Executive Summary / Key Takeaways

• PENN Entertainment is executing a multi-year omni-channel strategy, leveraging its strong regional retail casino base and strategic digital partnerships, primarily with ESPN, to drive future growth and shareholder value.
• The Interactive segment is nearing a critical inflection point, with management guiding for sequentially lower EBITDA losses throughout 2025, culminating in positive segment EBITDA in Q4 2025 and full-year profitability in 2026, driven by improved product, lower promotional spend, and iCasino growth.
• Significant retail development projects, including land-based casino relocations and hotel expansions, are on-budget and on-schedule, expected to enhance the physical portfolio and contribute to free cash flow growth starting in late 2025 and accelerating in 2026.
• Despite facing competitive pressures from new supply in certain retail markets and navigating macroeconomic uncertainties, the core retail business has demonstrated resilience and continues to gain market share in unaffected areas, supported by operational efficiency and strategic investments.
• The company is focused on deleveraging in 2025 following peak leverage in Q3 2024, supported by anticipated EBITDA growth and potential access to real estate financing, alongside a commitment to share repurchases.

The Evolution of an Entertainment Powerhouse

PENN Entertainment has transformed from a traditional regional casino operator into a diversified entertainment, sports content, and gaming provider. Founded in 1972, the company's history is marked by strategic acquisitions and a pivotal shift following the 2018 overturning of PASPA, which opened the door to digital gaming. Recognizing the potential for database growth and the creation of a scaled digital business, PENN embarked on an ambitious omni-channel strategy. Key milestones included the acquisition of theScore in 2021, bringing a leading digital sports media brand into the fold, and the transformative partnership with ESPN in 2023, launching the ESPN BET online sports betting platform. This strategy aims to create a synergistic ecosystem where retail and digital customers seamlessly interact, enhancing loyalty and driving value across the entire portfolio.

Technology as a Competitive Edge

Central to PENN's omni-channel vision is its proprietary technology stack. The company operates a state-of-the-art, fully integrated digital sports and iCasino betting platform. This ownership provides crucial control over product development, allowing for rapid iteration and customization. PENN also boasts an in-house iCasino content studio, PENN Game Studios, enabling the creation of unique gaming content.

The benefits of this technology are tangible. The standalone Hollywood iCasino app, for instance, is seeing a 134 basis points higher hold rate compared to integrated offerings, primarily driven by a more favorable slot mix. Recent OSB product enhancements, such as account linking features leveraging ESPN favorites and the Mint Club rewards program for linked accounts, aim to deepen user engagement and personalization. The company recently hired Billy Turchin, formerly of FanDuel (FLUT), as Chief Product Officer to accelerate these efforts. In the retail space, PENN is implementing cashless, cardless, and contactless technology (Three Cs) and the PENN Wallet, powered by Everi (EVRI), to remove friction and improve the guest experience on property. These technological investments are designed to enhance the customer journey, drive operational efficiency, and build a competitive moat against rivals.

Navigating a Dynamic Competitive Landscape

PENN operates within intensely competitive markets across both its retail and interactive segments. In regional gaming, it faces established players like Caesars Entertainment (CZR) and MGM Resorts International (MGM), who also have significant physical footprints and are expanding their digital offerings. PENN's retail properties compete effectively, demonstrating resilience and gaining market share in 14 of 17 markets not impacted by new supply in Q1 2025. This is attributed to strong operational execution and a focus on delivering the highest tax-adjusted retail gaming margins among regional peers. However, new competitive supply in markets like Bossier-Shreveport, Council Bluffs, Chicagoland, and Louisiana continues to present headwinds, impacting visitation and revenue in those specific areas.

In the digital realm, PENN's ESPN BET and theScore BET platforms compete directly with market leaders like DraftKings (DKNG) and Flutter Entertainment, primarily through its FanDuel brand. These competitors often boast higher market share and, in some cases, superior financial metrics like gross margins (DKNG 38%, FLUT 48% TTM vs. PENN 35.77% TTM) and profitability. PENN's strategy leverages its unique omni-channel presence and the massive reach of the ESPN brand to drive customer acquisition and cross-sell opportunities, aiming for efficient growth without relying solely on aggressive promotional spending. While ESPN BET's parlay mix (24.2% in Illinois in Q3 2024) still trails FanDuel (34.5%), management sees significant opportunity to close this gap through product enhancements, which could improve hold rates and profitability. The launch of the standalone Hollywood iCasino app is a key strategic move to better compete in the high-margin iGaming market, leveraging the strong Hollywood retail brand recognition against digital-first competitors.

Performance and the Path Forward

PENN's recent financial performance reflects the ongoing execution of its strategy amidst a challenging environment. For the three months ended March 31, 2025, consolidated revenues grew to $1.67 billion, up 4.1% year-over-year from $1.61 billion. This growth was primarily driven by a significant increase in Interactive segment revenues, which rose 39.7% year-over-year to $290.1 million. This digital growth helped offset slight decreases in retail segment revenues across the Northeast, South, and Midwest, impacted by severe weather and new competition.

The Interactive segment's Adjusted EBITDAR was $89.0 million in Q1 2025, a substantial improvement from the prior year, highlighting improved flow-through despite a negative $10 million impact from unfavorable sports betting outcomes during March Madness. Management is guiding for Q2 2025 Interactive revenue between $280 million and $320 million and an EBITDA loss between $70 million and $50 million, representing a year-over-year improvement of roughly $43 million at the midpoint. The outlook anticipates sequentially lower Interactive EBITDA losses throughout 2025, culminating in positive EBITDA in Q4 2025 and full-year profitability in 2026. This trajectory is supported by expected iCasino growth and continued refinement of promotional strategies.

On the retail side, Adjusted EBITDAR saw modest decreases across most segments in Q1 2025, reflecting the impact of weather and competition. However, management noted a rebound in gaming volumes in March, continuing into April and May, driven by strong engagement from VIP and mid-worth customers. The company is investing heavily in its retail future, with total CapEx for 2025 projected at $730 million, including $490 million for growth projects like the new Hollywood Casino Joliet (expected open August 11, 2025) and the Ameristar Council Bluffs relocation ($180M-$200M estimated cost). These projects are expected to drive future retail growth and enhance the overall portfolio.

PENN ended Q1 2025 with $591.6 million in cash and cash equivalents and $1.5 billion in total liquidity (including available borrowing capacity). The company's aggregate principal amount of indebtedness was $2.6 billion as of March 31, 2025, with no debt maturing prior to 2026. Lease adjusted net leverage peaked in Q3 2024, and management expects a deleveraging trajectory in 2025, supported by anticipated EBITDA growth and the ability to access GLPI (GLPI) funding for development projects.

The company has also demonstrated a commitment to returning capital, repurchasing $25 million in Q1 2025 and an additional $10 million subsequent to the quarter, with $714.2 million remaining under its authorization. Management expects to be free-cash-flow positive in 2025 and beyond.

Risks and Challenges

Despite the strategic momentum, PENN faces notable risks. The business remains sensitive to macroeconomic conditions and potential reductions in discretionary consumer spending, which could impact both retail visitation and digital wagering volumes. Competition is fierce across all segments, and new supply introductions or aggressive promotional strategies by rivals could pressure market share and margins. Regulatory and legislative risks, including potential gaming tax increases or adverse rulings on matters like skill-based gaming, could impact profitability. Shareholder activism and related litigation, such as the lawsuit filed by HG Vora Capital Management in May 2025, can divert management attention and resources, potentially impacting strategy execution and carrying adverse gaming regulatory implications. While management believes the allegations in the HG Vora lawsuit are without merit, an adverse judgment could result in monetary damages and impact licenses.

Conclusion

PENN Entertainment is at a critical juncture, executing a comprehensive omni-channel strategy designed to leverage its established retail footprint and the powerful ESPN brand to drive future growth. While the company has faced headwinds from new competition and macroeconomic factors, and has incurred significant investments in its digital transformation, the core retail business remains resilient, and the Interactive segment is showing tangible signs of progress towards profitability. The planned retail development projects are poised to enhance the physical portfolio and contribute to cash flow, while the anticipated inflection point in the digital business in late 2025 and full-year profitability in 2026 are central to the investment thesis. Investors should monitor the execution of the digital turnaround, the performance of new retail assets as they open, and the company's ability to navigate competitive pressures and potential regulatory shifts. The path forward involves translating strategic investments and technological capabilities into sustained financial performance and enhanced shareholder value.