Q2 2022 Caesars Entertainment Inc Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and walks with the Caesars Entertainment, Inc. 2022 second quarter earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the special need to press star one on your telephone.
I would now like to turn the call over to your host Brian <unk> Senior Vice President of Finance Treasury and Investor Relations you may begin.
Thank you, Kevin and good afternoon to everyone on the call and welcome to our conference call to discuss our second quarter 2022 earnings. This afternoon, we issued a press release announcing our financial results for the period ended June 32022.
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 Reeg, our CEO , Anthony Carano, our President and Chief operating Officer, Bret Yunker, Our Chief Financial Officer, and Eric Hession, Co President Caesars sports and online gaming.
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.
Please refer to the cautionary statements contained in our press release as well as the risk factors contained in the Companys filings with the Securities and Exchange Commission.
Caesars Entertainment undertakes no obligation to revise or update any of our 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 to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable.
Comparable GAAP financial measure can be found on the company's web site at Investor at Caesars Dot com by selecting the press release regarding the company's 2022 second quarter financial results.
I'll now turn the call over to Anthony Corona.
Thank you, Brian and good afternoon to everyone on the call our second quarter was a record quarter for our consolidated property portfolio adjusted EBITDA in the second quarter, Excluding Caesars digital was 105 billion.
First one 1 billion last year, our Las Vegas segment delivered an all time quarterly EBITDA record of $547 million with revenues up 34% year over year. Our regional segment delivered same store adjusted EBITDA of $513 million up 24% versus Q2 of 19.
Caesars visual reported a $69 million adjusted EBITDA loss, which was the dramatic improvement versus the first quarter of this year.
And our Las Vegas segment, all areas of the business combined to contribute to the record EBITDA quarter.
Excluding re rent payments, our Las Vegas segment generated EBITDA of $558 million and a 49% EBITDA margin.
Occupancy improved significantly reaching 97%.
Result of strong demand and our ability to lift self imposed occupancy caps strong occupancy when combined with the record ADR resulted in the highest orderly quarterly run.
Hotel revenues for our Las Vegas segment in company history.
Group and convention also posted an all time quarterly EBITDA record led by the strong performance of the Caesars Forum.
Room nights during Q2 'twenty two represented approximately 13% of occupied room nights in Las Vegas up from 11% in the second half of 'twenty one.
Forward group revenue pace for the remainder of the year and into 'twenty three is up over double digits versus 2019.
Our Vegas F&B operations delivered record profit during the quarter as well.
And finally results in our 55 plus segment Las Vegas were up for the first time over 2019 since Covid began and we're beginning to see a noticeable return to the market from international travelers.
In our regional markets, while results were down versus last year operating results remained strong, especially versus 2019 reported EBITDA of $513 million was up 24% for Q2 of 19 and up 29% when excluding impacts from the Lake Charles closure and construction disruption at Caesars Atlantic.
<unk> city.
EBITDA margins improved 750 basis points to 36% on a same store basis versus Q2 of <unk> 19, Excluding Lake Charles and Caesars AC.
July operating trends and our regional segment remained consistent with the trends we've seen post COVID-19.
Our capital program remains largely unchanged, 90% of our room remodel program in Atlantic City is now complete and we look forward to several exciting food and beverage concepts opening in October and November .
Our land based facility in Lake Charles is set to open in December and so as our expanded casino offering and popping up.
We expect to break ground on Caesars, Danville, Virginia, Arris, Columbus, Nebraska, and our casino expansion for Harris Who's your part during this quarter.
Lastly, construction on a new hotel tower and additional amenities at our New Orleans property is progressing well with new sports book and Poker I'm set to open labor day weekend.
These are all exciting projects that will generate a meaningful return on investment for our company.
As we look to the remainder of 'twenty two we remain optimistic about our business as consumer trends remained healthy, especially versus 2019 as we mentioned last quarter. We remain encouraged regarding improving group and convention trends in Las Vegas, the return of the international consumer as well as the potential for full recovery of our older.
The consumer which has been the most impacted by COVID-19.
I want to thank all of our team members for their hard work in 2022, so far I'm extremely proud of our operating teams their execution and our exceptional guest service with that I will now turn the call over to Eric <unk> for some insights on our second quarter performance in our digital segment. Thanks, Anthony the financial performance of our digital business.
Improved significantly in the second quarter, both on a revenue and an adjusted EBITDA loss basis, when compared to the first quarter of this year.
As Tom previewed on our last earnings call our strong gains in unaided brand awareness have allowed us to scale back our brand related marketing spend that reduction in combination with a reduced promotional investment environment.
<unk> into steadily improving results throughout the quarter as.
As we look to the back half of the year, we expect to add a number of significant product enhancements for our customers in key areas such as cash out speed customer service and parlay in alternative wine offerings. We also anticipate converting all of our Caesars branded apps and sports books to our Liberty Tech stack by the end of 2020 to greatly enhance.
The customer experience. In addition, our marketing teams will have new and enhanced ways to deliver offers and promotions to customers ensuring that they receive them in the most cost effective way. We continue to believe that scale is important for our digital sports betting and casino and poker offerings and pending regulatory approvals plan to expand into states and jurisdictions.
We're allowed we currently offer sports betting in 'twenty five North American jurisdictions, 18 of which are global.
Gaming is currently live in five jurisdictions, while poker is in for <unk>.
As a result, we will continue to remain focused on growth through new state launches investing from a tech perspective on product enhancements and remaining acutely focused on our expenses I'll now turn the call over to Bret Yunker our CFO .
Thanks, Eric second quarter was outstanding from an operating perspective, and if you look back past 18 months, we've now reduced debt by $2 billion alongside acquiring and standing up our digital business. Our most recent debt reduction came from $730 million of proceeds from the sale of William.
<unk> International business.
$100 million of that was executed through open market debt repurchases below par.
$630 billion were applied to our 2025 term loan b that happened in July .
We continue to produce strong free cash flow with an expectation to reduce debt further in the back half of 2020 chip I'll turn it over to Tom.
Thanks, Brad.
Provide some more color on.
The quarter, where we are now in some conversations that I.
I've had with investors over the last 30 to 60 days.
Starting in Las Vegas $558 million.
EBITDA pre the real lease payment is up almost 10% over the prior record in Vegas.
Which was last year's third quarter and also post merger.
Vegas in coming into the quarter, the the monthly cash revenue.
Hotel revenue record in Vegas was $91 million.
Exceeded that.
April May and June and we are on pace in 2022 to generate over $1 billion in cash room revenue in Vegas.
For the first time.
Our group business has come back.
Streamline strong, we're seeing wash rates at or below historical levels.
Hi.
The pent up demand for business travel starts to evidence itself in Vegas.
That was about a $200 million EBITDA business in the prior Caesars pre foreign Convention center, we're pacing about 40% above that as we sit here today. So obviously with the addition of.
<unk>, which was not in operation pre pandemic, but extremely strong results for us.
The strength in Vegas has continued into the third quarter, you should expect to see kind of normal seasonality August when it's just a little cooler than the surface of the Sun you should see expect to see.
Occupancy track back to the mid 90 as from the high Ninety's, but we'd expect to be back in the high Ninety's.
September and beyond and Thats, what our forward bookings show us.
Sean Mcburney and his team in Vegas have done an absolutely fantastic job. We've done all of this with Caesars palace torn up for most of the year with our front end trips work.
That finishes in September so in this quarter, we should be pretty well done with everything <unk> seen at the front entrance of Caesars.
Which should eliminate construction disruption there.
We've opened.
And our pump and novo at Paris.
And I will be out for the Martha Stewart restaurant opening in a couple of weeks at Paris. So that property is transforming as well. So we're extremely excited about that if you move to regionals.
You still have the drag in Atlantic City.
Caesars in particular is under heavy construction.
As you might be hearing from numerous others in a number of industries, it's difficult to.
Bring in your construction projects on time, given supply chain issues. So we're hopeful that all of that would have been done.
Third or fourth of July the bulk of it should be done by the end of August .
So youre seeing.
You should see Atlantic city numbers start to firm up.
New Orleans is starting to track back towards where it was before but still is a laggard.
The regional setting that Lake Charles will open.
Before the end of the year remember that's about a $15 million LTM EBITDA drag should be something north of a $65 million LTM swing once it opens so we're excited about that we've got and the Atlantic City.
<unk> coming online we've got at <unk>.
Indianapolis is.
Less than a year into it and who is your part with a similar.
Cable expansion.
Should come online towards the end of the year. So we're excited about the dollars that we've got out there and the returns that we're going to let to get on them in terms of.
Brick and mortar obviously theres a lot of discussion about the broader economic picture.
My first point would be.
We've done what we've done in <unk>.
Two consecutive quarters of falling GDP.
Average recession since the depression I think is 10 months. So we're hoping that we're towards the end of this current.
Environment, but the consumer continues to hold up quite well for us we've seen.
Unrated play that has softened.
Offset by strength in rated play a.
Particularly at the higher end of our database, we've seen international come back to Vegas really in the last.
Four weeks, so we're excited about that.
Obviously, the the stimulus checks were a boom.
Boom in last year's second quarter and early in the third but July for US was July of 'twenty, One was our best month ever and we're neck and neck with that in 'twenty two.
Im, particularly hard to talk about digital.
That's been a topic of conversation for a number of quarters, if youll recall.
Headed into labs, but we closed the way of LDL 100 days before.
The opening kicked off of NFL season, and when you do a UK acquisition. There is no prepping before clubs you start from a standing start.
On day, one Eric Passion, Chris Holger and their team did a great job of standing up the app.
Getting our brand out there and making us competitive out of the box as I said on the last call we got to about 15%.
<unk> handle share again, both states that we're in.
Rates that were not in and our unaided awareness got to a point, where we were comfortable pulling back on.
Advertising spend.
So we have pulled our plant planned hundreds of millions of dollars that we're planning to spend.
We don't think our competitors have followed us we think they're still spending and.
And our share has been stable and if you look at our losses in the second quarter each month improved on in the month before so.
May was a smaller loss in April June was a smaller loss in may.
We finished second quarter Im.
I'm sorry, we finished July two days ago, So I'm talking about preliminary numbers of.
Digital for July was nearly breakeven for the company. So I would expect as we get into football season, which is clearly our acquisition period in this business.
Youre going to see some modest losses return as we as we acquire new customers, but given that we we damn near term profitable in July I'm extremely confident that we will be a profitable business at least by the fourth quarter of 'twenty three.
And I view that business as we have made a bet.
And I told you was $1 billion through last quarter. So you've got to add the $69 million of losses in this quarter I told you.
In last quarter's call that I would expect us to have end up at about 1 billion and a half of cumulative EBITDA losses.
It doesn't look like we will get near that 1 billion and a half.
The business is performing now and so we are.
We wanted to prove the concept we broke we prove we could carve out.
A significant piece of the business now we want to prove we can make a profit and then we'll talk about fighting for additional share on the other side of that but we are extraordinarily pleased with where.
We're digitally is in a short period of time.
And really excited about this football season, where we come in with our legs under us rather than running as fast as we can to keep up.
So the last piece I want to touch on is leverage which is a popular.
Topic these days.
We have.
A long track record.
We.
We do an acquisition and then we Delever and Brad has told you while we were standing up.
Digital with the $1 billion of EBITDA losses in the trailing 12 months.
We paid down $2 billion.
Back to continue.
Continue to pay down debt. If you look at this quarter, even with the digital loss.
We're at about $1 billion of EBIT.
We've got deep we have.
Some capital that's coming online some returns that are coming online.
The digital business continues to improve so if you adjust to use and to be clear I'm, not giving any guidance I'm looking at this quarter.
If you look at a $4 billion business.
Our net debt lease adjusted debt is a little under $22 billion. So we're under five five times levered today.
We're generating.
Somewhere between $1 billion 5 billion three quarters of free cash flow now a lot of that is going into growth capital for the time being but if you think about a recession.
Of course, you've seen how we behave in a recession you saw how we behave in a pandemic.
The growth capital would start to shut off but if you look at Pryor.
Recessions Youre looking at a business that.
It should be mid to high single digit revenue declines at worst and regional less in Vegas with what's going on now.
You run that at a 50% flow through we're still doing about $1 billion of free cash flow in a year. So.
So we feel very good about where we are.
Leverage wise as you know we have an ongoing sales process or a vegas strip asset that's governed by the key agreements.
It adds about another month to run so I'm not going to provide play by play there but know that.
We are in very good shape balance sheet wise, we would like to collapse the.
CRC bucket for those of you who follow our debt into our parent company you should expect that we'd be exploring that.
As soon as the markets open up.
And we will be kicking maturities out as well so we don't.
For all the Handwringing about.
Leverage and balance sheet all of a sudden you really don't.
Stress about that at all we feel very good about.
The position, we're in where we're headed going forward.
So those are my prepared remarks, let me flip it to the operator for questions.
Ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone.
While we compile the Q&A roster.
Okay.
Okay.
Our first question comes from Carlos <unk> with Deutsche Bank. Your line is open.
Thanks, everybody.
And thanks for the comments Tom can you just talk a little bit about obviously.
Klein Digital Star Wars.
No.
Last quarter, you spent considerable time talking about what we would work.
TVN in advertisement.
Are you guys.
Now towards.
Profitable breakeven.
Business, that's sustainable going forward.
We're just kind of that advertising line.
Lie in terms of the aggregate.
Something now that kind of run rates, where it is or where we see incremental.
Incremental stuff that might have been contracted for extended periods of time.
As we move forward.
Thanks, Carlo so you'll see this fall.
If you're watching television part of our ESPN deal includes advertising buys so youll see some commercials largely on ESPN youll see some local ads.
That brand locally as well.
Youll see a little bit in <unk>.
Gaming as we.
As that product gets towards where we're comfortable that move.
Moving customers onto our App so.
You'll see I mean compared to last fall.
Seem like last year entirely, but you will run into a commercial or too.
Depending on where you are and what youre watching.
Okay.
Okay, Great and then just as a follow up.
Sorry, if I missed that.
The regional market in general.
Okay.
Talk a little bit about what youre seeing out there obviously.
Plenty of our and that's a good sign.
Relative to 2021.
A difficult comparison.
From a promotional standpoint are you seeing.
Sure.
There can be different.
<unk> seen over the last couple of months or quarters.
Yes.
Nothing that's material to our business I described.
The regional business as.
Everybody had more money in his or her pocket.
A year ago from the transfer payments from the government. So that's.
Thats, both unrated play that's.
So offensive side of that business has disappeared Thats also rated play that played up last year versus historical levels.
But we are quite comfortable.
We should be running.
Let's call it well into double digits above 19, EBITDA and regional.
Regional margins should be up.
$6 seven to 800 basis points from pre pandemic.
I wouldn't call that kind of the new.
Normal as it were in this environment, where you don't have that little bit of a bubble that you had last year and this is part of.
What drove the Caesars acquisition for US right you remember when we were.
Two markets and if something happened to one of those two markets. It was a problem for the company.
We want it to become.
More and more diversified now more diversified than anybody out there domestically and what we saw is last year regionals carried Vegas when Vegas was struggling with.
People getting on planes at with virus related restrictions and what Youre seeing this year is regionals aren't quite as strong as they were last year, but vegas is picking up the slack so its doing.
It's working as we as it was designed when we put the company together.
And Todd just to clarify that when you say up 6800 basis points relative to 19, sorry.
I heard 67.
That was on the current portfolio, which was I believe if I'm doing the calculation right around that 28% margin.
Yeah, I'd say your Youre running 35% plus now and then youre going to have Atlantic.
Atlantic City construction roll off which should certainly improve.
Revenue and margins and then Youre going to have lake Charles come on which should be a significant swing for us.
Great. Thank you guys.
One moment for our next question.
Our next question comes from Joe Greff with Jpmorgan. Your line is open.
Good afternoon everybody.
Uh huh.
A question and touching on price elasticity in Las Vegas.
Especially in light of there if there is that much more expensive now than history.
So the drive in track with chemical in Southern California, with higher gas prices.
Are you seeing any any any segment you know on a network basis on an on an age basis.
That's exhibiting.
Spend.
Reduction in relation to.
Higher.
Hell rates food and beverage pricing and such.
And as a sensitivity on that may be greater during the seasonally slower periods. Like you mentioned August when things are obviously pretty pretty hot he did in Las Vegas.
I can't.
Point you to anything in.
In particular, you had 55 plus has started to come back.
In Vegas like they have not come back since then.
I think we talked about international has returned quite recently, which is a great sign for us.
But.
We're.
When you are running 97% at these rates with.
Up 10% over our prior record.
Everything is going great.
Great and May have said as we headed into.
Board meeting last week earnings call. This week we.
Checked with.
Our booking channels are we seeing any softness in Vegas bookings and what came back is we've actually seen a pickup over the last two or three weeks. So it is extremely strong I can there are not strong enough words to convey how well it's going.
Tickets for us.
Great. Thank you.
And just going back to digital in your comments there.
Obviously, it sounds like the improvement both on the <unk> system and then the <unk>.
Narrowing of EBITDA losses.
There it sounds like its largely.
There is specific.
This is a really a function of seasonality.
And or the environment getting.
The rationale in terms of promos or customer acquisition cost is that a fair assessment and then.
I have a part b to this when we think about the losses for the next couple of quarters.
And I know there is seasonality in the <unk> with football.
Would you expect that EBITDA loss in both the <unk> to be below that that $100 million level or approximating that QQ $79 million EBITDA loss level and that's all for me.
I would expect forward I expect we will not have a quarter of <unk>.
$100 million.
Quarterly EBITDA loss and digital again.
We can talk about modeling offline.
That business.
We've had a lot of conversations about this right.
Howard how is the how are you going to become positive.
The key factor to think about it in the third quarter as.
You had no significant new states coming online.
And so your business became dominated by.
Existing customers rather than new acquisition customers.
And I can't stress enough.
The cost of the acquisition cost versus the retention cost is a dramatic difference. So I would expect this football season for everyone.
Youre going to have New York, and Louisiana were very late last year.
So youre going to have a fair amount of acquisition activity there youre going to have some natural acquisition activity, but you don't have.
Our new state of scale coming online till Ohio in January .
So.
We feel pretty good certainly for ourselves I can't speak for what others are doing we caught it.
Almost half a billion dollars.
What we were anticipating spending.
And marketing.
And the.
Last three quarters of 'twenty two.
This is a dramatic event for us.
We're heartened that we haven't seen.
Sure deterioration and particularly with what we've seen in profitability and you know.
We're really not want to lose money when we don't need to and we've got a long track record of.
Really turning.
Highly subsidized business is on the brick and mortar side into.
Far more profitable business. It's the same thing that we're doing.
In digital when we started digital we didn't have the ability to segment customers and.
And now a week so.
In effect under invested in your best customers and over invested in your works that's no longer the case. So you can be far more precise.
What we're doing and we see the fruits of that everyday as results come in and it's great to see.
Thanks for the thoughts.
One moment for our next question.
Our next question comes from Stephen <unk> with Stifel. Your line is open.
Hey, guys good afternoon.
Tom you mentioned in your prepared or so called prepared remarks.
The rated play.
You saw that slowing and I guess I guess the first question.
Is that or is that across both regionals in Vegas and then the second question. There would be have you seen any spend pattern changes in your database tiers, meaning that that low tier rated player has there been any softness there.
Yes.
So no.
No difference in the upgrade across markets. It's just casino play in general.
Does it move the needle as much in Vegas as it does in.
Regional.
In terms of.
Tiers of customers I think if you go to the.
The lowest end.
The properties on the Mississippi River for Us in the South.
Those started softening in January February for us and that have been stayed.
Stable.
But youre talking about a couple of properties that are.
$20 million of EBITDA at a $4 billion so nothing that.
Is material to the enterprise.
Okay understood second question, Tom in terms of the strip asset sale I know you are probably very limited in terms of what you can say, but.
Is the delay in I'm not sure if even that's the right term, but is the delay here really more around the rate and the funding environment versus the demand environment.
What I'm trying to understand is if the demand for strip assets is still as strong as where it was let's say a year ago.
So to be clear we've talked about this on other calls it's very clear.
FLIR to the timeline that was.
As laid out in the <unk> documents that govern this so.
We launched early this year.
That line is by the end of summer.
Every.
Satellite I've ever seen in the land.
<unk> grows into that deadline.
For us.
As.
There are plenty of interested parties.
Obviously, the financing environment is what it is and if that's going to impact.
<unk>.
Someone will pay.
There is a level, where we're not going to chase that I'm very happy to just flip the free cash flow.
And come back later, but.
As we have discussed.
This is a.
This is a discretionary trade for us we still think we can get it done within the parameters that we had set at the outset.
But we are we certainly recognize that we live in a market that moves day to day and a financing condition change.
The outcomes might change.
This has become.
For me, it's kind of amusing because when I first started talking about.
We're going to sell a vegas strip asset that the response from.
Both sell side buy side was why would you want to sell a vegas strip asset looking at great events.
And we said there are times in the market that you don't have to go back very far.
We didn't what we wouldn't want to own that as many rooms.
And now the conversations have turned to Oh My God can you get this done this is critical.
This is a change in <unk> not in US this has been discretionary from us for us.
From day, one and it remains so so.
Our list of what level of fear is coursing through the investment community.
Put our heads down and we do the work and if we have a trade that makes sense for us we'll do it if we don't we're fine with it.
That's far more than I wanted to say about the Vegas strip asset sale, so no more questions on that.
That's where we are.
Very clear thank you Sir appreciate it.
One moment for our next question.
Yeah.
Sure.
Our next question comes from Barry Jonas with <unk>. Your line is open.
Great. Thanks.
Auto traffic to Vegas has slowed according to citywide the ELV CVA data curious if you're seeing anything like that across your database with California visitation.
No.
Just reported.
A record quarter till June July is very strong as well I mean, yes.
There is a.
Seasonal.
And Vegas third quarter is lower than second quarter, because it is 120 degrees.
But beyond that we're really seeing no change in Vegas activity. Good traffic at the airport was record levels as well that's right June seats into Vegas Center rack.
That's helpful. And then just as a follow up I mean any thoughts on the centaur option here.
For us.
Should not expect us <unk>.
Exercise the put you'll have to ask D. G. What their intentions are on the call but in any event.
Any option I would expect.
Yes.
<unk> intends to exercise they would be looking towards the end of the option period.
But I don't know.
That's a <unk>.
Supposition, if I was in their shoes at telling me that.
Got it alright, thank you Tom.
One moment for our next question.
Okay.
Our next question comes from Shaun Kelly with Bank of America. Your line is open.
Hi, Good afternoon, everybody just two questions on the digital side.
Tom I was just intrigued by the comment around you will not get near to the $1 5 billion of losses, I think you've tackled it on a quarterly basis, but.
Any chance, we could get you to help us set a new kind of overall level for us or not quite prepared to do that.
Yes.
Hard to do in front of.
Football season.
What do we have.
We're at $1 billion or at 1.69 now.
I would say.
And think about.
That neighborhood for the next couple of quarters and that improving.
Two inflection to positive.
Worse in the fourth quarter next year.
Super Thank you and then.
One for either the group or for Eric specifically, but just as we're thinking about the digital strategy two parts here one is.
Obviously, you pulled back some.
It kind of has the market overall changed very much as it would relate to.
Promotional spending and just kind of how are you seeing that cadence work and then for your own product lineup could you just talk a little bit more about how you kind of hope to make some inroads on online gaming <unk> product roadmap on the casino side, a little bit given the strength of your database, we've always thought that that's a huge opportunity for caesars.
Yes, Sean sure so.
In terms of what our competitors are doing we really haven't seen much of a change at this point, we don't know exactly what their plans are for football, but we've heard no indications that they are changing.
<unk> strategy.
We believe that the performance that we had in the second quarter and as we head into July and the next next few months.
Support our notion that we can pull back and that customers are more sticky than we had originally thought and thats, allowing us to be able to help the large reduction still maintain kind of the revenue levels we were at.
In terms of the <unk> I would say youre exactly right.
Frankly, that's the area that I think all of us around the table are probably the most disappointed with we really haven't gained the traction that we want and given our knowledge of how to.
Those customers to market to them into segment to them and what they're looking for in terms of game titles based on the retail business.
Should absolutely be a market leader in.
Space, we've been challenged from a tech perspective as.
Well as from a marketing perspective, and unfortunately that is lagging the sports betting side. So later in the fourth quarter, we're going to be making some enhancements on the tech side, so that we'll be able to do segmented marketing and <unk>.
Some other things, we will be able to do free spins coming up which are all basic things that you would expect.
B in place, but unfortunately, they were just difficult from a tech perspective. So I do agree with you that that is an area of opportunity and I think if you were to look starting in the fourth quarter into next year Youre going to see us start to make some real progress there.
Thank you very much.
One moment for our next question.
Yeah.
Our next question comes from David Katz with Jefferies. Your line is open.
Hi afternoon, everyone.
Thanks for.
Work on my question.
If we could talk about just the way.
Margins, so that we can look 90 days it.
It seems like a world away.
Okay.
I know at one time, we were talking about.
Percent.
Is that still a neighborhood, where we think we can live.
Either near term or long term.
But the $5 58 or 49% in the quarter.
World series of poker happened in the largely.
In the second quarter, that's additive to EBITDA.
It's about 100 basis point drag on margins.
So from an operating perspective, we were at 50%.
In the second quarter.
Do you think about forward, obviously, you got a little bit of seasonality third quarter fourth quarter you.
You Might've point drag on margins.
So from an operating perspective, we were at 50%.
<unk>.
The second quarter.
If you think about forward, obviously got a little bit of seasonality third quarter fourth quarter you.
You might have Brad we're going to have some entertainment come online.
That's a lot of revenue sales.
That's going to impact Vegas margins.
And a half.
When that particular entertainers starts.
Youre going to have a lot of revenue run through that goes to the artist a little bit of profit the onset of better customer floor.
Okay.
So 50 is where we're going to we're still a comfortable place for us to hang up okay, yes, good depth very much.
One of them before the next question.
Our next question comes from Daniel Pulsar with Wells Fargo. Your line is open.
Hey, good afternoon, everyone and thanks for taking my questions.
So I wanted to hit on regionals first.
I mean, I think the margins.
Over the course of the quarter. If you can just kind of any any color on how they how the cadence was I think because March was I think in the highest high Thirty's and then.
At pace over the course of the quarter and then certainly I get there is some disruption from Lake Charles and.
And my next city, but as we think about this third quarter relative to the second quarter. It's typically those are your best two quarters of the year or so wanted to make sure thats still kind of in.
Play at this point thanks.
Yes, that's still in play.
I would say month to month in the quarter.
But it's not a dramatic move across that many properties.
So you should.
Figure that.
The business was running at about.
36% level or so for the bulk of the quarter.
Got it and then.
In Las Vegas, I know there was some flooding recently.
I wanted to check in.
Has that been fully cleared up at this point, how should we think about the impact if any in the third quarter.
I just took my life Jack enough that it was all the way over that.
Got it.
Yes.
There is there is no.
There is no impact to the business at all.
Good social media footage.
Alright, and then just one last one I think you mentioned that group was pacing up.
In Vegas around 40%.
Versus 2019, including obviously forum.
How should we think about that.
I guess, excluding forum is it still tracking up and what's really driving that is it is it pricing is it just.
Food and beverage additional business or it's just volume.
It's all of that is volume.
You've seen what we've done.
In other segments of the business that we run versus.
We were running prior.
Banquet business that comes online is.
It's accretive to margins, even the 50% margins.
<unk>.
And Michael <unk> and his team have done a fantastic job.
Bill I guess, a great calendar for us.
All of that comes together.
A great outcome for us to give you an example, harrah's.
Dan.
The third in the second quarter near.
Nearly 20% of room nights at Harrahs, where groups nuts, and Thats a property that had effectively zero prior to the Forum Convention Center.
Got it thanks for all the color.
One moment for our next question.
Our next question comes from David Bain with B Riley one moment, David Brain. Your line is open.
Great. Thanks, so much.
First I was wondering you gave some color on structural forward growth drivers in Vegas, you touched on the associated revenue with conventions can you Big picture International is that a $50 million to $60 million business. And then you also mentioned the 55 year old demographic returning just kind of wondering kind of where we are if you can quantify or.
That was prior to COVID-19 versus today.
So directionally 55 and over is now above in Vegas for the first time since <unk>.
Pandemic, but it is still trailing younger cohorts on a comparable basis. The younger cohorts are up more that's a much.
In terms of order of magnitude that's a much bigger piece of the business.
For us than international.
International is a good story for us, but it's far smaller than.
55 and older.
Okay great.
And then one more if I could one industry report cited.
OSB OSB.
OSB is looking at a black label site for Vips.
You see Tom segmentation coming to online and can you take kind of what you've done.
Offline to online and create margin outperformance. If you will I mean is that something we miss when restructure our I casino in OSB models that maturity looking at international.
Even before consideration of the land land based benefits.
How does that trend.
Yes, I mean that wrapping it into Caesars rewards it should.
At maturity it should be just like the.
The brick and mortar business, so we should be able to.
Get more share of wallet from our best customers and.
And not overspend.
Small customers, which is the same idea as brie.
Brick and mortar I will say one of the things that you Miss that.
That actually missed in.
Analysis of digital.
Yes.
As we launched as all of our peers launch you saw all these <unk>.
Sports partnerships create brand new partnerships affiliate relationships.
All forward customer acquisition.
At launch as these states launch.
That runs.
A quarter of a $1 billion through our digital business today.
Those are all contracts that run off.
Depending on the contract two to five years after they were.
Now as you get into a more mature business.
Not going to be re cutting those deals are youre not going to be re cutting them at the levels that you started at.
So thats going to be extremely accretive to EBITDA.
As those as the business is season and I know that's the case for everybody in the business.
Okay, Great alright, thank you very much.
One moment for our next question.
Our next question comes from Chad Beynon with Macquarie. Your line is open hi.
Good afternoon, Thanks for taking my question.
In terms of sports betting, California initiatives I believe there are seven or eight company instead of back to one of the bills can you talk about how your position there and more importantly are there states in the U S, where you would potentially take a hard path given maybe a higher buy in or a higher tax rate.
Thanks.
Sure.
He struggled.
To think of a jurisdiction, we would not go too.
In the U S. It's been open to I guess if.
If you think of a very small state that puts up a ginormous tax rate that's.
A small possibility, but we wanted to be.
In terms of California.
We're not part of.
Either initiative, we have a strong.
What we want to see sports betting.
In every jurisdiction that we confine.
We'd love to see high casino in every jurisdiction we can.
We have a decades long relationship with.
A number of trials across the country work, we've been managing their assets.
Through multiple contract renewal, which was a unique position when we bought Caesars I've never seen that before.
<unk>.
We don't want to be in opposition to.
Tribal interest when when we're their partners. So we've remained neutral in California throughout you should expect that to be the case in any state where.
Tribes are at odds with the commercial interests.
Great. Thanks, Tom.
And then wanted to ask you about your kind of hypothetical 50% flow through and I know that was more of it.
I'm just kind of a.
Again, a hypothetical if revenues decline and you were really just trying to make the point of strong free cash flow, but within that I guess I wanted to ask it in an environment, where revenues are declining are there some quote unquote fixed costs.
Maybe in labor or other opex.
You could.
Got it.
Reduce costs, obviously marketing is at pretty low levels, we all understand how the rent.
The lease payments work, but yes.
And this hypothetical situation are there areas, where you could kind of trim.
Your quote unquote fixed opex. Thanks.
Yes, Chad without question.
You just saw us lived through.
The pandemic and.
The amount of cost that you can cut in these business businesses.
As far beyond even what we thought prior to the pandemic we were on.
Among the most vocal.
There were significant costs to be cut so one of them.
Benefits of the pandemic for US is you got a sense of what your customer.
What they were willing to tolerate.
Softer environment.
And I'm thinking in terms of.
Hours of operation for non gaming amenities.
<unk>.
What you can do in a soft environment is far different.
Then what the world believes pre pandemic, so I think the.
Both the 50% flow through.
And the topline tips.
Are far in excess of anything that we're expecting.
I really did that to illustrate that.
EBIT and in that scenario, we would be generating $1 billion of free cash.
I appreciate it thanks Bob.
One moment for our next question.
Second question Brett months over the market.
Please from the moment.
And your line is open.
Okay, great. Thanks for squeezing me in here.
Tom or anyone I wanted to just get a sense for how you're feeling about your Las Vegas room rate pricing power from here outside of rooms being removed from the system like with the Rio what inning do you feel like Youre in in terms of pushing rate just based on your president Occupancies, which are which are really high.
I mean, I think what youre going to see is the.
The return of group is going to help us grind rate higher because thats going to.
Bush out our lowest rate customers, that's what's already happening and keep in mind.
We're about to cycle through where we'll be comping against.
Self imposed in occupancy caps because of labor levels last year.
So youre going to see.
Even more significant.
Flow through as you get towards the end of the year with those caps off.
So we feel extremely.
Positive about the forward occupancy and rate environment in Vegas as I said.
We're on pace to do better.
Better than a $1 billion of cash room revenue, which has never happened at Caesars.
Okay. Thanks for that and then just one follow up I'm curious to hear about this.
Empire days Las Vegas promotion, you guys launched today. If this is a regular way type set of promotions, if it's sort of new or if it's more offense or defense and just any other ways that you would like to share that you know you can activate the caesars reward system here.
For for.
Various pockets of softness that we might see in the next six months to 12 months.
This is a typical.
Room sale that goes on every year, so there's nothing.
In particular to call out there.
Yes.
In a word.
Ryan again, 97% in July was 96, 5% occupancy so.
We don't have a lot of extra rooms to sell at this point. So we feel very good about.
Having and his team.
And revenue management for us.
And Sean as the operating leader in Vegas, we Couldnt have done better in terms of what we inherited in that group.
Have a great degree of confidence in the results don't drag going forward.
Great. Thanks, so much.
And I'm not showing any further question at this time I'd like to turn the call back over to Tom for any closing.
And im not showing any further alright. Thanks for your time, everybody. We will talk to you after third quarter.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
The conference will begin shortly to raise your hand, you in Q&A you can dial one one.
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