Boyd Gaming Corporation

Hello and welcome to the Boyd Gaming Third Quarter 2022 Conference Call. My name is Alex and I'll be coordinating from the call today. If you'd like to ask a question at the end of the presentation, you can press star 1 on your telephone keypad. If you'd like to withdraw your question, you may press star 2. I'll now hand over to your host, Josh Hersberg, Executive Vice President and Chief Financial Officer. Please go ahead, Josh.

Thank you, Alex. Good afternoon, everyone, and welcome to our third 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'll make reference to non-GAAP financial measures. For 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 at investors.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. 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, now I'd like to turn the call over to Keith Smith. Keith?

Thanks, Josh, and good afternoon, everyone. The third quarter was another solid performance for our company. Our operating model and management teams are successfully meeting the challenges of the current economic environment and continue to deliver consistent results. As we look at the third quarter, what stands out are the sequential consistency in consumer trends, the year-over-year growth and play from our core customer, and the continued operational efficiency driven by our teams. Starting with our financial results, Revenues were $877 million, up 4% from the prior year, while EBITDA was $338 million, with a margin of 38.5%. On a sequential basis, our third quarter results were right in line with the solid performances we delivered in each of the last several quarters, as our business continues to perform at a high level. Throughout the third quarter, and continuing into October, customer spending has been very consistent with the trends we have seen throughout this year. While there are clearly headwinds in the economy, we have not seen any evidence of meaningful change in our customers' behavior. During the quarter, rated guest frequency held steady, and play from customers in our database continued to increase. Play from our core customers is the foundation of our success, and this segment in particular continues to grow, increasing 5% during the quarter. This increase in play from our core customers helped to offset year-over-year declines in spend from retail customers which was at elevated levels last year due to stimulus. In terms of non-gaming revenue, we are seeing solid growth. Hotel revenue for the third quarter grew 5% over the prior year, while total rooms occupied were 6% higher than last year, and cash room rates rose. Importantly, we are filling our hotel rooms with high-quality guests, as gaming revenue from our hotel guests rose nearly 10% year over year. Looking ahead, hotel reservations are trending above 2021 levels, and are surpassing 2019 levels at many of our properties. Our food and beverage business is also growing, with revenues rising 11% over the prior year, driven by increases in both covers and average check. On the expense side of the business, our operations teams are effectively managing the overall cost structure of the business while dealing with the inflationary pressures that exist in the economy today. Despite the challenges of the current economic environment, we are successfully maintaining a disciplined approach to operating our business. Total company-wide operating expenses in the third quarter were essentially unchanged from both the first and second quarters this year, and our operating margins remain more than 1,200 basis points ahead of our pre-pandemic levels. Moving into segment results, our Las Vegas local segment continued its pattern of excellent performances. third quarter was our local segments second best third quarter and margin performance trailing only the record results from last year which was benefited from continued stimulus in the market compared to pre pandemic levels our locals performance was consistent with the improvements we saw in the first and second quarters of this year EBITDA for the quarter was up 74 percent from the third quarter of 2019 and and margins have been consistently at or above 50% since the first quarter of 2021. While total gaming revenues in the region were down slightly, play from our core customers continued to grow, rising 2% against the robust third quarter comparison last year. Moving to downtown Las Vegas, revenues, EBITDA, and margins all grew over prior year as we achieved a record third quarter EBITDA and margin performance. During the quarter, we saw a strong growth in play from our Hawaiian guests. While overall visitation from our Hawaiian guests is still below pre-pandemic levels, total play from Hawaiian guests was 7% higher in the third quarter of 2019. This segment also benefited from a full quarter of contributions at Main Street Station, which opened in early September last year. And in our Midwest and South segment, business trends remain consistent with the last several quarters. Excluding our online business and Sky River management fees, revenues rose slightly over the prior year. Total gaming revenues for the region were in line with the prior year, while play from our core customers increased 5%. For the segment, property margins remained steady, around 40%, and relative to 2019, EBITDA was up consistent with the first and second quarter of this year, rising more than 35% from pre-pandemic levels with margins improving more than 1,100 basis points. As we look forward, we believe gaming revenue will return to more normal growth in 2023, and our ability to manage costs will result in continued high levels of operational efficiency. Our solid nationwide operating results will be strengthened by several projects that are beginning to come online. One is Sky River Casino, which opened its doors in Northern California in mid-August. We've seen excellent results since opening, with very strong visitation and gaming revenues through the first 60 days. We expect business volumes to moderate as we move beyond the opening phase of this property. However, this strong start demonstrates the high level of demand in the Sacramento market and why we are optimistic about Sky River's potential. This project will positively impact the Wilton Rancheria tribe, allowing our partners to finally realize a vision of economic self-sufficiency. We also continue to expand our sports betting partnership with FanDuel during the quarter, launching mobile and retail sports betting in Kansas in early September. Next up is Ohio, where we have begun preparations with FanDuel to launch at the first of the year. By partnering with the nation's leading sports betting brand, we have established a profitable digital business that we expect to generate approximately $30 million in EBITDA in 2022. And we expect further growth in 2023 as we benefit from our new operations in Kansas and Ohio. On top of all of this, we also benefit from the substantial value of our 5% equity ownership in FanDuel Group. FanDuel has been a very successful partner for our company, and we remain committed to expanding and strengthening this partnership in the future. In addition to our partnership with FanDuel, we will be expanding our online gaming operations with the upcoming acquisition of PAL Interactive. We expect to have all regulatory approvals and close on this transaction in the next several weeks. Once the Pala acquisition is complete, we will begin to migrate our two Stardust branded iCasinos in New Jersey and Pennsylvania to our own platform in the first half of next year. We will also focus on growing Pala's B2B business through acquiring new B2B customers and enhancing the platform's products, features, and capabilities, benefiting both current and new customers. We believe we have the foundation to successfully build a profitable regional online casino operation that leverages our industry-wide experience, our existing geographic presence, and our proven customer database. Palo will provide us the technology, products, and management expertise to execute this strategy. Online gaming has become an important part of the growth story for our industry, and we are focused on building a profitable online business that will enhance our existing land-based operations. We will also continue to pursue opportunities for growth through strategic reinvestments in our nationwide portfolio. For example, in downtown Las Vegas, our $50 million expansion of the Fremont is nearing completion. Set to open by year end, this project will include expanded casino floor space, the debut of Nevada's first FanDuel sportsbook, and a selection of enhanced quick-serve dining options. We believe this expansion will significantly enhance Fremont's appeal to visitors throughout the downtown area continuing our growth in that market. We're also investing in Louisiana, where we recently broke ground on a $100 million land-based facility at Treasure Chest Casino. Treasure Chest has been a strong performer of our company for many years, but its potential has been limited by its riverboat setting with a small casino floor and modest amenities. Moving to land will allow us to significantly expand Treasure Chest's non-gaming amenities, creating a more spacious and comfortable casino floor and improved guest parking. Once complete in early 2024, we are confident this project will enhance Treasure Chest's appeal to both existing customers and new ones, driving long-term growth as a stock. While we continue to strategically invest in growth opportunities, we remain firmly committed to returning capital or shareholders, targeting $100 million per quarter in recurring share repurchases, supplemented by quarterly dividend payments. In summary, This was another solid quarter for our company. Customer spending remains steady throughout our business, particularly among our core customer segments driving healthy, stable results. At the same time, our management teams continue to demonstrate their ability to successfully manage cost pressures in an inflationary environment. Our operating margins remain well ahead of the levels we delivered pre-pandemic, over 1,200 basis points this quarter. and we remain focused on continuing to execute at a very high level of efficiency. Our strong results are a tribute to our team members who continue to deliver exceptional service to our guests. We greatly appreciate all of their hard work and the role they have played in our continued success. Thank you for your time today. I would now like to turn the call over to Josh.