Caesars Entertainment, Inc. — Q1 2023 Form 10-Q Summary
Business context and reporting period
Caesars is a geographically diversified gaming and hospitality company operating or managing 51 domestic properties across 16 states as of March 31, 2023, with approximately 47,200 hotel rooms, 52,100 gaming machines and 2,800 table games. It also operated sports wagering in 30 North American jurisdictions and regulated online real-money gaming in six jurisdictions. The filing covers the unaudited three months ended March 31, 2023, compared with the three months ended March 31, 2022.
The company reports Las Vegas, Regional, Caesars Digital, and Managed and Branded segments, plus Corporate and Other. Comparability with 2022 is affected by the July 2022 divestiture of William Hill International and other divestitures.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net revenues | $2.830 billion | $2.292 billion | +23.5% |
| Operating income (loss) | $603 million | $(10) million | Improved by $613 million |
| Net loss attributable to Caesars | $(136) million | $(680) million | Improved by $544 million |
| Loss per diluted share | $(0.63) | $(3.18) | Improved by $2.55 |
| Adjusted EBITDA | $958 million | $296 million | +223.6% |
| Adjusted EBITDA margin | 33.9% | 12.9% | +21.0 percentage points |
| Cash flow from operating activities | $174 million | $(246) million | Improved by $420 million |
| Capital expenditures | $272 million | $210 million | +29.5% |
| Interest expense, net | $594 million | $552 million | +7.6% |
Casino revenue increased 22.7% to $1.585 billion, food and beverage revenue increased 26.0% to $427 million, hotel revenue increased 31.3% to $503 million, and other revenue increased 13.3% to $315 million. The tax benefit was $49 million, producing a 26.5% effective tax rate on the loss from continuing operations.
At March 31, 2023, cash and cash equivalents were $965 million, restricted cash was $155 million, and total cash, cash equivalents and restricted cash were $1.223 billion. Total debt had a $12.991 billion book value, including $13.155 billion of principal, while long-term financing obligations were $12.648 billion. Total liabilities were $29.714 billion against $3.635 billion of stockholders’ equity.
Management reported $2.220 billion of revolver capacity, including $82 million committed to letters of credit and $48 million committed for regulatory purposes, resulting in stated cash and available revolver resources of approximately $3.055 billion.
Material changes versus the prior comparable period
- Las Vegas revenue increased 23.7% to $1.131 billion and Adjusted EBITDA increased 33.3% to $533 million. Hotel occupancy rose to 95.4% from 82.9%, while table-game drop and slot handle also increased.
- Regional revenue increased 1.9% to $1.389 billion, but Adjusted EBITDA declined 2.4% to $448 million. Severe winter weather reduced visitation in Lake Tahoe and Reno and pressured margins.
- Caesars Digital revenue improved to $238 million from $(53) million, and Adjusted EBITDA improved to $(4) million from $(554) million. Promotional and complimentary incentives declined to $77 million from $373 million, while sports betting handle decreased 27.5% to $3.401 billion.
- Operating expenses declined 3.3% to $2.227 billion, primarily because Q1 2022 included substantial Caesars Sportsbook launch advertising and promotional costs. The prior-year period also included a $38 million insurance-related gain from Hurricane Laura property damage.
- Interest expense increased because of higher rates on variable-rate debt and escalators in lease-related financing obligations.
- On February 6, 2023, Caesars issued a $2.5 billion Term Loan B and $2.0 billion of 7.00% senior secured notes due 2030. Proceeds were used to repay the CRC Term Loan and CRC Incremental Term Loan. The refinancing resulted in a $197 million loss on extinguishment of debt.
- Horseshoe Lake Charles reopened in December 2022 following reconstruction after Hurricane Laura.
Guidance, outlook, commentary and risks
Management did not provide formal consolidated revenue or earnings guidance in the filing. It expects liquidity, operating cash flow, committed borrowing availability and announced asset-sale proceeds to fund operations, capital requirements and debt service for the next twelve months.
- Estimated remaining 2023 capital expenditures were $845 million to $1.030 billion, including $170 million to $260 million for Caesars Virginia. Management expects approximately $200 million of temporary-casino operations and joint-venture contributions to support that development.
- Estimated debt service for the remainder of 2023 was approximately $601 million, and lease payments to VICI and GLPI were estimated at approximately $1.0 billion.
- Management expects Caesars Virginia to open in late 2024, with an estimated development budget of $650 million. A Harrah’s casino and racetrack project in Nebraska is also planned, with temporary facilities expected during construction.
- Harrah’s New Orleans requires at least $325 million of capital investment by July 15, 2024; the current project plan is approximately $430 million, with $145 million spent through March 31, 2023.
- Caesars remains exposed to high leverage, variable interest rates, lease obligations, inflation, competition, discretionary consumer spending, gaming regulation, and fluctuations in sports-betting and iGaming hold rates.
- The company is pursuing insurance litigation related to more than $2 billion of COVID-19 claims. The outcome is uncertain and no assurance is provided regarding recovery.
- Sports sponsorship and partnership obligations totaled $847 million at March 31, 2023, with contracts extending through 2040. Self-insurance liabilities were $208 million.
- Management stated that the company was in compliance with applicable debt and lease covenants at March 31, 2023. Variable-rate borrowings totaled approximately $3.5 billion, or approximately 27% of consolidated long-term debt.
Subsequent to quarter-end, on May 1, 2023, Caesars prepaid the $400 million Convention Center Mortgage Loan using cash on hand. This repayment occurred after the reporting date and is not reflected in the March 31 balance sheet.
Most important facts for investors to verify
- Whether improving operating results and Caesars Digital profitability can persist after the unusually high promotional costs in Q1 2022 are excluded.
- The company’s ability to manage approximately $13.2 billion of debt, substantial lease obligations, rising interest expense and significant 2025 debt maturities.
- Actual cash generation after capital expenditures, interest, debt repayments, gaming obligations and lease payments.
- Progress, funding and final cost of Caesars Virginia, Harrah’s Nebraska and the Caesars New Orleans redevelopment.
- Regional-property trends following severe weather disruptions and amid new casino competition.
- Sports-betting handle, hold percentages, promotional spending and customer-acquisition costs in Caesars Digital.
- The status and potential financial impact of the COVID-19 insurance litigation, self-insurance estimates and other legal contingencies.
- Whether deferred tax assets become realizable; management estimated a potential future tax benefit of approximately $0.9 billion to $1.2 billion if valuation allowances are reversed.