Boyd Gaming Corporation

Good afternoon, and welcome to the Boyd Gaming Third 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, October 24, 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, 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 statement. 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 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. Third quarter was another solid performance for our company. Our recent property investments produced strong results, driving growth in our downtown Las Vegas and Midwest and South segments. Our online and managed businesses both delivered excellent performances, continuing to prove the value of our diversified business model. We maintain operating efficiencies throughout our portfolio, with property level margins exceeding 39% during the quarter. And our underlying customer trends remain stable in the third quarter. In fact, overall play volumes have been essentially flat on a year-over-year basis throughout the last four quarters, with the exception of the weather challenge first quarter. Now let's review each of the operating segments. Starting with our Las Vegas local segment, Our results for the third quarter reflect trends similar to what we saw throughout the first half of this year. While the Orleans and Gold Coast continued to be impacted by competitive pressures in their immediate area during the quarter, the remainder of our Las Vegas local segment performed in line with the broader same-store market trends in the third quarter. We also continue to successfully maintain our operating efficiencies at these properties, excluding Orleans and Gold Coast, EBITDA margins were 49% during the quarter, a testament to our team's ability to successfully manage expenses in the current environment. Lastly, hotel revenues in our local segment continue to grow as we've benefited from increased room demand across the broader market. Next, in downtown Las Vegas, we delivered another strong quarterly performance driven by our recent property investments and growing Hawaiian visitation. The segment was led by the Fremont, which posted a record third quarter revenue and EBITDA performance. And we benefited from continued strength in pedestrian traffic throughout the downtown area during the quarter. As we look at the Southern Nevada market more broadly, the fundamentals of the Southern Nevada economy remain sound. Visitation remains strong, with nearly 42 million people visiting the Las Vegas Valley over the past 12 months. The Las Vegas airport is operating at record levels. posting nearly 59 million passengers over that same period. Beyond the tourism sector, the broader Southern Nevada economy is also performing well, as the Las Vegas area has been one of the fastest-growing job markets among major U.S. metro areas all year. This job growth has been broad-based, with increases in almost every major employment sector. And it has been long-lasting, with job gains for 42 consecutive months. Growth has been particularly strong in the construction sector, increasing 7% year over year as the local construction pipeline remains robust. In terms of local population, the Las Vegas Valley has surpassed 2.3 million residents. And in response to this ongoing growth, home building activity has accelerated in the Las Vegas Valley. More than 14,000 new residential units were permitted over the past 12 months, an increase of 23% year over year. Now, moving outside of Nevada, our Midwest and South segment benefited from a record third quarter performance at Treasure Chest Casino, which opened its new land-based facility in June. Treasure Chest has delivered strong revenue growth since the new facility opened, and we are already on pace to exceed our targeted EBITDA return. Excluding Treasure Chest, both revenue and EBITDA for the rest of the segment were essentially even on a year-over-year basis during the quarter. We also continue to successfully maintain operating efficiencies in the segment, with margins of 38% during the quarter. Next, our online segment had another great performance in the third quarter, as we continue to grow from our market access agreements across the country. The largest contributor to our online results is our partnership with FanDuel, which continues to strengthen its position as the nation's leading sports betting company. Beyond the revenue and EBITDA growth we are seeing from our market access agreements with FanDuel, we also continue to benefit from FanDuel's success through our 5% equity interest. The country, FanDuel's leadership position in online gaming continues to grow, and with it, the value of our equity stake. Based on our strong performance during the third quarter, we are raising full-year EBITDA guidance for our online segment to $75 million from our continuing operations. This is up from the $65 to $70 million we previously guided. Also during the quarter, we acquired the New Jersey operations of Resorts Digital Gaming. While this was a small acquisition, it represents another step in building out our regional iGaming business. Finally, our managed business recorded another strong quarter with another solid performance at Sky River, managed business remains on track to generate approximately $90 million in EBITDA this year. Earlier this month, the Wilton Rancheria Tribe received final regulatory approvals and closed on financing for the expansion of Sky River. With these final steps complete, work has now begun on the first phase of the expansion that will add 400 slots and a 1600 space parking garage to the property. Following the opening of this first phase in early 2026, we will commence work on the second phase of the expansion that will add a 300-room hotel, two additional food and beverage outlets, a day spa, and an entertainment and event center. Upon completion of phase two in late 2027, this expansion will further strengthen SkyRiver's position as one of Northern California's leading gaming entertainment destinations. So in all, this is another solid quarter for our company. Over the last several years, We have significantly improved our operating efficiency, enhanced our free cash flow, lowered our leverage, strengthened our balance sheet, delivered consistently solid performances. Our improved performance has allowed us to return nearly $1.7 billion to our shareholders over the last three years. At the same time, actively investing in our properties to enhance the competitive positioning of our portfolio nationwide. For example, We are now completing major hotel room renovations at Blue Chip, Ameristar St. Charles, and Gold Coast, and we are starting new projects at IP Orleans and Valley Forge. And we've introduced more than 20 new restaurants and bars across the country over the last year alone. In Las Vegas, we have an extensive property-wide renovation now underway at the Suncoast. We unveiled a new modern sportsbook in early September to strong customer response. The opening of this new sport was the open by limit room premium steakhouse at the Suncoast. have positioned the Suncoast to compete more effectively in the locals market and hold its own in the face of the opening of a new competitor late last year. And over the next 12 months, we will continue this project at the Suncoast with the complete renovation of the casino floor, the introduction of a new food hall, and expanded meeting space. Beyond our recent property enhancements, growth investments are another key part of our development pipeline. One such project that is now underway is at Ameristar St. Charles, where we have begun a major expansion of our meeting and convention center. With its four diamond-rated hotel, expansive amenities, Ameristar has received strong demand from meeting planners for years, but its current convention space is insufficient to accommodate it. Once complete in the fall of 2025, This expansion will allow us to capitalize on that unmet demand. And in the three months since we announced this expansion, initial bookings are already exceeding expectations, all from business that we would have been unable to accommodate with our current footprint. And here in Las Vegas, we continue to make progress on our planned development, Cadence Crossing Casino, a project that will replace our Joker's Wild Casino with a modern and upgraded gaming experience. We plan to break ground on this project next month and open the doors of Cadence Crossing in early 2026. Cadence will begin as a smaller development with 450 slots and several restaurants, but this will be a project designed to grow with the master plan community of Cadence, which will have more than 12,000 homes upon final build-out. If Cadence expands, so will our property, with future plans to add a hotel, additional casino space, and more amenities to serve the growing Cadence community. Our third quarter results at the Treasure Chest and Fremont clearly demonstrate our ability to deliver strong returns from these types of investments, and we are confident we will see similar success for our projects at Ameristar St. Charles and Cadence Crossing. Once we have completed work on Cadence Crossing and at Ameristar St. Charles, we plan to pursue additional opportunities as part of our pipeline of growth projects. In addition to these projects, we have secured an opportunity to develop a commercial casino resort property in the city of Norfolk, Virginia, one of the largest underserved gaming markets in the mid-Atlantic region. This is an exciting opportunity for us to expand our geographic footprint into a new market of 1.8 million residents. After receiving final approvals from the city council earlier this month, we plan to break ground on this project next week. As part of the development process, we expect to open a temporary casino facility at the location in late 2025. The permanent facility that will follow will be a best-in-market resort property featuring a 200-room hotel, eight food and beverage outlets, and a casino with 1,500 slots and 50 table games. We expect to open this permanent facility in late 2027. Including the temporary facility, we estimate total project costs approximately $750 million, construction and development costs are still being finalized. These costs will be fully funded by our company. While our investment pipeline is an important part of our approach to creating shareholder value, we also remain committed to managing our leverage and returning capital to our shareholders. In the third quarter, we repurchased $202 million in stock, and we remain committed to our ongoing share repurchase program of $100 million per quarter and supplemented by our dividend program. Our total leverage at the end of the third quarter was 2.5 times, providing our company with significant flexibility to execute on growth while continuing our capital return program. So as we reflect on the third quarter, we are encouraged by our solid performance nationwide. Our underlying customer trends remained consistent during the quarter. We successfully maintained operating efficiencies, property-level operating margins exceeding 39% during the quarter. We continue to see excellent results from our diversification strategy with strength in both our online and managed businesses. Our $100 million per year in growth investments delivered strong returns during the quarter, as evidenced by the record performances of Treasure Chest and Fremont. We are building on this success with a pipeline of new growth opportunities nationwide. We remain diligent in our search for ways to grow the company in a disciplined manner, securing an opportunity to develop a best-in-market resort casino in Virginia. We also remain committed to a strong balance sheet with low leverage, ending the quarter with leverage at 2.5 times. We continue to return capital to our shareholders with nearly $1.7 billion in share repurchases and dividends over the past three years. With significant free cash flow, a strong balance sheet, and a growing pipeline of opportunities, we are confident in our ability to continue to drive long-term growth, retain a balanced approach to capital allocation, and create long-term shareholder value. Ongoing success is a tribute to the hard work and dedication of thousands of Boyd team members nationwide. I'd like to thank all of them for their contributions to our company and our shareholders. Thank you for your time today. And I'd like to turn the call over to Josh. Josh?

Thanks, Keith. Our company delivered a solid performance in the third quarter, with year-over-year customer trends consistent with the last several quarters. And as we think about the fourth quarter, we expect year-over-year EBITDA comparisons will be challenging. The fourth quarter last year, as you may recall, benefited from an unusually large number of favorable expense adjustments at year-end. especially in the Midwest and South segment. We expect the contribution from Treasure Chest in the fourth quarter this year largely offset the absence of those favorable adjustments in the Midwest and South segment. As Keith mentioned, we expect our online segment to generate run rate EBITDA for full year 2024 of $75 million, inclusive of contributions from Resorts Digital, which we acquired in September. Also during the quarter, we received non-recurring market access fees of $10 million, and we expect to record an additional $20 million in non-recurring fees in the fourth quarter. As a result, for full year 2024, we expect our own line segment to produce $105 million in EBITDA, including $75 million of run rate EBITDA and $30 million of one-time incremental market access fees. For our managed and other business, we expect approximately $90 million in EBITDA as a result of our continued strength at Sky River Casino. Recall that Sky River recorded one-time items in the fourth quarter of 2023, which positively impacted our managed and other results during that quarter. During the third quarter, the tax pass-through amount related to our online revenue share agreements was $103 million. compared to $71 million last year in the third quarter. Excluding the tax pass-through amount, company-wide margins for the third quarter this year would have been approximately 39%, or more than 420 basis points of the margin . In terms of capital expenditures, we invested $85 million during the third quarter, bringing year-to-date capital spend to $289 million. Based on capital spending to date, we are updating to a slightly lower projected total expenditures number for 2024 of $400 to $425 million. This estimate includes maintenance capital of approximately $225 to $250 million, approximately $75 million in incremental maintenance capital for room renovations, and $100 million in recurring growth capital for our property investments. We believe the record results we are delivering at Treasure Chest in Fremont clearly demonstrate the long-term potential of our $100 million of annual recurring growth capital. In 2024, this growth capital includes the completion of the Treasure Chest project, as well as starting the Ameristar St. Charles Convention Center expansion and the Cadence Crossing development in Las Vegas. The estimated $750 million in capital related to our Virginia development will be in addition to our annual maintenance and recurring property investments. Beyond these investments, we remain committed to returning capital to our shareholders through share repurchases and dividends. We paid our quarterly dividend of 17 cents per share during the third quarter. Additionally, we repurchased $202 million in stock during the third quarter, acquiring 3.5 million shares at an average price of $58.37 per share. We remain committed to repurchasing $100 million in shares each quarter. When combining our share repurchases with our dividend program, year-to-date through the third quarter, we have returned $531 million to our shareholders. We're currently on pace to return nearly $650 million this year, or more than $7 per share. As of September 30th, we had $343 million remaining under our current repurchase authorizations, and the actual number of shares outstanding at quarter end was 88.8 million shares. Since October 2021, we have returned nearly $1.7 billion in capital to our shareholders in the form of share repurchases and dividends, reducing our share count by more than 20% over that time period. As Keith mentioned, we ended the quarter with total leverage of 2.5 times and lease adjusted leverage of 2.9 times. We have no near-term maturities and ample borrowing capacity under our credit agreement, placing our company in the strongest financial position in our history. David, that concludes our remarks. We're now ready to take questions.