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Edited Transcript of BYD earnings conference call or presentation 20-Feb-20 10:00pm GMT

Q4 2019 Boyd Gaming Corp Earnings Call

LAS VEGAS Mar 4, 2020 (Thomson StreetEvents) -- Edited Transcript of Boyd Gaming Corp earnings conference call or presentation Thursday, February 20, 2020 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Josh Hirsberg

Boyd Gaming Corporation - Executive VP, CFO & Treasurer

* Keith E. Smith

Boyd Gaming Corporation - President, CEO & Director

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Conference Call Participants

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* Andrew Berg

Post Advisory Group, LLC - MD - Investment Management

* Carlo Santarelli

Deutsche Bank AG, Research Division - Research Analyst

* Chad C. Beynon

Macquarie Research - Head of US Consumer, SVP and Senior Analyst

* David Brian Katz

Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure

* Felicia Rae Kantor Hendrix

Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst

* Harry Croyle Curtis

Nomura Securities Co. Ltd., Research Division - MD and Senior Analyst of Gaming, Leisure & Lodging

* Jeffrey Austin Stantial

SunTrust Robinson Humphrey, Inc., Research Division - Associate

* Joseph Richard Greff

JP Morgan Chase & Co, Research Division - MD

* Shaun Clisby Kelley

BofA Merrill Lynch, Research Division - MD

* Steven Moyer Wieczynski

Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research and Gaming & Leisure Research Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Boyd Gaming fourth quarter 2019 conference call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Josh Hirsberg, Executive Vice President and Chief Financial Officer. Please go ahead.

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [2]

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Thank you, Sarah. Good afternoon, everyone, and welcome to our fourth quarter earnings conference call. Joining me on the call this afternoon is Keith Smith, our President and Chief Executive Officer. Our comments today will include statements that are forward-looking statements within the Private Securities Litigation Reform Act. All forward-looking statements in our comments are as of today's date, and we undertake no obligation to update or revise the forward-looking statements. Actual results may differ materially from those projected in any forward-looking statement. There are certain risks and uncertainties, including those disclosed in our filings with the SEC that may impact our results.

During our call today, we will make reference to non-GAAP financial measures. For a complete reconciliation of historical non-GAAP to GAAP financial measures, please refer to our earnings press release and our Form 8-K furnished to the SEC today and both of which are available in the Investors section of our website at boydgaming.com.

We do not provide a reconciliation of forward-looking non-GAAP financial measures due to our inability to project special charges and certain expenses.

Finally, today's call is also being webcast live at boydgaming.com and will be available for replay in the Investor Relations section of our website shortly after the completion of this call.

I'd now like to turn the call over to Keith Smith. Keith?

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Keith E. Smith, Boyd Gaming Corporation - President, CEO & Director [3]

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Thanks, Josh. Good afternoon, everyone. Overall, 2019 was a very successful year for our company. Our diversified nationwide portfolio delivered sustained growth in revenues and EBITDAR across the country. And we identified new ways to operate smarter and more efficiently improving our company-wide operating margins by more than 100 basis points in 2019. Our Ameristar, Belterra and Valley Forge properties performed extremely well during our first full year of ownership, achieving double-digit EBITDAR growth and margin improvement of nearly 240 basis points from their previous stand-alone results. These properties have exceeded our first-year expectations, and we expect their strong level of performance to continue.

During 2019, we also expanded our partnership with FanDuel, the nation's most powerful sports-betting brand. FanDuel's Sportsbooks drive new customers to our properties across the Midwest and Northeast, and we are well positioned for further growth as new states prepare to legalize sports betting.

And our strong operating performance is enhancing our free cash flow, allowing us to further strengthen our balance sheet. We finished the year with leverage of 4.7x EBITDA, approaching our target range of 4 to 4.5x.

In all, 2019 was a year of significant achievement for our company, and the fourth quarter provided a strong conclusion to a great year. During the fourth quarter, we grew revenues by over 5% on a company-wide basis, increasing EBITDAR by more than 9%, while enhancing our company-wide margin by almost 100 basis points.

Looking at segment results. The quarter was highlighted by our Midwest and South region, which delivered strong same-store growth in revenues, EBITDAR and operating margin. In addition to strong same-store performance in our Midwest and South region, we continued generating exceptional results in the newly acquired Ameristar and Belterra properties.

I will walk through our regional performance in more detail in a few minutes, but first let's review our Nevada operations. In Las Vegas, our Locals segment continues to perform at near-record levels. Revenue growth in the quarter remained consistent with trends we saw throughout 2019, with our operating margin exceeding 32% for the quarter and the full year. And while EBITDAR growth did slow during the quarter, we were able to maintain the strong gains we achieved in the fourth quarter of last year when EBITDAR grew 13% and margins improved more than 350 basis points.

As we begin 2020, we are encouraged by the trends we have seen at our properties in January and remain optimistic for the full year. The fundamentals of our Locals business have not changed, and we expect EBITDAR growth from our Locals segment in 2020 will be slightly ahead of the rate we saw in 2019. As we look ahead, the strong Southern Nevada economy gives us great confidence in our ability to maintain long-term growth in our Locals segment.

Las Vegas metropolitan area recorded a 2.5% job growth rate in 2019, one of the 10 best performances in the country and well ahead of the national average. Unemployment is down to 3.5%, the lowest level in 20 years. Personal income and weekly wages continue to rise. And this income growth is driving long-term gains in consumer spending with taxable sales rising 7% over the prior year.

From a visitation and tourism perspective, the upcoming event calender is quite encouraging. In March, the CON/AGG Expo will return to Las Vegas for the first time since 2017, bringing well over 100,000 conventioneers to our city. One month later, in April, Las Vegas will host the NFL draft for the first time. And starting in August, Las Vegas Raiders will host the first of 10 home games at Allegiant Stadium, bringing a new boost to visitation to Southern Nevada throughout the third and fourth quarter.

With a favorable event calendar, Las Vegas is set to keep building upon 2019's record convention attendance. Our company is well positioned to benefit from this continued growth in tourism and convention business with more than 6,000 hotel rooms in the Southern Nevada market, including more than 2,500 rooms near the Strip.

In addition, projects like Allegiant Stadium, the expansion of the Las Vegas Convention Center and the addition of more than 5,000 hotel rooms are all part of a local development pipeline that now exceeds $20 billion. As these projects come online, they will significantly expand and enhance Las Vegas' event and convention capabilities over the next 2 years. This ongoing expansion of our tourism infrastructure will lay the groundwork for continued visitation growth and economic growth across Southern Nevada for years to come. Given the ongoing strength of the Southern Nevada economy, we remain confident in the long-term direction of our local segment and in our ability to deliver continued growth in this business.

Next, Downtown Las Vegas posted its fifth straight quarter of record performance with strong growth in revenues, EBITDAR and margins across the segment. Our core Hawaiian business remains solid with continued growth in business volumes. We also continue to see strong increases in unrated play, a clear indication that we are getting our fair share of the growing visitation throughout the downtown market. Our town and operating teams are not only doing a great job of growing profitable revenue, but also in mitigating the impact of disruption from construction projects throughout the area. As these projects are completed, the stage will be set for further growth throughout the market as Downtown Las Vegas continues to evolve and improve. One of these projects was a sweeping modernization and upgrade of the Fremont Street Experience video canopy, which was completed late last year, taking this popular Las Vegas attraction to an entirely new level. And just as importantly, more than 1,000 new hotel rooms are scheduled to open in Downtown Las Vegas over the next year. Nearly 500 rooms will be added at Downtown Grand this summer, followed by the debut of Circa later this year. As one of downtown's largest and most established operators, we have confidence in our ability to continue attracting new visitors to our 3 downtown properties, driving long-term growth throughout the segment.

Moving outside of Nevada, our regional properties delivered a great performance. First, we continue to produce outstanding results at the Ameristar and Belterra properties we acquired in October 2018. On a combined basis, these properties achieved EBITDAR growth of 14% during the fourth quarter and margin improvement of more than 350 basis points.

In the fourth quarter, Belterra Park set at an all-time record for quarterly EBITDAR. Ameristar Kansas City posted its strongest fourth quarter performance since 2011, and Ameristar St. Charles achieved its highest fourth quarter EBITDAR in a decade with an all-time record margin of 36%. As we pass the 1-year anniversary of the Ameristar and Belterra acquisitions, we have exceeded our initial expectations for our first year of ownership. And as we continue to identify best practices and opportunities for additional synergies, we expect to realize further value from these acquisitions in the year ahead. While our new properties continue to perform well, our existing regional portfolio has also produced strong results. Our Midwest and South segment grew same-store EBITDAR by nearly 6% during the quarter and improved margins by approximately 80 basis points after factoring out last year's favorable tax adjustment at Kansas Star. Throughout this region, we saw excellent results. Kansas Star grew EBITDAR more than 8% on solid revenue gains. At our 2 Iowa properties, we produced strong revenue and EBITDAR growth. In Indiana, Blue Chip delivered continued gains in revenue, EBITDAR, margin and market share as the property's leadership team successfully leverages its market-leading amenities. In Pennsylvania, Valley Forge posted yet another record performance driven by investments in an expanded slot floor and synergies from the acquisition. And in Louisiana, the strong leadership team at Delta Downs was able to grow EBITDAR and outperform the Lake Charles market. And with the recent completion of disruptive road work on I-10 and Lake Charles as well as the full reopening of the bridge, east of Houston, that was damaged in last fall's tropical storm, we expect business volumes to begin to recover in the Lake Charles market.

The strong underlying trends we are seeing in our Midwest and South segment have been further strengthened by this year's introduction of sports betting at 5 of our regional properties, at Blue Chip, Belterra Resort, Diamond Jo Dubuque, Diamond Jo Worth and Valley Forge. FanDuel Sportsbooks are attracting new faces and expanding our customer base. Once they are on property, these new customers are doing more than placing a wager on the game. They are visiting our restaurants and our bars and playing in our casinos. Nearly 2 years after the Supreme Court opened the door to the expansion of sports betting, we are extremely pleased with our progress. As we saw during the fourth quarter, we are successfully using sports betting to drive incremental growth through our regional business, expanding and diversifying our nationwide customer base.

As we begin 2020, we are evaluating opportunities to expand our sports-betting footprint in our Par-A-Dice property in Illinois. And with market access in 15 states across the country, representing more than 36% of the U.S. population, Boyd Gaming is well positioned as additional states consider legalizing the sports wager. Another long-term opportunity is our partnership with the Wilton Rancheria Tribe in Northern California. Located just south of Sacramento, the tribal site is one of the most favorable gaming locations in Northern California. Once developed, it will be the closest gaming resort, not only to Sacramento, but the entire South Bay area. We plan to develop a first-class resort that takes full advantage of this attractive location. It allows the Wilton Tribe to realize the significant potential of this opportunity in the coming years.

As our operations continue to expand across the country, we are making great progress strengthening our balance sheet. Throughout the course of 2019, we continued to delever, reducing our leverage ratio to 4.7x EBITDAR at year-end. By midyear, we anticipate we will be within our target leverage range of 4 to 4.5x. Upon achieving our leverage target, we will continue to pursue a balanced capital allocation strategy, including additional deleveraging, returning capital to shareholders and strategically reinvesting in our portfolio where we see opportunities to create value for our shareholders. We are currently evaluating a modest expansion of Fremont, which has been currently operating at maximum capacity several nights a week throughout the last year. Expanding this property will allow us to generate incremental growth from a business that has been performing at record levels for several years now.

And in Louisiana, we are evaluating an opportunity to take advantage of recent changes to state law by moving Treasure Chest to land, creating a more compelling and efficient operation for one of our strongest performing regional properties. Such investments would not require significant commitments of capital, allowing us to maintain our flexibility with respect to future capital allocation decisions. If we do pursue these types of projects, we will be prudent in doing so, pursuing only those that offer compelling return on investment.

As we look to the future, we remain confident in the long-term strength of our business. Our diversified nationwide portfolio is generating continued same-store growth. We are delivering exceptional results from our recent acquisitions. Our expanding partnership with the nation's leading sports-betting brand is driving new visitation and introducing new customers to our company. And thanks to our robust free cash flow as we continue to strengthen our balance sheet.

As 2020 begins, our company is in an excellent position for the future, and I remain confident in our continued ability to create long-term value for our shareholders.

Thank you for your time. I'll now turn the call over to Josh. Josh?

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [4]

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Thanks, Keith. In 2019, our team made great progress executing on several strategic initiatives. We successfully integrated the Ameristar, Belterra and Valley Forge properties into our portfolio. During the year, we achieved our stated goals for synergies from these transactions, while at the same time creating incremental value by leveraging best practices across our entire portfolio. As a result of the hard work and dedication of our operating teams, EBITDAR from these assets has exceeded our expectations, growing more than 10%, while margins improved nearly 240 basis points from their stand-alone results in 2018. We also continue to build upon our relationship with FanDuel, positioning our company to be a significant participant in sports betting and mobile gaming. Operationally, we continue to be focused on improving efficiencies throughout our business. With the integration of the acquisitions now behind us, we will reassert our focus on driving further efficiencies throughout our operations. And finally, we made great progress strengthening our balance sheet. We ended 2019 at 4.7x traditional leverage, a 0.5x lower than at the beginning of 2019. Our target is to achieve leverage below 4.5x, and we expect we will achieve this leverage around midyear. lease-adjusted leverage is approximately 0.5x higher than these levels. As we approach our leverage target, we will evaluate the operating and economic environment at that time to determine the appropriate balance between deleveraging, reinvesting in our business and returning capital to shareholders.

Assuming we are in an environment similar to that of today, as Keith noted, we are evaluating opportunities to strategically reinvest in projects that offer a compelling return on investment. These projects would not be significant and would be spaced over time, allowing us to maintain our flexibility with respect to how we deploy our free cash flow.

Transitioning to a few specifics on the quarter and then guidance. For the full year, we repurchased approximately 1.1 million shares at an average price of $25.81, finishing the year with 111.5 million shares outstanding. There were no shares repurchased during the fourth quarter. We have approximately $72.5 million remaining under our current share repurchased authorization. We paid nearly $30 million in dividends during the year. During the fourth quarter, we invested $41 million in capital expenditures, resulting in full year capital investments of approximately $207 million.

In terms of guidance, capital expenditures for 2020 are expected to be about $200 million. This figure includes several room remodels of properties like Ameristar Kansas City, Belterra Resort and Par-A-Dice as well as continued investments in our slot floors and technology capabilities. We expect corporate expense to be about $86 million, which is included in our full year EBITDAR guidance for 2020. Depreciation expense is expected to be approximately $290 million. As a result of our deleveraging efforts and our recent refinancing, our interest expense will be about $35 million lower than last year. We expect interest expense will be approximately $200 million this year, and cash interest expense will be about $10 million less than this amount.

Rent coverage for the assets governed by our master lease for the year ended 2019 was 1.94x. We expect rent under our master lease to be approximately $104 million, assuming escalation for both base and percentage rent.

Beginning in May, Belterra Park will be incorporated into the master lease currently governing the 2, Ameristar assets and Belterra Resort. This change accounts for $4.5 million of the increase in rent for 2020. We expect an effective tax rate for this year of approximately 26%. Remember, however, that we are not currently a cash taxpayer for federal income tax purposes because of our NOL. Our NOL balance at year-end was approximately $450 million.

Finally, as noted in our release, we expect full year 2020 adjusted EBITDAR to be in the range of $915 million to $935 million. We remain confident in the long-term direction of our company and the underlying trends we see throughout our business. As we look to 2020, we believe we are well positioned to continue creating long-term value for our shareholders.

With that, Sarah, that concludes our remarks, and we are now ready to take any questions from the participants.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Joe Greff with JPMorgan.

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Joseph Richard Greff, JP Morgan Chase & Co, Research Division - MD [2]

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My question pertains to your 2020 guidance, which at the midpoint is nicely ahead of where consensus is. So definitely want to make note of that. But when I think about the high end and the low end, what are the scenarios driving that? Is just -- is that just a degree of same-store growth or does the high end includes some incremental benefit from sports betting? If you could help explain that. And then when you think about sort of the geographic mix of that, can you talk about how you see the Midwest and South growth relative to the overall portfolio?

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [3]

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Yes. Joe, those are really good questions. I think in order to meet -- our range really reflects kind of what we would expect to occur if, on the one extreme if everything -- actually, everything went well and everything fell into place, whereas the low end reflects if none of that really occurred. So the high end of the range really reflects kind of an opportunity for growth to be at what we would expect, and this is fairly obvious, at the high end of the range of what we expect for each of the segments. So for instance, the Las Vegas Locals for our business, at least, grew just over 3% in 2019, and we would expect to kind of see that level or a little bit better growth in 2020. I think our Midwest and South segment, while traditionally would have thought was growing kind of 2% to 3% range, I think -- we would think in our guidance would be more like 2.5% to 3%, largely because we don't expect to see some of the significant weather that we saw in 2019. We do have some other potential headwinds in terms of construction here or there around roads or bridges or things like that, that could affect our business. But I think the range kind of tries to incorporate all those potential factors so that we will theoretically end in that range. I think in terms of sports betting, those -- the kind of the levels of growth that I've laid out for you -- for certainly the bigger segments of our business, already kind of contemplate their contributions.

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Joseph Richard Greff, JP Morgan Chase & Co, Research Division - MD [4]

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Great. And then you mentioned that CapEx this year will be in that $200 million range. How much of that contemplates things that, that might not be so firm, like Fremont expansion, Treasure Chest in Louisiana? Is sort of everything identified and spoken for? Or is this sort of this general swag within that related to some of the things under consideration?

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [5]

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Yes. So the way I would think about the $200 million is kind of just recurring level of capital that you would expect us to spend year in and year out, absent any kind of change in the economies. I think to the extent that we ultimately complete our evaluation of those projects, decide that they, based on that analysis, generate the returns that we need. Then that would be incremental and that would be a use of our free cash flow over and above kind of just spending on maintenance capital.

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Operator [6]

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Our next question comes from Carlo Santarelli with Deutsche Bank.

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Carlo Santarelli, Deutsche Bank AG, Research Division - Research Analyst [7]

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Keith, in your prepared remarks, you mentioned confidence in the Las Vegas Locals market EBITDAR, rate of growth accelerating. And Josh, you just touched on it again, referring to the 3% last year and something a little bit better this year. When you think about kind of the dynamic of 2019 and how kind of the market played out your net revenue, which I believe, purposely kind of lagged that throughout the year the rate of market growth as you kind of refined marketing and drove healthier EBITDAR because of it. As you think ahead to 2020, do you think kind of top line is maybe more in line with the market with continued kind of refinements and cost saves driving the accelerating EBITDAR growth?

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Keith E. Smith, Boyd Gaming Corporation - President, CEO & Director [8]

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Yes. Good question. As we look at '19, it was about continued focus on profitable revenue growth and rolling out tools and other technology to help us. And as we think about 2020, we would expect to see stronger revenue growth. We've grown margins to 32% in the Locals market over the last 5 quarters. Margins in the Locals market are up over 500 basis points in the last 3 years. And so we're pretty proud of that. It will continue to go up, although not at that same pace. And we would expect, once again, to drive stronger revenue in 2020 than we saw in 2019.

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Carlo Santarelli, Deutsche Bank AG, Research Division - Research Analyst [9]

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Great. And then if just kind of using the midpoint of your guidance and then, obviously, adjusting for some of the things you mentioned, Josh, the rent expense, the maintenance CapEx and kind of the cash interest, you're kind of looking at about $430 million of discretionary free cash flow before dividends. When you think about kind of the strategy to date with sports betting and with FanDuel, is there any sense that maybe there is something more you guys could do there? Obviously, you talked a lot on the call about the impact it's had on your retail business, maybe not so much kind of the partnerships from an online perspective, et cetera. Is there anything kind of in the mindset there that maybe there's incremental to do?

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [10]

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So Carlo, just to clarify, are you asking if we would make incremental investments in sports betting? Is that basically your question?

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Carlo Santarelli, Deutsche Bank AG, Research Division - Research Analyst [11]

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Whether it would be incremental expenditures in the business from an expense standpoint or from an acquisition standpoint?

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Keith E. Smith, Boyd Gaming Corporation - President, CEO & Director [12]

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So Carlo, I think when you think about sports betting, once again, we like the position we've carved out in terms of our partnership with FanDuel. They are the leading brand when you look at their business volumes, whether it's in New Jersey or Pennsylvania or in other states. And we actually are profitable when it comes to sports betting where a number of our peers are not. So we kind of like our position. I think the only real investment we see in sports betting going forward is continuing to build out new states or new sites, like in Illinois, if we launch at the Par-A-Dice, but those are very, very modest investments to add a sportsbook to a property like Par-A-Dice or some other properties. They're not large numbers. I don't see us making any significant investment to purchase anything or do anything different. Once again, I'm pretty happy with the way it's played out with FanDuel. They're a strong operator and a strong partner and a very strong brand.

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Carlo Santarelli, Deutsche Bank AG, Research Division - Research Analyst [13]

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Great. And then just 1 last quick follow up. As it pertains to the relationship with FanDuel, I believe the economics from the iGaming perspective are a lot different in terms of where kind of the profit shares go. Can you talk a little bit about the situation in Pennsylvania on the iGaming side? And where you see potential opportunities for that from a legislative perspective down the road?

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Keith E. Smith, Boyd Gaming Corporation - President, CEO & Director [14]

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Well, sure. In Pennsylvania, specifically, as you say, we have different economics when it comes to online sports betting versus than in the retail sports-betting side, just kind of given the volumes and the dynamics of those 2 different businesses. When you think about online casino, real money gaming, we would anticipate launching a product. FanDuel recently launched a product there. We look to launch a product that's branded differently in the near future. And there is -- there are economics that come our way as a result of that. So we're not describing kind of what those are. We haven't gone into detail, but there is incremental profit related to that.

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Operator [15]

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Our next question comes from Steve Wieczynski with Stifel.

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Steven Moyer Wieczynski, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research and Gaming & Leisure Research Analyst [16]

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Keith, we understand that -- this sports-betting topic here real quick. You talked about how you're seeing folks come into your assets, place sports bets, and they're doing other things like eating and playing slots or whatever. I know it's early, but is there any data you have that might show what those folks are spending across your property on average? Or maybe what's the attachment rate, meaning how many sports betters are doing other things? I mean not sure if that makes sense or not, but do you have any data that would be helpful?

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Keith E. Smith, Boyd Gaming Corporation - President, CEO & Director [17]

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Yes. No. I appreciate the question. We don't have any direct data of these. Unfortunately, these people don't necessarily walk around with a button on that says, I came into that sport. So it's hard to track. Some of them get card, so we can track them through that. But largely, it's just the antidotal information and talking to our operating teams in terms of looking at volumes that were pre and post, observing new faces in the building, observing completely kind of different customer set in the building, whether it's volumes in restaurants or volumes in slots or volumes in tables. In every case and every operation, we've seen an uplift kind of in all those metrics, food and beverage, table game slots, a little different in each store, in each property, but definitely an uplift. It's hard to quantify. Once again, because we don't know they're -- they're not always getting card, so we don't know their exact behavior. But it is very much a positive additional amenity for us.

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Steven Moyer Wieczynski, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research and Gaming & Leisure Research Analyst [18]

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Okay. Got you. And then, Josh, I think at the end of your prepared remarks, you talked about, once you get down to your leverage target, there's an opportunity to -- I think you said, reinvest back into the business. I don't -- I think I heard you right there. Is there any way you can elaborate a little bit more on what some of those options might be?

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [19]

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Sure, Steve. I think, Keith mentioned 2 projects that were somewhat in the evaluation stage, one being Treasure Chest, with the change in the law, the ability to bring that on land. And then the other one that we're kind of evaluating and trying to decide upon is potentially expanding Fremont Downtown, just given the dynamics of the downtown market generally, and then more specifically, the record performing -- performances that our assets have executed on downtown. Those are examples of types of things we would consider. I think that, obviously, once we hit our leverage levels, it really becomes what's the highest returning use of that free cash flow. And so is it to reinvest in those assets or those potential projects? It will depend on kind of once we complete our evaluation, the returns that we can expect versus paying a dividend or buying back shares. And so we want to be disciplined in that regard. And I think we also do not plan to use all of our free cash flow for reinvesting in our assets. We plan to have a portion kind of left over, just given the size of these investments and when we would expect them to potentially roll out to be used for capital returns to shareholders or continue deleveraging if we feel like the operating or economic environment warrants that.

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Steven Moyer Wieczynski, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research and Gaming & Leisure Research Analyst [20]

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Okay. Got you. And then real quick, Josh, anything when you look at the Locals market right down Vegas that would -- from a promotional standpoint that is concerning or not concerning?

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [21]

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Yes. No. We would say the promotional environment in Las Vegas is normal or relative to historical levels, pretty rational.

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Operator [22]

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Our next question comes from Felicia Hendrix with Barclays.

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Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [23]

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Keith, I just wanted to go back to your comments on the Las Vegas Locals market and your expectation for growth there. In your prepared remarks, you mentioned a lot of positive drivers to the market next year, one of which is CON/AGG. So just wondering, as we think about the growth rate that you laid out for Las Vegas Locals, how much of that is being bolstered by the rotation of CON/AGG into next year versus all the other stuff?

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Keith E. Smith, Boyd Gaming Corporation - President, CEO & Director [24]

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Yes. I don't think we've applied a specific factor to that 1 convention. I think when we look at the calendar generally and you think about a convention like that coming in time that has been a down for a while, you think about, once again, the Raiders and just more activity in town overall, it complements kind of an already strong Locals environment. I mean we run pretty high occupancies and pretty good room rates as it is. But obviously, when the town is full, we're able to leverage that even further. But it isn't just about that 1 event. That certainly is helpful, but it isn't driven just by that.

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Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [25]

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Okay. That's clear. And can we just -- I know it's 1 property of your many, but it just -- Belterra Resort has kind of stood out all year. And I'm just wondering if you could talk about what's happening there? And if there are any opportunities for improvement? It's underperformed all year, even with the rest of the Southern Indiana market being weak. And I'm wondering, is that mostly the competition from the historical racing machines in Louisville or is there something else going on?

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Keith E. Smith, Boyd Gaming Corporation - President, CEO & Director [26]

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No. You qualified it just right -- or quantified it just right. It is the historical racing machines in Louisville. I mean they've been under pressure all year long. We get a big chunk of business out of that market. We have a very full resort there with great amenities, golf course and wonderful hotel rooms and a spa, and a wonderful casino and recently added Sportsbook. But it's the convenience factor of that product in Louisville, and you've seen those numbers grow really dramatically over the last year. And that's been the biggest impact we've seen there. We've seen a little bit of an impact from the new land base properties in Southern Indiana, not a big one, but a little bit. And it's really been about cost savings at Belterra Resort and ensuring that we are managing our bottom line properly. The team there has done a great job managing through that. But clearly, revenues are down quite a bit at that property.

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [27]

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Yes. And just to add a perspective from the -- from what really matters is the EBITDA, and Keith alluded to it. The guys at the property are doing a really good job of managing expenses. If you look at EBITDA, EBITDA is down less than 1%, '19 over '18 stand-alone results. So they've done a good job of managing to the competition -- the level of the new competition.

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Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [28]

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No. That's helpful. And Josh, just while I have you, and my final one is, just regarding your leverage target of 4, 4.5 and then just applying that 0.5x that you said, the lease-adjusted 4.5 to 5. I just want to make sure nothing's changed because it used to stay 4 to 5. So just making sure you're being more granular now with the traditional leverage versus the lease-adjusted leverage ratios?

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [29]

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Yes. Nothing has really changed. I think a quarter or 2 ago, we wanted to move lower in the range of the 4 to 5 that we had given before. So it's a consistent kind of metric that we're speaking of. We're just saying we want to be lower in the range before we start really considering either reinvesting in our assets or more significant returns of capital to shareholders. And it's more, it's less. It's not really a commentary on anything today in terms of the business or the economy. It's really where we think the business should be leveraged in terms of running it long term. And at some point, if there is some sort of pullback in the economy or whatever, we're in a position to weather that and continue to do what we want to do every day and not have to adjust to a change in the economy. And so it's really where we think the business should be long term. And I don't think that -- and I alluded this earlier to, I think, Steve's question, which was, we'll always continue to have a little bit of cash left over to just continue to deleverage. It will just be at a slower pace, even once we achieve those levels. So hopefully that gives you more perspective.

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Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [30]

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Yes, helpful.

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Operator [31]

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Our next question comes from David Katz with Jefferies.

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [32]

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I wanted to go back to one of the earlier questions. And we've all obviously tried very hard to put some math around sports betting and the opportunity for you, and the structure of your partnership is very clear. What I wanted to ask about is, is there any detail you can share with us on whether that's foot traffic or any sort of specific GGR impact or even F&B lift, maybe a bit more specific -- and even if it's an incident.

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [33]

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Yes. David, I think the reason we're a little bit hesitant to give information like that right now is because I think people will take that information and extrapolate it over the next 4 quarters. And in reality, we're coming off of what is a really robust period of time in terms of the football season. We'll have a great, no doubt, season with the Final Four in basketball, which are kind of typically the peak periods, and we have to see how the business performs and maybe the slower periods of time around baseball or some of those other sports. Ultimately, we know from the European model that the better we'll mature over time and be willing to do more in-game betting with respect to those sports, like tennis and golf and things like that. We just don't know to what extent that is going to play out in our business model just yet. And so I think it's -- we're a little hesitant to kind of get ahead of that until we have a good handle on really what the business is going to be on a seasonally adjusted basis.

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Operator [34]

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Our next question comes from Harry Curtis with Instinet.

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Harry Croyle Curtis, Nomura Securities Co. Ltd., Research Division - MD and Senior Analyst of Gaming, Leisure & Lodging [35]

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Josh, I appreciate that answer. Maybe I can squeeze something a little bit more out of you. What is the...

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [36]

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I am leaving the room, it would be Keith.

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Harry Croyle Curtis, Nomura Securities Co. Ltd., Research Division - MD and Senior Analyst of Gaming, Leisure & Lodging [37]

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So my -- so when you think of the incremental revenue that you're getting at these 5 casinos that are now -- have sports betting facilities, what kind of flow-through are you seeing? Because it is having an impact on your revenues.

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Keith E. Smith, Boyd Gaming Corporation - President, CEO & Director [38]

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So I think when you think about sports betting, we actually have 7 books outside of Nevada, the 5 we talked about and then 2 in Mississippi. And there's 2 pieces of it. There's the profit that we get out of running the book itself, and then there is the incremental business we get, whether it's through food and beverage or slots or tables. So there's kind of 2 different revenue and profit streams that we look at, because FanDuel is running the books and just given the variety of deals we have with them, it's -- our cut is profit. So we're making money out of that. And then we get the profit out of the additional activities while they are on property. So we haven't quantified that. It certainly is a growing number. It's probably highest at this time of year, during football season, as Josh said, running through the NCAA tournament, and then it will probably shrink pretty dramatically as we've seen here in Las Vegas over the years. It gets pretty quite in the sports-betting world after basketball and through the baseball season.

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Harry Croyle Curtis, Nomura Securities Co. Ltd., Research Division - MD and Senior Analyst of Gaming, Leisure & Lodging [39]

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And I'd like to give, Josh, another opportunity to duck a question, if I should. So Josh, you see, over the course of the year, many, many pitch books on deals. And just a question related to acquisition environment. You didn't mention it. And what are the evaluation parameters? What are the asking evaluations kind of circling around? And have they gone up to a point where it just doesn't make any sense for you to really get too excited about it?

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [40]

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Yes. I think a pretty consistent theme of our conversations on these calls and in investor meetings, away from these calls over 2019, and I think it'll continue into 2020, is that we really feel like we're not -- our predisposition is not to leverage up to do an acquisition at this point.

The valuations relative to the strategic value to avoid that kind of trade-off doesn't seem to work in today's environment. And it's further complicated by the risk that we believe you take by having to potentially do transactions in the opco/propco model that overall increase real operating and financial leverage associated with those assets.

I say all those things only to basically say, I think the -- makes it harder. The threshold is higher to do an acquisition. And for that reason, I don't think it's likely. However, you never say never. But I think it would have to be something very compelling strategically, the valuation would have to be compelling. And away from that, I think we feel like we have a lot of opportunities in terms of running our business more effectively.

We're moving in a direction of investing in our business more proactively and improving our own portfolio, and we see higher returns from doing that than, quite honestly, the potential of making acquisitions. And so I think the reason you didn't hear it in our script and you don't hear us really talking about it is, we just don't feel like it's very likely given the opportunities that we have internally, both, as I mentioned, to improve our existing business and invest in our existing business. It's less risky for us and more value creation enhancing as well.

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Operator [41]

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Our next question comes from Shaun Kelley with Bank of America.

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Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [42]

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Josh, maybe to just build on the couple questions here around the capital allocation piece. Could you just sort of remind us of the approach. I think you've talked about M&A. You talked about growth CapEx a little bit. But can you remind us of the approach on sort of pure capital return. How you're thinking about buybacks and/or dividends? And possibly, just a little color on opportunistic and cycle timing versus something a little bit more pragmatic as you move into probably a pretty stable state on the free cash flow side?

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [43]

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So I think -- look, I think to the extent that we -- I think it's important to understand that from our perspective, the first priority is achieving our leverage target, getting within our range. Once we achieve that leverage target, it's important to understand that we have to evaluate what's going on in the world in the business. And so it's not purely A, then step B, then step C. It's being prudent and pragmatic at each step of the way. I think once we get to that level, we will evaluate kind of the opportunities to invest in our business. If they generate the kinds of returns that we need that are more than competitive and more than favorable than buying back our own stock or paying a dividend, then I think that's the route we will go. To the extent that the projects don't generate those kinds of returns, then we won't pursue those projects. I think in terms of how we execute return of capital, I think I would rather not commit to that at this point until I kind of see where we're at. And I think the company wants to see -- maintain that flexibility, quite honestly. But I think a pretty good example of what we would likely do is just historically how we've repurchased shares. You can go back and look over the last year or 2 and see what we've done and use that as 1 potential approach. But I think before we get to that, we have to get to our leverage level. That's really important to us. And I think secondly, we then have to evaluate buying back shares and returning capital relative to, do we have good projects that warrant investment as well. I think that answers all your questions. But -- if not, let me know.

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Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [44]

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No. That's it. And then going all the way back to the guidance. Just kind of was curious if -- we walked through puts and takes on both segments and I think customer performance. But can you talk a little bit about just how you underwrote or how you're underwriting any kind of competitive supply impacts that are out there across the portfolio? I think the main things are probably in kind of probably for Blue Chip. And then how you're thinking about Circa as we move towards the latter stages of this year and probably much more of a 2021 impact?

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Keith E. Smith, Boyd Gaming Corporation - President, CEO & Director [45]

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Sure, Shaun. Look, as we think about 2020, there really is very little competitive impact across the portfolio. You called out Blue Chip. But that project really becomes something into 2021. And -- so we have plenty of time to prepare for that. So once again as we look across the portfolio, not really a lot of impact. As you think about downtown, where some additional rooms will be added at Downtown Grand, as I mentioned in my prepared remarks, and Derek Stevens project is likely to open around the end of the year, those -- while they're out of capacity, we see that actually is incrementally positive and all about bringing more people downtown. And with 3 properties downtown, and 45 years of history operating downtown. We're very confident in our ability to bring those people in our door -- or get those people in our door and compete for those customers. So that, actually, we see as a net positive. 500 hotel rooms in the Downtown Grand Kettle Corn in the Fremont is very, very positive for us. So we're very -- once again, we're actually looking forward to those things come in downtown and helping to build that business.

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Operator [46]

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Our next question comes from Barry Jonas with SunTrust.

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Jeffrey Austin Stantial, SunTrust Robinson Humphrey, Inc., Research Division - Associate [47]

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This is Jeff on for Barry. First off, just to stick with downtown. The market numbers and your result specifically continue to appear pretty healthy here. Just wondering if there's anything changing in the construction progress that might cause disruption to accelerate at some point in 2020?

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Keith E. Smith, Boyd Gaming Corporation - President, CEO & Director [48]

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Yes. Look, there's a lot going on down there. I think our team has done a great job trying to offset construction. Circa's, generally halfway or more than halfway up the roads, have been congested for a while. But I don't see that changing a lot. There are some additional projects going on. I don't see it getting any worse -- I don't see it getting any better throughout 2020. But I certainly don't see it getting any worse. So I think it's pretty much status quo.

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Jeffrey Austin Stantial, SunTrust Robinson Humphrey, Inc., Research Division - Associate [49]

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Okay. Great. And then just on the acquired Pinnacle assets, do you think there's any like incremental cost synergy opportunities there? Or is it really more just blocking and tackling with the margin expansion opportunity more similar to your same-store portfolio?

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Keith E. Smith, Boyd Gaming Corporation - President, CEO & Director [50]

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I think as we think about the Ameristars and the Belterras, and even to some extent Valley Forge, we've only owned them for a little over a year. And while we have, I think, achieved our synergy targets, there's always more work to do. I think there's more we can extract out of those properties in terms of best practices and applying best practices and extracting more synergies. I think, once again, as you -- as we think about it moving forward, it's not so much about the "declared synergies" when we first purchased these properties, as it is about best practices and refining the operating models and continuing to apply the Boyd model to some of those properties and improve results. So I think there is more room to continue to grow those businesses.

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Operator [51]

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Our next question comes from Chad Beynon with Macquarie.

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Chad C. Beynon, Macquarie Research - Head of US Consumer, SVP and Senior Analyst [52]

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Guys, I know there's been some news with Wilton Rancheria, the size and the scope and the timing of the project. Could you just bring us all up to speed on where that is? And then related, I believe there's been some informational hearings on sports betting in California recently. Would your license allow you to offer sports betting once Wilton Rancheria is up and running?

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Keith E. Smith, Boyd Gaming Corporation - President, CEO & Director [53]

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Sure. So with respect to Wilton, I'm not sure exactly what you're hearing. There's some older information out there whether you try, but talked about a certain size of a project. I would say that none of that information is relevant today. We're still in the process of kind of finalizing those plans and haven't formally announced kind of the size and the scope of that project. We're in the process of getting the refinancing. And I think the one thing we know for certain or generally certain is that the project will open 18 months after we get the financing. We would expect to get the financing middle of the year. But other than that, we haven't -- really haven't announced kind of the full scope and all the different elements of the project. So that is yet to come. With respect to sports betting, the answer is, yes, best as we know. At this point, our license would allow us to operate sports-betting through the Wilson, through that specific casino. But the law isn't passed yet. So a lot can change based on whatever ends up in the law.

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Chad C. Beynon, Macquarie Research - Head of US Consumer, SVP and Senior Analyst [54]

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Right. And then separately, I believe at the beginning of the year, you purchased a new slot system. Where are you guys just in terms of rolling out all the marketing and the bonusing? Do you think there's more opportunities to grow slot revenues, just on the back of that CapEx purchase in 2019?

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Keith E. Smith, Boyd Gaming Corporation - President, CEO & Director [55]

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Yes. So I think about it this way. The 2019 was about kind of installing the backbone, and the infrastructure in 2020 will be more about leveraging up the marketing capabilities of that system.

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Operator [56]

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We have time for 1 more question, and that comes from Andrew Berg with Post Advisory Group.

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Andrew Berg, Post Advisory Group, LLC - MD - Investment Management [57]

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Keith, with respect to Fremont as well as Treasure Chest. If you guys were to move forward with those, I think you said they would not be terribly significant, but can you kind of frame out a little bit what the size might be in that for each one of those in terms of CapEx spend or maximum amount of CapEx you'd expect to spend?

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Keith E. Smith, Boyd Gaming Corporation - President, CEO & Director [58]

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Well, I can talk about it generally. We don't have specific parameters at this point. But you'd be thinking about the casino. We've owned a piece of land kind of at the backside of 3 months for a while. We've looked at a number of different projects there. The casino is at capacity many nights a week. And what we really need there is additional casino space. So I'd be thinking about it as a very modest expansion of the casino, not anything too much grander than just an expansion of the casino. I think as you think about Treasure Chest, you've seen this happen at other point -- other places in -- kind of in the riverboat gaming market, where people have gone from a riverboat to a land-based operation. So look, we have a 30-year-old 3-story riverboat terribly inefficient. If you're able to move it to land, it becomes extremely efficient all on 1-story, both for customers as well as for team members. You can look around the country and see a number of examples of people that have done that at, I think, very, very modest prices. So we don't have anything to announce. We don't have any specific pricing. It's not flushed out enough yet to talk about it in dollar-wise yet, but that's the thinking.

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Operator [59]

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This concludes our question-and-answer session. I would like to turn the conference back over to Josh Hirsberg for any closing remarks.

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [60]

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Thank you, Sarah, and we appreciate everyone dialing in today and participating in the call. If you have any follow-up questions, feel free to reach out to the company. Thanks again, and have a good rest of your day.

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Operator [61]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.