Caesars Entertainment, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Caesars Entertainment Inc. 2020 Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchstone telephone. I would now like to turn the conference over to your host, Mr. Brian Agnew. Senior Vice President of Finance, Investor Relations, and Treasury.

Well, thank you, Ashley, and good afternoon to everyone on the call. Welcome to our conference call to discuss our third quarter 2020 earnings. This afternoon, we issued a press release announcing our third quarter financial results for the period ended September 30, 2020. A copy of the press release is available in the investor relations section of our website at investorsuccesors.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. Seeds of Entertainment undertakes no obligations 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 these differences between each non-GAAP financial measure and then 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 third quarter financial results. I will now turn the call over to Tom.

Thanks, Brian. Good afternoon, everybody. We're back to report our third quarter earnings. As you look at our income statement, keep in mind that El Dorado Resorts was the surviving entity in the transaction. We changed our name to Caesars Entertainment. So there's a lot of noise in the financial statements you're looking at. 2019 numbers that are legacy Eldorado. You're looking at 2020 numbers that are legacy Eldorado only through July 20th. And then the combined company through the end of the quarter. We're going to cut through and get you to what we think are the key points in the quarter. Our same store adjusted EBITDA in the quarter was a little over $460 million. which was a little ahead of the wide end of the range of our pre-release during our equity offering. We're quite pleased with the progress that we've made since closing the transaction. We've seen quite a bit of opportunity within Caesars. Some was expected. Some were nice surprises. We continue to believe that we will bring the consolidated EBITDA margin in a post-COVID world at least to the mid to high 30s, if not 40% EBITDA margin in the consolidated entity. Vegas, Anthony will get into detail, but we did $60 million of EBITDA in Vegas, and keep in mind that was with dragging. Rio and Cromwell and Planet Hollywood were closed for the whole quarter. Planet Hollywood and Rio have opened since Bally's was also closed for part of the quarter. So we are carrying operating losses relative to those assets to get to that $60 million number. Our occupancy for the quarter in Las Vegas was just under 60%, just a few basis points under 60%. We're running... In the mid-50s on weekdays now and weekends, we're well into the mid to high 90s. So we've been heartened by our performance. Clearly, that's a key piece of evidence on the strength of the Caesars Rewards Program. Pavan Kapoor at Caesars, who we inherited on the yield management side, is a wizard with this stuff. and has done a tremendous job for us in Vegas, and we've moved him throughout the company in this area. So we're excited with what Pavan and his group will bring to the table for us. As I said, the merger closed on July 20th, so obviously that was during the quarter. Also, we announced a cash offer to acquire William Hill during the quarter. for 272 pence per share. That shareholder vote will take place on November 19th, as needs to be the case under UK takeover code. We cash confirmed the entire amount for that transaction, including an equity offering that was just shy of $2 billion on October 1st of this year. We expanded our relationship with ESPN in the quarter on the sports betting side, which we think is an exciting piece for customer acquisition for us. We've got a co-exclusive link out across all ESPN channels with DraftKings, and we're excited with what that will bring to the table. We're also active on the asset sale front. We announced the sale of Tropicana-Evansville for $480 million to Twin River and GLPI just about a week ago. You should expect to see more news in Indiana prior to the end of the year from us. And, you know, I would say a couple things that I stress as takeaways and questions that I get are, On the operating side of the business, if you annualize the costs that are out of the business this quarter, excluding gaming taxes, which obviously reduce as gaming revenue goes down, our run rate cost reduction is about $2 billion from pre-COVID levels. There's obviously a lot of talk about what will come back, what won't come back. A lot of those costs are never coming back, as I said, over the last several quarters. None of that has changed. As I said, I think we're going to get to 35% to 40% EBITDA margins at a minimum. It's enjoyable for my seat to see our peers in the space reporting the same types of cost savings opportunities that we've been talking about for many years and to see Las Vegas locals margins in excess of 40% for the quarter and a couple of our peers, that's a roadmap to what's coming. You think about what revenue is missing from our business, it's The highest flow-through revenue in the business is hotel room rate and occupancy in Las Vegas. And what I told you two quarters ago, prior to the reopenings, that you were going to be surprised with what regionals could do on the margin side. And we had another quarter where, if you look at our pure regionals without... destination properties, EBITDA was up substantially. Anthony will get into that. What I tell you today is when we get into a post-COVID world, the pent-up demand you're going to see for gaming in general and Las Vegas in particular is going to be beyond your wildest dreams. Your And the flow-through that you're going to see in the sector is unlike anything that's happened historically in this space. And so I can't tell you when is that going to happen. I wish I could answer when the public health situation will change. But as we look at the pieces of our database that are missing or lagging, They're the most profitable pieces of our database. It's the 55 and over cohort that's not coming. These are people that are not going anywhere and are not spending and are going to come out of this with significant pent-up demand and spending power, and it's going to be extremely powerful what you'll see, I think, across the entertainment space, but particularly online. in casinos and particularly in Las Vegas. The other question I get all the time is about sports and online, and I tell you our New Jersey casino business continues to ramp up even after physical properties reopen. We're now on a run rate for $150 million of annual revenue out of the – iGaming business in New Jersey at margins in the mid-30s. So we're extremely excited about that business. We think controlling our destiny in this space positions us to be a long-term winner. The ability to wrap our iGaming and our iCasino into a single wallet is attached to your Caesar's Reward database with the ability to earn and use points in any way that you'd like, online or offline. Our customers truly get an immersive experience in this company, and you see it with what we're doing in Vegas. We think that's going to translate into... the online business, and I don't really have a roadmap to what the ultimate size of this business will be. But I do know that if you're betting against the the American people's propensity to gamble or you're betting against the lure for states to attract tax revenue when their budgets are in the place that they are today, that's been a losing bet since the dawn of civilization. So I feel real good about where we are, where we're headed. And I'll turn it over to Anthony.