Caesars Entertainment, Inc.

Hello and welcome to today's Caesars Entertainment 2020 Second Quarter Earnings Call. My name is Michelle and I will be your event specialist today. Please note that all lines have been on mute to prevent any background noise and that today's webcast is being recorded. After the presentation, we'll have a question and answer session. To ask a question over the phone, press star, then the number one on your telephone keypad. To withdraw your question, press the town key. If you would like to view the presentation in a full screen view, click the full screen button in the lower right hand corner of your screen. Press the escape key on your keyboard to return to your original view. And for optimal viewing and participation, please disable your pop-up blockers. And finally, should you need technical assistance, as a best practice, we suggest you first refresh your browser. If that does not resolve the issue, please click on the support option in the upper right-hand corner of your screen for online troubleshooting. It is now my pleasure to turn today's program over to Brian Agnew, Vice President of Finance and Investor Relations. Sir, the floor is yours.

Thank you, Michelle, and good afternoon to everyone on the call. And welcome to the first earnings call for the New Caesars Entertainment to discuss our second quarter 2020 earnings. This afternoon, we issued a press release announcing our second quarter financial results for the period ended June 30, 2020. 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 Reed, our Chief Executive Officer, Anthony Carano, our President and Chief Operating Officer, and Brett Yunker, our Chief Financial Officer. Before I turn the call over to Tom, 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. Caesars Entertainment undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after today's call. Also, during today's call, the company may discuss certain non-GAAP financial measures as defined by SEC Regulation G. The GAAP financial measures most directly 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 2020 second quarter financial results. And finally... While our press release today and our 10Q cover the operations of Legacy El Dorado for the second quarter of 2020, the company posted supplemental financial information for the combined new Caesars to our website this afternoon, covering the period January 1, 2019 to June 30, 2020, which we will discuss today on the call. I will now turn the call over to Tom.

Thanks, Brian. Good afternoon, everybody, and thanks for joining us. We're in a totally different world than the last time we spoke to you on an earnings call. At that point, every casino in the country on both sides was closed. The Caesars deal had not – the Caesars transaction had not closed, and I was sitting in a car in a parking lot of a grocery store addressing you so that I had a cell signal. So we've come a long way since then. I want to thank the Caesars management team and the ERI team for the extraordinary effort to get 50-plus properties reopened as the world reopened in the May-June timeframe. I want to thank most of all our frontline employees that are dealing with customers every day. As everyone knows, this is an uncertain situation that we're dealing with. There are scary reports out there. Our employees came back at better than a 95% clip in terms of being called back to work. We've got about 55% of them back. We're very happy that that's the case, and we're thankful for the work that they have put in to make our reopening as successful as it's been. On our last call, I talked to you about things that I saw in stimulus reports and in the investor community that I thought were in error. Most notably pointed to you should expect to see a significant margin surprise on the regional side. I think you've seen that across the sector. I think there's some misconceptions still about around particularly the regional business that I'll address as we get to that point of the call. In terms of results, as Brian told you, this is an odd quarter for us in that we file financials just for the El Dorado side. So we took the step of a supplemental filing that gives you pro forma historical results in the same layout that we intend to report on going forward, so that you should be able to build into your models as seamlessly as you can in something that's this big in terms of transaction. For the quarter, on a consolidated basis, we were just shy of $500 million of revenue. We lost $136 million on the EBITDA line. Obviously, that was due to most of the portfolio being closed last for the first two months of the year. You already saw our reopening results when we did our financing in July, so you know that regionals were quite strong. Destination markets have lagged, and Anthony will get into that. specifics of the numbers there, but our experience has been the same going into this quarter. You had some what I would describe as media fear-mongering over what might happen Fourth of July weekend that I think muted visitation across the country, but other than that weekend, our results across the board have been similar to what we reported in the reopening period. As discussed, we closed the CSRS transaction on July 20th. Prior to that, we did some significant capital raising, both debt and equity, and Brett will take you through specifics of that. Being to our operating segments in Las Vegas, we are running and have been running midweek occupancy around 50% and starting to climb again. We're running weekend occupancy to our caps, which are now in the high 70s. We've capped occupancy in Las Vegas twice. because of limitations on what the customers can be offered in the non-gaming area, food and beverage limitations, no bars most recently, and social distancing at pools when it's 110 degrees. We want to keep control of the health and safety situation for both customers and employees. So Caesars was capping occupancy as properties reopened at 80% and was running that on weekends. They pulled back to 70% as cases rose in Nevada, and we've started to move that back up since we took over. We're pushing almost 60% of our rooms are casino rooms. So effectively, our prior casino block and what used to represent convention business of 14%, 15% has combined into one casino room block. That's very different than our peers in Las Vegas, as I'm sure you're aware as you listen to these comments. We are putting customers into rooms that where we're supremely confident as to how much revenue we're going to get from that room during the visit. We're far less dependent on the random guy who books through an OTA, and you really don't know what you're going to get. And it has shown us and should show you the power of Caesars Rewards. That's clearly a very different mix and occupancy level than our competition here. And keep in mind that those numbers are prior to the El Dorado customers coming into the Caesars database, so we think that's going to continue to get better. As you look at Vegas going forward, what I think you should consider are the following. One, the numbers relative to the virus have been gradually improving from their spike a few weeks ago, unless you presume that that's going to reverse and we're going to go in the wrong direction, we and all of our peers in Las Vegas should be doing as little business as we're going to do right now. And I just told you the levels that we're doing. We are significantly EBITDA positive in Las Vegas. Every property that is open is Every hotel that's open is EBITDA positive, and we feel we're going to build from there. If you think about a stable virus situation or improving virus situation, the next steps in Las Vegas would be bars would come back, which we think is a reasonable possibility relatively soon. And then you'd be looking at socially distanced entertainment as a possibility. We're unique in our mix of entertainment in that we are not as dependent on headliners and circ as the rest of the market. We have a lot of shows that are smaller venues multiple times a day and would be profitable at typical social distance guidelines. So as those come online, we should have a mix of entertainment that isn't matched in the market just because of the structure of how us and our peers have tackled entertainment historically. And then the big piece is the group business. So group business, we had a very strong quarter of booking new group business. Group business, as you book it in a quarter, is typically for six to 24 months out. And our booking levels were dramatically in excess of last year. But what's happening in the meantime is existing group business in the near term is canceling. We've got a... Prohibition on groups north of 50 in Nevada, Las Vegas in particular. Until those caps are lifted, I don't think you're going to see group business return. And those groups, or I know that group business won't return. And particularly your larger groups, those require a lot of forward planning. So it's not surprising to us that you start to see first quarter conferences start to cancel when the 50-person cap is still in place. As you start to see bars reopen, you start to see socially distanced entertainment, and ultimately you see groups more than 50, and importantly, we get out of the where there's such heavy demand for that product, we would expect to lift our caps and we'd expect to fill to those caps in Las Vegas. So we're extremely pleased with the way that Las Vegas reopened. Gary Telesner leads our team out here as regional president, and he and all of the GMs and leaders in the Las Vegas market did a fantastic job under incredibly trying circumstances to get us off and running, and we're excited for where we'll go from here. On the regional side, We are seeing continued strength. We have drags in Atlantic City, Reno, and New Orleans where we're generating positive EBITDA, but at levels that are comparable to the declines that we've seen in Las Vegas in terms of year-over-year numbers, basically because those customers come from beyond an hour or two drive. And in Reno, for example, we've only got about half of our rooms open. Atlantic City, you can't serve food and restaurants. You can't serve alcohol. You've got 25% access to your casino floor. So you have structural limitations that are drags on those properties' results. But even with that, in the regional space, we are approaching prior year levels in EBITDA. We're still not quite there, but we're getting pretty close. So the regional markets continue to improve. And in terms of what I'm seeing in narrative that I disagree with, we've seen tremendous margin improvement. as we detailed, and Anthony will go into detail in his remarks, we expect that to continue. It's not going to continue 100% because you are going to bring in pieces of the business like lower limit table games that will be profitable but are dilutive to that margin number as you move forward and are able to do that. But I think the fear of return of promotional spending in the regional space is completely off the mark. We have, for a very long time, have talked to you about that these subsidies in the business were unnecessary. All of us, everybody in the sector has gotten a look now as to what their business looks like without those subsidies. And it's impossible to argue with the results that we're seeing. I just saw Penn this morning, you know, super strong quarter and just the latest in a line of them. You should not expect... people running back to promotions that are dilutive to EBITDA. On the one hand, if you believe that, you believe the people that run the businesses in this sector are morons because they can see what the business looks like without them. But two, the actors that you would have been worried about in the past in that area have largely been absorbed by companies like us and Penn and Boyd and others. And those that are left that could behave in that fashion don't have enough scale to where somebody like us would need to react to it. So I think the, I read a lot about your fears or hear questions on fear of promotional return. I think you guys are way off base. The other point I think is off is the fear that this level of business is unsustainable. It is undoubtedly true that we have benefited from customers that have no other entertainment or little in the way of other entertainment options coming to visit our properties since reopening, that as those other options, movie theaters, cruise lines, sporting events, as those come online and you have more options, some of those will go away, some of them will keep, But our softest segment is 55 plus, which coincides with our most, if not our most valuable, among our most valuable segments. And those are generally people that are fearful of leaving their house at this point. So logically, we're seeing some softness there. Despite that, we're putting up the numbers that we're putting up. And I don't see a scenario where those other entertainment options are opening, so we're losing some of that new business, and the health situation hasn't improved to the point where that 55-plus group is coming back. So I think you're also off base there. Our unrated business is up substantially since reopening and really has replaced the lag in 55 plus. Like I said, I think we're going to keep some of that unrated business, and I think the 55 plus will come back. So I think regional is very strong now and going to get stronger. And then I would conclude my opening remarks with sports and online is a hot topic of conversation these days with anybody I talk to on the phone. I'll tell you again, we want to come to a permanent solution for this business for us. We bring the William Hill Partnership back. We bring our Internet gaming business, Caesars brings its own Internet gaming business and its sports business and its sports partnerships, and we see the same valuations that you see in this space as we sit here today. But I will tell you, as shareholders, we're not going to react differently. in a knee-jerk fashion to those valuations and do something that's not the right solution for the business over the long haul. So we're going to prosecute that opportunity. I would still expect that we'll have something comprehensive to talk to you about inside of this calendar year, but you shouldn't expect us to be printing something right around the corner. And just to give you an idea of What this business looks like, if you look at the combination of what we bring into the William Hill Partnership, we believe that next year we're in the range of $600 million to $700 million of revenue in this area, which, as you know, is similar to others out there. The difference is we're making money. So if you look at just 2020 iGaming revenues, which we own 100% of, we're pacing to $125 million of revenue in just New Jersey, and margins are mid to high 30s on that business. So we think we have an extraordinary opportunity, and I'll say it again, there is room for improvement. multiple success stories in this space. This is the most exciting growth opportunity that I've seen in over 25 years in and around this space. There's going to be multiple players that succeed. I'm 100% convinced we're going to be one of them. And with that, I'm going to turn it to Anthony to go into operating detail.