Caesars Entertainment, Inc.

Good day, and thank you for standing by. Welcome to Caesars Entertainment Inc. 2022 First Quarter Earnings Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that this call is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your host today, Brian Agnew, Senior Vice President of Corporate Finance, Treasury, and Investor Relations. You may begin.

Thank you, Justin, and good afternoon to everyone on the call. Welcome to our conference call to discuss our first quarter 2022 earnings. This afternoon, we issued a press release announcing our financial results for the period ended March 31, 2022. 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 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. Caesars Entertainment undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after the call today. 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 2022 first quarter financial results. With that, I will turn the call over to Anthony.

Thank you, Brian, and good afternoon to everyone on the call. We delivered another strong quarter to start the year in 2022. Adjusted EBITDA in the first quarter, excluding Caesars Digital, was $850 million, up over 60% versus the first quarter last year. Margins in our brick-and-mortar business were 36.2%, despite the negative impacts of Omicron in January. Operating results reflect a new first quarter record for adjusted EBITDA in our Las Vegas segment, despite multiple headwinds during the quarter. In total, 18 of our properties set a record for the highest first quarter EBITDA, while 28 set a record for the highest Q1 EBITDA margin. Turning to Las Vegas, demand trends strengthened throughout the quarter, leading to an all-time first quarter record of $411 million in adjusted EBITDA, excluding real rent payments. EBITDA improved 140% versus the first quarter of 21, and margins improved 1,000 basis points to 45%. Total occupancy for Q1 was 83%, with weekend occupancy at 95% and midweek at 77%. As of April 1, 2022, we lifted all occupancy caps in Las Vegas and would expect to see a material improvement in occupancy for the second quarter of 2022. Group room nights during Q1 represented approximately 13% of occupied room nights in Las Vegas, up from 11% in the second half of 21, despite January weakness to Omicron. Elevated attrition rates continue to decline and group revenue pace in Las Vegas is strong for the remainder of the year and into 23 and 24. With convention demand accelerating, we are excited to finally see the full potential of the new Caesars Forum Convention Center. Forum currently has 150 future events booked with over 1.3 million room nights and over $500 million in revenue. Over 70% of this contracted business is new to Caesars as a company. In our regional markets, operating results remain strong, and revenues in EBITDA improve sequentially each month of the quarter. Trends have further improved into April. EBITDA for the first quarter was $459 million, with margins of 33.6%. highlighting a few specific properties, trends normalized in New Orleans in Q1, following the removal of masks and vaccine mandates in March. And Atlantic City had a great quarter despite still having rooms offline for remodeling. We are encouraged by the early returns on the capital spend at the recently rebranded Horseshoe Indianapolis and look forward to starting construction on our Harris Hoosier Park expansion this year. Following the launch of sports betting in iCasino in Ontario on April 4th, we now offer sports betting in a combination of 24 domestic states and North American jurisdictions, 17 of which offer mobile wagering. In March, we converted Illinois to our Liberty platform and expect all of our remaining Caesars-branded apps and sportsbooks to be running Liberty by year-end 2022. We remain focused on growing our digital business during Q1 through customer acquisition, especially in new markets including New York and Louisiana. While customer acquisition and handle exceeded our internal expectations, especially in New York and Louisiana, net revenues were negatively impacted by promotional investment to support the new market launches. Our capital program remains unchanged from our Q4 call. We are excited to have most of our room remodels completed in Atlantic City for the upcoming summer season and look forward to many new food and beverage and entertainment offerings this fall. Our new land-based facility in Lake Charles remains on track to open in Q4 of this year, and so does our casino expansion and new parking garage in Pompano. We anticipate breaking ground on our expansion plans for Harris Hoosier Park this quarter, and construction is slated to begin on our Columbus-Nebraska project later this year. These are exciting projects which will collectively generate a meaningful EBITDA contribution for our company. As we look to the remainder of 22, we remain optimistic about our business as consumer trends remain strong. We are also encouraged regarding improving group and convention trends in Las Vegas, as well as the potential for the full recovery of our older demographic consumer who has been the most impacted to COVID-19. In addition, our property rebrands are exceeding return expectations, which gives us confidence in future announced rebranding opportunities in St. Louis, Blackhawk, Las Vegas, and Florida. I want to thank all of our employees for their hard work in 2022 so far. I'm extremely proud of our operating teams, their execution, and their exceptional guest service. With that, I will now turn the call over to Tom for some additional insights on the quarter.

Thanks, Anthony. Good afternoon, everyone. Thanks for joining us. I'd echo Anthony's comments on the work that our employees have done to drive results for the organization. Personally, it now feels like what we thought we were buying when we originally bought Caesars Entertainment. We're almost two years in now. But with all the virus disruptions that went on over those two years, it's really the last eight weeks or so that we're starting to hit on all cylinders and really feel the potential of the organization. So we talked to you well into the first quarter. And what we described then was Omicron was kind of a wet blanket around the entire business. for the bulk of January into February. It was really right before the Super Bowl that events changed with the virus and we saw a surge in visitation. You'll hear a common theme as I go through. I know that investors are extremely concerned with health of the consumer and what's going on inflation-wise and what impact is that having on the business, I can say unequivocally that the biggest correlation that we see in the business over the last two years is the state of the virus, and that when the virus recedes and case counts are benign, there is a pent-up demand for travel and entertainment activity, and we see a burst of demand in our business, Omicron was no exception. So as you got through Omicron, if you look at the regional market, as Anthony discussed, we ended up considerably year-over-year margins in the 33-plus percent range. If you think about that in the quarter, and this is true Throughout, when volumes are down, we experience negative operating leverage. So regional margins in January were 29%. In March, they were above 37%. So we ramped up through the quarter as demand increased. And that has continued into April, into the second quarter, with margins in excess of of 37% on a preliminary basis in April and volumes remaining strong. So obviously we have a tough comp second quarter in regional, but we have been holding up particularly well as we've gone through April. In Las Vegas, if you look at from an occupancy standpoint, We had told you before January was around 75% occupancy. February came in at about 81%. We thought that March would come in in the mid-80s. It actually came in at 91% for the month. And so we were able to have a record first quarter, even with a slow start where we lost the bulk of CES, which is one of the biggest group companies. groups on the calendar market-wide. And if you think about margins in Las Vegas, we were a little over 40.5% in January. In March, we were a little over 47%. The strength has continued into April. April was the single largest month in the history of the Caesars organization for cash room revenue. Occupancy was just under 97%. Rates were up a little less than 40% over last year, last April, and a little less than 20% over 19. So Vegas is extraordinarily strong for us as we sit here today. I'd expect us to break the record again in May for cash hotel revenue. Second quarter is going to be particularly strong in the group business. This is where a lot of the cancellations post-pandemic started to rebook into. So we expect a significant bump in group business. Recall that when we talk about group business, we did not have, Caesars in 19 did not have the Forum Convention Center operating. So when we say group, we'll be considerably stronger than 19. That includes the forum, 19 did not. But we'd expect Vegas to continue a very strong trajectory. As I said, April, all-time cash room revenue record, despite only 30 days and the Easter holiday in April, which is not a particularly good casino holiday, May of 31 days should be even better. So feel very good about where the brick and mortar business is heading. As you look at digital, I'm sorry, before I go to digital, I spoke inartfully on the last conference call about timing of the Vegas asset sale. I want to be very clear. We started the process to sell a Las Vegas Strip asset early in 22. There are public documents that show you how long the ROFR process and the process to reach a definitive agreement last, which would put us somewhere in the middle of summer for a consummation of a transaction. You shouldn't expect us to be giving you play-by-play in the interim. We'll be back to you when that's resolved, know that it is in motion and governed by the documents that govern our VEACHE agreement. As you go to digital, as I said on the fourth quarter call, first quarter is our peak EBITDA loss. Of the 553 of EBITDA loss in the quarter, a little over 400 million is attributable to the launches in New York and Louisiana, with New York the lion's share of that. As discussed, we got to our handle share goals far earlier than we anticipated, and we did cut back all of our mass media spend. So we cut about a little over a quarter of the billion dollars of expected spend from When we started cutting in February through the end of this year, we've seen no degradation in handle share other than our planned retrenchment in New York. As we've talked about, we were more aggressive than we needed to be out of the box in New York and got 37%, 40%, 40-plus percent share. You see us kind of in that 15% to 20% share since we've retrenched. That's the only material movement in share, even though we've cut over a quarter of a billion dollars from marketing. If you look at the quarter, we lost about $44 million in March. So as you got out of that heavy launch period, our losses moderated considerably. If you think about the investment that we talked about making in terms of cumulative EBITDA losses, We said north of a billion in my mind when I made that statement when we launched in August. I was thinking a billion and a quarter to a billion and a half based on where we've gotten share-wise. I think a billion and a half is the right neighborhood. And if you look at what we've done to date, About two-thirds of our cumulative EBITDA loss, our investment into digital measured in that way, is now in the rearview mirror. So our losses come down considerably as we move forward, and we fully expect to inflect to EBITDA positive in digital as we move into football season of 2023. And if you think about numbers that we've talked to in the past, the cross-market play out of sourced in digital into brick and mortar we said was run rating about $150 million of gaming revenue. At the time of our last call, that has since increased to over $200 million. What are we focused on in the offseason? We're focused on the shoulder season. I should say there's never an offseason, but football is clearly the driver of sports. Before next football season, we're bolstering our customer service capability. We're bolstering our technology. We're bolstering our payments capability so that we're ready for next football season. As I look back, we closed William Hill in April. We had almost exactly 100 days to the start of football season when we closed William William Hill and our relaunch. So we were kind of sprinting to keep up throughout football season last year. This year is going to feel much more comfortable for us in terms of being more well prepared for anything that can come our way. We are absolutely thrilled with the business that we've built to date, but we're excited about what we can do as we move forward. To give you some context, we've had 1.4 million Caesars Rewards signups since we relaunched digital that came in through the digital channel. If you think about a typical Caesars property, we get about 50,000 on average per property per year of new signups. A little more in destination properties, a little less in regional properties. If you think about a million four customers coming into the pipeline in really a span of five months, it's extraordinary. And now the work in front of us is to identify which are the most valuable customers there. As you look back at the way football season was last year, you were getting the same offer whether you were a $50 player or you were a $1,000 and above player. We didn't discriminate. That's kind of what we inherited as we bought all of these brick and mortar assets from various operators in the past. marketing to the masses with little discrimination. And what you've seen us do repeatedly in the brick and mortar business is target that spend to our most valuable players and not waste money on the unprofitable players. That's the task in front of us in digital. So you're going to see us segmenting in terms of our marketing as we move forward, and that's going to be a dramatic improvement in profitability as we move forward. So we are excited for that. As you think about where we are now that we've got two-thirds of the losses behind us, we should be a significant free cash flow producer as an enterprise going forward. We're expecting to close on... The non-U.S. William Hill sale within this quarter, I talked about Vegas strip asset sale in motion. We would expect to be making significant reductions in our leverage within this calendar year and into 23 and beyond. And I'll pass to Brett for some specifics on liquidity and capital.

Thanks, Tom. 2022 is off to a nice start in terms of executing on our growth objectives alongside continued debt reduction. When the sale of William Hill International's business closes in June, we will apply all proceeds to reduce debt, taking aggregate debt reduction over the past 12 months to over $2 billion. We expect the cadence of debt reduction to accelerate over the next 12 months through strong free cash flow and further asset sale proceeds. Our 2022 calendar year CapEx spend remains unchanged from our Q4 call at $300 million of maintenance CapEx, $100 million of digital capital, and approximately $700 million related to project capital. These figures exclude CapEx spend in Atlantic City, which is escrowed and sits in restricted cash. We continue to model minimal cash taxes and approximately $800 million of cash interest expense for 2022, which we intend to reduce through debt repayment and opportunistic refinancing. Turn it back to Tom.

Thanks, Brad. So we've got some exciting projects coming online. As Anthony said, we've got a lot of our Atlantic City capital comes online before the summer season and then some of the restaurant stuff over the summer. We've got Lake Charles hitting in the fourth quarter of this year. We're in the midst of it. We just did open the – expansion of Horseshoe Indianapolis. We've got a similar project going at Harrah's Hoosier Park in Indianapolis. So we've got capital projects that will start contributing that have been drains on us in the past. We think we can continue to execute on basic operations, both digital and brick and mortar, and significantly reduce our debt over the next several quarters. Back to the key point, the key takeaway, I know there's a lot of concern about what's going on with the consumer, what's going to happen around the corner. I can't stress enough that this business, particularly in Vegas right now, is operating and generating as much cash as it ever has. So we feel very good about the balance of the year. And with that, I'll open it up to questions. Operator, we're ready to take any questions.

Thank you. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by. We'll compile the Q&A roster. And once again, that is star 1 if you'd like to ask a question. And our first question is going to come from Carlo Santorelli from Deutsche Bank. Your line is now open.

Hey, guys, thank you very much. Tom, just to kind of make sure I'm understanding how you articulated the digital investment, you know, as you said, kind of a billion five is where you think it comes in. That would imply a ballpark $475 to $525 million of spend before turning profitable again. Is that how you're thinking about it in terms of between now and, say, August, September of next year when the NFL season starts? You'd be looking at something in the ballpark of $500 million of losses?

Yeah, and Carla, obviously, you've got an Ohio launch in front of us. That would be the only launch that I can think of that would have significant costs surrounding it. And so how we come out of the box in Ohio will be a governing factor in terms of where we would be, but that's the right zip code.

Okay. Yeah. And then just on the iCasino side of the business, I know you guys were, you know, you talked about it previously, you know, putting more content on and making a bigger push there. Does the $500 million kind of contemplate some additional efforts on that side of the digital business?

Yes, that's inclusive of everything that we have in front of us in digital.

Okay, great. And then just lastly, kind of on Las Vegas, Putting into context all the room nights or the revenue that's booked for the convention center, as well as the 11% mix of room nights in the 4Q moving to 13% in the 1Q, where do you think that mix shakes out on a 2023 basis, and then where do you think it shakes out pro forma for the asset sale and the separation from Rio, so maybe on a 2024 basis, just in terms of group room-night mix?

So I would say, leaving aside the Rio, you should expect that group room-night mix in a normal world would be north of 15% for us, somewhere between 15, and 20. As you remove Rio from the equation, that will creep up slightly. The big group at Rio is World Series of Poker, which is coming to the Strip this summer. So that's already shifting as we speak today.

Great. Thank you, Tom.

Thank you. And our next question comes from Joe Gref from JP Morgan. Your line is now open.

Good afternoon, everybody. Tom, have you seen or experienced a noticeable difference from your competitors with regard to marketing, promos, and just broadly customer acquisition costs, meaning have your larger competitors pivoted away, providing for an incrementally more rational environment?

You're talking about digital?

On the digital side, sorry. Yes.

No, not that I can speak to. I think everybody else is spending fairly well in line with where they were before.

Great. And then, Brett, you talked a little bit earlier in your prepared comments about opportunistic refinancing. Can you talk about the timing of this, and does that timing – coincide with the closing of William Hill and later in the year a strip asset sale?

Yeah, I think those sync up pretty well for this summer when you think about closing William Hill, where we get to on the Las Vegas asset sale alongside a lot of our debt becomes callable July 1st. So I would be looking at the third quarter as a likely window for us to be refinancing.

Thanks, guys. And thank you. And our next question comes from Steve Wyszynski from Stiefel. Your line is now open.

Hey, guys. Good afternoon. Tom, so, you know, you talked about the strength in Vegas, you know, has continued into the second quarter. And obviously, you know, so far April has had a lot of big, you know, events. concerts, you just had the NFL draft. And I'm just wondering, you know, as we kind of think about comparisons moving forward, you know, is the second quarter going to be a little bit of an anomaly or, you know, is the rest of the year kind of going to be in a very similar position from, you know, from not only a group standpoint, but from, you know, an event standpoint. And then maybe as we think about the second quarter for next year, you know, was the draft big enough to call out or was it just, you know, you know, kind of average, if that makes sense.

Yeah, so, Steve, in terms of group calendar going forward, group calendar going forward is very strong. Second quarter and beyond, as we talked about, World Series poker comes to the strip in that time frame as well. In terms of the draft, I would say – From a visitation standpoint for the market, very, very strong. Not a particularly great gambling crowd, so good for visitation. But casino numbers were kind of average, so I certainly wouldn't expect it. We're pointing to the lack of that next year as any kind of headwind.

Okay, gotcha. And then, you know, Tom, you talked about, you know, getting back to or getting to that break-even point on the digital side of things in the, you know, football season of 2023. And you called out how you're kind of changing around, you know, some of your marketing strategies. And I'm guessing when you talk about that break-even point in the fall of 23, does that include those marketing changes? Or as you start to implement those marketing changes, could that timeframe get accelerated?

I'd say, yeah, that's our best peg as we sit here today. Obviously, the couple of quarters before football season in 23 tend to be lower volume sports quarters, so lower loss anyway. So is it possible it sneaks a little bit earlier? I'd say that's possible, but I'd be banking on inflection in fourth quarter as we sit here today.

Okay, great. Thanks, Tom. Appreciate it.

And thank you. And our next question comes from Barry Jonas from Truist Securities. Your line is now open.

Great, thanks. Tom, you've talked in the past about a potential 40% ROI on that $1.5 billion in digital losses. I'm curious what you think has to happen across the market and fees are specific to see those types of returns and what you think a reasonable timeline might be.

So I don't think there needs to be anything heroic that needs to change for the business to become profitable. And I've actually been talking about 50% plus returns. cash ROI. You can see where our handle is today. You can make assumptions on where our handle will go in the future and you know where hold is going to shake out in sports and iCasino based on a lot of history. What happens functionally is your customer base becomes dominated by existing customers rather than by brand new customers that are taking advantage of a new customer promo offer. And so as you shift more out of business dominated by new customers, and as I said, we had a million four sign up for Caesars Rewards since we launched, and those that deposited and became active in digital, almost certainly did so through a promo. Those promos are different as you become a seasoned customer. What gets the headlines in terms of deposit matches, things like that, that's not what happens as customers season and your margin profile changes significantly. And the other thing that's going to change I touched on in my remarks is In football season of 21, every customer, regardless of value, was getting a similar offer. And so what's going to happen as we move into 22 football season and beyond is we're going to segment our customer base based on worth, and we're going to target our promotional spending at our profitable customers, which is going to be a much smaller subset of that larger group. And that's going to have two significant impacts. You're going to build loyalty among that group that is targeted, and you're going to increase profitability as you increase share of wallet, you're still going to have activity from those that are not targeted to the same degree, but your profitability on those customers is going to change dramatically because they're not getting the marketing officers that come out. And so we have... significant history in Nevada in particular. What does a stable state look like from a margin standpoint, a customer activity standpoint, a promotional standpoint? All of our states are going to end up looking in some form or fashion like Nevada with different puts and takes based on tax rate and competitive environment. But it's going to look nothing like The environment that you're analyzing now where a state launches, nobody has any customers, and it's the Wild West, those days are already in our rearview mirror in most states as we move forward. There's going to be some new states, but as a percentage of the business, it's going to be much more of an existing customer, an existing state crowd, and the states are going to start to look more like the season states in our portfolio.

Got it, got it. And then just a follow-up on the land-based business. Current trends and the outlook, Tom, they seem really strong, but I'm just curious if there's any remaining negative impact you're seeing from COVID. I guess that would include any of the older demographic not back yet or anything else you wanted to highlight.

Now, we have seen 55-plus return post-Omicron. They're still not as strong as the younger cohorts, but they're coming back, and there's more coming back every week.

Great. Thank you so much.

Thank you. And our next question comes from Thomas Allen from Morgan Stanley. Your line is now open.

Thank you, sir. Just on the digital side, Tom, um, you highlight Ohio is likely the only state where you'd really have to invest in this year. You know, Maryland may launch this year. Um, is your comment just on Ohio because you think Maryland will probably launch next year or is there just a difference in where you see the opportunity between those two states?

Yeah, Thomas, I'm skeptical. Maryland launches mobile in 22. Okay.

All right. So Maryland is still a good opportunity for you.

Oh, yes. And if and when mobile launches, you should expect us to be competitive there as well.

Perfect. And then any commentary around the Ontario market and what you've seen to date in terms of the competitiveness and potential of the size of it? Thank you.

Yeah, I'd say we have – Ontario is a unique animal given the gray market that existed there before and the restrictions on what you're able to do. So we're building our capabilities in Ontario, but you shouldn't expect to see us throw a lot of money at Ontario. We expect to be a player. We expect the market to grow rapidly. but that's not going to be a big needle mover one way or another for us.

Perfect. And then just lastly on the brick-and-mortar business, what are you seeing in terms of labor availability, your competitors increasing marketing, any other kind of cost changes, big cost changes you're seeing that you want to call out?

Labor is still tight. It's gotten better. Obviously, we talked about how – Anthony talked about how we – We're able to remove our caps as we ended first quarter. That was as a result of a lot of hiring effort and activity, so we're feeling better. Labor costs are higher, but nothing that's a considerable drag on the organization. As you know, gaming taxes is our number one expense category, and Thankfully, those don't inflate. And if they do, it's because you're getting more gaming revenue and getting increase on a percentage of revenue basis. So we feel while there are pressures, the strength in the underlying customer activity strength is swamping anything that we see on the cost side.

Perfect. Thank you.

And thank you. And our next question comes from Sean Kelly, Bank of America. Your line is now open.

Hi. Good afternoon, everyone. I don't think this has been touched on, but, Tom, I think in the prepared remarks it was mentioned that – if I caught it correctly, and please correct if it's not – that April in the regional markets was trending well and better than March, and I think that's a little different than some of the patterns and some of the other companies that we've heard about. So could you talk about that a little bit more, if I caught it correctly, and what might be driving that?

For us, we've gotten – margins have continued to increase, so your rate of increase is not like – January to March, but we're still improving. We've got properties like New Orleans that were under significant COVID restrictions that came off just before the final four in March. So we saw the benefits in April. Atlantic City has been particularly strong for us, even with construction disruption. So that's been a a strong performer. Northern Nevada for us has just been incredible for going on, what, 18 months now. So we've got some particular pockets that are strong. We're up against a very difficult comp in the second quarter given this is when stimulus checks went out, but we feel good about comping against those numbers.

That's great. And then two markets I wanted to touch on specifically, one you kind of just did, which was we've heard about a little bit of potential softness in northern Nevada and then also in the southeast. So maybe ex-New Orleans, which is a bit idiosyncratic to you. But any comments on just behavior in those particular markets? It sounds, like I said, like northern Nevada might be swimming along just fine. But just, yeah, any thoughts there?

Reno and Tahoe for us have been stellar performers really since reopening. We could do better than a quarter of a billion dollars of EBITDA out of northern Nevada in 22, which was not in the realm of what we were thinking before we did the Caesars transaction. So the strength there is continuing. And for us, the southeast, outside of New Orleans, you're generally talking about smaller properties that, whether they move up or down, aren't going to swing our broader numbers much. So New Orleans is the key there.

Thank you very much.

Thanks. And thank you. And our next question. It comes from Steven Grambling from Goldman Sachs. The line is now open.

Thanks. On the $1.4 million in new ads to the loyalty program through digital, how do the demographics of this group compare to what would normally sign up, and how is the frequency in spend per visit in the cross sell that you referenced, or even mix of tables versus slots on property compared to the existing base of rewards customers?

I appreciate those questions, Steven, but that's the level of granularity I'd rather not get into on our database.

Fair enough. And then should we interpret that the $200 million in cross-sell is purely incremental? So the like-for-like customer revenue, as we look at 1Q, we would back out that $200 million. I think that it would be down. So it's really just a digital piece that's keeping trends strong, stable in the industry as we attract a new customer.

Well, the $200 million is an annual number, so you're talking about $50 million of quarterly spend that gets to that number. That's a pure addition through the digital channel. If you want to take it to the level of customers would sign up and there would be some, if digital didn't exist, there would be an addition through Caesars Rewards that's a derivative level that's not useful to get into on the call. But you should consider there's $200 million of casino revenue on an annual basis that's running through the business now, about 70% of that into destination markets, the rest into regional.

That's helpful. And maybe if I can seek one other one on that cohort. I mean, have you been actually trying to market at all at this point to that cross-sell, or is that something that could actually build the incremental cross-sell as we think about moving throughout the year?

I would say we've had baby steps in that direction to date, that most of that number is naturally occurring. You should expect that to be a considerable area of focus for us when I talk about marketing to customers. Profitable customers, this is a group that really all came in the door in kind of a 120-day period. As I talked about, that swamps what the rest of the organization does on an annual basis. So as we sort through them, you should expect that to be a target focus for us as we move forward in an area where we can drive revenue throughout the enterprise.

Sounds great. Thanks so much.

Thanks, Daniel. Thank you. And our next question comes from John Decree from CBRE. Your line is now open.

Hi, Tom. Thanks for taking my questions. Just two follow-ups on some of your comments and prepared remarks. First, on the regionals, you mentioned that margins ramped from the high 20s in January to over 37% in March, and it sounds like a lot of that was omicron impact in january i think the occupancy coming back in vegas is a bit more you know tangible for for us to kind of contemplate can you kind of talk about that margin ramp in in regionals and you mentioned new orleans normalized maybe that that's a chunk of it but kind of help us understand the ramp there was it just omicron or um some other stuff kind of working through as well as you ramp back up in the regionals it's just omicron remember john in our regional we have

a number of destination markets, New Orleans, Atlantic City, Northern Nevada, that all would have had similar visitation and occupancy trajectory as Vegas had in the quarter. It's really a function of that.

Okay, that's helpful clarity. And lastly, on the cutting back on the mass marketing or media spend at the digital level, where you've really seen your handle share, you know, unchanged or normalized. Was that surprising to you or anything about that surprising in, you know, some of the resilience that you've seen? I mean, is that Caesar's Rewards at its finest, or how would you kind of characterize that trend once you pulled back on that spend?

I think it's the effectiveness of the campaign that was developed by Chris Holdren, Sharon Otterman in Digital, that we started this in August with very little recognition from the average consumer that Caesars was associated with sports and sports betting. And certainly after the New York launch, there's very few people that would be possible likely sports bettors looking for an app that didn't know that Caesars was a choice And so it was really just a job well done in terms of getting our customer recognition up. You hook them into Caesars Rewards. We've told you that what we've seen in Caesars Rewards is that creates a stickier customer, and we're seeing the benefits of that since we've pulled back on mass market spend.

Great. Thanks, Tom. I appreciate the additional color.

And thank you. And our next question comes from David Katz from Jefferies. Your line is now open.

Hi, afternoon, everyone. Thanks for taking my question. Tom, if we could just go back to the strip asset row for a minute. I'd like to just be clear about there is a time period. And should we consider that an outside time period? In other words, could it potentially be sooner than that, or is it necessarily six months?

Well, David, miracles happen every day, but my experience has been when you get a lot of lawyers involved, the work extends to whatever the maximum allowable deadline is. If we finished one day ahead of that six months, I'd be very pleased.

Okay. Fair enough. And I'd just like to go back to one of your prepared comments around being, I believe the quote was, a meaningful free cash generator this year. Have you sort of put any order of magnitude around that or sort of walked across any of the approximate details to help us with our just sanity check our model?

Yeah, I mean, we can go through offline, but if you think about round numbers, we've been run rating, you know, X Omicron something $4 billion or better in EBITDA. We had about $2 billion in outflows between interest expense and Lease expense, about a billion of CapEx and a billion of digital loss, roughly speaking. And then the capital from asset sales would be excess that pays down debt. Now with half a million of EBITDA loss plus behind us in digital, as you look through the rest of the year, we should be a free cash flow producer on an operating basis after CapEx in addition to the proceeds that we generate from asset sales. And, you know, Brett, Brian, and their team did a great job of managing through a heavy cash use quarter to where we come out in a good position and should be Significant free cash flow producer from now forward.

Got it. Okay. Thank you.

Thank you. And our next question comes from Dan Pulitzer from Wells Fargo. Your line is now open.

Hey, guys. Good afternoon. Thanks for taking my questions. So we've heard a lot of this earnings season about strong travel and leisure demand. I mean, I guess as you look across your portfolios and your properties, do you think that these properties in Northern Nevada, New Orleans, Atlantic City, those markets you kind of mentioned, do you think they have a longer runway for growth from here than maybe some of the earlier to recover properties in some of your other segments?

I mean, I think that you're seeing a migration of the customers, right? And I think this is the crux of your question. When we had the reopening after the pandemic, people wanted to get out of their house. They were trapped for quite some time. They were comfortable traveling, in a lot of cases, a limited amount. They wanted to get out of the house. but they were comfortable going somewhere in their car. And so you saw this big burst of demand in regional markets. And if you think about other times where demand was crimped for any reason in casinos, what you see is you see some substitution out of destination trips into regional markets. And if you want to argue that that there was some of that in 20 and 21, I think you've got a leg to stand on. And as the picture surrounding the virus has gotten better, we've seen increasing willingness to travel, willingness to get on a plane, go somewhere where you're staying away from home for two, three, four nights. And that's what you're seeing now. now in our regional destination properties and Vegas in particular. And I think you've got some pent-up demand for group travel that we're really just getting into now. You're seeing wash rates come down considerably. I'd expect that to continue. You have people that were used to being on a plane going to group meetings that haven't really done that in two, two and a half years at this point. And I think you're going to see that as the group calendar begins in earnest. That's kind of another leg that we haven't seen yet. So I think this is just part of a migration of people getting more comfortable as the virus recedes.

Got it. And then on digital, I guess high level, you know, I think about you guys have this big database, big omnichannel presence, you know, you have all these script properties. How do you think about leveraging this over time, given, you know, up to this point, it feels like you've been mostly sports-centric, whereas, you know, I think right now you're just kind of real-time rolling out your iGaming content. Like, is it reasonable that over time we should expect the mix to shift more to the casino and online casino side?

From where we are today, most definitely. I would expect iCasino to be a significant contributor to the profitability metrics that we laid out.

Got it. And then just one quick housekeeping on corporate expense. I think that ticked down a bit sequentially. Was there anything specific to call out there?

Good old Eldorado business model, in effect. But nothing specific.

Got it. We're making Agnew pay for his lunch now.

Thanks so much. Thank you. And our next question comes from David Bain from B. Riley. Your line is now open.

Great. Thank you so much. First, just big picture question. Tom, a few have reported positive real-time trends, just as you have. I think yours sounds a little bit better than those. But investor focus on our end continues to be sort of the broader intermediate term macro. And I know you spoke to specifics why structurally out of COVID we're staged for potential growth. When you look at gaming as an investment, which I know you do, In addition to the structural setup with that, versus other consumer discretionary industries, can you speak to a little bit or speak to the gaming business in general and some things that maybe investors should consider? Maybe Anthony wants to speak to that as well.

I'd just say there's clearly something about gaming, even within travel and entertainment, with the social aspect. You walk the floors here and see groups of people that have not been out with each other in quite some time enjoying themselves. There's a social aspect to this that I don't know how well we appreciated it until it was gone, and that's I think a significant driver of what we've got going here. You know, I know that as investors here today, you know, crouched under their desks waiting the next shoe to drop in inflation or economy, we've been living with inflation for significant inflation for about a year now. We've seen no real impact on We just reported a quarter where GDP was down one and a half points. And this business, not our business, the business of casinos in particular, held up quite well. So I can't tell you what's going to happen in September or December 2021. March but the resilience of this business and casino customers generally has been extraordinary and none of us would have imagined that we would shut our doors for months at a time and nobody knew what would happen when we reopen, but I look at other sectors, you know, travel and entertainment, consumer-facing, the level of demand that has come back here has just been great to see. And like I said, as I walk through our properties now, this feels like what we were buying when we announced this deal back in June of 19th. So we're super excited to see where it goes from here.

Okay, great. And then my other one was on California. If the, you know, passes in November, you get a skin. I know a lot of unknowns with the landscape and taxes, but, you know, big picture, would the strategy match New York just given the success there? Or, you know, would it move more to partnerships or other things that you've learned there? from the New York opening. I'm just trying to get a big picture on big market openings because iCasino, I think, still has a ways to go. So I'm wondering what we should look for in future years.

Yeah, so California, obviously, between our Indian partnerships and our Vegas assets, we have an enormous California database. We would expect to be an aggressive competitor for business if and when that state launches. There are things that we learned in New York in terms of how we would tailor an offer and what we would shoot for, but we would expect to be among the leaders in California like we are in most of the states where we operate.

Okay, and does that change with iCasino, new states going live versus LSB?

No, iCasino, as we've talked about, it's a function of getting our app up to snuff in terms of game count. That's finally almost complete. And then you should expect to see us become much more visible in terms of marketing that business and becoming a real competitor. We didn't want to spend marketing dollars to send customers to what, in our view, was a substandard product. As we've talked about, David, when we took William Hill, William Hill had a single employee on the iGaming side, so we had a lot more work to do there than we did even in OSB. But we expect to be a formidable competitor there, and we're now in position to start that process.

Okay, great. Thanks so much.

Thank you. And our next question comes from Chad Benam from Macquarie. Your line is now open.

Hi. Thanks for taking my question. Tom, just kind of piggybacking on the end of your last comment, you mentioned Liberty is expected to be in all markets by the end of the year. I think you said Illinois migrated over in March. I'm not sure if Pennsylvania has migrated over. Are there any other major markets we should be aware of kind of on the come in the next couple months? And then more importantly, do you believe that or how long should it take for you to get to a market share that you're happy with after these platforms are switched over? Can we get there by the end of NFL season, or does it take another cycle of seasons? Thanks.

So the other state that still needs to come on liberty is Nevada, which is obviously a big one for us. And in terms of building share, these are states where, We're undeniably late to the game, and we're going to be smart about how much resources we throw at them, but tying them into our brick-and-mortar business, obviously we've got a lot of customers out of Pennsylvania, both at Chester and in Atlantic City, and then we've got three Illinois properties that have significant databases and you should expect us, that's what we're going to mine and we'd expect to continue to grind higher in market share and if you're asking do you think we'll be at our peak by this football season, I think we'll still be growing beyond that.

Great. Thank you very much.

Thanks, Chad. And thank you.

Go ahead. And thank you. I am showing no further questions. I would now like to turn the call back over to Tom Reed for closing remarks.

Thanks, everybody, for dialing in the call, and we will talk to you following the completion of second quarter. See you soon.

this concludes today's conference call thank you for participating you may now disconnect