Caesars Entertainment, Inc. annual report, FY2022

Caesars Entertainment, Inc. — FY2022 Form 10-K Summary

Business context and reporting period

This Form 10-K covers the fiscal year ended December 31, 2022; it is an annual filing rather than a standalone fourth-quarter filing. Caesars operates casino, hospitality, entertainment, racing, retail, sports betting and iGaming businesses. At year-end, it owned, leased or managed 51 domestic properties in 16 states, with approximately 52,800 gaming positions and 47,200 hotel rooms. Sports wagering operated across 28 North American jurisdictions, including 20 mobile jurisdictions, and regulated online real-money gaming operated in six jurisdictions.

Financial performance and key metrics

Metric	2022	2021	Change
Net revenue	$10.821 billion	$9.570 billion	Up 13.1%
Operating income	$1.739 billion	$1.460 billion	Up $279 million
Net loss attributable to Caesars	$899 million	$1.019 billion	Loss narrowed $120 million
Basic and diluted loss per share	$4.19	$4.83	Improved
Adjusted EBITDA	$3.243 billion	$2.990 billion	Up 8.5%
Adjusted EBITDA margin	30.0%	31.2%	Down 1.2 points
Operating cash flow	$993 million	$1.199 billion	Down $206 million
Capital expenditures	$952 million	$520 million	Up $432 million

Revenue growth reflected higher Las Vegas hotel occupancy and rates, increased gaming and food-and-beverage volumes, stronger conventions and live entertainment, improved international visitation, the consolidation of Horseshoe Baltimore, and expansion of Caesars Digital. Casino revenue was $5.997 billion, food and beverage revenue was $1.596 billion, hotel revenue was $1.957 billion and other revenue was $1.271 billion.

Las Vegas: Revenue rose 25.8% to $4.287 billion; Adjusted EBITDA rose 25.3% to $1.964 billion. Hotel occupancy increased to 92.2% from 82.1%.
Regional: Revenue increased 3.0% to $5.704 billion and Adjusted EBITDA was broadly stable at $1.985 billion. Slot handle was essentially flat, while table-game drop increased 2.6%.
Caesars Digital: Revenue increased 62.6% to $548 million, but Adjusted EBITDA worsened to a loss of $666 million from a loss of $476 million. Sports betting handle increased to $12.801 billion and iGaming handle to $8.073 billion.
Managed and Branded: Revenue was $282 million and Adjusted EBITDA was $84 million, modestly below 2021.

Liquidity, debt and cash flow

Cash and cash equivalents were $1.038 billion at December 31, 2022, compared with $1.070 billion at year-end 2021.
Available revolving borrowing capacity was approximately $2.220 billion after letters of credit and regulatory reserves. The filing also reports approximately $2.1 billion of available capacity under the Amended CEI Revolving Credit Facility.
Face value of long-term debt was $13.085 billion; long-term financing obligations were $12.610 billion, primarily related to VICI and GLPI lease arrangements.
Annual 2023 debt service was estimated at approximately $1.0 billion, while 2023 rent payments to VICI and GLPI were estimated at approximately $1.3 billion.
Operating cash flow was $993 million, while capital expenditures were $952 million. Cash interest paid was $2.010 billion.
The company used the $730 million of net proceeds from the William Hill International sale, together with other funds, for debt reduction. It also made additional term-loan repayments and debt repurchases during 2022.
As of December 31, 2022, Caesars reported compliance with applicable debt and lease covenants. Variable-rate debt was $5.436 billion; management estimated that a 100-basis-point increase in LIBOR and Term SOFR would increase annual interest cost by approximately $54 million.

Material changes, unusual items and subsequent events

Caesars completed the sale of William Hill International to 888 Holdings on July 1, 2022. The revised transaction value was approximately £2.0 billion, and Caesars recorded $503 million of impairment charges in discontinued operations. William Hill International generated $820 million of 2022 revenue and a $448 million net loss before the sale.
Caesars completed the sale of Belle of Baton Rouge on May 5, 2022, recording a $3 million loss.
Regional impairment charges totaled $108 million, including $30 million for gaming rights and $78 million for goodwill, primarily due to higher discount rates and a higher cost of capital.
Interest expense was $2.265 billion and loss on extinguishment of debt was $85 million. Other income was $46 million, partly reflecting foreign-exchange forward-contract gains and the resolution of certain disputed claims.
Hurricane Laura insurance recoveries related to Lake Charles produced a $38 million gain in 2022. Horseshoe Lake Charles reopened in December 2022.
On February 6, 2023, Caesars issued $2.0 billion of 7.00% senior secured notes due 2030 and incurred a $2.5 billion CEI Term Loan B due 2030. Proceeds were used primarily to repay the CRC Term Loan and CRC Incremental Term Loan, with an approximately $200 million loss on extinguishment recognized in 2023.

Guidance, outlook and principal risks

Management expects current liquidity, operating cash flow and committed borrowing capacity to fund operations, capital requirements and debt service for at least the next twelve months. Estimated 2023 capital expenditures range from $1.118 billion to $1.303 billion, including $105 million to $115 million for Caesars Digital and $200 million to $285 million for Caesars Virginia.

Planned investments include Caesars Virginia, expected to open in late 2024 with a stated development budget of approximately $650 million; Nebraska casino and racetrack development; the Caesars New Orleans project; property renovations; rebranding; and migration of digital operations to the Liberty platform.

Digital growth requires substantial marketing, promotional incentives, technology investment and customer-acquisition spending. Caesars Digital remained materially EBITDA-negative in 2022, although management stated that the segment nearly reached positive net income and Adjusted EBITDA in the fourth quarter.
Gaming and hospitality demand is sensitive to economic conditions, inflation, interest rates, travel costs, employment trends and discretionary consumer spending.
Competition is increasing across Las Vegas, regional casinos, online sports betting and iGaming. New market launches may require significant upfront investment and may not achieve expected returns.
Substantial debt, variable-rate exposure, lease obligations, CPI-linked rent escalators and required capital expenditures could constrain flexibility and liquidity.
Gaming licenses, taxes, regulatory approvals, responsible-gaming requirements and potential legislative changes could materially affect operations.
Key operational risks include labor shortages, collective bargaining negotiations, cybersecurity and data privacy incidents, third-party technology dependence, sports-betting hold volatility, customer credit losses, litigation, severe weather, future public-health restrictions and insurance adequacy.
The company has submitted more than $2 billion of COVID-19-related insurance claims; insurers have denied coverage and litigation was ongoing. The filing does not provide a clear expected recovery amount or resolution date.

Most important facts for an investor to verify

Reconcile reported net loss with Adjusted EBITDA and assess the continuing impact of $2.265 billion of annual interest expense and substantial lease obligations.
Review the post-February 2023 refinancing, including the new $2.0 billion notes, $2.5 billion Term Loan B, resulting interest costs and maturity profile.
Test whether Caesars Digital can achieve sustained positive EBITDA after promotional spending and customer-acquisition costs decline.
Evaluate 2023 capital spending of up to $1.303 billion against operating cash flow, debt service and rent requirements.
Monitor impairment sensitivity: the filing states that a 1-percentage-point increase in the discount rate could produce approximately $125 million of additional impairment.
Review regulatory, labor and lease-covenant developments, particularly the required $325 million investment at Caesars New Orleans by July 15, 2024 and CPI-linked VICI rent escalators.
Confirm the status and potential financial impact of COVID-19 insurance litigation, other legal proceedings and the company’s large tax-loss carryforwards and valuation allowance.