Caesars Entertainment Q3 2024 Earnings Report

Caesars Entertainment EPS Results

• Actual EPS: -$0.04
• Consensus EPS: $0.21
• Beat/Miss: Missed by -$0.25
• One Year Ago EPS: $0.34

Caesars Entertainment Revenue Results

• Actual Revenue: $2.87 billion
• Expected Revenue: $2.93 billion
• Beat/Miss: Missed by -$52.54 million
• YoY Revenue Growth: -4.00%

Caesars Entertainment Announcement Details

• Quarter: Q3 2024
• Date: 10/29/2024
• Time: After Market Closes
• Conference Call Date: Tuesday, October 29, 2024
• Conference Call Time: 5:00PM ET

Caesars Entertainment (NASDAQ:CZR) operates as a gaming and hospitality company. The company owns, leases, or manages domestic properties in 18 states with slot machines, video lottery terminals and e-tables, and hotel rooms, as well as table games, including poker. It also operates and conducts retail and online sports wagering across 31 jurisdictions in North America and operates iGaming in five jurisdictions in North America; sports betting from our retail and online sportsbooks; and other games, such as keno. In addition, the company operates dining venues, bars, nightclubs, lounges, hotels, and entertainment venues; and provides staffing and management services. Caesars Entertainment, Inc. was founded in 1937 and is based in Reno, Nevada.

Caesars Entertainment Q3 2024 Earnings Call Transcript

Presentation

[Operator]

Hello, and welcome to Caesars Entertainment's 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. It is now my pleasure to introduce Senior Vice President, Corporate Finance, Treasury and Investor Relations, Brian Agnew.

[Brian Agnew, Senior Vice President of Corporate Finance, Treasury and Investor Relations at Caesars Entertainment]

Well, thanks, Andrew, and good afternoon to everyone on the call. Welcome to our conference call to discuss our Q3 2024 earnings. This afternoon, we issued a press release announcing our financial results for the period ending September 30, 2024. A copy of the press release is available in the Investor Relations section of our website at investor. Caesars.com.

[Brian Agnew, Senior Vice President of Corporate Finance, Treasury and Investor Relations at Caesars Entertainment]

Additionally, we announced 2 press releases, one for the completion of the World Series of Poker Sale and then we just a late press release just hit for the sale of the Link Promenade, which Tom Riegg will discuss in more detail during his remarks. Joining me on the call today are Tom Riegg, our CEO Anthony Carano, our President and Chief Operating Officer Brett Yunker, our CFO Eric Hession, President, Caesars Sports and Online Gaming and Charisse Crumbley, Investor Relations. 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 under Safe Harbor Federal Securities Laws, and these statements may or may not come true. Also, during today's call, the company may discuss certain non GAAP financial measures as defined by SEC Reg G. Please visit our press releases located on our Investor Relations website for a reconciliation of the differences between each non GAAP financial measure and the comparable GAAP financial measure.

[Brian Agnew, Senior Vice President of Corporate Finance, Treasury and Investor Relations at Caesars Entertainment]

I will now turn the call over to Anthony.

[Anthony Carano, President & Chief Operating Officer at Caesars Entertainment]

Thank you, Brian, and good afternoon to everyone on the call. Our Q3 delivered same store consolidated net revenues of $2,900,000,000 and adjusted EBITDA of $1,000,000,000 Results were driven by record non gaming performance in Las Vegas and an all time quarterly EBITDA record in our Digital segment, offset by new competition, construction disruption and tough year over year comparisons in our Regional segment. Consolidated EBITDA margins of 35% for the quarter were flat to the prior year. In Las Vegas, our team delivered same store net revenue of $1,000,000,000 and adjusted EBITDAR of $472,000,000 down 2% versus last year. Las Vegas segment results were driven by another record performance in hotel and F and B cash revenue driven by strong ADRs and occupancy of 97.1%.

[Anthony Carano, President & Chief Operating Officer at Caesars Entertainment]

Our Group and Convention segment continues to deliver strong operating results and pace into 2025 has recently accelerated. Las Vegas segment EBITDAR margins of 44.4% were roughly flat year over year, driven by lower same store operating expenses, a testament to our focus on driving efficiencies. Looking forward, we remain optimistic regarding operating trends as we look to the Q4 and into next year, driven by strong occupancy and ADR trends. In our Regional segment, adjusted EBITDAR for the quarter was $498,000,000 down 13% year over year. This quarter was met with tough comparisons to the prior year, especially in Reno, competitive pressures in certain markets and peak construction disruption in New Orleans.

[Anthony Carano, President & Chief Operating Officer at Caesars Entertainment]

On October 22, we celebrated the ribbon cutting ceremony for Caesars New Orleans, a $435,000,000 capital project. The completely renovated and rebranded property added a new 3 40 room hotel, remodeled casino floor and several high profile F and B outlets for many of our celebrity chef partners, including Emeril, Nina Compton, Bobby Flay and Nobu. Additionally, we are looking forward to the opening of our permanent facility in Danville, Virginia in December. The openings in Danville and New Orleans will complete the elevated CapEx cycle for the company as we now turn to harvesting the investment we made in these flagship destinations. Our team members continued to deliver exceptional guest experiences as a result of their continued hard work and dedication.

[Anthony Carano, President & Chief Operating Officer at Caesars Entertainment]

I want to thank all of our team members for their contributions to our strong results. With that, I will now turn the call over to Eric for some detail on the Q3 results and our Caesars Digital segment.

[Eric Hession, President, Caesars Sports & Online Gaming at Caesars Entertainment]

Thanks, Anthony. Caesars Digital delivered 3rd quarter net revenues of $303,000,000 up 41% year over year, which drove an all time quarterly adjusted EBITDA record of $52,000,000 versus just $2,000,000 a year ago. With this performance, we have now generated trailing 12 months EBITDA of $126,000,000 Our net revenue flow through to EBITDA in the quarter was slightly above our planned 50% range. In our iGaming segment, our net revenue growth rate accelerated in the quarter to 83%, driven by a 55% increase in volume and a 40 basis point increase in year over year hold. Our standalone Caesars Palace app continues to grow as a percentage of our total iCasino revenues.

[Eric Hession, President, Caesars Sports & Online Gaming at Caesars Entertainment]

Subsequent to quarter end, we launched the Horseshoe Casino brand in Michigan, Pennsylvania and West Virginia with plans for Ontario and New Jersey by year end. In our Sports Betting segment, our net revenue growth also accelerated in the quarter to 36% year over year, driven primarily based by increased hold of 8.6% versus 6.5% last year. Enhancements we've made to the app drove higher parlay and cash out mix, which helped drive structural hold improvements during the quarter. Given our roadmap and our customers' receptivity to the enhanced parlay options, we now believe that achieving structural hold above 10% threshold is achievable over the next few years. As a result, you should expect to see consistently increasing structural hold as we are working off a relatively low baseline.

[Eric Hession, President, Caesars Sports & Online Gaming at Caesars Entertainment]

In both iCasino and Sports, we're starting to see improved retention as a result of our segmented marketing campaigns. If you recall, we started constructing and testing the campaigns in April of this year. We currently have 40 campaigns active and are optimistic that further refinement in this area will drive additional improvements as we head into 2025. We now offer sports betting in 32 North American jurisdictions, 26 of which offer mobile wagering. I'll now pass the call over to Brett for some comments on the balance sheet.

[Bret Yunker, Chief Financial Officer at Caesars Entertainment]

Thanks, Eric. In October, we printed a $1,100,000,000 senior unsecured bond issuance at 6% with proceeds applied to our 8.8.2027 bond maturity. Our sale of the World Series of Poker brands closed today, yielding $250,000,000 of upfront cash proceeds and $250,000,000 5 year note. We repaid our revolver balance in full and intend to use the bulk of incremental asset sale proceeds to further reduce debt. Reducing debt alongside reductions in our fixed and floating rate cost of debt will yield significant cash interest expense savings going forward.

[Bret Yunker, Chief Financial Officer at Caesars Entertainment]

Our 2025 budgeted cash CapEx excluding our Danville JV is approximately $600,000,000

[Thomas Reeg, CEO at Caesars Entertainment]

Thanks, Brett. To start with some general housekeeping in the quarter, there's $10,000,000 ish of expense in the corporate line item this quarter that I would view as one time, but was not added back to EBITDA relating to lobbying efforts primarily in Missouri and adverse claims impact in our healthcare. Taking each segment one at a time, regional, I told you last quarter that what we were anticipating was continuation of what we saw in the Q2 where New Orleans would be significantly impaired on a year over year basis due to disruption. Reno would be impaired because of lack of a significant group that was in the business last year. Both of those came true.

[Thomas Reeg, CEO at Caesars Entertainment]

I didn't have our friends at Boyd opened their treasure chest moved to land base at a particularly fortuitous time relative to what was happening at our New Orleans property where the bulk of the gaming floor was under construction. So New Orleans had a particularly difficult quarter. If I look at regionals across the enterprise, we have significant properties that were continue to be impacted by incremental competition. We've got Horseshoe Indianapolis with Terre Haute, we've got Tunica with Southland, we've got our 3 Chicago properties with the various Chicago market Illinois openings and we've got Council Bluffs, which has been impacted by the Racino openings in Nebraska. We've really not had tailwinds to speak of within the portfolio in terms of things we were doing that would offset them.

[Thomas Reeg, CEO at Caesars Entertainment]

That change in last week when we opened Caesars New Orleans, as we've talked about repeatedly, there's a significant opportunity for very high flow through incremental revenue there because of the way the tax structure is set up in New Orleans. The property turned out beautifully. Anthony went through the particulars of what we added, but the early reception has been tremendous. We're very, very optimistic about what happens in New Orleans. Also, Virginia will open before the end of the year.

[Thomas Reeg, CEO at Caesars Entertainment]

That's a significant increase in gaming positions in a property that is our highest win per position property in the enterprise. So we're very excited about that as well. The last thing I'd say about Regional in the quarter is, as you know, we have properties along the Gulf Coast and in Florida, and there was some weather impact from that hit those due to the storms during the quarter, hopeful that that's nonrecurring. As you look toward 2025, we sit here almost November 1, so we see you start to think about 2025. We will have tailwinds in New Orleans and Virginia that start to offset some of these competitive impacts in regional.

[Thomas Reeg, CEO at Caesars Entertainment]

So we feel very good about the way 25 looks versus the last two quarters in regional for us. Looking to Vegas, what I told you last quarter is we'd expect to be flat to up for the Q3. We ended up coming in down about 10,000,000 dollars in EBITDA. If you look at the specifics of that, that's all table hold related. So our non gaming revenue and cash flow were records.

[Thomas Reeg, CEO at Caesars Entertainment]

Our slot handle and win was flat. It was table hold that was the laggard. It was not poor table hold. It was within our range of expectations, just not as strong as last year. As you look to Vegas moving forward, feel good about the Q4 where we've got Versailles Tower online where it was not online last year.

[Thomas Reeg, CEO at Caesars Entertainment]

Early returns there are quite strong. We also had the catch up accrual for the union contract in the Q4 that will not recur. And then you look into and I also want to touch on, I know there's been a lot of chatter on F1 and Q4 generally in the market. For us, recall F1 was about $17,000,000 $18,000,000 lift last year in EBITDA versus the same quarter, the same weekend in 2022. If I were looking at 2023 for that for the race in particular, I would say flat to down a couple of $1,000,000 versus last year, but highly dependent on hold given that's a high end business.

[Thomas Reeg, CEO at Caesars Entertainment]

So really from an investment perspective, from what it's doing to our cash flow versus last year basis, it's not worth mentioning except that you've had all this chatter in the market. Cash room revenue for the quarter, I know that you see rate surveys that are muddied by all that went on with F1 last year. I'd expect our cash room revenue to be up year over year slightly for the Q4. So really nothing to read into Vegas other than continued strength. As we look into 2025, again, Q1 was a difficult quarter for us hold wise.

[Thomas Reeg, CEO at Caesars Entertainment]

You were kind of the left side to standard deviations in terms of where our hold would normally be. So we would expect that we recoup some of that in the Q1. And then I'd say you're looking at flat to slightly up as you look out through the rest of the year. The convention segment, the group business for next year was stronger in 2024 than 2023 and will be stronger in 2025 than 2024. And then if we go to digital, tremendously pleased with the way digital has been coming together.

[Thomas Reeg, CEO at Caesars Entertainment]

Eric talked about over 40% top line growth in aggregate, 83% in iGaming, which is extraordinary. We had been outpacing our peers in growth by about 2x coming into the quarter. I'd expect we're closer to 3x in the Q3, and that was without the rollout of the Horseshoe brand. Feel very good about the rollout of that brand. We've got data on Michigan.

[Thomas Reeg, CEO at Caesars Entertainment]

We've got kind of got a full month or so now in Michigan where that was the that's how we migrated the win that customers that we acquired over into our onto our Horseshoe brand. And not only did we not have did we not have friction where we lost customers, we actually grew that business versus where it was when it was Wynn. We've recently launched Pennsylvania and West Virginia and expect that to be a further building block in iCasino. ICasino after a 83% growth in the quarter, This month is still growing on a sequential basis month over month. So feel very, very good about what's happening there.

[Thomas Reeg, CEO at Caesars Entertainment]

All of the targets that we've laid out, I know that we talk about this all the time, there's really no change to our expectations. We'd expect to have a strong Q4, notwithstanding October has been not the best sporting outcomes, but you got a lot of the quarter left and a lot of heavy sports calendar for the next 60 days where we feel we can start to claw some of that back. But I'd expect a very good Q4 and then into next year, expect continued strong growth. As Eric said, structural hold continues to increase in our business. You can see that in our results and coupled with what's going on in iGaming, I think the future is very bright for our digital business.

[Thomas Reeg, CEO at Caesars Entertainment]

I think that business is going to end up generating a hell of a lot more than the $500,000,000 target that everybody has been wringing their hands about for the last 3 years. So we feel very good about that. Stepping over to kind of strategic and financial, we announced the sale of the Promenade retail lease portfolio to retail and F and B lease portfolio today. The multiple on that trade is about 14 times. So you can do that math.

[Thomas Reeg, CEO at Caesars Entertainment]

That EBITDA will come out. That was all in the Vegas segment. So that comes out next year. We announced we executed $140,000,000 share buyback in the Q3. You should expect that as we we've talked about we've gotten to our inflection point from a capital spending standpoint with Virginia opening, you should expect CapEx down year on next year to be running on a gross basis $650,000,000 so significantly below where we've been the last couple of years.

[Thomas Reeg, CEO at Caesars Entertainment]

By the end of this year, we'll have paid back we'll have reduced debt by 25% in absolute numbers since we closed the Caesars transaction. Debt reduction remains our number one priority, but we did execute the $140,000,000 share buyback. We've got another $500,000,000 authorized. You should not expect a programmatic use of this authorization. It's not going to be X amount per quarter as far as the eye can see.

[Thomas Reeg, CEO at Caesars Entertainment]

We're going to be looking at returns in the various possibilities in terms of capital spending, debt reduction and share repurchase. Debt reduction will remain our number one focus. But if we can continue to buy our stock in the mid teens or better free cash flow yield. You should expect us to be active there as free cash flow comes in and cash flow from asset sales comes in. So you should expect a piece of this Promenade sale does get used during the quarter for repurchase.

[Thomas Reeg, CEO at Caesars Entertainment]

In terms of future asset sale activity, we have discussions around non core assets that are ongoing, but I would tell you that World Series and Promenade were the 2 easiest ones to execute on, although Brian who spearheaded Promenade might dispute that Promenade was an easy one. But these were the 2 simplest ones for us to execute. So you should believe that we're still working down that path, but that the stuff that we're working on has longer tail and or lower probability than the 2 that were executed. But as we look into 2025, Brett talked about our refinancing, every 100 basis points of rate reduction from the Fed is $60,000,000 of incremental free cash flow for us. So their 50 basis point first move is $30,000,000 a year for us.

[Thomas Reeg, CEO at Caesars Entertainment]

The unsecured note offering that Bret just executed in the quarter is another $20,000,000 So you've got $50,000,000 incremental annual coming in. You've got a much lower lease step up this year just because of the mechanics of the leases. And you've got a significant step down in capital expenditures. So our free cash flow is going to increase dramatically as we move forward. So we think we can continue to reduce debt and we can buy back stock responsibly.

[Thomas Reeg, CEO at Caesars Entertainment]

And that's our plan as we move forward. And with that, I'll turn it over to Andrew for questions.

[Operator]

Certainly. And our first question comes from the line of Carlo Santarelli with Deutsche Bank.

[Carlo Santarelli, Analyst at Deutsche Bank]

Hey, thanks. Eric, I could start with you, it looks like in the digital side, if reading through the queue that you guys seem to take about 300 basis points out of your promotional investment. With the launch of the 2nd brand on the iCasino side,

[Carlo Santarelli, Analyst at Deutsche Bank]

should

[Carlo Santarelli, Analyst at Deutsche Bank]

we expect that to kind of continue to, I guess, continue to reduce or do you have to put a little bit more reinvestment into that in the near term? And could you talk a little bit about, I don't know how much you'd be able to go into detail on it, but the sports reinvestment strategy versus the iCasino promotional reinvestment strategy from here?

[Eric Hession, President, Caesars Sports & Online Gaming at Caesars Entertainment]

Yes. I'm glad you brought that last point up because there is a different strategy between the 2. On the sports side, you'll notice in the states that report the reinvestment levels were generally about half of what the market average is. We feel that that's an appropriate strategy through our segmented marketing that may have the opportunity to come down even further. But that on the sports side, we're definitely on the lower end of reinvestment and we're able to keep our share roughly constant.

[Eric Hession, President, Caesars Sports & Online Gaming at Caesars Entertainment]

On the casino side, we're very much in line with the market, we believe. That's a bit of a different strategy. On that strategy, as you've seen, we believe that because of the brand, because of the app that we have, because of our database and because of the opportunities that we have from the brick and mortar side, we think that there's a real opportunity to grow that business and grow share significantly as we've been doing this year and this quarter. And so we are investing at a higher rate kind of right in line with the market. I wouldn't anticipate that changing with the launch of the Horseshoe.

[Eric Hession, President, Caesars Sports & Online Gaming at Caesars Entertainment]

We're going to invest again kind of consistently with the market on that product as well. I do think that our higher hold that we had in September through good sporting outcomes drove down the reinvestment that's reported in the quarter a bit. But broadly speaking, it should be in this range of around 20%, 22%.

[Carlo Santarelli, Analyst at Deutsche Bank]

Great. Thank you. And then Tom, just for a follow-up or Anthony, whoever wants to take this one, but you guys talked about kind of the outlook for Las Vegas and feeling fairly good about what 2025 looks like. Just in terms of visibility on the group side, are there any kind of metrics you could provide? And additionally, is there anything from a citywide perspective that might be somewhat underappreciated at this point?

[Brian Agnew, Senior Vice President of Corporate Finance, Treasury and Investor Relations at Caesars Entertainment]

Carlo, I don't think anything from a citywide perspective is underappreciated. I think the Grouping Convention segment continues to do a really good job filling out the Forum and the rest of the space within the enterprise. But at a super high level, we would expect occupied room nights and rate to drive higher group total revenues and EBITDA in 2025. So it's pacing to set another new record for the segment. So that's a good way to be thinking about it now.

[Carlo Santarelli, Analyst at Deutsche Bank]

Yes. I appreciate it. Thank you.

[Operator]

Thank you. And our next question comes from the line of Joe Greff with JPMorgan.

[Joseph Greff, Analyst at JPMorgan Chase]

Good afternoon, everybody. Tom, I was originally going to ask you a question about how you view your priorities in 2025 and deploying excess free cash flow, but I think you kind of flushed that out. The only kind of related question I have to that is, after closing on the World Series of Poker sale and then announcing today the Linked Promenade sale, and you mentioned you have some other non core asset sales that you're working on. Is it fair to assume that the other non core asset sales are smaller in size and scale than these 2 that you've announced and closed on?

[Thomas Reeg, CEO at Caesars Entertainment]

No. I'd just say they're more complex and much longer tail to come together. So in terms of chunkiness, we've got assets that are if you're thinking about a 275 to 500 at either ends, 275 being prominent, 500 being World Series. I'd be thinking about in terms of in between those numbers. But again, complexity, timeline, probability are different than the ones that we've already executed.

[Joseph Greff, Analyst at JPMorgan Chase]

Great. Thank you for that. Eric, going to you on the IE Casino side, I know it's been a month or less than a month in terms of launching Horseshoe. Can you talk about sort of the early launch and what you're seeing particularly as you go from monobrand to multi brand, What you're seeing on the existing Caesars Palace online performance? And then Tom, you referenced again the $500,000,000 of annual EBITDA digital at some point in the future.

[Joseph Greff, Analyst at JPMorgan Chase]

When you sit here now and you think about what you've been doing in Icasino as well as what you've been executing on in OSB, how much how do you break out between the $500,000,000 related to Icasino? Thank you.

[Eric Hession, President, Caesars Sports & Online Gaming at Caesars Entertainment]

Yes. So to take your first question, Joe, it is very early. We have turned on maybe half our avenue marketing avenues at this point. The one thing that I would say is we did convert over the Wynn customers since we took over their skin and they converted over very well. They're playing well and they are contributing the majority of the business right now.

[Eric Hession, President, Caesars Sports & Online Gaming at Caesars Entertainment]

We're obviously signing up customers daily and so that percentage will go down over time in Michigan. But we got a nice jump start by having those customers already active and convert them over. So I think what you'll see in the next month or so as we ramp up a little bit more of the advertising and marketing, particularly in now that we have 3 states live, then we'll be able to get a better feel for the actual growth rate. But everything we're seeing is positive. Customers like the app.

[Eric Hession, President, Caesars Sports & Online Gaming at Caesars Entertainment]

They're staying on the app. I would say that the average worth of the customer is slightly higher so far than on the Caesars app, but it is early to draw any conclusions from that.

[Thomas Reeg, CEO at Caesars Entertainment]

And Joe, on your question of sports versus iGaming, in our 500, the expectation is that would be fairly well fifty-fifty, give or take a few points. Obviously, that means iGaming on a per state basis moves the needle dramatically more than sports betting. So if and when there are additional iGaming states as we move forward, those would be more impactful than a new sports betting state for us. And also, keep in mind, what we're doing in iGaming is after we were very late to the game, recall, in the prior William Hill didn't have any real iCasino business developed to speak of. So we had to build the app, the brand, actually 2 brands and roll them out into a market where our peers had already been operating for multiple years.

[Thomas Reeg, CEO at Caesars Entertainment]

So we're pretty excited if you look forward and there are future iCasino states. As Eric said, we operate from a marketing standpoint in iGaming pretty similarly to our peers. So we're curious in the future to see a state rollout in our new form with our new brands.

[Joseph Greff, Analyst at JPMorgan Chase]

Thank you.

[Operator]

Thank you. And our next question comes from the line of Brandt Montour with Barclays.

[Brandt Montour, Director, Equity Research Analyst at Barclays Corporate & Investment Bank]

Good evening, everybody. Thanks for taking my question. So first question is on OSB. Tom, you mentioned October, we've all been watching with bated breath here. I know you haven't even closed the books on the month, but maybe you could compare and contrast how October OSB is faring versus last November.

[Brandt Montour, Director, Equity Research Analyst at Barclays Corporate & Investment Bank]

And if the structural hold, Eric, that you've mentioned and that lift is acting as a cushion versus those adverse board outcomes?

[Thomas Reeg, CEO at Caesars Entertainment]

Short answer is no. So 2 weekends ago was the worst single worst combination of sports betting outcomes we've seen since we started the business. The week before last was not good, but not as bad as 2 weeks ago. The other 2 weeks in October were kind of normal. But your shift to the shift to parlay has cuts against you when you have sporting outcomes like that, our parlay percentage is much higher than it was last November.

[Thomas Reeg, CEO at Caesars Entertainment]

And so when what was it every favorite, but one that week, that's a tough set of outcomes. So yes, so October is not going to look great for anybody relative to what they were expecting, but this is just part of the business that you're in. I don't think it makes any difference to the structural story for us or for anybody else in this space.

[Brandt Montour, Director, Equity Research Analyst at Barclays Corporate & Investment Bank]

That's very clear. Thanks for that. And then just a follow-up still on digital. The hold that you saw on iGaming year over year, the lift, just curious how we should think about that if there's structural things going on or if it's just something that will sort of oscillate around these levels from here?

[Thomas Reeg, CEO at Caesars Entertainment]

I mean, I'd say a big piece of it is more slots versus tables. So the launch of Caesars Palace online, remember the idea was our existing Liberty based iGaming business was table heavy since you were coming through the sports app. That's a lower hold more volatile business than the predictability of slots and that's really what you saw roll through our numbers in the quarter.

[Brandt Montour, Director, Equity Research Analyst at Barclays Corporate & Investment Bank]

Great. Thanks everyone.

[Thomas Reeg, CEO at Caesars Entertainment]

So that should continue.

[Operator]

Thank you. And our next question comes from the line of Dan Politzer with Wells Fargo.

[Daniel Politzer, Director, Equity Research Analyst at Wells Fargo]

Hey, good afternoon, everyone. Thanks for taking my question. Tom, I think that there was a cash inflow or distribution from Pompano in the quarter, maybe $40,000,000 or so. Is that something we should think about coming in on a continual basis? Or could you give additional context there?

[Daniel Politzer, Director, Equity Research Analyst at Wells Fargo]

And along those lines, maybe if you could shed some light on how we should think about maybe the parameters through which we should look at free cash flow for next year as it relates to interest expense or cash taxes in addition to some of the items you gave earlier? Thanks.

[Thomas Reeg, CEO at Caesars Entertainment]

Yes. So I'll flip to Brett on the cash flow question. In terms of Pompano, yes. As it turns out the way that we're developing the project with Cordish, it's heavy on outright sales of land to entities that are building the various pieces. So we started to distribute cash as a partnership during the Q2 and your number is pretty close to where we were.

[Thomas Reeg, CEO at Caesars Entertainment]

And yes, you should expect there are some future distributions of that size in the coming quarters as additional pieces of that project get underway.

[Bret Yunker, Chief Financial Officer at Caesars Entertainment]

Dan, on the free cash flow bridge for 2025, we're looking at rents going up just under 2%. So you should be right around $1,350,000,000 on the rent number. On cash CapEx, we already talked about it $600,000,000 to $650,000,000 depending on if you're picking up Danville or not. Cash interest expense depends on the pace of the Fed, but we're looking at $650,000,000 to $750,000,000 on cash interest expense. And then you can pick your EBITDA, but when you get down to free cash flow, your cash taxes will be roughly 15% to 20% of the free cash flow number.

[Daniel Politzer, Director, Equity Research Analyst at Wells Fargo]

Got it. And then just turning to Danville, obviously that property is running at a high level right now. I think slots $550,000,000 to $600,000,000 per day, and tables are doing well too. So as you think about kind of adding those gaming positions, broad strokes, is there any kind of directional guidance or expectation as you kind of expand that property? And then any kind of color on how we should think about margins relative to a full property versus a temporary property?

[Thomas Reeg, CEO at Caesars Entertainment]

Yes. So that will be margin dilutive certainly. That's running in the neighborhood of 60% EBITDA margins in out of the tent. You should be looking at something more like our other regionals kind of mid-30s or better going forward. You've talked about the win per position per day, the actual win per position per day.

[Thomas Reeg, CEO at Caesars Entertainment]

I've told you it's the largest in our system. It will be dilutive to that as well, but you're looking at almost double the position. So if you think about it, you're going to generate significantly more revenue, but you're going to have significantly more expense. So if you think about the total piece of the the total view of EBITDA, I would say, just cuffing it 2 thirds to 70% of the total EBITDA was already being generated by the temporary property, but it's a meaningful lift to our regional segment to get the permit.

[Daniel Politzer, Director, Equity Research Analyst at Wells Fargo]

That's helpful. Thanks so much.

[Operator]

Thank you. And our next question comes from the line of Steven Wieczynski with Stifel.

[Steven Wieczynski, Managing Director at Stifel Financial Corp]

Hey, guys. Good afternoon. So just in the interest of time here, I'll just ask one question. So Tom, if we kind of take a step back and think about how a couple of years ago, you talked about how there was a potential chance to sell an asset along the Strip and all that went away obviously due to the rate environment. But if we fast forward to today, and obviously, we're starting to get a much better rate environment out there.

[Steven Wieczynski, Managing Director at Stifel Financial Corp]

I guess my question is, are you starting to see the demand come back in terms of inbound interest for some of your assets? And I'm not sitting here trying to say you're doing anything or you're not doing anything. I just want to know more if that interest level is as strong as it's ever been?

[Thomas Reeg, CEO at Caesars Entertainment]

Yes, Steve. So to be 100% clear, we have no asset sale processes of actual casinos ongoing as we speak. But to your point, if I just break the year into the 90 days between these conference calls, the biggest change that I've seen in the last 90 days is the amount of incoming activity you've got from people calling us up and saying, what do you think about this asset? What do you think about that asset? And as you know, we're economic animals.

[Thomas Reeg, CEO at Caesars Entertainment]

So if it ultimately makes sense that the best way to drive value is we transact, that's a possibility. But again, there's nothing active ongoing, but there is a whole lot more inbound activity post the first Fed move.

[Steven Wieczynski, Managing Director at Stifel Financial Corp]

Okay, got you. That's perfect. Thanks, Tom. Appreciate it.

[Operator]

Thank you. And our next question comes from the line of David Katz with Jefferies.

[David Katz, Managing Director at Jefferies]

Hi, afternoon, everyone. Thanks for working me in. I wanted to just double back on kind of the Danville transition, right, and just make sure we have the cadence right for the next couple of quarters in general terms. If you could just talk about if we're pulling out the temporary facility, which is to your point is highly productive and starting off with a new permanent facility, Should we be thinking about maybe some EBITDA dislocation for a quarter or 2 or 3 or more while that new property ramps? Or is it really just more of a margin conversation?

[Thomas Reeg, CEO at Caesars Entertainment]

Yes, it's the latter, David. So we have a tent that right now sits in a parking lot of the permanent. That tent will operate until the moment that we open the permanent. So it's pretty seamless. There isn't a you shut it down and you go through testing that sort of thing.

[Thomas Reeg, CEO at Caesars Entertainment]

You do all that while the temporary is still open. So it should just be as if the temporary just became dramatically larger from one day to the next. And if I were in terms of how you would model it, I would say you probably consider the view it as if the temporary is opening or is operating until the middle of December and you get a couple of weeks this year from the permanent. That probably ships a few days in either direction, but that's a good thing.

[Anthony Carano, President & Chief Operating Officer at Caesars Entertainment]

And David, this is Anthony. We're really excited because it opens up a whole another segment of our database on that Eastern seaboard, someone that may not come and just travel for the day, but we're going to have a beautiful new 3 40 room hotel, great restaurants with some celebrity chefs. So it attracts a whole new clientele that may not be coming to the temporary facility today as well.

[David Katz, Managing Director at Jefferies]

Got it. I've been to see it. And just quickly with respect to Vegas and any competitive or promotional changes, anything going on in the marketplace that we should be aware of or is the promotional environment kind of status quo?

[Thomas Reeg, CEO at Caesars Entertainment]

I would say the market has been remarkably stable. I know there's been the mania on the investment side of things are changing rapidly in the wrong direction that we're not seeing we are seeing zero evidence of that on the ground. The business has been running in the high 90s. Occupancy rates a little better as you move to group business. Group business helps your non gaming grow.

[Thomas Reeg, CEO at Caesars Entertainment]

And then it's a matter of how did you do in the table business versus last year. That's a good setup for us in the Q1. And then we've got Versailles online this year versus last year. So we don't see a big change in either direction in this business as we sit out here today.

[David Katz, Managing Director at Jefferies]

Perfect. Thank you.

[Operator]

Thank you. One moment please for our next question. Our next question comes from the line of Barry Jonas with Truist Securities.

[Barry Jonas, Managing Director at Truist Securities]

Hey guys, for digital, can

[Barry Jonas, Managing Director at Truist Securities]

you give us an update on some of

[Barry Jonas, Managing Director at Truist Securities]

the key functionalities you're working on maybe like shared wallet to help bridge any product gaps with the market leaders? Thanks.

[Eric Hession, President, Caesars Sports & Online Gaming at Caesars Entertainment]

Yes. I would say the biggest one that we have right now is the shared wallet that you raised. We're currently in 9 states or jurisdictions. We're rolling it out. We're trying to do a little bit more than 1 a month.

[Eric Hession, President, Caesars Sports & Online Gaming at Caesars Entertainment]

And so we're targeting kind of the midpoint of next year before we're completely switched over to our own PAM. But currently, if you're in any of those 9 states and you go to another state that's the same on the PAM, then it will automatically have your wallet shared. So it's just not connected to Nevada and some of the other key states right now, but that's progressing very well. In terms of the efforts that we've had to improve our parlay mix, this quarter on a year over year basis, our parlay mix grew the fastest that it's grown and it's hit an all time high and then you see the results in the hold percentage. So we're pleased with that.

[Eric Hession, President, Caesars Sports & Online Gaming at Caesars Entertainment]

There are still some products that we're missing. A lot of the live same game parlay on some of the non main markets, our product still lacks what some of the others offer. But overall, I feel like we've made a lot of progress in the last year and really closed the gap. And so and I think you can see that in the fact that we're able to reinvest at much lower levels and still retain the customers.

[Barry Jonas, Managing Director at Truist Securities]

Great. Thanks, Eric.

[Operator]

And our next question comes from the line of Shaun Kelley with Bank of America.

[Shaun Kelley, Managing Director, Equity Research Analyst at Bank of America Merrill Lynch]

Hi, good afternoon, everyone. Thanks for taking my question. Tom, I want to go back to just the regional outlook for a second. If we think about some of the puts and takes, obviously, a lot more tailwinds as we turn the page, But there's still some of this competitive stuff that's popping up. And obviously, I think we're familiar with your formula, which is being quite disciplined on how you react when those when that competition comes in the market.

[Shaun Kelley, Managing Director, Equity Research Analyst at Bank of America Merrill Lynch]

So the question is, should we put through the puts and takes and keeping an eye on like South Suburbs and Chicago in particular, as we see still some incremental headwinds from places like that, we're in a place where we feel really confident that regional gaming grows next year? Do we end up flat? I mean, obviously, the headwind is going to be a lot less, but there still seems like there's going to be some. So just if you could help us think about that high level.

[Thomas Reeg, CEO at Caesars Entertainment]

Yes. There are still more headwinds than tailwinds for us. I think you're looking at a year that's down slightly to flat is my regional expectation for next year. You've got the Porch Creek product that opens November

[Thomas Reeg, CEO at Caesars Entertainment]

11.

[Thomas Reeg, CEO at Caesars Entertainment]

Yes. So in a couple of weeks in the Chicago market will be impactful to both Joliet and Hammond. We do have the opportunity. So as these properties open, our philosophy is you don't really get in the way of the trial from your customers. Your customers are going to go try the new product regardless of what you do.

[Thomas Reeg, CEO at Caesars Entertainment]

But in a number of these properties you're looking at, they've been operating for a few quarters now and now we can go back into those battlegrounds and fight for those customers. And that's really the swing factor in terms of does 2025 end up being a growth year for Regional or not is the effectiveness of our ability to fight in those markets in Indiana, in Chicago, in Mississippi, in Iowa that have already been impacted by competition. So we haven't anniversaried a lot of those. There are some that go continue well into 'twenty five, but it should be a much different picture in 'twenty 25 for us than it was in 'twenty four.

[Shaun Kelley, Managing Director, Equity Research Analyst at Bank of America Merrill Lynch]

Understood. Thank you for that. And then just a question sort of high level on the legal side actually as it relates to sports betting. Obviously, you talked about some of the possible expenses or expenses related to Missouri. And I think some people have been watching that market.

[Shaun Kelley, Managing Director, Equity Research Analyst at Bank of America Merrill Lynch]

And just wondering how just big picture as a company, how Caesars looking today at the expansion of OSB broadly? Have you kind of changed a little bit in your outlook for the OSB pros and cons? And sort of how do you think about that versus iGaming? Are those separate? Or overall you're taking a little bit

[Shaun Kelley, Managing Director, Equity Research Analyst at Bank of America Merrill Lynch]

of a new course as

[Shaun Kelley, Managing Director, Equity Research Analyst at Bank of America Merrill Lynch]

it relates to digital expansion from here?

[Thomas Reeg, CEO at Caesars Entertainment]

We'd like to see OSB and iGaming in every jurisdiction of the United States. We think it's important that it's done in a manner that makes sense for the operators and for the state. And you've got a well established path of legalizing and licensing through the operators that have invested substantial amounts of capital, employed thousands of people and paid 100 of 1,000,000, 1,000,000 of dollars in taxes. We think it's important that it continues on that path. But we would like to see OSB and iGaming in every jurisdiction that we possibly can.

[Shaun Kelley, Managing Director, Equity Research Analyst at Bank of America Merrill Lynch]

Thank you very much.

[Operator]

And our next question comes from the line of Stephen Grambling with Morgan Stanley.

[Stephen Grambling, Managing Director at Morgan Stanley]

Hey, thank you. As you've seen the handle share improving in iGaming and more engagement, are you seeing any change in the types of customers playing as we think about either new customers to the entire system across HealthMo, SP and or overlap with brick and mortar?

[Eric Hession, President, Caesars Sports & Online Gaming at Caesars Entertainment]

I would say that the on the iCasino side, the main shift that we've seen is on the with the introduction of the Caesars Palace online standalone app, we've seen a lot more slot players move over. And we are seeing more crossover between the brick and mortar and that app as you'd expect. I do think there's a lot more opportunity there however. We're really becoming more and more integrated into the brick and mortar process through the host, through the PD teams, through the marketing activities that go on at the properties. So we're optimistic that the percentage of crossover will continue to grow.

[Eric Hession, President, Caesars Sports & Online Gaming at Caesars Entertainment]

And then we know of course that the customers that play with us on brick and mortar and also play with us online, we get a much higher percentage of their wallet and it gets consolidated to us. And so as a result, we see a higher value from those customers.

[Stephen Grambling, Managing Director at Morgan Stanley]

And as a follow-up, this may

[Stephen Grambling, Managing Director at Morgan Stanley]

be an opportunity for Tom to pull a lot of the earlier questions together. But in the past, I think you had walked from, call it, dollars 4,000,000,000 to $5,000,000,000 in EBITDAR with a couple of building blocks. How would you characterize that walk now thinking through all the puts and takes from dispositions, new assets, some of the trends and then the path on digital?

[Thomas Reeg, CEO at Caesars Entertainment]

Yes. So Sean, we're I don't know what this is number of quarters in a row where we're in the neighborhood of $1,000,000,000 of EBITDA. So call it a $4,000,000,000 enterprise with very little contribution from digital to date in terms of EBITDA, but inflecting as we speak and obviously just posted a couple of good quarters in a row. So I think that going to 500 beyond is still the same kind of roadmap we've talked about now for 3 plus years. The brick and mortar side, we see returns from the investments in regional continued growth in Las Vegas that gets us 100 of 1,000,000 of incremental EBITDA if you're looking out over the next couple of years.

[Thomas Reeg, CEO at Caesars Entertainment]

So that gets you to the right side of that $4,000,000,000 to $5,000,000,000 range. Seems in our minds to still be a very clear path that we're headed down. So it was it's an enormous task to integrate the Caesars acquisition to stand up a digital business and to complete these major project spends and we're toward the backside of each. And you're going to see that roll through the way EBITDA and free cash flow can work in this business as we move forward. So we think the future is very bright here.

[Stephen Grambling, Managing Director at Morgan Stanley]

Thank you.

[Operator]

Thank you. And our next question comes from the line of John DeCree with CBRE.

[John Decree, Director - Equity Research at CBRE Group]

Hey, guys. Two questions. Tom, you just spoke a question or 2 ago briefly about your thoughts on legalization of online sports betting and iGaming. But I wanted to ask specifically about Florida, if you've had any discussions or if you think there's an inroad there. I think a lawsuit against the tribe has recently been settled.

[John Decree, Director - Equity Research at CBRE Group]

And so, it looks like the path for you guys might be partnering with the tribe. So curious if given the size of that market, if you've had any meaningful discussion or view on whether you might be able to enter Florida anytime soon?

[Thomas Reeg, CEO at Caesars Entertainment]

I would say, John, I'm not optimistic that we or any of the other non Seminole entities will enter Florida soon. I saw the same remarks or heard the same remarks from Jim Allen that you did at G2E that kind of cracked open the door, but I don't think that that happens in the near term.

[John Decree, Director - Equity Research at CBRE Group]

Thanks, Tom. I appreciate that. And one maybe housekeeping on CapEx, Tom, maybe for you or Brett. So obviously CapEx is stepping down next year, but curious if you could give us kind of an update on what steady state CapEx should be for you guys maintenance and if there's any routine kind of project CapEx that you're thinking about. So as we look beyond 26 and you look at the capital product budget, do we expect CapEx to kind of keep shrinking after 2025 or does it kind of level off at a certain point?

[John Decree, Director - Equity Research at CBRE Group]

400 area of maintenance CapEx is a good number and $2,000,000 to $2,500,000 of growth in other CapEx is a steady state going forward.

[John Decree, Director - Equity Research at CBRE Group]

Great. Thanks, Brett. Appreciate it. Thanks, everyone. And

[Operator]

our next question comes from the line of Chad Brennan with Macquarie.

[Chad Beynon, Analyst at Macquarie Group]

Afternoon. Thanks for taking my question. Eric, on your business, the iGaming business, the flow through 57% this quarter was ahead of that targeted 50%. And as a result of better revenue growth, obviously, the EBITDA came in ahead of expectations. So I know that you have a lot of things rolling off in 2025, so maybe flow through isn't the right way to think about it.

[Chad Beynon, Analyst at Macquarie Group]

But can you maybe help us just more in the near term if hold is normal, should this 50% still make sense, maybe absent some of the bigger roll offs of expenses? Just trying to figure out how this ramps maybe over the next 4 to 8 quarters here. Thanks.

[Eric Hession, President, Caesars Sports & Online Gaming at Caesars Entertainment]

Yes. I think when we provided that rough expectation that we should be able to flow through at 50%, it was pretty broad based and over time. So there are certain factors that are going to contribute to that this year that aren't going to be there next year and there are some next year that we aren't experiencing this year. In a quarter like this where we had record iCasino growth and then extremely strong sports growth, we were able to achieve better than the 50% target. As I mentioned, I think on the last call, I would expect it bounce around a little bit.

[Eric Hession, President, Caesars Sports & Online Gaming at Caesars Entertainment]

Sometimes it will be a little lower and sometimes a little higher, but we still think the 50% is a reasonable expectation for the flow through on the incremental revenue for certainly next year. And then as we head into 2026, we get additional roll offs of some of the marketing. So I would expect it to continue at that level as well.

[Chad Beynon, Analyst at Macquarie Group]

Okay, perfect. And then on the regional side, if you're able to somehow split out or separate the competition, weather, etcetera, from just normal consumer business, did you see any more deterioration in that lowest tier in the unrated part of the business in your regional segment in Q3?

[Thomas Reeg, CEO at Caesars Entertainment]

No, I wouldn't say we saw more deterioration. There is a segment of the customer base that's been challenged by where pricing has gone in recent history and that's remained the case. I don't see anything alarming in the regional business. I think most of what we're seeing is competitive impact from you're talking about substantial properties that have opened in multiple markets and we've lacked the once we lapped the opening of the temporary in Virginia, we've lacked tailwinds behind us and that started to change last week with New Orleans.

[Chad Beynon, Analyst at Macquarie Group]

Thanks, Tom. Appreciate it, guys.

[Operator]

One moment please for our next question. Our next question comes from the line of Jordan Bender with Citizens JMP.

[Jordan Bender, Senior Equity Research Analyst at Citizens]

Good afternoon, everyone. You've given a lot of good info on the online segment. But as we think through and broad strokes, the 30% online revenue growth that you've talked about in the last couple of quarters, can you maybe help us understand how much of that is coming from just pure player growth versus maybe expanding your ARPU? And then the second part of that is how much dry powder do you think you have left in the omni channel that's going to help you grow iGaming revenue next year and in 2026? Thank you.

[Eric Hession, President, Caesars Sports & Online Gaming at Caesars Entertainment]

Yes. I think you have to look at the 2 kind of lines separately, the casino and the sports book. The casino business is growing users and daily actives at a very rapid pace. So Tom referenced, we measure things in month over month performance and our users continue to grow, our actives continue to grow, the volume continues to grow. And then as we're seeing the hold ticks up a bit.

[Eric Hession, President, Caesars Sports & Online Gaming at Caesars Entertainment]

So that business is very consistent and very strong. On the sports side, it's a little bit different. As you've seen the volumes are somewhat flat right now. That's due to some reductions in very high end wagers that we were getting last year that didn't translate into profitability. And then through the segmented marketing that I talked about as well, we're seeing some lower end unprofitable customers not returning.

[Eric Hession, President, Caesars Sports & Online Gaming at Caesars Entertainment]

And so what we are seeing though is many more bets per user. The average bet size is coming down as you'd expect. And as a result, the volumes are flat or so, but they're being more than made up by the improvement in the whole percentage. So from our standpoint, they're very different behaviors. The average worth of the customer on the sports side is going up significantly as the volume stays the same and the hold improves.

[Jordan Bender, Senior Equity Research Analyst at Citizens]

Great. And then just on the follow-up, in the regional segment, if I look at your hotel revenue, is it fair to assume that some of that underperformance is just New Orleans and we should expect you to recoup that next year? Yes. Thank you very much.

[Operator]

And our next question comes from the line of Daniel Guglielmo with Capital One Securities.

[Dan Guglielmone, Equity Research Analyst at Capital One Securities, Inc]

Hello, everyone. Thank you for taking my questions. You all mentioned that tailwinds related to renovations at the Las Vegas and New Orleans properties and peers have had some success with renovation projects as well. Are there any other renovation growth projects that you all are eyeing within the casino portfolio?

[Thomas Reeg, CEO at Caesars Entertainment]

The most substantial one that we have ongoing is Harvey's Lake Tahoe. That's a multiyear $160,000,000 project that's already begun. We opened the Wolf restaurant with Lisa Vanderpump up there this summer. We're redoing the entire casino floor. We're doing a room tower.

[Thomas Reeg, CEO at Caesars Entertainment]

We're doing the suites across the street, kind of leaning into that property being on Lake Tahoe. You can't replicate that. What we've got there given its location on the lake and where regulations are now, so that's a substantial EBITDA producer for us that were that we see significant return on that investment. That's the biggest one. There's always across the street from Caesars at Flamingo, we've got the Vanderpumps, Pinkies opens in a couple of weeks as does Gordon Ramsay, Burger those front the strip.

[Thomas Reeg, CEO at Caesars Entertainment]

Within Caesars, we'll have opened our high limit slots area in a completely redesigned in a couple of weeks, high limit table another high limit table area will open before the end of the year. So we're always doing projects that will move the needle for us, but they're far less substantial than from a dollar spend standpoint than what we've had in the last 4 years since we closed.

[Dan Guglielmone, Equity Research Analyst at Capital One Securities, Inc]

Great. That's really helpful color there. And then just quick on the Las Vegas segment, slot handle was stronger than we expected, but table game drop was softer. Can you just talk about, was there anything you saw there that this quarter? Was it a different mix of players coming into the properties or just kind of different betting behavior?

[Dan Guglielmone, Equity Research Analyst at Capital One Securities, Inc]

Thank you.

[Thomas Reeg, CEO at Caesars Entertainment]

It was a handful of large players that moved their trips versus it showed up last year, last quarter and showed up at different times this year. And last year, we beat them.

[Operator]

Thank you. I'll now hand the call back over to CEO, Tom Reeb for any closing remarks.

[Thomas Reeg, CEO at Caesars Entertainment]

All right, Andrew. Thanks, everybody. Happy holidays. Our next call is February. We'll see you then.

[Operator]

Ladies and gentlemen, thank you for participating. This does conclude today's program and you may now disconnect.

Participants

Executives

• Brian Agnew, Senior Vice President of Corporate Finance, Treasury and Investor Relations
• Anthony Carano, President & Chief Operating Officer
• Eric Hession, President, Caesars Sports & Online Gaming
• Bret Yunker, Chief Financial Officer
• Thomas Reeg, CEO

Analysts

• Carlo Santarelli, Analyst at Deutsche Bank
• Joseph Greff, Analyst at JPMorgan Chase
• Brandt Montour, Director, Equity Research Analyst at Barclays Corporate & Investment Bank
• Daniel Politzer, Director, Equity Research Analyst at Wells Fargo
• Steven Wieczynski, Managing Director at Stifel Financial Corp
• David Katz, Managing Director at Jefferies
• Barry Jonas, Managing Director at Truist Securities
• Shaun Kelley, Managing Director, Equity Research Analyst at Bank of America Merrill Lynch
• Stephen Grambling, Managing Director at Morgan Stanley
• John Decree, Director - Equity Research at CBRE Group
• Chad Beynon, Analyst at Macquarie Group
• Jordan Bender, Senior Equity Research Analyst at Citizens
• Dan Guglielmone, Equity Research Analyst at Capital One Securities, Inc