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spk11: Ladies and gentlemen, thank you for standing by and watching the Caesars Entertainment Inc. 2022 Second Quarter Earnings Call. At this time, all participants are in 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 need to press star 1-1 on your telephone. I would now like to turn the call over to your host, Brian Agnew, Senior Vice President of Finance, Treasury, and Investor Relations. You may begin.
spk17: Thank you, Kevin, and good afternoon to everyone on the call. Welcome to our conference call to discuss our second quarter 2022 earnings. This afternoon, we issued a press release announcing our financial results for the period ended June 30, 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 CEO, Anthony Carano, our president and chief operating officer, Brett Yonker, our chief financial officer, and Eric Heschen, co-president, Caesar Sports and Online Gaming. Before I turn the call over to Anthony, I would like to remind you 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, please 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 of our 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 financial measure can be found on the company's website at investor.caesars.com by selecting the press release regarding the company's 2022 second quarter financial results. I will now turn the call over to Anthony Carano.
spk16: Thank you, Brian, and good afternoon to everyone on the call. Our second quarter was a record quarter for our consolidated property portfolio. Adjusted EBITDA in the second quarter, excluding Caesars Digital, was $1.05 billion versus $1.01 billion last year. Our Las Vegas segment delivered an all-time quarterly EBITDA record of $547 million, with revenues up 34% year-over-year. Our regional segment delivered same-store adjusted EBITDA of $513 million, up 24% versus Q2 of 2019. Caesars Digital reported a $69 million adjusted EBITDA loss, which was a dramatic improvement versus the first quarter of this year. In our Las Vegas segment, all areas of the business combined to contribute to the record EBITDA quarter. Excluding real rent payments, our Las Vegas segment generated EBITDA $558 million and a 49% EBITDA margin. Occupancy improved significantly, reaching 97% as a result of strong demand and our ability to lift self-imposed occupancy caps. Strong occupancy when combined with a record ADR resulted in the highest quarterly room hotel revenues for our Las Vegas segment in company history. Group and convention also posted an all-time quarterly EBITDA record led by the strong performance of the Caesars Forum. Group room nights during Q2-22 represented approximately 13% of occupied room nights in Las Vegas, up from 11% in the second half of 2021. forward group revenue pace for the remainder of the year, and into 23 is up over double digits versus 2019. Our Vegas F&B operations delivered record profits during the quarter as well. And finally, results in our 55-plus segment in Las Vegas were up for the first time over 2019 since COVID began, and we're beginning to see a noticeable return to the market from international travelers. And our regional markets, while results were down versus last year, offered Reported EBITDA of $513 million was up 24% to Q2 of 2019 and up 29% when excluding impacts from the Lake Charles closure and construction disruption at Caesars Atlantic City. EBITDA margins improved 750 basis points to 36% on a same-store basis for Q2 of 2019, excluding Lake Charles and Caesars AC. July operating trends in our regional SEC Our capital program remains largely unchanged. 90% of our room remodel programs in Atlantic City is now complete, and we look forward to several exciting food and beverage concepts opening in October and November. Our land-based facility in Lake Charles is set to open in December, and so is our expanded casino offering in Pompano. We expect to break ground on Caesars Danville in Virginia, Harris Columbus in Nebraska, and our casino expansion for Lastly, construction on our new hotel tower and additional amenities at our New Orleans property is progressing well with the new sportsbook and poker room set to open Labor Day weekend. These are all exciting projects that will generate a meaningful return on the investment for our company. As we look to the remainder of 22, we remain optimistic about our business as consumer trends remain healthy, especially versus 2019. As we mentioned last quarter, we remain encouraged regarding improving group and convention trends in Las Vegas, the return of the international consumer, as well as the potential for the full recovery of our older demographic consumer, who has been the most impacted to COVID-19. I want to thank all of our team members for their hard work in 2022 so far. I'm extremely proud of our operating teams, their execution, and their exceptional guest service.
spk05: Thanks, Anthony. The financial performance of our digital business improved significantly in the second quarter, both on a revenue and an adjusted EBITDA loss basis when compared to the first quarter of this year. As Tom previewed on our last earnings call, our strong gains in unaided brand awareness have allowed us to scale back our brand-related marketing spend. That reduction, in combination with a reduced promotional investment environment, translated into steadily improving results throughout the quarter. As we look to the back half of the year, we expect to add a number of significant product enhancements for our customers in key areas such as cash out speed, customer service, and parlay and alternative line offerings. We also anticipate converting all of our Caesars branded apps and sportsbooks to our Liberty tech stack by the end of 2022, greatly enhancing the customer experience. In addition, our marketing teams will have new and enhanced ways to deliver offers and promotions to customers ensuring that they receive them in the most cost-effective way. We continue to believe that scale is important for our digital sports betting, iCasino, and poker offerings, and pending regulatory approvals plan to expand into states and jurisdictions where allowed. We currently offer sports betting in 25 North American jurisdictions, 18 of which are mobile. iGaming is currently live in five jurisdictions, while poker is in four. As a result, we will continue to remain focused on growth through new state launches, investing from a tech perspective on product enhancements, and remaining acutely focused on our expenses. I'll now turn the call over to Brett Yonker, our CFO.
spk02: Thanks, Eric. Second quarter was outstanding from an operating perspective, and if you look back the past 18 months, we've now reduced debt by $2 billion alongside acquiring and standardizing proceeds from the sale of William Hill's international business. 100 million of that was executed through open market debt repurchases below par. The other 630 million were applied to our 2025 term loan B that happened in July. We continue to produce strong free cash flow with an expectation to reduce debt further in the back half of 2022. I'll turn it over to Tom.
spk15: Thanks, Brian. I'm going to provide some more color on the quarter, where we are now, and some conversations that I've had with investors over the last 30 to 60 days. Starting in Las Vegas, $558 million of EBITDA pre the real lease payment is up almost 10% over the prior record in Vegas, which was last year's third quarter. also post-merger. Vegas, coming into the quarter, the monthly cash revenue, hotel revenue record in Vegas was $91 million. We exceeded that in April, May, and June, and we're on pace in 2022 to generate over a billion dollars in cash room revenue in Vegas for the first time. Group business has come back extremely strong. We're seeing wash rates at or below historical levels as the pent-up demand for business travel starts to evidence itself in Vegas. That was about a $200 million EBITDA business in the prior Caesars pre-Foreign Convention Center. We're pacing about 40% above that. as we sit here today. So obviously with the addition of Forum, which was not in operation pre-pandemic, but extremely strong results for us. The strength in Vegas has continued into the third quarter. You should expect to see kind of normal seasonality. August, when it's just a little cooler than the surface of the sun, you should expect to see Occupancy track back to the mid-90s from the high 90s, but we'd expect to be back in the high 90s September and beyond, and that's what our forward bookings show us. So Sean McBurney and his team in Vegas have done an absolutely fantastic job. We've done all of this with Caesars Palace torn up for most of the year with our front entrance work. That finishes in September, so in this quarter we should be pretty well done with everything you've seen at the front entrance of Caesars, which should eliminate construction disruption there. We've opened Vanderpump and Nobu at Paris, and I'll be out for the Martha Stewart restaurant opening in a couple of weeks at Paris, so that property is transforming as well. We're extremely excited about that. If you move to regionals, you still have the drag in Atlantic City. Caesars in particular is under heavy construction. As you might be hearing from numerous others in a number of industries, it's difficult to bring in your construction projects on time given supply chain issues. So we were hopeful that all that would have been done prior to 4th of July. The bulk of it should be done by the end of August. So you should see Atlantic City numbers start to firm up. New Orleans is starting to track back toward where it was before, but still is a laggard among the regionals. And then Lake Charles will open Before the end of the year, remember that's about a $15 million LTM EBITDA drag. Should be something north of a $65 million LTM swing once it opens. So we're excited about that. We've got the Atlantic City projects coming online. We've got Horseshoe Indianapolis is less than a year into it. And Hoosier Park with a similar table expansion project. should come online toward the end of the year. So we're excited about the dollars that we've got out there and the returns that we're going to get on them. In terms of brick and mortar, obviously there's a lot of discussion about the broader economic picture. My first point would be we've done what we've done in two consecutive quarters of falling GDP rates. The average recession since the depression, I think, is 10 months. So we're hoping that we're toward the end of this current environment. But the consumer continues to hold up quite well for us. We've seen unrated play that has softened, offset by strength in rated play. Particularly at the higher end of our database, we've seen international comeback to Vegas really in the last four weeks, so we're excited about that. Obviously, the stimulus checks were a boom in last year's second quarter and early in the third, but July for us was... July of 21 was our best month ever, and we're neck and neck with that in 22. Particularly Harden to talk about digital. Obviously, that's been a topic of conversation for a number of quarters. If you'll recall, we closed the William Hill deal 100 days before the opening kickoff of NFL season. And when you do a UK acquisition, there's no prepping before close. You start from a standing start on day one. Eric Pesch and Chris Holdren and their team did a great job of standing up the app, getting our brand out there, and making us competitive out of the box. As I said on the last call, we got to about 15% nationwide handle share. Again, both states that were in, states that were not in. And our unaided awareness got to a point where we were comfortable pulling back on advertising spending. So we have planned hundreds of millions of dollars that we were planning to spend. We don't think our competitors have followed us. We think they're still spending. And our share has been stable. And if you look at our losses in the second quarter, each month improved on the month before. So May was a smaller loss than April. June was a smaller loss in May. Obviously, we finished July two days ago, so I'm talking about preliminary numbers, but digital for July was nearly break-even for the company. So I would expect, as we get into football season, which is clearly our acquisition period in this business, you're going to see some modest losses return as we acquire new customers but given that we damn near turned profitable in July, I'm extremely confident that we will be a profitable business at least by the fourth quarter of 23. And I view that business as we have made a bet that I told you was a billion dollars through last quarter, so you've got to add the 69 million of losses in this quarter. I told you In last quarter's call, I'd expect us to end up at about a billion and a half of cumulative EBITDA losses. It doesn't look like we will get near that billion and a half the way the business is performing now. And so we want to prove the concept. We proved we could carve out a significant piece of the business. Now we want to prove we can make a profit. And then we'll talk about fighting for additional share on the other side of that. But we are extraordinarily pleased with where digital is in a short period of time and really excited about this football season where we come in with our legs under us rather than running as fast as we can to keep up. So the last piece I want to touch on is leverage, which is a popular topic these days. We have a long track record of we do an acquisition and then we deliver. And Brent has told you while we were standing up digital with those billion dollars of EBITDA losses in the trailing 12 months, we paid down $2 billion of debt. We expect to continue to pay down debt. If you look at this quarter, even with the digital loss, We're at about a billion dollars of EBITDA. We have some capital that's coming online, some returns that are coming online. The digital business continues to improve. To be clear, I'm not giving any guidance. I'm looking at this quarter. If you look at a $4 billion business, our net debt, lease-adjusted debt, is a little under $22 billion. So we're under five and a half times levered today. We're generating somewhere between a billion and a half, a billion and three quarters of free cash flow. Now, a lot of that is going into growth capital for the time being. But if you think about a recession, of course, you've seen how we behave in a recession. You saw how we behave in a pandemic. The growth capital would start to shut off. But if you look at prior recessions, you're looking at a business that should be a mid to high single digit revenue declines at worst in regional, less in Vegas with what's going on now. If you run that at a 50% flow through, we're still doing about a billion dollars of free cash flow a year. So we feel very good about where we are leverage-wise. As you know, we have an ongoing sales process for a Vegas Strip asset that's governed by the DG agreements. It has about another month to run, so I'm not going to provide play-by-play there. But know that we are in very good shape. Balance sheet-wise, we would like to collapse the CRC bucket, for those of you who follow our debt, into our parent company. You should expect that we'd be exploring that as soon as the markets open up and we'll be kicking maturities out as well. So we don't, for all the hand-wringing about leverage and balance sheet all of a sudden, we really don't stress about that at all. We feel very good about the position we're in and where we're headed going forward. So those are my prepared remarks. Let me flip it to The operator for questions.
spk11: Ladies and gentlemen, if you have a question or a comment at this time, please press star 11 on your telephone while we compile our Q&A roster. Our first question comes from Carlos Santorelli with Deutsche Bank. Your line is open.
spk09: Hey, thanks, everybody. And thanks for the comments. Tom, could you just talk a little bit about, obviously, the decline in digital spend was significant. And I know during the last quarter, you spent considerable time kind of talking about what we would and wouldn't be seeing on TV and in advertisements. As you guys make your transition now towards a profitable break-even business that's sustainable going forward, where does kind of that advertising bucket lie in terms of the aggregate spend? Is that just something now that kind of run rates where it is, or will we see incremental stuff that might have been contracted for extended periods of time fall away as we move forward?
spk15: Thanks, Carlos. So you'll see this fall, if you're watching TV, part of our ESPN deal includes advertising buys, so you'll see some Commercials largely on ESPN. You'll see some local ads, ads that run locally as well. And then you'll see a little bit in iGaming as that product gets toward where we're comfortable with moving customers onto our app. So you'll see, I mean, compared to last fall, it's going to seem like we've left the air entirely, but you will run into a commercial or two, depending on where you are and what you're watching.
spk09: Okay, great. And then just as a follow-up, you know, if I look at the regional markets in general, could you kind of talk a little bit about what you're seeing out there? Obviously, you know, we see plenty of PTR, and that's been relative to 2021, just given the difficulty in comparison. But from a promotional standpoint, are you seeing any behavior that's any different than what we've seen over the last couple months, quarters?
spk15: Nothing that's material to our business. I describe the regional business as everybody had more money in his or her pockets a year ago from the transfer payments from the government. So that's both unrated play that's softened, so some of that business has disappeared. That's also rated play that played up last year versus historical levels. But we are quite comfortable that we should be running, let's call it, well into double digits above 19 EBITDA in regional, and regional margins should be up, you know, six, seven, 800 basis points from pre-pandemic. So I would call that kind of the new normal, as it were, in this environment where you don't have that little bit of a bubble that you had last year. And, you know, this is part of what drove the Caesars acquisition for us, right? You remember when we were two markets, and if something happened to one of those two markets, it was a problem for the company. We wanted to become more and more diversified. Now we're more diversified than anybody out there domestically. And what we saw is last year, regionals carried Vegas when Vegas was struggling with people getting on planes and with virus-related restrictions. And what you're seeing this year is regionals aren't quite as strong as they were last year, but Vegas is picking up the slack. So it's working as it was designed when we put the company together.
spk09: And, Tom, just to clarify, when you say up 6,700, 800 basis points relative to 19, sorry, you didn't say 8. I heard 6,700. That's on the current portfolio, which was, I believe, if I'm doing the calculation right, around a 28% margin?
spk15: Yeah, I'd say you're running 35% plus now. And then you're going to have Atlantic City construction roll off, which has certainly improved. revenue and margins, and then you're going to have Lake Charles come on, which should be a significant swing for us.
spk09: Great. Thank you, guys.
spk10: One moment for our next question. Our next question comes from Joe Gruff with JP Morgan. Your line is open.
spk08: Good afternoon, everybody. Tom, just a question touching on price elasticity in Las Vegas, especially in light of airfares that are much more expensive now than history and for the drive-in traffic coming from Southern California with higher gas prices. Are you seeing any segment, either on a net worth basis, on an age basis, that's exhibiting spend reduction in relation to you know, higher hotel rates, food and beverage pricing and such. And is the sensitivity on that maybe greater during seasonally slower periods, like you mentioned, August, when things are, you know, obviously, you know, pretty hot and heated in Las Vegas?
spk15: I can't point you to anything in particular. You know, 55 plus has started to come back in Vegas like they've not come back since, We talked about international has returned quite recently, which is a great sign for us. But, you know, when you're running 97% at these rates with, you know, up 10% over our prior record, really everything is going great in Vegas. And as we headed into... Board meeting last week, earnings call this week, we checked with our booking channels. Are we seeing any softness in Vegas bookings? And what came back is we've actually seen a pickup over the last two or three weeks. So it is extremely strong. There are not strong enough words to convey how well it's going in Vegas for us.
spk08: Great. Thank you. And just going back to digital and your comments there, obviously it sounds like the improvements both on a net revenue basis and then the narrowing of EBITDA losses there, it sounds like it's largely Caesars-specific and not necessarily a function of seasonality there. and or the environment getting less irrational in terms of promos or customer acquisition costs? Is that a fair assessment? And then I'll add a part B to this. When we think about the losses for the next couple of quarters, and I know there's seasonality in the 4Q with football, would you expect that EBITDA loss in both the 3Q and 4Q to be below that $100 million level or approximating that 2Q, $70 million, $69 million EBITDA loss level, and that's all for me.
spk15: I would expect we will not have a quarter of $100 million quarterly EBITDA loss in digital again. We can talk about modeling offline, but that business, and we've had a lot of conversations about this, right? The How are you going to become positive? The key factor to think about in the third quarter is you had no significant new states coming online. And so your business became dominated by existing customers rather than new acquisition customers. And I can't stress enough that the acquisition cost versus the retention cost is a dramatic difference. So I would expect this football season for everybody. You're going to have New York and Louisiana were very late last year. So you're going to have a fair amount of acquisition activity there. You're going to have some natural acquisition activity, but you don't have a new state of scale coming online until Ohio in January. So we feel pretty good certainly for ourselves. I can't speak for what others are doing. We cut almost half a billion dollars of what we were anticipating spending in marketing in the last three quarters of 22. So this is a dramatic pivot for us. We're heartened that we haven't seen share deterioration, and particularly with what we've seen in profitability And you know we're really not one to lose money when we don't need to. And we've got a long track record of really turning highly subsidized businesses on the brick-and-mortar side into far more profitable business. It's the same thing that we're doing in digital. When we started digital, we didn't have the ability to segment customers. And now we – so you, in effect, underinvest in your best customers and overinvest in your worst. That's no longer the case. So you can be far more precise in what we're doing, and we see the fruits of that every day as results come in, and it's great to see.
spk08: Thanks for the thoughts, Tom.
spk10: One moment for our next question. Our next question comes from Steven Wisinski with Thiefly. Your line is open.
spk04: Hey, guys. Good afternoon. Tom, you mentioned in your prepared or so-called prepared remarks, you know, unrated play. You saw that slowing. And I guess the first question, you know, is that across both regionals and Vegas? And then the second question there would be, have you seen any spend pattern changes in your database tiers, meaning that, you know, that low tier rated player? Has there been any softness there?
spk15: So no difference in the unrated across markets. It's just casino play in general doesn't move the needle as much in Vegas as it does in regional. In terms of tiers of customers, I think if you go to the lowest end, the properties on the Mississippi River for us in the south, those started softening in January, February for us, and then have been stable. But you're talking about a couple of properties that are $20 million of EBITDA out of $4 billion, so nothing that is material to the enterprise.
spk04: Okay, understood. Second question, Tom, in terms of the strip asset sale, I know you're probably very limited in terms of what you can say, but Is the delay, and I'm not sure if even that's the right term, but is the delay here really more around the rate and the funding environment versus the demand environment? I guess what I'm trying to understand is if the demand for strip assets is still as strong as it was, let's say, a year ago.
spk15: So, to be clear, we've talked about this on other calls, it's very clear the timeline that is laid out in the VICHI documents that govern this. So we launched early this year. The deadline is by the end of the summer, and every deadline I've ever seen in deal land, the work grows into that deadline. You know, for us, and there are plenty of interested parties, Obviously, the financing environment is what it is, and if that's going to impact what someone will pay, there is a level where I'm not going to chase it. I'm very happy to just clip the free cash flow and come back later. But as we have discussed, this is a discretionary trade for us, We still think we can get it done within the parameters that we had set at the outset, but we certainly recognize we live in a market that moves day to day, and if financing conditions change, the outcome might change. But this has become, for me, it's kind of amusing, because when I first started talking about where to sell a Vegas strip asset, the response from Both sell side and buy side was why would you want to sell a Vegas strip asset? Look at how great it is. And we said there are times in the market that you don't have to go back very far, that we wouldn't want to own this many rooms. And now the conversations have turned to, oh, my God, can you get this done? This is critical. This is a change in you, not in us. This has been discretionary for us from day one, and it remains so. So regardless of what level of fear is coursing through the investment community, we put our heads down and we do the work. And if we have a trade that makes sense for us, we'll do it. If we don't, we're fine waiting. That's far more than I wanted to say about the Vegas Strip asset sale, so no more questions on that. But that's where we are.
spk11: Very clear. Thank you, sir. Appreciate it. One moment for our next question. Our next question comes from Barry Jonas with Truist. Your line is open.
spk06: Great, thanks. Auto traffic to Vegas has slowed according to citywide DLVCVA data. Curious if you're seeing anything like that across your database with California visitation.
spk15: No, I mean, we just reported a record quarter. Told you July is very strong as well. I mean, yes, there is a seasonal increase In Vegas, third quarter is lower than second quarter because it's 120 degrees. But beyond that, we're really seeing no change in Vegas activity.
spk16: June traffic at the airport was record levels as well.
spk15: That's right. June seats into Vegas set a record.
spk06: That's helpful. And then just as a follow-up, any thoughts on the Centaur option here?
spk15: For us, you should not expect us to exercise the put. You'll have to ask Vici what their intentions are on the call. But in any event, like any option, I would expect if Vici intends to exercise, they would be looking toward the end of the option period. But I don't know. That's a supposition if I was in their shoes, not them telling me that. Got it. All right. Thank you, Tom.
spk11: One moment for our next question.
spk10: Our next question comes from Sean Kelly, Bank of America.
spk07: Your line is open. Hi. Good afternoon, everybody. Just two questions on the digital side. Tom, you know, I was just intrigued by the comment around, you know, you will not get near to the $1.5 billion of losses. I think you tackled it on a quarterly basis, but any chance we could get you to help us at a new kind of overall level for us or not quite prepared to do that?
spk15: Hard to do in front of football season. You know, if we were at a billion, we're at 1.069 now. I'd say think about that neighborhood for the next couple of quarters and then improving to inflection to positive at worst in the fourth quarter next year.
spk07: Super. Thank you. And then one for either the group or for Eric specifically, but we're thinking about the digital strategy, two parts here. One is you know, obviously you pulled back some, you know, kind of has the market overall changed very much as it would relate, you know, to promotional spending and just kind of how are you seeing that cadence work? And then, you know, for your own product lineup, can you just talk a little bit more about how you kind of hope to make some inroads on online gaming, maybe just the product roadmap on the iCasino side a little bit, given the strength of your database, we've always thought that that's a huge opportunity for Caesars.
spk05: Yeah, Sean, sure. So, In terms of what our competitors are doing, we really haven't seen much of a change at this point. We don't know exactly what their plans are for football, but we've heard no indications that they're changing the original strategy. We believe that the performance that we had in the second quarter and as we head into July and the next few months support our notion that we can pull back and that customers are more sticky than we had previously. originally thought, and that that's allowing us to be able to have the large reductions and still maintain kind of the revenue levels we were at. In terms of the iCasino, I would say you're exactly right, and quite frankly, that's the area that I think all of us around the table are probably the most disappointed with. We really haven't gained the traction that we want, and given our knowledge of how to get those customers and to market to them and to segment to them and what they're looking for in terms of game type based on the retail business, we should absolutely be a market leader in the iCasino space. We've been challenged from a tech perspective as well as from a marketing perspective. And unfortunately, that is lagging the sports betting side. So later in the fourth quarter, we're going to be making some enhancements on the tech side so that we'll be able to do segmented marketing and some other things. We'll be able to do free spins coming up, which are all basic things that you'd expect. would be in place, but unfortunately they were just difficult from a tech perspective. So I do agree with you that that is an area of opportunity, and I think if you were to look starting in the fourth quarter into next year, you're going to see us start to make some real progress there.
spk11: Thank you very much.
spk10: One moment for our next question.
spk11: Our next question comes from David Katz with Jefferies. Your line is open.
spk12: Hi, afternoon, everyone. Thanks for working my question in. If we could talk about just the margins so that we can look 90 days seems like a world away. I know at one time we were talking about, you know, percent is that it's still a neighborhood. where we think we can live, either near-term or long-term?
spk15: Well, at the 5.58, we're 49% in the quarter. World Series of Poker happened largely in the second quarter. That's additive to EBITDA. It's about 100 basis point drag on margins. So from an operating perspective, we were at 50% in the second quarter. If you think about forward, obviously got a little bit of seasonality third quarter. Fourth quarter, you might just point drag on margins. So from an operating perspective, we were at 50% in the second quarter. If you think about forward, obviously got a little bit of seasonality third quarter. Fourth quarter, You might have read we're going to have some entertainment come online. That's a lot of revenue sales, but that's going to impact Vegas markets. So you're going to have, when that particular entertainer starts, you're going to have a lot of revenue run through that goes to the artist, a little bit of profit to us, and a better customer on the floor.
spk12: So 50 is where we're going to, We're is still a comfortable place for us to hang out. OK, yes, I'm good. Yep, very much.
spk10: Before our next question. Our next question comes from Daniel Pulitzer with Wells Fargo.
spk11: Your line is open.
spk01: Hey, good afternoon everyone and thanks for taking my question. Um, so I wanted to hit on regionals first. Um, I mean, I think the margins, um, over the course of the quarter, if you can just kind of any, any color on how they, how the cadence was, you know, I think cause March was, I think in the high, high thirties and then, you know, how it paced over the course of the quarter. And then certainly I get, there was some disruption from Lake Charles and, um, Atlantic City. But, you know, as we think about the third quarter relative to the second quarter, you know, it's typically those are your best two quarters of the year. So I wanted to make sure that's still kind of, you know, in play at this point. Thanks.
spk15: Yeah, that's still in play. I would say month to month in the quarter was not a dramatic move across that many properties. So you should figure that the business was running at about the 36% level or so for the bulk of the quarter.
spk01: Got it. And then in Las Vegas, I know there was some flooding recently. I wanted to check if that had been fully cleared up at this point. How should we think about the impact, if any, in the third quarter?
spk15: I just took my life jacket off. I was all the way over there. There's no... There's no impact to the business at all. It's some good social media footage.
spk01: All right. And just one last one. I think you mentioned that Group was pacing up in Vegas around 40%. um versus 2019 um including obviously forum i mean how should we think about that you know on a i guess excluding forum is it still tracking up and what's really driving that is it is it pricing is it you know just food and beverage additional business or you know just volume it's all of that it's volume it's you've seen what we've done in other segments of the business that we run versus
spk15: how they were run prior. The banquet business that comes online is... It's accretive to margins, even the 50% margins in Vegas. And Michael Massari and his team have done a fantastic job of building a great calendar for us. And all of that comes together for a great outcome. For us, to give you an example, Hera's In the second quarter, nearly 20% of room nights at Harrah's were group nights, and that's a property that had effectively zero prior to the Forum Convention Center opening.
spk10: Got it. Thanks for all the color. One moment for our next question.
spk11: Our next question comes from David Bain with B. Riley. One moment. David Bain, your line is open.
spk14: Great. Thanks so much. First, I was wondering, you gave some color on structural forward growth drivers in Vegas, and you touched on the associated revenue with conventions. Can you big picture international? Is that a $50 million to $60 million business? And then you also mentioned the 55-year-old demographic returning. Just kind of wondering kind of where we are, if you can quantify where that was prior to COVID versus today.
spk15: So directionally, 55 and over is now above in Vegas for the first time since pandemic, but it is still trailing younger cohorts on a comparable basis. The younger cohorts are up more. That's a much, in terms of order of magnitude, that's a much bigger piece of the business for us than international. International's
spk14: good story for us but it's it's far smaller than 55 and over okay great and then one more if I could you know one industry report cited that the OSB your OSB is looking at a black label site for VIPs do you see Tom segmentation coming to online and can you take kind of what you've done and offline to online and create margin outperformance, if you will. I mean, is that something we miss when we structure our iCasino and OSB models at maturity, you know, looking at international, even before consideration of the land-based benefits? How does that trend?
spk15: Yeah, I mean, wrapping it into Caesar's Rewards, it should, at maturity, it should be just like the brick-and-mortar business. So we should be able to get more share of wallet from our best customers and not overspend on small customers, which is the same idea as brick and mortar. I will say one of the things that you miss, that I see missed in analysis of digital is as we launched, as all of our peers launched, you saw all these sports partnerships, created, branding partnerships, affiliate relationships, all for customer acquisition at launch, as these states launch. That runs a quarter of a billion dollars through our digital business today. Those are all contracts that run off, depending on the contract, two to five years after they were signed. Now, as you get into a more mature business, you're not going to be recutting those deals or you're not going to be recutting them at the levels that you started at. So that's going to be extremely accretive to EBITDA as the business is seasoned. And I know that's the case for everybody in the business.
spk14: Okay, great. All right.
spk15: Thank you very much.
spk10: One moment for our next question. Our next question comes from Chad with McQuarrie. Your line is open. Hi, good afternoon.
spk03: Thanks for taking my question. In terms of sports betting California initiatives, I believe there's seven or eight companies that have backed one of the bills. Can you talk about how you're positioned there? And more importantly, are there states in the U.S. where you would potentially take a hard pass given maybe a higher buy-in or a higher tax rate? Thanks.
spk15: Sure. I struggle to think of a jurisdiction we would not go to in the U.S. if it opens. I guess if you think of a very small state that puts up a ginormous tax rate, that's a small possibility, but we want to be everywhere. In terms of California, we're not part of either initiative. We have a... We want to see sports betting in every jurisdiction that we can find. We'd love to see iCasino in every jurisdiction we can find. We have a decade-long relationship with a number of tribes across the country where we've been managing their assets through multiple contract renewals, which was a unique position when we bought Caesars. I'd never seen that before. And we don't want to be in opposition to tribal interests when we're their partners. So we've remained neutral in California throughout. You should expect that to be the case in any state where tribes are at odds with the commercial interests.
spk03: Great. Thanks, Tom. And then I wanted to ask you about your kind of hypothetical 50% flow through. And I know that was more of just kind of, again, a hypothetical if revenues declined and you were really just trying to make the point of strong free cash flow. But within that, I guess I wanted to ask, in an environment where revenues are declining, are there some, quote, unquote, fixed costs, maybe in labor or other OPEX, where you could, you know, reduce costs. Obviously, marketing is at pretty low levels. We all understand how the rent, the lease payments work. But yeah, in this hypothetical situation, are there areas where you could kind of trim some of your, you know, quote unquote, fixed OPEX? Thanks.
spk15: Yeah, Chad, without question. You just saw us live through the pandemic and The amount of cost that you can cut in these businesses is far beyond even what we thought prior to the pandemic, and we were among the most vocal that there were significant costs to be cut. So one of the benefits of the pandemic for us is you got a sense of what your customer, what they were willing to tolerate in a softer environment. And I'm thinking in terms of hours of operation for non-gaming amenities. What you can do in a soft environment is far different than what the world believed pre-pandemic. So I think both the 50% flow through and the top line tips are far in excess of anything that we're expecting. I really did that to illustrate that even in that scenario, we'd be generating a billion dollars of free cash.
spk03: Appreciate it. Thanks, Tom.
spk11: And one moment for our next question.
spk10: Second question, Brett Montour with Barclays. One moment. And your line is open. Okay, great.
spk13: Thanks for squeezing me in here. Tom or anyone, I wanted to just get a sense for how you're feeling about your Las Vegas room rate pricing power from here. And outside of rooms being removed from the system like with the Rio, what inning do you feel like you're in in terms of pushing rate just based on your present occupancies, which are really high?
spk15: I mean, I think what you're going to see is the return of groups. is going to help us grind rate higher because that's going to push out our lowest rate customers. That's what's already happening. And keep in mind, we're about to cycle through where we'll be comping against self-imposed occupancy caps because of labor levels last year. So you're going to see even more significant flow through as you get toward the end of the year with those caps off. So we feel extremely positive about the forward occupancy and rate environment. In Vegas, as I said, we're on pace to do better than a billion dollars of cash room revenue, which has never happened in Caesars.
spk13: Okay. Thanks for that. And then just one follow-up. I'm curious to hear about this Empire Days Las Vegas promotion you guys launched today, if this is a regular way type set of promotions, if it's sort of, you know, new or if it's more offense or defense, and just any other ways that you'd like to share that, you know, you can activate the Caesars Reward system here for any, you know, various pockets of softness that we might see in the next six to 12 months.
spk15: Yeah, this is a typical... room sale that goes on every year, so there's nothing in particular to call out there. We're running at 97%. July was 96.5% occupancy, so we don't have a lot of extra rooms to fill at this point. So we feel very good about having his team in revenue management for us And Sean, as the operating leader in Vegas, we couldn't have done better in terms of what we inherited in that group and have a great degree of confidence in the results they'll drive going forward.
spk11: Great. Thanks so much. And I'm not showing any further questions at the time. I'd like to turn the call back over to Tom for any closing comments. And I'm not showing any further... All right.
spk15: Thanks for your time, everybody. We will talk to you after third quarter.
spk11: Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.
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