Caesars Entertainment, Inc. — Q3 2022 Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three and nine months ended September 30, 2022. Caesars operated 51 domestic properties in 16 states, with approximately 52,800 gaming machines, 2,800 table games and 47,500 hotel rooms. The company also operated retail and mobile sports betting across 26 jurisdictions and regulated online real-money gaming in six jurisdictions.
Operations are reported through Las Vegas, Regional, Caesars Digital, Managed and Branded, and Corporate and Other. Comparability with 2021 is affected by the April 2021 William Hill acquisition, the August 2021 consolidation of Horseshoe Baltimore, and subsequent divestitures, including William Hill International on July 1, 2022.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Net revenues | $2.887 billion | $2.685 billion | $8.000 billion | $6.979 billion |
| Operating income | $659 million | $532 million | $1.251 billion | $1.338 billion |
| Net income attributable to Caesars | $52 million | $(233) million | $(751) million | $(585) million |
| Net income (loss) margin | 1.8% | (8.6)% | (9.4)% | (8.4)% |
| Adjusted EBITDA | $1.012 billion | $870 million | $2.286 billion | $2.409 billion |
| Adjusted EBITDA margin | 35.1% | 32.4% | 28.6% | 34.5% |
| Cash flow from operating activities | Not separately provided | Not separately provided | $469 million | $974 million |
Q3 revenue increased 7.5%, led by higher food and beverage, hotel, casino and digital revenue. Operating income increased 23.9%, while interest expense remained high at $569 million. Q3 results also benefited from lower losses on debt extinguishment and more favorable other income compared with 2021.
Revenue growth did not translate into nine-month earnings growth. Nine-month Adjusted EBITDA declined 5.1%, primarily because Caesars Digital incurred substantially higher marketing and promotional costs, including launch incentives in New York and Louisiana.
Segment performance
- Las Vegas: Q3 revenue was $1.077 billion, up 5.9%, and Adjusted EBITDA was $480 million, down 4.0%. Hotel occupancy improved to 93.6% from 89.6%, but higher utility costs and renovation-related gaming disruption reduced margins.
- Regional: Q3 revenue was $1.530 billion, up 2.5%, and Adjusted EBITDA was $570 million, up 2.9%. Nine-month Adjusted EBITDA was $1.542 billion, broadly comparable with 2021.
- Caesars Digital: Q3 revenue was $212 million, up 120.8%, while the Adjusted EBITDA loss narrowed to $38 million from $164 million. Nine-month revenue increased 40.7% to $311 million, but the Adjusted EBITDA loss widened to $661 million from $171 million.
- Managed and Branded: Q3 revenue was $70 million and Adjusted EBITDA was $22 million, both broadly consistent with 2021.
Caesars Digital sports betting handle was $2.029 billion in Q3 and $9.350 billion for the nine months. Q3 sports betting hold was 7.9%; iGaming handle was $1.787 billion with a 3.5% hold.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $944 million at September 30, 2022, compared with $1.070 billion at December 31, 2021.
- Total debt book value was $12.939 billion, excluding the current portion presentation, versus $13.807 billion at year-end 2021. Long-term financing obligations were $12.565 billion.
- Total liabilities were $29.702 billion and stockholders’ equity was $3.892 billion at September 30, 2022.
- Operating cash flow was $469 million, down from $974 million in the comparable 2021 period. Capital expenditures were $717 million, compared with $313 million in 2021.
- Cash, cash equivalents and restricted cash totaled $1.241 billion at September 30, 2022.
- Management reported approximately $2.994 billion of cash and revolver capacity at September 30, 2022, including $944 million of cash. The filing states that current liquidity, operating cash flow and committed facilities are expected to fund operations, capital requirements and debt service for the next twelve months.
- Estimated remaining 2022 debt service was approximately $158 million, and estimated remaining 2022 lease payments to VICI and GLPI were approximately $313 million.
On October 5, 2022, after the reporting date, Caesars borrowed $750 million under a new CEI Term Loan A, increased the CEI revolving facility to $2.25 billion, extended the facility maturity to January 2028, and terminated the CRC revolving facility. The $750 million proceeds were used to prepay CRC term debt.
Material changes, outlook and unusual items
- Caesars completed the sale of William Hill International for approximately £2.0 billion of enterprise value on July 1, 2022 and received $730 million of net proceeds after related repayments and transactions. The proceeds were used to reduce debt.
- The company recorded $503 million of impairments in discontinued operations related to the revised William Hill International sale price. Nine-month discontinued operations generated a $386 million net loss.
- Hurricane Laura insurance proceeds produced a $38 million gain during the nine months. Horseshoe Lake Charles was expected to open on December 12, 2022.
- Caesars expects approximately $250 million to $350 million of additional capital expenditures during the remainder of 2022. Major commitments include a required $325 million investment at Harrah’s New Orleans by July 2024; $87 million had been spent as of September 30, 2022.
- Management expects to continue expanding Caesars Sportsbook, iGaming and Racebook into additional jurisdictions. Promotional spending is expected to vary by market and may materially affect digital revenue and profitability during new launches.
- Management cited inflation, reduced visitation from certain lower-discretionary-income customers, labor and utility costs, supply-chain conditions, competition, COVID-19 variants and regulatory approvals as key operating uncertainties.
- The company faces litigation against insurers over COVID-19 business-interruption claims expected to exceed $2 billion; the insurers have denied coverage and the outcome is uncertain.
- Approximately $5.7 billion of long-term variable-rate borrowings remained subject to variable rates, partially offset by swaps fixing the rate on $1.3 billion. The filing also identifies risks from the transition away from LIBOR.
Important facts for investors to verify
- Whether Caesars Digital can reduce its $661 million nine-month Adjusted EBITDA loss while continuing market expansion.
- The timing and funding of large debt maturities, including approximately $4.6 billion due in 2024 and $5.8 billion due in 2025 based on the filing’s debt schedule.
- The effect of the October 5, 2022 refinancing, including the new term loan, expanded revolver, pricing, covenants and springing maturity provisions.
- Actual operating cash flow after elevated capital expenditures, lease payments, interest expense and required property investments.
- The outcome and potential recovery from the COVID-19 insurance litigation.
- Whether inflation, competition, labor costs and construction disruptions affect Regional and Las Vegas margins.
- The final amount and timing of any deferred consideration from the William Hill International sale, which is subject to 888 Holdings meeting 2023 financial targets.