Caesars Entertainment, Inc. (CZR) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

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.

Key Financial Performance

Consolidated Net Revenues $2.9 billion, with no specific year-over-year percentage change mentioned. Reasons for performance include diversified portfolio and strong volume growth in the Digital segment.

Adjusted EBITDA $884 million, with hold normalized EBITDA at $927 million. No specific year-over-year percentage change mentioned. Reasons include strong performance in the Digital segment and regional growth.

Las Vegas Segment Adjusted EBITDA $379 million, with hold normalized EBITDA at $398 million. Occupancy was 92% versus 97% last year, and ADR decreased 5% due to citywide visitation weakness. Sequential improvement was noted during the quarter.

Regional Segment Adjusted EBITDA $506 million, with hold normalized EBITDA at $517 million. Regional revenues grew 6% year-over-year, driven by strong returns in Danville and New Orleans and strategic reinvestment in the customer database.

Digital Segment Net Revenue $311 million, with adjusted EBITDA of $28 million and hold normalized adjusted EBITDA of $40 million. Year-over-year comparison impacted by the sale of the World Series of Poker, poor NFL hold, and higher acquisition marketing spend.

iCasino Net Revenue Growth 29% year-over-year, driven by strength in volume and average monthly active users.

Slot Handle in Las Vegas Down 2% year-over-year, attributed to a 5 percentage point drop in occupancy and 90,000 fewer room nights.

Vegas Hold Percentage Down almost 600 basis points year-over-year, impacting results by over $30 million.

Regional Marketing Reinvestment Improved flow-through and demand, despite the lowest hold percentage in over 3 years.

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Operating Highlights

Digital Segment Growth: Strong volume growth in sports and iCasino, with adjusted EBITDA of $28 million. iCasino net revenue grew by 29%, driven by new in-house games and improved bonusing capabilities.

Las Vegas CapEx Investments: Recent investments include a new pool experience, Pinky's by Lisa Vanderpump, Gordon Ramsay Burger, and Havana 57, exceeding return expectations. Upcoming projects include Omnia Day Club by Tao and rebranding of the Cromwell to Vanderpump Hotel.

Regional Market Expansion: Strong returns in Danville and New Orleans, with Phase 2 of the master plan at Caesars Republic Lake Tahoe expected by mid-2026.

Digital Market Expansion: Universal digital wallet and proprietary player account management system now live in 22 states, with plans for Missouri sports betting launch in December 2025.

Operational Efficiencies in Las Vegas: Sequential improvement in operating trends, with September delivering the strongest results of the quarter. Group room night mix expected to increase to 17% in Q4.

Regional Marketing Reinvestment: Strategic reinvestments in customer database showing promising results, with improved margins and better flow-through.

Balance Sheet Optimization: Redeemed $546 million of senior notes and repurchased $100 million of stock, reducing share base by 6%. Weighted average cost of debt at just over 6%.

Digital Strategy: Focus on spending efficiency and technology upgrades, aiming for 20% top-line growth with 50% flow-through to EBITDA.

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Risk or Challenges

Las Vegas Segment Performance: Softer market-wide visitation led to a 5% decrease in ADR and 92% occupancy compared to 97% last year. Poor table games hold and a soft summer impacted revenues, with hold down almost 600 basis points year-over-year, resulting in a $30 million impact.

Digital Segment Challenges: Adjusted EBITDA was negatively impacted by NFL hold in September, incremental state taxes, higher acquisition marketing spend, and bad debt. The loss of World Series of Poker revenues also affected comparisons.

Regional Segment Marketing Investments: Increased marketing reinvestment in regional properties faced challenges in achieving consistent flow-through, with hold percentages being the lowest in over three years.

Economic and Market Conditions: Softness in leisure demand for Las Vegas during summer months, particularly in lower-tier properties and those outside the center of the strip, impacted performance. New Year's Eve falling mid-week is also expected to be a headwind.

Debt and Financial Management: While the company has been reducing debt and repurchasing stock, the floating rate debt mix remains sensitive to interest rate changes, which could impact financial stability if rates rise.

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Guidance & Outlook

Las Vegas Segment Outlook: Sequential improvement in operating trends is expected in Q4, driven by positive leisure trends and a strong group and convention calendar. Group room night mix is projected to increase to 17% in Q4, and the segment is on track to deliver a record EBITDA year in 2025.

CapEx Projects in Las Vegas: Upcoming projects include a new Omnia Day Club by Tao at Caesars Palace, the rebrand of the Cromwell to the Vanderpump Hotel, and Project 10 by Luke Combs at the Flamingo. These projects aim to elevate guest experiences and are expected to generate strong returns.

Regional Segment Outlook: Continued strong returns are expected from new projects in Danville and New Orleans. Phase 2 of the master plan at Caesars Republic Lake Tahoe is scheduled for completion in mid-2026. Marketing reinvestments are expected to deliver improved flow-through and strong returns.

Digital Segment Outlook: The company plans to launch sports betting in Missouri in December 2025, pending regulatory approval. A complete rollout of the universal wallet product on the proprietary TAM is expected by early 2026. The digital business is projected to drive 20% top-line growth with 50% flow-through to EBITDA.

Group and Convention Business: Group business is expected to set a record in 2025, with further growth anticipated in 2026. The return of group business is expected to improve rate compression and strengthen the Las Vegas market.

Free Cash Flow Utilization: The company plans to balance free cash flow usage between debt reduction and stock repurchases. Stock repurchases are expected to continue through the remainder of 2025.

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Shareholder Return Plan

Stock Repurchase: Repurchased $100 million of stock, including October activity. Close to $400 million of stock repurchased since mid-'24, shrinking share base by 6%.

Free Cash Flow Allocation: Plan to use strong and growing free cash flow to both reduce debt and opportunistically repurchase stock.

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Key Q&A

Q:What metrics should we consider for near-term sequential leisure recovery in Las Vegas?

A:Thomas Reeg explained that the leisure customer improved sequentially during the third quarter, with July being the worst and improvement seen in August and September. However, leisure demand is still softer year-over-year. Group activity is helping compress rates and improve occupancy and rates compared to the third quarter.

Q:Can we expect flow-through improvements from regional promotional strategies?

A:Thomas Reeg stated that they expect to become more efficient in marketing over time, dialing back ineffective promotions and expanding successful ones. He emphasized that they are not entering a promotional war but are leveraging the advantages of Caesars Rewards and high-quality properties. Flow-through from revenue growth is expected to improve as quarters progress.

Q:How does Caesars plan to stimulate leisure demand in Las Vegas?

A:Thomas Reeg mentioned that pricing is constantly adjusted across various items in Las Vegas. He highlighted that despite soft demand, occupancy was over 90% in the third quarter and is stronger in the fourth quarter. He emphasized the value proposition in Las Vegas, offering options at every price point, and noted that a small improvement in occupancy could significantly impact adjusted EBITDA.

Q:Why not invest more capital in regional properties instead of focusing on promotional strategies?

A:Thomas Reeg explained that since the merger, $3.1 billion has been invested in regional assets, with $2.8 billion in 16 properties generating 75% of regional EBITDA. The focus is now on harvesting these investments and stimulating visits to showcase improvements, which leads to organic momentum and aggregate cash flow growth.

Q:Did regional performance trends decelerate in September compared to July and August?

A:Thomas Reeg clarified that the apparent deceleration was due to a calendar shift, with Labor Day Sunday falling in August this year instead of September. He noted that August and September numbers should be viewed together, and only Atlantic City saw a significant demand shift in September.

Q:What is the outlook for Las Vegas in 2026, considering various factors?

A:Thomas Reeg stated that the key question is whether leisure demand will continue to recover or stall. He noted that the mix will improve, with significant conferences like the State Farm conference in the second quarter. However, leisure demand recovery remains uncertain and depends on macroeconomic factors.

Q:What is the update on the digital segment's fourth-quarter performance and $500 million run rate target?

A:Thomas Reeg mentioned that game outcomes are a significant swing factor. While hold for the first four weekends of the fourth quarter was above last year's hold, it was below budgeted hold. Sports outcomes remain volatile, and the $500 million run rate depends on these outcomes.

Q:Why was there higher acquisition marketing spend in the digital segment during the quarter?

A:Eric Hession explained that the increased spend was aimed at acquiring more customers during a strong acquisition period for iCasino. While this spend showed up as a drag in the quarter, it is expected to yield long-term benefits through customer lifetime values.

Q:What gives confidence that regional promotional strategies won't lead to a promotional war?

A:Thomas Reeg emphasized that Caesars is recovering the gap in promotional spending compared to peers, not engaging in one-upmanship. He noted that the level of discipline in the business has improved, and flow-through is expected to continue improving.

Q:What is Caesars' view on predictive markets and their impact on digital?

A:Eric Hession stated that predictive markets have not significantly impacted Caesars, as most volume comes from states without legalized sports betting. Thomas Reeg added that Caesars will not risk its licenses and will monitor regulatory developments before participating in predictive markets.

Q:What is the seasonality of the digital segment, and how does marketing spend align with it?

A:Thomas Reeg explained that the fourth quarter has the highest volumes due to football season, with significant fixed costs from partnerships. Eric Hession added that marketing spend will return to normal levels, with a potential shift towards top-of-funnel advertising as the app and shared wallet improve.

Q:Did the Las Vegas ad campaign stimulate demand, and will it continue?

A:Thomas Reeg confirmed that the campaign was effective in boosting bookings and that the Las Vegas Convention and Visitors Authority (LVCVA) plans to continue the campaign to promote value in Las Vegas.

Q:What is Caesars' stance on potential asset sales in Las Vegas and the Caesars Forum put-call agreement?

A:Thomas Reeg stated that Caesars is open to discussions but is not actively marketing any Vegas assets. Regarding the Caesars Forum put-call agreement, he expects VICI to exercise the call option toward the end of the period, and Caesars would choose the lowest rent option.

Q:What are the key expenses Caesars is focusing on for 2026?

A:Thomas Reeg mentioned that labor is the biggest expense, and they are optimizing it across the enterprise. Brian Agnew added that labor costs in the regional segment are not same-store due to new properties like Danville and New Orleans.

Q:Review of Unclear Management Responses

A:Management avoided directly addressing the question about the long-term outlook for leisure demand recovery in Las Vegas, citing macroeconomic uncertainty. Additionally, the response to the question about predictive markets lacked clarity, as it deferred to future regulatory developments without providing a concrete plan.

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Earnings Word Cloud

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

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