Hello, and welcome to today’s webcast. My name is Cristina, and I will be your event specialist today. [Operator Instructions] Please note that today’s webcast is being recorded. [Operator Instructions] It is now my pleasure to turn today’s program over to Joyce Arpin, Vice President of Finance and Assistant Treasurer. The floor is yours.

Thank you. Good afternoon, and welcome to the Caesars Entertainment First Quarter 2018 Conference Call. Joining me today from Caesars Entertainment are Mark Frissora, President and CEO; and Eric Hession, CFO. A copy of our press release, earnings presentation and a replay of this conference call are available in the Investor Relations section on our website at caesars.com. Also please note that prior to this call, we furnished a copy of our earnings release to the SEC in a Form 8-K and will file a Form 10-Q. Before we get underway, I would like to remind you to reference slides 2 through 4, which include forward-looking statements, Safe Harbor disclaimers and definitions and certain non-GAAP measures. In addition, Caesars Entertainment Operating Company, or CEOC, emerged from bankruptcy on October 6 and Caesars Entertainment Corporation completed its merger with Caesars Acquisition Company or CAC on that date. We also deconsolidated the results of Horseshoe Baltimore in the third quarter of 2017. Therefore, our U.S. GAAP results do not include CEOC in Q1 2017 and include Horseshoe Baltimore, same-store results include CEOC in the prior year but exclude Horseshoe Baltimore. You can find a reconciliation of GAAP and non-GAAP figures on slides 25 to 28. I will now turn the call over to Mark. Please turn to Slide 6.

Thank you, Joyce. I’m pleased to report that Caesars Entertainment delivered solid operating performance in the first quarter, reflecting progress on our marketing initiatives, continued success in driving operating efficiencies and strong execution on our growth initiatives. First quarter net revenues of $1.97 billion and adjusted EBITDAR of $518 million increased year-over- year since CEOC’s results are not included in the prior year. Same-store revenue decreased 2% year-over-year to $1.97 billion. We experienced robust gaming volumes in Las Vegas led by the strongest Chinese New Year volumes in five years. Core business growth was offset by some notable headwinds, including unfavorable hold impact on revenues of $22 million year-over-year, several weather-related property closures in the other U.S. segment, lower hospitality revenues in Las Vegas due to the cycling of the CON/AGG construction trade show and some lingering impact from the October 1 shooting. Las Vegas RevPAR declined 1% year-over-year, and we are outperforming our peers in the Las Vegas Strip who reported average RevPAR down approximately 2.5%. Domestic slot win increased sequentially throughout the quarter and, adjusted for the impact of bad weather, was up 1% versus Q1 2017. Slot win and hotel results were also up to a solid start in April, giving us more confidence and a positive outlook for the full year. Same-store adjusted EBITDAR decreased 3.4% year-over-year to $518 million due to unfavorable hold and bad weather but was offset by outstanding cost control efforts in labor and marketing. On a hold-normalized basis, adjusted EBITDAR was flat year-over-year. Unfavorable hold impact on EBITDAR this quarter was primarily driven by baccarat play at Caesars Palace. Our peers held well in this segment during the quarter, and we believe that this is the primary driver of movement and market share. Excluding baccarat play, we gained 60 basis points…

Thank you, Mark. I’ll start with our quarterly same-store segment results followed by a review of the company’s liquidity position and capital structure. I’ll then conclude with some notable items for the second quarter and also the full year before turning it back over to Mark for closing comments. Please turn to Slide 15. Today’s commentary will cover same-store results, unless otherwise stated. Same-store commentary include CEOC results and exclude the Horseshoe Baltimore from the prior year. Same-store net revenues were down 2% year-over-year to $1.97 billion. Las Vegas net revenue was $906 million, down 2.6% versus the prior year quarter-to-date due to unfavorable hold of $19 million per year and the CON/AGG convention not recurring this year. Adjusted for unfavorable hold, Las Vegas gaming revenue was up slightly versus the prior year quarter, and cash ADR was up meaningfully when excluding the convention-impacted results of March. Results were also negatively impacted by about 37,000 rooms off the market in Q1 of 2017 for ongoing renovations at Bally’s and Flamingo. Our Las Vegas RevPAR was down 1% against the prior year period and was in line with our guidance for the quarter. Moving on to our other U.S. segment. Revenue declined 1.2% due to the impact of flooding and other unfavorable weather-related events which, together, amounted to a revenue headwind of approximately $25 million and an EBITDA impact of approximately $15 million when compared to the prior year quarter. Excluding the impact of bad weather, we estimate net revenues would have been up approximately 1.5% in the other U.S. segment. Note that some of these weather-related losses are expected to be offset by insurance recoveries, but they will be realized in future periods. EBITDAR across our regional properties increased 7.5%, reflecting exceptional cost management and improved marketing efficiency. Our regional…

Thank you, Eric, and please turn to Slide 20. To recap, first quarter results were ahead of our expectations, and we believe the bad weather is behind us. Let us be clear, the first quarter regional gaming revenues are not a reflection on the domestic gaming consumer. We saw strong jobs reported in February and a weaker number in March, which we believe was largely impacted by the weather. Seasonally adjusted, U.S. unemployment remains at its lowest point since the early 2000s. Consumer confidence has increased from year-end despite the volatility in the market, and the current airport volumes of domestic and international passengers are up about 3%, respectively. Looking ahead, we expect to accelerate our momentum in 2018 through revenue growth and efficiency initiatives, continued investments in our properties and room product, the development of Caesars Forum and potential additional international development projects and licensing opportunities. And with the new $500 million share repurchase authorization we announced today, we will have the flexibility to return excess capital to shareholders as we continue to pursue accretive growth opportunities. We will now open the line for Q&A. Operator?

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

Hi, good afternoon, thanks for taking my questions.

Hi, good afternoon.

I wanted to start with the margin improvement in the quarter, mainly from the 11% reduction in marketing costs. I believe last quarter, the marketing reduction was roughly 4%. So for starters, Could you kind of help us think about what really changed from the fourth quarter to the first quarter and if that’s sustainable? And then is that 11% what you’re assuming in the guidance that you issued for 2018? Thank you.

I think we continue to test and learn from different projects that we have going on. And each one of those projects can yield very good results, both from an efficiency but also from a revenue-generating standpoint. So I think that in terms of sustainability, we believe that this number roughly is sustainable. I’m not going to give you an exact number for every single quarter, but the changes that have been made are expected to last through year-end. Some of them will anniversary out in the fourth quarter so – but at the same time, we have other projects that are moving ahead that could provide incrementality to it. So I think it’s a question of directional – it’s a directional number. But again, we continuously experiment and then find either new ways to invest or reduce based on the pilots that we perform. In terms of the guidance, obviously, it had – it was a piece of our guidance, but I would not say it was a large piece of our guidance in terms of our confidence. I mean we have a number of things that are going on in the company, but from a labor efficiency standpoint as well as a marketing standpoint, they contribute to our comfort level. And that includes some of the revenue initiatives that we have that are going on within our core gaming operations as well as within our hospitality operations. Eric, do you want to add to that?

No. I think you covered it.

Thank you. And then my follow-up is with respect to Las Vegas. You noted some pretty nice share gains in the quarter. Could you kind of help us think about if the share gains came from improved marketing, your renewed product or maybe a result of all competitors? Just some color on kind of what’s going on in your Las Vegas portfolio would be helpful.

Sure. Yeah. This is Eric. I think we’ve said, we probably had a very solid first quarter given the various disruptions in the cycling of the convention. When we look forward, we continue to have a lot of confidence in the market. The forward bookings look very strong, the convention business looks strong and our RevPAR guidance reflects that confidence that we have for the rest of the year. With respect to the market share gains in the first quarter, I think it’s a combination of a number of different things. Mark referenced earlier the marketing efforts that, although we are reducing marketing, we do appear to be picking up share because we’re able to better effectively use the marketing we do deploy. We also, as you’re aware, undertaking a room renovation project that the customers do respond very well to. It’s a great, great product that we’re putting out there, and about half the rooms are complete now. And then, finally, we did introduce more new slot product to the floor in the fourth quarter that came in, in that period and into the first quarter, and so that certainly contributed to it. So I think all of those factors are lining up well, and they’re all also lining up well for the rest of the year just to continue to outperform.

Thanks, Eric. Thanks, Mark.

We’re also seeing – and just to add to it just for a second, we’re seeing pretty strong convention business in the third quarter and some selected ones in the second quarter. So we expect – I think that we expect that we’ll have a good year-over-year comparison as we move forward through the year. So that business has actually been building. The other thing that I’ll mention is that 37,000 rooms were out of service in the first quarter incrementally. And that comes back online, a lot of it in the second and in the third quarter, most of it completed by the second quarter. So that will also add to our incrementality as we go forward in the year.

Thank you very much and congrats on the results.

Thanks.

Thanks.

Your next question comes from Harry Curtis from Nomura Instinet. Your line is open. Harry, your line is open. Your next question comes from John DeCree from Union Gaming. Your line is open.

Hey guys. Thanks for taking the question. Wanted to first just kind of follow-up a little bit on Chad’s line of questioning and ask about 1Q. Some of your peers we’ve seen at the higher end properties across the Strip had done particularly well. I was wondering if you could kind of elaborate on kind of across your portfolio if you saw similar at Caesars Palace being really strong or if you’ve seen broad-based strength across kind of all segments in 1Q.

I think that the way I’d characterize this that you look at WYNN, for example, they’re in a different segment. They don’t participate. Their occupancy rates went down. We actually went up year-over-year. So obviously, we can get ADR and RevPAR grow if we decide we want to take our occupancy rates down. So we’ve chosen, obviously, to keep our occupancy rates up, meaning there’s a coverage of fixed costs, it’s a smart strategy. And at the same time, we did better than the Strip, if you will, at RevPAR on average. So you’ll see that kind of a strategy going forward from us. We’re not going to – and we’re going to see, obviously, very strong RevPAR growth of 4% to 6%. So we kind of feel like some of these properties are unique in participating in new niche markets. For us, across the board, we’re doing well, I’ll say, on RevPAR. And we treat this as a market – a harmonious market. And we try to appraise to the overall market not to just one individual niche hotel we try to optimize for our network. Eric, you want to add anything to that?

No. I would just add, we didn’t see any variants in particular for any specific category, whether it’s the low end or the high end. I think all the categories performed roughly the same.

That’s helpful. I appreciate the incremental color. And then I just wanted to switch gear, just kind of ask a little bit more on the strategy that you’ve really started to deploy in terms of adding hotels to kind of key gateway markets. I’m wondering if you could kind of talk a little bit about, at least high-level, kind of how the economics work out or get sized up for you guys in terms of any potential key money or capital and kind of how you expect, maybe typical Matchmade or branding fees to kind of line up to the extent you can?

Yeah. I’ll take this one. It’s – these are all capital-light projects. They do have what’s traditionally a nominal amount of capital contribution from key money that – as you referenced. And so the real strategy from our perspective is to enter into these gateway of large, attractive cities, deploy a nominal amount of capital and secure management fees that Mark guided were between $5 million and $10 million per project. And in addition to that, it enhances our brand, and it also allows us to get distribution from the Total Rewards network. So we’ve been very successful getting three of these kind of asset-light transactions done in the past quarter. And the team is actively engaged to continue that momentum.

Great, helpful. Thanks for the questions.

Thanks.

Your next question comes from Harry Curtis from Nomura Instinet. Your line is open.

I hope so, can you hear me now?

Yes.

Yeah.

Yes. Just being my age. So just a little bit more detail if you could, on the strength in the second half in Vegas because, to get to your guidance, you probably need to do the high single digits in RevPAR in the second half. Can you put a little bit – give us a little bit more detail on your conventions bookings and anything else that you think would be helpful.

Yeah. I think your calculation is directionally accurate. We see continued improvement throughout each quarter. So the third quarter will be better than the second and then the fourth, better than the third. As we mentioned earlier, we continue to, on an aggregate full year basis, expect mid-single digits growth for our conventions given that we had a sizable decline in the first quarter. As you can imagine, that does translate into significant growth in the back half of the year. We do believe that there’s very strong bookings in the third quarter, potentially all-time record. And we anticipate also that next year, the convention business continues to be strong, and we’re seeing high single-digit bookings into next year. So it’s definitely an improving quarter-over-quarter environment that we’re seeing, both on the hotel side and also what we believe will translate in from the gaming side. We have a little less visibility there because the bookings do come later, but the calculations that you ran are directionally accurate.

Okay. And just a follow-up question, given the lift in your EBITDA forecast, can you walk us through some of the puts and takes that you haven’t discussed for example, your expectations for the impact of cannibalization in Atlantic City, how much you’re building in for Centaur? Have your expectations changed there?

Yeah. Sure. So in Atlantic City, you mentioned that we’re building in about a $40 million negative EBITDAR impact for this year. Since the properties haven’t opened, obviously, that will all occur in the back half of the year, and so that’s included in our projections. Offsetting that is the contribution from Centaur. And we’ve assumed a half-year contribution from Centaur, which is roughly $70 million. That doesn’t include any upside from potential synergies that we can get, but that’s based on their trailing 12 run rate of roughly $140 million. Beyond that, as Mark referenced, we do include some of the performance that we’ve been able to achieve on the labor side and also on the marketing side when we look at the flow-throughs. And then from the hotel side, we’ve referenced the 4% to 5% growth, and that’s obviously a key driver in our projections.

Very good. Thanks for the help.

All right. Thank you.

Your next question comes from David Katz from Jefferies. Your line is open..

Hi, afternoon everyone. I wanted to ask about – just a little more detail around the capital allocation strategy. If I’m sort of getting your leverage right, you’re – at least on a trailing basis, you’re a little bit over 5x, and I see that you have a target in here of around 4.5x. Is that an unachievable level considering that you used some or all of the share repurchases this year? Can all of that occur based on where the guidance is today?

Yeah, David. Maybe, I’ll jump in and clarify a few items. We did give a target of 4.5 x, but we said that, that was kind of in the medium term, which we look to be kind of a three- to five- year horizons, so it’s not something that we’re aspiring to achieve in this particular year. Using the calculation that capitalizes the leases on the balance sheet as well as uses of the traditional debt, we’re roughly 6x levered today. So that’s how you get 1.5 turns of leverage compression that we referenced as well. We do believe that based on the cash flow profile of the company and the deceleration of our capital investments and the performance of the underlying business that the amount of cash that we’re generating is going to be sufficient to pursue all of those activities, including additional M&A where we identify it, some of the key development opportunities that we have as well as executing the share repurchase plan based on market conditions and also deleveraging the company over time. So we have modeled those out, and we don’t think that they’re at all inconsistent.

Perfect. I wasn’t suggesting that it was. But I do want to follow that up and ask about the remaining properties in the portfolio that are targeted or potentially ready for renovation and, order of magnitude, how many of those there are and how much capital over the intermediate term that might consume.

Sure. We’re maintaining our capital guidance that we had given before, which is that it does ramp down over time. We are still doing room renovations at an accelerated pace. We mentioned, this year, we’ll be doing slightly fewer room renovations than last year. Last year was the peak. This year, we’re primarily focusing on Bally’s and Flamingo. Next year, we have room renovations planned for Paris, additional rooms at the Flamingo and potentially Harrah’s as well. Those accelerated spending levels will be for two more years, and then we’ll get back to our normal, what we’re targeting, at $450 million per year of core maintenance capital. So that’s all included in our cash flow projections, and we believe that’s a reasonable amount of capital to spend such that we can keep our room product up to the expectations of the customers but also manage to have enough free cash flow to allocate to those other investments.

I have more, but I’ll come back around. Thanks for the responses.

Okay. Thanks.

Your next question comes from Ian Zaffino from Oppenheimer.

Hi guys. Thank you very much. Just wanted to delve into the buyback and again also the capital allocation. Can you just give us an idea of the choice, the size of the buyback, preference of buyback versus, let’s just say, taking up the convert and then also maybe intentions to do any more sale leasebacks and others, the tower in – at Caesars Palace or anything else across the portfolio as you kind of look to expand your growth and look at other opportunities? Thanks.

Yeah. Sure. So we sized the $500 million buyback at what we thought was a reasonable level to go out in the market and repurchase shares over time. It’s over 5% of our equity value but less than 10%, and we thought that was a good range. As we move forward, should the investment opportunities that we have outside of repurchasing our own stock change, we can certainly add to that amount if the board deems that that’s a good use of the cash flow depending on the market circumstances. So that’s really how we’re looking at it. We wanted to give ourselves an opportunity to be able to repurchase the shares if we think they’re at a great value while balancing the need to continue to grow the company because we believe that there are great targets out there, and we also believe that investing in our assets through capital and through technology are providing great deterrence as well.

And do you just want to touch on the sale leaseback or potential other sources of cash?

Yeah. We have those in our models as possibilities. They’re somewhat out of our control in the sense that you need another party to participate in terms of executing those. So they are sources of cash. Keep in mind that we do treat that as debt. So when we enter into a sale leaseback, we’ll capitalize the lease payments from a debt perspective. So it is modestly deleveraging, but there is some debt component associated with that.

Okay. Thank you very much.

Thanks.

And your next question comes from Jared Shojaian from Wolfe Research. Your line is open.

Hey everybody. Thanks for taking my questions. If I look at your other U.S. revenue, it was only down about 1% in the quarter and I know we don’t have all the data, but if I just look at the statewide GGR data, the GGR at the bulk of your properties was down more in the 6% range. So can you just help me understand that delta? Is that maybe non-gaming streams making up the difference or maybe it’s other Nevada that’s not reported? Or is there some other factor that I’m missing there?

Yeah. I think it’s a combination of those states that don’t break it out by property. There’s also the dynamic with respect to the future revenues. So some states report the gaming revenues pre-real rewards or discounts, and some states do it post. And so we did have fairly significant reductions in our cash-back programs during the quarter, and so that could certainly be what you’re reflecting. The other thing is that, included in those numbers, if you recall, we had two of our properties actually shut down. And so in some months, they were – one of them was down 40-plus percent. So that might or might not be included or excluded in your numbers.

Got it. Okay, thank you. And then can you just talk about what led you guys to decide to provide guidance right now and, specifically, why you feel more confident giving that today than you did last quarter? And then if you could also just confirm that any new potential labor agreements are already factored into that guidance. Thank you.

Yeah. I’ll take it first. We have another quarter of information – or actually in May, so we have a third of the year done. We have better insights into what the Atlantic City impact would be, so we felt that was reasonable to quantify at this point. The Centaur transaction, we’ve continued to guide towards the midpoint of the year, so that hasn’t really changed. And we continue to expect that to be roughly the appropriate time line. And so we also felt that given the discussions that we’d had with the analyst community and with investors in particular, that providing guidance to help people analyze the value of the company we thought would be very helpful, and so we elected to go ahead and do that this quarter. In terms of the union contracts and other cost-related items, as I mentioned earlier, we’ve taken into account an estimate of our trajectory of expenses, both the marketing and the labor side. And so unless there are shocks to the system, we would expect that everything should be included in that.

All right. Very helpful. Thank you very much.

Thanks.

And your next question comes from Mike Pace from JPMorgan. Your line is open.

Thank you. Good afternoon. I guess just getting back to the leverage target, thank you for including all the definitions of what you’re including in the numerator and the denominator there, but I’m wondering how you guys landed on 4.5x gross fully loaded leverage over a three to five-year period of time. Just your thought process, why that number, why that time period?

Yeah. We wanted to provide a target so that we also – that it was achievable, given where we think the company is heading, and one that would provide some information to you and to the investors, but one that also wouldn’t inhibit the company from pursuing the activities that we wanted to do. So when we look over the multiyear period and we look at the opportunities that are on the table, we look at the various investments and we look at our cash that’s being generated from the operations, we felt that this is a very achievable target and also one that we think will provide some good direction from people analyzing the company over the period of time. I also think that generally, the economy has been on up cycle for a fairly extended period of time, and we are in a consumer-facing business. And as a result, having a profile over time makes sense from a risk perspective, and that’s where we wanted to head.

And then just two on the capital structure. The Centaur funding, you raised $1 billion from selling billion from selling the real estate under Harrah’s, so you have 600-ish left. How should we expect you to fund that cash or new debt? And then since you brought it up in your prepared remarks, you mentioned convert options, I just want to ask convert options include issuing the underlying shares as part of that.

Sure. In both questions, we’ll have to say that we’re still evaluating all of the different opportunities that we have. I think it’s important to note out that, you’re right, we raised $1 billion to fund the Centaur transaction and we do have sufficient capacity under our revolver. So we’re not relying on the debt component to be able to complete the transaction. That said, issuing debt or doing some other type of fundraising might be an appropriate action to take, and we haven’t decided exactly how we’re going to fully finance the Centaur transaction, but there are a lot of different options available to us, and we’ll have to pick at the time which is the best one to do. Regarding the convert, there are a number of different options there as well. And so we’re evaluating that with respect to how best and if and when to try to reduce the amount of convert that’s outstanding.

Operator, if there’s no further questions – yeah. Go ahead.

There are no further questions at this time. Thank you to all our participants for joining us today. We hope you found this webcast presentation informative. This concludes our webcast. You may now disconnect. Have a great day.