Caesars Entertainment, Inc. — 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. The filing is an annual report, not a standalone fourth-quarter filing. Comparability with 2020 and 2019 is limited by the July 2020 merger with Former Caesars, the April 2021 William Hill acquisition, the August 2021 consolidation of Horseshoe Baltimore, and multiple divestitures.
Business Context
Caesars is a geographically diversified gaming and hospitality company operating or managing 52 domestic properties in 16 states, with approximately 55,700 slot machines, 2,900 table games and 47,700 hotel rooms. It operates sports wagering in 21 states and domestic jurisdictions, including 14 mobile markets, and regulated online real-money gaming in five states.
- Revenue sources include casino gaming, sports betting and iGaming, hotels, food and beverage, entertainment, retail, racing, management services and brand licensing.
- The William Hill acquisition expanded Caesars Digital and included the Liberty technology platform. Caesars launched its rebranded Caesars Sportsbook app in August 2021.
- William Hill International was classified as discontinued operations and held for sale.
Financial Performance
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net revenues | $9.570 billion | $3.628 billion | +163.8% |
| Operating income (loss) | $1.460 billion | $(383) million | Improved |
| Net income (loss) | $(1.016) billion | $(1.758) billion | Loss narrowed |
| Net loss attributable to Caesars | $(1.019) billion | $(1.757) billion | Loss narrowed |
| Basic and diluted loss per share | $(4.83) | $(13.50) | Improved |
| Adjusted EBITDA | $2.990 billion | $794 million | +276.7% |
| Adjusted EBITDA margin | 31.2% | 21.9% | +9.3 percentage points |
| Operating cash flow | $1.199 billion | $(561) million | Improved by $1.760 billion |
| Capital expenditures | $520 million | $164 million | Higher investment |
Revenue growth primarily reflected the Former Caesars merger, William Hill acquisition, Horseshoe Baltimore consolidation, reopening of properties and easier comparisons against COVID-19-related closures in 2020. Revenue included $5.827 billion from casino and pari-mutuel commissions, $1.551 billion from hotels, $1.140 billion from food and beverage, and $1.052 billion from other activities.
Interest expense increased to $2.295 billion from $1.202 billion, and the company recorded a $236 million loss on extinguishment of debt. The company reported a $283 million income-tax benefit and a 22.3% effective tax rate. Adjusted EBITDA is a non-GAAP measure and excludes, among other items, interest, taxes, depreciation and amortization, impairment, transaction costs, stock compensation and certain lease-related expenses.
Segment Results
| Segment | 2021 Revenue | 2021 Adjusted EBITDA | 2021 Margin |
|---|---|---|---|
| Las Vegas | $3.409 billion | $1.568 billion | 46.0% |
| Regional | $5.537 billion | $1.979 billion | 35.7% |
| Caesars Digital | $337 million | $(476) million | (141.2)% |
| Managed and Branded | $278 million | $87 million | 31.3% |
| Corporate and Other | $9 million | $(168) million | Not meaningful |
- Las Vegas benefited from reopening, pent-up demand and improved hotel occupancy of 82.1%, versus 47.2% in 2020.
- Regional revenue and Adjusted EBITDA benefited from acquisitions, Horseshoe Baltimore, operating efficiencies and lower labor and marketing costs.
- Caesars Digital revenue increased substantially, but the segment posted a $476 million Adjusted EBITDA loss due largely to customer-acquisition marketing, promotional incentives and below-typical sports betting hold.
- Sports betting handle was $6.046 billion, plus $706 million of handle from certain operations for which Caesars provides services. iGaming handle was $5.621 billion.
Balance Sheet, Debt and Liquidity
| Balance-sheet item | December 31, 2021 | December 31, 2020 |
|---|---|---|
| Cash and cash equivalents | $1.070 billion | $1.776 billion |
| Total assets | $38.031 billion | $36.385 billion |
| Total debt, face value | $14.323 billion | Not clearly provided in the same format |
| Long-term financing obligations | $12.424 billion | $12.295 billion |
| Total liabilities | $33.490 billion | $31.351 billion |
| Total stockholders’ equity | $4.541 billion | $5.034 billion |
- Revolving credit capacity was approximately $2.030 billion, with $92 million committed to letters of credit and $48 million committed for regulatory purposes. No amounts were outstanding under the revolving credit facilities at year-end.
- Debt service, including principal and interest, is estimated at approximately $840 million for 2022.
- VICI and GLPI lease payments are estimated at approximately $1.2 billion for 2022, subject to escalation. VICI and GLPI financing obligations totaled approximately $11.1 billion and $1.2 billion, respectively, at year-end.
- Approximately $6.6 billion of debt was variable-rate debt before interest-rate swaps; approximately $5.3 billion remained subject to variable rates after swaps. A 100-basis-point increase in LIBOR would increase annual interest expense by approximately $53 million, based on year-end balances.
- Management stated that existing liquidity, operating cash flow, revolver availability and expected asset-sale proceeds should fund operations, capital requirements and debt service for the next twelve months, while noting uncertainty related to COVID-19 and capital-market access.
Material Changes and Unusual Items
- Completed the $3.9 billion William Hill acquisition on April 22, 2021; William Hill contributed $183 million of continuing-operation revenue and a $415 million net loss from acquisition through year-end.
- Entered an agreement to sell William Hill International to 888 Holdings for approximately £2.2 billion, expected to close in the second quarter of 2022 subject to shareholder and regulatory approvals. Expected proceeds after debt repayment were approximately £835 million, or $1.2 billion, subject to adjustments.
- Increased ownership of Horseshoe Baltimore to approximately 75.8%, began consolidation and recorded a $40 million remeasurement gain.
- Issued $1.2 billion of 4.625% senior notes due 2029 and used proceeds and cash on hand to repay $1.7 billion of CRC Notes. The company also repurchased $100 million of CEI Senior Notes and converted the remaining 5% convertible notes, paying $367 million in cash and issuing approximately 5 million shares.
- Recorded a $102 million impairment charge related to planned property rebranding. The company also received $44 million of insurance proceeds related to Hurricane Laura damage and recorded a $21 million related gain.
- Completed sales of MontBleu for $15 million, Tropicana Evansville for $480 million, Caesars Southern Indiana for $250 million and Harrah’s Louisiana Downs for $22 million. Expected proceeds from these transactions and related gains may not be comparable because proceeds were subject to adjustments and, in some cases, shared with VICI.
- Lake Charles remained closed following Hurricane Laura and was expected to remain closed until the second half of 2022 while a new land-based casino was constructed.
Guidance, Outlook and Risks
- Management expects 2022 capital expenditures of approximately $1.255 billion to $1.500 billion, including growth and renovation, Caesars Digital, maintenance, Atlantic City and Indiana racing projects.
- Management expects capital requirements to increase due to property rebranding, Liberty-platform migration, digital-market expansion and new-market investment. Planned projects include Caesars Virginia, expected to cost approximately $500 million, and a Nebraska Harrah’s casino and racetrack project of approximately $75 million.
- COVID-19, new variants, renewed restrictions, labor shortages, supply-chain disruptions, inflation and rising interest rates could materially affect visitation, operations, costs and liquidity.
- Caesars Digital requires substantial promotional and marketing spending and faces intense competition, uncertain sports betting hold rates, regulatory requirements and reliance on third-party technology, payment, geolocation, identity-verification and sports-data providers.
- Substantial debt, variable-rate exposure, lease obligations, required capital expenditures and debt maturities in 2024 and 2025 constrain financial flexibility. The company must also manage the transition away from LIBOR.
- The William Hill International sale may not close on the anticipated terms or timeline. If it had not closed by October 14, 2022, management expected to refinance the related bridge debt but could not guarantee successful refinancing.
- The company filed litigation against insurers concerning more than $2 billion of COVID-19-related insurance claims; the insurers denied coverage, and the outcome remains uncertain.
- Gaming licenses, gaming taxes, regulatory approvals, competition, consumer discretionary spending, cybersecurity, labor relations and potential litigation remain significant risks.
Investor Verification Checklist
- Verify the final closing date, proceeds, debt repayment and foreign-exchange impact of the William Hill International sale.
- Assess whether Caesars Digital can reduce its $476 million 2021 Adjusted EBITDA loss while maintaining customer growth and market share.
- Reconcile reported Adjusted EBITDA to GAAP net loss and evaluate the recurring nature of excluded costs, especially marketing, transaction costs, impairment and lease-related items.
- Review 2022 debt maturities, refinancing plans, variable-rate exposure and the effect of LIBOR replacement on interest expense.
- Evaluate the ability to fund approximately $1.255 billion to $1.500 billion of planned capital expenditures alongside approximately $840 million of debt service and $1.2 billion of VICI and GLPI rent payments.
- Monitor COVID-19, labor, inflation, supply-chain, regulatory and competitive impacts on Las Vegas, Regional and Digital segment margins.
- Review the COVID-19 insurance litigation, property rebranding impairment assumptions, goodwill sensitivity and the potential for additional impairments.
- Note that management and the auditor reported effective internal control over financial reporting, but William Hill was excluded from management’s internal-control assessment for 2021 while integration continued.