Q3 2019 Earnings Call
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It's now my pleasure to turn todays program over to Joyce Arpin, Senior Vice President Finance and Treasurer choice the floor is yours.
Thank you good afternoon, and welcome to the Caesars Entertainment Corporation third quarter 2019 earnings Conference call. Joining me today from Caesars Entertainment or Tony Rodeo, Chief Executive Officer, and Eric Hession, Chief Financial Officer.
A copy of the press released earnings presentation slides and a replay of this conference call are available in the Investor Relations section of our website at Caesars Dotcom.
Also please note that prior to this call we furnished a copy of the earnings release, the FCC and a form 8-K, and we'll file our Form 10-Q before we get underway I would like to remind you to reference slide 16 through 21. These slides include forward looking statements Safe Harbor disclaimers and definitions of certain non-GAAP measures.
Our comments today will include forward looking statements as defined by the private Securities Litigation Reform Act. So we're looking statements reflect our expectations as of today's date to we have no obligation to update or revise them actual results may differ materially from those projected and any forward looking statements due to an anticipated whole fluctuation.
Whether or other unforeseen circumstances that we cannot control.
There are certain risks uncertainties, including those disclosed in our filings with the as he sees that may impact our results.
In addition, no that's Caesars entertainment close on the acquisition of Center Holdings third quarter of 2018 on July 16.
Therefore, U.S. GAAP results do not include center, our holdings prior to the acquisition in the third quarter of 2018, unless otherwise stated note that hold adjusted results reflect hold versus our expectations.
You can find reconciliations of GAAP and non-GAAP figures, starting on slide 10, I will now turn the call over to 20 [noise].
[noise]. Thank enjoy [laughter] I'll provide a quick overview of our third quarter performance and recent developments before turning the call orbit or discuss the results in greater detail.
First a quick update on the merger with Eldorado, We filed our definitive proxy on October 11, and the shareholder votes for each of the company's will occur on November 15.
We've made significant progress on the integration planning and we remain on track to close in the first half of 2020.
Turning to the result third quarter net revenues totaled $2.24 million up 2.3% year over year, driven by growth across all of our business verticals and favorable hold in Las Vegas, net remedies group, 0.7% year over year over year adjusted for oral solid consumer demand in Las Vegas.
Drove the higher revenues as we saw increased slot and table bought including an 18% increase.
Embark Rob lives and an increase in whole depend hotel occupancy and 80 or.
Third quarter adjusted EBITDAR totaled 638, nine up 66.3% year over year, driven by revenue growth and corporate expense reductions in payroll professional services legal expenses and risk management.
Adjusted EBITDAR margins expanded 100 basis basis points year over year to 28.5%.
We're very pleased that we were able to deliver these strong results in the third quarter, despite headwinds across our portfolio.
Putting road closures in Indiana, which impacted visitations that Hoosier Park in Indiana Grant.
Also the temporary closure of the Coliseum at Caesars Palace and rooms.
It was Las Vegas renovation and a decrease in demand at our Wonderbra [noise].
[noise] on a trailing 12 month basis, our domestic marketing costs represented 20.1% of gross revenue.
Reflecting a 20 basis point improvement and Mark efficiency.
Year over year, while labor costs represented 23.4% of gross revenue, reflecting a 60 basis points improvement and labor efficiency.
In September we announced an agreement to sell the real for 130 $516.3 million. The sale. This asset allows us to focus our capital resources on strengthening our portfolio Blast me Las Vegas strip properties and as expected the result, and incremental EBITDAR growth at those properties.
Importantly, we continue to have more marketing rights or valuable seasons rewards customers and we'll retain hosting rights to the world series of core.
We expect to close the sale by the end of 2019 subject to customary closing conditions.
The sale agreement, we will continue to operate the real for a minimum of two years pursuant to a lease agreement to be signed a closing and the property will remain part of the seasons Awards and network during that lease Perry.
We continue to grow our sports betting that in this cross a third quarter and are pleased with the progress we've made over the past year. We've recently expanded Cesar sports books, the Iowa in Indiana, and now have Caesars branded Sportsbook across 29 locations in seven States, Nevada, New Jersey, Pennsylvania, Mississippi, Iowa, Indiana, and New York.
Mobile sports betting is already live into bought in New Jersey can we expect to launch in Pennsylvania pending regulatory approval. The new sports books are driving increased visitation and customer engagement across our portfolio and we expect sports betting to be a key value driver for the company over the coming years now I'll turn the call over to hurt to review our financial results in more detail before getting.
To your questions. Thank you Tony.
Please note that our consolidated results include Sentara unless otherwise stated.
Tony mentioned Las Vegas results were strong in the third quarter net revenues totaled 973 million up 6.9% year over year due to strengthen across all business verticals from favorable customer demand gaming revenues increased 17%.
Due to $37 million, a favorable year over year hold an increased gaming volumes total volumes increased 2% year over year table volumes were up 2.5% led by Bachera up 18% and soft volumes are up 1.7% Las Vegas cash hotel revenues grew 8.1% year over.
We're making the high third quarter Las Vegas cash hotel revenue in company history recall that we also achieved similar records in Q1 in Q2 of this year.
You can see increased 290 basis points to 95.6% in Revpar increased 7% to $140, we experienced strong growth in the room nights from the group segment and from direct bookings on our web site and the leisure segment.
We continue to see a healthy consumer environment in Las Vegas, and expect hotel demand to remain strong throughout the remainder of the year, specifically with cash paying customers food and beverage cash revenues increased $5 million or 2.5% year over year, primarily due to higher hotel occupancy levels and recent enhancements we've made to our offerings.
Caesars Palace saw the largest increase driven by the new Vander Palm cocktail garden and other premium outlets like Hell's kitchen.
Ladies EBITDAR totaled 356 million up 16% year over year were up 4.5% on a hold adjusted basis EBITDA margins expanded 290 basis points to 36.6% driven by the solid revenue growth.
Turning to the other U.S. segment net revenues totaling $1.12 billion down <unk>, 0.5% as approximately $25 million a favorable impact from two additional weeks of sense our results versus the prior year period was offset by unfavorable hold of $11 million year over year and increased competition in Atlantic City.
In southern Indiana.
In addition, construction disruption as we moved our casino from a boat to land in southern Indiana impacted results. This move is expected to be complete in December .
Other U.S. EBITDAR declined 1.9% to 304 million due to the decreases in revenues, but was up 1% to 309 million on off or hold normalized basis, EBITDAR margins contracted 40 basis points to 27.2% on a hold normalized basis, our Atlantic City properties EBITDAR was flat year over year.
Okay.
Our all other segment, which includes unallocated corporate expenses managed properties and our international operations had net revenues of 144 million down 6 million or 4% year over year, primarily due to decreases in table games volumes at our international properties.
All other EBITDA loss increased 5 million to a loss of 22 million due to lower performance at our alumni clubs operations, which was partially offset by a reduction in corporate expenses year over year as Tony noted, we reduced payroll I T and professional services expenses in the quarter.
Looking ahead, our outlook in Las Vegas remains positive based on future demand indicators and results we've seen today and the third quarter visitor volumes to Las Vegas increased 8.6.
Invention attendance increased 8.3% and deplaned passengers increased 3.9% in the fourth quarter. We expect continued low single digit revenue growth in line with year to date hold normalized growth trends and we expect margins have improved slightly year over year, we view the overall demand environment is stable and modestly growing.
Led by non gaming segments recall that we face lower leisure demand in the latter half of last year untapped our database to stabilize occupancy this year in the fourth quarter is seeing stronger demand from cash paying customers, which will increase hotel cash revenues year over year. We're also seeing a strong quarter in group bookings and we expect double digit growth and room.
Yeah, and high single digit growth in group revenues for the fourth quarter.
Sure, we anticipate an acceleration in Las Vegas led by our Caesars Foreign Convention Center, which is scheduled to open in March Caesars form already has over 1.1 million room nights booked and $390 million in revenues through 2020, 675% of which are in the first three years of operations total bookings for the forum.
In 2020 are currently over $90 million well ahead of our expectations.
And the other U.S. segment, we anticipate net revenues to grow low single digits and margins to improve slightly year over year in the fourth quarter was sent our remaining a strong overall growth driver. Despite annualizing the acquisition in the third quarter, we expect to continue to extract additional synergies and expect to positive lift in the fourth quarter from the real.
Legalization of sports betting in Indiana. Additionally, the expected December completion of the southern Indiana boat to land project marks the end of an 18 month renovation rebranding effort to transform the property into a premier Caesars asset.
In the all other segment, we expect to generate a larger operating loss for the full year compared to 2018 due to investments in technology infrastructure, our sports sponsorships and weakness in our international business in the fourth quarter, we expect sports investments to increase which will be partially offset by labor savings.
From a liquidity perspective, we ended the quarter at approximately $1.3 billion in cash as of September Thirtyth. Our total revolver capacity was $1.2 billion and zero drawn in the third quarter. We spent $106 million in same store Capex and 78 million and development Capex during the quarter. We also use X.
Says cash to voluntarily repaid $250 million of the CEO see term loan, bringing the balance down to 1.2 billion and our enterprise wide gross lease adjusted leverage down to 5.8 times.
Excluding the convertible notes in capitalizing our lead lease payments at eight times, our net leverage stands at 5.2 times.
For cash Capex in 2019, we now expect a range of 400 to 420 million maintenance, which includes room renovations at Harrah's Las Vegas, we expect to spend approximately 275 million to 295 million for development related Capex, mostly for the Caesars form project and our investments in sports books across the U.S.
This range excludes spend for the Korea project, which we're currently evaluating before we open the call for questions. Please note that the purpose of today's call is to discuss our third quarter performance. While we look forward to answering any questions you have about Caesars for more information regarding the proposed merger with Eldorado. Please refer to our filings with the FCC.
Operator, we'll now open the calls for questions.
[noise] at this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad. We ask you limit yourself to one question and one follow up. Thank you. Your first question comes from Carlo Santarelli from Deutsche Bank. Please go ahead. Your line is though.
Hey, Thanks, everyone have a nice performance in the quarter, Tony If I could you you obviously talked a lot on the last call about some of the efforts that you guys have have collectively made in terms of cost reduction and obviously based on on the performance in the quarter. It seems that some of that stuff is flowing through to the extent you kinda talk about where.
Are you are in that process and what you're kind of targeting at this stage and in a timeline for it I think that would be very helpful.
Great. Thanks Carl.
Yeah on the last quarterly call I think I had mentioned that it was my goal to take $25 million to $50 million, what the cost out of the business by the time, we got to the closing of the transaction I'm happy to say today that I would now make that estimate somewhere between 75 to 100 million Dollarss and I think it's going to be on the higher end of that and it comes in.
In a variety of buckets from a property standpoint, we've eliminated a number of slot participation games across across the whole portfolio.
We've also reduced consultants in outside contractors in professional services.
We've suspended our international efforts and pursuits for licenses in Japan, and other jurisdictions and then just natural attrition, particularly here at corporate as people have left.
We take a very cautious approach about filling those positions, we don't want to hire people into harm's way. If it's a position that may be part of a larger synergy down the road and then lastly few weeks ago, we launched a voluntary severance program, which we had approximately 50 people raise their hand here at corporate.
Which again allows us to eliminate the cost between now and they had the closing, but we were able to allow them to take the benefits that they would have gotten that they had stayed through closing. So I think it was a win win for everybody. So again I would say now it's about $75 million to $100 million an open.
We are beginning to see it flow through but I think you'll see more of the flow through as we get into.
The first quarter, because a lot of those voluntary.
Severances, who they will be up will be allowed to accept them over the course of the next couple of months.
Great. Thank you and then something a little bit more detailed I guess, probably best for Eric you talked about it a little bit in the prepared remarks when you.
Based on kind of prior experience and I know you guys have done this before but with respect to the southern Southern Indiana boat, obviously during the disruptive period here, we've certainly seen from a gross revenue perspective. Some decline can you talk a little bit about you know the impact that you foresee on a year over year basis, maybe.
Thank you can EBITDA, even if it's on a percentage basis just in terms of the uplift you foresee from that the cost saves as well as what you would expect to be a a stronger revenue performance.
Yes, it's a great question and we do have experience as we moved other properties from the vote to land. There are two real drivers. One is on the cost side you no longer have to maintain the boats, which includes sometimes captains and dredging expenses and so forth and so the downside of the project from a return standpoint is really limited and you.
Can get about a 6% to 8% return simply by looking at the cost that you're pulling out of the business by moving from both the land then on the other side you create a much better environment for your customers both from the field perspective, and also from the gambling perspective of the casino and what will typically see there is a.
Another kind of 5% to 10% change so we target around 15% return on these projects and I have no reason to expect that we wouldn't be able to get that.
The only color I would add to that as well there is a little bit of noise in that market given the competitive effect.
Good.
Derby Tucking.
Kentucky VLP. Thank you.
Great great. Thank you very much guys.
Thanks.
Your next question is from Thomas Allen from Morgan Stanley . Your line is open. Please go ahead.
Hi, I'm, just so big news in the quarter as you saw in the Rio Kid is talking about what kind of a lot for EBITDA, you think that that's going to generate for for Caesars.
Thanks.
Well I mean, I think we anticipate being able to maintain the vast majority of that I don't know if Eric if you have an exact number in terms of what our forecast, where but work, but the ability to retain world series of poker being able to retain Rcs awards customers.
And still managing the property for the next two years, we think that a lot of that businesses is gonna be transferred over to our other eight properties in Las Vegas.
Okay.
Okay, and then on Atlantic City, I mean, you mentioned your prepared remarks, I believe you said that hold adjusted EBITDA was flat quarter, how did that compared to expectations in kind of whats the outlook for AC segment going forward. Thanks.
Hello, My expectations are we began to turn that around I mean Atlantic City, certainly for the last number of quarters and since the new competition opened has been going in the wrong direction and before you can turn something around moving into right direction first after stop and decline and I think we've accomplished that.
We are testing.
Some new marketing initiatives that are more targeted towards specific customers decliners in it.
Actives in customers that we feel we've lost market share to our competitors. So I'd like to think that we're going to be able to show improved trends there over the balance of the fourth quarter and more importantly into 2020.
Helpful. Thank you.
Thanks.
Your next question is from Shaun Kelley from Bank of America. Your line is open. Please go ahead.
Hi, Good afternoon, everyone. On you guys gave great great color on just the overall Las Vegas operating environment, maybe some of the court or future Cape Yeah. I was wondering if you could do a little are the same for just sort of the regional markets. You know I think Eric you mentioned or maybe that you Tony little bit about kantar kind of the progress there.
Is that and kind of southern India gonna be the primary drivers for growth in 2020 on any other plus or minus and just what are you seeing broadly speaking in terms of the caught the core regional consumer at this point.
I mean I think.
Number one the upside at the two Andy properties as a result of the phase one a tables coming online and we do think that we'll see growth there in a couple of phases because.
We're not going to be able to fit isn't that many table games into either of those businesses as we would like so the second phase will have to include an expansion of the buildings, but certainly upside at the end the properties in 2020.
Both the land as you mentioned.
It is also going to be a driver we think that we're going to continue would have upside as sports betting continues to spread across the country and then probably not 2020, but new Orleans, we view as a lot of upside.
With the you know the extension of our lease and the $325 million that we're going to deploy there that we have to deployed by 2024.
Additional rooms, there we run at 100% occupancy, we buy 30 to 50000 rooms from non gaming hotels in the market and we have somewhere in the vicinity of 100000 regret denials every every year. So we have a lot of upside at New Orleans, but again that probably won't be 2020 as far as the headwinds to our definitely some competitive head.
Wins Philly live is expected to open not till the latter part 2020, but that'll affect both fill in a say we've got gaming expansion.
In Arkansas in Oklahoma, and then the BGT expansion continues and in Illinois.
As well as the historical racing games in Kentucky.
Great. Thank you very much and then on you've sort of your latest update on the direct marketing side and what you and some of the reduction you've been able to deploy there I'm just kind of where are we in your you kind of any of your your general strategy there.
Is that going to be sort of modest incremental improvement from here or sort of any kind of new programs or initiatives that you're excited about.
Understanding that it's a bit of a transitional period set to roll out anything can now.
Yeah, I think that it's more continuing to do business as usual I think the guys here in the marketing team have done a fantastic job, where there's always some exceptions and allies and again I will reference Atlantic City as one of those where I think that we we kinda.
You know weren't as aggressive as we should be in the face of the new competition, so but by and large across the other regional markets in Europe in Las Vegas, we are continuing to test.
New programs were even doing some testing here in Las Vegas, but there is not going to be a wholesale dramatic.
Change to our marketing approach from a direct marketing standpoint.
Thank you for taking the questions.
Your next question is from Harry Curtis from Nomura Instinet. Your line is open. Please go ahead.
Hi, good afternoon.
You guys had mentioned a favorable hold in the other sector of about 11 million. So does that imply that the favorable hold empaque and Vegas was around 26 million.
No. It was the is the other way Harry sorry, we had negative hold of about 11.
Thats on a year over year basis in the regions and then positive of 37 in Vegas. So net positive of around 25 for the company.
Yes understood.
And if I could just add some color under the Basel Las Vegas results, because I don't know, we definitely had a favorable hole, but I don't want that to minimize the tremendous results. Okay. We had across the whole portfolio in Las Vegas.
As Eric mentioned in his comments for the third straight quarter, we had record hotel cash revenue and you would think that would come at the expense of gaming volumes, because we're putting more cash customers in Europe , but we were able to grow our slot volume and our table biased by 2%, our baccarat buying by 18%, our food and beverage revenues continue to escalate.
And we continue to do very well from an entertainment standpoint overall because of the closure of the Coliseum for two months.
Wasn't.
It was it quarter over quarter up but on advanced biomet basis, its way up or we just had for example guns and roses and the Coliseum and with the changes that we made the facility. It's a great customer experience, we're able to do more throughput in terms of beverage sales.
And.
It's the bookings for next year are very exciting to look forward to from an entertainment standpoint, So I think overall Las Vegas is just.
I think we're doing.
Certainly well.
Yeah, we we agree with that I did want to.
You can add another follow up question, particularly as it pertains to the.
The 18% lift and background, which is which is kind of an outlier do you think that you guys were taking share or do you sense that theres a stabilization in the background market what do you think accounts.
For the outperformance other than brilliant management.
[laughter] way I agree with that but it's not from my standpoint, either first and foremost I want to give credit to the.
The management team here at Caesars Palace, they've done a great job them and their Asian marketing team cultivating and creating relationships with that business.
Matter of fact to just coming back from a business trip over there to do just that that Barry thing I think also the.
Capital dollars that we've deployed at our with our villas does experiences I think are second to none.
I don't know what the exact numbers are I would I'd have to believe at that age 18%.
It is a bit of.
Steal share as well as growth, but I think it comes mostly from the senior management team here at Caesars Palace and that the Asian marketing thing.
And last question, just turning to sports betting.
So far in that in the 29 books that Youve that Youve got operating and then the mobilized and new Jersey in Nevada.
How.
How much accretion if any or how close are you to EBITDA accretion.
As a result of of sports betting and and maybe you could.
Delineate between.
The those states that have mobile and those who don't which don't.
Hello Sports betting ended up itself is certainly driving incremental EBITDA, but I think that that's the smallest component of what we're benefiting from as a result in the sports betting legislation.
If you look at.
Property like Hammond.
Leading up to us opening the Sportsbook our revenues for the few quarters before that had been.
Down a point or two in the two months since we've opened the sportsbook our revenues are up around 4%.
We're seeing significant lift in our food and beverage sales were seeing the exit significant lift in foot traffic. Our gaming volumes are up as a result so.
Yes, we're making my one sports betting by itself, but we're making even more money because of all the traffic it's creating.
Yes, we're seeing it across the board if you look at the books that we opened in Iowa. If you look at the ones in Mississippi and denied and in Indiana, They're all having a similar effect some.
A larger magnitude than others, but theres no question that there.
Definitely influencing customer visitation trends and.
Kevin a direct impact on the amount of food and beverage that we're selling.
Got it very helpful. Thank you.
Your next question comes from David Katz from Jefferies. Your line is open. Please go ahead.
David Katz your line is open.
[noise] only because to me that Barry.
Barry Jonas from Suntrust. Your line is open. Please go ahead.
Hey, guys, it's just and John for Barry just just curious you mentioned some puts and takes earlier for 2020, just want to get your thoughts on the competition coming online later in the year.
In Indiana, what the Gary project, and then and then thinking through a into later next year into 2020 beyond the some of the new built in Illinois scares your thoughts on those.
Well certainly I think that those are also headwinds as well I mean, there I think the good thing is there.
Appears to be some political uncertainty about the gaming property in the license in downtown Chicago, which I think would have the greatest impact.
I don't know fleet forecasted the impact and Gary.
But it certainly it certainly is going to be a little bit of a headwind and the expansion of adding going from five to six BG Tees in Illinois.
He is going to impact our businesses.
Beyond gallery, but I mean time and joy as well as Metropolis, I think a bigger impact on the BG tease. It at the six unit I think the bigger impact is that customers can wager more when more I think it makes it a more compelling and enticing product for for people to just want to convenience gaming option is the only add to that is broadly speaking when we look across the entire portfolio.
And we're in the middle of our plan process for next year, we do see less competitive disruption this coming year than what we've experienced this year and the prior year.
It just happens to be concentrated in the margins that you called out but broadly speaking it's less than in prior years.
Okay, great. Thanks, that's all for me I appreciate the color.
Okay. Thank you.
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