enn National Gaming reported on Thursday financial results for the three months ended March 31, 2020.
The company’s first-quarter revenues decreased $166.5 million year-over-year, to $1.12 billion, and they incurred a net loss of $608.6 million due to $616.1 million of impairment losses.
"While we have faced unprecedented challenges in recent weeks, we are confident that the Company’s long-term growth strategy remains intact, supported by our differentiated omnichannel approach," Jay Snowden, President, and Chief Executive Officer, commented. "We sincerely thank the first responders, health care workers, and essential personnel around the world who are keeping us safe through this challenging time, and we hope and pray for a swift end to this unprecedented crisis."
According to Snowden, Penn National saw a phenomenal start to 2020, with record results in January and February:
"Our Company was performing well ahead of guidance in every segment, driven in large part by the introduction of retail sports betting at several properties, which has served as a catalyst for both gaming and non-gaming revenue," he explained. "We also saw a strong positive reaction, including our stock price hitting an all-time high, following the announcement of our strategic investment in Barstool Sports, which reflects our strategy to become the best-in-class omnichannel provider of retail and online gaming and sports betting entertainment."
However, that momentum was cut short in mid-March by the COVID-19 pandemic, which required the temporary closure of all 41 of the company’s properties.
COVID-19 Mitigation Efforts and Resumption of Operations
Penn National undertook several aggressive mitigation measures in the days following the temporary closures of its facilities to solidify the balance sheet and improve liquidity. As a result, the company finished March with $730.7 million of cash on the balance sheet, and its average cash burn (assuming complete closure of all properties) has been reduced to approximately $83 million per month from April through the end of the year. The Company is confident these measures will allow it to weather the temporary suspension of operations without sacrificing any of its long-term objectives.
"Upon the reopening of our casinos, we believe Penn National is very well-positioned to resume its positive momentum. Our geographic diversification across 19 states - with no more than 15% of our revenues being derived from any single state - should be a significant benefit as states begin to open casinos on a sequential basis. We expect our regional gaming markets to rebound sooner than destination markets by virtue of our casinos being located in suburban areas that are more easily accessible by car from key population centers," Snowden added.
Penn National Long-term Growth Strategy Remains On Course
Mr. Snowden continued, "During the mandated closures of our properties, our management team has undertaken a comprehensive reevaluation of our corporate and property operating structures to improve efficiencies, and we are exploring new technologies and innovations that could help reimagine our casinos and enhance the guest experience. We are also in the process of making meaningful upgrades to expand the reach of our industry-leading mychoice loyalty program. We expect the mychoice program to be a powerful tool for our omnichannel strategy, and we are taking steps to connect our land-based casinos to our sports betting and iCasino products to offer customers a compelling incentive to consolidate play across our various platforms. This omnichannel approach will be bolstered by the broad appeal of Barstool Sports, and we look forward to attracting Barstool fans to our casinos through special events and talent appearances once the virus has subsided.
"While our operating team has been busy reconfiguring our casinos for a post-COVID-19 world, our interactive team has been hard at work laying the foundation for future growth online. We have been able to continue the development of our Barstool Sportsbook app and remain on schedule for launch in the third quarter of 2020 on what we anticipate will be a more level playing field with our competitors given the extended absence of major live sports in the months leading up to our launch. Our team of engineers is creating a best-in-class sports betting product, and the Barstool brand, loyal audience and marketing engine will help drive meaningful market share as the product is introduced across our database of 20 million casino customers and Barstool’s audience of over 66 million fans.
"The past several weeks have also reinforced our investment thesis in Barstool Sports. Despite the lack of live sporting events, Barstool has continued to create highly entertaining content in recent weeks, with blog traffic increasing over 20% in April, video views up over 50% and social media accounts seeing meaningful growth. In addition, Barstool has shown continued success in utilizing emerging platforms to expand its reach, including explosive growth on TikTok and the introduction of live video game streaming on Twitch. Barstool’s highly diverse and engaging content is proving to be more relevant than ever in the key demographics we will be targeting, and we continue to believe Barstool’s growing, loyal audience will lead to meaningful reductions in customer acquisition and promotional costs for our sports betting product.
"While Penn National’s overall first-quarter results were mixed due to the coronavirus, Penn Interactive had a notably strong first quarter, beating budgeted revenue and EBITDA despite the loss of retail sportsbook revenue for most of March. That momentum has carried into the second quarter, with Penn Interactive experiencing significant growth in users and revenue for both its social and real money gaming products.
"We are especially encouraged by the early results of our iCasino product in Pennsylvania. Despite the state’s excessively high tax rate, which has limited our marketing spend, 40,000 customers have registered for our iCasino product thus far, with roughly 66% of those players being new to our ecosystem or reconnected former patrons. The average age of these players is much younger than our core land-based player, which highlights the lack of cannibalization iCasino has had on our brick and mortar business in the first quarter. Our experience in Pennsylvania has reinforced our view that our casino operating prowess and database will be a significant competitive advantage as additional states authorize iCasino over the coming years - particularly when combined with the potential for significant iCasino cross-sell from the Barstool Sportsbook.
"Penn National is the only operator in the U.S. with a large, geographically diversified land-based gaming footprint, a well-known sports brand, a fully aligned marketing partner and a wholly-owned sports betting and iCasino subsidiary. As such, we are strongly positioned to benefit from the continuing proliferation of sports betting and iCasino legislation - something we expect to accelerate as states seek new tax revenues in the aftermath of the virus. While the last several weeks have been challenging for the Company, our team members and the entire industry, we remain firmly convinced of the long-term potential of our highly differentiated omni-channel approach," Snowden concluded.