Caesars Entertainment, Inc. (NASDAQ:CZR) Q1 2024 Earnings Call Transcript

Caesars Entertainment, Inc. (NASDAQ:CZR) Q1 2024 Earnings Call Transcript April 30, 2024

Caesars Entertainment, Inc. misses on earnings expectations. Reported EPS is $-0.73148 EPS, expectations were $-0.03. Caesars Entertainment, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by and welcome to Caesars Entertainment Inc. First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder today’s program is being recorded. And now I would like to introduce your host for today’s program Brian Agnew, Senior Vice President of Corporate Finance, Treasury and Investor Relations. Please go ahead.

Brian Agnew: Thank you, Jonathan, and good afternoon to everyone on the call. Welcome to our conference call to discuss our first quarter 2024 earnings. This afternoon, we issued a press release announcing our financial results for the period ended March 31, 2024. A copy of the press release is available in Investor Relations section of our website at investor.caesars.com. As usual, joining me on the call today are Tom Reeg, our CEO; Anthony Carano, our President and COO; Bret Yunker, our CFO; Eric Hession, President, Caesars Sports and Online Gaming; and my colleague Charise Crumbley in Investor Relations. Before I turn the call over to Anthony, I would like to remind you that during today’s conference call, we may make certain forward-looking statements under safe harbor federal securities laws, and these statements may or may not come true.

Also during today’s call, the company may discuss certain non-GAAP financial measures as defined by SEC Regulation G. Please visit our press releases located on our Investor Relations website for a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure. I will now turn the call over to Anthony.

Anthony Carano: Thank you, Brian, and good afternoon to everyone on the call. During the first quarter, consolidated net revenues of $2.7 billion declined 1% and total adjusted EBITDAR of $853 million declined 10% year-over-year. We faced several transitory issues during the quarter, including low table hold in our Las Vegas segment and inclement winter weather in our regional segment, plus a loss on the launch of sports betting in North Carolina. Despite these transitory issues, there were several bright spots during the quarter, including record Q1 occupancy in Las Vegas driven by strong visitation, 23% OSB net gaming revenue growth and 54% iCasino net gaming revenue growth in our digital segment and sequential improvement in operating results in our regional segment each month during Q1.

Despite the hold related headwinds in Las Vegas during the quarter, our Las Vegas segment delivered $440 million of adjusted EBITDAR, which is the second best Q1 on record. Occupancy in Q1 reached 97.6%, a new Q1 record, which also drove a record for Q1 cash hotel and food and beverage revenues during the quarter. In our regional segment in Q1, we delivered $433 million of adjusted EBITDAR down 3% versus last year, driven by unfavorable winter weather during the first six weeks of the quarter. Regional trends improved each month throughout the quarter with March delivering positive revenue and EBITDAR growth. Similar to prior quarters, outside of the negative weather impacts, we continue to face new competition in a few markets and construction disruption in New Orleans, which was partially offset by our new temporary facilities in Danville, Virginia and Columbus, Nebraska.

Turning to CapEx. In 2024, we will finish several construction projects that we expect to generate strong returns and will complete an elevated CapEx cycle for the company. The permanent facility in Columbus, Nebraska will open on May 13, construction in New Orleans should finish by Labor Day and the permanent facility in Danville is expected to open by year-end. All three of these projects will deliver strong returns on capital to drive growth in our regional segment. I want to thank all of our team members for their hard work so far in 2024. Our strong results are a reflection of their dedication to delivering exceptional guest service. With that, I will now turn the call over to Eric Hession for some insights on the first quarter performance in our digital segment.

Eric Hession: Thanks, Anthony. Caesars Digital delivered $282 million in net revenues, up 19% year-over-year and generated $5 million of adjusted EBITDA during the quarter. Results in our digital segment were driven by strong momentum in both Online Sports Betting and iCasino during the quarter. As Anthony mentioned, online sports betting net revenues grew 23% and iCasino delivered 54% net revenue growth. The strong performance in these two verticals was offset slightly by declines in our retail and other segments. In our online sports betting segment during the quarter, hold increased roughly 80 basis points year-over-year. However, despite the increase, it was at the lower end of our expected range due to less favorable results around Super Bowl and March Madness.

Despite the unfavorable large event outcomes, parlay mix improved approximately 400 basis points year-over-year during the quarter, driven by our improved user interface and pricing uptime. Higher parlay mix gives us confidence in our ability to continue to improve holds throughout 2024 and beyond. iGaming set new quarterly records for active customers, volume, GGR and net gaming revenue driven by the success of our new Caesars Palace Online app, which despite only launching roughly seven months ago, now makes up more than 50% of the net gaming revenues in this segment. Customers continue to respond favorably to the product interface, game content and improved loyalty marketing. iCasino remains a critical component of our digital growth strategy for 2024 and beyond.

During the quarter, we also successfully launched mobile sports wagering in North Carolina. We are encouraged by the early results and have signed up new customers at a faster pace than prior state launches, translating into a higher, initial market share. We remain focused on several key priorities for the remainder of the year. On the sports betting side, work continues on our proprietary TAM which will enable shared wallet across state lines. We expect to deliver this important functionality across all the jurisdictions in which we operate by the middle of 2025. We will also continue to improve our product on the sports betting side, enhancing our same-game parlay, live wagering and internal pricing. On the iCasino side, we will continue to add additional game content and functionality and are on track to launch our new iCasino brand in the second half of 2024.

We now offer sports betting in 31 North American jurisdictions, 26 of which offer mobile wagering. I’m very pleased with the progress we made this first quarter. Excluding the effects from new state launches, our net revenue flow through to EBITDA was over 50%, consistent with our expectations and setting the stage for continued profitable growth in the years ahead. Now I’ll turn it over to Bret.

Bret Yunker: Thanks, Eric. We had an active first quarter on the capital market side, refinancing $4.4 billion of parent-level debt, eliminating the CRC credit entity and extending debt maturities to 2031 and beyond. On April 26, we closed on a new $425 million bank financing at the joint venture level for our Danville property. This facility will be used to cover all remaining CapEx requirements for the permanent casino that is expected to open in December. 2024 CapEx, excluding our Danville JV, is expected to be $800 million. We look forward to using strong free cash flow generation to continue to repay debt and reduce leverage toward our stated goals. Over to Tom.

Tom Reeg: Thanks Brett. We are not in the habit of delivering quarters that look like this, so I want to go through detail on how we got there and want to talk about whether anything fundamental has changed in the business. This is the kind of answer the questions I would have if I was in your seat. If you look at the biggest buckets, this was kind of a kitchen sink type quarter for us. Everything that could go wrong did for us. The biggest pieces are hold in Las Vegas, weather across the country that was well understood and you’ve seen with others and then losses around the launch of North Carolina in digital. There is others that I will touch on that are more minor, but there is well over $75 million of what’s clearly one time negatives for us in the quarter.

So if I look at kind of the, where we came out of the quarter and the way the business was operating fundamentally during the quarter, it looks more, in my estimation, like a flattish quarter, notwithstanding the EBITDA that we posted. Starting in Vegas, our typical hold is range of 20% to 23% tables in Vegas, we were 15% for the quarter. So 500 to 800 basis points below normal range, midpoint of that is 650, and that’s on 850 million of drop. So you can see that’s a very, very large piece of what of the shortfall in the quarter. This is – table hold is a typical bell curve. We were certainly in the second standard deviation to the negative. We are completely comfortable that this reverses over time. You will have quarters that are the reverse.

I am sure you – as you are listening, you can think of some in recent history that were two standard deviations to the positive. Unfortunately, not for us, but our time will come. This was not an instance of a few players beating us, this was kind of a repeated butt kicking, broadly based throughout the quarter. If you look at our volumes, slots were about flat. As Anthony said, Hotel and F&B hit set first quarter records, and both Hotel and F&B overcame – the revenue overcame the increases in union cost to deliver more profitability to us. So volumes were great. People are still here. We just didn’t hold. And if you think about running these properties at over 97% occupancy, you are fully staffed. There is no opportunity to make up hold.

So it’s particularly negative on the operating leverage side when you don’t hold. We have the additional impact of Adele and Colosseum, shifted dates from March into the fourth quarter that impacts this quarter, but that’s revenue and EBITDA that we will pick up in the fourth quarter with the rescheduled dates, so largely a nonevent other than in this quarter’s numbers. If we look at forward, as we sit here today, I’m looking at April, May, June, each month is forecast at 98% occupancy in the market. Our cash rates are depending on the month, up 8% to 14%. So Vegas remains very, very strong. I’m not a guy who likes to talk about hold. So I’m hoping this is the last time I talk about it this year. But if you presume normal hold and what we see in front of us on a forward basis, I would expect Vegas to grow for each of the last three quarters of the year.

We’re in about a little over $70 million hold out of the quarter. I don’t know that we’ll make up that entire $70 million that probably needs hold benefit on the right side of the range, but I’d expect we’re eating at that throughout each quarter the rest of the year. Moving to Regionals. We were down 3%. As I said, weather was a significant impact that everybody knows about. Absent weather, Regionals would have been up year-over-year for us. We are particularly optimistic about the rest of the year, particularly the second half, continue to believe that Regionals will grow on a full year basis for us. Anthony talked about New Orleans and Danville coming online to give you an addition to Columbus, Nebraska, which will start cash flowing in the next couple of weeks.

So that’s dollars we’ve spent that has no EBITDA attached to it until it opens two weeks from now. But if you start in Danville, that’s a property that’s operating in a temporary structure at the highest win per unit numbers in our entire system, which reflects unmet demand. We almost double our capacity when we opened the permanent facility at the end of the year. That’s – that will be dilutive to margins because the permanent facilities – I’m sorry, the temporary facility is operating in excess of 60% margins, but it’s accretive to overall EBITDA. And then if you think about New Orleans, as that opens Labor Day and you think about returns, recall that the way New Orleans runs its gaming tax regime in the City of New Orleans.

There’s a flat tax until you reach a certain level of gaming revenue. As we sit here today on an LTM basis, we’re about $75 million below where that property moves to a variable rate versus a flat tax. So if you think about it in terms of returns on the project, the first $75 million of incremental gaming revenue generated has no incremental gaming tax to us. So obviously, as extraordinarily high flow-through. So that’s Regionals in Vegas. One more thing on Regionals. If you think about trajectory, Regional EBITDA in January for us was down more than 20%, in February was down about 4% and in March was up about 10%. And if you look at this quarter, it’s hard to talk much about April in terms of predictive effect since April is the least important month of the second quarter, but we feel good about the quarter and the rest of the year.

Digital – an exciting story for us I may be repeating some of Eric’s numbers, but if you look at Digital, North Carolina for us was a much more successful launch in terms of customer acquisition than we were anticipating. And then what we have seen in recent states, we didn’t make any change to how we promoted into it. It’s really a comment on the strength of our database in North Carolina. But our first month market share was almost 9% of the market, which is about 3x what we’ve been doing in other new launch states. So as a result, North Carolina was negative 11% of net revenue in the quarter and negative $20 million of EBITDA. So if you strip out that launch, we were $25 million of EBITDA. OSB revenue was up 33% and iCasino, as Eric said, which was not impacted by North Carolina was up 54%.

So tremendous momentum in Digital for us in the quarter, and that was despite, as others have talked about March Madness, Super Bowl were not great from a hold perspective, our hold was up, our parlay percentage was up over 20% versus the same quarter last year. So our efforts to increase our hold are bearing fruit. As you can see, we are almost 100 basis points better in the queue, despite poor sports outcomes. On the Caesars Palace’s online launch, as Eric said, we’re now in our seventh month post-launch and that business is already doing more than 50% of our revenue in iCasino. It’s doing exactly what we anticipated in terms of creating an iGaming customer base that looks like our database, looks like our database looks like our physical floors, SKUs female, SKUs to slots, you should expect us to continue to build on that momentum.

We’d anticipate launching a second brand very similar to the first before the end of the year. That should allow us to continue that momentum. There’s been a lot of talk for a lot of quarters about, gee, can you get to $500 million? I’ve talked about the legs of the stool that get us there. If we look at it in a different way, in terms of what I see as I look at how we build this business, we did $1 billion of net revenue in digital in 2023. We reported $40 million of EBITDA on a hold adjusted basis fourth quarter, that’d be $60 million, whether you use $40 million or $60 million, start there. The industry is growing at 30% this year. We’re growing. We should be growing at least at that given our iGaming is growing considerably faster than the market.

As Eric said, our flow through was in excess of 50% in this quarter. So if you take the billion, you have us grow at the market level and you flow that through, it’s very easy for you to do that math. If you do that again in 2025, that should get you to something like $1.7 billion of revenue and something over $400 million in EBITDA. That does not include any benefit from the partnerships that roll off in the 2024, 2025 time frame. That’s how I get to the $500 million target in 2025 that very few of you believe that I see as really simple math and continuation of what’s already happening in this business. If you want to quibble with me whether $500 million is a full year 2025 number or we’re run rating at that level in 2025 and don’t quite get to $500 million.

I’m happy to have that discussion. I’d say that’s certainly up for debate. But the idea that we’re not going to do $500 million to me looks highly unlikely. And as I look at that target now, I look at that as a point in time, and we’re going to continue to move past that. We are going to generate more than $500 million of digital EBITDA. It’s just a matter of when we’re going to generate that. So we feel very, very, very good about what’s going on in digital and that it really matches the progress against markers that we laid out when there was no one in the space laying out any similar markers. Before we launched in August of 2021, we laid out how much we spend, what we thought the return could be and we are right on that pace, if not had at this point.

So feel fantastic about where digital is today. In terms of capital, we’re spending a lot of capital this year. I’ve talked about on prior calls, we walked into a lot of capital spend when we did the Caesars merger. Caesars had already agreed to make the New Orleans investment that finishes Labor Day. They had already won the license in Danville. The permanent opens at the end of the year. And New Jersey gently encouraged us to spend the $400 million in CapEx in New Jersey. That’s in the rearview mirror at this point. So as we report this quarter, we are one quarter closer to the step-down in CapEx spend and the increase in free cash flow that I’ve talked about as our opportunity to move to offense, whether offense is buying in stock that in my estimation seems attractive or if we’re in a different ZIP code potentially looking outside for growth opportunities.

You’re really – as we sit here at the end of April, you’re about five months away from that. So we – you should expect a step down in gross CapEx in 2025, that’s in excess of $500 million. Brett told you, we just closed on our Danville credit facility, so the funding from Danville doesn’t come through our balance sheet this year. So we really feel good about where we’re sitting, what the rest of the year looks like. But as I said, we’re not in the habit of reporting quarters like this. I wanted to give everyone a sense of where I see the business and where I see what this quarter looked like. You’ll all do with that what you will. But we anticipate getting back to quarters like we’ve been printing for the last 10 years, starting with the next one.

And with that, I’ll open it up to questions.

Operator: Certainly. [Operator Instructions] And our first question comes from the line of Carlo Santarelli from Deutsche Bank. Your question please.

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Q&A Session

Carlo Santarelli: Hey, Tom. Thank you for your remarks. I’m not going to get into the hold stuff. There was some stuff in there that I didn’t entirely follow, but we can review it off-line. What I wanted to ask about though was kind of the – what I see is kind of the widening gap between an implied Las Vegas GGR, and net casino revenue. And I want to understand maybe a little bit, is that a change in promotions? Does it have to do with the occupancies going up, maybe more comped rooms? And then as you mentioned, cash rates were up nicely on the coming months. But what percentage of the mix to the extent you could share? Should we think about as being cash rates going forward?

Tom Reeg: Cash rates for us versus comp rates?

Carlo Santarelli: Yes.

Tom Reeg: We’re about 75% cash in Vegas, and that hasn’t really changed.

Carlo Santarelli: Okay. And then on the other point, just in terms of reinvestment, et cetera, acknowledging, look, we don’t have your slot hold, but if I were to just make assumptions that it’s somewhat static, that gap seems to widen a little bit. And I was just wondering, is that some influence from the whole dynamics on the table side? Or is there – has there been a little bit of a change in promotional strategy?

Tom Reeg: We have made zero changes in promotional strategy.

Carlo Santarelli: Okay. Some of it perhaps, Rio coming out. I imagine probably has some modest inflow as well?

Tom Reeg: Correct.

Carlo Santarelli: Okay. All right. Thank you very much.

Operator: Thank you. [Operator Instructions] And our next question comes from the line of Joe Greff from JPM. Your question please.

Joe Greff: Good morning, guys. Or good morning, good afternoon, guys. Sticking with Las Vegas here, the Q has – your table game drop was down 10% year-over-year. And slot handle down about 7% year-over-year. Last year’s numbers include the Rio. What are those numbers, excluding the Rio? I’m presuming, I mean there wasn’t that much net revenue from Rio last year. It was like $55 million in the first quarter. What’s driving those declines excluding the Rio?

Tom Reeg: Slot handle was down 2%, Joe, net of the Rio and table drop was down 7%. So net revenue was down 4.5%. The bulk of everything that flowed through the quarter was table hold related. And recall, last year’s first quarter was ginormous.

Joe Greff: Okay. Great. And then you mentioned CapEx coming down. Obviously, the numbers you’re talking about from an operating perspective would suggest attractive free cash flow generation the last three quarters of this year and through next year and earmarked presumably for debt pay down. Outside of deploying excess free cash flow to debt paydown and EBITDA moving in the right direction to reduce your net leverage ratios. Can you talk about other potential avenues for you to reduce leverage?

Tom Reeg: Yes. Sure, Joe. We have a number of assets that produce very little or no cash flow that are non-core to the business, non-operating casinos that could potentially be monetized at attractive rates where you wouldn’t have to change your model much. And without getting too forward-looking, you shouldn’t be surprised if some of those types of things start to happen in 2024 that our leverage reduction is not limited to only free cash flow.

Joe Greff: Great. Thank you.

Operator: Thank you. [Operator Instructions] And our next question comes from the line of Brandt Montour from Barclays. Your question, please.

Brandt Montour: Hey, everybody. Good evening. Thanks for taking my question. Maybe over on regionals looking at the margin performance that you guys reported in the 1Q. When I look at OpEx and imply it back on OpEx, it looks like OpEx actually was pretty similar to the 1Q 2023 despite opening in two properties. I’m curious if there were one-time savings in there from the January weather or anything else that we can kind of think about to try and think about your operating OpEx per day going forward?

Tom Reeg: I’m sorry, can you repeat that, Brandt?

Brandt Montour: Sure. So your OpEx was flat in regionals year-over-year, right, ex gaming taxes.

Tom Reeg: Correct.

Brandt Montour: And so we were just trying to figure out how you’re able to keep costs so low given you opened two properties since last year? And if maybe there were some savings in January from the weather or if there was anything else one-time?

Tom Reeg: There was no – yes, there were no positives coming out of the weather. So there were no savings there. I mean you’ve known us long enough that we’re constantly looking at how can we improve our margins. We’re trying to not just be a cork in the ocean in terms of just being washed with where the economy goes. So we’re always looking for efficiencies, and that’s a testament to our team who has been together a very long time knowing we’re in an environment that’s generally inflationary were in both Vegas and Atlantic City, where our biggest union exposure is dealing with increased costs, and we don’t tend to just eat that. We intend to improve the business from an operating perspective, become more efficient and deliver growth. And that’s our expectation as we move forward.

Brandt Montour: Okay. Great. That’s helpful. And then just as a follow-up on digital. You gave – Tom, you gave digital ex North Carolina. I was just curious if you could give us or Eric, you could give us the theoretical hold with the new – with the bumped up parlay mix ex sport outcomes in March, so we can kind of think about the new normal here going forward?

Eric Hession: Yes. We haven’t disclosed our current structural hold, but we’ve set the target at 8.5%, and we’re well on the way there. Tom had referenced the increase in the parlays. But on top of that, we also have increased of the people making parlays. They’re making more legs, which has a compounding effect. And so we’re very pleased with the progress we’re making. And as we mentioned, absent those two large event outcomes, we would have seen even a larger increase year-over-year than what we did – what we were able to achieve.

Brandt Montour: Okay. Thanks everyone.

Operator: Thank you. One moment for our next question. And our next question comes from the line of Steven Wieczynski from Stifel. Your question please.

Steven Wieczynski: Yes, guys. Good afternoon. So Tom, can you help me with some of the numbers that you led out in your prepared remarks. I got somewhat confused. So – and that’s not difficult to do. But I thought you said $75 million kind of total in terms of weather-hold losses around North Carolina. But then I thought I heard you say Vegas was kind of tied to a $70 million hold the rest of the year. So just trying to reconcile what that – make sure I have that $75 million total impact, right? And then maybe how that broke down a little more between Vegas, regionals, digital?

Tom Reeg: Yes. I told you the big ones. The three big ones hold, weather and North Carolina launch were more than $75 million. I mentioned other things like Adele moving that are smaller stuff that gets us to, if I’m looking at true non-onetime performance, I’m getting back to pretty close to even versus last year, which would include an increase in digital if you’re losing the $20 million North Carolina loss, an increase in regional. But Vegas is probably still a little short to the record first quarter last year.

Steven Wieczynski: Okay. That’s perfect. That makes sense. And then Tom, you indicated you guys will start to go on the offensive as or on offense as your CapEx is reduced. And you mentioned that that means you could look at external growth opportunities. So I guess the simple question is what do you consider a growth opportunities these days?

Tom Reeg: I think the most attractive opportunity I have for free cash flow, if I’m living in the current neighborhood is my own stock.

Steven Wieczynski: Okay. Perfect. Thank you.

Operator: Thank you. One moment for our next question. And our next question comes from the line of Daniel Politzer from Wells Fargo. Your question, please.

Daniel Politzer: Hey, good afternoon, everyone, and thanks for taking my question. I wanted to touch on Las Vegas a little bit on the non-gaming side. I know you mentioned that occupancy was up a couple of 100 basis points year-over-year. But if we look at even the nongaming revenues, even adjusting for Rio, it seems like it’s lagging the market a bit, I mean, can you maybe zoom in a little bit there and give us color? Is it low end versus high end? I know there was disruptions during the quarter, but is there anything else, I guess, under the surface that we should just kind of be aware of? Thanks.

Tom Reeg: I don’t have anybody else’s numbers yet in terms of the quarter. Our hotel revenues are up. Our food and beverage revenue was up about 14%. I’ll be surprised if that lagging the market.

Daniel Politzer: That’s ex Rio, I assume?

Tom Reeg: Correct.

Daniel Politzer: Okay. And then I guess for my follow-up, on the noncash flow producing assets you mentioned, I mean you’ve kind of pivoted to more of a floating rate structure on your capital in terms of your balance sheet. How do you think about where interest rates are and some of those assets? I mean, is Centaur coming back into the mix as a potential option? Or when you talk about those noncash flow producing assets, is it completely – is that in Regional, strip real estate? Any incremental detail or clues would be helpful.

Tom Reeg: I’m not going to help you on the clues. I’ll tell you, Centaur is – would certainly not be described as a non-operating casino generating cash flow. So that’s not part of it. But there’s a lot of assets in this company that don’t make it into your sum of the parts that have real value that we can realize and you shouldn’t be surprised if we start to put some of them on the board in 2024.

Daniel Politzer: Got it. Thank you.

Operator: Thank you. One moment for our next question. And our next question comes from the line of Barry Jonas from Truist Securities. Your question, please.

Barry Jonas: Hey, guys, why don’t I dig a little more into what you’re seeing with the consumer and the regionals in Vegas, and maybe just touch on visitation as opposed to spend per visit trends? Thanks.

Tom Reeg: Yes. Look, I’ve tried to make clear all of our volume indicators were healthy in the quarter. Vegas number – obviously, we lost CON/AGG [ph], we picked up Super Bowl. So you had a big group that didn’t show up in a big group that wasn’t part of last year. But you can see it in our hotel occupancy, our hotel revenue, our food and beverage, all of those numbers remain healthy. The fact that regional ex January would have grown year-over-year should tell you that the consumer on – that we see on balance continues to remain healthy and spending is robust.

Barry Jonas: Got it. Got it. And then, just curious, what are your expectations today around VICI exercising its call option for Centaur?

Tom Reeg: I mean you guys are closer to accretion dilution math for them. I suspect that’s what ultimately makes the decision. We are operating under the assumption that they intend to exercise, which is what they’ve told us in the past, but they’ve also said they won’t do a dilutive deal. And as I understand, it’s pretty close as it sits here today.

Barry Jonas: Great. Thanks, Tom.

Operator: Thank you. One moment for our next question. And our next question comes from the line of David Katz from Jefferies. Your question, please.

David Katz: Hi. Evening, everyone. Appreciate all the detail. I just wanted to drill down a little farther on the Digital discussion. If I sort of start off with notionally $50 million and I worked through the math, as I think you’ve laid it out, what it appears to imply is that the business grows to something just under $400 million of EBITDA? And is the inference that those deals that are rolling off are that significant that there are that they’re in the nine-figure neighborhood in terms of the cost that goes away? Or is – if you can sort of help me sort of dial in my mistake if I’ve made one?

Tom Reeg: The partnership roll off is significant and material. I’m giving you, we grow like the market grows. We’re growing in excess of that. And that’s where I said we can argue about is $500 million the full year of 2025 or are we just short of it and we surpass it early in 2026? I would say the jury is out there. The argument that we’re not going to get to $500 million. The math does not support that at this point.

David Katz: Understood. So there may be just a little bit more growth in the market in there and the timing of how that rolls in and the partnerships, et cetera. But the partnerships are pretty material to provide?

Tom Reeg: Yes, they are chunky and kind of roll off in that. The bulk of them in that 2025 time frame. But also note, again, whether that’s a full year of 2025 or its beginning of 2026, it’s a point in time, and we’re going to continue growing beyond that.

David Katz: Understood. $100 million is – when a $100 million is chunky, that’s pretty good. Thank you.

Tom Reeg: Yes.

David Katz: I appreciate it.

Operator: Thank you. One moment for our next question. And our next question comes from the line of Stephen Grambling from Morgan Stanley. Your question, please.