Good day, and thank you for standing by. Welcome to the Caesars Entertainment Inc. 2023 First Quarter Earnings Conference Call. At this time, all participants are in 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 first quarter 2023 earnings. This afternoon, we issued a press release announcing our financial results for the period ended March 31, 2023.

A copy of the press release is available in the Investor Relations section of our website at investor.caesars.com. Joining me on the call today are Tom Reeg, our Chief Executive Officer; Anthony Carano, our President and Chief Operating Officer; Bret Yunker, our Chief Financial Officer; and Eric Hession, President, Caesars Sports & 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 certain forward-looking statements about the company's performance. Such forward-looking statements are not guarantees of future performance and therefore, one should not place undue reliance on them.

Forward-looking statements are also subject to the inherent risks and uncertainties that could cause actual results to differ materially from those expressed. For additional information concerning factors that could cause actual results to differ from those discussed in our forward-looking statements.

You should refer to the cautionary statements contained in our press release, as well as the risk factors contained in the company's filings with the Securities and Exchange Commission. Cesar's 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 comparable to 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 website at investor.caesars.com.

by selecting the press release regarding the company's 2023 first quarter financial results. I will now turn the call over to Anthony Carano..

Thank you, Brian, and good afternoon to everyone on the call. We had a strong start to 2023 in the first quarter. Our Las Vegas segment delivered a Q1 EBITDA and EBITDA margin record and our regional segment reported a strong quarter, excluding weather disruptions in Northern Nevada.

In addition, our Digital segment was nearly breakeven, despite launching sports betting in two states during the quarter. Trends in Las Vegas remained strong during Q1, delivering 24% revenue growth and 33% EBITDA growth versus last year.

Excluding real rent payments, Las Vegas generated $544 million of adjusted EBITDA with a margin of 48%, up 300 basis points versus last year. Occupancy during Q1 was 95% versus 83% the prior year. Strong occupancy and ADRs led to record in cash hotel revenues and food and beverage results.

Our Group and Convention segment also delivered an all-time EBITDA record in Q1 and represented 21% of occupied rooms during the quarter, setting a new quarterly record for convention mix.

Our forward outlook for the Group and Convention segment remained exceptionally strong, driven by a continued combination of increasing room nights, higher ADRs and strong banquet revenues. In our Regional segment, we delivered 2% revenue growth and a 2% decline in adjusted EBITDA versus last year.

As Tom will discuss in more detail, our Regional segment was negatively impacted by severe winter weather in Northern Nevada. However, trends outside of Northern Nevada remained strong during the quarter, delivering EBITDA growth year-over-year.

We remain encouraged by the early returns we're seeing on recently-completed capital projects, including the expansion and the rebrand of Horseshoe, Indianapolis, the expansion and rebrand Harrah's Pompano Beach and the new land-based Horseshoe Lake Charles.

The success of these projects gives us further confidence in the return potential of our ongoing growth projects. We remain on track to open a temporary facility in Danville, Virginia on May 15th and in Columbus, Nebraska by the end of Q2. Our expansion at Harrah's Hoosier Park is slated to open in Q3 of this year.

The majority of our CapEx spend in AC is nearing completion and we're looking forward to launching our new entertainment offerings THE HOOK by Spiegelworld this summer. Work on our $430 million expansion in New Orleans continues and is slated to be completed towards the end of 2024.

And finally, we announced yesterday that we are transforming the former Jubilee Tower at Horseshoe, Las Vegas and to the new Versailles Tower at Paris, Las Vegas. This $100 million rebrand and upgrade is included in our 2023 capex plans and slated to be completed this year.

We're off to a great start in '23 and I want to thank all of our team members for their hard work in this first quarter. Our results are a reflection of their dedication to delivering exceptional guest service and experiences. With that, I'll now turn the call over to Eric for some insights on the first quarter in our Digital segment..

Thanks, Anthony. During the first quarter of 2023, we delivered a dramatic improvement in the performance of our Digital segment versus the prior year.

Our business nearly broke-even during the quarter on $238 million of net revenues versus a $554 million EBITDA loss in last year, which was impacted by significant brand-related spending and state launches in New York and Louisiana.

Our performance this quarter clearly demonstrates the effectiveness of our targeted promotional investment within our existing customer base as well as customers located in the new states that we launched this quarter, Ohio and Massachusetts. I'm pleased with the progress we have delivered over the last 12 months.

Our net revenues continue to increase significantly as we launch new states, grow and retain our existing customer base and continue to deliver exciting product improvements. On that front, we will be executing three significant tech enhancements to our platform during the remainder of the year.

First starting early in the third quarter, we will be launching a new standalone iCasino app this exciting addition to our product offering will allow us to drive better customer engagement through a dedicated application with a focus on increased game content, which will include new proprietary offerings and improved marketing capabilities.

Second, we expect to begin testing our in-house player account management system later this year, which will ultimately lead to a shared wallet that we anticipate rolling out in 2024. And finally, we expect to migrate all of our operations in Nevada to our Liberty tech stack ahead of the 2023 football season.

From an EBITDA perspective, our net revenues are now at a scale where we are able to roughly breakeven and cover the costs of our proprietary technology. We expect that our year-over-year net revenues will continue to grow each quarter.

And given the effectiveness of our expense management plan will drive extremely high flow-through on each incremental dollar. From an expansion standpoint, after our most recent launches in Q1, we now offer sports betting in 30 North American jurisdictions, 22 of which we offer mobile wagering. And in addition, we offer iCasino in five jurisdictions.

I'll now pass the call over to Bret for some additional comments..

Thanks, Eric. Given the outstanding progress being made in our digital segment, which is now fully self-funded, we have the ability to sweep all brick-and-mortar cash flow toward debt reduction.

Today, we announced that we fully repaid the 8% $400 million Forum Convention Center loan due 2025, resulting in $32 million of annual interest expense savings and enhanced free cash flow. Our capex plans for 2023 remain unchanged, with the planned spend of $800 million, including $500 million of growth and $300 million of maintenance.

Leverage on a traditional and rent- adjusted basis continues to decline as we repay debt and grow EBITDA with traditional net leverage just over 4 times and rent adjusted leverage just over 5 times. We continue to target the third consecutive year of $1 billion of permanent debt reduction. With that, I'll turn it over to Tom..

Thanks, Bret. Thanks, everybody for joining today. To go a little deeper into the numbers, Vegas, was very near a quarterly -- all-time quarterly record, it was a Q1 EBITDA and margin record and it was a record for mix in the group business 21%. Recall that Caesars' pre-merger was running at about 14%.

And so what we're seeing -- what you're seeing through Vegas is not only just extraordinary demand that continues as you look through each month. You're seeing the average customer in our property continuing to be -- continuing to raise.

We're getting group business that is higher dollar comes with banquet business attached and replaces our least profitable players. So it's a virtuous cycle in Vegas, as we sit here today. Obviously, second quarter generally is our most difficult comp of the year, since that was our all-time record.

Second quarter last year we did almost $1.50 billion of brick-and-mortar EBITDA, but we feel very good about business in April and through the rest of this quarter in Vegas.

And as you look forward with the Group business that's on the books going forward, we did announced $100 million project to change the Bally's Jubilee Tower to the Versailles Tower in Paris. It will be connected by a physical bridge into the property.

Paris has really exploded as we've improved the casino floor and added a number of high-end food and beverage options, including Nobu, the Bedford and Vanderpump. And room rates at -- both room rate and spend -- non-gaming spend per room at Paris are significantly ahead of where they are at Horseshoe.

So we think this will be a high ROI and more importantly, high-conviction in that ROI project that is in design stages now and should begin shortly. Regional, if I touch on regional for a moment. The Tahoe area, Northern Nevada about 720 inches of snow, so 60 feet of snow in the quarter.

Unfortunately for us, a lot of those storms hit Thursday, Friday, Saturday. So even with that amount of snow, you can get lucky as to when it hits, we did not. So weather in Northern Nevada cost about $20 million of EBITDA in the quarter. So if you normalize for weather in the quarter, regional EBITDA and margin both would have been up slightly.

We've got a number of exciting projects there that I'll touch on as they get a little deeper, I'll circle back to that. In Digital, we were about a $3.5 million loss that was with the launches of Massachusetts and Ohio. And the Super Bowl that didn't hold very well for us, frankly, given the amount of scoring that happened in it.

Really if any of those three legs were not a part of the quarter, we were positive. As we sit here today, we are positive on a year-to-date basis. In Digital, I told you last quarter we anticipate that we will generate positive EBITDA for the year 2023.

I can tell you today, we're already there on a year-to-day basis and the amount of EBITDA that I was expecting, when we announced that we'd be positive for the year about 90-days ago versus where we are today, we think we'll do considerably better than where we thought we were even 90 days ago.

And something that comes up in Digital and conversations with investors is I suppose from our peers, the GE. It's just Nevada. I want to be clear that non-Nevada as a piece of Digital and I'm not going to get super specific. But more than 80% of our Digital business is non-Nevada.

And we will be EBITDA-positive this year, we remain on track to generate the 50% return on the $1.1 billion of cumulative losses that we generated, as we launched the business. I still expect that to be a 2025 event, with the hope that we're run rating that level by the fourth quarter of '24.

So I want to get out of -- I know these calls tend to focus on right now next 90-days. I want to -- I want you guys to know how do I think of the business from a longer-term perspective and I want to couch this with this as not guidance, as most of you know, I'm pretty transparent. So this is what I see today.

When we took over Caesars, the assets that we own today the brick-and-mortar assets, we're doing $2.9 billion of trailing EBITDA. As we look post first quarter, the Vegas business LTM EBITDA Vegas alone is a little over $2.1 billion. Regional is a little less than $2 billion.

When you run through managed and corporate, we're right at about $4 billion of EBITDA from the same assets that we're doing $2.9 billion prior to the merger.

We've got about $2.4 billion of operating cost, cash outflows between rent, cash interest expense, maintenance CapEx, so about $250 million shares outstanding that's about $750 of free cash flow per share as we sit here today. The Digital business for now seven months is about breakeven. So obviously inflecting to positive.

We've told you what we expect that to do through ‘25. In that same timeframe, I think we've got a similar amount of incremental EBITDA that will come through the brick-and-mortar business. So, piece of that is -- piece of that are the projects that Anthony touched upon, you've got the Lake Charles expansion that opened in December.

So we're still in the first-half of the first year post that reopening. We've got the Pompano project where the racetrack came out of the business. We expanded the Casino, we will start to see the JV development begin in earnest, it's already in earnest around the property, but you'll start to see pieces come online.

We've got the Atlantic City spend, which is largely in the rearview mirror. This summer is the first prime period where we will not be significantly disrupted on our floors from those projects. So we're optimistic there.

We've got the Hoosier Park expansion in Indianapolis, which is again a high probability, high ROI project mirrors what we did, of course, Indianapolis where we have seen returns in excess of 30% on that capital would expect a similar outcome in that Hoosier Park. And then you've got New Orleans, which is over $400 million.

That will come online before the Super Bowl of ‘25. So towards the end of ’24, that's going to transform that property into a Caesars, a number of high-end restaurants. You've got a Caesars Tower that will be dropped right in the middle of the Casino.

You've got a number of high-end food and beverage offerings, you've got third-party development across the street of Four Seasons Hotel open across the street within the last 12 months. So we're excited about what's possible there.

So I think what we're looking at if you look out to ‘25, in my view, is a company that could be pushing toward $5 billion of EBITDA. As Bret said, we paid down $400 million mortgage note on the Forum Convention Center yesterday. That puts us on-track to pay-down over $1 billion of debt for the third consecutive year.

I would expect ‘24 and ‘25 to look the same. So again, as we sit here today, you're at $22 billion-ish of lease-adjusted debt. That $4 billion of EBITDA with Digital flat. So you got about 5.5 times leverage.

Just from what we do organically in the business, as I described that debt balance should get down to $18 billion and $19 billion against the $5 billion. So you're looking at -- in that scenario, you're paying down effectively 7% debt, $1 billion a year for three years.

You're going to have some increase in the lease payment stream, but you're talking about $150 million less in cash outflows, $1 billion more in cash inflows. So you're looking more like $12.50 or more a share in cash flow. None of those assumptions in my mind seem particularly aggressive.

I think we can generate an incremental $0.5 billion out of the brick-and-mortar given the momentum that we have in the business and I think we're going to do better than that. In Digital, and if you think of where that comes in Digital, I think you've got three legs of the stool and a third of it and they'll roughly be a third, a third, a third.

You've got the existing sports-betting business continues to get more profitable, volumes continue to increase and you should expect that continues to drive positive EBITDA, that's the bulk of what's happening as you see us inflect the positive. Eric talked about the iGaming app that we will launch early in the third quarter.

We're particularly excited about that, that's going to improve in particular our slot business in iGaming, because our existing portal is through a sports-betting app, our existing iCasino business leans toward tables more than our peers and iGaming forward app is going to change that for us.

If we get our iGaming share to equal our sports-betting share that's going to be that third of the boost in EBITDA.

And then as we've talked about numerous times, we've got partnership and talent agreements that come up in the next, let's call it, 12 months to 24 months that we expect will be the third leg of that stool that gets us to $500 million plus. Every time I speak to you, I'm more confident in those numbers.

And every time I speak to you, we've outperformed where I thought we would have been 90-days ago. So that's obvious, thanks for indulging me to think longer-term, because I know we're going to get right back into what's the consumer doing right now and two weeks from now.

And what I'll tell you is we continue to see significant strength across all of our assets with extraordinary strength in Las Vegas. So, we are exceedingly optimistic about the road ahead.

We're particularly proud of the quarter that we just posted, so the idea that -- if you add back the 20 in Northern Nevada that we were nearly $1 billion in EBITDA in the first quarter, which is not typically a seasonal strong point.

I'm really pleased and proud of what our team and our employees have delivered and look forward to the rest of the year. And with that, we'll open it up for questions..

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

Hey, Tom. Everybody, thank you for the remarks.

Tom, when you talked about kind of being positive year-to-date in digital and positive for the year, kind of, an odd-sounding question, but from where we are today, do you expect to remain positive through the year? Will we see a 3Q that likely embeds some spending ahead of the NFL season and then obviously harvesting that in the fourth quarter?.

Yes, 3Q is probably a coin flip as to whether or not we are slightly positive or slightly negative as you allude to. There's a lot of -- basically, you have a lot of pre-football season spend, and you only got about three NFL weeks to work against that.

I would also tell you, though, that if you had asked me the same question 90-days ago about the quarter that we were in or the quarter that we're in now, we continue to beat our internal expectations. So I'm cautiously optimistic that we could have seen our last negative quarter..

Great, thank you. And then as it pertains to Las Vegas, obviously, second quarter is a tougher comparison with some larger groups that were meaningful in the 2Q last year out.

As you think about the second-half of this year, as well as into next year, do you get the sense from kind of your mix shift and your group pace, coupled with kind of what you're seeing on the casino floor that you're able to kind of just shrug off what might be a little bit of a challenging comparison in 2Q and resume growth in the back half of the year?.

Yes. I think that's a great way to put it. I think second quarter is a -- we're going to be very pleased if we match what we did last year. It's -- we remain exceedingly strong.

If you look at the next 90-days of our occupancy forecast, which is what we've got the most confidence in at any given point, you're still looking at mid-90s occupancy on the strip at healthy rates.

But the -- you're not going to repeat the -- or we feel much better about the utility situation that we had last year in the third quarter and then the fourth quarter, you've got Formula One, which we think will be a significant boost to that quarter.

So I'd say something similar to last quarter, second -- or last year's second quarter and then growth in the second-half is a good place to be..

Great. Thank you, and then if I may, just one follow-up along those same lines.

As you guys look out on the horizon in terms of bookings, and I'm talking more so towards leisure transient, et cetera., are you seeing anything across the market from a promotional perspective that has changed at all?.

Nothing that's material enough to impact us that we'd want to discuss. We see in various markets. It depends who our competitors are, what the market looks like. You've seen some remained disciplined. Others, not. The -- sadly, one of the statements I can make Caesars used to be the bad actor in a lot of these markets and isn't anymore.

So we feel very good about the current environment..

Thank you very much..

Thank you. Our next question comes from Joe Greff with JPMorgan. You may proceed..

Good afternoon, guys. Just starting with Las Vegas, Tom. Obviously, the 21% of occupied rooms in the first quarter relating to the group segment, that's a fairly significant jump and good to see.

Can you talk about how group looks for the balance of this year? Is group pace, group room nights up in the aggregate 2Q through 4Q?.

Joe, all the KPIs in the group and convention business are up for last year in 2019. So both rooms, ADRs and banquet revenues are pacing ahead for the rest of the year. We expect the group business to have another record year in 2023..

Great, thank you. And then on Digital, Tom, you had spoken earlier that your outlook is favorable just over the last 90-days. And I know you talked about some of the things that you're doing there.

How much of that is a rationalized cost structure and the scale benefits in OSB? How much of that is related to iCasino and some of the things that you have done and will be doing this year?.

So those are -- you're hitting on the main contributors. The chief driver of the change has been what we've done on the promo and branding side, I think promo as a percent of handle for the quarter was around 1.25%, which is dramatically lower than our peers. Our cost of acquisition has come down considerably.

Ohio as a new launch state for us was EBITDA positive in March, so month three post-launch. So we're really feeling good about the way that we're running the business and how we're positioned.

Matt and iGaming has done a great job of continuing to build that business off of the current platform, but we really think the opportunity there starts in earnest beginning of third quarter when we launch the new iCasino app..

Great. Thank you, guys..

Thank you. Our next question comes from Steven Wieczynski with Stifel. You may proceed..

Yes. Hey, guys. Good afternoon. So, Tom, if I can I put you back on your soapbox for a minute? I want to get your opinion on a question we get a lot from investors.

They always seem to want to know, they would want to ask and they just want to get the feel for -- is this going to be the best that Vegas ever is, especially as we kind of move through 2023 strong event calendar. So just maybe if you could opine on that as to maybe why that's not the case..

Yes. I think you've seen Vegas as a market do a fantastic job of continuing to add events. And in the case of sports franchises or Formula One that bring a significantly more valuable customer to the market.

So if I look at Vegas now, all of us are pretty full, I listened to Bill and team yesterday, congratulations to them, they had a fantastic quarter as well. But we're all doing well here. Occupancy rates are quite high.

And so yes, it's natural to say, how do you get better? Well, you get better by up-tiering the average customer that is coming to the market. And that's what you can see in our own microcosm of the market in Caesars, where what's happened in our business over the last three years is both the expense discipline, but also a better average customer.

And you see the raiders come to town. You see Formula One. You see us gaining share as a market in the group business. The people that come to see those, to see Formula One, the A, has just announced a couple of weeks ago, tend to be a better average customer.

So you're bringing in higher-value customers and we're already full, so you're kicking out the lowest end. I see no reason that, that needs to stop or would stop. This market has done great job over the 30-years I've been involved in and around gaming.

And continuing to add reasons for people to come, continuing to add capacity and continuing to add to the average customer that shows up here. We all know that back in our parents' day, it was a very different market, low value, you get stake in lobster for a couple of bucks.

Now you're talking about one of the best food and beverage scenes in the world, among the best sports and entertainment experiences in the world and continually adding to that. We are working to continue to add to that, MGM, Wynn, Sands, they're all working to up-tier what we're offering to customers.

And then the market as a whole -- I've got to give credit to Steve Hill at LVCVA, he was the driver of bringing Formula One here, and it's going to be huge for the market.

So the nice thing about -- we all like to stand back to back, see who's tallest in this market and argue about that, but we do work together well to make sure that this market continues to expand. And I think it's foolish to bet that, that 30-year cycle is all of a sudden going to be over a quarter from now..

And then, Tom, I know you said -- thanks for that by the way, that was very helpful. And I know you said you aren't giving guidance, but look, unfortunately, our investors are going to take your $5 billion math essentially as guidance for 2025.

So I guess what I want to ask here is I assume your $5 billion math, just meaning the consumer stays pretty much where they are right now. But if you think about all those buckets, you laid out to get to that $5 billion.

What would be the one bucket that you would say is maybe the most, I don't konw if it's the word most concerned about or the biggest stretch to kind of get there and hopefully, that makes sense..

Yes, so I'm talking about a three-year time horizon, right. So end of ‘25, we're not typically talking about that type of time horizon on a call like this. So is it possible in that three years, you have a cyclical downturn. Yes, sure. So do you want equivalent and say $5 billion might be $4.75 billion, all right, I'll give you that.

That's $1 a share on that free cash flow number. You're talking about a company here that has been levered for a very long time, before we ever got here and then post-merger. And I see a path to where lease-adjusted leverage is less than 4 times, conventional leverage is less than 3 times, and we're spinning out over $12 a share of free cash flow.

Quite frankly, if you want to say, gee, I think it will be $10 or $11 instead of $12, I think that still looks good against the stock that's at $44..

Okay, great. Thanks, Tom. I appreciate it..

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

Hey, good afternoon and thanks for taking my questions. I wanted to touch on regionals, Tom. Could you talk about maybe the cadence over the course of the quarter and what you've seen into April? I know there's been some noise in terms of comparisons, both on a year-over-year and versus 2019 basis. But it sounds like the consumer is doing fine.

So if you can maybe just provide some clarity or any additional color on that?.

Yes. So I'd say March was -- I told you on the last call, I think we could have an all-time record in March. It was an all-time record for us, so regional and Vegas were strong. April, you had a negative calendar shift that we get back in June. So I'd expect that you should see -- or you should expect to see that roll through the numbers.

But generally speaking, we are continue -- seeing continued strength across the portfolio..

Got it. And then Pompano, you mentioned this quickly in your prepared remarks. I mean this was a big JV project with a long-term time horizon that was supposed to be built out over time. You've had the casino expansion now come online.

How should we think about maybe some JV equity cash flow distributions coming from this and the returns over time? And maybe even in the near-term, are you seeing any disruption as this bigger term -- bigger project gets built out?.

So the front of our property is definitely disrupted, there's a top golf and the public under construction, and we redid our Portico share. But despite that, we're seeing significant momentum in Pompano generally. If I had to point to our stars as we sit here right now today, Pompano and Reno jumped out at me in the last 30-days or so.

What you're going to see out of Pompano in terms of that JV, we've, finally, thankfully work through all of the local approvals required. We're moving dirt to track is closed. Grandstands coming down. So you're going to see a lot of development activity there over the next 12 to 24 months. There is cash in the JV.

We would expect to be -- if there is any capital required from the JV partners, it's already in the JV. To your point, we're probably closer to where cash starts to come out of the JV, but I don't think that's a ‘23 event. I think that's ‘24 or ‘25.

But we're particularly pleased that has taken far longer than we anticipated when we originally announced it.

I don't typically announce something and say, get excited six years from now, but I thought it was going to happen much quicker than that, but we're now right on the cusp of where that's going to drive not only the cash flow into the JV that's going to allow distribution.

But as importantly, for us, the traffic to the property that's going to continue the momentum that we've seen over the last quarter or two..

Got it, thanks so much..

Thank you. Our next question comes from Brandt Montour with Barclays. You may proceed..

Hey, good evening, everybody. Thanks for taking my questions. So just a couple of more big-picture questions. Tom back to your last discussion.

When you guys go through your longer-term scenario planning or stress testing or whatever you call it, wondering if you'd be willing to sort of update or refresh a bear case to that $5 billion longer-term planning..

Yes. So we're an $11 billion revenue company, plus or minus. If you look back to the crisis, ‘08, you're talking about an 8% hit to that number. So call it, $800 million in a GFC-type scenario. I'd expect about 50% of that flows through. So in that scenario, I think your $400 million of EBITDA that's at risk.

I don't personally see a GFC-type scenario coming. I think based on what we can see, if there's a slowdown, it should be relatively shallow. In those numbers, particularly in Las Vegas, you had a massive supply increase into the financial crisis that doesn't occur here.

So I'd be thinking more along the lines of half of that $800 and $400 as kind of what I see sitting here today as our balance sheet risk in a normal cyclical downturn..

That's super helpful. Thanks for that. And then over at the three-legged stool for digital.

If you could -- is it any way you could force rank those three legs, sort of from least challenging to maybe what you consider most challenging of the three? And then which of those three legs do you think we could be sitting here in a couple of years and you just sort of knocked the cover off the ball?.

I mean, I'd say they're all challenging. This has been quite an experience over the last 18 months in terms of building this business from zero. Feel really good about where we are today. I would say, I'm cognizant that I've been talking about iCasino for a while, and we have not turned.

So I would look at that as that's the one where I understand we've got to show it to you. But given what's required there in terms of what we need to do and the leadership that we now have in place in that vertical, I think that's also where we can surprise you to the upside over that three-year time frame..

Great, thanks for all the color..

Thank you. Our next question comes from Barry Jonas with Truist Securities. You may proceed..

Hey, Tom. I really appreciate all the commentary on the three-year potentially where EBITDA and deleverage could get and some of the sensitivities.

I'm just curious, where do things like New York, Dubai or sale-leasebacks fit in there? Is that cushion? Or is that even a potential upside?.

Yes. So the numbers I gave you don't include any real estate activity. So if we win New York, if VICI exercises its call on Centaur as it has indicated that it is going to, that's upside from those numbers that I've given you both from a leverage and free cash flow perspective..

Great. And then just as a follow-up, I think MGM just announced an acquisition of an online game developer.

Curious what your thoughts are for more investment on the content side, vertical integration or just digital M&A in general?.

We want to migrate to more of our own games. That's part of what moving to our new app and ultimately our PAM allows us to do. And I would say we are more of a builder versus a buyer, but that could change tomorrow if we see something attractive..

Perfect, thanks so much..

Thank you. Our next question comes from Shaun Kelley with Bank of America. You may proceed..

Hi, good afternoon, everyone. Thanks for taking my question. Tom, just kind of wanted to run a high-level corporate finance question by you to get your take on it.

But if we kind of think out a little further as we know you're doing internally as you think about these numbers, if we take this $12.50 of free cash flow, I mean, scratch math is that's about a 28% free cash flow yield.

You're paying down 8% debt at the moment, moving probably closer to 7% debt in terms of what's going to be coming available at some point and just where your long-term cost of debt is? So at some point, when you can start to maybe turn the corner to '24, somewhere in here, probably when is that place where it makes sense to start expressing your view as it relates to that 28%? I.e., a different way of saying it, when you flip from paying down debt to buying back stock because one would think that yield is just -- it's just going to be too incredibly attractive to ignore?.

Yes. That's a fair question, Shaun. It's not a simple question. We think that it's important that we continue to delever, because that's a limiting factor in terms of investor acceptance of the story. We're also cognizant that the track record of buying in this sector is kind of rough.

If I pay down debt, it's a certain outcome in terms of what I'm doing. I have money that I owe that I no longer owe. As you go into buying your stock, you're subject to the wins of the macro, which has been the story in this space for the last 18 months.

But there certainly is a point with leverage where you should expect that in addition to continuing to pay down debt that there's a return of capital element to our free cash flow story.

And you're talking about '24, which would be somewhere around the midpoint of the time frame that I laid out in terms of expectations, that's probably a pretty good guess..

Very helpful. Thanks. And then maybe just with my follow-up, just a quick update on kind of the union renegotiation, any impacts of that on the cost front.

Assume that's obviously all factored into in general, the growth that you're expecting to still achieve in Las Vegas, but just how do you see that playing through appreciating that those types of things are specific negotiations are hard to comment on a public conference call?.

Yes. I mean, first of all, our expectations are built into those broader expectations. As you've seen in the quarter, we're doing quite well. We've been doing quite well for a while, Vegas is now at $2.1 billion market. Northern Nevada for us is over $0.25 billion of EBITDA per year.

We built those results on our frontline employees so they deserve to sharing it. We've got a contract that is up at the end of this month.

I would expect with everybody in the market, you're going to see a short-term extension in terms of getting to a final deal, but you're going to see a significant raise for our frontline workers and they deserve it. And that's in our -- in the numbers that I laid out in terms of expectations..

Thank you very much..

Thank you. Our next question comes from Chad Beynon with Macquarie. You may proceed..

Afternoon, and thanks for taking my question. Tom, it appears that interest rate hiking acceleration has potentially slowed here, which would potentially spark some more M&A activity broadly in the space.

So when you're thinking about these '24, '25 goals, not that you're running anything to be sold, but has anything changed just in terms of the number of assets in the regional markets, in Vegas that makes sense for kind of the future portfolio of Caesars? Thanks..

Yes. I'd say short answer is no. We've got nothing for sale today. Don't expect to have anything for sale anytime soon. That said, as I've told you before, effectively as a public company, everything is for sale every day, so you don't know what you'll be approached with.

But back to Shaun's question, as you get to the point leverage-wise, where we feel comfortable, next year in addition to a return of capital element, you start to think about the ability to become offensive in M&A, which obviously is a little more complex at our size, but we've driven a whole lot of shareholder value through M&A in the past.

And I don't think we're very far from where we would see -- where we would flip to maybe looking offensively there versus kind of neutral, maybe something shows up, maybe it doesn't, but that would be in the calculus of what are you doing with your free cash flow as well..

Okay. Thanks, Tom. And then nobody has asked about potential impact, just overall benefits with DAs potentially moving to Las Vegas. Obviously, it should be a positive.

As we've seen with other sports teams and just overall programming, but any additional thoughts in terms of what this would mean to Las Vegas, to your properties, to future growth? Thanks..

Yes, it's exciting to see this market continue to develop. The -- we welcome the announcement. Similar to Bill's remarks yesterday. It's important to us that their coming is done in a manner that doesn't unnecessarily tax the county or have taxes that eventually get passed on to our customers.

So we think there's wood to chop there, but we are thrilled at the idea of the A's coming to town. It provides another reason for customers to come and visit the market, and we're going to get our share of those customers..

Thanks, Tom. Appreciate it..

Thank you. Our next question comes from John DeCree with CBRE. You may proceed..

Hi, everyone. Thanks for taking my question. Maybe just one or perhaps a two-parter. Tom or Eric, you talked about executing on iGaming with some key product enhancements on the horizon like that single app for iCasino. And I think you mentioned some additional marketing capabilities that, that would bring.

But it might be helpful for investors to kind of understand what some of these product enhancements get you and what you'll be able to do specifically to generate some incremental revenue or start to execute in iGaming. If you could maybe elaborate a little bit more on that, that would be helpful..

Yes, sure. From the highest perspective, when you think about the current app that we have, somebody goes on the app store, searches for Caesars and they see the Caesars Sportsbook. And they get that if they want to play the Casino or the Sportsbook. So they download the Sportsbook. They sign up for the Sportsbook.

Then they go find the button that takes them to the casino and then they can start playing the casino. The next time they go and log on again to the app, it takes them to the Sportsbook and then they have to click through to go to the casino.

So it's a fine experience for somebody who's predominantly a Sportsbook player who then likes to dabble or play some of the casino side.

But for somebody who's a primary casino customer or somebody who likes to play a little bit of Sportsbook but mostly casino, they want to see the Casino app and they want to go right into the homepage where the casino games are that they can start engaging with.

So at the highest level, you're going to attract a customer that, quite frankly, is very more akin to what our casinos are, which is somebody who likes to come in, play slots, likes to see their favorite game and then start playing. And so we're going to be able to deliver that.

In terms of the incremental functionality that we're going to get, we'll have a newly designed lobby so that it will be much easier for our team to move the games around, to prioritize them, to make them -- to advertise them based on whether they're new or there's a promotion going on, we'll be able to have some much enhanced real-time marketing capabilities.

So we'll be able to do some trigger-based responses to customers, which is something that we're not able to do right now. And then the general appearance and the speed of the app will be greatly enhanced.

So overall, it's going to provide a much better experience for that customer that currently, we're unable to provide the product that they want because it's somewhat buried in the Sportsbook..

That's helpful, Eric. Maybe a follow-up question in terms of what you see. One of your big advantages is your customer database and without that single app, and you look at your penetration of that database for digital.

Relative to your peers or expectations, is there a chunk of the database that you haven't really been able to get on board without that single app? Just kind of see if you have some visibility into what the opportunity is?.

Yes. I would say, in general, the customers that we have tend to skew younger and tend to skew more male on the Sportsbook app. And then what that translates to on the casino side is a higher percentage of table games business, which is great. We like that. But what we're missing is that core slot customer.

And so when you think about the business that we have here with the regional players and the hub-and-spoke model with respect to Vegas, that core slot player is really valuable on the casino side.

And so we think that by giving that customer an option to go directly into the app, we'll be able to provide them with something that's more in line with what they're expecting from their experience.

And so to answer your question directly, I think it's going to attract a higher percentage of the slot customer, which is our core customer from the land-based perspective..

That makes sense, Eric. I appreciate that additional color. Thank you..

Thanks..

Thank you. Our next question comes from David Katz with Jefferies. You may proceed..

Hi, afternoon everyone. Thanks for taking my questions. With respect to the Las Vegas Strip, the tower project announcement sort of begs a discussion about where the strip is headed because I think many would agree with the positive outlook that you've laid out.

And with that, other competitors entering the market, right, whether it's Hard Rock or Fat and Blue and over time, sort of upping your game. And I had an accounting press used to say $100 million here and there, and it starts turning into real money.

Is this the kind of thing we should expect as you sort of up your strip game over time?.

I mean, this is a pretty unique project. We've got a tower that can be absorbed into a property that has higher room rate -- considerably higher room rate, considerably higher spend out of those rooms. And it has rooms that are existing that face the fountains across the street at Bellagio that have no windows.

So what we can do here is a simple upgrade in terms of the rate that those rooms will get and then create on that side facing the strip, probably some of our most attractive non-villa product in the market. And it's very easy to run the numbers and see the returns there are quite strong.

I'll tell you, there has yet to be a capital project with the returns of this one that took more than 30 seconds for us to approve. You're going to see us upgrade Flamingo in terms of its food and beverage, particularly its strip frontage.

Food and beverage, but you're not talking about even the quantum of spend that you're talking about at Paris and Bally's. So I think there's a few one-off opportunities that are high ROI, but the great thing about our portfolio on the strip is it's all right at mid-field, right, at the 50-yard line.

And the demand for that location is exceedingly strong and has been better than a generation. So we feel very good, and there's not a ton of capital necessary to maintain that beyond what we've done historically, but there are some interesting projects that can be additive..

Understood. Perfect. Thank you..

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

Hi, thanks. Just following up on John's earlier questions on iGaming and the digital business.

Just wanted to clarify, as you move to a standalone iGaming app, is that going to be branded as Caesars iGaming? Or could you have multiple brands under each of your casino names? And is there any way to assess what the potential for incremental omnichannel spend could be as we think through total rewards sign-ups that have occurred through the app, for example, to-date?.

So on the brand, Stephen, let me tell you to wait for about 60-days and to have a further answer on that. But I like the way that you think. And then on Caesars Rewards, we've talked about play that was generated new to the enterprise through digital, into brick-and-mortar or reactivated customers.

The last time we told you that number, it was about $200 million on an annual basis. Without getting into a specific number, I'd tell you, it's more than 50% larger than that today..

And just as a very quick follow-up on that, but that's not something that you're embedding in your hypothetical $5 billion 2025?.

No. I mean there is a contributing factor in what happens in the brick-and-mortar, the digital part of both, directly and indirectly, but there's nothing needs to happen that isn't already happening or on the horizon in terms of the projects..

Fair enough. Thanks so much..

All right. Thank you, Stephen. With that, I'm going to let everybody go. Thanks for your time and attention. We'll talk to you next quarter..

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect..