Q3 2019 Earnings Call
Pardon me. This is the operator, the Boyd gaming conference call.
I will start in two minutes.
Boy Gaming conference call will start in two minutes.
Good day and welcome to the Boyd Gaming third quarter 2019 conference call all participants will be in listen only mode. So you need assistance. Please signal conference specialist by pressing the star King followed by zero. After today's presentation, there will be an opportunity to actually questions to actually question. You May Press Star then one on your telephone keypad.
Yet to withdraw your question. Please press Star then too please know that they see Venice being recorded I would now like to turn the conference over to Josh Hirsberg Executive VP and Chief Financial Officer. Please go ahead Sir.
Thank you Chuck good afternoon, everyone and welcome to our third quarter earnings Conference call.
Joining me on the call. This afternoon as 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 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 statements.
There are certain risks and uncertainties, including those disclosed in our filings with the FCC that may impact our results.
During our call today, we'll make reference to non-GAAP financial measures for 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 FCC today in both of which are available in the Investor section of our website at Boyd gaming Dot com.
We did not provide a reconciliation of forward looking non-GAAP financial measures due to our inability to project special charges at certain expenses.
Finally, today's call is also being webcast lobby Boyd gaming Dot com.
It will be available for replay in Investor Relations section of our website. Shortly after the completion of this call.
I'd now like to turn the call over the T. Smith heat.
Thanks, Josh good afternoon, everyone.
In the third quarter, our nationwide portfolio continued to generate solid results for our shareholders.
On a same store basis, we achieved our ninth consecutive quarter of EBITDAR growth.
It was also a fifth straight year of quarterly margin improvement.
These results were led by our Las Vegas locals segment, which posted another strong performance achieving its highest third quarter EBITDA or since 2005.
In downtown Las Vegas, we set an EBITDAR record for the fourth straight quarter.
And in our mid West and South segment or five news properties had another excellent quarter on a combined basis. These properties grew EBITDA by nearly 6% its operating margins improved over 200 basis points.
Cross the country, we're continuing to improve our operating performances well further deleveraging our balance sheet and strengthening our financial Foundation.
During the quarter, we reduced total leverage below five times, achieving the top end of our long term leverage target.
At the same time, we're making great progress enhancing our entertainment offerings through the expansion sports betting across our regional portfolio.
Together with our partners a fan do we opened sports books that are for Boyd gaming properties in the Midwest and introduced a market leading mobile app in Pennsylvania.
As we've seen before this amenities successfully driving new business new customers across our regional properties.
No. It was a quarter of no notable achievements spire leadership teams across the country.
Let's walk through each of their accomplishments in a bit more detail.
Starting with our Nevada operations are Las Vegas locals business delivered the strongest revenue and EBITDAR growth we've seen so far this year.
Economic strength in growing visitation helped drive continued growth in gaming revenues. We also saw double digit gains in our hotel revenues with strong improvements in room occupancy and rate across the segment.
Thanks to ongoing operational and marketing refinements virtually all of our incremental revenue flow through to the bottom line, resulting in the 18th consecutive quarter of EBITDAR growth in our local segment.
Operating margins in our Las Vegas locals region improved nearly 130 basis points, surpassing 30% for the fourth straight quarter.
Over the last 12 months, our Las Vegas locals operating margin is more than 32% up nearly 600 basis points over the last three years on a same store basis.
Revenue growth and EBITDAR were broad based across the local segment.
The Orleans posted an all time record third quarter performance with solid gains in both gaming and hotel revenues.
Gogos perform well maintaining a strong gains from last year, despite significant investments in competitive properties.
In North Las Vegas, Aliante said, a third quarter EBITDAR record continuing a long term trend strong quarterly results at this property.
And we achieved EBITDAR growth of nearly 20% and our Boulder strip operations as we continue to make excellent progress leveraging the combined operation of Sam's town in Eastside cannery.
By positioning and marketing these neighboring properties as complimentary experiences we're successfully driving solid growth across both assets.
Throughout the local segment, our operating teams continue to do an excellent job finding ways to drive profitable revenue.
Profitable revenue growth and enhance operating margins.
We're also benefiting from a healthy southern Nevada economy long term population growth continues throughout the Las Vegas Valley.
Southern Nevada is adding jobs in virtually every sector led by strong gains in leisure and hospitality financial activities and construction.
With more than $13 billion in major construction projects now underway across the valley the outlook for construction employment is particularly bright.
Total unemployment is falling to 4% in the local labor force is expanding about twice the national average.
Average weekly wages are up 2.3% over the last 12 months, well taxable sales have risen more than 7% over the same period.
In terms of visitation to Las Vegas.
Over the last year passenger counts of Mccarran Airport reached an all time high of nearly 51 million passengers up 2.6% over the prior year.
And convention business is that a near record 6.6 million over the last 12 months.
Southern Nevada is southern Nevada economy remains on solid ground, giving us confidence in future of our locals business.
Picture is equally encouraging and downtown Las Vegas, where we achieved our fourth record EBITDA our performance in a row, even in the face of disruption from nearby construction projects.
Our downtown operations are benefiting from the ongoing strength and our Hawaiian customer segments as well as accelerating growth visitation throughout the downtown market.
The California delivered a particularly strong performance as the property continues to generate excellent returns from its recent renovations with a completely updated room product redesign casino space and new dining options, the capitalism more attractive destination than ever before.
That is driving strong growth in visitation, resulting in record third quarter revenues EBITDAR and margins at the property.
The Fremont also a strong performance falling just shy of last year's third quarter EBITDA record visitation to the downtown area has been growing at a strong pace. This year in the Fremont central location on Fremont Street makes it a prime beneficiary of this growing pedestrian traffic.
Looking ahead, new investments in downtown Las Vegas give us continued optimism for the future.
$30 million upgrade of the Fremont Street experienced video canopy remains on track for completion by New year's Eve.
Once complete this upgrade will significantly enhance re energize the Fremont Street experience given Las Vegas tours and residents a compelling new reason to visit downtown Las Vegas.
At the same time much needed hotel inventory will soon be coming online by the end of next year two new properties now under development was more than 1300 hotel rooms to the downtown area.
Another two projects are now in the planning stages counting for another 700 rooms in all more than 2000 rooms could be added in downtown Las Vegas over the next two years expanding the areas hotel capacity by nearly 30% and providing the entire market with a substantial lift in visitation.
The outlook is bright for downtown Las Vegas, and we're well positioned to continue participating in this market growth.
Moving outside of Nevada, We continued to deliver strong results at our newly acquired properties in the Midwest and South segment.
The combined basis. These new properties achieved EBITDAR growth of nearly 6% and improved operating margins by more than 200 basis points. Once again proven our ability to significantly enhance and improve the performance of newly acquired assets.
Valley Forge near Philadelphia, We continued to produce exceptional results with an all time record quarterly EBITDAR in margin.
We have made great progress, we're finding and expanding the operations of valley forge over the last year, realizing the significant potential the made this asset an attractive acquisition opportunity for us to the west in Missouri. The two ameristar properties delivered solid results in margin improvement.
And in Ohio, Belterra Park had another strong performance setting a third quarter EBITDA record as the property continues to implement new efficiencies and expand margins.
Moving to our same store regional operations.
Shortfall and EBITDAR was attributable to a pair of named storms that made landfall in the Gulf coast over the summer severely impacting our southern operations.
In mid July Hurricane Barry forced the closure of three of our Louisiana properties over a weekend treasure chest, Evangeline Downs and Amelia Belle.
And well Delta Downs in the IP remained open both properties were significantly impacted by customer cancellations ahead of the store.
Six weeks later Tropic its tropical storm Imelda cause flooding throughout the southeast, Texas, and southwest, Louisiana severely impacting visitation to Delta Downs.
The impact of visitation has persisted into October as flood damage to the main highway out of Houston appears to be deterring, Some Texas residents were making trips to southwest Louisiana.
Absent the impact from these storms or same store results would have been slightly ahead of last year strong performance.
Across both our regional and Nevada markets conditions remain healthy and our consumers continue to visit and spend at levels similar to what we've experienced all year long.
But the same time, we continue to make good progress executing companywide initiatives that will position us for future growth.
For example, we further expanding the reach of our nationwide player loyalty program in the third quarter fully integrating the ameristar and belterra properties into the B connected network.
This expansion will allow us to more effectively drive business between these four properties and the rest of our nationwide portfolio, while further enhancing the competitiveness and appeal the Ameristar Belterra properties.
We're also making good progress implementing new marketing and analytical capabilities throughout our operations supplying our marketing and operations teams with powerful new tools to continue driving profitable revenue growth and margin improvement.
Through our growing partnership with Fanduel group, we're enhancing our properties in expanding our customer base through the addition of sports betting amenities across a regional operations.
In late July we launched our first more mobile sports betting partnership introducing the Fanduel bedding app in the state of Pennsylvania.
A little over a month later, we opened Fanduel sportsbook at four Boyd gaming properties in the Midwest Blue Chip Diamond Jo Dubuque Diamond Jo worth in Belterra resort.
Well it is still early we're pleased with what we've seen so far in Pennsylvania. The Fandel mobile App has already taken a commanding market lead counting for just over half the state sports betting market in September .
And and I went Indiana, our new sports books are helping expand our customer base driving an influx of new customers and increasing visitor traffic at each of these properties similar to what we've previously seen in Pennsylvania and Mississippi.
And there's more to come.
Just hours ago Fanduel launch its mobile bedding app in the state of India.
Based on their performance in states like Pennsylvania, New Jersey, we're quite optimistic about the prospects in Indiana.
Well, we continue to enhance our existing properties. We're also working to further expand our nationwide presence as we continue making progress on the Wilton Rancheria project near Sacramento, California.
Earlier this month, the Wilton tribes celebrated a significant milestone when a federal court dismissed a key legal challenge to this project, we share that drives excitement for the potential of this resort as the closest gaming resort to both Sacramento in the South Bay area that Wilton resort will be ideally positioned to capture significant share the northern Cal.
California gaming market, we are confident it will allow the Wilson tried to finally achieve its vision of self sufficiency and it will represent a significant new growth opportunity for our company in the coming years.
So in conclusion, the third quarter was another quarter of accomplishments for our company.
Thanks to the scale of our operating teams and the ongoing strength of our consumer our nation wide portfolio is performing well.
While we experienced some challenges with weather in the South we continued to grow same store revenues EBITDAR and margins once again, demonstrating the strategic value of geographic diversification.
We augmented same store growth with strong performances at our five news properties with continued EBITDAR gains margin improvement across these new assets, our portfolios generating substantial free cash flow and we're committed to taking a disciplined and balanced approach and how we allocate capital for our shareholders.
Core component of this approach is achieving our long term leverage target of four to five times EBITDA.
And we're making excellent progress in this regard during the third quarter, we successfully reduced total leverage below five times and we are focused on reducing leverage below the midpoint of this target range next year.
Achieving and maintaining our long term leverage target as a priority and we will continue to balance debt repayment with selective reinvestments in our core business and returning capital to shareholders.
We will remain disciplined and prudent in the allocation of our capital. While we believe there are attractive future opportunities to invest in our existing business. We will do so only when these investments offer an appropriate return.
Our company has done an excellent position for the future and we remain committed to leveraging our free cash flow to execute a well balanced approach to creating long term shareholder value.
Thank you for your time today, I'll now turn the call over to Josh.
Thanks, Keith our operating team delivered another solid performance during the third quarter continuing to grow same store revenue EBITDAR and margins despite weather impacts to our southern properties.
Our recent acquisitions are performing well with the integration of these properties on track.
In terms of items from the quarter.
Leverage at quarter end was 4.8 times debt to EBITDA and lease adjusted leverage was 5.2 times.
During the quarter, we reduced debt by $104 million and year to date by $180 million.
Capital expenditures during the quarter were $41 million, bringing year to date investment of approximately $167 million.
Corporate expense was lower in the third quarter, driven by the timing of certain expenses.
We expect corporate expense for full year 2019 to be approximately $85 million.
Through the first nine months of this year, we have paid $21 million in dividends and repurchased $28 million in shares at an average price of $25.81 per share.
We did not purchase a meaningful number of shares during the third quarter.
In terms of our master lease rent coverage for the assets governed by the lease for the LTM period was 1.9 times.
As Keith mentioned, we are focused on reducing leverage to below the midpoint of our target range of four to five times EBITDA.
We expect to reach CES level next year.
Currently we are for focusing our free cash flow on deleveraging our balance sheet.
Once we achieve our leverage goes will use our free cash flow to part pursue the highest returning investments whether those or projects reinvesting in our business are returning capital to shareholders.
Now turning our attention to guidance as noted in our release, we are reaffirming our full year EBITDAR guidance of 885 million to $910 million.
Expectations for the year should take into consideration the third quarter weather impact of several million dollars.
With that Chuck that concludes our remarks, and we're now ready to take any questions from the audience.
We will now begin the question and answer session to actually question you May Press Star then one on your Touchtone phone.
Using a speaker.
Please pick up your handset pressing the keys to withdraw your question. Please press Star then to at this time, we'll pause momentarily to assemble roster.
Okay.
Our first question will come from Joe Greff with JP Morgan. Please go ahead.
Good afternoon guys.
I first set of questions relate to your performance Las Vegas locals market.
Yes, given where your revenue growth and flow through performances.
We're in the quarter I'm presuming, you're going to tell us that that the market fairly rational.
My question is that exactly but can you talk about what you see as a sustainable topline growth rate in the locals market given the macro factors that you highlighted and then the one thing that for that to US obviously was that the flow through performance and the three Q.
Is that something that you think a sustainable given some of the marketing refinements that you've made in that segment and then my last question related to the locals marketed.
At the end of September your competitor across the Street from you guys at gold coast.
I think that in that's an Asian product offerings can you talk about the impact that youve seen I guess more recently in this month.
Thank you.
So.
Maybe starting with.
Your last question in terms of.
The competition across the street, they've been opened for going on six months, you know any impact that I think we were generally going to feel we've already felt in as we.
Talked about in her prepared remarks, the third quarter the Gulf Coast was good quarter, we had.
Picked up significant gains last year when they were closed and we were able to maintain those gains and we haven't seen any significant customer defection so to speak of.
Opening a.
New Asian restaurant isn't going to think of the significant impact on us. So nothing really to report there in your prior assumption of the market being rational I think is generally correct outside of that competitor across from the gold goes to continues to be.
Yes have an elevated level of promotion coming out of that property, but the rest of the market.
Has returned to some degree and normalcy.
You're right, we had great flow through.
During the quarter I think thats, just a function of.
The team's continued focus on on efficiencies and leveraging up the tools. We've talked about this over the last couple of years about in implementing new tools, new marketing tools, new analytical capabilities given the team more things to work with in just doing an overall better job focusing our revenue growth on profitable customers.
Not just driving revenue growth and so.
So I'm not going to kind of go out and make a prediction on.
Future revenue growth.
But I think we are very pleased with the quarter results. We're very pleased with Las Vega Vegas economy in the metrics that we're seeing and.
Theres nothing that we're seeing in early October that would change our view on the performance.
That we've seen this quarter this past quarter.
Great. Thank you and then just a quick follow up Josh the very Andy let it slip in there.
Some sort of impact from weather.
The three Q Daven, South I was hoping you could be.
A little bit more specific on on maybe quantifying that an asset is specifically, we're referring to on a revenue already EBITDA basis.
Sure so.
No I made a couple of comments to help you with our view of how the year, we'll end up I think.
Generally we kind of understand where the consensus for the year is and we suggested that you should take into account.
Whether which was several million dollars and several to us means.
And EBITDA several means more than a couple couple needs to so several falling needs three or $4 million.
Just walking you through the math, there Joe and then.
And then just a reference a where we think corporate expense will end up as well. So short answer your questions. We think weather was about $3 million to $4 million of EBITDA and and you know that that was an impact that we we think should be taken into consideration for the year. Because we just really don't have that have the time to make it back up.
Great. Thank you so much.
Yep.
Our next question will come from Felicia Hendrix with Barclays. Please go ahead.
Thanks, a lot.
Just switching gears for a minute and this is.
Keith.
Cash because I think he bus may look at this from different angles, but just wondering given the recent asset sales by MGM I'm wondering if you sense any change in the industry among potential sellers of assets, either do you sense or anticipate M&A getting more extensive and I know those are strip assets and double.
As you always deblasio, but everything gets calibrated come a starting point Im just wondering if you anticipate those new comps, having an impact and the industry overall and along those lines. If you think you could get higher multiples for your assets, particularly if there are certain riets looking to diversify does that change your view on your current real estate portfolio.
This is Josh Felicia I think from our perspective, we've been pretty transparent on our current views on owning real estate I think from our perspective or the MGM transaction, especially as it relates to Blasio reflects blasio in terms of the quality of asset that it is.
ER and not only the quality of asset it is but also being on the Las Vegas strip. So kind of short answer to the question is it doesn't really change our view.
In fact, I would say that given where we are in the cycle. We are more cautious about incurring leverage whether it be real kind of traditional leverage our leverage associated with leases that we we think ultimately.
Impact.
Business going forward in the event, though there were a slowdown of any sort.
If you want to add anything today Im pleased to this is good and Josh Josh said, it well nothing has really changed our views and it's certainly possible that other sellers will look at the prices.
That were paid for the assets a traded recently and have higher expectations, but doesn't really impact us doesn't impact our view on owning our own real estate and strategic value with it presents the continued on.
Okay. That's that's helpful and address just getting back to your guidance and taking into consideration the weather impact in the quarter and you had said you know the think about at this age you can't make it up you kind of didn't change your range. So what gets you to that high end of the range.
Yeah, really I think it would be difficult to get to the high end of the range I think the contacts that we were trying to provide folks is that we provided guidance at the beginning of the year. It was really to try to focus people on the direction of where we thought the business was headed.
And now that we have a little bit better information around you know obviously the more recent impact.
We feel like folks should kind of take where consensus was an adjusted for the weather impact, which was $3 million to $4 million make sure they get corporate expense right, but the underlying business.
Still feels pretty good from a consumer perspective and from an overall health and that really is a comment about really all of our segments of our business.
Okay helpful. Thank you.
Sure.
The next question will come from David Katz with Jefferies. Please go ahead.
Hi afternoon gentlemen.
Right.
I wanted to just look forward, a little bit and I know you may not be ready to start guiding and the out years, but if you can just talk qualitatively about issues, we should be contemplating for capex.
As we think about your cash generation going into 20 and and beyond there.
What should we be contemplating.
Yeah. So so David Yeah first a caveat in that we are just now going through our budgeting process. So we will give guidance for capex and other things once we announce our fourth quarter results.
But I would generally think of us as a company that pretty much.
Pat Capex of a route we guided about a 180 this year plus or minus I think with the New Act new assets that we've acquired being 180 to 200 is what people should probably thinking about for us for 2020 again, we have to kind of get through our process, but thats kind of in the neighborhood.
And I think Thats what.
That's it.
To the extent that we achieve our leverage targets and then we have an opportunity to evaluate other projects relative to returning capital to shareholders. Then we'll we'll have to find projects that justify those investments otherwise, we'll be returning capital in the form of dividends or share repurchases, but we haven't really truly define.
And.
Our identified opportunities to make those kind of investments until we get closer to our leverage target.
So I want to make sure I understood. The you know 180 to 200 neighborhood for this year is as good a benchmark is any going forward just based on what we have so far.
Or are we.
Okay, Okay no <unk>.
Just wanted to be clear about that and then I wanted to ask about you know your <unk> offered some commentary about the sports betting.
How realistic is it for us.
You know to think about within the next you know.
12 months 24 months, but you know what period of time.
Before we can be sitting down and actually modeling some sports betting you know revenues and profits that'll move the needle for Boyd.
Well I think when it when it comes to that it's probably the late next year, we're still in the very early innings no pun intended of this whole thing and as it rolls out and so waiting for it to settle live and seeing you know the financial impact of the company.
It'll it'll take another year.
Got it okay thats it for me thank you.
That.
The next question will come from Carlo Santarelli of Deutsche Bank. Please go ahead.
Hey, guys good afternoon.
Just if you guys could just kind of discussed a little bit the the thought process. As you guys have kind of gone from being relatively steady in terms of share repurchase activity throughout much of 2018, and then obviously in the first quarter of this year and kind of the decision factors that went into pivoting more towards.
Debt reduction not not that there's any objection to that on my end, but just kind of what you're seeing if there is anything you're seeing thats, leading you to be what most would consider a little bit more defensive of the balance sheet or what some of the other motivating factors are.
I'll take first pass and Keith you want to add anything.
I don't think it it is definitely not anything that we're seeing in our business or anything that we're actually seeing and the economies that we operate in I think we feel like where we are in the cycle being long in a cycle. We don't know you know that when it will end, but we feel at some point there will be in into it and.
Therefore, we think it's prudent to be lower Levered, and where we are today and it's strictly that we recognize that.
Kind of using free cash flow to de leverage the bill business is not the best economic decision, but we think it's the best decision from the perspective of positioning the company for a slow down it will happen at some point in the future and getting our house in order with respect to that and then moving on to kind of the next chapter.
For which you know as we've talked about before as other uses of our free cash flow.
Yeah look I think it's important to.
Here with John said, which is we're not seeing any trends in the business that give us any reason to pause or set of a second thought as to where the businesses had at the results. The trends in early October worse, or what we've seen all year long and so we feel very good about the business.
We've talked about having a leverage level in the four to five times range for a while now we just you know.
Our now kind of sub five and so we're in that range. So instead of maybe being mid fours, we feel like will be a little bit below mid fours. It's not a significant change maybe it's a subtle change to say will be below four and a half but as you said you know were late in a very very long economic cycle.
And we just want to make sure we're well positioned to continue to.
You know produced strong results going forward and feel like having a little lower leverage is probably prudent that's all.
Great. Thanks, guys did.
I was going just had one other comment that might help folks understand I think it assuming the environment stays as it is today I think being achieving that level of leverage is a level where comfort comfortable with.
But once we achieve that level I think we will evaluate where the world is obvious in our businesses, but I think all else being equal and reflective of where we are today kind of being below four and a half times is is where the company wants to be and where we want to run our business.
Great and then Josh one thing that they could help to a small degree, but but obviously, it's something you guys would anticipate over time would be some of the funding that you've already provide for we'll know if I'm not mistaken that number.
Similarly by the time things are up and running is kind of in the 80 to 90 million range do you have any sense of when it's reasonable to think you recoup that.
Yeah, I don't I don't think we can provide good color on that yet until we get a little bit further intern terms of understanding the financing in the financing environment that will approach the market wet, but but that is an opportunity for us right.
Okay, Great and then just want to say if I could just some some housekeeping.
The obviously within the guidance I think consensus coming into Tonight with somewhere in the range of 897, obviously you guys guided 885 to 910.
If we think about that 897, and then obviously adjust for the three key result, and the weather impact that is kind of the number that you are saying is is in the ballpark of where people's heads should be correct like I consensus prior to last the hurricane in storm impacts that you guys experienced in the quarter is kind of the ballpark.
That's right I think you're reading, what we're saying correctly adjust for the weather, which is three to 4 million Bucks take into consideration corporate expense and whatever other changes that you have.
You know needed a model land for from Q3, and you should be close to where we view a reasonable number for us for full year.
Alright, Thank you very much guys.
Yes.
The next question will come from Barry Jonas with Suntrust. Please go ahead.
Hey, Thanks, guys and just following up on that point do you know I think previously we were talking incorporate 80 to 90 magazine 85, just just curious if that's timing or the reduction is really more part of your margin enhancement initiatives.
Yeah. So I think the 85 number is really a reflection of trying to manage the expenses down and obviously, we'll continue to do that it's not.
No the 80.
The 85 number we don't view going back up to 89 or 90.
And so we feel like we've got kind of some good controls on corporate expense and we'll continue to look for ways to kind of.
Reduce it further overtime.
Understood then just touching on the locals market.
Very solid flow through solid results. Just curious you know if you have any sense about market share for the quarter I know historically, you sort of set for the time to underperformed the market, but wondering if that's changing any early color, where maybe your market share might have been.
So I think if you look at let's say the last three months you are the numbers for Nevada room, we out through August .
If you look at those numbers on the last three months basis, or let's say on the last 12 months basis, we're generally maintaining markings more market share both on a three month to 12 month basis, maybe growing at a tad but think of it may think of it is maintaining our market share with a growing market. So I think we're pretty pleased with.
You know how we're performing.
Got it and last one for me.
I was boyd going to be impacted by this flutters stars group merger.
So look at the end of the day, it's all I think.
The positive for you know Boyd in terms of.
We always viewed having the fanduel brand owned by Flutters, having a very strong partnership there and having a larger stronger organization I think it's just all upside to boy did it gives us access to just more capabilities and more brands and.
It was more of everything so I think it's not it's a it's a big positive and to congratulate the flutter team on.
Getting that deal done and it's all upside for us.
Great. Thanks, a lot guys.
Our next question will come from Steve why Zinski with Stifel. Please go ahead.
Hey, good afternoon guys.
So Josh Keith I guess, you know as we look into 2020 in no I'm not going to try to sit here and can any guidance I do you guys, but.
You know as you look at your asset portfolio are there any markets that we might need to watch the could be impacted because of whether it's new competition or competitors, you think could potentially ramp up.
Promotional spending because of property improvements or anything like that.
In terms of 2020, not really no not that we can think up.
Okay perfect.
And then and then Keith I know you know in terms of less than a normal weather day, you talked about some of your key gaming metrics are pretty much where you guys would expect them to be.
Whether thats unrated play or visitation or length of stay anything like that but you know have any those metrics.
Actually improved or gotten a little bit stronger from where we were six months ago and then maybe also talking about.
Where be connected at this point in terms of how sign ups.
Kind of ramp over the past couple months as well.
Yes, I don't know the data on B connected sign up so I can't speak to that as I said in my prepared remarks that we now have be connected rolled out and all of our properties with exception of valley Forge and so.
We're pleased with having you know getting to that point kind of within a year. After owning those assets and that just you know allows us to do a better job marketing and cross marketing the entire portfolio.
Yes look in terms of quarterly trends.
I don't know that I have a lot of good data in front of we'd be able to speak to that you know in Las Vegas, you're talking about a summer quarter in so that.
The seasonality the business takes hold and so.
Looking at a really have anything I can.
Speak to regarding that question.
So I'm not sure I can be helpful right now.
Okay Gotcha. Thanks, guys appreciate it.
Sure. Thanks.
The next question will come from Harry Curtis with Instinet. Please go ahead.
Hey, guys.
A quick follow up on a on your comments on leverage.
I guess my question is once you achieve for two or four and a half times.
Is there a reasonable probability that if that happens in the next 12 12 months and were 12 month closer to a recession.
That that you decide to move that a sub four.
Its I guess that it all goes back to my essential question as you know if four to four and a half is okay. Then then why not three particularly given the influence of logarithmic traders on any balance sheet that is still leveraged that even at four times.
Yeah. It's it's a good question Harry I think we struggle with it because ultimately we feel the right level for the company is kind of it between that foreign four and a half level given where the economy is today.
I alluded to that even once we achieve that level, we'll have to evaluate where the world is and you know if it is where it is today then I think we're comfortable being there and continuing to run the business with capital investment potentially and.
Share repurchases and dividends I think to the extent that we're in a place where the world.
Isn't as a as healthy as it is today then we'll have to reevaluate. It by I think we have a real hard time seen a justification for leverage at site, three and a half or three times. It just seems a kind of.
You know I'm generally a conservative person, but I think that that kind of takes it to a little bit of an extreme but you know I think thats. How that's all we can tell you is how we're thinking about it today and hopefully that gives folks some context around it so.
So.
Okay.
That's fair enough and and you do have a.
Pretty says a substantial.
Bond that becomes callable in may.
What do you what do you think is though is the most.
Likely way to deal with that do you think you refinance most of that are you going to are you going to take a some of that down I'm just trying to get a sense of a of of how much youre your interest savings could come down.
Once once that gets refinanced.
Yeah. So look I think a first of all we our nearest maturity is 2021 with our credit facility and we have plenty availability under that credit facility, we have a over $600 million. So we have plenty of capacity access to capital as a company I think in terms of between.
During 2003 maturity in the five it's callable today and it steps down again I think in May two an attractive level. So we will evaluate that you know we evaluated quite honestly everyday and I would expect us to refinance it once we got a received certain regulatory approvals and got other approvals.
In place and assuming the market was kind of continues to be favorable for us.
So I would expect to refinancing anytime from now until that kind of stepped down it okay as long as the markets cooperate.
Last question.
The.
The Capex for 2020.
How much of that as maintenance as opposed to.
Investment and in a project that is actually going to be ARL I see positive.
What I'm trying to get a sense of in 2020 is what are your biggest growth engine EBITDA growth engines.
Yeah, So I think the capital that we kinda kind of a.
Put in the 180 to 200 million dollar numbers, we generally think of it is kind of small growth capital, that's kind of not worth calling out or segregating and then largely maintenance capital to the extent, we got to the point, where as we mentioned before we achieve our leverage targets. Then I think you could potentially again so.
I mean, they can the the project would generate an adequate return you could see us.
Announced modestly larger projects, but yeah, we have to get the level and they have to be able to generate a return this competitive with with the returning capital to shareholders and we would have to go through that process. So the way, we think about growing going forward quite honestly is organic growth operating our business.
More efficiently calls, we still believe we have opportunities to.
To do that as well as continuing to integrate the acquisitions that we made toward the end of 18 that still have opportunities for us going into 2020.
And then of course sports betting and things of that nature, but generally I think it is continuing to operate our existing business more efficiently overtime is really what we're most focused on.
So.
I'm just wondering if your property managers are agitate I mean, they're always agitating for money.
But are their projects that you're you really are close to two I is.
Maybe getting a.
Shovel in the ground that have higher returns that you know like adding hotel rooms.
That could be.
Quite accretive.
Within the next 18 months.
Yeah. This this is Keith look we with the large portfolio were always kind of analyzing where we think you know organic growth could come from and what those type of expansions might look like what those dollars might look like we haven't prioritize them, yet and having it really done a thorough ROI.
Hi analysis to so that we can rank them and make sure. We do the most profitable projects first and so it's just kind of a premature conversation for us.
Okay very good always trying to think ahead, thanks very much guys.
Thanks, Eric.
The next question will come from Thomas Allen with Morgan Stanley . Please go ahead.
Good afternoon. So so two questions for me the first keep in your prepared remarks, you had how the locals.
Market revenue and EBITDAR growth accelerated in the quarter versus your prior quarters, just anything driving that and should we expect a anything are you expecting I continue to accelerate like this level of acceleration and growth and second question and downtown.
The circa disruption worse or better than feared and any thoughts on on the outlook. There. Thank you.
Yeah, the downtown I think the circuit disruption.
It's always tough to.
To know if it's better or worse than your predicts it's certainly not better than we predicted I'm not I'm not sure. It's worse either it is construction disruption I mean, there the roads are very narrow and clogs.
The team did a great job you know as we continue produced record results down there.
Yeah, because we did produce record results, it's hard to say that disruption was.
Terrible, but there are certainly disruption the roadrunner, it's hard to get to the California, It's very hard to get to main Street station.
And so the walk traffic, we used to get is pretty much eliminated.
But the teams did a great job. So I guess the short answer is probably what we expected.
With respect to.
The acceleration in growth in the locals market I think it's you know function of just the management teams a leadership team's doing a better job I think some of the tools we've put in place.
Over the last year beginning to.
Take hold seeing good productivity out of the high end of the database you know we saw good visitation.
And the locals market higher than we've seen in Q1 in Q2, and you know good HD TV.
So yeah I think it just it was just a good performance by the leadership teams. There's nothing in particular that I can call out.
That.
Yeah, that's especial during the quarter.
Thanks, Chris quite what they take.
The only reticle.
Okay. Thank you so I got.
Thanks, Tom.
Our next question will come from Shaun Kelley with Bank of America. Please go ahead.
Hi, good afternoon.
Just most of my question and then asked and answered just too small ones first of all.
Obviously, there are the earlier was all kind of sports betting on out of Pennsylvania were really encouraging for handle in particular.
I think in the past you've talked a lot about.
Sort of the traffic driving element of what sports betting coming two boys properties, but.
Now, we're starting to see some some fairly strong results at least some places that have an internet presence or an online presence can remind us or give us some sense of how the market access agreement works do you guys get some sort of revenue share in.
The overall play a level that occurs you know what kind of across that market or or sort of baseline economics I. Appreciate it probably yeah theres. Some contracts is that if you don't want to get into but just directionally help us understand a little bit better how how blight participate there.
Yes, so from a from an online perspective, and I will say that the deals in the different states or you know can be different for a variety of reasons.
So there's not a standard platform that exist or standard contract that exist.
P.A. in particular, we do share in the top line based on what I'll call a net revenue approach so.
We do get a piece of that.
The from the online business and then.
Once again, we get there are different economics for the land base business in P.A. Those those economics are different in Indiana in Iowa for the land base business and so for a variety of reasons you know the deals are somewhat different but we do share in the revenue stream we share in the sub.
Sets of that business.
Great and to be clear, that's buffer I gaming and for sports betting crack.
I was referring specifically to sports betting in my comments not referring to I.
In online casino product those specific to sports betting.
Because we haven't launched.
In P.A. it online casino product.
Okay got it.
Something you can tell us why they're not as any all thing I mean I would assume so.
I cannot.
The goals, where we are adamant that process [laughter] fair enough on the other question is just the technical and Josh.
And that kind of adjustments the that you have to get kind of your branch back to adjusted earnings or.
Yeah, the EBITDA piece.
Yeah, Yeah, probably $5 million sort of just yeah typical preopening and.
And other related expenses that numbers come down a lot year on year, but just you know is that can you just directionally say that merger related expenses or is that really to well pen or just what kind of what do you have left because they're not too much going on in the development tied right now I think about half of it is wilton related in the past its been larger and out and pass.
I mean over the last year largely due to the acquisitions that we executed around valley forge and the pinnacle assets.
So that's kind of whats running through there.
Got it so maybe a little bit residual of that and then and then Wilton for the rest.
Yeah.
It's interesting you know we've done the acquisitions, but there's purchase price accounting and other transaction related expenses that come in later, you know kind of even within the last year or within the year of the transaction the kind of still hit in that line item kinda clean it up a little bit and then that's done and then essentially all you have in there.
Any kind of typical recurring small write downs out of property or something that are not meaningful but the bigger item will definitely be a the Wilton project.
Okay, Great. That's it for me guys. Thank you very much.
The next question will come from Chad Beynon with Macquarie. Please go ahead.
Hi, good afternoon, and thanks for taking my question.
Number of companies that we Ah we speak to have pointed out the wage inflation growth.
Sounds like it's more more impactful on the coast and we can see this in the BLS data, but wanted to ask this with respect to your mid west and South segment.
Absent floods for the quarter, you said that the business. You know was roughly flat is wage inflation low enough in that market or in those markets.
If you are seeing essentially flat revenue you won't have kind of negative.
Flow through.
In the fourth quarter and in 2020, just trying to get a sense of where expenses are thanks.
Yeah, I think that's probably a fair analysis well you know there's limited pockets of wage inflation. There is nothing that significantly impacting the business frankly, the bigger issue, we have simply finding enough employees to fill all the openings that we have that each and every one of our properties with extremely low.
Meant.
So let's go it's not a wage issue with the body as you're trying to find people to fill those those jobs.
Is the bigger issue for us and so.
Yeah, it's not a concern.
Gotcha, Okay. Thanks.
And then in Vegas everyone's pretty excited about the 2020.
Convention calendar with Con AG. The NFL draft, you, obviously have legionnaire opening up.
Some of the more strip <unk> operators have talked about Revpar predictions with your 2000 rooms that Orleans, and you guys benefiting in a quarter like this could you see a meaningful uptick in 2000 20-F D. Tourism demand is as strong as some projected to be or is it just not that big of a piece that kinda.
To move the needle at that property. Thanks.
Well certainly if the strip fills up it is able to leverage their rates, we will do better at the Orleans and frankly, the gold coast, which is probably the same distance off of the strip, maybe actually a little closer to the strip the New Orleans, and so you got 700 rooms at the Gulf Coast, you with 1900 hotel rooms at the early.
Genes with some great convention space, we actually just expanded the convention space there little bit. So yeah. If if there's a robust convention calendar and stripped goes up we will we will see the benefit of that at the Orleans and to a lesser extent the Gulf coast.
Thank you very much.
Thank you.
The next question will come from Joe Stauffer with Susquehanna. Please go ahead.
Thank you.
Most of my questions have been answered it obviously, but I.
I just you had mentioned in your comments basically that some of the floods in particular were.
Preventing some of the.
Texas traffic from going to your casino is it do you have a line of sight on maybe when that clear up is that a function of nature or is that.
And like a army Corps of engineers, who what's right way to think about that.
So specifically the issue is outside of Houston, which is all night time is it feeds into Louisiana feeds in Lake Charles markets, what impacts specifically Delta Downs. There is a there's a bridge there four lanes each way so total of eight lanes.
In two separate bridge is one of those bridges was hit by a barge that got broke that broke loose.
They have close that one britt and so not lately into traffic or reduced four lanes of traffic across one bridge you can.
So for yourself kind of the.
The impact of reducing eight lanes of a very busy highway to four lanes. The best public information that exists is that that will be a those appears to be completed the end of Q1.
And if you wanted to look at sub look it up it's the sand has seen till bridge outside of Houston.
Okay. Thanks very much.
Okay.
Our next question will come from John Decree with Union Gaming. Please go ahead.
<unk>.
Hi, guys. Thanks for all the color. So far just one for me I wanted to talk about the revenue picture in the locals and downtown segments again.
Wondering if you could give us a little bit more color about the composition of that growth.
Thank you you mentioned it was broad based in the press release, but if there's any highlights in non gaming slots are tables, where you're.
Maybe seen a pickup in some of that revenue anything of notable strength there.
Outperformance across those segments.
Yes, so John Thanks for the question. He may have some a little bit better information that I on this but.
Generally what we've been able to see as a couple of influence of a couple of different factors number. One is a strong just a stronger kind of non game not ucaas consumer willing to spend more non gaming both in terms of FNB as well as hotel. So we've got a consumer this naturally providing some demand in that regard that is helping.
In us drive that aspect of business Secondly, I think we've gotten better and better at how we execute on yielding our hotel rooms, who were putting in those rooms, whether they'd be a gaming customer our cash paying customer and so our yield management tools on our analytics around that have improved have improved over time and now we've seen so pretty.
Pretty good performance in terms of drivers of revenue and EBITDA from in particular, the hotel business and and also kind of as we execute better and better on the non gaming side a away from hotels like in the FNB part of our business. So I think it's on the one hand, it's driven by the demand of the consumer.
And how they're willing to spend money and this is a and then on the other by the capabilities that we are building in enhancing and I think really you know we're seeing it.
In different.
Really across our portfolio, it's not one pocket of kind of demand.
Yeah look I think as you look at a split between let's say gaming and non gaming.
On the gaming side.
Remember that our business is mostly driven by slots that as the.
Lions share of our gaming revenue so.
Most of the growth is coming from slots, although if you look at percentages year over year the growth in table games in the growth in slots are not that far apart. So you're seeing good growth in both elements of the business, but from a pure dollar standpoint, it's mostly coming out of slots.
Oh I'm talking specifically know about locals you look on the non gaming side as I said big big increases in rooms occupancy and rate.
And we also saw a good pick up in food and beverage, which is driven by more people in the building that obviously more people in the hotel as you look downtown.
Similar comments were mostly a slot oriented business and so that's where the lions share of the growth in gaming revenue came from but we also saw good growth out of the rooms in the food side of that business also so.
It's about as well as much conference I have.
That's helpful. I appreciate it that's all for me. Thank you.
We have time for one more question and that question will come from Ricardo Chinchilla with Deutsche Bank. Please go ahead.
Hey, guys. Thanks for taking my question.
So with regards to the proceeds from the Wilton Rancheria, They 5 million how much you guys anticipate to get after to refinance a gets done and you know how much afterwards, you could give as like a cadence of the proceeds.
Yeah I appreciate the question.
We just really don't know at this point it will be dependent on we're just not far enough into the financing to be able to.
Provide color on that.
And so you know as we kind of make progress maybe get a little bit further along we can't provide some color on that as to maybe the cadence. It when we would expect to get those funds back but right. Now we just really don't have any kind of ER indication of that until we get closer to actually pulling the trigger on the finance.
Same which will probably be sometime either later this year for first quarter next year.
Perfect, but the proceeds from the from the line that you do probably will get a after that finance and the out area. The one that needs to be fine.
I just don't <unk> I don't think we really know I mean, we spent about $35 million on the land I think it was the rest had been advances to get it to the point of being ready for financing in construction activity and so you know once we get the financing in place I assume there's.
A possibility we could get some of the proceeds out on you know when we when we closed on that financing in the rest through.
Through you know the operations of the facility, but I just don't know the breakdown of that makes yet.
Perfect. Thank you so much.
Yeah. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Josh Hirsberg for any closing remarks. Please go ahead Sir.
Thank you Chuck and we appreciate everyone dialing in today in asking some really good questions. If there's any follow up off were available to a try to help you a answer those questions and give you our perspective, thanks and have a good day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.