Net loss of $123M

Caesars posts revenue up 10% to $2.8B in Q2 amid record Vegas performance, continued digital segment losses

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Casino and hospitality giant Caesars Entertainment has reported its results for the second quarter of the year, delivering net revenues of $2.8 billion, up 10.6% from $2.5 billion in the comparable prior-year period. However, the business also posted a net loss of $123 million, down against a net income of $71 million in Q2 2021.

Meanwhile, same-store Adjusted EBITDA was slightly down to $978 million compared to the $1 billion seen in the same quarter last year. This drop is partly attributed to performance in the Caesars Digital segment.

"Our second quarter results reflect a consolidated EBITDA record for our brick and mortar properties led by an all-time quarterly EBITDA record in Las Vegas and continued strength in our regional markets when compared to 2019,” commented Tom Reeg, Chief Executive Officer of Caesars Entertainment.

Caesars Digital keeps posting losses

For the first half of the year, losses in the digital division amount to $692 million. The operator had posted a $576 million net loss for digital, and a negative net revenue of $53 million, for the first quarter of the current year. This prompted Reeg to announce steps to lower costs at the time, in particular within marketing and advertising, in an effort to address this situation.

Tom Reeg, Caesars CEO

While these remedial measures seem to have had a positive impact, with digital revenue for Q2 at a positive $152 million -not only up from Q1 but also 29.9% higher than the same period last year-, Caesars still posted a net loss of $116 million for the vertical. Coupled with losses in Q1, these amount to almost $700 million for the year thus far.

Reeg has now told investors that it is likely a further loss will be reported in Q3, as Caesars still works on turning this segment into a profitable endeavor. However, the executive said he does not expect quarters of $100 million quarterly EBITDA loss in Digital again.

The key factor to think about in the third quarter is you have no significant new states coming online, and so your business becomes dominated by existing customers rather than new acquisition customers,” the CEO explained. “I can't stress enough that the acquisition cost versus the retention cost is a dramatic difference.”

Caesars doesn’t expect a new state of scale until Ohio in January. Still, Reeg said the company has “a long track record” of turning highly subsidized businesses on the brick-and-mortar side into far more profitable businesses, and said it is what Caesars is doing now in digital.

“When we started digital, we didn’t have the ability to segment customers,” the executive explained. “We now have to be far more precise in what we are doing, and we see the results of this coming in every day.”

The company’s sports betting operation has held its market share of about 15% nationwide, despite pulling back nearly $500 million in advertising spending, and Reeg is confident that it will be a profitable business “at least by the fourth quarter of 2023.”

Las Vegas shows no signs of slowing down

As for performance in other segments, the increase in Q2 revenue was driven by a 33.6% jump in Las Vegas revenue to $1.1 billion, while regional revenue was down 4.1% to $1.5 billion. However, total operating expenses were 16.1% higher at $2.2 billion, with costs of sales rising faster than revenue, and other expenses up 5.1% to $514 million. After accounting for tax and losses from discontinued operations, Caesars saw a net loss of $123 million.

Reeg was particularly pleased by Vegas' performance and its all-time-best adjusted pre-tax earnings of $547 million. Despite the national economy possibly slipping towards a recession, hotel revenue for Vegas is now on pace to surpass $1 billion for the first time, with occupancy rates having climbed 97%.

“There are not strong enough words to convey how well it’s going in Vegas for us,” Reeg said, according to Las Vegas Review-Journal. Despite the nation’s gross domestic product falling for two quarters, “the consumer continues to hold up quite well for us,” the CEO noted.

In regards to the first half of the year, Caesars’ total revenue of $5.1 billion was up by 15%, majorly attributed to a 52.1% hike in Vegas revenue to $2 billion. Meanwhile, regional revenue was slightly up by 3.7% to $2.8 billion; and digital revenue was 61.9% lower at $99 million, mostly due to high promotion spending.

Despite $55 million in tax benefits, after accounting for discontinued operations including the William Hill non-US business, the net loss for H1 was $803 million, significantly widened from the $352 million loss the same half last year. Adjusted EBITDA for the half was also down -by 16.8%- at $1.3 billion.

Post-quarter updates

Caesars successfully closed the sale of the non-US William Hill assets to 888 in early July, right after the end of the first half. This allowed the company to apply $730 million in net proceeds to debt reduction as of July 22, Chief Financial Officer Bret Yunker explained.

As of June 30, Caesars had $14.2 billion in aggregate principal amount of debt outstanding. Meanwhile, total cash and cash equivalents were $997 million, excluding restricted cash of $355 million.

Going forward, Caesars has announced a celebration in honor of Caesars Palace Las Vegas’ 56th anniversary on August 5. The company unveiled Empire Days, a series of deals across its resorts. Through August 8, the operator is offering discounts on hotel rooms throughout the US, and tickets for Vegas residency shows; plus specials from restaurants, pools and spas.

Guests can receive up to 40% off hotel rooms across all Las Vegas resorts, while customers seeking tickets in Vegas can receive 25% off residency shows from a number of performers, valid for dates through April 2023. A number of properties are offering discounts on spa treatments, while the company’s Vegas restaurants are creating special menus for the Empire Days activation.