Hello, and welcome to today's webcast. My name is Sarah, and I will be your event specialist. All lines have been placed on mute to prevent any background noise. 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. Ms. Arpin, the floor is yours.

Thank you. Good afternoon, and welcome to the Caesars Entertainment second quarter 2018 conference call. Joining me today from Caesars Entertainment Corporation are Mark Frissora, President and CEO; and Eric Hession, CFO. A copy of the press release, earnings presentation slides and a replay of this conference call are available in the Investor Relations section of our website at caesars.com. Also, please note that prior to this call, we furnished a copy of the earnings release to the SEC and a Form 8-K and will file our 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 of certain non-GAAP measures. Our comments today will include forward-looking statements as defined by the Private Securities Litigation Reform Act. Forward-looking statements reflect our expectations as of today's date and we have no obligation to update or revise them. Actual results may differ materially from those projected in any forward-looking statements due to unanticipated hold fluctuations, weather or other unforeseen circumstances that we do not control. There are certain risks and uncertainties, including those disclosed in our filings with the SEC, that may impact our results. 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, U.S. GAAP results do not include CEOC in Q2 '17 and include Horseshoe Baltimore; same-store results include CEOC in the prior year, but exclude Horseshoe Baltimore. You can find reconciliations of GAAP and non-GAAP figures starting on Slide 26. I will now turn the call over to Mark. Please turn to Slide 6

Thank you, Joyce. Caesars Entertainment delivered strong results in the second quarter, underpinned by ongoing investments in our core gaming and hospitality offerings and continued success in executing our continuous-improvement strategy. In Las Vegas, same store revenues grew by 7.5% and adjusted EBITDAR grew by 16.4%, primarily driven by an uplift in gaming and hospitality revenues. During the quarter, we completed room renovations at Bally's and begin the second phase of the Flamingo room renovation project. As of today, we have refreshed approximately 60% of our total Las Vegas room inventory since 2014, and we expect room renovations to drive further benefits to our Las Vegas revenues in 2018. We have posted a schedule detailing remaining room renovations across the portfolio in the appendix of the presentation for your reference. Enterprise-wide same-store net revenues totaled $2.12 billion for the quarter, up 2.8% year-over-year, driven by strength in Las Vegas. Same-store adjusted EBITDAR improved 13.1%, led by strong Las Vegas gaming and hospitality performance and significant regional marketing and labor efficiency improvements. Adjusted EBITDAR margin improved 270 basis points to 29.4%, making the highest ever Q2 margin for us. Marketing efficiency, which measures marketing cost as a percent of gross revenue, improved 180 basis points year-over-year to 19.3% and improved 10 basis points versus the prior quarter. Hold had a favorable impact of only $7 million compared to the prior year. I do want to make one important clarification to investors. We did not rely on hold for our record results. And actually on a hold-adjusted basis, our EBITDA was up 12% versus 13.1%. Our performance in the second quarter builds upon strong, a strong track record over the last several years. Looking at Slide 7. We have made improvements in the business that positions Caesars well for continued growth. We…

Thank you, Mark. I'll start on Slide 15. Today's commentary will cover same-store results unless otherwise stated. Same-store commentary include CEOC results and excludes the Horseshoe Baltimore figures from the prior year. Same-store net revenues were up 2.8% year-over-year to $2.12 billion. Las Vegas net revenue was 992 million, up 7.5% year-over-year, driven by both increased gaming volumes and hospitality revenues. Gaming volumes were higher from both table games and slots. New slot products and enhancements to core table games drove the incremental play. Key hospitality metrics grew in line with our expectations, including a 6.7% growth in cash room revenues, 3.6% growth in cash ADR and 3.5% growth in total RevPAR, which was within our anticipated range of 3% to 5%. These positive KPIs were primarily driven by investments in upgrading our hotel rooms in Las Vegas. Las Vegas occupancy was 93.9%, down 160 basis points from the prior year due to a shift in the Las Vegas festival calendar, a lighter convention mix in June and 36,000 more room nights available versus the prior year. Hold positively impacted EBITDAR by approximately $7 million versus prior year, and was $9 million favorable to our expectations. Moving on to the other U.S. regional segment. Revenue grew 0.2%, primarily driven by gaming revenue growth. Adjusted EBITDAR across the other U.S. regional segment increased 9.3%, reflecting exceptional cost management and improvements in marketing efficiency. Regional margins improved 220 basis points, driven by our advances in efficient digital marketing and labor efficiencies. In the all other segment, which includes our managed, international, CIE and corporate areas, revenues declined $14 million to 145 million or 8.8% year-over-year, due to a workers' strike at Caesars Windsor, which temporarily lowered revenue from reimbursed management costs. Increased costs associated with integration and implementation of technology drove our…

Thank you, Eric. Please turn to Slide 20. To recap, second quarter results were strong, driven by robust gaming volumes and hospitality revenues in Las Vegas and exceptional cost management. Enterprise-wide EBITDAR grew double digits and adjusted EBITDAR margins expanded 270 basis points. The economic backdrop going into the back half of the year looks positive. Despite the uncertainty with trade, there appears to be no evidence of any impact to hiring decisions, with unemployment near all-time lows. Small business confidence is high, with a near record number of firms planning to increase employment. Part-time workers as a percentage of total unemployment has returned to prerecession levels, particularly amongst millennial's, a key growth driver for our future business. Data also supports steady growth in average weekly earnings, which bodes well for discretionary businesses. Looking ahead, we expect to accelerate our momentum in 2018 through continued investments in our properties and room product, potential upside for expanding our sports betting business across the U.S., and potential additional international development projects and licensing opportunities, while maintaining capital discipline and periodically returning cash to shareholders. So we'll now open up the line for Q&A. Operator?

[Operator Instructions] Your first question comes from the line of Dan Politzer with JPMorgan.

So obviously you guys just guided to RevPAR for the 3Q of flat to 2%. I just wanted to make sure, one, I heard that right; and two, as far as it relates to your full year guidance of 4% to 6%, I guess, can you kind of frame out where we should get the confidence that obviously that implies up mid-teens in 4Q at the very least? And I guess, what's your line of sight there?

Yes. Dan, this is Eric. That's correct. The full year guidance that we maintained between the 4% and 6% does include the weakened expectation that we have in the third quarter of between 0 and 2%. Heading into the fourth quarter, we do continue to see strong group pickup, and we also continue to see solid bookings. If you recall, due to the unfortunate tragedy, the market experienced last year a significant decline in the pace that we are growing in terms of the RevPAR. And as a result, the comp in the fourth quarter is the easiest of the year.

Got it. And then just on your EBITDAR guidance. Obviously the 2Q was pretty strong. I mean, as we, how should we think about the guidance for the back of the year as it relates to the marketing efficiencies across the regional properties, and then, obviously on The Strip as it relates to your ongoing room renovations?

Yes. In terms of the EBITDAR guidance, again, we had what we felt were very strong second quarter results. The third quarter, as we commented, had some declining performance on the leisure side. And in particular, there was a lack of programming in the city due to a number of events that didn't occur year-over-year. However, for a full year basis, we decided to keep our EBITDAR guidance the same. And from a margin standpoint, we continue to expect to have improved margins particularly on the back of the great performance that we did in the second quarter. From a marketing standpoint, we did reduce our marketing spend by about $35 million or around 7% on a year-over-year basis. And we anticipate continuing with that trajectory going forward into the back half of the year.

Yes, I would also at that in the fourth quarter is where we started the marketing cut last year. So on a year-over-year basis, the increase on improvement weren't anticipated to be as great as they were in the first three quarters, given that those cuts anniversary out in the fourth quarter.

Your next question comes from the line of Shaun Kelley with Bank of America. Your line is now open.

Eric, maybe just stick with the same, kind of the same question, but as we dig in a little deeper on the guidance, so you're running roughly up 1% to 2% for the first half, maybe a little less than that. And then you're guiding zero to 2% for the third quarter. So the obvious question here is what kind of acceleration you would need to get to even the low end of a 4% to 6% for the fourth quarter? And then also, just a question mark around sort of what kind of visibility do you really think you would have in your RevPAR outlook if it sounds like close-in or late-breaking business is not materializing maybe the way you thought it was a month or two ago? So could you sort of elaborate on those points, sort of how mechanically or mathematically you could hit even a 4%? And then, and again, like what kind of visibility you have in this number?

Yes, sure. So mathematically, I believe to answer your question directly, to hit 4%, we need around 11% year-over-year RevPAR growth in the fourth quarter, given the 0% to 2% in the third quarter. And we are projecting to be at that level or better heading into the fourth quarter. The main issue that we saw in the third quarter was really in the first two months of the quarter with respect to the lack of programming and some of the rate pressure that we've been seeing on the FIT side. We don't see that occurring in the fourth quarter. And the programming for the city appears to be much stronger both on that standpoint, but also on the group side.

And we are seeing positive momentum in September. So that's something that is, obviously, we have numbers that kind of indicate year-over-year what kind of a demand that we have on both rate as well as volume. So, but obviously, in July as well as August, we saw some softening, which, again, caused us to be cautious about how we provide guidance and how we think about RevPAR as well.

And just to be clear, I mean, from where we were, let's say, in the beginning of May, July and August, did they materially deteriorate from what you were seeing when you kind of like last provided your outlook? I mean, are we looking at something that's quite different then you probably were thinking about then?

Yes. That's correct.

Your next question comes from the line of Chad Beynon with Macquarie. Your line is open.

Wanted to move on to capital allocation. Last quarter, you announced the buyback in the quarter. You spent a little bit there. You've had the announcement on tendering for the converts also in the quarter. And you highlighted in your prepared remarks, you had some asset sales at pretty attractive multiples. So given where your equity is trading, given the existing converts that are out there, kind of all these things that have probably gone through your head in the past couple of months, is there an updated view on what to do with the cash? I believe you noted in the presentation 1.75 billion after Centaur.

Yes, sure. It's a good question. We did enter into a 10b5 grid based program shortly after making the announcement of the buybacks and putting out our earnings. And so if you recall, those occurred in May. So we didn't have a full quarter of time to execute the purchasing repurchase program. We did note that we bought back about 2.5 million shares in the month of July when that program was fully operating. And the expectations are to continue to repurchase shares throughout the year, and also to complete the conversion of the convert, which we'll plan to do early this coming quarter.

And then you noted that you're at 60% of rooms renovated in Vegas. Also, in your presentation, there's a couple TBDs in there. Is that mainly driven off of just how you're thinking about capital? Or is that to be determined simply because of what you've seen lately in Vegas? And if you continue to see some pressure on the leisure side, maybe it's better to push the money elsewhere, and you won't get the returns that you've talked about on the renovated rooms. Just some color on that would be helpful as well.

No. At this point, we haven't changed our plan on the room renovations. It's really just a sequencing in terms of where we think the right pattern is and how many rooms we want to have out at any one time. We completed Bally's, as we noted, which was a large project, 1,950 rooms. And then we've started another 1,000-room project at The Flamingo. Later in the year and into next year, our big project will be Paris. And then we'll finish the final tower at Harrah's. So all of those are still kind of on pace, as anticipated. We do shift them by a few weeks or months, depending on the various schedules and the construction timing. But broadly speaking, that is consistent with our anticipated plan. And as we mentioned, we do anticipate the pace to ramp down because we are finishing the renovations of the cycle. But also, as we've provided guidance from a capital perspective, we do expect our capital spending to be reduced each year going forward as well.

Your next question comes from the line of Harry Curtis with Instinet. Your line is open.

How well booked are you? What's your booking pace in the fourth quarter? I think that now that the cat's out of the bag on this, on the third quarter, going into this third quarter, you had a great deal of confidence about the third quarter. So is it not possible that, to the extent that you're not particularly well booked in the fourth quarter, that we could be running into the same issue in the fourth quarter?

No. I don't think, first of all, I think we know what the bookings look like through the end of the year. And so we don't have concern in our forecast. And so when you say the cat's out of the bag, we said that we saw some weakness in July and August, but then strengthening in September. So again in this business model, at least as it relates to Vegas, everything swings over several months. It's not like you look at 1 month or 2 months, and you say, oh, that's it for Vegas, right? That's not the way it works. I mean, I've seen this over and over again over the last 3.5 years I've been here. There's a knee-jerk reaction oftentimes for a momentary weakness. This is not, it's just a programming issue. It's not that we have a weakness in Vegas. So I want to be clear, it's not weakness in Vegas. It's a programming issue. And when you look at the number of events that are held at various venues throughout The Strip and you compare that year-over-year, we understand why the weaknesses is there in July and August. So this is not some reason to panic or think Vegas is weak. It's a reason to explain why it ended up being weaker than we anticipated. However, we didn't change our guidance, and we have strong operating performance, and the margins are higher year-over-year. So I feel like, like I said, there is nothing new here, other than the fact there's a little lapse over a 2-month period due to programming. So we understand the root cause of it and again, making everyone aware of it. So I still think Vegas is a very strong market that has strong fundamentals. I mean, if we look at our increase year-over-year, it was significant on a same-store basis, both in profit and revenue. And again, we don't anticipate some kind of a fallout in any way, shape or form. Eric, you want to add to that?

No, only to say that the group bookings are very strong in Q4. So that gives us the incremental confidence because that business is quite solid. As we mentioned, the group booking were up in Q3, but not to the extent that we're seeing it in Q4.

Why don't we just quickly move on then to the Atlantic City market? It sounds like, maybe you can provide some color on performance since Hard Rock and Ocean Place opened. And is it making you feel more or less confident about your initial thoughts, say, 3 months ago or 6 months ago of how that market would unfold for, say, the coming 12 months?

Yes, I would say, it's a little too early to draw conclusions at this point. They've only been open about a month. We kept our full year guidance the same. And so the expectations really haven't changed in terms of what we expect the impact to be. We're continuing to monitor it, as you saw with the traffic counts coming into Atlantic City, it does appear that the properties are driving incremental visitation. And whether that's a onetime event as people try out the new properties or whether that's going to continue, will determine ultimately what the impact is. But I don't think we know at this point what the eventful impact would be to any degree really differently than what we had originally provided in our guidance.

Your next question comes from the line of James Kayler with Bank of America.

Just changing gears a little bit from the balance sheet perspective. Maybe just give us a little more perspective in the 4.5x leverage target and like this, the 2021 target. Just curious how you're thinking about sort of balancing bringing down leverage versus returning capital to shareholders. And I think related to that, have you given any more consideration to simplifying the balance sheet, combining the subsidiaries?

Yes. What we've done is obviously projected our cash availability over the horizon. We've identified what we think is a core amount of capital that we need to reinvest in the business, and we've provided directional guidance to everybody on that. Then we've also looked at potential acquisitions and the amount of capital that would be needed there as well as a repurchase plan. And then balance that with the growth in the core business, providing deleveraging as well as allocating some of the available cash to repurchase debt through the market or through re-financing's. And so we think that 4.5x is a solid level to be at for the company. And it's one that we can achieve over this period of time while keeping a balanced reinvestment profile for the other areas that are needed to grow the company. With respect to your second question on simplification, yes, there are two main areas that we're looking at now. One, as you're aware, is the convert and reducing the amount of convert that's out there. And the other we've alluded to in terms of merging CEOC and CRC, that's still on our plan. And I would expect that we would try to pursue that either late in the third quarter or early in the fourth quarter.

Your next question comes from the line of David Katz with Jefferies

I wanted to, and I know that this is a horse that's getting beaten considerably, but I think it's important to just go back to the 3Q, 4Q cadence. And let me just begin by saying that good quarter, congratulations, it was impressive. But if we can go back to the 3Q, 4Q cadence a little bit and just talk about what we would or should have been expecting in terms of comps in the third quarter, because we knew that Mayweather-McGregor was last year, is an event that was fairly major. What else can we put in that bucket that is sort of driving that outcome? And obviously the ease of 4Q comps, I think, you've discussed and is fairly clear. So if we could maybe beat that horse a bit more, I'd appreciate it.

Yes. I'd start off by saying from a guidance perspective, we maintained our RevPAR guidance that we set at the beginning of the year. We maintained our EBITDA guidance that we set at the beginning of the year. And we maintained our capital guidance that we set at the beginning of the year. So from our perspective, the performance of the company is operating within the guidance that we provided at the beginning of the year. And the end position, where we think we'll end up at the end of the year, is going to be within those three ranges. So in terms of the third quarter, in particular, it is weaker than we had originally anticipated, and there were a number of events that changed between quarters.

Yes. So if I can just add, I mean, so when look at entertainment programming on a year-over-year basis, the largest volume-driving venues, net there was a reduction of 21 shows at the T-Mobile Arena. 21 shows is a fairly significant number. And then seven fewer, including the Mayweather-McGregor fight in August of 2017. And so just that alone generated a lot of incremental revenues for us last year from a programming standpoint. So you can see, I just gave you some numbers. I mean, that's a huge difference. And again, I can get more detailed, maybe if you want to, off the call. But there was a very large difference in programming which is what's driving the softness. So I think that we have good news is that we're going to have an improvement in the fourth quarter. So again, this is a two month blip that ends up improving, getting back on pace, which is kind of what our guidance indicated to you. So again, there's no cause for concern. But there is a momentary in Vegas when you see programming changes like this, you will see volumes drop off the facilities. And that's just the way the business rolls. So it's not a cause of concern. It's just what I call something cyclical within the quarter.

Right. I know those 21 shows were in the third quarter last year that you referenced?

Yes, net reduction of 21 shows at the T-Mobile Arena, okay? And then in addition to that, we had the seven fewer, including the Mayweather-MacGregor fight in August of 2017, which doesn't repeat itself. And just in that venue alone, that fight alone, we generated significant amount of revenues and profit off of it. So you lose that as well as the number of programs, it ends up having a softening effect, a dampening effect. But again, a temporary effect. Not a long-term effect, a temporary effect. No reason for anyone to overreact to it.

Right. So if I may follow that up. I think in your opening remarks, there was some reference to rate pressure on the leisure side. And one of the dynamics, I think, everyone has started to look a bit more closely at is the inclusion or resort fees and their inclusion being a driver of RevPAR. Could you just elaborate a bit more on what you were referencing there in terms of rate pressure on the leisure side?

Well, I would say that when you do, when you look at every single week, every competitor and how their rates are set, obviously, there are certain entities on The Strip that have more rate pressure than others. They set the umbrella for a lot of properties. So you have different segmentations that are occurring. And so we can't predict what rates will be set or what demand will be perfectly, and so there are people on The Strip that are obviously pricing rates at a lower level and we can't control that. And so in order for us to keep our occupancy up, we obviously have to meet competition. So this is all about looking at everything, for example, on The Strip and determining what the optimal strategy is for the profit of the company. That's what we do every day. So when we see a rate pressure, it means that there are certain entities, and I don't call out competitors on any call, that's for the competitors to discuss and for you guys to look at the rates. But bottom line is we had some rate pressure from similar competitors. And we had, in some cases, matched that and had some softness that we were predicting in the third quarter.

If I can ask one last question on a different topic, which is that you focused, and I know you've made some reference to some of the technology investments that you've made. Can you talk about the degree to which that is a profit driver, and specifically, the discourse in the industry on promotional expenditures and the efficiencies of that? The margin growth that you're getting, how much of that is driven by the technology and its impact on marketing and promotions?

Yes, I don't see we have a precision answer to that for you. But I can tell you that the impact of technology going forward in the company, it will be more significant than it is today. So our margins will actually expand through our technology adoption going forward. The margins that we have today are driven in permanent. They're not temporary, right? So our margins are driven by labor productivity and marketing efficiency, and we still think we have room to grow. So those two factors will continue. And then we have growth now with the Centaur acquisition and realization of the synergies there. We have a lot of other projects, both initiatives in place. But we want to make sure that those growth initiatives, we'll talk about them when they're firm and settled. We do have Dubai, which is an exciting, two facilities opening up actually, Caesars and Caesars Palace, in the fourth quarter, which will help us generate incremental EBITDA. And we have our many, many other projects that we'll be unfolding. But again, we're just out of bankruptcy. I think it's important for everyone to know that, that was October of last year. And the shares are held by a lot of people, an awful lot of people that don't plan on holding them long term. So I think we see temporary weakness from wherever we have strength. We announced a strong quarter, and I think when you see the reaction, a lot of it's built on a lot of people in the stock that aren't in it for the long haul. And we have very high percentage of our shares held by, what I would term, fast money and much higher than normal. Most companies would have, I'll say, 25%. Roughly we have almost 80% of our shares held. So this is an important fact you probably want to remember when we look at the pressure in the shares today, for example. And I think this is a temporary blip that this is a buying opportunity obviously for everyone. And certainly, it's a time in the company where we're actually performing at record highs. And we have record initiatives on our plate that will allow us to even improve more. So I'm excited for the prospects of the company. And for those investors who stick with us, they won't be disappointed.

There are no further questions at this time. Presenters, please continue.

Okay. Thank you, everyone, for joining. We'll talk to you on the next call.

Thank you to all our participants for joining us today. We hope you found this webcast presentation informative. This concludes your webcast. You may now disconnect. Have a great day.