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spk01: Good afternoon. Thank you for attending today's Boyd Gaming fourth quarter conference call. My name is Tamia and I will be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. It is now my pleasure to pass the conference over to your host, Josh Hershberg, Executive Vice President and Chief Financial Officer.
spk09: Thank you, Operator. 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 and 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 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. It 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?
spk08: Thanks, Josh. Good afternoon, everyone. We began 2022 with the ambitious goal of surpassing 2021's record results. One year later, we have clearly met that challenge as we sustained the operating momentum we built throughout 2021. We once again delivered a record performance with revenues of $3.6 billion and EBITDA of $1.4 billion in 2022. And the fourth quarter was a strong conclusion to the year with record company-wide revenues of $923 million and record EBITDA of $360 million. We also maintain our operating efficiency with company-wide operating margins of 39% for both the fourth quarter and full year. Our results for 2022 are a tribute to our operating teams as we remain focused on growing revenues and building loyalty among our core customers while successfully managing expenses in the current environment. While 2022 was another record performance, we did experience headwinds at times during the year, and that continued in the fourth quarter with some year-over-year softness in our Midwest and South markets. However, the softness in our Midwest and South region was more than offset by strong performances from our two Nevada segments, growing contributions from online gaming, and management fees from Sky River Casino. Now let's review each segment in more detail. In Nevada, we finished the year with record fourth-quarter EBITDA performances in both our Las Vegas locals and downtown Las Vegas segments. Starting with the local segment, revenues in EBITDA both grew 2% over last year's records, with particularly strong gains in our non-gaming business, including hotel, food and beverage, and entertainment. Throughout our locals' properties, growth was strongest among out-of-town customers as we benefited from increased tourism across the Las Vegas Valley. Play from our core customers remained healthy, but was offset by declines in retail play. Our teams did an outstanding job during the quarter, delivering strong flow through on revenue growth with margins in our local segment exceeding 52%. We are clearly benefiting from a strong Las Vegas economy as travel and tourism to Southern Nevada continues to increase. In 2022, nearly 39 million people visited Southern Nevada, up more than 20% from the prior year, And airport passenger counts reached all-time record levels. Convention business continued to recover as well, with the convention and meeting attendance more than double 2021 levels. And with more than 5,000 hotel rooms in the Southern Nevada market, our company is well-positioned to capitalize on these growth trends. Looking ahead, 2023 has gotten off to a good start in our local segment, with January performing well. We have seen no meaningful changes in our locals business in the early part of 2023. Next, in downtown Las Vegas, we delivered an impressive performance, beating last year's fourth quarter EBITDA record by nearly 38%. We continue to see strong demand throughout the downtown Las Vegas market as pedestrian traffic and guest counts increased throughout the area. At the same time, our core Hawaiian business has fully recovered and is now exceeding pre-pandemic levels. Additionally, our recent hotel room remodel at the Fremont has put us in excellent position to meet growing demand, allowing us to drive further growth in hotel revenues while broadening the property's appeal. Going forward, we will also benefit from Fremont's recently opened casino expansion. This expansion includes incremental slot capacity, a FanDuel branded sportsbook, and a new contemporary food hall. We are encouraged by the early results from this expansion with strong growth in both gaming and non-gaming volumes at the Fremont since the expansion was completed in mid-December. Next, in the Midwest and South, we achieved fourth quarter records for both revenue and EBITDA thanks to growing contributions from online gaming as well as management fees from Sky River. However, the performance of our land-based operations was below prior year for the quarter, partially due to December's severe winter weather and difficult year-over-year comparisons in our Louisiana and Mississippi properties. Additionally, we experienced some softness in play early in the fourth quarter, although these trends improved later in the quarter and into January. Turning to our online business, our partnership with FanDuel, the nation's number one sports betting company, continues to deliver impressive results. We generated approximately $17 million in EBITDA from online gaming during this quarter, up more than 100% over the prior year, as we benefited from a strong football season, new FanDuel operations in Louisiana and Kansas, and contributions from Pala Interactive, which we acquired on November 1st. During the quarter, we also earned $21 million in fees from our Sky River Casino management contract, including a one-time development fee of $5 million. This was Sky River's first full quarter of operation following its opening last August. With Sky River, our goal was to develop a compelling entertainment destination and build a thriving business that would allow the Wilton Rancheria tribe to achieve their vision of self-sufficiency. Based on our results, we have clearly succeeded with extremely strong visitation levels at Sky River during its initial opening phase. We have long believed there was significant unmet demand in the market, and with the high-quality entertainment experience we have created, we're starting to realize Sky River's compelling potential. As a result, we now expect SkyRiver will generate approximately $50 million in management fees for our company in 2023. So in all, despite some challenges in our Midwest and South segment, our company achieved record fourth quarter and full year results. As we move into 2023, the economic uncertainty that persists today makes it difficult to predict where consumer trends are headed. However, we are cautiously optimistic about the trends we saw in January across all three segments of our business. Going forward, we believe there are additional opportunities to drive growth in our business through strategic reinvestments in our portfolio, the continued expansion of our online gaming business, and organic growth in our land-based operations. Starting with our existing portfolio, we see opportunities to drive long-term growth through selective reinvestments in our highest performing properties and markets. A good example is the Fremont in downtown Las Vegas, where, as mentioned earlier, we have completed work on a significant property expansion. In mid-December, we opened 10,000 square feet of new casino space, increasing Fremont's total slot count by nearly 15% while creating a more comfortable gaming environment for our guests. We also added a FanDuel branded sportsbook in a food hall with six quick-serve restaurants. The expansion is already delivering growth in both gaming and non-gaming revenues at the Fremont. Going forward, this investment will further strengthen our appeal to customers throughout the downtown area, helping us build on our record results in the downtown segment. And in Louisiana, work continues on our $100 million land-based facility at Treasure Chest Casino. Once complete in early 2024, this project will allow us to take full advantage of demand in the suburban New Orleans market by creating a more spacious single-level casino floor, expanding our non-gaming amenities, and improving guest parking. In addition to these land-based growth investments, we expect our online business, including sports, casino, and social gaming, will continue to grow. We took an important step forward in our online growth strategy with our recent acquisition of Palo Interactive, which gives us the talent and technology to begin building our regional online casino business. While online casinos are now limited to just a few states, we believe in the long-term potential from iGaming. Owning and operating our own iGaming operation will allow us to leverage our nationwide portfolio and extensive customer database to create a profitable online casino business. We will start by transitioning our current Stardust online casinos in New Jersey and Pennsylvania to our platform over the next several months. We will also selectively target growth in the B2B segment of the business by adding new B2B customers and enhancing our platform's products, features, and capabilities, which will benefit both us and our partners. On the sports betting side, we remain fully committed to our successful and growing partnership with FanDuel. This partnership recently expanded into Ohio and Kansas with FanDuel launching mobile and retail sports betting in both states. Our partnership with FanDuel now includes all but one state in our Midwest and South region. In all, our online sports betting, casino, and social operations generated approximately $40 million in EBITDA in 2022. And we expect this business will continue to grow as FanDuel ramps up in Ohio and Kansas. Beyond these growing financial contributions, we will continue to benefit from our 5% equity stake in FanDuel, which grows increasingly valuable as they further strengthen their position as the nation's leading sports betting company. While the opportunities from online and land-based reinvestments are compelling, we also believe there is upside from continued organic growth in our existing operations, particularly in hotel revenues, meeting and convention business, and other non-gaming revenues. In all, our growth opportunities and our operating momentum are further strengthening our free cash flow, allowing us to return substantial capital to shareholders. We plan to continue targeting $100 million in share repurchases per quarter in 2023, supplemented by dividend payments while we pursue our ongoing growth investments. Before concluding, I wanted to note our company's continued progress on ESG initiatives as we recently received prominent national recognition for these efforts. Last month, Boyd Gaming received a five-star rating in Newsweek Magazine's annual listing of America's greatest workplaces for diversity. We were the only gaming company to receive a perfect rating in this listing, which was compiled through anonymous employee surveys nationwide. Promoting diversity and inclusion is a central part of our company's culture, and we are honored to have our efforts recognized by Newsweek. So in conclusion, this record quarter was yet another example of the resiliency and diversification of our portfolio and the strength of our operating model. We set new fourth quarter records for both revenue and EBITDA, overcoming softness in our Midwest and South markets, while with strong results in Nevada and contributions from new growth opportunities. We closed on the acquisition of Palette Interactive, further positioning ourselves for long-term growth in the online space. We maintained operating margins at some of the highest levels in our history as our operating teams continued to successfully manage through higher costs and economic uncertainty. And we continued to return significant capital to shareholders while maintaining a strong balance sheet. In all, our record fourth quarter results concluded another strong year for our company, as we set full year records for revenue and EBITDA for the second year in a row. I would like to thank every member of the Boyd Gaming team for their hard work and their contributions to this outstanding performance. And while it is difficult to predict the future direction of the economy, we remain confident in our operating model and our team's proven ability to successfully manage the business. Thank you for your time. I'd now like to turn the call over to Josh.
spk09: Thanks, Keith. This was another very good quarter for our company. with record results in the quarter and for the full year against very strong comparisons to 2021. Recall that our full year 2021 IBIDAR performance was more than 50% higher than our previous record set in 2019, and that we set quarterly IBIDAR records in every single quarter of 2021. And yet, we have continued to improve on those baselines. In each of 2021 and 2022, EBITDA approximated $1.4 billion and margins were approximately 40%. And in 2022, adjusted earnings per share exceeded $6 per share. We have accomplished this by focusing on growing our core customer base and managing our business very efficiently. Our operating teams continue to do an excellent job managing our expense structure and maintaining margins. As we look ahead to 2023, we continue to see opportunities to grow our business, supported by continued focus on our core customers, expansion in our non-gaming revenues and online operations, and further contributions from the investments we are making in our existing portfolio. In addition, 2023 will benefit from a full year contribution from our management contract with Sky River, which opened in August 2022. Now let's discuss a few key items from the quarter. First, our capital return program remains a priority for our company. We repurchased nearly $107 million in stock during the quarter, representing 1.8 million shares at an average price of $58.22 per share. The actual share count at the end of the year was 102.8 million shares. For full year 2022, we repurchased 9.4 million shares at an average price of $57.48 per share, representing $542 million. We have approximately $240 million remaining under our current repurchase authorization. When combined with our ongoing dividend program, we returned nearly $600 million to our shareholders during 2022. We remain committed to $100 million per quarter in share repurchases while continuing our dividend program. At the same time that we are returning capital to shareholders, we will continue to strategically invest in our land-based portfolio. Capital expenditures in 2022 were $270 million. We expect to spend approximately $350 million in 2023 for capital expenditures. This includes $250 million in maintenance capital and $100 million in growth capital, primarily related to the Treasure Chest project. Turning to the balance sheet, we finished 2022 with total leverage of 2.4 times and least adjusted leverage of 2.8 times. Our target leverage remains 2.5 times traditional leverage. Our balance sheet remains very strong with significant flexibility as we have low leverage no near-term maturities, and ample capacity under our credit facility. So in all, we finished the year in great shape as a company. Thanks to our operating model and growth initiatives, we continue to produce a substantial and diversified stream of free cash flow, allowing us to balance a robust capital return program with strategic investments in our portfolio. This formula has produced strong results for our shareholders, and we are confident it will continue to create considerable value over the long term. This concludes our remarks, and we're now ready to take any questions.
spk01: We will now begin the Q&A session. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason at all you would like to remove that question, please press star followed by 2. Again, to ask a question, please press star 1. As a quick reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. Our first question comes from Chad Baynon with Macquarie. Your line is open.
spk12: Hi, good afternoon. Thanks for taking my question. Josh, Keith, you guys talked about, well, first off, congrats on the next quarter. You talked about some selective reinvestments and the returns that you got in the back half of 22 and kind of what you're expecting in 23, 24. But given your leverage at 2.4 times, how are you thinking about the portfolio and other opportunities to maybe selectively reinvest elsewhere and get these, you know, double-digit returns that you're putting up? Thanks.
spk08: Sure. Good question, Chad. So we have kind of studied our portfolio, and we do have several other opportunities to continue to build into strong properties and what we think are growing markets or markets with strong demand and And so, you know, as future quarters go by, you'll hear us begin to talk about some of those projects. But we have studied it, and we do have additional opportunities. We just don't have anything to announce today, so you can expect to hear more in the future. I think we've talked about it in the past, and these are smaller-type projects. These are, you know, sub-$100 million-type projects, many of them in the, you know, $40 to $60 million range. So we're not talking about projects that are hundreds of millions of dollars.
spk12: Okay. Thanks. And then in the locals market, this year you guys have averaged, you know, roughly about $120 million of EBITDA per quarter, obviously some exceptional strength in the fourth quarter here. Wanted to focus on some of that destination business that's coming back with CES in January. You know, we've seen ADRs across the strip, and I'm guessing right off the strip, you know, up somewhere between 30% and maybe even 60%. I'm guessing you guys are benefiting from more liens. But against that average of $120 million of EBITDA per quarter, can you help us think about, you know, what is still not on the table from, you know, mainly the convention business, not back to where it was, mainly for 22, and where we should see it in 23? Thanks.
spk09: Yeah, so, Chad, this is Josh. I think that, you know, when we think about kind of the opportunities for our locals business, it comes from, benefiting from the broader recovery in the Las Vegas market overall. And it's really not only our locals business that will benefit from that, but also our downtown business. So we look at kind of an emerging or recovering kind of strip meeting business to help drive our own meeting and convention business, our kind of occupancy in our hotel rooms as well, which we still have opportunities to do across the portfolio. again, not only in Las Vegas, but also as that drives incremental visitation downtown. And we benefit from the investments we've been making with Fremont, but also the other properties that we have there as well. Keith, I don't know if there's anything you'd like to add to that.
spk08: No, look, I think it's pretty well known that convention attendance was up significantly in 2022, more than double the prior year number, but still below 2019 levels. So as that continues to build, we can take advantage of it both at the Orleans and several other of our properties. And as Josh said, downtown will also improve as overall visitation to Las Vegas and convention attendance improves. So we definitely will be able to leverage off of that going forward.
spk12: Thanks. Appreciate it. Sure.
spk01: Thank you. The next question comes from Joe Greff with J.P. Morgan. You may proceed.
spk07: Hey, guys. Congratulations on great results here. Keith, I'd love to just follow up with you a little bit, maybe dig deeper on to what you attribute the difference in consumer spend or consumer behavior between downtown Las Vegas and the Las Vegas locals market versus the softness you saw in parts of the 14 in the Midwest and South. I know you called out destination business. is certainly strengthening in the local market. Maybe that was slow to come back. Maybe the regional customer is, you know, recovered earlier. Where are you seeing the softness? Is it sort of at the lower end of the database, the higher end of the database? I would just love to get how you're looking at your different subsector of gaming consumer.
spk08: Sure. So, look, and I think we've talked about some of this through our prepared comments, but Look, the locals business, once again, we've performed exceptionally well with our out-of-town guests during the quarter as, you know, convention attendance and visitation in Las Vegas continued to grow. That also helped boost the downtown results. And so both of those are doing well. We obviously have a strong locals component in our local segment. We don't get very many locals to downtown Las Vegas. And so, you know, it's a different type of a customer. You commented, and we've long believed that in these types of situations where you go through dislocations like we've been through with COVID, that the Midwest and South markets do recover a little quicker. We believe those markets have been recovered longer than the Las Vegas market, and therefore they're a little more mature. And so they're just maybe slowing down a bit before others. And outside of what's going to December weather that really impacted both the Midwest and the South, some difficult comps that we talked about in our southern properties. When you look at 22 compared to 21, there was just some softness. But as I said, the softness was early in the quarter. And in the second half of the quarter, it started to recover and continue to recover through the end of the quarter and into January. So I don't think there's any real negative trend there. It was softness early in the quarter. Once it started to come back, so not much more I think I can say.
spk07: Great. And when you think about this year and maybe looking at your internal forecast or budget, would you expect that the Las Vegas locals market would grow in excess of the core Midwest and South net regional net revenue portfolio?
spk09: Hey, Joe, this is Josh. I guess I get to take that one. I think we feel like coming into 2023, you know, I think we step back and look at where the consensus estimates are, and they're kind of down about 7 or 8 percent from where we delivered results in 2022. And I think we feel like, you know, our business can do generally in line with that or a little better. I think that we see some opportunities for growth in really both of those segments. but that I'm not so sure we're ready to say that we're going to see growth over 2023 in Las Vegas locals. If it's down, it's down marginally relative to 2022. But it only goes to kind of the uncertainty of how the consumer, what happens with the consumer as we move through the year. Thank you. Yep.
spk01: Thank you. Our next question comes from Carlos Santarelli with Deutsche Bank. You may proceed.
spk15: Thank you for taking my question. I just wanted to circle back to one of the comments, Keith, I believe you made earlier. Sky River fees were $21 million with a $5 million one-time TRUA payment or something in there for the management fee. and online was 17. If you kind of back that out and then back out half of that 17 in the 4Q20, does it more or less imply, or I believe that math more or less implies, like a down double-digit EBITDA result for the segment in the fourth quarter? If that's right, how much would you say, not necessarily the weather, but maybe that broader malaise that you saw early in the quarter, relative to kind of where you were running for January of that decline? How would you kind of parse those out?
spk09: So, Carlo, I'll try to take a shot at it, and it's a little bit more art than science, as you can probably imagine. I think that what we tried to communicate was we felt like there were some things that we could identify around the weather, around the moor, robust business that we had seen in Mississippi and Louisiana last year that made the comparison a little more difficult this year. And then there was something kind of left over that really was more relevant or more visible in the first half of the fourth quarter. And that's where we really tried to dig into our customers and see what was going on. And it was really a broad-based weakness in our customer that was largely prevalent in the first half of the quarter. It was something we really hadn't seen to any extent before. And then as we moved, and so, and I would say a lot of the weakness was concentrated in those two markets of Mississippi and Louisiana for us. And then as we moved through the quarter, You know, we were able to track and see that trend got better over time, sequentially improved. And then obviously the last week of the year was very strong across the board. And as we mentioned before, we also saw kind of contributions from out-of-town business helping drive Las Vegas. So as we kind of came into January, the trends from the late December continued. business was really good, we recognize there was an easy comparison. So it's a little bit like you're trying to dissect through how good should it be versus the comparison and how good is the business. What we can tell you is it doesn't feel like the customer certainly hasn't fallen off the deep end. And the general trends of our core customer kind of regained momentum outside of Las Vegas and continued to build through the quarter, and that was encouraging to us. And Las Vegas remained very good for us, although early on it also had some weakness in our customer base as well, primarily in October. So it was just a quarter of a lot of different things going on. It ended up heading in the right direction for us. And I would say You know, as we look back over quarters earlier in the year, you know, there'd be a soft quarter, an okay quarter, and then a really strong quarter. And that's our, sorry, soft month, a good month, and then a really strong month. And that's what happened in the fourth quarter as well. So I'm not sure we're at a place where we can extrapolate a lot from the customer trends that we saw in the fourth quarter, but that's what happened from our perspective.
spk15: Understood. That's helpful. And then just on the leverage point and tying that back to the buyback, you guys, I want to say, Josh, you look at your leverage kind of EBITDA relative to your traditional net debt, correct? So you target the two and a half range. It would more or less imply, and obviously numbers moving around and whatnot, but maybe not commensurate with last year's buyback, but certainly you would be able to do something similar to last year's buyback. And that $100 million a quarter that you guys have previously talked about, does that kind of remain the goal on any dislocation, get more aggressive? Is that kind of how you're thinking about it? And then just as an aside to that, you guys I thought had development advances to the tribe that were going to come in this year. I did notice there was like $14 or $15 million of an interest payment. And I wanted to understand if those two things were linked or if you still expect cash payments at some point this year.
spk08: Yeah, so Carla, this is Keith. You're right on the share buyback. We've been communicating for the majority of 2022 that we're targeting $100 million and we remain targeting $100 million per quarter. If there are some dislocations given the strength of our balance sheet, the strength of our cash flows, then we have the opportunity to do more than that, but we want to continue to anchor people in right around $100 million a quarter. So we'll just kind of see how that plays out, but we don't want to set an expectation that it will be higher than that. And then on top of that, the dividends that we talked about will continue. In terms of development advances, you're right, we will start to see those being repaid this year. probably later this year, we'll start to see those repaid. The property's been off to a great start, and we'll see that cash flow into the company second half of the year.
spk09: Yeah, Carlo, what you were referencing is we had reserved all of our advances that we had made to the tribe, and so once the casino opened, the risk associated was reduced, and so Part of that recovery was shown as interest income, and the other half was shown down in, I think, the pre-opening line. So that's what you picked up on. It was actually not a cash payment to us. Great. Thank you, guys.
spk15: You're welcome.
spk01: Thank you. The next question comes from Sean Kelly with Bank of America. Your line is open.
spk06: Hi. Good afternoon, everyone. Thanks for taking my question. Joshua, Keith, just sort of one area for me was you called out the transition of some of the online gaming features, I think, moving over to your in-house platform. And I believe, Keith, you said it was in the next couple of months. Can you just talk a little bit about the economic implications there? Does that transition allow you to consolidate a material amount of incremental EBITDA, or kind of how is that going to play through as you start to take those operations back in-house?
spk08: Yeah, so we'd expect that transition to occur sometime in the next couple of months, think mid-year, in terms of probably when that happens. As you think about 23 and maybe early 24, you'd expect, I think what we'd ask you to expect is probably no change in the overall economics as we transition them. You know, with any transition, there'll be some breakage as we start to move people over to our platform and you know, slight differences and we start to grow it. So, you know, in the first year, probably flat economics and then it will build from there. We do expect by consolidating it and more fully using our databases that we'll be able to grow that, you know, to a higher level, but not in the near term. Near term should be flat.
spk06: Great. That's my only question. Appreciate it, everyone.
spk08: Great. Thanks, Sean.
spk01: Thank you. Our next question comes from Steve Patinsky with Stiefel. Please proceed.
spk10: Yeah, hey, guys. Good afternoon. So I want to go back to the recovery that you've seen or that you saw in the South and the Midwest in January. And I'm not really sure how to ask this, but do you think that January recovery was real? And what I mean by that is with December an anomaly and the January recovery was tied more to or canceled trips, you know, being rebooked into January because of weather? Or, you know, is January benefiting from whether it's higher Social Security payments? I'm just trying to figure out, you know, maybe if you can give a little more color on that recovery in January.
spk08: So, Steve, as you think about Q1 and, you know, January in particular, look, in Q1 it is really two different quarters. You know, early in the quarter, frankly, the comparisons are easier because last year, you know, In January, we were coming out of Omicron here in Nevada. We still had some mask mandates. People weren't fully coming out. And the second half of the quarter, both here in Nevada and across the MSR, the business accelerated. And so, you know, in fairness, January comps are a little easier than later in the quarter. I think what we were trying to communicate was set aside year-over-year comparisons and just look at raw customer trends and how the customer is performing and We didn't see any meaningful differences in how the customer is performing as we look at the second half of Q4 and how they performed in early January. So kind of ignoring year-over-year comps, just looking, think of it more sequentially is how we think about that.
spk10: Okay, understood. And then, Josh, just given the Midwest and the South segment now includes the online and management fees in there, just wondering if you could help us think about maybe how margins should trend in that segment moving forward. And if I could also ask two housekeeping questions. I'm not sure if you'll give it to us, Josh, but maybe help us with corporate expense and interest expense this year.
spk09: Sure. Sure. So in terms of the margins for us, remember we have this enormous amount of taxes that are essentially a pass-through from FanDuel that we pay on behalf of them because we have the license in the jurisdictions that we operate. And that shows up as revenue and then 100% as an expense as well. So that dilutes our margins pretty significantly. So just to put it in perspective, our margins online last year were about 14%. This year, just the online piece, which is the tax pass-through, six weeks of Paula, which is now Boyd Interactive, and then the revenue share, that's all at about 18% to 20% margins. So that's kind of how it is today. And it'll all depend on how much that tax pass-through continues to grow, because it'll continue to impact those margins. I think in terms of, so hopefully that answers that question, but if there's other elements you want to know, feel free to ask. We'll try to answer. I think in terms of interest expense, you know, we would expect our debt balances, of course this depends on your projections of EBITDA, but I think we would expect our debt balances largely to remain fairly consistent, so any changes in interest expense are going to be purely based on your projections of interest rates into 2023. So if you think they're going up, then, you know, our interest expense is probably going to elevate a little bit. But probably, in reality, not, you know, to be materially different than where it was in kind of the run rate of Q4. And then in terms of corporate expense, I mean, probably a million or two higher than kind of what we saw in in 2022 would be a good number to think about for 2023. So hopefully that's helpful.
spk10: That's perfect. Thank you, guys. Appreciate it. Sure.
spk01: Thank you. The next question comes from Barry Jonas with TruList. You may proceed.
spk14: Great. Thanks. Guys, can you maybe just talk broadly about the M&A environment out there? And, you know, how do you think about SAL leaseback as a form of financing, given where capital markets are today? Thanks.
spk08: Well, specific to, you know, your question about SAL leasebacks, I think that we continue to believe, given our strong balance sheet, well, first of all, given our strong balance sheet and our little leverage, we really don't have a need to, you know, transact or look at other forms of financing. If we did, we think there are probably cheaper forms of financing for us out there, more traditional forms of financing that are prepayable that we can pay down. So we don't find ourselves kind of looking at that these days. In terms of M&A, I don't know, from my perspective, it's kind of quiet out there. But I don't know, maybe Josh has heard things I haven't.
spk09: I tell you everything I hear, Keith. Yeah.
spk14: Okay, great. And just to follow up, great. And just to follow up, you know, Nevada results really strong. Just curious, you know, if you think you're gaining share or just benefiting from market strength, you know, the way the state reports local sometimes doesn't match up exactly. So curious if you think you're a share gainer, or just sort of seeing tailwinds from the market.
spk08: Yeah, I think it is just the strength of the overall Las Vegas market. I don't think there's a lot of share changing going on. I think everybody has settled into where they're at. The commercial environment is relatively stable. Nothing has changed much there. So it really is the strength of the overall Las Vegas market and increases in visitation and convention attendance.
spk14: Great. Thanks so much.
spk08: You're welcome.
spk01: Thank you. Our next question comes from Dan Pulitzer with Wells Fargo. Your line is open.
spk02: Hey, good afternoon, everyone, and thanks for taking my questions. First one, Josh, I think you mentioned Louisiana and Mississippi. There's been some softness there. Has there been any change in the promotional environment, or is that more just something going on with the customer?
spk09: Yeah, I'd say the promotional environment has been stable across the country, including in Las Vegas and and in our Midwest and South assets. So that's not a driver of, I really, you know, we saw outsized performance in Q4 of last year in those assets, really even superior to what we had seen in the earlier quarter of a very strong 2021. And I just, you know, it's just really a comparison-related issue. Could have had something to do with what was going on with weather or hurricanes, but that's really hard to kind of quantify. So we just know that kind of sequentially through 2021, Q4 was really strong for a portion of those assets. And that's what made the setup a little bit more difficult for that region so far in the fourth quarter.
spk02: Got it. And then I just wanted to clarify something. So as I think about your growth levers for 2023, higher digital, Sky River, you know, the Fremont return, and then obviously kind of just the organic environment. And I think back to your comments on the actual overall EBITDA for 2023 compared to 2022, I just want to clarify. So when you mentioned the street was estimated down 7% or 8%, you thought that was overly conservative given the growth levers, or am I misinterpreting something there?
spk09: I think what I would say is that we feel good relative to where we think our business is going to trend relative to the street consensus just because of the uncertain environment we find ourselves. I think you adequately identified where we see opportunities for growth. We get a full year of Wilton. We get some expansion on the online side of things. increasing demand for our non-gaming amenities, both hotel and F&B. And we feel like that'll continue to be an opportunity as well as, depending on how the overall gaming consumer feels and trends for the rest of the year, for 2023, we feel that's also an opportunity to continue to grow loyalty with our customer. But I think, and look, I think the other thing that is easily missed in our business is we're making small investments that are generating really good returns and that over time we expect those to accumulate to be something meaningful for us. But we're not taking big bets. We're not committing the company to a large amount of capital in the current environment that we find ourselves. So all of that gives us some comfort that we're going to be operating in this level of kind of performance that we've been at for the last two years. And that was kind of what we were trying to communicate in our prepared remarks. Hopefully that makes sense.
spk02: Yeah, I know that that makes sense. And just one last housekeeping one. I think in the past you've talked about segmenting out Sky River and or the digital stuff. Is that still a consideration?
spk09: Yeah, we're definitely, yes, we're most likely going to do it in the first quarter, give you some historical perspective as well. We plan to break out online, which will include a revenue share or tax pass-through and what is to become Boyd Interactive, the acquisition of Paula. And then we'll have a managed and other, which will include Wilton as well as Lattner Entertainment.
spk02: Great. Thanks so much. Sure.
spk01: Thank you. Our next question comes from David Chatz with Jefferies. The line is open.
spk11: Hi, afternoon, gentlemen, and thanks for taking my question. I apologize if you touched on this in the prayer remarks, but I want to make sure as we go through our model, we reflect all the positives you've discussed so far, but also just contemplate any points of competition that are out there. Did you mention any, or could we just touch on those for a moment?
spk08: So we didn't talk about the competition more broadly. I think as we look at where we're at today and into 2023, there are probably a couple of areas. So I think it's well known that the horseshoe opened in Lake Charles. It's a property that had been closed for a while as it was rebuilt from some hurricane damage. Opened in December. That obviously competes with our Delta Downs property. Yeah, it's been open a little less than 60 days. Haven't really seen much of an impact, but it is incremental competition. In Indiana, at our Blue Chip property, the Four Winds is opening or expanding a property in South Bend called South Winds, adding a hotel. They expanded some casino space last year. We do get some business out of South Bend, so a little bit of incremental competition there. And then the HHRs in Kentucky have been impacting Belterra Park, just outside of Cincinnati, Ohio. They existed there in the second half of 2022, so we'll see a little bit of additional impact there in early 2023 from those HHRs. Other than that, no other significant competition throughout the portfolio.
spk11: Okay, perfect. Thank you very much. Congrats on your quarter.
spk08: Thank you.
spk01: Thank you. The next question comes from Ben Chaikin with Credit Suisse. Please proceed.
spk03: Hey, how's it going? You mentioned earlier basically taking back the Stardust brand in mid-23, I think you said, in a few months and vertically integrating. How do you think about the puts and takes of retaining those customers? So I guess what I mean is on one hand, they have the wallet established with you, obviously the brand loyalty. On the other hand, presumably FanDuel, who's been running that, wants those customers as well. So just like net-net, do you have any idea at retention or care to take a shot?
spk08: I do not care to take a shot. We expect that there will be breakage. And, you know, when asked asked a little bit earlier in the conversation about kind of the economics once we take this over. That's why we're saying, look, in the first year, expect the economics not to change and that what we made as a revenue share with FanDuel will be the same thing we will make operating this 100% on our own because of breakage and ramp up and learning the business, running it ourselves from a marketing perspective. hopefully better, but we're expecting it to be kind of same-same for the first year, and then we'll ramp up from there. Yeah, FanDuel will continue to exist in those markets. They're certainly a tough competitor, but, you know, we have a large database of customers in the markets we're going to launch in, and I think we'll do fine.
spk03: That's helpful. I appreciate it. And then the management fee is going to $50 million in 23 for Sky River. I believe the previous kind of bogey you guys had thrown out there was $30 or $35. If I'm not mistaken, did the property sequentially accelerate, or what was the inflection that made you comfortable this was the right number?
spk08: I think when we had given a $25 to $30 or $30 to $35, I think I don't recall our last SPECIFIC GUIDANCE. IT WAS SIMPLY EARLY. YOU KNOW, THE PROPERTY OPENED IN AUGUST. WE DIDN'T HAVE ENOUGH TIME UNDER OUR BELTS NOW THAT WE GOT A GOOD FIVE MONTHS UNDER OUR BELTS, AND WE SEE WHERE THE KIND OF THE OPENING HAS SETTLED IN. OBVIOUSLY, THE OPENING MONTH IS EXTREMELY STRONG, WHICH IS WHAT DROVE THE SIGNIFICANT MANAGEMENT FEES IN Q4, BUT WE KIND OF SEE WHERE IT IS SETTLING IN IN DECEMBER AND JANUARY. THAT'S JUST OUR CURRENT EXPECTATION.
spk03: Got it. Makes sense. And the last just housekeeping. Is that another way?
spk08: Is that another way?
spk03: Yeah.
spk08: I may have been a little conservative last time.
spk03: Totally appreciate it. Thank you. And then just like the last housekeeping, did you say that for full year 22, digital was $40 million of EBITDA, or did I mishear you?
spk08: No, you heard correctly. So including social, online, sports betting, the whole bit was $40 million digital.
spk03: Great, thank you very much.
spk08: You're welcome.
spk01: Thank you. Our next question comes from John Decree with CBRE Securities. Please proceed.
spk05: Hi, guys. Thanks for taking my question. You covered a lot of ground already, but maybe one more on the consumer patterns. I guess as you think about what you saw in the first half of fourth quarter and then exiting the fourth quarter, I know you called out some markets Louisiana, Mississippi, but have you seen a change maybe across demographic cohorts or just in frequency of visit or spend per visit as the quarter progressed? I guess, you know, are those kind of trends pretty consistent with what you've seen or has there been a shift in the kind of pattern of consumer behavior?
spk09: Yeah, John, this is Josh. So I think in the first half of the quarter, what we thought merited, the reason we thought merited calling it out was that we saw a broader softness across really all customer segments. Now that reverted in the second half to be more like what we had seen in the quarters leading up to Q4 and continued into January. So again, that's what makes it hard to determine if there's any relevancy to what happened in the first part of the the quarter or not because the business really kind of picked back up, you know, with the best part of the quarter being the last week of the year and then just has continued into January. But I think, you know, what we saw was very concentrated weakness in the southern part of our portfolio, but also something a little bit more than that just across the entire company in, like, late October and into November around just a broader customer.
spk08: Yeah, I think if you're asking about kind of specific components of the database, whether it be by age or worth segment, those specific shifts that occurred, you know, that are worth calling out.
spk09: Right. It kind of picked back up where it left off when you kind of got into the second half of the quarter.
spk05: Got understood. I appreciate that. One easy follow-up, Josh. Should we expect Sky River gets going and then your online gaming segment for the year? Any reason to expect any seasonality at Sky River and then should we assume that the online gaming seasonality would mirror that of the big B2C players in conjunction with the sports schedule?
spk09: Yeah, I think that's right. We had We have seasonality in the revenue share that we received today. So in that $40 million that we received this year, there was definitely seasonality with the fourth quarter being really strong, first quarter typically being strong, and then obviously third quarter being fairly soft. I would expect, just given we're just getting a percentage of revenue, kind of what's termed net revenues for Wilton or Sky River revenues, that there probably won't be much seasonality to that business, I wouldn't expect.
spk05: Understood. That's really helpful. Thanks, guys, and congratulations on the great quarter and year.
spk08: Thank you.
spk01: Thank you. The next question comes from Grant Montour with Barclays, Mississippi.
spk04: Good evening, everybody. Thanks for taking my question. We've covered a lot of ground, just one for me. On the downtown segment, you noted that the Hawaii business is fully recovered. I noticed also that you guys had record margins that look really high compared to all of the last three years. My question is, the full segment, do you think that that's fully recovered outside of Hawaii? And then from the margin perspective, should we be looking at prior seasonality but benchmarked to this new normal maybe that you guys are operating at currently in the fourth quarter?
spk08: With respect to downtown, there clearly is seasonality in that business, much like the Las Vegas business. Summertime tends to be softer, and the fall and winter seasons tend to be a little bit stronger. So you should expect that seasonality to exist. You know, the margins that we produced in Q4, you know, we're comfortable with, you know, going forward. Yes, they're significantly higher than a few years ago as we've kind of right-sized that business. It's gotten out of the charter business. So, you know, margins are probably once again in a good place, and there will be seasonality.
spk04: Okay. I realize it was a convoluted way to ask the question, so I appreciate the answer. Thanks, everyone.
spk00: Thank you.
spk01: Our final question comes from Joe Stoff with Susquehanna. You may proceed.
spk13: Thank you. Hi, Keith, Josh. Just, you know, a question on, you know, the levels of, say, core consumer spending that you saw, especially in your Las Vegas locals and regional areas. Can you give us those just in terms of what you saw given the importance of that segment?
spk09: I can try to give you some color around it, Joe, and hopefully this points you in the right direction. I think, look, I think the Las Vegas locals, as Keith said in his prepared remarks, really benefited from a strong out-of-town business. as well as big demand or stronger demand for our non-gaming amenities. Not necessarily opening more amenities, just a growing demand among our customer for that particular aspect of our business. We also saw primarily in Las Vegas, we saw kind of a strong core business, again, supported by out-of-town business from our core customer that just continued to get healthier as we moved through the quarter. and that's largely continued into January as well. So, you know, we're really focused on serving that core customer. That customer has a lot of worth with us. We watch their frequency and spend, and that's all kind of remained very consistent as we move through the quarter, if not improving slightly as we progress through. So hopefully that gives you a sense of what was going on.
spk13: And And just, you know, final question, obviously, on just kind of like the discussion about the choppiness, initial choppiness in the fourth quarter. Is it fair to say, like, you haven't really seen that, maybe that level of choppiness, you know, elsewhere during 2022? Can you remind me?
spk09: I wouldn't. It's a hard question to answer. I think there are, as I alluded to earlier, In any quarter, there's going to be a soft month. And the issue here for us was we called out some items, but we just didn't want to say that's the whole explanation of what happened in the quarter. We had some softness early in the quarter. We don't necessarily know if that is a forbearing to something that's to come. Second half of the quarter, January seems to kind of offset that belief. But we just wanted people to be aware and investors to be aware that, you know, we did have a first soft start to the quarter, and that was, you know, something that we wanted to just highlight to folks, that's all. I wouldn't say, if you look back at each quarter of this year and even last year, largely there was at least one month in each quarter that was soft, and then it would come back. So, anyway, don't want to make too much out of it, but also want to make sure people, you know, are aware of it as well. I mean, you know, we continue to, as based on our remarks around our expected performance for next year, you know, we expect for 2023, we expect to be able to perform at these levels and continue to do that, but obviously we need the consumer to kind of be there for us, so.
spk13: Thanks very much. Sure.
spk01: Thank you. There are no further questions at this time. I will now pass it back over to Josh Hershberg.
spk09: Thanks, Tamia. Really appreciate it and appreciate everyone participating in the call today with all the good questions. If there's any follow-up, please feel free to reach out to the company. Thank you.
spk01: This concludes the conference call. Thank you for your participation. You may now disconnect your lines.
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