The operator introduces the Caesars Entertainment Inc. 2023 Third Quarter Earnings Conference Call and reminds participants that the call is being recorded. Brian Agnew, Senior Vice President of Corporate Finance, Treasury and Investor Relations, welcomes everyone and introduces the other speakers. He also cautions listeners about the possibility of forward-looking statements and encourages them to refer to the press release and SEC filings for more information.

Caesars Entertainment had a strong quarter with record-breaking adjusted EBITDA in all three segments. The company will not provide updates on forward-looking statements and may discuss non-GAAP measures. The Las Vegas segment saw increased occupancy and revenues, leading to record-breaking adjusted EBITDA and margins. The group segment also had a record-breaking quarter. Las Vegas is expected to continue benefiting from strong demand in the leisure, casino, and group and convention segments.

In the third paragraph, the speaker discusses the upcoming F1 race and Super Bowl in Las Vegas, as well as the strong event calendar in the city. They also mention the success of their regional segment and upcoming capital projects, including an expansion in Harrah's Hoosier Park and new facilities in Danville, Virginia and Columbus, Nebraska. The speaker thanks their team members for their hard work and turns the call over to Eric for insights on the second quarter in the digital segment.

In the third quarter, Caesars Digital had a positive adjusted EBITDA result and a significant improvement compared to the same quarter last year. Online sports betting and iCasino handle increased, but revenues were negatively impacted by lower hold. The company remains balanced with promotional spend and launched a new iCasino app, Caesars Palace Online, which drove record GGR and NGR in its first full month. Several new product features were also launched for football in online sports betting. The company believes their products are now competitive and has an exciting technology plan for retention enhancements in the future.

The company plans to continue rolling out their proprietary TAM and offer sports betting and iCasino in multiple jurisdictions. They have applied over $700 million to debt reduction and their leverage has decreased. The company had a strong quarter with record numbers, but there were some headwinds in Vegas and disruptions in the Versailles Tower. The Rio property left the system on October 2, and there were unexpected issues with the building.

The company experienced a decrease in margin due to labor costs and the closure of the Rio hotel, but expects to recover once the Rio reopens. The company is in active discussions with unions and anticipates the largest increase in employee wages in four decades. Regional markets have remained stable, with the exception of properties impacted by competitive openings. Overall, the company set a record for EBITDA and maintained stable margins.

The company is pleased with the progress of their regional projects, particularly the construction in New Orleans. They are on track to open the expansion before the Super Bowl in 2025. They also have F1 coming to Vegas and expect a 5% lift in the quarter. Their digital business is also growing, with a hold of over 30%. They have a positive EBITDA quarter despite a decrease in hold. As their capital cycle winds down, their project CapEx budget will decrease and their EBITDA and free cash flow continue to grow. They plan to use their free cash flow to pay down debt and reduce leverage until it reaches 4 times or below lease-adjusted area.

The company is performing well and is optimistic about the future. They expect the market to recognize the value of their equity. The group pace has set a record and is expected to increase next year. The company had a good quarter in baccarat and is seeing a strong return of international customers. They anticipate this trend to continue with the upcoming F1 event.

During the call, there was discussion about the strong interest in international markets for both F1 and the Super Bowl, and anticipation for a successful New Year's and Chinese New Year's in the coming year. The impact of baccarat on the quarter's results was not significant. During the Q&A portion, a question was asked about the growth potential for iGaming, and the CEO mentioned that there are opportunities to improve integration with game vendors and customer relationship management, which will likely benefit the company in the future.

The company is considering adding another skin to their portfolio in 2024 in states where they have additional licenses. The new iCasino app is performing well, with a higher percentage of slot players and improved hold. In the third quarter, casino revenue in Las Vegas was flat year-over-year, while food and beverage and hotel revenue increased. The decline in table game drop was attributed to a shift in customer mix and volatility in big customer visits.

Tom Reeg and Anthony discuss the potential growth for Las Vegas and regional segments next year, with the Versailles Tower still on track to open by the end of the year. They also mention that digital is expected to see significant growth and that operating expenses for the digital business have reached scale.

Eric Hession, the CFO of Caesars Entertainment, discussed the company's cost structure and flow-through during a recent earnings call. He mentioned that they have been able to hold promotional spending constant and even decrease it, and that their tax rate and payments processing fees can be used as a good benchmark for incremental flow-through. He also stated that the company has covered all of its fixed costs and that marketing spend will start to stabilize. A question was asked about potential labor pressure in Las Vegas for 2024, and the speaker suggested that there may be positive factors that could offset this, but did not provide specific details.

Tom Reeg discusses Caesars' shift into higher margin group business, which brings more banquet revenue and higher room rates. The Versailles Tower project is expected to have a high ROI. Despite headwinds in the third quarter, Caesars has posted growth. Reeg reaffirms the company's goal of reaching $5 billion in EBITDA by 2025, with opportunities in both brick-and-mortar and digital. In response to a question about operating expense inflation, Reeg mentions that the company has been able to find offsets to counteract this.

Tom Reeg discusses the expense pressures facing the business and their ability to maintain margins. He mentions their success in managing costs since the merger and their ongoing efforts to improve cash flow. He also addresses concerns about labor and inflation-related costs and assures that margins will not significantly degrade. Regarding the Las Vegas segment, Reeg confirms that they are accruing at a level consistent with the expected contract and are in active dialogue about timing.

The speaker discusses the stability of the regional consumer segment and mentions that there is no significant month-to-month trend. They note that markets without new competition are seeing demand similar to last year, while those with new competition are under pressure. Properties with new supply or expansions are seeing increased revenue and EBITDA.

The company's EBITDA grew and EBITDA margin remained flat in the quarter, which has been the trend for about a year. The company's strong database has helped withstand the decline in unrated play due to the pandemic and stimulus checks. The company's diversification strategy, including the acquisition of Caesars, has proven to be a strength, with both regional and Vegas markets seeing growth. The company's digital business is also performing well, with the NFL season underway. The company remains confident in hitting its digital EBITDA target by 2025.

The company's target remains the same and they are confident in their ability to achieve it. They are not seeing any promotional activity that requires a response and are focused on executing their business model. The company expects to achieve $500 million in EBITDA, which would be a 50% return on previous losses. The New York land-based casino process is moving slowly and the company does not expect a license to be issued until 2025. The low hold in the quarter is expected to reverse.

Eric Hession, the CFO of Caesars Entertainment, discusses the company's expectations for holds for bridging the gap with competitors. He states that they are aiming for a hold in the 7.5% to 8% range and have seen sequential improvement for the last four quarters. He also mentions that last year's blended hold was around 5.5% and if they increase it by 200 basis points, it could result in a couple hundred million more of incremental GGR, contributing to EBITDA. He adds that this is not dependent on consumer behavior or competitors, but rather on their own execution. The next question is about the company's leverage and M&A plans, and whether the current market volatility has affected their plans.

Tom Reeg explains that the company has several options for using their free cash flow, including deleveraging, investing in growth, making acquisitions, or buying back their own stock. Currently, with the stock price at $40, buying back their own stock seems like the most attractive option. Reeg also discusses a pivot towards focusing on slot play in their iGaming business, which attracts a different type of customer compared to their previous focus on sports betting and table games. This shift is not expected to impact their brick-and-mortar business, as they are still seeing incremental customers from their digital platform.

The company has seen positive results from the launch of Caesars Palace Online, with no cannibalization of the brick-and-mortar business and an increase in customers and active play. They are encouraged by the early stage results and have seen a mix of higher-paying customers and increased frequency of play. When asked about potential M&A targets, the company notes that the industry has seen margin improvements post-pandemic, but the answer would depend on the specific target.

Tom Reeg, CEO of the company, believes that there are still opportunities for meaningful synergies and efficiencies that could make an M&A target accretive when compared to the current free cash yield of the stock. He does not see a risk of running out of these opportunities as a reason for M&A not happening. Analyst John DeCree asked about the Vegas margins, and Tom mentioned that the Rio leaving would result in a reduction in revenue and increase in EBITDA. He also mentioned that Versailles, which had rooms out of service, will come back online at a higher average rate, which should be accretive to margins. The question then turned to Eric about the digital side.

Eric Hession, Chief Financial Officer of Caesars Entertainment, discusses the importance of product in the success of the company, particularly in terms of retention. He notes that while they have made significant strides in the past two years, there are still some functionalities that need to be developed. However, he believes that their app is comparable to the top products in the market and their partnership with Caesars Rewards sets them apart from competitors. The company recently launched a watch and bet streaming feature for NFL games this season.

Eric Hession, an executive at a betting company, discusses the implementation of a new feature for the NFL and its potential impact on customer behavior. They have seen an increase in customers watching on their app, but are still waiting for more data to determine the full effect. They are also interested in implementing this feature for other sports. In a separate question, Tom Reeg, another executive, expresses optimism about the Strip's growth in 2024 due to a strong group calendar and high occupancy rates.

During a recent earnings call, an unidentified analyst asked about changes in maintenance project spending and table game drop in brick-and-mortar casinos. The company's CEO responded that the increase in maintenance spending was due to catching up on deferred spending from the previous year. Regarding table game drop, the CEO stated that there were no significant changes in player demographics and that slot revenue is the main driver of regional casino business.

Joe Stauff asked about the reduction in OSB spend and whether it is a permanent change or if the funds will be reallocated to the new iCasino product. Tom Reeg responded by saying that the launch of the new app in Nevada resulted in increased hold, volume, and average bets per user. He also mentioned that there will be some spend on promoting iCasino, but it will not be as intense as the OSB states. The company plans to keep OSB spend stable and will mainly target their large loyalty database for cross-promotion of the new app.

The company designed their app to resemble a traditional casino and most of their customers come from paid sources and brand recognition. Their unique selling point is the ability to cross-sell between online and brick-and-mortar casinos. The company looks forward to working with software providers to offer games and promotions that span both platforms. The call concludes with the CEO wishing everyone happy holidays and mentioning the next conference call will be after the first quarter.

This summary was generated with AI and may contain some inaccuracies.