Caesars Entertainment, Inc. (CZR) Q2 2025 Earnings Call Transcript

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Overview

The earnings call reveals strong financial performance in the digital segment, positive EBITDA growth expectations, and effective debt reduction strategies. The Q&A indicates confidence in regional and Las Vegas growth, with asset-light opportunities and promising room mix strategies. While management was vague about the OSB hold sustainability, the overall outlook remains positive. The lack of share repurchases and focus on debt repayment suggest financial prudence. Therefore, a positive sentiment is warranted, predicting a stock price increase of 2% to 8% over the next two weeks.

Key Financial Performance

Consolidated Net Revenues $2.9 billion, with no specific year-over-year percentage change mentioned.

Adjusted EBITDA $955 million, with no specific year-over-year percentage change mentioned.

Digital Segment Adjusted EBITDA $80 million, up 100% year-over-year, driven by growth in sports and casino revenues.

Las Vegas Segment Same-Store Adjusted EBITDA $469 million, with a slight decline due to 97% occupancy compared to 99% last year and lower year-over-year table games volume.

Regional Segment Adjusted EBITDA $439 million, negatively impacted by $30 million in onetime items such as construction disruptions and flooding. Excluding these, EBITDA would have been flat year-over-year.

Caesars Digital Net Revenues $343 million, up 24% year-over-year, driven by a 28% increase in sports revenues and a 51% increase in casino revenues.

Adjusted EBITDA Margins for Digital 23.3%, up 880 basis points year-over-year.

Sportsbook Hold 8.9%, up 170 basis points year-over-year.

iCasino Net Revenues Up 51% year-over-year, driven by growth in volume, hold, and average MAUs.

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Operating Highlights

Digital segment: Delivered its best quarter ever with $80 million of adjusted EBITDA, driven by growth in sports and casino revenues. Launched a universal digital wallet and proprietary player account management system in Nevada, with plans to expand to all jurisdictions by early 2026. Introduced new bonus capabilities, a branded live gaming studio in Michigan, and a remote real live slot studio in Atlantic City. Developed two proprietary games with more planned for launch.

Regional segment: Reported adjusted EBITDA of $439 million. Strong returns from Danville and New Orleans properties. Rebranded Harvey Lake Tahoe to Caesars Republic Lake Tahoe, with positive guest feedback. Strategic reinvestments in the Caesars Rewards database and new slot capital drove higher gaming revenues.

Las Vegas segment: Reported same-store adjusted EBITDA of $469 million with 97% occupancy. Recent CapEx investments, including new amenities at Flamingo, generated strong returns. World Series of Poker hosted a successful event with over $500 million in prizes.

Debt management: Fully redeemed the most expensive debt, saving over $40 million in annual free cash flow. Optimistic about further interest expense reductions.

Marketing and customer reinvestment: Refined marketing strategies and reinvested in customer rewards, leading to improved rated gaming trends and higher gaming revenues.

Digital growth strategy: On track to achieve $500 million+ EBITDA in 2026. Focused on refining marketing and reducing partnership expenses, with significant cost reductions expected by 2027.

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Risk or Challenges

Las Vegas Segment Performance: Softer market demand in the hospitality vertical and a decline in booking windows, particularly in May and June, leading to a softer summer performance. High-end gaming trips were also missed due to the absence of major events like Adele and Garth Brooks concerts.

Regional Segment Challenges: Negatively impacted by onetime items such as construction disruptions at Lake Tahoe, flooding in Metropolis, and a significant lawsuit settlement in Baltimore. These issues resulted in lost room nights and reduced EBITDA.

Digital Segment Risks: While the digital segment showed strong growth, there is a dependency on continued customer engagement and the successful rollout of new technologies like the universal digital wallet and proprietary player account management system.

Economic and Market Conditions: Soft summer performance in Las Vegas and competitive pressures in regional markets, requiring increased marketing and promotional investments, some of which were unprofitable.

Construction and Renovation Disruptions: Ongoing construction at properties like Lake Tahoe caused significant disruptions, with further phases planned, potentially impacting future operations.

Debt and Financial Management: Although debt reduction efforts are underway, the company remains exposed to interest rate fluctuations and the need for continued financial discipline to manage maturities and cash flow.

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Guidance & Outlook

Las Vegas Segment Outlook: The Las Vegas segment is expected to deliver a record EBITDA year in 2025, driven by a strong Q4 booking pace. However, Q3 is anticipated to be soft due to a temporary decline in market demand, with recovery expected in Q4 2025 and into the first half of 2026.

Regional Segment Outlook: Regional EBITDA is projected to be flat to slightly up for the full year 2025. Investments in customer reinvestment and new slot capital are expected to drive higher gaming revenues. The rebranded Caesars Republic Lake Tahoe is performing well, and Phase 2 construction is set to complete by summer 2026.

Digital Segment Growth: Caesars Digital is on track to achieve $500 million+ EBITDA in 2026. The segment is experiencing strong growth in sports and iCasino, with new product launches and technological enhancements planned through early 2026.

Debt and Cash Flow Management: The company has fully redeemed its most expensive debt, resulting in annual free cash flow savings exceeding $40 million. Further interest expense reductions are anticipated through rate decreases and debt reduction. Cash tax savings of $80-$100 million are expected in 2026 and 2027 due to recent tax legislation.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:Can you elaborate on the stabilization in Las Vegas and the path to growth in the upcoming quarters?

A:Thomas Reeg explained that the 90-day forecasted cash occupancy in Las Vegas has stabilized after a period of decline. He noted that the group business will be down year-over-year in Q3 but expects a robust group calendar in Q4 and Q1 of the next year. He also mentioned that 2025 and 2026 are projected to be record years for group room nights.

Q:Should we interpret Q3 Las Vegas EBITDAR as being down high single digits compared to Q2?

A:Yes, Thomas Reeg confirmed this interpretation.

Q:What changes are being made to promotional campaigns, and how do they tie into the Las Vegas slowdown?

A:Anthony Carano and Thomas Reeg discussed leveraging their database for targeted marketing to drive profitable revenues. They are testing and learning from campaigns across their 52 properties and adjusting offers to fill rooms in Las Vegas. They also mentioned increasing slot spend and tweaking leased units to improve returns.

Q:What is your perspective on the summer leisure demand in Las Vegas and its potential structural issues?

A:Thomas Reeg stated that the summer leisure demand softness is likely due to normal seasonality, with no major structural concerns. He noted that international business, particularly Canadian visitors, has been softer, but expects the situation to improve with a strong group calendar later in the year.

Q:Can you provide more details on the Digital business and its $500 million run rate target?

A:Thomas Reeg mentioned that the Digital business is on track to achieve the $500 million EBITDA target by Q4, as projected four years ago. He highlighted strong momentum, potential new iGaming jurisdictions, and the rollout of a single wallet in Nevada as key drivers for future growth.

Q:Are there plans for further incremental investment in Las Vegas properties?

A:Anthony Carano mentioned ongoing room remodels, a partnership with Tahoe for a day club at Caesars Palace, and the development of a Vanderpump Hotel at Cromwell. He stated that most properties are in good shape and will continue to be maintained.

Q:How sustainable is the uptick in OSB hold in the Digital business?

A:Anthony Carano explained that the uptick in OSB hold was partly due to favorable sports outcomes but also driven by structural improvements like increased parlay percentages and cash-out options. He expects the hold to surpass 9% later in the year, especially during football season.

Q:What are the trends in OpEx and labor costs in Las Vegas and Regionals?

A:Thomas Reeg noted that union contract increases in Las Vegas have been offset by flat expenses, while Regional properties are experiencing inflation-type increases that are less impactful than in previous years.

Q:Is the $60 million EBITDAR run rate in New Orleans still accurate?

A:Yes, Thomas Reeg confirmed that New Orleans had another strong quarter and has picked up the pace in July, contributing to strong Regional results.

Q:What would Regional margins look like on a like-for-like basis, and how will they trend moving forward?

A:Thomas Reeg stated that Regional margins would have been higher without the recent marketing efforts. As unprofitable marketing is scaled back, margins are expected to improve.

Q:Did you do anything specific to stabilize the FIT cohort in Las Vegas?

A:Thomas Reeg clarified that the stabilization was in forward cash room revenue expectations, which had been declining but stabilized in July. No specific promotions or room discounting were mentioned.

Q:What are your chances in the Manhattan casino license race?

A:Thomas Reeg expressed confidence in their submission and partnership but acknowledged that Manhattan may be an underdog for a license. He stated that if a casino is awarded in Manhattan, they are confident they would be the one.

Q:Are there updated thoughts on spinning off the Digital business?

A:Thomas Reeg mentioned that they are focused on delivering their targets and will consider a separation if it drives significant shareholder value. He expects to be in a position to evaluate this by the first half of 2026.

Q:What is the outlook for asset-light opportunities?

A:Thomas Reeg highlighted several asset-light deals, including two Indian management contracts and the addition of Windsor, which together could contribute nearly $50 million in incremental EBITDA. He also mentioned ongoing efforts to pursue more opportunities domestically and internationally.

Q:What is the target group room mix in Las Vegas, and are there efforts to increase it?

A:Thomas Reeg stated that the group room mix is currently in the high teens and they aim to increase it to 20% and beyond. He emphasized the importance of group business and their efforts to attract more large events.

Q:Can Q4 Las Vegas results be up year-over-year?

A:Yes, Thomas Reeg confirmed that Q4 results can be up year-over-year for Caesars.

Q:Are there plans for significant capital investments in the Regional portfolio?

A:Thomas Reeg stated that most major Regional properties have already received significant investments in recent years. Future capital activity will focus on adding hotel products and possibly converting some boats to land-based casinos, but no major capital cycle is expected.

Q:Why were there no share repurchases in the quarter, and what is the outlook for buybacks?

A:Thomas Reeg explained that the focus was on repaying high-coupon debt during the quarter. He emphasized the attractiveness of their stock and indicated plans for a balance of share repurchases and debt repayment moving forward.

Q:Are there any ambitions to expand the Digital business into international markets?

A:Thomas Reeg and Eric Hession stated that the domestic market offers far greater opportunities than international markets. While they are open to international expansion, their focus remains on the U.S. market.

Q:Do you still feel better about the business this year compared to last year?

A:Thomas Reeg expressed confidence in the diversification of their business. He noted that while Vegas is experiencing a soft summer, the group calendar looks strong for later in the year. He also highlighted strong momentum in the Digital business and stable Regional performance.

Q:Review of Unclear Management Responses

A:Management appeared to avoid giving a direct answer to the question about the sustainability of the uptick in OSB hold in the Digital business. While they acknowledged favorable sports outcomes and structural improvements, they did not provide a clear long-term outlook or specific data to support the sustainability of the uptick.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The earnings call presents a mixed sentiment. While there are positive signals such as record EBITDA expectations, strategic investments, and cash flow improvements, there are concerns about leisure demand recovery in Las Vegas and volatile digital segment outcomes. The Q&A section reveals management's uncertainty about macroeconomic factors and potential regulatory impacts, which tempers optimism. Overall, the sentiment is neutral, as positive developments are balanced by uncertainties and risks.

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The earnings call highlights strong financial performance with increased revenues and EBITDAR, particularly in the digital segment. Despite challenges like weather disruptions and competitive pressures, the company is optimistic about future growth, especially in group bookings in Las Vegas. The share repurchase program and debt reduction efforts are positive indicators for shareholder returns. The Q&A session addressed concerns but maintained a positive outlook, especially with strategic initiatives in place. Overall, the combination of financial strength, strategic initiatives, and shareholder-friendly actions suggest a positive stock price movement.

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