Boyd Gaming Corporation

Good afternoon and welcome to the Boyd Gaming first quarter 2024 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 Thursday, April 25, 2024. 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 Hershberg, 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, 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, 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 being webcast live at boydgaming.com and will be available for replay at 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.

Thanks, David, and good afternoon, everyone. Following a record 2023 performance, the first quarter of 2024 was a challenging start to the new year. While we knew our first quarter results in Nevada were comping to a record first quarter of 2023, our results for the quarter were also impacted by January's severe winter weather in the Midwest and South and a softer Las Vegas locals market in the first quarter. However, beyond these challenges, there were encouraging trends during the first quarter. Both in Nevada and across the Midwest and South, Playformer core customers improved as we moved through the quarter. In our Midwest and South segment, once January's severe winter weather passed, the revenue growth trends that began in the fourth quarter returned in February and March. In addition, both our online and managed businesses continued to produce strong results. And importantly, our management team stayed focused on maintaining operating efficiencies and a disciplined marketing approach as we achieve property level margins of 40% during the quarter, proving once again our ability to maintain a high level of efficiency. So now let's review each of our operating segments in more detail. In our Las Vegas local segment, the EBITDA shortfall to prior year was a result of three main issues, each accounting for roughly one third of the decline. First, as I mentioned a moment ago, and as we discussed on our last call, our local segment was comparing to a record performance last year. While January was a particularly strong month last year, both February and March were also record months for the segment. Second, as expected, we also felt the impact of competitive pressures related to the opening of a new property in the market. The overall impact of these competitive pressures during the quarter was in line with our previously stated expectations of 20 to 25 million in EBITDA for the full year. And finally, on the same store basis, the overall Las Vegas locals market was softer than expected during the quarter. Despite these issues, the fundamentals of our locals business remain intact. During the quarter, play from our core customers grew each month. And when excluding January, play from core customers increased on a year-over-year basis. Non-gaming revenues also grew in the local segment during the quarter. even with a substantial number of hotel rooms out of service for a room remodel project at the Gold Coast. And finally, we remain disciplined in our marketing strategies and focused on operating efficiencies. Even with lower revenues, we maintain margins of nearly 50% in our local segment during the quarter, consistent with our performance over the last several years. Looking ahead, while we expect competitive pressures and market softness to continue into the second quarter, We remain encouraged by continued strength and play from our core customers and confident in our management team's ability to achieve efficiencies throughout our operations and maintain a disciplined approach to marketing. Next, in downtown Las Vegas, similar to our local segment, some of the shortfall to prior year was the result of comparisons to a record first quarter of 2023. Much of our strong performance in the first quarter of 23 was driven by pent-up demand from our Hawaiian guests. While we expected some normalization from last year's elevated levels, high airfares during much of the quarter of this year kept more Hawaiians away than we had anticipated. In addition, gaming revenues in the downtown market declined during the quarter, with overall pedestrian traffic trending lower along Fremont Street. Looking at more recent trends, we are encouraged that Hawaiian visitation has improved over the last 30 days, as airfares from Hawaii have started to decline from the elevated levels we saw earlier in the first quarter. While our two Nevada segments face comparisons to prior year record results and market softness, we continue to have long-term confidence in the Southern Nevada market. On an overall basis, visitation to Las Vegas continues to grow, led by increases in convention business over the last 12 months. Employment remains a positive story as well, increasing 3.3% over the last 12 months, the strongest growth rate of any major metropolitan area in the U.S. This employment growth continues to be broad-based with gains across most employment sectors. The ongoing growth trends we see in visitation, conventional business, and employment all bode well for the future health of the Southern Nevada economy. Moving to our Midwest and South segment, we saw encouraging trends during the first quarter. Our results were down year over year, and this was primarily due to severe winter weather impacting January. Beyond January, gaming volumes from our core customers grew, continuing the trends from the fourth quarter. And retail play in February and March was also encouraging, coming in nearly flat to the prior year, the best year over year performance we have seen in almost two years. We also saw growth elsewhere in the business, adjusting for rooms out of service related to a hotel renovation project, at our Ameristar St. Charles property, non-gaming revenues grew 4% in February and March. And our management team successfully maintained their focus on operating efficiently. Excluding the weather-impacted month of January, margins were 39% for the quarter, similar to our recent performance for this segment. As we look ahead, we are encouraged by the improving customer trends over the last several quarters, and those trends have continued across our Midwest and South segment in April. Next, our online segment maintained its strong level of performance. With $20 million in EBITDA in the first quarter, the segment matched last year's exceptional results, a tribute to FanDuel's industry-leading position in online sports betting across the country. We are pleased with our online segment's strong start to the year, and looking ahead, we continue to project the segment will generate $60 to $65 million in EBITDA for the full year. In addition to these financial contributions, we also continue to benefit from our 5% equity interest in FanDuel Group. This investment is growing in value with the success of FanDuel across the country, and it remains a valuable strategic and financial asset for our company. Finally, our managing other business benefited from another strong quarter at Sky River Casino, which we manage on behalf of the Wilton Rancheria Tribe. Well into its second year of operations, demand at Sky River remains healthy. Thanks to Sky River's excellent performance since opening, the Wilton Rancheria Tribe is now finalizing plans for a major expansion of the property that will include additional casino space, a hotel tower, and meeting and convention facilities. As a result of Sky River's continued strong performance, we now expect our managed and other business to generate approximately $86 to $88 million in EBITDA this year. While company-wide results were below prior year during the first quarter, we continue to generate significant free cash flow, allowing us to execute on our balanced approach to capital allocation. First, we are investing in our nationwide portfolio with the objective of driving long-term growth while enhancing the competitiveness and appeal of our properties. We are repositioning or upgrading many of our food and beverage outlets with nearly a dozen projects planned throughout the year. We're also refreshing and updating our hotel products. Currently, we are in renovating rooms at Gold Coast, Ameristar St. Charles, and Blue Chip. And we are set to begin similar projects at the Orleans, IP, and Valley Forge later this year. Beyond upgrading our property amenities, we are also nearing completion of our land-based project at Treasure Chest Casino. This project will transition the property from a three level riverboat to a spacious single level land based facility, adding significantly enhanced non gaming amenities, expanding gaming options and convenient parking for our guests. Once complete in June, we are confident this investment will significantly enhance the treasure chest experience and position the property for long term growth. While investing in our portfolio is a key part of our approach to capital allocation, We're also committed to returning capital to our shareholders. During the quarter, we repurchased $105 million in company stock while increasing our dividend for the third consecutive year. We intend to continue returning capital to our shareholders with $100 million per quarter in share repurchases and quarterly dividend payments. And finally, we remain committed to maintaining a strong balance sheet, which provides us with significant flexibility to navigate the current environment execute a balanced approach to capital allocation, and pursue opportunities. In summary, while this was a challenging quarter, there were many encouraging trends in the business, including continued growth and play from our core customers. We remain diligently focused on our disciplined marketing and operating strategies and our commitment to operating efficiently. And thanks to our significant free cash flow and strong balance sheet, we continue investing in our properties while returning substantial capital to our shareholders. Thank you for your time today. I would now like to turn the call over to Josh.

Thank you, Keith. I'm going to provide a few additional details on the quarter. With the current trends in our business, we have remained disciplined in our expense management, resulting in property level margins of 40%. We have also remained focused on our core customer strategy and disciplined in our marketing efforts. which has been one of the keys to our success over the last several years. For our online segment, our results include tax pass-through amounts related to our online partnerships. These amounts are recorded as both revenue and expense. During the quarter, the tax pass-through amount was $116 million, compared to $96 million last year in the first quarter. In terms of capital expenditures, we invested $90 million in the first quarter, including investments in the Treasure Chest land-based project. We remain on track to spend $200 to $250 million in maintenance capital during 2024 and $100 million in growth projects that you should think of as recurring. We also expect to invest an additional $100 million during the year in room renovation projects that Keith mentioned. bringing our total capital expenditures in 2024 to $400 to $450 million. With respect to our program to return capital to shareholders, during the quarter we repurchased $105 million in stock, acquiring 1.7 million shares at an average price of $63.62 per share. We also increased our quarterly dividend to 17 cents per share during the quarter, starting with the dividend that was paid on April 15th. Since resuming our capital return program in late 2021, we have returned approximately $1.3 billion to shareholders in the form of dividends and share repurchases and reduced our actual share count by 15% to 95.4 million shares. At the end of the first quarter, we had approximately $221 million remaining under our current repurchase authorization. Our capital return program is an important part of our capital allocation philosophy, and we are committed to $100 million per quarter in share repurchases. We finished the quarter with total leverage of 2.3 times and lease adjusted leverage of 2.7 times, consistent with year-end levels. With low leverage, no near-term maturities, and ample borrowing capacity under our credit agreement, we have created the strongest balance sheet in our company's history. As a result of our strong balance sheet and significant free cash flow, we have created significant financial flexibility to maintain a balanced approach to capital allocation, providing our company the ability to continue reinvesting in our portfolio and returning substantial capital to our shareholders while pursuing growth opportunities. That concludes our remarks, and David, we're now ready to take any questions.