Caesars Entertainment, Inc. (CZR) Q3 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 today. 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. Welcome to Caesars Entertainment’s Third Quarter 2017 Results Conference Call. Joining me today from Caesars Entertainment are Mark Frissora, President and Chief Executive Officer; and Eric Hession, Chief Financial Officer. Today’s press release, earnings presentation slides, and a replay of this conference call are available in the Investor Relations section at caesars.com. We also furnished a copy of the press release to the SEC in a Form 8-K. Before we get underway, we produce slides two through four, include forward-looking statements, Safe Harbor disclaimers and definitions for certain non-GAAP measures. The comments made during the conference call may constitute forward-looking information. This information is based on our current expectations and actual results vary materially depending on the risks and uncertainties that manifest our operations, markets, purposes, prices and other factors as discussed in our filings [inaudible]. In addition, there are just definitions of Caesars Entertainment Corporation or CEC, Caesars Entertainment Resort Properties or CERP, Caesars Growth Partners or CGP and Caesars Entertainment Operating Company or CEOC in the slides. CEOC emerged from bankruptcy on October 6. Q3 CEC results do not include CEOC but we now discuss with them as this CEOC was consolidated with CEC and provide reference to enterprise-wide results from doing so. Same-store references export [inaudible] more results from all years due to [inaudible] consolidation in August of 2017. All enterprise live figures referred to in this call will be same-store. Mark will discuss results related to our press release and the entire Caesars Enterprise and provide an update on our initiative progress. Eric will then review the financial results in detail before Mark closes. We’ll then take your questions. Please turn to slide seven, and I’ll now turn the call over to Mark.

Thank you Joyce. Caesars Entertainment reported solid financial results in the third quarter delivering on our plan to grow revenue and expand margins. As you know, we also completed the restructuring of CEOC on October 6, simplifying our business and allowing us to turn our full attention to our growth initiatives. As we anticipated and communicated on our last call, revenue growth accelerated in the third quarter. Our results were supported by increased gaming volume across the majority of our domestic properties and improved hospitality results and additional successes from business improvement projects. CEC which consists of CERP an CGP reported solid third quarter results with flat net revenues and operating income growth of a $130 million year-over-year. On a same-store basis which excludes Horseshoe Baltimore results for both years, net revenue improved $34 million or 3.8% driven by strong gaming volume improvements, improved hospitality results due to our dynamic pricing models and room renovations and operational growth initiatives. Operation income improved a $137 million and adjusted EBITDA increased 17.7% driven by revenue growth and improvement operating efficiencies. On an enterprise-wide same-store basis, net revenues increased 2.6% to $2.1 billion. Slot volume growth for our domestic revenues up $40 million. Recently completed renovation projects at Planet Hollywood, and the Palace Tower at Caesars Palace help grew Las Vegas cash ADR 4.3% over the third quarter of 2016, which improved room revenues. Same-store enterprise-wide adjusted EBITDA increased 16.6% to $612 million in the third quarter of 2017. The year-over-year increase was driven by improvement in revenue and operating cost reductions. The revenue in adjusted EBITDA growth was negatively impacted by unfavorable year-over-year hold, primarily driven by one of our London properties. Enterprise-wide adjusted EBITDA margins grew 350 basis points to 29.3%. Looking ahead, we believe the results of our team achieved this quarter provide us with enough momentum to navigate through headwinds in the fourth quarter, and remain on track to meet or exceed previous guidance. Moving on to slide eight. As you all know, our hometown has been impacted by the horrific attack on October 1. We are committed to helping Las Vegas heal by operating resources of those affected, and supported the organizations who will need our ongoing assistance. Together with our employees, chefs and entertainers, we have donated a $2 million to assist those affected by this attack. Regarding our Las Vegas operations, we expect any impact to be immaterial relative to our overall enterprise adjusted EBITDAR. In addition, we do not believe the incident will have a material impact on Las Vegas visitation or on our growth opportunities in the market in the long-term. We will continue to evaluate and monitor our business, if the current trends do not deteriorate, we will expect to meet or exceed our projected 2017 enterprise EBITDA, EBITDAR of $2,245 million. Adjustments for six months of deconsolidation of Horseshoe Baltimore, this figure is expected to be $2,221 million. Continuing to slide nine. CEOCs emergency – emergence from bankruptcy and the completion of the merger with CACQ will enable us to transition to a simpler operating structure. In the fourth quarter, we planned to modify our reporting segments and will shift operationally focused regional segments, which is consistent with how we manage the business. On slide 10, we highlight the new ownership structure for assets. Following the restructuring, Caesars will continue to operate all 47 properties under a consolidated approach with 18 properties subject through a long-term lease agreement with VICI. Caesars owns or manages the remaining assets and also controls all the brands, the central line services and total rewards program. All properties will continue to be part of the Caesars network and will continue to benefit from all services. Slide 11. The restructuring process resulted in substantially reduced leverage and a much improved balance sheet. Following CEOC emergence, Caesars Entertainment has approximately $2 billion in cash. We’ve also taken additional steps to improve cash flow by opportunistically financing outstanding debt. The pro forma result of our refinancing for CERP, CGPH and Baltimore totaled $270 million of annual interest savings. This amount plus $20 million of annual interest savings from the recent Harrah’s Philadelphia refinancing, pending regulatory approval brings out total enterprise-wide annual savings to $290 million. These savings combined with the impact of a reduced debt, will result in an annual reduction and fixed charges at approximately $1.6 billion versus 2014. Our branded cost of debt is expected to be approximately 4.5%. On slide 12, we highlight our four cornerstone initiatives. We made important progress on each of these initiatives in the quarter, as I’ll highlight in the following slides. Slide 13. Last week we announced the appointment of Chris Holdren as our Chief Marketing Officer. Chris has deep marketing experience in the entertainment and hospitality industries as well as tech company experiences making him exceptionally qualified to continue the moment behind a revolving data driven marketing strategies. Chris spends 15 years at Starwood Hotels & Resorts and a variety of senior marketing roles including overseeing the SPG Loyalty program completed several years in Creative Content Development at the Walt Disney Company and most recently served as the CMO of Handy. Chris will play an instrumental role driving continued enhancements in our marketing programs, notably by leveraging the unravel quality and quantity of data in our total rewards database and our new technology platforms. These will allow us to directly deliver timely, personalized offers to customers and increase engagement, while ensuring we generate appropriate returns. As stated previously, we have improved marketing efficiency over the past three quarters, our objective and one of Chris’s main focuses going forward is to continue to improve marketing as a percent of sales. Slide 14. We’re also making progress on planned upgrades of our technology systems. This quarter we successfully closed our first quarter in Oracle’s financial cloud solution which is at a lower cost and allows to eliminate many manual processes in our accounting department, giving significant productivity gains. We are proud of the team’s effects and achieving this milestone, and we look forward to celebrating our milestones in the coming quarters across the company with the introduction of Office 365 and our new partnership with ADP for payroll and attendance. Slide 15. At the code, everything we do is a relentless focus on maintaining the highest levels of employee and customer satisfaction. I’m pleased to report that our efforts are paying off. We were recently recognized by TripAdvisor with 25 individual certificate of excellence awards across our properties, nearly double the number of awards we won last year. Caesars Palace and the Cromwell also ranked among the top US casinos by USA Today, and we won Company of the Year North America for the employee engagement awards. We’re also won three prestigious loyalty 360 awards in the category of loyalty and advocacy, operational excellence and organizational commitment. We were nominated for the most awards in any participating company with a field that includes impressive brands like Wyndham, the MGM Resorts and Dominos among others. These excellent results are key driver of our success and I want to thank the Caesars team for continuing to go above and beyond to take care of guests. I’ll turn it over to Eric to discuss the quarterly financial results in more detail now.

Thanks, Mark. Today I’ll focus the commentary on enterprise-wide same-store results unless otherwise indicated. Enterprise-wide results included CEC plus CEOC and same-store results exclude the Horseshoe Baltimore which we deconsolidated at the end of August, and now will be reflected as an investment through the equity metric. CEC and entity level results can be viewed in the earnings release, the Form10-Q and in the appendix at the back of the earnings deck. Now please turn your attention to slide 17. Enterprise-wide same-store net revenues rose 2.6% year-over-year. Slot volume improvements of 4% year-over-year offset highly unfavorable hold at one of our London properties. Caesars Palace led the enterprise in overall dollar value revenue improvement, exceeding prior year by approximately $15 million. The Gulf Coast region continues to show signs of stability, generating a 6.9% year-over-year increase in net revenue. In addition to the gaming growth that Mark discussed earlier, improved cash ADR and cash resort fees as well as an improvement in bankrupt revenues also contributed to the increase. Adjusted EBITDA increased 17% or $87 million supported by higher revenues and reduced operating expenses. The improvements in revenues and reductions and expenses were partially offset by the unfavorable year-over-year hold impact between $10 million and $15 million. Third quarter of hold impact on operating income was unfavorable to our expectations by between $20 million and $25 million. On a same-store basis, hold adjusted EBITDA is estimated to be between $632 million and $637 million, with the hold adjusted margin of between 29.7% and 30%. We face challenging year-over-year headwinds as we look into the fourth quarter of 2017. In the fourth quarter of 2016, Horseshoe Baltimore contributed approximately $80 million of net revenue and $14 million of adjusted EBITDA. And as discussed previously, it’s results will not be consolidated during this year’s fourth quarter. In addition, CEOC reported a onetime fee revenue pickup also in the fourth quarter of last year of $83.5 million related to our exit from our Ohio properties. While the fee pickup did not count towards our EBITDA results, it will be a revenue headwind for future comparisons. Finally, in Q4 of 2016, we also experience hold that was favorable to our expectations in an estimated range of between $15 million and $20 million with all of it coming from the Las Vegas region. It’s likely that our revenues for the fourth quarter will be affected by the recent tragic events in Las Vegas. We also expect some temporary corporate cost pressures as we continue implementations of Major IT infrastructure. As always, we remained focused on cost control and continuous improvement initiatives which we will use to help offset these anticipated increases and headwinds. We anticipated that the construction impact from the room renovation projects we have underway will be flat year-over-year. In spite of these headwinds and as Mark stated earlier, we remain on track to meet or exceed our previously guided 2017 same-store adjusted EBITDAR of $2.221 billion. Moving to slide 18, we outline our cash positions by entity as of September 30 of this year. Post to margins, we will have approximately $2 billion of cash enterprise-wide and are now well positioned to invest in incremental growth opportunities. Our same-store capital spending is at its peak in 2017 with a high range estimate of $670 million as we continue to progress on our room renovation plans. Our capital expending estimates do not include any inorganic projects such as M&A or the development of the unused acreage we own on the Las Vegas trip. Well the 6,000 rooms we are renovating across the enterprise this year, about 4,500 of them are here in Las Vegas. By the end of the year, just under 1,200 of our Las Vegas rooms are approximately 50% well have been renovated since 2014. I’ll now turn it back to Mark for his closing comments.

Thank you, Eric. Please turn to slide 20. So to recap, as anticipated, year-on-year performance accelerated and we had an exceptional third quarter, which included enterprise-wide all time record third quarter adjusted EBITDA margins. We’re also going to make headway on our cornerstone initiatives. With CEOCs restructuring now concluded, we are well positioned to pursue a more diversified growth strategy while continuing to invest in our core business. So we’ll now open up the line for Q&A. Operator?

[Operator Instructions] And your first question comes from the line of Chad Beynon.

Hi, good afternoon and thanks for taking my question. Wanted to start with the, the exceptional margins in the third quarter mainly in CEOC. Last week at the investor event you spent a lot of time really talking about continuous improvement and some of the initiatives that you better in place, but we thought we’re going to get a lot of that in 2018 not this quarter. So could you kind of just talk about, if there was, if there were any one time or if it was just a good mix of where the revenues were coming from? You called out a $15 million benefit or growth at Caesars Palace, maybe just some color around, was the margin growth broad based with CEOC or was it really at Caesars Palace, any color there would be helpful. And then I have a follow-up, thanks.

Yeah, Eric and I both answered this. But in general it was broad based, and I think that we had obviously a good quarter in spite of the bad hold that’s one of the things that we tried to point in our remarks. So it wasn’t a good hold from a planning standpoint we’re off about $20 million, $25 million from or plan. And so, so yeah, we felt pretty good about it and I would say that, slot volume growth was one of the key drivers as we continue to see a lot of that growth. We had a really good, I would call hospitality finish as well. So, a couple of highlights there Eric?

Yeah, the only thing I’d add Mark is that, as we’ve discussed, we do operate a relatively fixed cost business and we make a conscious effort to really try to control our costs as we go through the quarter. And so in a quarter where we had increased revenues as Mark referenced on the slot side, and also increased revenues on the hotel side, we were able to drop significant portion of that for the bottom line and the end result was a improved margin performance. And as we noted at the Investor Day last week, and as we’ve said consistently on the conference calls, moving forward we’ll continue to offset the inflationary pressures that we see and then do expect to continue to improve our margins.

Okay, great. My follow-up is with respect to the new legislation in Pennsylvania, a number of different bullet points within that piece of legislation. I was wondering if you could give us your views on how you think about the bill and if you would pursue some of the opportunities that were outlined within that?

And I think from a broad based standpoint, I’m sorry Eric, let me catch up. I think we have a – it’s a lot of mixed things there, I mean there is not – I don’t think there is any clear answer to say that its net positive. I think we’re kind of neutral given the things that we’ve seen it, there were some good things and there were some things that are not so good in terms of the capacity and what kind of added capacity as the market [inaudible] has an impact on existing infrastructure. Eric?

Yeah, I think that’s right Mark. It’s great that internet gaming was passed, so we’re excited about that. Tax rate was very much on the high side but it did impact so that was something that we’d be hoping for long time. And we’ll have to evaluate the package and its entirety before we make a conclusive statement one way or the other.

Okay, great. Congrats on the quarter guys.

Thanks.

Thanks.

And your next question comes from the line of David Farber.

Hey guys, how are you?

Hi.

Hey David.

Hi, that’s a new name for me. I guess…

We like it with all smiles.

Good. I wanted to touch on your desire to use the brand and perhaps M&A to grow the asset base you’ve touched upon that a bunch recently. But I guess I was curious if you could touch on any disposition strategy you might have, if you thought about that at all and I had a follow-up question. Thanks.

Yeah, I mean we certainly have had time to think about it in bankruptcy and, and so yeah, there is our several facilities that may make sense at some point to judder some, obviously those that are lower performing without good macros. Our plans is kind of if we get a range perfectly we would try to grow through M&A type activity, development activity at the same time that we would actually exit some of those properties. We have a new board now and we’ve been talking to them about our plans of those facilities that may make sense for us to exit and those that it might make sense to buy obviously. So, but we’d like to do it in such a way that you really don’t see the impact on the revenue line. Eric?

Yeah [inaudible].

Okay.

And my follow-up – and thanks for that. My follow-up is just, maybe you can help us a little bit understand given the experience you’ve had with the Caesars branded, I’m curious if you think about future partnerships with other gaming REITs if you think that’s likely in your mind and maybe just sort of how you think about the REIT universe and things you might have with the VICI. And that’s it from me, thanks.

Sure. So, yeah, the question regarding the VICI relationship and the other REITs is certainly something that we’ve been asked a few times. Right now we have a very good relationship with VICI. We’re obviously their largest and only tenant at this point. Going forward, we have relationship contractually basis where we will have a ROFO between any non-Las Vegas acquisition or development opportunity with them, and a similar back to us if they go and acquire anything. So from that standpoint, I think working with them and those opportunities make sense. That’s said, if they’re not competitive from the cost to capital perspective, then we’re certainly able to work with others or be able to rely on our own balance sheet and our own abilities to finance certain transaction. So, going forward, we’ll look at all available possibilities and make the best decision based on the facts as they present themselves.

Very good, and thanks.

And your next question comes from the line of Mike Pace.

Hi, thanks. One structural and a follow-up. So, Eric, I wonder if you can, with the ability and timing that you have to redeem your legacy [inaudible] CGPH bonds, you’re not carrying 2x the amount of debt but you need to and what steps have to happen to get there and when should we expect that? And is the goal at some point in 2018 to consider further simplifying the silos with the CEOC and CRC and [inaudible] will try that decision. Thanks.

Sure. So, as you’re aware and everybody on the phone I believe as well, we did secure the financing for CRC, those bonds are currently in escrow and they’re waiting the final steps of approval that we need which is regulatory at this point. That we needed approval in three states New Jersey, Nevada and Louisiana. We believe that at this point will beyond schedules so that we’re able to close the transaction in November but that can certainly slip based on the variety of schedules. So, we think November to December is the likely time for that to come out of escrow and to ultimately close the financing. Regarding the comment on CEOC, that’s something we’ll have to evaluate as we go forward, and make an overall cost to capital perspective. I think further simplification would ultimately make sense and we’ll have to evaluate as we go forward and make an overall cost to capital perspective. I think further simplification would ultimately make sense and we’ll have to evaluate what the market conditions are, and the cost or benefit financially of emerging that entity into CRC but that’s something that could happen in 2018.

And then just what the follow-up is, I noted a comment in the press release that in the fourth quarter your reporting segments will shift to I guess you’ve sent operationally focused or regionally. Can you just explain that a little bit more?

Sure. We currently report based on credits as you’re aware with certain CGPH, CEOC, etcetera. And now that we’re out of restructuring and have a different capital structure, we feel that it’s more appropriate to report based on regions which is generally more consistent with how we manage the business. And so we’ll have three regions going forward, we’ll have the Las Vegas region, we’ll have the other region and the one of an international region. And so we think that’ll be more useful for when you’re comping against competitors and when you’re looking at the business and trying to evaluate the performance in the different areas.

Great, thank you.

Thanks.

And your next question comes from Carlo Santarelli.

Hey guys, thanks for taking my question. Mark and Eric, you both provided some helpful color on Las Vegas specifically in kind of the recent impact. When you think about the fourth quarter overall and obviously Eric, you mentioned the $15 million to $20 million of hold headwinds but do you believe there is a trajectory to EBITDA growth given everything that’s going on as well as a hold headwind and some of the initiatives in the momentum that you mentioned within Las Vegas specifically in the 4Q?

Yeah. We think that based on what we’re seeing in the business and the trajectory that we have that borrowing no further downward deviation from that, that we’ll still be able to achieve the projections that we had provided and be able to come in on those numbers despite the declines that we’ve seen after the tragedy.

Great. And I think I guess it was last week now at your Analyst Day you guys kind of talked about a steady improvement from kind of the first few days there. I’m assuming that that trend has more or less continued with respect to bookings and pace?

Yeah that’s correct. Again it’s still, at the point where we’re evaluating it continually we’re looking at the various paces for the different groups and the different segments including New Years and trying to estimate what the ultimate impact is going to be. But again, consistent with what we said there, the pace of the variance in bookings and cancellations has certainly declined.

Great. Thanks a lot Eric.

Thanks.

And your next question comes from the line of John DeCree.

Hey everyone, thanks for the question. Just one for me, wanted to go back to your commentary on the slot volumes and that being a big driver of your revenues this quarter. And I was wondering if you could provide a little bit more color, I mean in Las Vegas specifically we saw a couple of consecutive months now of pretty good slot volume growth. And was wondering if you guys had a view as to what, what might be driving it, is it kind of how you’re marking the business or slot product on the floor, any color you have on what might be behind that would be helpful.

Yeah, sure, I’ll take them first up and see if Mark wants to add anything else. Yeah, the slot volumes that we’ve seen as well in Las Vegas have certainly been on the stronger side for a number of months now. I would also add that that’s consistent through the regional properties as well, as you saw our overall slots were up 4% which is some of the strongest growth we’ve had in a very long time. In terms of what’s driving that, we believe in a combination of things. Certainly our marketing efforts come into play as we refine and pull back on the marketing spend, we think that that’s translating into better ability to target certain customers and ultimately resulting in improved slot volumes. But I’d also have to say that the new units that we put on the floor in terms of the product seem to be resonating very well with the customers. And so I think that might have some of it to contribute as well. And then as you’ve seen from us and in the LVCVA statistics, the third quarter is generally a very strong quarter for the Las Vegas market. And as a result, we were able to charge higher rates for our hotel rooms and our gaming customers in order to get the complementary rooms, had to be at a higher status. So our VIP and VVIP trips were up 4% in the quarter on the year-over-year basis, so that translates directly into additional slots spend.

Yeah, and I would add that. All those things that were mentioned, it’s kind of equal across the board. I don’t know if we can say it’s one thing or the other. I do know that on the slot product refresh that we’ve done this year, it impacts I think roughly and correct me if I’m wrong Eric, something like 10% to 15% of our slot product. So it’s not like it’s replacing all of our slot product and that’s what’s driving it, I want to make sure you understand it’s – it is for the product we have for them for us to perform really, really well.

Understood, that’s helpful. And just a follow-up housekeeping item, maybe Eric for you, you and Mark both kind of commented on 2017 projections. I was wondering if you guys had contemplated whether you would kind of update or when the time is appropriate on some of the 2018 projections that you guys had given as you emerged from bankruptcy. And that’s all from me, thanks.

Yeah, at this time we’re not providing an update to 2018 projections. We’ll evaluate whether we do that at a future time and we’ll likely also provide projections for our CapEx spend at that time.

Thanks, Eric.

Thanks.

And your next question comes from the line of Ian Zaffino.

Okay, great. Thank you very much. I just wanted to kind of build on the little bit, bit of the rejections. Mark, I know you have mentioned that 2017 should at least meet or beat, but I would have figured with the quarter maybe you would have led more to beating 2017. And I’m shock at sense, is it just the maybe a pull forward of some the spending that you have planned in 2018 that you’re doing now in 2017? Maybe you should give us some color there, and then I have a follow-up. Thanks.

Yeah, I mean obviously we give you the best estimate we can every single time we come up and talk about, what the businesses are doing. So I think that in terms of pulling forward anything, there was nothing pulled forward at all, so we weren’t even thinking about that. So, I think we have a business plan that we’ve kind of come set on for next year, we kind of know what the primary drivers will be of our improvement in our business plan for next year, but not ready at this point, we hadn’t even talked to the board, we have to get board approval of our plan. And once we feel more solid about Vegas making sure that this doesn’t have a long-term impact obviously, the tragedy, we’ll obviously provide as much guidance as we can.

Okay.

And the only thing I’d add, Ian, we always try to make sure that the expectations that we set our expectations that we as a team feel confident that we’re able to meet and exceed. And so, as we head into the fourth quarter, we didn’t want to provide projections that we would have risk at missing.

No, I get it. And then also, Eric, I think we talked about the capital deployment a little bit, but how are you thinking about it, because you’re sitting on some good cash, have a lot of cash flow. And I know you’ve mentioned before that there were some M&A opportunities that you wanted to do while you’re in bankruptcy that are still available to you. But how do you think about this, I mean what sort of the timing or maybe the size, and how does that really foot with what you’re trying to do as far as building out that real estate and monetizing that as well?

Sure. Yes, it’s – we’ve been out of bankruptcy for less than a month, so, yeah, we have no deal to announce yet. But we’re actively working on it. As we mentioned, it’s certainly core to our strategy is to look for opportunities domestically and those could be tuck in acquisitions of a variety of size but it would be from a strategic attempts to distribute the total [inaudible] more. And also on the particular acquisition it would be from a getting a great return on that particular investment. So I would say that we’re very active, we’re out looking for opportunities, we’ll have to be disciplined and make sure that they fit with the strategy, but it’s certainly something that in 2018 we would actively expect to complete a number of transactions. I’d also say that we’ve mentioned previously our intends to work on a corporate centre on the east side land, subject to a variety of approvals that’s something that the management team really would like to do. And that takes time also to ramp up in terms of getting the permits, getting the approvals, working out the land [inaudible]. So those were the things that we’re pursuing right now. And you’re right, we have a significant amount of cash, we’re generating a lot of cash and from a capital allocation perspective, we’ll be reinvesting in the business, we’ll be growing the footprint, and then we’ll also be expanding and building on our land here in Las Vegas that we have vacant and available.

All right, great. That’s really helpful, so thank you again for the answers, and good color. Thank you.

Thanks.

And your next question comes from Robin Farley.

Great, thanks. I wanted to ask about your Vegas, what is your mix of convention rooms this year versus last year, just wondering how that is trending? Thanks.

We’re right now at about 25% convention mix, and that’s about the same maybe slightly higher than last year.

And do you have a view on how 2018 may look for that?

Yeah, our pace is reasonably strong. We generally look at it from more on the revenue side because that includes both the banks and hotel component. But when we look at both the one year and the two year pace, we’re up mid-single digits versus prior year pacing, so we think that’s relatively solid and a good indicator of consistent growth within the market in that segment.

Okay, great, thanks. And maybe just one other clarification, I know there were couple of questions earlier about how things have been shaping up in the last few weeks. Is there, I guess what is your expectation maybe for where occupancy will come in, in the fourth quarter overall in Vegas?

Generally, our occupancies are very solid here and they don’t vary much. What varies more is the rate. I would expect that our occupancies in Las Vegas will be within a couple of hundred basis points of where they were prior year. I think if you’re going to see much of a variance that’ll be on the rate side. And so I wouldn’t expect a huge change in our occupancy of anything more than a couple of hundred basis points.

Okay, great. Thank you.

Sure.

And your next question comes from the line of Patrick Scholes.

Yeah, good evening. I’m wondering if you can discuss a bit on performance of the various tiers in your database during the quarter. Thank you.

The tiers meaning the work groups?

No, I mean various customer segments whether high-end, middle, lower also drive to or fly end. How do they perform versus your expectations, anything to note in there?

Yeah, I guess I’ll make a couple of comments that, I mentioned that our VIP and VVIP trips were up solidly for the quarterly, up 4.1% on a year-over-year basis. The spend for trip on the VVIP segment however was down. As we’ve mentioned some of the international play that we had during the quarter as down as well as the hold effect that we had, that occurred obviously from that particular segment. From an overall perspective, when you look at the entire company, our spend for trip though was up 4.5%, so it was really isolated to those few customers at the VVIP level. In terms of the fly end versus the drive-in traffic, we don’t usually segment it that way and really kind of look at it just based on the demand coming into Las Vegas. And as we mentioned, we felt it was a very strong quarter for both the drive-in and the fly end, RevPAR was up approximately 5% here in Las Vegas so it was a good quarter for that and that contributed a lot of the flow through that we saw in the quarter.

Okay, thank you.

Thanks.

And your next question comes from the line of [inaudible].

Hey everybody, thanks for taking my question. Just wanted to ask you about the revenue environment. Can you just talk about how revenue progressed throughout the quarter and then just sort of what you’re seeing in Vegas and regional markets and then international?

Sure. So, yeah, we don’t usually break it down by the months. There is certainly volatility between the months which is really why, why we generally do that. If you have a weekend that could shift or a holiday that could shift something like that or in this case, we did have to fight at the beginning of the quarter that probably impacted the end of the second quarter. But overall, we mentioned Las Vegas was strong both on the core slot and gaming side and on the hotel side. The regional markets also had a very good quarter, particularly relative to the trends that we’ve been seeing for probably the last kind of five years. From an international perspective as you know, it’s not as big component of our business as it is with some of our peers, but we did have the negative hold for the quarter. That’s said, we are experiencing some very strong volume growth, particularly in our London properties and we just played unlucky for the quarter.

Okay. And then I guess just switching gears here. As the product has gotten better obviously with the renovation, do you see opportunity to drive your promotional allowances down? I think you comp a bit more than some of your competitors, so just curious how you’re thinking about that and when we can start to see some of that happen?

Yeah, we’ve taken a big reduction in our marketing expenses since 2014. They were down about $250 million, a lot of that was in Las Vegas, we significantly reduced our marketing here but we also did it in the regional properties. And as we’ve indicated before, we believe that that’s the right decision and we’ll continue to press on that and continue to make efforts to reduce our marketing throughout the enterprise as we move forward. But the promotional allowance relative to our competitors, I think will generally be higher even in future years, and that’s because of the fact that we have the total awards database, and it really does feed valuable customers into our Las Vegas market. Our – as rates rise, we certainly do require gaming customers that otherwise would have received a free room to start paying a portion of that or pay the entire thing, but there is still going to be a large portion of our customers that are deserving out of free room and we’ll want those customers to stay with us because it is a higher return investment for us than selling the room for cash. And as a result, I think you will continue to see a higher mix in our casinos of gaming customers. And as a result, you’ll see a higher promotional allowance which is effectively the amount of comp rooms that we give out here in Las Vegas.

Okay, thank you.

And your next question comes from the line of Harry Curtis.

Good afternoon, guys. I just wanted to clarify the comment on the hold impact. Was that primarily in London that impacted or led to the – I think you mentioned around $20 million to $25 million net-net.

Well no, I guess, what I said was against our plan, we had planned to do actually better than we did last year on hold. And then the primary, one of the primary drivers, I mean there were several drivers but one of the primary one was definitely at London. So we get a lot of high [inaudible] facility there and that’s where we get most of our high [inaudible] and quite a bit of that during the quarter.

Okay. And then my second question, I’m trying to get a sense of the cadence of your expense growth and then reduction which occurred in the third quarter. Through the first half your expenses were up nearly $60 million and then they came down roughly $34 million in the third quarter. What was the – what were the primary drivers behind that pretty nice change?

I don’t know the answer to that Harry, are you talking like our corporate expenses or just our expenses in aggregate…

It’s really aggregate, there are really aggregate expenses. What I did was I just did the simple math of backing off your EBITDA from your revenues, and it was – and I’m just wondering if there were any programs that that kicked in the fourth quarter that had a pretty nice impact, and so I’m just wondering if there was a timing issue.

I think that, no, I would say if anything starting in April, we started getting incremental expenses on marketing started to do with our sales force initiatives. And that, was offset by the productivity things that we had in marketing. But in the first half, we look at labor expense and we look at marketing expense, we were right, actually better than plan and pretty much it was pretty tightly run. And third quarter again good labor productivity, marketing was pretty much flat which was part of the plan. So we felt the third quarter was, if anything from those two areas which represent close to, I would say $4.4 billion of the total spend that we have in the company. They were pretty good in the first half and in the third quarter, good but as not good as maybe in the – as it was in the first six months. So this must be something, we’ll investigate this and maybe something related to expense even with the bankruptcy, I don’t know, we had to look at it.

Yeah, there is also going to be seasonality. So, in the second quarter you’ve got Atlantic City that that’s their up quarter and it trickles into the third quarter, so a disproportion of our spend would shift over there versus the other periods of the year, so that could have something to do with it as well.

Okay, that’s helpful. And I just wanted to maybe try and clarify the implication of the fourth quarter performance versus the third quarter. It sounds like your commentary about the year being at or above guidance implies that that the outperformance in the third quarter could be essentially given back in the fourth quarter because of the terror event in Vegas, is that the right way of characterizing it with a little bit of potential upside?

I’m not sure I’d necessarily characterize it that way. We, up to our guidance at the end of the second quarter and we made a full year kind of projection at that point and we’re sticking with that projection and giving indications that we can beat it. We did up at twice before then. There were definitely some headwinds associated with the terrorist or the attack, but at this point, we just feel like it’s prudent to stick with the guidance that we had and deliver a quarter in the fourth quarter that needs or exceeds it.

Okay, very good. Thanks very much.

And we have run out of time for questions. Would you like to put us any other remarks?

Well, thank you for attending the call. We appreciate the interest in the company and look forward to our – giving you a good report on our next earnings call. Good bye.