Caesars Entertainment, Inc. Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Las Vegas: Encouraged by strong occupancy and hotel pricing trends, coupled with decreasing room inventory. Room renovations at Paris and Caesars Palace driving above-plan returns.
• Regional: Celebrated opening of Paris, Nebraska; rebranding in New Orleans and Danville permanent facility opening. Elevated capital investment cycle ending, driving strong returns ahead.
• Digital: Strong growth in sports and iCasino, with acquisitions like ZeroFlucs driving product innovation and hold improvements. Horseshoe iGaming app launch aiding progress.
• General: Team members delivering exceptional guest experiences; capital investment cycle ending leading to increased free cash flow and potential stock buybacks.

Segment Performance

• Las Vegas: Consolidated net revenues $2.8 billion, total adjusted EBITDAR $1 billion (flat vs prior year). Las Vegas segment had same-store second quarter net revenue record of $1.1 billion and adjusted EBITDAR of $514 million, beating prior year by 1.2%. Driven by higher occupancy, ADRs, and food and beverage performance. Room renovations at Paris and Caesars Palace driving returns. EBITDAR margin 46.6%, down 40 basis points year-over-year despite labor increases.
• Regional: Adjusted EBITDAR for the quarter was $469 million, down 8% year-over-year. Impacted by competitive pressures, construction disruption in New Orleans, and difficult comp in Reno. Danville and Nebraska properties performing well. Opened Paris, Nebraska; rebranding in New Orleans and Danville permanent facility opening. EBITDA margins down 100 basis points, reflecting cost discipline.
• Digital: Second quarter net revenues $276 million, up 28% year-over-year. Set quarterly adjusted EBITDA record of $40 million. Sports betting net revenues up 19%, iCasino net revenues up 50%. Acquired ZeroFlucs, launched Horseshoe iGaming app.

Guidance

• Las Vegas: Expect continued strong occupancy and hotel pricing trends, with decreasing room inventory on the Strip.
• Regional: Anticipate improvement with completion of new openings and projects, leading to growth in the segment.
• Digital: Continue strong growth, with Horseshoe app launch aiding in building on gains from Caesars Palace Online. Free cash flow to increase as CapEx cycle ends, potentially leading to stock buybacks.

Risks

• Regional: Competitive pressures in certain markets, construction disruption in New Orleans, and difficult comparisons in Reno.
• Operational: Impact of sports sponsorship obligations, tax changes, and potential consumer weakness affecting segments.

Question and Answer

Q: Joe Greff asked about Las Vegas margins and sustainability of favorable casino revenue to gross gaming revenue relationship.

A: Tom Reeg stated pricing power in Las Vegas, team's ability to operate despite headwinds.

Q: Joe Greff asked about digital EBITDAR targets.

A: Tom Reeg mentioned iCasino's higher margin potential, digital segment on track for growth with 30% net revenue growth and 50% flow through.

Q: Carlo Santarelli asked about Las Vegas group pace and World Series impact.

A: Anthony Carano said 25 group pace strengthened, Tom Reeg discussed World Series' holistic impact on Las Vegas assets.

Q: Brandt Montour asked about digital handle and parlay mix.

A: Eric Hession explained reduced volume but increased hold due to marketing system changes, expecting volume growth to resume.

Q: Dan Politzer asked about M&A and regional performance.

A: Tom Reeg discussed not being involved in recent M&A headlines, expecting to use free cash flow for stock buybacks.

Q: Shaun Kelley asked about digital CAC and flow-through.

A: Eric Hession said cost of acquisition dropped, expecting spend to increase in third/fourth quarter but flow-through to hold.

Q: John DeCree asked about M&A strategy.

A: Tom Reeg stated no plans to sell operating casino assets, but may sell non-core non-operating ones.

Q: David Katz asked about digital mix between iGaming and sports betting.

A: Eric Hession said iCasino growing faster, sports betting with solid growth, eventually iCasino more profitable.