PENN ENTERTAINMENT, INC. The following discussion and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with, and is qualified in its entirety by, the unaudited Consolidated Financial Statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the Consolidated Financial Statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . EXECUTIVE OVERVIEW Our Business OnAugust 4, 2022 ,Penn National Gaming, Inc. was renamedPENN Entertainment, Inc. , together with its subsidiaries ("PENN," the "Company," "we," "our," or "us"), isNorth America's leading provider of integrated entertainment, sports content, and casino gaming experiences. A member of the S&P 500®, PENN operates 44 properties in 20 states, online sports betting in 13 jurisdictions and iCasino in five, under a portfolio of well-recognized brands includingHollywood Casino®, L'Auberge®, Barstool Sportsbook®, and theScore Bet®. PENN's highly differentiated strategy, which is focused on organic cross-sell opportunities, is reinforced by its investments in owned technology, including a state-of-the-art media and betting platform and an in-house iCasino content studio. The Company's portfolio is further bolstered by its industry-leading mychoice® customer loyalty program (the "mychoice program"), which offers its over 26 million members a unique set of rewards and experiences across business channels. The majority of the real estate assets (i.e., land and buildings) used in our operations are subject to triple net master leases; the most significant of which are the PENN Master Lease and the PinnacleMaster Lease (as such terms are defined in "Liquidity and Capital Resources" and collectively referred to as the "Master Leases"), with Gaming and Leisure Properties, Inc. (Nasdaq: GLPI) ("GLPI"), a real estate investment trust ("REIT").
Recent Acquisitions, Development Projects and Other
OnApril 16, 2020 , we sold the real estate assets associated with the operations ofTropicana Las Vegas Hotel and Casino, Inc. ("Tropicana") to GLPI in exchange for rent credits of$307.5 million , and utilized the rent credits to pay rent under our existing Master Leases and the Meadows Racetrack andCasino Lease , beginning inMay 2020 . OnJanuary 11, 2022 , PENN entered into a definitive purchase agreement to sell its outstanding equity interest in Tropicana, which has the gaming license and operates the Tropicana, toBally's Corporation ("Bally's"). This transaction is expected to close within the second half of 2022, subject to PENN, GLPI, andBally's entering into definitive agreements and obtaining regulatory approval. OnMay 11, 2021 , we acquired 100% of the outstanding equity ofHitPoint Inc. andLucky Point Inc. (collectively, "Hitpoint"). The purchase price totaled$12.7 million , consisting of$6.2 million in cash,$3.5 million of the Company's common equity, and a$3.0 million contingent liability. OnJuly 1, 2021 , we completed the acquisition of the operations ofHollywood Casino Perryville ("Perryville"), from GLPI for a purchase price of$39.4 million , including working capital adjustments. Simultaneous with the closing, we entered into a lease with GLPI for the real estate assets associated withHollywood Casino Perryville for initial annual rent of$7.8 million per year subject to escalation. OnAugust 1, 2021 , we completed the acquisition of the remaining 50% ownership interest in theSam Houston Race Park inHouston, Texas , theValley Race Park inHarlingen, Texas , and a license to operate a racetrack inAustin, Texas (collectively, "Sam Houston"), fromPM Texas Holdings, LLC for a purchase price of$57.8 million , comprised of$42.0 million in cash and$15.8 million of the Company's common equity. OnOctober 19, 2021 , we acquired 100% ofScore Media and Gaming, Inc. ("theScore") for a purchase price of approximately$2.1 billion . The acquisition provides us with the technology, resources and audience reach to accelerate our media and sports betting strategy acrossNorth America . Under the terms of the agreement, 1317774B.C. Ltd. (the "Purchaser"), an indirectly wholly owned subsidiary of PENN, acquired each of the issued and outstanding theScore shares (other than those held by PENN and its subsidiaries) forUS$17.00 per share in cash consideration, totaling$0.9 billion , and either 0.2398 of a share of common stock, par value$0.01 of PENN Common Stock or, if validly elected, 0.2398 of an exchangeable share in the capital of the Purchaser (each whole share, an "Exchangeable Share"), totaling 12,319,340 shares of PENN Common Stock and 697,539 Exchangeable Shares for approximately$1.0 billion . Each Exchangeable Share will be exchangeable into one share of PENN Common Stock at the option of the holder, subject to certain adjustments. In addition, 38 -------------------------------------------------------------------------------- Table of Contents Purchaser may redeem all outstanding Exchangeable Shares in exchange for shares of PENN Common Stock at any time following the fifth anniversary of the closing, or earlier under certain circumstances. We believe that our portfolio of assets provides us with the benefit of geographically-diversified cash flow from operations. We expect to continue to expand our gaming operations through the implementation and execution of a disciplined capital expenditure program at our existing properties, the pursuit of strategic acquisitions and investments, and the development of new gaming properties. In addition, the partnership withBarstool Sports, Inc. ("Barstool Sports ") and the acquisition of theScore reflect our strategy to continue evolving from the nation's largest regional gaming operator to a best-in-class omni-channel provider of retail and online gaming and sports betting entertainment.
Operating and Competitive Environment
Most of our properties operate in mature, competitive markets. We expect that the majority of our future growth will come from new business lines or distribution channels, such as retail and online gaming and sports betting; entrance into new jurisdictions; expansions of gaming in existing jurisdictions; and, to a lesser extent, improvements/expansions of our existing properties and strategic acquisitions of gaming properties. Our portfolio is comprised largely of well-maintained regional gaming facilities, which has allowed us to develop what we believe to be a solid base for future growth opportunities. We continue to adjust operations and cost structures at our properties to reflect changing economic and health and safety conditions. We also continue to focus on revenue and cost synergies from recent acquisitions, and offering our customers additional gaming experiences through our omni-channel distribution strategy. We seek to grow our customer database by partnering with third-party operators such as Choice Hotels International, Inc. to expand our loyalty program, as well as through accretive investments or acquisitions, such asBarstool Sports and theScore, capitalize on organic growth opportunities from the development of new properties or the expansion of recently-developed business lines, and develop partnerships that allow us to enter new jurisdictions for iCasino and sports betting. The gaming industry is characterized by an increasingly high degree of competition among a large number of participants, including riverboat casinos; dockside casinos; land-based casinos; video lottery; "iGaming" (which includes online sports betting and online social casino, bingo, and iCasino products); online and retail sports betting; sports media companies; gaming at taverns; gaming at truck stop establishments; sweepstakes and poker machines not located in casinos; the potential for increased fantasy sports; significant growth of Native American gaming tribes, historic racing or state-sponsored i-lottery products in or adjacent to states we operate in; and other forms of gaming in theU.S. See the "Segment comparison of the three and six months endedJune 30, 2022 and 2021" section below for discussions of the impact of competition on our results of operations by reportable segment.
Key Performance Indicators
In our business, revenue is driven by discretionary consumer spending. We have no certain mechanism for determining why consumers choose to spend more or less money at our properties from period-to-period; therefore, we are unable to quantify a dollar amount for each factor that impacts our customers' spending behaviors. However, based on our experience, we can generally offer some insight into the factors that we believe are likely to account for such changes and which factors may have a greater impact than others. For example, decreases in discretionary consumer spending have historically been brought about by weakened general economic conditions, such as lackluster recoveries from recessions, inflation, rising interest rate environments, high unemployment levels, higher income taxes, low levels of consumer confidence, weakness in the housing market, high fuel or other transportation costs, and the effects of the COVID-19 pandemic. In addition, visitation and the volume of play have historically been negatively impacted by significant construction surrounding our properties, adverse regional weather conditions and natural disasters. In all instances, such insights are based solely on our judgment and professional experience, and no assurance can be given as to the accuracy of our judgments. The vast majority of our revenues is gaming revenue, which is highly dependent upon the volume and spending levels of customers at our properties. Our gaming revenue is derived primarily from slot machines (which represented approximately 83% and 85% of our gaming revenue for the six months endedJune 30, 2022 and 2021) and, to a lesser extent, table games and sports betting. Aside from gaming revenue, our revenues are primarily derived from our hotel, dining, retail, commissions, program sales, admissions, concessions and certain other ancillary activities, and our racing operations. Key performance indicators related to gaming revenue are slot handle and table game drop, which are volume indicators, and "win" or "hold" percentage. Our typical property slot win percentage is in the range of approximately 7% to 11% of slot handle, and our typical table game hold percentage is in the range of approximately 15% to 27% of table game drop. 39 -------------------------------------------------------------------------------- Table of Contents Slot handle is the gross amount wagered during a given period. The win or hold percentage is the net amount of gaming wins and losses, with liabilities recognized for accruals related to the anticipated payout of progressive jackpots. Given the stability in our slot hold percentages on a historical basis, we have not experienced significant impacts to net income from changes in these percentages. For table games, customers usually purchase chips at the gaming tables. The cash and markers (extensions of credit granted to certain credit-worthy customers) are deposited in the gaming table's drop box. Table game hold is the amount of drop that is retained and recorded as gaming revenue, with liabilities recognized for funds deposited by customers before gaming play occurs and for unredeemed gaming chips. As we are primarily focused on regional gaming markets, our table game hold percentages are fairly stable since the majority of these markets do not regularly experience high-end play, which can lead to volatility in hold percentages. Therefore, changes in table game hold percentages do not typically have a material impact to our results of operations and cash flows. Under normal operating conditions, our properties generate significant operating cash flow since most of our revenue is cash-based from slot machines, table games, and pari-mutuel wagering. Our business is capital intensive, and we rely on cash flow from our properties to generate sufficient cash to satisfy our obligations under the Triple Net Leases (as defined in "Liquidity and Capital Resources" ), repay debt, fund maintenance capital expenditures, repurchase our common stock, fund new capital projects at existing properties and provide excess cash for future development and acquisitions. Additional information regarding our capital projects is discussed in "Liquidity and Capital Resources" below.
Reportable Segments
We have aggregated our operating segments into five reportable segments. Retail operating segments are based on the similar characteristics within the regions in which they operate: Northeast, South, West, and Midwest. Our Interactive segment includes all of our iCasino and online sports betting operations, management of retail sports betting, media, and our proportionate share of earnings attributable to our equity method investment inBarstool Sports . We view each of our gaming and racing properties as an operating segment with the exception of our two properties inJackpot, Nevada , which we view as one operating segment. We consider our combinedVideo Gaming Terminal ("VGT") operations, by state, to be separate operating segments. For a listing of our gaming properties and VGT operations included in each reportable segment, see
Note 2, "Significant Accounting Policies," in the notes to our unaudited Consolidated Financial Statements.
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Table of Contents
RESULTS OF OPERATIONS
The following table highlights our revenues, net income, and Adjusted EBITDA, on
a consolidated basis, as well as our revenues and Adjusted EBITDAR by reportable
segment. Such segment reporting is consistent with how we measure our business
and allocate resources internally. We consider net income to be the most
directly comparable financial measure calculated in accordance with generally
accepted accounting principles in the United States ("GAAP") to Adjusted EBITDA
and Adjusted EBITDAR, which are non-GAAP financial measures. Refer to "Non-GAAP
Financial Measures" below for the definitions of Adjusted EBITDA, Adjusted
EBITDA margin, Adjusted EBITDAR, and Adjusted EBITDAR margin; as well as a
reconciliation of net income to Adjusted EBITDA and Adjusted EBITDAR and related
margins.
For the three months ended June
30, For the six months ended June 30,
2022 2021 2022 2021
Revenues:
Northeast segment $ 684.9 $ 652.5 $ 1,343.4 $ 1,223.4
South segment 338.6 368.2 680.0 664.1
West segment 153.8 140.4 294.7 237.0
Midwest segment 296.3 294.8 579.2 529.5
Interactive segment 154.9 96.0 296.4 182.3
Other (1) 5.9 1.7 13.2 3.3
Intersegment eliminations (2) (7.5) (7.8) (15.8) (18.9)
Total $ 1,626.9 $ 1,545.8 $ 3,191.1 $ 2,820.7
Net income $ 26.1 $ 198.7 $ 77.7 $ 289.6
Adjusted EBITDAR:
Northeast segment $ 214.4 $ 231.6 $ 419.6 $ 424.8
South segment 143.3 177.1 289.8 311.0
West segment 59.7 61.4 110.9 96.6
Midwest segment 131.3 142.2 256.8 248.2
Interactive segment (20.8) 1.2 (30.8) 2.5
Other (1) (23.4) (26.9) (47.1) (49.5)
Total (3) 504.5 586.6 999.2 1,033.6
Rent expense associated with triple net
operating leases (4) (28.0) (116.5) (88.1) (226.9)
Adjusted EBITDA $ 476.5 $ 470.1 $ 911.1 $ 806.7
Net income margin 1.6 % 12.9 % 2.4 % 10.3 %
Adjusted EBITDAR margin 31.0 % 37.9 % 31.3 % 36.6 %
Adjusted EBITDA margin 29.3 % 30.4 % 28.6 % 28.6 %
(1)The Other category consists of the Company's stand-alone racing operations,
namely Sanford-Orlando Kennel Club , and Sam Houston and Valley Race Parks (the
remaining 50% was acquired by PENN on August 1, 2021 ), the Company's joint
venture interests in Freehold Raceway , and our management contract for Retama
Park Racetrack . Expenses incurred for corporate and shared services activities
that are directly attributable to a property or are otherwise incurred to
support a property are allocated to each property. The Other category also
includes corporate overhead costs, which consist of certain expenses, such as:
payroll, professional fees, travel expenses and other general and administrative
expenses that do not directly relate to or have not otherwise been allocated to
a property.
(2)Primarily represents the elimination of intersegment revenues associated with our internally-branded retail sportsbooks, which are operated by PENN Interactive.
(3)The total is a mathematical calculation derived from the sum of reportable segments (as well as the Other category). As noted within "Non-GAAP Financial Measures" below, Adjusted EBITDAR, and the related margin, is presented on a consolidated basis outside the financial statements solely as a valuation metric. (4)Solely comprised of rent expense associated with the operating lease components contained within our triple net master lease datedNovember 1, 2013 with GLPI and the triple net master lease assumed in connection with our acquisition ofPinnacle Entertainment, Inc. , our individual triple net leases with GLPI for the real estate assets used in the operation ofTropicana and Hollywood Casino at Meadows Racetrack, and our individual triple net leases with VICI Properties Inc. (NYSE: VICI) ("VICI") for the real estate assets used in the operations ofMargaritaville Casino Resort and 41 -------------------------------------------------------------------------------- Table of ContentsHollywood Casino atGreektown (of which the Tropicana Lease, Meadows Lease, Margaritaville Lease and the Greektown Lease are defined in "Liquidity and Capital Resources" ) and are referred to collectively as our "triple net operating leases". As a result of the Lease Modification defined in Note 9, "Leases" to our unaudited Consolidated Financial Statements, the land and building components associated with the operations of Hollywood Gaming atDayton Raceway and Hollywood Gaming at Mahoning ValleyRace Course are classified as operating leases which is recorded to rent expense, as compared to prior to the Lease Modification, whereby the land components of substantially all of the Master Lease properties were classified as operating leases and recorded to rent expense. Subsequent to the Lease Modification, the land components associated with the properties are primarily classified as finance leases.
Consolidated comparison of the three and six months ended
Revenues
The following table presents our consolidated revenues:
For the three months ended June For the six months ended June
30, Change 30, Change
(dollars in millions) 2022 2021 $ % 2022 2021 $ %
Revenues
Gaming $ 1,325.6 $ 1,305.5 $ 20.1 1.5 % $ 2,616.8 $ 2,387.5 $ 229.3 9.6 %
Food, beverage, hotel and
other 301.3 240.3 61.0 25.4 % 574.3 433.2 141.1 32.6 %
Total revenues $ 1,626.9 $ 1,545.8 $ 81.1 5.2 % $ 3,191.1 $ 2,820.7 $ 370.4 13.1 %
Gaming revenues for the three months ended June 30, 2022 increased $20.1 million
compared to the prior year period primarily due to increases in our Interactive
segment and the inclusion of the operating results of three new properties,
partially offset by decreases in gaming revenues in our South segment and
Northeast segment properties in both current and prior year periods. Gaming
revenues include Hollywood Casino Perryville , which was acquired on July 1,
2021 ; Hollywood Casino York , which opened August 12, 2021 ; and Hollywood Casino
Morgantown , which opened December 22, 2021 .
Gaming revenues for the six months ended June 30, 2022 increased $229.3 million
compared to the prior year corresponding period, primarily due to increases in
our Interactive segment resulting from continued growth in our online and sports
betting revenues, as well as the inclusion of the operating results of three new
properties discussed above.
Food, beverage, hotel and other revenues for the three and six months ended
June 30, 2022 increased $61.0 million and $141.1 million , respectively, compared
to the prior year corresponding periods, primarily due to easing of
restrictions, strong visitation levels among all age groups, and increased
offerings and hours of operations, as well as the inclusion of the operating
results from our three new properties as discussed above, and revenues from
theScore, which was acquired on October 19, 2021 .
During the prior year periods, food, beverage, hotel and other revenues were
negatively impacted as our properties operated within locally-restricted gaming
capacity and limited food and beverage, hotel capacity, and other amenity
offerings.
See "Segment comparison of the three and six months ended
Operating expenses
The following table presents our consolidated operating expenses:
For the three months ended June For the six months ended June
30, Change 30, Change
(dollars in millions) 2022 2021 $ % 2022 2021 $ %
Operating expenses
Gaming $ 713.6 $ 620.9 $ 92.7 14.9 % $ 1,400.2 $ 1,148.7 $ 251.5 21.9 %
Food, beverage, hotel and other 186.8 148.6 38.2 25.7 % 358.7 271.7 87.0 32.0 %
General and administrative 273.8 316.5 (42.7) (13.5) % 569.3 642.7 (73.4) (11.4) %
Depreciation and amortization 150.3 81.9 68.4 83.5 % 268.5 163.2 105.3 64.5 %
Total operating expenses $ 1,324.5 $ 1,167.9 $ 156.6 13.4 % $ 2,596.7 $ 2,226.3 $ 370.4 16.6 %
42
-------------------------------------------------------------------------------- Table of Contents Gaming expenses consist primarily of payroll, marketing and promotional expenses associated with our gaming operations and gaming taxes. Gaming expenses for the three and six months endedJune 30, 2022 increased$92.7 million and$251.5 million , respectively, compared to the prior year corresponding periods, primarily due to an increase in gaming taxes resulting from the increase in gaming revenues, higher payroll expenses related to volume increases in addition to variable marketing and promotional expenses, which remain below pre-pandemic levels. Food, beverage, hotel and other expenses consist primarily of payroll expenses and costs of goods sold associated with our food, beverage, hotel, retail, racing, and interactive operations. Food, beverage, hotel and other expenses for the three and six months endedJune 30, 2022 increased$38.2 million and$87.0 million , respectively, compared to the prior year corresponding periods, primarily due to increased volumes as we operated with increased offerings and extended hours of operations, which resulted in increases in payroll expenses and cost of sales. The prior year periods were impacted by reduced hotel capacity and limited food and beverage options. General and administrative expenses include items such as compliance, facility maintenance, utilities, property and liability insurance, surveillance and security, lobbying expenses, and certain housekeeping services, as well as all expenses for administrative departments such as accounting, purchasing, human resources, legal and internal audit. General and administrative expenses also include stock-based compensation expense; pre-opening expenses; acquisition and transaction costs; gains and losses on disposal of assets; insurance recoveries, net of deductible charges; changes in the fair value of our contingent purchase price obligations; expense associated with cash-settled stock-based awards (including changes in fair value thereto); and rent expense associated with our triple net operating leases. For the three and six months endedJune 30, 2022 , general and administrative expenses decreased by$42.7 million and$73.4 million respectively, primarily due to a decrease in rent costs associated with our Master Leases of$88.5 million and$138.8 million respectively, representing changes in lease classifications from operating to finance as a result of the Lease Modification as described in Note 9, "Leases" to our unaudited Consolidated Financial Statements. The decrease was offset by increased payroll costs of$13.3 million and$33.0 million , and increased facility costs due to increased volumes of$10.4 million and$23.8 million , in each respective period. In addition, general and administrative expenses include a$6.4 million loss on the sale of land for the three and six months endedJune 30, 2022 . Depreciation and amortization for the three and six months endedJune 30, 2022 increased period over period primarily due to increased amortization costs associated with our Master Leases of$46.7 million and$76.9 million , respectively, representing changes in lease classifications from operating to finance as a result of the Lease Modification as described in Note 9, "Leases" to our unaudited Consolidated Financial Statements. In addition, for the three and six months endedJune 30, 2022 , amortization on other intangible assets increased by$12.4 million and$25.2 million respectively, primarily due to the amortization of other intangible assets held by theScore.
Other income (expenses)
The following table presents our consolidated other income (expenses):
For the three months ended June For the six months ended June
30, Change 30, Change
(dollars in millions) 2022 2021 $ % 2022 2021 $ %
Other income (expenses)
Interest expense, net $ (193.6) $ (138.0) $ (55.6) 40.3 % $ (354.4) $ (273.7) $ (80.7) 29.5 %
Income from unconsolidated
affiliates $ 1.8 $ 9.1 $ (7.3) (80.2) % $ 10.5 $ 18.7 $ (8.2) (43.9) %
Other $ (28.2) $ 2.8 $ (31.0) N/M $ (68.9) $ 23.9 $ (92.8) N/M
Income tax expense $ (56.3) $ (53.1) $ (3.2) 6.0 % $ (103.9) $ (73.7) $ (30.2) 41.0 %
N/M - Not meaningful
Interest expense, net increased for the three and six months ended June 30, 2022
as compared to the prior year corresponding periods, primarily due to a net
increase in Master Lease interest costs due to changes in lease classifications
as a result of the Lease Modification as described in Note 9, "Leases" to
our unaudited Consolidated Financial Statements of $51.9 million and $74.7
million respectively.
Income from unconsolidated affiliates relates principally to our investment in
Barstool Sports , and our Kansas Entertainment and Freehold Raceway joint
ventures. The decrease for the three and six months ended June 30, 2022 ,
compared to the prior year corresponding periods, is due to lower income earned
from our investments in unconsolidated affiliates. We record our proportionate
share of Barstool Sports' net income or loss one quarter in arrears.
43
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Table of Contents
Other primarily relates to realized and unrealized gains and losses on equity
securities (including warrants), held by PENN Interactive, losses on early
retirement of debt, unrealized gains and losses related to certain Barstool
Sports shares as well as miscellaneous income and expense items. Equity
securities were provided to the Company in conjunction with entering into
multi-year agreements with sports betting operators for online sports betting
and related iCasino market access across our portfolio. For the three months
ended June 30, 2022 , other income primarily consisted of unrealized holding
losses of $16.9 million as well as a $10.4 million loss on the early
extinguishment of debt in connection with refinancing our Senior Secured Credit
Facilities, as described in "Liquidity and Capital Resources." For the three
months ended June 30, 2021 , other income primarily consisted of unrealized
holding losses of $7.4 million , offset by a $5.8 million unrealized gain related
to certain Barstool Sports shares and other miscellaneous income.
For the six months ended June 30, 2022 , other income primarily consisted of
unrealized holding losses of $55.6 million on equity shares, as well as the loss
on the early extinguishment of debt described above, compared to an unrealized
holding gain on equity shares (including warrants) of $18.8 million for the six
months ended June 30, 2021 .
Income tax expense was a $56.3 million and $103.9 million expense for the three
and six months ended June 30, 2022 , respectively, as compared to a $53.1 million
and $73.7 million expense for the three and six months ended June 30, 2021 . Our
effective tax rate (income taxes as a percentage of income from operations
before income taxes) including discrete items was 68.3% and 57.2% for the three
and six months ended June 30, 2022 as compared to 21.1% and 20.3% for the three
and six months ended June 30, 2021 , respectively. The change in the effective
rate for the six months ended June 30, 2022 as compared to the prior year period
was primarily due to the decrease in income before taxes as well as an increase
in the valuation allowance attributed to the Lease Modification.
Our effective income tax rate can vary each reporting period depending on, among
other factors, the geographic and business mix of our earnings, changes to our
valuation allowance, and the level of our tax credits. Certain of these and
other factors, including our history and projections of pre-tax earnings, are
considered in assessing our ability to realize our net deferred tax assets.
Segment comparison of the three and six months ended
Northeast Segment
For the three months ended June
30, Change For the six months ended June 30, Change
(dollars in
millions) 2022 2021 $ % 2022 2021 $ %
Revenues
Gaming $ 621.4 $ 602.5 $ 18.9 3.1 % $ 1,220.5 $ 1,129.5 $ 91.0 8.1 %
Food, beverage,
hotel and other 63.5 50.0 13.5 27.0 % 122.9 93.9 29.0 30.9 %
Total revenues $ 684.9 $ 652.5 $ 32.4 5.0 % $ 1,343.4 $ 1,223.4 $ 120.0 9.8 %
Adjusted EBITDAR$ 214.4 $ 231.6 $ (17.2) (7.4) %$ 419.6 $ 424.8 $ (5.2) (1.2) % Adjusted EBITDAR margin 31.3 % 35.5 % -420 bps 31.2 % 34.7 % -350 bps The Northeast segment's revenues for the three months endedJune 30, 2022 increased by$32.4 million over the prior year corresponding period, primarily due to the inclusion of operating results from our three new properties:Hollywood Casino Perryville ,Hollywood Casino York , andHollywood Casino Morgantown . The revenue increases resulting from the inclusion of our new properties were partially offset by decreases in gaming revenues in our properties with operations in both current and prior year periods. Additionally, operating results at ourAmeristar East Chicago property were negatively impacted by increased competition as a new property opened inNorthern Indiana in May of 2021. The Northeast segment's revenues for the six months endedJune 30, 2022 increased by$120.0 million over the prior year corresponding period, primarily due to the inclusion of operating results from our three new properties, as discussed above, and increases in food, beverage, hotel and other revenues as we operated with increased offerings and extended hours of operations, partially offset by decreases in gaming revenues in our properties with operations in both current and prior year periods. During the prior year periods, our Northeast segment's operating results were negatively impacted as our properties operated within locally-restricted gaming capacity and limited food and beverage and other amenity offerings. Additionally, ourPennsylvania properties were temporarily closed for three days inJanuary 2021 , due to COVID-19 restrictions. 44 -------------------------------------------------------------------------------- Table of Contents For the three months endedJune 30, 2022 , the Northeast segment's Adjusted EBITDAR decreased$17.2 million , and Adjusted EBITDAR margin decreased to 31.3%, primarily due to increased variable marketing and promotional, and payroll expenses associated with hotel and food and beverage offerings not available in the prior year period. For the six months endedJune 30, 2022 , the Northeast segment's Adjusted EBITDAR decreased$5.2 million , primarily due to increased variable marketing and promotional, and payroll expenses associated with hotel and food and beverage offerings not available in the prior year period, resulting in an Adjusted EBITDAR margin of 31.2%.
South Segment
For the three months ended June For the six months ended June
30, Change 30, Change
(dollars in
millions) 2022 2021 $ % 2022 2021 $ %
Revenues
Gaming$ 269.0 $ 304.4 $ (35.4) (11.6) %$ 547.6 $ 549.8 $ (2.2) (0.4) % Food, beverage, hotel and other 69.6 63.8 5.8 9.1 % 132.4 114.3 18.1 15.8 % Total revenues$ 338.6 $ 368.2 $ (29.6) (8.0) %$ 680.0 $ 664.1 $ 15.9
2.4 %
Adjusted EBITDAR$ 143.3 $ 177.1 $ (33.8) (19.1) %$ 289.8 $ 311.0 $ (21.2) (6.8) % Adjusted EBITDAR margin 42.3 % 48.1 % -580 bps 42.6 % 46.8 % -420 bps The South segment's revenues for the three months endedJune 30, 2022 decreased by$29.6 million from the prior year period, primarily due to strong visitation levels and customer spend in the prior period. Revenues for the six months endedJune 30, 2022 increased by$15.9 million from the prior year period, primarily due to strong visitation levels among all age groups, increased length of play, and increased spend per guest during the first quarter of 2022. For the three months endedJune 30, 2022 , the South segment's Adjusted EBITDAR decreased$33.8 million and Adjusted EBITDAR margin decreased to 42.3% primarily due to the decrease in gaming revenues, increased variable marketing and promotional expenses, which remain below pre-pandemic levels, and increased payroll expenses as we reopened outlets and offered additional amenities such as banquets, conferences, and new restaurants. For the six months endedJune 30, 2022 , the South segment's Adjusted EBITDAR decreased$21.2 million and Adjusted EBITDAR margin decreased to 42.6% primarily due to higher variable marketing and promotional expenses, which remain below pre-pandemic levels, in addition to higher payroll expenses associated with hotel and food and beverage offerings not available in the prior year period. West Segment For the three months ended June For the six months ended June 30, Change 30, Change (dollars in millions) 2022 2021 $ % 2022 2021 $ % Revenues Gaming$ 98.9 $ 96.7 $ 2.2 2.3 %$ 193.0 $ 165.8 $ 27.2 16.4 % Food, beverage, hotel and other 54.9 43.7 11.2 25.6 % 101.7 71.2 30.5 42.8 % Total revenues$ 153.8 $ 140.4 $ 13.4 9.5 %$ 294.7 $ 237.0 $ 57.7 24.3 % Adjusted EBITDAR$ 59.7 $ 61.4 $ (1.7) (2.8) %$ 110.9 $ 96.6 $ 14.3 14.8 % Adjusted EBITDAR margin 38.8 % 43.7 % -490 bps 37.6 % 40.8 % -320 bps The West segment's revenues for the three and six months endedJune 30, 2022 increased by$13.4 million and$57.7 million over the prior year corresponding periods, primarily due to increases in food, beverage, hotel and other revenues due to the easing of restrictions and strong visitation levels at ourZia Park , Tropicana, andM Resort properties. During the three and six months endedJune 30, 2021 , our West segment's operating results were negatively impacted by the temporary closure of ourZia Park property due to the COVID-19 pandemic, which remained closed untilMarch 5, 2021 and for an additional thirteen days in April of 2021. Additionally, during the prior year periods, our properties in the West segment operated within locally restricted gaming and hotel capacity and limited food and beverage and other amenities offerings. 45 -------------------------------------------------------------------------------- Table of Contents For the three months endedJune 30, 2022 , the West segment's Adjusted EBITDAR decreased$1.7 million and Adjusted EBITDAR margin decreased to 38.8%, primarily due to higher payroll expenses related to volume increases in addition to variable marketing and promotional expenses, which remain below pre-pandemic levels. For the six months endedJune 30, 2022 , the West segment's Adjusted EBITDAR increased$14.3 million primarily due to increases in gaming and non gaming revenues as described above, offset by higher payroll expenses related to volume increases in addition to higher variable marketing and promotional expenses, which remain below pre-pandemic levels, reflected in Adjusted EBITDAR margin, which decreased by 320 basis points to 37.6%. Midwest Segment For the three months ended June For the six months ended June 30, Change 30, Change (dollars in millions) 2022 2021 $ % 2022 2021 $ % Revenues Gaming$ 267.0 $ 272.1 $ (5.1) (1.9) %$ 523.5 $ 489.0 $ 34.5 7.1 % Food, beverage, hotel and other 29.3 22.7 6.6 29.1 % 55.7 40.5 15.2 37.5 % Total revenues$ 296.3 $ 294.8 $ 1.5 0.5 %$ 579.2 $ 529.5 $ 49.7 9.4 % Adjusted EBITDAR$ 131.3 $ 142.2 $ (10.9) (7.7) %$ 256.8 $ 248.2 $ 8.6 3.5 % Adjusted EBITDAR margin 44.3 % 48.2 % -390 bps 44.3 % 46.9 % -260 bps The Midwest segment's revenues for the three months endedJune 30, 2022 increased slightly compared to the prior year quarter. The Midwest segment's revenues for the six months endedJune 30, 2022 increased by$49.7 million over the prior year corresponding period, due to strong operating results in the first quarter of 2022, resulting from easing of restrictions, strong visitation levels among all age groups, increased length of play and increased spend per guest. During the prior year periods, our Midwest segment's operating results were negatively impacted as our properties operated within locally-restricted gaming capacity and limited food and beverage and other amenity offerings. Additionally, ourIllinois properties were temporarily closed for periods between fifteen and twenty-two days inJanuary 2021 , due to COVID-19 restrictions. For the three months endedJune 30, 2022 , the Midwest segment's Adjusted EBITDAR decreased$10.9 million and Adjusted EBITDAR margin decreased to 44.3%, primarily due to the decrease in gaming revenues, increased variable marketing and promotional expenses, which remain below pre-pandemic levels in addition to higher payroll expenses associated with hotel and food and beverage offerings not available in the prior year period. For the six months endedJune 30, 2022 , the Midwest segment's Adjusted EBITDAR increased$8.6 million primarily due to increases in gaming and non gaming revenues as discussed above, offset by higher payroll expenses related to volume increases in addition to higher variable marketing and promotional expenses, which remain below pre-pandemic levels, reflected in Adjusted EBITDAR margin, which decreased by 260 basis points to 44.3%.
Interactive Segment
For the three months ended For the six months ended June
June 30, Change 30, Change
(dollars in
millions) 2022 2021 $ % 2022 2021 $ %
Revenues
Gaming $ 69.3 $ 29.8 $ 39.5 132.6 % $ 132.2 $ 53.4 $ 78.8 147.6 %
Food, beverage,
hotel and other 85.6 66.2 19.4 29.3 % 164.2 128.9 35.3 27.4 %
Total revenues $ 154.9 $ 96.0 $ 58.9 61.4 % $ 296.4 $ 182.3 $ 114.1 62.6 %
Adjusted EBITDAR $ (20.8) $ 1.2 $ (22.0) N/M $ (30.8) $ 2.5 $ (33.3) N/M
Adjusted EBITDAR
margin (13.4) % 1.3 % N/M (10.4) % 1.4 % N/M
N/M - Not meaningful
The Interactive segment's revenues for the three and six months ended June 30,
2022 increased by $58.9 million and $114.1 million over the prior year
corresponding periods, primarily due to continued increases in online activity
with the launch of theScore Bet in Ontario and the Barstool Sportsbook in
additional states, as well as the inclusion of revenues from theScore,
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which was acquired on October 19, 2021 . Additionally, revenues are inclusive of
a tax gross-up of $55.4 million and $105.7 million for the three and six months
ended June 30, 2022 , respectively, compared to $46.0 and $85.5 million for the
three and six months ended June 30, 2021 , respectively.
For the three and six months ended
Other
For the three months ended For the six months ended June
June 30, Change 30, Change
(dollars in millions) 2022 2021 $ % 2022 2021 $ %
Revenues
Food, beverage, and
other $ 5.9 $ 1.7 $ 4.2 247.1 % 13.2 3.3 9.9 300.0 %
Total revenues $ 5.9 $ 1.7 $ 4.2 247.1 % $ 13.2 $ 3.3 $ 9.9 300.0 %
Adjusted EBITDAR
13.0 %$ (47.1) $ (49.5) $ 2.4
4.8 %
Other consists of the Company's stand-alone racing operations, as well as corporate overhead costs, which primarily includes certain expenses such as payroll, professional fees, travel expenses and other general and administrative expenses that do not directly relate to or have not otherwise been allocated to a property. Revenues for the three and six months endedJune 30, 2022 , have increased as compared to the prior year corresponding periods, primarily due to the acquisition ofSam Houston , the remaining 50% of which was acquired onAugust 1, 2021 . Adjusted EBITDAR increased by$3.5 million and$2.4 million for the three and six months endedJune 30, 2022 respectively, as compared to the prior year corresponding periods, primarily due to changes in corporate overhead costs, which are reflective of the current operating environment.
Non-GAAP Financial Measures
Use and Definitions
In addition to GAAP financial measures, management uses Adjusted EBITDA, Adjusted EBITDAR, Adjusted EBITDA margin, and Adjusted EBITDAR margin as non-GAAP financial measures. These non-GAAP financial measures should not be considered a substitute for, nor superior to, financial results and measures determined or calculated in accordance with GAAP. Each of these non-GAAP financial measures is not calculated in the same manner by all companies and, accordingly, may not be an appropriate measure of comparing performance among different companies. We define Adjusted EBITDA as earnings before interest expense, net; income taxes; depreciation and amortization; stock-based compensation; debt extinguishment and financing charges (which are included in "other (income) expenses"); impairment losses; insurance recoveries, net of deductible charges; changes in the estimated fair value of our contingent purchase price obligations; gain or loss on disposal of assets; the difference between budget and actual expense for cash-settled stock-based awards; pre-opening expenses; and other. Adjusted EBITDA is inclusive of income or loss from unconsolidated affiliates, with our share of non-operating items (such as interest expense, net; income taxes; depreciation and amortization; and stock-based compensation expense) added back forBarstool Sports, Inc. and ourKansas Entertainment, LLC joint venture. Adjusted EBITDA is inclusive of rent expense associated with our triple net operating leases (the operating lease components contained within our triple net master lease datedNovember 1, 2013 with Gaming and Leisure Properties, Inc. (Nasdaq: GLPI) ("GLPI") and the triple net master lease assumed in connection with our acquisition ofPinnacle Entertainment, Inc. , our individual triple net leases with GLPI for the real estate assets used in the operation ofTropicana Las Vegas Hotel and Casino, Inc. andHollywood Casino at Meadows Racetrack, and our individual triple net leases with VICI Properties Inc. (NYSE: VICI) ("VICI") for the real estate assets used in the operations ofMargaritaville Casino Resort andHollywood Casino atGreektown ). Although Adjusted EBITDA includes rent expense associated with our triple net operating leases, we believe Adjusted EBITDA is useful as a supplemental measure in evaluating the performance of our consolidated results of operations. We define Adjusted EBITDA margin as Adjusted EBITDA divided by consolidated revenues. Adjusted EBITDA has economic substance because it is used by management as a performance measure to analyze the performance of our business, and is especially relevant in evaluating large, long-lived casino-hotel projects because it provides a perspective on the current effects of operating decisions separated from the substantial non-operational depreciation charges and financing costs of such projects. We present Adjusted EBITDA because it is used by some investors and creditors as an 47 -------------------------------------------------------------------------------- Table of Contents indicator of the strength and performance of ongoing business operations, including our ability to service debt, and to fund capital expenditures, acquisitions and operations. These calculations are commonly used as a basis for investors, analysts and credit rating agencies to evaluate and compare operating performance and value companies within our industry. In order to view the operations of their casinos on a more stand-alone basis, gaming companies, including us, have historically excluded from their Adjusted EBITDA calculations of certain corporate expenses that do not relate to the management of specific casino properties. However, Adjusted EBITDA is not a measure of performance or liquidity calculated in accordance with GAAP. Adjusted EBITDA information is presented as a supplemental disclosure, as management believes that it is a commonly used measure of performance in the gaming industry and that it is considered by many to be a key indicator of the Company's operating results. We define Adjusted EBITDAR as Adjusted EBITDA (as defined above) plus rent expense associated with triple net operating leases (which is a normal, recurring cash operating expense necessary to operate our business). Adjusted EBITDAR is presented on a consolidated basis outside the financial statements solely as a valuation metric. Management believes that Adjusted EBITDAR is an additional metric traditionally used by analysts in valuing gaming companies subject to triple net leases since it eliminates the effects of variability in leasing methods and capital structures. This metric is included as supplemental disclosure because (i) we believe Adjusted EBITDAR is traditionally used by gaming operator analysts and investors to determine the equity value of gaming operators and (ii) Adjusted EBITDAR is one of the metrics used by other financial analysts in valuing our business. We believe Adjusted EBITDAR is useful for equity valuation purposes because (i) its calculation isolates the effects of financing real estate; and (ii) using a multiple of Adjusted EBITDAR to calculate enterprise value allows for an adjustment to the balance sheet to recognize estimated liabilities arising from operating leases related to real estate. However, Adjusted EBITDAR when presented on a consolidated basis is not a financial measure in accordance with GAAP, and should not be viewed as a measure of overall operating performance or considered in isolation or as an alternative to net income because it excludes the rent expense associated with our triple net operating leases and is provided for the limited purposes referenced herein. Adjusted EBITDAR margin is defined as Adjusted EBITDAR on a consolidated basis divided by revenues on a consolidated basis. Adjusted EBITDAR margin is presented on a consolidated basis outside the financial statements solely as a valuation metric. We further define Adjusted EBITDAR margin by reportable segment as Adjusted EBITDAR for each segment divided by segment revenues. 48 -------------------------------------------------------------------------------- Table of Contents Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures
The following table includes a reconciliation of net income, which is determined in accordance with GAAP, to Adjusted EBITDA and Adjusted EBITDAR, which are non-GAAP financial measures, as well as related margins:
For the three months ended
June 30, For the six months ended June 30,
(dollars in millions) 2022 2021 2022 2021
Net income $ 26.1 $ 198.7 $ 77.7 $ 289.6
Income tax expense 56.3 53.1 103.9 73.7
Income from unconsolidated affiliates (1.8) (9.1) (10.5) (18.7)
Interest expense, net 193.6 138.0 354.4 273.7
Other (income) expenses 28.2 (2.8) 68.9 (23.9)
Operating income 302.4 377.9 594.4 594.4
Stock-based compensation (1) 14.5 9.2 31.5 13.4
Cash-settled stock-based award variance (1)(2) (9.5) (12.4) (12.4) 9.1
Loss (gain) on disposal of assets (1) 7.3 (0.1) 7.2 (0.2)
Contingent purchase price (1) (0.9) 1.2 (1.0) 1.3
Pre-opening expenses (1)(3) 2.1 (0.4) 3.6 1.2
Depreciation and amortization 150.3 81.9 268.5 163.2
Insurance recoveries, net of deductible charges (1) - - (8.8) -
Income from unconsolidated affiliates 1.8 9.1 10.5 18.7
Non-operating items of equity method investments (4) 0.3 1.4 2.1 3.0
Other expenses (1)(3)(5) 8.2 2.3 15.5 2.6
Adjusted EBITDA 476.5 470.1 911.1 806.7
Rent expense associated with triple net operating
leases (1) 28.0 116.5 88.1 226.9
Adjusted EBITDAR $ 504.5 $ 586.6 $ 999.2 $ 1,033.6
Net income margin 1.6 % 12.9 % 2.4 % 10.3 %
Adjusted EBITDA margin 29.3 % 30.4 % 28.6 % 28.6 %
Adjusted EBITDAR margin 31.0 % 37.9 % 31.3 % 36.6 %
(1) These items are included in "General and administrative" within the Company's unaudited Consolidated Statements of Operations.
(2) Our cash-settled stock-based awards are adjusted to fair value each reporting period based primarily on the price of the Company's common stock. As such, significant fluctuations in the price of the Company's common stock during any reporting period could cause significant variances to budget on cash-settled stock-based awards. (3) During the first quarter of 2021, acquisition costs were included within pre-opening and acquisition costs. Beginning with the quarter endedJune 30, 2021 , acquisition costs are presented as part of other expenses. (4) Consists principally of interest expense, net, income taxes, depreciation and amortization, and stock-based compensation expense associated withBarstool Sports and ourKansas Entertainment joint venture. We record our portion ofBarstool Sports' net income or loss, including adjustments to arrive at Adjusted EBITDAR, one quarter in arrears. (5) Consists of non-recurring acquisition and transaction costs, and finance transformation costs associated with the implementation of our new EnterpriseResource Management system. 49
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LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity and capital resources have been and are
expected to be cash flow from operations, borrowings from banks, and proceeds
from the issuance of debt and equity securities. Our ongoing liquidity will
depend on a number of factors, including available cash resources, cash flow
from operations, acquisitions or investments, funding of construction for
development projects, and our compliance with covenants contained under our debt
agreements.
For the six months ended June
30, Change
(dollars in millions) 2022 2021 $ %
Net cash provided by operating activities $ 436.4 $ 504.6 $ (68.2) (13.5)%
Net cash used in investing activities $ (113.7) $ (99.1) $ (14.6) 14.7%
Net cash (used in) provided by financing
activities $ (477.3) $ 18.8 $ (496.1) N/M
N/M - Not meaningful
Operating Cash Flow
Trends in our operating cash flows tend to follow trends in operating income,
excluding non-cash charges, but can be affected by changes in working capital,
the timing of significant interest payments, tax payments or refunds, and
distributions from unconsolidated affiliates. Net cash provided by operating
activities decreased by $68.2 million for the six months ended June 30, 2022 ,
primarily due to an increase in cash paid for income taxes and a negative impact
in changes in working capital related to gaming taxes and other gaming
liabilities and payroll related liabilities.
Investing Cash Flow
Cash used in investing activities for the six months endedJune 30, 2022 of$113.7 million is primarily due to capital expenditures of$125.6 million and the acquisition of a$15.0 million cost method investment, offset by insurance proceeds received for losses incurred due to Hurricane Laura in 2020. For the six months endedJune 30, 2021 , cash used in investing activities of$99.1 million was primarily due to capital expenditures and consideration paid for gaming licenses and other intangible assets.
Capital Expenditures
Capital expenditures are accounted for as either project capital (new facilities or expansions) or maintenance (replacement) capital expenditures. Cash provided by operating activities, as well as cash available under our Amended Revolving Credit Facility and Revolving Facility, was available to fund our capital expenditures for six months endedJune 30, 2022 and 2021, respectively. Capital expenditures for the six months endedJune 30, 2022 and 2021 were$125.6 million and$64.6 million , respectively. Capital expenditures related to ourYork and Morgantown development project were$13.3 million and$25.6 million for the six months endedJune 30, 2022 and 2021, respectively. During the six months endedJune 30, 2022 , capital expenditures also included$17.8 million in construction costs related to hurricane damage sustained at ourLake Charles property of which insurance proceeds were previously received. For the year endingDecember 31, 2022 , our anticipated capital expenditures are approximately$300 million , which includes capital expenditures required under our Triple Net Leases, which require us to spend a specified percentage of net revenues.
Financing Cash Flow
For the six months endedJune 30, 2022 , net cash used in financing activities totaled$477.3 million , primarily related to$342.1 million common stock repurchases, net debt repayments of$18.7 million ,$18.2 million in debt issuance costs, and$85.4 million in principal payments on our finance leases and finance obligations. During the six months endedJune 30, 2021 , cash provided by financing activities of$18.8 million was primarily due to net cash proceeds of$72.5 million from other long-term obligations, offset by principal payments on long-term debt and principal payments on our finance leases and finance obligations. 50 -------------------------------------------------------------------------------- Table of Contents Borrowings and Repayments of Long-term Debt OnMay 3, 2022 , the Company entered into a Second Amended and Restated Credit Agreement with its various lenders (the "Second Amended and Restated Credit Agreement"). The Second Amended and Restated Credit Agreement provides for a$1.0 billion revolving credit facility, undrawn at close, (the "Amended Revolving Credit Facility"), a five-year$550.0 million term loan A facility (the "Amended Term Loan A Facility") and a seven-year$1.0 billion term loan B facility (the "Amended Term Loan B Facility") facilities (together, the "Amended Credit Facilities"). The proceeds from the Amended Credit Facilities were used to repay the existing Term Loan A Facility and Term Loan B-1 Facility balances. AtJune 30, 2022 , we had$2.8 billion in aggregate principal amount of indebtedness, including$1.6 billion outstanding under our Amended Credit Facilities,$400.0 million outstanding under our 5.625% senior unsecured notes,$400.0 million outstanding under our 4.125% senior unsecured notes,$330.5 million outstanding under our 2.75% Convertible Notes due 2026, and$150.1 million outstanding in other long-term obligations. No amounts were drawn on our Amended Revolving Credit Facility. After the refinancing of our Senior Secured Credit Facilities discussed above, we have no debt maturing prior to 2026. As ofJune 30, 2022 we had conditional obligations under letters of credit issued pursuant to the Amended Credit Facilities with face amounts aggregating to$25.4 million resulting in$974.6 million available borrowing capacity under our Amended Revolving Credit Facility.
Covenants
Our Amended Credit Facilities, 5.625% Notes and 4.125% Notes require us, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests. In addition, our Amended Credit Facilities, 5.625% Notes and 4.125% Notes, restrict, among other things, our ability to incur additional indebtedness, incur guarantee obligations, amend debt instruments, pay dividends, create liens on assets, make investments, engage in mergers or consolidations, and otherwise restrict corporate activities. Our debt agreements also contain customary events of default, including cross-default provisions that require us to meet certain requirements under the PENN Master Lease and the Pinnacle Master Lease (both of which are defined in Note 9, "Leases" to our unaudited Consolidated Financial Statements), each with GLPI. If we are unable to meet our financial covenants or in the event of a cross-default, it could trigger an acceleration of payment terms. As ofJune 30, 2022 , the Company was in compliance with all required financial covenants. The Company believes that it will remain in compliance with all of its required financial covenants for at least the next twelve months following the date of filing this Quarterly Report on Form 10-Q with theSEC . See Note 8, "Long-term Debt," in the notes to our unaudited Consolidated Financial Statements for additional information of the Company's debt and other long-term obligations.
Share Repurchase Authorization
OnFebruary 1, 2022 , the Board of Directors of PENN approved a$750.0 million share repurchase authorization. The three-year authorization expires onJanuary 31, 2025 . Repurchases by the Company will be subject to available liquidity, general market and economic conditions, alternate uses for the capital and other factors. Share repurchases may be made from time to time through a 10b5-1 trading plan, open market transactions, block trades or in private transactions in accordance with applicable securities laws and regulations and other legal requirements. There is no minimum number of shares that the Company is required to repurchase and the repurchase authorization may be suspended or discontinued at any time without prior notice. During the three months endedJune 30, 2022 , the Company repurchased 5,539,177 shares of its common stock in open market transactions for$167.0 million at an average price of$30.16 per share. During the six months endedJune 30, 2022 , the Company repurchased 9,341,585 shares of its common stock in open market transactions for$342.1 million at an average price of$36.62 per share. The cost of all repurchased shares is recorded as "Treasury stock" within our unaudited Consolidated Balance Sheets. Subsequent to the quarter endedJune 30, 2022 , the Company repurchased 3,019,790 million shares of its common stock at an average price of$31.46 per share for an aggregate amount of$95.0 million . The remaining availability under our$750.0 million share repurchase authorization was$313.1 million as ofAugust 3, 2022 . Triple Net Leases
The majority of the real estate assets used in the Company's operations are
subject to triple net master leases; the most significant of which are the PENN
Master Lease and the Pinnacle
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our operations are subject to individual triple net leases. We refer to the PENN
Master Lease, the Pinnacle Master Lease , the Perryville Lease, the Meadows
Lease, the Margaritaville Lease, the Greektown Lease, the Tropicana Lease and
the Morgantown Lease, collectively, as our Triple Net Leases. The Company's
Triple Net Leases are accounted for as either operating leases, finance leases,
or financing obligations.
Under our Triple Net Leases, in addition to lease payments for the real estate
assets, we are required to pay the following, among other things: (i) all
facility maintenance; (ii) all insurance required in connection with the leased
properties and the business conducted on the leased properties; (iii) taxes
levied on or with respect to the leased properties (other than taxes on the
income of the lessor); (iv) all tenant capital improvements; and (v) all
utilities and other services necessary or appropriate for the leased properties
and the business conducted on the leased properties. Additionally, our Triple
Net Leases are subject to annual escalators and periodic percentage rent resets,
as applicable. See Note 9, "Leases," in the notes to our unaudited
Consolidated Financial Statements for further discussion and disclosure related
to the Company's leases.
Payments to our REIT Landlords under Triple Net Leases
Total payments made to our REIT Landlords, GLPI and VICI, were as follows:
For the three months ended For the six months ended June
June 30, 30,
(in millions) 2022 2021 2022 2021
PENN Master Lease $ 120.6 $ 120.7 $ 239.8 $ 238.7
Pinnacle Master Lease 83.4 82.1 165.9 163.4
Perryville Lease 2.0 - 3.9 -
Meadows Lease 6.2 6.2 12.4 12.4
Margaritaville Lease 6.0 5.9 11.9 11.7
Greektown Lease 12.9 13.5 25.7 27.4
Morgantown Lease 0.7 0.7 1.5 1.5
Total (1) $ 231.8 $ 229.1 $ 461.1 $ 455.1 (1)Rent payable under the Tropicana Lease is nominal. Therefore, this lease has been excluded from the table above.
Outlook
Based on our current level of operations, we believe that cash generated from operations and cash on hand, together with amounts available under our Amended Credit Facilities, will be adequate to meet our anticipated obligations under our Triple Net Leases, debt service requirements, capital expenditures and working capital needs for the foreseeable future. However, our ability to generate sufficient cash flow from operations will depend on a range of economic, competitive and business factors, many of which are outside our control. We cannot be certain: (i) of the impact of global supply chain disruptions, price inflation, and rising interest rates on theU.S. economy and the ability of our business to maintain its recovery from the impacts of the COVID-19 pandemic; (ii) that our anticipated earnings projections will be realized; (iii) that we will achieve the expected synergies from our acquisitions; and (iv) that future borrowings will be available under our Amended Credit Facilities or otherwise will be available in the credit markets to enable us to service our indebtedness or to make anticipated capital expenditures. We caution you that the trends seen at our properties, such as strong visitation and increased length of play, may not continue. In addition, while we anticipated that a significant amount of our future growth would come through the pursuit of opportunities within other distribution channels, such as retail and online sports betting, social gaming, retail gaming, and iGaming; from acquisitions of gaming properties at reasonable valuations; greenfield projects; and jurisdictional expansions and property expansion in under-penetrated markets; there can be no assurance that this will be the case given the uncertainty arising from the COVID-19 pandemic. If we consummate significant acquisitions in the future or undertake any significant property expansions, our cash requirements may increase significantly and we may need to make additional borrowings or complete equity or debt financings to meet these requirements. See Part I, Item 1A. "Risk Factors" of the Company's Form 10-K for the year endedDecember 31, 2021 for a discussion of additional risks related to the Company's capital structure. We have historically maintained a capital structure comprised of a mix of equity and debt financing. We vary our leverage to pursue opportunities in the marketplace in an effort to maximize our enterprise value for our shareholders. We expect to meet our debt obligations as they come due through internally-generated funds from operations and/or refinancing them through the debt or equity markets prior to their maturity. 52
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CRITICAL ACCOUNTING ESTIMATES
A complete discussion of our critical accounting estimates is included in our
Form 10-K for the year ended December 31, 2021 . There have been no significant
changes in our critical accounting estimates during the six months ended
June 30, 2022 .
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTSFor information with respect to new accounting pronouncements and the impact of these pronouncements on our unaudited Consolidated Financial Statements, see
Note 3, "New Accounting Pronouncements," in the notes to our unaudited Consolidated Financial Statements.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements can be
identified by the use of forward-looking terminology such as "expects,"
"believes," "estimates," "projects," "intends," "plans," "goal," "seeks," "may,"
"will," "should," or "anticipates" or the negative or other variations of these
or similar words, or by discussions of future events, strategies or risks and
uncertainties. Specifically, forward-looking statements include, but are not
limited to, statements regarding: the Company's expectations of, and guidance
regarding, future results of operations and financial condition, the assumptions
provided regarding the guidance, including the scale and timing of the Company's
product and technology investments; the Company's anticipated share repurchases;
the Company's expectations with regard to results, and the impact of
competition, in online sports betting, iGaming and retail/mobile sportsbooks;
the Company's launch of its Interactive segment's products in new jurisdictions
and enhancements to existing Interactive segment products, including the
integration of the Barstool Sportsbook into theScore mobile app in the U.S. , and
the migration of the Barstool Sportsbook to theScore's player account management
trading platforms; the Company's expectations with regard to its future
investments in Barstool Sports and the future success of its products; the
Company's expectations with respect to the integration and synergies related to
the Company's integration of theScore and Barstool Sports ; the Company's
expectations with respect to the ongoing introduction and the potential benefits
of the cashless, cardless and contactless ("3Cs") technology; the Company's
development projects; and the timing, cost and expected impact of planned
capital expenditures on the Company's results of operations.
Such statements are all subject to risks, uncertainties and changes in
circumstances that could significantly affect the Company's future financial
results and business. Accordingly, the Company cautions that the forward-looking
statements contained herein are qualified by important factors that could cause
actual results to differ materially from those reflected by such statements.
Such factors include: the effects of economic conditions and market conditions
in the markets in which the Company operates; competition with other
entertainment, sports content, and casino gaming experiences; the timing, cost
and expected impact of product and technology investments; risks relating to
international operations, permits, licenses, financings, approvals and other
contingencies in connection with growth in new or existing jurisdictions; and
additional risks and uncertainties described in the Company's Annual Report on
Form 10-K for the year ended December 31, 2021 , subsequent Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K, each as filed with the U.S.
Securities and Exchange Commission . The Company does not intend to update
publicly any forward-looking statements except as required by law. Considering
these risks, uncertainties and assumptions, the forward-looking events discussed
in this Form 10-Q may not occur.
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