CZR 1Q12 CONF CALL NOTES

Poor results in Las Vegas and high corporate expense drives an EBITDA miss

 

 

"We saw strong performance in our core business in the first quarter, driven primarily by gains in Las Vegas and in our online businesses. We continued to make progress on expanding our distribution network both on land and online, on leveraging our scale to drive efficiency and growth and on further strengthening our financial position."

 

- Gary Loveman, chairman, president and chief executive officer of Caesars Entertainment

 

 

CONF CALL NOTES

  • Remain cautiously optimistic that their customers will increase spend per visit in LV over the coming months
  • Too early to tell what the impact of Revel will ultimately be
  • Octavius Tower - got great reviews.  Expect to bring the 3 luxury villas online in the coming months.
  • Unclear as to when MA licenses will be awarded but feel good about their chances of winning a license
  • LINQ project is progressing nicely.  They are encouraged by the caliber tenants that they are beginning to sign. 
  • Real money UK online gaming business continues to grow
  • CIE submitted an online gaming license in Nevada
  • Very happy with their acquisition of Playtika, which continues to perform well
  • They will focus on continuing to improve their capital structure throughout the course of the year as opportunities arise and market conditions warrant
  • Selling more equity will increase their float; they used proceeds to reduce debt
  • Just completed an amend and extend transaction
  • AC:  $7.1MM of tax reduction in the quarter and a $10MM deduction to past tax liabilities.  Added some new slots to AC which helped business.
  • IL/IN:  Increased competition in the Chicagoland region.  Saw some recovery in March when the bridge reopened.
  • Expect the managed piece of their business to become a more material part of their business.  Will grow with the opening of the Ohio casinos.

Q&A

  • Las Vegas ADR was impacted by mix in the quarter as well as the difficult convention calendar comparison.  They think that the calendar is positive for mix and ADR for the rest of the year. 
  • Hold helped them a bit in LV and hurt them a bit in AC
  • Impact from Revel - it really too early to tell.  Valley Forge and Resorts World NY also just recently opened so it's really hard to tell.
  • Octavius Tower didn't help margins in Vegas, but it definitely generated some positive EBITDA in the quarter. Gaming revenue growth flow through was consistent with the past.  Lack of ADR growth didn't help.
  • The assessed values of the AC properties were just way too high so at least there is some relief.  In 1Q, they recognized two benefits:  1) $7MM benefit that will be ongoing per Q and 2) a $10.5MM refund of taxes overpaid in the past.
  • Cash:  $1,135 for the consolidated;  $896 at CEOC; $106MM at the CMBS entity; $133MM at the parent company
  • CMBS purchases are at the parent company level
  • Improved mix in future quarter and benefits from marketing efforts give CZR optimism that spend per trip will increase in Vegas in the coming quarter.  Some of the decreased spend this quarter also came from lower end segments
  • Nobu Tower:  280 Centurian rooms closed this quarter while they are working on the new tower. When the Nobu Tower opens at the end of this year they will be net room neutral - spending $30MM.
  • Biloxi, MS:  Have had some discussions to retire the asset down there and therefore they took a writedown. (basically they have a big slab of concrete there)
  • Don't think that they need to be more promotional per se, but rather do a better job in communicating their value proposition. The elasticity of promotional spending is actually quite low.
  • Online gaming timing:
    • AC:  Seems favorable and expect a favorable result, but the governor is moving slower than expected
    • Nevada:  In the event that there is not a federal bill, they have a few pieces of the legislation that need to be fixed.  Also, Nevada on its own is not large enough from a liquidity standpoint so that is an issue. 
    • Do not expect to be online in the US by year-end

HIGHLIGHTS FROM THE RELEASE

  • "The increase in net revenues was due mainly to higher revenues in the Las Vegas and Louisiana/Mississippi regions, and from the Company's international and online businesses, including revenues related to Playtika, which was acquired during 2011, partially offset by a decline in net revenues in the Atlantic City region."
  • Trip and spend per trip statistics

CZR 1Q12 CONF CALL NOTES - CZR

  • Cash ADR remained flat at $92 in 1Q12 compared to 1Q11.  Occupancy also remained flat in the first quarter 2012.
  • "In Las Vegas, business from international visitors continued to drive growth in gaming revenues, as visitation to the city increased in February for the 24th consecutive month and the macro-economic environment continued to show signs of improvement."
  • LV revenue growth was "primarily due to continued strength in the international, high-end gaming segment and to the January 2012 opening to the public of the 662-room Octavius Tower at Caesars Palace. Hotel revenues in the region increased 5.2%, cash average daily room rates increased 1.0% to $95 from $94 and total occupancy percentages decreased 0.7 percentage points for the first quarter of 2012 from 2011."
  • AC: "Decline in casino revenues more than offset increases in non-gaming revenues. Trips and spend per trip by lodgers decreased while trips and spend per trip increased for non-lodgers. Property EBITDA increased in the first quarter 2012 from 2011 as a result of reduced property operating expenses, including the property tax settlement, which more than offset the income impact of lower revenues."
  • Louisiana/Mississippi region increased... "primarily due to an increase in casino revenues.  Trips rose in the first quarter 2012 from 2011 while spend per trip declined slightly." Property EBITDA increased ... due to increased revenues and reduced operating expenses and a $7MM insurance proceeds.
  • Iowa/ Missouri net revenue increased "due to increases in both trips and spend per trip... Property EBITDA increased .... due mainly to the income impact of higher revenues in the region."
  • "Illinois/Indiana region decreased... due to the impact of both reduced access to one of the Company's properties resulting from a bridge closure beginning in the first week of September 2011 that reopened in February 2012, and new competition in the region... Property EBITDA decreased... due mainly to the impact of lower net revenues."
  • Other Nevada net revenues decreased ... "due mainly to a decrease in spend per trip... Property EBITDA were negatively impacted by the decline in revenues."
  • Managed, International, and Other results increased ... "due mainly to increases in spend per trip at the Company's London Clubs properties and the addition of revenues from the 2011 acquisition of Playtika."
  • "To attract new members, we re-launched an enhanced Total Rewards with a free four-city concert tour that was followed by double-digit increases in online traffic and bookings at Caesars.com in March."
  • "We continued to strengthen our financial position, completing four transactions in the first quarter that have collectively added public equity and extended debt maturities. In April, we announced plans to issue up to 10 million shares of common stock from time to time, which will help us continue to reduce debt and invest in growth opportunities."
  • There was a $172.0MM charge in 1Q12, of which "$167.5MM was related to a non-cash impairment, related to a previously halted development project in Biloxi, Mississippi."
  • CZR reached a favorable Atlantic City property tax settlement in the first quarter 2012 which resulted in a decrease of approximately $17 million in property tax expense
  • 1Q12 "results include the recovery of business interruption insurance proceeds of approximately $7 million reflecting lost profits associated with temporary closures of three properties in Tunica, Mississippi in the first half of 2011, as a result of flooding."
  • Capitalized interest was $8.8MM
  • "During the first quarter of 2012, the Company recognized a gain on early extinguishments of debt of $45.8 million, net of deferred financing costs, due to the purchase of $118.7 million face value of CMBS Loans for $71.7 million."
  • "Estimates that Project Renewal and previous cost-savings programs produced $42.0 million in incremental cost savings for the first quarter of 2012" 

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