Caesars Entertainment Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 31, 2023

There are 18 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Caesars Entertainment Inc. 2023 Third Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session.

Operator

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brian Agnew, Senior Vice President of Corporate Finance, Treasury and Investor Relations.

Speaker 1

Thank you, Josh, and good afternoon to everyone on the call. Welcome to our conference call to Our Q3 2023 earnings. This afternoon, we issued a press release announcing our financial results for the period ended September 30, 2023. A copy of the press release is available in the Investor Relations section of our website at investor. Caesars.com.

Speaker 1

As usual, joining me on the call today are Tom Reed, our CEO Anthony Carano, our President and Chief Operating Officer Brett Yunker, our CFO and Eric Keshin, President, Caesars Sports and Online Gaming. Before I turn the call over to Anthony, I would like to remind you that during today's conference call, we may make certain forward looking statements about the company's performance. Such forward looking statements are not guarantees of future performance and therefore one should not place undue reliance on them. Forward looking statements are also subject to the inherent risks and uncertainties that could cause actual results to differ materially from those expressed. For additional information concerning factors that could cause actual results to differ from those discussed in our comments today, You should refer to the cautionary statements contained in our press release and also the risk factors contained in our company's filings with the Securities and Exchange Commission.

Speaker 1

Caesars Entertainment undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances that occur after today's call. Also during today's call, the company may discuss certain non GAAP measures as defined by SEC Regulation G. The GAAP financial measure is most directly comparable to each non GAAP financial measure discussed and the reconciliation of the differences between each non GAAP financial measure And the comparable GAAP financial measure can be found on the company's website at investors. Caesars.com by selecting the press release regarding the company's 2023 Q3 financial results. With the disclaimer out of the way, I will now turn the call over to Anthony.

Speaker 2

Thank you, Brian, and good afternoon to everyone on the call. We delivered the strongest consolidated adjusted EBITDA quarter in the history of the company, led by a new all time quarterly adjusted EBITDA record in our regional markets, profitability in our digital segment and continued strength in our Las Vegas segment. All three segments grew adjusted EBITDA year over year. Starting with our Las Vegas segment, demand trends remained healthy during the Q3 with occupancy increasing to 96.6% versus 93.6% in the prior year. Total Las Vegas segment revenues were up 4% driven by higher occupancy and higher ADRs, which drove record cash hotel revenues, record gaming revenues and record food and beverage revenues.

Speaker 2

Excluding real payments, our Las Vegas segment generated $494,000,000 of adjusted EBITDA with a margin of 44%. During the quarter, our group segment also delivered an all time Q3 record for adjusted EBITDA. As we look to the remainder of the year, Las Vegas continues to benefit from strong leisure and casino guest demand, a robust events calendar and the continued strength of the Group and Convention segment. We're looking forward to the inaugural F1 race in November, the culmination of significant planning and infrastructure improvements executed by the city in order to deliver a great event. Heading into 'twenty four, we are also excited for Las Vegas to host the Super Bowl in February in addition to many other new and exciting events planned throughout the year.

Speaker 2

Las Vegas continues to benefit from one of the strongest event calendars in the United States. In our Regional segment, revenues were up 2% versus last year and adjusted EBITDA grew to 575,000,000 the best regional quarter on record. Stable guest demand combined with excellent performance from our completed capital projects and newly opened facilities helped to offset competitive pressures in a few of our markets. Our regional segment is benefiting from a diversified portfolio across the United States. Turning to our capital projects.

Speaker 2

We are anticipating a Q4 opening for our Harris Hoosier Park property expansion and we expect to have the new Versailles Tower Rooms in Vegas online by the end of the year. 2024 is a busy year, and we We expect to complete the permanent facilities in Danville, Virginia and Columbus, Nebraska as well as the new hotel tower and completely remodeled Caesars New Orleans project. We are looking forward to a strong finish to 2023. Consumer demand remains strong and our capital projects are winding down. We will continue to remain focused on operating cost efficiencies, harvesting returns on project capital and driving long term EBITDA growth.

Speaker 2

I want to thank all of our team members for their hard work. Our success is a direct result of the dedication of our team members and their commitment to delivering exceptional guest experiences every day. With that, I'll now turn the call over to Eric for some insights on the Q2 in our Digital segment.

Speaker 3

Thanks, Anthony. During the Q3, we delivered another positive adjusted EBITDA result and a significant improvement versus the same quarter last year. Caesars Digital generated $2,000,000 of adjusted EBITDA versus a $38,000,000 EBITDA loss last year, demonstrating significant and Continued year over year flow through improvements. Q3 represented a second consecutive quarter of EBITDA profitability in our digital segment. It makes us positive now on a trailing 12 month basis as well.

Speaker 3

During the quarter, online sports betting handle increased 14% and iCasino handle improved 38%. Revenues were negatively impacted by lower year over year hold in both our online sports betting and iCasino segments, which we believe to be temporary. We continue to remain balanced with our promotional spend during the quarter with a focus on investing in our best customers resulting in an overall promotional spend being among the lowest in the industry. During the quarter, we delivered our new standalone iCasino app Caesars Palace Online. The product features enhanced game content and functionality in addition to facilitating segmented marketing, the results of which drove monthly GGR and NGR in its 1st full month of operation to a record.

Speaker 3

We anticipate realizing increasingly positive results in the months ahead. Turning to online sports betting, we launched several new product features for football, Including SGPs for NCAA, a live streaming product for nationally broadcast NFL games, a bet with reward credits feature and improved payment options. As we head into 2024, we believe that our product in both sports betting and iCasino are significantly improved from prior periods and quite competitive. We have an exciting and robust technology plan, which will have a focus on retention enhancements. I will preview these with you over the coming calls, but initially we plan to continue to roll out our proprietary PAM, which will enable a shared wallet and to improve the customer experience through enhanced application stability, ease of use and app speed.

Speaker 3

We Now offer sports betting in 30 North American jurisdictions, 24 of which offer mobile wagering. We also operate icasino in 6 jurisdictions. I'll now pass the call back to Brett for additional conference.

Speaker 4

Thank you, Eric. Year to date, we've applied over $700,000,000 of cash flow to debt reduction and the acquisition of the remaining equity interest in our Baltimore asset. Our leverage continues to reduce as we repay debt and grow EBITDA with our total net leverage under our bank credit facility declining to 3.9x as of September 30, resulting in a 25 bps reduction in our Term Loan A and revolver spreads to 150 bps over SOFR. Cash CapEx excluding Atlantic City and our joint venture project spend is expected to land at just over $800,000,000 for 2023. We're looking forward to posting a strong Q4 heading into 2024.

Speaker 4

Over to

Speaker 5

Todd. Thanks, Brad. As the group has detailed, it was an extremely strong quarter for us, All time record for the company, those of you who've been on calls going back for quite some time, this should be A familiar story for you. Vegas remains quite strong in terms of Headwinds in Vegas in the quarter, know that we are accruing for the anticipated Expenses that will come with the new union contract, which I will touch on a little bit more Momentarily, we had Rio left the system on October 2. So It kind of went out the door in terms of how it was performing in the Q3.

Speaker 5

We had more significant disruption in the Versailles tower than we anticipated. We thought we were going to keep A fair amount of it active, but as you open the walls of a building that is As dated as that particular building, you find all sorts of surprises. We took the whole tower out of Service, so fewer rooms, labor cost headwinds. Rio has a drag. We still beat year over year.

Speaker 5

The margin the slight margin reduction you see is related to labor costs as Rio comes Offline October 2, you should expect us to recover that margin percentage, if not more going forward. I know there will be questions on the union contract. We are in active dialogue with the unions. I'm involved with the union. I'm involved personally in the discussions.

Speaker 5

I'm optimistic we will reach a solution. You've heard me say before, We have done quite well as a company post merger, post pandemic. Our employees should and will participate in that. So you should expect that when we reach agreement On the contract, it's going to be the largest increase that our employees have seen in the 4 decades since We started interacting with the culinary union. So that's well deserved.

Speaker 5

It's anticipated In our business model, and as I said, everybody should be participating in the results that we've been delivering. In terms of regional, I know that a lot of you are expecting fairly dramatic Moves in terms of what's happening with the customer have been for many, many months, if not quarters by this point. That's not what we're seeing. We're seeing stability in the customer. We're seeing weakness in properties that have competitive openings that we've named before, Tunica, Chicago market being Chief among them, if you want to hang your head on something that feels soft, Atlantic City feels soft, But that's not particularly news at this point.

Speaker 5

The returns from our Projects that have come online Lake Charles, Virginia, Horseshoe Indianapolis have been quite strong and have offset The weakness in the properties that are competitively impacted and as you saw we set an all time Quarterly record for EBITDA and margin was stable. So we feel very good about regional. I would point to moving forward, New Orleans is in the midst of the significant construction project that we've got going on there. It's particularly disrupted now and for the next quarter or 2, basically a third of the floor, The casino floor is torn up on any given day as we run as we do the heavy work. At that level, we topped off the hotel tower.

Speaker 5

We're on target to open that expansion completely Well, in advance of Super Bowl of 25. And we also have, Obviously, F1 coming to Vegas, feel very, very good and no change in what we're Expecting in terms of lift in the quarter in the neighborhood of 5%, which is what I told you a year ago, We'd expect to deliver that at the high end. The amount of credit play that we have in the market that week will exceed New Year's Eve, so it's an extraordinary event. From a high end perspective, Super Bowl in Vegas is filling in the same way, extremely strong high end as well. So we feel very good About those events, digital, Eric touched on, our hold continues to grow in excess of 30%.

Speaker 5

You know that that's Based on the way we've been operating, that's not promotional driven, that's actual handle growth. We got dinged on Hold in the quarter, but still delivered a positive EBITDA quarter. We're particularly pleased with the way the 4th quarter has begun in digital, excited about the momentum that we've got in Online Casino now that we've launched Caesars Palace online and what we'll be able to deliver in the coming quarters. As we have discussed, we are nearing the end of a significant capital cycle. So As New Orleans winds down, you should expect our project CapEx budget to come down.

Speaker 5

Our EBITDA is growing in both brick and mortar And digital, so our free cash flow is growing. We continue to use our free cash flow to pay down debt and reduce leverage. That's what you should Expect until we see leverage in the 4 times or below lease adjusted area. So We feel very, very good about how the business is performing, how it's coming together. Looking forward, we feel Very good about what we see in front of us.

Speaker 5

We see, of course, the volatility that you see in Share prices in the space, not just us, it's not reflective of what's going on in the business. And we're just going to keep delivering numbers until that volatility subsides and we expect the market to recognize the value in our equity. And with that, I'll open it up for questions.

Operator

Thank you. One moment for questions. Our first question comes from Carlo Santarelli with Deutsche Bank. You may proceed.

Speaker 6

Hey, guys. Thank you. Anthony, I believe you were talking about some of the event calendar for 2024 as it pertained to Las Vegas. I was wondering if you could perhaps provide kind of an update on where you guys are in terms of group pace And how you're thinking about kind of the in the year for the year experience this year relative What you could perhaps see next year?

Speaker 2

Thanks, Carlo. Group pace, as we said, set a record in this quarter. We see an extremely positive calendar Going into 2024, getting better by the day, I think mix is around 15% to 16%. This year should pace up to about high teens next year.

Speaker 6

Perfect. Thank you. And then obviously, you guys benefited from some of the favorable baccarat results in the market in the 3Q. I was just wondering, I mean, we've seen a pretty healthy stretch here of materially higher baccarat holds. Is there anything that your folks are noticing just in terms of the changing dynamics that we seem to be seeing coming out of at least the Nevada published data as it

Speaker 2

No, we had a really good quarter in Baccarat last quarter, Q2. Q3 normalized for us. We're seeing a really strong return of the international customer, A diversified return of the international customer and we think that will continue to grow this quarter with F1. A lot of interest in international for both F1 and the Super Bowl and then anticipating a great New Year's and Chinese New Year's for next year for international.

Speaker 7

Great. Thank you. And

Speaker 5

Carlo, on a consolidated basis for the quarter, hold didn't have a material impact one way or another for us?

Speaker 6

Yes. No, no, no. No, I was just referring to the baccarat piece specifically and more of the market data that you guys said. Yes.

Speaker 8

Thank you.

Operator

Thank you. One moment for questions. Our next question comes from Joe Greff with JPMorgan. You may proceed.

Speaker 8

Good afternoon, guys. I want to lead off with a question for Eric here. Obviously, Significant increase in iGaming handle up 38% year over year and that's great. Can you talk about the path for growth from here? What are some of the drivers to continue that accelerating momentum, particularly when you think about other brands or And how that could drive growth there, Eric?

Speaker 3

Yes, sure. Thanks, Joe. Yes, we feel like from a volume perspective, we had a very solid quarter on both Sports and Casino, Up 38%. And keep in mind, we do that during the quarter, we didn't have our app with the exception of basically for 1 month as we were putting it in for the 1st 2 months of the quarter. So again, most of the upside from the new app is going to accrue in the Q4 and into next year.

Speaker 3

We feel that there's a lot of opportunity to improve the integration of the various game vendors that will give us more insight into the actual workings of the game and see what customers are Playing and where the spins are, we also have an opportunity to improve our CRM. As we mentioned during prior calls up to about a Couple of months ago, we weren't able to do segmented marketing. And so now with our new app and with some of the new technology, we feel like that's going to really benefit us heading into next year. And then to your point, we are exploring the possibilities of adding another skin to the portfolio. As there are a number of states where we have additional licenses that we've reserved and would plan to potentially roll that out later in 2024.

Speaker 3

So all of those things contributing to the overall improvement. But what I would say is that The thesis of the new iCasino app is following exactly the script. We're seeing a much higher percentage of slot players, which if you recall on our prior app, it was heavily table focused. And then as a result, we're seeing improved hold in that particular app, which we think over time will ultimately create a whole lot more value for us.

Speaker 8

Great. And then A question for you going back to Las Vegas. In the Q3, casino revenue flat year over year, food and beverage hotel and other all up To varying degrees, nicely up year over year. Table game drop was down 6%. Was there anything specific Jerry, Anthony or Tom that you would call out, in the Q, you do reference that the Las Vegas segment had faced some challenges related to Construction disruption and roadwork on the strip, obviously, it didn't impact food and beverage and hotel.

Speaker 8

To what extent was that a driver?

Speaker 5

I mean, you could name a lot of things that impact that, but A big impact on casino revenue is shift in mix out of your database or tour and travel into Group business, those customers spend more money outside of the casino floor than Those that they're replacing, so you're going to see some of that. You wouldn't really and obviously, Table games, Rob, particularly in Caesars Palace where we are today is dependent on when your big customers Come and visit. And so there's I don't want to say seasonality, but there's volatility in that number based on when those customers show up.

Speaker 8

Great. And then just related to Las Vegas, Tom, do you think you benefited at all from A competitor's cybersecurity issue, which may have hurt them or which definitely hurt them based on their disclosures, did you Have an outsized benefit that you would call

Speaker 5

out? No, I wouldn't call out a benefit, I I'll tell you one thing I know for certain after this quarter is nobody benefits from the cybersecurity incident.

Speaker 8

Thank you guys. Have a good day.

Operator

Thank you. One moment for questions. Our next question comes from Dan Politzer with Wells Fargo. You may proceed.

Speaker 9

Hey, good afternoon, everyone. The first, this is maybe for Tom or Anthony. As you think about next year and we're kind of rounding out this year here, how do you think about the growth and the segment between segments as it relates to Las Vegas and Regionals. Now obviously, Tom, you mentioned in Las Vegas, you're seeing the SciTower maybe shifted a little bit later than anticipated. And then in the regional segment, you have new properties ramping, but also some new competition.

Speaker 9

So Any high level thoughts preliminarily as we think about the growth path here next year? Thanks.

Speaker 5

Yes. So I'd say on the Versailles tower, Timing really hasn't changed. What changed is we had to take far more rooms out of service than we anticipated Before we started opening up walls, we'll still, as Anthony said, be getting rooms back before the end of the year. We think that's a driver in Las Vegas. I would be we're in the middle of budgeting right now.

Speaker 5

And I would say, if you're budgeting modest growth in both Vegas and regional And significant growth in digital, you're consistent with what we're thinking.

Speaker 9

Got it. And then Just pivoting to digital a bit, I mean this is a business where I think it seems like from an operating expense perspective, it looks like you've really reached Scale there. As you think about the path forward here, are there any rules of thumb or high level ways to think about the flow through Just as it looks like you've turned the corner in terms of the cost structure.

Speaker 3

Yes. Happy to Give you a few thoughts. One of the things that I think we're particularly proud of over the last few quarters is that we've been able to hold our promotional spending Constant and even down. This quarter, it was down 25 basis points versus prior year. And so it's staying in that range that we've kind of given you for guidance of the 1% to 1.25% of volume.

Speaker 3

And so I think that's one thing to help build the models. If you look at our tax rate along with the payments, Processing fees and a few other variable costs that we have, using 50% or Thereabouts in terms of incremental flow through is a good number to use. I think you're probably right about thinking where we're kind of essentially at that point where we've covered all of our fixed costs now And the marketing spend is still coming down. We were down about $50,000,000 year over year this quarter versus same quarter last year. And that will start to kind of stabilize as we've pulled a lot of it out, with the exception of some of the league and other Longer term commitments coming out over the next year, but from a variable perspective, I would think you could take every incremental dollar and flow 50% through at this point.

Speaker 9

Got it. Thanks so much for the detail.

Operator

Thank you. One moment for questions. Our next question comes from Steven Wieczynski with Stifel. You may proceed.

Speaker 10

Yes. Hey, guys. Good afternoon. So Tom, as we think about 2024 in Vegas, maybe from a cost perspective. You're obviously going to have some labor pressure heading into next year depending on how the labor negotiations end up.

Speaker 10

But As we think about flow through for 2024 in that market, anything we should be thinking about on the positive side that could potentially offset Some of that wage inflation?

Speaker 5

Yes. I mean, you've got continued shift into group business, which is higher margin for us. So If you look at Caesars was historically running at 14% or so, we're up a couple of points above that. We should be up A couple more points. Next year, that brings more banquet revenue, that brings higher room rate, which has very high So through, we've got Versailles Tower comes online.

Speaker 5

As we've discussed, we'd expect that that's 15%, 20% ROI at a minimum on a $100,000,000 project. So We have winded our sales in addition to offset more than offsetting what you're noting on the cost side. And You've seen that even in Q3, which had a number of headwinds and we still posted growth In a quarter that's not particularly strong from a group perspective.

Speaker 10

Okay, got you. Thanks for that. And then, Tom, in the past I mean, actually as early as last quarter, you've laid out a path to $5,000,000,000 in EBITDA by 2025. And just wondering, As you sit here today, is there anything out there that you're seeing that would impede you guys from getting somewhere around that target? And I'm guessing you're going to give me a one word answer of no, but just wanted to check back in and kind of see how you're feeling about that target today?

Speaker 5

Yes, Steve, I told you that I think there's $500,000,000 of opportunity in Brick and mortar, dollars 500,000,000 of opportunity in digital, and we still see that in front of us.

Speaker 10

Okay, great. Thanks, Tom. Appreciate it.

Operator

Thank you. One moment for questions. Our next question comes from Shaun Kelley with Bank of America. You may proceed.

Speaker 11

Hi, good afternoon everyone. Thanks for taking my question. Tom, I feel like one of the themes from the kind of quarter as it rolled out so far is just broader operating expense inflation. You obviously, I mean based on just what we saw out of the regional margins alone, it seemed like you're able to find offsets to be able to kind of counteract that. But could you just outline a little bit more broadly maybe kind of what expense pressures you're seeing in the business?

Speaker 11

And do you think you've got the ability kind of going forward to be able to offset that and hold or get close to at least holding margins across the regional segments?

Speaker 5

Yes, Sean. I mean, I think you've seen it for quite some time. You saw it this quarter. We've been good at this for a very long time. This is kind of how we built the business was Being as good as we could be at blocking and tackling and recall that we're still it seems like it's It's been forever, but it's been 3 years since we closed the merger.

Speaker 5

We're constantly continuing to find New opportunity to squeeze cash flow out of the business. We the cost pressures that You're hearing from us and others in terms of labor and inflation related costs, those aren't new. We've been dealing with those Kind of since we got out of the pandemic and we have said all along that we think our margins are You shouldn't expect significant degradation margin and you haven't seen that to date. So that's what I'd expect going forward.

Speaker 11

Thanks for that. And then maybe pivoting to Las Vegas and appreciate the comments that you make, especially given the sensitivity around the union side. Just kind of anything further you could provide to us around timing as we kind of do get ever closer to Formula 1? And then just Are the accruals that I believe you're already taking in the quarter, are those in line with your comment about the kind

Speaker 8

of step

Speaker 11

function Costs that you expect that contract to ultimately yield?

Speaker 5

Yes. You should expect that we're Accruing at a level that we think is consistent with where the contract will shake out. So it's consistent with our view that Our employees deserve what they're going to get here and we intend to provide it. In terms of Timing, we're in active dialogue. I don't want to be delivering a play by play.

Speaker 5

This is a 5 year Contract? So while it seems like, gee, why don't you just get it done next week? These are complex contracts that Cover a long period of time and we're going to do the work at the union to make sure that we do it right for all parties. And I can't tell you if that means it's going to happen next week, a couple of weeks from now or a month from now. But we are In dialogue, constantly with the union and have Further meetings this week.

Speaker 11

Great. Thank you very much.

Operator

Thank you. One moment for questions. Our next question comes from Brad Montour with Barclays. You may proceed.

Speaker 12

Hey, good evening everybody and thanks for taking my question. And congratulations on these strong results. Tom, your comment on the regional consumer, loud and clear that it's stable. Obviously, people are a little bit Nervous on this particular segment. I was wondering if you could just go a cut deeper on what you're seeing and maybe talk about sort of maybe the month to month throughout the quarter or spend per visit trends, utilization of loyalty rewards across your Anything that can kind of put a finer point on that?

Speaker 12

Thank you.

Speaker 5

Yes. So Brad, I'd say, I don't have anything intelligent to say about month to month. There's not a particular month that stood out for us. What we are seeing is In markets that are not impacted by new competition, say for Atlantic City, you're seeing Demand kind of equal to last year to, let's call it, plus or minus 2%, If you're looking across the whole portfolio, something that averages to a little bit of growth across those assets from a revenue standpoint, Then you have assets that are competitively impacted like Tunica, like the Chicago market that are very different from a revenue and EBITDA perspective, they're Under pressure and then you've got properties where we were the new supply whether either To a new project like Charles or Virginia or an expansion like Indiana and our revenue and EBITDA is going up. And the net result of that is what you saw in the business for the quarter that EBITDA grew and EBITDA margin was flat.

Speaker 5

And that's really been the case for about a year now for us. Every quarter, we run into kind of well now, it's got to be right around the corner, and we're just not seeing that. We saw the well documented surge in unrated play With stimulus checks a couple of years ago, unrated play is where you see the volatility, But our database is strong enough that it's able to withstand that decline in unrated playback from the pandemic over the stimulus days. So we feel very good about where we sit in our regional business. And remember, this is The logic behind pursuing Caesars as a target in M and A was Diversification is going to be a strength of the company.

Speaker 5

And that's what we've seen from a broad perspective. You saw As the pandemic ended, people didn't want to get on a plane and regionals carried Vegas, then regionals had the tough comp versus stimulus And Vegas carried regionals. Now you have both of them kind of bumping along as Modest growers and we have digital kicking in. And within Regional, we've got diversification Across our portfolio. And we hear what's Said by others, that thing that we heard one of our competitors in Reno say Reno is off because there's an irrational competitor.

Speaker 5

I don't know who that is because we had our best quarter ever in Reno. So I would just tell you that The diversification that we thought was going to be a huge asset for the company continues to prove itself to us and we hope to you.

Speaker 12

That's super helpful. Thanks for that. And then over in digital, Several weeks now into the NFL season, wondering if you were seeing anything from the competitive landscape that's surprising at all from promotional advertising perspective? And then if you could separate but related, if you could just update us on your overall confidence levels of hitting that digital EBITDA target in 2025, that would be great. And that's all for me.

Speaker 12

Thanks.

Speaker 5

Yes. So the target It has not changed. We continue to see a visible path to that end. And Each quarter, we grow more confident. We're not seeing anything promotionally that's requiring us to respond.

Speaker 5

I'll let others talk about their own promo strategies. We I'll go each other once in a while and say, look at this, look at that. But we've kind of got our head down Executing on our business model and driving that $500,000,000 of EBITDA, which again would be Yes, about a 50% return on the cumulative EBITDA losses our shareholders allowed us to invest in the business today. So we feel very, very confident about where we are in this business.

Speaker 12

Great. Thanks all.

Operator

Thank you. One moment for questions. Our next question comes from Barry Jonas with Truist Securities, you may proceed.

Speaker 13

Hey, guys. I was wondering if

Speaker 10

you could talk about next steps and maybe Any updated expectations for the New York land based casino process? I believe one bidder is exiting that process. And while we're at it, maybe any general thoughts on the potential for iGaming in New York as well? Thank you.

Speaker 5

Yes. So tongue in cheek, I'd say I don't have grandkids yet, but I'm hoping it's awarded before My first grandkid is 25 years old. It's going slowly. They've just passed the 2nd round of questions, the deadline for that. So then they'll answer all the questions.

Speaker 5

Then you get into the community board process Where you've got to they'll put out the RFP, you've got to be approved by your community board. Those that are Approved by their community boards, we'll have an opportunity to submit a final application for the license. As I sit here today, I think the quickest that they could issue a license based on what needs to be accomplished between now and then is the End of 2024, I would say my Personal expectation is it's 2025 before a license agreement.

Speaker 10

Got it. And then just a follow-up on digital. I appreciate the comments on low hold in the quarter Reversing, I guess you've talked in the past about maybe expectations for holds for bridging the gap with competitors. So just curious If any updated thoughts there and sort of the timing to narrow that gap? Thank you.

Speaker 3

Yes, sure. I'll jump in on this one. We continue to see an endpoint where we're going to have hold in the 7.5% to 8% range. If you look at this quarter in particular, we did continue to have sequential hold improvement for the last four quarters actually. It's really just we had an anomaly in Q3 of last year where we held almost 200 basis points on the sports betting side higher than any other quarter in the 2 years.

Speaker 3

So it's really just a reversal of that period and that was primarily driven by the September last year football results, which then reversed this year. But we're steadily improving on that path. It is important to note that if you look at last year's our blended hold was around 5.5%. So if you increase it by 200 basis points On the volumes that we're producing, you're talking a couple of 100,000,000 more of incremental GGR, which At those flow through rates that we talked about should be a big contributor towards the EBITDA. And as I mentioned, we're Heading steadily in that direction.

Speaker 3

So that's one of those areas that it's in the model to get to the $500,000,000 We have to execute on it, But it's not particularly dependent on either the consumer changing behavior or our competitors doing something differently. We just need to Execute on that.

Speaker 10

Great. Thank you so much.

Operator

Thank you. One moment for questions. Our next question comes from Stephen Grambling with Morgan Stanley. You may proceed.

Speaker 13

Hey, thanks. I know in the past you talked about hitting the 4 turns of leverage and then keeping M and A in the toolkit. We'd love to hear As you look at the broader environment, obviously, there's been a lot of market volatility. Has that increased the likelihood of any

Speaker 14

N and

Speaker 13

A topping up? Or do you say, Look, at this point, buying back your own stock makes the most sense.

Speaker 5

Yes. So And thanks for the question. So the uses of free cash flow that are available to us are deleveraging Yes, something internal from a growth capital perspective, something external from an M and A perspective or buying my stock. When we had the conversation last quarter, our stock was right around $60 and going up As we sit here today, close around $40 today. At that free cash flow yield, It's going to be very difficult for me to find an external opportunity that I have The same level of conviction I'd have in terms of driving returns in buying my stock at 15 plus percent free cash flow yield.

Speaker 5

So when we get to our Toward the end of the New Orleans project and leverage gets to our target, if I can drive The kind of free cash flow returns you could drive with our stock at $40,000,000 I'd much more likely be A buyer of our stock then using it in acquisition where I'm effectively selling it. So it's going to depend on Where we sit, those are the tools available in the toolkit, but the stock at this level is Very clearly the best alternative.

Speaker 13

That's helpful. And perhaps a change in topic, but On iGaming, I think you referenced a bit of a pivot to more slot play. Is that effectively a different customer As we think about iGaming on tables versus slots and there's always this question of is that impacting at all the brick and mortar Customer and or properties, are you still seeing incremental customers coming from digital?

Speaker 10

Thank you.

Speaker 5

Yes. So the answer is yes. It's The customer that showed up in our iGaming business before through our sports betting tab tended to be a sports bettor, which skews Younger and Male and Table Games, Blair. If you look at the businesses we want to emulate in the iGaming Arena, they look like our brick and mortar business in terms of skewing to spots and older And female. And since we've launched Caesars Palace Online, that's exactly what we've seen in that app.

Speaker 5

So very encouraging in terms of early days results. In terms of cannibalization, we have seen nothing to date in terms of cannibalizing In the brick and mortar business, it's been accretive to brick and mortar in that customers that we found Through digital or reactivated in digital, showing up in brick and mortar continues to increase as the quarter has passed. So very pleased with how that business is developing. Know that it's early stage since we've launched Caesars Palace online, but extremely encouraged by results.

Speaker 13

Helpful. Thanks so much. Best of luck.

Speaker 5

Thank you.

Operator

Thank you. One moment for questions. Our next question comes from John DeCree with CBRE. You may proceed.

Speaker 15

Hey, good afternoon guys. Thanks for taking my question. Maybe one back on Igaming and I know most of your peers competitors don't really They'll provide active user information, but from your response to your prior questions, it sounds like with the shift in demographics, Are you seeing meaningful increase in active users or frequency of play from customers? Or are you more seeing, Since you've launched a standalone app, higher paying customers come in or a mix of both, any kind of color you could provide around those trends would be helpful.

Speaker 5

Yes, you're seeing all the above. You're seeing more active play. You're seeing Increase in customers and you're seeing better customers coming into our network. So it's been, As I said, an encouraging start.

Speaker 15

Thanks, Tom. And maybe to pivot back to the M and A potential question. I guess, Bigger picture, I imagine the answer is, but potential target specific. But given the margin improvements that the industry realized Post pandemic, when you look at possible targets, do you still see an opportunity for meaningful synergies or efficiencies that you and your team could find that might make an M and A target particularly accretive when valuing that against the free cash yield of your stock today. I mean, are there still some opportunities that you think you can harvest some additional EBITDA growth from?

Speaker 5

Yes. I would say the risk of running out of opportunities where We think we can squeeze more EBITDA out of assets than a target is very, very low on my list of Reasons why M and A might not happen.

Speaker 15

Fair enough. I appreciate that. Thanks everyone.

Operator

Our next question comes from David Katz with Jefferies. You may proceed.

Speaker 16

Hi, everyone. Thanks for working me on. I wanted to just go back to Vegas and the Vegas margins in particular because Tom you laid out some items In your earlier remarks about accruals, about real leaving, about Versailles disrupting a little more than expected, Are you able to quantify that for us? And the nature of the question is always just trying to find what the Normal Vegas margin is going to be with a lot of the noise going on.

Speaker 5

Yes. So I'd say What I can quantify is Rio is a little over $40,000,000 of revenue with 0 EBITDA, Maybe even the way it runs, it was less than 0 since you had to run the Lease payment through it. So we had with that coming out, that's a significant move in Reduction in revenue increase in EBITDA with it out of the system. I don't Again, don't want to touch on any details of union contracts that were in dialogue. And in terms of Versailles, Really, you're seeing rooms that were out of service that will come back online by the end of the year.

Speaker 5

So you can Presume that versus Q3 last year, that was a margin headwind and Coming back online at a higher average rate should be accretive to margins going forward.

Speaker 16

Got it. And if I can just follow-up with Eric on the digital side. One of the observations today is that product is winning. Things such as parlays and in game and other kinds of features and functionality. Yes.

Speaker 16

How would you characterize your arc in sort of being caught up with the leaders in terms of doing that and presuming that you do have to do that in order to accomplish your goals or am I misreading that?

Speaker 3

Yes, I think it's a great question. I think you're right. Product is quite important. I think it manifests itself mostly in retention because trial, you can get that right away and then it's a question of How much people are going to continue to play and then how much they play once they do. From our perspective, I think We've made a lot of steps in the last 2 years and I feel like our product is comparable to the top products that are out there, Not quite to the level.

Speaker 3

There are still some pieces of functionality that we just haven't developed yet or focused on. But having the same game parlays for the NCAA, having live same game parlays, having alternative line SGPs out there were big steps rolling those out for the NBA coming up and then Getting that same action into hockey and so forth are some of the things that we still need to close the gap on. But broadly speaking, I feel like if a customer came to our app, the benefits that we have with Caesars Rewards With a lot of the other things that we can offer that some of our competitors can't, the app is going to allow them to stay with us and become I'm a loyal customer, whereas I think if you were to say that same thing about a year or a year and a half ago, that may not have been the case.

Speaker 16

Got it. Appreciate it.

Operator

Thank you. One moment for questions. Our next question comes from Chad Beynon with Macquarie. You may proceed.

Speaker 7

Hi. This is Sam on for Chad. Thanks for taking our questions. First one is for Eric. Wanted to ask about the Watch and Bet Streaming feature that you launched for NFL this season and if you've seen any changes in customer engagement or betting behavior from implementing this Feature so far and any thoughts around adding this feature for other sports?

Speaker 3

Yes. We're very excited to be one of Few operators to basically trial this for the NFL and our partners. We do see uptick in terms of customers watching it on our app. We were able to measure how many people are viewing it and so forth. The next big step is going to be able to overlay wagering opportunities while customers are watching it.

Speaker 3

That we don't have yet. It's under development. And that's why we still consider this to kind of be a trial. So in terms of customer behavior change, at this point, we're still waiting for more data to be able to determine that. But a lot of the benefit that we feel we're getting out of this is the on the tech side being able to integrate it, working with the data feed providers And then being able to measure how the customers are using it.

Speaker 3

Those will be the real benefits going forward. In terms of doing it for other sports, we're definitely interested in doing that. It really depends on what the league's policies are and how they plan to utilize That service.

Speaker 7

Okay. Thanks. And then perhaps for Tom, recent market data showed that Las Vegas RevPAR growth has trended well into the double digits in October. Just wanted to get your view, given what you're seeing today in terms of bookings, consumer behavior, The return of conferences and the overall events calendar in 2024, where do you think strip RevPAR growth can get to in 2024 or at least in the first half of twenty twenty four?

Speaker 5

We're optimistic about the strip. Generally, the group calendar Ahead of us, we don't really have much room in occupancy anymore. We've just reported Almost 97% occupancy for the quarter, so it will come in rate. You'll see that As we shift mix more into group and feel very good about 2024 from that perspective.

Speaker 7

Great. Thanks.

Operator

Thank you. One moment for questions. Our next question comes from Daniel Guglielmo with Capital One Securities. You may proceed.

Speaker 17

Hi, everyone. Thank you for taking my questions. So the first one, just in the Q, you gave a guide for maintenance project spend. It looks like the midpoint of that And went up around $40,000,000 versus last quarter. Is that just construction and labor coming in higher than expected?

Speaker 17

Or has there been changes to the plans to close out the year?

Speaker 4

Yes, we just caught up on some deferred spend from last year into this year. So slightly accelerated above pace within the calendar year spend

Speaker 17

Okay. Thank you. And then just going back to the cable game Drop for the brick and mortar portfolio. I know we talked about Vegas earlier, but it's also slowed year to date on the regional side and it seems like table game traffic volumes Have diverged from slots in both segments. Is there anything there around certain demographics or a piece of the database not showing up or playing differently?

Speaker 17

And do table game players tend to be younger than slot players in the brick and mortar?

Speaker 5

So the answer to the last question is no. The players across a regional casino Don't have particularly differences in ages. In terms of tables across the enterprise, I can't Point to any specific changes in behavior that's I don't know what number we're looking at, but

Speaker 12

Table games truck in Vegas and regionally was down versus slot volumes up.

Speaker 5

Yes. I don't really have anything Intelligent to say about that. Most of our regional properties, table games are fairly small piece of the business. Regional business is driven by bus lot revenue much more so than Vegas.

Speaker 17

Okay. Thank you.

Operator

Thank you. One moment for questions. Our next question comes from Joe Stauff with SIG. You may proceed.

Speaker 14

Thank you for taking the questions. I just had 2 maybe on digital. We can see some references of your reduction in OSB spend. And just wondering, Is it fair to assume is that a permanent reduction as you think about sort of your OSB product? Or Is it likely that you'll just reallocate that spend?

Speaker 14

And I'm talking largely, say, customer acquisition retention to your new Icasino first product. I know it's still ramping, so it's probably not one to 1, but just wondering Yes. How to think about that strategy going forward? And then maybe to see how Nevada did in the Q3. You had just launched a new app, your new app in Nevada.

Speaker 14

Just wondering if year over year that was up?

Speaker 5

Yes. So Joe, in terms of Nevada, yes, as we moved from CBS to Liberty and the functionality of our app that you see everywhere else, what we saw was Increase in hold, increase in volume, increase in average bets per user, what you would expect to see in terms of A, call it, this generation product versus a prior generation. In terms of what we're doing in promo, you should expect that there's going to be Some spend that we've talked about in terms of launching iCasino, but given the way iCasino works in the amount of states, there's nothing in the In terms of the intensity that you see in OSB states, so you'll see some launch Spend there, but you should expect OSB will be pretty stable for us. As Eric said, we've been kind of 1.25 Percent of handle for quite a while now over a year and we'd expect that to remain the case. Permanent is a long time.

Speaker 5

So I can't tell you it will never change, but we feel good about where we're at.

Speaker 14

And maybe just one follow-up. For iCasino, Are you largely just mining your large loyalty database for, let's say, cross promotional Type of customer, what are you seeing thus far on that?

Speaker 3

Yes, I would say, Broadly speaking, our database is more responsive to the new app as you would hope and as When we built it, it was designed to be much more similar to a traditional casino experience. That said, we continue to get the majority of the customers that are trialing the app from other sources. So it comes from Paid search, paid social affiliates, and then just from brand recognition and advertising that people will trial the app. So it's a good mix right now. I think over time, our real differentiator though is the ability to cross sell between online and bricks and mortar.

Speaker 3

And so we're eagerly looking forward to working with the Thought providers to provide games and promos and jackpots that span both brick and mortar and digital.

Speaker 14

Thanks a lot.

Operator

Thank you. I'd now like to turn the call back over to Tom Reeg for any closing remarks.

Speaker 5

All right. Thanks, everybody. We will see you, I'm sure, at some conferences between now and then, but Happy holidays. We'll see you after Q1.

Operator

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

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Key Takeaways

  • Caesars reported its strongest consolidated adjusted EBITDA quarter in company history, driven by record Q3 performance in regional markets, digital segment profitability, and continued strength in Las Vegas.
  • Las Vegas occupancy rose to 96.6% (vs. 93.6% last year) and revenues increased 4%, delivering record cash hotel, gaming and food & beverage revenues; the inaugural F1 race in November and the 2024 Super Bowl are expected to further boost results.
  • Regional segment revenues grew 2% year-over-year and adjusted EBITDA reached $575 million—the best regional quarter on record—supported by stable guest demand, completed capital projects and a diversified U.S. portfolio.
  • Caesars Digital returned to adjusted EBITDA profitability with $2 million in Q3 (vs. a $38 million loss last year), as sports betting handle rose 14% and iCasino handle jumped 38%, bolstered by the launch of the standalone Caesars Palace Online app.
  • The company applied over $700 million of cash flow to debt reduction year-to-date, lowering net leverage to 3.9x, and expects about $800 million of CapEx in 2023 with major projects completing to support future free cash flow growth.
A.I. generated. May contain errors.
Earnings Conference Call
Caesars Entertainment Q3 2023
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