Caesars Entertainment Reports Strong Financial Results for the Third Quarter of 2017

LAS VEGAS, Nov. 1, 2017 /PRNewswire/ -- Caesars Entertainment Corporation (NASDAQ: CZR) ("CEC") today reported third quarter of 2017 results as summarized in the discussion below, which highlights certain GAAP and non-GAAP financial measures on a consolidated basis. As of October 6, 2017, Caesars Entertainment Operating Company (now known as CEOC, LLC "CEOC") emerged from Bankruptcy and CEC completed the merger of Caesars Acquisition Company ("CAC"). Accordingly, certain additional non-GAAP financial measures have been added to highlight the pro-forma results of the company including CEOC and CAC. Due to the timing of CEOC's emergence and the completion of the merger of CAC, CEC results do not include CEOC. "Enterprise-wide" results below include CEOC as if its results were consolidated during the third quarter. See the tables at the end of this press release for the reconciliation of non-GAAP to GAAP presentations.

Third Quarter of 2017

CEC Operating Income Margins Expand

• Net revenue for CEC was flat at $1.0 billion. On a same-store basis, which excludes the recently deconsolidated Horseshoe Baltimore from both years, net revenue was up 3.8% to $939 million, driven by strong gaming volume, hotel performance, and incremental revenues from operational initiatives.
• Net loss for CEC, before adjusting for noncontrolling interest, was $460 million, driven by an adjustment of $472 million to the restructuring of CEOC.
• Income from operations for CEC improved $130 million year-over-year to $86 million, representing an operating margin of 8.7%, due to accelerated stock based compensation of $145 million associated with the sale of the CIE social and mobile games business in the third quarter of 2016.
• Adjusted EBITDA for CEC improved $34 million, 12.6% year-over-year to $303 million, driving margins up 345 basis points to 30.7%. On a same-store basis, adjusted EBITDA improved $44 million, 17.7%, lifting margins 369 basis points to 31.2%.
• Repriced and refinanced debt through Q3 2017 that will reduce total annual interest expense by $270 million.

Enterprise Wide Adjusted EBITDA Margins Expand

• Net revenue for the enterprise grew 0.9% to $2.13 billion. On a same-store basis, net revenue for the enterprise grew 2.6% to $2.09 billion. Net revenue was driven by domestic gaming volume growth, solid hospitality improvement, and enhanced operational initiatives.
• Enterprise-wide adjusted EBITDA improved $77 million, 14.1% to $622 million, or on a same-store basis improved $87 million, 16.6% to $612 million. Enterprise-wide adjusted EBITDA margins expanded 340 basis points, to 29.2%, or on a same-store basis improved 350 basis points to 29.3%. While GAAP operating income margins showed solid improvement, the enterprise-wide adjusted EBITDA margins represent a third quarter record.
• Refinanced Harrah's Philadelphia debt in Q4 of 2017, which, subject to regulatory approval, is expected to reduce annual interest expense by an additional $20 million. On an enterprise-wide basis, our debt refinancing efforts will save approximately $290 million of annual interest payments.

"Revenue growth accelerated in the third quarter, led by a 10.4% improvement in Caesars Palace gaming revenue," said Mark Frissora, President and Chief Executive Officer. "Despite $10-15 million of unfavorable year-over-year hold, our GAAP operating income and enterprise-wide adjusted EBITDA margins improved to 8.7% and 29.2%, respectively, supported by increased gaming volume across our domestic properties, solid hospitality performance, and improved labor productivity.

"We were also pleased to have completed the restructuring of CEOC and merger with CAC on October 6, simplifying our business and allowing us to turn our full attention to our growth initiatives," Mr. Frissora added. "Our future appears bright with a much improved balance sheet, approximately $2 billion in cash, and strong free cash flow. We are well positioned to continue to invest in our core business and pursue a more diversified growth strategy."

Summary Financial Data

The results of CEOC and its subsidiaries were not consolidated with Caesars subsequent to CEOC and certain of its United States subsidiaries (the "Debtors") voluntarily filing for reorganization under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") on January 15, 2015. In January 2017, the U.S. Bankruptcy Court for the Northern District of Illinois approved CEOC's Plan of Reorganization. On October 6, CEC announced the completion of its merger with Caesars Acquisition Company and the conclusion of the restructuring of CEOC and its debtor subsidiaries. Horseshoe Baltimore operations were deconsolidated from CEC results effective August 31, 2017. As a result, the current year does not include a fully comparable operating period to the prior year."Same Store" references in our discussion of results excludes Horseshoe Baltimore for analytical purposes.

Supplemental materials have been posted on the Caesars Entertainment Investor Relations website at http://investor.caesars.com/financials.cfm.

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Third Quarter of 2017 Financial Results

We view each casino property as an operating segment and through the third quarter aggregated all such casino properties into two reportable segments, which aligns with their ownership and underlying credit structures: Caesars Entertainment Resort Properties ("CERP") and Caesars Growth Partners, LLC ("CGP"). In the fourth quarter, our reporting segments will shift to operationally-focused regional segments, which is consistent with how we now manage the business. On September 23, 2016, CIE sold its social and mobile games business ("SMG Business") while retaining its World Series of Poker ("WSOP") and regulated online real money gaming businesses. The SMG Business represented the majority of CIE's operations and is being classified as a discontinued operation for all periods presented.

Segment results in this release are presented consistently with the way Caesars management assessed these results and allocated resources through the third quarter of 2017, which is a consolidated view that adjusts for the impact of certain transactions between reportable segments within Caesars, as described below. Accordingly, the results of certain reportable segments presented in this filing differ from the financial statement information presented in their stand-alone filings. "Other" includes parent, consolidating, and other adjustments to reconcile to consolidated Caesars results. All comparisons are to the same period of the previous year.

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CEC

Net revenues were flat year-over-year at $1.0 billion following the deconsolidation of the Horseshoe Baltimore results in August of 2017. On a same-store basis, CEC net revenues improved 3.8% to $939 million. The uplift was driven by an $20 million increase in same-store slot revenue, $8 million of additional room revenue on recently renovated room product, and $10 million of incremental revenue from operational revenue initiatives. Income from operations improved $130 million to $86 million in the third quarter of 2017, primarily due to one-time, accelerated stock-based compensation expenses of $145 million on the CIE entity in the prior year related to the sale of the SMG business. Net loss, before including the effect of non-controlling interest, was $0.5 billion. The loss was driven by an adjustment to CEC's estimate of the amount it paid upon emergence to support the restructuring of CEOC. Property and adjusted EBITDA improved to $311 million and $303 million, respectively in the third quarter of 2017. On a same-store basis, property EBITDA improved $33 million, or 12.3% largely on improved revenue. Same-store adjusted EBITDA climbed $44 million, or 17.7% in the third quarter of 2017, benefiting additionally from reductions in recurring corporate expenses.

CERP

CERP owns six casinos in the United States and The LINQ promenade, along with leasing Octavius Tower at Caesars Palace Las Vegas to CEOC and gaming space at The LINQ promenade to CGP.

Net revenue improved 2.3% to $582 million in the third quarter of 2017. The $13 million of additional revenue was generated by $14 million of gaming volume growth while improvements in hotel and food and beverage revenues increased $6 million, all slightly offset by a $6 million reduction in table games revenue resulting from unfavorable hold.

Income from operations fell $21 million to $83 million, due to $23 million of accelerated depreciation at the Flamingo and Harrah's Las Vegas for renovation projects underway. Net income declined $1 million, to $5 million, driven by accelerated depreciation, partially offset by interest savings on repriced debt. Adjusted EBITDA increased 14.1% to $194 million, supported by strong revenue growth and reductions in operating expenses.  Hold was not estimated to have an effect on operating income in the quarter relative to expectation.  Hold was unfavorable against prior year in an estimated range between $5 million and $10 million.

CGP

CGP owns six casinos in the United States, primarily in Las Vegas, as well as CIE. CIE owns and operates regulated online real money gaming and the WSOP tournaments and brand.

Net revenue was $409 million in the third quarter of 2017.  On a same-store basis, which removes the recently deconsolidated Horseshoe Baltimore results from both years, CGP revenues improved 6.2%, or $21 million. The improvement was driven by a 8.9% improvement in slot revenue.  Cash ADR improved 3.3% year over year, primarily due to renovations at Planet Hollywood.

CGP generated $31 million of income from operations and $20 million of net income. On a same-store basis, which removes the recently deconsolidated Horseshoe Baltimore property, as well as CIE for both years, income from operations fell $19 million and net income fell $10 million. Accelerated depreciation of $21 million for the Bally's Indigo Tower renovation project as well as a one-time NV Energy exit fee of $10 million drove the decline. Year-over-year interest expense savings of $9 million primarily from repricing CGPH's debt partially offset the reduced year-over-year impact on net income.

Hold was estimated to have an unfavorable effect on operating income relative to expected hold and a favorable effect of between zero and $5 million when compared with the prior year period.

CES

Caesars Enterprise Services ("CES") is a joint venture among CERP, CEOC, and a subsidiary of CGP. CES provides certain corporate and administrative services to their casino properties. In addition, effective October 2014, most of the properties owned by CERP and CGP are managed by CES.

Cash and Available Revolver Capacity

As of September 30, 2017, CEC was primarily a holding company with no independent operations, employees, or material debt issuances of its own. CEC's primary assets as of September 30, 2017 consisted of $122 million in cash and cash equivalents and its ownership interests in CEOC, CERP and CGP. CEC's cash included $92 million held by insurance captives. Each of the subsidiary entities comprising Caesars Entertainment's consolidated financial statements have separate debt agreements with restrictions on usage of the respective entity's capital resources. Prior to the completion of the merger on October 6, CGP was a variable interest entity consolidated by Caesars Entertainment. It was controlled by its sole voting member, CAC. CAC was a managing member of CGP and therefore controlled all decisions regarding liquidity and capital resources of CGP.

Conference Call Information

Caesars Entertainment Corporation (NASDAQ: CZR) will host a conference call at 2:30 p.m. Pacific Time Wednesday, November 1, 2017, to discuss its third quarter results, certain forward-looking information and other matters related to Caesars Entertainment Corporation. The call will be accessible in the Investor Relations section of www.caesars.com. Participants should dial (877) 637-3723 or (832) 412-1752 for international callers, and enter Conference ID 1625681 approximately 10 minutes before the call start time. A recording of the live call will be available on the company's web site for 90 days after the event.

Supplemental materials have been posted on the Caesars Entertainment Investor Relations website at http://investor.caesars.com/financials.cfm.

About Caesars Entertainment Corporation

Caesars Entertainment is the world's most diversified casino-entertainment provider and the most geographically diverse U.S. casino-entertainment company.  Caesars Entertainment is mainly comprised of the following three entities: the wholly owned operating subsidiaries CEOC, LLC, Caesars Entertainment Resort Properties, LLC and Caesars Growth Partners, LLC. Since its beginning in Reno, Nevada, in 1937, Caesars Entertainment has grown through development of new resorts, expansions and acquisitions and its portfolio of subsidiaries now operate 47 casinos in 13 U.S. states and five countries.  Caesars Entertainment's resorts operate primarily under the Caesars®, Harrah's® and Horseshoe® brand names.  Caesars Entertainment's portfolio also includes the Caesars Entertainment UK family of casinos.  Caesars Entertainment is focused on building loyalty and value with its guests through a unique combination of great service, excellent products, unsurpassed distribution, operational excellence and technology leadership.  Caesars Entertainment is committed to environmental sustainability and energy conservation and recognizes the importance of being a responsible steward of the environment.  For more information, please visit www.caesars.com.

CEOC emerged from bankruptcy, and CEC and CAC merged, on October 6, 2017. Third quarter CEC results do not include CEOC or CAC. This press release at times refers to system-wide trends and dynamics during the third quarter, inclusive of CEOC and its subsidiaries. In the discussion in this release, the word "CEC" refers to Caesars Entertainment Corporation without its consolidated entities, and the words "Company," "Caesars," "Caesars Entertainment," "we," and "our" refer to Caesars Entertainment Corporation and its consolidated entities, and not CEOC unless otherwise stated or the context requires otherwise.

Forward Looking Information

This release includes "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. In particular, they include statements relating to, among other things, Caesars Entertainment's plans, strategies and opportunities following the restructuring of CEOC, Caesars Entertainments' expected market capitalization and certain refinancing transactions.   You can identify these statements by the fact that they do not relate strictly to historical or current facts. Further, these statements contain words such as "will," "may," "expect," "positioned," "future," "appears," or "pursue," or the negative or other variations thereof or comparable terminology. These forward-looking statements are based on current expectations and projections about future events.

Investors are cautioned that forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that cannot be predicted or quantified, and, consequently, the actual performance of Caesars Entertainment may differ materially from those expressed or implied by such forward-looking statements.  Such risks and uncertainties include, but are not limited to, the following factors, and other factors described from time to time in Caesars Entertainment's reports filed with the Securities and Exchange Commission (including the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained therein):

• the impact of our new operating structure post-emergence;
• the effects of local and national economic, credit, and capital market conditions on the economy, in general, and on the gaming industry, in particular;
• the ability to realize improvements in our business and results of operations through our property renovation investments, technology deployments, business process improvement initiatives and other continuous improvement initiatives;
• the ability to take advantage of opportunities to grow our revenue;
• the financial results of our consolidated businesses;
• the impact of our substantial indebtedness and lease obligations and the restrictions in our debt and lease agreements;
• access to available and reasonable financing on a timely basis, including the ability of Caesars Entertainment to refinance its indebtedness on acceptable terms;
• the ability of our customer tracking, customer loyalty, and yield management programs to continue to increase customer loyalty and same-store or hotel sales;
• changes in the extensive governmental regulations to which we are subject, and changes in laws, including increased tax rates, smoking bans, regulations or accounting standards, third-party relations and approvals, and decisions, disciplines and fines of courts, regulators and governmental bodies;
• our ability to recoup costs of capital investments through higher revenues;
• abnormal gaming holds ("gaming hold" is the amount of money that is retained by the casino from wagers by customers);
• the effects of competition, including locations of competitors, growth of online gaming, competition for new licenses, and operating and market competition;
• the ability to timely and cost-effectively integrate companies that we acquire into our operations;
• the potential difficulties in employee retention and recruitment;
• construction factors, including delays, increased costs of labor and materials, availability of labor and materials, zoning issues, environmental restrictions, soil and water conditions, weather and other hazards, site access matters, and building permit issues;
• litigation outcomes and judicial and governmental body actions, including gaming legislative action, referenda, regulatory disciplinary actions, and fines and taxation;
• acts of war or terrorist incidents, (including the impact of the recent mass shooting in Las Vegas on tourism), severe weather conditions, uprisings or natural disasters, including losses therefrom, losses in revenues and damage to property, and the impact of severe weather conditions on our ability to attract customers to certain of our facilities;
• the effects of environmental and structural building conditions relating to our properties;
• a disruption, failure or breach of our network, information systems or other technology, or those of our vendors, on which we are dependent;
• risks and costs associated with protecting the integrity and security of internal, employee and customer data;
• access to insurance on reasonable terms for our assets; and
• the impact, if any, of unfunded pension benefits under multiemployer pension plans.

Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made.  Caesars Entertainment disclaims any obligation to update the forward-looking statements.  You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date stated or, if no date is stated, as of the date of this release.

Property earnings before interest, taxes, depreciation and amortization ("EBITDA") is presented as a measure of the Company's performance.  Property EBITDA is defined as revenues less property operating expenses and is comprised of net income/(loss) before (i) interest expense, net of interest capitalized and interest income, (ii) income tax provision, (iii) depreciation and amortization, (iv) corporate expenses, and (v) certain items that the Company does not consider indicative of its ongoing operating performance at an operating property level. As a result of the sale of the SMG Business, we have determined that CIE stock-based compensation expense should be excluded from Property EBITDA as management no longer considers such expense to be indicative of Caesars Entertainment's ongoing consolidated or segment operating performance. Therefore, Property EBITDA has been recast for prior periods to be consistent to the current year presentation.

In evaluating Property EBITDA you should be aware that, in the future, the Company may incur expenses that are the same or similar to some of the adjustments in this presentation.  The presentation of Property EBITDA should not be construed as an inference that future results will be unaffected by unusual or unexpected items.

Property EBITDA is a non-GAAP financial measure commonly used in our industry and should not be construed as an alternative to net income/(loss) as an indicator of operating performance or as an alternative to cash flow provided by operating activities as a measure of liquidity (as determined in accordance with accounting principles generally accepted in the United States ("GAAP").  Property EBITDA may not be comparable to similarly titled measures reported by other companies within the industry.  Property EBITDA is included because management uses Property EBITDA to measure performance and allocate resources, and believes that Property EBITDA provides investors with additional information consistent with that used by management.

"Adjusted EBITDA" is defined as EBITDA further adjusted to exclude certain non-cash and other items as exhibited in the following reconciliation, and is presented as a supplemental measure of the Company's performance. Management believes that Adjusted EBITDA provides investors with additional information and allows a better understanding of the results of operational activities separate from the financial impact of decisions made for the long-term benefit of the Company. In addition, compensation of management is in part determined by reference to certain of such financial information. As a result, we believe this supplemental information is useful to investors who are trying to understand the results of the Company.  Because not all companies use identical calculations, the presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

The following tables reconcile net income/(loss) attributable to the companies presented to Property EBITDA and Adjusted EBITDA for the periods indicated.