Caesars Entertainment, Inc. (CZR) Q2 2017 Earnings Report, Transcript and Summary

Hello and welcome to today's webcast. My name is Jen and I'll be your web event specialist. All lines have been placed on mute to prevent any background noise. Please note that today's webcast is being recorded. During the presentation, we will have a question-and-answer session. [Operator Instructions] It is now my pleasure to turn today's program over to Joyce Arpin, Assistant Treasurer. Joyce, the floor is yours.

Thank you. Good afternoon, and welcome to Caesars Entertainment’s Second Quarter 2017 Results Conference Call. Joining me today from Caesars Entertainment Corporation are Mark Frissora, President and Chief Executive Officer; and Eric Hession, Chief Financial Officer. A copy of our press release, earnings presentation slides, and a replay of this conference call are available in the Investor Relations section on our website at caesars.com. The slides are available for download and will accompany Mark and Eric's prepared remarks for those of you on the phone that would like to follow along. Also, please note that prior to this call, we furnished a copy of this afternoon's press release to the SEC in a Form 8-K and will shortly file our most recent Quarterly Report on Form 10-Q for the second quarter of 2017. Before we get underway, I would like to call your attention to certain statements and information on Slides 2 through 4, which we incorporate by this reference. The forward-looking statement Safe Harbor disclaimers in our public documents cover this call and a simultaneous webcast at caesars.com. This call, the webcast, and its replay are the property of Caesars Entertainment Corporation. It is not for rebroadcast or use by any other party without the prior written consent of Caesars Entertainment Corporation. If you do not agree with these terms, please disconnect now. By remaining on the line, you agree to be bound by these terms. Today's call will include discussion of certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA margin, adjusted EBITDAR, property EBITDA and certain supplemental financial information. Definitions of these non-GAAP measures, reconciliations to their nearest GAAP measures, and the reasons management believe these measures provide useful information for investors can be found on Slide 3 and in the appendix to this presentation beginning on Slide 29. These non-GAAP measures are not preferable to GAAP results provided elsewhere in the presentation or discussed on this conference call. As a reminder, Caesars Entertainment Corporation or CEC is a holding company with the following consolidated entities, Caesars Entertainment Resort Properties or CERP and Caesars Growth Partners or CGP. CEC also has a majority ownership of Caesars Entertainment Operating Company or CEOC, but CEC’s financial results do not include the results of CEOC and its subsidiaries following its Chapter 11 filing on January 15 of 2015. In addition to a review of CEC’s reported financial information on this call, we will also discuss certain supplemental financial information regarding CEOC, including certain remarks that combine CEOC’s results with those of CEC. The reasons representing this supplemental information, which is non-GAAP information and certain cautionary statements with respective there too can be found on Slide 3 to 4 and 30 of the presentation. As used during this call, the words, company, Caesars, Caesars Entertainment, we, our, and us, refer to Caesars Entertainment Corporation and its consolidated entities unless otherwise stated or the context requires otherwise. As seen on today’s agenda on Slide 6, we’ll begin the call today with some remarks by Mark whose comments will also generally relate to the entire Caesars Enterprise, including our deconsolidated subsidiary, CEOC. Eric will then review our financial results before Mark concludes with some closing comments. We will then open up the call for your questions. If you turn to Slide 7, I can turn the call over to Mark.

Okay, thank you Joyce. Caesars Entertainment delivered second quarter results in-line with our expectations, despite considerable headwinds. As we anticipated and described on our last call, second quarter results were impacted by inflationary cost pressures, inventory disruptions from room nights off the market for renovation and a difficult competitive environment in Baltimore. We also have significantly favorable hold results in our Caesars Palace baccarat business in the second quarter of 2016, which did not repeat in 2017 further affecting year-on-year comparisons. Despite all of these factors, the underlying health of our business continued to improve, and we were able to offset some of these items with volume growth across the majority of our properties, early successes from new revenue growth initiatives and our constant focus on operational efficiencies. Our room innovation plan is moving forward with significant momentum. Our entertainment offerings are expanding with the opening of Caesars Entertainment Studios and we made two senior leadership appointments to repel the further growth of our company beyond its existing footprint. All of this progress positions Caesars Entertainment well to take advantage of additional opportunities following the conclusion of CEOC's restructuring. At CEC, which excludes CEOC, second quarter net revenues increased 1% year-over-year to $1 billion and adjusted EBITDA was relatively flat year-over-year at $289 million. Adjusted EBITDA margin narrowed by 39 basis points to 28.8%. CEC recorded a net loss before the effect of non-controlling interest of $1.4 billion, a $617 million improvement relative to the prior year's comparable period, driven by lower accruals related to the restructuring of CEOC. Eric will get into the details of the operating performance at CEC later in the call. On an enterprise-wide basis, which adds CEOC to CEC, second quarter net revenues were down 1.7% to $2.1 billion, strong slot volume performance was offset by a $41 million year-over-year reduction in baccarat win at Caesars Palace and increased competition at Horseshoe Baltimore. Unfavorable year-over-year hold between $10 million and $15 million, lower reimbursable management cost at CEOC related to the divestiture of the Ohio properties and construction disruption due to incremental rooms off the market for renovation also impacted results. Excluding the volume impact of VVIP at Caesars Palace and performance in Baltimore net enterprise revenues improved, supported by 2% increase in slot volumes. Enterprise-wide operating income for the quarter increased 17% to $385 million. The decline in revenues led to a decrease in enterprise-wide adjusted EBITDA of 6.3% to $565 million and EBITDA margin decreased 133 basis points to 27%. The shift in the Easter Holidays to Q2 in 2017 from Q1 last year negatively impacted EBITDA, and approximately 17,500 additional room nights off the market for renovation in Q2 versus last year also negatively impacted EBITDA by about $6 million. Total cash ADR was flat year-over-year with the increases driven by renovations at our Atlantic City properties, Harrah's Las Vegas and Planet Hollywood offset by soft performance at the Rio, Las Vegas. Despite year-on-year softness in the second quarter, we continue to anticipate that we will surpass our initially disclosed 2017 full-year EBITDA projections by at least $40 million before the anticipated deconsolidation of our Horseshoe Baltimore operations, which Eric will explain in more detail later. We have outperformed in the first half of the year relative to our plan and expect year-on-year performance to accelerate in the third quarter and the remainder of the year. We reduced our annual interest obligations by a total of approximately $110 million through two-term loan repricings executed during the second quarter and a recent refinancing of Horseshoe, Baltimore’s debt executed in the third quarter. We expect to emerge with significantly reduced balance sheet leveraged and anticipate significant and annual interest savings from future refinancing subject to market conditions. Moving to Slide 8, you can see that we have made good progress with the necessary approvals for CEOC’s emergence from bankruptcy. We have received the necessary authorization to implement our restructuring from gaming authorities with Nevada, Missouri, and Louisiana still pending. In addition, we achieved another important milestone with stockholder approval for the merger of CEC and CAC received on July 25. We anticipate the merger and restructuring will be completed within a few days after all regulatory approvals have been obtained. We are targeting completion of all transactions and to begin operations under the new company structure for the first week of October 2017. On Slide 9, we highlight our four cornerstone initiatives. As I have mentioned on previous calls, these four innovations are our plan to expand margins and grow cash flows through revenue and efficiency efforts, while driving employee engagement and customer satisfaction. We continue to make headwind in a successful execution of our plan. On Slide 10, we look at our progress in the second quarter against the first of those four pillars, enhancing our hospitality and loyalty programs. During the period, we launched a new loyalty partnership with Wyndham Rewards, the top-ranked hotel rewards program by U.S. News. The partnership provides a host of industry-leading products for total rewards members, including the immediate benefit of complementary status match with Wyndham Rewards and ability to transfer points across programs. This partnership provides us with a unique opportunity to increase traffic across our total rewards towards properties. We expect it to left occupancy by tens of thousands of room nights as Wyndham Rewards members will have the ability to book TR destinations across the U.S. and Canada directly through the Wyndham Hotel Group and Wyndham Rewards websites and other channels later this year. Separately, we have seen impressive use by our play by total rewards mobile app as the number of user sessions increased 195% year-over-year. Engagement via the app has proven to be to more valuable customer relationships as it gives a real time customized way to engage with guests. Turning to Slide 11, we are investing in our room product both in Las Vegas and regional properties as a core element of our efforts to enhance value. We plan to refresh nearly 6,000 rooms across the enterprise during 2017, which is down slightly from our prior estimate of $7000 as we have pushed out the start date for our Bally's Las Vegas renovation project to better accommodate seasonal demand. By the end of the year we will have upgraded approximately 50% of our Las Vegas portfolio since 2014. Planet Hollywood renovations were completed in June. This milestone marks the end of a 2,400 room project across the entire Hotel, which began in 2016. Also in Vegas, the 1,100 room renovation of the Palace Tower at Caesars, which includes the new 29 floor villas, is on track for completion this quarter and in July we began the renovation of another 950,000 rooms at Harrah's. The announced first stage of the flamingo renovation is scheduled to begin after Labor Day with completion expected in the second quarter of next year. The flamingo’s prime location and loyal following make it one of our most iconic brands and we expect this 1,270 room project to unlock substantial value at this property. Lastly, at Bally's Las Vegas, we anticipate the start of a 2,050 room renovation project kickoff in late 2017. We are also investing in our regional room project with 230 rooms at Harrah's New Orleans to be renovated this year and our 410 room renovation at Laughlin scheduled to begin by year end. Renovations of 450 rooms in the Bayview Tower at Harrah's and Atlantic City are now complete with a number of other hospitality in food and beverage related enhancements also up and running just in time for the summer season in Atlantic City. Slide 12 provides an overview of the renovation projects we have undertaken since 2015 with details in the details of the number of rooms remodeled and the various completion dates. Beyond the project still under way, we have a room and property renovation plan in place through 2020, which positions us well to maximize performance of our properties like delighting our guest and further improving customer satisfaction. Moving to Slide 13, beyond investments in our existing properties, we’re pursuing broader growth opportunities for our brands and network. These include traditional M&A, international development projects, increasing the utilization of our real estate in Las Vegas and leveraging our leading brands through branding and licensing partnerships. We expect to have approximately $2 billion of cash in our balance sheet when CEOC emerges from bankruptcy. Following emergency CEC will have significantly reduced leverage and a strong free cash flow profile. We are actively evaluating users of capital to drive future growth. Given the announcement of these growth initiatives, and in order to support the plans that we're moving forward, we announced the appointment of two senior executives. Marco Roca joined Caesars Entertainment as President Global Development; and Mike Daly as Senior Vice President, Strategy and M&A. Marco brings more than 30 years of hotel and gaming development experience to Caesars Entertainment and will oversee all domestic and international development activity, including the pursuit and execution of new markets, as well as new projects within the company's existing property footprint. Mike Daly joins us from General Electric Capital where he was responsible for strategy M&A and corporate development. He will be responsible for defining and executing the company's growth strategies, including joint venture, strategic alliances and M&A. The additions of Marco and Mike will bring you to more focus to our domestic and international network expansion initiatives and help Caesars Entertainment unlock new growth channels. In terms of our Las Vegas asset activation plan, we have previously discussed the company's desire to build a 300,000 square-foot Convention Centre adjacent to The LINQ. We believe this is an attractive opportunity that could target the market for medium size business and association meetings rather than the exhibition business. We believe this would be highly profitable opportunity across the enterprise given the incremental hotel and hospitality spend we generally capture from customers attending these kinds of meetings. Please watch for the future updates as our plans progress. Moving to Slide 14, we are expanding our celebrity chef concepts with new and exclusive food and beverage offers that are driving guest traffic. Gordon Ramsay for example is broadening his presence here in Las Vegas with his new Hell's Kitchen Restaurant at Caesars Palace, and in our regional properties with the opening of a new venue in Baltimore and more regional locations coming soon. Similarly, we are working to bring our partnership with Giada De Laurentiis to Baltimore. This is an exceptional opportunity to build on the success of Giada’s first restaurant which is located at our Cromwell property here in Vegas. Caesars Entertainment is uniquely positioned to bring celebrity chef concepts to regional markets and will keep building on the track record of our existing offerings, which include Gordon Ramsay Pub & Grill in Atlantic City and Guy Fieri's restaurant in Atlantic City, Baltimore, Philadelphia, and Laughlin. Slide 15 highlights important new investments in our entertainment offerings. We recently announced the opening of Caesars Entertainment Studios. The first full-service production studio in Nevada. This is a 48,000 square-foot state-of-the-art facility capable of hosting full-scale television, movie, eSports and special event productions. With this studio, we are seeking to compete at the highest level of the film industry and are targeting all productions, not just Las Vegas focused projects. We’re already off to a strong start having held a high successful eSports event in June and with who wants to be a millionaire now filming its latest season at the facility. Moving to Slide 16, also look forward to our entertainment strategy is making our Las Vegas venues the destination for headliner acts that appeal to a wider array of audiences, and we’re building on strong momentum in Q1 with an impressive summer line-up. We’re very proud to maintain our position as a leading promoter of live entertainment worldwide. The AXIS at Planet Hollywood maintained its position as the Number 1 theatre venue in the US with the Colosseum at Caesars Palace AT Number 3 based on ticket sales. The Jennifer Lopez All I Have residency at the AXIS achieved the second highest average ticket price worldwide in the second quarter outpacing all other Las Vegas residencies and concerts. Overall our headliner business continues to be an important driver of incremental hotel, gaming and food and beverage revenue. Several exciting acts we are proud to host at our venues include The Who and innovative circus spectacular called Circus 1903, and the Backstreet Boys whose larger-than-life residency has been extended into 2018. Slide 17 details our ongoing effort to build on our leading gaming position through innovative offerings such as the eSports event just referenced. In partnership with Microsoft Xbox, we hosted two highly successful gears of all tournaments at our Caesars properties in Atlantic City and Las Vegas with a total of over 1,000 attendees and over 2 million online viewers. In partnership with Microsoft Xbox, we hosted two highly successful gears of award tournaments at our Caesars properties in Atlantic City and Las Vegas. These events have allowed us to further our development of a profitable and scalable operating model. We will continue to perform brand partnerships and hold additional tournaments over the balance of the year leveraging our vast portfolio of properties. Given the incredible market statistics for eSports we believe these tournaments will be a core feature of our product offering in the near future. We also recently announced that the World Series of Poker entrants and a leading Internet provider put in China reached a multi-year deal to grow the competitive game of poker throughout Asia. We are excited to tap into the huge potential to grow the WSOP brand in the region as the game increases in popularity. We also retooled WSOP's 2017 schedule to enable same day television coverage from the first day of the main event to the conclusion of the final table with play now finishing in the summer, instead of November, which will get more viewers engaged with the brand. The most recent WSOP event, which wrapped up last month, broke all records for entries, prize pool and revenue. We are committed to maintaining our leadership position in gaming dollars domestically by constantly operating offering new and innovative gaming experiences for adults of all generations. Turning to Slide 18, one cornerstone of our strategy has been fundamentals of driving margin outperformance and differentiation of our competitors is our continuous improvement culture. We have Black Belts trained in operational improvement covering every property. They are dedicated leaders accountable for financial targets for a focus on revenue, cost, and employing customer satisfaction initiatives. We’re now shifting our focus toward driving incremental revenue opportunities. One example is paid parking, which completed rolling out across Las Vegas properties in April with solid early lessons. We see the potential reach up to $20 million in revenues per year from this initiative. We also anticipate to realizing incremental efficiency in revenue gains from the overhaul of our major systems. The first example is a new marketing platform powered by sales force that will enable us to optimize our marketing efforts, enhance customer satisfaction and drive revenue growth through expanded functionality. We’ve started the system implementation process across the enterprise and anticipate completion of the full roll-up by mid-2018. This initiative is expected to deliver tens of millions of dollars of improvement over the next five years. We have a robust pipeline of projects across the organization and there will be more updates to come. Slide 19 outlines our progress on our fourth quarter cornerstone initiatives inspiring a sales and service culture. I’m proud to report that we achieved record second quarter overall service and net promoter scores. We also earned four awards from Loyalty360, the association for customer loyalty, including the top honor of the top loyalty company. We won the Number 1 casino program in three categories from the Freddie Awards, and we received four awards across our EMEA operations so far this year, including European casino operator of the year for the second year in a row. We have plans to roll out further training for employees and customer facing roles in our Las Vegas properties and our call center to support better customer engagement and further revenue growth. I want to reiterate that customer satisfaction is paramount to our long-term profitability and success. These results are a testament to professionalism and commitment to excellent service demonstrated by our staff worldwide, and I want to thank the Caesars team for continuing to go above and beyond to take care of its guests. With that, I’ll turn it over to Eric to discuss the quarterly financial results in more detail.

Thank you, Mark. I’ll start with a review of CEC's results followed by a review of the company's reportable segments and supplemental information, which will include CEOC's performance as well. Slide 21 summarizes CEC's results, which did not include CEOC as it is not consolidated, nor CIE’s social mobile and games business as it was sold in September 2016. As Mark mentioned earlier, CEC realized net revenues of approximately $1 billion for the second quarter of 2017, a 1% improvement against the prior year's corresponding period. Higher gaming volumes across most properties and incremental revenues from our operational initiatives were partially offset by performance in Baltimore, which reflects the presence of a new competitor this year. Net loss attributable to CEC was $1.4 billion in the quarter, compared to a net loss of $2.1 billion in the second quarter of 2016, which resulted in a net loss of $9.68 per share, compared with the net loss of $14.25 per share in the year ago period. Adjusted EBITDA was relatively flat year-over-year at $289 million with adjusted EBITDA margin down 39 basis points to 28.8%, primarily driven by the one-time settlements related to insurance claims. Hold was estimated to have a favorable impact on operating income of between $5 million and $10 million for the quarter relative to our expected hold and no impact when compared to the prior-year period. Turning to Slide 22, Caesars Entertainment Resort Properties delivered solid second quarter performance. Net revenues rose 1.4% year-over-year to $570 million, due to higher revenues associated with operational initiatives, higher gaming volumes and increased total cash revenues. Gross gaming revenues were flat year-over-year, despite unfavorable hold. Hotel performance improved with results from Harrah's Las Vegas and Paris, which helped drive a 2.8% year-over-year increase in hotel revenues and higher cash ADR. CERP’s hotel performance benefited as room nights off the market in the second quarter of 2017 dropped to approximately 2,000 rooms compared with over 10,000 rooms off the market in the second quarter of 2016, resulting in a benefit of approximately $1 million. While CERP rooms of the market are expected to increase year-on-year in the third quarter, a positive impact of EBITDA between $2 million to $3 million is anticipated as renovations will take place at properties with lower average daily room rates relative to last year. CERP’s net income increased $7 million year-over-year to $15 million. Adjusted EBITDA and margins remained relatively unchanged year-over-year at $170 million and 31% respectively. While we saw top line growth, operating expenses also grew driven by one-time settlements related to insurance claims, which tempered the overall EBITDA growth. Hold was estimated have an unfavorable impact on operating income of between $0 and $5 million in the quarter relative to our expected hold and an unfavorable impact of between $0 and $5 million when compared to the prior-year period as well. Slide 23 summarizes the performance of Caesars Growth Partners. Net revenues were $435 million in the second quarter, relatively unchanged on a year-over-year basis. CGP gross gaming revenues declined due to weaker gaming volumes on Baltimore related to the anticipated increase in competition and a short-term dealer shortage despite favorable hold in New Orleans. We have taken steps to recruit new dealers at Horseshoe Baltimore and are expected to see improvement in this area as our staff ramps backup. Hotel cash revenues declined 3% year-on-year as CGP was impacted by more than 25,000 room nights off the market in the current quarter versus roughly zero room nights off the market in the prior-year period. Accounting for a headwind of approximately $4 million, primarily related to the renovations at Planet Hollywood. CGP net income increased $5 million year-over-year to $21 million, primarily attributable to higher interest income on the CIE restricted cash and lower interest expense supported by our debt reduction actions. Adjusted EBITDA increased 3.4% year-over-year to $120 million and adjusted EBITDA margins increased 92 basis points due to favorable year-over-year hold, which was partially offset by weakness in Baltimore. We estimate that hold had a favorable impact on operating income of between $5 million and $10 million in the quarter relative to our expected hold and a favorable effect of between $0 and $5 million when compared to the prior-year periods. Slide 24 shows supplemental information on CEOC's second quarter performance. Net revenue decreased by approximately 4% year-over-year to $1.1 billion. Stable regional casino performance was offset by unfavorable year-over-year hold of between $10, $15 million and lower gaming volumes in the international VVIP business. As Mark mentioned, this was mainly driven by Caesars Palace, Las Vegas where our baccarat business saw one year year-over-year decline in gross baccarat win of approximately $41 million. This was due to significantly favorable hold in the second quarter of 2016 and lower activity from VVIP players in the second quarter of 2017, due to the highly variable nature of the business. We expect baccarat player activity to increase in the second half of this year based on current bookings. CEOC also experienced lower reimbursable management costs related to the divestiture of our Ohio properties and lower food and beverage revenues in the second quarter of 2017. Hotel cash revenues declined primarily as a result of a higher percentage of room nights off the market at Caesars Palace which totaled approximately $28,000, up from approximately $19,000 in the second quarter of 2016, which accounted for a headwind of approximately $3 million. Cash ADR and occupancy were relatively unchanged on a year-over-year basis. At CEOC, adjusted EBITDA and margins decreased to $277 million and 25%, respectively from $315 million and 27% in the second quarter of 2016. The declines were primarily driven by the lower gaming revenues that we’ve referenced earlier. We estimate that hold had a favorable effect on operating income of between $0 and $5 million in the quarter relative to our expected hold and an unfavorable effect of between $10 and $15 million when compared to the prior-year periods. Now let’s take a look at Slide 25 for additional supplemental information on the entire enterprise for the second quarter, which includes CEC and CEOC. Caesars Enterprise-wide net revenues were down 1.7% to approximately $2.1 billion. The decrease was primarily due to lower net revenues at Caesars Palace and in Baltimore as described earlier, as well as lower gaming and food and beverage revenues related to the shift in the Easter Holiday for Q2 in 2017 from Q1 last year. These factors were partially offset by the strength in slot volume spot volume performance across most of our properties, higher occupancy, and cash reserve fees, and incremental revenues from our operational initiatives. Adjusted EBITDA decreased year-over-year to $565 million from $603 million and margins contracted 133 basis points, primarily due to lower VVIP gaming revenues at Caesars Palace Las Vegas, the competitive environment in Baltimore and the one-time insurance impact. This shift in the Easter Holiday to Q2 in 2017 from Q1 last year also had a negative impact on EBITDA, and approximately 17,500 additional room nights off the market had a negative impact of about $6 million. Hold was estimated to have a favorable impact on operating income of between $5 million and $10 million in the quarter relative to our expected hold and an unfavorable effect of between $10 and $15 million when compared to the prior year period. There is several factors to consider as we look forward into the third quarter of 2017 and the remainder of the year. First as Mark mentioned, we anticipate deconsolidating our Horseshoe Baltimore operations in the third quarter as a result of certain terms within the joint venture agreement. Cash flows received by Caesars Entertainment will not change as a result of the deconsolidation. The property contributed approximately $29 million of adjusted EBITDAR for the enterprise year-to-date and our initially disclosed projections include an expected $53 million of adjusted EBITDA for the property for the full year. Moving forward, our projections will be adjusted to exclude Baltimore. So, it’s also important to note that $320 million of debt at the property, which was recently refinanced down to $305 million, will also would no longer be reflected on our consolidated balance sheet going forward. We expect to face additional inflationary cost pressures and headwinds from 19,800 room nights off the market for renovation in the third quarter versus the prior year period, but only expect a modest impact to hotel revenue, due to the timing and mix of those rooms being off-line. Although June was a particularly challenging month at Caesars Palace Las Vegas due to unfavorable VVIP win, July is showing improvement, which indicates that trips may have shifted between quarters. Despite these headwinds, we expect Caesars Palace and enterprise-wide performance to accelerate in the third quarter supported by strong demand within the group business, increased traffic from the international segment, and stronger regional gaming. We’ve also added incremental business process improvement projects across the portfolio to offset some of the softness we anticipated in Q2, and expect these initiatives to drive margin expansion going forward. We remain confident in our ability to deliver targets for the full year and anticipate surpassing our consolidated EBITDA projections as initially disclosed by at least $40 million before the anticipated deconsolidation of Horseshoe Baltimore. Slide 26 provides a summary of quarter-end liquidity and projected capital expenditures for the CEC consolidated entities. Our investments in high return low-risk areas such as room renovations coupled with our more efficient operating model have resulted in a strong cash flow profile, continuing CEC generated $95 million in cash from operating activities in the second quarter. We also reduced our interest obligations over the quarter through the CERP CGPH repricings with further reductions achieved in third quarter through the Baltimore refinancing. Looking ahead, we will continue to optimize our cash flow through efficiency, additional opportunity to reduce our cost of capital through refinancings, and profitable growth investments to drive value to our shareholders. Now, I will turn it back to Mark for closing comments.

Thanks Eric and please turn to Slide 28. To recap, we continue to make headway on our cornerstone initiatives with new total reward partnerships, room product investments, including the Phase 1 renovation of the Flamingo, continuous business improvement projects, and further recognition for our customer service focus. We are optimistic that all approvals required for CEOC to emerge from bankruptcy will be received this quarter, and then we will begin operating under the new company structure in early October. As CEOC’s restructuring comes to a conclusion, we will focus on revenue growth and efficiency initiatives to further improve our margins and cash flow. Once again, we want to reiterate that we feel good about our core business and we expect to exceed our full-year EBITDA projection. I’d like to thank everyone for joining us today for our second quarter 2017 financial and operational results quarter. We’ll now open the line for Q&A and we ask that you please keep your questions focused on the business performance. Operator.

[Operator Instructions] Your first question comes from Chad Beynon with Macquarie. Your line is open.

Hi great, thanks for taking my questions. First, wanted to start on the guidance, Eric, Mark you both kind of touched on some of the positives in terms of why you are raising the guidance and Mark you just summarized saying that the core business is maybe a little bit stronger than expected, could you just kind of help us think about where you’re seeing that strength, is it just revenue growth and the flow through is so strong that if you continue to see the revenue growth, you know that will go right to the bottom line or is there really just a combination of a lot of things that you put into place this year that are taking hold? Any additional color there would be helpful? Thanks.

I will take a stab at it. We’re seeing stronger revenue growth year-over-year in our core gaming business, we were seeing stronger occupancy rates in our hotels. All regions are pretty much showing stronger growth obviously with the exception of Baltimore, and we had some one-offs and Caesars Palace both on a whole basis and also on the baccarat business which is very sporadic and seasonal. So the VVIP players that didn't show up this year in the second quarter, I expect to show up in the back half of the year. So the median business is strong for us in the back half of the year so that’s another - that will be another boost of profitability. So we expect the RevPAR and ADR to improve at least at a lot of higher level than what they did in the second quarter. Eric, please add anything else.

Yes, the only other thing Chad is, we do have additional visibility into a lot of the initiatives that we’ve been putting in place, and as those gain traction we get more and more confident and the ability to have those deliver. As we’ve discussed before, we put a number of initiatives in place and then we discount those values based on probability of success, and as those again demonstrate their ability to gain traction then we get more confidence and build them into our forecast and that’s partially what you're seeing here as well.

Okay great. Thank you. On the inorganic growth side, there’s been a lot of headlines out there with respect to Australia and Japan lately, and I know you’ve talked about Toronto, could you just update us on those key markets the opportunities and if anything else has really changed in terms of your excitement towards those markets since the last time you’ve presented in a public forum? Thank you.

Yes not much has changed. I think that we’re continuing to be in the hunt so to speak in Japan. We feel good about our prospects there, and we continue to stay involved as required if you will through that process, and here in the Toronto and again that’s a process where we are not sure when there will be a formal announcement, we continue to think our prospects are good. In terms of other activity that’s going on around the world and there’s a lot of things that are starting. On Brazil, we’re still waiting to see that we’re active there. We are waiting to see when legislation will be put in place, so that we have an opportunity to pursue their. Eric, please add anything.

Nothing more.

Okay.

Thank you both very much. Appreciate it. Best of luck.

Thank you.

Your next question comes from John DeCree with Union Gaming. Your line is open.

Hi guys thanks again for the questions. Just wanted to follow-up on Chad's comment and may be digging a little deeper on the gaming volume growth that you had discussed seeing that pretty much broad-based geographically, I was wondering if you could comment on Las Vegas may be beyond and what you see on the VIP side, and then maybe regionally a little bit about what you're seeing kind of in the mid or lower tiers database?

Yes, sure. We - if you back out Caesars Palace and you back out Baltimore then we saw about 2% gaming growth across the enterprise. As Mark mentioned some regions where stronger than others, so we saw some traction in the Louisiana Mississippi region this quarter, which if you recall has been a challenge for us for probably the past four to five quarters. Atlantic City was also reasonably strong. The other markets in the Midwest were up a few percent to down a few percent, and then the balance of Las Vegas, again backing out Caesars Palace was also up year-over-year. So broadly speaking, we feel reasonably encouraged by the performance of the business backing out those two, kind of externalities. From a segment perspective, our spend per trip across the enterprise was up 3.5%. VIP trips were up approximately 2%, and then our VVIP trips were up about 7%. So again, pretty good performance on the side of the gaming broadly speaking and it was really just a couple of properties that were isolated in terms of the fairly large contractions.

That's helpful thanks Eric. And taking a look at 3Q, two big fights obviously in Las Vegas, was wondering if some of the bookings that you’re seeing or some of the trips being pulled forward to maybe 3Q on the VIP side or even further down the segments of customers, is this typically what you see when there is big events and anything unusual or kind of upside surprise to help 3Q is looking?

Yes there is no question that having a marquee boxing or MMA or other event certainly helps our performance from an ADR perspective. When the city regardless of where the event is, draws a significant amount of people, it creates compression and we’re all able to raise our rates. So, I think if you were to go look at the published rates during the Mayweather-MacGregor week fight, you would see a sizable increase relative to what they were before the fight announced. So that’s very positive for us. From a higher gaming standpoint, we’ll have do see in terms of what types of customers come in. Broadly speaking it does provide a positive for the quarter, but there are a lot of days and it fills up the weekend, but there are other positive aspects that are going on in the quarter that led us to have the confidence to increase our estimates.

Great, thanks a lot guys.

Thank you.

Your next question comes from the line of Jared Shojaian from Wolfe Research. Jared, the line is open.

Hi everybody. Thanks for taking my question. So just to ask that revenue question a little bit differently, if you were to sort of neutralize for all the headwinds you called out, the one-time comp noise, how much do you think revenue would have been up in the quarter and I realize some of these are hard to quantify, but I’m really just trying to get some clarity on what the go forward number would look like relative to your 3% annual targets?

I mean, we are seeing growth at this point anyways in the third quarter on a year-on-year basis; it’s much stronger than 3%. So, I would just say that our confidence to increase the estimate and understand what’s happening in the back half of the year in third quarter and fourth quarter is high given what we see what our bookings are, our understanding how that impacts gaming revenues as well, what cash business we have versus non-cash. So we have pretty good visibility for at least the next three months, and then actually when we look at meetings, schedules, and as well as kind of what we’re seeing as a trend in the business, we’re feeling very good year-on-year given what we did in the second half of last year. So our increase in the second half of this year will be significantly higher than what the first half was on a year-on-year basis. The best thing I could say is just significantly higher. So higher than let's say an ongoing 3% number for the second half of this year.

Okay that’s really helpful, and so that - at least 3% for the third quarter and Mark did I hear you correctly in your prepared remarks, I think you said fourth quarter was going to accelerate from the third quarter year-over-year growth rate as well as that right?

I don't [indiscernible] didn’t see that, but so at this point I wouldn't predict that, but I mean third quarter again will be a better growth rate then what we experienced certainly in the second quarter and first quarter.

Got it. Okay. And then last one for me, can you just elaborate on some of the softness you called out for the Vegas market in the press release was that just entirely renovations related or did you see core demand softness and if so, has demand since return back to normal levels?

No, I would say that in May and June, we saw that the meetings schedules were unusually light, and that drove some softness in midway demand for example in the hotel business, and obviously that also impacts our gaming revenue. We had, if you exclude Caesars Palace, we had growth of about 1.4% on gaming revenue, if you exclude Caesars Palace for This Strip. So in general it wasn't bad for a moment, we saw a slight improvement, which is always good as it relates to just the core gaming business at large. So we feel pretty good about the demand that was there. If we exclude certain kind of one-time issues, you know when you look at this baccarat issue it has a bigger impact for us on share and it was a big year-over-year decrease, and it was driven by a list of maybe 15 to 20 customers, which, you know they show-up in different intervals, and this is a very highly kind of volatile and cyclical demand pattern for these customers and so they’re all planning visits with us in the second half of the year. They didn't have visits as they did in the second quarter. In fact, they didn't have visits in the second quarter of this year. So that’s what drove that particular weakness.

Got it. Very helpful. Thank you very much.

Thanks.

Your next question comes from the line of David Farber from Credit Suisse. David your line is open.

Hi guys, how are you?

Good, how are you?

Good. I wanted to touch on Las Vegas for a moment. You mentioned that in some of your prepared remarks, but you were seeing some mixed results out of the market in the second quarter, and I guess, I’m curious on a couple of things. First, how do you guys see the competitive environment there, you touched on that briefly? Second, how is ADR trending on the new hotel product from where you thought it would be? And then finally if you could share with us any updated thoughts on the seven acres of undevelopable land in front of Caesars Palace that’d be helpful, and then I have one follow-up. Thanks.

Sure. So, I think in terms of the broad hotel performance in the market, as Mark mentioned, the May and June period was slightly weaker and that was due to the cyclical nature of the group business pulling back and a few other factors as we look towards the second half of the year though based on the bookings, we think that that’s coming back and the back half of the year will be relatively strong from an ADR perspective. From a renovations perspective however, we continue to see the same $20 to $30 improvement per room night on a renovated room, it’s just when the overall market is either up or down, that variant still persists, but the absolute numbers that we get in terms of the total ADR is somewhat reflective of how the market is doing. So, we continue to believe that investing in our room product is the right decision, and we continue to believe that we’ll be able to drive additional ADR relative to the overall market, given the fact that the market does go up and down in terms of having certain swings.

Okay, and then just what’s the latest timing expectation perhaps, you mentioned October for the combined entities, but can you just remind us, what your latest expectations are for potential refinancing opportunities that you talked about in the past either on the growth side or the service side, any remaining gaiting factors we could think about? And that’s it from me, thanks.

Sure. As we said in the document related to the merger and we referenced in the conference call, we’d expect that this point based on all of the indications that we have from the regulators to complete getting all of the approvals by the end of September, and then now it will allow us to ultimately close the transaction in early October, and again that’s based on all the information that we have at this point. From a refinancing perspective, as you referenced, we clearly believe that there’s an opportunity to reduce our interest expense through refinancing of both CERP and CGP and particularly the bonds that are still priced based on when they were put in place pre-restructuring and pre - the performance of the business over the last two years. Because those are in two different companies, the timing of that has to ultimately be post emergence. So given the step down that occurs in October - early October, our goal would be to complete that refinancing as soon as possible and save the interest expense as quickly as we can.

Make sense, very good, thanks.

Thanks. Operator

Thanks.

Your next question comes from the line of Ian Zaffino from Oppenheimer. Ian, you like is open.

Hi guys, this is Mark on for Ian. Thanks for taking my question. I just wanted to follow-up with you guys in terms of your cost savings and your efficiency initiatives, I just wanted to see if there is a any way you could help us to possibly identify and quantify some key areas that you see a lot of potential in, and if there is anything we could have in mind for dollar expectations that would be terrific. Thank you.

I would say that we continue to forecast that for the rest of the year that we will improve our marketing efficiency, we’ve been pretty much beating our business plan on marketing efficiency every quarter, including the second quarter. So marketing as a percent of sales from an efficiency standpoint we believe will continue to improve in the back half of the year. And the same thing will be true of our labor efficiency. So we’ve got obviously a fairly large labor number of around 2.3 billion as our spend on labor as a company, and so we will do see - I think revenue per employee, gross revenue per employee continue to go up, so we will continue to have productivity from a label standpoint. We have a number of initiatives on a revenue generation that with the increased revenue that we’re going to see in the third and fourth quarter, coupled with tight operating controls around in our first - the labors piece and the marketing piece, we showed again demonstrate some nice efficiency improvements for both marketing and labor. And then we've got some new technology coming on board as well. I know that we went live with Oracle on the financial ledger project and that project has so far has gone well, we would like to see the closing - the first closing, but we anticipate no hiccups there and with that project, we have significant savings so Wisconsin has to run that system roughly $12 million to $13 million a year, that now has gone down to $2.5 million a year approximately. So, again that efficiency will start ticking in as well in the third and fourth quarter.

Okay got it, that’s very helpful. And then I guess like is there anything, I guess like in terms of our EBITDA improvement from cost initiatives that we could think about?

Well, I mean, I don't know what we’ve said so far, but we had a significant number of improvements that our plan in 2011 [ph] come in the back half of the year. So we haven’t given a forecast on that so I guess maybe as we give later in the quarter we maybe give some estimates on what those initiatives generate, but at this point it would be premature to do that.

Yes, I would add. We haven't provided any specific guidance in terms of specific dollars of initiatives. However, they are reflected in our projections that we’ve provided. The improvement of $40 million over the initial projections do reflect our current estimate of those initiatives, as well as the core revenue growth in the market.

Okay great, thank you guys very much. That was very helpful.

Thank you.

Thanks.

Your next question comes from the line of Mike Pace from JP Morgan. Mike your line is open.

Hi thanks, good afternoon. Bunch of my questions have already been asked and answered. So, one quick one, can you just remind us, why Baltimore is being deconsolidated? So that’s the first one, and then a bigger picture for Mark, I know emergence is right around the corner, are you able to participate in any M&A activity prior to that, and how quickly do you think you can be up and running on the M&A front once you emerge? That would be helpful.

Again on the M&A front, you obviously, we were anticipating emergence in October and yes we are participating in - I must say M&A activity that’s going on in the industry right now. So, where it makes sense. Where do that we think there is value. So, yes we’re participating [indiscernible]. Our current situation is not preventing us from participating in the types of projects that we see domestically. Eric.

Yes that’s right. Mike as you know the process of acquiring something going through the diligence and closing in the regulatory period, I would certainly extend past our target emergence date, so from that standpoint, if something is available or something that we see is interesting where we started to work on those in anticipation of emergence. To address your first question with respect to Baltimore, as you know we own 41% of the equity in Baltimore and manage the facility. It is traded under the accounting principles as variable interest entity, and as such there are certain rules that allow you to either consolidate it or require you to not-consolidate it, due to a change in the board governance rules that were negotiated at the time that the JV was put in place that those would change three years after reopened. The accounting determination is that those tie-breaker rules no longer fall in one direction and instead fall in the other direction thus requiring us to deconsolidate it. As I mentioned in our prepared remarks, that does not impact any cash flow to the entity, it’s purely a presentation on the income statement and balance sheet, but our cash generated by the entity and the operations of the entity don't change at all.

Great. And if I could just follow-up, Mark or Eric on M&A, I guess just your general thoughts about the M&A marketplace domestically? I know you talked about stuff internationally earlier, but just your thoughts there, what you think about valuations and then for Eric, just on the refinancing question from earlier are there swing variables in order for you to do that other than emergence, do you need gaming commission approvals and can that happen in lockstep with an approving - any emergence plans? Thank you.

Sure. I’ll take them in sequence. From an M&A perspective, when we look at our portfolio there are number of different targets that might make sense to us. We could either look at targets where we would improve our position in a particular market, or we could look at targets where we would get exposure and distribution of the total awards network to a market where we currently don't exist. I think in both those cases, we have a compelling reason beyond the strategic reason of upgrading our property or distributing the total awards card, in the sense that from a financial perspective, we believe you will get an increase in revenues due to the introduction of the total awards card. And then we will also have significant synergies due to the centralized nature of our operating structure, which is becoming even more beneficial as we introduce new systems that are cloud-based. As Mark referenced, for example, the GL that’s a cloud-based GL system that’s put in place, our seats are basically purchased and so the inclusion of an additional property into that GL, but the marginal cost of that is almost to 0. So, as we move to more of these types of systems the ability for us to include another property into our system would improve from an efficiency perspective and thus drive even more synergies. So from that standpoint, we think that there are a number of compelling opportunities domestically that would allow us to grow our total awards database and get great financial returns right after that. With respect to your second question of the refinancing, there are some regulatory approvals that need to happen. And so we’re working with our regulatory team to figure out the best timing on that. As you saw with the repricings, we closed a portion of the CERP repricing into escrow that’s always an option, so that we don't take market risk. We’ll have to evaluate that versus the cost of closing certain things into escrow versus not, and evaluate how quickly we can get to market. There’s no question though from our standpoint. There is an opportunity that significantly reduces our interest expense, and we recognize that we run the risk of taking interest rate risk if there is some dislocation in the market. So, we want to do it as quickly as possible, but there are certain timelines that we have to adhere to.

We have run out of time, thank you for joining.

Thanks everyone.

Thanks everybody.