Q2 2020 Boyd Gaming Corp Earnings Call
[music] pardon me. This is the conference operator speaking the Boyd gaming second quarter 2020 earnings conference call will begin in approximately.
We just probably ask you. Please remain on the one and we appreciate your patience once again, the Boyd Gaming conference call will begin at approximately one.
[music].
Participants will be in listen only mode.
You need assistance, please signal crop, especially starkey.
After today's presentation, there will be an opportunity to your question you asked a question you're starting in one country.
Withdraw your question. Please press Star then too.
That is being recorded I'd now like to turn the conference at your Josh Hirsberg Executive Vice President and Chief Financial Officer.
Sure.
Thank you operator, good afternoon, everyone welcome to our second quarter Conference call. Joining me on the call. This afternoon, It's 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 comp.
That's our 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 statement or certain risks and uncertainties, including those disclosed in our filings with the FTC that may impact our results.
During our call today, we will make reference to non-GAAP financial measures.
Sleep 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 and both of which are available in the Investor section of our webcast at Fort gave me Dot com.
We do not provide a reconciliation of forward looking non-GAAP financial measures due to our ability to project special charges in certain expenses.
Today's call is also being webcast blogs, Boyd gaming dot com and will be available for replay Investor Relations section of our web forgot website. Shortly after the completion of this call.
So with that I would now like turn the call over to keep Smith Keith.
[music].
Thanks, Josh good afternoon, everyone. Thanks for joining us today.
What a strange for a company since our last call in April.
The only 90 days ago, they're all of our properties across the country were closed and we did not have good visibility as to when we could reopen.
Here. We are 90 days later, we have returned to business across the country.
Of course of six weeks starting in late May we successfully and safely we opened 26 properties intend stage.
The real tribute to the skill in leadership of our management teams across the country I'm grateful to them for all their hard work dedication forgetting her properties reopened in a safe manner.
I also want to thank all of our team members, who stuck with us through these very difficult times.
I'm camera returned to work or team members are ready to answer the call. They work hard to get our properties reopened in just a matter of days dealing with many new safety and sanitation procedures and they agreed at our guests with as much enthusiasm unfriendliness whatsoever.
Thanks to the efforts of the entire Boyd team reopening of our properties has been a remarkable success.
Since reopening every one of our properties, except for the California in downtown Las Vegas have produced positive EBIT dark and free cash flow and overall, we delivered gaming revenues within 11% of prior year levels for the month of June.
We achieved years old school operating will significantly reduce casino capacities and limited amenities.
That's why we're doing our press release or mid West and South region achieved double digit gains and EBITDAR and significant margin improvement even in the face of declining revenues.
In Las Vegas locals business was also able to grow EBITDAR and greatly enhanced margins despite declining revenues.
Formats, we're Las Vegas locals business was actually is much stronger than the reported number show.
Both your leans a gold coast generate a considerable amount of business model stay visitors ever tourism to Las Vegas remaining below pre pandemic levels. It had an impact on the overall results of these two properties.
When you factor out the softness in that segment of the business of these two properties are locals customers, including a new Orleans them gold coast perform similar to our mid west and South customers look strong visitation trends from or higher worth customers, an increase spend patterns across the valley.
Downtown Las Vegas business model that is sustained us for over 40 years is presenting a temporary challenge will be ongoing pandemic. Many of our Hawaiian customers there hasn't been supply, particularly with a mandatory quarantine required upon their return.
Combined with reductions in overall tourism to Las Vegas, we're seeing lower traffic counts throughout the downtown market.
As a result or downtown business was not performing at the same level as there are other two segments right now.
Well the cow was the only want to work 26 reopen properties that was not EBITDAR positive during reopening period. Thanks to stronger results of the Fremont. Our overall downtown operations were still breakeven on an EBITDAR basis.
Overall, we're off to a great start since reopening thanks to focused effort by the entire Boyd team and our ability to successfully adapt to the environment around us and.
And importantly, the solid trends, we've seen across the country in May and June has continued into July.
Beyond these positive financial trends there are also encouraging trends within our customer base well overall revenues are down we're driving strong visitation or among our high value players.
Average spend per visit and spend per admission are up significantly.
In general our core customers have not been deterred by social doesn't semesters limited amenities, what I'm asking requirements.
Well, we have seen a slight decrease as a percentage of customers 65, plus age segment as a result of the pandemic. There has been an increase in higher with customers for younger customer segments.
Should we are seeing healthy growth in unrated play since reopening.
Based on the trends, we have seen since our properties of reopened including trends in July we believe that these levels of gaming activity are sustainable.
Well, we're successfully driving profitable revenues throughout our operations were also successfully controlling expenses building upon the significant long term progress we had made prior to the pandemic since reopening we've realized substantial moved fishing season, both marketing programs and that's Janet.
We have also been selective amenities staying focused on high margin business to support higher workplace.
As a result of these expense reductions and new efficiencies. We're now operating at significantly higher margins than we were before.
I understand this is a fluid environment, and we will need to adapt as necessary well, we will not simply return to the old way of doing business. We have created a more efficient highly focused higher margin business, we tend to keep that philosophy in place. After this crisis is over.
Just as we established a new model for our traditional business. We're also position ourselves for the interactive future where industry.
We do not see interactive gaming as a separate opportunity for more traditional business, rather we see it as another way to engage with our customers.
By focusing on the convergence of all guest experiences gaming is not getting digital in traditional casinos, we're seeking to create a seamless high quality entertainment experience that stands out from the competition.
The growth potential of this segment of the industry has been illustrate a during the recent closures interactive gaming revenues of more than doubled in new Jersey. So far this year, surpassing the 500 million dollar mark year to date and in Pennsylvania, They have approached $250 million over the same period.
So I'm industry estimates interactive gaming could become a 10 billion dollar industry over the next five years.
Thanks to our strategic partnership with Fanduel group, we're confident in our ability to emerge as a leader in the industry.
Today, our partnership a fan dog food retail sports books at seven boys properties mobile sports betting absent, Pennsylvania in Indiana, and a real money online gaming site in Pennsylvania, but this partnership will continue to grow as new opportunities become available in states such as Illinois.
Bandel currently operates and 47 states is the nation's leader in both mobile sports betting an online casino gaming and generate significantly more revenues that is closest competitor.
Considering brando's dominant position in this space are strong strategic partnership and or 5% equity stake Bandel, we're quite bullish on the value. We have already created what this partnership in future growth opportunities available to us.
In addition to this growing partnership with Fanduel, we took another step forward in our gaming strategy last week with a watch and start a social casino a free play online casino Wow.
The social casino is the first of more I gaming ventures to come as we established start us as a leading interactive gaming brand.
In closing there's no question that these are the most challenging times, we've ever faced but we have made exceptional progress over the last three months due to the incredible efforts of our team.
Well in certain me clearly persist in today's environment. We are encouraged by the initial response to the reopening of our properties across the country.
Customers have been very receptive to the new operating environment, our properties and the new safety protocols.
We're seeing strong visitation spend by our core customer segments.
Well I reinventing, how we do business in this new environment, we've established a new operating model capable of delivering higher margins.
Through the expansion of our highly successful partnership with Fanduel group and the launch of our start a spread its social casino, we're taking steps towards establishing our company has a market leader in interactive game.
These are extraordinary times, but we've been through crisis before and each time, we have emerged stronger in smart and I've no doubt we will do so again.
Thank you now I'll turn the call over to Josh Josh.
Thanks, Keith as evidenced by the margins to keep spoke about in his remarks, we're executing a more focused and efficient operating strategy. One that reflects many of the philosophy, we have been developing and implementing over the last several years.
Our improved margins are the direct result of beauty factors.
Including the continuation of our strategy to focus on high work customers.
These customers have been at the very core of our developing and holding our capabilities over the last several years to drive profitable revenue.
In addition, we have taken this opportunity to reduce like wide range of marketing expenses, including lower overall levels reinvestment.
We have been selected and the products and amenities that we offer focusing only on high margin components of our business and deliberately avoiding reopening amenities that dilute our profitability.
We have repriced our products.
What the customer demand limited amenities and operating restrictions.
I like we have aggressively reduced SGN, including corporate expense and other overhead related items.
As a reflection of these changes corporate expense is expected to be approximately $60 million. This year about 70% of 2019.
Our discipline around capital spending will also remain in place.
We expect to spend about $115 million on capital this year, including $48 billion, the pre told but first quarter and $20 million or nonrecurring items throughout the year.
With the exception up the California Hotel every property has generated positive EBITDA as well as positive free cash flow since their reopened.
And as of the first week of June the company as a whole began generating positive free cash flow.
And continues to grow cash balances as a result of our operations.
As of the ended the second quarter, we had approximately $1.3 billion from cash on our balance sheet.
Creating a net debt balance of $3.7 billion.
In a completely closed to Larry.
Our current liquidity provides 19 months operating kosher and as zero revenue environment.
Since our last call, we amended our credit agreement to waive covenants until June of 2021.
And we issued $600 million a senior notes to provide additional incremental liquidity is included in the 1.3 billion dollar cash balance I just mentioned.
We expect to use a portion of our cash to repay the balance is currently outstanding under our credit facility.
Discussions are currently underway with our bank were to extend our credit facility and term loan maturity or September 2021.
Well the crisis and its related challenges are not behind us we're off to a strong start we're focused as a company on ensuring we maintain discipline throughout our business not allowing unnecessary costs and an inefficient practices to creep back into our business.
That concludes our remarks, and we are now prepared to take any questions from participants on the call.
We will now begin the question and answer session to ask your question. Your press Star then one on your touched <unk> said.
If you're using a speakerphone please pick up your hands they prefer pressuring the key.
So enjoy your question. Please press Star then too.
And our first question today that come from Joe Greff with JP Morgan. Please go ahead.
Good afternoon, everybody [laughter] registrations on results.
You kind of maybe it's.
A few different ways.
Neither had more time <unk>.
But.
When we look back at the two Q here.
Yeah.
Maybe EBITDAR this phase that wasn't.
And then what it was in June.
Just indicated.
What is sort of post deal either.
Yes, the schedule.
Hey, Joe It this is Josh grabbing a lot oh, you're breaking up pretty significantly.
Is that.
Try again.
Okay I was going on that side I'm, just trying to [laughter] right, that's down from where I know my hats.
So what I'm just trying to get added hoping maybe came out and that you Q, what what EBITDAR buys in the first two month.
The quarter.
Some degree of negative and then put it wasn't in the last month.
Quarter.
To get a sense of sort of that sort of maybe.
Pardon me.
And then the along those lines right.
Before.
[laughter].
[music].
As you here.
We're in.
Okay.
[laughter].
Oh.
[laughter].
So a jody operator, Joe is we can understand his question so probably best to move onto the next person and if someone if someone else could hear Joes question, maybe they basket on his behalf.
<unk>.
Understood.
Our next question will come from at least 100 with Barclays. Please go ahead.
Hi, there.
I apologize I think I heard what you said and it's part of my question to the so I'll help out here I think like you always first trying to ask because if you could kind of parse through the quarter and help us understand what you don't look like versus the others you pick up the we could calculate the opex per day, which kind of leads to my question.
If you mentioned that you'd be operating cost then Las Vegas locals, if you make the adjustments for the earnings and stuff and Gulf Coast similar to the regional so can you really just kind of help us out with like what the ongoing or the current level of operating cost per day, our so that we can kinda calculate appropriately going forward.
Good and then you know just like this whole kind of.
Cost structure.
Does this really apply to when you're fully up and running I know that there's a lot that you've done to.
Pull out costs from your business, but it just seems logically that there's got to be some cost that you come back. So maybe you could just help us better understand whats permanently gone isn't it more like back office stuff versus other stuff and they could there be other cost that could come back and if so what are they.
Sure.
Please this gives you a number of questions. There, let me start kind of at the end on the cost structure and then I'll, let Josh take the first part of your questions.
We have carved a lot of cost out of the business, they're down significantly in those costs are across the board from corporate expense to marketing costs to labor costs.
And.
There are result of both having.
Less maybe amenities open as well as just having smaller footprint will generally 50% of the casino open.
We feel like as I said in my prepared remarks that we have.
Built a new structure for the business and while admittedly some costs will come back in over time as the business grows we think largely that many of these costs will stay out of the business.
And then we won't have to bring them back and whether that be it a form of labor or be in the form of maybe not bringing back all the amenities. You know buffets are great example, sitting here today.
Hard to understand help a phase come back into the picture going forward.
Yeah, when the environment. We're in today, so what's going we believed that the structure, we have there's applicable going forward.
Well I think Jeff remembering that well, we're only operating a 50% capacity.
That's generally all we need weekdays its weekends, where we feel the pinch a little bit where we can use more capacity and pick up more demand, but as we have focused on a higher worth customer right now.
The capacity, we have as soon as just fine.
Josh I'll, let you pick it up from there yeah, so felicia and partly to Joe as well I think the difficulty in trying to answer the question about kind of run rate of expenses, we'd have to look at just a period of time that we were open obviously, we had increased expenses during April most of April the cost.
We had two yeah, we were still quite paying a wages and and and still had team members employed before we went into a furlough status. So I don't have just a kind of June.
Reopen period that would be the one I would have to refer to go that's when we had the most properties open consist of the most consistently.
We did even continue to have properties open throughout the month again, so I think it's a little hard to answer the question, it's kind of what a kind of run right operating expenses with the information I have in front of anybody if either one of you want to call separately I'm I'm glad to try to give you more color or help you threw it it's just really difficult to.
Kind of compare the individual months given how different every month really was.
So I think the other thing I would say just generally in terms of kind of what the sustainability of what we're doing here is I think.
We're trying to build in a discipline in a in a thought process of we're starting from a clean sheet of paper really from being closed and so as we incrementally add amenities are incrementally add marketing, we having much clearer picture of the actual impact on profitability and we can make those decisions as to why.
Other you know we want to go to that next step or even pull back. So I think two key point.
We believe a lot of this is sustainable a lot of it is philosophical around how we choose to run the business going forward, but a lot of it also depends on what happens going forward with respect to the customer demand and competition as well.
So.
Yes, Thanks, and just in terms of trying to back into the number any can you do something like you could you.
Only shutdown days this year.
Next per day, there's like a million right. So could you give like that for the first two nights and then back into what the Theres nothing like that that kind of get us Aaron <unk> vehicle kind of way.
I really have sit back and think about it I mean, maybe maybe you can call me after that someone can help me think it through Oh, Okay and it just kind of just as a follow up you guys aren't the first casino operators say that you see more younger players not only in the numbers that spending more.
What's your what's your confidence that Bob.
Thank you noble and how much of an it this is probably really hard to parse there, but how much of fiscal stimulus do you think it is driving your traffic or that traffic.
You're right. It is really hard to parse through in terms of where.
Our customer's going to disposable income is coming from and why they are walking through the door. The good news as there are walking through the door. The good news as they are participating with us. The good news is that most of these younger customers are at a higher worth segments. So we have their information.
And therefore, we're able to not just track them, we're able to market to the I'm going forward.
And bring them back into the building.
We may be getting a larger share their wallet today, but the point is the coming into the building the participating with us they're enjoying the product and we'll be able to continue to talk to them going forward. So I think it's very much a positive that we're seeing.
Growth in the younger demographic.
When the pandemic finally.
Runs its course, whatever that is the older customer will come back.
And then we'll end up with a more robust database of higher worth customer. So look I think we feel really good about the direction of the business right now.
Yeah, the customer traffic, we're seeing the demographics of that customer traffic.
Just to add to maybe what Keith said there a couple of things number one is I think the decline in kind of.
Older customers has not been as dramatic as maybe some people might have thought Oh, there is a decline, but it's not in a meaningful.
Away.
So I think that should be noted secondly, I think is and Keith alluded to this we do have an opportunity to build increased loyalty from that younger demographic as they are coming through the door and we are seeing increased.
Levels of that younger demographic and our track to play.
What I would point out in terms of this I do think probably a little bit more of this unrated play is coming from potentially you know that the government the government stimulus and some of those other things, but but the reality is as the customer the younger demographic there were talking about his game.
And so the alternative entertainment alternatives or whatever driving that customer place, probably a little bit less to the extent of what they are participating and because they are coming in to participate in what we have to offer and gives us an opportunity to build that loyalty and that relationship with them. So.
No doubt some of this is driven by meeting.
Complaints as we all find ourselves, but part of it has also that younger demographic. It just participating more and what we have to offer.
Great. Thank you appreciate your comments helpful.
Sure.
Your next question will come from part of those sensor Ellie with Deutsche Bank. Please go ahead.
Thank you for taking my question.
Josh.
Just came out.
Similar to maybe with Joe was was asking about in.
Followed up on.
If I look at kind of the data that provide or that the revenue kind of growth or sorry revenue contraction within Midwest and south segment as well as that of the locals market coupled with the revenue you reported margin growth you reported.
To imply that.
Maybe just this mid west South Korea, Okay. Good about.
$4 million of EBITDA.
And about 22 million in the locals market for the period of open.
Think about those results.
Relative to the period, where you were close to what you ultimately reported that would kind of give a sense of the burn rate during that period is there anything slide with that I was getting to a 41% market for mid west and south and 45 for locals.
But that's about right.
Hello.
Okay. If we if I'd think about those margins.
You know clearly look I think the locals market, it's probably advantaged because youre your competition although.
Again, it is kind of its a C. Operating environment that you are maybe similar financial goals and whatnot, but in the Midwest South of your consistently competing with the more a broader array of.
I didnt have different strategies.
Going to go about it. So my question is the sustainability of the Mark.
Spoke about before how much.
That is predicated on kind of the way they your competitors react going forward.
Well clearly there is a portion of that where that is related to that but I wouldn't say, it's not the majority of it.
You know, we as Josh indicated we've talked about we.
Crafted and different business models, we've come out of this closure period with the benefit of being closed unable to take a fresh look at everything and of rebuild segments of the business and so we're able to delay or some of the marketing programs that have more efficient process of marketing programs going forward.
As we did before the pandemic yet we weren't chasing revenues, we weren't chasing our competitors marketing programs. We pay attention. We may have to react, but we are simply not going to add costs back end because that's what you know the property Nexstar does we're not ignoring it we're not big ignorant.
What they're doing we're paying attention, but we'll be very disciplined before we start layering programs backend because once you know we remain focused on a higher worth customer it's not about volume right now it's about quality.
I think the one thing that I think maybe help people try to understand this is it's a big different starting from a business that is running and try and though.
Change, how you operate and implement philosophies that may take.
Us longer to execute on whereas from the perspective of starting from really.
Hey, Hey, close position, where you have no customers in the building and building back from that it's a much different.
Situation at circumstance from what's your coming from and being able to make decisions and and it's easier to.
Get rid of some of the things that you may have been trying to get rid of and we're going to get rid of but just what was going to take longer to get there I think that's that's really what we've been able to do and then the question really as a how far do we go back to where we work and.
I think that's yet to that stories, yet to be told but we're trying to be disciplined direct around how we.
How far we moved back down that path.
Great. Thank you if I just couldn't ask one follow up in terms of.
What you're seeing.
In July.
As mentioned that the positive trends have continued into July if if I wanted to kind of.
Parts into that comment as it pertains to the Midwest and south or are you guys seeing potentially a.
Schism between what you're seeing maybe in the Midwest central regions relative to the strength of demanded.
Call it that the southern area.
Et cetera, or is it pretty uniform across the north and south right now.
I think the way to think about it as opposed to north and South is that the trends that we've seen in July. So it's not are similar to the trends in June maybe what I meant to say was the business has been very stable.
Since we reopened so you know the type so.
Declines in revenue we saw in June.
You know exist in July it hasn't accelerated hasn't decelerated.
EBIT dollar that we saw in June we're seeing similar results in July not significantly up not significantly down margins are relatively consistent between.
In the June and July time frames.
I didn't look at it between north and south the once again, whether you're in the Midwest north or the southern part of the country or Las Vegas.
As you look at their June trends July across the board has similar region by region.
That's helpful. Keith Thank you guys very much.
Sure.
And our next question comes from carry agenda with Suntrust. Please go ahead.
Hey, guys.
Just to start I believe they're still three properties.
What are your plans there have you been able to shift any place from those three to other properties. Thanks.
Yes, we currently.
Plans with respect to re opening those one of them doesn't count on Las Vegas, which as you heard US talk about is right now kind of the most challenged segment for US just given restrictions in Hawaii and lower tourism overall in Las Vegas, Yeah. The tour smaller properties, if it's a demand based.
Calculation on our part so once the demand starts to pick up both downtown as well as is around the two smaller properties, that's when you'd see us reopen those we don't have any dates right now.
Okay, Great and then look I think it striking that trends in July are still strong despite.
Seeing some second waves of cases, maybe just any color on why you think there hasn't been that impact.
With that how should we think about the potential for re closure at risks there. Thanks.
Well, that's where our customers have not overreacting to the safety or sanitation protocols, we put in place in many cases are very happy with them.
Whether that's wearing masks or whether it's increased sanitation. They generally are pleased with.
What is going on.
In many cases, you we didn't have to have our customers wear masks. When we first open and then going to mask requirements came into place we didn't see much if any deviation in kind of customer behavior between those two periods of time, so no customers seem to be except into the product I will tell you that as a company.
Yes, we do a very very good job on sanitation measures.
I don't say that just as a proxy you know, but if you talk to the regulators around the country when they come into our buildings.
Talk to US and you know look to enforce these things they tell us that the steps we've taken our above and beyond most if not all of our competitors. So we feel very good about that and their customers feel very good about being in a safe than a clean environment.
Just not to future closures the only thing I can say is.
Those are not.
Conversation or topics that are coming up as we talked to regulators or.
State legislators the conversations are all about enforcement of existing guidelines, whether it be masks are she other CDC requirements.
And.
Once again, we've got what kind of at the top of the list when it comes to that.
As you paid attention you've seen that the requirements have gotten tighter from no masks masks. Some cases bars have had to be closed.
And so while the restrictions have gotten tighter it's interesting that the level of play a stay the same so it certainly doesn't feel like and we're not having those conversations about future closures.
It's all about enforcement is all about compliance, it's all about paying attention to what's going on to help you know stem the spread of this this terrible virus.
Great and just a quick one just wondering did you guys receive any proceeds from the cares Act.
We didn't take any loans, so that's what you're referring to Barry we.
Yeah, no loans, we received a partial benefit for some other expenses, we really we incurred related to.
Keeping our team members on staff and paying them for a longer period of time.
Got it okay. Thank you.
Sure.
And our next question will come from Joe Greff with JP Morgan. Please go ahead.
[laughter].
Let's give it another trial can you hear me now.
Perfect Perfect you came at the same question again however.
Like the answers to those question to ask me so [laughter].
I did I cannot comment.
Have you noticed any of the Las Vegas ship operators trying to encroach on the Las Vegas locals customer.
And if you're in that you anticipate experiencing that how do you guys compete in that regard.
No. It's interesting interesting question, Joe we really haven't.
Prior times, you've seen some big Adsense, a big offerings to have locals come in.
Mostly dine in the restaurants, and you know maybe go shopping in the.
The retail malls, you're not seeing that this time.
And so that's that's obviously a good sign just from a competitive standpoint, so nothing is not going as popped up in the time that they've been open and we've been open.
Great and then going back to sort of the question of daily run rate.
[noise] when you're sitting here at the end of July when you're looking at your property on your property portfolio and corporate.
Your.
What you didn't Dana its fixed expenses are they the same or lower than worthy of a run rate and that the ended the quarter just to get a sense of maybe how much more op margin opportunity there is or Conversely, maybe how much you're adding back given what you anticipate or presently you're seeing in terms of revenue recovery and that was all for me.
Okay.
Yes. So as you should think about July once again very consistent with June you think about margins very consistent.
You know hey, I would not.
I think that those margins can grow pretty healthy.
Further out today vis-a-vis, where there were at.
Be we really haven't added any costs back and so.
What I indicate that.
Business has been very stable.
Actually it's been remarkably stable.
Since.
Before we can join in the first four weeks in July.
Great that's perfect I appreciate it thank you.
Thanks, Joe.
And our next question will come from Steve within the with Stifel. Please go ahead.
Yeah. Good afternoon, guys. So if we go back in thinking about what you've seen so far in July I'm not sure. If you you answered. This if you did I apologize but.
And your competitors.
Across the country get more promotional over the last couple of weeks.
Well, let's say you know whether it be here in Las Vegas or across the country the promotional environment remains rational.
As always you have a one off here or there that has added but some level of promotional activity but.
Lord for the largest part or you know two largest extent it is relatively stable relatively rational nobody is out there adding back layers of marketing.
Are there any markets you would call out as being over overly promotional right now.
No not not at all.
And Josh I'm going to heat does but I'm going ask another.
Sustainability around margin question. So this is gonna be a little bit hypothetical.
No you love those questions but.
Let's say a year from now the world is.
Back to normal there's a vaccine its successful leveled out your casinos aren't capacity limited anymore and all your non gaming amenities are fully operational I guess, I guess I'm going to try to get out here is under that scenario, what what keeps your EBITDA flow through look like somewhere in the future and if you don't want to answer that maybe.
Do you think that flows through could be significantly higher than where it was pre virus.
Yeah, So you're right, Steve I don't I don't like those kinds of question.
Actually in the middle of a pandemic, but.
I.
I do think maybe this is how I would try to answer it to provide an answer it.
And Peter touched on this and answering other questions before is number one is I do think that a lot of what we have accomplished so far and maybe.
Some of what we have accomplished so far is sustainable in terms of taking costs out of the business and so at a very nature of that I think that our flow through can be better going forward, depending on the health of the customer and the and the revenue that were seen from that customer and where it's coming from quite honestly right now we've got the best.
Customer.
No that.
I mean, if you step back and think about the operating environment. We're in today.
It's the best of all environment other than having has occurred and the environment of a pandemic you have limited amenities you have slots, which as you know largely.
Doesn't need much in the way of labor and you have a customer that wants to be there a that you're not having to market aggressively to to get to come in the door and many are not getting marketing marketed to at all so these are customers that want to be in the building at that kind of quality customers is with us a year for now in your hypothetical scenario.
And that's what's growing in the flow through its going to be fairly significant and so I think those are all the kinds of things that make create where we're at a little bit of uncertainty around what amenities are added back if any.
What's the quality of the customer how far down and how much further down in the database, where we seen increased demand or marketing to that customer all of those things are yet to play out over time.
And we're going to try to be as disciplined as we can and retain as much as of what we've accomplished so far in the last couple of months.
Going forward.
Okay. Thanks, Josh I appreciate it sorry about the a hypothetical.
[laughter].
And our next question will come from Jain with Wolfe Research.
<unk>.
Hi, good afternoon, everyone. Thanks for taking my question.
So in the month of July with the three properties still closed or are you thinking your total companywide EBITDA could still be higher year over year for the month is that how we should be thinking about July here.
Higher than than what Sarah higher than prior year.
In July of last year.
[noise] [noise] [noise] yeah.
Look I think all I want to do at this point is just suggest the reiterating what Keith said, which is what we've seen in late May and June is continuing in July and so with that lead us to be.
Well ahead of prior year, so be it I think that ultimately.
The level of business that we already see we are operate the wheel.
[noise].
The cost structure and all of those things are not changing so I don't think I want to get into you know projecting individual months going forward or anything like that but I think what I want to do or what we want to do as a company is just kind of give you. The framework is to make a decision or and.
Along those lines nothing has really the trends in the customers and the expenses and everything else is.
As you know not the Kansas or any difference between what we saw in June.
Just trying to say, we're not we haven't provided guidance, we're not providing guidance.
And you know when it gets to year over year comparisons with highlighted trends, but a lot comes into play last year calendars.
And other things going on so, but generally just not providing guidance so.
Fortunately, it's hard to provide any more color than what we've already done.
Okay. Thank you and Josh you mentioned you turned free cash flow positive in early June.
What's the plan for the cash assuming these trends continue or are you holding the cash are you paying down debt. How are you thinking about that right. Now just given I think you said you have 19 months of liquidity on hand.
Yeah. So what we plan to do is Ah I guess, a once we have the extension of the credit agreement and the term loan I in place, which we expect to have happened in the next couple of weeks or so then we would use the cash to pay down any outstandings under the revolver.
That will lead us to have extra cash beyond that and so our liquidity at that point, which is we're going to continue to maintain is our availability under our revolver and our cash balances at that point and so we'll continue to kind of manage our liquidity based on what's happening in the world around us.
Okay. Thank you very much.
Yes, Sir.
Your next question comes from Thomas Allen with Morgan Stanley. Please go ahead.
Thanks, I'm not sure clarifying questions. The first is really encouraging to hear you guys talk about how.
Other trends have continued into July but if you look at the hotel industry. For example, you saw a really strong July 4th and then business.
Slowed down a bed and the second three weeks of July when you say that business is continued are you, saying week by week by week. It's just continued to be stable or has it been the month of July has continued versus <unk>.
So when we looked at the reason so we get obviously daily reports on our performance and that daily performance, let's consistent with what we saw in June.
As well as kind of a month to date, it's not one weekend as making them off or anything else like that Keith I don't know if there's anything you want to add to that but I think it's when we say its consistent if not driven by a nuance in the calendar or anything of that nature.
Right I think are great and then Josh just thinking trying to extrapolate first quarter results out to the coming quarters.
Did you book carries that benefit and the second quarter end to end, if you're going to did you book care that benefits in Twoq, you and so should we kind of take those out for our thinking about forward for numbers.
Oh I don't think so because then you would have to layer in the incremental labor that we had on that's no longer in the business ride that offset the labor that's not in the business. It's an apples to apples kind of elimination. If you will we had higher increased labor as a result of carrying staff and.
Well into April it is partially not totally offset.
By those that cares act so if anything for the quarter, you would adjust some incremental labor costs out of the results that even a little bit better results.
Approximately how much loved the Josh.
Oh, I don't I don't actually have than the final number I just know it was just partially offsetting the labor costs that we had you know.
On staff until we made the difficult decision to furlough team members.
Okay helpful. Thank you.
Yep.
Your next question will come from David Katz with Jefferies. Please go ahead.
Hi afternoon, everyone.
To the degree that you can.
[laughter] [laughter].
Hi, I you know I wasn't sure that my question was going to be funny, but I I hope everyone finds it you know at least interesting if not a music.
When we look at gaming floors, one of the drawbacks. We have is we haven't really had much of an opportunity to go and see properties.
I assume that you know it's different markets are market, but we'd be seen gaming floors with every other slot machine turned off we'd be seeing you know table games separated with plexiglass up as we're seeing in many other aspects of it.
Are there any markets where that is not the case today.
You know if you had to speculate such a tough word but I mean it. It is this some version of what the new normal is going to look like with spaced out gaming floors, and you know the nuts and bolts or why I'm asking is you know we looked at our property models. We're thinking about you know what whether we should be.
Going back to slot machines that are shut off today and table game positions that are shut off today.
And you know what that could turn into it.
So as you think about our portfolio you know 29 property spread across the country.
Generally we are at 50% capacity.
Generally it is every other slot machine there are some unique issues state by state or property by property.
We generally have.
Barriers that are table games, which allow for you'll for people to 21 table quote unquote socially distance versus three and a few more people around the crops table.
But.
You know the easiest way to think about it is worth 50%.
Capacity under casino floors.
I think what is that the future of the business.
Yes that is.
I'm not I'm not sure that question can really be answered.
You know how does the pandemic changed the world around us a year from now on how our customers reacting to you know just being in large groups are larger groups a year no I don't think any of us.
You know have that answer and I for one I'm not willing to speculate as to what that could look like.
We're focused on running our business today.
Focused on kind of maintaining the success of the momentum that we've generated over the last six or eight weeks.
And continuing to.
Evolve this business in a very fluid environment, and just kind of adapt as we go with your that's what our focus is today and we'll be in the future and you know.
Whatever the whatever the future brings we will be prepared for it.
But hum unwilling to speculate what that May look like a year from now.
Fair enough if I can just follow up on one of the issues that came up earlier around.
The degree to which the strip may be you know delving into your customer base.
We've had a number of discussions throughout this year in and you know Josh I've heard you talk about the notion.
Got the strip is largely de coupled.
You know from fortunes of your locals business.
You know again is is that something that you think is sustainable permanent sorta ongoing.
Well then you have to think about the strip business and understand how that.
It was built and I know you do but when you compare to the locals business.
Casino product is priced differently.
And in the past when the strip is marketed to locals customers, it's really been more on the up and b or the non gaming side not so much the gaming product.
Right now obviously you know there's very limited.
The non gaming amenities that you know that exist on the strip.
And so.
Unless there's a wholesale change in how they market there gaming product I don't think you're going to see locals gravitate, many big numbers to the strip.
Okay I appreciate all the detail thanks very much.
And our next question will come from Shaun Kelley with Bank of America. Please go ahead.
Hi, good afternoon, everybody on.
Just I just wanted to follow up we've talked obviously, a lot about the margin and cost side, but maybe we could.
Dig into the revenue side, a little bit more right. So we're seeing kind of ER run rating it sort of down high teens are.
Type type revenue numbers in the regional markets.
What's your insight or kind of what are your what's your thought about how much of that is simply driven by what seems to be a very meeting meaningful cost you control.
And.
Then just kind of what are your thoughts on.
How much of this is being driven by the reduced marketing.
Effort itself and is there a piece of revenue that may not come back. It's okay, because it's probably quite profitable obviously trying to pair that back throughout but just kind of how do you weigh those different factors based on the data that you're seeing.
Well in those are all factors that are part of the revenue decline it's.
Not really possible and we haven't even attempted to.
Discern is this a capacity issue.
Is that a marketing driven issue is it a.
Customer issue in terms of you know how much wallet, they have or they're just comfort with coming out.
You know to participate it could be any number of things.
And once again your mid week, we don't really have capacity issues. We have plenty of capacity is really a weekend issue. So I once again, not really possible for us to parse through that im going to give you any sense of how much is may be attributable to each one of the things you mentioned.
Yes.
Without quantifying Keith just any thoughts on do you think there isn't material piece of.
Let's call. It unprofitable revenue left in the business people that were coming on some of these heavily heavily discounted promotions in certain markets that you know is clearly going away and then in an environment, where you removed.
That that marketing.
Again kind of full stop is that do you think that's material to the overall or or do you think you'd already done or optimized for a lot of that free of it.
Oh, that's material, it's certainly a part of the decline because as you look at the lowest ended the database you see a continue to shrink when shrinking we've talked about this for a couple of years in terms of our focus on driving profitable revenue, but clearly during.
No.
This this pandemic it and since reopening it has continued to shrink it's continued to go down.
It is actually is decreasing more than the higher worth segments.
Frankly, our highest worth segment has grown.
Which is very very much a positive in so the lowest word segment was down the most so yeah that business has gone away, which attributes to the decline in revenues.
That's helpful and then.
One last one for me it would simply be on Josh I think you need to prepared remarks, you referred to.
A little bit of what was going on with the Capex line I think you said.
115 million 48 that was in the first quarter really sort of pre Cove Ed.
Mavens, finishing up some projects or something and then 20 on nonrecurring items.
We sort of adjusts for those factors. It gets you a sort of a an ongoing run rate at that number you can can help us with just for what we should think of stabilized environment from here either per quarter.
For a full year going forward.
Yeah, So Sean I think the reason I gave the components were so so people could start to try to figure out what kind of the core maintenance run rate would be if we had to go to that kind of close to our minimal maintenance environment and we had.
And I came into around 60 or $70 million I think.
I don't think thats necessarily a good run rate. If we are quote unquote in a more typical environment I think it's it's more like the 120 million dollar number.
You'll have more things that need to be maintained and more you know things that need to be freshened up and rooms to really be done and all of that were we don't even have all of our rooms available to customers at this point and all of our restaurant product. So I think ever more kind of recurring run rate of about 120 or so.
But look I think to be fair, we've got to kind of get through the next several months evaluate where where I look at what we begin to feel like next year is going to look like and then we'll kind of update people on what a good number is but in terms of just base I think.
Kind of core where we have to cut back as far as we need to.
It's probably not 50 60 $70 million range more run right maintenance capital on a more quote unquote normalized environment, It's probably 150 to one 115 120.
Perfect. Thank you very much.
Sure.
If we have time for one last question and that will come from John decree with New gaming. Please go ahead.
Hi, Keith Hi, Josh Thanks for taking my question.
Josh I'll try to build on that Capex question, a little bit and tie it back to some earlier comments about maybe parts of the business that it maybe have changed if not permanently at least for the foreseeable future.
Buffets or something that gets tagged a lot there.
Maybe rooms, not all coming back online when you start to pick up capex spending again or even when you think about their maintenance budget, what what types of things.
We'll be spending capital dollars on either maintenance or ROI citizens shifts and if it tough shifts more medium term. If you know we're not going to be doing.
As many restaurants in SMB or something like that where where do you think that dollars go.
Yeah, I don't really think its.
Really different than what we're talking about today I think it's really that you know either the business is growing in the buildings are getting anymore usage and that's how the vault and therefore, you're getting more use out of the buildings or require.
Higher level of maintenance.
I don't think it's any anything incremental to what we're doing today other than for those reasons.
Okay fair enough and I don't think we could lets you off the hook without talking about M&A, obviously, no unusual market, but there'll be some stuff obviously for sale and curious to get your thoughts on line.
Our new operating model was it changes to how you look at M&A and if over the near term ice if you've got some confidence or enough confidence that you might be and active participant if there's anything out there I was looking at.
Maybe a couple of comments.
It's.
It's hard in this environment given everything that's going on to so we think about.
M&A in purchasing assets.
So a little bit earlier in my comments and answer your question.
Our focus today is just on running this business continuing the momentum of the success that we've been able to creates in the last six or eight weeks and continuing to adapt and evolve and whats very fluid situation. There's rules change masks are no masks masks and closing a few.
Bars, and you know as this evolves as pandemic evolves, we need to evolve with it and be extremely focused on our core business and making sure that we're doing everything right, making sure we're not allowing cost to creep back into the business.
And that you know we continue to focus on driving profitable revenue. So that is what our focus is today.
You know own we'll just go to adapt as time goes on.
Thanks.
Okay, all the additional help and color guys.
Sure.
And this will conclude our question and answer session I'd like turn the conference back over to Josh Hirsberg for any closing remarks.
Yes, thanks for all the good questions today, and we've been I will provide some valuable insight into what's going on in our business and we appreciate your time today and if you have a follow up question Oh that you'd like to dig into please feel free to reach out to the company. Thanks, again and everybody stay health.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.