Q4 2019 Earnings Call

I'm good day and welcome to the Boyd Gaming fourth quarter 2019 conference call off. Our participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Josh Herzberg Executive Vice President and Chief Financial Officer, please go ahead.

Thank you, Sarah. Good afternoon, everyone and Welcome to our fourth quarter earnings conference call joining me on the call. This afternoon is Keith Smith our president and chief executive officer 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 wage obligation to update or revise 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 facts on gap-to-gap financial measures. Please refer to our earnings, press release and our form 8-k furnished to the SEC today and both of which are available in the investor section of our website.

avoid gaming.

Reconciliation of forward-looking non-gaap financial measures due to our inability to project special charges and certain expenses. Finally today's call is also being webcast live at void game and will be available for replay and investor relations section of our website shortly after the completion of this call and now like to turn the call over to Keith Smith Keith. Thanks Josh. Good afternoon. Everyone overall 2019 was a very successful year for our company or Diversified Nationwide portfolio delivered sustained growth in revenues and Thursdays are across the country and we identify new ways to operate smarter and more efficiently improving our company-wide operating margins by more than one hundred basis points in two thousand and nineteen months.

Or Ameristar valterra and Valley Forge properties performed extremely well during our first full year of ownership achieving double digit ebitda growth and margin Improvement of nearly two hundred fifty basis points from their previous Standalone results. These properties have exceeded our first year expectations and we expect their strong level of performance to continue.

We do not provide a

2019 we also expanded our partnership with FanDuel the nation's most powerful sports betting brand FanDuel Sports books are drawing new customers to our properties across the Midwest and Northeast Georgia, and we are well-positioned for for further growth as new stage prepare to legalize sports betting

And our strong operating performance is enhancing our free cash flow allowing us to further strengthen our balance sheet. We finish the year with leverage at four point seven times ebitda approaching our target range for the 4 and 1/2 x

You know 2019 was the year of significant achievement for a company in the fourth quarter provided a strong conclusion to a great year during the fourth quarter. We grew revenues by over 5% on a company-wide basis increasing e bthar by more than 9% while enhancing our company wide margin by almost 100 basis points looking at segment results off. The quarter was highlighted by our Midwest and South Region, which delivered strong same store growth in revenues ebitda and operating margin in addition to strong same-store performance in our Midwest. And that's the reason we continue generating exceptional results from the newly-acquired Ameristar in Belterra properties.

a walk through a regional

Apartments in more detail in a few minutes, but first let's review our Nevada operations.

Las Vegas our local segment continues to perform at near-record levels Revenue growth in the quarter remain consistent with friends. We saw throughout 2019 with our operating margin exceeding Thursday 2% for the quarter and the full year and while ebitda growth did slow during the quarter we were able to maintain the strong gains. We achieved in the fourth quarter of last year. When he Batar grew 13% in margins improved more than 350 basis points as we begin 2020. We are encouraged by the trends. We have seen at our properties in January and remain optimistic for the full year the fundamentals of our locals business have not changed and we expect ebitda growth from our local segments in 2020 will be slightly ahead of the rate. We saw in 2019 as we look ahead strong Southern Nevada economy gives us great confidence in our ability to maintain long-term growth in our local segment.

Las Vegas Metropolitan

Recorded it two and half percent job growth rate in 2019. One of the ten best performances in the country and well ahead of the national average unemployment is down to three and a half percent, but lowest level in twenty years personal income and weekly wages continue to rise in this income growth is driving long term gains and consumer spending with taxable sales Rising 7% over a year.

Visitation and tourism perspective. The upcoming event calendar is quite encouraging in March. The con Bowl will return to Las Vegas for the first time since 2017. Bring a l over 100,000 conventioneers to our city one month later in April Las Vegas will host the NFL draft for the first time and starting in August Las Vegas Raiders will host the first of ten home games at Olympic Stadium bringing a new Boost to visitation to Southern Nevada throughout the third and fourth quarter.

With the favorable event calendar Las Vegas is set to keep building upon 2019s record convention attendance. Our company is well-positioned to benefit from this continued growth and tourism and Convention business with more than 6,000 hotel rooms in the southern Nevada Market including more than 2,500 rooms near the strip.

in addition

Projects like Legion Stadium the expanse of the Las Vegas Convention Center and the addition of more than five thousand hotel rooms are all part of a local development pipeline that now exceeds twenty billion dollars off these projects come online. They will significantly expand and enhance Las Vegas as event and Convention capabilities over the next two years.

This ongoing expansion of our tourism infrastructure will lay the groundwork for continued visitation growth and economic growth across Southern Nevada for years to come.

Given the ongoing strength of the Southern Nevada economy. We remain confident in a long-term direction of our local segment and in our ability to deliver continued growth in this business.

Next Downtown Los Vegas closest Fifth straight quarter of record performance with strong growth in revenues and margins across the segment our core Hawaiian business remains solid growth in business volumes. We also continue to see strong increases in unrated play a clear indication that we are getting our fair share of the growing visitation throughout the downtown Market down an operating teams are not only doing a great job of growing profitable Revenue, but also in mitigating the impact of disruption from construction projects throughout the area as these projects are completed the outfit will be set for further growth throughout. The market is Downtown Las Vegas continues to evolve and improve one of these projects was a sweeping modernization an upgrade of the Fremont Street Experience video cameras, which was completed late last year taking this popular Las Vegas attraction to an entirely new level and just as importantly more than 1,000 new hotel rooms are scheduled to open in downtown Los.

over the next year nearly 500 rooms will be added it downtown Grand the summer followed by the

debut of Circa later this year

is one of downtown's largest and most established operators. We have confidence in our ability to continue attracting new visitors to our three downtown properties driving long-term growth throughout the segment.

Moving outside in Nevada Regional properties delivered a great performance first, we continue to produce outstanding results at the Ameristar in Belterra properties. We acquired in October 2018 on a combined basis these properties achieved properties achieved ebitda growth of 14% during the fourth quarter in margin Improvement of more than three hundred fifty basis points in the fourth quarter Belterra Park set an all-time record for quarterly Batar Ameristar Kansas City posted its strongest fourth-quarter performance since 2011 star Saint Charles achieved its highest fourth quarter. Ebitda are in a decade with an all-time record margin of 36%

As we passed the one-year anniversary of the Ameristar and belt are Acquisitions. We have exceeded our initial expectations for our first year of ownership. And as we continue to identify best practices and opportunities for additional synergies, we expect to realize further value from these Acquisitions in the year ahead while a new properties continue to perform. Well our existing Regional portfolio has also produced strong results are Midwest and South segments grew same story vitar by nearly 6% during the quarter and improve margins by approximately 80 basis points after factoring out last year's favorable tax adjustment at Kansas Star throughout this region. We saw excellent results, Kansas Star grew even more than 8% on solid Revenue gains at our to Iowa properties. We produce strong Revenue Andy Bedard grow in Indiana Blue Chip delivered continued gains in Revenue ebitda margin and market. Share is the proper Pig.

leadership team successfully leveraged

This market-leading amenities in Pennsylvania Valley Forge posted yet another record performance driven by investments in an expanded slot for in synergies from the acquisition process easy Anna the strong leadership team at Delta Downs was able to grow even darker and outperform the Lake Charles market and with the recent completion of disruptive roadwork on I-10 in Lake Charles month as well as the full reopening of the bridge east of Houston that was damaged in last Fall's tropical storm. We expect business volumes to begin to recover in the Lake Charles Market.

The strong underlying Trends we're seeing in our Midwest and South segments have been further strengthened by this year's introduction of sports betting at 5 of our regional properties at Blue Chip built a long time ago with the Buick Diamond Jo Worth and Valley Forge FanDuel. Sportsbook Sports books are attracting new faces and expanding our customer base.

Once they are owned property these new customers are doing more than placing a wager on the game. They are visiting our restaurants and our bars and playing in our casinos nearly two years after the Supreme Court open the door to the expansion of summer. We are extremely pleased with our progress as we saw during the fourth quarter. We are successful using sports betting to drive incremental growth through our regional business expanding and diversifying our Nationwide customer as we begin 2020. We're evaluating opportunities to expand our sports betting footprint in our Paradise property in Illinois and with Market access and fifteen States across the country. I'm representing more than 36% of the US population Boyd Gaming is well-positioned as additional States consider legalizing the sports wager.

another long-term out

Opportunities our partnership with the Wilton Rancheria tribe in Northern California located just south of Sacramento. The tribal site is one of the most favorable gaming locations in Northern, California.

Once developed it will be the closest gaming Resort not only to Sacramento but the entire South Bay Area we plan to develop a first-class Resort that takes full advantage of this attractive location. It allows the Wilton page to realize significant potential of this opportunity in the coming years. As our operations continue to expand across the country. We are making great progress strengthen their balance sheet throughout the wage 2019. We continue to deliver reducing our leverage ratio to 4.7 times ebitda your end by mid-year. We anticipate we will be within our Target leverage range for 2 4 and 1/2 x upon achieving our leverage Target. We will continue to pursue a balanced Capital allocation strategy including additional deleveraging returning Capital shareholders wage in strategically reinvesting in our portfolio where we see opportunities to create value for our shareholders.

We are currently evaluate.

A modest expansion the Fremont which has been currently operating at maximum capacity several nights a week throughout the last year spanning. This property will allow us to generate incremental growth for a business that has been former record levels for several years now and in Louisiana, we are evaluating an opportunity to take advantage of recent changes to state law by moving Treasure Chest tool and creating a more compelling and often operation is one of our strongest performing Regional properties such Investments would not require significant commitments of capital allowing us to maintain our flexibility with respect to Future Capital allocation decisions. If we do pursue these types of projects, we will be prudent in doing so pursuing only those that offer compelling return-on-investment.

As we look to the future we remain confident in the long-term strength of our business or Diversified Nationwide portfolio is generating generating continued same store growth. We're delivering. I'm delivering exceptional results from our recent acquisitions our expanding partnership with the nation's leading sports. Betting brand is driving new visitation and introducing new customers to our company and thanks to our robust cash flow. We continue to strengthen our balance sheet. It's 2020 begins. Our company is in an excellent position for the future and I remain confident in our continued ability to create long-term value for shareholders. Thank you for your time on I'll turn the call over to Josh Josh. Thanks Keith from 2019 Tartine made great progress executing on several strategic initiatives Thursday. We successfully integrated the Ameristar Belterra and Valley Forge properties into our portfolio.

During the year we achieved.

Stated goals for synergies from these transactions while at the same time creating incremental value by leveraging Best Practices across our entire portfolio as a result of the hard work and dedication of our operating teams. If a dog from these assets has exceeded our expectations growing more than 10% or margins improved nearly 240 basis points from their Standalone know from 2018. We also continue to build upon our relationship with FanDuel positioning our company to be a significant participant in sports betting and mobile gaming.

Operationally we continue to be focused on improving efficiencies throughout our business with the integration of the Acquisitions now behind us. We will reassert our focus on driving further efficiencies throughout our operation. And finally we made great progress strengthening our balance sheet. We ended 2019 and 4.7 * traditional leverage a half turned lower than at the beginning of 2019. Our Target is to achieve leverage below four and a half times and we expect we will achieve this leverage around mid-year least adjusted Leverage is approximately half a turn higher than these levels as we approach our leverage Target. We will evaluate the operating and economic environment of that time to determine the appropriate balance between deleveraging reinvesting our business and returning Capital to shareholders.

assume

We are an environment similar to that of today. Just keep noted. We are evaluating opportunities to Street in strategically reinvest in projects that offer a compelling return-on-investment. These projects would not be significant and would be spaced over time allowing us to maintain our flexibility with respect to how we deploy our free cash flow.

Transitioning to a few specifics on the quarter and and then guidance for the full year. We repurchased approximately 1.1 million shares at an average price of $25.81 finishing the year with a hundred eleven point five million shares outstanding. There were no shares repurchased during the fourth quarter. We have approximately 72 and 1/2 million dollars remaining under our current share repurchase authorization.

We paid nearly Thirty million dollars in dividends during the year.

During the fourth quarter. We invested forty 1 million dollars in capital expenditures resulting in four-year Capital Investments of approximately 207 million dollars.

In terms of guidance Capital expenditures for 2020 are expected to be about $200. This figure includes several room remodels of properties like Ameristar, Kansas City Belterra Resort and Paradise as well as continued investments in our slot floors and Technology capabilities.

We expect corporate expense to be about $86 million dollars, which is included in our full-year if it's our guidance for 2020 depreciation expenses expected to be approximately $290 million dollars.

As a result of our deleveraging efforts and our recent refinancing. Our interest expense will be about $35 million dollars lower than last year. We expect interest expense Thursday approximately $200 this year in cash interest expense will be about ten million dollars less than this amount.

Rent coverage for the assets governed by our Master Lease for the year ended 2019 was 1.94 times. We expect rent under our Master Lease to be approximately $104,000 assuming escalation for both bass and percentage rent.

beginning and

May Tera Park will be incorporated into the Master Lease currently governing the to Ameristar assets and both Belterra Resort this change accounts for 4 and 1/2 million dollars of the wage increase in rent for 2020.

We expect an effective tax rate for this year of approximately 26%

Remember, however that we are not currently a cash taxpayer for federal income tax purposes. The cost of our sales are in balance at year-end was approximately $450,000.

Finally is noted in our release. We expect full-year 2020 adjusted ebitdar to be in the range of 915 million to $935 million dollars. We remain confident of the long-term direction of our company and the underlying Trends. We see throughout our business as we look to 2020. We believe we are well-positioned to continue creating long-term value for our shareholders off with that Cerro that concludes our remarks and we are now ready to take any questions from the participants. We will now begin the question-and-answer session to ask a question. You may press star one on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.

Our first question comes from Joe craft with JPMorgan, please go ahead.

Good afternoon, everybody my question pertains to your 2020 guidance, which at the midpoint is nicely ahead of where consensus is. So if we want to make note of that. I take about the high end and the low end what are the scenarios driving that it's just that just the degree of same-store growth or there's a high-end include some incremental benefits in sports betting if you could help explain that off and then when you think about sort of the geographic mix of that, can you talk about how you see the Midwest and South growth relatives the overall portfolio?

Oh, those are really good questions. I think in order to meet a range really reflects kind of what we would expect to occur. If on the one extreme, if everything everything went well and everything fell into place where as the low-end reflects. If none of that really occurred, so the the high end of the range really reflects kind of an opportunity for growth to be a what we would expect and this is fairly obvious at the high end of the range of what we expect for each of the segments. So, you know, for instance the Las Vegas locals off our business at least grew just over 3% in 2019, and we would expect to kind of see that level or a little bit better growth in 2020. I think our west and south segments while traditionally would have thought was going kind of two to 3% range. I think we would think in our guidance would be more like 2 and 1/2 to 3% largely dead.

We don't expect to see.

Some of the significant weather that we saw in 2019. We do have some other potential headwinds in terms of construction here or there around roads or Bridges or things like that may affect our business but I think the range kind of tries to incorporate all those potential factors so that we will theoretically end in that range. I think if the sports betting, you know, those the kind of the levels of growth that I've laid out for you for certainly the bigger segments of our business already kind of contemplate their contributions.

Great, thank you. And then you mentioned you know the cap that's this year will be you know, when that that $200 million dollar range how much of that concentrate things that that might not be. So firm like a 3-month the expansion treasure chest in in Louisiana. It's sort of everything identified and spoken for or is this sort of this General swag within that related to some of the things under consideration? And that's all for this way. I would think about the 200 is kind of just recurring level of capital that you would expect us to spend year-in and year-out absent any kind of changing economy. I think to the extent that we ultimately complete our evaluation of those projects decide that they based on that analysis generate the returns that we need to change that would be incremental and that would be a use of our free cash flow over and above kind of just spending all maintenance costs.

Excellent. Thank you.

Thanks, Joe. Our next question comes from Carlo santarelli with Deutsche Bank, please go ahead. Hey guys, good afternoon in your prepared remarks you mention a confidence in in the Las Vegas locals market rate of growth accelerating and Josh you just touched on it again referring to the 3% last year and something a little bit better this year. When you think about kind of the dynamic of of 2019 and how kind of the market played out your net revenue, which I believe purposely kind of lagged that throughout the year. The the rate of market growth is you kind of refine marketing and and dead healthier ebitda because of it as you think ahead to 2020. Do you think kind of Top Line is maybe more in line with the market with continued kind of refinements and cost saves driving the accelerating Eva Target.

Yeah, good. Good question is we look at nineteen? It was about continued focus on profitable Revenue growth and rolling out tools and and other technology to help us as we think about 20-25 way. We would expect to see stronger Revenue growth, you know, we've grown margins to 32% of the locals Market over the last five quarters, you know margins in the locals Market or up over five hundred basis points in the last three years. And so we're pretty proud of that. They will continue to go up although not at that same pace and and we would expect once again to drive stronger revenue and 20/20 than we saw in 2019.

Great day.

Thank you. And then if just kind of using the midpoint of your guidance and then obviously adjusting for some of the things you mentioned Josh the rent expense that the maintenance capex and kind of the cash interest you're looking at about $430 of discretionary free cash flow before dividends. When you think about kind of the the strategy the date with sports betting in with FanDuel. Is there any sense that that maybe there is something more you guys could do there? Obviously, you talked a lot on the call about the impact. It's had on your retail business. Maybe not so much kind of the Partnerships from an online perspective etcetera. Is there anything kind of in the in the mindset there that that maybe there's incremental to do?

So Carlo just to clarify are you asking if we would make incremental investments in sports betting is that basically your question whether it would be increment in incremental expenditures in the business from an extreme standpoint or from an acquisition standpoint?

I think when you think about sports betting once again week, we like the position we've carved out and in terms of our partnership with FanDuel, you know, they are leading Branch you look at their you know, business volumes, whether it's in New Jersey or Pennsylvania or in other states and you know, we actually are profitable when it comes to sports wagering where you know, a number of our peers are not so we kind of like our position. I think the only real investment we see in sports betting going forward is continuing to build out new states or new sites like in Illinois if we launched it. Ice but those are very very modest Investments to you know, at a sports book to a proper like paradise or some other properties that are not large numbers. I don't see us making any significant investment, you know to purchase anything or do anything different. It's going to pretty happy with the way it's played out with FanDuel there, you know, there are strong operator and the strong partner and dead.

they vary

On brand grade and then just one last Quick follow-up as it pertains to the relationship with fans. I believe the the economics from the igaming perspective are a lot different in terms of of we're kind of the profit shares go. Can you talk a little bit about the the situation in Pennsylvania on the igaming side? And and where you see potential opportunities for that from a legislative perspective down the road, you know specifically just say we have different economics when it comes to online sports betting versus the end of the retail Sportz aside just going to give him the volumes and the Dynamics of those those two different businesses. When you think about online, you know, Casino real money gaming would anticipate, you know, launching a product FanDuel recently launched a product there. We we look to launch a product that's branded differently in the near future. And you know, there is their own name.

economics that come our way as a result of that so, you know, we're not

Driving kind of what those are we haven't gone into detail, but there is incremental profit related to that. Great. Thank you Keith.

Our next question comes from Steve was in ski with Steve, please. Go ahead.

Yeah, good afternoon guys. Keep going to stay on the sports betting topic here real quick. And you know, you know you talked about you know, how you're seeing folks coming to your your assets place, you know places Sports bets and they're doing other things like eating and playing slots or whatever know I know it's early but is there any data you have that they might show what those folks are spending across your property on average or you know, maybe what's the attachment rate meaning how many sports Bettors how many sports Bettors are doing other things? I mean not sure if that makes sense or not. But do you have any you have any data? That would be helpful?

Yeah, no, I appreciate the question. We don't have any, you know direct out of these. Unfortunately, you know, these people don't necessarily walk around with the button on that says, you know, I came into bed Sports. So it's hard to track some of them get cars and we can track him through that but largely it's just, you know, the antidotal information and talking to our operating teams in terms of looking at volumes that were pre and post office observing new faces in the building observing the completely kind of different customer set in the building whether it's volumes and restaurants or volumes and Slots are volumes and tables, you know, in in every case and every operation we've seen an uplift kind of an all those metrics food and beverage table games slots little different in each store in in each property, but definitely an uplifting it's hard to quantify once again because we don't know they're you know, they're not always getting cards. We don't know their exact Behavior, but it is it is very much a positive additional amenity for us dead.

Okay, gotcha. Then I think at the end of your prepared remarks you talked about. Once you get down to your leverage Target There's an opportunity to to I think you said reinvest back into the the business. I don't I think I'm right there. Is there any way you can elaborate a little bit more on what some of those options might be?

You're Steve. I think you know Keith mentioned two projects that were somewhat in the evaluation stage of one being treasure chest with the change in the law the ability to bring that on land and then the other one that we're kind of evaluating and trying to decide upon is is potentially expanding Freemont downtown just given the Dynamics of the downtown Market generally and then a specifically, you know, the record performing performances that are assets of executed on downtown. Those are examples of of types of things. We would consider I think that's obviously once we hit our leverage levels. It really becomes you know, what's the what's the highest returning use of that free cash flow? And so is it to reinvest in those assets home or those potential projects? It will depend on kind of once we complete our evaluation the returns that we can expect versus, you know, paying a dividend or buying back shares. And so, you know, we want to be disciplined.

in that regard and I think we also do not plan to use all of our free cash flow for

fasting in her assets, we plan to, you know have a portion kind of leftover just given the size of these Investments and when we would expect them to potentially roll out to be used for Capital returns to shareholders or our continued deleveraging if if we feel like the operating or economic environment warrants that

okay. Got you real quick charge for anything anything when you look at the local market right now in Vegas, they would from a promotional standpoint that is concerning or not concerning.

No, we would say the promotional environment in Las Vegas is is normal or you know relative to historical levels pretty rational.

Okay, gotcha. Thanks guys. Appreciate it.

Our next question comes from Felicia Hendrix with Barclays, please go ahead. Hi. Thank you. Can you just wanted to go back to your comments on the Las Vegas locals market and your expectation for growth their home in your prepared remarks, you mentioned a lot of positive drivers for the market next year one of which is kind of so just wondering is we think about the growth rate that you laid out for Las Vegas locals how much of that issue being bolstered by the rotation of conned into into next year versus all the other stuff. I don't think we have applied a specific factor to that one convention. I think when we look at the you know calendar generally and you think about a convention like that coming in town that has been in town for a while you think about what's going to Raiders and just more activity in town overall, you know, it it complements, you know kind of an already strong locals environment. I mean, we run pretty high occupancies and pretty good room rates as it is, but yep.

The town's full we're able to leverage that out even further, but it isn't just about that one event that certainly is helpful, but it isn't it isn't driven just by that.

Okay, that's clear. Thanks. And can we just I know it's it's one property of your many but it just Belterra Resort has kind of stood out all year and I'm just wondering if you could talk about what's happening there and if there any opportunities for improvement, you know, it's it's it's underperformed all your even with the rest of the Southern Indiana Market being weak. And I'm wondering it's it's just mostly the competition from the historical racing machines in Louisville, or is there something else going on you you qualify to just write or quantify just write it is historical racing machine Louisville. I mean, they've been under pressure all year long it would get a big chunk of business out of that market. We have, you know, a very full Resort there with great amenities, you know golf course and wonderful hotel rooms to spot a wonderful casino and you know recently added sports book, but you know, it's the convenience factor of that product in Louisville, and you've seen those numbers. Yep.

Fairly dramatically over the last year and that's been the biggest impact we've seen their we've seen a little bit of an impact for the new land-based property. See there's Southern Indiana not a big one a bit and it's really been about cost savings at Belterra Resort ensuring that we you know are managing our bottom-line properly the team there's been a great job managing through that but clearly revenues are down quite a bit at that property. Yeah, just to add a perspective from the you know, from what really matters is the add-on Keith alluded to it. The guy bought the property of doing a really good job of managing expenses if you look at it, but if it does down less than 1% 19/18 stand-alone results, so they've done a good job of managing to the wage, you know, the level of the new competition. Oh, that's helpful. Thank you and Josh just while I have you in my final one is just regarding your leverage Target the 4 4 and 1/2 and then Thursday.

applying that half a turn that you said so

Suggested four-and-a-half to five I just wanted to make sure nothing's changed cuz used to say 4 to 5. So just making sure you're being more granular now with the traditional leverage versus the lease adjusted leverage ratios. Nothing has really changed. I think a quarter or two ago. We wanted to move lower in the range of the four to five that we had given before so it's a consistent, you know, kind of metric that we're speaking of we're just saying we want to be lower in the range before we start really considering, you know, either reinvesting in our assets or more significant returns of capital to shareholders money and it's more it's less. It's not really a commentary on anything today in terms of the business or the economy. It's really where we think the business should be leveraged in terms of running at long-term and at some point if there is some sort of pull back and the economy or whatever. We're in a position to whether that and continue to do what we want to do every day and not have to adjust to a change in the economy.

It's really where we think.

The business should be long-term. And you know, I don't think that and I alluded this earlier to I think Steve question which was you know will always continue to have a little bit of cash left over to just continue to leverage will just be at a slower Pace even once we achieve those levels.

So we got to give ya helpful. Thank you for next question comes from David Katz with Jeffries, please go ahead.

Hi evening, everyone nice quarter. I wanted to go back to the earlier questions. And and you know, we we've all obviously tried very hard to put some math around sports betting of opportunity for you and the structure of your partnership is very clear. What I wanted to ask about is, you know, is there any you know detail you can share with us and whether that's off or traffic or you know, any sort of specific GTR impact or even f&b left, you know, maybe a bit more specific, you know in even in Saddam. Thank you.

David I think the the reason we're a little bit hasn't it to give information like that right now is cuz I think people will take that information and extrapolate it over the next four quarters. And in reality, you know, we're coming off of what is a really robust period of time in terms of the football season. We'll have a great no doubt season with the final four and basking in basketball which are kind of typically the peak periods and we have to see how the business performs and maybe the slower periods of time around baseball or or some of those other sports ultimately wage. You know, we know from the European model that the the better will mature over time and be willing to do more in-game betting with respect to those sports like tennis and golf a things like that. We just don't know to what extent that is going to play out in our business model just yet. And so I think it's a we're a little hesitant to kind of get ahead of that until we have a good handoff.

on really what the business is going to be on a

I'm only adjusted basis.

Our next question comes from Harry Curtis with instant, please. Go ahead.

Hey Josh, I appreciate that that answer maybe I can squeeze something a little bit more out of you. What is the the room? So when you think of the incremental Revenue that you're getting at these five casinos that are that are now have found some sports betting facilities. What what kind of flow-through are you are you seeing because you know, it is having an impact on your on your revenues.

So I think what you think about sports betting and what do we actually have seven books outside of Nevada the five we talked about and then two in Mississippi and I thought you know, there's two pieces of it. There's the profit that we get out of running the book itself. And then there is you know, the incremental business we get weather through food and beverage or slots or tables. So there's you know, kind of two different revenue and profit streams that we look at because FanDuel is running the books and just given the variety of deals we have with them, you know, it's our cut is profit. So we're making money out of that and then we get the profit out of you know, the additional activities one of their own property. So, you know, we have faith that it certainly is a growing number. It's probably highest at this time of year during football season is Josh said running through the NCAA tournament and then it will probably shrink pretty dramatically as we've seen wage.

Las Vegas over the years

It's pretty quiet in the sports betting world after you know after basketball and threw the baseball season.

I'd like to give Josh another opportunity to duck a question. If if I could so Josh you you see over the course of the Year many many pitch books on deals and just a question related to acquisition environment. You said you didn't mention it and what are the what are the valuation parameters? What are the asking that valuations kind of circling around and have they gone up to a point where it just doesn't make sense for you to really get too excited about it.

Yeah, I think you know the pretty consistent theme of our conversations on these calls and and and in an investor meetings, you know away from these calls over June 2019. And I think it'll continue into 2020 is that we we really feel like we're not

Our predisposition is not to leverage up to do an acquisition at this point the the valuations relative to the Strategic value to avoid that kind of trade-off doesn't seem to work in today's environment and it's further Complicated by you know, the risk that we believe you take by having to potentially do transactions in the optical Optical model that you know overall increase real operating and financial leverage associated with those assets.

I say all those things only to basically say I think the thresh it makes it harder the threshold is higher to do an acquisition. And for that reason I don't I don't think it's life. However, you know, you never say never but I think it would have to be something very compelling strategically evaluation would have to be compelling and walk away from that. I think we feel like we have a lot of opportunities in terms of running our business more effectively. We're moving in a direction of investing in our business more proactive and improving our own portfolio. And we see higher returns from doing that than quite honestly the potential of making Acquisitions. And so I think the reason you didn't hear it in a bag wrapped and you don't hear us really talking about it is is we just don't feel like it's very likely given the opportunities that we have internally both as I mentioned improve our existing business dead.

and invest in our existing

Business it's less risky for us and and more value creation enhancing if you will.

So sticking to the knitting, I appreciate it. Thank you.

I'm Terry.

Our next question comes from Sean Kelly with Bank of America, please. Go ahead.

Hi, thanks. Good afternoon. Everyone Josh maybe to just to build on the couple of questions here around the capital allocation piece. Could you just sort of remind us of the approach life? You've talked about m&a you talk about growth capex a little bit. But can you remind us of the approach of the approach on sort of pure Capital return how you're thinking about, you know BuyBacks and and or dividends and and possibly just a little color and opportunistic and cycle timing versus something a little bit more programmatic as you move into a probably a pretty stable State on the free cash flow site. So I said look, I think to the extent that we I think it's important to understand that that from our perspective. The first priority is achieving our leverage Target getting within our range. Once we achieve that leverage Target. It's important to understand that, you know, we have to evaluate what's going on in the world in the business. And so it's not purely a dead.

Instead be the Tipsy. It's it's you know, it's it's being prudent and pragmatic at each step of the way. I think.

Once we get to that level we will evaluate kind of the opportunities to invest in our business if if they generate the kinds of returns that we need that are more than competitive and more than favorable than buying back their own stock or paying a dividend then I think that's that's the route we will go to the extent that projects don't generate those kinds of returns. Then we won't persuade those projects. I think in terms of you know, how we execute return of capital. I think I would rather not commit to that at this point until I am kind of see where we're at. And I think the company wants to see maintain that flexibility quite honestly, but I think you know a pretty good example of what we would likely it's just historically how we repurchased Shares are you can go back and look over the last year or two and see what we've done and use that as a as one potential approach, but you know, I think before birth

We get to that we have to get to our leverage level that's really important to us. And I think secondly we then have to evaluate buying back shares and returning Capital relative to Thursday. We have good projects that warned investment as well. So I think that answers all your questions, but if not, let me know. No, that's it. Thank you and then going all the way back to the the guidance just kind of was curious if we walked through put some takes on, you know, both segments and and I think customer performance but can you talk a little bit about just how you under Road or how you're writing any kind of competitive Supply impacts that are out there across the portfolio. I think the main things are probably you know in you know kind of probably for blue-chip and then how you're thinking about Circa as we move towards the latter stages of this year and probably much more of a 28-21 impact.

As we think about 20 20 there really is very little competitive.

Impact across the portfolio you call that blue chip, you know that project really becomes something into into twenty Twenty-One. And so we have, you know, plenty of time to prepare for that. So what's going as we look across the court folio not really a lot of impact as you think about downtown where you know, some additional rooms will be added it down town as I mentioned in my prepared remarks and Derek Stevens project is you know likely to open around the end of the year those while they're at capacity. We see that actually as as incrementally positive and all about bringing more people downtown in with three properties downtown and forty-five years of History operating downtown. We're very confident.

And our ability to bring those bring those people in our door or get those people in our door and compete for those customers that actually we see as a net-positive, you know, 500 hotel rooms downtown Grand kitty corner of the Fremont is you know is very very positive for us. So, you know, we're very it's going to we're actually looking forward to those things coming down town and helping to build that business.

Thank you very much.

Our next question comes from Barry Jonas with SunTrust, please. Go ahead. Hey guys, this is Jeff on for Barry. Thanks for taking our questions here first off just to stick with with down down the market numbers and results specifically continue appeared pretty healthy here. Just wondering if there's anything changing in the construction progress that might cause disruption to accelerate at some point in 2028. Yeah. Look there is a lot going on down there. I think our teams in a great job, you know, trying to offset construction, you know circus generally halfway or more than halfway up the roads have been adjusted for a while, but I don't see that changing a lot. The other are some additional projects going on. I don't see it getting I don't see it getting any worse. I don't see it getting any better throughout twenty-twenty, but I surely don't see it getting any worse. So I think it's pretty much status quo.

Okay, great. And then just on the acquired Pinnacle assets do you use any like incremental costs energy opportunities there or is it really more just blocking and tackling with the margin expansion opportunity more similar theme store portfolio thing is is we think about you know, the Ameristar is in the military and even to some extent Valley Forge. It was only owned them for a little over a year off while we have I think achieved our Synergy targets. There's always more work to do than there's more we can extract out of those properties in terms of best practices and applying best practices and you know acting more synergies. I think it's again as you as we as we think about it moving forward. It's not so much about the going to quit declared synergies. When we first purchase these properties as it is about best practices and refining the operating models and continuing to apply the void model to some of those properties and improve results. So I think there is more room to continue to grow those businesses.

Okay, great. Thanks. Appreciate all the call your guys.

our next question

Thomas from Chad Beynon with macquarrie, please. Go ahead. Good afternoon. Thanks for taking my question. You guys. I know there's there's been some news with Wilton Rancheria Thursday the size and the scope in the timing of the project. Could you just bring us all up to speed on where that is and then related. I believe there's been some informational hearings on sports betting in California recently. Would your license allow you to offer sports betting once Wilton Rancheria is up and running. Thanks.

So with respect to Wilton got a not not sure exactly what you're hearing. There's some older information out there where they try but talked about a certain size of a project. I would say that none of that information is relevant today. We're still in the process of kind of finalizing those plans and having formally announced kind of the south in the scope of that project. We're in the process of you know, getting the refinancing and I think the one thing we know for certain are generally certain is that the project will be open 18 months after we get the financing we would expect to get the financing middle of the year. But you know, other than that, we haven't really haven't announced kind of the full scope and all the different elements of the project. So that is yet to come with respect to sports betting the answer is yes best as we know at this point. Our license would allow us to operate sports betting. Yep.

Wilson, you know through that specific Casino.

But the law hasn't passed yet. So, you know a lot can change based on whatever ends up in the law.

Right. Thank you. And then separately I believe at the beginning of the year. You purchased a new slot system. Where are you guys just in terms of ruling out all the the marketing and the bonus say you think there's more opportunities to grow slot revenues just on the back of that capex purchase in 2019. Yeah, so I think about it this way the 2019 was about kind of installing the backbone and the infrastructure in twenty-twenty will be more about leveraging up the marketing capabilities of that system.

Thank you very much.

We have time for one more question and that comes from Andrew Burke with post Advisory Group, please go ahead. Hey guys, Keith was with respect to suck Fremont as well as Treasure Chest if you guys were to move forward with those I think you said they would not be terribly significant. But can you kind of frame out a little bit what the size might be in that for each one of those terms of capex Mentor maximum amount cash cap ex you'd expect to spend.

well

I can talk about it. Generally we don't have specific parameters at this point, but you'd be thinking about the casino. You know, we we going to piece of land kind of at the back side of the free month for a while. We've looked at a number of different projects there. The casino is at capacity many nights a week and what we really need there is additional casinos space. So I'd be thinking about it as very often expansion of the casino not anything too much grander than just an expansion of the casino. I think he's you think about Treasure Chest. You've seen this happen in other point, you know other places in in kind of in the Riverboat gaming Market where people have gone from you know, a Riverboat to Aladdin based operations. So yeah, look we have a 30 year old three-story Riverboat terribly inefficient. If you're able to move it to land to becomes extremely efficient all on one story both for customers as well as for team members dead.

You know, you can look around the country.

A number of examples of people that have done that at I think very very modest prices. So we don't have anything to announce. We don't have any specific pricing. It's not flushed out and if you had to talk about it and Dollars Dollar Wise yet, but you know, that's the thinking. Thanks a lot guys.

This concludes our question-and-answer session. I would like to turn the conference back over to Josh hirshberg for any closing remarks. I appreciate everyone dialing in the day and participating in the call. You have any follow-up questions. Feel free to reach out to the company. Thanks again and have a good rest of your day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.