Yahoo Finance Caesars Entertainment, Inc. (NASDAQ:CZR) Q4 2023 Earnings Call Transcript
Caesars Entertainment, Inc. (NASDAQ:CZR) Q4 2023 Earnings Call Transcript February 20, 2024
Caesars Entertainment, Inc. misses on earnings expectations. Reported EPS is $-0.34 EPS, expectations were $-0.03. Caesars Entertainment, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and thank you for standing by. Welcome to the Caesars Entertainment Inc. 2023 Fourth Quarter and Full Year Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] 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.
Brian Agnew: Thank you, Josh, and good afternoon to everyone on the call. Welcome to our conference call to discuss our fourth quarter and full year 2023 earnings. This afternoon, we issued a press release announcing our financial results for the period ended December 31, 2023. A copy of those results are available on the Investor Relations section of our website at investor.caesars.com. As usual, joining me on the call today are Tom Reeg, our CEO; Anthony Carano, our President and Chief Operating Officer; Bret Yunker, our CFO; Eric Hession, President, Caesars Sports and Online Gaming; and Charise Crumbley from Investor Relations. Before I turn the call over to Anthony, I would like to remind you that during today's conference call, we may make certain forward-looking statements under safe harbor federal securities laws, and these statements may or may not come true.
Also during today's call, the company may discuss certain non-GAAP financial measures as defined by SEC Regulation G. Please visit our press releases located at our Investor Relations website for a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure. I will now turn the call over to Anthony.
Anthony Carano: Thank you, Brian, and good afternoon to everyone on the call. We generated consolidated net revenue growth and stable year-over-year adjusted EBITDA in the fourth quarter. Results were driven by significant year-over-year growth in revenues and adjusted EBITDA in our digital segment. As previously disclosed in our preannounced results during January, our Las Vegas segment experienced several one-time headwinds during the quarter that negatively impacted results, which Tom will quantify in more detail. For the full year on a consolidated same-store basis, Caesars generated 7% revenue growth and 22% adjusted EBITDA growth. All of our operating segments delivered revenue growth in 2023, and our brick-and-mortar properties delivered stable EBITDA.
Caesars Digital produced a breakout year with 77% revenue growth and $38 million of full-year adjusted EBITDA. Despite the headwinds in Las Vegas during the quarter, our Las Vegas segment delivered $489 million of adjusted EBITDA in Q4 and $2 billion for the full year, up from $1.4 billion in 2019 on a same-store basis. 2023 in Las Vegas was a year driven by record occupancy and record ADRs throughout our portfolio. Strong occupancy and ADRs led to records in cash hotel revenues and food and beverage results. Our group segment set another adjusted EBITDA record in 2023 and increased occupied room nights to 17% of our mix in Las Vegas. While we clearly had a strong year in Las Vegas, we remain optimistic for 2024 and beyond. Forward occupancy and ADRs remain strong, and the outlook for group and convention remains encouraging.
The event calendar in Las Vegas remains robust, and we expect to build upon 2023 momentum for several key events. In our regional segment in Q4, we delivered $431 million of adjusted EBITDA, down 3% versus last year, driven by new competition in a few markets we have discussed before, and construction disruption in New Orleans and Harrah's Hoosier Park, partially offset by new openings in Danville, Virginia and Columbus Nebraska. For the full year, our regional segment delivered $5.8 billion in revenues and $1.96 billion in adjusted EBITDA. Similar to Q4, annual results were driven by new property openings, offset by new competition in certain markets, construction disruption at a few properties, and the negative impact of poor weather. In 2024, we will finish several construction projects that we expect to generate strong returns and will complete an elevated CapEx cycle for the company.
The permanent facility in Columbus Nebraska should be open by mid-year, construction in New Orleans should finish by Labor Day, and the permanent facility in Danville is expected to open by year-end. All three of these projects will deliver strong returns on capital to drive growth in our regional segment. I want to thank all of our team members for their hard work in 2023. Our strong results are a reflection of their dedication to delivering exceptional guest service. And with that, I will now turn the call over to Eric for some insights on the fourth quarter and full year performance in our digital segment.
Eric Hession: Thanks, Anthony. On our Q4 call last year, I talked about how the benefits of scaling net revenues in our digital segment would drive improved profitability given the high flow-through nature of the business. This transpired as strong revenue growth in Q4 and for the full year of 2023 led to several notable records within our digital business. Net revenues for Q4 grew 28% to a new quarterly record of $304 million and the segment generated $29 million of adjusted EBITDA, also a record. On a hold adjusted basis, we estimate that the segment would have delivered close to $60 million of adjusted EBITDA during Q4. Sports betting volumes during the quarter grew over 12% with a hold rate of 6.4%, up year-over-year but negatively impacted by November hold coming in below our expected range.
iGaming growth accelerated throughout the quarter and delivered over 50% growth in volume led by Caesars Palace Online, which contributed to our first quarter of $100 million in GGR for the segment. For the full year of 2023, our Digital segment achieved 78% net revenue growth to $973 million, a new annual record and $38 million of full year adjusted EBITDA, also an annual record. On the sports betting side, during 2023, we continued to focus our product and technology improvements on the overall experience for our customers. They responded favorably to improved same-game parlays product enhancements, in-game wagering improvements and streaming technology. The percentage of customers making parlay wagers continues to improve and the average legs per wager also continues to steadily increase, giving us confidence in our ability to improve hold throughout 2024.
On the iCasino side, we introduced our new Caesars Palace online app in August of 2023. Results to date are very encouraging as we've seen active customer counts and volume growth grow sequentially each month. The core iCasino slot customer has responded positively to our significantly improved offering, and we're pleased that the new product and brand resonate much better with our Caesars Rewards database than our casino associated with the Sportsbook. iGaming remains a critical component of our digital growth strategy for 2024 and beyond. In support of that strategy, after the market closed, we announced an agreement with the Sault Ste. Marie Tribe of Chippewa Indians and Wynn Resorts to enable a second iGaming brand in Michigan, which we plan to launch before the end of the year pending regulatory approvals.
The existing Wynn operations have been averaging approximately $3 million of GDR per month, and we will work with their team to transition the customer base to our newly branded product when we launch. Following regulatory approvals, we will have secured market access for a second brand in every jurisdiction where we currently offer the Caesars Palace Online iCasino, which allows our new brand to benefit fully from the scale. We now offer sports betting in 31 North American jurisdictions, 25 of which offer mobile wagering. I'm very pleased with the progress we made in 2023. If you recall, our objective was to drive a solid return on investment for our shareholders as our business grew and matured over time. Our thesis was grounded on a reasonable TAM, an early effort to build brand awareness and harvesting the benefits of a very scalable business with a high portion of fixed costs.
Our performance in 2023 sets the stage for continued profitable growth in the years ahead and keeps us on our path towards achieving $500 million of adjusted EBITDA. I'll now pass the call over to Bret for additional comments on Q4 in the full year.
Bret Yunker: Thanks, Eric. To put a bow on 2023 we ended the year with net debt of $11.4 billion and net leverage of under four times. 2023 CapEx spend, excluding AC and our Danville joint venture came in at $900 million. In January we refinanced our 2025 debt stack and eliminated the CRC credit entity, pushing $4.4 billion of maturities into 2031 and beyond at highly attractive interest rates. Pro forma for the transaction, roughly half of our debt is now floating rate, which will benefit our free cash flow as the rate cycle turns to cuts going forward. 2024 CapEx, excluding Danville, which is funded at the JV level, is expected to be $800 million. Over to Tom.
Tom Reeg: Thanks, Bret. To touch briefly on the fourth quarter results, I know we pre-released about a month ago, so they've been out there. If you look at the Caesars specific items that were going on in the quarter to get toward – where do we come run rating out of the quarter, we had in Vegas, recall that we were accruing for the new union contract that was signed in the fourth quarter. The accruals that we had put in place since June 1 were not quite at the level where the contract ultimately landed. So there is a catch up payment in there. The Versailles Tower that we were transforming at Horseshoe into the Versailles Tower at Paris, those rooms were entirely offline in the quarter, so we had 65,000 fewer room nights at over a $200 ADR.
And sports has been well documented away from us, November hold was historically in players’ favor. We quantified that to about $20 million in our pre release in EBITDA. And we had construction disruption, as Anthony says, in Indiana and New Orleans in the quarter. If you put all that into the blender and figure out where we came out, I have us set $975 million to a $1 billion of run rate EBITDA in the fourth quarter. We had stronger hold last year in Vegas than we did this year, both within our normal range, we were more middle of the range this year, high end of the range last year. That's not in those numbers that I gave you. But if you look at Vegas on any volume indicator, room revenue was up despite the fewer room nights, food and beverage revenue was up double digits.
Slot handle was up, table drop was flat for us. As you'll recall in prior quarters, we talked about F1 as a big stimulator of demand for us. We had been talking about a 5% lift in EBITDA in the quarter from F1. Our actual experience was about a 4% lift. So pretty close to what we were expecting. It was a huge lift for the high-end properties in the market, as you've seen, including Caesars Palace and Paris for us, it was less so for mass market properties. But generally speaking, it was a phenomenal event for the market. It needs to get – obviously, that was the first year of the Grand Prix in Las Vegas. It was a gargantuan effort to pull-off a race at all as with anything of that scale where you launch, you learn, what would I do differently as we move forward.
We know as Caesars that this will be a better event when more of the city is energized, not just the four or five buildings that garnered the brunt of the benefit. So we're working with our partners in the city and with F1 to make sure that it is a more broadly successful event next year than even the success that it was this year. Thinking about this year, as we look forward now, January was a debacle from a weather standpoint. I think that's well understood across the market, you had about three of the four weeks that were significantly weather impacted. So we and everybody else starts in a January hole. What's good about that is January is a seasonally slower month to begin with. I expect even with what went on in January, we'd expect growth from each of our three segments.
I expect growth in Vegas and EBITDA, in regionals and EBITDA and in digital, with digital being the most dramatic in my expectation. If you look at what's going on in digital, we're particularly excited with what's happening in iCasino. I know we've talked about iCasino for a very long time. We're seeing the fruits of our labor there. Eric and Matt Sunderland and their team have done a fantastic job. You saw fourth quarter handle and revenue was up 50% plus. We continue to grow on a month-over-month basis from there. So we're accelerating from there. Caesars Palace Online, as Eric said, launched second half of the third quarter. It's already to the point where it's about the same level of revenue as the business that preceded it in Caesars and it has created the shift that we anticipated to more slot play, more skewed towards female, in line with our Caesars Reward database, that's a higher hold business as well.
So our iCasino numbers are ramping very, very quickly and continuing to accelerate. Keep in mind that in the digital business, iCasino is a higher margin business than OSB. So that bodes well for us this year. And in terms of capital, free cash flow, recall that when we finished – when we completed the merger with Caesars, we had a number of big ticket items that were either committed to as part of the merger like this $400 million of spend in Atlantic City or had been committed to by either the Caesars side or El dorado side. Prior, we were rebuilding the Lake Charles property. We had – we extended the lease in New Orleans, and we're pursuing an expansion there that was tied to that lease extension. And we had been awarded the license in Danville, which has been a home run out-of-the-box.
But chunky capital projects with really not much discretion involved with them. I'm pleased to say that we're reaching the other side of that in 2024, Atlantic City is in the rearview mirror, as is Lake Charles, the – I'm sorry, the Caesars New Orleans project, should open late third quarter, and the Danville project should open by the end of the year. So as we look to – by the time that Danville project opens, we have a significant reduction in CapEx as we move forward. Free cash flow should be continuing to improve, both from growth in EBITDA, reduction in CapEx, and as Bret said, our financing that we executed in January, if you think about this is the second consecutive January. Bret and his team have executed a $4.5 billion financing for us.
Nobody really would have set up a balance sheet with $9 billion in 2025 maturities. But that’s what the market allowed us to do when we came to finance Caesars in the middle of the pandemic. So that’s what we dealt with. Last year, when rates were going up, we did $4.5 billion and shifted our fixed to floating interest ratio to 75% fixed, 25% floating as rates rose. This year, we reversed that, did the $4.5 billion now we’re 50% floating, 50% fixed. So as we pay down debt and the Fed moves into the rate cutting regime that they are telegraphing free cash flow further improves for us. So we’re very pleased with 2023. I’d add my thank you and congratulations to our team members who delivered an unbelievable year for us, just shy of $4 billion of EBITDA lift of over$700 million from 2022.
And we’re excited for what 2024 holds for us. And with that, I’ll open for questions.
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