Q2 2023 Caesars Entertainment Inc Earnings Call
Okay.
Good day, and thank you for standing by and welcome to the Caesars Entertainment, Inc. 2023 second quarter earnings Conference call. At this time, all participants are in a listen only mode.
As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star. One again, 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 corporate Finance Treasury and Investor Relations.
Thank you, Josh and good afternoon to everyone on the call.
Welcome to our conference call to discuss our second quarter 2023 earnings. This afternoon, we issued a press release announcing our financial results for the period ended June 32023.
A copy of the press release is available on the Investor Relations section of our website at Investor <unk> Caesars Dotcom.
Joining me on the call today are Tom Reed, our Chief Executive Officer.
But he 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 forward looking statements about the company's performance. These forward looking statements are not guarantees of future performance and therefore, one should not place undue reliance on them forward.
Forward looking statements are also subject to the inherent risks and uncertainties that could cause actual results to differ materially materially from those expressed.
For additional information concerning factors that could cause actual results to differ from those discussed in our forward looking statements you should refer to the cautionary statements contained in our press release as well as the risk factors contained in the company's filings with the Securities and Exchange Commission.
Caesars Entertainment undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances that occur. After today's call also during today's call. The company may discuss certain non-GAAP financial measures as defined by SEC regulation G. The GAAP financial measures most directly compare.
Travolta, each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on the company's web site at Investor <unk> Caesars Dot com by selecting the press release regarding today's 2023 second quarter financial results.
I will now turn the call over to Anthony Corrado.
Thank you, Brian and good afternoon to everyone on the call we delivered another strong quarter with consolidated EBITDA exceeding $1 billion.
Operating trends within our property portfolio remains strong despite a tough year over year comparison, driven by a single large convention events, our Las Vegas segment delivered its second best Q2, adjusted EBITDA of 512 million.
Our regional portfolio delivered 508 million and adjusted EBITDA down slightly last year and finally, our digital segment reported $11 million of adjusted EBITDA. The segment's first quarter of profitability since we've rebranded the Caesars sports books in Q3 of 'twenty one.
Underlying demand trends in Las Vegas remained strong during Q2 with occupancy growth of 100 basis points to 97, 6%.
Total Las Vegas segment revenues were down 1%.
As a result of exceptional performance last year and our group segment.
Excluding real rent payments Las Vegas generated $523 million of adjusted EBITDA with a margin of 46, 3% while.
Las Vegas continues to benefit from strong leisure and casino guests demand the return of the international guests and exciting events calendar and the continued strength of the group and convention segment in 'twenty three.
While our group and convention segment EBITDA in Las Vegas was down year over year in the second quarter pace for the remainder of 'twenty three points to another record EBITDA year for this segment.
And our regional segment revenues were up slightly and adjusted EBITDA declined 1% to $508 million.
We're excited to open two new temporary facilities this quarter in Danville, Virginia, and Columbus, Nebraska.
Both properties opened a strong customer demand.
While we face new competition in a few markets during the quarter culture customer demand trends remained stable and similar to prior quarters.
Our capital projects continue to deliver solid returns Lake Charles in Pompano delivered strong quarters and early returns in Danville, and Columbus are exceeding plan.
We're excited to finish work on the Harrah's Hoosier Park expansion. This fall and continue to make progress on the permanent facilities in Danville and Columbus.
Work in New Orleans is progressing nicely and we continue to target a late 'twenty four opening.
Construction has started on the <unk> side tower rebrand in Las Vegas, which is expected to be completed by spring of 'twenty four.
And finally, we recently opened a new show in Atlantic City called the Hook, which was accompanied by the opening of Super Freak out Atlantic City as well.
We have solid momentum heading into the second half of the year as we continued to deliver strong returns on project Capex drive profitability in our digital segment and remain focused on operational excellence and our property portfolio.
I want to thank all of our team members for their hard work in the first half of 'twenty. Three our success is a direct result of their dedication our team members have in their commitment to delivering exceptional guest experiences every day.
With that I will now turn the call over to Eric Hession for some insights on the second quarter in our digital segment. Thanks.
Thanks, Anthony during the second quarter of 2023, we delivered another significant improvement in the performance of our digital segment versus last year, our business reported $11 million of adjusted EBITDA on $216 million of net revenue.
This was a $69 million EBITDA loss last year.
Does this quarter represent our first full quarter of EBITDA profitability since rebranding to seize our sports book in Q3 2021 during.
During the quarter sports betting hold improved 180 basis points versus last year, and I casino volume increased 27% year over year. Our performance. This quarter continues to demonstrate the effectiveness of our targeted promotional investment and overall lower level of marketing within our existing customer base as well as customers located in the news.
States.
We have recently introduced four significant pieces of new and exciting technology improvements.
We expect it will be well received by our customers first our new <unk> High Casino project product Caesars Palace online.
Now live in multiple states and pending regulatory approval and the others. The new I casino product offers a significantly improved product and enhanced marketing capabilities are combined with the compelling benefits of Caesars rewards.
We recently transitioned our Caesars app in Nevada to our flagship Liberty product, which delivers a significantly improved product for our customers pending regulatory approval, we anticipate converting our William Hill product in our retail sports books to the Liberty platform at some point later this year.
Third we've started out rolling our net native iOS sports book, App, and anticipate reaching 100% adoption in August the new native App is receiving consistently higher performance feedback and will result in faster loading speeds improve stability and enhanced development speed and <unk>.
To introduce our in house player account management system, starting state by State later, this year, which will ultimately lead to a shared wallet that we anticipate rolling out in 2020 for these four products have consumed significant amounts of technical resources over the past year, and we're very excited to introduce them to our customers.
We now offer sports betting in 30, North American jurisdictions, 22 of which offer mobile wagering. We also operate casino products in six jurisdictions I'll now pass the call to Brad for additional comments.
Thanks, Eric.
As Youll see in our earnings release and subsequent to the quarter end, we successfully acquired the remaining minority equity interest in Horseshoe, Baltimore, which allowed us to fully repay its $250 million term loan b.
Yielding significant interest expense savings given its high cost of debt.
Pro forma for its repayment in the most recent rate hike from the fed our average cost of debt. So it's just inside of 7% with annual net cash interest expense of approximately 800 million.
<unk> is well positioned to decline going forward.
Given continued debt reduction alongside built in spread adjustments tied to declining leverage in our loan agreements.
Capex spend is also expected to crashed in 2023 at just over 800 million with several growth projects being completed either later this year or in 2024.
Coupling declining interest expense and Capex with continued EBITDA growth set up for accelerating free cash flow dynamics going forward over to Tom.
Thanks, Brad Thanks, everybody for joining us today.
Very happy with the quarter strong quarter again for us.
<unk> in Las Vegas, there keep in mind, we were up against the.
The strongest quarter that we've ever had in Las Vegas, we were missing.
A large group that.
It comes once every three years to Caesars properties that was in last year's numbers not in next year's numbers, we telegraphed that last quarter. So that was known what you saw last week.
The Nevada numbers was.
June hold in Baccarat was not as strong as it was it was in the prior year we.
<unk> I don't particularly like to talk about all but it's notable enough that I should and this quarter. We're in the gambling business. What we're looking for is the volumes to come through the property and they came through we just didn't hold in June like we did.
In the past June both the Miss in that.
Yeah.
Group from last year and the hold impact in June are dilutive to margins. The obviously the group business for us.
It is accretive to our overall Vegas margin and then clearly revenue that would flow with normal hold is accretive as well so as youre looking at.
Margins on a year over year basis keep that.
In consideration as we look at.
Forward forward in Vegas continues to look very strong we had a strong July .
We feel very good about the remainder of third quarter, and then fourth quarter, you've got a formula one first quarter of 'twenty four you've got Super Bowl.
I've said in the past I think.
Formula one is a 5% lift.
Not including whatever happens at the tables really just from.
Increased hotel revenue.
Still hope to hotel food and beverage revenue that still seems to be the right Zip code for us.
Demand for F. One, particularly at the high end has been very very strong for us we feel very good as well.
How we are positioned ahead of the event and we're anxious like everybody else to see how this event plays in Las Vegas, as we look to future years.
Super Bowl 'twenty four is exceedingly strong from a demand standpoint.
Where we sit today in terms of booked capacity versus a typical Super Bowl we are.
Dramatically ahead of and at higher rates then.
Typically at this time ahead of the Super Bowl.
And if you just anecdotally look at who is going to be getting our tickets the average customer that.
We'll come to the game with US is substantially more valuable than prior Super Bowl. So Vegas remains very very strong for us.
It feels very good really no discernible impact in terms of.
Any recessionary concerns any concerns about the consumer as we look out the only thing to call out Anthony talked about the.
The Jubilee tower at valley being converted to.
Versailles at Paris, we'd expect those rooms to be back online.
Before the end of the year, we don't expect the entire project to be done until first half of next year, but there will be some disruption in that tower.
At Horseshoe now that were underway.
If you look at the regional portfolio and really the whole quarter.
As a testament to.
Diversification, we if we had what at what I'm talking about in terms of.
The the group mess.
The missing group in Vegas and the.
The hold impact in June .
And the regional business, we've got a number of properties that are under competitive pressure due to competitive openings C&I callout tunica is facing a property that opened about an hour closer to Memphis that has pressured tunica.
We've got council bluffs has been a bit pressured by casino capacity being added in Nebraska, and then we have Chicago properties, both in Illinois and Indiana.
Impacted by the expanded casino offerings in Illinois that have come online and continue to come online.
On the other side of that what we've got is the fruits of our capital investment cycle that we're as Brad said, we're reaching.
More pressing and reaching the end of you've got new property in Danville, you've got projects in.
Bolt had both Indianapolis tracks.
You've got Lake Charles now and you've got the Atlantic City spend and as a result, our regional EBITDA. Despite a super strong comp or just about flat year over year, which I think is going to come.
Compare well with.
Others that you'll see over the next couple of weeks.
Again, as you look to third quarter off to a strong start we're comping against a an extremely strong third quarter of last year and regional.
It looks like we will be able to beat that this year through July that's particularly encouraging for us.
Flipping to digital digital was a loss last year, and we've talked a lot about inflected to positive and driving real EBITDA through that.
Article and.
It's spectacular to see our first full quarter of positive EBITDA as Eric detailed.
I laid out pretty specific Todd.
<unk> targets in terms of where we can be in digital looking out to 'twenty five on our last call and then I went to subcontractors were a lot of you told me there's no way, we will get there I would tell you.
Every number that I laid out 90 days ago or so.
100% confident that we're going to hit that.
Every metric that I look at going forward is at or above where we were 90 days ago, when I laid out those targets.
I can tell you I am reiterating those targets as we look forward.
Big.
Tech side those are big moves for us, it's very you've put them in a list.
I don't really know that the impact is.
Emphasized enough when we took over William Hill, William Hill had one employee working on.
Gaming.
We were on.
Old technology that was limited.
In.
A whole number of ways, we soft launch Caesars Palace casino about two weeks ago, we are waiting on.
Provable in a couple of jurisdictions that I expect any day now and then you'll see a full launch of the product, but I'd encourage you to go take a look it's a casino first entry into our digital.
Business.
And in terms of capabilities.
<unk> segmentation.
Hi.
Proprietary games live dealer is light years beyond what we've been operating under that as Eric said it grew.
Gaming revenue, 27% in the quarter, we are fully aware that we have.
All right.
Six significant competition in the casino space.
We don't expect that we're just going to come in and run everybody over but we feel like we've got the product to start to build market share and wrapping that into Caesars rewards has been and will continue to be.
Our full for that business so.
You look at the quarter second quarter of last year was the best second quarter that we ever had the second best quarter that we had ever had and we topped it in EBITDA this year. So.
Turn in digital and regional holding its own.
It will offset the loss of that group in Vegas. So this is exactly how we built this business and.
It's great to see it come together one more point on digital.
Moving to Liberty in Nevada is an enormous lift.
We were operating.
Quite a lot of Commodore 64 computer.
In the old technology and now we have the state of the art Liberty App that we operate in all of our jurisdictions.
As a dramatic leap for us in Nevada, If you think about the Super Bowl happening and all of the visitors that will come to the state.
And our market position in the state and now we have the App too.
That's competitive with what they've got at home, whether it's with us or somebody else that is going to be a giant customer acquisition opportunity for us. So we're <unk>.
Particularly excited about that I would expect that 95% of our handle in Nevada will be on liberty by the middle of this month and virtually all of it by kickoff for football season. So we feel good.
Really really this is our third NFL kickoff since we launched our digital business.
In terms of how I feel heading into the season I think we are.
Very very well positioned as we head in so yes, Brad talked about and.
We continue to pay down debt.
Conventional leverage now is around four times and going lower.
I would expect that to go lower given where we are in the capital cycle, where we are with.
The performance of the business.
We're starting to look at it.
What do you do with the free cash flow that will be generated in 'twenty four and.
<unk> 25, and is there a return of capital piece or is there an external opportunity that it.
Could be interesting to us I would tell you.
As you know sitting here today three years after the Caesars transaction close.
If it were.
In 30, 60 days beyond the first time, where I'm feeling where we can be.
Sensitive from an external opportunity standpoint, so yeah.
It has been a long road to get through.
Everything that happened with <unk>.
Colgate the merger.
We really really feel like we are on strong footing as we head forward and the cash flow machine here is going to continue to accelerate as well.
Results continue to improve digital continues to deliver improving cash flow interest expense goes down.
We really feel strongly about where we sit today and with that I'll open it up for questions from.
The audience.
Yes.
Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
One moment quick questions.
Our first question comes from Joe Greff with Jpmorgan you May proceed.
Good afternoon everybody.
Tom given what you've said today Tonight.
About Las Vegas trends, how aggressively are you is it.
For you.
Year over year net revenue growth in the <unk>.
I would imagine the answer for that with.
With respect to the <unk> is not aggressive enough in that one bucket.
As a follow up on digital.
Yes, Joe we feel good about third quarter I'm looking at forward occupancy over the next three months.
In the range of.
Let's call it 96% to 98% depending on the property. So feel very very good about third quarter, one thing to keep in mind. The Vegas is.
That I didn't touch on in my remarks is REO.
We anticipate it will leave the portfolio October one.
You know as Youre looking to kind.
Kind of second and third quarter results at the REO, that's a revenue producer, but a drag on EBITDA it doesn't produce enough EBITDA to offset it.
It's lease payment in the second and third quarter, so as that comes off in.
In the fourth quarter that'll be accretive to.
EBITDA and margins.
Uh huh.
Great.
Maybe this is.
A question for Eric, but whoever wants to answer it.
How do you think about the conversion of OLED.
Hi.
Gross gaming revenue.
Revenue.
Into next year.
Typically on our gaming gross revenues.
We noticed that include increased sequentially.
In Q2 versus $75 million in the <unk>, how do you think about the segments growth going forward.
Presently EBITDA positive.
Did account for all of them more than a 100% of the QQ.
Phil.
Yes, sure maybe I'll grab this one Joe.
So from a reinvestment perspective.
You can see this in the Q that was published.
Simultaneously with the call today.
Our reinvestment levels as a percentage of volume was around 1% and our.
Our reinvestment as a percentage of gaming revenues was around 22% in total and Thats on the lower end I think from a percentage of volume is where youll see it going forward.
The reinvestment for existing customers tends to be below that and then depending on how many new customers. We sign ups that will bring that number up slightly just generally because second quarter has fewer sign ups given no football no startup sports so that range on a percentage of volume I think will range between that one.
Persona and wanted a quarter kind of going forward.
From a reinvestment perspective, that's kind of how I would think about it.
From a volume perspective from the casino side, and just from a general business side.
As Tom mentioned.
That's an area, where we really feel quite optimistic about we're finally going to have a competitive product out in the market that we can use to work with our existing database to have those customers that we know and that are loyal to the Caesars rewards program move over to the online casino side it was difficult.
To have that discussion with the customers when they have to go through the sports betting app each time to get to the casino and so they won't have that in addition, some of the things Tom also touched on.
We haven't been able to really do segmented marketing and any degree so far with the existing tech that we had the new system that we have will allow us to create segmentation and it'll allow us to reinvest like we do on the casino side to use a lot of those experiences. So from that standpoint. When you look forward, we're very excited about.
The casino product and the ability to slowly grow some share and ultimately drive the profitability of the business towards those targets that Tom laid out.
Great. Thank you.
EBITDA positive.
Thank you one moment for questions.
Yes.
Okay.
Our next question comes from Carlo Santarelli with Deutsche Bank You May proceed.
Hey, guys good afternoon.
Tom obviously kind of a little bit of a change.
In some of your thoughts around the ability to kind of be aggressive as you put it with external opportunities could you maybe talk a little bit about how you foresee needs or things that you think you guys could obviously due to to enhance growth going forward et cetera, and kind of the driver behind.
Maybe that comment.
Yeah. So.
Word key.
Key as we're getting towards the end of a capital cycle ride as New Orleans runs off.
We don't have the.
Any other chunky projects that we've had going.
Since the merger.
On our plane theirs.
So the meaningful projects in particular markets, but youre not looking at.
<unk> for a $500 million capital outlays so from.
Our balance sheet and cash flow perspective.
We'll get to a point, where youre going to be generating a lot of free cash flow and.
You look at what do I do with it.
<unk>.
As a team have delivered.
Lot of value over the last decade to stakeholders through external opportunities. So of course, we're going to look for that for potential future opportunities now that we're in a position to tackle those but don't read that as.
A lack of confidence in the growth potential of the existing portfolio.
I said last quarter, we're on a run rate of about a little over $4 billion.
Trailing EBITDA, we think there is half a billion plus available to us in the digital business and something similar to that in the brick and mortar business as we get returns from the projects that have recently come online and are still to come online and that should push us toward.
$5 billion company, but.
As you look at where to what do I do with.
Cash flow when.
Paying down leverage might be it might be generating diminishing returns in terms of shareholder value. Then you start to think of.
And by distributing that cash flow in some form or fashion around putting am I, putting it to work elsewhere.
And.
We have got.
A great track record of putting it to work elsewhere. So we will explore that as we move forward.
Great. Thanks, and if I could just have one follow up as you guys think about.
The various moving parts in Las Vegas.
Through the back half of the year, you, obviously have the REO, which you noted is coming out that at somewhere in the ballpark of 100 basis points.
To your margins you have the labor negotiations that are ongoing presumably.
And obviously then you have formula one do you see the back half of the year is kind of be flattish.
Flattish to up margins kind of that over the last six months a reasonable expectation.
Yeah, I think that's the reason why especially expectation Carlo and touching on the.
The labor agreements labor agreements expired by contract at the end of May we are operating under.
Everybody on the strip is operating under extensions.
As we speak there is work being done in terms of a new contract I think.
It's <unk>.
Youre talking about complex stuff that takes a little while but I would expect that we'll have.
New agreements by the fall and I'm, not expecting a whole lot of drama around them.
Great.
Thank you Tom I appreciate it.
Okay.
Thank you.
One moment for questions.
Our next question comes from Dan <unk> with Wells Fargo. You May proceed.
Hey, good afternoon, everyone and thanks for taking my questions.
I wanted to touch on digital first.
The hold I think you called out was 66, 4%. It was up 180 bps year over year, how do you think about sports betting hold and growing it over time and what are you kind of see it as kind of the guidepost as you kind of maybe get to that 2025 level, where you would see that high EBITDA flow through.
Yeah.
It's a great question I think we've made a lot of improvements over the last kind of year year and a half with respect to just the trading team getting more experience, but also on the tax side. So I think as we go forward you will continue to see a higher percentage of customers not betting straight wagers, so whether thats.
In play or player prop or same game parlay type wagers that generally have a higher hold percentage that's going to contribute to the increase I suspect at this point, we're probably going to get to somewhere say seven 5% to 8%.
Which I think is.
Is a reasonable expectation given where we see the mix of our business, we do have a lower hold percentage.
Here in Las Vegas, and in Nevada.
Two the size of the straight wages that we taken the state that'll.
That will drag it down a bit but overall I think I think getting to that seven 5% to 8% is a reasonable expectation.
Got it and then just pivoting horseshoe Baltimore I know you.
The remaining stake in that I think Vinci has a ROFO option on that as well as one for Caesars, Virginia. So can you know as you think about that deleveraging path and finger obviously moving in the right direction can you maybe talk about other ancillary options as it relates to your regional portfolio and the possibility that there is.
Maybe an avenue with Vinci, where you can get a bunch of cash in the door.
Yes, Dan I'm not short on cash so.
That's really not something I'm targeting there are ropers on both.
Tomorrow and Virginia.
Wouldn't anticipate either being exercised.
Understood. Thanks.
Okay.
Thank you.
One moment for questions.
Sure.
Our next question comes from Stephen <unk> with Stifel. You May proceed.
Hey, guys good afternoon.
Okay. Tom following up on Carlos question, we now have gotten a bunch of questions from investors about.
Your commentary that you would take this excess free cash flow in your words put it to use.
Elsewhere and have a great track her track record of doing that so not sure what else you might say there, but can you elaborate a little bit more on maybe just what that means and maybe also give us some examples of that.
Short answer.
Answer is no.
I won't give you, except maybe I'll, maybe will buy at Stifel.
Steve is good.
You know who is out there.
You know what's possible you know that there are at our size it's.
Not as easy to find targets that <unk> move the needle and B.
We are.
Actionable from an antitrust perspective.
But there is not zero targets available out there and you know.
As we get to the free cash flow levels that we get to given.
What we have generated in the past in terms of returns.
It shouldn't be surprising to anybody that we're going to look for opportunity to kick to do that again.
Okay I need to give you much of an answer but that's great.
I Hope you do by US then I can come steal crafts are you I'm just wondering.
Thank you.
So the second question.
You talked about June in Vegas.
You had.
The negative hold you witnessed across backgrounds lineup looked at I know high end Super Super important to you guys, but can you just give us any color around what youre seeing.
Business, especially on the international front and maybe how those folks.
Have or will be coming back into the market.
Yeah It has been.
Very strong from a.
Volume standpoint, our volumes at the high end, both domestic and international have continued to build.
We've put in quite a bit of effort Caesars had a very strong international business. When we arrived unfortunately.
Those players weren't traveling it's great to see that come back.
In the interim we've continued to build on the domestic business. So.
To give you anecdotal and anecdotal idea, Steve I get it hit sheet here.
Every day and.
In 2021.
If I looked at it on a Saturday or Sunday morning.
There might be one player there that was a significant swing at our.
Results now on a typical Saturday Saturday Sunday I've got five to 10.
Players that are.
At a minimum several hundred thousand dollars line of credit. So you have got a much more balanced book.
<unk> got a lot more.
So it's really continued to build.
Obviously.
Vans in the second half.
In the fourth quarter with.
That's one and the first quarter with Super Bowl are fantastic.
High end events and as I said in my remarks demand for both of them.
At the high end is extremely encouraging.
Several months out.
Okay got you thanks, Tom really appreciate it.
Yes.
Yeah.
Thank you.
One moment for questions.
Our next question comes from Stephen Grambling with Morgan Stanley You May proceed.
Hey, Thanks, two follow ups first on the digital side I think I heard you say there is some planned investment into the Caesars Palace App does that mean that we should be anticipating.
Step up in marketing and increased promo spend on gaming in the near term.
You should expect us to be visible in terms of.
<unk>.
Promoting the app, but nothing anywhere close to what you saw when we launched the sports App.
So.
I would describe us right now and I casino as in for the last cut.
A couple of years is invisible from a marketing standpoint.
It will become visible in the next month or so but that's.
In the.
All of the.
The guideposts and markers that I had given you you should be expecting.
Third quarter.
For the digital business as I've said before is.
Coin flip as to which side of breakeven we're on but we should be close yes.
Fourth quarter should be a significantly positive quarter and then we should be positive from then on out.
That's helpful and my follow up just taking one more crack at it on the going on offense comment is is that comment more directly on domestic or international and do you generally view that more on the digital or physical casino side. Thanks.
So we are not.
<unk>.
Obviously, we havent little we have Canada as a.
Property, we manage internationally.
We're entirely domestic at this point, but we are economic animals, if theres something that.
Where it makes sense outside the U S.
We are willing to get on a plane, but I would expect it would be domestic and I'm not thinking about a big digital acquisition.
Fair enough. Thanks, so much.
Thank you.
One moment for our next question.
Our next question comes from Brian <unk> with Barclays. You May proceed.
Hey, good evening everybody. Thanks for taking my question. So just maybe some thoughts on the broader sort of U S. Leisure trends you sounded obviously confident that you're not seeing any type of recessionary.
Activity or anything there's just a lot of sort of cross wins and lumpiness across the broader lodging landscape at the low end and there's been a lot of talk from other hotel operators.
Call it call it normalization.
Just curious.
You think youre seeing any normalization in Las Vegas, and if it's if there's any difference at the low end of your database of your properties versus sort of the middle or maybe the middle tier.
Yes, Brian we're not really seeing.
Anything I can speak to that.
Material in terms of softness at any level of property the only property that.
So youre looking at the next quarter I'd expect to be soft as the REO and that.
Because we're transitioning out of the.
The property and a lot of the rated business has already come out of there, but that's obviously.
Yes.
Unique to that particular property.
It feels.
Really strong out here we're out here.
<unk> volumes are.
As they have been for a year and a half now continue to be very strong as I told you I'm looking at forward Occupancies depending.
Depending on the property is 96% to 98% so it's really hard to tell you.
Anything that would give you.
A bearish stance on Vegas.
Great. That's Super helpful. And then maybe just in Atlantic City.
Curious if you want to comment on and how Thats performed sort of through peak summer here I think you're sort of disruption free this summer.
Versus your underwriting or expectations heading into the season.
Yes, we're kind of word.
We are.
Disruption free really since our IPO or fourth of July we are finishing up the <unk>.
Insurance to Caesars Palace I was out there.
For the opening of the hook and Super Freak go in it.
We're really pleased with the way.
The renovation work is turned out all thats left.
Is the Nobu hotel tower at Caesars.
It should be done by the end of the year, Yes, I would say in terms of expectations.
Atlantic City is not as strong as I would have hoped it would be but it's fine.
Yeah, obviously, it's within.
That regional business that was flat in.
<unk> and I would expect to grow a little bit in <unk>.
Perfect. Thanks, everyone.
Thank you.
One moment for questions.
Our next question comes from Shaun Kelly with Bank of America, You May proceed.
Hi, Thank you for taking my questions maybe.
Maybe first for Eric I, just wanted to ask about on the digital side, maybe at a very high level could you help us think about.
As you start as your expense base is increasingly normalized and you continue to get your product roadmap, where your warranty how do you kind of think about flow throughs in the digital business.
Changes in revenue to EBITDA, what sort of <unk>.
Either.
There are a directional amount that makes sense or could you help us think about some of the key levers or line items that you could drive improvement from just as we get out to 'twenty three 'twenty four and beyond.
Yeah sure I think.
Yes.
Go back to the prior discussions and calls we've had about the reductions in some of the expenses that we're currently incurring that we don't think will be burdened with going forward from either the marketing the team deal with some of the other fixed expenses like that you can see those rolling off.
Over time in terms of the balance of the expenses I think those are going to might increase a bit.
Yes.
Like labor and some of the others, but broadly speaking the true variable expenses that we have are really taxes.
The reinvestment levels and then.
Super variable things like credit card processing fees, and so forth and in aggregate those should be around 50%. So that once you break the breakeven level like we have this past quarter and going forward you should see quite strong flow through on every incremental dollar that we get and then for the next couple of years anyway, it'll be juiced.
By the fall off of the fixed marketing expenses that we currently have.
And the cost structure.
So 50% on variable and possibly greater than that when we factor in some of those expenses, if I'm kind of summarizing that right. So that makes sense.
Yes, I think thats a good way to look at it if you look at this quarter is over 100%, so, but that's because we're cutting more dramatically than I would anticipate going forward on that fixed side.
Great. It makes a ton of sense. Thank you for that and then.
One sort of bigger picture one for Tom Tom.
You kind of mentioned in the prepared remarks, a little bit about.
Your longer term goals from 90 days ago, and standing by those and I just.
I just wanted to kind of hit it specifically was that was there something specific you had in mind and maybe I'm just not at all.
On the comment or the or the joke, but just was there a specific area that was that really directed at free cash flow was that directed at the 50%.
Return on <unk>.
Digital investment sort of all of the above was there just something you're specifically trying to kind of get across relative to where we thought 90 days ago.
No. It's all of the above three years ago, we told you.
We think we could generate better than 50%.
Annual EBITDA return on the cumulative losses, we generate and building the business.
We got to about $1 1 billion.
Accumulative loss before we inflected to positive.
Which suggests.
500 million fill a little over $500 million of annual EBITDA at maturity.
Which I defined as.
Sometime in 2025.
And when I laid those markers out last quarter.
I got some skepticism back and I would tell you.
90 days later I'm, even firmer in my conviction that we.
We meet or exceed those numbers in that timeframe.
Thank you very much.
Thank you.
One moment for questions.
Our next question comes from Barry Jonas with true Securities You May proceed.
Great. Good afternoon, MGM, just announced a comprehensive deal with Marriott I know you guys had a partnership with wind, but curious how you think about your overall positioning here.
I feel fine.
Those.
Those types of partnerships are useful from a.
Loyalty branding perspective for the databases.
At the scale of.
The company that we've got we're there's nothing out there that we're missing that I expect would materially move the needle for us.
Great and then.
Q3 last year, we were talking a lot about rising energy costs curious to get the.
The impact this quarter and I'm also wondering how the heat maybe affected player visitation if at all.
Yes so.
You're remembering correctly August September last year in particular.
We had some unhedged utility cost primarily in Nevada that bid us.
We're in a much much better position over the next 60 days the same 60 days as last year.
I expect those costs.
To be lower.
In terms of.
Whether there is yeah, I can certainly probably come up with.
Whether that impacted us in various places during the quarter, obviously its very hot.
Everywhere recently, but theres nothing too.
Two as a reason for particular weakness or strength in our markets based on the weather recently.
Great. Thanks, so much.
Thank you.
One moment for questions.
Our next question comes from David Katz with Jefferies. You May proceed.
Hi, good evening everyone.
I'd like to just go back to the digital if I may.
Just looking at the Q and reflecting back on some of the discussions we had about some of the media partnerships et cetera.
There are still some meaningful commitments capital wise in terms of those costs.
If you could shed a little light on how much of that starting to roll off.
As important for hitting these targets these profitability targets.
Versus how much of it is just execution on getting the new apps rolled out.
Doing the business.
Yes, so we've talked in the past about.
Yes going from zero to 500 is kind of a three legged stool with each leg.
Similar in terms of impact.
One is continued execution.
In the OSP arena that we've discussed in terms of continuing to grow continuing to drive EBITDA. There. The second piece is our I casino share moving toward our OSB market share.
And then the third piece is the roll off of partnership and talent contracts over the <unk>.
Three years.
And there was a relatively equal in size.
Yes.
Yes, I would say of the three.
Just basic blocking and tackling is the largest but it's not dramatically large they're too got it okay and if I may as my follow up just focusing on the regional business I'm trying to think through what.
It's becoming where.
We look at Capex, and we're always a little sensitive to Capex that may give the appearance of being defensive.
Has competition ramps up.
Pretty much across the regions.
I suppose what I'm asking is is this what it is where.
It's not going to be a lot of growth.
There'll be some capital reduce that are necessary at some point, but for the most part.
Our what we're looking at today kind of is what it is.
I repeat myself a little bit.
Look that says.
That's really a macro economic question, obviously, if you had asked that question.
Five years ago, none of us saw what was coming.
From a virus standpoint, and the structural improvements in the business in response to that so it's hard for me to say.
Yes. It is just is what it is as far as the eye can see.
We always so we do 50 to quarterly reviews, each quarter, where we are.
Going through the P&L of each individual business.
With the leaders and we are in properties that we have improved.
Two and three acts in EBITDA, we still see opportunity to continue to grow as we move forward. So we don't view this as.
There is not growth available to us in the regional portfolio and then obviously we've got.
Project spend that comes online.
Careful in lumping.
Defense.
Yes.
There's varying levels of defense right if I'm in my <unk>.
Market.
My property is just it just hasnt been touched in a long time.
That's impacting my performance levels.
I can certainly see a case where.
You've put in some money to change that and you may characterize as.
As defensive I think thats growth from where they are where youre starting from now if you take a case.
A property that.
Let's use our tunica property as an example.
If a property opens.
And now we're closer to the theater market.
There is very little I can do from an investment standpoint.
That's going to change that outcome. These are convenient space.
<unk> to begin with and it was the realization that led us to change.
Changing the subsidies all the way back in the MTR days.
Budd.
I don't view, it as a mistake and I'm not referring to us I see others that are.
Investing in properties that have been around a long time, but they're behind now.
Based on what's brought to market.
Can choose.
Choose to continue to erode and see what you can do cost wise or you can say I'm going to put some money in this and change by fortunes.
I can see.
People, making different decisions they faced with similar circumstances.
Okay. Thank you for the fond memories of MTR I appreciate it.
Yeah.
Thank you.
One moment for questions.
Our next question comes from Chad Beynon with Macquarie You May proceed.
Afternoon, Thanks for taking my question.
You've gotten a lot of digital but I wanted to pile on that so we get a lot of questions around live dealer given how big the demand is in Europe , and the market cap of the leading player over there so Eric maybe for you as it relates to your optimism around I gave me in general is this expected to be a major P.
So the business going forward and given I guess the branding the market, adding some of the IP that you have would you consider doing this in house or use third party exclusive vendors.
Caesars experience. Thanks.
Yes sure.
I'd say, it's definitely going to be a major part of the business going forward.
If you look at our current sports book, App, which is sorry, the casino App, which is part of the sports book, we have a disproportionately high percentage of table games action versus thought.
Action and thus a high percentage of the live dealer just because of that larger denominator on the.
Table game side.
Going forward the.
Standalone Caesars Palace App is going to have a higher percentage of slots business that table, but it's still going to have.
Dealer and of the overall table games, we do expect that <unk> dealer product to be a sizable percentage. So going forward. It's absolutely a key component of the business I would say.
Previously we haven't had as much exposure to that we haven't had branded games. We havent had dedicated games. We haven't had a lot of the product that's out there just we haven't incorporated it into the App, which we will on the new Caesars Palace.
In terms of the question about doing it in house or through a third party.
We're definitely going to want to have some branded customized games, but I don't see us bringing it in house at this point.
Anywhere in the near future.
Okay. Thanks, I appreciate it and then just in terms of legislation that we should be keeping an eye on I believe North Carolina is out there potentially talking about some expansion of land based gaming and then on the gaming front that will probably roll into Q1 of 'twenty for anything else that we.
We should be watching or you are keeping an eye on.
And the legislative session. Thanks.
Not in particular, I mean from a J.
<unk> standpoint.
The most relevant to us in the near term is.
New York Land base license issuance and that's.
We're deep into that.
Sure.
Yes.
Thanks, Tom I appreciate it.
Thanks, Chad.
Thank you.
One moment for questions.
Yes.
Our next question comes from John Decree with CBRE you May proceed.
Hi, everyone. Thanks for taking my questions.
Maybe one for Brett on the balance sheet.
You mentioned in your prepared remarks.
What was the decision to pull the trigger on Horseshoe Baltimore, obviously, the cost of that made sense.
The timing was it.
Contractual.
Was it or negotiate it.
What are the parameters of that buyout.
By out of your partner.
Something that you guys just kind of do it on your own and I don't know if you could share what you paid for for the minority interest.
Yes on the minority interest.
Always we're opportunistic around.
Paul It in assets at the right valuation so.
We took that in for a little under $70 million, you'll see that in the queue.
Once we collapsed and owned 100% of if you look at that cost of debt.
<unk> was pre payable at par.
Mid nines on the interest rate with our nearest maturity. So in my land that's call. It a no brainer in terms of what to repay next with our free cash flow.
Alright, perfect. Thanks for the detail and then maybe one for.
Tom or Eric.
Got it covered a lot of ground on digital but now it looks like a pretty successful world series of poker for you, obviously, a great a great brand online poker.
Is it a big industry.
Now, but it's just kind of one of your strong suits as you think about your gaming business going forward are there are there some opportunities.
On the poker side and with the World series of Poker brands that you could see going forward.
Yeah.
Yes.
Youre absolutely right. It was our all time record World series of Poker.
Both from a prize money perspective participants perspective.
But also from the ability to really provide contribution to the properties that hosted it we moved it to the horseshoe last year. So it was kind of a first year those branded as a horseshoe and it really drives a lot of that activity to the property a lot of food and beverage a lot of hotel revenues. So it's really great for us.
Our portfolio perspective in addition to the direct revenues that it drives.
To the.
From the actual tournament itself from an online perspective, we really don't see much movement in terms of new states legalizing. So it's kind of a business that is kind of flat at this point it vacillates between going up and down based on how customers go but from a brand perspective, we think it's it's definitely accretive to the comp.
And does provide these incentives for customers to come to the brick and mortar locations for the tournament.
Got it thanks, Eric I appreciate the color.
Thank you I'd now like to turn it back to Tom Reeg for any closing remarks.
Thanks, everybody for your time attention and support and we will talk to you.
In November if we don't see at a conference soon.
Yes.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].
Sure.
[music].
Yeah.
[music].