Ladies and gentlemen, thank you for standing by. And welcome to the Caesars Entertainment Incorporated 2021 Second Quarter Earnings Conference Call. At this time, all participants lines are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the call over to your speaker today, Mr. Brian Agnew, Senior Vice President, Corporate Finance, Treasury and Investor Relations. Please go ahead.

Thank you, Boena, and good afternoon to everyone on the call. Welcome to our conference call to discuss our second quarter 2021 earnings. This afternoon, we issued a press release announcing our financial results for the period ended June 30, 2021. A copy of the press release is available on the Investor Relations section of our website at investor.caesars.com. Joining me on the call today are Tom Reeg, our Chief Executive Officer; Anthony Carano, our President and Chief Operating Officer; and Bret Yunker, our Chief Financial Officer. Before I turn the call over to Anthony, I would like to remind you that during today's conference call, we may make certain forward-looking statements about the company's performance. Such forward-looking statements are not guarantees of future performance, and therefore, one should not place undue reliance on them. Forward-looking statements are also subject to the inherent risks and uncertainties that could cause actual results to differ materially from those expressed. For additional information concerning factors that could cause actual results to differ from those discussed in our forward-looking statements, you should refer to the cautionary statements contained in our press release as well as the risk factors contained in the company's filings with the Securities and Exchange Commission. Caesars Entertainment undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after today's call. Also during today's call, the company may discuss certain non-GAAP financial measures as defined by SEC Regulation G. The GAAP financial measures most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on the company's website at investor.caesars.com by selecting the press release regarding the company's 2021 second quarter financial results. Starting with our earnings press release today, we are now breaking out sports and iGaming into our new Caesars Digital segment. This segment includes sports betting, iGaming and poker. And finally, as we mentioned in our press release today, we have divested London Clubs, so starting in the third quarter of this year, our former Managed and International segment will just reflect our managed operations on a pro forma basis. I will now turn the call over to Anthony.

Thank you, Brian, and good afternoon to everyone on the call. The second quarter of 2021 represented a consolidated EBITDA and EBITDA margin record for the company. Starting with Las Vegas, demand trends accelerated meaningfully versus Q1. We generated $425 million of adjusted EBITDA in the quarter and $436 million of property level EBITDA excluding real rent payments. EBITDA improved 162% on a quarterly sequential basis. EBITDA margins were 50.9% excluding the real rent payment, up 1,200 basis points versus Q2 of 2019. Total occupancy for Q1 was 89%, with weekend occupancy 99% and mid-week occupancy 85%. We delivered these outstanding Las Vegas segment results despite operating with capacity and social distancing restrictions for the first 2-plus months of the quarter. In addition, we had minimal group business and weak table hold in the quarter. Looking ahead, we remain encouraged by booking trends for the second half of '21 and into 2022. We're expecting groups to start returning to Vegas with each month getting better as we progress throughout the second half of the year. Group and convention revenues on the books for the second half of '21 versus '19 are currently pacing up approximately 18%. 2022 group revenues on the books are pacing up approximately 15%. CAESARS FORUM continues to exceed the original underwriting expectations with over 176 events booked currently representing 1.7 million room nights and $657 million of revenues for all future periods. 76% of this business is brand new to Caesars. Turning to our regional markets. Operating results improved significantly versus Q2 of 2019 with EBITDA growth of 56%, excluding Lake Charles, which remains closed. EBITDA margins in our regional segment were 40.4%, excluding Lake Charles, and expanded 1,280 basis points versus Q2 of '19. On a same-store sales basis, we achieved the highest EBITDA and…

Thanks, Anthony. Good afternoon, everyone. When I spoke last quarter and threw out that I'd expect us to hit $1 billion in EBITDA in a quarter in 2021, I wasn't thinking it was going to be second quarter. I was actually thinking it would be this quarter. So we're a little bit ahead of schedule. As you look at the quarter, Anthony touched on some of this, but remember that particularly with mask mandates coming back in Nevada, remember, the Las Vegas numbers that you're looking at included a little over two months of social distancing, restricted occupancy and masks, restricting occupancy in restaurants and on the casino floor plus masks, and we were able to put up the numbers that we put up in the quarter. If you think about drags in the quarter, we held poorly in Las Vegas, the loss from the London Clubs business flowed through in the quarter because we didn't close the transaction until the middle of July and Lake Charles was closed for rebuilding post the hurricane. The drags that I look at in the quarter were about $40 million in aggregate versus what you would expect to see normally. We were 89% occupied in Las Vegas. If you look forward -- if you start in May, May was the best month in the history of Las Vegas for Caesars from an EBITDA perspective. June was better than May, and then July was better than June. And I would expect that third quarter occupancy will finish significantly ahead of second quarter's 89%. Brian touched on the way that we're presenting our financials. Now you can see Caesars Digital on its own, you'll be able to measure our progress. I'll talk a little more about that in a moment. You'll be able to see…

Thanks, Tom. Our record-setting operating performance in the second quarter generated over $500 million of free cash flow, which, in turn, we applied to retire our remaining convertible debt and make a onetime payment to acquire the license rights for Planet Hollywood in Las Vegas in perpetuity. This combination of debt repayment and license fee buyout results in over $40 million of annualized free cash flow and set the table for further free cash flow benefits from deleveraging and refinancing activity. With investment plans for Caesars Digital now formalized, our 2021 calendar year capex moves to $500 million to $550 million, which includes approximately $100 million for Caesars Digital and acceleration of spend in New Orleans. Net of growth capex, our annual core capex remains approximately $400 million. We commenced the sale process for William Hill's non-U.S. assets in the second quarter and expect to announce the transaction no later than early Q4 of this year. With that, I'll turn it back to Tom.

Thanks, Bret. Boena, with that, we'll turn it back to you for question and answers.

Thank you. [Operator Instructions] Your first question is from Joe Greff of JPMorgan. Your line is now open.

Good afternoon, guys. Congratulations on the strong results. First question, Tom, is for all of you, going back to Las Vegas. If you look at sequential flow-through in Las Vegas, it was about 75%, which is remarkable and just seeing 50% margins on a page is also sort of remarkable. Can you talk about -- is there an operating expense lag relative to revenue recovery? And if there is, is there -- typically with respect to labor, is there a way to quantify that?

The answer to your first question, Joe, is no, not really. I mean, we're having challenges across the country in terms of filling available positions but to the extent that we sell them, we're also seeing revenue lift. As I said, July was stronger than June, which was stronger than May. So I'd tell you Vegas margins in July were stronger than they were in the second quarter. So I think you should expect us to be in that 50% neighborhood for the foreseeable future.

Great. And then, I think, one thing that stood out to us in the quarter as well, Tom, was digital was positive EBITDA even with the investment. Is there a way that you can sort of think about how the next few quarters -- I know you're trying to build the business, and I heard the level of investment over the next 2.5 years. Do you think you could successfully invest and still be EBITDA positive each and every quarter? Or do you really look at it starting now with the new launch before you reap the benefits of incremental EBITDA that you'll see a little bit of an EBITDA loss before you kind of get to those great returns that you're targeting?

You should expect digital to be a material EBITDA loser starting this quarter as we -- we're launching -- in addition to all the customer acquisition activity that we intend to do, we're launching a new brand. So you're talking about a nationwide advertising campaign in addition to everything you do, in social. So you're talking about TV, both national and local, and some expensive markets, I would expect to be -- you should expect that $1 billion plus of spend to run through that EBITDA line over the next 2.5 years or so, and it should be front end. You should expect digital to be a material EBITDA loser starting this quarter as we -- we're launching -- in addition to all the customer acquisition activity that we intend to do, we're launching a new brand. So you're talking about a nationwide advertising campaign in addition to everything you do, in social. So you're talking about TV, both national and local, and some expensive markets, I would expect to be -- you should expect that $1 billion plus of spend to run through that EBITDA line over the next 2.5 years or so, and it should be front end lead [ph].

That's helpful. Thank you.

Your next question is from Carlo Santarelli of Deutsche Bank. Your line is now open.

Okay. Thank you. Tom, kind of a bigger picture question and really just playing on the success you guys are having right now. Obviously, 90% occupancy in July, 89% in the quarter. The EBITDA numbers you're putting out, the margins you're putting out. I guess, Las Vegas as a market has migrated more towards group convention business and whatnot. Has this period made you guys at all think about the go-forward strategy and the use of kind of group and convention type elements to fill rooms just given how strong it is at this point? I mean, you talked about some of the tailwinds, obviously, that you still expect to see coming out of the business. Have you guys thought about at all the way the model is configured in terms of room night mix on a go-forward basis?

Yes, Carlo, that's a good question. I would say, as you know, we're a company that kind of lets the math dictate what's the correct path to go down. I fully expect that, that convention customer coming back is going to help us in terms of rate compression. And when you see what's missing even running 89% versus what was two years ago, 97%, 98%. It's an extraordinary amount of EBITDA that's left on the table. So I think there's absolutely a significant addition as that group business comes back, it is heartening to see what we can do without that business, though, because in the second quarter, we had very little group business to speak of. Nothing that's even statistically significant, and we're still able to post the best quarter that Caesars had ever posted from an EBITDA perspective.

Understood. Thank you. And then if I could just follow up. You talked a little bit about kind of what I think the way I interpreted your comments was a stabilized Caesars Digital business that was doing $500 million to $1 billion of EBITDA at some point in the future. Just holistically, as you think about those numbers, what do you kind of envision as a mix between kind of the iCasino piece versus the sports piece? And how do you think about the 2?

I mean I think that -- if I'm looking at the current landscape, I think that they -- in the time frame that I'm thinking of, I think they end up fairly evenly split because there's fewer iCasino states available than there are sports. On a per state basis, I think iCasino is considerably more profitable than sports.

Great. Thank you very much. That's helpful.

Your next question is from Barry Jonas of Truist Securities. Your line is now open.

Thank you. Tom, your comments on July sound incredibly strong, but I just want to be very clear around the increasing cases for COVID and specifically the new Nevada mask mandate. Any impact to the outlook or timing for Vegas recovery, whether that's group, international? Just want to get any color there.

Yes, Barry, this is all real time, right? The mask mandate came into being less than a week ago. What's going on now with the mask mandate is far less onerous in terms of restrictions that we have dealt with in the last quarter. I don't know what impact that will have ultimately on groups coming back. we had the widely leaked internal memo last week on cancellation rate, which I should hit on that what that measures is a week's worth of reservations. If I get 10,000 reservation and 4,700 cancellations, that's a 47% cancel rent versus what's typically 27%. It's not -- we went from 98% occupancy to 50% occupancy. So we fully expect to remain in the low to mid-90s of occupancy in Vegas through this current situation with the Delta variant.

Got it. And then just how are you thinking about land-based expansion here? Whether that's Florida? Chicago is always out there. And I know you're starting to do something in Nebraska.

So I got no interest in Chicago. Florida we already operate in Pompano. We've got a significant joint venture development that's still churning at that site. Nebraska was a unique opportunity in that we have significant operations in Council Bluffs right on the Nebraska border. That would be impacted by Nebraska utilization and doing the Columbus track allows us to participate in sports and online to the extent that we're able to in that state. So for a modest investment in entry into a state where we think we can get a good return out of that investment, that was a very easy decision.

Perfect. And thank you so much and congrats for winning the billion..

Thanks, Barry.

Your next question is from David Katz of Jefferies. Your line is now open.

Hi, good afternoon everyone. Thanks for taking my question. I appreciate it. Look, we've been walking around with a $10 share free cash flow bogey for seemingly quite some time. How do we think about -- given the pieces and the way the table is set now, where it could go from there in some qualitative way? I'm not necessarily asking for a guide.

So we're still missing group business in Las Vegas. We still see plenty of opportunity in the portfolio in terms of areas where we could tighten up. So if you think about it in broad terms, I've got to do about $4.5 billion of EBITDA out of the bricks-and-mortar business to be $10 a share in free cash flow. I told you that we're significantly in excess of that at the current run rate, and we see further upside from there. Did I lose you, David?

You did for a moment, and it's much more likely on my side. If I may -- just work from home. So look, if I may follow up, please, with respect to labor, it's been an area we've all been hearing quite a bit about and reading quite a bit about in hospitality and the challenges of engaging people and the costs thereof. Not sure if you've talked much about that, but how do you see that? And we've heard less of a problem in Vegas than other places. But how much of an issue is that in the course of your day?

I don't think it's less of an issue in Vegas, I think it's an issue everywhere. And I'm sure our friends at MGM will concur tomorrow or later this week. It's difficult to find enough frontline employees and it does impact what you're able to do, and we're behaving as if there isn't some magic date where it's all going to be better. We're hopeful that as unemployment -- supplemental unemployment rolls off that the picture will get better. But we're doing incentives. We're raising wages. We're doing job fairs. We're doing referral bonuses. We're doing everything we can to find as many employees as we possibly can. It's in a regional property. It tends to be easier because you're not hotel dependent. So whether I have 300 hotel rooms open in a regional property versus 175 really doesn't make a huge difference in materiality to my EBITDA. In Las Vegas, that's an entirely different animal. So we are -- our teams in Las Vegas are doing a fantastic job of managing through this, but it's -- there's a lot of stress in the system, and there's times where we've got to pull back on the throttle to make sure that the customer experience endures.

Perfect. Thank you.

Your next question is from Steve Wieczynski of Stifel. Your line is now open.

Yes, good afternoon guys. Tom, so if I start with the digital side of things. Obviously, we've seen all these sports betting companies out there, and they're spending like crazy to try and gain market share, and now they're going to have new guys out there throwing around a decent amount of money as well. So I guess the question is, what gives you the confidence that the $1 billion spend will eventually turn into $2 billion or some higher number if the competitive environment stays pretty cutthroat at this point?

Steve, if it turns into $2 billion, we're having a very good experience in terms of gathering customers because away from this initial brand launch, most of what you're doing ends up being success-based as you bring new depositors into the system. And look, my view is this is a unique situation in that you've got a bit of the Wild West where things opened up quickly and everybody is looking for where the customers are. If you look at the companies that have very large databases coming into this or even look at the ones that have been successfully converting smaller databases, it's because they know where the customers are. We've got over the 60 million people in our database. We have the wherewithal to serve the highest-level customer down to the lowest-level customer. We have a well-developed rewards program in place that treats customers to increasing levels of service as their value to us increases. That's all -- that mousetrap has already been built. It's never really been used in the sports business anywhere, a, because you have companies that are off to quick starts here that just don't have that kind of database and that kind of system. And you've got others like us that are kind of just getting our ducks in a row. But I look at it like we can create -- if we lean into this appropriately, we've got 54,000 salespeople in our company that work it with customers every day can open accounts. We have dedicated player development executives that deal with building relationships and expanding those relationships every day and have for decades. We have physical experiences that we can offer and tie into that business that I think position us well ultimately for success. And that's not to say that others are not going to succeed or that our path will be, as I said, just straight up. But I think we've got everything we need to be a success in this space, and we really kicked it off yesterday.

Okay. Got you. Thank you for that. And then if we go back to the margin side of things, it seems like you think current margins are pretty sustainable even down the road as the world hopefully goes back to normal. But what's the biggest delta that you guys are seeing today to drive those margins so much higher relative to pre-pandemic times? Is it one or two things? Or is it 100 different things? Or is it just as the businesses were closed down that gave you guys a chance to look at every single thing under the roofs? Or is it -- the previous management teams were just so inept?

Well, I'll leave the inept comment alone. But everything else that you laid out there is a piece we operate with less labor than we -- than the historical company operated with both at the property and the corporate level. But it's really the attention to detail, the focus on every P&L. I'll give you an example. This quarter, we were cash -- operating income positive in food and beverage for the first time in the history of Caesars. So just on a quarter-over-quarter basis, that's over a $60 million cash swing. So that's $0.25 billion a year. And that's how are you pricing your product? How are you yielding it? How are you managing your labor? How are you managing your marketing? And what are you giving away? It's all sorts of different areas that roll up into big numbers. We're a big company now. So 53 properties if everybody finds $5 million, it's a $0.25 billion. And we have historically been a good company at $5 million bucks.

Okay great. Thanks I appreciate it.

Your next question is from Thomas Allen of Morgan Stanley. Your line is now open.

So as we think about the digital business, as the market matures, customer acquisition is becoming less of a driver in product picks up some of it. You launched your new sportsbook yesterday, the new app. Can you just talk about some of the key features of it?

Bret, do you want to take that?

Yes. We encourage you to download and experience it yourself, but it has very deep betting markets. It's very fast, the UX is great. Again, it's going to tie into Caesars Rewards here. And we think it's a best-in-class app looking at funding and withdrawal and the clarity for any sports better. And then you layer on top J.B. Smoove and a great marketing campaign and tie that together not only online but across our brick-and-mortar portfolio, and we like our digital mousetrap.

Perfect. Thanks Bret.

And then just a numbers question. So when you announced the William Hill deal in 2020, you said you expected sporting betting and iGaming to deliver $600 million to $700 million of revenue in 2021. Is that still a good baseline? Or how are you thinking about it?

Thomas, with the rollout of the Caesars Sportsbook yesterday and our new strategy for marketing and investment, I think promos, so net revenue could be below that $600 million to $700 million as we invest in the business. But it doesn't diminish from the long-term growth opportunity at all. But relative to that initial $600 million to $700 million, our attempt to increase and be more competitive in the market could impact that net revenue line this year.

Yes. That was the business in the -- in the world where it was kind of just wandering in the wilderness without the way to the business behind what's changed yesterday.

I will say we're $260 million year-to-date. Obviously, we're coming into the seasonally strongest period. So you should see those revenues start to accelerate into the all-important Q3.

Alright. Thank you all.

Your next question is from John DeCree of CBRE. Your line is now open.

Hi to all. Thank you for taking my question. To stick on the digital theme, perhaps a 2-part question, Tom. A lot of the discussion so far today has been on the vast and probably underappreciated opportunity of mining your database and brand, but you also have a lot of other customer acquisition channels that were assembled over the last couple of years between you and the predecessor William Hill. Like ESPN, CBS agreements of daily fantasy stuff. I was wondering if you could talk a little bit about how those kind of fit into the strategy going forward? And as a tag along to that, if there's other media partnerships, channels, customer channels that you could look at to bolt on going forward? Or if you think you've got everything you need?

No, you're right, John. We have numerous league and team partnerships plus the ESPN and CBS partnerships that give us access to databases that are certainly extremely interested in whatever team or sport they're following and likely sports betters. And part of what we're doing here in addition to Caesars Rewards, we're leaning into all channels into our own database into the databases of partners that we have transactions with and then out into that Wild West for people that we don't have a relationship with yet. We are looking to build a leader in this space, and we think tying it to everything that we've described should make it an attractive option for players.

And kind of the second part, is there other things that you're looking at or potential tuck-in M&A, whether it's additional technology or other avenues that you'll continue to look at going forward?

The technology will continue to evolve for as long as we're doing this. So if there are areas where a tuck-in acquisition makes sense to advance the ball on the technology side, you should expect we would look at that. If there's some brand or M&A opportunity that allows us to improve our position in customer acquisition, you should expect us to look at that. You've known us a long time. We're looking for how do we drive the most value for our stakeholders. And the answer can change over time. But as we sit here today, we think we've got everything we need to launch with strength and then to add to that over time as we build the business.

Very good. Thanks, Tom. And good luck on the rollout.

Thanks, John.

Your next question is from Chad Beynon of Macquarie. Your line is now open.

Hi. Good afternoon. Thanks for taking my question. Tom, given your Las Vegas margin success in the quarter of running over 20,000 rooms and a much higher EBITDA result than any of us were expecting, I'm wondering if anything has changed in terms of your thinking of divesting an asset out there and the timing around that. Thanks.

Yes. I'd say nothing has changed there. We still expect to sell a Vegas Strip asset, a single asset and I would expect that sale to take place in 2022.

Great. And then with that cash or, I guess, the near-term cash of selling the U.K. William Hill business, what are your plans with the cash that you have on the balance sheet? You've talked about what the digital vision will cost, but you'll still have some excess cash, particularly given the $10 free cash flow projection. What will you do with that?

You should expect us to be deleveraging. We want to drive our leverage below 4 times on a gross lease adjusted basis. I see that in the relatively near future for us. And I look at it like -- if you think about something of -- north of $1 billion of investment into sports and online, I think between -- just the proceeds out of the assets that we're going to sell out of -- that came with William Hill, I think that's going to match up pretty nicely with what we need to spend in sports and online to build that business in the U.S.

Great. Thank you very much.

Your next question is from Daniel Adam of Loop Capital Markets. Your line is now open.

Hi. Good afternoon everyone. Thanks for taking the questions. For Caesars Digital, it sounds like that segment includes both your retail sports betting business and online. Is that correct?

That's correct.

Okay. So can you break out what online-only revenue and EBITDA was in the quarter in that segment?

No. No, I can't, Dan.

Okay. And then Tom, I'll take another stab at this, but I'm wondering if you have a long-term target online sports betting and iGaming market share number in mind that you'd be willing to share with us?

Also no. I would expect us to be a leader in mobile market share among -- certainly among the leaders in both sports and online.

And Daniel, given that we operate in 13 states mobile and now we've rebranded the Caesars Sportsbook, the bulk of the growth, obviously, for the sports business is going to come online over time and as new states legalize.

Okay. It make sense. Alright. Thanks guys.

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

Hi good afternoon everyone. I just want to go back to the Vegas environment. Tom, you gave some really great color on sort of your occupancy thoughts. And I was wondering if you could sort of give us a little bit of color on what you're seeing on the rate side of the equation in the past. There's been some volatility there, and it's been competitive. But obviously, what you're seeing now is really different from the consumer. So I was just kind of curious on what you're able to see out in the future and maybe how that trended across the quarter as well.

Yes. For the past few months, we have seen higher rates occupancy that climbed to equal prior year level. We would expect that to grow further and faster as group business comes back. We're fairly comparable from a rate standpoint over the last, call it, 2.5 months to prior year, a little bit ahead.

And historically, we have seen some seasonality in Vegas, but obviously, that's been driven a bit by the group business. I know the booking windows can be short, especially now. But just any thoughts on sort of, let's call it, the fall progression as some people may head back to work and schools may be more back in session, that trade-off in August relative to sort of the upside opportunity as you probably see the group calendar fill in post Labor Day?

Yes. I'm expecting to be back toward more normal seasonality in Vegas through the rest of the year. I'd expect you'd see the same holiday softness that you typically see on a relative basis, and we'll see what happens in terms of group cadence coming back. But I'd expect we'd be -- certainly in '22, I'd expect kind of a normal year of seasonality in Vegas.

Great. Thank you very much.

Your next question is from Stephen Grambling of Goldman Sachs. Your line is now open.

Hi. Thanks. I've got a couple of follow-up questions on the digital side. I guess, starting with the database. How do you think about the overlap of sports betting customers versus iGaming versus kind of the existing total awards database? Do you have any sense for how much of your total rewards customer base may be overlapping with peers or you may be fishing for a customer who perhaps has even already been caught.

I don't have any real insight into what's in others' databases, but I'd tell you with the amount of people and ours that, that database has been built over 20 years in mind. I would expect that -- a substantial amount of the gambling customers that everybody is searching for is in our database and has a relationship with us. So giving them an ability to stay home and not look elsewhere is a key piece of what we're doing here.

And then perhaps on the regulatory front, I know you mentioned you always follow the math. I guess what's your strategy and willingness to pursue states where taxes and/or license fees are materially higher? Do you need be in those markets to get national scale? Or are there other ways to create value?

Yes. You're going to look at each state on its own. There's going to be -- I can envision scenarios where there will be states where it's just not economic to participate. I haven't seen one of those yet. So you should expect us to be active everywhere we can be. I -- there are states that you could miss or if it's impossible to make money. But the reality is, if you look at the history of the business in states where the initial tax structure was difficult, there is a history where those have been adjusted. You can't participate in that if you're not involved on the front end.

Helpful.

Thank you so much.

Thank you.

All right. Thanks, everybody. We'll talk to you again after the third quarter.

And this concludes today's conference call. Thank you for participating. You may now disconnect.