Q4 2021 Caesars Entertainment Inc Earnings Call
Yeah.
Hello, Thank you for standing by and welcome to the Caesars Entertainment, Inc, 2021 fourth quarter and full year earnings conference call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question answer session to ask a question. During the session you will need to press star one on your telephone.
Please be advised that today's conference maybe recorded if you require any further assistance. Please press star Zero I would now like turn the conference over to your Speaker today, Brian Agnew Senior Vice President of corporate Finance Treasury and Investor Relations.
Thank you, Josh and good afternoon to everyone on the call.
Welcome to our conference call to discuss our fourth quarter and year end 2021 earnings. This afternoon, we issued a press release announcing our financial results for the period ended December 31, 2021, a copy of the press release is available on the Investor Relations section of our website at Investor <unk> Caesars Dot com.
Joining me on the call today are Tom Reed, our Chief Executive Officer, Anthony Carano, Our President and Chief operating Officer, and Bret Yunker, our Chief Financial Officer.
Before I turn the call over to Anthony I would like to remind you that during today's conference call. We may make certain forward looking statements about the company's performance such forward looking statements are not guarantees of future performance and therefore, one should not place undue reliance on them.
Forward looking statements are also subject to the inherent risks and uncertainties that could cause actual results to differ materially from those expressed for additional information concerning factors that could cause actual results to differ from those discussed in our forward looking statements you should refer to the cautionary statements contained in our press release as well as.
The risk factors contained in the company's filings with the Securities and Exchange Commission.
Caesars Entertainment undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances that occur. After today's call also during today's call. The company may discuss certain non-GAAP financial measures as defined by SEC regulation G. The GAAP financial measures most directly comparable.
For each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on the company's web site at Investor does Caesars dot com by selecting the press release regarding the company's 2021 fourth quarter financial results I will now turn the call over to Anthony.
Thank you, Brian and good afternoon to everyone on the call. We have delivered another strong quarter adjusted EBITDA in the quarter. Excluding Caesars digital was 886 million up 30% versus Q4 of <unk> 19 on a same store basis.
Operating results reflect new fourth quarter records for adjusted EBITDA, and adjusted EBITDA margin in both our Las Vegas and regional segments.
31 of our 52 properties set a record for the highest fourth quarter EBITDA, while 35 set a record for the highest Q4 EBITDA margin.
Starting with Las Vegas demand trends remained strong throughout the quarter, leading to an all time fourth quarter record of $494 million and adjusted EBITDA, excluding real rent payments.
EBITDA improved 33% versus the fourth quarter of 2019 and margins improved 1000 basis points to 48% total occupancy for Q4 was 86% with weekend occupancy at 94% and midweek occupancy at 83%.
Despite an increase in COVID-19 cases in late December and into January we remain encouraged by booking trends into 2022 and beyond.
While group attrition remains elevated we began to see conventions returned to Las Vegas in the back half of 'twenty, one and this segment represented approximately 10% of occupied room nights, a dramatic improvement versus the first half of 'twenty one.
In Q4, 'twenty, one we booked a record $160 million of new business in the group segment companywide.
Turning to our regional markets operating results remained strong, especially in markets not impacted by COVID-19 restrictions construction disruption or property closures.
Adjusted EBITDA, Excluding New Orleans, Caesars Atlantic City, and Lake Charles increased 28% versus 2019 with margins improving by 750 bps to 34% on a same store sales basis, we achieved our highest fourth quarter EBITDA and EBITDA margin in the regional segment in the history of the come.
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And our Caesars digital segment in Q4, we generated $116 million of net revenue and an adjusted EBITDA loss of $305 million.
Sports betting and casino volume was split roughly 65% and 35% approximately 90% of our handle was for mobile sports betting and I casino.
We remain focused on scaling our digital business through customer acquisition during our first fall sports seasons post launch of our Caesars branded apps in 11 states.
Similar to Q3, while customer acquisition and handle exceeded our internal expectations net revenues were negatively impacted by promotional investment and Arden profit boost competitive pricing strategies and lower than historical hold in certain markets.
Following the launch of mobile sports betting in Louisiana on January 28, and retail sports betting in Washington State on February 10th we now offer sports betting in 'twenty, two domestic states and jurisdictions 16 of which offer mobile wagering.
During the fourth quarter and into early 2022, we have rolled out enhanced I casino offerings, including significant increases in new game content.
Customer response to our new game portfolio has been encouraging.
We look forward to additional improvements in our offering throughout 2022.
On the capital front, we have several new projects underway that will add to our growth profile over the next few years.
Construction of our land based project in Lake Charles is making great progress and remains on schedule for a Q4 opening this year.
In New Orleans construction work continues on our new hotel tower and property upgrades in Las Vegas, we are excited to announce that we have reopened a dramatically upgraded arrival experience at Caesars Palace.
And Pompano work has started on a new parking garage and casino expansion, which should be complete by year end in Indiana. The expansion of our recently rebranded Horseshoe Indianapolis property is now complete and we expect additional gaming and F&B amenities by the middle of the year. We also anticipate breaking ground on.
Our expansion plans for Harrah's Hoosier Park in the second quarter of this year.
Construction is slated to begin on our Columbus, Nebraska project later this year.
And finally in Atlantic City, our $400 million capital plan is actively moving forward with remodeling room towers and setting the stage for exciting new food and beverage and entertainment options in 2022.
The growth projects that I, just described total accumulative $1 3 billion of capital investment a portion of which will be spent this year and we expect to generate at least a 15% return on this aggregate capital spend.
We have already escrowed, the $400 million AC spend into restricted cash and we have received insurance proceeds for Lake Charles.
As we look to the full year 2022, we continue to see strong tailwind for our business and we remain optimistic about further visitation gains as consumers return to our properties. Once COVID-19 fears have fully subsided, we remain confident in the eventual return of the convention customer to Las Vegas, and our destiny.
<unk> markets as well lastly, we are excited to be rebranding several additional properties in 2022 using flagship brands like horseshoe inherits from the caesars' portfolio to eat even further elevate the customer experience.
I want to thank all of our team members for their hard work in 2021, I am extremely proud of our operating teams their execution and their exceptional guest service with that I will now turn the call over to Tom for some additional insights on the quarter.
Thanks, Anthony Hello, everybody.
Echo Anthony's comments thanking our team members.
Particularly heartened by the way that the team came together in a very difficult environment post.
Closing the Caesars acquisition. This was our first full year owning Caesars.
Yeah.
Excited to talk about what we what we accomplished I'm going to give you some greater detail behind the larger numbers that Anthony went through on the brick and mortar side.
Can you talk about what we have said in the past and let you measure how he has performed relative to metrics that we've put out.
So speaking about the quarter, we were on track for an all time record in Vegas until the last two weeks of the quarter when omicron spiked across the country.
Nipped in the Bud in the last two weeks of the year OMA crime continue to impact us in January January occupancy was.
About 75% in Vegas as Anthony said, we were 86% for the fourth quarter February month to date has ticked up to 80, and we expect March to be into the mid eighties all of our forward demand indicators look very strong in Vegas Anthony talked about.
The crude business.
Our measure of cancellations to new bookings.
That number peaked in early January has been coming down.
Quickly since so we're set up for that.
We've got a good setup in Vegas going forward.
Regional similar story Omicron clipped the last couple of weeks, if you think about New Orleans, and Caesars Atlantic City that we call out New Orleans, and Caesars Atlantic City, both did a little less than half of the EBITDA that they did in the prior year.
<unk> for different reasons, New Orleans, because theres, a city of New Orleans vaccine mandate and masked requirement.
Competitors of ours that are easily drivable from the city don't have to deal with T.
Restrictions and we have a minimum tax requirement in new.
New Orleans relative to that license that makes margins difficult as volumes decline.
We're building our way out of that were hopeful that the restrictions.
Go.
Go away post Mardi Gras, which is what has been indicated by.
The mayor and prior to the restrictions being imposed we were doing.
12 million a month of EBITDA. So we expect a significant snapback when that opens Caesars Atlantic City had the bulk of its room product out in the quarter.
That's part of it the construction program that Anthony described the bulk of that construction project will be completed by this summer. So all the room remodels, new amenities and in Atlantic City should be online for the high season, but that's going to impact our results.
Construction.
For the next quarter or so.
So that's the.
The current environment I wanted to go back and.
Look at kind of what we laid out in prior transactions, what we've told the market to expect and giving you an update we don't give you.
Property level, EBITDA anymore, and I'm not going to get in the habit of doing that but I think it's instructive and useful as we move to a digital conversation to talk about how we deliver our numbers that.
That we put out in that we don't take them lightly so I'm going to take you all the way back to the deal that took us public when.
When we bought MTR gaming the only remaining property from that transaction as Scioto Downs.
And as we've discussed with many of you multiple times, what we recognized was.
Inefficient marketing subsidiary Subsidization.
Revenue in the regional space generally.
And that's what we found in Scioto and then as we move down the road and ultimately bought Caesars, We said as we rollout Caesars rewards into these properties theres going to be a significant positive impact.
So if you just take Scioto as an example, when we bought it that asset was doing $45 million of EBITDA.
At a margin a little over 30% and in 2021, Scioto did just shy of $115 million of EBITDA.
At a 46% EBITA margin and.
And keep in mind, that's in a state where our tax rate is 42%, so a 46% margin and a 42% tax rate state.
Then we went to Reno, we bought out Mgm's interest in Reno.
That.
Those three assets at the time were doing 60 million of EBITDA, we redid all of the rooms at Circus Circus ultimately all of the rooms at silver legacy.
Spent a fair bit of money, we talk to investors about how we thought we could get that to maybe 90 or $100 million of EBITDA that would have been the prior peak before California Indian casinos came on the scene.
Again, the same work in removing subsidies, adding caesars rewards to the property in 'twenty.
<unk> 2021 we did just shy of $130 million of EBITDA in Reno at over a 40% EBITDA margin beating.
The prior all time high by about 50%.
Yeah.
Then we went down the road to Isle and this is where we finally gotten large enough to where investors were paying attention to what we were doing so we bought in Isle of Capri in 2017, and we said that this company is doing $200 million of EBITDA, We think we can.
<unk> $30 million of synergies.
And we had investors that are peers that were.
Skeptical to say, the least saying that you couldn't find that kind of opportunity in these assets.
<unk> been picked over.
Fast forward to last year again.
Do the same work that we've done in terms of removing subsidies removing the corporate expense.
And rolling and Caesars rewards into these properties.
Since that acquisition, we sold four properties that totaled a little over 60 million of EBITDA.
So for us to get to that $35 million of synergies, we'd have to be doing $175 million of EBITDA out of the remaining IL properties.
In 'twenty, one does the remaining IL properties did a little over 260 million of.
EBITDA within our system.
Then we went to LG.
And when we bought <unk> it was doing $36 million of EBITDA, we bought it for nine times and we said we think we could drill we think we can get that multiple to six times through synergies in 2021, LG did $62 million of EBITDA.
Bringing that multiple down to five times and recall that's in.
Elgin was closed for the bulk of January last year, because of Covid restrictions and faced a competitive opening in Rockford late in the year and going back to Reno Reno faced social distancing for the first quarter of last year. So these are results in a year that.
Had channel headwinds challenges too.
Abigail and those are the numbers that we put out. So then we went to Tropicana Tropicana. We bought we said we could do $40 million of synergies and if you look at just one asset in Tropicana Lumiere in St. Louis We took that over it was doing 33.
$3 million of EBITDA on a trailing basis, when we bought it in 'twenty one that did 72 million of EBITDA. So luminaire alone was enough to cover all of the synergies that we targeted in the.
Tropicana transaction.
And then of course, we came to Caesars in.
That was obviously the subject a lot of a lot of conversation when we bought Caesars and we said we could find $500 million worth of synergies in Caesars we had to.
Fight through the skepticism of the Caesars' board at the time, we actually had to go through with the existing management team and have them present, our synergy case before the board ultimately approved the transaction.
If you look at what we did with our first year post owning Caesars first full year.
Synergy realization is over $1 billion at this point.
The Las Vegas.
Assets had their largest EBITDA year on record in the history of Caesars in a year where.
There was.
Very little group business very little entertainment for most of the year and social distancing for the first quarter of the year and masking for the bulk of the year.
And then you look at some of the regional assets.
Sure.
Since Shreveport, I'm, sorry, Horseshoe Bossier city.
We took over it was doing $37 million of EBITDA in 2020 one it did $72 million of EBITDA and if you look at Tunica and Mississippi that was doing about $65 million of EBITDA. When we took it over it did over 100 million last.
At year end.
And so.
I want I want you to.
Understand what's in the bigger numbers that are driving our performance and more importantly that we put out targets because were no. We know we're going to meet them and exceed them.
And the nice thing about this business is.
This call is being transcribed every call we have done with investors has been transcribed you can look back at every call that we've had look back at all of the predictions that we've made and I think our track record is 100% today.
And so that leads me into digital where I know the market is struggling investors are struggling with can this be a profitable business we've gone from.
Kind of ever increasing.
Bullishness too.
Unlimited Bearishness at this point, what we told you was we saw a significant opportunity to acquire customers and grow. This business. We think this it we told you at the time. We think this is the most exciting growth opportunity in this space has seen.
In three decades, we thought we had a significant advantage with our Caesars rewards database of 65 million people.
We told you that we'd expect to lose an accumulative EBITDA loss basis over $1 billion.
Before we inflected to EBITDA positive in the fourth quarter of 2023 effectively football season of 2023.
We were behind we were an afterthought in this business we are buying William Hill last year. So we effectively sat out the first fall football season in a number of jurisdiction. So we had ground to make up we had to launch an app we had the launch of brand.
And that's what we set out to do and I would tell you that everything I just laid out in that framework remains in front of US nothing has changed we still expect.
To lose an accumulative EBITDA loss basis in excess of $1 billion and generated better than a 50% EBITDA return on that investment at maturity that has not changed what has changed is we launched our brand.
And we went from that after thought in the market too. If you look at us through the last months that's been reported in each state that reports sports betting handle were 21% of the sports betting market in the United States and notice I'm not cherry picking mark.
That's where I'm doing well and leaving out markets, where I'm not that includes big handle markets like Pennsylvania, and Illinois, where we have one and 2% market share of handle because we've not rolled out the liberty brand yet.
That has.
We exceeded our expectations in that original framework of course, we had market share expectations, we've already exceeded them.
So what you're going to see from us.
As we move forward is youre going to see us moving toward profitability out I'm not going to get into the.
How does this happen at the state level, that's been debated by others for quite some time, what I'd tell you is we have a.
A window into states that are profitable within our own business and we know the trajectory that theyre going to that the the newly launch dates are going to move down.
And.
We are you are going to see us do.
Dramatically curtail our traditional media spend.
Effective immediately we have accomplished what we set out to do.
We set out to become a significant player and it's happened significantly quicker than we thought.
And I think most of you know me as someone who is not one two weighted to spend any money needlessly. So we've gotten to where we need to be.
You're going to see our commercials largely disappear from your screens youre going to see some then we couldnt theres. Some media spend that we couldnt get out of coming into March madness, and a couple of states, but we will largely be off of traditional media other than in new launch states from here.
And the launch dates and bolt I gaming and sports.
So talk about what we've seen in New York was obviously a.
And as I had full launch for everyone. The volumes in New York, where about two X. What we were anticipating in our market share was about to ask what we were anticipating as well. So we signed up about half a million customers in New York Since we launched New York is.
Approaching as large as the rest of the business in Caesars digital combined.
And we've we're extremely pleased with how he came out of the box.
But because of the launch of New York in Louisiana in the first quarter you should anticipate that this current quarter. He is our peak EBITDA loss that you're never going to see a quarter like this again that could be the quarterly loss is going to be larger than it was in fourth quarter.
But youre going to see us moving toward profitability and making moves both in traditional media and ultimately through the offers to the customers.
Because we have reached where we want to reach in terms of.
Customer acquisition, if you look at what's happening.
In Caesars reward. So our view was Caesars rewards was a distinct advantage for us. If you look at numbers numbers of customers. Since we've launched Caesars rewards represents about 28% in number of the customers that we brought.
Into Caesars digital in terms of volume in Caesars digital those customers are almost half of the volume of the digital business. So the thesis was we had already identified.
A lot of the most valuable gamblers are that were out there and our job is to convert them to the digital business and that's what we're finding.
We also discussed that we expected the digital business would help us to drive incremental value in the brick and mortar business that we would source customers in digital that would show up in our brick and mortar business.
And what we've seen to date is extremely encouraging.
We have not done a lot of cross marketing from brick and mortar into digital yet largely because most of our digital customers are very new no.
Particularly if you look at a place like New York that just just opened about five weeks ago.
In the brick and mortar business. If you look at customers that were sourced out of digital so either they're brand new customers in the enterprise or they were dormant Caesars rewards customers.
We're on a run rate of over $150 million of gaming revenue annually out of digital into brick and mortar.
That's extremely high volume or high flow through revenue all of it comes out as gaming taxes that doesn't include.
Any spend beyond gaming.
Two thirds of that business about 70% of that business is in sourcing into our destination properties. So if you add assumptions on non gaming spend we're doing over $200 million a year of revenue that's coming out of digital into.
To brick and mortar right now.
So that's what makes us excited about what's what's happening here, we still have work to do in a casino where add 6% national handle share we've been creeping up as we add additional games, we should have an X.
So a 350 games on the site.
Bye.
May this year. So we should have a competitive product you should expect us.
Two.
Rollout Liberty in Pennsylvania, and Illinois in 'twenty two.
And you should expect us to market in those states as we do but that's a very different launch then somewhere where all the customers are up for grabs so you're not going to see the expense of the launches that you saw in places like New York, Arizona, and Louisiana access.
For Ohio, and presumably Maryland, if they if they both come online this year, Ontario, I would describe as similar to Pennsylvania, and Illinois, where theres been an existing market. Its a great market there, but that's not a all the customers are up for grabs.
So we.
We couldn't be happier with where we are in digital in terms of the pace that we've become a meaningful player in the state and the space and.
And the ability to start.
Pulling back levers that will move us to profit profitability as quickly as weak as we can get there but again.
The framework of when you would expect cumulative EBITDA losses to be over $1 billion.
And EBITDA add maturity. So we're talking about 'twenty 'twenty, four and onward, EBITDA should be 50% or greater ROI on that business.
I have the same confidence in those numbers that I added all the numbers I outlined in the previous transactions that we laid out.
And so the other thing I want to touch on before I turn to Brad in terms of the remainder of this year.
We've talked about we expect to.
Sell a vegas strip asset and launch that process in early 'twenty. Two you should expect that that remains the case.
There are documents within our Vinci agreements.
On the right of first refusal that they have that govern the timing of that but you should expect that that is in motion and that the next time that we talked to you we'll be talking about the next time, we talk to you about a strip asset sale it will be to announce that soon.
So with that we can invest in digital we can invest in the app and the projects dead. Anthony described that are going to generate significant returns in the business and we can significantly delever this year.
We expect to accomplish all of that and we're excited to keep the momentum going in 'twenty two.
And with that I'll turn it to Brian .
Well as discussed.
2021 was a very exciting year for us in terms of executing on our plan to significantly reduce debt alongside continued investment in our growing brick and mortar and digital businesses.
We expect to continue to do more of the same in 2022 through announced and anticipated asset sales, Tom just mentioned one the <unk>.
Other includes the sale of William Hill International in the second quarter and generation of strong free cash flow.
Our 2022 calendar year, Capex spend excluding Atlantic City, which is funded through escrowed cash.
<unk> $300 million of maintenance Capex $100 million of digital capital and approximately $700 million related to high ROI project capital.
We are modeling minimal cash taxes, and approximately $800 million of cash interest expense for 2022, which we expect to reduce through debt repayment and opportunistic refinancings.
Turn it back to Tom for the operator.
Operator, we'll open up to questions.
Thank you as a reminder to ask a question you'll need to press star one on your telephone to withdraw your question press. The pound key our first question comes from Carlo Santarelli with Deutsche Bank. You May proceed with your question.
Hey, guys good evening.
You spoke earlier about the 1.3 billion of spend and the expected 15% return so that implies kind of just under $200 million of won't be largely regional EBITDAR thinking about like kind of the timing, obviously theres a lot of projects in there. They all come on at various times could you kind of lay out how you expect to start to see those.
Turns kind of over the next 123 years and when you. When you believe you hit that steady state 209 quarterly run rate.
Yeah, So you've got a.
Horseshoe Indianapolis, which is the old Indiana Grand opened its expansion right around year end and so we expect to see the benefits of that we are seeing the benefits of that.
In 'twenty two the sister property at Who's your part that expansion should be done by the end of this year. So we'd expect that benefit to start in 'twenty three.
We're targeting.
Early fourth quarter for the opening of Lake Charles.
Which should be that's about $210 million project something like that.
Where we would expect well in excess of that 15% hurdle rate and keep in mind that <unk>.
15% hurdle rate is.
Sure.
Is an extremely conservative estimate on that spend.
God Atlantic City will.
The bulk of that will come online before this summer so say before fourth of July .
All of those rooms.
The bulk of the restaurant product Theres, an entertainment piece with Spiegel world that will lag, but the bulk of the Atlantic City spend should be online for this summer. So we should be seeing that in third quarter and beyond the pompano parking garage and casino expansion should come up.
Come online and begin.
Generating those returns in 'twenty, three and then in New Orleans.
The objective should be online.
By 'twenty four ahead of the Super Bowl in 'twenty five.
Great. Thank you for that Tom and then just Tom I know you, specifically said I don't want to get into property level results and you did kind of give that that $36 million quarterly run rate for New Orleans had mentioned that it was down more than 50%. So if we assume that that was kind of a 20 million dollar head.
Could you kind of give a similar metric for Atlantic city to kind of quantify similar down 50 off of what that for Q base would have been year over year.
Caesars was about a $10 million swing.
That was about 10, okay.
And then lastly, just as you think about you know kind of the interplay between slowing down the marketing spend and obviously you know the early push it.
It's understandable as you move forward, though.
How much do you worry about kind of the.
I guess the way to think about it as kind of the volume in <unk> handle that's created from kind of marketing spend in the space on just an absolute basis and kind of relative to peers. If you were to start it.
More or less start to diminish the brand awareness from out from a public marketing perspective.
Yeah. So keep in mind carload, what were largely targeting to start is that traditional media so you're talking about.
About a quarter billion dollars' worth of spend that.
And that we expected that we would have to spend to get to the market share levels that were already at the.
Success based promo spend you should expect that that.
That will continue for new customers as you get as you convert new customers into obviously existing customers as time goes on the offers become very different and the margin come very different and one thing I Should've said on New York I know there was a lot of focus.
On our $3000 deposit match in New York and the thought that.
Chi I could just put in $3000 to make a couple easy beds and.
Withdraw my money our average deposit in New York was about $450. So our results in New York We're.
We're not driven by a lot of 3000 dollar deposits Republic responding to.
Our offer it was.
Hundreds of thousands.
Smaller customers that came to our site and so you should expect that as you move out of this quarter, where you had the biggest launch of all time youre getting into.
A period of time, where there's far fewer in the way of new launches.
And more states should move down me dominated by existing customers versus brand new customers and the reason that you go after those brand new customers.
As.
Avidly as all of US do is I can tell you within Caesars when we look at our prior experience in this arena both in play tikka that predates us and in reach and in mobile states in sports betting the customer that you find in the first.
Order post launch is worth something in the neighborhood of two X what you find afterwards.
So.
There is a method to the madness here in terms of the customers that you're targeting.
That's helpful. Tom Thank you.
Thank you. Our next question comes from Joe Greff with Jpmorgan you May proceed with your question.
Everybody at Tom Thanks for your comments.
I know you indicated many at the end of your prepared comments.
That your target or a better than 50% annual return at maturity.
And then just to kind of clarify it does that has that timeline changed at all or the timeframe in which you book at maturity has that altered based on your experiences. These last two quarters.
No none of that's changed Joe.
We.
Our thesis was as we discuss Caesars rewards was our advantage that this this business would consolidate into share would consolidate into a handful of leaders.
And what's happened is that's all happened quicker than we thought in terms of the share that we have generated the address the the handle volumes have been.
In the market generally have been higher than we anticipated our share has been higher than we anticipated, but nothing has changed in terms of.
The timing and so what we said was if we do better than we're anticipating and sure there might be more investment than what we were talking about about 90 days ago, but the reality is that.
The accumulation of that share happened so quickly that we can adjust those traditional media dollars. So that we end up in about the same place from a total investment standpoint with considerably more share than we anticipate.
Which is good.
Maturity increase our ultimate returns.
Excellent.
Maybe it's too early on the high casino side. It actually by the end of May all have that large quantum of game changing 50 games yourself at that point, but what's your anticipation as you mark but more on the casino side.
What that does to your bricks and mortar business is that.
Hence it or does it go the other way does it maybe.
No dip in the land based business.
So we've had the we've had a double digit market share in New Jersey for.
Since launch in New Jersey, and we've seen no impact on the brick and mortar business and that's the state where we have the biggest brick and mortar presence, where we're I gaming is along we're not.
Active in a physical property in West, Virginia, We've got a relatively small property.
Sorry in Philadelphia, and Pennsylvania, and we don't have one in Michigan.
So we don't anticipate much in the way of.
Pact on our brick and mortar business as we ramp up in 19.
Great and then Mike My Life final question, obviously, the fourth quarter.
So far in January there's been noise from one micron in February .
Whether in the market, but when you kind of think about the fourth quarter and the impact on the crime.
On margin, excluding New Orleans Atlantic City, and Lake Charles When you look at the regional and the Las Vegas strip in the aggregate was there much of a delta.
In property level EBITDA margins, maybe excluding we're trying to account for the impact of on Prem.
That's tough to parse Joe given.
The short time period, and the time of year that it happened. If you wanted to aiding cough, what I, what I think I think all micron cost us somewhere between 25 and $50 million in the fourth quarter.
Okay. Thank you very much Scott.
Thank you. Our next question comes from Steve <unk>.
Stifel. You May proceed with your question.
Hey, guys good afternoon.
Tom I wanted to ask about the demand for assets along the strip at this point it seems based on your comments that.
Demand for those assets remains pretty high but I guess my question is going to be if you did sell a moderately sized strip asset is there any way for you to help us think about what a sale would do for you guys from a from a yield perspective.
Across the rest of your strip assets.
Well word 23000 rooms today.
You're taking out the REO rooms, and then you'd take out a.
Our property, depending on which property. It is let's say three to 4000 rooms, so youre going to be down too.
Call. It 16 17000 rooms in the market.
<unk>.
That's about a quarter of our.
Existing capacity, so that's clearly going to have an impact in our ability to yield the remaining rooms part of its word where do those.
Where do those rooms come out of our systems.
And you should expect that's going to be.
A factor in terms of how we decided which one that we would divest.
The.
The last week need to rely on O T a business to fill our rooms that better bowls.
Customer quality perspective, and an ultimate profitability perspective.
And removing the.
Five or 6000 rooms from our system, while introducing all of those customers that came in through El Dorado should have an extremely positive effect on rates once were once all the deals are closed.
Got you thanks.
That's very helpful and then second question.
I thought it was interesting to hear the history of all the acquisitions.
Acquisitions that you guys have made.
And as you look back at those acquisitions and look at the improvement in the EBITDA generation of those properties I'm not sure. We're gonna be able to do this but is there any way you can help us think about how much of those EBITDA improvements are directly the result of.
Total rewards being incorporated versus just the assets were being poorly run before and Thats noticed no disrespect to.
Some of your counterparts, but I hope that makes sense, just trying to parse out.
How much total awards drives that versus what you guys have done.
That's another one that's hard to answer Steve and I'm glad you liked those comments because it started to feel a little like a rant is I went on and on there but.
The what.
What I would say is the bulk of what is.
The bulk of what's been generated is.
Removing the marketing to everyone.
And targeting your most profitable customers and that sounds.
Simple, but as you know that was.
Not a particular strength of our industry until relatively recently and that's the biggest impact and that's another.
To get back on the digital soapbox for a minute. That's the same problem that faces us in digital that we need to solve right now we're marketing to the entire world.
That's going to stop and we're going to start marketing to the most profitable customers, but if you think about think about food and beverage, Steve which was where a lot of that marketing took place right at it was comped food and beverage if you look at the Caesars enterprise.
In 2019.
The combined Caesars, so, including the Eldorado side lost on a cash basis over $200 million in food and beverage in.
In 2021, we were cash positive EBITDA and food and beverage so about a quarter of a $1 billion swing just in that lineup.
That's great color. Thanks, Scott appreciate it.
Thank you. Our next question comes from Barry Jonas with two of Securities. You May proceed with your question.
Great. Thank you Tom any any interest in our New York land based casino here and I guess with that any other land based markets Youre exploring.
Uh huh.
So New York.
How do I answer this politely New York is a.
Difficult regulatory state.
I think it's going to be.
Extremely expensive to build there I think it's going to be an extremely expensive license fee.
And I think theres, a likelihood that youre going to have to solve.
Some other problem.
The city in addition to creating the jobs that you do in building a casino so it's not going to be enough.
To pick a site build a casino create the jobs and generate a return there is going to have to be.
Other investment there as well.
So I would say on our balance sheet.
Extraordinarily unlikely.
We make a material investment into New York land based now.
There are others that take a different view in terms of the investment opportunity there for a variety of reasons.
If one of those <unk>.
Developers wants to talk to a manager that brings.
65 million reward members and powerful brands, we'd be very interested in having that discussion.
Away from New York.
No word doing the Columbus, Nebraska project, which is fairly small track in the middle of the state that.
Helps us get into digital in that state as well.
There are other states that are kicking around.
Possibility that might be interesting, but it's unlikely that greenfield new license activity.
Becomes a huge driver of.
Value, where a huge suck of our time from caesars' standpoint.
I guess just to close the loop gaming now legal apparently in the UAE any chance, we could see gaming at your property in Dubai.
Well that was the original thought Wynn Caesar's struck that deal.
In Dubai that maybe ultimately the UAE would add gaming that is a Caesars palace.
In Dubai that we manage.
So if there is an opportunity you should expect that we would be active.
And our brand and building is already open.
Great. Thanks, so much Tom.
Thank you. Our next question comes from Shaun Kelly with Bank of America. You May proceed with your question.
Hi, good afternoon, everyone.
Tom I just wanted to dig in a little bit more on New York on the digital side and maybe just get your take on sort of how did the market play out as you got into the cadence of sort of the opening period here. We saw you know.
I think the promotional environment. The offers that we saw were probably not that different than what we've seen in other markets, but obviously it seems like just a magnitude of number of customers was pretty dramatic. So I just wanted to get your sense on how did that play a relative to your expectation and maybe.
Does it require a substantially larger investment than you originally outlaid just given that the market is deeper than perhaps you thought initially.
So how would I characterize when I was a kid we used to drink out of the garden hose.
You're out plant outside it was as if you were.
Getting ready to drink from a garden hose and a title it came and hit you.
It was.
Absolutely staggering the demand in New York.
To give you an idea we had 75000 inquiries to our customer service portals in the first two days.
Uh huh.
Post launch in New York.
As I said it was.
<unk>, what we were expecting in terms of volume and our share was to exit what we were expecting.
Of that volume in terms of the.
The ultimate Yeah, we have more market share than we anticipated in New York. So the cost of that launch is more than we had originally modeled but that's also part of the reason that we can.
Start to cut back on traditional media immediately and end up at about the same place except with much more share than we anticipate.
Great and then maybe sort of the corollary to that if you could help us think through the revenue side of how this may play out over the next couple of quarters. When I look at digital revenue in this reported quarter I think it's actually down a little bit year over year and in a lot of that probably has to do with promo timing, but just help us.
Think about how revenues are going to come in especially when you have a couple of these big market launches you know New York and this quarter, Canada likely in next quarter before we start to maybe see some of that promo roll off we actually start to see.
Your success on the net revenue side.
Yeah this quarter will look ugly.
The New York and Louisiana launches are both in their New York.
Way that they account for promos as they hit before the net rent.
Between gross revenue and net revenue so.
Bill will take you through offline in terms of how that flows through the financials, but youre going to see significant hits to net revenue from the New York launch in this quarter it doesn't change the.
Overall, EBITDA number, but the way that it flows through the income statement is unique.
But as you get out of this quarter.
When we go into Pennsylvania, and Illinois, with Liberty and those will be much much more modest launches in terms of cost and promo those are existing markets, where we're going to have to claw share kind of a 100 basis points at a time, so you're not going to see.
That dramatic day, one impact that you saw in New York, Arizona, Louisiana same thing with Ontario High gaming you won't see something that looks like those last three states I mentioned until Ohio, and newer Marilyn come on which sound like.
Later, this second half of the year.
As the tentative schedule there.
Thank you very much.
Thank you. Our next question comes from David Katz with Jefferies. You May proceed with your question.
Hi, good afternoon, everyone.
Thanks for taking my question I wanted to ask about the Las Vegas strip.
And I know, it's not the most normal environs, but theres really yourselves and one other pretty large player that arguably are quite different but still the biggest players on the same block.
Can you help us think about the degree to which.
And I hesitate to use the word share shifts, but your successes are unnecessarily.
You know there.
You know they were failures and vice versa or can you both succeed.
No.
Concurrently like how do we think about those puts and takes in this environment.
I like that question, David because I wanted to talk about this in both digital and land banks The Vegas question.
I want everybody to do well in Las Vegas, I don't view.
The way that we do well is MGM or win origination doesn't do well.
This market is.
Everybody's going to have a good 22 and 23 as the group business comes back and sure we fight over customers we fight over entertainers.
In terms of.
Normal competitive atmosphere.
Yeah.
M. G M. As an example, I'm incredibly impressed with what bill and his team have done.
MGM and it's great to see.
Them get recognized for it in share price and.
I expect them to continue to succeed as I expect us to continue to succeed and flipping that into did.
Digital our ability to succeed from here and my view is dependent on our ability to do the blocking and tackling to target those.
Valuable customers.
And service them enroll.
Meld that business into Caesars rewards into our larger brick and mortar business. Our business does not depend on somebody else failing or somebody else running out of money. There is enough room in this space for.
Multiple success stories.
I would say.
At least three or four we intend to be one of them, but we don't need anybody else to fail in vegas or outside of Vegas for us to succeed.
Perfect and if I can follow up quickly when we last saw each other in person, which was G. TUI and we've talked about a strip asset sale.
And I recall the perspective that time has been your ally.
We would you say that it's still been your ally since then to now.
Pardon the question, we have to be anxious about something and this job.
So.
You know how we're doing there.
I'd say no question.
We're.
Obviously, we had a first quarter last year in Vegas that had significant restrictions on visitation social distancing masking.
It was a difficult operating environment.
And.
As we market this asset we're going to be able to market also a 12 month period.
While it was not without impact from Covid. It was a very different cash flow picture than the heavily COVID-19 Covid impacted times and then if you look at the last two trades that.
I've seen in me.
Kind of the Propco Opco space was.
Craig's trade in Boston and Bill's trade at the Opco at Mirage, both of which are <unk>.
Exceedingly good comps for anyone who wants to market a center strip asset so we feel like.
Waiting to pursue this now was the right decision and we're excited about where we can get here. If you recall, we bought we paid.
$17 billion for Caesars.
I told you the synergy number so with those synergies we bought Caesars for less than six times EBITDA.
And the Vegas asset sale.
He's going to bring back 15% plus of those proceeds most likely back.
Back onto our balance sheet. So we couldnt be more pleased with the position we're in in terms of selling the strip asset.
Great. Good luck. Thank you.
Thank you. Our next question comes from Dan <unk> with Wells Fargo. You May proceed with your question.
Everyone. Good afternoon.
I just wanted to touch on regional was really quickly can you just give us an update are you seeing any any property to regions with pockets of higher promotion and I guess outside of Brock burden in Omaha, and maybe one or two other markets can you just remind us where we should be thinking about new competition coming online.
And just one other along those lines just any update on February trends to date.
Yeah.
Okay.
You know in terms of promotional environment I'd say, there's nothing.
Nothing to call out that would be material to our outlook as a company.
In terms of competitive openings Rockford is it temporary.
You'll have Omaha, temporaries, presumably at some point and <unk>.
'twenty two.
We're working through obviously the monarch.
Dish and in Colorado, but I should have hit on that one when I was talking about.
Property performance, we took that property overdoing.
$35 million or so in EBITDA it did over $60 million last year in.
In the face of monarch opening across the street and Manav.
Property is beautiful.
So competitive opening is not necessarily.
The impact that you might expect you had.
Spectacle open their property and Gary on the Interstate last year.
Hammond is held in <unk>.
Exceedingly well since we since that open actually flat to up in EBITDA.
Anything else you can think of that's going to open.
No. That's all I can think of in terms of.
February Dan February has been stronger than January as I've said, we were.
75% occupied in.
Vegas in January 80% month to date in February forward.
Strong as well Super Bowl was.
Really really good and Presidents' day weekend was really really good as well.
Got it and then just one one on the strip.
You've talked about margins kind of in that could be its present level.
Group occupancy group and convention coming back maybe later later in the year.
I mean, how should we think about is that still fair to kind of think about it kind of a normalized run rate going forward or are you kind of are you are you imagine.
ROE EBITDAR in absolute levels like some of your peers.
Well I think youre going to see both.
This quarter, if you treat the real lease like heat treat all the other leases, we were 48% margin and.
A seasonally seasonal low quarter.
Say hi.
The 14th to low fifteens kind of straddling 50 years.
Based on seasonality is a good expectation and we.
We just don't have the business that comes back for us with group business.
Helps us.
In terms of rate compression, So hotel margin and also brings back a banquet business for us that's.
In excess of the overall Vegas margin. So we think it's accretive to.
EBITDA and margins as it comes back for us.
Understood. Thanks, so much.
Thank you. Our next question comes from John Decree with CBRE. You May proceed with your question.
Hey, everyone. Thanks for taking my question.
Maybe a two part.
Tom and I appreciate that the trip down memory Lane that you took us earlier and all the success you've had in regional gaming M&A. So I wanted to ask if that strategy.
Could be part of Caesars future I realize theres, a lot less white space today, but given the success and I ask in the context of looking into 2023, when the Capex that you have currently starts to wind down EBITDA in digital and flex the balance sheet should be de Levered and as Brett talked about some opportunistic.
<unk> had lots of free cash flow in our model and how do you think about deploying that middle of 2023 not that far.
Way and with regional gaming M&A can be a part of that strategy.
So I'd say.
It does seem to be a core competency of ours in terms of squeezing more.
Cash flow out of assets that have been owned by others. So we recognize that obviously it becomes.
Tougher from.
And antitrust perspective, the larger that you get so that would certainly be a consideration, but I would also say.
Until we inflect to EBITDA positive in digital I don't anticipate any material buy side M&A from us.
Fair enough and would the same comment hold true for other uses of capital.
As we approach the fourth quarter of next year, given the free cash to your portfolio.
Generating.
And hard to project that far in the future on that question, obviously its going to depend on.
What is the valuation look like if I'm still getting.
Negative 15 Bucks a share for digital maybe I become a bottle and livestock.
Bye.
I would expect that we will have.
Corrected that at that time and.
We'll see how the stock behaves we'll see how it performs as we Delever I think that's going to be multiple enhancing but.
By the time frame that you're laying out we'll know that answer and be better informed.
Fair enough I appreciate all the color today, Tom Thank you.
Yes.
Thank you. Our next question comes from Chad Beynon with Macquarie. You May proceed with your question.
Hi, good afternoon, Thanks for taking my questions two on digital one.
As you continue to come through the data.
Tom you talked about inflection.
Inflection in Q4, 'twenty three wondering if the 30% to 35% long term EBITDA margin.
<unk> holds up in your view and then secondly, some of the other companies have expanded their digital offerings to marketplace in Ftes and that seems like a pretty high margin business to just offer.
Your users is that something that you would consider exploring just as your God, you're using how many use grow thanks.
So Chad on the second question I would say absolutely not.
<unk>.
I'll tell you, what's a high flow through your business and high margin business. Its the casino business and that's what we operate outside of digital and we think it's.
And extremely strong complement to the digital business.
The first equivalent over the first 30 to 35, Oh, yes, so I mean and I.
I appreciate that question Chad note the answer the short answer is no and.
I think that there is a.
I think there is a mistake that's made in the investor community that conflates.
Our low hold business with a low margin business.
We know of states.
In our portfolio.
Where we've got.
Strong market share in mobile, where we can operate mobile sports betting well in excess of 50% EBITDA margins.
And that's going to mix with other states, which for either competitive or.
Regulatory reasons, the margins going to be different but this is a.
567% hold business if.
If you think about the regional gaming business.
A lot of that business is video poker business and hold on video poker games is 345%.
We run margins in those properties of.
<unk> 40, 45, 50% with.
The full operating costs of a physical property. So we're extremely bullish on what will ultimately be able to do margin wise in digital but that will evidence itself as you get out of this launch period and your customers.
Are dominated by.
Existing customers versus brand new customers.
Thank you very much Tom I appreciate it.
Thank you. Our next question comes from David Bain with B Riley.
With your question.
Great. Thank you very helpful commentary and transparency.
We agreed the balance sheet activity is a near term catalyst for valuation I'm, just hoping maybe Tom you could big picture of the balance sheet playbook that captures the William Hill proceeds the forward strip asset sale free cash flow from operations interest savings is there a net leverage.
Kind of target or expectation by the end of next year when your funnel those items in.
Yes, so we have.
The entire or the bulk of the capital structure that we would want or the debt structure.
You'd want a car target is available to us by the middle of this year.
Our unsecured debt in the current environment trades, one five in a quarter five 5%. So that's our.
Most expensive debt the secured debt trades cheaper than that Brad laid out.
What we're spending and interest expense, we think there's considerable opportunity to reduce our interest expense. We're at about 22 23 billion of gross lease adjusted leverage we're generating.
As a cost in the neighborhood of and this is in the neighborhood of $2 billion of brick and mortar free cash flow.
You know what's coming in from.
The William Hill transaction, and you can make your own assumption on what Vegas asset strip our.
Our Vegas strip asset sale would brain.
And then we will spend some in terms of investment into digital but you could see us certainly within the next 18 months or so.
Kind of.
Somewhere in the mid to high teens in terms of outstanding lease adjusted debt and our leverage would be.
Somewhere in the fours when we inflect to positive in digital when it would start to come down considerably. So you could see.
Leverage get too.
At relatively low levels pretty quickly certainly in the next 18 to 24 months.
Okay, great understood and then.
Just lastly, when looking at you know news impacting the stock market, including today.
And the overall patron economic setup this year indirect stimulus versus direct last year, how should we view the kind of the macro setup overall understanding there are specific catalysts that you mentioned like convention coming in the older demographic coming back, but just if you get big picture of that as well that'd be helpful.
Yeah, I'd say our business not just our business.
Evidence.
Since reopening has been highly correlated to.
Both.
The Covid case counts and the coverage of Covid in general when.
When the coverage.
Leads to fear, we see reduction in business.
And when you get to where we appear to be getting with.
Two with omicron.
We tend to see pent up demand.
We see no reason that that would be.
A different scenario. This time the household savings rate is still add.
Extraordinarily high levels relative to history.
That obviously has a big job in front of them in terms of.
Managing inflation as we move forward in what they do with rates.
And that's obviously an exogenous.
The fact that could impact.
Wealth effect, if they make a move that the markets don't like but we feel.
Generally very positive with where our consumer is that 55, plus customer is still not back in anywhere near the levels.
Of.
The younger crowd and that historically has been a key driver of business.
Both in destination markets and region.
Hey, good awesome. Thank you.
Thanks, Dave.
Yes.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Tom Reed for any further remarks.
Thanks, guys. That's all we got we'll talk to you after first quarter.
Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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