Caesars Entertainment Inc (CZR) — Q4 2016 Earnings Call Transcript

Thank you and good afternoon, and welcome to Caesars Entertainment's fourth quarter and full-year 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 website at caesars.com. 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 Annual Report on Form 10-K. Before we get underway, I would like to call your attention to certain statements and information on Slides 2 through 4, which we incorporate by this reference. The forward-looking statement Safe Harbor disclaimers in our public documents cover this call and the simultaneous webcast at caesars.com. 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 discussion of certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA margin, property EBITDA and certain supplemental financial information. Definitions of these non-GAAP measures, reconciliations to the nearest GAAP measures, and the reasons management believe these measures provide useful information for investors can be found on Slide 3 and in the appendix to this presentation beginning on Slide 24. These non-GAAP measures are not preferable to GAAP results provided elsewhere in the presentation or discussed on this 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. 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 to 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 with those of CEC. CEC has committed to a material amount of payments to support CEOC's restructuring which would result in the reacquisition of CEOC's operations if the restructuring is made in 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 with the management services provided across all properties. These results are not indicative of future performance or the results post restructuring. As used during the call, the words Company, Caesars, Caesars Entertainment, we, our, and us, 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 6, we'll begin the call today 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 some closing comments, and we will then open up the call for your questions. I’d now like to turn the call over to Mark.

Thank you, Brian. I'm pleased to report that Caesars capped another strong year with solid operating performance in the fourth quarter, driven by revenue growth in Las Vegas and margin expansion across the enterprise. Our fourth quarter and full-year 2016 results reflect the successful execution of our strategic initiatives, particularly our ongoing investments in hospitality and focus on operational efficiency. As shown on Slide 7, at the continuing CEC, which excludes CEOC and the recently sold social mobile games business, full-year net revenues increased 3% to $3.9 billion and adjusted EBITDA increased 9% to $1.1 billion. Net loss was $2.7 billion due to accruals related to the CEOC restructuring offset by a gain from the sale of CIE social and mobile games business. Eric will cover these performance metrics in more detail later in the call. On an enterprise-wide basis, which adds CEOC to continuing CEC, full-year net revenues increased 1% to $8.4 billion and adjusted EBITDA grew 6% to $2.2 billion. Net revenue was driven by strong growth in Las Vegas hospitality revenues, a one-time management termination fee at CEOC and favorable hold in Las Vegas, which offset regional gaming weakness. As I mentioned earlier, we benefited from the investments we have made in our hospitality offerings, including the recapitalization of our hotel product in Las Vegas and strong performance of our entertainment business. Cash hotel revenue was up 9% year-over-year establishing a new high since 2007. Additionally, we generated record levels of marketing efficiency due to higher email conversion from direct mail and refined segmentation. Labor productivity also improved, with full-time employees down 4% for the year driven by planned attrition. All combined has led to a 117 basis point increase in EBITDA margins year-over-year, our second consecutive year of enterprise-wide margin growth. Our focus has been steadfast on maintaining market share and operating the business efficiently while preserving high levels of employee engagement and customer satisfaction. I'm pleased to report that we were successful in each of these efforts in 2016. Our employees reported the highest level of satisfaction since 2005 in our annual Employee Opinion Survey and the biggest year-over-year improvement in at least 10 years. On the customer side, we enhanced the guest experience with our overall service score up 4% over last year. Our performance in 2016 is a testament to the execution of our strategies and the success of the investments we have made in our people, our products, our services, and our capabilities. Notably, we've achieved this level of success with the background noise of the CEOC bankruptcy. As you know, the Bankruptcy Court confirmed CEOC’s plan of reorganization last month. We are now focused on securing approval from regulators for the plan, raising certain emergence financing, and completing the merger between Caesars Entertainment and Caesars Acquisition Company. We are optimistic that all the steps will be completed and CEOC will emerge late this summer. Moving back to our strategic objectives, we have made substantial progress in the cornerstone initiatives we introduced last year, which are listed on Slide 8. These four initiatives have played a critical role in expanding margins and growing cash flows over the past four quarters and the senior management team and I have recommitted to these cornerstones again in 2017. Let me review some highlights of our progress during 2016. Turning to Slide 9, we've been taking actions to enhance our hospitality and loyalty programs including Total Rewards with the intention of expanding our customer base and deepening our customer relationships. We made headway on this initiative in 2016 by improving our active customer email capture rates up to 89%, increasing the active database of $400 plus customer segments by 5% year-over-year, growing caesars.com generated revenues by 12% year-over-year, increasing downloads of our Play By Total Rewards app by 81%, and winning various awards for hospitality and loyalty programs including more than 60 of the Best of Las Vegas awards. Over the course of the last year, we have set out to foster more direct relationships with our customers. To this end, we have invested in enhancing the customer experience on caesars.com and our mobile app. The Play By Total Rewards app is at the core of our strategy to engage customers and give them what they want when they want it. The increasing number of app users provides an opportunity to grow revenue as we deploy additional functionality this year including bubble payment and a new offer experience. As shown on Slides 10 to 12, one of the main drivers of our 2016 performance has been the investment in our hospitality offerings, particularly the recapitalization of our hotel product in Las Vegas. During the fourth quarter, we completed the renovation of approximately 1,100 rooms at Paris and continued renovations of roughly 2,200 rooms at Planet Hollywood. Additionally, we began the renovation of approximately 1,100 Palace Tower rooms at Caesars Palace in the first quarter of 2017. Once completed, we will have renovated almost half of our Las Vegas room inventory since 2014. Despite recent investments in the Las Vegas market, our room product is still undercapitalized relative to peer properties providing additional upside opportunity. Importantly, renovated rooms continue to perform well yielding an incremental $25 to $40 lift in cash ADR per room with strong flow through to EBITDA. Enterprise-wide Las Vegas cash ADR was up 7% in 2016 aided by greater pricing power in the Las Vegas market as well as our investment in hotel product. Given the low risk high return nature of these projects, we will continue to pursue our capital plans to drive future revenue and EBITDA growth. In 2017, we plan to renovate over 7,000 rooms across the enterprise with a high proportion concentrated in Las Vegas. We have also selectively upgraded the hotel assets in regional markets over the course of the past year. We plan to continue these investments over time. As I noted on our last call, the renovation of Bayview Tower at Harrah's Atlantic City is currently underway, and we recently announced the renovation of 500 rooms at Horseshoe Southern Indiana. We are also excited that the Eastern Band of Cherokee Indians Tribal Council has approved the addition of a fourth hotel tower at Harrah's Cherokee Casino as well as other amenities including approximately 100,000 square feet of convention meeting space. These enhancements will substantially increase the resort's total convention meeting and hotel room inventory, solidifying Harrah's Cherokee as the largest hotel resort in North Carolina. We also have made a concerted effort to upgrade our food and beverage offerings across the network to stimulate greater traffic to our properties. For example, in addition to extending our partnerships with celebrity chefs Gordon Ramsay, Guy Savoy, and Guy Fieri to introduce new offerings in Las Vegas, we also opened well-known concepts on The LINQ Promenade such as Virgil’s Real Barbecue in the fourth quarter and the highly anticipated In-N-Out Burger which debuted last month. Outside of Las Vegas, we opened a Craft Beer Bar at Harrah's Southern California, a sports bar at Harrah's North Kansas City, and a food bar at Horseshoe Hammond to name a few. We will continue to evaluate and adapt our food and beverage portfolio to ensure our offerings remain appealing to a variety of demographics. Within entertainment, this vertical continues to be a source of strength for the Company and a positive contributor to our financial performance. We generated the highest entertainment operating income in the history of our Company in 2016 driven by the strongest portfolio of Live Entertainment in Las Vegas. We also received a number of industry accolades including being ranked by Billboard as the third largest promoter worldwide of Live Entertainment based on gross revenue after Live Nation and AEG Live, each of which co-promotes several of our shows. These achievements are attributable to two factors. First, the expansion of our roster of Las Vegas headliners which is reaching an even broader range of customer demographics to drive consumers to our marquee properties. And second, strategic adjustments to the way we operate this business compared to a few years ago. Caesars was the first casino operator to launch the Residency Concept in Las Vegas 14 years ago with Celine Dion and today we have the most diversified portfolio of resident entertainers in the world. New residencies such as Jennifer Lopez have not only drawn record ticket prices and crowds but also enhanced our brand equity. Due to the strong demand we've added 15 additional performances in 2017 for Jennifer Lopez’s residency and extended dates for the Reba, Brooks & Dunn residency at The Colosseum through the end of 2017. We are also excited about the launch of the Backstreet Boys residencies at Planet Hollywood next month and the return of Pitbull’s residency later this summer. Apart from the resident entertainers, we are exploring innovative ways to evolve our entertainment experiences and create unique spaces to attract and engage a broader audience. For example, capitalizing on the popularity of eSports, the Champions of Fire Invitational was held at Paris in November. The Amazon-sponsored event brought together 16 of the world's biggest celebrity video game streamers to battle it out across five popular casual mobile games for their share of the $100,000 cash prize, drawing 3 million people to stream the event online. We continue to experiment with new offerings such as virtual reality and interactive games. Turning to our continuous improvement in our operating model on Slide 13. As I noted earlier, our focus on business process improvement has resulted in greater marketing and operational efficiencies across the enterprise. As a result, we delivered a 5% improvement in the productivity of our workforce as measured by net revenue per full-time employee. A variety of initiatives have contributed to this outcome including the ongoing optimization of our marketing reinvestment, the rollout of technology enhancements to modernize the customer experience, and modifications to our procurement process. We are also revitalizing our lean efficiency program, developing 25 Black Belts and 25 Green Belts last year. We have plans to continue to expand the program. We will continue to look for opportunities to maximize the efficiency and effectiveness of our day-to-day operations. We expect the enhancements of certain of our IT and operational systems in 2017 to provide added benefits on this front. Moving to Slide 14. During the year, we made progress in fostering a sales and service culture within the organization to enrich the guest experience. As part of this process we’ve invested in the training and development of our employees and we have certified approximately 41,000 guest-facing staff in our proprietary sales and service program. We are leveraging new tools and technologies to deliver more efficient service and enhanced personalized interactions. In addition to realizing a positive shift in our 2016 net promoter score, our sales training initiatives have also generated incremental revenues with non-gaming revenue per full-time employee reaching an all-time high for 2016. We are encouraged by the outcomes we’ve seen so far and believe we can continue to realize benefits to revenue as training is fully implemented across the company. Now let me turn it over to Eric to review our fourth quarter financial results in greater detail.

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 will include CEOC's performance as well. Slide 16 summarizes CEC's results, which do not include CEOC as it is no longer consolidated and also does not include the social mobile games business as it was sold in September of 2016. For the fourth quarter of 2016, CEC's net revenues increased 3% to $949 million, mainly due to strong growth in the Las Vegas region, resulting from favorable year-over-year hold and improved hotel performance as a result of the renovations and strong Las Vegas market fundamentals. Net loss was $435 million in the quarter compared to a net loss of $39 million in the fourth quarter of 2015. Net loss per share for CEC was $3.68 compared to the net loss of $0.54 per share in the year-ago period. Year-over-year declines in net income and earnings per share were driven by a $426 million accrual related to the restructuring of CEOC. Due to these large charges, we believe it's beneficial to provide adjusted EBITDA figures for additional visibility into our operational performance. Adjusted EBITDA increased 11% to $250 million, with a margin increase of 180 basis points mainly due to higher gaming and hotel revenues and continued focus on operational efficiency such as labor and marketing. Hold was estimated to have a minimal effect on operating income in the quarter relative to our expected hold and a favorable effect of between $10 million and $15 million when compared to the prior year period. Turning to Slide 17 and the performance of Caesars Entertainment Resort Properties, fourth quarter net revenues rose 4% year-over-year to $536 million due to favorable year-over-year hold, primarily at Paris, increased gaming volumes in Las Vegas and Atlantic City, and improved hotel performance in Las Vegas as a result of the continued investment at Harrah's and Paris. Additionally, The LINQ promenade delivered improved results with increased wheel ridership and higher rental income due to growth in the tenant base. Hospitality revenues at Paris were negatively impacted by room renovations of the property - over 23,000 room nights out of service in the quarter. As Mark noted earlier, Paris room renovations were completed this summer. Service net income increased $12 million year-over-year to a net loss of $1 million. Adjusted EBITDA increased 12% year-over-year to $163 million with adjusted EBITDA margins up 236 basis points mainly due to higher revenues and efficiency initiatives. Hold was estimated to have a minimal effect on operating income in the quarter relative to our expected hold and a favorable factor between $5 million and $10 million when compared to the prior year period. Slide 18 summarizes the performance of Caesars Growth Partners. Caesars Growth Partners fourth quarter net revenues increased 3% year-over-year to $414 million primarily due to favorable year-over-year hold, improved hotel performance in Las Vegas, and increases in entertainment revenue mainly due to the Axis Theater at Planet Hollywood. This was offset by weaker gaming volumes in Baltimore and New Orleans, and lower food and beverage revenues, partially driven by the 33,000 room nights off the market at Planet Hollywood during the quarter due to renovations, which also affected that property's hotel revenues. In Baltimore, gaming volumes were impacted by the entry of a new competitor into the market. Additionally, in New Orleans, we continue to experience pressure from the smoking ban in a weak regional economy. So the opening of the first outdoor smoking patio on December 1 has begun to mitigate some of this impact. The improved stopping flexibility in New Orleans has also provided a positive impact on our cost structure which should help margins of the property moving forward. CGP's net income decreased $14 million year-over-year to $11 million primarily attributable to the sale of the CIE social mobile games business. Adjusted EBITDA increased 19% year-over-year to $93 million and adjusted EBITDA margins grew 306 basis points due to higher revenues, efficiency initiatives, and some favorable one-time year-over-year cost impacts. Hold was estimated to have a favorable effect on operating income of between zero to $5 million in the quarter relative to our expected hold and also when compared to the prior year period. Slide 19 shows supplemental information on CEOC’s fourth quarter performance. Net revenues increased 6% year-over-year to $1.2 billion. Revenue growth was attributable to the receipt of a one-time management contract termination fee related to the divestiture of the three Ohio casinos, as well as favorable year-over-year hold and improved hotel performance both of which were driven primarily by Caesars Towers. The completed renovations of the Octavius and Julius Towers at Caesars Palace earlier in the year contributed to the favorable outcome. These positive drivers were partially offset by regional gaming related weakness, mainly concentrated in the Southeast and Midwest. Philadelphia also experienced pressure due to the casino for expansion of a competitor in the market. Adjusted EBITDA increased 13% to $279 million, and margins increased 146 basis points from the prior year period mainly due to the continued focus on operational efficiencies. Hold was estimated to have a favorable effect on operating income of between $15 million and $20 million in the quarter relative to our expected hold and between $10 million and $15 million when compared to the prior year period. Now let’s take a look at additional supplemental information for the entire enterprise for the fourth quarter on Slide 20, which includes CEOC. Caesars enterprise-wide net revenues were up 5% to $2.1 billion. As mentioned earlier, the increase was primarily driven by the receipt of a one-time payment at CEOC, strong Las Vegas hospitality revenues, and favorable year-over-year hold. These positive drivers were partially offset by revenue declines in the regional markets and lower reimbursable expenses. Caesars enterprise-wide adjusted EBITDA increased 13% year-over-year to $528 million, and margins expanded 176 basis points, primarily due to higher revenues and operational efficiencies. Hold on an enterprise-wide basis was estimated to have a favorable effect on operating income of between $15 million and $20 million in the quarter relative to our expected hold and between $20 million and $25 million when compared to the prior year period. Offsetting these hold improvements was disruption related to room renovations, and two power outages we experienced here in Las Vegas. Going forward, we expect inflationary cost pressures including salary and benefits to persist and we will remain diligent in managing these pressures through our continuous improvement initiatives. We also expect ongoing room renovations across our hotel portfolio will result in greater inventory disruptions this year when compared to the prior year given the ramp-up of several construction projects. Additionally, we will continue to monitor the performance of Horseshoe Baltimore as the market absorbs a new competitor. Slide 21 provides a summary of quarter and liquidity and 2017 projected capital expenditures for the CEC consolidated entities. Our investments in high return low risk areas such as room renovations coupled with a more efficient operating model have resulted in strong cash flow generation in 2016. Going forward, we will continue to look for opportunities to optimize our cash flow by focusing on our cost structure. We’re also opening up to ourselves to profitable growth investments to drive value for our stakeholders. I’ll now turn it back to Mark for his closing remarks.

Thanks, Eric. Please turn to Slide 23. In closing, 2016 represented another year of strong results for Caesars. Our full-year performance reflected the execution of our strategic objectives, including investment in our hospitality assets and operational improvements, which enabled us to sustain strong margin expansion. As we enter a new year, Caesars remains poised for growth as we further build out our success achieved through our four cornerstone initiatives. We believe continued execution on the cornerstones will enable us to drive ongoing improvements in margins and cash flows to both revenue growth and efficiency initiatives, while simultaneously driving higher levels of employee engagement and customer satisfaction. Additionally, the conclusion of CEOC’s restructuring and the merger with Caesars Acquisition will be a pivotal inflection point for the Company. While we have delivered strong operating performance within our existing footprint over the last two years, there is no question that CEOC’s bankruptcy process has constrained us particularly when it comes to expansion. I am excited about the opportunities ahead of us to invest and expand our business more freely including the increasing distribution through Greenfield development and M&A as we put the bankruptcy behind us in order to create value for all of our stakeholders. Going forward, further increasing cash flow will be a key objective of our financial performance. As a result, cash flow metrics will be more prominent in our presentation of financial results. We will now open up the line for Q&A.

Good afternoon, guys. How are you?

Hi, good.

Hi, David.

Good. I had a number of questions. I guess first, you mentioned that in the prepared remarks, which is why I wanted to ask. But I guess given the recent confirmation and raising funds and emerging, I was hoping maybe you could just help us think through when a potential exit for CEOC would take place and maybe to the extent that you would be willing to talk about it, any incremental thoughts on the capital structures of server growth, just given the really strong performance there would be helpful, and then I have a number of follow-ups. Thanks.

Sure. David, why don’t I take the first part of it and Mark can jump in if he has anything there at the end. So as we mentioned, we're not providing any specific timeline for emergence, but we have outlined three primary tasks that need to be completed. There are other smaller ones, but speaking at a high level, we need to complete the regulatory approval process, which requires certain approvals in a variety of jurisdictions that we operate in. That process is underway and moving forward. We also have to complete the merger of CACQ and CZR, that process is also underway. And then finally, we need to complete the financing associated with the CMBS structure on the PropCo side and then the OpCo financing. That's also underway. In terms of providing specific guidance each of the three activities have certain steps and requirements and we're not providing direction at this point. However, as we said we anticipate that this summer we would hope that all three would be completed and we’d be able to emerge from bankruptcy. Regarding your second question on the rest of the capital structure. Yes, we've had great performance over the last two years at both CERP and CGP given the performance of those entities, the cash flow generation that we've made and the increased EBITDA, the leverage of those facilities has come down. The current market dynamics, I think would indicate that it would be respectable to refinance those facilities and should the market performance sustain and our performance sustain, we look to refinance those at some point in the future and take advantage of the lower interest rates to improve our cash flow.

Okay. That's very good. Just on the operation side, you described I think cash hotel rates were up 9%. I’m curious to hear you're seeing the discount between the rooms and the market abate at all and then how much further you think you can drive ADR in Las Vegas? And then I had two others and that’s it. Thanks.

Yes, we continued David. As you've seen we outpace the market, we believe that’s due to a number of different factors predominantly as you called out the improvement of our asset in terms of the quality through the room renovations relative to our competitors. We still believe there is a significant gap between our competitors from an equal peer brand perspective, and where our properties are focused. When we look at online customer feedback from online travel sites our property still score lower than do applicable peer competitors and we believe a large driver of that is due to the quality of the product and as we improve that quality not only are we able to increase our price, but we're also able to attract that customer to directly book with us, which is the cheaper way to effect the booking. So we're still optimistic that there's room in that segment.

Yes, now just to add that now we understand index and we look at it every week on where we're under indexed and why but we also aren't completed with renovation projects we announced in this call there will be around 7,000 rooms which is more than last year and there's probably a couple more years of those type projects those kinds of numbers ahead of us in order for us to get our product to market parity. So we feel good that we were good at this it's a very low risk kind of investment when you refer to room renovations and you get immediate profit the moment you open it up and keep it out of service for anywhere from three months to four months, and then you get a nice lesson very high ROI. So we think we've got a lot of runway yet to work this.

Very good. And then on the margin side they obviously continue to improve you briefly mentioned some one-time benefits. So maybe you could just talk about what they were if how you expect margins to evolve this year. And then just on a housekeeping question, but in the deck you highlighted this one-time fee related to Ohio. So Eric, I was curious with treatment of that was - if it’s all EBITDA revenue and how we should think about that in terms of same-store. So two questions there and that’s it for me?

Okay. Sure. So from a margin standpoint we did have a few favorable items in the fourth quarter in particular we had some corrections associated with our bad debt that and then we also had a favorable true-up from our medical accrual as you know we have a program in place where we try to balance the employees' medical benefits and programs where employees get three months throughout the year and that’s reduced our inflation expectations associated with the cost of medical care. So it’s a great program for the employees and from a financial standpoint, it has to do with managing the medical care. So that’s being reflected in these results. Going forward, as I mentioned there are some cost pressures but we have initiatives in place to offset those we’re very aggressive with our business process improvement. Mark mentioned we now have 50 Green or Black belts trained each property has these individuals deployed towards continuing to drive improvements at the property level and then macro level we undertake corporate initiatives to introduce technology across the enterprise that will further help offset this inflationary pressure. So we feel that there is still margin improvements to go and plan to deliver that during 2017.

We also have a lot of headwinds in the fourth quarter and I want to make sure to pull those out and talk about as well. The construction disruption was probably at least $5 million for us in the fourth quarter. So that was a headwind with offset in addition to that we had issues again with power outages which are actually very costly during the wrong time of year. I had a couple of just shut down the entire place, the entire casino. Those were millions of dollars as well. So there were number of regional issues that I think were more or less related to the economy of those by all post-regions and of course the smoking ban continues to have some kind of impact on one of our best properties which is in the Orleans. Those things are all hindrances that came in the quarter.

Yes, absolutely, Mark. And then to finalize on your second question related to Ohio, from an accounting perspective we brought the $83.5 million that we received as revenue. However, because it's one-time in nature we excluded it from adjusted EBITDA. So what you will see is that had a negative impact of about 100 basis points on our consolidated margin. Because obviously the denominator being higher was reflected as a positive contribution to operating income as that’s the appropriate gap treatment.

Okay. Very good. Thank you.

Hi, great. Thank you. I mean one for Eric and a couple for Mark, but starting with Eric. Just a follow-up from the last question, I'm wondering and I can appreciate the complexity of what has to happen over the next few months, but as far as the existing capital structure goes, do you need to wait until the CEOC emergence from bankruptcy before you can consider being opportunistic with the current capital structure?

So yes, I mentioned there are some opportunities. At this point, we're not ready to commit one way or the other. We will have to evaluate market conditions. We’ll evaluate the timing and will also evaluate what the optimum capital structure is in a post-merger world. What we also have to keep in mind is that we don't want to take action too quickly and end up with a capital structure that isn't optimal from a long-term perspective. So we have to balance all those needs. But rest assured we're looking at all aspects of the capital structure and trying to optimize the future, so that we end up with the lowest cost of capital possible from a debt perspective.

Okay, fair enough, and then maybe for Mark. You talked about the ability for expansion post-emergence. I'm wondering if you can give us an update on where you are with the Korean investment, maybe the longer term opportunity in Japan for you guys, and I guess anything else domestically that you can think of.

The project that we have in Incheon, Korea is still alive and well, and we replaced this last year with a new partner that was a great switching partnership and they've been very helpful for us in continuing to move the ball down the road. So we continue to move towards an execution facility, architectural drawings are done and we’re, like I said, moving forward on the timeline as given by the government. In terms of Japan, I was in Washington and had a chance to see Prime Minister Abe and of course talked about Caesars' interest in Japan. We've been working on Japan for 10 years. So we've been in the hunt. We think we've got a very good position there because we have the opportunity actually to be the only one represented that's not in Macau and as you know the Japanese and Chinese sometimes look to our advantage, given the relationships of the two countries. And Japan, we believe things are actually in a good place as a resolve that. Toronto is something that we are talking about right now, but that's something that we're certainly involved in but all these projects are as you know if you get into them a very confidential so, but we are working on several development projects around the world and we're excited with the emergence of bankruptcy to be able to do that in a way that's a little bit less bureaucratic than what we had to do before, which is kind of work with each entity in order to get anything approved and we have a lot of things back, but it will be nice to get out and be able to openly talk about a lot of these projects and be able to fund them in the future.

Great, and then maybe for either of you, any notable strength or weakness for that matter that you're seeing regionally so far in 2017 and noticed AC numbers out, which kind of caught my eye, so anything there would be helpful?

Well, we think that the month of January is heavily influenced by calendarization. New Year's for example, the all the right way, there are weekend days and weekdays that are affected. So it’s a heavy month in terms of calendarization. There is regional weakness that you can see in the numbers that are coming out. So we see the same thing in terms of March, we think that will be very good in Vegas because it’s an incremental convention year-over-year that will play well. So overall for the quarter, I’d say we’re comfortable, we’re balanced. We feel good about where we are, but there have been numbers that have come out in the industry, which show some weakness, but I think most of that is calendarization. Eric, you want to add to that?

Yes, I think that’s right Mark. The takeaway I would say is that there really hasn’t been a shift from the trends that we've observed the regional markets haven't been all that robust and in certain instances, there are definitely pockets of weakness due to regional economic considerations, and Vegas has been quite strong particularly in the hotel side, all last year and we really don't see any reason to believe that that's going to change from a hotel demand perspective throughout 2017.

Okay, great. Thank you.

Great. Thanks for taking my questions. Firstly, I wanted to touch on the CapEx that was in your slide deck on Slide 21. Pretty wide range in CERP and CGP. Mark, you just mentioned the time it takes to renovate some of these properties in Las Vegas, so I'm guessing it's alluding to that, but could you help us think about, I guess firstly, the range of the CapEx there and then secondly if that's mostly in Las Vegas and pertaining to the 7,000 rooms and then maybe some timing on the beginnings of those rooms, I'm guessing that's after the big conventions in March?

Sure. Chad, you are right that the large swings in CapEx and why we provide sizable ranges is due to the timing associated with these major projects. As you are aware the spending curves associated with them are oftentimes difficult to project plus we will sometimes have delays caused either by identification of some construction aspect that we need to take more time to figure out or timing associated with something that we didn't anticipate. So we try to build in a range to account for this. You saw some of that in 2016 where our certain projects would flow over into 2017 either more or less than we had anticipated. As Mark mentioned, we have significant renovations underway at Planet Hollywood, Caesars Palace here and we're gearing up to start in the middle of the year with another hotel tower at Harrah's Las Vegas. That was very successful last year in terms of the renovation. We have hotel renovations currently underway at Harrah's Atlantic City and in Southern Indiana. Planet Hollywood, the renovation started last year in September and we're continuing right through to June and when we're completed with that it will be a total of 2,200 rooms that will be fully renovated for the whole property. So we feel very good about that property. Caesars will be in great shape and then Harrah's will also have two of its three towers completely renovated. The areas where we’ll then start to turn the focus would be Flamingo. We do plan to start some room renovations there later in the year. We're also contemplating a Bally's tower renovation on the large tower at Bally's and those will be the next areas that we focus on as we move through 2017.

Okay. Very helpful. My follow-up is on just operating efficiencies. You mentioned a few KPIs, FTE is down 4% in the year and you've seen some margin improvement. Is there anything in 2017 that you plan on doing or that we should expect from the labor and marketing side that is not already in place either in Las Vegas or in the regional markets to help improve margins?

I think that we’re more of the same kind of in terms of our progress and marketing efficiency and operational efficiency. As it relates to revenue growth, we have a number of customer entanglement initiatives where we have figured out ways with our data analytic team to figure out how to engage existing customers more fully than we do. And the customers in our business model have a tendency to float around a lot. They're not as loyal as you'd like them to be and being able to entangle your existing customers and get a higher share of wallet can be meaningful. And so we have a number of initiatives tied to machine learning that we're doing, something that’s core here at this Company with the best in class total rewards program and customer relationship management programs, and we're using that sophistication to again, get more customer involvement in the former revenue.

Okay. Thank you very much.

Good afternoon, everyone. Appreciate all the color. Just had two quick follow-up questions on Las Vegas. I was wondering if you could dive a little deeper into the operations and get your thoughts on where you're seeing the most strength in your business in Las Vegas, whether it would be kind of the leisure segment or the group segment especially as you guys have renovated and reinvested in a bunch of your rooms. Are you seeing the one segment starting to outperform the other?

Yes. As we said earlier I would say that trends are generally consistent with what we've seen certainly having the renovated rooms does appeal to the leisure segment, but it also helps us with our bookings. So when we're trying to book a convention they like to be able to observe the room quality and be able to see that we have a fresh offering. The convention business is a bit more volatile and will have certain peaks and valleys. For example, as Mark referenced in March there's a huge convention coming that comes every three years that will certainly provide a boost to the city. We see the convention business remaining strong as leisure business. On the casino side also room renovations that we've seen have appealed well to those customers that come a few times a year and stay with us that we're getting great responses from a number of the properties and so when they stay with us they tend to play more if they're staying in a higher quality room. So that helps as well.

Got it. And then just to shift gears to the non-gaming segment in Las Vegas. You've talked a lot about the room renovations that you guys have done obviously reinvested into a lot of your retail and SMB as well. For 2017 and going forward, is there much left to do on SMB in retail side in terms of reinvestment or are you guys pretty much up to speed there?

We’ve got a lot of runway on food and beverage for example. I think that we invested in some executive talent in that area last year and trying to standardize our food and beverage offerings and trying to learn best practices from around the enterprise. Believe it or not, we haven't done a lot of that, we have focused as much on hospitality in food and beverage as some of the other competitors have. So we think that’s an opportunity for us to grow as we help ourselves in terms of getting standards that certain properties already hit. Vegas has a very strong line up and we keep introducing along The LINQ promenade a lot of new tenants that we think are marquee and helping build traffic there on The LINQ promenade as well.

Thank you. That's it for me.

Thanks.

Hi, guys, how are you doing?

Good.

Hi, Jim.

Just one big picture question just on sort of promotional environment and marketing. I mean it seems that broadly the whole industry has kind of gotten smarter and more targeted with their marketing. Yes various sort of what your views are in terms of what you see from your competitors and then from what you're doing. If you think that this sort of new approach to marketing is here to stay or if the economy as economy gets better that you know people can start to ramp up promotions again.

I mean it's hard to predict what competitors are going to do on a given day. When they come into a new market and oftentimes they have to promote heavily to first get share that constrict the whole market if other people compete and they try to actual stop that share loss. So when you introduce new competitors in a market that's a difficult one to talk about. If you take a place like Las Vegas, which right now anyways today and maybe not two or three years from now, but today we have a pretty much stable universe, it seems like that’s worked out really well. We continue to reduce our marketing reinvestment dollars and we continue to gain share. And so we feel very good about up to the Las Vegas that’s about 66% - 67% of our total EBITDA. When we look outside of there and we go into some of the regional markets if you stay case by case and some cases people are rational more rational others they aren’t.

Yes, I think that’s right. As you know from following the company for a long time, we tried to be very targeted and mathematical with respect to our approach. We made some fairly large enhancements to our ability to do that a couple of years ago, and that played a sizable impact in our performance, in our improved margins going up to this point. We continue to make advancements in these areas and as you know we're highly data intensive. Mark mentioned some of the machine learning capabilities that were rolling out, a lot of ads focused in the margin marketing area allowing for improved customer valuation ability and improved targeting in terms of direct mail. We also have enhanced sort order for customer contact for example that's driven by one of those algorithm and those are all really starting to play in terms of being able to market more efficiently improve our response rates or to reduce cost through the efficiency associated with those marketing activities.

Very good, that's helpful. Just changing gears a little bit, there’s been a lot of focus on investors particularly in the room product in Vegas, which obviously is showing a lot of benefit. Curious what the view on the slot floors and slot investment are going forward. It seems like it's been less of a focus, I'm curious if that's going to change or if you're sort of focused on the non-gaming amenities more to drive growth?

I think it’s clear for us that we need to continue to reinvest in our slot products that along with some of the room product we were behind on and we put more capital work there. Last year, a little bit more capital. This year, to say it’s more significant. So we continue to reinvest in our slot product and we think that will obviously help drive growth and make us competitive and there are a lot of start benefits from it as well. So I think there's again when you look at the runway and earnings power I think as we continue to reinvest in the floor with new product that's going to be helpful for us too.

Yes, I'd only add to that we're also targeting some of the nontraditional investments when you look at what our offerings are. So we've launched some of the skill-based games. Throughout the company, we're very aggressive and trying to put those on the floor and test with them. We're also introducing various carnival games. We're also putting inside beds and recently for example we did a Oculus lounge here at Caesars Palace. So we're trying to come up with new technology and introducing it to the floor in a variety means, not just from a gambling perspective, but also from an entertainment perspective to either drive trial, people coming to the property or to increase visitation.

Great. Really helpful. Thank you, guys.

Thank you very much everyone for attending today's call and we look forward to checking back for our first quarter results in a few months. Have a good afternoon.