Caesars Entertainment's (CZR) CEO Mark Frissora on Q2 2016 Results - Earnings Call Transcript

| About: Caesars Entertainment (CZR)

Caesars Entertainment Corporation (NASDAQ:CZR)

Q2 2016 Results Earnings Conference Call

August 2, 2016, 04:30 PM ET


Brian Blackman - Vice President, Investor Relations

Mark Frissora - Chief Executive Officer and President

Eric Hession - Chief Financial Officer


Susan Berliner - JPMorgan

John DeCree - Union Gaming


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It is now my pleasure to turn today’s program over to Mr. Brian Blackman, Vice President of Investor Relations for Caesars Entertainment. Brian, the floor is yours.

Brian Blackman

Thank you. And good afternoon. And welcome to Caesars Entertainment second quarter 2016 results conference call. Joining me today from Caesars Entertainment Corporation are Mark Frissora, President and Chief Executive Officer, and Eric Hession, Chief Financial Officer.

A copy of our press release, certain earnings presentation slides and a replay of this conference call are available in the Investor Relations section on our Web site at The slides are available for download and will accompany Mark and Eric’s prepared remarks for those of you on the phone that would like to follow along.

Also, please note that prior to this call, we furnished a copy of this afternoon’s press release to the SEC in a Form 8-K and will shortly file our most recent quarterly report on Form 10-Q for the second quarter of 2016.

Before we get underway, I would like to call your attention to certain statements and information on slides one through four, which we incorporate by this reference. The forward-looking statements, Safe Harbor disclaimers in our public documents cover this call in a simultaneous webcast at

This call, the webcast, and its replay are the property of Caesars Entertainment Corporation. It’s not for rebroadcast or use by any other party without the prior written consent of Caesars Entertainment Corporation. If you do not agree with these terms, please disconnect now. By remaining on the line, you agree to be bound by these terms.

Today's call will include a discussion of certain non-GAAP financial measures including adjusted EBITDA and adjusted EBITDA margin, proper EBITDA and certain supplemental financial information. Definitions of these non-GAAP measures, reconciliations to the nearest GAAP measures, and the reasons management believes these measures provide useful information for investors can be found on slide three and in the appendix to this presentation beginning on slide 26.

These non-GAAP measures are not preferable to GAAP results provided elsewhere in the presentation or discussed on the conference call.

As a reminder, Caesars Entertainment Corporation is a holding company with the following consolidated entities – Caesars Entertainment Resort Properties and Caesars Growth Partners which includes two reportable segments, CGP Casinos and CIE. CEC also has a majority ownership of Caesars Entertainment Operating Company. But CEC’s financial results do not include the results of CEOC and its subsidiaries following its Chapter 11 filing on January 15 of 2015.

However, in addition a review of CEC’s reported financial information on this call, we will also discuss certain supplemental financial information regarding CEOC, including certain remarks that combine CEOC’s results for those of CEC, and CEC has committed to a material amount of payments to support CEOC restructuring, which would result in the reacquisition of CEOC’s operations if the restructuring is made on terms consistent with the current restructuring support agreement to which CEC is a party.

As a result, this non-GAAP supplemental financial information is presented as a benefit for users to understand the results of the entire Caesars enterprise, including CEOC and consistent management services provided across all properties. The results are not indicative of future performance or the results post-restructuring.

As used during this call, the words company, Caesars, Caesars Entertainment, we, our and [indiscernible] refer to Caesars Entertainment Corporation and its consolidated entities unless otherwise stated or the context requires otherwise.

As seen on today's agenda on slide five, we’ll begin the call with some remarks by Mark whose comments will generally relate to the entire Caesars Enterprise including our deconsolidated subsidiary, CEOC. Eric will then review our financial results before Mark concludes with closing comments and we will then open the call to your questions.

I’d now like to turn the call over to Mark.

Mark Frissora

Thank you, Brian. I’m pleased report that Caesars has continued to build on our 2015 full year and first quarter 2016 performance by posting strong second quarter results. These results continue to benefit from the strategic initiatives that we've been executing during the last year-and-a-half focused on operational efficiency and investments in our hospitality assets, which are driving improved revenue and margin performance.

As seen on slide six, net revenues for CEC, which excludes CEOC, increased 8% to $1.2 billion and net income declined $2.1 billion resulting in a net loss of $2 billion. The year-over-year decline in net income was due to an accrual of approximately $2 billion related to CEC's estimate of the additional amount it will pay to support the bankruptcy of CEOC and a year-over-year increase in CIE stock-based compensation. Eric will provide further details during his remarks.

Adjusted EBITDA for CEC grew 12% to $388 million and adjusted EBITDA margin expanded 113 basis points to 31.5%. At an enterprise-wide level, which as a reminder includes CEC and CEOC performance, net revenues grew 2% to $2.4 billion and adjusted EBITDA increased 8% to $697 million. Adjusted EBITDA margin expanded 145 basis points to 29.5%.

Enterprise-wide, the key drivers of second quarter revenue and EBITDA performance were the same as those I discussed during the first quarter. We continue to experience growth in hospitality revenues, primarily lodging and entertainment in Las Vegas, with enterprise-wide cash ADR at an all-time high for the second quarter which grew 7.5% year-over-year.

The Interactive Entertainment business delivered growth by increasing unique paying users and average revenue per user. These positive drivers These positive drivers were partially offset by weaker gaming volumes and regional markets, primarily in the Southeastern United States. Gaming volumes in May and June were particularly weak in the regional markets, consistent with the broader industry.

This past weekend, Caesars Interactive entered into an agreement to sell Playtika, Caesars Interactive entertainment, social and mobile games business for $4.4 billion in cash. Caesars Interactive acquired Playtika in 2011. And since the company has grown into one of the largest mobile and social games companies in the world. The World Series of Poker and CIE's real money online gaming operations in the US and abroad will remain part of Caesars Interactive. The transaction, which is expected to close by the end of the year, will improve an already strong cash position at Caesars Growth Partners.

As I have discussed in past quarters, our current cornerstone initiatives, which are listed on slide seven, are an important part of our plan to deliver additional margin expansion and cash flows. The initiatives drive revenue growth and efficiency measures, while further enhancing employee engagement and customer satisfaction.

Detail on certain engagement metrics for employees and customers are reported in our 2016 Citizenship Report released this morning. The report is on our Web site and reflects the results of socially sustainable initiatives we've undertaken with our customers, our employees, our operational efficiency in the communities in which we operate.

Beginning on slide eight, we are enhancing our hospitality and loyalty programs with the goals of expanding our customer base and increasing customer engagement. We’ve been recognized for improving our hospitality and loyalty programs, have recently won Loyalty360 and TripAdvisor awards. The Loyalty360 awards recognize innovation and effectiveness among the world’s best customer loyalty programs. In May, we received a gold award in the technology and trends category from Loyalty360 for the Total Rewards mobile app, which allows our customers to see their offers, book rooms and receive information on happenings at our properties across the entire network.

Additionally, in June, 20 properties in the Caesars network earned TripAdvisor’s 2016 Certificate of Excellence. We believe this recognition is attributable to our ongoing efforts to improve hotel amenities and customer service. The awards recognize excellence in hospitality and are given only to establishments that consistently achieve positive TripAdvisor reviews. A combination of our Las Vegas and regional properties are represented in the rankings with seven resorts new to the 2016 list, including Caesars Palace.

Speaking of Caesars Palace, this iconic resort officially celebrates its 50th anniversary this weekend. The property has a lot to celebrate with EBITDA performance in the second quarter being the highest in its history. To commemorate the occasion, we launched a month-long series of high profile events and promotions to create excitement at the property beginning with a controlled closing of the Las Vegas Strip to host the July 4 fireworks extravaganza over Caesars Palace.

The summer of Caesars festivities will culminate in a star-studded 50th anniversary gala this weekend, which I will be hosting with Howie Mandel, and will feature legendary entertainers, including a special appearance by Jennifer Lopez.

Turning to slides nine and ten, investment in our infrastructure, particularly our hotel room product, is another top priority. At the end of the second quarter, we had completed approximately half of the 2016 room renovations scheduled in Las Vegas. Hotel performance in Las Vegas in the second quarter was strong, with cash ADR up approximately 7%. The pricing environment on The Strip remains favorable, supported by continued positive trends in the leisure and group market.

Nationwide, we have completed approximately 60% of planned room upgrades. It’s important to note that we invest in our infrastructure with efficiency, customer preferences and employee engagement in mind. As a result, all of our newly built properties are constructed to Green Building LEED standards and all of Caesars’ North American hotel properties are Green Key Eco rated.

We see additional opportunity to drive improvement in our hotel performance through ongoing investments and room renovations. Hotel product is an area we have been undercapitalized relative to our competitors, creating the opportunity for high returns and low-risk renovations. For example, rooms returned to service following renovations generally experience a $25 to $40 increase in cash ADR, depending on the property’s peer group.

In addition to increases in room revenues, we expect our room product investments to also contribute to gaming, food and beverage, and other ancillary revenue increases. We're also driving improvement in hotel performance, utilizing better yield management.

Technology is yet another area where we’re investing to differentiate our hotel product on The Strip and enhance the customer experience. As you may recall, last year, at three Las Vegas hotels, we began testing self-service check-in kiosks to expedite the guest arrival process. We’ve been pleased with the initial rollout and recently added additional kiosks to see Caesars Palace and Flamingo and will introduce kiosks to Paris later this month.

We also began piloting a Connected Room experience in two suites at The Cromwell where guests are offered the convenience of in-room digital access to complementary and paid services, as well as guest assistance. Due to use of a handheld device, guests can manage all the aspects of their stay from controlling the lighting and thermostat in the room to ordering room service, making dinner reservations, and requesting housekeeping. The system also enables the hotel to recommend relevant products and services to the guests.

During this pilot program, we will monitor customer response and assess whether to deploy the technology to additional rooms in Las Vegas. Along with our hotel upgrades, we're investing in further upgrading the quality of our food and beverage outlets as well as entertainment offerings to drive incremental traffic to our facilities, as shown on slide 11 to 13.

In May, we opened Brioche by Guy Savoy at Caesars Palace, a quick-service café offering, fine coffee, French pastries and sandwiches based on his successful Parisian concept. MR CHOW and the Montecristo Cigar Bar new outlets are also located at Caesars Palace and they’re performing well.

On the east side of The Strip, The LINQ Promenade and High Roller have delivered improved results, driven by adjustments to our marketing strategy and the tenant base. In the coming months, we will welcome several additions to the retail, dining and entertainment complex, including In-N-Out Burger, Gordon Ramsay's Fish & Chips, Canter's Deli, Virgil's Barbecue, and Amorino gelato, which we expect will stimulate increased visits.

Entertainment continued to be a source of strength in the second quarter as customers have responded positively to the combination of our top-level talent as well as recognized venues. Due to high demand, we have recently added new dates for several of our resident headliners in 2017, including Celine Dion, Reba, Brooks & Dunn, and Elton John at the Colosseum at Caesars Palace, as well as Britney Spears and Jennifer Lopez at The AXIS at Planet Hollywood.

Pollstar recently ranked The AXIS as the number one venue and the Colosseum as the number two venue for their respective classes in the US as measured by ticket sales during the second quarter and recognized the Jennifer Lopez All I Have residency at The AXIS as having the highest average ticket price of any tour or residency in North America during that period.

Turning to our continuous improvement operating model on slide 14, we are enhancing efficiency and quality through process improvement and technology investments, such as the kiosk I mentioned earlier. Various marketing and operational programs, which I have spoken about on prior calls, are delivering success. We continue to optimize our marketing reinvestment. Consistent with our expectations, this action has contributed to lower slot gaming revenues in certain markets, but has enhanced the efficiency of our marketing spend. Further, we have been able to gain share in some of our largest and most critical markets

In addition, we're generating reductions in operational expenses despite experiencing inflationary wage pressures due to union negotiations in Las Vegas and Atlantic City. Some of these initiatives are outlined in our Citizenship Report. For example, our investment in health and wellness has contributed to a reduction in costs to reduce health claims. Additionally, our CodeGreen sustainability initiatives have had a significant cost-saving impact in addition to helping meet our social responsibilities. Optimizing efficiency remains a high priority for our management team.

Moving to slide 15, we're creating a sales and service culture within the organization to enrich the customer experience. Employee training, including the use of an online concierge system and hotel inventory database, has been a critical element of this initiative, which has also helped drive revenue growth.

Last year, we invested more than 1.6 million hours in training. Our employees are learning new technical skills to deliver more efficient service. We’re also embracing new technologies to free up employee [indiscernible] engagement with guests and deliver a more personalized experience.

As a result of these efforts, we once again delivered year-over-year improvement in overall service and net promoter scores in the second quarter. Additionally, the TripAdvisor’s recognition, as I noted earlier, further demonstrates our progress to improve service. Service level improvements and recognition are the direct result of the hard work by our team members and their commitment to deliver the best possible service to our guests.

Finally, before I turn it over to Eric, I want to focus on our gaming innovation efforts covered on slide 16. As mentioned previously, we're focused on reenergizing the core slot player and engaging the millennial and generation X customer base through new products and games in a modernized on-property experience. Investing in technology, particularly mobile, to improve the gaming experience is another key component of this strategy. Online enrollment for the World Series of Poker entrants and mobile slot dispatch are two recent examples of technology enabling better gaming experiences.

For the first time ever, the World Series of Poker has enabled players to register and pay for tournament entry fees through mobile devices and self-service kiosk, which has significantly reduced wait times.

I will now ask Eric to provide a more detailed review of this quarter's results.

Eric Hession

Thank you, Mark. I’ll start with a review of CEC’s consolidated results followed by a review of the company's reportable segments and supplemental information, which includes CEOC’s performance as well as enterprise-wide results, inclusive of CEOC.

Slide 18 summarizes CEC’s results, which do not include CEOC as it is no longer consolidated. For the second quarter of 2016, CEC’s net revenues rose 8% to $1.2 billion. Net loss was $2 billion compared to net income of $500 million in the second quarter of 2015. Diluted loss per share for CEC was $14.25 compared to diluted earnings per share of $0.10 in the year-ago period. Net income and earnings per share results were largely driven by restructuring-related accruals, which I'll discuss in a moment.

Adjusted EBITDA grew 12% to $388 million, with a margin increase of 113 basis points. Revenue in the quarter was driven primarily by strong growth in hospitality revenues in Las Vegas, organic growth in social and mobile games at CIE, and gaming revenue growth at Horseshoe Baltimore. This was partially offset by lower gaming revenues, primarily in Atlantic City and Las Vegas.

Year-over-year improvement in adjusted EBITDA was mainly due to the net revenue increases and improved hotel customer mix and efficiency initiatives. Earnings performance for CEC was primarily attributable to an accrual of approximately $2 billion in the second quarter related to CEC’s estimate of the amount it will pay to support the restructuring of CEOC as well as a $66 million expense related to the fair value adjustment of CIE stock based on compensation awards.

We believe our accruals represent the best estimate of our obligations under the restructuring. However, because negotiations between the various parties are ongoing and the amended plan is pending ultimate approval by the Bankruptcy Court and also pending the receipt of the required gaming regulatory approvals, our accruals are subject to change. As such, we believe our operational performance is best represented by the improvement in adjusted EBITDA.

All those are estimated to have a positive effect on operating income of between $5 million and $10 million in the quarter relative to our expectation and there was a minimal effect when comparing to the prior-year period.

Turning to slide 19 and the performance of Caesars Entertainment Resort Properties, second quarter net revenues were down 1% year-over-year to $562 million. The year-over-year decline in revenues was primarily due to lower gaming volumes in Las Vegas and Atlantic City as well as unfavorable hold, partially offset by hotel revenue growth.

In Las Vegas, a large part of the gaming volume decline was driven by a calendar shift in the World Series of Poker by a week from Q2 to Q3, as well as construction disruption from the room renovations at Paris Las Vegas where there are over 10,000 room nights out of service due to renovation.

Additionally, CERP’s Las Vegas properties faced a tough year-over-year comparison due to the record month of hotel revenues in May of last year. In Atlantic City, Harrah's hotel and banquet revenues were a bright spot where gaming revenues continue to be challenged, primarily due to event timing, plain program scheduling and the Meeting Professionals International convention in June, which we hosted. We continue to be mindful of a softening trend in gaming revenues at this property and are taking a targeted approach to addressing certain customer segments.

Service net income was down $9 million year-over-year to $8 million and net profit margin was 1.4%. The decline in net income was largely attributable to accelerated depreciation due to the ongoing room renovation projects. Adjusted EBITDA declined 2% year-over-year to $179 million, with adjusted EBITDA margins decreasing 30 basis points. The decline in EBITDA was primarily due to lower gaming revenues, which more than offset the benefits from marketing efficiencies, improved hotel customer mix and better performance of The LINQ Promenade.

Hotel is estimated to have a positive effect on operating income of between zero and $5 million for the quarter relative to our expectations and an unfavorable zero to $5 million when compared to the prior-year period.

Slide 20 summarizes the performance of Caesars Growth Partners, which delivered another strong quarter. Net revenues grew 17% to $672 million. Net income decreased 60% to $15 million, equating to a net profit margin of 2.2%, with the year-over-year decline mainly driven by higher stock-based compensation expense at CIE.

Adjusted EBITDA grew 33% to $214 million, with margins expanding 389 basis points year-over-year. Revenue performance was primarily driven by organic growth in CIE’s social and mobile games business, gaming volume increases at Horseshoe Baltimore, and strength in hospitality revenues.

Looking at the CGP Casino Properties segment within the CGP business, on slide 21, net revenues were $423 million in the second quarter, up 9% year-over-year. Revenue growth was primarily attributable to gaming revenue growth at the Horseshoe Baltimore facility, increases in entertainment revenue mainly due to The AXIS theater at Planet Hollywood, higher hotel revenues primarily The LINQ hotel, and favorable year-over-year hold.

Net income increased $21 million year-over-year to $19 million, with a net profit margin of 4.5%. Adjusted EBITDA increased 25% to $114 million, with adjusted EBITDA margins expanding 362 basis points year-over-year. EBITDA performance was mainly driven by net revenue increases and efficiency initiatives. Hold was estimated to have a positive effect on operating income for the quarter of between zero and $5 million relative to our expectations and a favorable zero to $5 million effect when compared to the prior-year period.

Moving to slide 22 and the Interactive Entertainment business, second quarter net revenues increased 34% to $249 million. Net income decreased $43 million to a net loss of $4 million and net profit margin was minus 1.6%, primarily due to higher stock-based compensation expense.

Adjusted EBITDA rose 43% to $100 million with margins increasing 253 basis points year-over-year, mainly driven by strong results in the social and mobile games business due to a combination of increased unique paying users and growth in average revenue per user. Monthly unique paying users grew to 891,000 in the second quarter, up from 796,000 last year. And average revenue per user per day increased to $0.40, up from $0.31 in the prior-year period.

Slide 23 shows the supplemental information on CEOC’s second quarter performance. Net revenues were $1.2 billion, down 3% year-over-year as strong gaming volumes and F&B revenue growth in our Las Vegas property were more than offset by gaming volume declines in the regional market and in our international portfolio.

Caesars Palace experienced broad-based gaming revenue increases and favorable year-over-year hold. Softness in the regional markets were primarily concentrated in the southeast and mainly attributable to lower slot volumes. Our international properties experienced both unfavorable hold and lower volumes.

Additionally, hotel revenues at Caesars Palace were impacted by over 19,000 room nights out of service in the quarter due to renovations at the Julius and Augustus Towers which concluded in July.

Adjusted EBITDA increased 2% to $309 million and margins grew 122 basis points from the prior-year period, primarily due to higher collections and efficiency initiatives. Hold was estimated to have a positive effect on our operating income of between $10 million and $15 million in the quarter relative to our expectations and between zero and $5 million when compared to the prior-year period.

Now, let’s take a look at additional supplemental information for the entire enterprise for the second quarter on slide 24, which includes CEOC.

Caesars enterprise-wide net revenues rose 2% from the prior year to $2.4 billion, mainly due to strong performance in CIE social and mobile games business; gaming revenues growth at Caesars Palace and Horseshoe Baltimore; higher hotel and entertainment revenues, primarily in Las Vegas; and favorable year-over-year hold. This was partially offset by gaming volume weakness in the regional and international market. As Mark mentioned previously, gaming volume weakness seen in regions during May and June appear to have been industrywide.

Caesars’ enterprise-wide adjusted EBITDA increased by 8% year-over-year to $697 million and margins increased 145 basis points, primarily attributable to net revenue increases, improved hotel customer mix, and higher collections.

We continue to expect inflationary cost pressures, including salaries and benefits to persist for the remainder of the year and will remain diligent in managing these pressures through our continuous improvement efforts. Hold is estimated to have a favorable effect on operating income of between $15 million and $20 million for the quarter relative to our expectations and between zero and $5 million when compared to the prior-year period.

While EBITDA margins in the second quarter improved year-over-year, margin expansion has slowed as a result of more challenging comparisons as the majority of our efficiency programs were fully implemented in the first quarter of 2015. Going forward, we continue to expect to be adversely affected by ongoing restructuring efforts, largely in the form of elevated expenses across many parts of our business, which may accelerate during the remainder of this year.

Lastly, ongoing room renovations across our hotel portfolio will result in inventory disruptions, which we will attempt to mitigate.

Slide 25 provides a summary of quarter-end liquidity and projected capital expenditures for the CEC consolidated entities. As a result of our investments in high-return low-risk areas such as room renovations and our continuous improvement operating model, the underlying performance of the enterprise continues to improve, which has resulted in greater cash flow generation. We will continue to look for opportunities to optimize our cash flow through efficiencies and profitable growth investments to drive value for our stakeholders.

I’ll now turn it back to Mark for his closing comments.

Mark Frissora

Thanks, Eric. Summarizing our discussions on slide 27, we're pleased with our second quarter performance, which increasingly reflects progress executing our cornerstone initiatives. Our focus on enhancing hospitality assets is a key business performance driver, while our efficiency initiatives are enabling us to maintain the margin improvements we've achieved over the last six quarters.

By continuously improving the operating model and investing in the business, we will be able to accelerate revenue growth and drive productivity gains. The goal of this approach is to further improve margins and cash flow, while also further improving customer and employee satisfaction.

While macroeconomic indicators are currently mixed for consumer spending, regional gaming markets in our industry have shown some recent softness, which we will continue to monitor. Nevertheless, we are somewhat encouraged by our recent market share gains in certain markets. We will continue to stay focused on our balanced approach to running the business, an equal focus on revenue generation and cost management as well as customer and employee satisfaction. We believe that this approach, along with executing our stated strategic initiatives, is the best hedge against uncertain economic trends.

As always, amid the backdrop of ongoing restructuring efforts at CEOC, we're focused on operating as efficiently as possible to maximize value for all stakeholders. Over the last several months, we’ve made significant progress in the CEOC bankruptcy case, as outlined on slide 28. We’re optimistic that achieving these milestones puts us on a path to resolving the unit’s bankruptcy.

Yesterday, we announced the signing of a new restructuring support agreement with a significant portion of CEOC second lien holders. This milestone signals continuing progress in CEOC’s negotiation efforts with its lenders to bring that entity out of bankruptcy. The RSA will become effective upon the signing of the RSA by creditors holding at least 50.1% of the aggregate outstanding amount of CEOC’s obligations by the end of August.

Further, if consenting creditors holding at least two-thirds of the aggregate second-lien bond claims sign the RSA, we could potentially have a fully consensual deal ahead of CEOC’s confirmation hearing in January.

We will now open the line up for Q&A. We’d ask that you please keep your questions focused on the business performance. Operator?

Question-and-Answer Session


[Operator Instructions] And your first question comes from the line of Susan Berliner from JPMorgan. Your line is open.

Susan Berliner

Hi. Thank you. So I want to start, I guess, with the consumer. I know you guys talked about the consumer gaming spend being lower in the regional markets and it sounded like it continued into July. And I was wondering if you can talk about what you're hearing from your customers. Is it just slot play? Is it at all with regards to F&B as well?

Eric Hession

Sure. I’ll start and then Mark can add some context. We did notice some softness in May and June and it trended a bit into July, but not as weak as we've seen in May and June. A lot of the weakness was focused around the southeastern part of the United States, which we believe is adversely affected by the oil and gas price situation. And then the rest of the central division also experienced slight weakness that was not in the same line that we have seen through the first four months of the year, which is why we mentioned it here. We also continually take an approach by evaluating all of our marketing campaigns and all of our operating strategies to try to mitigate any weakness that we see. And so, as we mentioned in the materials earlier, we’ll be very vigilant to make sure that we’re able to maintain our margins and that we do react appropriately as we see these threats coming through.

From the Vegas perspective, though, I would say that the Vegas market, we continue to be optimistic. The demands for the market from the free and independent traveler are continuing to be strong.

And then to address your question directly from the food and beverage perspective and the entertainment perspective, the consumers do seem to be purchasing those products in a strong way. So we’re not concerned on that side.

Susan Berliner

And then just turning to CapEx, I didn't see in the slides or in the press release CapEx at each entity. Can you go over that? And then, just discuss what, I guess, the major renovations are at CERP and CGP.

Eric Hession

Sure. I can run through them here. So, at CERP, in the second quarter, we spent $32 million of capital, CGP was $21 million, CES was $2 million, and then CEOC was $38 million, for a total of $93 million. We did provide in the materials an updated range of CapEx, which you’ll see was slightly higher on the bottom end, but we kept the top end of the range the same.

The predominant projects that we have coming up in the second half of the year are room renovation projects. At CGP, we’re embarking on a significant room renovation effort at Planet Hollywood. And at CERP, that's predominantly focused on room renovations at Paris right now.

Susan Berliner

Great. And then I just want to try to figure out – I guess, with the CIE, congrats on that. Can you guys talk about what the proceeds will be used for? And then, if you can talk about if there are any other potential assets for sale such as Baltimore.

Eric Hession

Due to the recency of the sale, we’re not commenting at this point on the use of the proceeds. There was some disclosure around the payments that can be made for professional services, minority investors in the entity and a few other distributions. But other than that, we’ll comment on that at a later date.

And then with respect to additional asset sales, again, nothing to comment on there. We don't have, at this time, any plans to divest further assets.

Susan Berliner

Great. Thank you.

Eric Hession



And your next question comes from the line of John DeCree from Union Gaming. Your line is open.

John DeCree

Hi, everyone. Thank you. Just wanted to go back quickly to some of the color you provided on the regional gaming customer. And I was wondering if you're seeing any change in the promotional environment with some of your competitors in the regions where perhaps the consumer is a little softer.

Eric Hession

Yeah. I would say, at this point, consistent with what we’ve been trying to undertake for the last six quarters really, we've been trying to rationalize our investment with respect to the various segments, particularly in Midwest regions, but also in Las Vegas to some degree. We really drive down to that particular segment level and try to titrate our marketing efforts to achieve the maximum results that we can. We have seen a moderating competitive dynamic in terms of reinvestment levels, but I would say that that’s also been fairly consistent now for the last six months. So a little bit different than in 2015. So at this point, I would say that there really don't seem to be any strong trends from an increasing reinvestment perspective for many of the competitors that we see. And this is broadly speaking, of course, across the portfolio.

John DeCree

Okay, very helpful. And to switch gears into Las Vegas, I think some, obviously, really good data points as it relates to the non-gaming business that are pretty consistent across the board. I was wondering if you can add a little more color to your views on the gaming business, the casino floor, if you’re expecting any particular growth in that area or any improvements in terms of casino revenue growth in Las Vegas.

Eric Hession

I’d say, broadly speaking, in contrast to the non-gaming side where we are definitely seeing an increase in both the hotel demand, the food side and the entertainment side, the gaming side has been up a few percent for the past six months. We did have a strong second quarter with respect to baccarat business. But at this point, it's too early to tell whether that’s going to continue. And as you know, that's certainly been a challenged segment for the prior five or six quarters before that. As Mark mentioned in his notes, we’re actively searching for new product offerings that we can deliver to the floor. We do plan to roll out three test areas across our brand, with one of them being in Las Vegas that we believe will contain new products that will be very appealing to the millennial generation and will help really drive people in and reenergize the gaming side.

John DeCree

Great. Thanks, Eric. Really appreciate the questions.

Eric Hession

Sure, thank you.


And there are no further questions at this time. I turn the call back over to the presenters.

Brian Blackman

Right. Thank you very much. And I’d like to thank everyone for joining us this afternoon for our second quarter earnings announcement and we look forward to joining you again for the third quarter. Have a very good day.

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