Caesars Entertainment Inc (CZR) 2024 Q3 法說會逐字稿

Hello, and welcome to Caesars Entertainment 2024 earnings conference call. (Operator Instructions) Please be advised that today's conference is being recorded.

It is now my pleasure to introduce Senior Vice President, Corporate Finance, Treasury, and Investor Relations, Brian Agnew.

Well, thanks, Andrew, and good afternoon to everyone on the call. Welcome to our conference call to discuss our third quarter 2024 earnings. This afternoon, we issued a press release announcing our financial results for the period ending September 30, 2024. A copy of the press release is available on the Investor Relations section of our website at investor.caesars.com.

Additionally, we announced two press releases, one for the completion of the World Series of Poker sale. And then just a late press release just hit for the sale of the LINQ Promenade, which Tom Reeg will discuss in more detail during his remarks.

Joining me on the call today are Tom Reeg, our CEO; Anthony Carano, our President and Chief Operating Officer; Bret Yunker, our CFO; Eric Hession, President, Caesars Sports and Online Gaming; and Charise Crumbley, Investor Relations.

Before I turn the call over to Anthony, I would like to remind you that during today's conference call, we may make certain forward-looking statements under safe harbor federal securities laws, and these statements may or may not come true. Also, during today's call, the company may discuss certain non-GAAP financial measures as defined by SEC Reg G. Please visit our press releases located on our Investor Relations website for a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure.

I will now turn the call over to Anthony.

Thank you, Brian, and good afternoon to everyone on the call. Our third quarter delivered same-store consolidated net revenues of $2.9 billion and adjusted EBITDA of $1 billion. Results were driven by record non-gaming performance in Las Vegas an all-time quarterly EBITDA record in our digital segment, offset by new competition, construction disruption, and tough year-over-year comparisons in our regional segment. Consolidated EBITDA margins of 35% for the quarter were flat to the prior year.

In Las Vegas, our team delivered same-store net revenue of $1 billion and adjusted EBITDA of $472 million, down 2% versus last year. Las Vegas segment results were driven by another record performance in hotel and F&B cash revenue, driven by strong ADRs and occupancy of 97.1%. Our group and convention segment continues to deliver strong operating results and pacing the 2025 has recently accelerated.

Las Vegas segment EBITDA margins of 44.4% were roughly flat year-over-year, driven by lower same-store operating expenses, a testament to our focus on driving efficiencies. Looking forward, we remain optimistic regarding operating trends as we look to the fourth quarter and into next year, driven by strong occupancy and ADR trends.

In our regional segment, adjusted EBITDA for the quarter was $498 million, down 13% year-over-year. This quarter was met with tough comparisons to the prior year especially in Reno, competitive pressures in certain markets and peak construction disruption in New Orleans. On October 22, we celebrated the ribbon cutting ceremony for Caesars New Orleans, a $435 million capital project. The completely renovated and rebranded property added a new 340-room hotel, remodeled casino floor, and several high-profile F&B outlets for many of our celebrity chef partners, including Emeril, Nina Compton, Bobby Flay, and Nobu.

Additionally, we are looking forward to the opening of our permanent facility in Danville, Virginia in December. The openings in Danville and Orleans will complete the elevated CapEx cycle for the company as we now turn to harvesting the investment we made in these flagship destinations.

Our team members continue to deliver exceptional guest experiences as a result of their continued hard work and dedication. I want to thank all of our team members for their contributions to our strong results. With that, I will now turn the call over to Eric for some detail on the third quarter results in our Caesars Digital segment.

Thanks, Anthony. Caesars Digital delivered third quarter net revenues of $303 million, up 41% year-over-year, which drove an all-time quarterly adjusted EBITDA record of $52 million versus just $2 million a year ago. With this performance, we have now generated trailing 12 months EBITDA of $126 million. Our net revenue flow through to EBITDA in the quarter was slightly above our planned 50% range.

In our iGaming segment, our net revenue growth rate accelerated in the quarter to 83% driven by a 55% increase in volume and a 40 basis point increase in year-over-year hold. Our stand-alone Caesars Palace app continues to grow as a percentage of our total eye casino revenues. Subsequent to quarter end, we launched the Horseshoe casino brand in Michigan, Pennsylvania, and West Virginia with plans for Ontario and New Jersey by year-end.

In our Sports Betting segment, our net revenue growth also accelerated in the quarter to 36% year-over-year, driven primarily based by increased hold of 8.6% versus 6.5% last year. Enhancements we've made to the app drove higher Parlay and cash-out mix, which helped drive structural hold improvements during the quarter. Given our road map and our customers' receptivity to the enhanced Parlay options, we now believe that achieving structural hold above 10% threshold is achievable over the next few years. As a result, you should expect to see consistently increasing structural hold as we are working off a relatively low baseline.

In both iCasino and sports, we're starting to see improved retention as a result of our segmented marketing campaigns. If you recall, we started constructing and testing the campaigns in April of this year. We currently have 40 campaigns active and are optimistic that further refinement in this area will drive additional improvements as we head into 2025. We now offer sports betting in 32 North American jurisdictions, 26 of which offer mobile wagering.

I'll now pass the call over to Brett for some comments on the balance sheet.

Thanks, Eric. In October, we printed a $1.1 billion senior unsecured bond issuance at 6% with proceeds applied to our (technical difficulty) 2027 bond maturity. Our sale of the World Series of Poker brand closed today yielding $250 million of upfront cash proceeds and $250 million five-year note. We repaid our revolver balance in full and intend to use the bulk of incremental asset sale proceeds to further reduce debt.

Reducing debt alongside reductions in our fixed and floating rate cost of debt will yield significant cash interest expense savings going forward. Our 2025 budgeted cash CapEx excluding our Danville JV, is approximately $600 million. Over to Tom.

Thanks, Bret. I'll start with some general housekeeping in the quarter. There's $10 million-ish of expense in the corporate line item this quarter that I would view as onetime but was not added back to EBITDA relating to lobbying efforts primarily in Missouri and adverse claims impact in our health care.

Taking each segment at one at a time. Regional, I told you last quarter that what we were anticipating was continuation of what we saw in the second quarter where New Orleans would be significantly impaired on a year-over-year basis due to disruption, Reno would be impaired because of lack of a significant group that was in the business last year. Both of those came true.

I didn't have our friends at Boyd opened their treasure chest move to land base at a particularly for fortuitous time relative to what was happening at our New Orleans property where the bulk of the gaming floor was under construction. So New Orleans had a particularly difficult quarter.

If I look at regionals across the enterprise, we have significant properties that were continue to be impacted by incremental competition. We've got Horseshoe Indianapolis with Terre Haute. We've got Tunica with Southland. We've got our three Chicago properties with the various Chicago market, Illinois openings, and we've got Council Bluffs, which has been impacted by the Racino openings in Nebraska. We've really not had tailwinds to speak of within the portfolio in terms of things we were doing that would offset them.

That changed in last week when we opened Caesars New Orleans, as we've talked about repeatedly, there's a significant opportunity for a very high flow-through incremental revenue there because of the way the tax structure is set up in New Orleans. The property turned out beautifully. Anthony went through the particulars of what we added, but the early reception has been tremendous. We're very, very optimistic about what happens in New Orleans.

Also, Virginia will open before the end of the year. That's a significant increase in gaming positions in a property that is our highest win per position property in the enterprise. So we're very excited about that as well. The last thing I'd say about regional in the quarter is, as you know, we have properties along the Gulf Coast and in Florida, and there was some weather impact that hit those due to the storms during the quarter. Hopeful that, that's nonrecurring.

As you look toward '25, we sit here almost November 1. So we see to start to think about '25. We will have tailwinds in New Orleans and Virginia that start to offset some of these competitive impacts in regional. So we feel very good about the way '25 looks versus the last two quarters and regional for us.

Looking to Vegas, what I told you last quarter is we'd expect to be flat to up for the third quarter. We ended up coming in down about $10 million in EBITDA. If you look at the specifics of that, that's all table hold related. So our non-gaming revenue and cash flow were records, our slot handle and win was flat. It was table hold that was the laggard. It was not poor table hold, it was within our range of expectations, just not as strong as last year.

As you look to Vegas moving forward, I feel good about the fourth quarter where we've got Versailles Tower online where it was not online last year. Early returns there are quite strong. We also had the catch-up accrual for the union contract in the fourth quarter that will not recur and then you look into -- and I also want to touch on -- I know there's been a lot of chatter on F1 and fourth quarter generally in the market. For us, recall F1 was about $17 million, $18 million lift last year in EBITDA versus the same quarter, the same weekend in '22.

If I were looking at '23 for that -- for the race in particular, I would say, flat to down a couple of million dollars versus last year, but highly dependent on hold, given that's a high-end business. So really from an investment perspective, what it's doing to our cash flow versus last year basis, it's not worth mentioning, except that you've had all this chatter in the market.

Cash room revenue for the quarter. I know that you see rate surveys that are muddied by all that went on with F1 last year. I'd expect our cash room revenue to be up year-over-year slightly for the fourth quarter. So really nothing to read into Vegas other than continued strength.

As we look into '25, again, first quarter was a difficult quarter for us hold wise, you're kind of the left side to standard deviations in terms of where our hold would normally be. So we would expect that we recoup some of that in the first quarter. And then I'd say you're looking at flat to slightly up as you look out through the rest of the year. The convention segment, the group business for next year was stronger in '24 than '23 and will be stronger in '25 than '24.

And then if we go to digital, tremendously pleased with the way digital has been coming together. Eric talked about over 40% top line growth in aggregate, 83% in iGaming, which is extraordinary. We had been outpacing our peers in growth by about 2x coming into the quarter. I'd expect we're closer to 3x in the third quarter, and that was without the rollout of the Horseshoe brand. I feel very good about the rollout of that brand.

We've got data on Michigan, we've kind of got a full month or so now in Michigan, where -- that's how we migrated the wine customers that we acquired over into our Horseshoe brand. And not only did we not have friction where we lost customers, we actually grew that business versus where it was win. We've recently launched Pennsylvania and West Virginia and expect that to be a further building block in iCasino after a 83% growth in the quarter. This month is still growing on a sequential basis month-over-month. So we feel very, very good about what's happening there.

All of the targets that we've laid out. I know that we talk about this all the time, there's really no change to our expectations. We'd expect to have a strong fourth quarter, notwithstanding October has been not the best sporting outcomes, but you've got a lot of the quarter left and a lot of heavy sports calendar for the next 60 days, where we feel we can start to claw some of that back. But I'd expect a very good fourth quarter.

And then into next year, expect continued strong growth. As Eric said, structural hold continues to increase in our business. You can see that in our results and coupled with what's going on in iGaming, I think the future is very bright for our digital business. I think that business is going to end up generating a hell of a lot more than the $500 million target that everybody has been wringing their hands about for the last three years. So we feel very good about that.

Stepping over to kind of strategic and financial. We announced the sale of the Promenade retail lease portfolio to retail and F&B lease portfolio today. The multiple on that trade is about 14 times so you can do that math, that EBITDA will come out. That was all in the Vegas segment. So that comes out next year. We announced -- we executed a $140 million share buyback in the third quarter. You should expect that as we -- we've talked about -- we've gotten to our inflection point from a capital spending standpoint.

With Virginia opening, you should expect CapEx down next year to be running on a gross basis, $650 million, so significantly below where we've been in the last couple of years. By the end of this year, we'll have paid back -- we will have reduced debt by 25% in absolute numbers since we closed the Caesars transaction.

Debt reduction remains our number one priority, but we did execute the $140 million share buyback. We've got another $500 million authorized. You should not expect a programmatic use of this authorization. It's not going to be x amount per quarter as far as the eye can see. We're going to be looking at returns in the various possibilities in terms of capital spending, debt reduction and share repurchase. Debt reduction will remain our number 1 focus.

But if we can continue to buy our stock in the mid-teens or better free cash flow yield, you should expect us to be active there as free cash flow comes in and cash flow from asset sales comes in. So you should expect a piece of this Promenade sale does get used during the quarter for repurchase.

In terms of future asset sales activity, we have discussions around noncore assets that are ongoing, but I would tell you that World Series and Promenade were the two easiest ones to execute on, although Brian, who spearheaded Promenade, might dispute that Promenade was an easy one. But these were the two simplest ones for us to execute. So you should believe that we're still working down that path, but that the stuff that we're working on has longer tail and/or lower probability than the two that were executed.

But as we look into '25, Brett talked about our refinancing, every 100 basis points of rate reduction from the Fed is $60 million of incremental free cash flow for us. So they're 50 basis points, first move is $30 million a year for us. The unsecured note offering that Brett just executed in the quarter is another $20 million. So you've got $50 million incremental annual coming in.

You've got a much lower lease step-up this year just because of the mechanics of the leases and you've got a significant step down in capital expenditures. So our free cash flow is going to increase dramatically as we move forward. So we think we can continue to reduce debt and we can buy back stock responsibly, and that's our plan as we move forward.

And with that, I'll turn it over to Andrew for questions.

(Operator Instructions)

Carlo Santarelli, Deutsche Bank.

Hey, thanks. Eric, if I could start with you. It looks like in the digital side, if reading through the [Q] that you guys seem to take about 300 basis points out of your promotional investment. With the launch of the second brand on the iCasino side, should we expect that to continue to reduce? Or do you have to put a little bit more reinvestment into that in the near term? And could you talk a little bit about -- I don't know how much you'd be able to go into detail on it, but the sports reinvestment strategy versus the iCasino promotional reinvestment strategy from here?

Yeah. I'm glad you brought that last point up because there is a different strategy between the two. On the sports side, you'll notice in the states that report the reinvestment levels were generally about half of what the market average is. We feel that, that's an appropriate strategy through our segmented marketing that may have the opportunity to come down even further. But on the sports side, we're definitely on the lower end of reinvestment, and we're able to keep our share roughly constant.

On the casino side, we're very much in line with the market, we believe. That's a bit of a different strategy on that strategy, as you've seen, we believe that because of the brand, because of the app that we have, because of our database, and because of the opportunities that we have from the brick-and-mortar side, we think that there's a real opportunity to grow that business and grow share significantly as we've been doing this year and this quarter. And so we are investing at a higher rate, kind of right in line with the market.

I wouldn't anticipate that changing with the launch of the Horseshoe. We're going to invest, again, kind of consistently with the market on that product as well. I do think that our higher hold that we had in September through good sporting outcomes drove down the reinvestment that's reported in the quarter a bit. But broadly speaking, it should be in this range of around 20%, 22%.

Great. Thank you. And then, Tom, just for a follow-up or Anthony, whoever wants to take this one, but you guys talked about kind of the outlook for Las Vegas and feeling fairly good about what 2025 looks like. Just in terms of visibility on the group side, are there any kind of metrics you could provide? And additionally, is there anything from a city-wide perspective that might be somewhat underappreciated at this point?

Carlo, I don't think anything from a citywide perspective is underappreciated. I think the group and convention segment continues to do a really good job filling out the forum and the rest of the space within the enterprise. But at a super high level, we would expect occupied room nights and rate to drive higher group total revenues and EBITDA in '25. So it's pacing to set another new record for the segment. So that's a good way to be thinking about it now.

Yeah, I appreciate it. Thank you.

Joe Greff, JP Morgan.

Good afternoon everybody. Tom, I was originally going to ask you a question about how you view your priorities in '25 and deploying excess free cash flow, but I think you kind of [pushed] that out. The only kind of related question I have to that is after closing on the World Series of Poker sale and then announcing today the LINQ Promenade sale. And you mentioned you have some other noncore asset sales that you're working on. Is it fair to assume that the other noncore asset sales are smaller in size and scale than these two that you've announced and closed on?

No. I'd just say they're more complex and much longer tail to come together. So in terms of chunkiness, we've got assets that are -- if you're thinking about a [$275 million to $500 million], either end [$275 million] being Promenade, [$500 million] being World Series, I'd be thinking about in terms of in between those numbers. But again, complexity, timeline probability are different than the ones that we've already executed.

Great. Thank you for that. Eric, going to you on the iCasino side. I know it's been a month or less than a month. in terms of launching Horseshoe. Can you talk about sort of the early launch and what you're seeing, particularly as you go for mono brand to multi-brand, what you're seeing on the existing Caesars Palace online performance?

And then, Tom, you referenced again the $500 million of annual EBITDA in digital at some point in the future. But when you sit here now and you think about what you've been doing in iCasino, as well as what you've been executing on in OSB, how do you break out between the $500 million related to iCasino? Thank you.

Yes. So to take your first question, Joe, it is very early. We have turned on maybe half our Avenue marketing avenues at this point. The one thing that I would say is we did convert over the win customers since we took over their skin. And they converted over very well. They're playing well, and they are contributing the majority of the business right now. We're obviously signing up customers daily. And so that percentage will go down over time in Michigan. But we got a nice jump start by having those customers already active and convert them over.

So I think what you'll see in the next month or so as we ramp up a little bit more of the advertising and marketing, particularly now that we have three states live, then we'll be able to get a better feel for the actual growth rate. But everything we're seeing is positive, customers like the app, they're staying on the app. I would say that the average worth of the customer is slightly higher so far than on the Caesars app, but it is early to draw any conclusions from that.

And Joe, on your question of sports versus iGaming, in our $500 million, the expectation is that would be fairly well 50-50, give or take a few points. Obviously, that means iGaming on a per state basis, moves the needle dramatically more than sports betting. So if and when there are additional iGaming states as we move forward, those would be more impactful than a new sports betting state for us.

And also keep in mind, what we're doing in iGaming is after we were very late to the game. Recall, in the prior, [William Hill] didn't have any real iCasino business developed to speak of. So we had to build the app, the brand, actually two brands and roll them out into a market where our peers have already been operating for multiple years. So we're pretty excited.

If you look forward, and there are future casino states, as Eric said, we operate from a marketing standpoint in iGaming pretty similarly to our peers. So we're curious in the future to see a state rollout in our new form with our new brands.

Thank you. Thank you.

Brandt Montour, Barclays.

Good evening, everybody. Thanks for taking my question. So first question is on OSB. Tom, you mentioned October, we've all been watching with bated breath here. I know you haven't even closed the books on the month, but maybe if you could compare and contrast how October OSB is faring versus last November? And if the structural hold, Eric, that you've mentioned and that lift is acting as a cushion versus those adverse sport outcomes?

Short answer is no. So two weekends ago was the single worst combination of sports betting outcomes we've seen since we started the business. The week before last was not good, but not as bad as two weeks ago, the other two weeks in October were kind of normal.

But your -- the shift to parlays cuts against you when you have sporting outcomes like that, our parlay percentage is much higher than it was last November. And so when -- what was it, every favorite, but one that week, that's a tough set of outcomes. Yeah, so October is not going to look great for anybody relative to what they were expecting, but this is just part of the business that you're in. I don't think it makes any difference to the structural story for us or for anybody else in this space.

That's very clear. Thanks for that. And then just a follow-up still on digital. The hold that you saw in iGaming year-over-year, the lift, just curious how we should think about that if there's structural things going on or if it's just something that will sort of oscillate around these levels from here?

I mean, I'd say a big piece of it is more slots versus tables. So the launch of Caesars Palace online, remember the idea was our existing Liberty based iGaming business was table heavy since you were coming through the sports app. That's a lower hold more volatile business than the predictability of slots, and that's really what you saw roll through our numbers in the quarter. So that should continue.

Great. Thanks everyone.

So that should continue.

Dan Politzer, Wells Fargo.

Hey, good afternoon, everyone. Thanks for taking my question. Tom, I think that there was a cash inflow or distribution from Pompano in the quarter, maybe $40 million or so. Is that something we should think about coming in on a continual basis? Or could you give additional context there?

And along those lines, maybe if you could shed some light on how we should think about maybe the parameters through which we should look at free cash flow for next year as it relates to interest expense or cash taxes in addition to some of the items you gave earlier. Thanks.

Yes. So I'll flip to Brett on the cash flow question. In terms of Pompano, yes, as it turns out the way that we're developing the project with Cordish. It's heavy on outright sales of land to entities that are building the various pieces. So we started to distribute cash as a partnership during the second quarter and your number is pretty close to where we were. And yes, you should expect there are some future distributions of that size in the coming quarters as additional pieces of that project get underway.

Dan, on the free cash flow bridge for '25, we're looking at rents going up just under 2%. So you should be right around $1.35 billion on the rent number. On cash CapEx, we already talked about it, $600 million to $650 million depending on if you're picking up Danville or not. Cash interest expense depends on the pace of the Fed, but we're looking at $650 million to $750 million on cash interest expense. And then you can pick your EBITDA, but when you get down to free cash flow, your cash taxes will be roughly 15% to 20% of the free cash flow number.

Got it. And then just turning to Danville, Obviously, that property is running at a high level right now. I think slots [550 to 600] win per unit per day. and tables are doing well, too. So as you think about kind of adding those gaming positions, broad strokes, is there any kind of directional guidance or expectation as you kind of expand that property. And then any kind of color on how we should think about margins relative to a full property versus a temporary property?

Yeah. So that will be margin dilutive, certainly, that's running in the neighborhood of 60% EBITDA margins in out of the [tens]. You should be looking at something more like our other regions kind of mid-30%s or better going forward. You've talked about the win per position per day. The actual win per position per day. I've told you it's the largest in our system, it will be dilutive to that as well, but you're looking at almost double the position.

So if you think about it, you're going to generate significantly more revenue, but you're going to have significantly more expense. So if you think about the total view of EBITDA, I would say, just cuffing it two-third to 70% of the total EBITDA was already being generated by the temporary property, but it's a meaningful lift to our regional segment to get the [property].

That's helpful. Thanks so much.

Steven Wieczynski, Stifel.

Hey guys, good afternoon. So just in the interest of time here, I'll just ask one question. So Tom, if we kind of take a step back and think about -- a couple of years ago, you talked about how there was a potential chance to sell an asset along the strip and all that went away, obviously, due to the rate environment. But if we fast forward to today, and obviously, we're starting to get a much better rate environment out there.

I guess my question is, are you starting to see the demand come back in terms of inbound interest for some of your assets? And I'm not sitting here trying to say you're doing anything or you're not doing anything, I just want to know more if that interest level is as strong as it's ever been.

Yes, Steve. So to be 100% clear, we have no asset sale processes of actual casinos ongoing as we speak. But to your point, if I just break the year into the 90 days between these conference calls. The biggest change that I've seen in the last 90 days is the amount of incoming activity you've got from.

People calling us up and saying, what do you think about this asset? What do you think about that asset? And as you know, we're economic animals. So if it ultimately makes sense that the best way to drive value is we transact. That's a possibility. But again, there's nothing active ongoing, but there is a whole lot more inbound activity post the first Fed move.

Okay. Got you. That's perfect. Thanks to appreciate it.

David Katz, Jefferies.

Hi afternoon, everyone. Thanks for working me in. I wanted to just double back on kind of the Danville transition, right, and just make sure we have the cadence right for the next couple of quarters. In general terms, if you could just talk about if we're pulling out the temporary facility, which is, to your point, is highly productive and starting off with a new permanent facility, should we be thinking about maybe some EBITDA dislocation for a quarter or two or three or more while that new property ramps? Or is it really just more of a margin conversation?

Yes, it's the latter, David. So we have a tent that, right now, sits in a parking lot of the permanent. That tent will operate until the moment that we open the permanent. So it's pretty seamless, there isn't a -- you shut it down and you go through testing, that sort of thing. You do all that while the temporary is still open. So it should just be as if the temporary just became dramatically larger from one day to the next.

And if I were -- in terms of how you would model it, I would say, you probably consider the -- view it as if the temporary is operating until the middle of December and you get a couple of weeks this year from the permanent. That probably ships a few days in either direction, but that's a good thing.

And David, this is Anthony. We're really excited because it opens up a whole another segment of our database on that Eastern seaboard, someone that may not come and just travel for the day, but we're going to have a beautiful new 340-room hotel, great restaurants with some celebrity chefs. So it attracts a whole new clientele that may not be coming to the temporary facility today as well.

Got it. I've been to see it. And just quickly with respect to Vegas and any competitive or promotional changes, anything going on in the marketplace that we should be aware of? Or is the promotional environment kind of status quo?

I would say the market has been remarkably stable. I know there's been the mania on the investment side of things are changing rapidly in the wrong direction that we're not seeing. We are seeing zero evidence of that on the ground, the business has been running in the high 90s occupancy rates a little better as you move to group business. Group business helps your non-gaming grow. And then it's a matter of how did you do in the table business versus last year. That's a good setup for us in the first quarter, and then we've got Versailles online this year versus last year. So we don't see a big change in either direction in this business as we sit out here today.

Perfect. Thank you.

Barry Jonas, Truist Securities.

Hey guys. For digital, can you give us an update on some of the key functionalities you're working on, maybe like shared wallet to help bridge any product gaps with the market leaders? Thanks.

Yeah. I would say the biggest one that we have right now is the shared wallet that you raised. We're currently in nine states or jurisdictions. We're rolling it out, we're trying to do a little bit more than one a month. And so we're targeting kind of the midpoint of next year before we're completely switched over to our own TAM.

But currently, if you're in any of those nine states and you go to another state that's the same on the TAM, then it will automatically have your wallet shared. So it's just not connected to Nevada and some of the other key states right now, but that's progressing very well.

In terms of the efforts that we've had to improve our parlay mix this quarter on a year-over-year basis, our parlay mix grew the fastest that it's grown and it's hit an all-time high. And then you see the results in the hold percentage. So we're pleased with that.

There are still some products that we're missing. A lot of the live, same game parlay on some of the non-main markets our product still lacks what some of the others offer. But overall, I feel like we've made a lot of progress in the last year and really close the gap. And I think you can see that and the fact that we're able to reinvest at much lower levels and still retain the customers.

Great, thanks, Eric.

Shaun Kelley, Bank of America.

Hi, good afternoon, everyone. Thanks for taking my question. Tom, I want to go back to just the regional outlook for a second, if we think about some of the puts and takes, obviously, a lot more tailwinds as we turn the page, but there's still some of this competitive stuff that's popping up. And obviously, I think we're familiar with your formula, which is being quite disciplined on how you react when that competition comes in the market.

So the question is, just we put through the puts and takes, I'm keeping an eye on like south suburbs in Chicago, in particular, as we see still some incremental headwinds from places like that, are we in a place where we feel really confident that regional gaming grows next year? Do we end up flat? I mean, obviously, the headwind is going to be a lot less, but there still seems like there's going to be some. So just if you could help us think about that high level.

Yes, there's still more headwinds than tailwinds for us. I think you're looking at a year that's down slightly to flat, is my regional expectation for next year. You've got the [Ports Creek] product that opens.

November 11.

Yeah. So in a couple of weeks in the Chicago market will be impactful to both Joliet and [Ham] we do have the opportunity. So as these properties open, our philosophy is you don't really get in the way of the trial from your customers. Your customers are going to go try the new product regardless of what you do. But in a number of these properties you're looking at, they've been operating for a few quarters now. And now we can go back into those battlegrounds and fight for those customers.

And that's really the swing factor in terms of does '25 end up being a growth year for regional or not? Is the effectiveness of our ability to fight in those markets in Indiana, in Chicago, in Mississippi, in Iowa that have already been impacted by competition. So we haven't anniversaried a lot of those. There are some that continue well into but it should be a much different picture in '25 for us than it was in '24.

Understood. Thank you for that. And then just a question sort of a high level on the legal side actually as it relates to sports betting. Obviously, you talked about some of the possible expenses or expenses related to Missouri, and I think some people have been watching that market. And just wondering how just big picture of the company, how Caesars' looking today at the expansion of OSB broadly? Have you kind of changed a little bit in your outlook for the OSB pros and cons? And sort of how do you think about that versus iGaming? Are they separate? Or overall, are you taking a little bit of a new course as it relates to digital expansion from here?

We'd like to see OSB and iGaming in every jurisdiction of the United States. We think it's important that it's done in a manner that makes sense for the operators and for the state. And you've got a well-established path of legalizing and licensing through the operators that have invested substantial amounts of capital employed, thousands of people and paid hundreds of millions, billions of dollars in taxes, we think it's important that it continues on that path. But we would like to see OSB and iGaming in every jurisdiction that we possibly can.

Thank you very much.

Stephen Grambling, Morgan Stanley.

Hey, thank you. As you've seen the handle share improving in iGaming and more engagement, are you seeing any change in the types of customers playing as we think about either new customers to the entire system across [most] OSB and/or overlap with brick-and-mortar?

I would say that on the iCasino side, the main shift that we've seen is on the with the introduction of the Caesars Palace Online stand-alone app. We've seen a lot more slot players move over. And we are seeing more crossover between the brick-and-mortar and that app as you'd expect. I do think there's a lot more opportunity there, however, we're really becoming more and more integrated into the brick-and-mortar process through the host, through the PD teams, through the marketing activities that go on at the properties.

So we're optimistic that the percentage of crossover will continue to grow. And then we know, of course, that the customers that play with us on brick-and-mortar and also play with us online, we get a much higher percentage of their wallet and it gets consolidated to us. And so as a result, we see a higher value from those customers.

And as a follow-up, this may be an opportunity for Tom to pull a lot of the earlier questions together. But in the past, I think you had walked from call it, $4 billion to $5 billion in EBITDA with a couple of building blocks. How would you characterize that walk now thinking through all the puts and takes from dispositions, new assets, some of the trends and then the path on digital?

Yes. So [Sean], we're -- I don't know what -- this is a number of quarters in a row where we're in the neighborhood of $1 billion of EBITDA. So call it, a $4 billion enterprise with very little contribution from digital to date in terms of EBITDA, but inflecting as we speak and obviously just posted a couple of good quarters in a row. So I think that going to [500] and beyond is still the same kind of road map we've talked about now for three-plus years.

The brick-and-mortar side, we see returns from the investments in regional continued growth in Las Vegas that gets us hundreds of millions of incremental EBITDA if you're looking out over the next couple of years. So that gets you to the right side of that $4 billion to $5 billion range seems in our minds, to still be a very clear path that we're headed down.

So it was an enormous task to integrate the Caesars acquisition to stand up a digital business and to complete these major project spend, and we're toward the back side of each. And you're going to see that roll through the way EBITDA and free cash flow can work in this business as we move forward. So we think the future is very bright here.

Thank you.

John DeCree, CBRE.

Hey guys. Two questions. Tom, you just spoke a question or two ago briefly about your thoughts on legalization of online sports betting and iGaming. But I wanted to ask specifically about Florida, if you've had any discussions or if you think there's an inroad there. I think a lawsuit against the tribe has recently been settled. And so it looks like the past -- for you guys might be partnering with the tribe. So curious if, given size of that market, if you've had any meaningful discussion or a view on whether you might be able to enter Florida anytime soon.

I would say, John, I'm not optimistic that we or any of the other non-seminal entities will enter Florida soon. I saw the same remarks -- or heard the same remarks from Jim Allen that you did at G2E that kind of cracked open the door, but I don't think that, that happens in the near term.

Thanks. I appreciate that. And one maybe housekeeping on CapEx. Tom, maybe for you or Brett. So obviously, CapEx is stepping down next year, but curious if you could give us kind of an update on what steady state CapEx should be for you guys maintenance? And if there's any routine kind of project CapEx that you're thinking about. So as we look beyond '26 and you look at the capital product budget, do we expect CapEx to kind of keep shrinking after '25? Or does it kind of level off at a certain point?

[$400 million] area of maintenance CapEx is a good number and [$200 million to $250 million] of growth and other CapEx as a steady state going forward.

Great. Thanks Bret. Appreciate it. Thanks everyone.

Chad Beynon, Macquarie.

Afternoon. Thanks for taking my question. Eric, on your business, the iGaming business, the flow-through 57% this quarter was ahead of that targeted 50% and as a result of better revenue growth, obviously, the EBITDA came in ahead of expectations.

So I know that you have a lot of things rolling off in '25, so maybe flow through isn't the right way to think about it? But can you maybe help us just more in the near term, if hold is normal? Should this 50% still make sense, maybe absent some of the bigger roll-off of expenses? Just trying to figure out how this ramps maybe over the next four to eight quarters here. Thanks.

Yeah. I think when we provided that rough expectation that we should be able to flow through at 50%, it was pretty broad-based in over time. So there are certain factors that are going to contribute to that this year that aren't going to be there next year and there are some next year that we aren't experiencing this year. In a quarter like this, where we had record iCasino growth and then extremely strong sports growth, we were able to achieve better than the 50% target.

As I mentioned, I think, on the last call, I would expect it to bounce around a little bit. Sometimes it will be a little lower and sometimes a little higher, but we still think the 50% is a reasonable expectation for the flow-through on the incremental revenue for certainly next year. And then as we head into '26, we get additional roll off of some of the marketing. So I would expect it to continue at that level as well.

Okay, perfect. And then on the regional side, if you're able to somehow split out or separate the competition, weather, et cetera, from just normal consumer business. Did you see any more deterioration in that lowest tier in the unrated part of the business in your regional segment in Q3?

No, I wouldn't say we saw more deterioration. There is a segment of the customer base that's been challenged by where pricing has gone in recent history, and that remains the case. I don't see anything alarming in the regional business, I think most of what we're seeing is competitive impact from -- you're talking about substantial properties that have opened in multiple markets and once we lapped the opening of the temporary in Virginia, we've lacked tailwinds behind us and that started to change last week with New Orleans.

Thanks Tom. Appreciate it guys.

Jordan Bender, Citizens JMP.

Good afternoon, everyone. You've given a lot of good info on the online segment. But as we think through -- in broad strokes that 30% online revenue growth that you've talked about in the last couple of quarters, can you maybe help us understand how much of that is coming from just pure player growth versus maybe expanding your ARPU?

And then the second part of that is, how much dry powder do you think you have left in the omnichannel that's going to help you grow iGaming revenue next year and in '26?

Yes. I think you have to look at the two kind of lines separately, the casino and the sports book. The casino business is growing users and daily actives at a very rapid pace. So Tom referenced, we measure things in month-over-month performance and our users continue to grow, our actives continue to grow, the volume continues to grow. And then as we're seeing the hold ticks up a bit. So that business is very consistent and very strong.

On the sports side, it's a little bit different. As you've seen, the volumes are somewhat flat right now. That's due to some reductions in very high-end wagers that we were getting last year that didn't translate into profitability. And then through the segmented marketing that I talked about as well, we're seeing some lower end unprofitable customers not returning.

And so what we are seeing though is many more bets per user, the average bet size is coming down, as you'd expect. And as a result, the volumes are flat or so, but they're being more than made up by the improvement in the hold percentage. So from our standpoint, they're very different behaviors. The average worth of the customer on the sports side is going up significantly as the volume stays the same and the hold improves.

Great. And then just on the follow-up. In the regional segment, if I look at your hotel revenue, is it fair to assume that some of that underperformance is just New Orleans and we should expect you to recoup that next year?

Yes.

Thank you very much.

Daniel Guglielmo, Capital One Securities.

Hello, everyone. Thank you for taking my questions. You all mentioned that tailwinds related to the renovations at the Las Vegas and New Orleans properties, and peers have had some success with renovation projects as well. Are there any other renovation growth projects that you all are eyeing within the casino portfolio?

The most substantial one that we have ongoing is Harvey's Lake Tahoe. That's a multiyear $160 million project that's already begun. We opened the Wolf restaurant with Lisa Vanderpump up there this summer, we're redoing the entire casino floor. We're doing a room tower, we're doing the suites across the street kind of leaning into that property being on Lake Tahoe. You can't replicate that what we've got there given its location on the lake and where regulations are now. So that's a substantial EBITDA producer for us that we see significant return on that investment. That's the biggest one.

There's always across the street from Caesars at Flamingo, we've got the Vanderpump's Pinky's opens in a couple of weeks as does Gordon Ramsay burger, The Strip. Within Caesars, we'll have opened our high-limit slot area and completely redesigned in a couple of weeks, another high limit table area will open before the end of the year. So we're always doing projects that will move the needle for us, but they're far less substantial than from a dollar spend standpoint than what we've had in the last 4 years since we closed.

Great. Yeah. No, that's really helpful color there. And then just quick on the Las Vegas segment. Slot handle was stronger than we expected, but table game drop was softer. Can you just talk about -- was there anything you saw this quarter? Was it a different mix of players coming into the properties or just kind of a different betting behavior? Thank you.

It was a handful of large players that move their trips versus -- it showed up last year, last quarter and showed up at different times this year. And last year, we beat them.

Great. Thank you.

Thank you. I'll now hand the call back over to CEO, Tom Reeg for any closing remarks.

All right, Andrew. Thanks, everybody. Happy holidays. Our next call is February. We'll see you then.

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.