Barry Jonas: Okay, thank you so much.
Operator: Thank you. [Operator Instructions] Our next question comes from Stephen Grambling with Morgan Stanley. You may proceed.
Stephen Grambling: Hey, thanks. I know in the past, you’ve talked about hitting the 4 turns of leverage and then keeping M&A in the toolkit. Would love to hear — as you look at the broader environment, obviously, there’s been a lot of market volatility. Is that increase the likelihood of any popping up? Or do you say, look, at this point, buying back your own stock makes the most sense?
Tom Reeg: Yes. So thanks for the question. So the uses of free cash flow that are available to us are, deleveraging something internal from a growth capital perspective, something external from an M&A perspective or buying my stock. When we had the conversation last quarter our stock was right around $60 and going up as we sit here today, closed around $40 today. At that free cash flow yield, it’s going to be very difficult for me to find an external opportunity that I have the same level of conviction I’d have in terms of driving returns in buying my stock at a 15%-plus free cash flow yield. So when we get to our the — toward the end of the New Orleans project and leverage gets to our target. If I can drive the kind of free cash flow returns we could drive with our stock at $40, I’d much more likely be a buyer of our stock than using it in an acquisition where I’m effectively selling it.
So it’s going to depend on where we sit. Those are the tools available in the toolkit, but the stock at this level is very clearly the best alternative.
Stephen Grambling: That’s helpful. And perhaps a change in topic, but on iGaming, I think you referenced a bit of a pivot to more slot play. Is that effectively a different customer as we think about iGaming on tables versus slots and — is always the question of, is that impacting at all the brick-and-mortar customer and/or properties, are you still seeing incremental customers coming from digital?
Tom Reeg: Yes. So the answer is yes. It’s — the customer that showed up in our iGaming business before through our sports betting tab tended to be a sports better, which skews younger and male and table games player. If you look at the businesses, we want to emulate in the iGaming arena, they look like our brick-and-mortar business in terms of skewing to slots and older and female. And since we’ve launched Caesars Palace Online, that’s exactly what we’ve seen in that app. So very encouraging. In terms of early days results. In terms of cannibalization, we have seen nothing to date in terms of cannibalizing the brick-and-mortar business. It’s been accretive to brick-and-mortar in that — customers that we found through digital or reactivated in digital, showing up in brick-and-mortar continues to increase as the quarters pass.
So very pleased with how that business is developing. I know that it’s early stage since we’ve launched Caesars Palace Online, but extremely encouraged by results.
Stephen Grambling: Helpful. Thanks so much. Best of luck.
Tom Reeg: Thank you.
Operator: Thank you. [Operator Instructions] Our next question comes from John DeCree with CBRE. You may proceed.
John DeCree: Hey, good afternoon guys. Thanks for taking my question. Maybe one back on iGaming. And I know most of your peers, competitors don’t really — they’ll provide active user information. But from your response to your prior questions, it sounds like with the shift in demographics, are you seeing a meaningful increase in active users or frequency of play from customers? Or are you more seeing — since you’ve launched a stand-alone app, higher-paying customers come in or a mix of both? Any kind of color you could provide around those trends would be helpful.
Tom Reeg: Yes. You’re seeing all the above. You’re seeing more active play. You’re seeing increase in customers and you’re seeing better customers coming into our network. So it’s been, as I said, an encouraging start.
John DeCree: Thanks, Tom. And maybe to pivot back to the M&A potential question. I guess bigger picture, and I imagine the answer is potential target specific, but given the margin improvements that the industry realized, post-pandemic, when you look at possible targets? Do you still see an opportunity for meaningful synergies or efficiencies that you and your team could find, it might make an M&A target, particularly accretive when valuing that against the free cash yield of your stock today? I mean, are there still some opportunities that you think you can harvest some additional EBITDA growth from?
Tom Reeg: Yes. I would say the risk of running out of opportunities where we think we can squeeze more EBITDA out of assets than a target is very, very low on my list of reasons why M&A might not happen.
John DeCree: Fair enough. Appreciate that. Thanks everyone.
Operator: Thank you. [Operator Instructions] Our next question comes from David Katz with Jefferies. You may proceed.
David Katz: Hi, everyone. Thanks for working me in. I wanted to just go back to Vegas and the Vegas margins in particular because Tom, you laid out some items, in your earlier remarks about accruals about Rio leaving, about side disrupting a little more than expected. Are you able to quantify that for us? And the nature of the question is always — just trying to find what the normal Vegas margin is going to be with a lot of the noise going on.
Tom Reeg: Yes. So I’d say what I can quantify is, Rio is a little over $40 million of revenue with 0 EBITDA, maybe even the way it runs, it was less than 0, since you had to run the lease payment through it. So we had — with that coming out, that’s a significant move in reduction in revenue increase in EBITDA with it out of the system. I don’t — again, don’t want to touch on any details of the new contracts, we’re in dialogue. And in terms of Versailles, really you’re seeing rooms that were out of service that will come back online by the end of the year. So you can presume that versus third quarter last year, that was a margin headwind. And coming back online at a higher average rate should be accretive to margins going forward.
David Katz: Got it. And if I can just follow-up with Eric on the digital side. One of the observations today is that product is winning, things such as parlays and in-game and other kinds of features and functionality. How would you characterize your arc in — sort of being caught up with the leaders in terms of doing that and presuming that you do have to do that in order to accomplish your goals? Or am I misreading that?
Eric Hession: Yes. I think it’s a great question. I think you’re right. Product is quite important. It’s — I think it manifests itself mostly in retention because, trial, you can get that right away. And then it’s a question of how much people are going to continue to play and then how much they play once they do. From our perspective, I think we’ve made a lot of steps in the last two years, and I feel like our product is comparable to the top products that are out there, not quite to the level. There are still some pieces of functionality that we just haven’t developed yet or focused on. But having the same-game parlays, for the NCAA, having live same-game parlays, having alternative line SGPs out there were big steps, rolling those out for the NBA coming up, and then getting that same action into hockey and so forth are some of the things that we still need to close the gap on.
