Boyd Gaming Corporation

Good afternoon, and welcome to the Boyd Gaming second quarter 2024 earnings 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 we are hosting on Thursday, July 25, 2024. At this time, all lines are in listen-only mode. Following our remarks, we will conduct question-and-answer sessions. 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, 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, 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 boygaming.com and will be available for replay in the investor relations section of our website, shortly after the completion of this call. With that, I will now turn the call over to Keith Smith. Keith?

Thanks, David, and good afternoon, everyone. Our company delivered a solid performance in the second quarter as our nationwide operations performed in line with our expectations. During the quarter, we saw strength from our core customer segment and continued stability in retail play across the country. In the Las Vegas local segment, the overall market improved from the first quarter, and we achieved sequential improvement in our year-over-year results. Importantly, we also grew our market share in this segment during the quarter. Our downtown Las Vegas segment delivered strong growth during the quarter, consistent with our expectations for downtown as visitation recovered from a temporary decline in the first quarter. And our Midwest and South segment continued to produce steady results during the quarter. As a result of these solid performances across all three segments of our operations, second quarter property revenues were even with the prior year. At the same time, our operating teams continued their successful focus on managing the business efficiently during the quarter as we achieved property margins of nearly 41% consistent with the last several quarters. Also during the quarter, we opened our new land-based casino at Treasure Chest on June 6th, and while it is still early, our new property is off to a great start with revenues nearly double the prior year since it opened. And we continue to produce strong results in both our online and managing other businesses during the quarter. In all, we were pleased with our company's performance in the second quarter. In terms of operating performance by segment during the quarter, conditions across the Las Vegas locals market improved both in total and on a same store basis when compared to the first quarter. The Orleans and Gold Coast continue to face competitive pressures similar to those we outlined during our first quarter call. Absent these competitive pressures, our Las Vegas locals' properties performed in line with the same store market. Looking at this segment more broadly, we saw encouraging customer trends across our locals' business in the quarter. Play from our core customers grew during the quarter, while retail play trends improved compared to the first quarter. We saw healthy growth in our non-gaming business as food and beverage and hotel revenues increased nearly 6% year-over-year. And we achieved deeper down margins of approximately 49% during the second quarter, reflecting our ability to maintain strong operating efficiencies. In all, we are pleased with the direction of our Las Vegas local segment, as our focus on driving play from our core customers and maintaining operating efficiencies produced solid results. Next, our downtown Las Vegas segment delivered a strong performance in the second quarter, achieving the year-over-year growth we expected this year as visitation significantly improved over the first quarter. Hawaiian visitation recovered as airfurs normalized from the elevated levels that occurred in the first quarter, while pedestrian traffic in the downtown area also improved from the first quarter. And we continue to benefit from our investments downtown, including our recently completed renovation and expansion of the Fremont and the remodel of Main Street Station's hotel. For both our Las Vegas locals and downtown Las Vegas segments, the continued strength of the Southern Nevada economy gives us reason for optimism. More than 41 million people visited Las Vegas over the last 12 months, up 2.6% from the prior year. Over 58 million passengers traveled through the Las Vegas airport over the same period, setting a record for the city. Southern Nevada gaming revenues exceeded $13.5 billion over the past 12 months, also an all-time record. Of particular note, monthly gaming revenues in Clark County have been above the billion-dollar mark for 23 of the last 24 months. And the local job market continues to strengthen. Total employment increased more than 3% on a year-over-year basis in June, and the Las Vegas metropolitan area has been the fastest growing major job market in the country for eight consecutive months. As economic trends remain stable across Southern Nevada, we remain confident in the long-term prospects for our Southern Nevada operations. Moving next to our Midwest and South segment, we were pleased with the overall performance of this business in the second quarter. During the quarter, play from our core customers continued to grow while retail play was stable. As noted in public revenue reports, regional markets across the country were surprisingly soft in April. However, this softness was short-lived. Business levels recovered in May and June, and as a result, we were able to post modest revenue growth in the Midwest and South segment during the quarter. And in early June, we opened our new land-based facility at Treasure Chest Casino near New Orleans. This project replaced a 30-year-old Riverboat casino with a modern land-based facility offering a single level expanded casino floor, four new restaurants, meeting space, and improved parking. While it is still early, customer demand for our new product has been very strong. And in the month of June, revenues nearly doubled at Treasure Chest on a year-over-year basis. Next, our online segment achieved healthy revenue and EBITDA growth in the second quarter. Our industry-leading partnership with FanDuel continues to produce strong results for our company, And as a result, we're increasing our expectations for the online segment to $65 million to $70 million in EBITDA for the full year. As we've noted before, our 5% equity interest in FanDuel remains a valuable strategic asset for our company that continues to grow in value as we participate in the ongoing growth of sports betting nationwide. Finally, in our managed and other business, we continue to benefit from the exceptional performance of Sky River Casino in Northern California. Nearly two years after opening, demand at Sky River remains strong as the property continues to post year-over-year growth. With Sky River's solid performances through the second quarter, we now expect our managed and other business to generate approximately $90 million in EBITDA for the full year. Building on Sky River's continued success, the Wilton Rancheria Tribe recently broke ground on a major expansion of this property. The first phase will expand Sky River's casino floor with an additional 400 spots and enhance properties access with a new 1,600 space parking garage. Following the completion of the first phase next summer, work will begin on a significant expansion of Sky River's non-gaming amenities, including a 300-room hotel, two additional food and beverage outlets, a day spa, and an entertainment and event center. We share the Wilton Rancheria tribe's pride in the success of Sky River and are confident this expansion will help drive continued long-term growth of this property following its completion in early 2027. So in all, second quarter was a solid performance for our company with sequential improvement over the first quarter in our property operations and encouraging customer trends across the country. Same time, We continue to demonstrate our confidence in the long-term prospects of our business through our balanced capital allocation program. An important part of this program are the investments we are making in our operations to drive future growth. We saw the promising results of these investments during the second quarter. Fremont is now performing at record levels, and while it is still early, business at Treasure Chest is up significantly from its previous baseline. Having demonstrated our ability to drive incremental growth through capital investments, we are now beginning work on the next projects in our growth pipeline. In Missouri, we're beginning an expansion of our meeting and convention space at Ameristar St. Charles, allowing us to capitalize on significant unmet demand for our product there. Being combined with our ongoing hotel renovation at Ameristar, this investment will expand this property's appeal to new and existing customer segments, driving additional long-term growth at the property following its completion in the fourth quarter of next year. And in Southern Nevada, we are finalizing design work for Cadence Crossing Casino, a new property located in the southeast portion of the Las Vegas Valley. We expect to begin construction on this project late in the year, with expected completion by early 2026. This new property will be built on a 15-acre site that currently hosts our existing Joker's Wild Casino, and is directly adjacent to the master plan community of Cadence. This community will have more than 12,000 homes upon final build out, with 5,200 homes already built. In its initial phase, Cadence Crossing will feature a 10,000 square foot casino with 450 slots, several dining options, and live entertainment. While we are starting with a modest investment, the property will be designed for future expansion as Cadence grows with the ability to add a hotel, additional casino space, and more amenities during future phases of development. Combined, we anticipate investing $100 million between the Ameristar and Cadence Crossing projects. Additionally, we are continuing our program of refreshing and upgrading our properties across the country. This program includes new and refreshed food and beverage offerings and renovating many of our hotel rooms across the portfolio. Renovations of our hotel rooms at Gold Coast Ameristar St. Charles, and Blue Chip will wrap up over the next several months. Following the completion of these projects, we will begin work on our hotels at the Orleans, IP, and Valley Forge. In addition to investing in our properties, we remain committed to returning capital to our shareholders. The second quarter, we repurchased $176 million in stock, and we remain committed to our ongoing share repurchase program of $100 million per quarter, supplemented by our dividend program. We also remain committed to maintaining a strong balance sheet. Our total leverage today is just 2.4 times, providing our company with significant flexibility to execute on our capital allocation plans. So as we look back at the second quarter, we are pleased with the performance of our business. We delivered total property level revenues, even with prior year results, with encouraging customer trends throughout the country. Our leadership teams efficiently managed our operations, delivering property-level margins of nearly 41%. Our new Treasure Chest Casino is off to a great start, marking the latest success in our ongoing property investments. We continue our commitment to returning capital to our shareholders with over $300 million in share repurchases and dividend payments since the start of the year. I want to thank our leadership teams and our team members for their contributions to our success, their hard work, and their commitment to memorable guest of service are the bedrock of our company. Thank you for your time today, and I'd like to turn the call over to Josh.

Thanks, Keith. As noted, the second quarter was a solid performance for our company. For the remainder of the year, we expect our second quarter commentary regarding customer trends and market conditions to continue. In terms of our operating segments for the rest of the year, in Las Vegas locals, we expect the Orleans and Gold Coast will continue to face competitive pressures similar to those we have experienced over the last six months, while overall market conditions are expected to remain stable. In our downtown business, we expect positive trends to continue. However, remember the fourth quarter this year will be comparing against a record fourth quarter downtown last year. In our Midwest and South segment, we expect continued stability in same-store revenue with incremental contributions from our new property at Treasure Chest. Treasure Chest is off to a great start, but it will take several months of operating the new facility before we know what to realistically expect for revenue and EBITDA. Keith's earlier remarks, he provided full-year EBITDA guidance for our online segment of $65 to $70 million and managed of approximately $90 million. For managed, we expect EBITDA contributions of approximately $21 million for each of the next two quarters. Recall the fourth quarter last year was a very good quarter for the company with each segment of our business performing very well. So that will create a difficult comparison for the last quarter of the year. Next, turning to a few additional items from the quarter. For our online segment, the tax pass-through amount was $104 million compared to $63 million last year in the second quarter. Excluding the tax pass-through amount, company-wide margins for the second quarter this year would have been approximately 40%. or about 420 basis points above the margin we reported. In terms of capital expenditures, we invested $114 million during this time, including our investments in the Treasure Chest land-based project. We have invested $204 million in capital expenditures year to date and continue to project total capital expenditures of $400 to $450 million for this year. Our annual capital program can be thought of in three buckets. The first bucket is recurring maintenance capital, which is expected to be approximately $200 to $250 million per year. The second bucket is incremental maintenance capital associated with room remodel projects that were delayed due to COVID. This spending is not recurring. We expect these investments to be approximately $100 million in each of 2024 and 2025. And finally, for the third bucket, beyond maintenance-related capital, we have allocated a recurring $100 million per year for growth capital projects. In 2024, for example, this $100 million includes capital investments to complete Treasure Chest, as well as starting both the Ameristar St. Charles Convention Center expansion and Cadence Crossing Casino. Following the completion of the Ameristar and Cadence projects, we would expect to announce another set of projects. Think of this recurring growth capital as a pipeline of projects that we choose from each year in order to invest about $100 million per year in growth-related capital. Accounting for each of these three buckets, you should expect total capital of about $400 to $450 million in both 2024 and 2025. before stepping down to $300 to $350 million and beyond following the completion of our hotel renovations. These property investments are one component of our capital allocation plan. Another element of our capital allocation philosophy is returning capital to shareholders in the form of dividends and share repurchases. We currently pay a quarterly dividend of 17 cents per share, representing $16 million in the second quarter. Also during the quarter, we repurchased $176 million in stock, acquiring 3.1 million shares at an average price of $55.88 per share. As previously stated, we remain committed to repurchasing $100 million in shares each quarter. However, we have the financial flexibility to do more, as reflected in our actions during the second quarter. Turning capital to shareholders is an important part of our capitalism. When combining our share repurchases with our dividend program, we have returned $313 million to our shareholders through the first half of 2024, and are on pace to return a total of approximately $550 million this year, or nearly $6 per share. Since we began our capital return program in late 2021, we have returned $1.5 billion to shareholders in the form of dividends and share repurchases, resulting in a reduction in our overall share count by nearly 18%. As of June 30th, there were 92.3 million actual shares outstanding, and we have $545 million remaining under our current repurchase authorizations. Also important to us is maintaining a strong balance sheet, which provides us the flexibility to continue to invest in our existing business while returning capital shareholders. We ended the quarter with total leverage of 2.4 times and adjusted leverage of 2.8 times, consistent with recent quarters. With low leverage, no near-term maturities, and ample borrowing capacity under our credit agreement, we have the strongest balance sheet in our company's history. Combined with the significant free cash flow our operations generate, our company has a strong foundation to continue a balanced approach to capital allocation. David, that concludes our remarks, and we're now ready to take any questions.