Business Context and Reporting Period
Caesars Entertainment, Inc. filed an unaudited Form 10-Q for the quarter and six months ended June 30, 2023. Caesars operates 53 domestic properties in 18 states, with approximately 52,700 gaming positions and 47,200 hotel rooms, and offers retail and online sports wagering in 30 North American jurisdictions and regulated online gaming in six jurisdictions.
Reportable segments are Las Vegas, Regional, Caesars Digital, Managed and Branded, and Corporate and Other. Results are not fully comparable with prior periods because William Hill International and other assets were divested in 2022.
Key Financial Metrics
| Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 |
|---|---|---|---|---|
| Net revenues | $2.879 billion | $2.821 billion | $5.709 billion | $5.113 billion |
| Operating income | $609 million | $602 million | $1.212 billion | $592 million |
| Net income attributable to Caesars | $920 million | $(123) million | $784 million | $(803) million |
| Adjusted EBITDA | $1.007 billion | $978 million | $1.965 billion | $1.274 billion |
| Net income margin | 32.2% | (4.3)% | 13.9% | (15.7)% |
| Adjusted EBITDA margin | 35.0% | 34.7% | 34.4% | 24.9% |
| Diluted earnings per share | $4.26 | $(0.57) | $3.63 | $(3.75) |
Revenue increased 2.1% in the quarter and 11.7% year to date. Q2 revenue consisted of casino revenue of $1.584 billion, food and beverage revenue of $435 million, hotel revenue of $525 million, and other revenue of $335 million.
Operating cash flow was $953 million for the first six months, compared with $116 million in the prior-year period. Capital expenditures were $573 million, producing reported free cash flow before financing and other investing items of approximately $380 million. Investing cash outflows were $544 million and financing cash outflows were $385 million.
At June 30, 2023, cash and cash equivalents were $1.122 billion, restricted cash was $126 million, total debt book value was approximately $12.566 billion, and long-term financing obligations were $12.686 billion. The company reported $2.1 billion of available borrowing capacity under its CEI revolving credit facility after letters of credit, regulatory commitments, and reserves. Weighted-average interest rates were 8.24% on variable-rate debt and 6.47% on fixed-rate debt.
Material Changes Versus the Prior Comparable Period
- Net income attributable to Caesars increased from a $123 million loss to $920 million of income in Q2 and from an $803 million loss to $784 million of income for the six-month period.
- The improvement in reported earnings was driven substantially by a $902 million Q2 income-tax benefit and a $951 million year-to-date benefit. The company reversed $940 million of valuation allowances on certain deferred tax assets after concluding that realization was more likely than not.
- Six-month Adjusted EBITDA increased 54.2% to $1.965 billion, primarily because Caesars Digital substantially reduced promotional and marketing spending and benefited from improved sports betting hold.
- Caesars Digital revenue increased 42.1% in Q2 to $216 million and more than quadrupled for the six months to $454 million. Digital Adjusted EBITDA improved to $11 million in Q2 and $7 million year to date, compared with losses of $69 million and $623 million, respectively.
- Las Vegas Q2 revenue declined 1.2% and Adjusted EBITDA declined 6.4%, while six-month revenue and Adjusted EBITDA increased 9.9% and 10.3%, respectively. Regional Q2 revenue increased 0.4%, but Adjusted EBITDA declined 1.0%.
- Interest expense increased to $586 million in Q2 and $1.180 billion year to date, reflecting higher borrowing costs and lease-related escalators. The company recorded a $197 million year-to-date loss on extinguishment of debt after refinancing CRC term loans.
- Advertising expense fell to $120 million for the six months from $376 million, primarily because of lower Caesars Sportsbook launch marketing.
Guidance, Outlook, Risks and Unusual Items
Management expects existing cash, operating cash flow, and committed revolving-credit availability to fund operations, capital requirements, and debt service for the next twelve months. The filing does not provide consolidated revenue or Adjusted EBITDA guidance.
Remaining 2023 capital expenditures were estimated at $575 million to $750 million, including $395 million to $475 million from unrestricted cash and $120 million to $205 million for Caesars Virginia. Estimated debt service for the remainder of 2023 was approximately $483 million, with estimated VICI and GLPI lease payments of approximately $640 million.
- Caesars Virginia and Harrah’s Columbus Nebraska opened temporary gaming facilities during Q2 2023. Permanent facilities are expected to open in late 2024 and the first half of 2024, respectively.
- The Caesars New Orleans project has an approximately $430 million capital plan; $187 million had been spent through June 30, 2023, and a $325 million investment is required by July 15, 2024.
- Debt remains material, including approximately $4.453 billion of scheduled principal maturities in 2025 and $1.676 billion in 2027. Variable-rate debt exposes the company to higher SOFR and other interest-rate costs.
- Competition, promotional intensity, and volatility in sports betting and iGaming hold percentages may adversely affect Caesars Digital revenue and profitability.
- Gaming is discretionary and sensitive to inflation, higher interest rates, economic downturns, weather, construction disruptions, labor costs, and changing customer demand.
- The company has filed insurance litigation relating to more than $2 billion of COVID-19 claims. The matter was stayed pending a Nevada Supreme Court decision, and the outcome remains uncertain.
- The company has $788 million of sports sponsorship and partnership obligations extending through 2040 and estimated self-insurance liabilities of $207 million.
- The company was in compliance with applicable debt financial covenants at June 30, 2023. Subsequent to quarter end, it repaid the remaining $250 million Baltimore Term Loan using the CEI revolving facility and acquired the remaining 24% interest in Horseshoe Baltimore for $66 million.
Important Facts for Investors to Verify
- Separate recurring operating performance from the $940 million deferred-tax valuation-allowance release and other nonrecurring items.
- Reconcile Adjusted EBITDA to GAAP earnings and cash flow, including interest, capital expenditures, lease payments, taxes, and debt repayments excluded from the non-GAAP measure.
- Review 2025 debt maturities, variable-rate exposure, lease obligations, covenant thresholds, and the effect of refinancing activity on future interest expense.
- Assess whether Caesars Digital can sustain positive EBITDA after promotional spending, customer-acquisition costs, and competitive sports-betting conditions.
- Monitor capital spending and construction progress for Caesars Virginia, Harrah’s Columbus Nebraska, Caesars New Orleans, and Atlantic City renovations.
- Evaluate the effect of divestitures and discontinued operations on period-to-period comparability.