Boyd Gaming Corporation

Ladies and gentlemen, this is the operator. Today's conference is scheduled to begin momentarily. Until that time, your lines will remain on musical. Thank you for your patience. Thank you. Thank you. Good afternoon and welcome to the Boyd Gaming third quarter 2023 conference call.

My name is David Strau, Vice President of Corporate Communications for Boyd Gaming. I will be the moderator for today's call, which is being recorded on Tuesday, October 24th, 2023. At this time, all lines are in listen-only mode. Following our remarks, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star then zero for the operator. Our speakers for today's call are Keith Smith, President and Chief Executive Officer, and Josh Hirshberg, Executive Vice President and Chief Financial 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 at investors.boygaming.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 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, David, and good afternoon, everyone. Our results for the third quarter reflect the value of our strategic focus on our core customers, the benefits of our growth initiatives, and our diversified business model. For the quarter, company-wide revenues grew 3% to $903 million. During the quarter, we continue to see growth in play from our core customers, increasing 1%. This is on top of last year's strong growth of 5% from this segment. This increase in play from our core customer segment was offset by a 4% year-over-year decline in retail play during the quarter. Importantly, total play from our retail customer segment has remained at consistent levels since late last year, reflecting a stable retail consumer. We also produced growth in non-gaming revenue during the quarter, with hotel revenue increasing more than 4% and food and beverage revenue growing nearly 5%, in both cases driven by strong cash business. And with respect to our growth initiatives, we once again delivered strong results from Sky River and our online gaming segments. On a company-wide basis, EBITDA decreased 5% to $321 million, while property-level operating margins were 40%, reflecting ongoing cost pressures and a return to normal seasonality. Now, moving to segment results. In a Las Vegas local segment, operating performance on a year-over-year basis was similar to our performance in the second quarter of this year and consistent with the expectations we outlined on our last call. During the quarter, we continued to drive solid growth in core customer play, which increased 2%. Play from our retail customers was down approximately 4% year over year. However, performance from this customer group has remained stable in the local segment since late last year. We also saw a nearly 6% increase in non-gaming revenue with both hotel and food and beverage revenues growing during the quarter. With respect to our EBITDA and margin performance, our local results continue to be impacted by ongoing cost pressures in our business. Looking ahead to the fourth quarter, we expect that trends among both core customers and retail players will remain consistent with the last several quarters. We also expect that current cost pressures will continue into the fourth quarter, though overall expenses should be sequentially consistent with the levels we saw in the third quarter. Also in the fourth quarter, we anticipate there will be some impact from the opening of a new competitor. As we have seen with previous openings of new properties, we expect some initial trial visitation from our customers to this new property. However, after this initial trial is over, we expect this impact will fade, our customers will return, and long-term growth will continue as the Las Vegas market absorbs this new capacity. Next, in downtown Las Vegas, underlying business trends remain healthy. Consistent with the second quarter, segment results were impacted by an ongoing room remodel project at Main Street Station, as well as the final stages of the Fremont renovation. The California, which benefits from Main Street Station's hotel rooms, was also impacted during the quarter from the ongoing work at Main Street. Main Street's room remodel project is in its final stages, and we expect it to be complete by year end. allowing both the California and Main Street to return to growth. At the Fremont, we are driving strong results from the comprehensive remodel and expansion of our casino and non-gaming amenities, which we completed in October. Even with disruption during the third quarter, Fremont achieved strong revenue growth and record third quarter EBITDA as our renovations drove increased traffic and visitation to the property. This strong performance of the Fremont comes against the backdrop of a thriving downtown Las Vegas market. Pedestrian traffic remains strong along Fremont Street, and we continue to benefit from solid visitation from our core Hawaiian customer segments. Thanks to these healthy trends in our recent investments, we expect improved results in downtown Las Vegas in 2024. Looking at our Southern Nevada operations as a whole, the continued growth of our core customer the stability of the retail customer, and the strength of the Las Vegas economy all give us optimism for the future. Visitation to Las Vegas is up nearly 8% year-to-date. Convention and meeting business is up 30% this year. Average daily room rates are up more than 10% across the market this year. Airport traffic is at all-time highs on a trailing 12-month basis. And with upcoming events like Formula One and the Super Bowl, a busy convention calendar, the recent debut of the Sphere, and the fourth quarter openings of two new resorts with nearly 4,000 hotel rooms, the stage is set for continued growth in the Southern Nevada market. Local economic indicators remain positive as well. Total employment in Southern Nevada is up nearly 5% over the last 12 months, and our local population continues to grow. The development pipeline remains robust, with $6 billion in projects currently under construction in Southern Nevada. And with billions of dollars in additional projects now in the planning phase, The Las Vegas economy has a firm foundation for continued economic growth well into the future. Moving to the Midwest and South region, customer trends remain stable during the quarter. We continue to see broad-based growth in core customer volumes, offset by year-over-year declines in retail play. Similar to other segments, volume from retail customers has remained at consistent levels in the Midwest and South since the fourth quarter of last year. Overall, our customer trends have been consistent across the Midwest and South segment in recent quarters, and we believe these trends will continue in the fourth quarter. And much like Las Vegas, cost pressures impacted the performance of the Midwest and South region during the quarter. We expect this will continue, overall expenses in the fourth quarter running at similar levels to the third quarter. Next, in our online segment, EBITDA continued to grow versus prior year, And this segment is now on track to achieve 60 to 65 million in EBITDA for the full year. Similar to the second quarter, we benefited from strong results from FanDuel's operations, as well as contributions from Boyd Interactive, which we acquired last November. And finally, our management and other business produced $19 million in EBITDA during the quarter. Management fees from Sky River Casino in Northern California represent $17 million of this performance. as this property has consistently exceeded our expectations since opening in August of last year. As a result of Sky River's strong performance, our company's loan to the tribe was effectively repaid earlier this month. And based on the property's strong start, the tribe is actively working on plans to expand Sky River by adding additional casino square footage, hotel rooms, and meeting and convention space. While these plans are still preliminary, the tribe and our company are optimistic about the potential of an expansion project given Sky River's performance to date. As a result of Sky River's strong results, we expect our managed and other business to maintain a pace of about $19 million in EBITDA during the fourth quarter and into next year. Recall that during last year's fourth quarter, we received a one-time development fee of $5 million related to the Sky River project. So in all, on a company-wide basis, we continue to deliver solid results. Given our company's continued operating strength, low leverage, and strong free cash flow, we're able to execute a balanced capital allocation program that includes reinvesting in our properties and returning capital to our shareholders. Over the past two years, we have returned over $1 billion to our shareholders while maintaining a strong balance sheet. Going forward, we remain committed to our $100 million per quarter share repurchase program and our regular dividend program. In addition to this ongoing capital return program, we remain focused on investing in our core operating properties. Our recently completed renovation of the Fremont and our project to move our Treasure Chest operation onto land to improve the customer experience are just two examples of this initiative. And the strong results we are achieving at the Fremont represent the potential of these types of investments. With Fremont now complete and Treasure Chest nearing its final stages, we expect to announce additional projects sometime next year. Beyond these capital projects and as part of our ongoing maintenance capital plan, we're also making investments in many of our hotel food and beverage facilities to ensure we offer a fresh and relevant offering for our customers. This is not a new initiative, but rather part of an ongoing focus to ensure our properties amenities remain competitive and meet customer demands. As an example, we recently introduced a new high limit room at the Suncoast and we'll be opening seven new restaurant concepts nationwide during the fourth quarter with more to come next year. We also have several hotel renovations starting in the fourth quarter and continuing into next year as we look to ensure our hotel product remains relevant for our customers. So in all, this was another solid quarter for our company. Once again, we proved the effectiveness and resiliency of our diversified business model led by our focus on our core customer and strong performance from our growth initiatives. While we are not immune to cost pressures, our operating teams continue to manage the business efficiently. And going forward, we will continue to utilize our free cash flow to create shareholder value through our property reinvestments, our ongoing capital return programs, and strategic acquisitions. I would like to thank our entire team for their dedication, their contributions to another solid quarter of performance. It is an honor to be part of such a great group of team members. Thank you for your time today. And I'd like to turn the call over to Josh.