Q3 2022 Caesars Entertainment Inc Earnings Call

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Okay.

Good day and thank you for standing by welcome to the Caesars Entertainment third quarter 2022 earnings calls.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

I'll ask a question during the session you'll need to press star one one on your telephone.

Please be advised that today's conference is being recorded.

I would now like to hand, the conference over to your Speaker today, Brian Agnew Senior Vice President of Finance Treasury and Investor Relations. Please go ahead.

Thank you Elizabeth and good afternoon to everyone on the call.

Welcome to our conference call to discuss our third quarter 2022 earnings.

Afternoon, we issued a press release announcing our financial results for the period ended September 32022, a.

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, Bret Yunker, Our Chief Financial Officer, and Eric Hession, 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 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.

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 a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on the Companys web.

Site at Investor Doc Caesars Dot com by selecting the press release regarding the company's 2022 third quarter financial results I will now turn the call over to Anthony. Thank you, Brian and good afternoon to everyone on the call in the third quarter, we generated a new consolidated EBITDA record, excluding digital of $1 5 billion.

Our Las Vegas segment continued to deliver strong results with 491 million of adjusted EBITDA, excluding the Rio rent payment.

Our regional segment delivered a new Q3 record with same store adjusted EBITDA of $570 million.

25% versus Q3 of 19 Caesars.

Caesars digital reported a $38 million adjusted EBITDA loss, which was our smallest last quarter since rebranding because she's a sports book in August of 'twenty one.

In our Las Vegas segment, all areas of the business combined to contribute to the strong EBITDA quarter, excluding real rent payments, our Las Vegas segment generated EBITDA of $491 million and a 46% EBITDA margin.

Occupancy was strong reaching 94% driven by the July and September .

Cash hotel revenue and profit set a new Q3 record.

Gaming revenue also set a new Q3 record during the quarter.

Group room nights during Q3 of 'twenty two represented approximately 12% of occupied room nights.

Forward group revenue pace for the remainder of the year and into 'twenty three is up over double digits versus 19.

Results in our 55 plus segment in Las Vegas were up again in Q3 to pre Covid continuing the trend we experienced in the second quarter and.

International travel continues to recover and remains a tailwind.

Vegas has further runway for growth with many exciting new entertainment and sporting events come into the market over the next 18 months.

In our regional markets results strengthened in the third quarter posting growth versus a strong third quarter last year reported EBITDA of $570 million was up 25% to Q3 of 19 and up 30% when excluding Lake Charles which remained closed during Q3.

EBITDA margins improved 840 bps to 38% on a same store basis versus Q3 of <unk> 19, Excluding Lake Charles.

Trends in our regional segment remained very consistent over the last few quarters.

Turning to an update on our capital program renovations in AC will complete in the first half of 'twenty three with the opening of the Nobu Hotel tower and we're excited about the recent restaurant openings of Hell's kitchen, and Nobu at Caesars AC.

Horseshoe Lake Charles is set to open on December 12, and we look forward to showcasing this brand new land based facility.

We also expect to open our expanded casino offering and Pompano in December as well.

We expect to open temporary casinos in both Danville, Virginia, and Columbus, Nebraska by midyear 'twenty three are.

Our expansion at Harrah's Hoosier Park is underway and should be open by mid 'twenty three.

And lastly, our construction on our new hotel tower and additional amenities at our New Orleans property is progressing well with our new sports book and Poker room recently opened.

As we look to the remainder of 'twenty two we remain optimistic about our business as consumer trends remain healthy, especially versus 19.

As we mentioned last quarter, we remain encouraged regarding improving group and convention trends in Las Vegas to return to the international consumer as well as the potential for the full recovery of our older demographic consumer who 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 their exceptional guest service with that I will now turn the call over to Eric Hession for some insights on the third quarter performance in our digital segment. Thanks, Anthony our digital business reported.

<unk> growth of over 120% and a smaller than expected EBITDA loss in the quarter on a sports betting side. We recently started to realize the benefits from the efforts that we've made over the summer to improve the overall experience for our customers specifically improvements in cash outs speed customer service response times and are in flight.

L a and alternative wine offerings are all being well received by our customers.

<unk> also created several analytical tools that provide real time assistance and insights for our trading team, allowing them to expand the number of markets, we offer to our customers and to be more responsive during in play trading sessions as a result, our whole volatility has declined and our overall expected hold levels have increased during the quarter. We also began to see the rig.

<unk> of our initial segmented marketing campaigns that allow us to reward our customers more directly for their loyalty and play with US. These efforts contributed towards our net revenue growth as they allowed us to improve our promotional spending efficiency. We anticipate continued enhancements in this important area over the course of 2023.

On the casino side, we hired a new leader for the vertical who started on October one in conjunction with our tech team. We have an aggressive product improvement roadmap identified with numerous enhancements for our customers that will be rolled out as completed with a full product targeted for the start of the second half of 2023 I gaming remains a critical component of our digital.

<unk> growth strategy from an expansion standpoint during the quarter, we launched our online sports betting product in Kansas and upgraded our tech package in Illinois, Pennsylvania, and Washington D. C to our most current version we now offer sports betting in 27, North American jurisdictions, 19 of which offer mobile wagering in Q4.

<unk> regulatory approval, we anticipate launching online sports betting in Maryland and on January 1st in Ohio. In addition, we plan on adding two new third party retail locations during the quarter with that I'll turn it over to Bret for some additional remarks.

Thanks, Eric Q3 was another productive quarter from a balance sheet perspective, as we permanently reduced approximately $900 million of debt using asset sale proceeds and free cash flow.

We also successfully syndicated a new $3 billion credit facility comprised of a 225 billion revolver and a $750 million term loan.

16, domestic and international banks subscribe to the new facility and we appreciate their support.

Total 2022, Capex spend net of Atlantic City, because now expected to come in at approximately $800 million, which is also our current estimate for total 2023, capex spend across growth and maintenance.

Finally, we announced that we will be pursuing a downstate casino license in New York with our partner SL Green.

We'll obviously be a very competitive process and we look forward to putting our best foot forward when the RFP begins.

Given the inherent sensitivities around the bid process, we arent in a position to go into details around project cost at this stage.

However, we can tell you now that the project starts with an existing building and will be financed with a new joint venture that is not on our balance sheet.

Caesars will brand and manage the asset under a long term management agreement.

And any equity investment into the joint venture will be very manageable relative to our free cash flow now I'll turn the call over to Tom.

Thanks, Brad I'm going to touch a little further on the quarter.

And I want to talk about October as well.

In Las Vegas.

Very strong results in the quarter normal seasonality returned to Las Vegas in the third quarter. We also had a couple headwinds that I would call out.

Utility.

Expenses for the quarter were.

Extraordinarily high particularly August .

And we had to finish up the construction of the entrance, which caused some construction disruption if you look at the.

The impact of the two of those and added back you would've ended up a little bit ahead of last year on an EBITDA basis and similar from a margin standpoint.

As you look into October October .

Was the strongest month in the history of Las Vegas for Caesars.

You did over $200 million.

The EBITDA in October , which is up double digits versus last year on a consolidated basis.

October EBITDA.

For bricks and mortar is pacing.

Double digit percentage above last year's October .

Despite having one fewer weekend day in the 2022 period.

Regional is obviously quite strong as well I had a little bit of a margin improvement there strongest third quarter than we've ever had.

And regionals and then we've got as Anthony touched on we've got Lake Charles come in we've got temporary casinos in Columbus, Nebraska, Danville, Virginia that will hit next year, we've got the completion of the.

Atlantic City spend as well and the Harrah's Hoosier Park in Indianapolis.

Indianapolis should finish by the middle of next year, So a number of tailwind.

Cash that you allowed us to invest shareholders that youre going to see the fruits of going into the rest of 'twenty two.

Into 'twenty three.

I'd also like to touch on the <unk>.

<unk> asset sale.

I would say that we intend to keep all of our strip assets as we move forward.

The.

We ran into a market where the cash flow of the asset continued to increase.

The ability of buyers to arrange financing made it a very easy decision for us to keep I know that despite us talking about how this yeah.

Hey, this is and was a discretionary process for us it created an unnecessary overhang in the stock.

And I apologize to all of our shareholders for that.

That was a self inflicted air and that was me. So we will be keeping our vegas strip assets as we move forward.

In digital.

Tober digital inflected to positive EBITDA for us.

So we are extremely pleased US 12 months ahead of the schedule that we anticipated I think most of you are aware, we've got a fairly high profile.

Liability out there with the Astros, so that will have that will be a swing factor in whether fourth quarter is positive as a whole, but we would expect.

We have inflected and digital will be a contributor as we move forward. So that's extremely exciting news for US great work by Eric and his team in digital.

Thank you to all of our shareholders for.

The capital to invest in digital and the patience as we work through it we continue to believe that on our $1 1 billion of cumulative EBITDA losses.

That maturity will be doing in excess of 50% of that.

An annual EBITDA of digital that business continues to outperform our expectations.

And really really inflected over the last.

60 to 90 days. So we are quite pleased with that.

With that.

Flip back to the operator for questions.

If you'd like to ask a question at this time. Please press star one one on your telephone.

Please standby, while we compile the Q&A roster.

Yeah.

Yeah.

Our first.

Question comes from the line of Carlo Santarelli with Deutsche Bank Carla Your line is now open.

Hey, guys good afternoon.

Tom appreciate the commentary on digital could you talk a little bit about how you foresaw or foresee going forward.

<unk> environment, perhaps space a little bit on your experience in the <unk> as well as what you saw in October as we're now in the kind of the meat of football season, and then further.

Let's set aside that the world series liability.

Could I take your comments to kind of infer that perhaps next year.

They were looking at a positive EBITDA contribution from digital.

Yes for modeling purposes Carlo.

I would expect you to be around breakeven, but I would expect that.

We've got a really good shot that that's a contributor on a full year basis in 'twenty three obviously thats.

Subject to hold but we feel very very good about where we are in terms of.

Promotional environment.

You've got we've talked for a very long time about how your customers as they come in new states, that's when Theyre taking advantage of.

Sign up offers those are your highest that's your highest promotional spending.

We've got obviously a mix this year states most of which are in their second year.

If non second full year at least second year of.

Operation during football season, so your promos or to your existing customers. That's typically a much.

Smaller promotional bite that new sign ups, but I'd also say.

We've had we've had we have the ability to segment customers now, which we didn't last year. We've got a full year of looking at as you know we had all the spigots opened in.

Digital as we launched that business and launched the brand now we can look at various verticals and see what type of customer it is coming in through the various channels and adjust our spend based on are we getting a return on our investment that we made some significant changes there.

<unk> led by Eric in the last <unk>.

60 days.

That has slowed virtually entirely basically shutting off.

Particular segments and that cash is flowed immediately to the bottom line with no degradation in market position. So we feel.

Very very good about where we're at as I've told you. This is.

This is what we've done on the brick and mortar side is figure out how to invest more in your best customers and less in your less profitable customers and that's really the basic blocking and tackling that we're doing in digital that has led to these results I have noticed the latter personally.

Thanks, Tom I appreciate that and then just one follow up.

From the regional perspective, obviously, our results were good against a difficult comparison.

It looks like you guys were able to more or less keep opex kind of ex gaming taxes because of basketball our estimation flattish.

Are you kind of where we are there.

Are there any pressures that are kind of creeping there that we need to be aware of outside of <unk>.

Additional labor inflation and things like that or is this a pretty good run rate in terms of opex.

Yeah, I'd say, you're at a pretty good run rate here.

You've been around us long enough that you know we're never done.

But we don't see any real costs.

On the sidelines as you've touched on we've got labor cost inflation.

That rolls through but that's been for quite some time and frankly, the labor picture.

<unk> continues to look better as we get quarters in the rearview mirror.

Great. Thank you so thank you everyone.

Okay.

Our next question comes from the line of Joe Greff with Jpmorgan. Your line is now open.

Hey, everybody.

Tom just starting off on the on the digital side.

As you talk about.

Increasing.

Profitability in this segment.

Can you talk about over the next few years 2023 2024 and.

And beyond yes.

Mochida.

Additional operating expenses.

Coming out of that business, maybe particularly with some partnership expenses.

And how this might be sort of I won't say low hanging fruit or easy to extract.

Efficiencies from but can you talk about some of those that kind of gets you to increasing profitability. As you think about some of those partnership expense is winding down.

Sure Joe as you look at the current business.

<unk> got.

For us what is a sports dominated business at this point.

And so I think the profitability obviously, we have.

Significant opportunity in front of us in <unk>.

Casino, we think we now have the right leadership in place to attack that and so we think that will grow from what's a fairly small contributor today into a much more meaningful contributor that way.

If youre, referring to is as we launch and this is not unique to US. This is throughout the entire digital space. There were a number of <unk>.

Partnership deal signed up with media partners with.

Teams with leagues that all kind of run.

Three to five years in our case from let's say in a middle of last year. So you'll have some running off.

In a year, you'll have more running off over the next three years and that Youll look at.

There were assumptions made in terms of.

You were willing to pay for those sponsorship opportunities as partnership opportunities that were based on.

<unk> generation.

New customers to your platform.

We've got much more data today than we had before.

Youre not going to be in virtually all of these cases in a launch situation anymore. So for us that's something that runs in.

North of $200 million of annual expense.

And you should expect as DAU and for now that's a fixed expense for us as long as those contracts are in place.

You should expect some of them will live in a form that may not be as expensive as it is today.

A fair amount of those will go away entirely and that should flow straight to EBITDA for us if youre looking out in that <unk>.

425 timeframe that you laid out.

Great and and Tom just to clarify your comments.

Switching over to Las Vegas, you'd mentioned the <unk>.

Would have generated in Las Vegas, EBITDAR north of last year and margins that are similar.

And that Delta between what you reported.

Those comments.

The two headwinds utility cost and disruption.

At <unk> can you sort of break out the magnitude of each and planes with maybe the elevated utility expenses.

How do you think about that going forward.

Recurring is at one time and then also yes.

Perhaps I noticed that corporate expenses were down a lot sequentially.

Can you help explain that or was there.

<unk> shifted out to the properties versus.

What may have been in the past sort of allocated to corporate.

But it will take corporate expense I'll take Vegas.

On corporate expense, yes, we were a bit light to our typical run rate of 30 to 35 per quarter, that's due to a lack of transaction activity.

And a continued focus on all expenses.

And for Vegas, Joe.

If you normalize the utilities, which was primarily rate in August alone.

Virtually the entire gap between Q3 of 22 in Q3 of 'twenty one.

And then you have the construction disruption as well to give you an idea.

Tober on a preliminary basis Vegas, EBITDA margin was about 52% for us.

Great excellent thanks, guys.

Okay.

Yeah.

Our next question comes from the line of Stephen <unk> with Stifel. Your line is now open.

Hey, guys good afternoon.

So Tom you just mentioned the biggest did I think you said 200 million in EBITDA in October .

I guess, the most simplistic way I can ask this question is.

Should the quarter ended up being 600 million in EBITDA and I guess, what I mean by that is obviously with you know there are some holidays coming up and what not I just want to make sure that expectations for the fourth quarter are rightfully set at this point and hopefully that makes sense.

Sure. Steve October is typically the strongest month in fourth quarter November is the weakest month Thanksgiving is not.

A particularly strong holiday and.

Sure.

So November is.

The seasonal slowest in the third in the fourth quarter, and then you get new year's in.

December so if I were thinking about what is the quarter looked like October should be the best months.

December should be slightly lower in November lower than that.

Okay perfect.

And then second question Tom on the digital side of the business and clearly there's been some significant progress made here in terms of getting that segment.

Profitable and I guess my question is or maybe give us your updated thoughts about you know down the road.

Did you see any kind of scenario, where you would want to potentially spin this business off at some point and I understand there is theres, probably a lot of value here with the business being tied so closely to the brick and mortar side, but just wondering if that would possibly make sense at some point down the road to.

To help the leverage side of the equation.

So I would say that yes.

Our competitive advantage here.

As tying it to the existing brick and mortar business and our Caesars rewards database.

It would be my preference.

That remains.

100% owned by the parent company, if you get too.

Different shareholder basis for the two business there is a complexity introduced that.

You'll see.

<unk>.

You can see that in some of our peers in terms of when you get to.

Different shareholder basis in the same business, but I would tell you.

You know that.

We're constantly focused on how do we drive shareholder value if you get into.

Our market, where that ultimately makes sense and that's the way too.

Increase the pie for shareholders in total certainly that's something we would consider.

In the recent market environment, there hasnt been much value place that means digital assets. So it's a very easy decision as we sit here today.

Okay got you thanks, guys appreciate it.

Our next question comes from the line of Shaun Kelley with Bank of America. Your line is now open.

Great Good afternoon, everyone.

I wanted to dig in on the regionals, a little bit the performance there in the quarter was obviously excellent and probably stronger than many of us were expecting.

I was wondering if you can just kind of call out any key markets that may have driven that strength in the third quarter and specifically you could comment on Atlantic City I feel like it's a big seasonal quarter for that market, but <unk>.

Directionally I think we'd seen.

The Caesars properties on a gross revenue basis, not not performing as well as some of the other market participants. So I was curious if you're doing something different there focusing on margin just kind of how the how that market's evolving specifically.

Yeah, sorry, what I would say we're doing differently is we've had most of our market torn up during the <unk>.

Peak season, so we have had rooms out of service both.

Caesars and Harrah's and obviously the intention.

As we began the project was that would be finished prior to peak season of <unk>.

<unk> 22 and four.

There is obviously, a well known story of what's happened to what happened to supply chain and we missed the peak season, so really.

The results Youre seeing in lives in Atlantic City.

Function of the construction disruption that we've had going on in that market. That's not a we're making a conscious decision to run off revenue and.

Focus on margin so Atlantic city on a relative basis to the regionals was an underperformer.

<unk> reserves over performers New Orleans has come back quite nicely from both the hurricane and the.

Sure.

Severe COVID-19 restrictions that were in place in the city and then northern Nevada continues to be.

Extraordinarily strong in the levels of business that we're doing in Reno Tahoe are frankly.

Beyond what we ever Dream, what we're putting this thing together a few years ago.

Great color. Thank you Tom and then just as my follow up switching.

Switching to digital if I could.

While we have Eric you know one thing Thats been a discussion point in the market is obviously really strong hold levels across.

Much of the OSB landscape in the third quarter or certainly in October .

And in September kind of curious on the thoughts you made a call out on hold and that improving a bit over time.

Could you talk to us a little bit about relative to maybe what we're seeing in the market in September and October how much you think this is sustainable based on product mix versus how much is really just a factor of game lock, where we've definitely seen some outcomes that a favorite the bucks. Thank you.

Yes, So let me start this and I'll flip to Eric in terms of there's two pieces here right. There's.

Just your normal luck.

Football season started.

Pretty strong for all books.

There's a couple of weeks so far that have been the reverse of that but the bulk has been favorable to books, but what I'd say we're positive in October that's even adjusted for that whole. We've also made a number of changes that have improved our own hole, but I am going to flip to Erik to talk.

Sure Yeah. Thanks, Thanks, Tom.

We had higher than expected hold towards the higher end of our range for the quarter, partially as Tom mentioned through luck.

The football season has been unfortunate to us so far but beyond that as I mentioned in.

In our remarks, we did put a lot of tools in place, we're increasing our uptime and our percentage of in play a hold.

And in play volume, which naturally translates into a higher hold product. In addition, our percentage of parlays has steadily grown and really improved in the third quarter relative to the second and first quarter a lot of that is due to some enhancements that we made on the tech side to improve the ability for customers to visualize and into <unk>.

They're they're parlay bets.

We also have our analytics team.

Come over from the <unk>.

Retail casino side that have put together a number of models that allow our traders to be able to keep the odds up during the game longer and then also to be more accurate with respect to their pricing and service or a combination of all of those factors, we've really been able to reduce the volatility.

And you can see it when we get our results each day, even on days when we're not lucky with the outcomes, we still managed to pull off positive hold or at least hold thats reasonable for <unk>.

Particular day, and then when we do get Lucky it really compounds and we can get some really solid double digit holes. So overall, we've put a lot of.

Structural hold changes in place.

But we were also a bit lucky in the third quarter.

And were very helpful. Thank you.

We are a huge phillies fans for the workspace.

Yeah.

Thank you everyone.

Okay.

Okay.

Our next question comes from the line of Barry Jonas with Truest. Your line is now open.

Hey, guys looks like you found the right structure to move forward with a bid in New York just curious if there are any other greenfield opportunities you're interested in either domestically or internationally.

I mean, I would say Greenfield international.

You never say never but highly highly unlikely.

In the U S.

If you see a major market open like say, Texas.

Should expect that we're going to look for a way to.

The bet there.

Sin.

You've seen us in Danville, Virginia, where the temporary will open next year.

Columbus, Nebraska, which is smaller or temporary will open next year.

We will pick and choose Budd.

You should expect it to be domestic focused.

Got it got it and then just shifting to digital you talked about Ohio, and Maryland going live.

Any expectations for you could share for other jurisdictions, whether Thats, Massachusetts, Nebraska.

Puerto Rico, and then just for I Casino I think the law.

Slated.

Moving has been.

Softer than people thought any any progress on states, making a push for a casino that youre seeing.

Yeah, I'll take that one.

You definitely listed off a lot of the ones that we're aware of so in addition to Maryland, which will hopefully be in November and then Ohio on October one.

You've also got Massachusetts, the date hasn't been finalized there, but it's looking pretty good for first quarter. It sounds like the retail locations will open first and then online and we're participating in the online side of that.

In addition to two Massachusetts, Maine has been.

Moving forward, that's probably going to be late this year.

If not into sort of late 2023, rather.

We are planning to launch in Puerto Rico that could happen in the fourth quarter might pushed to the first quarter and then as you mentioned with Nebraska as well, we will plan to have some kiosks up for our temporary casino there and then we're going to launch a sports book at Casino Windsor.

In Canada that'll be kiosk later this week and then early next year, we'll open a whole book as well.

Got it and any movement on the casino side that youre starting to see from the states.

Yes.

The casino is.

A little bit more tricky, there really has to be.

Real coalition, there's a lot of competing interests.

From both within our industry and.

Ancillary businesses.

That's sometimes compete with us and sometimes participate with us at this point.

Certainly possible that there could be another state that legalized is or two next year, but I wouldn't.

Call out any particular state at this point.

And just to add onto that one when we think about the model that Tom's out outlaid we.

Really don't look at any incremental states from those that have been already passed through the legislation. So anything we get on the eye casino side or even any additional states beyond those that I mentioned would be upside to the model.

Perfect. Thanks, so much.

Yes.

Our next question comes from the line of.

John decree with CBRE Securities. Your line is now open.

Hi, everyone. Thanks for taking my question.

Covered a lot of ground. So I apologize maybe this one is a little bit more granular on the October performance in Las Vegas.

Kind of record EBITDA levels, I think you've mentioned a low 50% margin should be clear if I heard correctly I'm curious if you could.

Give us a little bit of insight into customer mix, that's typically a bigger group.

Customer quarter, but it seems like everything is kind of.

Working with that margin I think 12% group room nights in <unk> curious if you could kind of unpack October a little bit in terms of customer mix and what kind of push that record performance from a customer perspective.

I'd prefer not to go Super deep there, but yes, John groups are a big part of it group with group business was strong.

October seamless here this week so it's.

It's just.

Culmination of a significant wave of demand that is included now the group side and we're thrilled.

Thrilled with the way things are coming together, where they do over $1 billion.

Cash room revenue in Vegas switch up.

For those that have been in the market in <unk>.

We're really hitting on all cylinders here.

Maybe a follow up.

For the outlook I think maybe Anthony mentioned that the group room nights are pacing above of 19 with some big events next year have you started to see the <unk>.

Jennifer in booking we all see that kind of pricing for F. One.

But it's still still a bit a ways away I think a year now.

Curious if you've really started to get traction on some of the big events that you expect next year. If you think theres an opportunity to have an.

An acceleration in both group room nights in pricing for next year.

Yeah, certainly, yes, we think formula one has kind of a different animal the demand for that particular event is well beyond what we were expecting and you saw as.

As we rolled out rates yesterday that pricing is reflects that.

<unk>.

With a lot of the big events is skewed toward the second half of the year beyond normal CES coming back things like that there is easy comps in the first quarter with omicron impacting 'twenty, one I'm sorry 'twenty two.

But as you look further deeper into the bigger groups, it's a little early to talk about.

Traction, but it should all be.

Extremely positive for room rates and occupancy in the market in 'twenty two 'twenty three.

That's great. Thanks, Tom I appreciate the additional color.

Yeah.

Yes.

Okay.

Yes.

Our next question comes from the line of David Katz with Jefferies. Your line is now open.

Yeah.

Afternoon, everyone. Thanks for taking my question.

I wanted to just.

Go back to the topic of raised I think last quarter about kind of normalized Las Vegas margins and I think the discussion we had was around that 50% benchmark. It seems to me that what we saw was some seasonality as well as some of the cost headwinds.

Those attributable to Las Vegas.

And if we can maybe take a step further that 50% level or neighborhood is that a full year number implying that some may be higher in <unk> may be lower.

Yes, that's accurate and when I was talking about the utility and in fact that was entirely.

Las Vegas, so youre talking about.

If you normalize we should've been between $48 49.

<unk>.

Third quarter, and then you should see first and fourth quarter should be better than that second should be.

Somewhere around.

Yes, let's say high <unk>, but again, we manage for.

Aggregate EBITDA not EBITDA margin at 50% that we're talking about.

Is really what falls out of the operating model.

Necessarily a target for us.

Alright, alright understood. So there were three or 400.

Basis points impact in the current quarter.

I'd say not quite that much we have 46, I said, we had about $48 49.

So call it two to 300 basis points okay.

Got it and if I can ask one other longer term question with respect to digital and this may not be the way youre thinking about it either but.

When we start getting to a more normalized business global for digital is there a sort of margin level.

That makes sense and I'm just wondering whether it's.

Accretive or dilutive to the to.

To the aggregate on the company.

Yes.

So.

We can see what other mature operators in other mature non U S markets generate.

EBITDA margins, we've got a pretty good track record of being.

A margin leader, so if youre seeing $25, 30% away from US I would expect that ultimately, we're going to do better than that which should be.

Around in line with the rest of the business.

Got it perfect. Thank you.

Our next question comes from the line of Daniel Pulitzer with Wells Fargo. Your line is now open.

Hey, good afternoon, everyone.

Tom I think on the interactive you mentioned you still get back to that 50% return on that call. It $1 1 billion investment can you can you maybe just bridge us from that few hundred million dollars that roll off from the from the partnerships to how you get to that return is it is it I gaming and sports betting is it is it just general growth of the industry.

It's.

Clearly the industry is continuing to grow we know what's happening with our cost structure, what's going to happen with our cost structure and we make some assumptions on what we'll be able to do in terms of.

Gaming as we move forward.

Are you comfortable with that 50.

50% plus return on a annual EBITDA to cumulative EBITDA loss measure.

Got it and then just moving to the balance sheet.

<unk> certainly been generating some cash in.

Pulling some levers what additional levers do you have to reduce your debt from here.

How topical centaur in your in your mind right now just given where it works.

Coming up on a period, where it might be become more topical.

And any other leverage that we should be thinking about to reduce debt in short order.

Yeah, So we should be doing.

Something in the neighborhood, if not exceeding $1 billion of free cash flow.

23.

You should expect that will be used to pay down debt. It has always been our expectation that they would choose to exercise the call option. It has on the centaur assets.

That opened in June .

January of this year it closes towards the end of 'twenty four.

So <unk> has been very clear that day.

That they anticipate exercising that option for us.

If you run that forward to assume they do in towards the end of that period that should be about a $2 5 billion dollar inflow to us so why <unk>.

Substantial and by then you will have.

If we do nothing else you should have another couple of $1 billion.

Free cash flow that we've generated.

Now and then the vast majority we expect to use to pay down debt.

Understood. Thanks for all the detail.

Our next question comes from the line of Stephen Grambling with Morgan Stanley . Your line is now open.

And as a follow up to your comments on the digital.

Hitting the 50% ROI and I think you said, 25%, 30% margins how important is market share as an input.

And those assumptions are assuming out how do you think about scale benefits for this business in general.

And we think theres clear benefits to scale in the business and we expect that.

We're not going to remain static over time, particularly on the I gaming space.

But.

Our.

It's important to me personally that we.

Proves that we can generate the returns that.

We've laid out for the investment that our shareholders have allowed us to bank.

Before we're doing any let's go.

Try to try to grab significantly more share through promotions. So you should expect us to be living in this.

Band of market share that we've been living in that market share is ultimately not a target for US is can we get the return on investment that we're looking for is in the brick and mortar business market share falls out of that.

It's not an input.

Okay.

It makes sense and then one other quick follow up on I think you said $1 billion in free cash flow next year.

Within that assumption do you anticipate being a cash taxpayer, excluding any asset sales and perhaps just in general when do you expect to be a cash taxpayer.

The taxpayer.

Helpful. Thanks, so much.

Our next question comes from the line of Brad <unk> with Barclays. Your line is now open.

Hey, good afternoon, everybody. Thanks for taking my questions.

Just a quick follow up on the digital side.

Wants to take it but just curious on the I casino roadmap that you just started.

To sort of lay out for us how should we think about any sort of incremental investment for that.

Revised our new roadmap and does that manageable within the.

Existing opex that you are currently running in the business.

Yeah I think.

As Tom mentioned this is a really scalable business and when youre growing at 120% quarter over quarter.

We are going to continue to staff up.

To handle state expansion product improvements those types of things, but not to the same pace as revenue and not even close to that level. We will have some slight increases in capitalized labor associated with the casino product next year.

Any impact to the actual P&L will be fairly.

Minimal.

And from a.

Provo perspective, it's a very different business than sports. So while you will see some.

Advertising activity around and local market advertising.

Our casino product, it's a very different.

Scale in terms of launching the sports business. So.

Certainly.

Easily manageable within the numbers that I laid out earlier.

Okay, great. Thanks for that that's really helpful. And then as a follow up on Las Vegas I.

No one's asked this macro question, so I might as well take a shot but Tom.

What are you guys seeing in terms of any sensitivity on the part of your fit customers related to the macro and as the second part of that is Las Vegas continues to sort of evolve into a more more sports friendly destination. What have you seen from sports focused travelers in terms of gambling habits.

Does that have.

Something that's a little bit of concern or is that something that it seems to be in line with other patients.

Patients in the market.

Yeah, So Brett.

We see the same.

Macro.

Going forward that others see in terms of <unk>.

Here's what happens with continued rate rises that crimp, the consumer or are we facing a recession.

We're not we're certainly cognizant of whats out there I can't point to anything in our business in or out of Vegas.

It shows any slowdown in the consumer so we feel very good October was obviously very strong.

The third quarter.

We know what investors are anticipating we're not seeing that in our business to date, nor in the forward metrics that we see.

We look at in our own business.

And then in terms of.

Sports Sports is.

Digital for us.

We are getting over $200 million.

Incremental brick and mortar casino play out of customers that were short sourced in digital that number continues to grow.

Sports in Vegas.

<unk> been very very good for the city gives us.

Additional.

<unk> stays in a weekend.

Or a town generates a lot of incremental travel from visiting teams. So that's been really a home run from the city's perspective, and we've been able to benefit.

Perfect. Thanks, so much guys.

Our next question comes from the line of Chad Beynon with Macquarie. Your line is now open. Thanks for taking my question just one last follow up on Vegas, I think we covered pretty much everything out there, but just on the piece with with international.

Opportunity to kind of bring that back as a tailwind what.

What do you think it's going to take to get that business back as the passage of time is it FX related or is it really just kind of the sports and the holidays that bring in that customer.

Maybe more on the VIP side. So when do you think this can this can kind of inflect.

Yes.

<unk> started to see that business.

Start to come back over the last quarter or so.

Obviously, this Chinese new year will be.

The first without.

Knock on wood without impact of the virus and with the ability to travel so that'll be something we're watching closely.

As you know here, we have got a Dell starting in middle of November and I can tell you. She is an enormous draw across the board, but appeal, particularly to that international high end clientele. So we're excited about that but Chad.

Ben.

Two and a half years at this point, we understand that those.

To play I don't think they stopped gambling. They found other places to do it when travel was.

Impacted and that's going to be a long road as we build it back.

Thanks, Tom I appreciate it.

Okay.

Okay.

Sure.

Okay.

As a reminder, if you'd like to ask a question at this time that star one one.

Our next question comes from the line of Joe Stauff with Susquehanna. Your line is now open.

Okay.

Yes.

Joe Your line is now open.

Thank you very much.

Yes.

Thanks for fitting me in I just had a question.

Believe your annual rent adjust.

Maybe this month or later this quarter.

What does it.

The CPI caps can you just give us what that number just to and from.

And.

Just wondering.

You had mentioned that.

The decision to keep the strip assets.

I'm wondering if that changes.

The way you think about say your investments do you have to now invest maybe in some of those older properties.

As a result of that thank you.

Joe on the Vg CPI escalator, it's eight 1%, which started on November <unk>.

And so rent next year should be around $1 $285 million consolidated including G. L. P. I.

And in terms of.

In terms of investment obviously, Joe we're doing as much EBITDA as we've ever been as we've ever done here.

As we're talking about had some low hanging fruit that we were talking to potential buyers about.

Wouldn't be surprised if we take advantage of that in the coming 12.

12 months to 18 months.

Makes sense, thanks, a lot.

Thank you.

Okay.

We will talk to you next quarter.

Thanks, a lot everybody.

This concludes today's conference call. Thank you for participating you may now disconnect.

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

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Yes.

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