Q4 2019 Earnings Call
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Thank you good afternoon, and welcome to the Caesars Entertainment Corporation fourth quarter and full year 2019 earnings Conference call. Joining me today for Caesars Entertainment or Tony Rodeo, Chief Executive Officer, and Eric Hession, Chief Financial Officer.
A copy of the press release earnings presentation slides and a replay of this call are available in the Investor Relations section of our website at Caesars Dotcom also please note that prior to this call. The first just copy the earnings release to the FCC in a form 8-K, and we'll file our form 10-K before we get underway I would like to remind you that today's call.
This call will contain forward looking statement they were making under the safe Harbor conditions, a federal Securities law.
The company's actual results could differ materially from the anticipated results in those forward looking statements. In addition, let me discuss non-GAAP measures. Please refer to slide 21 to 20.6, which include forward looking statements.
Harper disclaimers and definitions of certain non-GAAP measures and slides 12 to 16, which include tables reconciling GAAP and non-GAAP figures well now turn the call over to Tony.
Thanks Troy.
Thanks, everyone for joining we have a we believe is a really good story, we're excited to share with everybody.
I'll provide a quick overview of fourth quarter and for your performance and recent developments before turning the call over to our to discuss our results in greater detail.
First an update on the merger with Eldorado.
On November 15, stockholders from both Caesars and Eldorado prove the merger of our two companies.
Additionally, we received regulatory approvals from a number of jurisdictions are making progress toward obtaining approvals in other jurisdictions in the coming much.
We continue to make progress on the integration planning and expect to close the transaction and the first half 20 point.
Now the results [noise].
Caesars delivered another strong year of operating performance, starting with the fourth quarter net revenues totaled 2.2 billion up 2.6% year over year, driven by strength in Las Vegas and growth across all regions, primarily and I want to India due to the opening of news sports books.
Solid consumer demand at Las Vegas resulted in higher revenues, primarily within our hotel segment as we saw a higher cash customer mix versus the prior year and an increase in occupancy.
Adjusted EBITDAR was 586 million up 3.4% year over year, driven by revenue growth and corporate expense reductions in payroll professional services and legal expenses.
Exploring the sale Breo adjusted EBITDAR totaled 575 million up 4% year over year.
Adjusted EBITDAR margins expanded 20 basis points year over year of a 27%.
For the full year enterprise wide net revenues were 8.7 billion up 4.2% year over year, driven by strong performance in favorable hold in Las Vegas at a four year are sent our results.
Adjusted EBITDA totaled 2.42 billion up 4.7% over prior year.
Hold adjusted EBITDAR was 2.4 billion up 2.9%.
Our domestic marketing cost were 20% of gross revenue, reflecting a 10 basis point improvement year over year.
While labor costs represented 23.4% of gross revenue, reflecting a 30 basis point improvement.
As a result or focus on cost control. We've we've removed approximately 100 million dollar annualize expenses since the start up 20 Nike.
We're very pleased that we were able to deliver these strong results to close the you're pointing IP.
We also closed a free voice previously announced sale the Rio in Las Vegas, the dreamscape companies in December and received $470 million in cash.
In January we announced the sale of Harris Reno to see a <unk> investments for $50 million with net proceeds which will be split 75%, the BG and 25% the Caesars.
In addition, the capital investments we've made over the last few years have paid all as we're seeing good results from these various projects.
Since installing table games, Oh sent our properties and opening southern Indiana's new land based property all three of increased gross gaming revenue by 30% Andy tracking well ahead of our expectations.
We're also excited about the opening of Caesars form here in Las Vegas in March, which has exceeded bookings and revenue expectations today.
Well its first full year of operations thesis Forum has already booked over 240000 room nights in $100 million era.
We also booked more than one point threemillion room nights, representing $460 million in revenue so far through 2026.
We also continued to grow our sports betting business cross a quarter and we're pleased with the progress we've made over the past year.
We now have 20 million Caesars branded sports books across seven states.
As a result of these installations, we have seen an increase in visitation food and beverage and gaming volume, particularly on highway India in Mississippi.
We have license is approved to watch mobile sports betting in Pennsylvania, Indiana in Iowa and plan to do this over the course, the first half this year subject to regulatory approval.
We reiterate our view of sports betting as being a key value driver for the company and anticipate expanding our footprint more markets over time.
I looked at the first quarter 2020, we are seeing an acceleration of the performance that we saw in 29 team Las Vegas is performing very strong with gaming volumes exceeding our expectations.
9% in January and non gaming generating solid performance as we can see tenure to see strong customer demand.
In addition, or regional properties continue to perform well.
Due to the addition of sports betting.
Capital investment I mentioned earlier and our focus on cost control.
Now I'll turn the call over to Arab.
Thank you Tony Please note that our consolidated results include Sentara unless otherwise stated.
As Tony mentioned regenerated strong Las Vegas results again in the fourth quarter net revenue totaled 989 million up 4.2% year over year due to strength across all business verticals as we saw favorable customer on demand gaming revenue increased 1.4%, primarily due to the higher mix of cash customers in the hotel this year.
Versus the prior year, Las Vegas Hotel revenue increased $9 million or 3.2% year over year, while occupancy increased a 120 basis points to 95.1% in Revpar increased 2.1% of 141.9 dollars. Despite the addition of <unk> of 26000 more room nights avail.
<unk> compared to prior year, we experience more demand from our if I T customer segment, and Doug double digit year over year growth within our group segment.
As of today, we continue to see a healthy consumer environment in Las Vegas, and expect to told demand to remain strong.
Food and beverage revenues increased $8 million or 3.1% year over year, primarily due to higher hotel occupancy levels and enhancements in our offerings Caesars Palace saw the largest increase driven by the new of Andrew Baum cocktail garden, and Hell's kitchen, as well as an increase in banquet revenue due to the higher hotel group mix Hell's kitchen as perform.
I'm extremely well since opening generating almost $40 million of revenue in 2019 alone.
Other revenues grew $19 million year over year, mostly due to an increase in entertainment revenue from higher ticket sales and prices for shows up the newly renovated Colosseum at Caesars Palace and also at the Flamingo.
Las Vegas, EBITDAR totaled 363 million up 3.4% year over year were up 3.9, sorry, 2.6% hold adjusted basis. The performance was due to the increase in revenues offset by an increase in operating expense related to the reos rent expense equal to $3.8 million.
Due to the short term nature of our lease agreement to manage the Rio rent payments will be recognized as an operating expense instead of as an interest expense for financing obligation as a reminder of the annual rent for the Rio is approximately $45 million or $11.25 million per quarter going forward.
Excluding the Rio Las Vegas, EBITDAR totaled 352 million up 4.5% year over year [noise].
Turning to the other U.S. segment net revenues totaled $1 billion up 1.8% year over year, driven by strength across all markets, notably as Tony mentioned, Indiana in Iowa generated solid performance, primarily due to our new sports books that drove higher visitation, which in turn translated into higher gaming volumes, our southern Indiana.
Land based property open in December and we also saw an increase in gaming revenue due to strong demand for the new asset.
Other U.S. EBITDAR increased 7.8% to 248 million were up 7.3% on a hold normalized basis due to increased revenues an excellent cost control EBITDAR margins improved 130 basis points to 24% the Atlantic City properties EBITDAR improved by $4.5 million over the prior year.
Due to higher revenues across verticals, coupled with improved operating expenses.
The I'll be all other segment includes our unallocated corporate expenses Cie managed properties in our international operations or all other segments net revenues totaled 148 million down 4 million or 2.6 million, 2.6% year over year, primarily due to decreases in volumes that are internet.
Rational properties all other EBITDAR loss increased $11 million to a loss of 25 million, primarily due to a $10 million increase at our high end international properties and a $15 million increase in our sports betting partnership investments.
All of which were partially offset by a 7 million dollar increase in Cie performance and a 7 million dollar reduction in labor and consulting expenses at corporate.
Looking ahead, our outlook as of today in the Las Vegas and in the regional markets remains positive based on demand indicators and results. We've seen today. We believe the overall demand environment is improving with continued non gaming growth leading the way we continue to anticipate a strong 2020 in Las Vegas led by the Caesars form Convention Center, which is scheduled to open in March.
We also expect the addition of the Connie Conference in March the NFL draft in April which will be hosting in front of the Caesars Forum and the Raiders home games in the fall to provide a meaningful boost for visitation within the city, we look forward to continuing to activate our strong partnership with the NFL as they bring the draft in the Raiders to Las Vegas.
From a liquidity perspective, we ended the year with approximately $1.8 billion, an unrestricted cash as of the ended December a total revolver capacity was $1.2 billion. During the fourth quarter, we spent 136 million and maintenance Capex and 76 million in development Capex, primarily consisting of spend for Caesars foreign.
In the Sportsbook.
Before we open the call for questions. Please note that the purpose of today's call is to discuss our fourth quarter performance well. We look forward to answer any questions you have about Caesars for more information regarding the proposed merger with Eldorado. Please refer to our filings with the FCC.
Now, we'll open the call for questions.
At this time, we would like to take any questions you might have for us today to ask the question over the phone simply press star and the number one on your telephone keypad. If you would like to withdraw your question press. The pound key we ask that you. Please limit yourself to one question and one follow up.
Your first question comes from Carlos Santana Rally from Deutsche Bank. Your line is open.
Thank you Tony Eric Thank you for the color.
Just in terms of clearly today yesterday Corona virus front of mind Forever you, everyone. Unfortunately from a market perspective, and I just wanted to ask kind of [noise].
Several part question for for starters or are you guys seeing anything in kind of the last few weeks that has impacted or changed visitation change behavior.
As it pertains further to booking trends and what you've seen in your bookings for out periods, namely from international regions. And then lastly is there anything you guys are doing at present at the property level to potentially further safeguard for many issues.
Oh, yeah. Thank you for the question, that's obviously on top of everybody's mind today, we are.
Please and pleasantly surprised to say that we've seen no business impact whatsoever as matter of fat, we're off to a great sorry, 2020 from RBC VIP business from Asia, and I credit that Gary So pleasant or in his Asian marketing team. They do a great job of cultivate cultivating that business a they take a number of trips each year.
They spent quite a bit of time there in December and they had teed up what they thought was gonna be a real strong first quarter from that segment and that has come to fruition.
Going forward, we have a number of match metrics and dashboards and items that we track on a daily basis to see if we get a precursor to any any downturns and again I'm happy to report that we have not seen that yet.
We are working on contingency plans should the situation begin to affect business here, but again, so far so good.
And then Tony if I could follow up on on I think you you you'd mentioned 240000 room nights. This year associated with the Convention center in $100 million of hotel room revenue on the books associated with events or sorry, maybe not this year in the year post opening.
Yes, how much of that.
Sorry, I'm sorry, no I was I was just going to ask how how much of that is incremental relative to stuff that was that was you know maybe previously contemplated that other venues or is that just kind of 100 million of incremental revenue on top of.
You'd be doing and some of your other venues I don't have the exact percentage, but I could tell you that the vast majority of that anything is incremental we have seen a little bit of a fall off at the at the properties, but collectively between what we're booking there and what were seeing at the individual properties Convention space is we are still well above our forecast.
The only thing I'd I carloads that the revenue was 100 million includes both the room revenue and the banquet revenue component.
Great. Thank you Eric Thanks, guys I appreciate it.
Thank you.
Your next question comes from Sean Kelly from Bank of America. Your line is open.
Hi, great. Good afternoon. Thank you for taking my question on.
Maybe to build off the same kind of exposure question on thinking about on maybe the high end business. It sounds like Tony you mentioned that does is doing exceptionally well right now, but you know I think for investors sort of knowing a little bit exposure across a large company would be helpful. Could you give us a little bit more color. Both on you know kind of Las Vegas, and I think this pretty concentrate.
At Caesars Palace as well as in that more of the international piece of the business you know any ballpark metrics or anything you give us to think about your or quantify exposures for that kind of VIP or high end Asian play I think would be helpful.
I'm going to get Arctic correctly about wrong, but I believe our overall profitability for the whole company. It's it's a around 1%. It comes from the VIP business in Asia, but having said that.
It's it's off to a great star and 2020, so I would say through the first quarter, it's gonna uptake from there.
So it's not easy it's not a huge exposure our bigger concern going forward and depending upon which way. This corona virus goes if we start to see cancellations of the domestic travel to Ah to Las Vegas for the fear of of interacting with Asian clientele, but again, we have not seen that today and then obviously, we haven't had any cases of the grow to virus.
Sure in Las Vegas.
Sure Great and then my other question beyond maybe the broader operating expense landscape I mean at least versus our expectations on it looks like a <unk>. The regional properties I think did very well on margins this quarter with margin growth. The Las Vegas piece was probably a little bit slimmer, but these numbers can bounce around quarter to quarter. So just maybe.
Eric or Tony your thoughts on the broader labor cost environment, what have you called out a little bit earlier at the beginning of the year and also just how long how much more room you have on some of the operational improvements to kind of drive margin growth I think you you've done some stuff on professional expenses and things like that.
Yeah, I mean look we made I think our operating entities operate it real good margins today and as I mentioned on the call, we improved our marketing efficiency as well as our labor efficiency I talked about the hundred million dollars costs that we've taken out of the business. The lions share of that has come from the corporate structure, although the major component to that I think there's 11 or 12 million.
Dollars that we've taken out of the individual businesses by reducing our slot participation games.
And we've gotten good results produced particularly in the regional markets, where we don't feel that it's impacted it is also we're actually looking at a second phase of taking a more of those games off the floor in terms of corporate it's come from a number of areas just through attrition, we did that voluntary severance plan.
We we eliminated our pursuit of the license in Japan, and Weve I think we're doing a much better job of can controlling our I T functions and looking at what.
What efforts, we really need to pursue when we've scaled down the number of projects that we're actively working on so that's allowed us to reduce our contract labor by quite a bit so and we continue to evaluate through attrition or all the opportunities here, Eric corporate but I would say between now and merger the lions share of it as is our.
I had been.
You know harvested.
Great. Thank you very much.
Your next question comes from Dan Politzer from JP Morgan Your line is open.
Hey, guys. Good afternoon, and thanks for taking my questions can you just talk broadly about the level of in balance maybe that you're still getting on from your gaming assets, specifically on the strip and maybe what the buyer pool kind of looking like there.
But quite frankly were inbounds for strip properties is pretty much nonexistent, where our phones are open and willing to take calls and if we get a call. We certainly would a valuated see if it makes sense for the business is a strategic decision, but right now from a strip standpoint, there were no act and this guy.
Actions and have had no inbound inquiries.
Okay, and then just because they didn't to sports betting can you talk maybe about the impact your Steve you've been seeing across properties and I know you mentioned, a you called out 6 million in additional even guard iowan, Indiana, but I guess to what extent is that being driven.
Directly by sports betting versus being more of a function of increased visitation and maybe crossover play.
Yes, well first of all the sports betting itself outside of Las Vegas is not a and I don't have the number one thing I want to say was in the $6 million range or profit or Oh, why that was generated from the sportsbook themselves. However, we've seen significant increases in visitations that is driven incremental food and beverage revenue and incremental gaming revenue I know it.
Particular, Biloxi, Mississippi for example, we've seen a.
It sounds crazy, we've seen a 300% increase in cash beverage sales since the sports books have opened so it's doing exactly what I think everybody anticipated and increasing their foot traffic through the properties and having a positive impact on all verticals plus adding you know its own EBITDA into the mix as well.
Okay, and then maybe just the last one on sense or.
Is there any update on the on the timing for the sale lease back in and have you started to have any conversations with each new York or maybe even.
Any inbounds from other Reits.
No no update on the timing there and no active discussions.
Alright, great. Thanks, so much guys.
Thanks.
Your next question comes from Harry Curtis from Instinet [laughter] open.
Good afternoon, everybody. So follow up on your comment about the inbound strength of Asian play Yeah. It's a tough question asked but.
Given the.
The fact that if so contagious what health precautions are you taking.
Well, that's one thing I had mentioned we're looking at contingency plans in operational plans right now and we're actually looking to to work together collectively here in the market as well as with government agencies and I can't tell you that we have everything ironed out right now, but we are embarking on a those types of plans as we speak.
And thank you and my follow up question is.
So it was is related to the 100 million of expenses that you that you've taken out what is the the annual increase and just your your your union contract costs that.
That said that offset the expenses coming out I'm I'm interested in what what a net.
Savings is if you if if you're seeing expenses elsewhere.
Well first of all I would tell you that 100 million as a complete net savings cause those increases would happen regardless a number one number two we budget for on an annual basis and again there are a correct me if I'm not exactly right in the 2% to 3% increase for salaries across the whole portfolio, including Union and we typically come in under that so.
I don't know if we havent broken out as far as how much of that is union yeah, we generally don't.
Provide that information and we looked at it more aggregate and we include things like energy pricing, which recently has been going the other way as well as the wages, but a lot of it as the benefits and other <unk> ex extra expenses associated with just running the business from a from a cost perspective, I know, we put our budget together, we estimate those and then try to find.
Ways to offset them through cost savings in other areas.
Okay. That's a that's great. Thank you very much.
Thank you.
Your next question comes from David Katz from Jefferies. Your line is open.
Hi afternoon, everyone.
I wanted to go back to a a a topic that you touched on earlier around sports betting and you know Tony I was listening carefully to some of the commentary around you know FNB increases, which are our substantial but somewhat fundamentally different from you know a or an increase.
In GR do you have any specific statistics around you know growth in or improvement in juju, our as a result of sports betting rolling out and my follow up which I'll throw out there at the beginning is you don't have you been able to measure.
Any of the total rewards loyalty members that are engaging in sports betting or you know any any background on that yet.
Yes.
The one thing that's been really encouraging is that a number of the people that have been engaging in sports betting in those mid west and south jurisdictions are people that were in active.
She is rewards customers previously and so we've seen a lot of reactivation of those customers and they also are giving us other gaming work.
In addition to that we've seen roughly.
Probably about a 10% increase in foot traffic through the properties that have sports books I can't it's so hard to to dissect if we see an uplift in G.R.. It's so hard to stay well how much of this is related to sports betting and how much of it is relating to other marketing initiatives are or what else are improvements in weather year over year.
And particularly if you look at a you know the Sentara properties in southern Indiana, We had made major.
Capital investments, there and we've seen incredible results. So there's a lot of noise. So it's hard to put your finger on exactly how much more GR, but I can tell you. It's typically around 10% more foot traffic there we're seeing in these properties.
And if I may I mean, it it's certainly not in any way, taking pocket share away from juju, our and toward sports betting.
As far as you can tell no definitely not no. We this debt, it's definitely accretive incremental G.R. that we're seeing from the people that again, we're getting a lot of customers that had been our customers in the past that are now coming back to the properties.
Particularly in those markets, where they have to come into it to make the wager.
Great. Thank you so much.
Your next question comes from Barry Jonas from Suntrust. Your line is open.
Great. Thanks, I guess I'd start with biggest results for the quarter I think overall results were better than we had.
Flow through was perhaps a little bit lighter than we'd expected anything you'd call out there on the flow through side.
Yeah, we had a number of items that came in the last quarter. The year that we don't necessarily think would repeat themselves. They put a little bit of pressure on the on the flow through I think it per Sean's question earlier, you know there is more volatility in.
The flow through here in Las Vegas, due to the mix of revenue as it shows up whether it's in the casino or the hotel or the food and beverage and for the year, our margins were up approximately 120 basis points.
And we achieved 37.5% margin here in Las Vegas, So broadly speaking.
But I think be closer is good for the whole year and as we look into next year. We there may be some volatility again between quarters, but for the year. We would expect grade flows are again and the other thing I would add is go to the 2020 a lot of the cost savings initiatives, we really didn't get the full like a the voluntary severance.
Program that I mentioned earlier, a lot of those people didn't exit the company until the end of year. So we're not seeing the full benefit of the whole hundred million dollars until 2020, and I think it will creep higher than that as we get closer and closer to the to the transaction.
Okay, I mean, I guess, how much is 100 million isn't it was actually recognized in 2019 just to be clear.
I mean, we didn't really get started until the second half of the year I I don't I don't have that number but I. If I had the venture a guess I'd, probably say 25 30 million 35 million.
I got a number the people in the room shaking their head, yes. So I think that's a good that's a good estimate.
Great Great and then Tony you talked about reductions to the participation footprint just curious if you're offsetting that with Citi slot purchases and I guess one of your interest.
Yes, what we've seen what we've seen that is really workforce is when we replace the participation games with newly acquired product and new product and the results that were getting at the new product is almost a as doing as well as the participation games. There's been a couple of locations and a couple of Ah isolated.
In situations, where.
So little bit more competitive where we think that it hurt us and we're adding back but the net number is going to continue to go up because we've seen much more positive results.
Due to that than negative.
Great Great and then just last one you know what gets cleared Vegas was a strong set up for 2020, but curious on your thoughts beyond that several new properties and entertainment venues are going to be coming online.
After that just curious how do you think about more the medium to longer term set up.
Well look I would argue or could argue that the more.
Catalysts for additional traffic is only going to help everybody in a rising tide lifts all boats I mean, the MSG event center is going to help or hurt I to help even more I mean, even though resorts world I'm not exactly sure when it's coming online, but a that's going to create more interest in traffic into the city and you've got the expansion of the Las Vegas consent or convention.
Et cetera, So I view them all is positive.
Great. Thank you so much guys.
Thank you.
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