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    Caesars Entertainment Inc (CZR)

    Q4 2023 Earnings Summary

    Reported on Jan 10, 2025 (After Market Close)
    Pre-Earnings Price$41.65Last close (Feb 20, 2024)
    Post-Earnings Price$39.55Open (Feb 21, 2024)
    Price Change
    $-2.10(-5.04%)

    What went well

    • The company's Digital segment, particularly iCasino, is outperforming expectations, with the launch of Caesars Palace Online exceeding aggressive targets and continuing to accelerate, positioning the company to achieve $500 million in adjusted EBITDA by 2025.
    • Caesars expects to grow EBITDA in both Las Vegas and regional segments this year, supported by a positive outlook for group and convention business, which is expected to increase to occupied room night mix in the high teens, driving higher cash average daily rates (ADRs) in the leisure segment.
    • The company is generating strong free cash flow and, with the completion of current capital projects, expects to reduce capital expenditures, lower interest and lease expenses, and further improve free cash flow, potentially considering share buybacks if the stock price is favorable.

    What went wrong

    • High net debt of $11.4 billion with net leverage under 4x, and approximately half of the debt is floating rate, which could negatively impact free cash flow if interest rates remain high or increase.
    • Starting to be a cash taxpayer in 2025, which will reduce free cash flow and could impact their ability to deleverage or invest.
    • Management is not planning asset sales to reduce leverage, limiting options to decrease debt levels despite high debt and potential interest rate risks.

    Q&A Summary

    1. EBITDA Growth in 2024
      Q: Can you grow EBITDA in Vegas and regional segments in 2024?
      A: Management expects to grow EBITDA in both Las Vegas and regional segments in 2024, affirming their confidence in continued growth despite headwinds.

    2. Free Cash Flow Deployment
      Q: How will you deploy free cash flow given debt markets and stock price?
      A: They intend to reduce debt with free cash flow. As they reach the inflection point in their capital cycle, they'll consider leverage and stock price. If the stock price is in the $40s, they would consider buying back stock.

    3. Digital EBITDA Target of $500M
      Q: What is the path to $500 million in digital EBITDA by 2025?
      A: The market has exceeded expectations, with growth in mature markets and impressive performance in iCasino. They anticipate around $0.5 billion in digital EBITDA by 2025, contributing to overall growth.

    4. Las Vegas Margin Outlook
      Q: How will operating expenses and margins in Las Vegas perform if revenues are flat in 2024?
      A: Operating expenses are expected to grow mid-single digits due to labor costs. Management believes revenues will keep pace, maintaining margins in the same range as the prior year. They are working to improve margins despite headwinds.

    5. Competition in Regional Markets
      Q: Has increased competition impacted regional markets, and how are you addressing it?
      A: The biggest impacts from new competitors have been lapped, particularly in Tunica and Chicago. Management doesn't expect continued impact and feels confident in managing exposure moving forward.

    6. Transforming New Orleans Property
      Q: What are your ROI expectations for the New Orleans transformation?
      A: The property is being transformed into Caesars New Orleans, with a new hotel tower and revamped casino floor. They expect it to become one of their largest regional properties, generating around $200 million in EBITDA annually. The Super Bowl next year will be a catalyst for growth.

    7. Regional Trends and February Outlook
      Q: What are recent trends in regional markets following January weather impacts?
      A: When not impacted by weather, regional business remains firm. February trends have returned to normal levels, indicating stability in regional performance.

    8. Second Online Casino Brand and Wynn Database
      Q: What are the benefits of launching a second online casino brand and acquiring Wynn's database?
      A: Customers desire variety; launching a second brand provides an alternative without significant additional cost. Acquiring Wynn's database, which is slot-centric and slightly higher-end, aligns with their goals.

    9. North Carolina Online Launch
      Q: What are your expectations for the North Carolina online launch?
      A: They expect the launch to be similar to Michigan, where competitors spent 3 to 4 times more on promotions relative to handle. The existing database from the Cherokee property provides an advantage, but market share expectations remain consistent.

    10. Shift to Higher-Margin iGaming Products
      Q: Is there upside to iGaming hold as you shift to more slot play?
      A: The shift to slot-dominant players has increased hold rates, as these players typically generate 100 to 150 basis points higher hold than table players, positively impacting iGaming performance.

    11. Capital Projects and Expenditures
      Q: Are there plans for transformative projects in Las Vegas or impacts from the Oakland A's situation?
      A: No major projects are planned; focus is on smaller, high-ROI projects like improving the Flamingo's strip frontage. The Oakland A's situation doesn't affect their plans. Future capital projects are expected to be in the $10 to $25 million range.

    12. Asset Sales Consideration
      Q: Are you considering selling any Strip assets to lighten the portfolio?
      A: They are not actively anticipating any asset sales on the Strip, indicating a focus on maintaining current holdings.

    13. Convention Mix Growth
      Q: How is the convention and group mix evolving in Las Vegas?
      A: Convention occupied room nights were 17% in 2023, a record year. They expect growth into 2024, with mix potentially growing to the high teens. Forward bookings are encouraging.

    14. Labor Turnover Trends
      Q: How is labor turnover trending at your properties?
      A: Labor turnover has stabilized in 2023, returning to pre-pandemic levels after the chaotic period post-COVID reopening. No significant regional differences are noted.

    15. Future Capital Flexibility
      Q: What are your plans for capital deployment in 2025, including the VICI option?
      A: They anticipate VICI will exercise its option on the Centaur properties by the end of 2024. They are focusing on current projects and look forward to increased capital flexibility in the next couple of years.

    16. Online Sports Betting Product Advancements
      Q: How are you advancing your sports betting product to keep up with leaders?
      A: They've invested in enhancing features customers want, improving app stability and functionality, closing the gap with competitors in delivering desired products.

    17. Structural Hold in Online Sports Betting
      Q: What is your target structural hold in online sports betting?
      A: They aim for a hold rate of 7.5% to 8%, requiring an increased parlay mix and higher number of legs per parlay. Hold improved by about 100 basis points this year.

    18. Free Cash Flow Bridge to 2025
      Q: Can you outline the bridge from EBITDA to free cash flow in 2025?
      A: With expected EBITDA growth to around $4.5 billion, including $0.5 billion from digital, and reductions in interest and lease expenses due to lower rates and leverage, free cash flow will increase. Maintenance CapEx remains about $400 million annually, and they will start being a cash taxpayer in 2025.

    19. Room Disruptions in Las Vegas
      Q: Are there any notable room disruptions in Las Vegas for 2024?
      A: Room renovations are complete, and all rooms are back online. The construction of a bridge connecting properties shouldn't cause any disruptions.

    20. Impact of Weather on Regional Markets
      Q: Did weather affect regional performance, and have trends normalized?
      A: January was impacted by weather, but February trends indicate a return to normal levels, with business remaining firm when not affected by external factors.

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