Caesars Entertainment
The top line
Net revenues up to $2.5bn vs. $127m in 2020, net income of $71m compared to -$100m, adjusted EBITDA of $1bn vs. $131m loss YoY and c.25% up on expectations.
This was an all-time record for quarterly adjusted EBITDA and adjusted EBITDA margin.
In Las Vegas, Caesars recorded same-store revenues of $855m and same-store adjusted EBITDA of $425m. Regional casinos recorded same-store revenues of $1.5bn and adjusted EBITDA of $621m.
Lean and mean: CEO Tom Reeg was careful not to make predictions about online market share but the group’s intent is clear. The launch of the Caesars Sportsbook app the previous day and of the Caesars Digital division will see it commit $1bn to developing its interactive activities over the next two and a half years. Reeg said the group was “activating the whole enterprise into the vertical”, including the 60 million people in its rewards program database.
The “entire workforce has been incentivized to sign up people to digital and there is a real lean-in to digital.” Prior to launching the app and Caesars Digital, “the digital business we were doing was incidental and not truly focused and now we’re looking to generate cash at maturity well in excess of 50% of what we invested.”
Go with the flow: Reeg acknowledged it wouldn’t be plain sailing and when asked how confident he was that in the current highly competitive environment $1bn could be turned into $2bn.
“If it turns out to be $2bn, we’ll be having a good experience,” Reeg said. “My view is that we’re in a unique situation, everything opened up and everyone is looking for customers. We have 60 million customers in our database and the ability to serve them at all levels as their value to us increases.”
Frontloader: Online EBITDA losses “will be front-end” in the next two and a half years as the group launches national marketing, branding and acquisition campaigns. And while some brands have been quicker to launch, “others like (Caesars) took longer to get their ducks in a row, but we have everything we need to succeed in the space.” Deutsche Bank reacted positively to one of the “most eye-popping beats” this earnings season. They added that Caesars’ “strong operating performances support management optimism and credibility” on the long-term $500m-$1bn EBITDA potential for Caesars Digital.
Life on the margins: With Q3 occupancy rates expected to be ‘significantly ahead’ of Q2 and margin gains to be sustained, Reeg said the labor shortages experienced across the industry had helped focus on attention to detail and operational excellence. But he added there was room for improvement. “It’s an extraordinary amount of EBITDA that’s left on the table,” he said. “(We) had very little group business to speak of and we’re still able to post the best quarter that Caesars had ever posted from an EBITDA perspective.”
Masking the issue: Noting a leaked internal letter about cancellation rates (see social below), Reeg insisted that the hit to occupancy rates would be minimal. “We fully expect to remain in the low to mid-90s of occupancy in Vegas through this current situation with the Delta variant,” he added. Truist said growing COVID rates had created “some industry-wide uncertainty” but with mask restrictions in place during much of Q2, renewed mask mandates were unlikely to have a meaningful impact.
