Caesars Entertainment Inc (CZR) — Q3 2015 Earnings Call Transcript

Thank you. Good afternoon and welcome to the Caesars Entertainment third quarter 2015 results conference call. Joining me today from Caesars Entertainment Corporation are Mark Frissora, 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 Events and Presentation section on our website at caesars.com. The slides are available for download on the Events and Presentation section and will accompany Mark and Eric's prepared remarks for those of you on the phone who 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. Before we get on our way, I’d like to call your attention to the following information on Slide 1 through 4, which we incorporate by reference. The forward-looking statements Safe Harbor disclaimer in our press release and other public documents cover this call and simultaneous webcast at caesars.com. This call, the webcast, and its replay are the property of Caesars Entertainment Corporation and are 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 discussions of certain non-GAAP financial measures, including property EBITDA, adjusted EBITDA, and certain supplemental financial information. Reconciliations of net income and loss to property EBITDA and net income and loss to adjusted EBITDA can be found in the tables of our press release.

Thanks, Jackie. The factors that drove the company's tremendous first-half performance persisted through the third quarter, and I am pleased to report that Caesars delivered another strong quarter in the three months ended September 30. Starting on Slide 6, net revenues for continuing CEC, which as a reminder excludes CEOC, increased 12% to $1.1 billion. Adjusted EBITDA grew 51% to $317 million. Adding CEOC to CEC on a supplemental basis, net revenues across the enterprise increased 5% year-over-year to $2.3 billion. This exceptional business performance is driven by higher gaming and hotel revenues, excellent labor and marketing productivity improvements, as well as continued strong performance in Caesars Interactive Entertainment's social and mobile games franchise. Gaming revenue increases were driven by a full quarter of Horseshoe Baltimore results compared with a partial quarter last year and a favorable year-over-year hold. The renovation of the LINQ Hotel and Casino, the expansion of resort fees across all properties, and improved pricing power at our Las Vegas hotels to better yield management led to strong growth in the hotel category. These revenue drivers, coupled with ongoing marketing and operational efficiencies and an improved customer mix in hotel outlets, led to a 43% year-over-year increase in adjusted EBITDA to $630 million. Adjusted EBITDA margins rose 710 basis points to 27%, our highest quarterly EBITDA margin system-wide since 2007. Through the first nine months of 2015, we have delivered on our stated objectives to produce strong EBITDA margins, and our properties continue to produce the highest margins on the Strip. We also increased our net revenue share on the Strip, outperforming our peers and outpacing market growth. These results are a testament to our team's focus on effective execution of our cost control efforts, as well as the performance of our new assets. We plan to sustain these margins and continue to lead the Las Vegas Strip through a combination of top-line growth initiatives and ongoing productivity efforts, which should improve stakeholder returns in the future. Moving on to Slide 7, as we have certainly shown over the past several quarters, we are intensely focused on ensuring that our expense bases are appropriately sized for the enterprise. These efforts have allowed us to meaningfully enhance EBITDA margins over the course of this year, with most of the increase coming from significant improvements in marketing efficiency across the enterprise and a relentless approach to continuous improvement within our operations. The year-over-year savings in marketing spend are a result of several initiatives. First, we have reduced spend relative to the elevated levels seen last year, as these expenditures were less affected than anticipated. Particularly our free slot play program. We’ve also moved a large number of our marketing programs from direct mail to email and digital channels, which has now been cost-effective but allows us to be more agile and personalize. Additionally, we have implemented a more targeted approach on offers resulting in enhanced customer profitability. Lastly, we have augmented our data analytics operations to serve a performance management function to more closely monitor and track marketing efficiencies and productivity improvements in operations. We believe that these changes to our marketing approach are the right move and will be sustainable over the long-term. Importantly, we have been able to make these cuts while maintaining market share on a year-to-date basis while keeping customer and employee satisfaction high. From an operations perspective, we have realized substantial efficiency gains over the last nine months, and we continue to see additional opportunities. We’re applying an improvement-focused operating model to all areas of the enterprise, including revitalizing our lean efficiency program. The program is designed to create a sustainable platform and culture to continuously drive process improvement and efficiency gains, as well as enhance customer experience particularly at the property level. We have already identified some immediate areas of opportunity such as high transaction food and beverage outlets, laundry facilities, and housekeeping. During the last few months, we have been able to lay the groundwork to get the program up and running, including creating cross-functional teams and establishing property site leader positions to manage the initiative. As part of this progress, we are working with a vendor that will help provide oversight and Six Sigma Black Belt training and certification to property site leaders. We'll begin rolling out the program formally at the end of this year and expect it to be fully implemented with site leaders at every one of our properties by the end of the first half of 2016. We expect this effort to yield meaningful efficiency gains over time. Turning to Slide 8, for our future success, we recognize the need to grow topline revenues across the system. As I stated on our prior call, hospitality will provide a significant source of upside for Caesars. Since the financial crisis, we have under-invested in our room product relative to our competitors, so we believe upgrading our room product is a tremendous opportunity, particularly in Las Vegas. Increased demand across the industry, coupled with the hotel renovations we have completed over the last two years, have given us greater pricing power in our hotel portfolio, and we have seen it in many years. Additionally, over this same period, we have made significant enhancements in our yield management platforms and capabilities. Yield management refers to our pricing management and optimization of hotel inventory. These enhancements have driven material improvements in customer evaluation, pricing, and inventory management. These factors have enabled us to drive substantial improvements in ADR and to outperform our competitors. In each of the last four quarters, system-wide cash ADRs increased double digits year-over-year with strong growth in Las Vegas. With room upgrades delivering a high return on invested capital, we view these types of projects as attractive low-risk uses of available cash and plan to make investment in our Las Vegas room product a top priority over the coming years. Turning to Slide 9, to that end we have recently removed from inventory the Roman Tower at Caesars Palace, and we've started extensive renovations. Given the investment at our flagship property over the last several years, we are very excited to bring the room product in that original tower in line with the rest of the building. The new rooms, including high-end suites, started going on sale in late October with the first guests expected to stay in the new tower in January 2016. The tower will be rebranded as Julius Towers once it reopens next year. We believe the financial and operational impact of this renovation will be substantial. In addition, we are renovating a significant percentage of our suite product at Paris, to ensure that our high-worth net-gaming customers continue to receive a great room product experience. Starting in January, 148 rooms and suites will be upgraded. We expect this project to be completed in the second quarter of 2016. We are also making targeted investments at Planet Hollywood, renovating 183 rooms including 15 suites in the fourth quarter of this year. We also plan to start a remodel at the Carnival Tower at Harrah's Las Vegas in December to modernize 672 rooms including 72 suites. Complementing our hotel investments, we have made it a priority over the years to offer our customers the best in entertainment and dining options at each of our properties. We recently announced a three-year extension of Britney Spears' Piece of Me show at Planet Hollywood through December 2017. Since opening almost three years ago, the show has received rave reviews and is sold out on a regular basis. Britney’s continued residency will be shared now with Jennifer Lopez, bringing her All I Have show to the stage in January 2016. Additionally, Reba and Brooks & Dunn have extended their popular residency at the Colosseum at Caesars Palace into 2016, as have Donny and Marie at the Flamingo. As seen on Slide 11, we are also enhancing our food and beverage outlets with the highly anticipated opening of Mr. Chow's restaurant at Caesars Palace in Las Vegas set for December 2015. We are also making numerous investments outside of Las Vegas including new restaurants such as Smoke & Rye at Horseshoe Southern Indiana, Guy Fieri’s El Burro Borracho at Harrah’s Laughlin, and Noodle Bar at Harrah’s North Kansas City to expand cuisine offerings. Moving to Slide 12, in September we celebrated the opening of the Waterfront Conference Center adjacent to Harrah’s Atlantic City. Customer reception to the facility has been very positive and our nationwide sales force has made great traction in building the new business pipeline and putting Atlantic City on the map as a destination for corporate and association meetings. We now have 160 events booked in the new space, and over 150,000 room nights. 61% of total bookings, over 90,000 room nights, are scheduled in the first 12 months of operations compared to approximately only 11,000 at the same time last year. On Slide 13, you will see that we have opened Harrah’s Cherokee Valley River Casino & Hotel in North Carolina at the end of September with an overwhelming response from visitors to the property on opening day. This is the second property that Caesars manages for the Eastern Band of Cherokee Indians, adding to our solid stream of management fee income and reinforcing our strong relationship with the tribe. Turning to Slide 14, we are also focused on opportunities to accelerate revenue growth through the expansion of the Millennial and Generation X customer base. These customers represent a large and growing opportunity for the casino industry, both in Las Vegas and in regional markets. We believe they are interested in gaming, but not in the same way as their parents or grandparents. They need new types of content, more comfortable experiences, and more social settings. We are actively testing a number of programs, products, and experiences aimed at improving our ability to attract, engage, and retain this important customer segment. Two examples of the new social environments we are creating for younger customers to enjoy and explore include O'Shea's at the LINQ and our Tag lounges, which are large virtual gaming centers containing electronic tables that we have debuted in a number of our properties across the country. We are also making a concerted effort to expand and enhance our gaming product offerings, as seen on Slide 15. Although we continue to believe that there is a general lack of innovation on the part of our primary slot providers, we are intrigued by some of the new products we are starting to see from a subset of these manufacturers, including the early versions of skill-based games. We are eager to try these new gaming options in some of the millennial-friendly environments we are developing and are already deploying a few things with skill-based components as part of our current offering. We believe that stronger product offerings set in strategically created modern and social environments will add excitement to Las Vegas and regional casinos. More to come, but we believe this will be a very core platform for growth for us and the industry moving forward, particularly in regional markets. Let me now turn the call over to Eric for a more detailed review of this quarter’s results.

Thank you, Mark. I’ll first start with continuing CEC’s consolidated results for the third quarter, followed by a review of the company’s reportable segments and then discuss the supplemental information we have provided on our website, which included CEOC’s third quarter performance as well as continuing CEC plus CEOC’s results. Slide 17 summarizes continuing CEC’s results, which do not include our deconsolidated subsidiary CEOC. For the third quarter of 2015, continuing CEC net revenues increased 12% to $1.1 billion, adjusted EBITDA grew 51% to $317 million, and margins improved 709 basis points. As Mark noted earlier, revenue performance was driven by a full quarter of Horseshoe Baltimore results, strength in hospitality offerings, particularly in the hotel vertical, mainly due to resort fees driving higher cash ADR, favorable year-over-year hold, and continued organic growth in CIE’s social and mobile games business. The year-over-year improvement in EBITDA was primarily attributable to the revenue increases, marketing and operational efficiency, and improved hotel customer mix. As we mentioned in our press release, Caesars Entertainment accrued $966 million of commitments related to the first lien RSAs. As you may recall, we announced a few months ago that CEOC has secured the support of its largest and most senior creditor consistencies, representing holders of more than 80% of CEOC’s first lien bank debt and first lien notes. Slide 18 summarizes the performance of Caesars Entertainment Resorts Properties. Third quarter net revenues grew 1% year-over-year to $542 million due to strong hotel performance driven by resort fees and improved hotel yielding, but was partially offset by a decline in entertainment revenues due to a lighter show calendar versus the prior year. Adjusted EBITDA increased 28% year-on-year to $157 million, and EBITDA margins expanded 602 basis points due to marketing and operational efficiencies, improved hotel customer mix, and favorable property taxes. There was minimal impact from hold in the quarter. Year-to-date, the EBITDA impact from favorable year-over-year hold is estimated to be between $17 million and $21 million. Moving on to Caesars Growth Partners on Slide 19, CGP experienced another strong quarter with net revenues increasing 24% to $602 million and adjusted EBITDA growing 62% to $170 million. Margins expanded 663 basis points year-on-year. Revenue performance was driven by the opening of Horseshoe Baltimore, strong growth in CIE’s social and mobile games business, and higher hotel revenue resulting from the expansion of resort fees and continued year-over-year ADR improvement at the linked hotel due to the renovations that were completed earlier this year. Within the CGP business, our first review of the CGP Casino segment on Slide 20, net revenues were $407 million in the third quarter, up 26% year-on-year. Adjusted EBITDA rose 85% to $96 million, and margins grew 754 basis points. The increase in revenue was primarily attributable to a full quarter of Horseshoe Baltimore results compared to one month last year. The completed renovations at The LINQ Hotel, which experienced a 63% year-on-year increase in cash ADR during the quarter, as well as higher food and beverage revenue, the expansion of resort fees, and favorable year-over-year hold. Revenue growth, along with marketing and operational efficiencies, drove EBITDA performance in the quarter. The EBITDA contribution from favorable year-over-year hold in the quarter was approximately $9 million to $13 million and approximately $14 million to $18 million year-to-date for the CGP Casino segment. Harrah’s New Orleans was a contributor to revenue and EBITDA growth in the quarter due to very favorable year-over-year hold and table games. That said, from a core business perspective, volumes at the properties continue to be impacted by the smoking ban and were down approximately 15% in the quarter. We expect Harrah’s New Orleans to experience continued volatility month to month as it adjusts to the operational challenges from the smoking ban. We focused on mitigating the negative impact on our revenues by developing outdoor smoking courtyards that provide more convenient and safe alternatives for our smoking guests. We also plan to place limited slot machines in the courtyards pending approval. We hope that these actions, along with other marketing efforts, will help us offset the double-digit declines in gaming volumes since the smoking ban went into effect. Since we spoke last quarter, trips and visitation to Horseshoe Baltimore are back to the levels seen before April's episode of civil unrest. The property has delivered improved performance on account of stronger gaming volumes as the market responds to its wide range of amenities and unique entertainment offerings. Baltimore delivered its best quarter since opening last August and has generated record revenues in EBITDA for the month of August. Topline growth, however, was impacted by unfavorable year-over-year hold in the month of September. Now let’s look at the Interactive Entertainment business on Slide 21, which continues to deliver exceptional results. Third quarter net revenues increased 20% to $195 million, and adjusted EBITDA rose 40% to $74 million. EBITDA margins expanded 523 basis points year-on-year to 37.9%. Performance was mainly driven by strong results in social and mobile due to continued monetization of the user base. Monthly unique paying users grew to 860,000 in the third quarter, up from 595,000 last year. Average revenue per user per day increased to $0.33, up from $0.29 over the same period in the prior year. Slide 22 provides a snapshot of liquidity at quarter-end for the CEC consolidated entities. Slide 23 shows the supplemental information on CEOC’s third quarter performance. Net revenues declined 2% to $1.2 billion due to lower reimbursable expenses and lower gaming revenues. Excluding reimbursable expenses, revenue was relatively flat year-over-year, driven by gaming revenues declined in CEOC’s regions, partially driven by marketing program changes as well as reduced baccarat volume at Caesars Palace, which were offset by favorable year-over-year hold at Caesars Palace and higher room revenue due to the expansion of resort fees and increasing cash ADR. Adjusted EBITDA increased 35% to $313 million leading to a 709 basis point increase in margins, primarily due to marketing and operational efficiencies. The EBITDA contribution from the favorable year-over-year hold in the quarter was approximately $20 million to $25 million and approximately $37 million to $41 million year-to-date. In Las Vegas, hospitality amenities continue to perform extremely well at Caesars Palace. As Mark mentioned in his remarks, we are currently renovating the Roman Tower, which has taken approximately 600 rooms offline at Caesars Palace. The renamed Julius Towers is expected to welcome its first guests at the beginning of the New Year. Conversely, on the gaming front, we continued to see a challenging VVIP environment with substantial declines in baccarat volume in the quarter, however that’s consistent with the rest of the industry. We don’t expect this to mitigate for the remainder of the year and currently anticipate further declines in this segment of our business throughout 2016. As I mentioned a moment ago, CEOC’s regional markets experienced lower gaming revenue due to marketing program modifications that have been implemented over the last nine months, with retail guests' visitation showing notable declines. While we have experienced slight declines in growth gaming revenues, market share year-over-year, casino profitability, and EBITDA have substantially improved, and we believe that this is the right decision for our property. We continued to monitor the effect that marketing changes have on our performance and customer behavior to ensure that we are driving benefits and enhancing profitability. Beginning in mid-2016, certain of CEOC's subsidiaries will transition the management responsibility of Horseshoe Cleveland, Horseshoe Cincinnati, and Thistledown in Racino over to Rock Gaming and its subsidiaries, which currently own three properties. We are working with Rock Gaming to ensure a seamless transition and are taking appropriate steps to minimize any disruption to customers. Reward credits for total reward members will remain valid at all Caesars properties. Now, let’s take a look at additional supplemental information for the third quarter on Slide 24, which includes our deconsolidated subsidiary CEOC. Caesars system-wide net revenues rose 5% from the prior year to $2.3 billion, mainly due to a full quarter of Horseshoe Baltimore results, favorable year-over-year hold, strong hotel revenue growth from resort fees and pricing strength, and continued strong performance in the social games business at CIE. As Mark noted earlier, we have expanded resort fees to all of our hotels system-wide, which is a key driver of the 13% increase in cash ADR we experienced during the quarter. Revenue growth, coupled with ongoing expense reductions, particularly around both marketing and labor efficiencies, resulted in adjusted EBITDA increasing 43% year-over-year to $630 million, with the corresponding margin increase of 710 basis points. During the quarter, positive year-over-year hold contributed approximately $30 million to $35 million in EBITDA and brings the year-to-date impact from positive hold to between $70 million and $75 million. While our properties benefited from favorable hold so far this year, we expect this to normalize over time. Looking ahead, we expect to face headwinds related to inflationary cost pressures, including salary and benefits, and we will be focused on offsetting these increases through productivity efforts. Additionally, as we annualize the programs related to our marketing and operational efficiency efforts, year-over-year comparisons will become more difficult. Our capital expenditure expectations for the full year 2015 remain unchanged from our prior updates, with continuing CEC expected to end the year in the range of $365 million to $480 million. CapEx spending is ramping up on several projects, such as the Roman Tower renovation at Caesars Palace. CEOC is expected to close out 2015 with CapEx spend in the range of $200 million to $270 million. We are currently in the planning process to determine CapEx for 2016 and expect to share that with you on our next earnings call. The business is generating more cash than we originally anticipated over the last nine months due to our outstanding financial performance, which will enable reinvestment in these businesses. We continue to take a thoughtful approach on how we deploy our capital, ensuring it’s invested in higher return projects. Let me turn it back over to Mark now for some closing comments.

Thank you, Eric. If everyone can please turn to Slide 26, we are very pleased with our third quarter results. Though gaming volumes, particularly at regional properties, have been under pressure as a result of marketing program changes, these adjustments have driven improvements in gaming win and overall profitability. The investments we have made in enhancing our hospitality assets are clearly paying off, with improved pricing power at our hotels and better customer mix in hotel and food and beverage outlets. We also continue to realize benefits from our cost-saving initiatives. Selectively, this resulted in strong year-over-year EBITDA margin performance for the third consecutive quarter. As we closed out 2015, I believe we are well positioned to sustain this momentum. We are on track to achieve or exceed our previously stated goal of generating an incremental $250 million to $300 million of EBITDA from cost savings and EBITDA-enhancing initiatives inclusive of CEOC. Further, CEOC is on pace to meet or exceed its published EBITDA target of $1.024 billion this year. As our October results demonstrated another strong month of performance driven by hospitality revenues, with Las Vegas hotel revenues up double digits. Turning now to Slide 27, as we move forward, we are focused on enhancing revenue and driving productivity gains to further improve margins and cash flow while maintaining high levels of employee and customer satisfaction. In the most recent quarter, we have seen an improvement in customer satisfaction, a very important measurement for us. This is in part due to our incentive platform that ties employee compensation to the overall customer experience. While the senior management team and I are in the process of finalizing the development of our strategic architecture for the business, we have identified a few cornerstone initiatives that will play a pivotal role in achieving these objectives, some of which I touched on in my opening remarks. These include one, reinvesting in high-return projects such as room renovations; two, developing innovative entertainment environments to attract and retain younger customers; three, expanding the total rewards database, particularly active members; four, inspiring a sales culture at every level within the company; and finally, focusing on a continuous improvement culture. As I discussed last quarter, these initiatives range from those that require minimal capital investment to more intensive projects, and we will only allocate capital to projects and activities we believe will create significant value for our stakeholders. I look forward to outlining our growth strategy for the company on future calls. In summary, we are very focused on a balanced agenda of growth and efficiency initiatives amid the background of CEOC’s restructuring process and look forward to completing our processes as quickly as possible. We believe our marketing and productivity improvements are sustainable as evidenced by our market share performance. Additionally, as we gain further traction in our productivity initiatives, we will concurrently invest to improve our Las Vegas hotel product to drive year-over-year gains in ADR. With that, we will be happy to take your questions. At this time, we ask to keep your question focused on the performance of the business itself.

Hi, guys how are you.

Good.

Very good, I have three questions. First on CERP, I just wanted to talk again about the margins. They were up, I don’t know, some four or five season of basis points since 2013, 2014 obviously. Just curious what do you think the biggest contributors are to the margin improvement on the OpEx line? How do you see that going forward and then I had a couple of follow-ups? Thanks.

Again, we look at the combination of factors, but it's kind of equally balanced between the marketing spending efficiency that we're getting coupled with the labor productivity at the property levels. So those two things kind of together represent 80% of that. We also see some year-over-year improvements in margin due to some of the properties in CERP performing better because they've had time to perform, if you will. So that’s been an additional point. Eric, anything to add to that?

The only thing I’d add, Mark, is that, David, as you know those CERP properties are very large properties with substantial hotels. Generally speaking, they benefited from the increase in ADR and the associated flow through. As you know, with the demand particularly coming into Las Vegas for the FIT and Group segment, that’s enabled properties with large hotels to increase their ADRs and that's had great flow through. And then to respond to your second comment, we absolutely believe these margins are sustainable going forward, and we will be driving to grow those through the initiatives that Mark mentioned, focusing on the continual improvement environment.

Very good. You touched upon some of the targeted room product investments in Las Vegas and maybe just tacking on to what you just mentioned, Eric. Given some of your recent projects that have been finished, can you maybe just walk us through how you’re thinking about return on investment or any expectations you have or just color around how some of the returns have been met with respect to the LINQ or any other properties you’ve done in the hotel side of Las Vegas? And then I had just two more? Thanks.

Sure, David. So we, as you know, during the recession, we had pulled back on our room renovation projects and then recently ramped those up in 2013 and into 2014, completing a few hotel towers particularly the Valley South Tower and most notably the LINQ in its entirety. What we’re realizing is that the customers that are coming to Las Vegas are absolutely willing to spend additional dollars per hotel night just to stay in a renovated room, and they will pay an incremental amount that provides a very solid return to us. So without getting into return specific numbers, you can understand from our perspective that incremental ADR per room night over a period of time since we sold the room nights running in the mid-90s of occupancy generate substantial returns. And from a risk perspective, renovating a hotel room, given that we do them continuously, is relatively low.

In fact, if I can just add that when we look at the last years of capital projects and do a detailed review of which ones have had the highest returns for us and represent the low risk, it is renovations of our hotel rooms in Vegas that are applicable with a high payout. We get ROIs of 35%, 40% on average, which are very high returns as you might imagine.

That’s helpful. Just CEOC for a moment. You briefly touched on the phase or potentially exceeding what was budgeted, I guess a couple of quarters ago at this point. What’s driving our performance there? Is it the top line or is it the cost side? And then maybe just very broadly talk about your expectations for those regional businesses in 2016. I know you don’t give guidance, but just broad expectations, and then I just had one big-picture question, and that’s it from me. Thanks.

Yes, broadly speaking, David, I would say that it has been more focused on the cost side, both balance between our marketing initiatives and our operational initiatives. There have been upsides on the CEOC side in terms of the hotel performance in a number of markets. But CEOC is also, through its ownership of Caesars Palace, have been impacted by the decline in the VVIP business. Going forward, we don’t provide guidance, but as we are working our way through the planning process for next year, we are assuming relatively modest revenue growth, and we are continuing to focus on the cost side to ensure that we are able to achieve our plans. If we are fortunate enough to have the economy in such a state that there are tailwinds in excess of what we are planning for, then we will be able to see exceptionally strong flow-through because we will make sure that our cost structure, which is entirely controllable, is very tight.

Very good. Just real quick, I mean, since we spoke last, obviously a competitor has announced a REIT, and we have maybe another one with GLPI. I guess I am just curious, big picture, any thoughts around does the value creation change as there are more REITs in the gaming land space at all? Any thoughts there? And then that’s it from me. Thanks.

Yes, unfortunately, David, we are not in a position to comment on that due to the restructuring at this time.

Good afternoon.

Hi, Susan.

I guess I wanted to start. I know you guys talked a lot about room renovations, and I was trying to, I know you haven’t announced anything for next year. But I was trying to get an idea of what kind of renovations you are talking about. Are you talking about just kind of soft costs and any sort of magnitude? And I guess secondly, Eric, I was wondering if you could go through the CapEx spend because even though CERP came in higher than we expected, I was looking for some cash flow. I was kind of wondering if CapEx that was higher than we had modeled.

We kind of announced if you look at some of those slides what projects we will be doing next year, specifically in Vegas, so there are quite a few projects. We mentioned that why should be in the progress flow for next year, and I don’t know if Eric, if you want to mention any other, but it goes for kind of the bigger ones. There is no plan at all to change, if you will, the way we spend capital; we are focused on spending at the narratives that we think have the highest returns.

Yes, I just say we have a couple of large projects rolling off. As you are aware, the Atlantic City convention center and then the linked projects had considerable CapEx spent this year. As Mark mentioned, reallocating a fair portion of that to room renovation projects we believe is the next step forward. We mentioned some plans to renovate substantial rooms at Paris and Hollywood; the Harrah's Hotel Tower that will be starting later this year, but rolling into next year, and then the Roman Tower here at Caesars will come fully online next year. From a CapEx standpoint for CERP, we continue to project in that $130 million to $200 million range, and that should be consistent with the prior guidance that we have provided.

Will be CapEx spend, I guess, in the Qs after the quarter?

Sorry, I didn’t get. Can you repeat your question?

Sure, I guess I was just wondering if the CapEx spend per I guess entity will be in their respective Qs?

Yes, it will be there.

Okay. And then just turning to I guess CES, I know you guys had set it up last year around this time, and I know there have been talks about you potentially looking to, I didn’t know if it was kind of reset annually, if you can give us any update on how that’s going or fits in place already?

Yes, for those not as familiar, I think you are talking about the reset of the allocation percentages, is that correct?

Yes.

Yes, we had discussions and we did reset the percentages earlier this year between the three subsidiaries.

And how would we know how they reset? Is that going to be in the respective Qs?

The CGP Q will have the CGPH percentage, and then - so it will be there.

Okay, great. Thank you.

Sure.

Great. Listen, thank you operator and thanks everyone for listening in on the call. We look forward to updating you on our future plans and initiatives to deliver stakeholder value. Thanks again.