Caesars Entertainment, Inc. — Q3 2021 Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three and nine months ended September 30, 2021. Caesars operated or managed 53 domestic properties in 16 states, with approximately 56,000 gaming machines, 2,900 table games and 46,500 hotel rooms. It also operated sports wagering in 18 states plus Washington, D.C., including mobile betting in 14 states, and regulated online real-money gaming in five states.
Comparability with 2020 is significantly affected by the July 2020 merger with Former Caesars, the April 2021 acquisition of William Hill, the August 2021 consolidation of Horseshoe Baltimore, property divestitures and COVID-19-related closures and restrictions in the prior-year period.
Financial performance and liquidity
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Net revenues | $2.685 billion, versus $1.443 billion | $6.979 billion, versus $2.043 billion |
| Operating income (loss) | $532 million, versus $(131) million | $1.338 billion, versus $(333) million |
| Net loss attributable to Caesars | $(233) million, versus $(926) million | $(585) million, versus $(1.202) billion |
| Loss per diluted share | $(1.10), versus $(6.09) | $(2.78), versus $(11.56) |
| Adjusted EBITDA | $870 million, versus $375 million | $2.409 billion, versus $465 million |
| Adjusted EBITDA margin | 32.4%, versus 26.0% | 34.5%, versus 22.8% |
| Operating cash flow | Not separately disclosed for the quarter | $974 million, versus $(203) million |
Revenue increased across casino, food and beverage, hotel and other categories. Las Vegas generated Q3 revenue of $1.017 billion and Adjusted EBITDA of $500 million; Regional generated $1.492 billion and $554 million, respectively. Caesars Digital generated $96 million of revenue but an Adjusted EBITDA loss of $164 million, reflecting promotional and customer-acquisition spending and below-typical sports-betting hold.
At September 30, 2021, cash and cash equivalents were $1.072 billion. Total cash, cash equivalents and restricted cash were $2.888 billion, including $1.166 billion of restricted cash in other assets and $348 million associated with discontinued operations. Available revolver capacity was $2.220 billion, producing reported cash and available borrowing capacity of approximately $3.152 billion before other restrictions.
Long-term debt was $14.453 billion, excluding the $70 million current portion, and long-term financing obligations were $12.411 billion. Total debt face value was $15.175 billion. The company reported compliance with applicable debt covenants at September 30, 2021. Interest expense was $579 million in Q3 and $1.734 billion for the nine-month period.
Capital expenditures were $313 million for the nine months. Management estimated additional 2021 capital expenditures of $235 million to $310 million. The company expects approximately $108 million of debt service and approximately $290 million of VICI and GLPI lease payments for the remainder of 2021.
Material changes versus the prior comparable period
- Net revenues rose 86.1% in Q3 and more than tripled for the nine months, primarily because of acquisitions and the reopening of properties that had been closed or restricted in 2020.
- Operating income turned positive, while net loss narrowed substantially. The prior-year nine-month period included $161 million of impairment charges, including COVID-19-related goodwill and trade-name impairment and MontBleu impairment.
- Adjusted EBITDA increased to $870 million in Q3 and $2.409 billion for the nine months, with margin expanding to 32.4% and 34.5%, respectively. Management attributed improvements to stronger demand, labor efficiencies, cost reductions and merger synergies.
- Caesars completed the $3.9 billion William Hill acquisition on April 22, 2021 and restructured reporting to include Caesars Digital as a reportable segment.
- Caesars increased its Horseshoe Baltimore ownership to approximately 75.8% and began consolidating the property on August 26, 2021, recognizing a $40 million remeasurement gain.
- The company sold Caesars Southern Indiana, Caesars UK Group, MontBleu and Evansville during 2021. William Hill International was classified as discontinued operations and held for sale.
- Caesars issued $1.2 billion of 4.625% senior notes due 2029 and used proceeds and cash on hand to repay debt. It repaid $889 million of CRC Notes in September and redeemed the remaining $811 million on October 15, 2021.
Guidance, outlook, commentary and risks
The filing does not provide formal consolidated revenue or earnings guidance. Management reported that Las Vegas and Regional net income, Adjusted EBITDA and Adjusted EBITDA margins exceeded 2019 pre-pandemic levels, although convention and entertainment revenue remained below pre-pandemic levels. Management expects continued investment in Caesars Digital, property maintenance, growth projects and the Harrah’s New Orleans redevelopment, including a required $325 million capital investment by July 2024.
Caesars expects the sale of William Hill International to 888 Holdings to close in the first quarter of 2022, subject to shareholder and regulatory approvals. The transaction is expected to generate approximately £835 million, or $1.2 billion, after repayment of related bridge debt and other adjustments. Management expects current liquidity, operating cash flow, revolver availability and announced asset-sale proceeds to fund operations, capital needs and debt service for the next twelve months, but cautions that this depends on operating performance and access to capital.
- COVID-19 variants, renewed restrictions, travel disruption, staffing constraints and changes in discretionary consumer spending could reduce demand.
- Lake Charles remained closed after Hurricane Laura and was expected to reopen in the second half of 2022. Hurricane Ida and wildfires also temporarily disrupted certain properties in Q3.
- Caesars is pursuing insurance claims expected to exceed $2 billion for COVID-19-related losses. Insurers denied coverage, and litigation was ongoing with no assurance of recovery.
- Caesars Digital faces significant marketing costs, competitive pricing, low sports-betting hold risk, regulatory requirements, technology and cybersecurity risks, and dependence on third-party providers including Amazon Web Services.
- The company remains highly leveraged and exposed to variable interest rates and the transition away from LIBOR. Approximately $4.3 billion of debt remained subject to variable rates after interest-rate swaps.
- Future divestitures may produce additional impairment charges if selling prices are below carrying values.
Unusual Q3 items included a $117 million loss on debt extinguishment, a $153 million net other loss, and a $90 million income-tax benefit. The other loss primarily reflected investment fair-value changes, including an approximately $158 million Q3 loss related to NeoGames and other investments.
Important facts for investors to verify
- Reconcile reported growth for the merger, William Hill acquisition, Horseshoe Baltimore consolidation, divestitures and discontinued operations before assessing organic performance.
- Assess Caesars Digital customer-acquisition spending, sports-betting hold, EBITDA losses and the cash required to expand into additional jurisdictions.
- Verify completion and proceeds of the William Hill International sale and the application of proceeds to bridge and other debt.
- Review debt maturities, financing obligations, lease commitments, covenant thresholds and the effect of variable interest rates.
- Monitor COVID-19 developments, convention and entertainment recovery, staffing conditions and the Lake Charles reopening schedule.
- Follow the COVID-19 insurance litigation, regulatory approvals, asset-sale conditions and potential impairment exposure.
- Distinguish Adjusted EBITDA from GAAP earnings and cash flow; Adjusted EBITDA excludes interest, capital expenditures, debt principal, taxes, lease payments and other significant cash obligations.