CZR - NASDAQ

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.

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.

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.

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.

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.

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.

Thank you. [Operator Instructions] Our first question comes from Joe Greff with JPMorgan. You may proceed. Joe Greff, your line is now open.

Hi there, thanks for taking my questions. Tom, going back to your comments on F1, can F1 be a successful non-high end event? Can it be a pretty good growth driver at the mid price point properties? How do you position market price the rooms at these properties differently in 2024 and beyond to drive growth?

I think a key piece is the pricing of the actual event, Joe, the lowest end ticket was pricey by any definition as you looked at it. Last year, we’re working with F1 and I’d expect there is a – there will be more approachable participation at not the very highest end of the market. That’s going to be helpful for properties that maybe didn’t get to participate as much this year. We at Caesars certainly, and I know my discussions with MGM and Wynn, everybody is aware that if only a few buildings in the market benefit from this, it’s not going to be a super long-term event. As I said, this was basically a full sprint to get the race in position. What F1 accomplished in terms of building the paddock in the time that they did was just extraordinary. And now we all get to look at what went well, what didn’t go well, and that’s a piece of what we think we can improve going forward. And I’d expect it to be even better in 2024.

Great. And then just to get a sense of in Las Vegas, what type of operating expense growth you’re anticipating, and maybe we can kind of think about it this way in level setting, say revenues growing at a flat pace in 2024 versus 2023. And I heard your comments about growth in the market, and I’m sure in the 1Q with the Super Bowl and events, overall revenue growth is in positive territory year-over-year. But if we assume for full year 2024 that revenues are flat, how would you expect OpEx growth to perform?

Joe, our OpEx growth is going to be mid-single digits in terms of largely the lift from labor expenses. We believe that in our portfolio, revenues will largely keep pace with that. So we would expect to see margins in the same zip code as we go through 2024.

Great. Thank you so much.

Thank you. [Operator Instructions] Our next question comes from Carlo Santarelli with Deutsche Bank. You may proceed.

Hey, thank you, everyone. Eric, I was hoping I could ask, obviously you did a nice job, pretty fairly comprehensive job highlighting kind of the digital business to date. But if we’re looking at simply on the iCasino side, you guys have seen acceleration in handle, acceleration in GGR in each quarter over 2023. Obviously, you’ve rolled out some new things. How should we think about kind of framing the growth in handle GGR, however you want to think about it in 2024? And what are some of the incremental add-ons that, that you guys will have for 2024 to kind of continue to drive the story there?

Yes. Thanks, Carlo. We’ve been very impressed with the performance that we’ve realized so far on the Caesars Palace Online standalone casino. When you think about it, it was launched in August, and so it's really – it’s kind of in its sixth or seventh month at this point. And to Tom's earlier comment, it's already 50% of our overall iCasino business. So we're still measuring that business on a month over month basis as we see double-digit growth in actives, in gaming revenue and gross gaming revenue and volume. And so I don't have any concerns at this point that the pace of growth on that particular business should slow, we keep getting great responses from the customers. In terms of what we have coming, we're still early in our direct integration phase, so we have just a couple of vendors from slot products that are directly integrated. We're going to continue that throughout the year. We're going to do at least three direct integrations a quarter, and that really helps with our game mix and the stability of the system. We also have a CRM product that we're putting in place at the end of this quarter, that'll really help us do some segmented marketing even further than what we're able to do right now. And then another exciting thing that we announce today is the second branded product that we'll be able to launch. Our expectation is that it'll be a unique brand in all of the markets where we operate, and we'll launch that towards the end of the year. And it'll provide an alternative for some of our customers to use, whether they prefer that brand over the Caesars Palace Online or they just prefer to mix things up and go back and forth between the brands. So between those three key drivers, we really expect the performance of the iCasino business to continue the trends that it's on.

Great. Thank you for that. And then, Tom, if I could just kind of follow-up on something Joseph asked. As you think about Las Vegas in 2024, and clearly, from a margin perspective last year, moving parts – there are certainly moving parts in the comparisons this year, you'll have five months of kind of the incremental labor expense the Super Bowl, obviously, in the first quarter last year, kind of lapping CON/AGG, et cetera. How do you think about kind of the ability to keep margins flat? Or do you just simply believe that's almost entirely reliant on revenue?

No. Carlo, that we're never standing still, Sean McBurney, Anthony and their team have lists of items that we're working on, both from a revenue and expense standpoint that are accretive both from an EBITDA and margin standpoint. So we just don't stand and take a shot to the ribs and hope it works out. We're working to, frankly, improve our margins from here. We're really not thinking about degradation in margins. And we understand that the cost of the new union contract are a headwind there, but we are comfortable that we should be a grower in absolute EBITDA and on a similar footing in terms of margins in 2024.

Understood. Thank you both.

Thank you. [Operator Instructions] Our next question comes from Steve Wieczynski with Stifel. You may proceed.

Yes. Hey, guys. Good afternoon. So Tom, look, I fully understand you guys don't give guidance for the full year, but given everything you've kind of talked about in your prepared remarks and kind of the first two questions here in the Q&A. I guess, the question is, is it possible to grow EBITDA this year in Vegas and the regionals segments?

Yes, we expect to do both.

Okay. That's very clear. Thank you for that. And then – so then second question, Tom, obviously, you guys continue to generate a good bit of free cash flow here. So just wondering if we can get your updated thoughts on deploying that free cash flow, given just now where the debt markets are versus where your current stock price is.

We continue to want to use our free cash flow to reduce our debt as we get to the inflection point in our capital cycle. At that point, we'll look at where we are from a leverage standpoint, where the stock price is. I can tell you that if it has a forehandle, I would expect that we would be a buyer of our stock at that point.

Okay. Very clear. Thank you very much, Tom.

Thank you. [Operator Instructions] Our next question comes from Dan Politzer with Wells Fargo. You may proceed.

Hey, good afternoon, everyone. I wanted to touch a bit more on regionals. It looked like over the course of the fourth quarter, trends kind of start to evolve and get a little bit better. And I recognize January, you touched on weather was certainly a headwind, but maybe kind of coming out of January, February today trends, can you give us a little bit more detail there. And maybe how that kind of jives with your expectation for EBITDA to be up year-over-year with regionals?

Yes. I'd say, when you – in the brief periods, when you could get a clear look without weather impact, the regional business remains firm. We feel good about where we’re headed. Obviously, we’ve got – we only had about six months of Danville last year. We’ll have a full year this year. You can see the revenue numbers that that property is doing. And if you look at kind of the, let’s say, April to December period from last year, regional revenue was really nothing to write home about. So I don’t think you’ve got a particularly difficult comp in regionals generally for the bulk of 2024 and we feel good about what we can deliver.

Got it. Thanks. And then just switching to the free cash flow, you’ve done this big refi, maybe maintenance CapEx and cash taxes have shifted around. But could you just kind of remind us of that bridge as you think about 2025 from EBITDA down to free cash flow?

Yes. I mean, we’re $4 billion now with digital doing de minimis EBITDA. By 2025 we’d expect to be in the neighborhood of $0.5 billion of digital EBITDA. We expect some growth from brick and mortar. We’ve got about $2 billion between interest expense and lease expense today that should be coming down both because of rate and because of reduction in leverage and maintenance capital is about $400 million a year.

Any assumptions for cash taxes in there just along with that? And that’s it for me.

Yes, we’ll start being a cash taxpayer in 2025. We don’t have an estimate for you. It depends on all the assumptions you just use to get to free cash flow. But we’ll start being a taxpayer next year.

Understood. Thanks so much.

Thank you. One moment for questions. Our next question comes from Brandt Montour with Barclays. You may proceed.

Hey, good evening, everybody. Thanks for taking my question. So, in Las Vegas, you gave the convention group mix, I think for either the fourth quarter or the full year. Where do you see that mix going this year? And maybe you could give us an update on sort of how attrition is going and how you’re able – if you’re getting any incremental benefits on your revenue management yield side from the increase in mix and convention.

Brandt, as Anthony mentioned, you’re right. Convention had a record in 2023. Occupied room nights were 17%. We continue to expect growth into 2024. We’d expect the occupied room night mix to grow to the high teens over time. Forward pace looks encouraging for group in the convention business. And you’re right, from a mix perspective, having that group and convention on the books is very helpful to the leisure side. So that’s what’s been driving the cash ADRs on the leisure side as well.

Okay. That’s super helpful. And then maybe a question to follow-up, maybe with Eric on the agreement with WynnBET. Could you just talk about the sort of pros and cons of coming out with a second brand? Obviously, it’s additive to a certain extent. I’m just curious how you weigh that against the scale of having a marketing budget, right, that can get maybe more bang for their buck if it’s going toward one brand. But I guess maybe you’re thinking about having two brands going for a different customer. So maybe you could just flesh that out for us.

Sure. We liken it a lot to the Las Vegas Strip where a customer that comes to town, they’re going to stay at one property, but they’re going to visit multiple properties just because they want a different feel, they want a different experience, maybe to change their luck or whatever the reason is. And we think that customers have that same behavior tendency online. We see that in New Jersey, where we run multiple brands today. And so a company like ours that has multiple well-known brands, we thought it’s only logical to have a second offering for those customers. In terms of the brand building, it’ll be a very well-known brand to everybody. So we’re not going to spend a huge amount of money marketing the brand. What we’ll spend money on is acquisition. And just like today, we’ll do reasonable acquisition cost versus the lifetime value of the customer. And as a result, we feel like this is going to be a very incremental action for us to do. We don’t think there’ll be cannibalization between the two. And then in addition, because we’ll be using the same platform and a lot of the same game content and integrations, the cost to launch a second brand will be much lower than it costs to have a single brand in the market.

Very clear. Thanks all.

Thank you. One moment for questions. Our next question comes from David Katz with Jefferies. You may proceed.

Hi. Afternoon. To use your adjective, Tom, chunky, any temptation or any thoughts about revisiting the notion of a Strip asset and lightning the portfolio to that end and put some takes there?

Yes. David, as we've discussed, in terms of asset sales, everything's for sale every day in a public company, but we're not anticipating doing anything actively on our end.

Understood. And with respect to digital, if I can just follow-up on the sports betting side, since you are doing so nicely on iGaming, sports betting is a lot of talk about product advancement, same-game parlays, et cetera, and in play as a vehicle for growth. Could you just update us on your strategies there to sort of keep up with the leaders?

Sure. This year, I would say that predominantly where we've invested has been on the feature side. So when we entered the year, there were a number of products that our customers wanted that we either didn't deliver very well or didn't deliver in the fullness, in terms of the breadth of markets that our competitors did. And so throughout the year, we invested heavily in getting those products up to where the market is. In doing so, the stability of the app, some of the bugginess, there are a few features that need to be enhanced, and so that's really where this year the predominant effort is going to be, on the sports betting side. So it's basically making the app very functional from the customer perspective. Given that, we feel like we closed a lot of the aspect and feature gap that was there in the year before. And so that's kind of what you'll see this year as we make the enhancements to the app throughout the year.

That'll work. Thank you very much.

Thank you. One moment for questions. Our next question comes from Barry Jonas with Truist. You may proceed.

Hey, guys, can you talk a little bit more about New Orleans, maybe timing there and your ROI expectations? Also curious to hear about what you think the ramp is going to be with and without next year's Super Bowl. Thanks.

Yes. Barry, as you know, that's a pretty dramatic transformation of that property. If you recall, when it was first opened, there were restrictions on what you could offer protections in place for both F&B and hotel in the city. So the current Hotel at Harrah's is across the street. You have to go either across the street or go below through a tunnel to get to the property. The food and beverage offerings were fairly pedestrian and a little bit limited. And so this transforms into Caesars New Orleans. There's a Caesars Hotel Tower that drops directly into the middle of the casino floor. The casino floor is entirely redone. As you – if you were to go there today, we've got about a third of the casino floor that's under construction at a time and it's rolling for the next six months or so. It's a stark difference in terms of what the new casino looks like versus the old. Basically an entirely new property. We've got restaurant product from Emeralds that's already open. Have we announced the others? Yes. So we've got Nobu coming. And keep in mind, Four Seasons has a brand-new property across the street. Windsor Court is across the street. Lowe's is across the street. So you've got a lot of the convention hotels in New Orleans are directly adjacent to our property and will feed into the venue and these F&B outlets. It should be a home run for us. So we're expecting that this property will be among our largest regional properties once we're complete. And that would be $200 million a year neighborhood of EBITDA.

Great. And then just…

Sorry to hit on Super Bowl. The Super Bowl is in New Orleans in next February, which is very well timed for us in terms of launching the product. New Orleans as a city has been slower to come back from a group standpoint than other convention cities. We would expect the Super Bowl will be a catalyst for that as well.

Awesome. And just as a follow-up, obviously, New York's still ongoing, but I believe there are a number of regional land-based opportunities that have either come up more recently or being debated. Curious, if there's any new expansion opportunities that interest you at the moment?

Nothing that's on the front burner. We're constantly approached with, would you do this? Would you do that? We're pretty focused on the projects that we have underway and are really looking forward to kind of a break in the capital intensity – CapEx cycle that we've seen since we closed the merger, and we're focusing on driving free cash flow for the next year or two.

Great. Thanks, Tom.

Thank you. One moment for questions. Our next question comes from Stephen Grambling with Morgan Stanley. You may proceed.

Hi. Thanks. When you think about the path to $500 million in EBITDA in Digital, which I realize you’ve basically reiterated that I think each call this year. What has surprised you to the upside and or to the downside, as we think about market size, share, structural hold, marketing, et cetera from when you first put out that target?

Yes. I would say the size of the market has consistently exceeded our expectations. Growth in mature markets that have had OSB for a while or iGaming continue to grow at steady clips. I would say legalization has been – there has been no real surprises there in terms of jurisdictions that did or didn’t legalize our performance in iCasino since we launched Caesars Palace Online, we had pretty aggressive expectations and they’ve exceeded those and it continues to accelerate. Obviously, I didn’t foresee the Penn/ESPN transaction which allowed us to terminate an agreement that wasn’t profitable for us. So those are kind of big picture what’s changed since we first started this.

And where do you think structural hold should be in the online sports betting business as we think about longer term?

Yes. We’ve said around 7.5% to 8% for us. We do have a lot of larger players that we know from the casino side that straight bets that kind of bring down that average. But as I mentioned in the prepared remarks, our percentage of parlays and the percentage of legs per parlay do continue to be growing. We grew hold by about 100 basis points this year and it was fairly consistent throughout adjusting for kind of one off variances.

So just to be clear though, the 7.5% to 8% would be you have to get there through increased parlay mix from here that wouldn’t be additive?

Yes. In order to get there, we’re going to need to continue to increase our parlay mix or change the number of legs for people that are already betting existing parlays. Combination of those two should drive us up to that 7.5% to 8%.

Great, thanks. I’ll jump back in the queue.

Thank you. One moment for questions. Our next question comes from Julie Hoover with Bank of America. You may proceed.

Hi, everyone. It’s Shaun Kelley on for Julie. Just two questions, if I could. First on the regional side, Tom, you’ve been calling out for a while just some extra competition in a handful of markets. And as we screen the data that seems to be in markets that are particularly overlap with Caesars properties. So just kind of curious, has that settled down at all? Is that something that you kind of lap and expect to not deteriorate further? Just how do you underwrite that? Because it is a little different than the stability we’ve seen, I think, more broadly across regional landscape. But again, we do see it in the numbers.

Yes. The biggest impact that we saw last year was in Tunica, the property that opened closer to Memphis in Arkansas. We’ve lapped that. So we don’t expect to see continued – obviously you’re continuing to compete with them, but we’re fairly steady state now and can build back. Chicago had quite a few additions in the last 12 months. There’s more to come. You got the Forge Creek [ph] property in the south suburbs, but we’ve managed that pretty well in terms of exposure. You had the Spectacle property in Gary moving to the highway. We’ve lapped that as well in Hammond that impacted Hammond. And then Nebraska we have the Lincoln properties online. The Omaha properties are expected to come online toward the end of this year. So there's still impact in the Council Bluffs market to come. But from, in terms of what we've been referencing, the bulk of that we've lapped at this point.

Great. Thank you very much. And then as my follow-up for you or for Eric, just how should we think about, let's call it EBITDA flow through as we think about sort of the change in revenue to the change in EBITDA moving forward in digital? I think traditionally when we talk to some of the other operators, we think anywhere in the range of 40% to 60% depending on the state, depending upon whether or not it's hold related or not. But there's still a decent amount of variable cost. The question is can that – is that the right formula for Caesars? Can it be any better than that as some of those marketing agreements roll-off and as – and as the flows are any different, especially in the iCasino side.

So good rule of thumb for us is 50% flow through as we sit here today, if iCasino continues to gain momentum you should expect to see that improve the runoff of the contracts will be helpful, but that's fairly lumpy. So I would expect we'd be at the midpoint of your number toward the higher end as some of these things happen.

Thank you very much.

Thank you. One moment for questions. Our next question goes from John Decree with CBRE. You may proceed.

Good afternoon, everyone. Thanks for taking my questions. Maybe to go back to the regional markets, Tom, I apologize if I missed, and I think you may have answered it with your growth commentary about the 1Q. But absent the weather or after the weather in January, what you've seen in February was a typical resume to normal. Is that fair?

That's fair.

Thanks. And then I guess one other kind of housekeeping item and Vegas, the room disruptions that you cited in the 4Q, are they both complete and are there any kind of notable disruptions that we should think about in 2024 particularly in Las Vegas? I think you talked about some of the bigger ones in the regional market, so really just Las Vegas?

No, those rooms are back online. We're building a bridge that connects that tower to the old Horseshoe to Paris, but that shouldn't have any disruption.

Right. Okay, that's it for me, just those housekeeping ones. Thanks, Tom.

Thank you. One moment for questions. Our next question comes from Chad Beynon with Macquarie. You may proceed.

Good afternoon. Thanks for taking my question. With respect to the North Carolina launch, this one seems kind of as fair as it gets. You have a database with the Cherokee property and it sounds like Eric, all the features are pretty much almost there. So how should we think know what an expectation should be for you guys, whether it's market share or profitability or customer acquisition, should this look different in terms of share versus other states? Thanks.

No, is the short answer. I'd look at what Michigan just reported. I think our peers were 3 to 4x our promo to handle. I'd expect that to look similar in North Carolina.

Thank you, Tom. And then a follow-up to the last question, just in terms of the Vegas portfolio. So following the Versailles Tower and some of these F&B refreshers that you're doing, I know there's nothing else near-term, but how are you thinking about other, maybe transformative or kind of larger projects in Vegas? And how does the outcome of the Oakland A's [ph] situation change, what you're thinking from a timing standpoint? Thanks.

I would for the second question the outcome of the Oakland A's [ph] situation doesn't impact what we'll be pursuing at all. What we're doing this year in addition to finishing the Versailles connector, is work at Flamingo in terms of improving the strip frontage. There's a number of outlets that are subpar and substandard in terms of what they generate relative to other similarly positioned spaces on the Strip. These are not huge dollar numbers, but they should help transform that property. Should be very high ROI, but you should be thinking about in Vegas, capital projects are $10 million $20 million, $25 million for a couple of things that we're doing in a building, not $100 million like Versailles.

Thank you. Appreciate it.

Thank you. One moment for questions. Our next question comes from Daniel Guglielmo with Capital One Securities. You may proceed.

Hello, everyone. Thank you for taking my questions. Just around labor at the properties. You guys have a good advantage of kind of the U.S. with the portfolio makeup has turnover. From a labor perspective, has it been similar this year to last year? Is there anything you're seeing within the different regions that would be helpful?

Yes, I would say nothing particularly informative. The period post reopening after COVID was about as chaotic from an employment turnover standpoint as we've seen. That stabilized kind of in 2023, and it's been stable for a little while now. So it feels more like pre-pandemic in that area than it had immediately post opening.

Okay, great. Thank you. And then we've talked a lot about the capital flexibility in 2025 and just thinking about the VICI option for the Centaur [ph] properties outside of the share repurchases. And then I think you had said debt focus. Is there anything else you're kind of gearing up forward looking at when thinking out two years?

No. Obviously, VICI has that option that expires at the end of 2024. They've indicated an intention to exercise it, and there's regulatory process that they need to go through. And – you should not expect us to exercise our option, but we do anticipate that they'd like to exercise theirs.

Thank you.

Thank you. One moment for questions. Our next question comes from Jordan Bender with Citizens JMP. You may proceed.

Great. Thanks for taking my question. With the new app, you mentioned a shift into more slot play and not that hold shouldn’t move much for iGaming. But is there any upside to iGaming hold as you shift away from some of the lower margin table play?

Yes, that's been a big lift for us in iGaming. That table dominant player that we had is typically 100 to 150 basis points lower in hold than the slot dominant player that we find in Caesars Palace Online. So that's helped us in our momentum as well.

Okay, and then just to follow-up, I assume you pick up the Wynn database in the state as well. How should we just think about that customer mix versus what you currently have in that state? Thank you.

Yes, we do pick up the database, and we'll work closely with Wynn as we transition to move the customers over, so that they can trial our app. The database is different from ours, but in terms of the customers, but it's very similar in terms of what we're trying to accomplish with the apps that we're launching. So it's a slot –centric customer at a slightly higher end, and then from a table perspective, it's also on a slightly higher end from what we normally have in our database. So we're excited to introduce those customers to the product that we have.

Great. Thank you very much.

Thank you. I would now like to turn the call back over to Tom Reeg for any closing remarks.

Thanks, everybody for your time, and we'll see you next quarter.