Boyd Gaming Corporation

Good afternoon and welcome to the Boyd Gaming third quarter 2020 conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Josh Hershberg, Executive Vice President, Chief Financial Officer, and Treasurer. Please go ahead.

Thank you, Gary. Good afternoon, everyone, and welcome to our third quarter 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 8K, furnished to the SEC today, and both of which are available in the investor section of our website, voidgaming.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. 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. So with that, I would now like to turn the call over to Keith Smith. Keith.

Thanks, Josh. Good afternoon, everyone. Thank you for joining us today. Our third quarter results clearly reflect the tremendous progress we have made since we began reopening our properties five months ago and the strength of our operating teams across the country. Their ability to adapt to the significant changes brought about by the COVID pandemic has been a key factor in our success. As we discussed on our last call, when we started the reopening process in late May, it was clear we had to adapt our operating strategy to meet a much different environment. The world had changed, and we had to change with it. With limited capacity on our casino floors and reduced amenities for our guests, visitation to our properties was down significantly from a pre-COVID world. We knew we needed to rebalance our operating and marketing cost to match this reality. And we had to find a way to control cost without compromising the great guest experience that our customers expect from us. At the same time, we needed to develop and implement entirely new safety and sanitation protocols throughout our business aimed at ensuring a safe environment for our guests and team members. Successfully developing and executing this strategy over the course of just a few months was one of the greatest challenges we have ever faced. I'm extremely proud of how our operating teams have responded to this challenge, as well as the outstanding results they have produced. During our first full quarter since reopening, company-wide EBITDA is up nearly 12% as operating margins increased more than 1,000 basis points to 36.6%. This is the highest company-wide operating margin in our history. During the third quarter, 18 of our properties grew EBITDA at a double-digit pace. Eight of our properties achieved all-time record quarters for EBITDA, and three more set records for the third quarter, including Delta Downs, which incredibly lost three weeks of business due to damage from Hurricane Laura and still produced a record third quarter. Overall guest counts and revenues are down. Our targeted marketing approach is driving strong play from top-tier customers. This targeted approach resulted in company-wide gaming revenues for the quarter that were down less than 8%. even with significant declines in our downtown Las Vegas region. On a segment basis, in our Midwest and South segment, margins were up nearly 1,100 basis points to almost 40% as we delivered the strongest quarterly EBITDA performance in this segment's history. EBITDA rose nearly 17% during the quarter, despite the repeated closures of our Louisiana and Mississippi properties due to hurricanes. The results were even stronger in our Las Vegas locals business, as EBITDA increased more than 23% to a new third quarter record. Overall, segment margins rose more than 1,600 basis points to an all-time high of 46% as we achieved our best quarterly EBITDA performance in nearly 15 years. EBITDA growth was broad based across the local segment. The one exception was the Orleans, which continues to be impacted by declines in convention business and destination travel to the Las Vegas market. However, our local supply at the Orleans remained strong and kept the Orleans results close to last year's record performance. The impact of reduced visitation to Las Vegas has been more significant than our downtown properties, which have been particularly affected by a near total shutdown in travel from Hawaii. But with an easing in travel restrictions now underway in Hawaii, we expect our downtown performance to improve in the future. It is important to keep in mind that today the downtown segment represents only a modest portion of our current nationwide business. In 2019, downtown Las Vegas accounted for just over 6% of our total property EBITDA compared to 29% for our local business and 65% from our Midwest and South segment. Overall, our business has been remarkably stable since we reopened our properties. With more than 90% of our business coming from customers who live within driving distance to our properties, we've been able to successfully execute a strategy built on visitation from our premium regional customers. And as we look at the first three weeks of October, the positive operating trends from the third quarter have continued into this month. Well, there's no doubt that as conditions begin to normalize, there will be pressure to go back to the way things were, to return to normal. There will be pressure to add back operating and marketing costs to drive more people into our buildings and compete for casual play. And there will be some situations where it may make sense to add back some level of marketing and overhead costs. But overall, today is our new normal. We have established a more efficient and a more focused business model over these past several months, and we are determined to sustain higher margins going forward. And while we are encouraged by strength in our most loyal customer segments, we also believe that there are ample opportunities available to us in the future as customers who have not yet felt confident enough to venture out feel comfortable in visiting our properties once again. Just as we are successfully implementing a new way of operating our traditional business, we are also expanding our digital presence. Through the convergence of digital technology and the traditional casino entertainment experience, we are creating new opportunities to engage our customers both inside and outside of our properties. A good example is the continued expansion of our partnership with FanDuel. In addition to our 5% equity ownership in FanDuel Group, we are increasingly leveraging our partnership with FanDuel to market our properties to millions of FanDuel sports bettors across the country. We're also partnering with FanDuel to offer a growing segment of our customers the ability to participate in our business from the comfort of home. During the third quarter, Boyd Gaming and FanDuel added mobile sports betting products in Illinois and Iowa. With these latest launches, We now offer mobile sports betting in five states encompassing 30 million adults. And we are planning to further expand into the iGaming space with the launch of our own Real Money Online Casino product in the coming months. Consistent with this strategy of growing our digital presence was the launch of our Start a Social Casino in July and a new digital initiative, Be Connected Mobile, that we launched in September. BeConnected Mobile will allow us to seamlessly integrate our growing digital portfolio with our traditional casino experience. Developed in partnership with Aristocrat Technologies, this mobile app will become the hub of our customer experience, offering guests frictionless access to our universe of online, social, and mobile gaming brands, including FanDuel, Stardust, and BeConnected Sports, our Nevada-based sports betting app. In the future, we envision tying together all of our digital and traditional casino experiences into a single digital wallet within B-Connected Mobile, fully transferable between our digital brands and our casino properties across the country. Through B-Connected Mobile, we plan to give our customers the ability to use their smartphones to make wagers and cash out on slot machines and table games. They will be able to use their digital wallet to make mobile sports bets, to wager in online casinos, and to purchase credits in our startup social casinos. and they will be able to use points or cash within their accounts to pay for restaurants, hotel rooms, entertainment, and other amenities at our properties. We are taking the first steps towards this convergence as we speak. A few days ago, with our partners at Aristocrat, we launched our cashless wallet technology at our Blue Chip property in northern Indiana. During this test, Blue Chip customers can create a digital wallet linked to their BeConnected card, then use their card to place wagers and cash out on slot machines. Based on the success of this initial launch and pending regulatory approvals, we plan to expand this digital wallet to additional amenities and additional Boyd Gaming properties across the country, and then integrate that wallet into BeConnected Mobile to create a true all-digital experience. And lastly, we remain focused on our partnership with the Wilton Rancheria Tribe in Northern California. We are putting the final pieces in place to allow the tribe to secure project financing in the next several months and move ahead with the project construction. This first-in-class resort will be strategically located on a major highway just south of Sacramento and is ideally situated to capture a significant share of the lucrative Northern California gaming market when it opens its doors in the second half of 2022. We are honored to be the Tribe's partners on this exciting project, which will allow the Wilton Tribe to finally realize their longstanding goal of self-sufficiency. So in all, our team delivered an outstanding performance in the third quarter. As we look to the future, we believe an important part of our continued success is the health and well-being of the communities that we serve. From the day they founded Boyd Gaming 45 years ago, Sam and Bill Boyd instilled in our company a commitment to sharing our success with others. By investing in our communities, we help create healthy communities. When our communities thrive, we thrive. We have remained firmly committed to this philosophy throughout these last 45 years, and we continue to advance this philosophy today, helping our communities respond to the challenges of 2020. Following the impact of Hurricane Laura in late August, we provided significant financial assistance to our hard-hit Louisiana team members. We assisted the broader Louisiana community as well with donations to community relief organizations like the American Red Cross. And here in Nevada, We are actively providing support to our hometown as it deals with challenges created by the COVID pandemic. To assist those who have been financially impacted by declines in travel to Las Vegas, we are expanding our long-term partnership with Three Square Food Bank, providing cash and in-kind contributions to support their mission of helping Southern Nevada residents in need. To assist local children with remote learning while their schools are closed, we are providing funding to the Boys and Girls Club of Southern Nevada to help provide remote learning facilities to low-income K-12 students. As a company, we are proud of our ability to keep creating shareholder value despite new challenges. And as we continue this long track record of growth, we will keep investing in our communities, strengthening the foundation for future success. Thank you for your time today, and we'll now turn the call over to Josh. Josh?