Q1 2023 Caesars Entertainment Inc Earnings Call
Speaker 1: You.
Speaker 1: You.
Speaker 2: Good day and thank you for standing by. Welcome to the Caesars Entertainment Inc. 2023 first quarter earnings conference call. At this time all participants are in listen only mode. After the speaker's presentation there will be a question and answer session. To ask a question during the session you'll need to press star 1 1 on your telephone.
Speaker 2: and invest in relations.
Speaker 3: Thank you, Josh, and good afternoon to everyone on the call. Welcome to our conference call to discuss our first quarter of 2023 earnings. This afternoon we issued a press release announcing our financial results for the period ended March 31, 2023. A copy of the press release is available in the investor relations section of our website at investor.seasors.com.
Speaker 3: Joining me on the call today are Tom Reed, our Chief Executive Officer, Anthony Carano, our President and Chief Operating Officer, Brett Yunker, our Chief Financial Officer, and Eric Hachan, President of Caesars Sports and Online Gaming.
Speaker 3: 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 Security and Exchange Commission.
Speaker 3: Seasors entertainment undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances that occur after today's call.
Speaker 3: 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.
Speaker 3: and the comparable GAAP financial measure can be found on the company's website at investor.seizures.com by selecting the press release regarding the company's 2023 first quarter financial results. I will now turn the call over to Anthony Carano. Thank you, Brian , and good afternoon to everyone on the call. We had a strong start to 2023 in the first quarter.
Speaker 3: Our Las Vegas segment delivered a Q1 EBITDA and EBITDA margin record, and our regional segment reported a strong quarter, excluding weather disruptions in northern Nevada.
Speaker 4: In addition, our digital segment was nearly break even, despite launching sports betting in two states during the quarter.
Speaker 4: Trends in Las Vegas remained strong during T1, delivering 24% revenue growth and 33% EBITDA growth versus last year. Excluding real rent payments, Las Vegas generated 544 million of adjusted EBITDA with the margin of 48%.
Speaker 4: up 300 basis points versus last year. Occupancy during Q1 was 95% versus 83% the prior year.
Speaker 4: Strong occupancy in ADR's lead to records in cash hotel revenues and food and beverage results.
Speaker 4: Our forward outlook for the Group and Convention segment remains exceptionally strong during by a continued combination of increasing room nights, higher ADRs, and strong banquet revenues. In our regional segment, we delivered 2% revenue growth and a 2% decline in the density of the divers' last year. As Tom will discuss in more detail, our regional segment was negatively impacted by severe winter weather in Northern Nevada.
Speaker 4: However, trends outside the Northern Nevada remain strong during the quarter, delivering EBITDA growth year-over-year.
Speaker 4: We remain encouraged by the early returns we are seeing on recently completed capital projects, including the expansion and rebrand of Horseshoe Indianapolis, the expansion and rebrand of Harris Pompano Beach, and the new land-based Horseshoe Lake Charles. The success of these projects gives us further confidence in the return potential of our ongoing growth projects.
Speaker 4: We remain on track to open a temporary facility in Danville, Virginia on May 15th and in Columbus, Nebraska by the end of Q2.
Speaker 4: Our expansion at Harris' Hoosier Park is slated to open in Q3 of this year.
Speaker 4: The majority of our TAPEX spend in AC is nearing completion and we're looking forward to launching our new entertainment offering, The Hook by Spiegel World, this summer.
Speaker 4: Work on our $430 million expansion in New Orleans continues and is slated to be completed toward the end of 2024. And finally, we announced yesterday that we are transforming the former Jubilee Tower at Horseshoe Las Vegas into the new Versailles Tower at Paraslo Las Vegas.
Speaker 4: We're off to a great start in 23 and I want to thank all of our team members for their hard work in this first quarter. Our results are a reflection of their dedication to delivering exceptional guest service and experiences. With that, I'll turn the call over to Eric for some insights on the first quarter in our digital segment. Thanks Anthony. During the first quarter of 2023, we delivered a dramatic improvement in the performance of our digital segment versus the prior year. Our business nearly broke even during the quarter on 238 million of net revenues versus a $554 million EBITDA loss last year, which was impacted by significant brand-related
Speaker 4: 2025, resulting in 32 million of annual interest expense savings had enhanced pre-cash flow.
Speaker 3: Leverage on a traditional and retrojusted basis continues to decline as we repaid that in Growley Bada with traditional net leverage just over 4x and retrojusted leverage just over 5x. We continue to target a third consecutive year of 1 billion of permanent debt reduction with that alternative over to Tom. Thanks, Brad. Thanks, everybody, for joining today to go a little deeper into the numbers. Yovangus was very near a quarterly, all-time quarterly record. It was a Q1.
Speaker 3: Cesar's pre-merger was running at about 14%. And so what we're seeing, what you're seeing through Vegas is not only just extraordinary demand that continues as you look through each month, you're seeing the average customer in our property continuing to be, continuing to raise. We're getting group business that is higher dollar comes with banquet business attached and replaces our least profitable players. So it's a virtuous...
Speaker 3: cycle in Vegas as we sit here today. Obviously, second quarter generally is our most difficult comp of the year since that was our all-time record. Second quarter last year we did almost.
Speaker 3: a billion fifty of brick and mortar EBITDA, but we feel very good about business in April and through the rest of this quarter in Vegas and as you look forward with the group business that's on the books going forward we did announce a hundred million dollar project to
Speaker 3: change the Bally's Jubilee Tower to the Versailles Tower at Paris. It'll be connected by a physical bridge into the property. Paris has really exploded as we've been as we've improved the casino floor and added a number of high-end
Speaker 3: So we think this will be a high ROI and more importantly, high conviction in that ROI project. That is in design stages now and should begin shortly. Regional if I touch on regional for a moment, the Tahoe area, northern Nevada got about 720 inches of snow, so 60 feet of snow in the quarter. Unfortunately for us, a lot of those storms hit.
Speaker 3: Thursday, Friday, Saturday, so even with that amount of snow you can get lucky as to when it hits. If not...
Speaker 3: as they get a little deeper, a circle back to that. In digital, we were about a $3.5 million loss that was with the launches of Massachusetts, Ando Hoyo and a Super Bowl that didn't hold very well for us, frankly, given the amount of scoring that happened in it. Really, if any of those three legs were not a part of the quarter, we were positive as we sit here today. We are positive on a year-to-date basis. In digital, I told you last quarter, we anticipate that we will generate.
Speaker 3: positive EBITDA for the year 2023. I can tell you today we're already there on a year-to-day basis. The amount of EBITDA that
Speaker 3: that we'd be positive for the year about 90 days ago versus where we are today, we think we'll do considerably better than where we thought we were even 90 days ago.
Speaker 3: digital and I'm not going to get super specific but more than 80% of our digital business is non Nevada and we will be ebuked off positive this year we remain on track to generate the 50% return on the billion one of cumulative losses
Speaker 3: that we generate as we launch the business. I'd still expect that to be a 2025 event with the hope that we're run rating that level by the fourth quarter of 24. So I wanna get out of, I know these calls tend to focus on right now, next 90 days. I wanna, I want you guys to know how do I think of the business from a longer term perspective and
Speaker 3: Yeah, I want to couch this with this is not guidance as most of you know
Speaker 3: I'm pretty transparent, so this is what I see today. When we took over Caesars, the assets that we own today, the brick and mortar assets, we're doing $2.9 billion of trailing EBITDA. As we look post first quarter.
Speaker 3: The Vegas business, LTM, EBITDA, Vegas alone is a little over 2.1 billion. Regional is a little less than 2 billion. When you run through managed and corporate, we're right at about 4 billion of EBITDA from the same assets that we're doing 2.9 prior to the merger. We've got about 2.4 billion of...
Speaker 3: operating costs cash outflows between rent cash interest expense maintenance catbacks. So with about 215 million shares outstanding that's about 750 of free cash flow per share.
Speaker 3: as we sit here today. The digital business for now seven months is about break even. So obviously, inflecting to positive, we've told you what we expect that to do through 25. In that same time frame.
Speaker 3: I think we've got a similar amount of incremental EBITDA that will come through the brick and mortar business. So, piece of that is...
Speaker 3: pieces of that are the projects that Anthony touched upon. You've got the Lake Charles expansion that opened in December so we're still in the first half of the first year post that reopening. We've got the top-in-oh project where the racetrack came out of the business. We expanded
Speaker 3: the casino, we will start to see.
Speaker 3: The JV development begin in earnest. It's already in earnest around the property, but you'll start to see pieces come online. We've got the Atlantic City spend, which is largely in the rearview mirror. This summer is the first prime period where we will not be significantly disrupted.
Speaker 3: our floors from those projects. So we're optimistic there. We've got the Hoosier Park expansion in Indianapolis which is again a high probability high ROI project. It mirrors what we did at Horseshoe in Indianapolis where we have seen...
Speaker 3: It returns in excess of 30 percent on that capital. We expect a similar outcome in
Speaker 3: of 30% on that capital would expect a similar outcome in...
Speaker 3: at Hoosier Park, and then you've got New Orleans, which is over $400 million that'll come online before the Super Bowl of 25. So toward the end of 24...
Speaker 3: That's going to transform that property into a Caesars a number of high-end restaurants. You've got you know Caesars tower that will be dropped Right in the middle of the casino. You've got a number of high-end food and beverage offerings. You've got third-party development across the street of Four Seasons Hotel.
Speaker 3: open across the street within the last 12 months. So we're excited about what's possible there. So I think what we're looking at, if you look out to 25,
Speaker 3: In my view is a company that could be pushing toward five billion dollars EBITDA as Brett said we paid down $400 million mortgage note on the forum convention center yesterday that puts us on track to
Speaker 3: pay down over a billion dollars of debt for the third consecutive year. I would expect 24 and 25 to look the same. So again, as we sit here today, you're at 22 billion ish of lease-adjusted debt. That four billion of EBITDA was digital flat.
Speaker 3: So you're looking at, you know, in that scenario, you're paying down effectively 7% debt, a billion of a year for three years.
Speaker 3: you're going to have some increase in the lease payment stream, but you're talking about 150 million less in cash outflows, a billion more in cash inflows. So you're looking more like 1250 or more a share in cash flow. None of those.
Speaker 3: Assumptions in my mind seem particularly aggressive. I think we can generate an incremental half a billion out of the brick and mortar given the momentum that we have in the business. And I think we're going to do better than that. In digital, if you think of where that comes in digital, I think you've got three legs of the stool. And...
Speaker 3: you know, a third of it and they'll roughly be a third, a third, a third. You've got the existing sports betting business continues to get more profitable, volumes continue to increase, and you should expect that continues to drive positive EBITDA, that's the bulk of what's happening as you see us.
Speaker 3: talked about the iGaming app that we will launch early in the third quarter. We're particularly excited about that. That's going to improve in particular our slot business in iGaming because our existing portal is through a sports betting app.
Speaker 3: I casino business leans toward tables more than our peers.
Speaker 3: that come up in the next, let's call it 12 to 24 months that we expect will be the third leg of that stool that gets us to 500 million plus. Every time I speak to you, I'm more confident in those numbers and every time I speak to you, we've outperformed where I thought we would have been 90 days ago. So that's obvious. Thanks for indulging me to think longer term because I know we're going to get right back into what's the consumer doing right now and two weeks from now. And what I'll tell you is we continue to see.
Speaker 3: significant strength across all of our assets with extraordinary strength in Las Vegas.
Speaker 3: So we are exceedingly optimistic about the road ahead. We're particularly proud of the quarter that we just posted. The idea that
Speaker 3: slightly positive or slightly negative as you allude to. There's a lot of, basically you have a lot of pre-football season spend and you've only got about three NFL weeks to work against that. I would also tell you though that, if you had asked me the same question 90 days ago, about the quarter that we were in or the quarter that we're in now, we continue to beat our internal expectations.
Speaker 5: in the 2Q last year out. As you think about the second half of this year, as well as into next year,
Speaker 5: Do you get the sense from kind of your mixed shift and your group pace, coupled with kind of what you're seeing on the casino floor that you're able to kind of just shrug off, you know, what might be a little bit of a challenging comparison in the QQ and resume growth in the back half of the year?
Speaker 3: Yes I think that's a great way to put it. I think second quarter is a we're gonna be very pleased if we match what we did last year. We remain exceedingly strong if you look at the next 90 days of
Speaker 3: Our occupancy forecast which is what we've got the most Confidence in at any given point you're still looking at your mid 90s occupancy on the strip at healthy rates, but the you're not going to repeat the
Speaker 3: We feel much better about the utility situation that we had last year in the third quarter, and then the fourth quarter you've got Formula One, which we think will be a significant boost.
Speaker 3: You tell her we feel much better about the utility situation that we had last year in the third quarter and then the fourth quarter you've got formula one which we think will be a significant boost to that quarter. So I'd say...
Speaker 3: Something similar to last year's second quarter, and then growth in the second half is a good place to be.
Speaker 5: Great, thank you. And then if I may just just one follow up along those same lines as you guys look out on the horizon in terms of
Speaker 5: bookings and I'm talking more so towards leisure, trampion, et cetera. Are you seeing anything across the market from a promotional perspective that has changed at all? If yes, please feel free to log us in on the Facebook page.
Speaker 3: Nothing that's material enough to impact us that we want to discuss. You know, we see...
Speaker 3: In various markets, it depends who our competitors are, what the market looks like. You've seen...
Speaker 3: Some remained disciplined, others not. Sadly, one of the statements I can make is Caesar's used to be the bad actor in a lot of the markets and isn't anymore. So we feel very good about the current environment.
Speaker 3: disciplined, others not. Sadly one of the statements I can make is Caesar's used to be the bad actor in a lot of these markets and isn't anymore so we feel very good about the current environment.
Speaker 6: Thank you very much. Thank you. Our next question comes from Joe Greff with JP Morgan. You may proceed. Good afternoon guys. Just starting with Las Vegas, Tom. Obviously the 21% of occupied rooms in the first quarter relating to the group segment, that's a fairly significant.
Speaker 6: 80 Rs and bank rate revenues are pacing ahead for the rest of the year. We expect the group business to have another record year in 2023. Great. Thank you. And then on digital time, you had spoken earlier that your outlook is favorable just over the last 90 days. And I know you talked about some of the things that you're doing there.
Speaker 3: Chief.
Speaker 3: driver of the change has been.
Speaker 3: What we've done on the promo and branding side, I think promo is a percent of handle for the quarter was around one and a quarter percent, which is
Speaker 3: dramatically lower than our peers.
Speaker 3: Ohio as a new launch state for us was EBITDA positive in March, so month three post launch.
Speaker 3: a new launch state for us was EBITDA positive in March, so month three post launch. So we're really feeling good about.
Speaker 3: the way that we're running the business and how we're positioned. Matt in iGaming has done a great job of continuing to build that business off of the current platform, but we really think the opportunity there.
Speaker 3: starts in earnest beginning of third quarter when we launch the new iCasino app.
Speaker 6: Great, thank you, that's. Thank you. Thank you.
Speaker 4: All right, nice question. Go from Stephen Waisinski with CIFL. You may proceed. Yeah, hey guys, good afternoon. Tom, can I put you back on your soapbox for a minute? I want to get your opinion on a question we get a lot from investors. They always seem to want to know. They want to ask. I can't.
Speaker 4: you know, they just want to get the seal for, you know, is this going to be the best that Vegas ever is? Especially as we kind of, you know, move through 2023's strong event calendar. So just maybe if you could, you know, opine on that as to maybe why that's not the case.
Speaker 3: I think you've seen Vegas as a market to a fantastic job of continuing to add
Speaker 3: events and in the case of sports franchises.
Speaker 3: events and you know in the case of sports franchises or Formula One
Speaker 3: that bring a significantly more valuable customer to the market. If I look at Vegas now, all of us are pretty full. I listened to Bill and team yesterday. Congratulations to them. They had a fantastic quarter as well.
Speaker 3: But we're all doing well here. Occupancy rates are quite high. And so yeah, it's natural to say how do you get better? Well, you get better by up-tiering the average customer that is coming to the market. And that's what you can see in our own microcosm of the market in Caesars.
Speaker 3: where what's happened in our business over the last three years is both the expense discipline, but also a better average customer. You see the raters come to town, you see Formula One, you see us gaining share as a market in a veryUG Provide us protectedspeIDES.com
Speaker 3: tend to be a better average customer. So you're bringing in higher value customers and we're already full.
Speaker 3: So you're kicking out the lowest end. I see no reason that that needs to stop or would stop.
Speaker 3: This market has done a great job over.
Speaker 3: the 30 years I've been involved in and around gaming, in continuing to add reasons for people to come, continuing to add capacity, and continuing to add to the average customer that shows up here. We all know that.
Speaker 3: Back in our parents day, it was a very different market, low value. You get staking lobster for a couple of bucks. Now you're talking about one of the best food and beverage scenes in the world. Among the best.
Speaker 3: sports and entertainment experiences in the world and continually adding to that. You know, we are working to continue to add to that. MGM, WIN, SANS, they're all working to...
Speaker 3: up here what we're offering the customers.
Speaker 3: Then the market as a whole, I've got to give credit to Steve Hill at LVCVA. He was the driver of bringing Formula 1 here and it's going to be huge for the market.
Speaker 3: The nice thing about you know we all like to...
Speaker 3: nice thing about, you know, we all like to, you know.
Speaker 3: Stand back to back see who's tallest in this market and argue about that. But we do work together well to make sure that this market continues to expand. And I think it's foolish to bet that.
Speaker 3: You know that 30-year cycle is all of a sudden going to be over a quarter from now.
Speaker 4: And then Tom, I know you said, thanks for that by the way, that was very helpful. And I know you said you aren't giving guidance, but look, unfortunately, investors are going to take your $5 billion math essentially as guidance for 2025. So
Speaker 4: I guess what I want to ask here is I assume your $5 billion NAS is meaning the consumer stays pretty much where they are right now. But if you think about all those buckets you laid out to get to that $5 billion, what would be the one bucket that you would say is you're maybe the most, I don't want to use the word, most concerned about or the biggest stretch to get there. And I think that makes sense.
Speaker 3: Yeah, so I'm talking about a three-year time horizon, right? So end of 25.
Speaker 3: We're not typically talking about that type of time horizon on a call like this. So is it possible in that three years you have a cyclical downturn? Yeah, sure. So you want to quibble and say, 5 billion might be 4 and 3 quarter billion.
Speaker 3: All right, I'll give you that. That's a buck a share on that free cash flow number. You're talking about.
Speaker 3: a company here that has been levered for a very long time before we ever got here, and then post merger.
Speaker 3: And, you know, I see a path to where lease adjusted leverage is less than four times, conventional leverage is less than three times.
Speaker 3: and we're spitting out over $12 a share of free cash flow. You know, quite frankly, if you want to say, gee, I think it'll be 10 or 11 instead of 12.
Speaker 3: I think that still looks good, against the stock, but it's at 44. Okay, great. Thanks, Tom. I appreciate it.
Speaker 2: Thank you. Our next question comes from Dan Pulitzer with Wells Fargo. You may proceed.
Speaker 7: Hey, good afternoon, and thanks for taking my questions. I wanted to touch on regionals, Tom. Could you talk about maybe the cadence over the course of the quarter and what you've seen into April ? I know there's been some noise in terms of comparisons, both on a year-over-year and versus 2019 basis, but it sounds like the consumer is doing fine, so if you can maybe just provide some clarity or any additional color on that.
Speaker 3: I would say March was, I told you on the last call, I think we could have an all-time record in March. It was an all-time record for us. Seattle and Vegas were strong.
Speaker 3: April you had a negative calendar shift that we get back in June . So I'd expect that you should expect to see that roll through the numbers. But generally speaking, we are
Speaker 7: continued to see and continued strength across the portfolio. Got it. And then, Pompano, you mentioned this quickly in your prepared remarks. I mean, this was a big JV project with a long-term time horizon that was supposed to be built out over time. You've had the casino, you know, the casino expansion outcome online. So great.
Speaker 7: How should we think about maybe some JV equity cash flow distributions coming from this and the returns over time and maybe even in the near term? Are you seeing any disruption as this bigger project gets built out?
Speaker 3: So the front of our property is definitely disrupted. There's a...
Speaker 3: top golf and a publics on your construction and we read it our port of cashier but despite that We're seeing significant momentum in pop and O generally if I had to If I had to point to our
Speaker 3: you know, our stars as we sit here right now today, Pompano and Reno jump out at me in the last 30 days or so. What you're going to see out of Pompano in terms of that JV, we've...
Speaker 3: Finally, thankfully, we're through all of the local approvals required. We're moving dirt, the track is closed.
Speaker 3: the grant stands coming down. So you're going to see a lot of development activity there over the next 12-24 months. There is cash in the JV. We would expect to be, if there is any capital required.
Speaker 3: from the JV partners, it's already in the JV. To your point, we're probably closer to where cash starts to come out of the JV, but I don't think that's a 23 event. I think that's 24, 25. But we're particularly pleased that has taken far longer than we anticipated when we.
Speaker 3: originally announced it. I don't typically announce something and say
Speaker 3: get excited six years from now. But I thought it was going to happen much quicker than that. But we're now right on the cusp of where that's going to drive not only the cash flow into the JV that's going to allow distribution, but also as importantly for us.
Speaker 3: the traffic to the property that's going to continue the momentum that we've...
Speaker 2: seen over the last quarter or two. Got it. Thanks so much. Thank you. Our next question comes from Brent Montour with Barclays. You may proceed. Hey, good evening everybody. Thanks for taking my questions. So just a couple more
Speaker 3: big picture questions. Tom, back to your last discussion. You know, when you guys go through your longer term scenario planning or stress testing or whatever you call it, I'm wondering if you'd be willing to sort of update or refresh a bear case to that $5 billion longer term planning.
Speaker 3: Yeah, so we're an $11 billion revenue company, plus or minus. If you look back to...
Speaker 3: Call it $800 million in a GFC type scenario.
Speaker 3: I'd expect about 50 percent of that flows through. In that scenario, I think you're
Speaker 3: 400 million of EBITDA that's at risk. I don't personally see a GFC type scenario coming. I think based on what we can see, if there's a slowdown, it should be relatively shallow. In those numbers, particularly in Las Vegas,
Speaker 3: You had a massive supply increase into the financial crisis that doesn't occur here. So I'd be thinking more along the lines of half of that $800 and $400 as a total loss.
Speaker 3: kind of what I see sitting here today as You know our doubts risk in a Normal cyclical downturn That's super helpful. Thanks for that. And then over at the three legged stool for digital
Speaker 3: Is there any way you could force rank those three legs sort of from least challenging to maybe what you consider most challenging of the three? And then which of those three legs do you think we could be sitting here in a couple years and you just sort of knock the cover off the ball? I'd say they're all challenging. This has bad...
Speaker 8: about
Speaker 3: I casino for a while and we have not turned so You know, I would look at that as that's the one where I understand we've got to show it to you but given what's
Speaker 3: required there in terms of what we need to do and the leadership that we now have in place in that vertical I think that's also where you know we can surprise you to the upside over that three-year timeframe.
Speaker 2: Great, thanks for all the color. Thank you. Our next question comes from Barry Jonas with Truist Securities. He may proceed. Hey Tom, really appreciate all the commentary on the three year, potentially where EBITDA and deleverage could get and some of the sensitivities.
Speaker 2: I'm just curious, where do things like New York, Dubai, or sell leasebacks fit in there? Is that cushion or is that even potential upside? Yeah, so the numbers I gave you don't include any real estate activity. So if you could go to your Google and see the symbol below, there are those zeiten
Speaker 3: If we win New York, you know, if Vichy exercises its call on Centaur as it has indicated that it is going to, that's upside from those numbers that.
Speaker 2: I've given you both from a leverage and free cash flow perspective. Great, and it just is a follow-up. I think Jim Jim just announced an acquisition of an online game developer. Curious what your thoughts are for more investment on the content side, vertical integration, or just digital M&A in general. Thank you.
Speaker 3: We want to migrate to more of our own games that's part of what moving to our new app and ultimately our
Speaker 3: who PAM allows us to do. I would say we are more of a builder versus a buyer, but that could change tomorrow if we see something attractive.
Speaker 2: Perfect. Thanks so much. Thank you.
Speaker 6: Our next question comes from Sean Kelly with Bank of America. You may proceed. Hi, good afternoon everyone. Thanks for taking my question. Tom, just kind of wanted to run a high level corporate finance question by you to get your take on it, but if we kind of think out a little further as we know you're doing internally as you think about these numbers, if we take this $12.50 of free cash flow. Yeah, I mean.
Speaker 6: scratch math is that's about a 28% free cash flow yield. You're paying down, you know, 8% debt at the moment, you know, moving probably closer to 7% debt in terms of what's going to be coming available at some point and just where your long-term cost of debt is. So, at some point, you know, when you can start to maybe turn the corner to 24 somewhere in here, probably, you know, when is that place where it makes sense to start?
Speaker 6: expressing your view as it relates to that 28 percent, i.e. different way of saying it. When you flip from paying down debt to buying back stock, because one would think that yield is just going to be too incredibly attractive to ignore. Yeah, that's a fair question, Sean. It's not a simple question. We think that
Speaker 3: It's important that we continue to de-lever because that's a limiting factor in terms of investor acceptance of the story. We're also cognizant that
Speaker 3: that we continue to deliver because that's a limiting factor in terms of investor acceptance of the story. We're also cognizant that, you know.
Speaker 3: The track record of buying in this sector is rough. If I pay down debt, it's a certain outcome in terms of what I'm doing. I have money that I owe that I no longer owe. As you go into buying your stock, you're subject to the whims of the macro, which has been the story in this space for the last 18 months.
Speaker 3: But there certainly is a point with leverage where you should expect that, in addition to continuing to pay down debt, that there's a return of capital element to our free cash flow story. You're talking about 24, which would be somewhere around the midpoint of the
Speaker 3: of the timeframe that I laid out in terms of expectations.
Speaker 6: That's probably a pretty good guess. Very helpful, thanks. And then maybe just with my followup, just a quick update on kind of the union renegotiation, any impacts of that on the cost front, I assume that's obviously all factored into.
Speaker 6: in general, the growth that you're expecting to still achieve in Las Vegas, but just how do you see that playing through appreciating that those types of things are specific negotiations are hard to comment on a public conference call? Yeah. First of all, our expectations are built into those broader.
Speaker 3: As you've seen in the quarter, we're doing quite well. We've been doing quite well for a while. Vegas is now a $2.1 billion market. We're going to be in Nevada for us.
Speaker 3: is over a quarter of a billion of EBITDA per year. We built those results.
Speaker 3: on our frontline employees so they deserve to share in that.
Speaker 3: We've got a contract that is up at the end of this month. I would expect with.
Speaker 3: everybody in the market, you're going to see a short-term extension.
Speaker 3: in terms of getting to a final deal, but you're going to see a significant raise for
Speaker 3: our frontline workers and they deserve it and that's in our
Speaker 3: in the numbers that I laid out in terms of expectations. Thank you very much. Thank you.
Speaker 4: Our next question comes from Chad Bainon with Macquarie, you may proceed. Afternoon, thanks for taking my question. Tom, it appears that interest rate hiking acceleration has potentially slowed here, which would potentially spark some more M&A activity broadly in the space.
Speaker 4: So when you're thinking about these 24, 25 goals, not that you're running anything to be sold, but has anything changed just in terms of the number of assets in the regional markets, in Vegas, that makes sense for kind of the future portfolio of CSRS. Thanks.
Speaker 3: I'd say short answer is no. We've got nothing for sale.
Speaker 3: Today, don't expect to have anything for sale anytime soon. That said, as I've told you before, effectively as a public company, everything's for sale every day, so you don't know what you'll be approached with. But back to Sean's question, as you get to the point leverage wise where we feel.
Speaker 3: comfortable next year in addition to a return of capital element, you start to think about
Speaker 3: the ability to become offensive in M&A, which obviously is a little more complex at our size, but we've driven a whole lot of shareholder value through M&A in the past.
Speaker 3: And I don't think we're very far from where we would see, where we would flip to, maybe looking offensively there versus
Speaker 3: kind of neutral maybe something shows up maybe a dozen.
Speaker 3: maybe something shows up, maybe a dozen, but that would be in the calculus of...
Speaker 4: What are you doing with your free cash flow as well? Okay, thanks Tom. And then nobody has asked about potential impact, just overall benefits with the A's potentially moving to Las Vegas. Obviously, it should be a positive as we've seen with other sports teams and just overall programming, but any additional thoughts in terms of what this would mean?
Speaker 3: to Las Vegas, to your properties, to future growth. Thanks. Yeah, it's exciting to see this market continue to develop. We welcome the announcement similar to...
Speaker 3: Bill's remarks yesterday, it's important to us that their coming is done in a manner that doesn't necessarily tax the county or have taxes that eventually get passed on to our customers. So we think there's wood to chop there, but...
Speaker 3: It's important to us that their coming is done in a manner that doesn't necessarily tax the county or have taxes that eventually get passed on to our customers. We think there's wood to chop there, but we are.
Speaker 3: thrilled at the idea of DA's coming to town. It provides another reason for customers to come and visit the market and we're going to get our share of those customers.
Speaker 9: Thanks, Tom. Appreciate it. Thank you.
Speaker 3: Our next question comes from John Decree with CBRE. You may proceed. Hi, everyone. Thanks for taking my question. Maybe just one or perhaps a two-parter of Tom or Eric. You talked about executing on iGaming with some key product enhancements on the horizon like that single app for iCasino.
Speaker 3: And I think you mentioned some additional marking capabilities that that would bring. But it might be helpful for investors to kind of understand what some of these product enhancements get you and what you'll be able to do specifically to generate some incremental revenue or start to execute T&I gaming. If you could maybe elaborate a little bit more on that, that would be helpful.
Speaker 4: Yeah, sure. You know, from the highest perspective, when you think about the current app that we have, somebody goes on the App Store, searches for Caesars, and they see the Caesars sportsbook. And they get that if they want to play the casino or the sportsbook. So they download the sportsbook, they sign up for the sportsbook, then they go find
Speaker 4: the button that takes them to the casino, and then they can start playing the casino. The next time they go and log on again to the app, it takes them to the sports book and then they have to click through to go to the casino. So it's a fine experience for somebody who's predominantly a sports book player who then likes to dabble or play some of the casino side.
Speaker 4: But for somebody who's a primary casino customer or somebody who likes to play a little bit of sportsbook, but mostly casino, they want to see the casino app and they want to go right into the homepage where the casino games are that they can start engaging with. So at the highest level, you're going to attract a customer that, quite frankly, is very more akin to what our casinos are, which is somebody who likes to come in, play slots.
Speaker 4: likes to see their favorite game and then start playing. And so we're going to be able to deliver that. In terms of the incremental functionality that we're going to get, we'll have a newly designed lobby so that it'll be much easier for our team to move the games around, to prioritize them, to advertise them based on whether they're new or there's a promotion going on. We'll be able to have some much enhanced real-time marketing capabilities. So we'll be able to do some trigger-based responses.
Speaker 4: to customers, which is something that we're not able to do right now. And then the general appearance and the speed of the app will be greatly enhanced. So overall, it's going to provide a much better experience for that customer that currently we're unable to provide the product that they want because it's somewhat buried in the sports book. That's helpful, Eric. Maybe the follow-up question in terms of
Speaker 10: just kind of see if you have some visibility into what the opportunity is.
Speaker 4: Yeah, I would say in general, the customers that we have tend to skew younger and tend to skew more male on the sportsbook app. Then what that translates to on the casino side is a higher percentage of table games business, which is great. We like that, but what we're missing is that core slot customer.
Speaker 4: And so when you think about the business that we have here, you know, with the regional players and the hub and spoke model with respect to Vegas, that core slot player is really valuable on the casino side. And so we think that by giving that customer an option to go directly into the app, we'll be able to provide them with something that's more in line with what they're expecting.
Speaker 9: The next question comes from David Katz with Jeffries. You may proceed.
Speaker 4: Hi, afternoon, everyone. Thanks for taking my questions. With respect to the Las Vegas Strip, the tower project announcement begs a discussion about where the Strip is headed because I think many would agree with the positive outlook that you've laid out. And with that, you know, other.
Speaker 4: competitors entering the market, right? Whether it's hard rock or fat and blue, and over time sort of upping your game. And I had an accounting professor used to say 100 million here and there, and it starts turning into real money. You know, is this the kind of thing we should expect as you sort of up your script game?
Speaker 3: considerably higher room rate, considerably higher spend out of those rooms.
Speaker 3: and it has rooms that.
Speaker 3: existing that face the fountains across the street at Bellagio but have no windows.
Speaker 3: So, what we can do here is a simple upgrade in terms of the rate that those rooms will get.
Speaker 3: then create on that side facing the strip.
Speaker 3: probably some of our most attractive non-Villa product in the market.
Speaker 3: And it's very easy to run the numbers and see the returns there quite strong. I'll tell you if
Speaker 3: resency, the returns there are quite strong. I'll tell you if...
Speaker 3: There has yet to be a capital project with the returns of this one That took more than 30 seconds for us to approve You know you're going to see us upgrade Flamingo in terms of its food and beverage particularly its strip frontage
Speaker 3: Food and beverage, but you know, you're not talking about even the quantum of spend that you're talking about
Speaker 3: Paris and Bally's. So I think there's a few one-off opportunities that are high ROI, but.
Speaker 3: The great thing about our portfolio on the strip is it's all right at midfield, right at the 50-yard line.
Speaker 3: the demand for that location is exceedingly strong and has been through.
Speaker 3: you know, better than a generation. So we feel very good and there's not a ton of capital necessary.
Speaker 3: To maintain that beyond what we've done historically, but there are some interesting projects that can be added to. Understood. Perfect. Thank you.
Speaker 11: Thank you. Our next question comes from Steven Grambling with Morgan Stanley . You may proceed. Hi, thanks. Just following up on John's earlier questions on iGaming and the digital business, just wanted to clarify as you move to a standalone iGaming app, is that going to be branded as Caesars, iGaming, or could you have multiple brands under each of your casino names?
Speaker 3: Is there any way to assess what the potential for incremental omni channel spend could be as we think through total rewards signups that have occurred through the app, for example, today? So on the brand, Steven, let me tell you to wait for about 60 days. We'll have a further answer on that, but I like the way that you think. And then.
Speaker 3: on Caesar's rewards we've talked about.
Speaker 3: play that was generated new to the enterprise through digital into brick and mortar or reactivated customers the last time we told you that number. It was about 200 million on an annual basis.
Speaker 11: without getting into a specific number, I tell you it's more than 50 percent larger than that today. Just as a very quick follow-up on that, but that's not something that you're embedding in your hypothetical 5 billion 2025.
Speaker 3: No, I mean there is a contributing factor in what happens in the brick and mortar.
Speaker 3: that digital is part of both directly and indirectly, but there's nothing needs to happen that isn't already happening for.
Speaker 3: on the horizon in terms of the project so Fair enough. Thanks so much All right, thank you with that I'm gonna let everybody go. Thanks for your time and attention. We'll talk to you next quarter
Speaker 9: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.