly as we look ahead to new market openings like Alberta, which is anticipated later this year in 2026. Importantly, we've retained users through the Score Bet rebrand and continue to engage them across our ecosystem. Retention and new user growth will remain our top interactive priorities and the foundation for our long-term growth in that segment. The positive trends in our Interactive segment give us confidence to recommit to achieving breakeven adjusted EBITDA in 2026.

And with that, I'll turn it over to Felicia.

Thanks, Jay. Our Retail segment generated revenues of $1.4 billion adjusted EBITDAR of $456.4 million and segment adjusted EBITDA margins of 32.3%. Inclement weather in December negatively affected retail adjusted EBITDAR in the quarter by $7 million, with the largest impact in the Northeast segment. We expect the combination of our high-quality portfolio plus our new growth projects to generate year-over-year retail net revenue and adjusted EBITDA growth in 2026, For retail net revenues, we forecast a range of $5.7 billion to $5.85 billion and retail adjusted EBITDA will range from $1.86 billion to $1.98 billion. .

As you think about your quarterly modeling, the severe weather in the first quarter thus far has negatively impacted retail adjusted EBITDA by approximately $5 million to $10 million. For the second quarter of 2026, at our new property in Aurora, we expect to have approximately 2 weeks of downtime as we look to open the new land-based facility. And as you know, our second half results will benefit from the opening of all 4 of our retail growth projects. All of these items are reflected in our guidance. Our Interactive segment in the fourth quarter generated revenues of $398.7 million, including a tax gross-up of $182.7 million and adjusted EBITDA loss of $39.9 million. For 2026, we expect Interactive revenues of approximately $1.6 billion inclusive of an estimated tax gross-up of about $760 million or a revenue improvement of roughly 20% year-over-year, excluding the tax gross-up.

This growth will be a function of the playbook we initiated in December as we transition to the Score Bet sports book in the U.S. and shifted our focus and resources to our U.S. iCasino states in Canada with a focus on iCasino and cross-sell. Complementing our revenue growth is a more rationalized cost structure. Our marketing expenses will decline significantly year-over-year as we made our last payment to ESPN in December 2025. We anticipate our marketing spend to come in approximately $150 million lower than in 2025 as we align spending with our revised regional strategy focused on iCasino and Canada. With performance and brand spend fully in our control, we will adjust allocations based on results. Further, we have rightsized our interactive operations to fit our new structure with payroll and G&A declining proportionately. As a result of our revenue growth expectations and more rationalized cost structure, we continue to expect our Interactive segment to generate breakeven adjusted EBITDA in 2026 and note that we will expect all components, U.S. OSB, iCasino and our Canadian operations to generate positive contribution margin in 2026.

This forecast does not contemplate any new jurisdictions launching in 2026, including Alberta. As we look to full year 2026, we expect U.S. OSB MAUs to decline year-over-year given the transition from ESPN BET to the Score Bet while U.S. eye Casino as well as Canadian OSB and iCasino MAUs should increase year-over-year, reflecting our strategy to realign our digital focus. We expect the OSB and iCasino hole rates to remain around 9% and 3.7%, respectively. As for quarterly EBITDA cadence, the first 3 quarters of 2026 should generate small adjusted EBITDA losses, and we expect the fourth quarter to be profitable. We expect the other category adjusted EBITDA to be a loss of $119 million for 2026. The table on Page 9 of our earnings release summarizes our cash expenditures in the quarter, including cash payments to our REIT landlords, cash taxes, cash interest on traditional debt and total CapEx. Of our total $190 million of CapEx in the quarter, $85 million was project CapEx, primarily related to our 4 development projects.

We ended the fourth quarter with total liquidity of $1.1 billion, inclusive of $687 million in cash and cash equivalents. On November 3, 2025, PENN received $115 million in funding from GLPI at a 7.79% cap rate in connection with the second hotel tower construction at the M Resort Las Vegas. In conjunction with the opening of the $360 million Hollywood Aurora in late 2Q we expect to receive $225 million in funding from GLPI near project opening and the remaining $21 million from the City of Aurora by the end of the year. We have elected not to take GLPI capital in connection with the construction of our Columbus hotel tower. The combination of this funding with a strong free cash flow and more optimized CapEx spend Jay discussed earlier, will enable us to delever nicely throughout the year. Total 2026 CapEx will be $445 million, which includes $225 million of project CapEx, down from $408 million in 2025 and $220 million of maintenance CapEx compared to $239 million in 2025.

We expect total cash payments under our triple net leases to be $1 billion in 2026. For 2026 cash interest expense, we project $145 million. For cash taxes, we do not expect to be a cash taxpayer in 2026 given the favorable tax deductions enabled by the One Big Beautiful Bill in addition to our acquired NOLs and various tax credits. Our basic share count at the end of the fourth quarter was 133.2 million shares. After the June 20 repurchases of the convertible notes, we now have 4.5 million potential dilutive shares from the remaining convertible notes stub and about 1 million dilutive shares from RSUs and stock options.

I will now turn it back to Jay.

All right. Thanks, Felicia. In closing, I want to say that I'm proud of what our property interactive and corporate teams were able to accomplish in 2025, including the resilience shown on the retail side and the successful rebranding of our OSB product to the Score Bet. I couldn't be more excited about the many catalysts we have ahead of us in 2026, including the opening of our new Aurora property and the Columbia Hotel. The continued ramp of Joliet and the M Resort Hotel tower and achieving breakeven in Interactive. I'm also excited to welcome our 3 new board members, Heather, Jeff and Fabio, who bring a lot of relevant experience and fresh perspectives to our board. We look forward to this being a year of strong execution at PENN with an emphasis above all on free cash flow generation and deleveraging and transforming our strategic investments into consistent long-term returns and value creation for our shareholders. .

And with that, can we please open the line for the first question.

[Operator Instructions]

We'll take our first question from Brandt Montour with Barclays.

Thanks for all the details this morning. Maybe starting off on digital and drilling into that top line '26 target of 20% revenue growth ex gross up. Jay, maybe you could put a finer point on that or just flesh it out a little bit. We know that you're growing iGaming in excess of that. there's more moving pieces on the OSB side with handle down because of, obviously, the exit of and then, of course, hold was probably a benefit or was a benefit here in the recent months. And so we kind of really don't know what the run rate top line OSB is at right now. So just what's growing faster within that 20% iGaming. But if you could just flesh out what's going to get you to that 20% and how conservative it is?

Yes. Happy to, Aaron, feel free to jump in as well. certainly being driven primarily by growth in iGaming. We've seen really strong growth rates throughout 2025, and I'm happy with what we're seeing so far at the start of 2026, our products continues to get better on the stand-alone Hollywood app. We're seeing really, really strong retention. We were before the rebrands and obviously, we weren't affected as much on the iGaming side from the sports betting rebrand of ESPN BET to the Score Bet, so primarily driven by iGaming growth. We also expect to see NGR growth on the sports betting side despite lower handle. As you can imagine, we've taken a really, I would say, refreshed look at our entire database on the interactive side. If you look at from a retention perspective across the worst cohorts and the interactive database the top -- we sort of break it down into 8 different categories and the top 4 are virtually unchanged from a retention perspective. both before the rebrand and after the rebrand on a month-over-month basis.

So feeling really good about retention at the mid-worth and high-worth segments. And where you're seeing falloff on the retention side is where we're doing that by design is at the lowest worth segments. Most of those are unprofitable customers. And so pulling back on reinvestment at the low worth is going to help on flow through overall. It's going to lower our promotional reinvestment overall and focusing on our higher worth VIP and mid-worth customers just generates much more efficient business. So you'll see NGR growth despite some handle declines in 2026.

Yes, not much to add. I mean eye Casino is currently growing faster than 20% right now, which we're happy about. Obviously, OSB is going to continue to go down. But as Jay mentioned, we're going to moderate that with lower promotional expenses to improve flow through. So we feel pretty good right now with what we're looking at for the year.

Okay. That's super helpful, guys. And then over in the retail, the promotional environment was a headwind in '25. To some extent, there was obviously supply pressure. Can you just talk about those 2 items? Obviously, they're related into '26 and what you're expecting for the year?

Yes. We're happy to share that we're seeing less impact. I think there was some sort of initial shock to some changes in reinvestment and some customer shifts and movements in a couple of markets. It's really primarily where we felt it the most is in a couple of markets in Louisiana, really 3 markets, Baton Rouge, New Orleans and, of course, Bossier City, which we talked about. And then in Council Bluffs, Iowa, the combination of new competition, new supply in Omaha, Nebraska and then another competitor in Council Bluffs, where we saw some higher reinvestment levels. We're seeing that all starts to sort of fade and we do lap finally. We lapped the opening of the new supply in Bossier City here this month in February. We're feeling good about trends at our properties in Bossier City now that we've lapped that opening. .

There'll probably be some residual impact maybe the next month or 2. But we should be in the clear, I would say, in mid Q2 in terms of Bossier City. And I would say Councils Bluffs, there was a pretty major expansion of a new competitor in Omaha, I believe it was April of last year. So by the time you get to mid to late Q2, you've anniversaried the new supply shocks and competitive reactions. So I think the second half of the year should be feeling pretty good in terms of that acting then as a tailwind when you look at it on a year-over-year basis.

We will move next to Barry Jonas with Truist Securities.

Yes, Jay, why don't I take that second question you gave there maybe expanded as we think about the guidance range. Maybe what are you assuming between the range for new supply impact, something like more first half versus second, but also any assumptions embedded there for new project growth, anything for One Big Beautiful Bill. Just want to get a sense like what the -- what the difference is between the high and the low end of the guidance range.

Yes. We anticipated and contemplated all of the factors that you just highlighted, Barry. I do think that as I look at what consensus looks like by quarter, we probably feel stronger about the second half of the year than the first half. There's some weather impacts here in the first quarter that Felicia highlighted between $5 million and $10 million impact. We built that into our full year guide. So that's no change to the full year guide. But in terms of the cadence from Q1 to Q2, Q3 and Q4, there's a little bit of noise in Q2, and that we'll be opening our Aurora property. And you'll recall that when we opened Joliet, we had to shut the property down for 2 weeks. And so there's obviously a cost headwind to not generating revenue, but still having the costs flow through the P&L as we get ready to open Aurora. .

The second half of the year, we really feel like we're in the clear. We're going to have all 4 of our growth projects that we've been talking about for the last couple of years. We'll be open, 2 of them fully ramping, the ones that we opened in 2025. And feeling pretty good about launching the other 2. They're likely to open at the very end of Q2. The current construction schedule has us opening the Columbus hotel as well as the Aurora property, really at the tail end of Q2, call it, end of June. We'll firm that up in the next probably 1 month or 1.5 months publicly, but that's the way I would model it. And as you think about same-store versus new when you look at the EBITDA projection or guide for 2026, we look at our same store, including the markets with new supply as being basically flat year-over-year from an EBITDA perspective. And then the upside you see on a year-over-year basis, the 3% growth overall is being driven by the 4 growth projects.

Got it. And then I wanted to follow up on interactive, really nice to see the breakeven guidance this year. But at least conceptually, how should we be thinking about the maybe profitability scenarios for the segment in the years ahead. Clearly, new iGaming legalization will be a major factor, but it does seem like the royalties are a major positive today that could tail off at some point.

Yes. We are the only market we're aware of that is going to launch new this year is Alberta. That will happen. We leave some time around midyear that hasn't been firmed up yet, but that's what we're anticipating. That should be a good market for us. Obviously, our strongest market, I've highlighted before, has been Ontario from a market share and a contribution margin perspective. So we expect Alberta to be a good market, reasonable tax rate similar to Ontario, both online sports betting and online casino. There will be some investment that goes into that mark similar to when we launched Ontario, but we would expect to have similar market share results in that market as well. The Score brand really does carry across the country. It's not just specific to the province of Ontario. So feeling pretty good about that.

And I think to answer your question of how does breakeven in '26, what does it look like? How does that bridge to '27, '28. We just need, I think, another couple of quarters to see what is the revenue trajectory, both on the iGaming side as well as in OSB? How does the launch go in Alberta? So look, we're in control of all of the levers. That's a great feeling as we here head into 2026 here. And we feel really comfortable with being able to achieve breakeven. There's different paths to getting there, which would impact what your '27 and '28 outlook is. So we just need a little bit more time under our belt. We're feeling good about the first couple of months post rebrand.

We provided you some KPIs in the slide presentation for what December and January look like on a combined basis. And feeling pretty good about that. It's actually quite rare that when you go through a rebrand and you're making assumptions, obviously, you're building out what your assumptions are and then make adjustments on the fly. We've been really close to what we assumed we would be from a retention as well as a new user perspective. There's been little tweaks here and there that we've made. But overall, feeling pretty good about what we anticipated and what we're seeing in the business.

We will move next to Jordan Bender with Citizens.

I want to start on the casino side. So the bulk of the project CapEx is coming to an end in the coming months outside of Council Bluff. Jay, you might not be able to say anything on it today, but how do you view the development pipeline in the casino business over the next coming years?

Yes. I'll answer it, I guess, sort of internally looking if that's where you're headed directionally, I'm happy to answer thoughts on externally. But within PENN, we do have a few more projects that we're analyzing right now. I've mentioned before on our other calls that we've got some other aging river boats in markets like Louisiana, Mississippi and 1 more actually in Illinois, that actually -- as we do the analysis, the return profile looks quite similar to what we're seeing in Joliet real time and in M-Resort. Now that 1 is hotel expansion, but we'll we anticipate with Aurora, the water to land conversion. So I would say stay tuned on that. We've been analyzing these for some time, and I think you should expect to hear more about that here in 2026. But you're right in terms of project CapEx, it's was really at its peak in 2025 at over $400 million, and Felicia highlighted the first half of this year as we sort of finished up at Columbus and Aurora, another $225-ish million.

So that there'll be some Council Bluff spend as we get to the end of 2026 and head into '27. We anticipate that property opening up sometime towards the end of '27, it might leak into early '28. Anything else that we have planned as long as it pencils and we've got the support locally, which are all the things that we're working on right now and you should anticipate hearing more about that in the coming quarters.

Great. And then on the follow-up for the interactive guide, a lot of positive comments around kind of what's going on following the rebranding but the guidance I believe you guys did go from breakeven to positive to just breakeven. Can you kind of just flesh out what you're seeing in real time that's caused that shift?

Yes. Look, you have to take a midpoint when you're putting out a guide. And so I think that just feels comfortable right now. Again, we were positive EBITDA in December. I feel good about the business result in January. We're still in the middle of February. Super Bowl overall actually worked out in our favor. We did well, not so much on the Moneyline wagers, but player props definitely worked in our favor and same game parlay most of the star players did not score touchdowns in that game. So overall, Super Bowl was good. The other sports in February have been okay. So hold has been, I would say, pretty close to where we anticipated through the first 2 months of the year on a combined basis. So just -- we've built our budget from the bottom up, and it told us that we felt comfortable putting breakeven out there, and we're delivering against that now. obviously continue to update all of you on our quarterly calls as to how the year is progressing. But in terms of being 2.5 months, close to 3 months post rebrand we're right where we wanted to be.

We will move next to Dan Politzer with JPMorgan.

I wanted to follow up just on regionals. I know you called out the first quarter, you've seen a little bit of weather impact, but perhaps the other side of that, have you started to see any of the stimulus benefits, the tax refunds start to flow through. And historically, what is the relationship between those tax refunds and maybe the uplift that you would see in your properties?

Yes, it's a good question, Dan. It's really hard for us to know when we see really good volumes on a weekend, how much of that is -- there's been a break in the weather. How much of that is that there's tax refunds are starting to flow, and they're higher than people anticipated. So I think the answer is that we're seeing some of all of that. I would tell you that as bad as the weather was in January, and that really hit us across every 1 of our segments, regional segments other than West but even hit us in the south, You'll recall the storm was really across the country. And then in February, Midwest weather has actually been fine. It's the Northeast where we've gotten beat up. We had to shut down a couple of our properties early this week. So there's definitely noise there, but I would tell you that when the weather breaks, whether it's a weekday or certainly on the weekends, we're seeing really strong volumes.

We're seeing really strong spend per customer when they visit. And I think that's probably going to continue now that the tax dollars are starting to flow through into people's accounts. we would anticipate finishing up February strong. The weather looks good in the 10-day forecast really across the country. And March is set up to be a good month. The calendar doesn't work in our favor as well in Q1. Something else to keep in mind, we had an extra weekend day this year in January, which is the weakest month of the 3. Last year, you had an extra weekend day in March, which is the strongest month of the 3. So something to keep in mind, again, just in terms of your quarterly modeling, Q1, maybe not as strong as maybe you would anticipate relatively speaking, but it's going to get stronger throughout the year, especially for PENN as we have the second half of the year, the 4 growth objects all open and starting to hit a run rate that we're comfortable with.

Got it. That makes sense. And then just pivoting to capital allocation. I think in your slide, you refer to those capital return optionality. One, it is a 2-part. Is there a number for the full year for the repurchases that you ended up doing? I'm not sure if there was any incremental versus when we got the update on the last call? And then how are you thinking about that capital return as you referenced the optionality with returning to shareholders versus reducing debt versus some of those growth investments that might be on the horizon?

Yes. Thanks, Dan. Yes. So in 2025, as you know, we set out to purchase 350 million shares. And as we discussed in our last quarter, we ended up buying back [ 354 million ] for 2025. And just putting that into context, that's about 14% of our shares outstanding in '25. And then since 2022, we repurchased $1.1 billion of stock or 25% of our shares outstanding. So we've demonstrated repurchases are an important part of our capital allocation strategy and continue to be so, but also delevering and investing in our development pipeline, where we expect to generate 15% cash-on-cash returns are also important parts of our capital allocation strategy. So we talked about earlier that we expect to generate $3 per share of free cash flow this year. .

And then you couple that with the $225 million in funding we should receive from GLPI for Aurora before the end of the second quarter. And then the remaining $21 million that we'll receive from the city of Aurora before the end of the year, all that's going to enhance our liquidity and reduce our leverage. So really then, at the end of the day, it's about our balance, right? And we'll remain focused on all 3 of those components, buyback delevering and investing in our growth throughout the year.

We will move next with Joe Stauff with Susquehanna.

I wanted to ask maybe a couple of questions to dig in a little further on the early returns, obviously, Julia and M Resort. And just kind of lessons and how we think about the ramp from here, we can all see the Joliet kind of win per unit per day somewhat flattening out. I don't know if that's the weather or maybe there are some marketing campaigns that you are thinking about. But -- and also in M Resort, obviously, you have a lot more capacity. You talked about record gaming volumes in December in January. So I was wondering, is that a function of higher capacity, higher visitation. What are you seeing there in terms of maybe derisking, say, the 15% cash on cash return going forward?

Yes. No, good questions, Joe. Let me take a step back for a second, just in terms of the hotel expansion projects versus the water to land conversions. The hotel project expansions, you see really a more immediate pack positively to incremental revenues and incremental EBITDA. And the reason for that, I think, is relatively intuitive, which is that you're adding a hotel. There's not a whole lot of labor add. You've obviously got housekeeping front desk, valet. But the Columbus property and the M Resort property were built for more hotel rooms, right? In the case of Columbus built for a hotel in terms of restaurant capacity, entertainment venue capacity, gaming floor. We don't have to we didn't have to invest in expanding any of those areas as part of those projects. So we knew that we had a lot of demand -- unmet demand that we couldn't handle at the M Resort and we were sort of cultivating these relationships with many of these groups and conventions that would come through.

And then they would just outgrow us because we only had 390 rooms. We've essentially almost doubled the capacity pretty close to 750 total rooms at M now. And so we've got groups both coming back and new large groups coming in for the first time. we can deliver a level of service and personalization that they just won't find on the strip because those hotels are so large and those groups sort of can get lost. So feeling really good. I mean if you look at the resort results, which we do every day and you look at occupancy and you look at ADR, you almost don't even realize we added -- we doubled the number of rooms because the occupancy has been almost as strong as it was prior year with half the room, the same thing on an ADR basis. So we're feeling really good about M Resort, the return profile gets us even more excited about Columbus.

Columbus, believe it or not, this is kind of an odd step, but it's our #1 property in the portfolio from a cross-property visitation standpoint, and that's with no hotel today. So we obviously are feeling really good about being able to generate much stronger VIP cross-sale from other markets, both in Ohio and outside of Ohio that it is a destination for us. especially during the Ohio State football season. So that's kind of the hotel expansion wrap up. I would say. As it relates to Joliet, we're feeling really good because remember, and you've been there, Joe, you were there for the grand opening. That property was really the first location or amenity or offering to open up in what is a very large mixed-use development called Rock run. There's actually a 250-plus residential development that's opening up right next to our later this year. There's a 285-room flagged hotel that's opening up within walking distance of our property sometime in 2027.

There's a number of restaurants and entertainment venues. I mean this is -- it's a real mixed-use development. For those of you that have been St. Charles, Missouri close to the Ameristar property there. It's the same developer. And we expect to have a similar critical mass when all is said and done over the next couple of years. So Joliet as good as the start has been. And the way I sort of summarize the demand figures that Joliet, we've seen our active database, which we covered on the call earlier, 130% growth from pre to post. We see daily visitation has doubled. Our table volumes have doubled. Our nongaming revenue doubled and our slot revenue is between 40% and 50% growth. And so I think there's an opportunity to still grow that slot business higher than that base of 40% to 50%. And anything above that just makes the return profile that much stronger.

And the difference, again, between the hotel expansions versus these water to land casino conversions is that when we first opened, like we did at Joliet, the first few months, you've got a lot of slot leased product on your floor figuring out what your customers are gravitating toward from a slot content perspective. You have all of your restaurants open every day, all of your bars and a lot of entertainment programming, you're figuring out what works. And so your margins are going to be lower those first call it, a couple of quarters post opening. And then you start to fine tune. And I think we're the best of business at doing that. And so you should expect the margins for Joliet over the next couple of quarters continue to improve. And by the time you hit the 1-year anniversary, you're really cranking from a top line and a bottom line perspective. I would expect the same sort of cadence from quarter 1 to quarter 4 post opening for Aurora as well, whereas Columbus, you're going to see a more immediate impact both on the top line and bottom line as well as in your margins.

And just a follow up. Is the Aurora property, the newer property, obviously, is that also opening up? I hadn't been there. in a mixed-use development as well similar to Joliet?

It is not, but we stand to benefit that we literally sit next to immediately adjacent to the Chicago premium outlets. And when you're entering and exiting that mall, which is -- I don't have the stats in front of me, it's millions and millions of vehicles and people per month. And when you're exiting the Chicago Outlet Mall, you're at a stoplight, you turn left to go on the interstate or you go straight and you roll right into our parking drug. So I would say it's actually a little bit better in the sense that just from a timing perspective, it's already developed and already has critical mass on a daily basis. And so we stand to benefit the Chicago Premium outlets really don't have any sort of mid-tier or higher end restaurant offerings, and that's something that we will have. Remember though we don't have a hotel at our Aurora property today on the water, we will have a hotel, we'll have a spa, outdoor entertainment, lots of restaurants. It's a sort of a bigger more higher-end amenity mix version of what you saw at Joliet. So we're feeling really good about being able to feed off of the Chicago Premium Outlet Mall there as well.

We will move next to Shaun Kelley with Bank of America.

Jay or Felicia, if you could just remind us on the kind of size or scope around the Alberta launch costs. Ontario was quite a while ago, and I can't actually remember if it was done under the sort of more of the Score model before your acquisition. But just kind of if you could help us put some parameters around if that market goes, I know the timing is a little uncertain. But if that market does open this year, what's the kind of range of J-curve investment you guys might expect to make there? That would be helpful.

Yes. We're still sort of finalizing our marketing launch plans there and taking the best of in terms of what works with our Ontario launch and eliminating the things that didn't work. So I would say it's going to be probably somewhere in that $15 million to $20 million range, but give us another quarter to fine-tune our marketing plans and get back to you. on that. Obviously, it's a really important market. And we've all learned through the years that those initial sign-ups, you get those are the most valuable customer cohorts that you end up with. And so we got to make sure that we launched successfully in Alberta like we did in Ontario and when you do, you tend to hold on to your market share much more effectively. So I would say stay tuned. But generally speaking, that's probably the range.

Perfect. And then sort of a strategic follow-up, Jay, last quarter, you had, I think, some really defined views the broader prediction market landscape, we continue to see a lot of sequential growth in that business. I'm kind of curious on twofold. One, any identification you guys have on just your kind of core business on handle metrics as to any impact you might be seeing. But I think much more importantly, just your kind of -- as this continues to evolve, we continue to see spin-offs of more and more gaming like mechanics. Where do we sit today from where we were 3 months ago on your view? And how do you think the industry is kind of coming together here as it relates to this because we have seen, obviously, the CFTC come in with some pretty public remarks blessing these markets and continue to see a lot of people moving forward?

Yes. It's a fully loaded question on a really controversial topic. I laid out a lot of my thoughts on the last call. I would say those thoughts really haven't changed. What has continued to evolve is that it's really clear as mud today in terms of where this is going from a legal perspective. You've got regulators and attorneys general that are suing prediction markets and then you have the prediction markets that are suing regulators and trying to beat them to the punch, It's obvious to anybody who's ever been in the gambling business. And even those who aren't that sports betting is gambling. I don't know how you defend that, that it is not. And I know regulators have taken that view. It really puts the PENNs and the MGMs and the Caesars of the world in a very awkward position. We have our land-based businesses that generate tremendous cash flow.

We employ thousands and thousands -- tens of thousands of team members across the country. We are big contributors to our communities. And those gaming licenses are the most valuable assets we have. We're not going to put those at risk. So when regulators say this is illegal gambling don't do it, we don't do it. But there are those that are able to do it and are doing it in other states. And so it's just -- it's very -- it's confusing. I would say, the impact overall in terms of what we're seeing today on our sports betting business we can't really tell what the impact is. We all see the handle trends. I think there's lots of variables that impact handle, prediction markets certainly are 1 of those, how much we don't know today. This really can't get in front of the U.S. Supreme Court fast enough. I mean, that would be my ultimate perspective and answer because we're just going to keep seeing this get delayed and delayed and delayed and the businesses get bigger and broader and what are they doing? We don't know the answers to some of those questions.

But we're obviously not going to put our licenses at risk. We're going to stay very close to our regulators. I do think, as I said on the last call, that we as an industry of land-based casinos that aren't able, aren't allowed participate in prediction markets, we've got -- I think the best defense is offense, and we've got to figure out how to play more offense here. And I've got ideas. I've shared that with some of my counterparts. And we continue to discuss those ideas with our regulators as well as lawmakers on how we can play more offense as an industry and turn this into a win for them, meaning the states and also for the operators like us.

And I would say on the sports betting side, you're seeing a lot more competition on the marketing side going after sports betters directly. So we are seeing that versus going after investors, they're going after sports betters. So that's become pretty evident over the short term here.

We will move next to Chad Beynon with Macquarie.

I wanted to ask about the main iGaming bill that was passed, obviously, unique in terms of the partners that are there. You guys have a good database and could potentially partner with somebody. Can you talk about if this bill goes into existence in terms of operations, maybe your opportunity to benefit economically in that market?

Sure, Chad. I mean that's -- I can't answer that 1 today because we're still in discussions. I would just take a step back. What happened in Maine is mind blowing. We've been operating as a casino entity there for 2 decades. We've invested hundreds of millions of dollars. We've employed hundreds of Mainers. We're great -- we're -- as involved in the community as you're going to find any business leader. And the governor in Maine decides to hand a monopoly to a third party that's never invested dollar in the industry. I don't understand that. It doesn't make sense to me. It shouldn't happen. That said, it's being challenged legally as it should be and we'll see where it goes. If it ends up standing, then we're going to do our best to figure out a way to compete in that market. But the way that this was done was not popular publicly, and that's very evident. And I'm not sure how the governor concluded that was the best course. But it is what it is. We'll figure out a way to compete if it doesn't upstand legally.

Okay. And then separately, on the retail guide, it looks like margins are going up by a few basis points, 45% flow-through at the midpoint. You guys are going to benefit from the new properties. You talked about the returns there. But just as we think about the same-store expenses, maybe labor, utilities, et cetera, the nontax items. Do you have high confidence that there's not going to be much inflation in '26? And if you hit those revenue targets, at least at the midpoint that you can hit on that flow through?

Yes. From what we can see today, Chad, I would say, yes. We have a couple of labor negotiations in 2026 that we thought we've got a pretty good handle in terms of what the outcomes -- the range outcomes will be. Got a good handle on utility and insurance expenses, things of that nature. So it really is more of a -- think about it as a first half of the year, you're still going to feel some impact from those new supply markets that we haven't anniversaried yet or in the process of anniversarying. You've got the Aurora opening, which again, will be -- will hurt margins at least for the first quarter, maybe 2 quarters. The other 3 growth projects that we've -- we'll be ramping at Joliet and margins will be in a really good place. certainly the second half of the year, M Resorts margins are in a great place right now. Columbus will be out of the gate in a great place. So that's sort of the impact. Just think about it maybe as a first half of the year, maybe not as much upside same-store [indiscernible] at the second half of the year, you'll probably start to see more upside in terms of margin growth the same-store level.

We will move next to Jeff Stantial with Stifel.

Jay, Felicia, Aaron. Maybe starting off on the Interactive business. We haven't seen a bit of an uptick in the promotional environment this quarter on the sports side of things. The private operators continue to spend quite aggressively and then some of the larger operators have come out with parley insurance and other initiatives like that. Jay or Aaron, whoever wants to take this. Is this something you're noticing an impact on retention in sports that you could actually pinpoint in the quarter? Are you fast following any of the parlay focused generosity initiatives? And if you could just help us think about, I guess, overall sensitivity and the projections to the promotional environment, specifically in sports, just given the shift in strategy, that would be helpful. .

Yes. This is Aaron. We are seeing that in sports, although as you know, our strategy has really shifted to focusing on iCasino in hybrid states. and in Canada. So when we're looking at OSB only states, we're taking a much more methodical look at our promo dollars and users that we're trying to retain and attract. So we have great retention at the high end of value, kind of the promo chasers and the people that are looking for gimmicks and promos in the low end tend to be churning out, which is what we expected. And then we use that money to reinvest in hybrid states where there's iCasino and sportsbook. So it is happening, but we are not necessarily competing in that market anymore as vis-a-vis Fandora Draftkings, we don't see ourselves in that realm, although we do try to find opportunities to provide value where they don't. But your observation is true. It is getting competitive, but we're kind of staying out of that right now.

That's great. And then maybe staying on the Interactive business. Felicia, in the past, you've given us some frameworks for just thinking about market share across the 2 verticals, maybe without having to get into specific numbers this time, can you just talk directionally on how you think about overall market growth relative to market share expansion on the casino side that's sort of embedded in the '26 guide.

Yes. I'll grab that one. This is Jay. I would say that we expect -- we've essentially said it already. We would expect to continue to grow our market share on the iCasino side and see that our handle share will shrink on the OSB side. That's the best way to think about it. We're really focused on retention and driving profitable new users as first-time betters into the ecosystem. So [indiscernible] we're hyper focused on the states that offer both online casino and OSB. OSB only states we're likely to have a different new sign-up offer. We actually already deployed that, that differentiation between OSB only versus hybrid. And so that's where it's going to be in 2026. We feel we also have a great opportunity on reactivation, people that over the last several quarters and years have registered and signed up and made deposits, maybe taking advantage of a promotion and they're either inactive, dormant or they're not as frequent players with us or gambles with us as we would anticipate. So we're really focused on reactivation as well. And that's really, all of that just feeds into the P&L story for this year. It's going to be a much more efficient approach to the business and 1 that we think will generate a much higher return long term.

We'll take our next question from David Katz with Jefferies.

I wanted to just talk about the land base or retail portfolio. You've made some obviously very effective investments in upgrading that. And do you have a pipeline of more of those? Should we expect to see more of those kind of upgrade projects? Clearly, the retail landscape has gotten much more competitive post-COVID.

Yes. I had mentioned earlier, David, we do have some more opportunities in states like Louisiana, Mississippi and actually 1 more of our water-based facilities in Illinois. So we're analyzing the return profiles on those projects, working with local leaders, lawmakers, community leaders and figuring out which of those may make sense for us as long as they hit our return profile that we're comfortable with, which would be that 15-plus percent cash on cash. We've got others that we believe will fit that return profile. We just have to make sure that everything else lines up and I would say stay tuned for more on that here in 2026.

I appreciate it. If I could just follow up to that end. I don't expect you to give us a number today and in this forum, right? But is it a majority of the portfolio, right? Is it 2 to 3 properties, 3 to 5 properties? Any order of magnitude, I think, would be helpful here.

It would be certainly low single digit, less than a handful, but yes, there's -- across those 3 states I mentioned, call it, 3 or 4 projects that we're looking at right now. .

Thanks, David. And Nicky, we'll take 1 more question, please.

We do have a question, comes from the line of Stephen Grambling with Morgan Stanley.

Thank you for sneaking me in here. This should be maybe a quick one. Just -- I know that you gave a guide that implies kind of an OpEx growth rate on the property side. Just curious if you could provide any more details on some of the puts and takes that maybe underpin that.

Yes. I would say a pretty typical year of OpEx growth we're comfortable with the flow-through on the incremental revenues that we're showing there at around 45% could end up being a little bit better than that, but you're going to have typical growth in your labor number primarily annual merit increases. Like I said, we have a couple of labor negotiations that we're working through. So primarily there, we don't anticipate strategically any changes in our marketing reinvestment overall. You're going to have some natural growth in areas like insurance, sometimes utilities, but that would be driving the lion's share of it, Stephen.

All right. Thanks, everyone, for joining. We look forward to catching up with you again next quarter.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Greetings, and welcome to the PENN Entertainment Third Quarter 2025 Earnings Call.

I would now like to turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead.

Thank you, Risa. Good morning, and thank you for joining PENN Entertainment's 2025 Third Quarter Conference Call. We'll get to management's presentation and comments momentarily as well as your questions and answers. [Operator Instructions]

Now I'll review the safe harbor disclosure. 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 the company's CEO, Jay Snowden. Jay, please go ahead.

Thanks, Joe, and good morning to everyone. I'm joined here in Wyomissing by Felicia Hendrix, Todd George, Aaron LaBerge and other members of our senior management team.

Earlier this morning, we issued a joint announcement with ESPN regarding our mutual and amicable decision for an early termination of our exclusive online sports betting marketing agreement on December 1. I want to start off by saying that we are grateful for the exhaustive and collaborative efforts by our friends at ESPN and the PENN Interactive team to compete for a podium position in the highly competitive OSB space.

Although we made significant progress in improving our product offering and building a cohesive ecosystem with ESPN, we were unable to establish ESPN BET as a scale player. It is the right time to realign our interactive focus, prioritizing our digital assets in Canada and our Hollywood iCasino product to further leverage our core retail casino business and overall omnichannel business model. This shift emphasizes cross-sell opportunities across our ecosystem and enhances connectivity with our 33 million-plus PENN Play customer database.

Going forward, as of December 1, pending final regulatory approvals, our U.S. and Canadian OSB brands will be theScore Bet, which, as you know, has been delivering strong results for years in Ontario, one of North America's largest and most competitive online markets. Aaron LaBerge and his best-in-class team are currently working on a seamless customer experience that includes the current app being automatically updated to theScore Bet when you open it on the date of transition. All account information, balances, betting history, pending bets, marketing offers and promotions transfer over automatically. There will be no new app to download or new registration process to go through.

Our digital realignment will free up resources to strategically invest in the North American markets and customer cohorts with the strongest return potential, which we expect will drive enhanced unit economics and profitability. We will also continue to build our digital database in states with a PENN retail property in order to leverage cross-sell opportunities and prepare for the potential legalization of iCasino in those markets down the road.

Lastly, the transition to theScore Bet will present an opportunity to optimize our digital business and operate more efficiently, including replacing fixed media spend with performance-based and regionally targeted marketing that complement our retail and iCasino footprint.

Digital engagement with current and potential new customers is essential to our company's long-term success. 64% of our total company player database growth since 2019 has come from our digital channels. This has allowed us to attract a much younger customer demographic and to create significant and unique cross-sell opportunities and experiences for them. Our data shows that customers who play with us across multiple channels are significantly more valuable than single channel customers and have much higher retention, which is critical as the industry continues to evolve rapidly.

Our North America iCasino business achieved its highest quarterly gaming revenue to date, an improvement of nearly 40% year-over-year, driven by record cross-sell from OSB of 62% and strong growth from our stand-alone Hollywood and theScore Bet iCasino apps in the third quarter. Going forward, OSB will remain a strong top-of-funnel customer acquisition driver for Hollywood iCasino, which will continue to be embedded into our OSB offering in states where it is legal, and Hollywood iCasino will also continue to operate as a stand-alone app.

As highlighted on Slide 8 of our investor presentation, the introduction of our stand-alone app, along with improved cross-sell from online sports betting has led to a 79% increase in iCasino MAUs during the third quarter. It is worth noting that as encouraging as our iCasino results were in Q3, we set new all-time monthly records for MAUs, GGR and NGR again in October.

The momentum is continuing to build in this exciting growth channel. As you'll see on Slide 11, over the last year, we have significantly improved the velocity of our product innovation in order to drive results in key areas of our interactive business, with a particular focus and significant year-over-year improvement in the area of customer retention.

Let me wrap up our digital update by sharing that interactive -- our interactive financial goals for 2026 of being breakeven or better have not changed. We will have complete control over our digital cost structure and marketing budget for 2026, which will primarily focus on the highest margin markets and customer cohorts. We will provide a more detailed earnings guide on our Q4 earnings call in February.

Shifting to our core regional casino business. As you'll see on Slide 12, our talented teams across the country executed very well and demand was stable across gaming and non-gaming amenities during the quarter, particularly at our properties not impacted by new supply and increased competitor promotional activity in those same markets. We saw particularly strong results in our West segment at our properties across Ohio as well as in St. Louis and Illinois. Similar to Q2, we also saw increases in theoretical revenue across all of our rated worth segments of our retail database, along with overall growth in both total visitation and spend per visit in the aggregate across the portfolio.

The fourth quarter is off to a solid start, and we are encouraged by early trends at our new Hollywood casino in Joliet, which is driving both impressive volumes and database growth through its best-in-market offering, consistent with our long track record of delivering solid returns on our regional gaming investments across the country. We are also pleased to share that revenue from Joliet so far has been almost entirely incremental to our Hollywood Aurora property. We've seen a 42% increase in our active database at Joliet since opening and more than 50% of our -- of that growth, excuse me, was from previously inactive customers, showing the benefits of the much improved product and location. And our new offering has also been highly efficient at activating digitally native customers in Illinois.

While our other previously disclosed development projects remain on track. In Henderson, Nevada, the second hotel tower at M Resort is scheduled to open on December 1. Our Hollywood Columbus Hotel Tower and new Hollywood Aurora Casino relocation are scheduled to open in late Q2 of 2026, subject to final regulatory approvals, and the relocation of Hollywood Council Bluff is anticipated to open in late '27 or early '28.

And with that, I'll now turn it over to Felicia.

Thanks, Jay. As highlighted on Slide 4 in the investor presentation, under the terms of our early termination agreement, cash payments to ESPN will cease at the end of the fourth quarter of 2025. Starting in 2026, we will no longer have any marketing obligations with ESPN. Pursuant to the termination agreement, a total of $38.1 million will be paid to ESPN in the fourth quarter of '25 for the marketing services we will incur through December 1. From December 1 to December 31, we will pay a total of $5 million to ESPN for traditional media to support theScore Bet and/or Hollywood iCasino offerings.

Regarding the warrants, all unvested warrants and performance warrants will be forfeited by ESPN. ESPN will retain roughly 8 million of vested warrants with a weighted strike price of approximately $29. As a reminder, these warrants are subject to net settlement in stock or cash at our option. At an assumed exercise price of $29, the vested warrants would represent potential dilution of roughly 320,000 shares, which when compared to our 138 million shares outstanding is 0.2% dilution. So really no material dilutive impact from the example I just provided due to the net settlement. The noncash expense related to the vested warrants in the fourth quarter will be roughly $14 million.

Our retail segment generated revenues of $1.4 billion, adjusted EBITDAR of $465.8 million and segment adjusted EBITDA margins of 32.8%. Earlier, Jay touched on our stable core demand in our retail segment, particularly at our properties not impacted by new supply and increased competitor promotional activity.

We have a lot to look forward to in the fourth quarter for our Retail segment. The quarter is off to a nice start through the first weekend of November. Hollywood Casino Joliet trends are encouraging, and we are also excited about the December 1 opening of the second hotel tower at M Resort. For our Retail segment, we expect fourth quarter '25 revenues to range from $1.41 billion to $1.43 billion and adjusted EBITDAR to range from $455 million to $475 million.

Our Interactive segment generated revenues of $297.7 million, including a tax gross-up of $139.5 million and adjusted EBITDA loss of $76.6 million. Gaming revenues and adjusted EBITDA in the quarter came in below expectations due to customer-friendly hold across our digital operations and lower-than-anticipated OSB volumes. Given our brand transition and our targeted retention campaign, our fourth quarter '25 Interactive segment adjusted EBITDA results will look different than the guidance we provided earlier this year. We will incur a loss in the fourth quarter, but to provide guidance with a high degree of precision today is challenging given the unknowns around retention following the rebranding on December 1.

In addition to well-known customer-friendly sports outcomes in October, the quarter will also be impacted by a number of onetime expenses that will not recur in 2026 as we exit the relationship, make changes to our current cost structure and focus on rebranding and retention efforts. Based on what we know today, we expect the fourth quarter loss to be smaller than that of the third quarter. Importantly, our cash payments and noncash warrant expense to ESPN will cease at the end of the fourth quarter this year, which provides us with significantly more marketing and financial flexibility and a clean runway as we head into 2026.

Corporate expense of $34 million included $3.9 million of legal and advisory costs related to activist activity in connection with our 2025 Annual Meeting of Shareholders. We continue to expect other segment adjusted EBITDA, which includes corporate expense, to be negative $121 million for the year before any further legal and advisory costs.

The table on Page 10 of our earnings release summarizes our cash expenditures in the quarter, including cash payments to our REIT landlords, cash taxes, cash interest on traditional debt and total CapEx. Of our total $172.7 million CapEx in the quarter, $122 million was project CapEx, primarily related to our 4 development projects.

We ended the third quarter of '25 with total liquidity of $1.1 billion, inclusive of $660 million in cash and cash equivalents. In the third quarter, we repurchased $154.1 million of shares at an average price of $19.34 per share. Since September 30, we have repurchased an incremental $85 million of shares at an average price of $17.44 per share, which takes us to a total of $354 million of shares repurchased as of November 5 at an average share price of $17.64 per share in connection with our previously stated goal to repurchase at least $350 million of shares this year.

Since the beginning of 2022, we have repurchased $1.1 billion of shares or 25% of our shares outstanding. We have $395 million remaining under our current share repurchase authorization, which expires at the end of this year. To that end, this morning, we announced that our Board of Directors has authorized a new 3-year $750 million share repurchase authorization, which commences on January 1, 2026.

As we have demonstrated over the past several years, we consider share repurchases a major component of our capital allocation strategy, which also includes delevering and investing in growth capital. Looking forward, we plan to continue to be opportunistic with our share repurchase activity. We expect to continue to delever, especially as the large losses in Interactive are behind us, and we continue to evaluate our pipeline of future growth projects.

Transitioning to our retail growth projects. On November 3, we received $150 million in funding from GLPI at a 7.79% cap rate in connection with the $206 million second hotel tower construction at the M Resort in Las Vegas. This follows the $130 million in funding from GLPI we received in early August related to the $185 million Joliet project. And for the $360 million Aurora project that opens in late 2Q 2026, we have already committed to take $225 million of funding from GLPI at a cap rate of 7.75%. We will draw from GLPI close to the opening of Aurora, and we have not yet announced our funding plans for the $100 million hotel tower at Columbus.

We expect total cash payments under our triple net leases to be $246 million for the fourth quarter, reflecting a full 2% escalator on the amended and restated PENN master lease and a 1.5% fixed escalator on the 2023 master lease, both effective November 1.

As we head into the final months of the year, we are updating our 2025 CapEx forecast to reflect the shift of some project costs into next year. We now expect project CapEx of $430 million, which compares to prior guidance of $490 million. Our total 2025 CapEx is now $685 million compared to our prior guidance of $730 million, which reflects this shift, slightly offset by a pull forward of some maintenance CapEx into 2025 from '26. For 2025 net cash interest expense, we project $160 million. For cash taxes, we do not expect to be a cash taxpayer in 2025, and our basic share count at the end of the third quarter was 138 million shares. After the June 20 repurchase of the convertible notes, we now have 4.5 million potential dilutive shares from the remaining convertible note stub and about 1 million dilutive shares from RSUs and stock options.

I will now turn it back to Jay.

All right. Thanks, Felicia. I'd like to conclude by reiterating my sincere thank you to ESPN Chairman, Jimmy Pitaro and his entire team at ESPN, who have been great partners throughout our time together. There is a lot we will take away from this partnership, including 2.9 million new users into our ecosystem, a vastly improved product and feature set and a best-in-class digital team led by Aaron LaBerge, who will continue to oversee our interactive businesses and our transition to theScore Bet.

As I mentioned, we're looking forward to the launch of a unified online sports betting brand across all of North America, which will provide a path to stronger unit economics with a simplified cost structure. Our reduced fixed media spend will now provide us much more marketing flexibility to invest more in Canada as well as in U.S. iCasino and OSB markets and customer cohorts with more compelling returns, particularly as we look ahead to new market openings like Alberta, which is anticipated later in 2026.

Importantly, we are in full control of our entire business moving forward. We own our brands, we own our database, we own our tech stack, and we have extremely talented teams. This will enable us to better manage and forecast our digital business with greater precision, much like we have done in our regional gaming portfolio for many, many years. PENN's unique omnichannel strategy going forward is clear, compelling and growth focused. We have a high-quality and extremely well-maintained portfolio of land-based properties across the country that generate the highest tax-adjusted margins in the industry, along with significant free cash flow, and we have several growth catalysts over the coming quarters, coupled with less headwinds than we have seen in many years.

Our digital business is complementary to the land-based segment. It is primarily focused on our Canadian operations and iCasino first markets in the U.S. We will continue to use OSB across the U.S. to drive top-of-funnel database acquisition and cross-sell to PENN's retail and digital casino assets, but at a cost structure focused on overall profitability for the digital segment. The team and I are focused and excited to execute on this strategy to create compelling value for our shareholders over the short, medium and long term.

And with that, let's go ahead and open the line for questions.

[Operator Instructions] We'll take our first question from Barry Jonas with Truist Securities.

With the ESPN exit, can you talk a bit more about any puts and takes for near-term as well as maybe longer-term profitability for Interactive and then maybe throw in omnichannel's contribution to retail in that as well.

Thanks, Barry. So yes, let's take a step back for a second. As you think about the investments that we've made in our digital business over the last, call it, 5 years, we really had 4 primary goals as we made those investments. We knew that getting into the digital business, particularly sports betting, was going to be a great top of funnel driver for the company. And we would be able to feed the database with a younger set of customers that just weren't visiting our retail casinos. The average age of our retail database was getting older, and we knew this is an opportunity for us to really bring the average age of our database down.

We've been successful in doing that. You see in one of our slides there, and we've talked about it before, the average age of our active database is younger by 7 years from 2019 to where we are now in 2025. So that was goal one. I think we've done a great job with that. We're still working at it, of course.

Number two is once you have those younger customers and new customers in your database, you want to be able to cross-sell them to your profitable land-based casino businesses. And we've shared with you before, we've been successful in doing that. And again, that's going to continue. It's a very important goal for us is the cultivation of those relationships and to provide great experiences and ultimately provide monetization opportunities for the company with those new customers. So check that box. I think we've been effective at doing that, again, more work in front of us.

And I think number three for us was we want to make sure that we were preparing for the future and making sure that PENN as a company is set for where the industry is headed. And I'm sure we'll talk about plenty on this call. There's a lot going on in this industry right now. I feel like we're really under attack from a number of different directions. But I think the company today is positioned extremely well to compete regardless of which direction we end up going as an industry and what we want to do and accomplish digitally, what we want to do and accomplish in our retail footprint. And of course, it all comes together with the omnichannel strategy that we mentioned earlier. So I would say check the box. We're -- we've built this company. We're prepared for the future, really important goal.

And then lastly, of course, we've made these digital investments to make money, to deliver a return for our shareholders. We have not done that yet. That's the focus in 2026 and moving forward is to start to deliver profitability for our shareholders, which will only grow over time. So I think at a high level, that's the way we've been thinking about it. It's nice to be able to turn the corner and speak to profitability, and we'll have more to speak to on that specifically for 2026 and beyond when we get on our call in February with all of you.

Great. And then just -- I might ask a follow-up on retail. You sort of cited increased competition and promotional activity. Curious how that's been impacting your operations beyond initial expectations and maybe how you're responding.

Todd, do you want to grab that one?

Sure. Thanks, Jay. Listen, it's -- I think there's been plenty of discussion around some of our competitors in the space and how they've responded. I think we're seeing kind of the double, double here. It's really about the new competition in key markets. I think Slide 12 in the earnings deck shows a lot of the way we look at the business and what we're seeing in markets not impacted by new competition, performing really well. In the markets where we have new competition, there's also been a competitive response that has increased promotional reinvestment. And what that usually does is it can lead to increased marketing costs. But any time you have a new competitor coming in, you'll have a little bit of a spike in labor costs. You'll see some retention bonuses for some key positions, but you also see accelerated wage growth. The good news is fairly temporary, some onetime expenses and then things normalize over time. But if you look at Slide 12, it shows a good snapshot of the way we performed around the country.

I would just add, too, and this speaks to the job that Todd and our regional heads and our general managers in the company, we've never stopped investing in our properties. And we deliver best-in-market offerings and experiences in almost every one of our markets. So look, Todd and I have both been asked this for too long to even say these days, but these things happen, you get promotions that kind of ramp up and ramp back down. The reality is in these mature markets, customers may chase a promotion once or twice. They end up settling back to where they feel comfortable, where there's a really good value proposition. And we like how we stack up against everybody in the regional gaming space in terms of overall asset quality, customer service delivery and experience. So we'll be fine. This will be a little noise for a short period of time. It will calm down and on we go.

Our next question comes from Brandt Montour with Barclays.

So the first one on digital. I know that we'll be waiting or we're going to wait to hear more about your plans on profitability. And I know there's multiple moving pieces of profitability, including retention risk on the revenue side. But if you could just, Jay, focus on the cost side and talk about the fixed cost removal for ESPN, $150 million a year. And you said that would replace that with the marketing you're going to need to support the score. Is it fair to assume that sort of just looking at those 2 pieces that marketing score should, by definition, come in below what you were paying to ESPN?

Significantly below, I would say, Brandt. I mean, as you think about the marketing dollars we've been spending with ESPN, most of those dollars will take down to the bottom line. And some of those dollars will be redeployed to the markets and the customer cohorts that we talked about, the ones that will deliver us the highest returns, primarily our business in Canada. We've been competing really well there with not a lot of marketing spend, and that's going to change.

We're going to be able to spend more money in Canada and continue to grow our share, I think, profitably there. And the iCasino hybrid states in the U.S., those are going to be the primary markets of focus, obviously, highest value customers. That's the way that we think about it. So again, we'll have more detail for you, but you should expect to see, as we talk about 2026. We're going to learn a lot in the next 2.5 months before we get on a call with you again sort of post rebrands. We understand what retention looks like. I think we have a very good plan around retention. We've been working on this plan for a couple of months now.

And so we're going to know a lot more in February, and we're going to continue to adjust our cost structure and our marketing spend assumptions based on what we're seeing around retention and revenue projections as we go into 2026. So long-winded way of saying we have full control over all of those variables. And so stay tuned. We'll have more to share in February, but the goal is to stop -- to move away from losses in digital and turn that around and really start generating significantly more free cash flow as a company.

Great. And then just a quick one on the retail side on the back of various questions. I'm assuming the guide down at the EBITDA line at retail was mostly that competition you cited. Could you just maybe bifurcate between competition that you had been seeing in supply-impacted markets like the reaction that I think you were talking about from other competitors in those markets. Between that and potentially any increased promotional environment or promotional activity in markets that are not supply impacted, and I think you know who I'm talking about. If you could just sort of bifurcate those and let us know if the second one has become a bigger headwind as of late.

Yes. Brandt, this is Todd. Look, the reality is the group you're talking about also happens to be in every market where new competition has come in. So that's kind of that double impact that we saw. In the other markets, for the most part, those are healthy markets where we have really good properties where we're typically market leader or buying for #1 consistently. So a little bit less there. And obviously, there, you don't have the labor impact. So it really is kind of confined to that marketing promotional environment, which, as Jay mentioned, we take a bit of a different approach where reinvesting in our properties, creating that experience, people will gravitate back towards that experience versus what offer is in my hand, what coupon is in my hand.

Our next question comes from Joe Stauff with Susquehanna.

I wanted to ask just a couple of questions to refamiliarize myself with theScore Bet. And wondering, I guess, maybe the updated share that you have in Ontario. I assume, obviously, you'll launch in Alberta. And wondering for the U.S. customer database within theScore, is there a concentration of adjacent markets in and around Ontario? Or is it like a wider distribution? Just wondering how to think about that.

Yes, happy to, Joe. And Aaron, anything I missed, feel free to jump in here. Here's the way to think about theScore Media app and our offering is that we have roughly 4 million monthly active users across North America. That's been wildly consistent even though we haven't paid as much attention to that business as we should be and will be going forward, but it stayed remarkably consistent really since the time of acquisition of theScore.

Of that 4 million, roughly 2/3 of those are in the U.S. and 1/3 of those are in Canada. The popularity of the -- and theScore Media and theScore brand is really spread across Canada. You see it as just overly concentrated in Ontario, all provinces across Canada, there's about the same level of popularity and market share from a digital sports media perspective, which is why we are very encouraged about the opportunity in Alberta.

As you think about the U.S. and the 2/3 of that 4 million or, call it, 2.6 million monthly active users, roughly 2/3 of those users are in states currently that are online sports betting legal states. And so having that brand connection, we think will be helpful. It has been in Canada from theScore Media to theScore Bet from a sports betting perspective. We'll be able to do essentially the same -- we'll be able to deploy the same playbook here in the U.S. from a sports betting perspective. That has been effective for us there. We'll see what that gets us, but we do think that, that could be helpful.

And look, Aaron and team have done a great job improving the product and the experience, our feature set, the UI/UX. And if you look at our retention results this year at the first 2 months of football season versus last year, significant improvement. So we're going to be laser-focused on retention of existing users and then also getting some of these theScore Media users that maybe currently aren't using ESPN BET to use theScore Bet in the U.S. as we move forward.

That's great. And maybe two quick kind of clarifications. I guess, one, just based on your commentary and based on my understanding historically is you own all the customer data associated with ESPN BET. And the second clarifying question is, I didn't see an expiration on the 8 million warrants that ESPN will own going forward.

I'll tackle the first one, and we'll get an answer for you on the second one in a moment. So you are correct that the customer data of the 2.9 million users that I referenced earlier that we've been able to build in our database since the beginning of our relationship with ESPN BET, we own that customer data set. So that's exactly correct. And for regulatory reasons, we're the only natural owner of that customer data set. ESPN, because they're not licensed and they're not regulated, they can't have access to it. So that's just the way the deal goes. That -- I'm not sort of pointing out anything other than the way that it has to work from a regulatory perspective. So customer data stays with PENN, and that's something that obviously, we're going to continue to work on is reactivation and the things that we have in this football season. We've been fortunate to see some good results there that will continue. With regards to the warrant expiration?

Yes, Joe, those were part of the 10-year deal. So at the end of 10 years, they expire.

Our next question comes from Jordan Bender with Citizens Capital Markets.

This is kind of the first time that you've run a unified online strategy across both Canada and the U.S. kind of since you started your digital operations here. Curious, as you start to dig into databases and expand digitally that way, does it start to make sense to look at potentially buying retail properties up in Canada to cross-sell and further dig to that customer database?

Yes. Thanks for the question, Jordan. I would say that's something that's sort of been on our radar before. I would say it would remain on our radar. I wouldn't necessarily think about it as moving up significantly in the list of priorities. But there's not a lot of options there. There's sort of 2 large operators in Canada from a retail perspective. And so if opportunities presented themselves at the right time and the right price, we would definitely take a hard look at that. And to your point, there would -- there would be synergies from an omnichannel perspective, similar to what we've seen in the U.S. But I would say it's not really ratcheting up on the priority list, but we would be opportunistic if the opportunity presented itself.

Appreciate it. Felicia, just kind of following up on your comments around capital allocation and the balance sheet. You've loosely kind of guided us or talked us to leverage targets or kind of how you want to run the business over the years. I mean, as we move kind of into the score and cleaning up some of the online losses, is there kind of a level or a leverage target that you would roughly want to run the business kind of as we look out into '26, '27, '28?

Yes. Thank you for that. Yes, I would say over the longer term, our optimal lease adjusted leverage level is probably somewhat below 5x. So we're going to remain focused on getting to that level over the next several years. But just keep in mind that, that deleveraging trajectory, which we are obviously very focused on, just may not be perfectly linear because we're going to continue to be nimble as opportunities present themselves, right? We'll continue to be opportunistic buying back stock, and we're going to continue to invest in our own growth opportunities as we look at our pipeline, right? So again, focused on delevering, getting below 5x, but that may not be perfectly linear.

Yes. I would just add that we do have -- and we're obviously encouraged. It's early, but we're encouraged by the results of our Joliet Water to land project. And we've announced a few others that you're all aware of. And we've got others we're looking at right now within the company's portfolio that we think can also deliver really nice returns. So it's about balancing -- I mean, Felicia said it very well. It's about balancing all 3 of those. They are all 3 priorities, and we think we can effectively balance them as we move forward.

Our next question comes from John DeCree with CBRE.

I know we talked a little bit about the kind of users acquired with ESPN, Jay, but wondering if you have any initial thoughts, and I realize this might be a tough question about customer retention in the digital channel when you rebrand to theScore. You obviously have some experience with that when Barstool went to ESPN BET. So are there any kind of strategies or expectations you have about kind of retaining those customers and getting them to kind of stay with theScore when the rebrand occurs?

Yes. It's a great question. I would say that it's kind of apples and oranges when you think about what we did at the time of that of that brand change versus where we are now. We had -- we put our customers through a lot of hoops to jump, and we had a new technology stack. We were down for several days. We asked them to come back in and reregister and redeposit. There was a lot going on that created noise in addition to the brand change. And I think we feel like we're well positioned here. We've delivered what is one of the best online sports betting and online casino experiences, not just as we see it, but as independent third parties that review and rate these apps and these experiences. We rate very high both in iCasino and online sports betting. We've been moving up the rankings. As a matter of fact, one just came out earlier this week, we moved up a couple more spots.

So we feel like from what we're seeing on product quality and retention overall this football season compared to last year, we're in a good spot. I don't want to predict what retention and churn end up looking like over the coming months, but we feel like we're positioned well. We deliver a great experience. And our users -- we know that most of our users we're their #1 app. And so we want to make sure that, that stays the case. And we have a full calendar planned out, as you can imagine. And we have the ability to target and personalize from a marketing and CRM perspective today that we just didn't have even a year ago. And so we've got a full marketing plan, and we're going to be ready to go. And if some don't respond initially, there's going to be bounce back follow-up offers, and we feel pretty good about the overall strategy. Aaron, anything you want to add?

Yes, I would just say to underscore what Jay just said, it's the same exact app this time. So you don't have to download a new app. You don't have to reregister, as you said, you'll show up, your icon will change. And once you're in the app, the user experience is exactly the same. The logo and the app will change, but it's the same experience. And as Jay said, our retention has been really, really good this year as a result of all the product enhancements we've been making.

So we feel really strong and confident that people will still have the same experience. We'll communicate clearly that the brand has changed, but nothing else has. So the people that love using the app are still going to have the same level of generosity and interaction with us, personalization that exists today. So we feel pretty good. Obviously, we're going to be watching it closely as we rebrand.

That's really helpful. I appreciate that. That's good commentary. And maybe a quick one for Felicia. If I missed it, I apologize, but I know you took the financing for M Resort from GLPI. I think Aurora, you're expected to do that next year. And anything for Columbus at this point and maybe it's a little too early, but figured how to ask anyway?

Yes, that's right. It's too early. We'll make that decision as we get closer to the opening of Columbus.

Our next question comes from Dan Politzer with JPMorgan.

I just wanted to follow up on 2026 and Jay, your comments that you'll still be breakeven or better, and that hasn't changed. I guess directionally, we think about you more -- you're going to be more operationally efficient, ESPN BET and all the associated fees and marketing costs go away, but you guys are investing in Score. I mean, directionally, have -- should the outlook be better today than it was, say, 2 or 3 months ago? Or is it really just truly no difference at this point?

I think the target and goal for '26, we feel -- as we sit here today and until we better understand what retention looks like post rebrand, it stays the same as it was earlier this year. Obviously, going into next year, it would have been more challenging for us to be breakeven or better if we weren't able to exit early because the fees weren't changing, but the market share wasn't moving as fast as we needed to and at the levels of what we had forecasted as to all of you on our last earnings call for football season. So this sort of gives us that clean runway as we -- clear runway as we move into 2026. And we feel like we've got a real good handle on all of the puts and takes, which is for the team and I, it feels very good. It's no different than how we feel about our regional gaming business. I think we've been one of the best in the industry of forecasting what's going to happen with a level of precision that is as good as anyone. And we want to get there on all aspects of our business and 2026 will be a step in that direction for digital as well.

Got it. And then just a follow-up. I don't know to the extent that you -- maybe you could just comment or opine the kind of background, how you got to this point? Was there a breaking point? Did prediction markets enter into your decision process at all? Just kind of any background you can discuss and obviously, given you have a competitor that now kind of stepped into that deal.

Yes. I would say the lines of communication, certainly between Jimmy and I and our teams has been positive. It's been open and it continued to be since our last earnings call, but we also know what that threshold level was of market share to be at by the third anniversary. And we could see through the first couple of months of football season, though we're making a lot of improvements in a number of areas that we've shared with you, we weren't on a path, a trajectory to get to that level of market share. And so you know where it's headed and why sort of string this along, let's get together and figure out the best path forward for both companies.

I've been talking about this the last several quarters. There is that 3-year out, and both companies are going to have to do what's in their best interest. And I think that we figured out a path forward that was in both companies' best interest and was done in a way that was, I think, professional, and that's the way the relationship was all the way through the first 2 years in change and think very highly of Jimmy and the entire team at ESPN and wish them nothing but the best. We'll still be very likely an advertising partner of theirs. There's no part fillings. We had aspirations. We had goals to be a podium player, didn't work out, and we're moving on from that, and they are, too. And that's -- I think that's perfectly fine.

Our next question comes from Shaun Kelley with Bank of America.

Jay, I think there are two strategic questions I have. First, I think as we all think about the Interactive business, historically, there have kind of been actually 3 or 4 parts, right? And I know an integrated strategy moving forward under theScore Bet Moniker makes a lot of sense. But we kind of think about Canada and some success up there. We think about market access as sort of a fee profit pool for this business. And then we think about iGaming, the Hollywood casino brand and probably contribution profit positive and then obviously, the OSB investments. So like my question is very high level, as you thought about those different pieces, is there more to come here on the strategic side? Or as you've kind of done the full rework here, is -- like are all those different pieces kind of set and this is the go-to-market for the next year or 18 months for PENN and you as a management team? Or are there any other of those pieces that are influx or you might be looking at as you just kind of think about the right fit for what PENN's business is moving forward?

Yes. Look, I think strategically, what we've laid out today, we feel like that we can execute against this. And again, what's the most important factor here is we have full control over all of the puts and takes. And we're -- I think we're a company that delivers when we have full control over what's in front of us, and that will be the case on the digital side moving forward. The 4 parts of the digital business you laid out, you're right about that. I would say, however, that Canada has sort of been more of a stand-alone because you have one brand for both sports and iCasino up there. And what we're talking about today and this brand change doesn't affect our Canadian operations at all. We've got nice momentum there. We had an all-time best iCasino month last month in Canada. So we've got some nice momentum there, and we're going to have -- I believe we can build on that with more of a focus and more resources and marketing dollars headed up north of the border.

And market access, I think we all -- that's a nice revenue and EBITDA stream. It's not going to be as high as it is today forever, right? These deals will eventually expire over time. And so we want to make sure that we're not just relying on that because it's not there forever, and we're taking some of that money, and we're investing and building this company up for the future, as I mentioned earlier, and we've done that. I think as it relates to U.S. iCasino and OSB, they're so interconnected. You can't really -- I don't think you can look at iCasino as its own opportunity because think about our iCasino business in the U.S., most of it today still comes from within the integrated sports betting app.

So if you can't -- you'd have a hard time extracting all those players onto your stand-alone Hollywood iCasino if they've been playing slot machines and playing Blackjack through your sports betting app. And so those 2 really are connected together. All of this is -- has created a very large digital database for us that we do cross-sell into our land-based properties. And 3/4 of our land-based properties are in states where OSB is legal and almost 40% of those digital native customers live within 50 miles of our properties. And you visit our properties today and you see it, you feel it. There's a younger customer. They're in the sports books, playing tables, they're in our restaurants, and they're playing slot machines, which is very encouraging.

So I understand the way you're thinking about that. I would say, strategically for us, it all pulls together, and it really sets the company up the way we need to be set up for where the industry is headed. Prediction markets, I think, is an interesting topic. I actually -- my view on prediction markets is that this is a major threat to the industry. Taking a step back, we're, of course, give you the can expression everyone else does, we're monitoring the situation. I think importantly, we're going to very clearly take our direction from our state regulators. We always have, we always will. That doesn't change.

With all of that said, I do think as an industry that we've got to play some offense here. When I say industry, I think it's operators, it's working with our regulators, working with our state legislators and lawmakers because the posture that we're taking at this point is very defensive. It's going to take a long time to play out, and it doesn't feel at the moment like a winning hand. And prediction markets are -- they're live across the country. And I think that as an industry, we feel like we can outperform those guys if we're in the same market as they are with the same product, i.e., sports betting.

We think our sports betting product is much better than prediction markets, and I think that's proving out. But where they are building a real business is in states where it's not legal. It's legal sort of at the commodities federal level and -- but it's not at the state level. And so how does that play out in the courts, it's going to take years. And so I just don't -- I don't think that the winning hand for us is going to be to try to fight this out through the courts. It's likely to be appealed over and over again, take a long time. And look, who loses out here? Customers do, there's no responsible gaming protections, know your customer. All of the customer protections and regulations that we deal with and have been for decades, those don't exist at the prediction market level.

So again, I think there's a lot more to do here. I think as an industry, we need to come together and figure out how to play offense. So I would say stay tuned. I don't think us all sitting around and monitoring what's happening is going to be -- it's not going to be a viable strategy.

You kind of stole my second question. I'm not even sure I actually asked on prediction markets, but I -- that was really definitely where I was going. So just be one very short follow-up because I appreciate the depth of that answer would just be -- have you looked at all into the possibilities of casino mechanics as it relates to either prediction market to prediction market overlays? There was something that came up at least on the sports betting side, a mechanic that Hard Rock just kind of went live with in Florida? And yes, I mean, how far down the rabbit hole are you going? Because I mean, realistically, it feels like some of these things are actually possible. I know it seems crazy, but they are kind of possible. So have you kind of thought about that? I know it's really far off today, but the pace of innovation, I think, as you alluded to, is actually pretty incredible.

I actually don't think it's that far off, Shaun, at all. And you mentioned what Hard Rock is doing in Florida. So now you're talking about past motor races and sports betting, but it's spinning a slot machine. historical horse racing has been done in the land-based businesses. Let's -- I mean, let's be very clear about this. I would be shocked if prediction market operators as they're raising money at significant valuations and seem to be doubling every few months aren't talking about this. And if you can move forward with prediction markets and sports -- what would stop you from offering prediction markets and contracts on the next spin of a slot machine, the next hand of Blackjack, the next spin of the bow for a roulette table. So this is existential. Like this is not -- like we're going to be talking about this, I think, in a matter of months, not years. And I think as an industry, we've got to play offense and figure out how do we stay ahead of this. And we got to come together quickly, though, like we don't have a lot of time here. And I think there's some natural opportunities and some natural potential solutions here.

So to your question, should we be looking at a prediction model launch along those lines? Maybe I think there's other paths that could be a lot more effective that would more level the playing field and allow us to do what we do best and offer great products and experiences that would be better than what they can offer, but we do need to work with the other constituencies in the space.

Our next question comes from Chad Beynon with Macquarie.

With respect to iCasino, obviously, a lot of moving items announced today and in the past couple of months. Jay, what's your appetite to look at non-North American markets given that you have the tech, the staff, the improvements to maybe have kind of a leg up against some of the other companies that are in non-North American markets and aren't fully integrated? It appears that they're having a harder time. Yes, what's your view on that?

Yes. I would say that let's talk in a few quarters. Right now, obviously, the focus is all about retention as we go through the rebrand on December 1, again, pending final regulatory approval. We feel like we've got a good plan, but we've got a lot in front of us. We need to execute and stay heads down laser-focused on delivering the best possible result as we head into '26 for our digital business and cross-sell in our retail businesses, our retail openings. So but we also can walk and chew gum.

So I would say that if there's an opportunity that presents itself, I think we're feeling like as though we have a world-class team. We know we have one of the best products, both in OSB and iGaming in the United States. And we think we could compete anywhere. We're just not going to be looking to do that in the near term. But if opportunities presented themselves or we felt like we were at a point where we're ready to go elsewhere, we would strongly consider that. It's just not something that you would expect to hear from us. You shouldn't expect to hear from us in the shorter term.

Okay. And then lastly, on Joliet, have you seen repeat visitation? You talked about some of the activation in the early numbers, and I know it is pretty early overall. But do you think some of the added customers could begin to come at the property maybe at the same rate or pace as your portfolio or kind of what you would expect?

Chad, it's Todd. Yes, listen, I think there are so many good takeaways right now and again, at or above our expectations in all the major KPIs. But the frequency that we're seeing there is in line or better than some of our best-performing properties and significantly better than the prior Joliet property. But I'd also point to just there's a slide in there, and it shows the 42% growth in the database, which is a combination of reactivation as well as new members. And again, you're catering to -- you start looking at total spend at the property. So greatly improved offerings around the food and beverage area. So you've got people coming in now for more of that entertainment experience that we talked about before.

So they're spending time on a slot machine or a table game or electronic table game and then making the way to food and beverage and then hopefully back to the gaming floor. So -- and then from a frequency standpoint, when you start evaluating how properties perform, you look at guest count, you look at frequency, you look at daily spend, all of those are going in a very good direction.

If we could take one more question, please.

Our final question will come from Jeff Stantial with Stifel.

Maybe starting off on the land-based business, margins down about 90 bps year-on-year in the quarter. Jay or Todd, whoever wants to take this, can you just give us a sense for how margins trended for that cohort of assets that were not impacted by new supply? And then if you take that even one step further, can you unpack some of the key drivers to that performance, meaning was there more geographic mix shift in taxes again? How has wage inflation trended? Are there other pockets of inflation right now? Just any color there would be great.

Yes. This is Todd. I think it's, again, directionally focused on that Slide 12, and it will show you the impact on both revenue and flow-through. But then you start looking at some of the expense items that I mentioned earlier with both marketing as well as labor. Also keep in mind, this will come up periodically, but you've got your controllable and then there's the payroll related. So every now and then, you do see a little bit of an uptick in payroll related. We did see some of that, especially in the South segment. You also -- we've got some nice properties that have high-end play. So at times, you're going to take a small hit to bad debt expense. So there's those types of things that find their way in and out of an income statement. This quarter, we happen to have a few more going that way. But I think overall, looking at October trends, really nice year-over-year. You're starting to see the state numbers come out, and you'll see that trend continue. Again, not just us, healthy for the entire industry, but where September ended, October took right back off, obviously, helped by the calendar with 5 Fridays. But we're really happy with the way that Q4 has started out. Felicia touched on the first weekend. That continued into the month of November as well.

That's great. And then switching gears back over to the Interactive side of things. You talked throughout the call on reallocation of resources over to iCasino and the Canadian business and then more of that higher-value player cohort. As we just think about the benefits of sort of more financial and operational resources being freed up, I'm curious what sort of opportunities you see more on the product development side, if this can increase your velocity of new games coming out, maybe optimization of the CRM and the bonusing models, anything like that? And then back on the marketing side of things, should we just think about this as more pushing heavier into UA reinvestment for that higher LTV iCasino-led player? And then how should we just think about maybe other marketing channels that you might now push on whether that's more top of funnel spend outside of ESPN driving awareness for theScore brand in the U.S. or maybe more allocating reources further down into the funnel to higher CAC channels? Just any thoughts there would be great.

This is Aaron. So a few things. One, on the marketing side, if you think about ESPN BET and the marketing spend that we had there, it was a national brand and a national platform. And we spent a lot of time trying to make that work. At the same time, we do have a set of marketing spend that we manage ourselves around performance marketing and acquisition that is very effective for us from a CAC perspective. And so if you look at our growth in iCasino, largely part of that is coming not only from our retail database, but also from our targeted marketing.

And so now all the marketing spend that we drop to our operating model from the ESPN deal is now going to be able to be applied in a very precise fashion, targeting states that are iCasino and OSB only -- asino, OSB and retail, Ontario, Alberta is coming. So we feel like we have a lot more control and precision from a marketing perspective, and it's been working already. So we're not guessing about how effective this will be. We now have more money to actually drive the business.

From a product perspective, if you look at the difference between ESPN BET from a year ago to today, it's night and day. And by the way, I just came out with a report, ESPN BET was most improved. Our retention is better than it's ever been. The product is very competitive. So those same people are actually our team that builds our casino product as well. So if you think about the level of innovation, the velocity of change to the app, a lot of that's going to apply to our casino product as well because obviously, in a casino-first strategy, the score is going to be a big component of that and theScore Bet.

But a lot of our development time is going to be spent on making sure that we have the best casino product in market. And the same people that have been building that for ESPN BET and focusing all of our resources to try to make that work given our expectations there are now going to be working on Hollywood as well. So we're really excited about the product. We're really excited about the marketing flexibility. I mean, as Jay said, between theScore Media, theScore Bet and Hollywood Casino, these are brands that we own and we control everything about how those operate. So we're pretty optimistic about moving forward.

All right. Thank you, everybody, for dialing in. We look forward to speaking with all of you again in February on our Q4 call. Have a great day.

This concludes today's program. Thank you for your participation, and you may disconnect at any time.

Greetings, and welcome to PENN Entertainment's Second Quarter 2025 Earnings Call. I would now like to turn the program over to Joe Jaffoni, Investor Relations. Please go ahead.

Thank you, Emma. Good morning, everyone, and thank you for joining PENN Entertainment's 2025 Second Quarter Conference Call. We'll get to management's presentation and comments momentarily as well as your Q&A. [Operator Instructions]

Now I'll quickly review the safe harbor disclosure. 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's CEO, Jay Snowden. Jay, please go ahead.

Thanks, Joe. Good morning, everyone joined here in Wyomissing with Felicia Hendrix, Todd George, Aaron LaBerge as well as other members of our senior management team.

As you can see from our earnings release and accompanying investor presentation, our diverse portfolio of retail properties delivered another solid quarter, particularly in those markets not impacted by new supply, where we saw revenue growth of 4% year-over-year. For the second quarter of 2025, we reported retail revenue of $1.4 billion and adjusted EBITDAR of $490 million and adjusted EBITDAR margins of nearly 34%.

As noted on Slide 5, this performance by our best-in-class property teams was highlighted by theoretical revenue growth across all rated wager and worth segments as well as year-over-year theoretical revenue growth in unrated play, visitation and spend per visit, the first time we have seen this since Q1 of 2022, all of which have remained consistent through July as well.

As you'll see on Slide 6 and 7, we have been absorbing the impact of new supply in a few key geographic markets. Starting with Chicago lands, we are responding with the land site relocations of our Hollywood casinos in Aurora and Joliet to vastly superior locations and with new best-in-class, best-in-market assets. We're also planning to help mitigate the impact of new supply in Nebraska with the landsite relocation of our Ameristar Casino Council Bluffs property in Iowa, which is currently scheduled to open at the end of 2027 or beginning of 2028.

As we've discussed previously, our Margaritaville property is still the market leader, but it has been impacted by the recent new supply in Bossier City, Louisiana. This market has been in decline for 2 decades now, and the new incremental supply, not surprisingly, has mostly cannibalized the incumbent operators.

Our focus remains on continuing to enhance the guest experience, in part through property improvements such as our recently renovated hotel rooms. We're also updating our hotel lobby, lobby bar and adding new non-gaming amenities.

In addition, on June 16, we were excited to welcome a privately funded 27-acre golf entertainment complex directly next door to our property, which is part of more than $75 million invested by third parties and PENN on gaming and non-gaming amenities in and around the property over the last several years. In Detroit, we expect that the ongoing construction and revitalization of the downtown business corridor adjacent to our Hollywood Greektown Casino will help boost visitation and spend in the Greektown neighborhood and at our property.

The project is funded by a $20 million grant from the State of Michigan with a focus on revitalizing public spaces and improving the pedestrian experience with a more inviting environment, including the ability to host live events and festivals in the neighborhood. Construction around our property is scheduled to be completed in Q3 of this year, and the entire project scheduled to be completed in Q2 of 2026.

Turning to Slide 8. We are extremely excited for the August 11 opening of Hollywood Casino Joliet. Notably, this opening is occurring on budget and nearly 6 months ahead of its originally scheduled time line. The new Hollywood Joliet is part of Rock Run Collection, a super-regional commercial and residential development conveniently located adjacent to the Interstate 80 and Interstate 55 interchange southwest of downtown Chicago.

From a financial standpoint, there will be no change to our 2025 retail guidance as it relates to the Joliet relocation at the earlier opening date will offset the ramp down of the existing facility the last couple of months to allow for game relocations, the approximate 2-week closure and the marketing ramp of the new property, none of which was built into our original guidance for the year.

As you'll see on Slide 9, our other development projects remain on schedule and on budget. Our omnichannel engagement continues to positively impact our results with our online-to-retail player count growing 8% year-over-year and online-to-retail theoretical revenue growing 28% year-over-year.

Turning to Slide 10, our pre-existing customers in Pennsylvania and Michigan, who engaged with our stand-alone Hollywood iCasino app, are increasing their spend across both our retail and online channels. In Pennsylvania, year-to-date, we have seen year-over-year increases of 19% in retail theoretical play and 133% in online theoretical play from this same cohort. Similarly, in Michigan, year-to-date, we have seen year-over-year increases of 28% in retail theoretical play and 242% in online theoretical play. These are encouraging trends for sure, having both a retail and digital relationship with your consumer is clearly a major key to success for the industry moving forward.

Transitioning to our Interactive segment, we achieved record quarterly gaming revenue in both OSB and iCasino in Q2. And while still plenty of work to do, we delivered significant year-over-year improvements in adjusted revenue and adjusted EBITDA, highlighting strong year-over-year flow-through we are seeing in our business in 2025. These results include approximately $2.9 million in severance costs incurred as part of our strategic workforce adjustments to drive efficiencies and support a modern, scalable technology infrastructure. Excluding that onetime expense, we would have come in slightly ahead of the midpoint of our digital Q2 guidance consensus. Our standalone Hollywood iCasino app is continuing to expand its reach with over 70% of gaming revenue life-to-date through the second quarter generated by newly acquired retail native or reactivated users, which is also encouraging.

As you'll see on Slide 12, our Interactive segment, average MAUs have stabilized over the past few quarters and actually increased in Q2 '25 on a year-over-year basis. ARPMAU has also been an upward trajectory since launch. We are making great strides in advancing our in-house risk and trading platform and expanding our wagering options, including our parlay and in-game products. As a result, over the last 2 quarters, our hold rates have continued to improve, and we expect this trend to continue as we make further refinements.

Additionally, the continued month-over-month sequential growth of our Hollywood Casino stand-alone app coupled with our improved OSB cross-sell efforts are driving material growth in our iCasino users, volume, revenues and market share. The success of our stand-alone app is incremental to our overall iCasino performance, with minimal cannibalization of our in-house iCasino products. On top of the Q2 momentum, July marked our highest ever iCasino GGR in both Pennsylvania and Michigan.

Turning to Slide 14. We continue to enhance our ESPN BET offering by introducing engaging new features, such as the ability for customers to evaluate player statistics in relation to player prop bets. The benefits of the continued rollout of our new offerings is driving engagement. Since the spring, we have seen strong and consistent year-over-year growth in first-time betters, which are most recently up over 50% year-over-year in July. Similarly, first-time deposits have more than doubled year-over-year in July. Notably, our promotional expense as a percentage of handle has remained stable in the low single digits.

Further, as we announced earlier this week, this football season will mark the launch of FanCenter, an exciting feature, which leverages our connectivity with the ESPN ecosystem to enable players to bet on their favorite teams, players and fantasy lineups in ESPN BET. The dedicated hub powered by account linking technology with ESPN, creates the ultimate interconnected media, betting and fantasy experience. In addition to fantasy-related markets within FanCenter, a new Find a Bet icon on the ESPN Fantasy app will allow players to view ESPN BET markets related to their roster and ad selections directly to their ESPN BET slip. Last year, ESPN Fantasy football set an all-time mark with more than 13 million playing the game. Opportunities like this to leverage the nation's #1 fantasy app is a big part of why we did the deal with ESPN, and we look forward to continuing to work together to unleash the full value of this partnership.

And with that, I'll turn it over to Felicia.

Thanks, Jay. As Jay mentioned, our diverse portfolio of retail properties delivered another solid quarter, particularly in markets not impacted by new supply. Our Interactive segment generated 2Q adjusted revenues, excluding the skin tax gross-up of $178 million and Interactive adjusted EBITDA of a loss of $62 million. Record quarterly gaming revenue for both OSB and iCasino was driven by higher holes and continued momentum on stand-alone iCasino.

Corporate expense of $38.7 million included $9.4 million of legal and advisory costs in connection with our annual meeting of shareholders.

The table on Page 7 of our earnings release summarizes our cash expenditures in the quarter, including cash payments to our REIT landlords, cash taxes, cash interest on traditional debt and total CapEx. Of our total $159 million CapEx in the quarter, $100 million was project CapEx related to our 4 development projects. We ended the second quarter with total liquidity of $1.2 billion, inclusive of $672 million in cash and cash equivalents. In the second quarter, we repurchased $90 million of shares at an average price of $15.47 per share, which takes us to $115 million of shares repurchased in the first half of the year at an average price of $15.90 per share. We expect to repurchase at least $350 million of shares in 2025, which implies share repurchases equivalent to 9% of our current market cap over the last 5 months of the year.

Additionally, on June 20, we repurchased roughly 70% of our convertible notes due 2026 for $233.5 million, which eliminated approximately 9.6 million potentially dilutive shares that were associated with the convertible notes. This transaction is incremental to our $350 million share repurchase target for the year.

I will now provide an update on our guidance for the remainder of the year. Our 2025 retail guidance is unchanged from the ranges and drivers we provided in our earnings call in February. The new Joliet property opening is now included in our guidance, and Jay covered the financial puts and takes related to that project earlier. On Interactive, we continue to expect sequential quarter-over-quarter adjusted EBITDA improvement for both the third quarter and the fourth quarter, with the fourth quarter inflecting positive.

We are updating our 2025 Interactive guidance to reflect $10 million of incremental costs related to the OSB launch in Missouri in December, which was not contemplated in our prior guidance and the impact of legislative tax increases in Illinois, New Jersey, Louisiana and Maryland. Our new guidance also better aligns with our current volumes and market share trends. Our average MAUs increased in the second quarter year-over-year, and we now forecast modest year-over-year growth in market share for the remainder of the year.

We now forecast U.S. OSB handle market share, excluding New York, of 3.4% in the third quarter and 4% in the fourth quarter. For iCasino GGR share, we expect 3% in the third quarter and 3.2% in the fourth quarter. Somewhat offsetting these lower volume assumptions are an expectation for slightly higher sports book hold rates in the second quarter. We're modeling in the mid-9% range for the third and fourth quarter. We have been closing the gap with the market leaders from a hold rate perspective, given improvements in our risk and trading functions as well as solid execution of our parlay, same game parlay and in-play offerings. Further, as a function of our strategic workforce investments, we anticipate run rate savings in G&A of approximately $20 million or roughly $10 million in the second half.

For the third quarter '25, our Interactive revenue guidance range is $295 million to $335 million, including a $125 million skin tax gross-up, and our adjusted EBITDA guidance range is a loss of $65 million to a loss of $45 million. Our 3Q Interactive adjusted EBITDA guidance represents a year-over-year improvement of roughly $36 million at the midpoint. For the fourth quarter of '25, we expect Interactive adjusted EBITDA of approximately $5 million, assuming normal hold. Other segment adjusted EBITDAR continues to be challenging to forecast this year due to the cost of ongoing litigation. However, with the bulk of our advisory and proxy-related expenses behind us, I can provide you with some metrics to help you with your modeling by running through the various moving parts.

In February, we initially provided other segment adjusted EBITDAR guidance, which includes corporate expense of $121 million. Before incremental, legal and advisory costs related to this year's AGM, this forecast is unchanged. As we look to the remainder of the year, we may incur incremental legal expenses in the second half of the year, given the ongoing shareholder litigation. While we cannot project at this time the magnitude of the legal expenses we could incur in the second half of the year, we do expect that they will be significantly below the $17.1 million of legal and advisory costs we incurred in the first half.

Transitioning to our retail growth projects. As of today, we've received the full $130 million in funding from GLPI for the $185 million Hollywood Joliet project at a cap rate 7.75%. As you know, for the $360 million Aurora project, we have already committed to take $225 million of funding from GLPI at a cap rate of 7.75%, and we will draw from GLPI closer to the opening of Aurora. Regarding the M Resort Tower and Hollywood Columbus, we will provide funding updates as we get closer to those openings.

Our CapEx forecast for 2025 remains $730 million with project CapEx of $490 million. For 2025 net cash interest expense, we project $160 million. And for cash taxes, finally -- following the enactment of the Big Beautiful Bill, our 2025 cash tax outlook has shifted meaningfully, reflecting the impact of several onetime items and permanent changes. While our prior guidance projected a $70 million cash tax liability for 2025, we now do not expect to be a cash tax payer this year, which benefits free cash flow before project CapEx by 40%, 4-0 percent.

The acceleration of previously unamortized R&E expenses and the utilization of an interest expense carryover generated onetime benefits for this tax year. In addition, the 100% bonus depreciation represents a meaningful benefit given our recurring annual CapEx and our active growth project pipeline. We expect the enactment of the Big Beautiful Bill to continue to be favorable to us in future years. Based on what we know today for 2026, we currently anticipate recognizing approximately $50 million less in cash taxes in each of 2026 and 2027. Our basic share count at the end of the second quarter was 145.5 million shares. After the redemption of the convertible notes, we now have 4.5 million potential dilutive shares from the remaining convertible notes stub and about 1 million dilutive shares from RSUs and stock options.

And now I'll turn it back to Jay.

All right. Thanks, Felicia. In closing, I want to reiterate that our core retail business has remained strong and are growing in the aggregate. We believe the recent federal law changes around SALT deductions as well as taxes on tips over time and social security benefits could provide to be tailwinds for PENN in addition to anniversarying the new supply in key markets later here in '25 and in early '26. We're early awaiting the August 11 opening date next week of the first of our growth projects, which we believe will collectively enhance our portfolio, grow our free cash flow profile, reduce leverage and serve as a catalyst for PENN's retail segment and our overall omnichannel strategy.

On the Interactive side, we're excited about all the new product enhancements our teams have been making, including the upcoming launch of FanCenter. This type of integration with ESPN is what sets ESPN BET apart from our competitors, and we can't wait for football season to showcase it. We're very appreciative of the hard work, strong partnership and long hours from our friends at ESPN, particularly as we collectively prepared for the start of this football season over the last several months. We're excited and optimistic about our new product enhancements. However, we do still maintain strategic optionality as discussed previously in the digital business as we head into 2026.

As I said on our Q1 call, we are nearing an inflection point with our digital business, and we anticipate each quarter of 2025, delivering a lower loss sequentially throughout the year and our Interactive division to be profitable in the fourth quarter of '25 and the full year of '26 and beyond. This is still the case.

The significant investments in Interactive are undoubtedly behind us. Our focus for the balance of this year and going forward remains operational execution and transforming our strategic investments into consistent long-term returns and value creation for our shareholders. We believe our share price is undervalued and we'll be even more active in buying back shares and returning capital to shareholders in the second half of the year as covered previously by Felicia.

And with that, we can open up the line for our first question.

[Operator Instructions] We will take our first question from Barry Jonas with Truist Securities.

A lot going on with ESPN between the coming launch of its DTC products and the announced deal with the NFL. How should we be thinking about potential upside for ESPN BET with both on top of your continuing product enhancements like FanCenter?

Yes. Obviously, it's been a really busy week this week for ESPN. They announced the launch date of their direct-to-consumer streaming offering. And then, of course, earlier this week, they announced the partnership with WWE and then acquiring the NFL media assets from the NFL. So very busy. We really don't have anything to comment on beyond what Disney ESPN has shared publicly and on their earnings call.

I would just say and maybe this is stating the obvious, that we think those are all just going to continue to solidify ESPN's position as the worldwide leader in sports. And all of those announcements are good for the entire ESPN ecosystem of which ESPN BET is certainly part of that. And as we've mentioned before, the launch of the direct-to-consumer offering is going to be deeply integrated with sports betting, ESPN BET, and that's going to be the first time that we've seen anything like that in the space. So we're interested to see what that means for the sports fans of ESPN and our ability to continue to provide a great betting option for people through those deep integrations throughout their digital and streaming ecosystem.

Great. And then just as a follow-up on retail, top line trends that you said were pretty strong at plus 4 outside of new supply markets. Just wanted to get your thoughts on what you think is driving this and to what degree it's sustainable.

I'll mention a couple of things. Todd, I'm sure you want to jump in as well. I think it's -- there's been less new supply hitting us in a number of markets. If you look at the last 12 months, it's certainly there, as we mentioned, in Bossier City, somewhat in Chicago, then although some of that is just us moving assets from Joliet old location to new locations. So I wouldn't overly read into the Midwest Council Bluffs. I think our property has responded really well. It's a battle, but we're grinding there.

And I would say, overall, and we've said this before, there's really one true macroeconomic factor that has a tight correlation to our business, which is employment. And employment has been strong. Americans have jobs. Americans spend money. It's really quite simple as it relates to the regional gaming business, at least as long as I've been doing this. And gas prices have been low and they've stayed low. So those are all helpful tailwinds. Consumer confidence seems to at least be stable. It's a bit volatile month to month. But I would say overall, pretty stable and seems to be moving in the right direction. And I think people, to some extent, have probably been putting off those destination vacations and trips to Vegas, and they're staying closer to home. So all that, of course, would benefit us in the regional markets.

Todd, anything to add?

Yes. Perfectly said, Jay, and I would only add, some of the trends we're seeing, it's not just in the gaming revenue side. We're also seeing this in the food and beverage side, the hotel side. So to Jay's point about people staying for a staycation, that obviously is a sign that, that's working.

And then I think with some of our capital deployment around the company and the country, we're getting a return on that. So the improvements we've made to our property, whether it's keeping our gaming floors fresh or our nongaming options fresh, really starting to see that pay off. So super excited about the opening of Joliet next week and then on the heels of that, the next 3 growth projects as well as the announcement we made with Shake Shack, so I think we continue to innovate and upgrade our offerings.

It's interesting, too, just one last point. I think the entire retail operations team across the country has really done a great job this past quarter when you think about there were some elevated pockets of promo spend. I think that was well documented throughout the quarter in the space. GGR looked higher and how much of that was flowing through to NGR and to EBITDA. And I think our teams did a great job just staying disciplined and making sure that we're investing in the right customers at the right levels and not getting thrown into any sort of marketing battles. Again, I think that will die down quickly, but it was certainly a thing in the second quarter.

We'll take our next question from Brandt Montour with Barclays.

Comment on the 2Q, we saw a pretty outstanding hold quarter in June, specifically in June, and some of your peers showed some upside in the sports division. We're not -- we don't really see that in your results. I'm curious if there's something about your mix or the volumes that you saw in the quarter why you didn't really participate in that.

Yes, it was cut out a little bit at the beginning, but I think I got the question there, Brandt, on the second quarter and hold percentage for the space. We saw a nice hold result as well. Our hold percentage is continuing to really close the gap between where we've been and where the top tier operators are. We held in the mid- to high 9s. I don't have exactly in front of me for the second quarter. At 9.8% versus an estimate of 9%. So we held fine.

We've been battling obviously, on the handle side of things, and we will continue to. We're seeing a really nice pickup in terms of first-time betters and first-time deposits and really gearing up for football season with a lot of new deep integrations with fantasy that we covered during our prepared remarks. So we feel like we've got nice momentum. We also obviously had the negative impact of the severance costs of around $3 million for the quarter. But I think you should expect to see our hold percentage sort of in that upper tier. We've seen that for the last several months, really since the early spring to where we are now. I think the same will be true in July. So overall, feeling good about hold percentage.

We just got to continue to get more and more people into the top of funnel. And I know Aaron and team, Billy Turchin, who just joined us as our Chief Product Officer, working really hard to just eliminate friction as we did a deep dive on what's worked well for us and the things that haven't. I think eliminating friction between the people clicking on integrations within the ESPN ecosystem and coming over to ESPN BET, same thing from people click on or go to the Apple Store and download our apps and register and just go through the whole process. But just we're working really hard to get that flow to be frictionless. And so we're feeling like we're in a good spot every quarter getting better.

We still got work to do. So I think that's the clear message. But going into football, we feel like we've got a chance to really start to make some progress.

The last thing I would say is if you look at handle share on OSB, there is still some pretty aggressive promoing by a couple of the private operators. And so we've been really paying more attention to our GGR share and even more so, our NGR share. And we feel like we're making a lot of progress on the NGR side, both here in the U.S. as well as in Canada, which we're pleased with. So we just got to keep grinding and keep going. But Aaron, feel free to jump in with anything.

No, that was good.

Okay. Hopefully, you can hear me. Apologies for my connection. The second question is still on Interactive. I think if I heard Felicia's guidance commentary correctly, you guys are aiming for around $200 million loss for the year, which is right at the low end of the prior range. I also -- I mean, I know you called out lower volumes. The question, I guess, is that really the sort of main driver of that? And/or is there any sort of incremental promos that you guys are planning around FanCenter and/or ESPN regarding their launch?

Yes. It incorporates everything that you mentioned there, Brandt. We want to make sure that we have a successful launch of FanCenter to really bespoke unique feature. Remember also that we, for the first time on this guidance, incorporated now that we have a launch date for Missouri. That was not in our guidance previously. We have tax increases in 4 states in the second half of the year. So we're just truing all those things up in addition to, as we laid out for you, our OSB handle share hasn't year-to-date been where we estimated it.

We're still anticipating we'll grow our handle share in Q3 and then even more so in Q4. Same thing for our iCasino GGR share. But we want to make sure we've got realistic targets out there that we've got the ability to make sure that we're showcasing what the new features are and we think that this allows us to do that. And hopefully, it turns out to be a little bit conservative, but it feels like the approach at this stage in the year heading into football season with so many new things coming.

We'll take our next question from Shaun Kelley with Bank of America.

Felicia, just maybe we could zoom out on ESPN bet for a second and just think about 2026. I think in general, the idea has been that we could get to profitable in that business for the full year. Is that targets still on track? And is it incumbent upon further improvement or especially on the core OSB side? Or can we kind of do that on, let's call it, a combination of run rate as you exit this year and just continued market growth in that business?

Yes. I think it's very much dependent, Shaun, as up hitting our targets for the remainder of the year and exiting 2025 on the path that we just laid out. It's not -- these aren't Herculean targets, but we've got to continue to prove it out. and grow our share, not just on handle, but of course, on GGR and NGR and make sure that we're reinvesting at the right levels, consistent with what we have been the last several quarters and then continuing to see progress. Again, nothing Herculean built in -- built out into our assumptions for 2026.

We just want to see Q3 this year stronger market share results in iGaming than we did in Q2 with the progress we're making. We think that that's realistic. We've got a really strong product offering. We're enhancing the experience all the time, both in OSB and iCasino. So much like our fourth quarter, which we're anticipating being profitable to the tune of $5 million, we would be exiting with some real momentum heading into 2026, and we would build on that every quarter in 2026 as well.

So those are the set of assumptions now. And as I've mentioned before, I think our focus, and you can imagine we've got all sorts of different sensitivity models. There's a lot of variables that play as we go into 2026, and so we're going to be ready for whatever strategically it is that we're doing and to make sure that we deliver on profitability in 2026. That's we're laser-focused on that.

Perfect. And then as my follow-up, I want to go back to the beginning, and I know you commented on this, but I think it just kind of fits strategically here, which is about the sort of ESPN-NFL deal, Jay. And just like at its highest level, it would seem like the strategic importance of having sort of a betting option here as we think about sort of what DTC could mean or a DTC launch could mean? Would be pretty paramount strategically.

So does this open up your strategic options or dialogue with them. I mean, obviously, there's a very large fixed cost here. But one thing that was unique about the way ESPN and NFL was structured was around equity without at least as our read is an ongoing fee structure. So just trying to think out of the box a little bit, but to the extent you could talk about it, it would be helpful.

Yes. Shaun, it's a great question. I'd imagine that we're all going to have more information on exactly the details. That was -- what was announced was not the definitive document. I think it was more where they are currently on the term sheet. So things -- who knows, things might change a little bit. Again, I'm not in those discussions. But as time goes, I think we'll have certainly more to share. We found out about it obviously when the world did this week when it was publicized.

And so -- we've talked to ESPN, they're really excited. And they're very excited about the role that ESPN BET plays in terms of fan engagement and the overall experience whether you're talking their direct-to-consumer launch, how they think about their relationship with all of their sports league partners, and they see in their own ecosystem, as we've shared before, that those that are part of the [ Link ] program with ESPN BET, there's a high level of engagement, higher than average. And so we would expect that to continue to be the case. And the NFL news and WWE as well, we think, just strengthen overall where we are in our relationship with ESPN, but also strengthen their position as the worldwide leader in sports.

Yes.

I would just add, more football is better for fans and for betters. And to point out, FanCenter is going to launch this year with native integration to ESPN's Fantasy platform. So if you're a Link user and you're already linked, when you draft the team or more than 1 team, those teams automatically show up in ESPN BET in a way for you to bet it very creatively and easily. We are also going to be on the launch of their DTC platform with betting integrated through ESPN BET into the video experience. And so you would imagine those football assets show up in those video experiences. They've announced that they're going to combine ESPN's Fantasy platform with the NFL's, which will make that massive. And again, FanCenter is the fantasy integration. So I think all of those things are just going to be good, not only for fans, but for our business and our partnership.

We'll take our next question from Joseph Stauff with Susquehanna.

I wanted to maybe just follow up on ESPN that maybe from a different angle. As we -- as it gets switched on, on August 21, obviously in the beginning of the football season and all the good seasonal factors associated with that, would you expect to see a pretty big spike or ramp in at least the top of the funnel in terms of like experimentation and so forth?

Yes. I mean -- and Aaron, you'll have thoughts on this. I would say that the NFL news from this week, the WWE News this week and then certainly with now having a date for the DTC launch. One thing we know is that ESPN is in a stronger position today than they were a week ago. And we also know that they're going to be putting a lot of weight behind that DTC launch. And the more ESPN is out there, I think that's really good for us and our brand. And the fact that we're going to have deep integrations this year with fantasy that we didn't have last year and this year with direct-to-consumer, which didn't even exist last year, those should all be positives.

Obviously, it's incumbent on us to make sure that when people click on those integrations or give us an opportunity that it's a really smooth, seamless process. When they download, when they register, when they go through the whole process, and we think we're in a much stronger position this year to execute on that and that we keep them. Retention, we're going to be paying very close attention to every day, every week as we move forward. We've got to be able to keep the folks that come in and test us to try us out for the first time or come in on a reactivated basis.

Yes. I would just add, look, ESPN's Fantasy platform, I think Jay mentioned in his opening remarks, had 13 million people playing fantasy football last year. My guess is they're getting records this year. FanCenter alone is natively integrated not only into the ESPN Fantasy app, but into ESPN BET. So there's a huge top of funnel audience that gets new exposure to what is going to be a really cool feature if you're a fancy player that you're going to want to try.

And so when you think about reactivation, when you think about retention and when you think about new user acquisition, FanCenter is going to drive all of those. And then ESPN is launching a direct-to-consumer product, which we're integrated with. I won't speak to what level or what the product looks like because that product hasn't launched. But we also think that's going to be something that people see and want to experience to be part of because of the way it's implemented. It's very cool and very compelling, and that will also be a driver of interest. And we think that's ultimately going to be good for top of funnel.

Understood. And then if I could follow up on the retail side, the 4 markets, the competitive markets you referenced in the slide deck, Jay, I believe you sort of mentioned, hey, we kind of anniversary this -- the impact of this fully, maybe in the early part of '26. But just trying to think about maybe the new tailwinds that you get from your 4 new projects that will be placed in service later this year, starting in August. Wondering if you think, say, the competitive headwinds from those 4 markets are offset possibly from those 4 new projects. Could that occur earlier than '26? Or just given the nature of those projects, a lot of them are hotel expansions maybe takes a little bit longer?

Yes. I mean I would say we're going to know a lot soon. We're going to be opening Joliet. Awesome property, been there several times, Todd and I in the last several weeks. Great location right off of I-80 and I-55, tremendous ingress, egress. It just you roll right into our property from the major road there. So feel great about that.

And the rest of our projects are on time and on budget, which we're very proud of. Our design and construction teams executed great despite a lot of tariff noise. The hotels topped out at the right time. We weren't buying tons of steel until after the tariffs were in place. And so we were done with that before the tariffs were in place. So we feel really good about that. And I think the headwinds that we've been facing for the last, I don't know, a lot of years, so like it's been forever. Those start to slow down and once you get past anniversarying what the new opening in Bossier City, Louisiana, really everything from that point on that we can see is PENN.

And so yes, I would say that the tailwind should more than offset headwinds, headwinds should slow down, tailwinds speed up. And we feel like we've got a good setup here, and we have a really nice growth story on the retail side and, of course, on the interactive side as well.

We'll take our next question from Dan Politzer of JPMorgan.

First, on the retail side, Jay, I think you guys have talked about mid-teens returns or free cash flow returns on those 4 projects over the next 4 months. Is there any way maybe you could parse that out or rank file some of those returns, just given the products do vary in scope and obviously, cost. But which ones are you most excited about? And where do you see maybe the greatest returns?

I'd get in trouble if I said any of that from the property teams. We really -- we were -- I would say, in the kidding aside, we really look at all 4 of these as being really solid returns. It's not like one of them is sort of offsetting the other. Look, we're going to be -- this is the first time I can remember, certainly in the industry where we're moving a location miles and miles closer, and you think about just the vehicular traffic, what passes by our current Joliet property is 10,000 vehicles a day, and that's going to be up [ 23- or 25-fold ] or something like that here on Monday. So we're very anxious and curious to see how that goes.

Of course, we're going to have another one of those with a hotel in our Aurora market, which is also very exciting right next to the Chicago Premium Outlet. When you're exiting the Chicago Premium Outlet, you're literally at a stoplight staring at our parking garage and it turns green, you can go straight into our garage or turn out to get on the interstate. So we've got a really nice setup in the hotels in Vegas and Columbus. We've needed those for a really long time and for a variety of reasons, we didn't break ground until we did. But we think the return profile for those is also looking good.

We've -- in the case of Las Vegas at the M Resort over the years, we've had a lot of demand for group business. We take great care of people. We can provide them a lot of attention and personalization because of us being off strip and a little smaller, but then they outgrow us and they leave. And so there are a lot of groups that are coming back to the M after having left now that we're doubling the size of the hotel there. So I don't want to rank them, but we do feel good about all 4.

Okay. Fair enough. And then I suppose on Interactive, obviously, this is your second NFL kickoff for the fully -- from the get-go, and now it seems like you have kind of more tools in your tool belt certainly more experience there. I guess, versus last year, what are you looking to do differently that maybe it will improve your market position? Obviously, you have a better product. But like from a strategic or promotional standpoint, are there any changes that you're thinking of making versus the prior go round?

Yes. I mean look, we're going to be paying very close attention to the KPIs that you would imagine we will be, which is what does the top of funnel demand look like? What is the flow-through from people clicking on integrations and getting them to register, download and register the app, make a deposit and make a wager. We've eliminated a lot of friction. I can't stress that enough that we think is going to have really positive results without us needing to go spend more in marketing. It's just making the folks that are interested in these integrations and interested in betting making it a lot easier for them to get through and get to the point where they can do exactly what they intended to do.

And we had some sort of basic level fantasy integrations last year. This is -- as Aaron described and I mentioned in the prepared remarks, this is a whole different level, and we're going to be doing things similar to the integrations on direct-to-consumer that haven't been done before. So the idea that you can be in the fantasy app, you set your roster and then you've got personalized player parlays that are there for you based on your lineup and you can basically decide what you want to do and bet on within fantasy, quick move over to ESPN BET and place your wagers very powerful.

So I would say it's less about how much we're spending in promo and how much we're spending and marketing different. We're going to be, I think, disciplined as we have been. We'll make sure that the word gets out about FanCenter because it's a really cool new feature, and it's differentiated. But it's more about our ability to execute at a different level and the experiences that we're offering and integrations we're offering being at a different level than we were last year.

Yes. I mean, I would add also, we have much improved KYC. we have real personalization this year that not only flows to the app but flows into FanCenter. We do have better brand marketing. We have a truly differentiated feature that no other sports book has. Nobody else is a partner with ESPN Fantasy. The biggest fantasy platform in the U.S. that is integrated with our product, and it's going to be clear in our marketing messaging that this is a feature that if you're a fantasy player that you might want to try out. Where last year, we were marketing the brand of ESPN BET, but we didn't have something distinct enough to hook on to, to make that compelling. We think that's going to matter.

We've got improved CRM efforts. We can target cohorts now by fantasy players, by people that play with us actively, that people need to be reactivated. So we're much smarter in how we're targeting people in terms of that. So there's just a lot of improvement almost in every operational channel this year than last. So we're pretty excited about the start of the season.

Our next question is from Chad Beynon with Macquarie.

Jay, during your prepared remarks at the beginning, you talked about some of the retail KPIs that have been the strongest in over 3 years. So I would have thought that the flow-through in the second quarter would have been a little bit better. So land-based margins have been down first and second quarter. Felicia, you reiterated the retail guide for the year.

So Todd or Jay, can you talk about why this -- why we didn't see better flow-through in Q2? And then more importantly, as we look into the back half of the year for retail, could we start to see margins increase given all the supply kind of wears off and the unrated is working in your favor?

Yes, I'll tackle the first part and Todd, you certainly can tackle the second part in terms of go forward. I mean as we look at the quarter, there's really 2 factors. One, the new supply is impacting us at Bossier City really impactfully. And so that hurts your overall margins, whereas if you look at the portfolio outside of those markets being impacted by new supply, the flow-through on the top line revenue was strong. But we're definitely feeling the pain in Bossier City more so than we are in the other new supply markets and feeling it some pain in all those new supply markets.

And then as I mentioned earlier, we were battling some higher promos in the markets -- many of our markets on the regional side. We stayed the course we had to do, obviously, a little protection on the VIP side, which you would always do, but we stayed the course. We stayed disciplined. I think margins came in for the quarter just shy of 34% despite the higher promo in the competitive zones. So we feel good about our execution. I think that higher sort of elevated promos in the market that should -- I'd imagine that would die down. It doesn't usually deliver good returns in these really mature markets. And so overall, we feel like the flow-through for the quarter with those factors, if you remove those factors was very strong, but those were factors in the second quarter.

Yes. I would only add, Jay. And Jay I have talked about this a lot. We did have some table game hold percentage challenges at some of our bigger properties in the quarter, known players, VIP players, but that always comes back.

And then to your point about going forward, listen, Q4, traditionally, year in, year out is always one of the lower margins. You're bumping up against a lot of holiday competition, but that's baked into our guidance. And then when you look at the ramp of Joliet, that's in there. So we look for a good trajectory there. But we feel very comfortable that we've identified the issues Jay spoke to them. But I also -- we're already starting to see kind of a more rational reinvestment and promotional environment across the board. We think that will continue and then having the tailwinds behind us.

The properties that we're opening, the 2 new properties in Illinois as well as the hotel towers, our properties were built especially for the expansion to [indiscernible]. So all the infrastructure is in place, the restaurants are in place. The gaming positions are in place. So these become very margin accretive. And then with the new properties moving from a 3-story traditional riverboat to a 1-story land-based casino, you just build in such efficiencies. So we feel good about the -- starting Monday really. So starting Monday and then forward into the first half of next year, some really good tailwinds behind us.

Yes. We just -- obviously, with the openings, you're going to not see the stronger margins immediately out of the gate. You want to make sure that you're supporting all the preopening efforts, get the word out, make sure your customers have a great time. But as I said earlier, the puts and takes that Joliet watch out for the year, given we're opening earlier and we had to close and there was the whole relocation of games that impacted us in June and July from a top line and bottom line perspective. But overall, clearly, all 4 of those projects, as Todd said very well, are going to be margin accretive for us. You just need a little bit of ramp time.

Okay. Great. And then on the growth in MAUs in the omnichannel journey, how does -- how do predictive markets kind of fit into this strategy? Is that something that you could explore? Or is that something that you are against and you're looking for that to be shut down, which could potentially help market share?

Yes. Not a lot new to say on predictive. We're monitoring. There's a lot going on there, as you know, in terms of how state gaming regulators feel about predictive markets versus what the predictive market space is doing and expanding. So I wouldn't expect us to be a first mover. But if it's something that does end up getting sort of embraced and legalized and regulated, of course, it's something that we would stay very close to and take a look at. And -- but I wouldn't expect us to be a first mover there. We want to see how this plays out. There's a lot going on right now in the courts as well as with the regulators across the country.

We'll take our next question from Jordan Bender with Citizens.

In your slides, you pointed out that there was a record cross-sell rate into the stand-alone app in June, which is good to see there. Are you able to talk about either the reactivation strategy of the existing players as well as kind of what's working to get new players into -- cross-sold into that stand-alone app?

I think probably the #1 factor is the fact that we have a casino-first brand on that app, and it's really targeting slot players even more so than table game players. So the Hollywood Casino within ESPN BET, a little bit more table game focused. Hollywood stand-alone, a little bit more of a slot focused. We're seeing that in our slot mix, which is, I believe, highest in the industry in the states where it's tracked. So very pleased.

It's obviously, from a marketing perspective, you can be a lot more successful in targeting your retail database with a brand that they're used to seeing, same brand that's on all of their marketing materials on top of the building that they're walking into. So that's why I think you're seeing so much incrementality as more of a retail customer or a new customer, reactivated customer. And in the case of branding, certainly, that's a strength that we did struggle with trying to get slot players at our retail properties to download ESPN BET to play slots. It just doesn't really resonate. And so we've been a lot more successful at bringing them in and the retention results have been strong.

You can see the 2 states where we have a retail footprint. We've seen really strong market share growth, less so in a state like New Jersey where we don't. We did launch in New Jersey, but we've got work to do there because it's a more mature market, and we don't have a retail footprint. So Pennsylvania and Michigan are certainly leading the efforts for us in terms of picking up market share in a relatively short period of time.

Yes. I would only add, a few years back, we actually rebranded Greektown to Hollywood at Greektown to help with that conversion. And I think to all of Jay's points, the stand-alone casino app customer looks a lot like our retail slot player. And so we're seeing great migration and cross-play between the two. But also the cross-sell between sportsbook and iCasino has been very, very healthy. And so all the things we talked about that are going to drive new users top of funnel into ESPN BET is also going to be very, very good for our casino business as well.

Great. And then just a quick follow-up. Could or would the timing of Alberta in '26 impact your '26 profitability target?

It would not. When I say profitable in '26, we know that Alberta is going to launch at some point in, we think, early '26 from what we've been told. So that's built into our assumptions. We're targeting right now in Q1, which is the best information we have.

We'll take our next question from Ben Chaiken with Mizuho.

Maybe just stepping back, maybe you could further flesh out the opportunities you see to grow share in our game -- in iGaming over time. Just what is the lowest hanging, maybe your largest opportunity? And then unrelated on -- back on Felicia's commentary, on 2026, did you say it would be $50 million less cash taxes in '26 and '27 in? Or were you saying the cash taxes were $50 million?

And just to start with that. In 2026, our cash taxes will be lower by $50 million in each of '26 and '27.

And then on the iGaming question, I think we're seeing a lot of progress, as I noted just a moment ago with regard to slot play and our slot mix, which makes sense, especially in Pennsylvania, where we have 4 land-based casinos, all branded Hollywood; and Michigan, where we have Hollywood Greektown, as Todd just referenced.

So I think the biggest opportunity for us is to make sure that if you're coming to visit our land-based properties, and you're part of the PENN play loyalty program that we're giving you every reason in the world when you're not with us, but you decide to game from home or outside the building that you're doing that with Hollywood.

So I would say from a marketing strategy perspective, really making sure that we've got the right value proposition there and the loyalty program, mainly for slot players because we know table play is more common coming from -- with the cross-sell from within the sports betting app. Feel free to jump in if you have anything.

Yes, no that. And again, I don't know if you track the fact that a few months ago, we launched a free-to-play game called Spin It, which has brought a lot of users into the platform to try gaming, which has ultimately led to more cash players starting to play. So that's going to continue to ramp. We're going to continue to get smarter about marketing and reactivation. We have a lot more automation coming as it relates to how we distribute offers and the targeted groups of which we distribute us to. So we just feel we're really just getting started here. I mean we got a fast start because of our retail database, and we're starting to engage them directly through digital mechanisms, and those are working really well, and we're just going to continue to do that.

We'll take our next question from John DeCree with CBRE.

Maybe for Jay or Felicia, kind of a financing question, you took $130 million from GLPI at 7.75% for Joliet. Could you give us some insight as to kind of how you evaluate that versus other alternatives, whether it was cash on hand or a revolver?

And then I know you said in your prepared remarks, you will kind of update us as you get closer to Columbus and M and how you would fund those. But if you could kind of give us some insights of the guideposts and how you're evaluating that in the context of share repurchases and so on and so forth?

Yes. Thanks, John. And implicit to your question is we do balance all of those things when we make these decisions. You'll see when we file our 10-Q after the close today, we have drawn on our revolver versus the first quarter, mainly covering our share repurchases, but also the repurchase of our convertible notes. So our options for Joliet, and our decision was again to further draw on the revolver, like you said, cash on hand or go into the open markets or to use GLPI's balance sheet. And for us, using GLPI's balance sheet was really the best and most prudent option that we considered at this point in time.

We also -- like I mentioned before, for M and Columbus, we also have the optionality around how to finance those projects, and we'll approach that -- each one of those as we get closer. And then for Aurora, as you know, we're committed to GLPI.

Felicia, that's helpful. Maybe one more kind of in a similar capacity. We've gotten a couple of questions about PENN and your market access fees. And Boyd had a unique transaction with FanDuel and as part of that monetized some market access fees. Is that a consideration or discussions? I know that was a unique situation, but in terms of kind of a unique asset that you have, that's something that would be a possibility.

Nothing to share on that right now, John. We have skin agreements that all are in that 10- to 20-year time frame from when they were signed. And so we feel like we're in a good spot right now. If there's something that we could do to monetize and it made sense strategically, and both parties wanted to engage on that, of course, we would entertain and consider that. But nothing to share on that front right now.

We'll take our final question from Jeff Stantial with Stifel.

Two questions from us. One, sort of high-level strategic and then one a bit more technical. Maybe starting off with the more strategic question. I recognize it's only been a few months, but Jay, I'd love to just get any initial thoughts on some of the governance changes and in particular, maybe some of the insights that [ Johnny ] has been able to bring to the table to help inform Interactive strategy at what is clearly a sort of pivotal inflection point right now? And if there are any sort of specific examples you can share to add some color, that would be appreciated as well.

So Jeff, you're referencing the 2 new Board members, Carlos Ruisanchez and Johnny Hartnett. They joined our Board in June, as you know, after the AGM. And we've had several sessions with them getting them up speed, answering a lot of questions and also engaging on the business, which is great. It's always nice to have fresh eyes and perspectives.

And I think specifically as it relates to Johnny, we've had a couple of calls, meetings with him. Obviously, really talented, very accomplished and just brings a great perspective. And so we value that. It's great having discussions at the Board level and people that bring different skills to the table. We've always valued that at PENN. And I think Johnny and Carlos are bringing skills to the Board that are different than other Board profiles.

So I would say, overall, really good. Nothing that I can share, obviously, in terms of what we discussed with our Board members on this call, but I would just say that they're as engaged as you would expect them to be, and we're having really good conversations, and we would expect that to continue as we move forward.

That's great. And maybe sticking on Interactive. Some of the data of the states and I recognize it's not a perfect example, but the data out of the states that report promotional level disclosure seems to suggest that your promotional reinvestment on the sports side of things came in a bit Q2 and it looks to be much lower and more rational than sort of market-wide levels both for the nominal now and then also how much it declined by on a year-on-year basis.

So Jay or Todd, can you just sort of unpack this a little bit more? Is this sort of a function of user acquisition volumes and maturation in the velocity as that kind of continues to ramp? Is it more efficiencies related? Is there some element of that iCasino ramping and allocation of promo and bonuses more over iCasino from sports? Just sort of any color on that would be helpful because I think it is an interesting trend.

Yes. I mean I would say, overall, we really intend to be at market, both with regard to OSB as well as iCasino. Last year, we were in a different situation. And this year, I think you've seen us really settle into that right around 3%, maybe a little south of 3% most months and most quarters on the OSB side.

And on the iGaming side, it's a lot more, I would say, just stable. You don't see irrational spending as much as you do at times on the OSB side from 1 or 2 different competitors. We think we're at a good level of reinvestment right now with everything else that we have going on. And as I mentioned earlier, we have seen our NGR share continue to grow, even though handle share has been more stable, and that's obviously important for us as it flows through the P&L.

Yes. And we run these businesses together. And when iCasino started to get a little traction, we kind of shift around. We're in a slow sports season in the last few months. And so we've got to be creative and efficient in how we deploy our marketing resources. And so that's part of the decline we saw in OSB.

All right. Thanks, Jeff, and thank you, everybody, for joining us on the call. I look forward to speaking with you again in November. Or if you join us for the Joliet opening, we'll see you all next week. Thanks.

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