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Edited Transcript of BYD earnings conference call or presentation 21-Feb-19 10:00pm GMT

Q4 2018 Boyd Gaming Corp Earnings Call

LAS VEGAS Feb 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Boyd Gaming Corp earnings conference call or presentation Thursday, February 21, 2019 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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* Barry Jonathan Jonas

SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst

* Carlo Santarelli

Deutsche Bank AG, Research Division - Research 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

* 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

* Thomas Glassbrooke Allen

Morgan Stanley, Research Division - Senior Analyst

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Presentation

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Operator [1]

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Good day, everyone, welcome to the Boyd Gaming Fourth Quarter and Full Year 2018 Conference Call. (Operator Instructions) And please note that today's event is being recorded. And 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, William. Good afternoon, everyone, and welcome to our fourth quarter and full year 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. Thank you for joining our fourth quarter earnings call.

The strategic initiatives we've been executing over the past several years continued to pay off for our company in the fourth quarter of 2018. Our recent acquisitions, our operational efficiencies and our marketing refinements all contributed to our strongest performance of the year. During the fourth quarter of 2018, we delivered revenue, EBITDAR and margin growth in every segment of our business. Just as important, we also achieved revenue, EBITDAR and margin growth in every segment of our business on a full year basis.

Across the country, our consumer remains healthy and willing to spend and our business is the strongest it has been in more than a decade. Nationwide, customer visitation and spending was solid throughout the fourth quarter as 20 of our 24 same-store properties posted year-over-year revenue and EBITDAR growth and same-store operating margins improved nearly 200 basis points across the company. In addition, we began integrating 5 new properties into our portfolio during the fourth quarter, significantly enhancing our EBITDAR and free cash flow potential in the quarters ahead.

On a segment basis and consistent with prior quarters, our Southern Nevada operations led the way with strong growth. Revenues continued to increase in our Las Vegas Locals segment while EBITDAR rose more than 13% reaching its highest fourth quarter level since 2005. We saw revenue and EBITDAR growth across our major Locals properties with record fourth quarter results at several properties including our largest property, The Orleans. We also continued to deliver very strong returns at the newest additions to our Locals portfolio, Aliante and Cannery, which has consistently exceeded our expectations in the 2 years we have owned them.

While our Locals portfolio continues to benefit from a strong Southern Nevada economy, we also continued to see positive results from our ongoing strategic initiatives to improve our EBITDAR performance as we continued to prioritize profitable revenue growth. This includes our efforts to better leverage our size and scale through a shared service support model which continues to drive down overall operating costs.

In addition, our ongoing refinements to marketing and advertising programs continue to produce strong results. As we have seen in prior quarters, this effort is helping reduce overall marketing spend even while we maintain growth in gaming revenues.

At the same time, the redesigned employer loyalty program that we launched is producing good results. In August, we relaunched our B Connected program with a focus on more effectively rewarding our most loyal customers. And so far, the results are encouraging. Since the launch of this new program, we have seen meaningful growth and profitable revenues across our Las Vegas Locals business, driven primarily by our most loyal customers.

Overall, our new efficiencies and refinements helped drive the gain of more than 350 basis points in operating margins across the Locals segment in the fourth quarter, continuing the trend of sustained margin improvement.

Since the fourth quarter of 2016, same-store margins have increased nearly 600 basis points in our Locals segment. And we are confident there is more upside to come from our efficiency initiatives, helping us to take full advantage of the growth opportunities created by a robust regional economy.

In the economy here in Nevada, Southern Nevada in particular remained strong. Nevada's population growth exceeded 2% in 2018, making it the fastest-growing state in the country last year. At the same time, job growth reached 3.4% in Southern Nevada over the last 12 months while wages were up 6.5% over the same period. Locally, our job growth and wage growth are currently running double the national average.

Across the Las Vegas Valley, the pool of potential customers continues to grow and their disposable income is rising, increasing their willingness and ability to participate in our business. The positive operating trends we experienced in 2018 are continuing into early 2019 with good performances across our Las Vegas Locals segment. We remain optimistic about the long-term prospects of this business and confident that growth will continue.

We are equally pleased by the direction of our Downtown Las Vegas business, which posted a record fourth quarter EBITDAR performance. All 3 Downtown properties posted gains in revenue, EBITDAR and margins, resulting in nearly 10% EBITDAR growth across this segment as margins improved by more than 155 basis points.

While we expect these positive trends to continue, as we move into the spring, we do expect to see some disruption from the construction of a new resort project in Fremont Street which will likely continue into next year. We also expect the periodic disruption will continue throughout this year from the final stages of the Project NEON freeway construction project, although the most disruptive portion of this road work came to an end in November.

While disruptive in the short term, in the long-term, these investments will be significant positives for the downtown market. The new resort will give visitors yet another reason to come downtown. And Project NEON will make it much easier for visitors and locals to get there, further strengthening the market's long-term growth trajectory.

And as our fourth quarter results clearly demonstrate, strong growth trends remained firmly in place in downtown. Pedestrian traffic continues to steadily increase throughout the Fremont Street area and businesses from our core Hawaiian customer segment is as strong as ever. In all, Nevada remains a very positive story for us.

But Nevada was not only our growth story during the quarter, as our Midwest and South segment generated EBITDAR growth for the third consecutive quarter. After removing a one-time property tax benefit at Kansas Star, our Midwest and South segment achieved same-store EBITDAR growth of 5.6% in the fourth quarter. Operational efficiencies, marketing refinements and our new player loyalty program all contributed to bottom line growth. Excluding the property tax benefit, our same-store margins rose more than 110 basis points across this segment as most of our regional properties achieved revenue and EBITDAR gains.

On a property basis, Blue Chip continued to perform well during the fourth quarter despite new competition in its market. In Iowa, we saw encouraging results at our 2 Diamond Jo properties. In the South, we produced solid EBITDAR gains throughout Louisiana and Mississippi, led by Treasure Chest's strongest fourth quarter EBITDAR performance since 2007. And to the east in Biloxi, the IP delivered its strongest fourth quarter EBITDAR performance in the 8 years we have owned it. We are seeing strong results across the IP's operations and our sports book at the property is off to a strong start since opening in August. In all, we continue to deliver solid performances at our legacy regional properties.

In our Midwest and South segment, our same-store growth was enhanced by the addition of 5 new properties: Ameristar Kansas City; Ameristar St. Charles; Belterra Resort; Belterra Park; and Valley Forge, all of which performed in line with our expectations during the quarter. The Ameristar and Belterra properties are off to a good start for us. And to the east of Pennsylvania, we are extremely happy with our initial results at Valley Forge. In mid-December, we completed the addition of 250 slot machines in this property and we have seen double-digit growth in slot revenue since then.

As we look ahead to 2019, strong operating trends remained firmly in place throughout our portfolio. However, our business outside of Las Vegas has been impacted by severe winter weather this year. Over the first 6 weeks of the year, several weekends have been impacted by snow and severe cold. In addition, flooding along the Ohio River forced the temporary closure of Belterra Park and Belterra Resort for several days in mid-February. While impactful to our first quarter results, these weather events do not change our confidence in the long-term direction of our regional operations or our nationwide portfolio.

In 2019, we will continue to execute on the key initiatives that will allow us to keep building on our success. At the top of the list is the continued integration of the assets we acquired in 2018, including the rollout of the B Connected player loyalty program at our 5 newest properties. We began in late January with the introduction of B Connected at the Ameristar and Belterra properties. In the coming weeks, we will link these 4 properties with the rest of our nationwide portfolio allowing their customers to begin earning and redeeming rewards at Boyd Gaming properties across the country. Next up will be Valley Forge which will join the network later this year.

Given the performance of our redesign loyalty program at our legacy properties and cross-marketing opportunities across our nationwide portfolio, we believe this rollout will be another driver of incremental profitable revenue growth for our new assets.

While 2018 was a busy year on the acquisition front, we will continue to explore additional opportunities to expand our business in 2019, including property reinvestments and new amenities. For example, the expansion of sports betting and mobile wagering opportunities has created a new avenue to increase the appeal of our properties and expand our pool of customers across the country through the introduction of unique new amenities.

Today, thanks to our existing geographic footprint and our market access agreed with MGM Resorts, we have the potential to offer sports betting in up to 15 states across the country, representing nearly 40% of the U.S. population. At this moment, sports betting is legal in 4 of these states and is being actively considered by lawmakers in the other 11. Today, we offer sports betting in just 2 of those states, Nevada, where we have offered sports betting for more than 40 years and Mississippi, where our first sports books opened in August.

While it is still early in Mississippi, we are off to a great start. Customer reaction to the IP sportsbook has been quite positive and we are successfully leveraging this new amenity to grow visitation and expand our customer base. We are seeing new customers at the IP and existing customers are staying longer and spending more while on property.

We expect to grow our sports business far beyond Mississippi and Nevada in the years ahead. And as this expansion continues to move forward, we have the ideal partner lined up to make the most of it. Our partners at FanDuel Group have already demonstrated the significant power of their brand and their product in New Jersey where they have quickly claimed a leading share of a competitive sports betting market. This track record of success bodes well for us in the Philadelphia market as FanDuel prepares to bring their market-leading sports betting experience to Valley Forge next month.

The FanDuel sports book at Valley Forge will provide an attractive opportunity to expand our customer base at this property and to drive further growth and spend per visit among our existing customers just as we are seeing at the IP today.

With a market-leading partner and expansive geographic presence, Boyd Gaming is making the most of this strategic opportunity to expand and diversify our customer base through a new gaming amenity.

In addition to enhancing our existing properties, we continue to explore opportunities to further expand our nationwide portfolio through acquisitions and new development. One such opportunity is moving forward in Northern California where site preparation has begun for the gaming resort we will develop and manage for the Wilton Rancheria Tribe just south of Sacramento. This is an exciting growth opportunity for both the Tribe and our company, a chance to introduce our unique brand of hospitality to the Sacramento and Bay Area markets. We look forward to commencing construction later this year and starting to bring the Tribe's vision of a world-class resort to life.

New development projects, property reinvestments and acquisitions all remain important pieces of our long-term growth strategy. While we will continue to explore each of these options in the future, we will maintain a well balanced approach to capital allocation. With a new $100 million share repurchase authorization, we have considerable capacity to continue the capital return program we have steadily executed for the last 2 years. At the same time, we remain focused on achieving our long-term leverage target of 4 to 5x EBITDA, the target that we should reach later this year.

In summary, we finished a successful 2018 with a very strong fourth quarter performance. We delivered revenue growth, EBITDAR growth and margin improvements in every segment of our business, both in the fourth quarter and for the full year. We began the integration of 5 new properties into our portfolio. These new assets are off to a strong start under our ownership. And we are impressed with the performance and the talent of the property leadership teams that have joined our company. Together, we are confident in our ability to position these properties to fully deliver on their significant potential.

We continue to pursue opportunities to further enhance and expand our portfolio through strategic partnerships like FanDuel and Wilton, and we continue to use our growing free cash flow to pursue a balanced approach to capital allocation, built upon potential acquisitions, property reinvestments, share repurchase dividends and deleveraging, all focused on increasing long-term shareholder value.

In all, 2018 was a year of great accomplishment for our entire team and we look forward with confidence on what lies ahead.

Thank you for your time this afternoon. I will 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. Fourth quarter was a very good quarter for our company and marked the conclusion of a successful year. During the quarter, same-store EBITDAR grew over 9.5% and same-store margins improved nearly 200 basis points. For the year, we had equally strong results as same-store EBITDAR grew almost 6% and margins improved nearly 125 basis points. We have consistently driven profitable revenue growth and margin improvement for several years now. We expect this trend will continue based on the strength of our customer and the internal opportunities for continued improvements in operational effectiveness and leveraging our size and scale.

We continue to be focused on our ability to generate free cash flow, free cash flow that we will use to pursue the highest returning projects, whether they are investing in our business, strategically growing our company or returning capital to shareholders, all the while continuing to focus on deleveraging our balance sheet.

During 2018, we completed 3 acquisitions, acquiring 5 new properties in 4 new markets and we entered the Illinois distributed gaming business. In all, we invested approximately $950 million to acquire these assets, and expect to generate about $250 million in combined EBITDAR from these assets during our first full year of ownership. Evaluating these acquisitions on a Holdco basis with $250 million of EBITDAR and capitalizing the annual rent payment related to the operating companies, our combined purchase price represents roughly a 7x multiple.

And in terms of our recent acquisitions of Aliante and Cannery. Since we acquired these properties, annual EBITDA has grown 40%. Including the incremental benefits we have captured at Sam's Town, Las Vegas from owning that Cannery assets, the purchases of Aliante and Cannery represent approximately an 8x multiple, which will continue to only get better from the anticipated growth inherent in these assets, especially at Aliante. So clearly, these are all value-creating acquisitions that are paying off in the manner we expected.

We paid our quarterly dividend of $0.06 per share in October. And during the quarter, we repurchased over $14 million of stock at an average price of $25.24. For the full year, we repurchased over 1.8 million shares at an average price of $32.12, finishing the year with 111.8 million shares outstanding.

In December, our board authorized an additional $100 million share repurchase program. We have repurchased approximately $20 million under that program so far this year. During the quarter, we invested $54 million in capital expenditures, resulting in full year capital investments of $162 million. As I mentioned earlier, we remain focused on deleveraging our balance sheet. We continue to believe deleveraging is strategically important for our company. At year-end, our leverage was 5.2x on an EBITDA and 5.6x on a lease-adjusted basis. We expect to achieve our target leverage levels of 4 to 5x EBITDA during 2019.

Now in terms of guidance. Capital expenditures for 2019 are expected to be about $160 million. Our current estimate of annual depreciation expense is approximately $260 million. We will have a better idea of actual depreciation once our accounting team completes the purchase price allocation process for the recent acquisitions in the coming months. We expect interest expense will be approximately $240 million to $245 million, with cash interest expense about $10 million less than this amount. This interest expense reflects the current forward curve for LIBOR and assumes no refinancings for our current outstanding debt.

We expect rent under the master lease for the 2 Ameristar assets and Belterra Resort to be approximately $98 million, assuming a 2% base rent escalation in April. Rent coverage for the assets governed by the master lease for the year ended 2018 was 1.9x and is estimated to be 1.9x at year-end 2019 as well. We expect corporate expense to be about $90 million this year, which is included in our full year EBITDAR guidance for 2019.

Other income statement items include approximately $1 million in deferred rent, preopening expense of about $26 million and share-based compensation expense of about $23 million. We expect an effective tax rate of approximately 27%. Remember, however, that we are not currently a cash taxpayer for federal income tax purposes because of our NOLs. Our NOL balance at year-end was approximately $490 million.

As noted in our release, we expect full year 2019 adjusted EBITDAR to be in the range of $885 million to $910 million. This EBITDAR guidance includes approximately $250 million from the Pinnacle, Valley Forge and Lattner assets.

In total, our guidance implies free cash flow of approximately $400 million for full year 2019. So in conclusion, 2018 was a very good year, both operationally and strategically for our company. We expect positive trends to continue operationally in 2019 and we will continue to look for ways to enhance our free cash flow and deploy our resources to create long-term value for our shareholders.

William, that concludes our remarks and we are now ready to take any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question or two will be Carlo Santarelli with Deutsche Bank.

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Carlo Santarelli, Deutsche Bank AG, Research Division - Research Analyst [2]

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Josh, just based on some of your commentary and probably reading between the lines too much. But clearly, in the gaming environment as we see it today, scope has become a much bigger positive. And obviously, the success you guys have had in your -- not just acquisitions this year, but your Locals acquisitions that you closed on in prior years, you guys clearly have the scope and size and have shown a tremendous competency to get kind of the synergies out that you expected and buy things at pro forma accretive multiples. At this stage, like, when you think about 2019 and you think about 2020 and beyond, how much more appetite is there for acquisitions? And more specifically, if you were to get deeper in the Locals market, how much do you think the FTC issues and issues of that sort could kind of come into play?

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

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That's a good question, Carlo. Look, I think that the company, kind of, one of its key attributes or success factors has been its ability to make acquisitions successfully and deliver on the synergies that it lays out for its investors and based on the expectations that we set for ourselves when we establish a purchase price. So I think it's a core competency and it's something that we'll always kind of continue to evaluate and we will continue to look for as a means to grow the company. I don't see us limited in that respect as we survey the opportunities that are out there, kind of, on the horizon or that might be available to us. I don't -- when we think about risks of transactions, we certainly evaluate kind of the FTC-related risk at times. But I will say that we have had experience with those types of analysis when we've done acquisitions throughout our history. So I think we understand where the risks are around that. And having said that, I feel like, at least my view is, we continue to have opportunities that will not be limited by that risk. I do think that we have been a company that does not necessarily feel like we need to grow just for growth's sake by making acquisitions. We feel like we want to do solid deals that are good, long-term value for our shareholders, that have strategic rationale for our company and therefore, we will wait for the right opportunities to come our way. And I think that's how you've seen us play this out over the last couple of years. I don't know if I've hit all of the aspects of your question. I'm certainly willing to go back and covering those -- or I don't know if Keith wants to add anything to that. But I think very high level, I'm trying to address everything you brought up in your question.

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Carlo Santarelli, Deutsche Bank AG, Research Division - Research Analyst [4]

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Yes, no, I think for the most part, you certainly did. I don't know if Keith wants to interject, that will be great.

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Keith E. Smith, Boyd Gaming Corporation - President, CEO & Director [5]

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If anything, Josh covered it well. We continue to have an appetite to grow. I think one of our core competencies is growing through acquisitions. As Josh said, we have a pretty good model in terms of how to deliver on synergies. As we work through this, we understand the risks. But -- and I don't think we are limited, whether it be here in Nevada or other places in order to continue to grow. So we will continue to look for good opportunities, opportunities that can grow the company. I think Josh made a very important statement which is, we've never been about growing for growth's sake. We're been about growing to be able to increase profitability of shareholder value and have something that makes strategic sense for us. and we will continue to operate that way.

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [6]

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I think the one other aspect that I would mention is that absent acquisitions, we feel like we have a lot of opportunity internally to continue on our path of getting -- improving our overall operations, continuing to execute on many of the initiatives that we've spoken about over the last several years. So we don't need -- we -- acquisitions are something that we will continue to evaluate. But absent acquisitions, I think we feel like we have a really good foundation of a portfolio that we can manage, that we have things we want to do with that to improve how they operate and how they work together. And so absent acquisitions, I think we feel comfortable with where the businesses is and the trajectory of that business.

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

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Great. And if I could just have one follow-up. As I think about the new guidance and the midpoint of the new guidance. I, obviously, back off the $250 million that you talked about being in there for the Pinnacle, Valley Forge and Lattner acquisitions, I think you guys have provided enough color on EBITDA through the 3Q of the stuff that you had acquired earlier in the year. And I know you had talked about $50 million as the 4Q number for those 3 assets or those 3 portfolios of assets combined in the 4Q. If I'm just trying to get to kind of the same store organic, what's implied in your EBITDA growth, is it fair to assume that, that $50 million in the fourth quarter was roughly accurate?

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [8]

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Yes. I think -- I don't know if the $50 million is the right number. I remember giving guidance of, I think it was $45 million to $47 million for Q4 and I think it was $50 million or $52 million for the full year, for the period of time we owned those acquisitions for the full year. But the underlying statement is correct, Carlo, that basically the guidance we gave you was what was achieved by the acquisitions that we made. You have to be careful whether you're including Lattner or not including Lattner. But ultimately, at the end of the day, your statement is correct.

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

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Yes, no. I was including Lattner.

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

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Okay. The acquisitions performed in line of the guidance we provided you.

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Operator [11]

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And our next question or two will be 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 [12]

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So Josh and Keith, if I can start just around the guidance. And you guys continue to do a very good job of expanding your margins. And I don't think you'll answer this directly. But can you give us somewhat of an idea in terms of the way you guys are thinking about margin expansion, not only for 2019 but also for 2020 as well? Or maybe different way to ask is, how you guys are kind of thinking about the flow-through opportunities in the near term, would be helpful.

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [13]

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Yes. So obviously, we had a very good quarter that we just completed with -- in terms of flow-through. I mean, we had in excess, in many of our segments, in excess of 100%. And I don't think that is something that we would expect to continue at that level. I think that generally, we try to guide folks toward a kind of a middle kind of the range of kind of 60% to 70% flow-through for our business overall. Las Vegas Locals may be a little bit toward the higher end of that range. Midwest and South may be kind of toward the lower end of that range, maybe even a little bit below that at times. We feel very comfortable with that kind of expectation from our -- from us. I think our operators do a really good job of running the business along the lines of how we think about it, which is from the perspective of driving profitable revenues, not just trying to drive revenues for growth, but driving profitable revenues. And I think that, Steve, you will continue to see us do that. Many of the tools and capabilities that we are building out will help us to get better at that over time and be more effective at that. So I think as I kind of try to frame the answer for you, this is how we would think about it over the next year or 2 years. And we don't -- and I don't think we see much in the way of changing that but just more opportunities to kind of reinforce around that flow-through level.

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Steven Moyer Wieczynski, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research and Gaming & Leisure Research Analyst [14]

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And maybe to follow-up on that, do you guys have any type of internal long-term target in terms of where you think you can get margins? And I'm not looking obviously for the number. But not sure if internally, you guys kind of have a goal in your mind?

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Keith E. Smith, Boyd Gaming Corporation - President, CEO & Director [15]

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Sure. I think we do. It's certainly higher than it is today. I think what Josh was alluding to is we feel good about the opportunity to continue to see margin expansion in the various parts of our business. We've done -- we've executed on a plan over the last couple of years to grow margins. We will continue to do that. But some of the tools that are rolling out are still in their infancy and that will continue to kind of gain in sophistication and gain traction. So we feel good about being able to continue to expand margins across the portfolio.

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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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Okay. And then last question, and maybe I'm overthinking this a little bit too much, but -- and I know it's still early on. But you obviously had competitors with Palace Station and Palms put a lot of money into those assets. And I guess the question is around whether it's The Orleans or maybe even Cannery and Aliante. But wanted to see if you've seen any impact at those assets, to those assets? And maybe also if you've seen any uptick in promotional spending in or around the market?

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

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So maybe a couple of comments. First, look, we are very happy with the kind of condition of the Las Vegas Locals market, it's extremely healthy and you're seeing kind of good revenue growth in the market. We are even more happy or more pleased with the performance of our own business. If you look at The Orleans, a record fourth quarter. Strong, strong results at the Gold Coast. 13% EBITDAR growth for the portfolio overall. So we are very happy with kind of how we are executing the business. From a promotional aspect, is it elevated? No, I think it generally is -- generally speaking, fairly normal promotional environment. I mean, there may be a little bit of elevated advertising related to Palms or Palace here and there but that's just launching of a new product. We are happy with our business in the Gold Coast. And once again, we are just -- we are happy with the condition of the market.

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Operator [18]

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And our next questioner today will be Thomas Allen with Morgan Stanley.

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Thomas Glassbrooke Allen, Morgan Stanley, Research Division - Senior Analyst [19]

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When we think about your 2019 EBITDA guidance, can you just give us a little bit more color on how you're thinking about growth by your 3 segments?

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [20]

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Thomas, I think I'm going to try to stay away from answering that question. I think we give global guidance and that's what we are comfortable giving. We -- so let me just leave it at that.

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Thomas Glassbrooke Allen, Morgan Stanley, Research Division - Senior Analyst [21]

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Okay. It was worth a shot. Can you talk a little bit about the weather impact that you're seeing year-to-date? Is there any way to quantify it?

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Keith E. Smith, Boyd Gaming Corporation - President, CEO & Director [22]

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Not yet, Thomas. I mean, there's been obviously any number of weekends, as everybody follows along what's happening with the weather, up to and including yesterday and today here in Las Vegas where we are seeing unprecedented snow and cold and the like. And so we all know that in the business, that after some of these weather events, there's a little bit of pent-up demand and some of the business comes back. And so we are not prepared today to give any sort of an impact in terms of maybe the first 6 weeks of the year. It is certainly -- will be a number but we are going to wait and see how the rest of the quarter turns out before we start to quantify, and see how much of the business maybe comes back in the form of pent-up demand before we quantify it.

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Operator [23]

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And our next questioner today will be Felicia Hendrix with Barclays.

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Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [24]

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So you guys have been consistently beating at Blue Chip. Wondering if you -- if there's any chance you want to revise your prior expectation for EBITDA cannibalization there?

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Keith E. Smith, Boyd Gaming Corporation - President, CEO & Director [25]

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Well, the year is over. So I think we will just let that lie.

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [26]

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It's a new year.

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Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [27]

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I can -- oh, the new year, can I delete it out of my model?

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [28]

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I think in terms of any -- I think the way to think about it, or at least the way we think about it Blue Chip did a really good job of kind of managing to the competition that it had. The impact was not what we expected it to be. But I think we have felt largely the impact that we're going to see. And what we're doing now is having a business that has -- kind of has the opportunity to grow off of the level that it's at. We kind of -- to the extent of competitive dynamics today, essentially as they are today, we would expect Blue Chip to kind of roll off this base going into 2019.

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Keith E. Smith, Boyd Gaming Corporation - President, CEO & Director [29]

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In fairness, just to answer your question, look, we saw the impact that we expected to see out of the battleground markets between the new competition and Blue Chip. We saw fairly significant declines. What the team was able to do, we talked about this in prior quarters, was really grow the business in other areas that worked between them and the new competition that came out of Chicago and other places. And so the team did a remarkable job of being able to offset those declines by picking up business from other places. So as Josh said, I think, we feel good about we are at a stable base now. The impact of the new competition has been felt, whatever it is and we can grow off of this base at modest levels.

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [30]

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Yes.

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Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [31]

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Great, that's very helpful. And then just if you could -- I don't think you touched upon the -- your synergy expectations or update or just readdressing them for Pinnacle and Valley Forge, the $13 million, both of those. So can you -- is that still the plan? Can you update the magnitude or the timing or is that, it is what it is?

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [32]

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Look, I think we feel very comfortable with the level of synergies that we've outlined when we announced those transactions, it was $8 million for Pinnacle and $5 million for Valley Forge. And I would say most, if not all -- most of those synergies are expected to be achieved in 2019 and that's part of what the -- that's incorporated into the guidance that we provided. So I would say everything, there have been really no surprises to the downside and I think probably some slight surprises to the upside and things that we have learned that the properties that we're acquiring could do better than Boyd, and we plan to kind of roll those out to Boyd and vice versa. So I think we're trying to be -- really adhere to trying to get the best practices of all the assets, not only that we run but we've acquired. And so that's what creates more upside as we go through time, as we've identified those.

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Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [33]

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Okay. So okay, thank you. And then just the last one, I want to address this but to quantify it more than within the prior question. I think you have given a goal of improving EBITDA margins by 250 to 300 basis points from about 2017 to 2020, that was something you gave a few years ago. As of '18 and the end of '18, you've now improved same-store EBITDA margins by 200 basis points, right? So you're kind of well into that goal with really 2 years to go. So I'm just wondering, is that 250 to 300 something that you're still shooting for or just given the successes that you've had with a lot of your initiatives and everything, is that something that could be adjusted higher?

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [34]

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I think the way I would think about it is we are going to achieve our goal first before we set a new goal. And while I think we feel good about continuing to make progress toward that goal, and we feel good about the initiatives that we have underway, like Keith described that are kind of in their infancy. I think we want kind of start to get the full benefit of those before we kind of see where we are headed from there. But we feel good about everything that we've been communicating to the investment community over the last several years in terms of the initiatives, the margin improvement. You're are seeing it kind of play out generally. And look, at the end of the day, it won't -- not everything is always going to work out. So there will be some times, no doubt, we don't get the margin improvement that we expect to flow through. But I would say generally, that's the general trend and trajectory of our business over a longer period of time.

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Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [35]

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But it does seem pretty realistic that you can get to the low end of that goal by the end of this year, correct?

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

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Yes. I think we are on track to achieve our goal.

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Operator [37]

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Our next question or two will be Shaun Kelley with Bank of America.

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Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [38]

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Josh, a lot of the things that I had were answered. But just in the prepared remarks and I might have missed it, did you give a cash interest expense number? I'm just trying to square up the free cash flow numbers that you provided.

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [39]

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Yes. So I basically gave a, I guess, it's a book interest number of $240 million to $245 million and then said cash interest was about $10 million less than that. So if you come out somewhere between $240 million and $245 million, subtract the $10 million, you'll get a cash number.

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Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [40]

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Great. And then second question would just be, in another release that was also tonight, there was some comment about a little bit elevated promotional activity in some regions. I mean, it seems like in terms of what we saw in your core regional business this quarter, it's probably pretty hard to see that. But just curious, have you seen any promotional change or anything that you guys wanted to call out? We hear activity kind of picking up here and there. But just curious if there's any pattern in what you guys have seen?

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Keith E. Smith, Boyd Gaming Corporation - President, CEO & Director [41]

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No, I don't think we've seen any sustained, elevated promotional activity in any of the markets, certainly not here in Las Vegas. I mentioned a little bit earlier, maybe just a little bit around the launch of Palace Station or the relaunch of Palace, all pretty normal. So I wouldn't really call it elevated. Nothing that sustained. As I'm trying to say, people go out from time to time and get a little aggressive for a week or a month. But there's nothing on a sustained basis in any of our markets that is worth calling out.

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [42]

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I think we continue to -- I think, Shaun, I think, we continue to be focused and I think you will hear from many of our peers just in terms of just be more effective and efficient with marketing spend and market reinvestment generally. And we don't really see that changing. That seems to be a philosophy that's pretty widespread within our industry.

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Operator [43]

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And our next questioner today will be 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 [44]

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Two quick questions. In Mississippi, do you think that the sports betting is EBITDA positive at this point or is it too early to tell?

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

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So if you look at kind of sports betting as a whole, not simply as the profitability of that, kind of what I'll call the one vertical sports betting, yes, it is clearly EBITDA positive. It's grown new customers, has customers staying on the property longer, maybe spending a little more money, some uptick in food and beverage here and there. And then I don't have the P&L in front of me but it is -- the actual profitability is greater than 0 in the book itself. But it really, and I encourage people to think about this, not as the profitability of the operation of the sports book but the impact to the overall property.

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Harry Croyle Curtis, Nomura Securities Co. Ltd., Research Division - MD and Senior Analyst of Gaming, Leisure & Lodging [46]

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All right. And then going back for the first question. And I -- sorry, I apologize. I've been bouncing around various calls. I don't know if you bought any stock back in the fourth quarter?

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [47]

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Yes. Harry, we had that in our prepared remarks. We bought back, I think it was $14 million in Q4 and then we said we bought back $20 million in -- so far year-to-date.

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Harry Croyle Curtis, Nomura Securities Co. Ltd., Research Division - MD and Senior Analyst of Gaming, Leisure & Lodging [48]

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Okay, so there's nothing that's keeping obviously out of the market? You really haven't been blacked out?

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Josh Hirsberg, Boyd Gaming Corporation - Executive VP, CFO & Treasurer [49]

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That's correct.

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Operator [50]

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And we have one more questioner today and that's going to be Barry Jonas from SunTrust.

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Barry Jonathan Jonas, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [51]

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Wanted to start with Lake Charles. Just curious if you're seeing or expecting upside at Delta Downs given there's pretty substantial road work closer to Lake Charles?

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Keith E. Smith, Boyd Gaming Corporation - President, CEO & Director [52]

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Sure. No, we are certainly aware of the potential impact of the road work. The roads have been impacted for better than a year now with all the construction activity. But just generally in the area, we haven't seen anything significant happen to the business to date from the actual road construction itself. We will be prepared if it does, but we haven't seen anything to date.

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Barry Jonathan Jonas, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [53]

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Great. And then just one more for me. A few of your peers have commented on the DoJ reinterpretation of the Wire Act. I'm curious, does this alter your strategy at all or maybe make you pause at all? Just curious for any thoughts on that.

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Keith E. Smith, Boyd Gaming Corporation - President, CEO & Director [54]

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Certainly, it got our attention and we looked at it and we are studying it. We are watching what is going on around that. But as long as sports betting occurs within the 4 walls of the borders of the state, it really doesn't impact anything. And so it doesn't, in that respect, alter our plans to move forward in Pennsylvania or moving forward in other states. Look, there's any number of states who continue or are continuing to pursue sports betting legislatively and I believe that, that will continue. So it hasn't slowed down the legislative action around sports betting. So yes, it really hasn't kind of changed our focus of -- or frankly, our excitement about the opportunity to grow that business.

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Operator [55]

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And there actually is another questioner today, and that's going to be David Katz with Jeffries.

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [56]

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So look, I just wanted to clarify and drill a little deeper on one matter. If we're getting to the leveraged target that is between 4 and 5x which I assume does include the leases on a lease-adjusted basis, can we think about other sort of internal capital allocation choices or would you consider any acquisitions within the next year or so that push the leverage back up again? Are those inside or outside the boundary just as we think about what to do with our forecast this year or next?

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Keith E. Smith, Boyd Gaming Corporation - President, CEO & Director [57]

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So I think as we think about our leveraged goal, if you will, our leveraged target, and we've had this philosophy for a while, is we remain flexible in terms of when and how we get there, if you will. So if there is a very strategic acquisition that is priced right and will create long-term value for the company and for our shareholders, then we will go ahead and make that acquisition even if it takes our leverage up a little bit, as long as we can see a path to get back to that 4 to 5x. I think the acquisitions we made in 2018 were a good example of that where we had expected to be at that leverage profile at the end of '18, but spent $950 million buying a few assets that were great additions, very strategic to our company and will have great long-term value. And so we ended the year just a tad of up 5x. But we are confident that next year, we will get to between 4 and 5x, next year being 2019 to be clear. So we will be flexible. We will let it go up if there is a great acquisition out there. Otherwise, then, we will focus on being between 4 and 5x. And with respect to kind of the lease-adjusted leverage, obviously, it will be at the higher end of the 4 to 5x than the lower end. But yes, it also will be within that boundary.

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [58]

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Okay. We'll try to model it flexibly then.

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Operator [59]

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And this will conclude our question-and-answer session. I would now 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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Thanks, William. And thanks, everyone, for joining the call today. We appreciate all the questions. And if there's any follow-up or any other additional questions, feel free to reach out to the company and we will make ourselves available. Thank you very much.

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Operator [61]

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The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.