Caesars Entertainment, Inc. (CZR) Q4 2018 Earnings Report, Transcript and Summary

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 Steven Rubis, Vice President of Investor Relations for Caesars Entertainment Corporation. Mr. Rubis, the floor is yours.

Thank you Sarah. Good afternoon and welcome to the Caesars Entertainment fourth quarter 2018 conference call. Joining me today from Caesars Entertainment Corporation are Mark Frissora, President and Chief Executive Officer; and Eric Hession, Chief Financial Officer. A copy of 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 in a form 8-K and we'll also file our Form 10-K. 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, 2017, and Caesars Entertainment Corporation completed its merger with Caesars Acquisition Company, or CAC, on that date. We also deconsolidated the results of the Horseshoe Baltimore in the third quarter of 2017 and closed on the acquisition of Centaur Holdings in the third quarter of 2018. Therefore, U.S. GAAP results do not include CEOC for the first six days of Q4 2017, do not include Horseshoe Baltimore in Q4 2017, and do not include Centaur Holdings prior to the acquisition in Q3 2018 unless otherwise stated. Enterprise-wide results include CEOC in the prior year and include Centaur Holdings in the current year post acquisition and exclude the Horseshoe Baltimore in both years unless otherwise stated. And enterprise-wide hold-adjusted results reflect hold versus our expectation. 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, Steve. And I'll provide a high level overview of our performance in the fourth quarter and full year of 2018 and then give a few updates on our business before turning the call over to Eric to discuss our results in greater detail. First, I'd like to address the recent 13D filing from entities affiliated with Carl Icahn disclosing ownership of 9.78% of Caesars outstanding shares. We regularly engage with our shareholders and consider their ideas and input regarding shareholder value. The board and management have engaged in discussions with Mr. Icahn and his representatives, and we expect to continue a constructive dialogue. We intend to carefully evaluate Mr. Icahn’s suggestions, including his request for board representation and will provide updates in due course. Now turning to the results. Caesars Entertainment delivered another year of solid operating performance driven by our ongoing focus on continuous improvement programs and the realization of benefits from our growth initiatives. This resulted in full-year adjusted EBITDAR growth of 4.6% and the highest quarterly enterprise adjusted EBITDAR margin in over a decade at 27.5%. Key highlights in 2018 include closing the acquisition of Centaur Holdings, announcing high profile sports entertainment partnerships, and expanding our sports betting business to new jurisdictions. We also began construction of the new Caesars Forum Convention Center on the Las Vegas Strip and introduced several new Caesars branded resorts as part of our asset light strategy. For the full year, enterprise-wide net revenues were 8.4 billion, up 2.7% year over year driven by the acquisition of Centaur. Excluding Centaur, net revenues were flat as growth in Las Vegas was offset by declines in Atlantic City due to competitive pressures and unfavorable year-over-year hold at our international properties. The competitive environment in Atlantic City remains challenging due to increased promotional activity from new entrants. Full-year adjusted EBITDAR totaled $2.3 billion and was up 4.6% year-over-year or 1.4% excluding Centaur. Hold-adjusted EBITDAR was $2.3 billion, up 4.1% year over year. Marketing and operational efficiency efforts remained a key driver of performance throughout the year. But domestic marketing costs and labor costs improved in 2018. Domestic marketing costs represented 20.1% of our gross revenue, down 160 basis points year over year, while labor costs represented 23.6% of our gross revenue, down 30 basis points year over year. Domestic marketing performance represented a full year record. Fourth quarter enterprise wide net revenues were 2.1 billion, up 7.4% year over year or 1.2% excluding Centaur as we benefit from an improved demand environment as well as our ability to leverage our casino database in Las Vegas following third quarter softness. Las Vegas RevPAR grew 10.9% year-over-year in the quarter. Strengthen in Las Vegas was partially offset by ongoing competitive pressures in Atlantic City due to the new entrants. Enterprise wide adjusted EBITDAR of 567 million was up 12.1% year over year or 4.3% excluding Centaur. Gains from ongoing efficiency efforts drove performance while we maintained rational and disciplined marketing reinvestment in Atlantic City. Before I turn the call over to Eric, let me provide some key business updates since our last earnings call. Slide 7, the Centaur Holdings acquisition closed in July and performance has been strong post-acquisition as we've realized operational and expense synergies from the integration. Post-acquisition, Centaur’s fourth quarter 2018 EBITDAR grew 21% year-over-year compared to 5% year over year in the second quarter of ‘18 prior to the transaction. Strong EBITDAR growth in the fourth quarter illustrates our effective cost management and ability to drive operating efficiencies in a short amount of time. We remain confident delivering continued synergies and achieving our goal of $200 million of EBITDAR contribution in two full years, which represents an accretive implied multiple of less than six times. This reflects financing the acquisition with the sale leaseback of Harrah's Las Vegas and is inclusive of synergies. Slide 8, recently we announced several partnerships that continue to raise Caesars profile among professional sports fan with both the NFL, Turner Broadcasting, and the Bleacher Report. Building on several successful relationships with NFL teams, last month, we announced an exclusive sponsorship with the NFL, making Caesars Entertainment the first ever official casino sponsor in the history of the league. Caesars holds exclusive rights to use NFL trademarks in the US and UK to promote our casino properties. Furthermore Caesars will be hosting existing customers and attract new customers at prominent high profile NFL events, including the Superbowl, combine, and draft. Following our partnership with the NFL, two weeks ago, we announced a groundbreaking agreement with Turner Broadcasting and sports media hub Bleacher Report to develop gaming theme content for sports fans around the globe. The partnership includes a new Bleacher Report production studio to be built at Caesar's Palace, which will function as Bleacher Report's third national studio. Bleacher Report will produce daily video and social content from Caesars Palace as well as satellite locations at our other Las Vegas properties. Caesars will be able to leverage the strengths and establish media company and access Bleacher Report's over 22 million followers to expand the Caesars rewards database. Caesars, in turn, has also partnered to create four televised specials annually which will highlight Caesars assets and can be used to provide a unique experience for Caesars guest. The deal also includes sponsorship and media opportunities across the Bleacher’s and Turner's content. We are excited to partner with a leading digital destination for millennial and Gen Z sports fans to amplify our sports gaming experience for guests, [indiscernible] professional sports and reach a new generation of gaming customers. We also made further progress developing our sports betting business, our sports book in New Jersey and Mississippi saw solid sequence increases in violence during the fourth quarter. We are creating three sports book locations in Atlantic City with several more in the pipeline pending legislation. In late January, we expanded our sports betting offering to Pennsylvania including a sports book at Caesars Harris, Philadelphia casino and racetrack. In Las Vegas, we continue to test new and innovative sports entertainment experience as part of our broader casino innovation strategy. At the recently renovated The Book at the LINQ Hotel and Casino, fans can find a wide range of experiences including rentable fanbase for sports viewing, eSports, virtual reality games, skill based slot games, LED screens, and soon to become digital table games and an innovative bar experience. Slide nine, our customer database represents an important performance driver for Caesars. Recently, we announced the rebranding of total rewards, our industry leading 55 million member loyalty program to Caesars rewards. The rebranding follows research that demonstrates several important benefits of extending our flagship Caesars brand to our loyalty program. It unifies all properties under the luxury Caesars brand, increasing guest awareness and association of our properties with the brand. The change enables premium pricing through better brand positioning, maximizing the fair share premium earned by our Caesars reward network properties and creates additional value over time by extending our iconic brands to new cities around the world. Caesars rewards allows us to better unify our loyalty members across our properties and regions under our most recognizable brands, Caesars, by leveraging the premium Caesars brand we'll be able to better connect Caesars’ brand standard and brand prestige across our portfolio both domestically and internationally. The new program will offer new ways to earn hotel stays, as well as access to unique special events, including New Year's Eve parties, celebrity golf outings, and fame sporting events. Caesars rewards offer our most loyal customers and opportunity to not only earn points across our global portfolio but also be rewarded with unique experiences. We're excited about this opportunity to strengthen our unrivaled customer rewards program. Slide 10, Caesars continues to make progress on our asset light and non-gaming initiatives. The newest branded property in our Caesars portfolio Caesars Public in Scottsdale, Arizona, which will break ground in the second half of ‘19. The property marks our first non-gaming Hotel in the US as part of our plans to expand our brands and loyalty network into premier destinations through our licensing strategy. Caesars Republic Scottsdale will be located adjacent to the region's premier luxury retail destination, Scottsdale Fashion Square and will be a four-star hotel developed by HCW development and operated by Ambridge Hospitality. This development follows the opening of Caesars Bluewaters Dubai resort in the fourth quarter. I would also like to highlight a recent achievement involving our sustainability efforts CDP, formally, the Carbon Disclosure Project, has recognized Caesars as a leader in our efforts and actions to manage carbon emissions and address climate related issues across our supply chain within the supplier engagement category. Out of the 5,000 companies that participated, Caesars was the only company that was recognized from the gaming sector. I am pleased with our accomplishment in 2018. We achieved a record full year adjusted EBITDAR margin marking four years of margin expansion while achieving record customer service scores and making investments in the company's long-term growth. We once again outperformed our peers in Las Vegas across key performance indicators for the fourth consecutive year which Eric will discuss in more detail. We successfully expanded the Caesars Entertainment Network through the accretive acquisition of Centaur and execution on our asset light strategy, beginning with the opening of Caesars Bluewater Dubai and with more to come in 2019. Also, we made important investments in innovation in our core gaming business and emerging areas like sports betting. In summary, we are successfully executing on the plan that we set out at Emergence and we have a clear path forward to creating significant shareholder value. Eric will review this and our financial results in more detail now.

Thank you, Mark. I'll discuss our enterprise wide fourth quarter 2018 results in more detail. As a reminder, our commentary include CEOC results and Centaur, but excludes Horseshoe Baltimore from the prior year period unless otherwise stated. For the fourth quarter, our Las Vegas net revenue totaled 949 million, up 7.8% year over year due to strong results in our hotel, favorable year over year hold, and lower prior year performance due to the tragedy. Las Vegas’ fourth quarter performance benefited from strength in nearly every vertical including higher gaming volumes, growth in food and beverage, and growth in the hotel segment. Gaming volumes were driven by 3% increase in Baccarat slots and table games. Hotel cash revenue was up 8% year over year. Our RevPAR was $139, up 11% year over year. Cash ADR was $164, up 6% year over year and hotel occupancy was 93.8%, a 4-point improvement year over year. Food and beverage revenue also grew in the fourth quarter driven by the opening of several new outlets including Hell's Kitchen and Pronto by Giada. Our Las Vegas adjusted EBITDAR was 351 million, up 18.2% year over year or up 8.9% when adjusting for hold. Our Las Vegas properties overall performance in the fourth quarter reinforces a story of stability, despite the temporary third quarter results. In 2019, we continue to expect modest growth in Las Vegas, which I'll discuss in greater detail later on the call. We were quite pleased with our Las Vegas performance in both the fourth quarter and the full year 2018. Our Las Vegas results outperformed our peers in net revenue growth, adjusted EBITDAR growth and adjusted EBITDAR margins for both the fourth quarter and in the full year. Other US net revenues totaled $1.0 billion, up 9.3%, including Centaur or down 3.8% on a same store basis. Atlantic City was the primary driver of the same-store decline due to ongoing competitor pressures from new entrants who have significantly increased levels of promotional activity. We estimate these factors had a $20 million impact on EBITDAR in the quarter. Other US adjusted EBITDAR was 320 million, up 10.6% and we estimate it would have been up 1.9%, excluding both Centaur and Atlantic City. In the all other segment, revenues and adjusted EBITDAR were down year-over-year in the fourth quarter. The declines were primarily attributable to unfavorable hold at our international properties and increased costs year-over-year due to our continued IT cloud based transformation and growth initiatives, which are critical to enhancing the future performance of the company. From a liquidity perspective, we ended the quarter with approximately $1.5 billion in enterprise wide cash. We also currently have $100 million drawn on our CRC revolver, resulting in approximately $1.1 billion of total revolver availability. Cash capital expenditures for the year totaled 419 million for same store CapEx, which included significant room renovations at [indiscernible] and 146 million for development CapEx, which included initial spend on the Caesars forum and some South Korea spend as well. Due to our effective working capital management, around $65 million worth of same store CapEx and around $35 million worth of development CapEx incurred in 2018 was paid in Q1 of 2019. Excluding the convertible notes and capitalizing on our cash lease payments at 8 times, our net leverage stands at approximately 5.5 times adjusted EBITDAR and our traditional debt -- net leverage is at around 4.3 times. We completed no further share repurchases and did not pay down any debt in the fourth quarter. While we remain committed to de-leveraging the balance sheet, we felt it was prudent to preserve flexibility, as we evaluate the highest return uses for our cash in 2019. Our focus remains on a balanced capital allocation strategy and we reiterate our gross lease adjusted target of 4.5 times by the end of 2021. Regarding our 2019 outlook, we will provide some quantitative and qualitative information to aid in the understanding of the drivers of the business. We're foregoing providing traditional adjusted EBITDAR guidance range, as we're focused on building and growing the business over the long term. Our operations may face volatility from quarter to quarter, especially in Las Vegas due to several factors, including conference schedules, holidays, entertainment, and sporting events. However, for the full year, Las Vegas and the company in general displayed stable results. For the full year, we expect top line growth in Las Vegas to be in line with what we delivered in 2018. This is reinforced by our group business, which is projected to be up mid-single digits in revenues year-over-year and our rooms on the books currently up 4% year-over-year in Q1. However, we expect EBITDAR flow through in Las Vegas to be impacted throughout the year by a combination of labor headwinds as we contend with the tight labor market and wage inflation, as well as incremental investments in security across our properties. We expect to be able to partially offset these expense increases through ongoing operational initiatives. In the other US segment, we expect growth in 2019 to largely be driven by an incremental $80 million to $85 million of adjusted EBITDAR contribution from Centaur. Recall, we closed on the Centaur acquisition in July of 2018. We expect the ongoing competitive promotional environment in Atlantic City to offset this performance by approximately $40 million of adjusted EBITDAR, half of which is expected to occur in the first quarter. We anticipate the competitive pressure in Atlantic City to moderate beginning in the third quarter once we annualize the effects of the new entrants in that region. We also expect some competitive headwinds at certain of our properties in Midwest as supply continues to grow. Lastly, we continue making important investments in our business to drive future growth, including incremental operating expenses to further expand our sports business and the continuation of our enterprise wide IT transformation. At the same time, we will continue to pursue revenue and cost efficiencies led by our office of continuous improvement, which will seek to optimize cash flow. We expect to continue to utilize our casino database for Las Vegas rooms when additional demand is needed, which is expected to offset certain marketing savings in the other US regions. While we continue to identify and pursue additional marketing efficiency programs, we do not expect to generate the same level of marketing cost savings in 2019 as we did in 2018 company wide. For the first quarter specifically, we expect modest revenue growth in Las Vegas. In addition, similar to our competitors, we experienced the lighter Chinese New Year this year versus last year. We also have experienced some weather related property closures this year in the other US segments due to severe cold weather and snow as well as flooding of certain properties, which is expected to continue in the coming weeks. In the all other region, we expect performance remain in line with the prior year. However, we're focused on reducing corporate costs. They are currently elevated due to our IT transformation and sports betting businesses, and we expect to show improvement later in the year from the current run rate. For CapEx, we expect a range of 375 million to 450 million for same store, which includes room renovations at Harrah's Las Vegas and Paris. This range is down year-over-year as we wind down our accelerated room renovation project. We also expect to spend approximately 475 million to 550 million in development CapEx, which includes the Caesars Forum project and the Korea project and our investments in sports books across the US. We generated solid operating cash flow in 2018 which we have reinvested in improving certain assets as well as pursuing certain growth initiatives. As these investment activities come to completion in 2019, we anticipate generating strong free cash flow of more than $500 million and in 2020, nearly -- sorry in 2020 and nearly double that amount in 2021. We anticipate using our free cash flow for de-leveraging, returning capital to shareholders and pursuing strategic M&A and development opportunities when available. We're now ready to open the line for Q&A.

[Operator Instructions] Our first question is going to come from Chad Beynon with Macquarie.

Mark, just wanted to start with your agreement to remain in your role through the end of April. In the press release, you announced that the process of replacement is still ongoing. Wondering if you or Eric could provide a little bit more commentary in terms of kind of where we are in the process, if there's anything else that you can provide outside of what was in the release? Thank you.

Yeah, I think the best way to characterize it was we’re far along in the process, I mean we've gotten through obviously interviewing candidates and have a very good list of potential candidates for this position. So I think committee would say that feel comfortable with -- that we're far enough along the process that we will be in good shape for the transition to ensure a seamless transition here with me.

Okay, great. And then on the Centaur acquisition, it looks like that was a bright spot here. The EBITDAR that you generated in the fourth quarter was better than I think most were expecting. Eric, you gave some commentary in terms of what you're expecting for 2019. But given that, this multiple appears to be lower than maybe even what you thought at the beginning, does this improve, I guess, your chances on doing more M&A or how should we think about the balance of share repurchase that pay down and M&A going forward. Thank you.

Yeah. We are pleased with how Centaur is performing. As you can see, the EBITDAR was up significantly and a little bit faster in terms of realizing those synergies than we had anticipated. The revenues were generally flat because the marketing programs hadn't yet kicked in and so that should happen in 2019 as we move forward. So we're pleased with how it's worked out. It's very consistent with the model, consistent with what we've said before. We're leaning towards prioritizing debt reduction at this point. However, we are always open for accretive transactions and should those be available and should they make sense from a domestic bolt-on acquisition perspective, we'd certainly look at them and pursue them.

Thank you. And our next question is going to come from Dan Politzer from JPMorgan.

So the first one on Las Vegas, can you give an update on what you're seeing as it relates to leisure and transient demand and I guess have you seen much stabilization over the past six or eight months or has it still been kind of ebbing and flowing with the calendar, the citywide calendar?

I think I mean, Eric and I can both maybe answer this. It's certainly stabilized since the third quarter. So I think it's clear in our demand that we're getting for the business has stabilized and declined and even the rate decline is completely dissipated. But, I wouldn't characterize it as a strong demand pattern, but I would say that it's stable. Eric?

Yeah, I agree. We continue to be able to, as we demonstrated, backfill with casino hotel rooms in periods of weak demand from an occupancy perspective. But I would say echoing Marks commentary that the ability to really drive price is somewhat limited, at least in the fourth quarter and into the first quarter.

And then -- and a question on your rooms in Las Vegas. I guess before you activated the database, your casino block was roughly I think, 40% or so. So, I guess, how did 4Q makes compare with that historic level? And going forward, how should we think about the mix? And is there any expected seasonality with how you activate the database running in certain quarters?

Yeah. There is seasonality and fourth quarter is on the higher end of the normal edge of the casino mix. We ran about 52.5% casino mix in the fourth quarter, which was up from the prior year. To put that in perspective, we had about 62,000 more casino rooms in the fourth quarter than in the prior year period, and that certainly contributed to the 4 points of incremental occupancy that we are able to achieve. Ultimately, we think it was a good strategy as it drove X incremental EBITDAR. And so, as I mentioned, as we head into this year, we'll still be able to use that to backfill on periods of weak demand where we don't think we'll fill the hotel. During the first quarter, however, the group demand across the city and in-house is stronger than it was in the fourth quarter. So, we don't necessarily believe we'll have to comp as many incremental rooms to still achieve occupancy growth.

Got it. And then I guess, one last quick one. Centaur has been obviously tracking better than expected. How should we think about the timing or, I guess, your appetite for still monetizing the real estate there and how should we think about tables playing into that decision?

Yeah. I think it's still probably too early, as we talked about before in an environment where we have some -- the table games potentially coming online and an acceleration of our performance, we would either be selling the property at a very low coverage ratio and growing into it or selling at a price that's not necessarily optimal. So, I think at this point, we are still waiting until we see some more stability in the property because we don't want to sell it at a point where it's growing so quickly.

Thank you. Our next question is going to come from Cameron McKnight from Credit Suisse.

Eric, would you mind giving some more detail on what you're seeing on the cost side and how does that differ between Las Vegas and the regional markets?

Sure. I guess, I'll look at it on our two primary categories of expense, which is labor and marketing. On the labor side, we're definitely seeing incremental labor cost pressures at a higher level than we have in the past years. Company-wide, we're estimating about an $80 million increase and that's associated with simply union wage increases, merit wage increases for non-union employees, 401(k) returning to a normalized match and then health benefits. And in aggregate, it's about 80 million, which as I mentioned is higher than in prior years. So, we have efforts to try to offset that through productivity, but that's definitely a headwind that we'll have to work through this year. From a marketing standpoint, as I mentioned, we do anticipate to have additional comped hotel rooms in the Las Vegas area over the course of the full year. And so we don't anticipate as much of a marketing reduction there. In the regional markets, we continue to believe that there's opportunity to reduce marketing spend. We have a number of programs that we will be launching and affecting second and third quarter and onward. In particular, our sales force application became live earlier in the year. And so those marketing efforts will start to hit the customers in the April and May timeframe, which will help drive down the ultimate marketing costs in the second and into the third quarter.

Okay. Perfect. Thanks. And then on the room side in Las Vegas, there were lot of rooms that were off the market in the fourth quarter. How should we think about those rooms coming back on through the course of 2019 and how should we think about available room nights, just generally speaking in '19 versus '18?

So yeah, for the first quarter, we're going to expect to have about 25,000 incremental room nights available companywide. We'll have fewer available on Atlantic City because we're renovating our hotel tower there, and we'll have about 35,000 more available in Las Vegas in the first quarter. The impact of that is about $4 million to $5 million benefit here in Las Vegas from the incremental room nights available. And then as we go through the years, a year, we will also have fewer -- or sorry, we'll have more room nights available because we're only planning to do two hotel towers this year, hotel tower Paris and hotel tower Harrah's, now that we have caught up on our accelerated room renovation program.

Thank you. And our next question comes from Thomas Allen from Morgan Stanley.

Hey. Thank you. So, just going back to the 2019 guidance you discussed, I think, I checked the transcript and you said that you expect fiscal year results to be relatively stable. Can you elaborate on that? So, you just did $2.3 billion of EBITDA. Should we imply you telling us, you're basically going to do similar in 2019?

I think -- I apologize if the script wasn't clear. We were talking more about the volatility between quarters that if you look at it on a full year basis, it's generally stable. And a great example of that is, if you do a two-year stack of our Las Vegas EBITDAR, it's very consistent within 1% or 2% change every single quarter. So, you can see that a lot of it's affected by holidays and different events like that. What we meant was that our -- we anticipate in Las Vegas that our revenues are going to be roughly consistent with the same growth rates that we saw from this year.

Okay. Helpful. And then for regionals, I mean, you talked about the promotional side of things, can you just talk about how you think about the health of the regional consumer? Thank you.

Yeah. I think the regional consumer from our perspective seems fine right now. In the fourth quarter, we didn't pursue any activities with respect to buybacks or deleveraging because we wanted to be cautious, so that we headed into the New Year with all the signals that you can get from the macroeconomic perspective, but our customers seem generally healthy across the board. We do have the incremental competition that we talked about, which I think is probably the most important factor weighing on our business next year. But otherwise, we would expect these regional markets to be performing at about the same levels in terms of year-over-year improvement as we did this year.

Thank you. Our next question is going to come from Harry Curtis from Instinet.

Hi. Just a couple of quick ones. So, following up on again, the guidance in Vegas. If you have an $80 million labor pressure headwind, I mean, as a practical matter, doesn't that suggest that your EBITDAR in Vegas to -- I mean you're going to need, what, 3% RevPAR growth just to stay flat in Vegas?

The headwind is definitely more significant than we've seen in the past, let's say, four years and it's really a result of, you’re right, Vegas, Harry, that's a big driver. But we had two other markets too that we had to renegotiate labor contracts, so a total of three markets for us, regional markets. And for us, anyways, we think that the first half of the year, because of that headwind, it will be more difficult to get the kind of flow through we normally get out of our business model. But in the second half of the year, we have initiatives in place on labor and in marketing that will help us get better productivity numbers out in the second half of 2019 and be helpful at offsetting that.

And just to clarify, Harry, the 80 million we mentioned was companywide, not just Las Vegas.

All right. And my second question. Going back to the CEO search, can you just talk about some of the attributes that the Board is looking for that are desirable in 2019 and as we look ahead for the next five years, maybe what are the characteristics that are important do you think?

I think the Board has stated that they would like to see someone who's a seasoned executive, someone who has certainly managed through turbulent times, adversity and been able to be tested, if you will, that's an important trait, someone that has experience in hospitality/gaming and related verticals that we participate in, someone that would have a great reputation with investors, someone who would have staying power and be here for the long haul. So, I think those are all traits that we're looking for. And again, feel like the Caesars brand and the opportunity here is big enough, it's attracting a good talent pool for us.

Our next question comes from Carlo Santarelli from Deutsche Bank.

I just want to clarify something. One of the comments you made was that Las Vegas for the year, you expected to deliver top line growth that was similar to your 2018 result. I think it was kind of what -- how you phrased it. So are you -- you're effectively saying, you think 2019, you can grow revenue in and around the neighborhood of 2.5%, which was the revenue growth rate in 2018. Is that correct?

Yeah, I would just say that we should be able to do that or hopefully, we can do a little better.

Okay. So, my question is how much of that do you believe is just overall kind of strip growth and how much of that do you believe relates to your own initiatives and maybe some of the segments of the business that you're levered to? And maybe more specifically, how much of that is based on kind of what you mentioned with respect to your group business, which I think you said was up mid-single digits for the year and obviously, the first quarter being up a little bit?

Yeah, I think certainly having the group base up for both our in-house business as well as the city-wide business on a year-over-year basis helps. As we saw, having the city-wide business certainly helps the environment for all the casinos and allows you to price a little bit better. We also feel that our initiatives that we did in the fourth quarter with respect to the casino database will be effective throughout the year in terms of driving additional improvements. And then, as you know, we always have incremental initiatives both on the cost and revenue side. A lot of them now focused on gaming. We think, again, that there are some innovative products that's coming out, that we're trying on the floor. The sports book that we have at the LINQ is doing quite well. The food and beverage we mentioned before is doing quite well, particularly when the occupancy in the hotel goes up in correlation to the cash spending in the hotels -- sorry, in the food and beverage. And so all of that taken together, gives us the confidence that we should be able to have a top line performance in that range that we talked about.

Okay. Great. And then if I -- so, I guess, if I just ask it a little bit differently. Last year, as you kind of entered 2018, I think you guys talked about, hey, tell me what the rate of growth in the market is going to be and we are going to do X basis points better. You still believe in 2019, there's going to be an outpacing of whatever the market growth looks like based on some of the internal initiatives, is that correct?

I think it's difficult to predict that. I don't -- I'm not saying it won't happen. But as we continue to test and learn with our marketing initiatives and look at making sure that every dollar revenue we get is a profitable dollar revenue, a lot of that comes into play in the mix and in our growth rate. So kind of a, I don't mean to be a long-winded question, but it's a complicated equation for us to predict outperformance without more visibility into the year.

Thank you. Our next question comes from David Katz from Jefferies.

I wanted to go back to the capital allocation discussion and just make sure that I'm taking the information clearly because, Eric, in your commentary, you talked about leaning toward deleveraging but leaving the door open for other options as well. And in the past, you've talked about a longer-term leverage target. What would you have us think about for '19 and '20 in terms of a leverage range, either lease adjusted or non-lease adjusted?

We haven't provided the specific year-end targets, it’s just the end of the 2021 at 4.5 times. We do plan to put that together and discuss it with the new CEO and the Board, and we'll make a decision at that point, probably in Investor Day or some other forum to provide more detail on that throughout the years.

Got it. And in terms of just the appetite for acquisitions in the near term or any pipeline of things that you're looking at? Is it a more or less active pipeline than it was, say, 9 months ago or 12 months ago?

I would say, of the properties that we're specifically interested in, I would say it's a little less active than it was before. A lot of properties have traded hands and then some people have elected not to sell that might have been interested before.

Thank you. Our next question is going to come from Barry Jonas from SunTrust.

Just starting with Vegas. I'm curious if you have any updated thoughts around resort, parking or other fees and an impact on visitation. Maybe what direction do you think those fees will move going forward? Thanks.

I think that at this point, we don't have any current plans on changing the structure that we have in place. And we certainly are sensitive to the fact that we could hurt our own profitability and revenue growth if we get exuberant or if we do things that have no value to them. We tried to -- probably resort fees are actually tied to a lot of services we provide guests at no charge. So the idea is anything that would be incremental, it would be some kind of value that we created as a result of it for the customer. But I think, Eric, your feelings on it, I think were similar. But any comments from you?

Nothing else.

Okay.

Great. And then just touching base on New Jersey and I know it's early days, but maybe can you comment on your sports betting market share in Jersey? Maybe how do you see that ramping going forward? Thanks.

Our sports betting market share, I want to make sure I heard that right. You asked if our share would go up.

Yeah, I think he was talking about market share currently. Yeah. Right now, we don't have any of our books completed. They are under construction. We're optimistic that these are going to be great experiences and we'll take a lot of what we have at the LINQ property here and port those over to Atlantic City. The one thing I would say is that market share right now for us is not necessarily the way that we're going. It could cause significant reinvestment levels to take significant market share. We are profitable with our operations, and we think that we can increase and decrease marketing to try to optimize that. But we're pleased with how we are leading off, being profitable and making money throughout our sports betting intervals.

And I would add that -- in addition to Eric's comments that our plan long-term is to have our fair share of the market through partnerships in some cases. So, at this point in time, we have not completed all of our partnerships. People that, let's say, would have more aggressive marketing directly tied to us, say sports betting that we may or -- and then they may not have access to markets like we have. So, we're looking for partnerships, and we'll continue to do that in order for us to gain our fair share of the market with these partnerships and alliances that were formed.

Thank you. And presenters, you have the floor.

Thank you. With that, we'll wrap up the call. Thank you and we look forward to giving you an update at the first quarter. Thank you.

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