Earnings Call Transcript - CZR Q4 2025

Operator, Operator

Thank you for standing by, and welcome to Caesars Entertainment, Inc.'s Fourth Quarter and Full Year 2025 Earnings Call. As a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Brian Agnew, Senior Vice President, Corporate Finance, Treasury and Investor Relations. Please go ahead, sir.

Brian Agnew, Senior Vice President, Corporate Finance, Treasury and Investor Relations

Thank you, Jonathan, and good afternoon to everyone on the call. Welcome to our conference call to discuss our fourth quarter 2025 earnings. This afternoon, we issued a press release announcing our financial results for the period ended December 31, 2025. A copy of the press release and our investor presentation are both available in the Investor Relations section of our website at investor.caesars.com. Joining me on the call today are Tom Reeg, our CEO; Anthony Carano, our President and Chief Operating Officer; Bret Yunker, our CFO; Eric Hession, President, Caesars Sports and Online; and Charise Crumbley from Investor Relations. Before I pass the call to Anthony, I would like to remind you that during today's conference call, we may make certain forward-looking statements under safe harbor federal securities laws, and these statements may or may not come true. Also, during today's call, the company may discuss certain non-GAAP financial measures as defined by SEC Regulation G. Please visit our press releases located on our Investor Relations website for a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure. I will now turn the call over to Anthony Carano.

Anthony Carano, President and Chief Operating Officer

Thank you, Brian, and good afternoon to everyone on the call. Caesars delivered solid results in 2025 with full year same-store enterprise net revenues increasing $266 million or 2% year-over-year. These strong results were driven by the diversity of our portfolio, our omnichannel focus, and the delivery of unique experiences for our guests. Turning to the fourth quarter. Results were in line with our expectations. Our diversified portfolio delivered fourth quarter consolidated net revenues of $2.9 billion, up 4% year-over-year and adjusted EBITDAR of $901 million, up 2% year-over-year. During the fourth quarter, our Digital segment delivered an all-time quarterly EBITDA record of $85 million despite experiencing poor hold in October. Our Las Vegas segment delivered a quarterly sequential improvement in occupancy and rate trends as expected, leading to a 6% EBITDA decline in Q4, an improvement versus Q3. Finally, our Regional revenues were up 4% year-over-year, driven by continued strong returns in our Danville and New Orleans and the benefit from strategic reinvestment in our Caesars Rewards customer database. Regional EBITDAR declined slightly and was negatively impacted by poor winter weather in December. Absent the weather impact, Regional EBITDAR would have grown year-over-year. Starting in our Las Vegas segment, we reported same-store adjusted EBITDAR of $447 million versus $477 million last year. Segment results were driven by 92% occupancy versus 96.5% last year and an ADR decrease of 5%. During the fourth quarter, we benefited from a strong event calendar, which produced a record F1 event for Caesars, a strong New Year's Eve, and 17% group and convention room night mix during the quarter. We continue to elevate the customer experience in Las Vegas during the quarter with the addition of two new presidential villas at the top of the Colosseum Tower as well as 29 new Sky Villas at the top of the Octavius Tower, both at Caesars Palace. I'm excited to say feedback from our VIP guests on this product has been very strong. These recent investments into our flagship Caesars Palace asset, including a fully remodeled Palace Court slots area, helped the property set the all-time record for slot volume in 2025. We also remain excited about additional upcoming CapEx projects in Las Vegas, including a new OMNIA Dayclub by Tao at Caesars Palace, a complete remodel of the Augustus Tower at Caesars Palace, a full renovation of Palace Court, our high limit table games area and salons, the rebrand of the Cromwell to the Vanderpump Hotel, and the recently announced Project 10 by Luke Combs that will occupy the vacant Margaritaville space at the Flamingo, just to name a few. These projects continue our commitment to reinvest in our assets while providing our guests with unique experiences. As we look ahead to the outlook for Las Vegas, we continue to see trends improving sequentially throughout the year, driven by stabilizing leisure trends and a strong group and convention calendar. In our Regional segment, we reported adjusted EBITDAR of $407 million, down slightly to last year. Absent the negative winter weather in December, EBITDAR would have grown in Q4 on a year-over-year basis. Results from our strategic customer reinvestments remain promising, driven by strong rated play trends in the quarter. As we mentioned last quarter, we will continue to refine our marketing approach as we remain focused on delivering strong returns on these investments. As we look ahead to 2026 in our Regional segment, we expect to benefit from a strong group mix in Reno, the transition of Windsor from a managed to an owned property in March, the completion of our $200 million Tahoe master plan renovation this summer, hosting of select property events around the World Cup, and continued return on investment on recent changes in marketing. Finally, we're looking forward to the opening of our newest managed property, Harrah's, Oklahoma, which is expected to open on April 9. I want to thank all of our team members for their hard work during 2025. Their dedication to exceptional guest service has been the driving force behind our accomplishments this year. And with that, I will now turn the call over to Eric for some insights into the fourth quarter performance of our digital segment.

Eric Hession, President, Caesars Sports and Online

Thanks, Anthony. During the fourth quarter, Caesars Digital delivered net revenue of $419 million, adjusted EBITDA of $85 million and hold normalized adjusted EBITDA of $90 million. Flow-through during the quarter was better than target at 56%. Our core KPIs remained strong during the quarter with mobile sports handle growing 4% and total parlay mix improving by approximately 210 basis points year-over-year. In addition, we saw growth in average legs per parlay and a higher cash-out mix versus the prior year period. In i-Casino, we delivered 28% net revenue growth driven by continued strength in volume and average monthly active users. We continue to elevate our product offering during the quarter to include new in-house games, improved bonusing capabilities, and an elevated live dealer product. Overall, in Q4, our total monthly unique payers increased by 19% to 585,000. Our strong Q4 results drove our full year net revenues to $1.4 billion, up 21% year-over-year and EBITDA to $236 million, up 100% year-over-year, the combination of which resulted in flow-through of 50%, in line with our target. From a tech perspective, we continue to convert new jurisdictions to our universal digital wallet and proprietary player account management system, which is now live in 26 jurisdictions and should be live in all jurisdictions by the end of this quarter. This enhancement gives our customers a significant upgrade to their wagering experience. During the quarter, we also successfully launched sports betting in Missouri, which was the first state where we offered a shared wallet experience to our customers on day one. As we look forward to the full year of 2026, I'm pleased with the significant progress on the technology side of the business that's driving strong customer engagement in both sports and i-Casino. The continuous progress we are making is showing up in our top-line results and our focus on spending efficiency will drive solid flow-through to EBITDA. We continue to see a business capable of driving 20% top-line growth with 50% flow-through to EBITDA, which keeps us on track to achieve our goals. I'll now pass the call over to Bret for some comments on the balance sheet.

Bret Yunker, CFO

Thanks, Eric. In 2025, we continue to reduce debt alongside executing opportunistic share repurchases. As we move into 2026, we expect to benefit from decreasing CapEx, decreasing interest expense, and well below $100 million of cash taxes. Our nearest debt maturity is our relationship bank financing, which matures 24 months from now. Over to Tom.

Tom Reeg, CEO

Thanks, Bret, and thanks, everybody, for joining. For some additional color, last we talked to you, we were coming off a very, very soft summer in Vegas with the softness dominated by the leisure traveler. The leisure traveler still remains soft on a year-over-year basis, but not as pronounced as it was this summer. We told you that group business would help us fill in during the fourth quarter, and you saw that happen. On a sequential basis, the year-over-year decline was less. As I look into 2026, you can expect the same thing for the first quarter, with group business offsetting leisure softness and further improvement on a sequential basis versus the fourth quarter. And then as we get into the second quarter, group business, including the State Farm conference at our properties should put us in a position where we're looking at year-over-year gains. Then you get to the summer, where it will be dependent on leisure recovery, but we feel good generally about the rest of the year. In Vegas, I would characterize the business as strong during peak events and weekends, with big conferences in the city and all of our properties doing quite well. However, the shoulder periods without a big event or conference present a challenge for demand. Sean and his team in Vegas did a fantastic job managing the business through that volatility in the fourth quarter. Our margins held in the mid-40s, which we're proud of. In the Regional business, as Anthony stated, October and November were quite strong for us, leading to significant year-over-year growth. Unfortunately, the last two weeks of the year saw poor weather that likely cost us over $10 million in EBITDA, but we ended up flat for the quarter. As you look out, remember that the first quarter last year had the Super Bowl in New Orleans, representing about $10 million in incremental EBITDA that will not recur in the first quarter. However, post the first quarter, we’ll see the transition of Windsor from a managed to an owned property, large events in Reno, and Tahoe's completed expansion in the third quarter. We are optimistic about regional growth for the year, particularly in the last three quarters. Digital, as Eric mentioned, we anticipate 20% top-line growth at 50% flow-through. We remain confident we can exceed our targets moving forward. I also want to mention that there will be significant changes to our fixed marketing expenses in 2026 and 2027 due to big contracts rolling off. This will allow for a significant boost to our EBITDA as we move forward. Regarding prediction markets, while we do recognize the interest, we currently view this as gambling and don't anticipate participating due to potential risks to our gaming licenses. We believe that as trends evolve, we will continue to see growth and maintain a strong free cash flow position, as shown in 2025, which we will utilize for debt paydown and share repurchases. And with that, I will open the line to questions.

Operator, Operator

Certainly, and our first question for today comes from the line of Dan Politzer from JPMorgan.

Daniel Politzer, Analyst

Tom, I was hoping to just check in on Vegas here. I know you spent a good amount of time talking about that leisure customer and the uncertainty there. But as you look out in terms of the booking window and near-term trends, are you gaining any traction? And what do you think needs to be done from either a promotion or a value proposition perspective to get that customer back?

Tom Reeg, CEO

I think this is normal economic cycle activity in leisure for us. There's a unique flavor of what's happening with Canadian international visitation. However, this is a typical cycle. We observed strength during significant events like F1 and the Super Bowl, which proved to be successful. The big weekends and conferences are performing well. However, during the softer periods, occupancy was down. As we maintain our focus on occupancy, we can expect to improve over time. We're optimistic about the ongoing recovery.

Daniel Politzer, Analyst

Got it. And then just turning to the digital side. In terms of iGaming, there have been headlines in Maine and more recently in Virginia regarding potential legalization. Where do you stand on expectations for these developments?

Tom Reeg, CEO

While I cannot predict political developments, Maine appears likely to launch. You should consider an iGaming state like Maine comparable to what we save in the NFL contract in terms of EBITDA at maturity for us. In Virginia, the House and Senate have passed separate bills, so the outlook appears promising for brick-and-mortar operators. We have high hopes for Virginia, as it would be beneficial for our business.

Operator, Operator

Our next question comes from the line of Lizzie Dove from Goldman Sachs.

Elizabeth Dove, Analyst

Sticking with Vegas, obviously, there are a lot of moving pieces. I appreciate your comments on leisure and the peak weekends. With capital investments and conferences coming up, how are you thinking about the overall outlook for Vegas this year?

Tom Reeg, CEO

We don’t typically provide guidance, but I would expect continued sequential improvement in the first quarter compared to the fourth quarter. The second quarter is looking even better as we have promotions and events planned. The second half will depend on leisure recovery, but we believe we'll see strong demand in the later parts of the year.

Elizabeth Dove, Analyst

On the OpEx side, you've done well managing that. Long term, where do you think you can continue managing costs?

Tom Reeg, CEO

We manage costs daily, and with improved occupancy, scheduling becomes easier. The margin numbers in the fourth quarter were impressive given the challenges and demand fluctuations. We expect margins to improve as demand stabilizes.

Operator, Operator

Our next question comes from the line of Brandt Montour from Barclays.

Brandt Montour, Analyst

In the fourth quarter, the flow-through appeared worse quarter-over-quarter. Could you elaborate on when you expect that metric to improve?

Tom Reeg, CEO

You likely saw some impact from weather events during the fourth quarter, affecting visitation and costs associated with promotional events. However, you should anticipate continued improvement from the first quarter onward.

Brandt Montour, Analyst

Can you provide further insight into the drivers of the leisure recovery?

Tom Reeg, CEO

There has not been a meaningful shift in visitor segments. However, we are seeing stronger group business in the first quarter than we had in the fourth. While visitor patterns may have stabilized somewhat, we anticipate improvement as time progresses.

Operator, Operator

Our next question comes from the line of Steven Pizzella from Deutsche Bank.

Steven Pizzella, Analyst

While looking ahead to free cash flow generation in 2026, how do you balance debt reduction and buybacks this year?

Tom Reeg, CEO

We remain focused on free cash flow yield and will balance debt repayment and share repurchases. Typically, the first quarter generates low free cash flow, while the second quarter is stronger. Hence, we may be more active in the second quarter.

Steven Pizzella, Analyst

Can you discuss the other revenue line item and its sequential growth?

Tom Reeg, CEO

I don’t have that level of detail on hand but can get back to you after the call.

Operator, Operator

Our next question comes from the line of John DeCree from CBRE.

John DeCree, Analyst

Could you discuss any potential uplift from tax cuts during this refund season? Do you expect it to be a tailwind for regionals and Vegas?

Tom Reeg, CEO

Yes, I believe the tax refund season will serve as a tailwind. Constituents are noticing larger checks in 2026 versus 2025, contributing positively to consumer discretionary businesses.

John DeCree, Analyst

Are you anticipating any material volumes generated around the Olympics or World Cup?

Eric Hession, President, Caesars Sports and Online

Interest does tend to be higher around the Olympics, but the Summer Olympics typically generate more volume than the Winter Olympics. For the World Cup, we plan to offer several promotions and expect increased engagement as we enhance our soccer offerings.

Operator, Operator

Our next question comes from the line of David Katz from Jefferies.

David Katz, Analyst

Can you discuss the competitive pressures in Regional Gaming and how you plan to defend your value proposition?

Tom Reeg, CEO

Our competitive advantage lies in the Caesars Rewards program, which differentiates us by providing significant value even in competitive environments. This unique offering strengthens our position in the regional markets.

David Katz, Analyst

Is the leisure softening segmented by customer profile, suggesting a K-shaped recovery?

Tom Reeg, CEO

While premium customers appear to be holding up better, I see inconsistencies in performance across all segments. It's too simplistic to outright categorize them into high or low end. The Center Strip properties show consolidative performance overall.

Operator, Operator

Our next question comes from the line of Steven Wieczynski from Stifel.

Steven Wieczynski, Analyst

What indicators suggest that the leisure traveler has stabilized? Are booking trends changing?

Tom Reeg, CEO

The booking window has not evolved significantly. Our rated players' activity is improving since the summer, indicating a positive trend, which gives us optimism for the future.

Steven Wieczynski, Analyst

Have the reinvestments in Regional markets yielded expected results?

Tom Reeg, CEO

We are observing improvements in rated play and are effectively identifying what isn't working. Improved results are expected as we progress into the first quarter and beyond.

Operator, Operator

Our next question comes from the line of Barry Jonas from Truist Securities.

Barry Jonas, Analyst

Are there any potential expansion opportunities in Virginia, especially with the new casino proposal?

Tom Reeg, CEO

We're open to exploring new opportunities. Danville was successful for us, and while we are interested in Northern Virginia, skill games are not in our plans.

Barry Jonas, Analyst

How should we view the variance in EBITDAR performance for wholly-owned versus leased properties?

Tom Reeg, CEO

There is no unusual activity between wholly-owned and leased properties. Competitive openings have impacted performance lately, but I expect performance to align moving forward.

Operator, Operator

Our next question comes from the line of Stephen Grambling from Morgan Stanley.

Stephen Grambling, Analyst

As interest rates trend down and cap rate compression occurs, what is your stance on monetizing Strip real estate?

Tom Reeg, CEO

We're always open to business opportunities. However, I do not anticipate a process for asset sales in the near future due to limited buyer options for such significant assets.

Stephen Grambling, Analyst

Can you elaborate on the customer base shift with increased monthly actives?

Eric Hession, President, Caesars Sports and Online

We haven't observed a significant change in customer value generation. Our retention rates are slightly improving, and we're realizing increased customer acquisition efficiency, contributing positively to monthly actives.

Operator, Operator

Our next question comes from the line of Chad Beynon from Macquarie Capital.

Chad Beynon, Analyst

What are your plans for spinning out the digital business, considering valuation declines in the sector?

Tom Reeg, CEO

We will adopt approaches that maximize shareholder value. Given declining valuations in the market, it's unlikely we will pursue separation transactions shortly.

Chad Beynon, Analyst

Do you expect financial benefits from AI investments in marketing or purchasing?

Tom Reeg, CEO

Absolutely, we see opportunities for AI across various sectors, such as dynamic pricing and enhancing customer interactions, which will illustrate financial benefits over time.

Operator, Operator

Our next question comes from the line of Jordan Bender from Citizens.

Jordan Bender, Analyst

Eric, based on structural targets, can we continue to expect a 100 basis point improvement annually?

Eric Hession, President, Caesars Sports and Online

Yes, we have consistently improved our hold, which signifies that our product improvements resonate with customers. These various enhancements contribute to strong retention and activity levels as we look toward future targets.

Jordan Bender, Analyst

Is it fair to suggest first quarter could be down, with improvements expected in the remaining quarters?

Tom Reeg, CEO

That’s correct, given the Super Bowl's contribution last year, we will face challenges in the first quarter. However, we expect strong growth through the latter three quarters of the year.

Operator, Operator

Our next question comes from the line of Trey Bowers from Wells Fargo.

Raymond Bowers, Analyst

What are your thoughts on the monthly unique payers metric? Is it a critical KPI, and do you see continued acceleration in growth?

Eric Hession, President, Caesars Sports and Online

This metric remains important, and we are focused on boosting retention and activity from our players. As a result, we expect it will trend positively as we continue to improve our offerings.

Operator, Operator

Our final question for today comes from the line of Daniel Guglielmo from Capital One Securities.

Daniel Guglielmo, Analyst

What additional expansion opportunities do you see in Canada, given Windsor's transition?

Tom Reeg, CEO

Windsor was a unique opportunity for us, but most Canadian opportunities involve smaller properties in less favorable locations, which don't appeal to us.

Operator, Operator

Thank you.

Tom Reeg, CEO

All right. Thanks, everybody. We’ll see you next quarter.

Operator, Operator

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.