Caesars Entertainment, Inc. — Q1 2022 Form 10-Q Summary
Business context and reporting period
Caesars is a geographically diversified gaming and hospitality company operating or managing 52 domestic properties in 16 states as of March 31, 2022, with approximately 47,700 hotel rooms, 54,300 slot machines, video lottery terminals and e-tables, and 2,900 table games. It also operated retail and mobile sports wagering in 23 states and jurisdictions and regulated online real-money gaming in five states. The filing covers the three months ended March 31, 2022 and is compared primarily with the three months ended March 31, 2021.
Comparability is affected by the April 2021 William Hill acquisition, the August 2021 consolidation of Horseshoe Baltimore, divestitures, and reclassification of certain operations into discontinued operations.
Financial results and key metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net revenues | $2,292 million | $1,792 million | Up 27.9% |
| Operating income (loss) | $(10) million | $216 million | Down $226 million |
| Net loss attributable to Caesars | $(680) million | $(423) million | Loss increased $257 million |
| Basic and diluted loss per share | $(3.18) | $(2.03) | Loss increased $1.15 |
| Adjusted EBITDA | $296 million | $535 million | Down 44.7% |
| Adjusted EBITDA margin | 12.9% | 29.9% | Down 17.0 percentage points |
| Operating cash flow | $(246) million | $61 million | Down $307 million |
| Capital expenditures | $210 million | $65 million | Up $145 million |
- Revenue growth reflected eased COVID-19 restrictions, higher gaming and food and beverage volumes, increased hotel occupancy, the William Hill acquisition, and Horseshoe Baltimore consolidation.
- Casino and pari-mutuel commissions increased 5.3% to $1,292 million; food and beverage revenue increased 100.6% to $339 million; hotel revenue increased 78.1% to $383 million; and other revenue increased 53.6% to $278 million.
- Operating expenses increased 46.1% to $2,302 million, driven by higher casino, food and beverage, hotel, general and administrative, and depreciation and amortization expenses, as well as digital marketing and promotional spending.
- Interest expense, net declined to $552 million from $579 million, while the income tax benefit increased to $107 million from $76 million. The effective tax rate on continuing operations was 19.2%, compared with 15.3%.
- Discontinued operations produced a $229 million loss, compared with a $4 million loss in the prior-year quarter. The 2022 loss included a $329 million impairment related to the reduced sale price of William Hill International.
- Las Vegas revenue increased 83.9% to $914 million and Adjusted EBITDA increased 146.9% to $400 million. Hotel occupancy was 82.9%, compared with 60.4%.
- Regional revenue increased 14.4% to $1,363 million and Adjusted EBITDA increased 16.8% to $459 million, partly reflecting Horseshoe Baltimore consolidation.
- Caesars Digital generated negative net revenue of $53 million versus positive revenue of $39 million, and Adjusted EBITDA declined to negative $554 million from negative $2 million. Sports betting handle was $4.690 billion and iGaming handle was $2.177 billion.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $814 million at March 31, 2022, down from $1.070 billion at December 31, 2021. Total cash, cash equivalents and restricted cash were $1.518 billion.
- Total debt was $14.306 billion in face value and $13.825 billion in book value; long-term debt reported on the balance sheet was $13.741 billion. Long-term financing obligations were $12.483 billion.
- Total liabilities were $33.227 billion and total stockholders’ equity was $3.846 billion, including Caesars stockholders’ equity of $3.785 billion.
- Management reported $2.030 billion of total revolver capacity and $2.706 billion of cash plus available revolver capacity after considering letters of credit and regulatory reserves.
- Available borrowing capacity included $922 million under the CEI Revolving Credit Facility, $960 million under the CRC Revolving Credit Facility, and $10 million under the Baltimore Revolving Credit Facility, based on the detailed debt disclosures.
- The company was in compliance with applicable debt and lease financial covenants as of March 31, 2022.
- Estimated debt service for the remainder of 2022 was approximately $593 million, and estimated VICI and GLPI lease payments were approximately $898 million.
- Estimated remaining 2022 capital expenditures ranged from $1.040 billion to $1.285 billion, including growth and renovation projects, Caesars Digital investments, maintenance, and Atlantic City capital spending.
Material changes versus the prior comparable period
- Revenue and Las Vegas and Regional operating performance improved substantially as properties reopened and restrictions eased, but profitability declined because of Caesars Digital promotional spending and higher operating costs.
- Caesars Digital shifted from $39 million of positive net revenue to $53 million of negative net revenue, primarily because launch incentives, bonus cash and matched deposits in jurisdictions including New York and Louisiana exceeded gaming win.
- Operating cash flow changed from a $61 million inflow to a $246 million outflow, while capital expenditures increased by $145 million.
- William Hill and Horseshoe Baltimore materially changed the company’s operating and financial presentation. The filing states that current and prior periods are not fully comparable.
- Other income (loss) improved to $4 million of income from a $133 million loss, reflecting foreign exchange forward contract gains, investment fair-value changes and resolution of part of the Former Caesars disputed claims liability.
- The company sold its remaining NeoGames shares for $26 million and recognized a $34 million fair-value loss during the quarter.
Guidance, outlook, risks and unusual items
- Management expected the sale of William Hill International to 888 Holdings to close in the second quarter of 2022, subject to shareholder, regulatory and other customary approvals. The amended agreement reduced enterprise value to approximately £2.0 billion; Caesars expected to receive approximately £585 million, or $785 million, after repayment of related debt and adjustments.
- Management stated that current liquidity, operating cash flows, available credit facilities and announced asset-sale proceeds were expected to fund operations, capital requirements and debt service for the next twelve months, but noted that this conclusion depends on various assumptions.
- The company expected to continue investing in Caesars Digital, new jurisdictions, platform migration, property rebranding, renovation and development projects. Caesars Virginia was described as an expected $500 million project, and a Harrah’s Nebraska development was described as an expected $75 million project.
- Lake Charles remained closed following Hurricane Laura. The new land-based casino was expected to be completed in the fourth quarter of 2022. The company recorded $38 million of insurance-related gains in Q1 2022 and expected to receive an additional $9 million.
- Caesars was required to invest $325 million at Harrah’s New Orleans by July 15, 2024. It also maintained restricted cash for a New Jersey capital expenditure plan, with $240 million remaining in escrow at March 31, 2022.
- COVID-19 variants, renewed restrictions, inflation, supply-chain challenges, labor shortages, economic conditions, competition, regulatory approvals and the performance of digital betting operations were identified as material risks.
- The company’s COVID-19 insurance claims were expected to exceed $2 billion. Insurers denied coverage, and litigation was pending in Nevada; the filing states that the outcome cannot be assured.
- Approximately $6.6 billion of long-term variable-rate borrowings remained outstanding, of which $1.3 billion was hedged by interest-rate swaps. The company also faced risks from the transition away from LIBOR.
Most important facts for investors to verify
- Whether the William Hill International sale closed on the expected terms and how much cash was ultimately available for debt repayment.
- Whether Caesars Digital promotional spending declines as planned and whether the segment achieves positive net revenue and improved Adjusted EBITDA.
- Cash generation after capital expenditures, debt service and lease payments, given the Q1 operating cash outflow and substantial 2022 investment requirements.
- Progress on deleveraging, maturity management and compliance with debt, bridge facility and master lease covenants.
- Completion and cost of the Lake Charles reconstruction, Harrah’s New Orleans investment and other announced development projects.
- Outcome and potential financial impact of the COVID-19 insurance litigation and other legal, regulatory and gaming matters.
- Actual results should be evaluated using GAAP net loss and operating cash flow in addition to management’s non-GAAP Adjusted EBITDA, which excludes significant costs and does not measure liquidity.