Hello and welcome to today's webcast, Caesars Entertainment Corporation 2019 First Quarter Earnings Call. My name is Leeway, and I'll be your event specialist today. Please note that all lines have been placed on mute to prevent any background noise, and that today's webcast is being recorded. During the presentation, we’ll have a question-and-answer session. [Operator Instructions] It is now my pleasure to turn today's program over to Mr. Steven Rubis, Vice President of Investor Relations for Caesars Entertainment. The floor is yours.

Thank you, Leeway. Good afternoon. And welcome to the Caesars Entertainment First Quarter 2019 Earnings Conference Call. Joining me today from Caesars Entertainment Corporation are Tony Rodio, Chief Executive Officer; Eric Hession, Chief Financial Officer; and Joyce Arpin, Senior Vice President of Finance and Treasurer. 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 will file our Form 10-Q. Before we get underway, I would like to remind you to reference slides 2 through 3, 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 closed on the acquisition of Centaur Holdings in the third quarter of 2018. Therefore, U.S. GAAP results do not include Centaur Holdings prior to the acquisition in Q3 2018 unless otherwise stated. The term same-store refers to the performance of our portfolio of properties prior to the acquisition of Centaur and therefore, excludes all Centaur performance. Also note that hold-adjusted results reflects hold versus our expectations. You can find reconciliations of GAAP and non-GAAP figures starting on slide 21. I will now turn the call over to Tony.

Thank you very much, Steve. And good afternoon, everybody. I'm very pleased to join today's call as the incoming CEO of Caesars Entertainment. Over the course of my 38 plus years in the gaming industry, I've worked on 2 separate occasions at Harrah's, so this is somewhat of a homecoming for me. And I couldn't be more excited to return to lead Caesars Entertainment at this critically important time in the company's history. I have a tremendous amount of respect for Caesars and the incredible team members, who are dedicated to serving our guests and creating value for our shareholders each and every day. Over the course of the last several weeks since my appointment was announced, I have been wrapping up my previous role and beginning the process of transitioning to Caesars. I'd be remiss if I didn't take a moment to thank Mark Frissora for his support in making this transition smooth for me as well as for the company. I will officially take up the new role on May 6. In the meantime, I've had an opportunity to begin to speak to members of the senior management team, and I very much look forward to hit the ground running. I've always employed a commonsense management strategy and in partnership with the leadership team, intend to apply the same at Caesars. At the core, we look closely at activities that we are doing today that do not add value, and I want to eliminate those and begin to looking at things that we can do, new opportunities to create value. A combination of the great team of people here at Caesars along with the company's powerful brands, the Caesars Rewards loyalty program and our diverse network of properties provide a strong foundation, on which I'm confident we can…

Thanks, Tony. I'll provide a high level overview of our performance in the quarter and then give a few updates on our business before turning the call over to Joyce to discuss our results in greater detail. Caesars Entertainment delivered a solid start to the year, driven primarily by a healthy consumer demand environment in Las Vegas and our ongoing focus on operational execution. Net revenues totaled $2.1 billion in the first quarter, up 7.3% year-over-year, driven by the acquisition of Centaur Corporation and a strong gaming, hotel and food and beverages results in Las Vegas. On a same-store basis, net revenues grew approximately 0.9% as strength in Las Vegas was partially offset by the impact of a heightened competitive environment in Atlantic City and inclement weather across some of our regional properties that drove closures in some instances. Adjusted EBITDAR was $562 million, up 8.5% year-over-year or essentially flat on a same-store basis. Adjusted EBITDAR margin improved 30 basis points to 26.6%, driven by both marketing and labor improvements. On a trailing 12-month basis, our domestic marketing costs represented 19.9% of gross revenue, reflecting a 150 basis point improvement year-over-year, while labor costs represented 23.5% of our gross revenues, a 50 basis point improvement over the prior year period. In addition to continuing to improve marketing and labor margins, we achieved record customer experience and service level scores in the quarter. While the majority of the labor-related cost savings that we achieved in recent years has been driven at the property level, where we've reduced headcount by approximately 12% since 2014, in March we completed a corporate cost-reduction initiative. This latest effort is expected to drive approximately $40 million in annualized cost savings. Through the combination of this effort, along with additional efficiency gains across both marketing and labor…

Thank you, Eric. I will discuss our first quarter results in more detail. Please note that our consolidated results include Centaur unless otherwise stated. For the first quarter, we again delivered strong results in Las Vegas, where a healthy consumer demand helped us generate net revenues of $955 million, up 5.8% year-over-year with strength across all verticals. Las Vegas cash hotel revenues grew 7.9% year-over-year with occupancy up 250 basis points to 95% and RevPAR increasing 4.9%. Overall, positive hotel performance was the result of strong group demand, which saw double-digit room night growth and increased leisure demand from growth in direct bookings at caesars.com. The increase in occupancy provided a lift in performance for all business verticals in the Las Vegas segment. Las Vegas gaming revenues increased 6.6% year-over-year due to favorable hold and improved slot volume. Strong revenue growth was partially offset by a decline in table game volumes notably in baccarat as we experienced a softer Chinese New Year versus last year. F&B revenues were up 5.4% year-over-year, primarily due to overall demand from higher hotel occupancy levels, new outlets being fully online and increased banquet revenues. Las Vegas adjusted EBITDAR totaled $360 million, up 12.1% year-over-year or up 3% on a hold-adjusted basis as favorable hold contributed between $25 million and $30 million. Adjusted EBITDAR margin expanded to 37.7%, up 220 basis points year-over-year, driven by higher revenue growth in a high-margin gaming and hotel verticals. Turning to the other U.S. segments, net revenues totaled $1 billion, up 9.1%, including Centaur, or down 4.5% on a same-store basis. First quarter results were positively impacted by the inclusion of Centaur but partially offset by continued competitive and promotional activity in Atlantic City and extreme weather across our regional portfolio. Our Metropolis and Horseshoe Southern Indiana properties experienced…

We have your first question coming from the line of Carlo Santarelli from Deutsche Bank.

Mr. Rodio, congratulations on the new role.

Thank you very much.

You guys, obviously -- Joyce, certainly a lot of -- very helpful color here around Las Vegas and trends here over the near term. Obviously, there's been a slew of mixed messages coming out of Las Vegas over the broader part of the last year plus. And I was hoping maybe you guys, with a little bit of a different perspective, maybe a little bit of a different business mix in the current environment where it seems as though the high end is what's currently seeing the most pressure, could talk a little bit about what you're seeing beyond, obviously, some favorable demand dynamics and some favorable group dynamics, what you're seeing just broadly that gives you confidence in kind of the near- to medium-term outlook?

Carlo, this is Eric. I would echo your comments that, in general, we believe that the environment in Las Vegas is quite solid. It does have volatility between quarters, as Joyce mentioned, due to shifting holidays and different events. But broadly speaking, we're seeing very good traction on the group side. We're also seeing solid demand from the FIT side and the transient side. As you saw, our occupancies were up 250 basis points to 95%. So there's clearly demand coming in for the hotel and the hotel side. As we look into Q2, we currently have approximately 150,000 non-group room nights on the books, more than the same time last year. So we continue to experience strong hotel demand and believe that, that will translate itself into incremental food and beverage and gaming demand. The patterns for the year continue to be relatively strong. And I think, in general, we are certainly, as a company, more bullish on Las Vegas than I think the overall perception of certainly some in the investing community.

Eric, that's very helpful. And just if I may, back in the fourth quarter what we spoke and you talked a lot about 2019 and trying to more or less baseload, and it seems like, obviously, in the first quarter you've achieved that, in the second quarter you just mentioned a 150,000 non-group room nights already on the books, up year-over-year. As you think about kind of the second half, is that agenda to really get out in front and kind of baseload still part of the playbook right now for the company as you look beyond, kind of, 2Q?

Yes. That's exactly right. We feel that the efforts we started in the fourth quarter and certainly it carried through into the first and second quarter, have performed quite well. You can see the evidence in the occupancy as a headline number, but it -- you'll also see increases in food and beverage and other ancillary spend. We also think that it's better from a risk management perspective because if there are shifts in the economy or we don't anticipate certain gaps from an entertainment perspective having that room nights on the books earlier in the bookings cycle, certainly, we believe, is a better strategy and do anticipate continuing that throughout the course of the year.

And then, if I may, just one follow-up question for Joyce. I know you said 2Q revenues in Las Vegas you felt they would be broadly in line with 2Q ‘18 in the period. You then reminded us a favorable hold last year in the period in Las Vegas. Was there another tidbit that you kind of mentioned that we should be mindful of in 2Q that I might have missed there?

Just the continued cost pressures we faced in the quarter will continue into second quarter here in Las Vegas. As you recall, we renegotiated our union contract late last year. So the year-over-year increase in those union wages you'll see in the second quarter.

So, broadly comfortable with 2019 margins staying flat, but 2Q a little bit of pressure and 1Q, obviously, nicely ahead year-over-year, is that accurate?

That's right.

Your next question comes from the line of Dan Politzer from JP Morgan.

So, my first question is on the regionals and [technical difficulty] in your last call, you mentioned you were launching a number of programs around this time that I think more effectively -- you could more effectively market to your customers. Have you rolled these out yet? And if so, how should we think about the impact of these going forward throughout the rest of the year with respect to the opportunity to reduce your marketing spend?

Yes. We're continually evaluating our various marketing campaigns. We do a lot of test and control, and we make efforts to really identify the elasticity of a particular customer or customer segment so that we can tailor the marketing reinvestment to those customers. We were successful in reducing our overall marketing spend for the company despite having slightly higher marketing spend in Las Vegas due to the increased comp expense. But overall, we were continuing to reduce marketing. We're now below that 20% level, when in 2014, if you remember back, we were around 24%. So we successfully cut it by 400 basis points. There is some technology that we have coming. We recently enacted sales force, which as we continue to put that into production phase and use it for more campaigns, that will help us to do even a better job with respect to the targeted marketing.

And then, with sports betting, I know you guys have the -- you guys operate in a few different jurisdictions, some brick-and-mortar, some online mobile and brick-and-mortar. I guess can you talk about some of the trends and maybe differences between the markets you're seeing and, I guess, the impact on your properties there?

Sure. We, as you know, the different states have different rules and opportunities to accept sports betting. In New Jersey, we currently have both sports betting at the properties and also online. We're finding good uptake online, and we're also finding that those online customers when they sign up on sports betting are also shifting over into our other online products. So it's a good acquisition tool. For the property betting, we haven't opened our permanent sportsbooks yet. We're opening one on the boardwalk in the middle part of this year. And once those happen, we expect to see much larger increases in terms of the bets taken at the properties. That coincides with similar reaction to what we're seeing in the Mississippi sportsbooks. Those sportsbooks are definitely driving traffic to the properties. Our nongaming beverage and food spend is up, particularly during events where you have high concentration of sports betting people in the properties. But those are proving to be traffic drivers. And then as we mentioned in our remarks, we're very optimistic about the other new states that are either pending with legislation or are currently debating it that ultimately this will be a great traffic driver for our casinos in the regional markets.

We have your next question coming from the line of Chad Beynon from Macquarie.

Eric, I wanted to start with just free cash flow. I know during the past couple of calls, you've given some general targets in terms of kind of how the model looks in the next couple of years and now given some of the corporate cost changes and CapEx shifts, I was wondering if you were willing to provide just some general targets for free cash flow in the next couple of years, and if anything has dramatically changed since prior calls?

Yes, sure. I would think at this point, our guidance from a free cash flow perspective is the same as it was in prior periods. The improvement in our EBITDA through the cost-cutting will add marginally to that. But our target is to still have roughly $1 billion of free cash flow in the 2021 period, and it'll ramp up considerably starting next year once the CapEx spend for our convention center slows down in the early part of next year.

And then, on Atlantic City, how is the competitive environment looking? Has the new competition kind of taken their foot off the marketing accelerator? And have you adjusted your business model at all? So if we see the same type of marketing in the higher seasonality quarters 2Q, 3Q, your business could look different?

Yes, we are not seeing much of a change right now unfortunately in terms of the competitive environment in Atlantic City. The first quarter and the fourth quarter are the low seasons in terms of the demand to the city and that certainly impacted us considerably. We are anticipating much stronger demand in the summer months. And as you saw in the third quarter last year, we performed quite well despite the competition, but from a reinvestment perspective, it's still quite high. We have modified our strategy a little bit as we headed out of the first quarter, and as we're entering the second quarter, we've increased our investment modestly. As a portfolio, we were investing about 300 basis points behind the rest of the market and we felt that it was a suboptimal from an EBITDA perspective and so we increased that slightly.

We have your next question coming from the line of Harry Curtis from Instinet.

Joyce, just going back to the comments you made about the second quarter, you throw all of this into the cauldron and it would seem that it would be at least in Vegas sort of heroic to get to last year's EBITDAR number? Is that right?

Yes. Again, that -- it was a record quarter last year, although we still are very bullish on the market and the demand environment and our ability to tap our database, it's going to be tough to meet those figures from a year-over-year perspective. That's right.

And then in the regional markets, we've seen some companies report their regional results. Can you talk about March and April, particularly, did you, to the extent that you lost business, oftentimes it comes back in 30 to 60 days, did you experience that in March? And then, we've heard some positive rumblings about April as well, a little color on that would give us some sense of the sequential lift, particularly in those markets that were challenged by weather?

Yes. Harry, this is Eric. I would say that March was certainly a good month for us. I think it could be a combination of the pent-up demand that you mentioned from the shutdowns and the weather in February, but also the tax returns came in from the federal government and really hit -- accelerated into that March period. So either way, the conclusion was correct that the quarter for us improves in that March period. And then April has kind of continued to be reasonably solid relative to the prior year periods.

We have your next question coming from the line of Shaun Kelley from Bank of America.

Just maybe to dig in on the labor environment, I just wanted to clarify, were the cost -- the union contract, did that go into effect at the beginning of the first quarter in Las Vegas? Or is that -- does that actually kick in, in the second quarter? I couldn't quite tell given the cadence that was alluded to?

Yes, it was in the first quarter, Shaun. And in addition to just the union contract, we had some other headwinds, such as our 401(k) that we mentioned earlier and some medical costs that affected the broad employee base as well. But all of that compounded, we were successfully able to offset it as you saw a reasonably good flow-through in the company in aggregate in the first quarter.

And then, it's sort of the same question, but if we think about the core regional environment and you guys talked a lot about the -- what you've been able to accomplish on the marketing side, but just what's sort of the -- like labor or cost or operating leverage standpoint, let's call it, in the core regional operations and strip out Atlantic City and the outliers, Atlantic City and Centaur for us, just what you're seeing right now sort of cost growth in those markets? And what are -- what kind of headwinds are you fighting, or is it pretty benign?

I think it's market-by-market in the Midwest. There's certainly labor pressure as well, but a lot of it is stemming from -- basically a lack of labor. We're having difficulty finding great talent in a lot of these markets and as a result, that pushes up the price of labor, but it is very market specific.

Your next question comes from the line of Thomas Allen from Morgan Stanley.

So just on the high end of Vegas, can you just remind us what your baccarat exposure is? And did the -- the weakness you saw around Chinese New Year, has that extended into the second quarter? And is it a handful of players that have gone away? Or is it kind of broad-based?

Yes, sure. So, we really only take the ultrahigh-end international business here at Caesars Palace. We get a little bit of crossover play at Paris, but it's predominantly a Caesars Palace effect. We generally have between 15% and 20% market share in that big box number in Las Vegas. And so it's -- I believe, it's a little less than some of our peers because we only offer that product really here at Caesars. Broadly speaking, I would say that it's -- customers both came with less frequency and then also when they were here, they spent less. So it was both effects and it was kind of throughout that first quarter and even into the second quarter to some degree. However, I would say, in the second quarter, there's just not as much concentration normally so it doesn't have as big an impact.

That's helpful. Any way to say how much of like how the quarterly cadence of baccarat is or mixes of baccarat and then just a follow-up question, last quarter you guys said you account for -- you counted 2.5% market growth for Vegas this year. How do you feel about that after seeing first quarter results?

Yes. I don't have the quarterly fluctuations of the baccarat play. I think the best thing to do would be to look at the LVCVA or the gaming board reports and you can see what the market does and we generally trend with the market because it does tend to come over holiday periods. So from that standpoint, that's probably the best answer. And then in terms of our expectation for the full year, our view companywide was that our performance in this first quarter was generally right on kind of where our expectations were. So we haven't varied any of our full year projections at this point.

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

Just going back to the marketing spend, what does your analysis show in terms of your metrics of marketing efficiency versus some of your peers in that, do you spend more? Do you spend less? And when you think about your margins on, I guess, a tax adjusted basis regionally outside of Vegas, where else do you see opportunities outside of marketing versus the peer set?

Yes. I think, you have to look at it market-by-market. In general, where we do have good evidence as to what others are investing, we tend to be slightly below, I mentioned in Atlantic City, that one's probably the -- has the best disclosure from a state perspective as in terms of what everybody spends, and so that's the best evidence that we have. On a tax rate adjusted margin perspective, we also tend to run on the regional markets kind of right in line with some of the peers. It tends to be more driven by whether you have a hotel and your table gaming component, however, since those are really the labor drivers in those regional markets. And then, as you know, we do lead the strip fairly considerably now in terms of margin relative to the destination here in Las Vegas.

Okay. And then just switching gears to CapEx. If I look at your slides, you are now talking to a cash CapEx number, rather than before I think you had a GAAP CapEx number with a difference of $140 million. Maybe you can help me understand the thought there? And then also in the footnote of that slide, you made reference to remaining cash for Korea should the project continue. Am I reading too much into that comment? Or is there an expectation that this might not happen?

Yes. For the first portion of that question, the reason we're reporting the cash CapEx and also referencing the GAAP definition is because of the Korea project. We consolidate that from a GAAP perspective and what we were finding was that it was -- and both analysts and investors were asking a lot of questions and having some confusion about how that impacts our actual cash flow. So the way the project works is that our partners and Caesars invest capital, and we're going to be raising debt financing. So the amount of cash impact to us is what we wanted to highlight to investors. So that was -- it was meant to try to provide some clarity as to our actual cash deployment. In terms of the project itself, as you know, this is a development project in Korea. We have to secure financing. We have to get agreements and have the project come on budget, and so there's always risk associated with any project of that type, and so we just wanted to highlight that as well.

And we have your last question coming from the line of Barry Jonas from SunTrust.

Just digging into that marketing efficiency a bit more. I think it's been roughly around that 20% mark for three quarters now. Do you think you can continue the pace of improvements you've been able to capture over the past four years or at a certain point, do you run the risk of going too deep?

I think, we are always trying to improve the way that we can market to customers. I think that it would be unrealistic to assume that we can continue the same pace of change that we made over the last 4 years. We did change fairly dramatically the amount that we were giving back to the customers. As we mentioned in Atlantic City as an example, we believe that we can make slight -- more money by slightly increasing our investment to certain segments relative to where our competition is. So, not all of our efforts are designed towards reducing modeling. There is a balance; it just tends on that to be down. Certainly, the technology that we have coming out is going to be able to enhance that. We also have some greater insights into how customers react to the marketing changes that we'll be able to roll out. And so you should expect to continue to see improvement along these lines, but it won't be at the same pace that it was for the last 3 years.

Great. And then just a question on the maintenance CapEx. Beyond the hotel renovations, you're still having the work. So there are any other areas of meaningful deferred CapEx that you think need to be addressed over the next few years?

No. We don't think that there's anything specifically like there was with the hotel rooms. You can always improve your properties' food and beverage and you can always improve the appearance of the floor and add new slot machines and we try to do that on a measured basis. Right now, we think that we're in a good situation where the continued spending of around that $500 million a year mark is sufficient to maintain all of the properties. We'll be evaluating that and having discussions with Tony as to what the expectations are going forward. And there may be opportunities to invest more into certain markets where customers are willing to spend more with us in return for enhanced capital.

Great. Congratulations, Mr. Rodio.

Thank you very much.

Thanks, everybody. That concludes the call.

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