Q1 2020 Earnings Call
Good afternoon, and welcome to read Rockresorts first quarter 2020 conference call.
All participants will be in listen only mode.
Please note this conference is being recorded.
I would now let's turn the conference over to Stephen Cootey Executive Vice President Chief Financial Officer, and Treasurer of Red Rockresorts. Please go ahead.
Thank you operator, and good afternoon, everyone.
Thank you for joining us today on Red rocks Red <unk> first quarter 2020 earnings Conference call. We hope to all of you in your families are staying safe and healthy.
Joining me on the call today from Red Rock resorts are Frankfurt Teed up Chairman Chief Executive Officer, Rich Haskins, President, Bob Finch Executive Vice President Chief Operating Officer, and rotate me, an executive Vice President of development strategy.
Before we get started I like to remind everyone that our call. Today will include forward looking statements under the safe Harbor provisions.
States Federal Securities laws, developing some results may differ from those projected.
During this call will also discuss non-GAAP financial measures the definitions and complete reconciliation of these figures to gap. Please refer to our financial tables in our earnings press release and form 8-K, which were filed this afternoon. Prior to the call also please note that this call is being recorded.
The impact of Cobot, 19 has been swift and severe and our thoughts and well wishes go out to all those have been directly or indirectly impacted by this profile crisis.
We'd also like to recognize our and offer a heartfelt. Thank you to all of our medical professionals and first responder serving on the front lines of this battle.
Most importantly, we'd like to thank our team members for their commitment patience and understanding as we navigate together through this period of uncertainty.
As you would expect this call will be different from the once we've had before.
Well, we will briefly discuss our first quarter results most of our time today. We spent reviewing the decisive actions we have taken to prepare for a new operating environment with a focus on the health safety cost reductions in liquidity.
So let's begin with the first quarter 2020 was off to the from the strongest our strongest start since 2008 at our core properties.
Turning to see operator, we are speaking privately maker nameplates.
Your line that you made it had been named please.
You are now rejoining the main conference.
All that all that change, though in March with revenues gradually slowing the first half of the month and then stopping entirely on March 17, when the government Eduardo ordered a statewide shutdown of all non essential businesses, including casinos in an effort to reduce the spread of cobot 19.
The great resort, which is managed by the company closed on March 17th.
What originally began as a 30 day shut down a march 17th here in Nevada has now been extended to at least on May 31st.
Well the shutdown a great and resort has now been extended to at least June 15th.
Well no shutdowns are finally lifted where business will look like as highly uncertain as you have no real visibility regarding the impacts that this crisis will have on our company moving forward.
Despite the complete loss of revenue, we remain committed to supporting our team members and our community during this period of uncertainty.
On the team member Friday Justice, we did after September 11th we retained our entire team for as long as we could.
To that end, we're proud to be have been one of only three companies in Las Vegas that continues to pay all full time team members regular paying health benefits from the March 17 shutdown date through may 16th the cost of the company of over $72 million.
Ultimately, though between the shutdown the need to reopened our business in phases and the expected impact at the state mandated occupancy and social distancing restrictions were forced to lay off a significant portion of our team members.
This was an extremely difficult and painful decision and no. One we did not take lightly as we understood the impact that would have on the effected team members and the community.
We remain hopeful that Las Vegas, and our business will rebound quickly and allow us to where we hire many of these value team members well reemerge in the other side of this crisis. We are also hopeful the state and federal unemployment safety net together with the extension through September Thirtyth at our expense.
South benefits for all those impacted them team members with those team members through the worst of this crisis and for those who are not impacted by layoffs, we've extended their regular pay and benefits through at least the end of may.
We've also maintained our involvement on the community front in early April we were among the first to support the code at 19 emergency response gone by contributing $1 million to purchase personal protective equipment and critical medical supplies, including test kits for those used by first responders of health care professionals throughout Nevada.
In addition, we have expanded our partnership with three square food Bank. During this crisis by donating over 120 pallets of food and allowing our properties be used for emergency food distribution throughout the Las Vegas Valley.
And just today Clarke County began using our faster Henderson property provide cobot 19 testing to residents at Las Vegas Valley.
The good news is that the gradual reopening of Nevada is now underway with phase one having begun on may nine.
The first phase did not include casinos based on everything we're hearing we remain hopeful that the casinos will be permitted to reopen in the coming weeks and we're also hope with a great and resort will be permitted to open in late by late June or early July.
As expected the loss of revenue beginning in mid March had substantial negative impact on overall quarter.
On a consolidated basis first quarter net revenues decreased 15.6% to 377.4 million adjusted EBITDA decreased 48.8% to 74.3 million.
And margins decreased 1200, 77 basis points a 19.7%.
With respect to our first quarter Las Vegas operations net revenues for the quarter decreased 15.6% to 356.5 million.
Adjusted EBITDA decreased 49.2% to 68.5 million and margins decreased 1200, 69 basis points to 19.2%.
These numbers reflect the number of onetime charges related to the impact of cobot 19 on our business.
The charges include a 27 million dollar accrual in the quarter related to our commitment to provide regular pay and benefits to all full time team members. After quarter end from April 1st to April Thirtyth, which was offset in part by an approximate 20 million our payroll tax benefit received under the cares Act.
Let's now turn to what we've been doing during the closure as noted earlier, we've taken never in a number of decisive steps to prepare for a new operating environment.
Focus on health safety cost reductions and liquidity.
As recently announced we will be reopening our properties in phases first to reopen will be our Red Rock Green Valley, Santa Fe older station power station Sunsets station and our wildfire properties.
If you exclude palm from both 2019 net revenue and EBITDA. These first to reopen properties generated over 80% of our Las Vegas net revenue and over 90% of our Las Vegas EBITDA during that same period.
[noise] based upon the anticipated mix of gaming and non gaming revenues at these properties are dramatically reduce cost structure moving forward, which we'll discuss a minute. We believe we can reach EBITDA breakeven at 35% to 45% of our overall 2019 ex palms Las Vegas revenues.
That's where other four properties palms Fiesta Henderson Fiesta, Rancho Texas station, we look at reopening these properties once we've had a chance to fully assess how our first to reopen properties are performing post crisis as well as the recovery of Las Vegas market and economy as a whole.
As we prepare for the reopening of our properties are number one priority has been and we'll continue to be the health and wellbeing of our team members gas and the entire Las Vegas community.
To that end and working closely with outside medical experts, we have put together a very comprehensive health and cleanliness guidelines for our properties moving forward simply put we are committed to providing the most safe and secure environment possible for both our team members and gas.
Here are few highlights of what we have plant.
All team members are currently undergoing F.D.A. authorized cobot 19 testing, which testing will be completed in full prior to reopening and such team members will also be tested at regular intervals thereafter.
All gas and team member entrances at our resort properties will be equipped with state of the our thermal scanners.
All team members will be required to where pp consistent with health authority guidelines and mass will be available to gas upon entering the property.
Touch freehand synthesizing stations will be installed throughout the property.
Enhanced cleaning technologies, such as electrostatic sprayers and hospital Gray disinfectants will be utilized rather property.
The visibility and frequency of cleaning will be significantly increase throughout the public and non public areas. The property and all team members will receive rigorous training on the company's new health and claim was standards and protocols.
Importantly, our new guidelines will meet or exceed the highest standards by federal state and local authorities and will be adapted as circumstances require when our guest walks through our reopened doors. We wanted to know that their health and safety is our first priority. The same time. We also want our team members to know that these changes will help safeguard their health as well as well.
Other interacting with guests or each other but those are interested a copy of these guidelines are available on our website.
Another primary focus the company. During this closure was to reexamine and challenge every aspect of those things, we can control, including our cost structure.
Based upon that review and the uncertain business environment, we face going forward, we had to makes a very difficult but necessary decisions in order to manage the size of our workforce for expected business levels. In addition to institute and other cost mitigation measures that we outlined in a moment.
As we talked about early our plan is to reopen phases that approach along with the expected impact of state mandated occupancy in social distancing restrictions meant we had to make meaningful staffing level reductions both of the property in corporate level.
All told these workforce reductions reduced our number of full time team members by just under 40%.
In addition to these workforce reductions we've also taken a number of other proactive steps to streamline our cost structure and reduce cash cash outflow, including significant salary cuts for senior executives across the company led by Frank in the rents over Tito volunteering to forgo a 100% of their salaries for the duration of the crisis.
Suspending our quarterly dividend.
Eliminating non essential capex spending for the remainder of the year and reducing general overhead expenses and significantly reducing related.
Costs relate to our outside services to the termination or renegotiation renegotiation of vendor and other agreements.
We are confident that these actions will position us to that as a much leaner and more efficient company that has better able to manage the uncertainty as we move so move forward.
The time this exercise over we expect to have reduced our operating expenses by approximately $150 million on an annualized run rate basis. Notable notably that amount does not include any labor expense savings related to those properties that will not open as part of our first opening face nor does it include savings related to any amenities that will not be initially provided.
Well, we estimate that those additional labor expenses are approximately $175 million on an annualized run rate basis.
That amount would decline to the extent that are closed properties were to come back online or those amenities word again be provided.
These cost mitigation efforts will enhance our already inherently resilient business model as over 60% of our costs are variable in nature importantly that operational flexibility will allow us to quickly adjusts to in two increases and decreases in business levels as we move into the recovery phase.
Our estimated burn rate, including corporate and operating expenses cash interest expense is pro rated.
Oops.
Sorry, let's now turn to liquidity.
As it precautionary measure we drew down almost the entirety of our 1 billion our credit facility mid March as of May 18th we had approximately 950 million in cash on our balance sheet.
As such we believe that we have ample liquidity to withstand an extended zero revenue environment.
Our estimated cash burn, including corporate and operating expenses cash interest expense is pro rated principal repayment and priority Capex is approximately $49 million a month.
Keep in mind that this number includes fully loaded labor costs for our first to reopen properties and corporate labor corporate labor expenses.
In the event that we are required to continue in or return to an extended zero revenue environment. The vast majority of our continued laboring expenses would fall away and our go forward burn rate could be reduced by to approximately $24 million a month.
And that reduced burn rate or current cash our current cash on hand will allow us to operate without need for additional capital for over 36 months and zero zero revenue state, giving us one of the longest runways and the gaming industry.
In addition, we believe will be in a position to continue to comply with all of our financial covenants for the foreseeable future and we have no significant debt maturities until 2025.
For all these reasons, we believe we will be well positioned financially to handle the uncertain times ahead.
Finally to native American items first as you will recall our plans to develop the casino in North Fork tried of installed the last several years by litigation brought by opponents of this project. We're pleased to share the Supreme Court, California has scheduled oral arguments.
For June 2nd 2020 in a very similar case involving entered enterprise tried which we will hope will result in a decision that clears the way to finally develop this very attractive project on behalf of the North Fork tried.
Also with respect the great management agreement, while the extension has not been determined yet the management agreement does provide for an extension of the term of the agreement as a result of the current shutdown.
Throughout a 40 year plus history, we have weathered a lot of challenges and we will whether this one as well. Although these are unprecedented times, we feel very confident in our ability to manage through this crisis and succeed thereafter.
Operator. This concludes our prepared remarks for today, and we will now ready to take questions from participants on the call.
We will now begin the question and answer session.
To ask a question you Me Press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.
Our first question comes from Joe Greff with JP Morgan. Please go ahead.
Good afternoon everybody.
Thanks for providing us.
EBITDA breakeven metric.
Just wanted to take up.
One sort of operating productivity a step further when you think of free cash flow breakeven or free cash flow neutral levels as a percentage of prior year revenues, where would you peg that roughly.
You have what I started that EBITDA breakeven about 35% is 35% you'd add basically 10% to that the cover interest costs.
Got it.
And then when you think about the locals market right now you have sort of counterbalancing things you have a large number of retiree.
Spend in visitation levels are independent of.
A job security then you also have potential for high unemployment for stripped employees that might frequent you're local establishment. How do you think about the mix and how sensitive are you to that you'd be that latter at risk category.
Well look our business model.
You know very different below our trigger strip.
The majority of our revenues do come from a local gaming market most for.
Customers live within three miles of our properties you are correct that a big portion.
Our slot revenue does come from retirees and baby boomers.
That or not necessarily reliant on employment I think in the short term termed the government.
There's definitely been out there bridging employees that don't have jobs right now, which in the short to midterm, we should be okay of course in the long term.
The help of in Las Vegas strip is very important too.
The health of the overall Las Vegas economy, So we're hopeful that.
Our government unemployment checks it all will be able to bridge to the other side of are good strong recovery on the Las Vegas strip.
Great. Thank you for that Frank Frank while a heavy here.
As you sit here now what do you think that feature the of the Palm Casino. It I mean, you reopened or do you keep close and try to monetize your sell.
Later on how are you presently thinking about that.
Sure first we can dispel the rumors that apologizes for sale that is a rumor it's not correct.
The way, we're evaluating the foreclosed properties.
As we felt that we took a very hard look.
How much of our customer database, we can cover in phase, one and be most efficient as possible to generate as much revenue as possible right. So the tourist part of the recovery is going to lag the recovery.
Michael Jamie market, which we think we should be able to leave the recovery in the local gaming market given me, Jeff geographic distribution of our properties the quality of our properties and frankly, the quality of our team members who are so important to have relationships with the repeat customers on our business.
But typically come to our properties you know three plus times a week.
The palms will be reopened based on what we see from initial demand with the six properties and then what we're able to see in terms of.
Tourists coming back to Las Vegas, how the strip.
<unk> is doing and everything else, but our plan is to reopen the calls.
But it's going to be dependent on what we see in workforce.
Thank you.
Your next question is from Carlo Santarelli with Deutsche Bank. Please go ahead.
Hey, guys. Thank you and Keith Thanks, so much for all the color that you provided in the opening remarks.
If I could just in terms of.
About six assets you will open.
And in terms of.
How do you guys kind of headwinds I.E. that what keeps you up at night, a little bit more is is there. So I'm just concerned or any concern at all about.
Nations won't social just saying it or are you or thinking about this that's what's going on at the local economy and even with some supply taken out of the market.
What's the demand curves look like.
Look I think there is definitely no we're not sure. What this is exactly going to look like.
The other side.
I think some of the new guidelines double definitely will have.
Friction in terms of the customer experience.
We have gone out and gone quite a bit of research with our customers and I can tell you that about 80% of them. We're very positive about returning to visit our properties.
Within two weeks of reopening, but we also learned that they're very concerned about save safety and health and that's why we have gone you know.
The greatest links we possibly could in terms of testing all of our team members are installing.
Thermal cameras and all of our entrances and trying to reduce the amount of friction to the most the that we possibly could to make for a good guest experience, there's going to be social digital thing and there's going to be.
Capacity restraints in terms of how many people we can have in a restaurant casino floor, we're going to frankly after after work.
[music].
And hopefully as we get more testing of information, we'll see that you know the diseases under control and slowly, but surely be able to return to normal operating environment.
Great. Thank you Thats helpful.
I could just double back to the comments on the cash burn I just wanted to make sure I understood fully thanks.
49 billion, a bond run rate with low a fully loaded labor costs that of course wildfire six other casinos. That's a 49 million dollar just expense run rate.
With those properties open but then.
If in fact those properties were closed you would that that would that dropped to a 24, so applying that the labor aspects and the aspects of opening those properties again adds 25 million revenue agnostic is that correct.
That's right, but in addition, as it in addition, I just want to make sure that it's clear that that not just doesn't include just labor as also opex interest costs and.
Capex, yes, correct.
49 to 24 million effectively that implies about $20 million, a labor would fall away.
Understood. Okay, great. Thank you booked very much.
The next question is from Barry Jonas with Suntrust. Please go ahead.
Hey, guys.
Any sense promotional environment could be as the casinos reopened.
I just want to get a sense.
You think it'll be elevated given potentially less demand or if folks will be more focused on.
Costs in March.
Look I think this is a very unique situation in a very unique environment.
You know fortunately or unfortunately, well all find ourselves in a similar situation of the exact same time.
And while we have been had been.
Focused on.
Eliminating redundant marketing expenses and being more efficient and our marketing spend.
Maybe crisis is definitely accelerated.
And maybe as much more focused or.
I want to reopen business would look like and the fact that we're going to have to be much more disciplined and what's important to our customers.
And we believe the market is going to be.
Rational because it's going to that's going to have to be about way for people are survival in this newer bar so.
I don't know if you have anything thats fever, nothing that was perfect right.
Great and.
Quarter, we talked a little bit about exploring land sales, presumably where a lot different now, but but where is that those processes is that something you're still entertaining or is the market just trying to hold.
No I look I.
I think we had gotten some fairly good traction on several of the pieces of land that we have we have.
A significant amount of value and.
Undeveloped real estate.
And you know we were making pretty good progress, but as you know in this environment everybody's pretty much gone on pause I think until people see what happens in the economy or where things settle out. So we're hopeful of things good going again in everything we can restart approaches.
Great and then last one for me as we think about.
Reopening strategies and likely reduce gaming supply for social distancing and reduced occupancy.
Maybe just talk about what.
The impact ultimately to gaming could be given the fact I'm guessing you're not at 100% occupancy younger gaming floor, maybe just help frame what would have reduced supply ultimately could translate to on the revenue line item.
[noise] look.
Let's let's go through it a little bit I think.
That you know and the slot department, we're going to be reduced or 50% of capacity I think the reality of getting over 50% capacity is really a peak period short window.
Situation, so I think for the most part or slot machines.
Typically have people social dispensing anyway.
No we have pretty good sized.
Casino floors and slot operations I think when you come to table games, which is more labor intensive and you cut the occupancy down to say three positions per table I think we're going to be a little bit more Charles on table games too.
Actually.
Be profitable there.
We're going to do our best and then I think when you look at restaurants and bars and things like that again, it's you know what's going to be a bit more challenging you know the restaurant business is a very fair margin business within the day.
You know to to be reduced or 50% capacity in restaurants, and bars is not going to be helpful. But I think the good news is our primary profit generator, which is slot machines.
Other than short periods of time on peak occupancy we should be okay.
That's really helpful. Thank you so much guys.
The next question is from Harry Curtis with Instinet. Please go ahead.
Hello, everyone. Just a couple of follow up questions on the same same issues.
You go back to the mix.
Maybe it'd be helpful.
To get a sense of what percentage of your frequent player cards or card sits system, you believe would be retirees and may be less less exposed to the risk.
Our job loss.
Harry just for competitive reasons, we're not going to go parse the database on the call.
I mean can you give us a sense of.
A broad brush.
I'm not.
I guess, where I'm going with this and this is I mean, it's it might be an encouraging it or is there anything encouraging that that would lead you to believe that the mix of your business is more retirees or ex retirees that.
Our less likely to be.
Hunkering down more I'm I'm, giving you an opportunity to to I agree.
Harry I think at large chunk of our database is is boomers and retirees.
And we feel those folks are fairly insulated from the from the downtime.
All right.
The.
You mentioned, how well you guys were doing across the portfolio ex palms in January and February.
Can you give us some.
Perspective on how the pumps is doing relative to.
Not only your expectations, but also the last couple of quarters and what were the.
[music].
What were you.
What trends, we're moving in the right directions. So that we can get a sense of.
When it does when it does does reopened.
How that what the expectations ought to be.
Sure I mean, I break down the pumps and again, we disclose the numbers in the past and so from a revenue perspective.
We had about $37 million net revenue in the quarter, which we thought was pretty good.
On the.
On the EBITDA upfront actually EBITDA by negative 47, but what you have to take into consideration when you adjust for negative hold.
We actually showed positive EBITDA of 1.8 million for those first two months. So we were trending in a very positive manner.
Got it.
And my last question is can you talk speak to amenities that.
That.
Really weren't all that profitable that could be slow to come to come back and ended the day it actually could lead to.
A higher margin.
On AD on a lower comparable level of gaming revenue.
Sure I mean.
For one you know we will be opening none of our buffers.
You know buffets did generate traffic, but there were definitely loss leaders.
No those will not be operating.
Phase warm as well some other our specialty restaurants, so we're going to narrowed down to basically the restaurants that were the most popular and have the most to report we're going to leave some of your other ones on open in phase one.
We're not going to open poker rooms in phase one we're just didn't think it made sense.
The only three players per table or so that that would be a profitable venture so that will be on hold.
And then movie theaters.
Well, which actually you know are good for our business.
Those are going to probably lag.
What would be.
Phase one opening only because I don't think there's a lot of product out there right now Harry So we're going to have to wait for.
Distribution of the movie houses to have good product out there that people want to say.
All right. That's a that's helpful and good luck. Thank you everyone.
Thanks.
The next question is from Jared show Giant with Wolfe Research. Please go ahead.
Hi, good afternoon, everyone. Thanks for taking my question.
So you touched on great and a little bit but can you just talk more about how we should be thinking about the November expiration date, the opportunity to extend that how you're thinking about that.
As I mentioned on the exceed the remarks right. We know what's going to be extended do the closure, but at this time, we don't know the length of that.
Thank you.
Okay. Thank you.
And then you're talking about the 35% to 45% of X palms revenue to get to breakeven.
Taken out a lot of cost some of which will come back as demand returns do you have a sense for how much of prior peak revenue you need to get back to to the prior EBITDA level because presumably some of these costs are true permanent reductions is that fair way to think about it.
Yes, that's right it but as I mentioned on the call. They about $150 million, we would view is pretty permanent.
Okay. Thank you and I guess, just one last one from me has your thinking on the sale leaseback model changed at all whether you have a more favorable less favorable view of it after this crisis.
How are you thinking about that.
I think everybody just another way to raise capital I think the fortunate thing Unlike 2008.
All capital markets are open to the company, whether it's the debt markets or add.
Your debt markets or equity markets I think the positive here throughout this crisis and what we've learned as we own all our real estate. So we as a company have maximum flexibility and what to do with it.
Okay. Thank you.
Your next question is from Chad Beynon with Macquarie. Please go ahead.
Thanks for taking my question.
[music].
Against the the the competitive Las Vegas locals market during the last downturn can you talk about how you're a I guess your phase one portfolio performed against that group I'm. Just looking for you know if you gained some market share and then secondarily on that.
I think I know the answer but was it more of just kind of a spend per visit or a situation where you actually we're getting the visits your customer just was coming with a smaller wallet. Thanks.
You are going back to 2008.
2008, I think I think your your second point is absolutely correct in terms of I'll have to go back and take this offline in terms of how those companies actually those individual six properties performed during the crisis and get back to chat.
Okay.
On the Red rocks Refurb could you give us I don't know if I missed as an update in terms of where that is from a spend standpoint, and just a finishing standpoint.
Well its gets complete just waiting now for I guess to occupy them.
We have probably about $8 million retainage left to spend.
With that work has been done.
Okay, great. Thank you very much.
Your next question is from Shaun Kelley with Bank of America. Please go ahead.
Hi, Good afternoon, everybody on just two quick ones, Steve you mentioned on the great extension, but could you just.
Let us know is it really just a.
What's the mechanic is it a just a kind of a.
Extension based on the amount of time at the property is close to kind of thing is that is that the basic idea that you just don't know how long it should remain closed or or how does mechanical work if you could share.
I'm going to have Jeff Welch, our general counsel answer that question.
Hi, Sean the management agreement provides that the period for closure will.
Effectively measure what the business was doing when it closed and does it get back to substantially all of the business, but it was doing prior to closure. So it's it's actually not a defined period.
It can be measured by data closing date of reopening to determine the extension.
Great to show if I'm understanding it correctly that not actually needs that it's a it's almost like a business interruption style kind of may call for that for the amount that you would have been making in that period that was lost am I understanding that correctly.
I'm not sure.
I would characterize is working.
Exactly that way I think and you should think about the on the closure effectively being ending at the time when the grain resort gets back to the level that it was operating before a closed basically when it gets back this is a substantially.
Able to operate the facility to where it was operated before.
Okay I understood that thank you for the the extra detail on that.
Then a second question and it's fairly high level I think youve tackled. This in a few different ways, but just just broadly could you speak maybe it out during your experienced during the last downturn.
You know.
What does tend to happen out there on the straight than we've seen I think some some major operators already we're moving things like parking fees and whatnot.
All right do you expect to see some enhanced competition from the strip for some of the marginal local dollars and just maybe a sense of how that played out how successful some of those initiatives were or were not during 2008 2009, you probably saw some very similar behaviors back down as well.
Yeah, I mean look we've been doing this for over 40 years and the it's no secret that from time to time whatever the strip.
Besides to try to go after local business.
And it's not to say that locals never go down to the strip. They do once in awhile, but the reality is local gaming is based on number one.
Convenience number two the quality of the product.
Our product is specifically designed to cater local customers ingress egress convenient parking the waiver swap fours are laid out the value of the slot for value proposition.
Most importantly, these are repeat customers they want people to know them recognize them no what they want and that's why our team members are really are most valuable thing that we have they are the most valuable asset we up and that's why we have gone to extra links to keep our team.
Levers on.
That have the relationships with all these customers I can tell you I know when I go places and I'm sure you guys. Those more you go to where you recognized and people take care of you and I know you and it's convenient and it's the same thing here. So I mean, we're in the suburbs our primary customers live within three miles of where we are so.
I wouldn't.
Anticipate any material.
Change.
Thank you everyone.
Your next question is from Stephen Grambling with Goldman Sachs. Please go ahead.
Q2 quick follow ups first I realized perhaps early to fully think through this but how do the recent events alter your thinking about the right capitalization the business in a more normalized environment, generally anticipate holding more or less cash and or carrying cost levels leverage.
Look I think is apparent for everyone.
Unforeseen events, you know means that you need to have flexibility and we need to have runway and less leverage is better and more flexibility is better I mean.
Fair enough and then second what do you watch and you get comfortable with on to open the palms relative to the other assets as their specific milestone related the visitation on the strip or more of the reason most other properties on your ability to get.
Your other properties in your ability to get higher value players, but it's going to be number one dependent on what we see the six properties, what we see in terms of profitability.
At the six properties and we will.
The looking at whether we think we can be profitable on any additional properties that we real I think thats going to be the metric.
Fair enough. Thanks, so much.
Your next question is from John Decree with Union Gaming. Please go ahead.
Good afternoon, everyone. Thanks for taking my questions.
Steve I think you've answered just want a couple of different ways, but tasking a little bit more directly perhaps when you think about getting revenue back to 35% and and breaking even on EBITDA. How are you thinking about the flow through beyond that 35% is there kind of a range probably depends on mix and what amenities.
Opened but is there a broad range that you're thinking about for flow through.
I mean, I think in the past, we'd given 50% to 70%, we expect a little bit higher but you've answered your own question really I mean, a lot of its going to depend on how.
We have the business opens once once we open up to represent where the revenue is.
Yes fair enough.
That's helpful and lastly, how youve talked about the $20 million receivable from the cares Act and it may deal a little soon and probably still waiting for some guidance, but have you been able to quantify any additional benefits that you might get from cares act in the future.
Yes, I think the cares active and very helpful for us So we expect to get.
If all goes well another additional $15 million through the payroll retention.
There's also the ability to defer about $10 million, what I would call from FICA from a fake or excuse me if like.
[noise] and then we also have.
Q IP came back as you know that was if we were a big beneficiary of that for the palms. There was a technical correction in the bill and the cares acted allowed us to get another $28 million.
Related to the acceleration of depreciation and then there's also adjustable taxable income deductible, but up a deductible moved from 30% the 50%.
So those main for benefits are right, but the big ones right now.
Great. Thanks, Stephen Good luck on the reopening everyone.
Thanks.
This concludes our question and answer session I would like to turn the conference back over to Stephen Cootey for any closing remarks.
Thank you everyone for joining us completion healthy enough safe and look forward to hearing for you talking you get a 90 days.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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