Good day, and thank you for standing by. Welcome to the Caesars Entertainment Inc. 2023 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brian Agnew, Senior Vice President of Corporate Finance, Treasury and Investor Relations.

Thank you, Josh, and good afternoon to everyone on the call. Welcome to our conference call to discuss our second quarter 2023 earnings. This afternoon, we issued a press release announcing our financial results for the period ended June 30, 2023. 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 Reeg, our Chief Executive Officer; Anthony Carano, our President and Chief Operating Officer; Bret Yunker, our Chief Financial Officer; and Eric Hession, President, Caesars Sports & Online Gaming. 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 today's call. Also during today's call, the company may discuss certain non-GAAP financial measures as defined by SEC Regulation G. The GAAP financial measures most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on the company's website at investor.caesars.com by selecting the press release regarding today’s 2023 second quarter financial results. I will now turn the call over to Anthony Carano.

Thank you, Brian. And good afternoon to everyone on the call. We delivered another strong quarter with consolidated EBITDA exceeding $1 billion. Operating trends within our property portfolio have remained robust, despite a tough year-over-year comparison, driven by a single large convention event. Our Las Vegas segment delivered the second-best Q2, adjusted EBITDA of $512 million. Our Regional portfolio delivered $508 million in adjusted EBITDA, down slightly from last year. And finally, our Digital segment reported $11 million of adjusted EBITDA, the segment's first quarter of profitability since we rebranded to Caesars Sportsbook in Q3 of ’21. Underlying demand trends in Las Vegas remained strong during Q2, with occupancy growth of 100 basis points to 97.6%. Total Las Vegas segment revenues were down 1% due to exceptional performance last year in our Group segment. Excluding real rent payments, Las Vegas generated $523 million of adjusted EBITDA with a margin of 46.3%. Las Vegas continues to benefit from strong leisure and casino guest demand, the return of international guests, and an exciting events calendar, as well as the continued strength of the group and convention segment in ’23. While group and convention segment EBITDA in Las Vegas was down year-over-year in the second quarter, indicators for the remainder of ’23 point to another record EBITDA year for the segment. In our Regional segment, revenues were up slightly, and adjusted EBITDA declined 1% to $508 million. We were excited to open two new temporary facilities this quarter in Danville, Virginia, and Columbus, Nebraska. Both properties opened to strong customer demand. While we face new competition in a few markets during the quarter, customer demand trends remain stable and similar to prior quarters. Our capital projects continue to deliver solid returns. Lake Charles and the developments in Danville and Columbus are exceeding plans. We're excited to finish work on the Harrah's Hoosier Park expansion this fall and continue to make progress on the permanent facilities in Danville and Columbus. Work in New Orleans is progressing nicely, and we continue to target a late ’24 opening. Construction has started on the Versailles Tower rebrand in Las Vegas, which is expected to be completed by spring of 2024. And finally, we recently opened a new show in Atlantic City called THE HOOK, which was accompanied by the opening of Superfrico Atlantic City as well. We have solid momentum heading into the second half of the year, as we continue to deliver strong returns on project CapEx, drive profitability in our digital segment, and remain focused on operational excellence in our property portfolio. I want to thank all of our team members for their hard work in the first half of ’23. Our success is a direct result of their dedication and their commitment to delivering exceptional guest experiences every day. With that, I will now turn the call over to Eric Hession for some insights on the second quarter in our Digital segment.

Thanks, Anthony. During the second quarter of 2023, we delivered another significant improvement in the performance of our digital segment versus last year. Our business reported $11 million of adjusted EBITDA and $216 million of net revenue compared to a $69 million EBITDA loss last year. Results this quarter represent our first full quarter of EBITDA profitability since rebranding to Caesars Sportsbook in Q3 2021. During the quarter, sports betting hold improved 180 basis points versus last year, and iCasino volume increased 27% year-over-year. Our performance this quarter continues to demonstrate the effectiveness of our targeted promotional investment and an overall lower level of marketing within our existing customer base, as well as customers located in the new states. We have recently introduced four significant pieces of new and exciting technology improvements that we expect will be well received by our customers. First, our new iCasino product, Caesars Palace online, is now live in multiple states and pending regulatory approval in others. The new iCasino product offers significantly improved functionality and enhanced marketing capabilities, all combined with the compelling benefits of Caesars rewards. Secondly, we recently transitioned our Caesars app in Nevada to our flagship Liberty product, which delivers significantly improved functionality for our customers. Pending regulatory approval, we anticipate converting our William Hill product and our retail sportsbooks to the Liberty platform later this year. Third, we've started rolling out our native iOS Sportsbook app and anticipate reaching 100% adoption in August. The new native app is receiving consistently higher performance feedback and will result in faster loading speeds, improved stability, and enhanced development speed. And fourth, we're on track to introduce our in-house player account management system, which we anticipate rolling out state by state later this year and will ultimately lead to a shared wallet that we anticipate rolling out in 2024. These four products have consumed significant amounts of technical resources over the past year, and we're very excited to introduce them to our customers. We now offer sports betting in 30 North American jurisdictions, 22 of which offer mobile wagering. We also operate iCasino products in six jurisdictions. I'll now pass the call to Bret for additional comments.

Thanks, Eric. As you'll see in our earnings release, and subsequent to the quarter end, we successfully acquired the remaining minority equity interest in Horseshoe Baltimore, which allowed us to fully repay its $250 million Term Loan B, yielding significant interest expense savings given its high cost of debt. Pro Forma for that repayment and the most recent rate hike from the Fed, our average cost of debt sits just inside 7% with annual net cash interest expense of approximately $800 million, which is well positioned to decline going forward given continued debt reduction alongside built-in spread adjustments tied to declining leverage in our loan agreements. CapEx spend is also expected to decrease in 2023 to just over $800 million, with several growth projects being completed either later this year or in 2024. Coupling declining interest expense and CapEx with continued EBITDA growth paves the way for accelerating free cash flow dynamics going forward. Over to Tom.

Thanks, Bret. Thanks, everybody, for joining us today. I'm very happy with the quarter, another strong quarter for us. Starting in Las Vegas, keep in mind we were up against the strongest quarter that we've ever had in Las Vegas. Our performance was impacted by missing a large group that comes to Caesars properties once every three years, which factored into last year's numbers but not this year's. We telegraphed that last quarter. You saw last week in the Nevada numbers that June hold was not as strong as it was in the prior year. We participated in that, and while I don't particularly like to talk about hold, it’s notable enough this quarter. We're in the gambling business, and what we're looking for is the volumes to come through the property. And while they came through, we just didn't hold in June like we did in last year's June. Both the miss of the group from last year and the hold impact diluted our margins. Obviously, the group business for us is accretive to our overall Las Vegas margin. As you're looking at margins on a year-over-year basis, keep that in consideration. Las Vegas continues to look very strong. We had a strong July and feel optimistic about the remainder of the third quarter. Additionally, the fourth quarter brings events like the Formula One race and the Super Bowl. I've previously mentioned that I believe Formula One will boost our revenues by at least 5%. Demand for Formula One, particularly at the high end, has been very strong. We're well positioned for the event, and we are excited to observe how it integrates within Las Vegas in future years. Demand for Super Bowl ’24 is exceedingly strong from a demand standpoint, with respect to booked capacity versus typical occupancy for this time ahead of the Super Bowl. An anecdotal look at ticket sales indicates that our average customer for the game will be substantially more valuable than in previous years. Vegas remains very strong for us with no discernible impact from recessionary concerns. As we look ahead, I want to mention the Jubilee Tower at Valley being converted to Versailles at Paris. We expect those rooms to be back online before the end of the year, although we don't anticipate completing the entire project until the first half of next year. If we look at the regional portfolio, the entire quarter exemplifies the diversification we have. We had the missing group in Vegas and the hold impact. In the regional business, we have multiple properties under competitive pressure due to new openings in the vicinity. Tunica has faced pressures from a property that opened closer to Memphis. Our Council Bluffs has experienced pressure due to the increased capacity we've seen in Nebraska. Chicago properties in Illinois and Indiana have been impacted by the expanded casino offerings in Illinois. However, we have reaped the rewards of our capital investment cycle. New properties in Danville, Indianapolis projects, and Lake Charles are performing well. Despite a strong comp year, our regional EBITDA remains steady year-over-year. As we progress into the third quarter, we’ve had a strong beginning, and we are comparing against an extremely strong third quarter of last year. It appears we may even outperform. Moving to the digital segment, last year, we recorded a loss, and we've emphasized the goal of achieving positive EBITDA through that vertical, and it’s remarkable to witness our first full quarter of positive EBITDA. I've laid out specific targets for where we can be in digital looking out to ’25 during our last call. Some of you expressed skepticism on those projections. However, I assure you, every metric I review is either at or above the expectations laid out 90 days ago. I'm comfortable stating that we intend to meet or exceed those targets. On the tech side, our transition has included significant movements for us. After our acquisition of William Hill, only one employee was working on iGaming. We were utilizing antiquated technology unable to perform to its full potential. Recently, we soft-launched our Caesars Palace casino, and I expect to receive approvals shortly in a few jurisdictions. This marks a substantial improvement to our digital business capabilities. We expect to grow iGaming revenue significantly as subscribers move over to this competitive product, now with Caesars rewards providing additional incentives. Our second quarter last year was the best second quarter ever, and this year, we've exceeded it in EBITDA. Consequently, digital performance, coupled with the regional segment holding its own, has offset the group's loss in Vegas. This showcases how we built this business. Finally, moving to Liberty in Nevada has been a massive upgrade; we've transitioned from an outdated system to the state-of-the-art Liberty app. This dramatic step is timely as we anticipate high customer influx during upcoming events. I expect 95% of our handle in Nevada to be on Liberty by mid-August and almost all of it by the football season's kickoff. As we gear up for our third NFL kickoff since launching our digital business, I feel very optimistic about our positioning. We continue to manage our debt effectively, with conventional leverage around four times and positioning for further decline. With the performance of our business, we are beginning to consider how to utilize the free cash flow generated in ’24 and ’25. This could mean a return of capital or exploring external opportunities. I assure you, three years post-Caesars merger, we are primed for such opportunities. It's been a long journey, but we genuinely feel strong going forward. I now open the floor to questions from the audience.

Our first question comes from Joe Greff with JPMorgan.

Good afternoon, everybody. Tom, given what you said about Las Vegas trends, how aggressively can you expect year-over-year net revenue growth in the 3Q? I assume the answer for the 4Q is less aggressive with the bookings coming in. I have a follow-up on digital.

Yes, Joe, we feel confident about the third quarter. I'm anticipating occupancy levels over the next three months in the range of approximately 96% to 98%, depending on the property. That said, regarding Rio, we expect it to exit our portfolio on October 1. It's a revenue producer, but a drag on EBITDA, as it doesn't produce enough EBITDA to cover its lease payments in the second and third quarters. Once it’s off the books, it will be beneficial to our EBITDA and margins.

Great. For digital, I’d like to ask Eric or whoever wants to answer about converting OSD and gross gaming revenue, as well as the iGaming gross revenue. I've noticed that iGaming increased sequentially to $80 million in 2Q versus $75 million in 1Q. How do you see the segment's growth going forward? Is iGaming currently EBITDA positive? And did it account for all of the 2Q EBITDA results?

Yes, sure. I’ll take this one, Joe. From a reinvestment perspective, in the Q that was published simultaneously with the call today, our reinvestment levels as a percentage of volume were around 1%. Our reinvestment as a percentage of gaming revenues was about 22% in total, and that’s on the lower end. I think that from a percentage of volume will generally range between 1% and 1.25% going forward. From an iCasino perspective, we feel very optimistic about the developments as we now have a competitive product that can draw our existing customer base over to the online casino side. Previously, it was difficult to converse with our customers who had to navigate through the sports betting app. Our new system will allow us to engage in segmented marketing, which we couldn't do before, and assist us in driving profitability as we scale.

Hey, good afternoon. Tom, there seems to be a bit of a shift in your views on external opportunities. Can you explain a bit about what you foresee and how that could drive growth for you?

Yes, key to note is that we're approaching the end of our capital cycle, particularly as New Orleans nears completion. We're no longer considering big capital projects. From a balance sheet and cash flow perspective, we are nearing a point where we can generate substantial free cash flow and review opportunities to put it to use. We possess a proven track record of adding value through external opportunities. We will explore options as they arise, but don't misconstrue this as a lack of confidence in our existing portfolio. Our trailing EBITDA is around $4 billion, and we anticipate another $0.5 billion plus from the digital business alongside similar trends in brick-and-mortar operations from new projects that are on the horizon.

Thanks. Looking ahead to the back half of the year, with the Rio exiting and labor negotiations ongoing, how do you see margins performing?

I think that’s a reasonable expectation. As for labor agreements, they expired at the end of May. We're currently extending them, and while there are discussions ongoing for a new contract, I'm not anticipating any significant drama around it.

Good afternoon, everyone. I wanted to follow up on the digital segment. The hold on the sports betting was 6.4% this quarter, up 108 bps year-over-year. Can you discuss your outlook for sports betting hold and growth?

We've made significant progress over the past year with our trading team and advancements in technology. As we move forward, we expect to see a higher percentage of our customers opting for in-play, player prop, or same-game parlay wagers, which generally have a higher hold percentage. I believe we can realistically aim for a hold percentage between 7.5% and 8%, even accounting for the lower hold due to the large straight wagers in Nevada.

Regarding Horseshoe Baltimore, we acquired the remaining stake in that property. I’m not focused on its cash position at the moment, so I wouldn’t anticipate any cash transactions soon.

Tom, your commentary on excess free cash flow caught several investors' attention. Can you elaborate on that?

I can’t share specifics at this point. At our size, it's challenging to find actionable targets without antitrust issues. However, we will continue exploring opportunities for utilizing free cash flow effectively.

Hi, everyone. I would like to circle back to digital. Given the media commitments and their associated costs, how are you assessing their impact to hitting profitability targets?

Yes, the media and talent contracts will roll off over the next three years while continuing to enhance our revenue through operational improvements. These are equally important to our iCasino strategy and capturing a more significant market share.

Can you share more about the World Series of Poker and its contribution to your properties?

Yes, it's been an unprecedented year for the World Series of Poker, both in terms of prize money and participation. We've seen vast benefits after relocating to the Horseshoe, generating substantial revenue across food, beverage, and hotel operations. The branding has proven to drive substantial traffic to our properties.

I appreciate you all for your time and support. We'll speak again in November, or see you at a conference sooner.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.