Caesars Entertainment, Inc. — Q1 2021 Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three months ended March 31, 2021. Caesars is a geographically diversified gaming and hospitality company operating or managing approximately 54 domestic properties in 16 states, with international operations in five countries. The July 20, 2020 merger with Former Caesars substantially expanded the company and makes year-over-year comparisons not fully comparable.
Operations remained affected by COVID-19 restrictions, including reduced gaming and hotel capacity, limited food and beverage offerings, and curtailed entertainment and convention activity. Substantially all properties had resumed some operations by March 31, 2021, except Lake Charles and many international properties.
Financial performance and key metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net revenues | $1.699 billion | $473 million |
| Operating income (loss) | $186 million | $(123) million |
| Net loss attributable to Caesars | $(423) million | $(176) million |
| Loss per share | $(2.03) | $(2.25) |
| Adjusted EBITDA | $505 million | $103 million |
| Adjusted EBITDA margin | 29.7% | 21.8% |
| Net cash provided by operating activities | $45 million | $30 million |
| Capital expenditures | $65 million | $23 million |
| Interest expense, net | $563 million | $67 million |
Revenue growth primarily reflects inclusion of Former Caesars after the merger. Regional revenue was $1.108 billion with $367 million of Adjusted EBITDA; Las Vegas revenue was $497 million with $162 million of Adjusted EBITDA; Managed, International, CIE revenue was $90 million with $15 million of Adjusted EBITDA; and Corporate and Other Adjusted EBITDA was $(39) million.
Net loss remained significant despite positive operating income, principally because of $563 million of net interest expense, a $133 million other loss, $265 million of depreciation and amortization, and $20 million of transaction and other operating costs. The other loss primarily reflected a $151 million fair-value loss on the derivative liability associated with the 5% Convertible Notes.
At March 31, 2021, cash and cash equivalents were $1.794 billion, restricted cash and investments were $2.073 billion, and total cash, cash equivalents and restricted cash were $4.254 billion. Total assets were $36.019 billion and Caesars stockholders’ equity was $4.613 billion.
Face value of debt was $15.006 billion, with book value of long-term debt of $14.103 billion and a separate long-term financing obligation of $12.334 billion. Estimated debt service for the remainder of 2021 was approximately $610 million, and estimated lease payments were approximately $900 million.
Material changes versus the prior comparable period
- Net revenue increased by $1.226 billion, largely because the prior-year period did not include the Former Caesars operations acquired in July 2020.
- Adjusted EBITDA increased by $402 million, and Adjusted EBITDA margin improved by 7.9 percentage points, aided by cost reductions, lower marketing spend, reduced staffing, and merger-related synergies.
- Operating income improved from a $123 million loss to $186 million of income. No impairment charges were recorded in Q1 2021, compared with $161 million in Q1 2020, including COVID-19-related goodwill and trade-name impairments and a MontBleu impairment.
- Interest expense increased by $496 million because of debt, financing obligations, and other liabilities assumed or incurred in connection with the merger.
- Cash flow from operations increased to $45 million, while capital expenditures increased to $65 million.
- Shares outstanding increased materially following the merger; weighted-average basic shares were 208 million versus 78 million in Q1 2020.
Guidance, outlook, risks and unusual items
Management reported positive operating trends as capacity and other restrictions eased but did not provide formal revenue or earnings guidance. Management expects current liquidity, operating cash flow, revolver availability, and proceeds from announced asset sales to fund operations, capital requirements, and debt service for the next twelve months, while warning that COVID-19 could adversely affect future liquidity.
- The company completed the approximately £2.9 billion, or approximately $4.0 billion, William Hill acquisition on April 22, 2021, after the quarter ended. It financed a portion of the purchase with bridge facilities comprising a £1.0 billion asset-sale bridge, a £503 million cash-confirmation bridge, and a £116 million revolving facility. William Hill’s non-U.S. operations are expected to be divested.
- Management estimated remaining 2021 capital expenditures of $595 million to $755 million, including projects in Atlantic City, Lake Charles, New Orleans, Indiana, and other growth and maintenance projects.
- Lake Charles was severely damaged by Hurricane Laura and is expected to remain closed until 2022. The company received $26 million of insurance proceeds in the quarter and recorded an $8 million gain.
- Restricted cash included $376 million escrowed for New Jersey capital expenditures. Caesars also has a $325 million required capital investment at Harrah’s New Orleans by July 15, 2024.
- The company expects asset sales including Evansville, Caesars Southern Indiana, Baton Rouge, Harrah’s Louisiana Downs, Horseshoe Hammond, and certain international properties. Delays, regulatory conditions, or sales below carrying value could reduce liquidity or cause additional impairments.
- The company filed a lawsuit seeking recovery under insurance policies for COVID-19-related losses expected to exceed $2 billion. The insurers have denied coverage, and the outcome is uncertain.
- As of March 31, 2021, Caesars was in compliance with applicable debt covenants. COVID-19-related amendments suspended certain financial covenant testing through September 30, 2021, subject to minimum liquidity requirements.
- Key risks include high leverage and lease obligations, interest-rate and LIBOR-transition exposure, gaming regulation, competition from online betting and gaming, consumer demand, future COVID-19 restrictions, construction and weather disruptions, and execution of acquisitions and divestitures.
Important facts for investors to verify
- Reconcile reported Q1 2021 growth with pro forma or comparable Former Caesars results because GAAP periods are not fully comparable after the merger.
- Assess cash available for general use separately from restricted cash, including amounts reserved for the William Hill acquisition and New Jersey capital expenditures.
- Review the post-quarter William Hill acquisition financing, resulting leverage, planned non-U.S. divestiture, and acquisition accounting once finalized.
- Evaluate recurring cash obligations, including approximately $610 million of remaining 2021 debt service, approximately $900 million of remaining 2021 lease payments, and planned capital expenditures of up to $755 million.
- Monitor the COVID-19 insurance litigation, required property divestitures, regulatory approvals, and potential impairment charges.
- Review Adjusted EBITDA limitations: it is a non-GAAP measure and excludes significant cash requirements such as capital expenditures, interest, debt repayments, taxes, and lease payments.