PENN Entertainment, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 Condensed Consolidated Financial Statements and the notes thereto included in this Quarterly Report on Form 10-Q (“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 this Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2019. EXECUTIVE OVERVIEW Our Business Penn National Gaming, Inc., together with its subsidiaries (“Penn National,” the “Company,” “we,” “our,” or “us”), is a leading, diversified, multi-jurisdictional owner and manager of gaming and racing properties, sports betting operations, and video gaming terminal (“VGT”) operations. In addition, we hold a 36% equity interest in Barstool Sports, Inc. (“Barstool Sports”), a leading digital sports, entertainment and media platform. We also operate an interactive gaming (“iGaming”) division through our subsidiary, Penn Interactive Ventures, LLC (“Penn Interactive”), which operates an online casino (“iCasino”) and launched an online sports betting app called Barstool Sports in Pennsylvania in September 2020. Our MYCHOICE ® customer loyalty program currently has over 20 million members, to whom we provide various benefits, including complimentary goods and/or services. We believe our continued evolution into a best-in-class omni-channel provider of retail and online gaming and sports betting entertainment will be a catalyst for our core land-based business, while also providing a platform for significant long-term shareholder value. As of September 30, 2020, we owned, managed, or had ownership interests in 41 gaming and racing properties in 19 states and were licensed to offer live sports betting at our properties in Indiana, Iowa, Michigan, Mississippi, Nevada, Pennsylvania and West Virginia. 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 Pinnacle Master 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”). Impact of COVID-19 Pandemic and Company Response On March 11, 2020, the World Health Organization declared the novel coronavirus (known as “COVID-19”) outbreak to be a global pandemic. We began temporary suspension of the operations of all of our properties between March 13, 2020 and March 19, 2020 pursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19. We began reopening our properties on May 18, 2020 with reduced gaming and hotel capacity and limited food and beverage offerings in order to accommodate comprehensive social distancing and health and safety protocols. As of September 30, 2020, with the exception of Valley Race Park and Zia Park Casino, all of our properties have reopened. For a thorough discussion of the operating performance of our properties since reopening, see “Results of Operations” below. During the first quarter of 2020, the Company took various actions to reduce its cost structures to help mitigate the operating and financial impact of the COVID-19 pandemic during the period the properties were closed, which included: (i) furloughing the vast majority of its employees and operating with a minimum staffing of less than 850 employees company-wide during the closures; (ii) enacting meaningful compensation reductions to its remaining property and corporate leadership teams effective April 1, 2020 and through September 30, 2020 (compensation was fully restored effective October 1, 2020); and (iii) executing substantial reductions in operating expenses and capital expenditures, including temporarily suspending construction of its two planned Category 4 development projects in Pennsylvania. In addition, during the pendency of property closures, the Company’s Board of Directors elected to forgo their cash compensation, effective April 1, 2020, and through September 30, 2020. Between March 13, 2020 and September 30, 2020, we entered into a series of transactions to improve our financial position and liquidity in light of the COVID-19 pandemic, including: (i) on March 13, 2020, we provided notice to our lenders to borrow the remaining available amount of $430.0 million under our Revolving Credit Facility; (ii) on March 27, 2020, we entered into a binding term sheet with GLPI (the “Term Sheet”) whereby GLPI agreed to (a) purchase the real estate assets associated with Tropicana Las Vegas (“Tropicana”) in exchange for rent credits of $307.5 million, which closed on April 16, 2020, and (b) a sale-leaseback of the land underlying our Hollywood Casino Morgantown (“Morgantown”) development project in Morgantown, Pennsylvania, in exchange for rent credits of $30.0 million, which closed on October 1, 2020; (iii) on May 14, 2020 (May 19, 2020 with respect to the Underwriters’ exercising their options to acquire additional 2.75% Convertible Notes), we completed a public offering of $330.5 million aggregate principal amount of 2.75% Convertible Notes; (iv) on May 14, 34 Table of Contents 2020 (May 19, 2020 with respect to the Underwriters’ exercising their options to purchase additional shares), we completed a public offering of 19,166,667 aggregate shares of common stock, par value of $0.01 per share, of the Company (“Penn Common Stock”) for gross proceeds of $345.0 million; and (v) on September 24, 2020 (September 25, 2020 with respect to the Underwriters’ exercising their options to purchase additional shares), we completed a public offering of 16,100,000 aggregate shares of Penn Common Stock for gross proceeds of $982.1 million. In addition, on April 14, 2020, the Company entered into an amendment to its Credit Agreement, which, among other things, provides it with relief from its financial covenants for a period of up to one year. Further, on September 30, 2020, the Company fully repaid $670.0 million of outstanding borrowings under its Revolving Credit Facility. The terms “Revolving Credit Facility,” “Convertible Notes” and “Credit Agreement” are defined in “Liquidity and Capital Resources” below. On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which provides emergency economic assistance for American workers, families and businesses affected by the COVID-19 pandemic. The economic relief package includes government loan enhancement programs and various tax provisions to help improve liquidity for American businesses. Based on our evaluation of the CARES Act, we qualify for certain employer refundable payroll credits, deferral of applicable payroll taxes, net operating loss (“NOL”) carryback and immediate expensing for eligible qualified improvement property. We intend to continue to review and consider available benefits under the CARES Act for which we qualify, including those described above. The COVID-19 pandemic caused significant disruptions to our business and a material adverse impact on our financial condition, results of operations and cash flows, the magnitude of which continues to develop based on (i) the timing and extent of the recovery in visitation and consumer spending at our properties; (ii) the continued impact of implementing social distancing and health and safety guidelines at our properties, including reductions in gaming and hotel capacity and limiting the number of food and beverage options; and (iii) whether any of our properties will be required to again temporarily suspend operations in the event that the pandemic worsens. We are currently unable to determine whether, when or how the conditions surrounding the COVID-19 pandemic will change or whether the recovery in visitation and consumer spending is sustainable. The Company could experience other potential adverse impacts as a result of the COVID-19 pandemic, including, but not limited to, further charges from adjustments to the carrying amount of goodwill and other intangible assets, long-lived asset impairment charges, or impairments of investments in joint ventures. In addition, the negative impacts of the COVID-19 pandemic may result in further changes in the amount of valuation allowance required. Actual results may differ materially from the Company’s current estimates as the scope of the COVID-19 pandemic evolves, depending largely, though not exclusively, on the impact of required capacity reductions, social distancing and health and safety guidelines, and the sustainability of current trends in recovery at our reopened properties. Recent Acquisitions, Development Projects and Other In February 2020, we closed on our investment in Barstool Sports pursuant to a stock purchase agreement with Barstool Sports and certain stockholders of Barstool Sports, in which we purchased 36% (inclusive of 1% on a delayed basis) of the common stock of Barstool Sports for a purchase price of $161.2 million. Furthermore, three years after the closing of the transaction (or earlier at our election), we will increase our ownership in Barstool Sports to approximately 50% by purchasing approximately $62 million worth of additional shares of Barstool Sports common stock, consistent with the implied valuation at the time of the initial investment, which was $450.0 million. With respect to the remaining Barstool Sports shares, we have immediately exercisable call rights, and the existing Barstool Sports stockholders have put rights exercisable beginning three years after closing, all based on a fair market value calculation at the time of exercise (subject to a cap of $650.0 million and a floor of 2.25 times the annualized revenue of Barstool Sports, all subject to various adjustments). We also have the option to bring in another partner who would acquire a portion of our share of Barstool Sports. Upon closing, we became Barstool Sports’ exclusive gaming partner for up to 40 years and have the sole right to utilize the Barstool Sports brand for all of our online and retail sports betting and iCasino products. As noted above, Penn Interactive launched the Barstool Sports online sports betting app in September 2020, which currently operates in Pennsylvania. We expect the Barstool Sports app to operate in Michigan by the end of 2020, subject to regulatory approval. In addition, we expect to use the Barstool Sports brand in the operation of certain of our retail sportsbooks by the end of 2020. In May 2019, we acquired Greektown Casino-Hotel (“Greektown”), in Detroit, Michigan, subject to a triple net lease with VICI Properties Inc. (NYSE: VICI) (“VICI” and collectively with GLPI, our “REIT Landlords”) (the “Greektown Lease”) and in January 2019, we acquired Margaritaville Casino Resort (“Margaritaville”) in Bossier City, Louisiana, subject to a triple net lease with VICI (the “Margaritaville Lease”). In March 2020, in light of the COVID-19 pandemic, we temporarily suspended construction of our development of two Category 4 satellite gaming casinos in Pennsylvania: Hollywood Casino York (“York”) 35 Table of Contents and Morgantown. We anticipate resuming construction later this year on both projects and expect them to open in the second half of 2021. The Term Sheet discussed above also provides that the Company and GLPI will enter into an option agreement whereby GLPI will grant the Company the exclusive right until December 31, 2020 to purchase the operations of Hollywood Casino Perryville for $31.1 million, with the closing of such purchase expected to occur during the first half of 2021. If, as anticipated, the option is exercised and the transaction is completed, we would lease the real estate assets associated with Hollywood Casino Perryville from GLPI with initial rent of $7.8 million per year subject to escalation. We expect to exercise the purchase option by the end of 2020. Additionally, pursuant to the Term Sheet, we agreed that, in the future, we would exercise the next scheduled five-year renewal under the Penn Master Lease as well as the Pinnacle Master Lease, and GLPI agreed they would grant us the option to exercise an additional five-year renewal term at the end of the lease term on the Penn Master Lease and the Pinnacle Master Lease, subject to certain conditions. In the future, upon exercising each of these renewal options, the term of the Penn Master Lease would extend to November 30, 2033 and the term of the Pinnacle Master Lease would extend to April 30, 2031; and if all renewal options contained within the Penn Master Lease and the Pinnacle Master Lease were exercised, inclusive of the these renewal options, the term of the Penn Master Lease would extend to November 30, 2053 and the term of the Pinnacle Master Lease would extend to April 30, 2056. 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 have also made investments in joint ventures that we believe will allow us to capitalize on additional gaming opportunities in certain states if legislation or referenda are passed that permit and/or expand gaming in these jurisdictions and we are selected as a licensee. As reported by most jurisdictions, regional gaming industry trends have shown little revenue growth the last several years as numerous jurisdictions now permit gaming or have expanded their gaming offerings. In recent years, the proliferation of new gaming properties has impacted the overall domestic gaming industry as well as our results of operations in certain markets. Prior to the COVID-19 pandemic, the economic environment, specifically historically low levels of unemployment, strength in residential real estate prices, and high levels of consumer confidence, had resulted in a stable operating environment in recent years. The COVID-19 pandemic has increased the level of unemployment and decreased the level of consumer confidence. Our ability to succeed in this new environment will be predicated on our ability to adjust operations and cost structures at our reopened properties to reflect the new economic and health and safety conditions, operating our properties efficiently, realizing revenue and cost synergies from recent acquisitions, and offering our customers additional gaming experiences through our omni-channel distribution strategy. We seek to continue to expand our customer database through accretive acquisitions or investments, such as Barstool Sports, 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 iGaming 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; online and retail sports betting; 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 the U.S. More specifically, due to recent legislation to expand gaming in and around Illinois, Indiana, Massachusetts and Pennsylvania, several of our properties within our Northeast segment and some of our properties within our Midwest segment have been and will continue to be negatively impacted by new or increased competition. 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 36 Table of Contents about by weakened general economic conditions, such as lackluster recoveries from recessions, high unemployment levels, higher income taxes, low levels of consumer confidence, weakness in the housing market, and high fuel or other transportation costs. 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. We believe that the COVID-19 pandemic has led to and will continue to lead to meaningful decreases in discretionary consumer spending and will continue to negatively impact visitation at our properties and the volume of play for the foreseeable future. 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 92% of our gaming revenue in both 2019 and 2018) and, to a lesser extent, table games and sports betting. Aside from gaming revenue, our revenues are 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 9% of slot handle, and our typical table game hold percentage is in the range of approximately 16% to 25% of table game drop. 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 as 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, 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 view each of our gaming and racing properties as an operating segment with the exception of our two properties in Jackpot, Nevada, which we view as one operating segment. We consider our combined VGT operations, by state, to be separate operating segments. We aggregate our operating segments into four reportable segments: Northeast, South, West and Midwest. 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 Condensed Consolidated Financial Statements. 37 Table of Contents RESULTS OF OPERATIONS The following table highlights our revenues, net income (loss), and Adjusted EBITDA, on a consolidated basis, as well as our revenues and Adjusted EBITDAR by reportable segment. Such segment reporting is on a basis consistent with how we measure our business and allocate resources internally. We consider net income (loss) 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 (loss) to Adjusted EBITDA and Adjusted EBITDAR and related margins. For the three months ended September 30, For the nine months ended September 30, (dollars in millions) 2020 2019 2020 2019 Revenues: Northeast segment $ 545.1 $ 628.9 $ 1,168.5 $ 1,778.6 South segment 255.6 276.6 600.4 850.7 West segment 78.7 161.5 223.0 484.4 Midwest segment 229.1 275.8 493.2 815.3 Other (1) 23.7 12.4 71.6 31.9 Intersegment eliminations (2) (2.5) (0.7) (5.4) (0.7) Total $ 1,129.7 $ 1,354.5 $ 2,551.3 $ 3,960.2 Net income (loss) $ 141.2 $ 43.7 $ (681.8) $ 136.0 Adjusted EBITDAR: Northeast segment $ 204.8 $ 189.1 $ 325.7 $ 540.1 South segment 120.3 89.0 217.3 279.6 West segment 33.6 50.6 55.2 151.0 Midwest segment 108.5 104.3 173.4 301.3 Other (1) (14.6) (25.0) (42.2) (66.1) Intersegment eliminations (2) — (0.1) — (0.1) Total (3) 452.6 407.9 729.4 1,205.8 Rent expense associated with triple net operating leases (4) (109.0) (96.3) (310.3) (271.0) Adjusted EBITDA (3) $ 343.6 $ 311.6 $ 419.1 $ 934.8 Net income (loss) margin 12.5 % 3.2 % (26.7) % 3.4 % Adjusted EBITDAR margin (3) 40.1 % 30.1 % 28.6 % 30.4 % Adjusted EBITDA margin (3) 30.4 % 23.0 % 16.4 % 23.6 % (1) The Other category consists of the Company’s stand-alone racing operations, namely Sanford-Orlando Kennel Club and the Company’s joint venture interests in Sam Houston Race Park, Valley Race Park, and Freehold Raceway. The Other category also includes Penn Interactive, which operates social gaming, our internally-branded retail sportsbooks, iGaming and our Barstool Sports online sports betting app; our management contract for Retama Park Racetrack; and our live and televised poker tournament series that operates under the trademark Heartland Poker Tour (“HPT”). 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. In addition, Adjusted EBITDAR of the Other category includes our proportionate share of the net income or loss of Barstool Sports after adding back our share of non-operating items (such as interest expense, net; income taxes; depreciation and amortization; and stock-based compensation expense). (2) Represents the elimination of intersegment revenues associated with Penn Interactive and HPT. (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. For three months ended September 30, 2020, as compared to the prior year period, Adjusted EBITDAR and Adjusted EBITDA, and the related margins, increased due to higher spend per trip (despite reductions in visitation) and cost structure initiatives such as: operating with a reduced workforce, focusing on higher margin gaming offerings, reducing marketing costs, and limiting certain lower margin food 38 Table of Contents and beverage offerings, such as buffets. For nine months ended September 30, 2020, as compared to the prior period, Adjusted EBITDAR and Adjusted EBITDA, and the related margins, decreased due to the temporary closures of our properties as a result of the COVID-19 pandemic. (4) Solely comprised of rent expense associated with the operating lease components contained within the Master Leases (primarily land), the Tropicana Lease, the Meadows Lease (as defined in “Liquidity and Capital Resources” ), the Margaritaville Lease and the Greektown Lease (referred to collectively as our “triple net operating leases”). The finance lease components contained within the Master Leases (primarily buildings) result in interest expense, as opposed to rent expense. Consolidated comparison of the three and nine months ended September 30, 2020 and 2019 Revenues The following table presents our consolidated revenues: For the three months ended September 30, Change For the nine months ended September 30, Change (dollars in millions) 2020 2019 $ % 2020 2019 $ % Revenues Gaming $ 993.6 $ 1,088.5 $ (94.9) (8.7) % $ 2,155.7 $ 3,185.2 $ (1,029.5) (32.3) % Food, beverage, hotel and other 136.1 266.0 (129.9) (48.8) % 395.6 775.0 (379.4) (49.0) % Total revenues $ 1,129.7 $ 1,354.5 $ (224.8) (16.6) % $ 2,551.3 $ 3,960.2 $ (1,408.9) (35.6) % Consolidated revenues decreased for the three and nine months ended September 30, 2020 primarily as a result of the COVID-19 pandemic, including the temporary closures of all of our properties during the year, and its continued impact on our business. We began temporarily closing our properties on March 13, 2020 and began reopening our properties on May 18, 2020, resulting in all of our properties being closed for at least two months. As of September 30, 2020 , 39 of our 41 properties were reopened. Our properties are subject to restrictions on gaming capacity, which depending on the jurisdiction, are generally 50% less gaming devices. Furthermore, due primarily to the implementation of social distancing and health and safety protocols, our properties are subject to reduced hotel capacity and limitations on the number of food and beverage offerings. As a result, upon reopening our properties, gaming revenue now represents a larger portion of our total revenues, which we expect to continue until at least such time that social distancing and health and safety protocols are relaxed or no longer necessary. Since reopening, our properties have generally experienced reduced visitation and higher spend per trip, as compared to pre-closure levels. We largely attribute the higher spend per trip to pent-up demand, visitation from our higher worth customers, and customers’ propensity to spend after a prolonged period of limited domestic commerce and upon receipt of government stimulus payments. In addition, in many of the states in which we operate, leisure alternatives remain partially limited (e.g., bars, concerts, entertainment events, etc.), which may have impacted our operating results upon reopening our properties. See “Segment comparison of the three and nine months ended September 30, 2020 and 2019” below for more detailed explanations of the fluctuations in revenues. Operating expenses The following table presents our consolidated operating expenses: For the three months ended September 30, Change For the nine months ended September 30, Change (dollars in millions) 2020 2019 $ % 2020 2019 $ % Operating expenses Gaming $ 458.1 $ 587.5 $ (129.4) (22.0) % $ 1,101.0 $ 1,699.1 $ (598.1) (35.2) % Food, beverage, hotel and other 70.1 171.2 (101.1) (59.1) % 260.0 500.5 (240.5) (48.1) % General and administrative 317.6 309.7 7.9 2.6 % 828.7 883.6 (54.9) (6.2) % Depreciation and amortization 87.7 106.3 (18.6) (17.5) % 275.3 316.4 (41.1) (13.0) % Impairment losses — — — N/M 616.1 — 616.1 N/M Total operating expenses $ 933.5 $ 1,174.7 $ (241.2) (20.5) % $ 3,081.1 $ 3,399.6 $ (318.5) (9.4) % N/M - Not meaningful Gaming expenses consist primarily of salaries and wages associated with our gaming operations and gaming taxes. Food, beverage, hotel and other expenses consist principally of salaries and wages and costs of goods sold associated with our food, beverage, hotel, retail, racing, and other operations. Gaming, food, beverage, hotel and other expenses for the three and nine 39 Table of Contents months ended September 30, 2020 decreased year over year primarily as a result of the temporary closures of all of our properties due to the COVID-19 pandemic, which reduced our salaries and wages, gaming taxes, costs of goods sold, and other expenses. As discussed above, our reopened properties are operating with reduced gaming and hotel capacity and limited food and beverage options. As such, our properties are operating with a reduced workforce, which reduced our salaries and wages. In addition, our properties have reduced marketing costs, which reduces gaming expenses. 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 and acquisition costs; gains and losses on disposal of assets; 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); restructuring costs (primarily severance) associated with a company-wide initiative, triggered by the COVID-19 pandemic; and rent expense associated with our triple net operating leases. For three months ended September 30, 2020, general and administrative expenses increased year over year primarily due to the increase in expense associated with the Company’s cash-settled stock-based awards of $43.0 million, which is largely driven by the increase in the Company's stock price. Rent expense associated with our triple net operating leases increased by $12.7 million, as compared to the prior year period; the increase principally relates to the Tropicana Lease. Additionally, we incurred $12.4 million of restructuring costs primarily related to employee severance as a result of the COVID-19 pandemic that had not been incurred before the third quarter of 2020. The increase in general and administrative expenses was offset by $13.6 million in payroll tax credits received under the CARES Act as well as a recognized gain of $6.1 million related to the sale of assets, both of which reduced general and administrative expenses for three months ended September 30, 2020. For nine months ended September 30, 2020, general and administrative expenses decreased year over year primarily as a result of the actions taken to reduce our cost structure while our properties were temporarily closed, which are discussed above and were mostly effective April 1, 2020 through September 30, 2020. In addition, we received $35.0 million in payroll credits under the CARES Act as well as recognized a gain on disposal of assets of $33.9 million, both of which reduced general and administrative expenses for the nine months ended September 30, 2020. Additionally, the expense associated with the Company’s contingent purchase price obligations decreased by $8.4 million, as compared to the prior year period. Offsetting these decreases for nine months ended September 30, 2020, as compared to the prior year period, was an increase in expense associated with the Company’s cash-settled stock-based awards expense of $53.2 million, due to the increase in our stock price, and an increase in rent expense of $39.3 million, which principally relates to the Tropicana Lease and the Greektown Lease. Additionally, we incurred $12.4 million of restructuring costs, primarily related to employee severance as a result of the COVID-19 pandemic as described above. Depreciation and amortization for the three and nine months ended September 30, 2020 decreased year over year primarily due to fixed assets becoming fully depreciated since September 30, 2019, the sale of the real estate assets of Tropicana in April 2020, and decreases of $1.0 million and $6.8 million, respectively, in amortization expense at Penn Interactive. These were offset for the nine months ended September 30, 2020 by an increase of $4.0 million at Greektown, which was acquired in May 2019. Impairment losses for the nine months ended September 30, 2020 primarily relate to impairments taken on our goodwill and other intangible assets of $113.0 million and $498.5 million, respectively, as a result of an interim impairment assessment during the first quarter of 2020. During the first quarter of 2020, we identified an indicator of impairment triggered by the COVID-19 pandemic, which caused all of our gaming properties to temporarily close. At the time of the interim impairment assessment, we revised our cash flow projections to reflect the current economic environment, including the uncertainty of the nature, timing and extent of reopening our gaming properties. 40 Table of Contents Other income (expenses) The following table presents our consolidated other income (expenses): For the three months ended September 30, Change For the nine months ended September 30, Change (dollars in millions) 2020 2019 $ % 2020 2019 $ % Other income (expenses) Interest expense, net $ (142.3) $ (133.5) $ (8.8) 6.6 % $ (407.1) $ (400.5) $ (6.6) 1.6 % Income from unconsolidated affiliates $ 5.0 $ 9.8 $ (4.8) (49.0) % $ 7.4 $ 21.7 $ (14.3) (65.9) % Income tax benefit (expense) $ 14.3 $ (19.6) $ 33.9 N/M $ 172.2 $ (53.0) $ 225.2 N/M Other $ 68.0 $ 7.2 $ 60.8 N/M $ 75.5 $ 7.2 $ 68.3 N/M N/M - Not meaningful Interest expense, net increased for the three and nine months ended September 30, 2020, as compared to the prior year period, due to increases in interest expense related to our Master Leases of $6.1 million and $6.5 million, respectively. Additionally, the interest expense associated with our long-term debt increased, as compared to the prior year period, by $3.0 million and $1.2 million for three and nine months ended September 30, 2020, respectively, primarily due to the issuance of our 2.75% Convertible Notes, which offset the reduction in interest expense incurred on the Senior Secured Credit Facilities (as defined in “ Liquidity and Capital Resources ”) from a decrease in the London Interbank Offered Rate (referred to as “LIBOR”) during the corresponding periods. Income from unconsolidated affiliates relates principally to Barstool Sports and our Kansas Entertainment joint venture. The decrease for the three and nine months ended September 30, 2020, as compared to the prior year periods, was due to a decrease in the results of operations of Hollywood Casino at Kansas Speedway, which was temporarily closed between March 18, 2020 and May 25, 2020 and continues to be impacted by COVID-19 capacity restrictions. Income tax benefit (expense) was $14.3 million and $172.2 million for the three and nine months ended September 30, 2020, respectively, as compared to $(19.6) million and $(53.0) million for the three and nine months ended September 30, 2019, respectively. Our effective tax rate (income taxes as a percentage of income or loss from operations before income taxes) including discrete items was (11.3)% and 20.2% for the three and nine months ended September 30, 2020, as compared to 31.0% and 28.0% for the three and nine months ended September 30, 2019. The effective rate for the three months ended September 30, 2020, was lower than the prior year period, primarily driven by the reduction in the valuation allowance as a result of the recent law change whereby qualified improvement property now qualifies for accelerated bonus depreciation, which was applied on a retroactive basis. The change in the effective rate for the nine months ended September 30, 2020 as compared to the prior year period was primarily due to a reduction of pre-tax income. The CARES Act temporarily removes certain restrictions originally imposed by the Tax Cuts and Jobs Act of 2017. Corporate taxpayers are now permitted to carryback up to five years of federal NOLs originating in tax years 2018, 2019, and 2020 and offset 100% of taxable income with available NOLs. The CARES Act also temporarily (i) increases the interest deductibility threshold from 30% to 50% of adjusted taxable income for tax years beginning in 2019 and 2020, (ii) allows a refund of alternative minimum tax credits, (iii) increases the corporate charitable deduction limit to 25% and (iv) makes eligible qualified improvement property available for immediate expensing. Due to t he enactment of the CARES Act, we are estimating an income tax refund between approximately $40 million and $50 million primarily attributable to the carryback of NOLs. We will continue to monitor any impact and revise our preliminary near-term liquidity benefit as a result of this new law. As of September 30, 2020, we have a valuation allowance on the portion of the deferred tax assets that is not more likely than not to be realized as a result of the negative objective evidence of being in a three-year cumulative loss and we intend to continue maintaining a valuation allowance on our deferred tax assets until there is sufficient positive evidence to support the reversal of all or a portion of these allowances. A reduction in the valuation allowance would result in a significant decrease to income tax expense in the period the release is recorded. However, the exact timing and reversal amount in our valuation allowance are currently unknown. Our effective income tax rate can vary from period to 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. 41 Table of Contents Other includes miscellaneous income and expense items. The amount for the three and nine months ended September 30, 2020 relates primarily to unrealized holding gains of $67.9 million and $75.6 million, respectively, on equity securities (including warrants), which were acquired during the third quarter of 2019 in connection with Penn Interactive entering into multi-year agreements with sports betting operators for online sports betting and related iGaming market access across our portfolio. Segment comparison of the three and nine months ended September 30, 2020 and 2019 Northeast Segment For the three months ended September 30, Change For the nine months ended September 30, Change (dollars in millions) 2020 2019 $ % 2020 2019 $ % Revenues Gaming $ 508.0 $ 555.2 $ (47.2) (8.5) % $ 1,060.8 $ 1,571.9 $ (511.1) (32.5) % Food, beverage, hotel and other 37.1 73.7 (36.6) (49.7) % 107.7 206.7 (99.0) (47.9) % Total revenues $ 545.1 $ 628.9 $ (83.8) (13.3) % $ 1,168.5 $ 1,778.6 $ (610.1) (34.3) % Adjusted EBITDAR $ 204.8 $ 189.1 $ 15.7 8.3 % $ 325.7 $ 540.1 $ (214.4) (39.7) % Adjusted EBITDAR margin 37.6 % 30.1 % 750 bps 27.9 % 30.4 % (250) bps The Northeast segment’s results of operations for the three and nine months ended September 30, 2020 were primarily impacted by the COVID-19 pandemic. Our gaming properties within the region experienced temporary closures beginning on March 13, 2020. All of our properties within the Northeast segment reopened between June 5, 2020 and August 5, 2020 and continue to operate with reduced gaming and hotel (if applicable) capacity and limited food and beverage offerings. In response to the impact of the COVID-19 pandemic on our operations, we implemented cost saving initiatives to offset inevitable revenue degradation, such as: operating with a reduced workforce, focusing on higher margin gaming offerings, reducing marketing costs, and limiting certain lower margin food and beverage offerings. For the three months ended September 30, 2020, the Northeast segment’s total revenues decreased, as compared to the prior year period, due principally to the temporary closures and social distancing measures described above. Despite the decrease in total revenues, Adjusted EBITDAR and Adjusted EBITDAR margin increased for the three months ended September 30, 2020, as compared to the prior year period, due to higher spend per trip and our cost structure savings initiatives described above. Hollywood Casino Toledo particularly benefited from delayed reopening dates of casinos in Detroit, Michigan as well as strict social distancing limitations on casino occupancy of 15% in Detroit, Michigan, which, on the other hand, negatively impacted Greektown's performance for the period. Along with Greektown, Hollywood Casino Bangor and Plainridge Park Casino were amongst the last regional properties to reopen during the third quarter of 2020, between July 8, 2020 and August 5, 2020, and they continue to be negatively impacted by the COVID-19 pandemic environment. For the nine months ended September 30, 2020, the Northeast segment’s total revenues, Adjusted EBITDAR and Adjusted EBITDAR margin decreased, as compared to the prior year period, due to the temporary closures and social distancing measures described above. We reopened Hollywood Casino at Charles Town Races, Hollywood Casino at Penn National Race Course, Meadows Racetrack and Casino, our Indiana properties and our Ohio properties between June 5, 2020 and June 19, 2020. Since reopening, Ameristar East Chicago, Hollywood Casino Toledo and Hollywood Gaming at Dayton Raceway experienced strong reopening results. Hollywood Casino at Penn National Race Course and Meadows Racetrack and Casino continued to be negatively impacted by recent increases in competition in and around the Pennsylvania market in addition to COVID-19 occupancy restrictions. 42 Table of Contents South Segment For the three months ended September 30, Change For the nine months ended September 30, Change (dollars in millions) 2020 2019 $ % 2020 2019 $ % Revenues Gaming $ 208.0 $ 201.2 $ 6.8 3.4 % $ 480.3 $ 628.1 $ (147.8) (23.5) % Food, beverage, hotel and other 47.6 75.4 (27.8) (36.9) % 120.1 222.6 (102.5) (46.0) % Total revenues $ 255.6 $ 276.6 $ (21.0) (7.6) % $ 600.4 $ 850.7 $ (250.3) (29.4) % Adjusted EBITDAR $ 120.3 $ 89.0 $ 31.3 35.2 % $ 217.3 $ 279.6 $ (62.3) (22.3) % Adjusted EBITDAR margin 47.1 % 32.2 % 1490 bps 36.2 % 32.9 % 330 bps The South segment’s results of operations for the three and nine months ended September 30, 2020 were primarily impacted by the COVID-19 pandemic and Hurricane Laura (described below). Our gaming properties within the region experienced temporary closures beginning March 17, 2020. We reopened our Louisiana properties and our Mississippi properties between May 18, 2020 and May 21, 2020. All of our properties within the South segment reopened and continue to operate with reduced gaming and hotel (if applicable) capacity and limited food and beverage offerings. In response to the COVID-19 pandemic on our operations, we implemented cost saving initiatives to offset inevitable revenue degradation, such as: operating with a reduced workforce, focusing on higher margin gaming offerings, reducing marketing costs, and limiting certain lower margin food and beverage offerings. For the three months ended September 30, 2020, the South segment’s total revenues decreased, as compared to prior year period, due principally to the social distancing measures described above as well as the temporary closure of L’Auberge Lake Charles that lasted 17 days due to Hurricane Laura. Despite the decrease in total revenues, Adjusted EBITDAR and Adjusted EBITDAR margin increased for the three months ended September 30, 2020, as compared to the prior year period, due to higher spend per trip and our cost structure savings initiatives described above. With the exception of L’Auberge Lake Charles, all of our reopened properties in the South segment experienced Adjusted EBITDAR growth with 1 st Jackpot Casino, Boomtown Biloxi, Boomtown New Orleans, L’Auberge Baton Rouge and Margaritaville also experiencing growth in total revenues. For the nine months ended September 30, 2020, the Souths segment’s total revenues and Adjusted EBITDAR decreased, as compared to the prior year period, due to the temporary closures and social distancing measures described above. However, Adjusted EBITDAR margin increased for the nine months ended September 30, 2020, as compared to the prior year period due to our cost structure savings initiatives described above. On August 27, 2020, Hurricane Laura made landfall in Lake Charles, Louisiana and caused significant damage to L’Auberge Lake Charles, forcing it to close for 17 days. We expect to recover property damages and lost earnings for the disruption of our business through insurance proceeds in 2021, as described in Note 4, “Hurricane Laura,” in the notes to our unaudited Condensed Consolidated Financial Statements. The property is currently undergoing restorations and operating at further reduced capacity. West Segment For the three months ended September 30, Change For the nine months ended September 30, Change (dollars in millions) 2020 2019 $ % 2020 2019 $ % Revenues Gaming $ 54.0 $ 93.3 $ (39.3) (42.1) % $ 138.7 $ 282.6 $ (143.9) (50.9) % Food, beverage, hotel and other 24.7 68.2 (43.5) (63.8) % 84.3 201.8 (117.5) (58.2) % Total revenues $ 78.7 $ 161.5 $ (82.8) (51.3) % $ 223.0 $ 484.4 $ (261.4) (54.0) % Adjusted EBITDAR $ 33.6 $ 50.6 $ (17.0) (33.6) % $ 55.2 $ 151.0 $ (95.8) (63.4) % Adjusted EBITDAR margin 42.7 % 31.3 % 1140 bps 24.8 % 31.2 % (640) bps The West segment’s results of operations for the three and nine months ended September 30, 2020 were primarily impacted by the COVID-19 pandemic. Our gaming properties within the region experienced temporary closures beginning on March 16, 43 Table of Contents 2020. The majority of our properties within the West segment reopened between June 4, 2020 and June 17, 2020. Tropicana reopened on September 17, 2020 and Zia Park Casino has not yet reopened. All our reopened properties operate with reduced gaming and hotel (if applicable) capacity and limited food and beverage offerings. In response to the COVID-19 pandemic on our operations, we implemented cost saving initiatives to offset inevitable revenue degradation, such as: operating with a reduced workforce, focusing on higher margin gaming offerings, reducing marketing costs, and limiting certain lower margin food and beverage offerings. The West segment’s total revenues and Adjusted EBITDAR decreased for the three and nine months ended September 30, 2020, as compared to the prior year periods, due to the temporary closures and social distancing measures described above. Adjusted EBITDAR margin increased for the three months ended September 30, 2020 primarily due to the reopening of our M Resort and Cactus Petes and Horseshu properties in which Adjusted EBITDAR and Adjusted EBITDAR margins were higher than the prior year due to our cost saving initiatives described above. For nine months ended September 30, 2020, Adjusted EBITDAR margin decreased as compared to the prior year periods, due to the temporary closures and social distancing measures described above. Midwest Segment For the three months ended September 30, Change For the nine months ended September 30, Change (dollars in millions) 2020 2019 $ % 2020 2019 $ % Revenues Gaming $ 212.7 $ 236.1 $ (23.4) (9.9) % $ 442.4 $ 699.8 $ (257.4) (36.8) % Food, beverage, hotel and other 16.4 39.7 (23.3) (58.7) % 50.8 115.5 (64.7) (56.0) % Total revenues $ 229.1 $ 275.8 $ (46.7) (16.9) % $ 493.2 $ 815.3 $ (322.1) (39.5) % Adjusted EBITDAR $ 108.5 $ 104.3 $ 4.2 4.0 % $ 173.4 $ 301.3 $ (127.9) (42.4) % Adjusted EBITDAR margin 47.4 % 37.8 % 960 bps 35.2 % 37.0 % (180) bps The Midwest segment’s results of operations for the three and nine months ended September 30, 2020 were primarily impacted by the COVID-19 pandemic. Our gaming properties within the region experienced temporary closures beginning on March 16, 2020. All of our properties within the Midwest segment reopened between May 25, 2020 and July 1, 2020 and continue to operate with reduced gaming and hotel (if applicable) capacity and limited food and beverage offerings. In response to the COVID-19 pandemic on our operations, we implemented cost saving initiatives to offset inevitable revenue degradation, such as: operating with a reduced workforce, focusing on higher margin gaming offerings, reducing marketing costs, and limiting certain lower margin food and beverage offerings. For the three months ended September 30, 2020, the Midwest segment’s total revenues decreased, as compared to the prior year period, due principally to the temporary closures and social distancing measures described above. Despite the decrease in total revenues, Adjusted EBITDAR and Adjusted EBITDAR margin increased for the three months ended September 30, 2020, as compared to the prior year period, due to higher spend per trip and our cost structure savings initiatives described above. For the nine months ended September 30, 2020, the Midwest segment’s total revenues, Adjusted EBITDAR and Adjusted EBITDAR margin decreased, as compared to the prior year period, due to the temporary closures and social distancing measures described above. 44 Table of Contents Other For the three months ended September 30, Change For the nine months ended September 30, Change (dollars in millions) 2020 2019 $ % 2020 2019 $ % Revenues Gaming $ 11.0 $ 3.3 $ 7.7 233.3 % $ 33.7 $ 3.4 $ 30.3 891.2 % Food, beverage, and other 12.7 9.1 3.6 39.6 % 37.9 28.5 9.4 33.0 % Total revenues $ 23.7 $ 12.4 $ 11.3 91.1 % $ 71.6 $ 31.9 $ 39.7 124.5 % Adjusted EBITDAR $ (14.6) $ (25.0) $ 10.4 (41.6) % $ (42.2) $ (66.1) $ 23.9 (36.2) % Total revenues and Adjusted EBITDAR of the Other category increased for the three and nine months ended September 30, 2020, as compared to the prior year periods, principally as a result of Penn Interactive. Penn Interactive experienced (i) growth in operating live sports betting at retail sportsbooks within the Company’s properties; (ii) the launch of the Barstool Sports online sports betting app in September 2020, which currently operates in Pennsylvania; and (iii) increases in online social and real-money-gaming revenue due to the temporary closures of our properties. We expect the Barstool Sports app to operate in Michigan by the end of 2020, subject to regulatory approval. In addition, we expect to use the Barstool Sports brand in the operation of certain of our retail sportsbooks by the end of 2020. In addition to Penn Interactive, the increases in Adjusted EBITDAR are driven by decreases in corporate overhead costs of $7.4 million and $13.2 million for the three and nine months ended September 30, 2020, respectively, which are principally due to the temporary closures of our properties and permanent reduction of our workforce, compensation reductions effective April 1, 2020 through September 30, 2020, and the overall reduction of our operations due to temporary property closures and restricted occupancy levels as a result of the COVID-19 pandemic. Non-GAAP Financial Measures Use and Definitions In addition to GAAP financial measures, management uses Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDAR 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; impairment losses; insurance recoveries and 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 and acquisition costs; and other income or expenses. 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 for Barstool Sports and our Kansas Entertainment joint venture. Adjusted EBITDA is inclusive of rent expense associated with our triple net operating leases. 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 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 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. 45 Table of Contents 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. 46 Table of Contents Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures The following table includes a reconciliation of net income (loss), 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 September 30, For the nine months ended September 30, (dollars in millions) 2020 2019 2020 2019 Net income (loss) $ 141.2 $ 43.7 $ (681.8) $ 136.0 Income tax expense (benefit) (14.3) 19.6 (172.2) 53.0 Income from unconsolidated affiliates (5.0) (9.8) (7.4) (21.7) Interest expense, net 142.3 133.5 407.1 400.5 Other income (68.0) (7.2) (75.5) (7.2) Operating income (loss) 196.2 179.8 (529.8) 560.6 Stock-based compensation (1) 2.8 3.7 11.7 10.4 Cash-settled stock-based award variance (1)(2) 39.5 (3.4) 46.7 (6.4) (Gain) loss on disposal of assets (1) (6.0) 7.4 (33.9) 8.3 Contingent purchase price (1) — 1.2 (1.4) 7.0 Pre-opening and acquisition costs (1) 4.8 7.4 11.5 15.5 Depreciation and amortization 87.7 106.3 275.3 316.4 Impairment losses — — 616.1 — Insurance recoveries, net of deductible charges (1) — (1.5) (0.1) (1.5) Income from unconsolidated affiliates 5.0 9.8 7.4 21.7 Non-operating items of equity method investments (3) 1.2 0.9 3.2 2.8 Other expenses (1)(4) 12.4 — 12.4 — Adjusted EBITDA 343.6 311.6 419.1 934.8 Rent expense associated with triple net operating leases (1) 109.0 96.3 310.3 271.0 Adjusted EBITDAR $ 452.6 $ 407.9 $ 729.4 $ 1,205.8 Net income (loss) margin 12.5 % 3.2 % (26.7) % 3.4 % Adjusted EBITDA margin 30.4 % 23.0 % 16.4 % 23.6 % Adjusted EBITDAR margin 40.1 % 30.1 % 28.6 % 30.4 % ( 1) These items are included in “General and administrative” within the Company’s unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). (2) The Company’s 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. During the three and nine months ended September 30, 2020, the price of the Company’s common stock increased significantly, which resulted in unfavorable variances to budget, while the price of the Company’s common stock did not vary significantly during the three and nine months ended September 30, 2019, which resulted in minimal favorable variance to budget. (3) Consists principally of interest expense, net; income taxes; depreciation and amortization; and stock-based compensation expense associated with Barstool Sports and our Kansas Entertainment joint venture. (4) Consists of non-recurring restructuring charges (primarily severance) associated with a company-wide initiative, triggered by the COVID-19 pandemic, designed to (i) improve the operational effectiveness across our property portfolio; and (ii) improve the effectiveness and efficiency of our Corporate functional support areas. 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 cash flow from operations; access to debt and equity capital markets; available cash resources; acquisitions and dispositions; funding of construction of development projects; and our compliance with covenants contained under our debt agreements. 47 Table of Contents For the nine months ended September 30, Change (dollars in millions) 2020 2019 $ % Net cash provided by operating activities $ 220.8 $ 519.2 $ (298.4) (57.5) % Net cash used in investing activities $ (235.9) $ (542.1) $ 306.2 (56.5) % Net cash provided by (used in) financing activities $ 1,445.5 $ (33.9) $ 1,479.4 N/M N/M - Not meaningful Operating Cash Flow The decrease in net cash provided by operating activities of $298.4 million for the nine months ended September 30, 2020, compared to the prior year period, is due to the temporary closures of our properties due to the COVID-19 pandemic, which significantly decreased cash receipts from customers. Offsetting this decrease was a $230.1 million decrease in cash paid for rent and interest payments, in total, under our Triple Net Leases, which is caused by the fact that we utilized rent credits to pay rent due for May 2020, June 2020, July 2020 and August 2020 under the Master Leases and the Meadows Lease (offset by the increase in payments under the Greektown Lease due to the timing of the acquisition). Investing Cash Flow The decrease in net cash used in investing activities of $306.2 million for the nine months ended September 30, 2020, compared to the prior year period, is primarily due to the acquisitions of the operations of Margaritaville and Greektown for $109.1 million and $289.2 million, respectively, both net of cash acquired, during the nine months ended September 30, 2019. As a part of the acquisitions of Margaritaville and Greektown, the Company entered into sale-leaseback transactions with VICI in the amounts of $261.1 million and $700.0 million, respectively, which had no net impact on the determination of net cash used in investing activities for the nine months ended September 30, 2019. In addition, capital expenditures decreased by $39.1 million for the nine months ended September 30, 2020, as compared to the prior year period (see below). These decreases were partially offset by our investment in Barstool Sports made during the first quarter of 2020. Capital Expenditures In March 2020, in order to preserve liquidity given the uncertainty surrounding the COVID-19 pandemic and its impact on our business, we temporarily suspended construction of our two planned Category 4 satellite casinos in York and Morgantown, Pennsylvania, respectively, which represented overall capital investments of approximately $120 million and $111 million inclusive of each of the gaming licenses acquired in a prior year, respectively. We expect both of these projects to be complete in the second half of 2021. Furthermore, in light of the COVID-19 pandemic, we do not expect that we will spend as much as previously budgeted for in 2020 and disclosed in our Form 10-K for the year ended December 31, 2019 on capital expenditures. Capital expenditures for the nine months ended September 30, 2020 and 2019 were $97.6 million and $136.7 million, respectively, of which $31.9 million and $18.2 million, respectively, pertained to our York and Morgantown development projects. Capital expenditures decreased for the nine months ended September 30, 2020, as compared to the prior year period, due to a decrease in spending in advance of and upon temporarily closing our properties, offset by an increase in spending pertaining to our York and Morgantown development projects. Capital expenditures for nine months ended September 30, 2020 and 2019 were principally funded by cash provided by operating activities as well as borrowings under our Revolving Credit Facility. We expect that as operations continue to recover, capital expenditures will continue to increase. Financing Cash Flow For the nine months ended September 30, 2020, as compared to the prior year period, net cash from financing activities increased by $1,479.4 million to net cash provided by financing activities of $1,445.5 million from $33.9 million of net cash used in financing activities. The increase is driven primarily by the separate public offerings of Penn Common Stock on May 14, 2020 and September 24, 2020, in which we received net proceeds of $331.2 million and $957.6 million, respectively. Additionally, we received $322.2 million of net proceeds from the issuance of the Convertible Notes. These increases were partially offset by an increase in net repayments under our Senior Secured Credit Facilities of $228.0 million. Senior Secured Credit Facilities As of September 30, 2020, the Company’s Senior Secured Credit Facilities had a gross outstanding balance of $1,754.8 million, consisting of a $645.8 million Term Loan A Facility and a $1,109.0 million Term Loan B-1 Facility (as such terms are defined below), and a Revolving Credit Facility, which had a zero balance as of September 30, 2020. Additionally, as of 48 Table of Contents September 30, 2020, the Company had conditional obligations under letters of credit issued pursuant to the Senior Secured Credit Facilities with face amounts aggregating $29.4 million. On March 13, 2020, we borrowed the remaining available amount of $430.0 million under our Revolving Credit Facility. The Company elected to draw down the remaining available funds from its Revolving Credit Facility in order to maintain maximum financial flexibility in light of the COVID-19 pandemic. Through the use of our September 2020 equity raise proceeds, we repaid the balance of our Revolving Credit Facility in full and had $670.6 million in available borrowing capacity as of September 30, 2020. In January 2017, the Company entered into an agreement to amend and restate its previous credit agreement, dated October 30, 2013, as amended (the “Credit Agreement”), which provided for: (i) a five-year $700.0 million revolving credit facility (the “Revolving Credit Facility”), (ii) a five-year $300.0 million term loan A facility (the “Term Loan A Facility”), and (iii) a seven-year $500.0 million term loan B facility (the “Term Loan B Facility”). The Term Loan B Facility was fully repaid and terminated prior to 2019. In October 2018, in connection with the acquisition of Pinnacle Entertainment, Inc., (the “Pinnacle Acquisition”), the Company entered into an incremental joinder agreement (the “Incremental Joinder”), which amended the Credit Agreement. The Incremental Joinder provided for an additional $430.2 million of incremental loans having the same terms as the existing Term Loan A Facility, with the exception of extending the maturity date, and an additional $1,128.8 million of loans as a new tranche having new terms (the “Term Loan B-1 Facility” and collectively with the Revolving Credit Facility and the Term Loan A Facility, the “Senior Secured Credit Facilities”). With the exception of extending the maturity date, the Incremental Joinder did not impact the Revolving Credit Facility. On April 14, 2020, the Company entered into a second amendment to its Credit Agreement with its various lenders ( the “Amendment Agreement”) to provide for certain modifications. During the period beginning on April 14, 2020 and ending on the earlier of (x) the date that is two business days after the date on which the Company delivers a covenant relief period termination notice to the administrative agent and (y) the date on which the administrative agent receives a compliance certificate for the quarter ending March 31, 2021 (the “Covenant Relief Period”), the Company will not have to comply with any Maximum Leverage Ratio or Minimum Interest Coverage Ratio (as such terms are defined in the Credit Agreement). During the Covenant Relief Period, the Company will be subject to a minimum liquidity covenant that requires cash and cash equivalents and availability under its Revolving Credit Facility to be (i) at least $400.0 million through April 30, 2020; (ii) $350.0 million during the period from May 1, 2020 through May 31, 2020; (iii) $300.0 million during the period from June 1, 2020 through June 30, 2020; and (iv) $225.0 million during the period from July 1, 2020 through March 31, 2021. The Amendment Agreement also amended the financial covenants that are applicable after the Covenant Relief Period to permit the Company to (i) maintain a maximum consolidated total net leverage ratio of up to a ratio that varies by quarter, ranging between 5.50:1.00 and 4.50:1.00 in 2021 and 4.25:1.00 thereafter, tested quarterly on a pro forma trailing twelve month (“PF TTM”) basis; (ii) maintain a maximum senior secured net leverage ratio of up to a ratio that varies by quarter, ranging between 4.50:1.00 and 3.50:1.00 in 2021 and 3.00:1.00 thereafter, tested quarterly on a PF TTM basis; and (iii) maintain an interest coverage ratio of 2.50:1.00, tested quarterly on a PF TTM basis. In addition, the Amendment Agreement (i) provides that, during the Covenant Relief Period, loans under the Revolving Credit Facility and the Term Loan A Facility shall bear interest at either a base rate or an adjusted LIBOR rate, in each case, plus an applicable margin, in the case of base rate loans, of 2.00%, and in the case of adjusted LIBOR rate loans, of 3.00%; (ii) provides that, during the Covenant Relief Period, the Company shall pay a commitment fee on the unused portion of the commitments under the Revolving Credit Facility at a rate of 0.50% per annum; (iii) provides for a 0.75% LIBOR floor applicable to all LIBOR loans under the Senior Secured Credit Facilities; (iv) carves out COVID-19 related effects from certain terms of the Senior Secured Credit Facilities during the Covenant Relief Period; and (v) makes certain other changes to the covenants and other provisions of the Credit Agreement. The payment and performance of obligations under the Senior Secured Credit Facilities are guaranteed by a lien on and security interest in substantially all of the assets (other than excluded property such as gaming licenses) of the Company and its subsidiaries. 5.625% Senior Unsecured Notes In January 2017, the Company completed an offering of $400.0 million aggregate principal amount of 5.625% senior unsecured notes that mature on January 15, 2027 (the “5.625% Notes”) at a price of par. Interest on the 5.625% Notes is payable on January 15 th and July 15 th of each year. 49 Table of Contents 2.75% Unsecured Convertible Notes In May 2020, the Company completed a public offering of $330.5 million aggregate principal amount of 2.75% unsecured convertible notes that mature, unless earlier converted, redeemed or repurchased, on May 15, 2026 (the “Convertible Notes”) at a price of par. After lender fees and discounts, net proceeds received by the Company were $322.2 million. Interest on the Convertible Notes is payable on May 15 th and November 15 th of each year, beginning on November 15, 2020. The Convertible Notes are convertible into shares of the Company’s common stock at an initial conversion price of $23.40 per share, or 42.7350 shares, per $1,000 principal amount of notes, subject to adjustment if certain corporate events occur. However, in no event will the conversion exceed 55.5555 shares of common stock per $1,000 principal amount of notes. As of September 30, 2020, the maximum number of shares that could be issued to satisfy the conversion feature of the Convertible Notes is 18,360,815. Prior to February 15, 2026, at their election, holders of the Convertible Notes may convert outstanding notes starting in the fourth quarter of 2020 if the trading price of the Company’s common stock exceeds 130% of the conversion price or, starting shortly after the issuance of the Convertible Notes, if the trading price per $1,000 principal amount of notes is less than 98% of the product of the trading price of the Company’s common stock and the conversion rate then in effect. The Convertible Notes may, at the Company’s election, be settled in cash, shares of common stock of the Company, or a combination thereof. The Company has the option to redeem the Convertible Notes, in whole or in part, beginning November 20, 2023. In addition, the Convertible Notes convert into shares of the Company’s common stock upon the occurrence of certain corporate events that constitute a fundamental change under the indenture governing the Convertible Notes at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the date of repurchase. In connection with certain corporate events or if the Company issues a notice of redemption, it will, under certain circumstances, increase the conversion rate for holders who elect to convert their Convertible Notes in connection with such corporate events or during the relevant redemption period for such Convertible Notes. Covenants Our Credit Agreement and the indenture governing our 5.625% Notes require us, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests. In addition, the Company’s Credit Agreement and the indenture governing our 5.625% Notes restrict, among other things, its 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, 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 of September 30, 2020, 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 Form 10-Q with the U.S Securities and Exchange Commission (the “SEC”). Common Stock Offering On May 14, 2020, the Company completed a public offering of 16,666,667 shares of Penn Common Stock and on May 19, 2020, the underwriters exercised their right to purchase an additional 2,500,000 shares of Penn Common Stock, resulting in an aggregate public offering of 19,166,667 shares of Penn Common Stock. All of the shares were issued at a public offering price of $18.00 per share, resulting in gross proceeds of $345.0 million, and net proceeds of $331.2 million after underwriter fees and discounts of $13.8 million. On September 24, 2020, the Company completed a public offering of 14,000,000 shares of Penn Common Stock and on September 25, 2020, the underwriters exercised their right to purchase an additional 2,100,000 shares of Penn Common Stock, resulting in an aggregate public offering of 16,100,000 shares of Penn Common Stock. All of the shares were issued at a public offering price of $61.00 per share, resulting in gross proceeds of $982.1 million, and net proceeds of $957.6 million after underwriter fees and discounts of $24.5 million. Triple Net Leases The majority of the gaming facilities 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 Master Lease. The Company’s Master Leases are accounted for as either operating leases, finance leases, or financing obligations. In addition, four of the Company’s gaming facilities, 50 Table of Contents Meadows, Margaritaville, Greektown and Tropicana, are subject to individual triple net leases. As previously mentioned, we refer to the Penn Master Lease, the Pinnacle Master Lease, the Meadows Lease, the Margaritaville Lease, the Greektown Lease, and the Tropicana Lease, collectively as our “Triple Net Leases.” See “Payments to our REIT Landlords under Triple Net Leases” below for tabular information on the payments made during the three and nine months ended September 30, 2020 and 2019 pertaining to our Triple Net Leases, inclusive of rent credits utilized. Penn Master Lease Pursuant to a triple net master lease with GLPI (the “Penn Master Lease”), which became effective November 1, 2013, the Company leases real estate assets associated with 19 of the gaming facilities used in its operations. The Penn Master Lease has an initial term of 15 years with four subsequent, five-year renewal periods on the same terms and conditions, exercisable at the Company’s option. The payment structure under the Penn Master Lease includes a fixed component, a portion of which is subject to an annual escalator of up to 2%, depending on the Adjusted Revenue to Rent Ratio (as defined in the Penn Master Lease) of 1.8:1, and a component that is based on performance, which is prospectively adjusted (i) every five years by an amount equal to 4% of the average change in net revenues of all properties under the Penn Master Lease (other than Hollywood Casino Columbus and Hollywood Casino Toledo (“Columbus and Toledo”)) compared to a contractual baseline during the preceding five years (“Penn Percentage Rent”) and (ii) monthly by an amount equal to 20% of the net revenues of Columbus and Toledo in excess of a contractual baseline and subject to a rent floor specific to Toledo. The next annual escalator test date is scheduled to occur effective November 1, 2020 and the next Penn Percentage Rent reset is scheduled to occur on November 1, 2023. Pinnacle Master Lease In connection with the Pinnacle Acquisition, the Company assumed a triple net master lease with GLPI (the “Pinnacle Master Lease”), originally effective April 28, 2016, pursuant to which the Company leases real estate assets associated with 12 of the gaming facilities used in its operations. Upon assumption of the Pinnacle Master Lease, as amended, there were 7.5 years remaining of the initial ten-year term, with five subsequent, five-year renewal periods exercisable at the Company’s option. The payment structure under the Pinnacle Master Lease includes a fixed component, a portion of which is subject to an annual escalator of up to 2%, depending on the Adjusted Revenue to Rent Ratio (as defined in the Pinnacle Master Lease) of 1.8:1, and a component that is based on performance, which is prospectively adjusted every two years by an amount equal to 4% of the average change in net revenues of all properties under the Pinnacle Master Lease compared to a contractual baseline during the preceding two years (“Pinnacle Percentage Rent”). Effective May 1, 2020, the Pinnacle Percentage Rent resulted in an annual rent reduction of $5.0 million, which will be in effect until the next Pinnacle Percentage Rent reset, scheduled to occur on May 1, 2022. We did not incur an annual escalator for the lease year ended April 30, 2020. The next annual escalator test date is scheduled to occur on May 1, 2021. Tropicana Lease, Meadows Lease, Margaritaville Lease and Greektown Lease On April 16, 2020, we entered into a triple net lease with a subsidiary of GLPI for the real estate assets used in the operations of Tropicana for nominal rent (the “Tropicana Lease”) and will continue to operate the Tropicana for two years (subject to three one-year extensions at GLPI’s option) or until the real estate assets and the operations of the Tropicana are earlier sold, as discussed above. In the event that GLPI sells the real estate assets used in the operations of Tropicana, the Tropicana Lease will automatically terminate. In connection with the Pinnacle Acquisition, we assumed a triple net lease of the real estate assets used in the operations of Meadows (the “Meadows Lease”), originally effective September 9, 2016, with GLPI as the landlord. Upon assumption of the Meadows Lease, there were eight years remaining of the initial ten-year term, with three subsequent, five-year renewal options followed by one four-year renewal option on the same terms and conditions, exercisable at the Company’s option. The payment structure under the Meadows Lease includes a fixed component (“Meadows Base Rent”), which is subject to an annual escalator of up to 5% for the initial term or until the lease year in which Meadows Base Rent plus Meadows Percentage Rent (as defined below) is a total of $31.0 million, subject to certain adjustments, and up to 2% thereafter, subject to an Adjusted Revenue to Rent Ratio (as defined in the Meadows Lease) of 2.0:1. The “Meadows Percentage Rent” is based on performance, which is prospectively adjusted for the next two-year period equal to 4% of the average annual net revenues of the property during the trailing two-year period. The next annual escalator test date and the next Meadows Percentage Rent reset is scheduled to occur on October 1, 2020. We expect the results of the annual escalator test and rent reset to be finalized during the fourth quarter. In connection with the acquisition of Margaritaville, we entered into the Margaritaville Lease with VICI for the real estate assets used in the operations of Margaritaville. The Margaritaville Lease has an initial term of 15 years, with four subsequent five-year renewal options on the same terms and conditions, exercisable at the Company’s option. The payment structure under 51 Table of Contents the Margaritaville Lease includes a fixed component, a portion of which is subject to an annual escalator of up to 2%, and a component that is based on performance, which is prospectively adjusted every two years by an amount equal to 4% of the average change in net revenues of the property compared to a contractual baseline during the preceding two years (“Margaritaville Percentage Rent”). On February 1, 2020, the Margaritaville Lease was amended to provide for a change in the measurement of the annual escalator from an Adjusted Revenue to Rent Ratio (as defined in the Margaritaville Lease) of 1.9:1 to a minimum ratio of net revenue to rent of 6.1:1. As a result of the annual escalator, effective February 1, 2020, rent under the Margaritaville Lease increased by $0.3 million. The next scheduled annual escalator test date and the first Margaritaville Percentage Rent reset are scheduled to occur on February 1, 2021. In connection with the acquisition of Greektown, we entered into the Greektown Lease with VICI for the real estate assets used in the operations of Greektown. The Greektown Lease has an initial term of 15 years, with four subsequent five-year renewal options on the same terms and conditions, exercisable at the Company’s option. The payment structure under the Greektown Lease includes a fixed component, a portion of which is subject to an annual escalator of up to 2% subject to an Adjusted Revenue to Rent Ratio (as defined in the Greektown Lease) of 1.85:1, and a component that is based on performance, which is prospectively adjusted every two years by an amount equal to 4% of the average change in net revenues of the facility compared to a contractual baseline during the preceding two years (“Greektown Percentage Rent”). We did not incur an annual escalator for the lease year ended May 31, 2020. The next scheduled annual escalator test date and the first Greektown Percentage Rent reset are scheduled to occur on June 1, 2021. Payments to our REIT Landlords under Triple Net Leases Total payments made to our REIT Landlords, GLPI and VICI, inclusive of rent credits utilized, were as follows: For the three months ended September 30, For the nine months ended September 30, (in millions) 2020 2019 2020 2019 Penn Master Lease (1) $ 120.3 $ 114.0 $ 343.4 $ 342.9 Pinnacle Master Lease (1) 81.3 82.3 245.6 245.6 Meadows Lease (1) 6.7 6.6 20.2 19.7 Margaritaville Lease 5.9 5.8 17.6 17.3 Greektown Lease 13.9 13.9 41.7 19.9 Total (2) $ 228.1 $ 222.6 $ 668.5 $ 645.4 (1) During the three and nine months ended September 30, 2020, we utilized rent credits to pay $83.0 million, $54.2 million and $4.5 million and $155.1 million, $108.4 million, and $9.0 million of rent under the Penn Master Lease, Pinnacle Master Lease and Meadows Lease, respectively. (2) Rent payable under the Tropicana Lease is nominal. Therefore, it has been excluded from the table above. Other Long-Term Obligations Relocation Fees As of September 30, 2020 and December 31, 2019, other long-term obligations included $68.8 million and $76.4 million, respectively, related to the relocation fees for Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course, which opened in August 2014 and September 2014, respectively. The relocation fee for each property is payable as follows: $7.5 million upon the opening of the property and eighteen semi-annual payments of $4.8 million beginning one year after the commencement of operations. 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 Senior Secured 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, including the impact of the COVID-19 pandemic. We cannot be certain: (i) of the impact of the operating restrictions to accommodate social distancing and health and safety guidelines will be on our properties; (ii) of the magnitude and duration of the impact of the COVID-19 pandemic (including reoccurrences) on general economic conditions, capital markets, unemployment and our liquidity, operations, supply chain and personnel, 52 Table of Contents including the potential that some or all of properties may be forced to close or cease operations for a certain period of time; or (iii) that the U.S. economy and our business will recover to levels that existed prior to the COVID-19 pandemic and on what time frame. We caution you that the trends seen at our reopened properties (e.g., higher spend per trip) 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 II, Item 1A. “Risk Factors” of this Form 10-Q. See also Part I, Item 1A. “Risk Factors” of the Company’s Form 10-K for the year ended December 31, 2019 and Part II, Item 1A. “Risk Factors” of the Company’s subsequent Form 10-Q filings for a discussion of additional risks related to the Company’s capital structure. We have historically maintained a capital structure comprising a mix of equity and debt financing. We vary our leverage to pursue opportunities in the marketplace and in an effort to maximize our enterprise value for our shareholders. We expect to meet our debt obligations as they have come due through internally generated funds from operations and/or refinancing them through the debt or equity markets prior to their maturity. CRITICAL ACCOUNTING ESTIMATES A complete discussion of our critical accounting estimates is included in our Form 10-K for the year ended December 31, 2019. There have been no significant changes in our critical accounting estimates during the three months ended September 30, 2020. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS For information with respect to new accounting pronouncements and the impact of these pronouncements on our unaudited Condensed Consolidated Financial Statements, see Note 3, “New Accounting Pronouncements,” in the notes to our unaudited Condensed Consolidated Financial Statements. IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS This Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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: COVID-19; the length of time the Company’s Zia Park property will remain closed, the expected opening date, and the impact of this closure on the Company and its stakeholders; demand for gaming once this gaming property reopens as well as the impact of post-opening restrictions; continued demand for the gaming properties that have opened and the possibility that our gaming properties may be required to close again in the future due to COVID-19; the impact of COVID-19 on general economic conditions, capital markets, unemployment, and the Company’s liquidity, operations, supply chain and personnel; the potential benefits and expected timing of the Perryville transaction with GLPI; the Company’s estimated cash burn and future liquidity, future revenue and Adjusted EBITDAR, including from our iCasino business in Pennsylvania; the continued success of Barstool Sports in Pennsylvania and in additional states in the future; the expected benefits and potential challenges of the investment in Barstool Sports, including the anticipated benefits for the Company’s online and retail sports betting, iCasino and social casino products; the expected financial returns from the transaction with Barstool Sports; the expected launch of the Barstool-branded mobile sports betting product and its future revenue and profit contributions; the impact of shortened or cancelled sports seasons on our results; our expectations of future results of operations and financial condition, including margins; our expectations for our properties, our development projects or our iGaming initiatives; the timing, cost and expected impact of planned capital expenditures on our results of operations; our expectations with regard to the impact of competition; the anticipated opening dates of our retail sportsbooks in future states and our proposed Pennsylvania Category 4 casinos in York and Berks counties; our expectations with regard to acquisitions, potential divestitures and development opportunities, as well as the integration of and synergies related to any companies we have acquired or may acquire; the outcome and financial impact of the litigation in which we are or will be periodically involved; the actions of regulatory, legislative, executive or judicial decisions at the federal, state or local level with regard to our business and the impact of any such actions; our ability to maintain regulatory approvals for our existing businesses and to receive regulatory approvals for our new business partners; our expectations with regard to the impact of competition in online sports betting, iGaming and retail/mobile sportsbooks as well as the potential impact of this business line on our existing businesses; 53 the performance of our partners in online sports betting, iGaming and retail/mobile sportsbooks, including the risks associated with any new business, the actions of regulatory, legislative, executive or judicial decisions at the federal, state or local level with regard to online sports betting, iGaming and retail/mobile sportsbooks and the impact of any such actions; and our expectations regarding economic and consumer conditions. 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, but are not limited to: (a) the magnitude and duration of the impact of the COVID-19 pandemic on general economic conditions, capital markets, unemployment, consumer spending and the Company’s liquidity, financial condition, supply chain, operations and personnel; (b) industry, market, economic, political, regulatory and health conditions; (c) disruptions in operations from data protection breaches, cyberattacks, extreme weather conditions, medical epidemics or pandemics such as the COVID-19 (and reoccurrences), and other natural or man-made disasters or catastrophic events; (d) the reopening of the Company’s Zia Park property is subject to various conditions, including numerous regulatory approvals and potential delays and operational restrictions; (e) our ability to access additional capital on favorable terms or at all; (f) our ability to remain in compliance with the financial covenants of our debt obligations; (g) the consummation of the Perryville transaction with GLPI is subject to various conditions, including third-party agreements and approvals, and accordingly may be delayed or may not occur at all; (h) actions to reduce costs and improve efficiencies to mitigate losses as a result of the COVID-19 pandemic that could negatively impact guest loyalty and our ability to attract and retain employees; (i) the outcome of any legal proceedings that may be instituted against the Company or its directors, officers or employees; (j) the impact of new or changes in current laws, regulations, rules or other industry standards; (k) the ability of our operating teams to drive revenue and margins; (l) the impact of significant competition from other gaming and entertainment operations (including from Native American casinos, historic racing machines, state sponsored i-lottery products and VGTs in or adjacent to states in which we operate); (m) our ability to obtain timely regulatory approvals required to own, develop and/or operate our properties, or other delays, approvals or impediments to completing our planned acquisitions or projects, construction factors, including delays, and increased costs; (n) the passage of state, federal or local legislation (including referenda) that would expand, restrict, further tax, prevent or negatively impact operations in or adjacent to the jurisdictions in which we do or seek to do business (such as a smoking ban at any of our properties or the award of additional gaming licenses proximate to our properties, as recently occurred with legislation in Illinois and Pennsylvania); (o) the effects of local and national economic, credit, capital market, housing, and energy conditions on the economy in general and on the gaming and lodging industries in particular; (p) the activities of our competitors (commercial and tribal) and the rapid emergence of new competitors (traditional, internet, social, sweepstakes based and VGTs in bars and truck stops); (q) increases in the effective rate of taxation for any of our operations or at the corporate level; (r) our ability to identify attractive acquisition and development opportunities (especially in new business lines) and to agree to terms with, and maintain good relationships with partners and municipalities for such transactions; (s) the costs and risks involved in the pursuit of such opportunities and our ability to complete the acquisition or development of, and achieve the expected returns from, such opportunities; (t) the impact of weather, including flooding, hurricanes and tornadoes; (u) changes in accounting standards; (v) the risk of failing to maintain the integrity of our information technology infrastructure and safeguard our business, employee and customer data (particularly as our iGaming division grows); (w) with respect to our iGaming and sports betting endeavors, the impact of significant competition from other companies for online sports betting, iGaming and sportsbooks, our ability to achieve the expected financial returns related to our investment in Barstool Sports, our ability to retain key talent, our ability to obtain timely regulatory approvals required to own, develop and/or operate sportsbooks may be delayed and there may be impediments and increased costs to launching the online betting, iGaming and sportsbooks, including delays, and increased costs, intellectual property and legal and regulatory challenges, as well as our ability to successfully develop innovative products that attract and retain a significant number of players in order to grow our revenues and earnings, our ability to establish key partnerships, our ability to generate meaningful returns and the risks inherent in any new business; (x) with respect to our proposed Pennsylvania Category 4 casinos in York and Berks counties, risks relating to construction, and our ability to achieve our expected budgets, timelines and investment returns, including the ultimate location of other gaming properties in the Commonwealth of Pennsylvania; and (y) other factors as discussed in the Company’s Form 10-K for the year ended December 31, 2019; the Company’s Form 10-Q for the quarterly period ended March 31, 2020, the Company’s Form 10-Q for the quarterly period ended June 30, 2020, this Form 10-Q for the quarterly period ended September 30, 2020; and Current Reports on Form 8-K, each as filed with the SEC. The Company does not intend to update publicly any forward-looking statements except as required by law.