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Caesars Entertainment, Inc. is a geographically diversified gaming and hospitality company that operates casino properties, hotels, restaurants, bars, entertainment venues, and retail shops. The company generates its primary revenue from gaming operations, including retail and online sports betting and iGaming, which accounted for approximately 55% of total net revenues in 2023 . In addition to gaming, Caesars' business activities include food and beverage operations and hotel operations, contributing to its diverse revenue streams . The company's operations are divided into four reportable segments: Las Vegas, Regional, Caesars Digital, and Managed and Branded .
- Gaming Operations - Operates approximately 51,300 slot machines and 2,700 table games, including poker, across its properties, and offers retail and online sports betting and iGaming .
- Hotel Operations - Owns, leases, brands, or manages 52 domestic properties in 18 states, providing accommodation services .
- Food and Beverage Operations - Manages restaurants, bars, and other dining establishments, contributing to the company's hospitality offerings .
- Caesars Digital - Engages in digital operations through platforms like the Caesars Sportsbook app, offering online gaming and sports betting .
- Managed and Branded - Involves the management and branding of properties, expanding the company's reach and influence in the hospitality sector .
What went well
- Caesars Entertainment expects a significant lift in free cash flow as their elevated capital investment cycle nears completion, reducing CapEx by roughly $200 million in 2025, setting the stage for increased free cash flow. They plan to reduce debt, lower leverage, and potentially initiate stock buybacks.
- Strong cost discipline and operational efficiencies have allowed Caesars to maintain robust margins despite increased labor costs. The company expects margins to hold up, with Las Vegas EBITDAR margins at 46.6%, down only 40 basis points year-over-year.
- The digital segment is performing strongly, with significant savings anticipated as sports sponsorship obligations decline, which will flow directly to the bottom line. This, combined with the rollout of new digital products, is expected to enhance profitability.
What went wrong
- Caesars Entertainment is experiencing declines in unrated play in certain regional markets due to increased competition, specifically from new properties like Terre Haute, leading to a loss of previously loyal customers.
- The company is facing significant headwinds in Las Vegas, including increased labor costs due to union contracts and the absence of non-recurring high-revenue events like State Farm, resulting in a decrease in EBITDA of nearly $30 million compared to peak quarters.
- Management is tempering expectations for the new Horseshoe iGaming app, indicating it may not command the same market share as their flagship Caesars app, potentially limiting future growth in the digital segment.
Q&A Summary
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Digital EBITDAR Targets
Q: Are you on track for $500 million EBITDAR in digital?
A: Yes, we're on pace for $200 million this year, with 30% top-line growth and 50% flow-through. The roll-off of partnership contracts will contribute to reaching the $500 million target we've discussed for three years ,. -
Las Vegas Margin Sustainability
Q: What drives strong Las Vegas margins; are they sustainable?
A: We have pricing power in Las Vegas, raising prices across rooms, restaurants, and amenities due to massive demand ,. Despite $76 million in headwinds since Q2 2022, our EBITDA is down only $30 million, showcasing operational efficiency. We expect margins to remain strong as our promotional approach hasn't changed. -
Impact of Union Contract Costs
Q: Will union contract costs impact Q3 results?
A: The incremental costs from the culinary union contract are minimal in Q3. The next escalator is in October, so we don't expect a significant impact until then. -
Regional Market Outlook
Q: Will regional performance decline similarly in Q3?
A: Yes, we anticipate similar headwinds in Q3 as in Q2, due to New Orleans disruption, competitive openings, and Reno group business impact. Growth should return in Q4 as projects open and disruptions ease. -
M&A and Capital Allocation
Q: What's your M&A stance given stock price?
A: We're not issuing stock at current prices for M&A ; instead, we'll start buying back stock as free cash flow increases. We don't plan to sell operating casino assets but may monetize non-core, non-operating assets. -
WSOP Financial Impact
Q: How did WSOP contribute financially?
A: This was our best WSOP ever financially, benefiting hotel, gaming, and F&B. WSOP generates $20–$25 million in annual EBITDA. -
Hotel Pricing Power
Q: Is room rate growth sustainable?
A: Yes, we've continued to raise prices due to strong demand, with little price elasticity. This leads to higher EBITDA as both gaming and non-gaming revenues grow. -
Digital Volume and Profitability
Q: Can digital growth continue without volume increase?
A: We've shifted to more profitable customers by reducing broad promotions. While volumes dropped, profitability increased. We expect revenue growth to accelerate as prior actions are lapped, with volume growth resuming. -
Digital Customer Acquisition Costs
Q: Are CAC trends changing in digital?
A: Recently, sports betting CAC has dropped significantly. We expect spend to increase in Q3 and Q4 with football season, but don't see a material change in CAC trends. -
Vegas EBITDA Growth Expectations
Q: Will Vegas EBITDA grow year-over-year?
A: We expect Vegas to grow in the second half, but full-year EBITDA growth requires a favorable swing in hold. -
Unrated Play Decline
Q: Is the decline in unrated play widespread?
A: The decline is more pronounced in areas with new competition. In those properties, unrated play declines more due to competitive openings. -
Potential VICI Transaction
Q: Will VICI exercise their option, and use of proceeds?
A: It's VICI's option to call the real estate under the Indianapolis assets; we won't exercise our put. If exercised, proceeds (~$2.2 billion) would mostly pay down debt, with some capital return. -
Expenses and Margin Outlook
Q: Can expense efficiencies and margins be maintained?
A: Efficiencies result from numerous small initiatives. We expect margins to hold up, excluding seasonality, despite significant labor cost increases in Vegas. -
Group Bookings Strength
Q: What's the outlook for group bookings in Vegas?
A: We're seeing mid-single-digit growth above this year, with mix moving to the mid-teens for the market. Future bookings have strengthened considerably in the last few months. -
Vegas Property Performance
Q: Are non-luxury properties underperforming?
A: No, all properties are performing similarly. Caesars Palace has more volatility due to high-end gaming, but visitation and pricing power are consistent across the portfolio. -
Impact of Mirage Closure
Q: Does Mirage closure help your properties?
A: It's a mixed bag. We may gain from reduced room supply but lose some benefits as Mirage served as a feeder to our nearby properties. -
Illinois OSB Tax Increase
Q: How does Illinois OSB tax hike affect you?
A: Impact to us is under $5 million annually; we don't plan to change behavior. If competitors adjust due to greater impact, it could benefit us, but no significant changes are observed yet. -
Horseshoe Casino Digital Launch
Q: Will launching Horseshoe Casino impact digital margins?
A: No, launch costs won't erode flow-through. We're launching state by state, starting with Michigan in September. While Horseshoe is a strong brand, Caesars Palace remains our flagship app. -
Sports Sponsorship Obligations
Q: Can you reduce sports sponsorship expenses if needed?
A: Yes, many deals signed in 2021 are rolling off, with significant pieces maturing by early 2026. We expect substantial savings that will flow directly to the bottom line. -
Expense Focus Across Segments
Q: What's behind recent expense efficiencies?
A: There isn't one big initiative; it's numerous small efforts across revenue and expense items. This reflects our ongoing focus on operational efficiency. -
Promotional Strategy in Regionals
Q: Are you adjusting promotions in regional markets?
A: No, our promotional profile hasn't changed. We focus on EBITDA rather than gross gaming revenue, and see no need to respond to competitor promotions.
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Given the decline in gaming volumes in your regional segment, particularly the reduction in unrated play due to increased competition, how do you plan to address this competitive pressure and regain market share, especially in affected geographies like Terre Haute?
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With adjusted EBITDAR in your regional segment down 8% year-over-year due to factors like competitive pressures, construction disruptions, and difficult comps, can you elaborate on your specific strategies to reverse this trend and improve margins in the regional market?
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You mentioned that your elevated capital investment cycle is nearing completion, leading to increased free cash flow, but with significant debt remaining, how will you balance debt reduction with potential share repurchases, and what factors will influence your capital allocation decisions?
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Given the significant increase in labor costs in Las Vegas and the impact of the new union contract, how sustainable are your current EBITDAR margins, and what measures are you implementing to mitigate future cost escalations while maintaining service quality?
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Considering that you need a favorable swing in hold to achieve year-over-year EBITDA growth in Las Vegas, how confident are you in meeting your full-year guidance without relying on variable factors like hold percentage, and what other drivers can support your growth expectations?
Q2 2024 Earnings Call
- Issued Period: Q2 2024
- Guided Period: Q3 2024, Q4 2024, and FY 2025
- Guidance:
- Las Vegas Segment: Continued strong occupancy and hotel pricing trends, with growth expected for the rest of the year and into 2025 .
- Regional Segment: Similar performance to Q2 in Q3, with growth expected in Q4 as construction in New Orleans completes and Virginia opens its permanent facility .
- Digital Segment: Targeting $200 million in EBITDAR for the year, with faster growth in iCasino than sports betting .
- Capital Expenditure: Reduction in CapEx by roughly $200 million in 2025, increasing free cash flow .
- Debt and Free Cash Flow: Plan to reduce debt and leverage, with potential stock buybacks .
- Group and Convention Business: Mid-single-digit growth expected in 2025 .
Q1 2024 Earnings Call
- Issued Period: Q1 2024
- Guided Period: FY 2024 and FY 2025
- Guidance:
- Las Vegas Segment: Expected growth for the last three quarters of the year .
- Regional Segment: Optimistic about growth, particularly in the second half of the year .
- Digital Segment: Focus on improving Sports Betting and iCasino, with a new iCasino brand launch in the second half of 2024 .
- Capital Expenditures: 2024 CapEx expected to be $800 million .
- Debt and Leverage: Plan to repay debt and reduce leverage .
Q4 2023 Earnings Call
- Issued Period: Q4 2023
- Guided Period: FY 2024
- Guidance:
- EBITDA Growth: Expected growth in Las Vegas and regional segments .
- Digital Segment: Path towards $500 million of adjusted EBITDA .
- Las Vegas Segment: Optimistic for 2024 with strong forward occupancy and ADR .
- Regional Segment: Growth driven by completion of construction projects .
- Free Cash Flow: Improvement expected due to EBITDA growth and CapEx reduction .
- Interest and Lease Expenses: Expected reduction .
- Cash Taxes: Will start being a cash taxpayer in 2025 .
Q3 2024 Earnings Call
- Issued Period: Q3 2024
- Guided Period: N/A
- Guidance: The documents do not contain information from the Q3 2024 earnings call for Caesars Entertainment. Therefore, specific guidance metrics for this period are unavailable.
Competitors mentioned in the company's latest 10K filing.
- Native American casinos: Competitors that may pay lower taxes or no taxes, particularly in California and other jurisdictions where Native American tribes operate large-scale gaming facilities .
- State lotteries: Compete with casino and entertainment products .
- On-track and off-track wagering: Compete with casino and entertainment products .
- Video lottery terminals: Compete with casino and entertainment products .
- Card parlors: Compete with casino and entertainment products .
- Internet gaming and sports betting: Compete with brick-and-mortar operations and online offerings .
- Non-gaming resorts and vacation areas: Compete with non-gaming offerings .
- Other entertainment businesses: Compete with non-gaming offerings .
- State-sponsored lotteries: Compete with casino and entertainment products .
- Cruise line operations: Compete with casino and entertainment products .
- Pari-mutuel or telephonic betting on horse racing and dog racing: Compete with casino and entertainment products .
- Fantasy sports websites: Compete with casino and entertainment products .
Recent developments and announcements about CZR.
Financial Actions
New Share Buyback Program
Caesars Entertainment, Inc. has announced a new buyback program. The company issued $1.1 billion aggregate principal amount of 6.000% Senior Notes due 2032. The net proceeds from the sale of these notes will be used to redeem $1.065 billion of the company's existing 8.125% Senior Notes due 2027, along with all accrued interest, fees, and premiums thereon. The notes are guaranteed by the material, domestic wholly-owned subsidiaries of the company that are guarantors with respect to the company's senior secured credit facilities under its Credit Agreement .
Dividend Policy
Caesars Entertainment, Inc. (CZR) has announced a change in its dividend policy. The company has declared and paid dividends on its common stock of up to 6.0% per annum of the net proceeds received from any public offering of common stock, excluding public offerings registered on Form S-4 or Form S-8 and any public sale constituting an Excluded Contribution .
Dividend Policy
Caesars Entertainment, Inc. (CZR) has announced changes in its dividend policy. The company has declared and paid dividends on its common stock up to 6.0% per annum of the net proceeds received from any public offering of common stock, excluding public offerings registered on Form S-4 or Form S-8 and any public sale constituting an Excluded Contribution .
Financial Reporting
Auditor Changes
CZR Auditor Change
On July 17, 2020, the Audit Committee of CZR's board approved the engagement of Deloitte & Touche LLP as the new independent registered public accounting firm, replacing Ernst and Young LLP. This change will take effect after the review of the company's results for the quarter ended June 30, 2020. Deloitte was previously the auditor for Former Caesars and will now serve the combined company following a merger .