CZR: BIG MARKET BUST

Struggles in LV and AC were partially offset by strong regional performance.

 

 

CZR’s results (excluding one-time items) fell 3% YoY below our Property EBITDA estimate but higher corporate expense contributed to a bigger net EBITDA miss.  Below are some of our observations on the quarter’s results that we believe warrant comments

  • Las Vegas revenues were in-line, but EBITDA was about 11% below our estimate.  We’re a little disappointed that CZR’s didn’t get more of a lift from the opening of the Octavius Tower in January. 
    • We estimate that operating expenses net of taxes increased 5% YoY in the quarter, largely due to the increased operating expenses from the opening of Octavius.
    • There should be some sequential improvement in coming quarters as Octavius Tower will likely take a few quarters to ramp to normal gross margins
    • Our understanding is that Group mix usually contributes 20% of room nights in 1Q and that shifted down to about 18% with more fill-in from FIT.  Since most of the rooms at Octavius are comped, ADRs didn’t see much of a lift.  Even so, net revenues should’ve been higher.
    • Spend per visit fell almost 2% and we’re not confident that we’ll see major improvement going forward
  • AC revenue weak even before the opening of Revel
    • Excluding the $17MM tax reduction, operating expenses would have been flat YoY despite the 4% net revenue decline. 
    • $10MM of the tax reduction in the quarter was one-time.   Without the benefit, EBITDA would have been down 10% YoY and that’s before the impact of Revel.
  • LA/MS regional results were above our expectations, even excluding the $7MM insurance proceeds
    • We estimate that operating expenses (ex taxes) would have been up 3.5% YoY without the insurance proceeds benefit in the Q
    • Excluding the benefit of insurance proceeds, EBITDA would have still been up 16% YoY
  • Managed and international performed in-line with our expectations
    • $144MM of revenues with estimated EBITDA of $33MM vs. $32MM last year
    • We assume that D&A remained constant at $14.2MM in order to back into our EBITDA estimate
  • Corporate and other (mainly Playtika) exceeded our estimates in the quarter
    • $64.7MM of net revenue and $32MM of EBITDA
    • While the company refused to provide any color, Playtika revenues were an estimated $42MM in the quarter, implying almost 50% QoQ growth
    • We estimate that Corporate & Other revenue were about $23MM in the quarter, up 12% YoY and $1MM higher than in 4Q.
    • At current growth rates, Playtika revenues should be well in excess of $200MM this year