Q3 2020 Boyd Gaming Corp Earnings Call
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Good afternoon, and welcome to the Boyd Gaming third quarter 2020 conference call.
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Now, let's turn the conference over to Josh Hirsberg Executive Vice President Chief Financial Officer, and Treasurer. Please go ahead.
Thank you Gary.
Good afternoon, everyone and welcome to our third quarter Conference call.
Joining me on the call. This afternoon is Keith Smith, our President and Chief Executive Officer our.
Our comments today will include statements that are forward looking statements within the private Securities Litigation Reform Act.
All forward looking statements in our comments are as of today's date and we undertake no obligation to update or revise the forward looking statements.
Actual results might differ materially from those projected in any forward looking statement there are certain risks and uncertainties, including those disclosed in our filings with the FCC and may impact our results.
During our call today, we'll make reference to non-GAAP financial measures for a complete reconciliation of historical non-GAAP to GAAP financial measures. Please refer to our earnings press release, and our form 8-K furnished to the FCC today and both of which are available in investor section of our website <unk> Dot com.
We do not provide a reconciliation of forward looking non-GAAP financial measures due to our inability to project special charges and certain expenses.
Todays call is also being webcast law the board gaming Dot com and will be available for replay in the Investor Relations section of our website. Shortly after the completion of this call.
So with that I would now like to turn the call over to Keith Smith Keith [noise].
Yes, Josh good afternoon, everyone. Thank you for joining us today.
Third quarter results clearly reflect the tremendous progress we have made since we began reopening our properties five months ago and the strength of our operating teams across the country there.
Our ability to adapt to the significant changes brought about by the covert pandemic has been a key factor in our success.
As we discussed on our last call. When we started the reopening processed somebody may it was clear we had to adapt our operating strategy to meet a much different environment.
Well the change that we have to change with it.
With limited capacity on our casino floors and reduced amenities for our guests visitation to our properties was down significantly from a pretty cold world.
Knew we needed to rebuild for operating and marketing cost to match this reality yeah.
We had to find a way to control cost without compromising a great guest experience that our customers expect from us.
Same time, we needed to develop and implement entirely new safety and sanitation protocols throughout our business aimed at ensuring a safe environment for our guests and team members.
Successfully developing and executing the strategy over the course of just a few months was one of the greatest challenges we have ever faced.
I'm extremely proud of our operating teams have responded to this challenge as well as the outstanding results they've produced.
During her first full quarter since reopening companywide EBITDARM is up nearly 12% as operating margins increased more than 3000 basis points to 36.6%.
The highest companywide operating margin in our history.
In the third quarter 18 of our properties grew EBITDA at a double digit pace you.
Either more properties achieved all time record quarter, three EBITDAR and three more set records for the third quarter, including Delta Downs, which incredibly last three weeks of business due to damage from hurricane more and still produced record fourth.
Overall guest counts and revenues are down or targeted marketing approach to driving strong play from top tier customers. This targeted approach resulted in companywide gaming revenues for the quarter, they were down less than 8%, even with significant declines in our downtown Las Vegas region.
On a segment basis.
In our Midwest and South segment margins were up nearly 1100 basis points to almost 40% as we delivered the strongest quarterly EBITDA overperformance in this segment's history EBITDAR was nearly 17% during the quarter. Despite the repeat a closure, so our Louisiana and Mississippi properties due to hurricanes.
Results were even stronger in our Las Vegas locals business as EBITDAR increased more than 23% to a new third quarter record overall segment margins rose more than 1600 basis points to an all time high of 46% as we achieved our best quarterly EBITDA Overperformance nearly 15 years.
But our growth was broad based across the local segment.
One exception was the Orleans, which continues to be impacted by declines in convention business and destination travel to the Las Vegas market.
However, our local school at the Orleans remain strong you kept the Orleans results close to last year's record performance.
You impact of reduced visitation to Las Vegas has been more significant net or downtown properties, which have been particularly affected by a near total shutdown and traveling for Hawaii Board, an easing of travel restrictions now under way in Hawaii, We expect our downtown performance to improve in the future.
It is important to keep in mind that today. The downtown segment represents only a modest portion of our current nationwide business in 2019 downtown Las Vegas accounted for just over 6% of our total property EBITDAR compared to 29% for our locals business, 65% more Midwest and South segment.
Overall, our business has been remarkably stable since we opened our properties with more than 90% of our business coming from customers, who live within driving distance store properties, we've been able to successfully execute a strategy built on visitation from our premium regional customers.
As we look at the first three weeks of October the positive operating trends for the third quarter. It's continued into this month.
Well, there's no doubt that as conditions begin to normalize there will be pressure to go back to the way things work to return to normal.
It will be pressure through at Pac operating and marketing costs to drive more people into our buildings and compete for casual play.
Will be some situations, where it may make sense to add back some level of marketing and overhead costs, but overall today is our new normal we have established a more efficient more focused business model over these past several months, we are determined to sustain our margins going forward.
While we are encouraged by the strength in our most loyal customer segments.
I also believe that there are ample opportunities available to us in the future as customers, who have not yet felt confident enough to venture out go comfortable and visiting our properties once again.
Just as we are successfully implementing a new way of operating our traditional business. We're also expanding our digital presence through.
The convergence of digital technology in the traditional casino Casino entertainment experience.
We are creating new opportunities to engage our customers both inside and outside of our properties.
A good example is the continued expansion of a partnership with Randall.
Additionally, there are 5% equity ownership in Fanduel group, we are increasingly leveraging our partnership with Fanduel to market our properties to millions of Fandel sports betters across the country.
We're also partnering with Fanduel to offer a growing segment of our customers the ability to participate in our business from a comfortable drug.
During the third quarter Boyd gaming Fanduel added mobile sports betting products, and Illinois and Iowa.
With these latest launches we now offer mobile sports betting in five states encompassing 30 million adults.
And we are planning to further expand into the I gaming space with the launch of our own real money online casino product in the coming months.
Consistent with this strategy of growing our digital presence with the launch of our started a social casino in July and a new digital initiative B connected mobile that we launched in September peak.
He came back to mobile will allow us to seamlessly integrate or growing digital portfolio with our traditional casino experience.
Developed in partnership with aristocrat technologies. This mobile App will become the hub of our customer experience offering guests frictionless access to our universe of online social mobile gaming brands, including Fanduel, Stardust, and B connected sports or Nevada based sports betting app.
In the future, we envision tying together all of our digital and traditional casino experiences into a single digital wallet within B connected mobile voice.
Well, we are transferable between our digital brands in our casino properties across the country.
To be connected mobile we plan to give our customers the ability to use their smartphones to make wagers cashed out on slot machines and table games.
It will be able to use the digital wallet to make mobile sports bets to wagering online casinos have to purchase credits and have started a social casino.
They will be able to use points or cash within their accounts to pay for restaurants hotel rooms entertainment and other amenities at our properties.
Youre, taking the first steps towards convergence as we speak a few days ago with our partners at aristocrat, we launched our cashless technology at our Blue chip property in Northern Indiana during.
During this test to blue chip customers can create a digital wallet linked to their b connected card then use their card to place wagers and cash out on slot machines.
Based on the success of this initial launch and pending regulatory approvals, we plan to expand this digital wallet to additional amenities and additional Boyd gaming properties across the country and then integrate that wallet in a b connected mobile to create a true all digital experience.
Lastly, we remain focused on a partnership with the Wilton Rancheria tribe in Northern California.
Were putting the final pieces in place to other tried to secure project financing in the next several months and have it and move ahead with the project construction.
This first in class resort will be strategically located on a major highway just south of Sacramento.
Ideally situated to capture a significant share of the lucrative northern California gaming market when it opens its doors in the second half of 2022.
We are honored to be the tribes partners on this exciting project, which will allow the Wilton tried to find the realized a longstanding goal self sufficiency.
So all in all our team delivered an outstanding performance in the third quarter.
As we look to the future. We believe an important part of our continued success [noise] health and well being of the communities that we serve.
The day, they started Boyd gaming 45 years ago salmon Billboard instilled in our company a commitment to sharing our success with others by investing in our communities, we help create healthy communities when our communities thrive we thrive.
We remain firmly committed to this philosophy throughout these last 45 years.
We continue to advance this philosophy today, helping our community to respond to the challenges of 2020.
Following the impact of Hurricane bore in late August we provided significant financial assistance to our hard hit Louisiana team members.
As to the broader Louisiana community as well donations to community really for organizations like the American Red Cross.
And here in Nevada, we are actively providing support to our hometown as it deals with challenges created by the cobot pandemic.
Since those who have been financially impacted by declines in travel to Las Vegas, we are expanding our long term partnership with three square food bank, providing cash it in kind contributions to support their mission of helping southern Nevada residents and need.
To assist local children learning Waller schools are closed we are providing funding to the boys and girls club in southern Nevada to help provide remote burning facilities to low income K through 12 students.
As a company we are proud of our ability to keep creating shareholder value. Despite new challenges and as we continue this long track record of growth.
Keep investing in our communities strengthening the foundation for future success. Thank.
Thank you for your time today I will now turn the call over to Josh Josh.
Thanks, Keith as we think about our business today. The one word that comes to mind is consistency.
Since reopening our properties our own ability to execute an operating strategy engineered to drive enhanced profitability.
As well as our customers' behavior has been amazingly consistent.
Going forward, we expect to retain much of the efficiency that has been captured in our operational performance since reopening.
We are focused on serving our best customers and an environment of reduced operating expenses and highly targeted marketing.
Now turning to the quarter corporate expense and taxes were higher than we expected as a result of transitioning our properties from being closed to reopened we expect fourth quarter corporate expense to be similar to third quarter levels. These.
These are not however, good run rate levels, but 2021 corporate expense as these amounts include catch up items for the periods we were closed.
Capital spending during the quarter was $29 million, bringing year to date to approximately $105 million, we expect to spend about $25 million during the fourth quarter, excluding investments related to the repairs at Delta Downs, which are expected to be reimbursed from insurance proceeds.
During the quarter, we used a portion of our cash balances to repay our fully drawn credit facility.
As a result of completely reducing these borrowings we had approximately $500 million of cash at the end of the quarter and more than $930 million of availability under our credit facility.
After quarter end, we extended our credit facility and term loan maturities to align with our term loan b maturity in September 2023.
And we increased our revolver commitments such that our undrawn availability now exceeds $1 billion.
And all our operating teams have done a tremendous job executing on the company strategy since we reopened our properties their hard work resulted in underperformance, we delivered for the third quarter.
Just as exciting there's no sign of these results changing.
October continues the trend of Q3 and.
Well there are certainly risks and challenges that will present themselves. We are committed to sustaining our more efficient and profitable operating model into the future.
Gary that concludes our remarks and were now ready to take any questions from participants on the call we.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys to.
To withdraw your question. Please press Star then too.
Our first question comes from Joe Greff with JP Morgan. Please go ahead.
Hi, good afternoon, guys and.
Congrats on a on the result.
And.
Josh and Keith can you just talk about the mix and the rate of recovery.
Between the non rated retail and the rated database.
Players and the local the mid west and South gaming regions.
And then one kind of I'd like to go with it and so that's it's really the crux of what I'm trying to get to is to the extent that the recovery.
Looking ahead the recovery in the rated database player.
Minutes, it's stronger in that that Nonrated segment to what extent is that a negative margin mix and reverse system or the margin gains how do you think about that.
So a couple of a couple of comments, Joe I think as we look at you know the database, we continue to see strong play for upper tier customers.
And from our higher worth customers those segments in some cases are actually growing year over year.
I'm ready to play as a percentage of total play is actually up a little bit not just because it declined less than our rated play overall, so the shifted a little but not significantly I think as we look forward.
I said in my prepared remarks, we think there is still a good deal of upside as customers, who have not yet come out and been comfortable coming out to visit us well come out in the future and so there there continues to be I think.
Positive Pos momentum in the business.
Yeah. The only thing I would add to that Joe is I think keys comments, certainly are accurate and they and they reflect what has been really going on in the business. Since we reopened there as we said in our remarks, our business has been very consistent and so you know the the trends that we've seen since where you.
Reopened whether it's in the right segment. Other unrated segment has really not changed and both segments have been you know equally kind of strong and contributing and their and their proportionate share I think is the point.
We've not really seen any.
No degradation in one segment or the other as we pass through time, whether it's as a result of unemployment.
Benefits going away or other changes.
That folks would have perhaps logically thought would have affected one segment over the other.
I think largely in the rated segments. Certainly these are customers that we know well and have seen before in our pool pant playing at the levels that they have historically.
Generally from the perspective of the unrated segment.
Great excellent and then just as a follow up yes, you couldn't tell that by looking at the EBITDA, resulting in Midwest and south but can.
Can you quantify the hurricane impact.
And then Threeq you.
Well when you when you look at Q3 last year, we also had some hurricane impact.
And well, we haven't quantified it well.
To say it was.
Hi, Josh.
Josh Yeah.
Yeah, So Keith.
Keith correct.
We had hurricanes last year, and so that mitigated you know a comparable impact for this year, but this year was obviously worse and impacted us more significantly and you know, we estimate kind of $3 million to $5 million kind of an impact.
Thank you very much guys.
Good.
The next question is from Carlo Santarelli with Deutsche Bank. Please go ahead.
Hey, guys. Thanks for taking my question.
Josh will keep both of you mentioned kind of in your <unk>.
Your respective commentary that the higher end.
Higher higher worth customer database.
Got more frequency and spend or play from that.
Is that something that over the longer term you believe it's sustainable and what do you think is kind of driving.
The outperformance of that segment specifically.
Yes.
Well you know if you dial the clock back because that actually is a journey we've been on for a number of years as we relaunched our b connected program a couple of years ago and started to focus on higher worth play.
And then the covert pandemic and the required but we had to shut down the business entirely allowed us to complete the refocus neighbor supercharge that effort. So we are really focused on this high end play.
We are able to speak to them differently as we reopened the business speak to them more directly.
Provide maybe higher touches than we did in the past.
I can't tell you that they're spending at a significantly higher level. We just have more of the higher worth customers in the building unless the low with customers in the building I mean, if you were to look at averages.
Yes, the average spend is up but largely driven by just fewer lower end customers in the building.
That makes sense. Thank you and then I don't know if you guys would be willing to kind of take a shot at answering this but but if we if we ignore the downtown segment for a second obviously, but the locals margins up 6800 basis points year over year, and and the Midwest and south up a little over close to 11.
Great.
Would you guys like I I think Josh is that most of the savings operationally you would expect to keep if we looked at those two.
Growth rates in the margins and kind of assumes no more than half of them on a go forward basis.
Is that in your eyes at similar run rate levels to what we're looking at right now.
Maintain 800 basis points 500, plus basis points of Midwest, South EBITDAR margins on a go forward basis.
So.
I think that it's more in those ranges of a ballpark than either at the upper end or the lower end.
If you think about you know kind of the.
Drivers of expense of our business. The biggest components are obviously labor and marketing and the changes that we've made to those categories in particular.
In a large way are largely permanent.
And the way, we think about those now there's a certain aspect of marketing that will naturally come back yet potentially based on consumer demands are competitive pressures potentially but that's nowhere near the order of magnitude of what weve removed from the bill.
Business.
In terms of marketing.
And I think Oh.
On a much smaller.
Case should do the same thing you could say about labor and many of the other categories, where we've made and I'm sure our peers in the industry are doing the same thing.
They've taken a fresh approach and we've taken a fresh approach it looking our expenses across the board and largely taken made decisions that are permanently removing many of those costs.
Yes, some labor will be added back into the business overtime as we opened additional amenities as we're as we deem appropriate. So there will be some incremental labor, but as John said, we view a lot of the changes that have taken place is permanent in nature.
Great. Thank you guys.
Yeah.
The next question is from David Katz with Jefferies. Please go ahead.
Hi afternoon.
My primary question I think you just answered quite artfully and thank you for that what what I also wanted to ask about is you know when we look across the space and your peers in the rollout of digital and I know Keith you touched on this a bit.
But you know I, how at what point could we be in a position to pencil something.
In terms of that opportunity.
For you right because we you know we have others that have kind of laid out.
You know arguably different types of strategies, then would you have but you're a participant as well what like can you shed for us.
So look as you know as we look at this opportunity and we started down this road a couple of years ago. When we signed the agreement Fanduel. We approached it gives you a little bit different than others, whereas our focus was on.
Creating cash flow and creating EBITDA.
Not building large infrastructure and incurring large losses to compete in this business.
And so weve executed obviously, a number of deals with fanduel across the country, whether it's in Pennsylvania, or recently in Illinois, and Ohio, and Indiana, and Mississippi, and hopefully they'll be more is sports betting is approved across the nation.
Tell you that day or as we think about 2020.
Just kind of the recurring.
EBITDA coming out of the business.
Business today is in the eight to 10 million dollar range and that includes Illinois that just launched in July so it's not even a full year of Illinois.
Eight to 10 million doesn't account for one time fees that we will receive as a result of selling additional scans and other states doesn't account for the growth in other states and doesn't account for.
The EBITDA that the cash flow that come out of our.
Forthcoming online gaming.
Application that we will launch here in the next couple of months. So it's eight to 10 and its growing what's going the eight to 10 isn't really a full your full run rate.
Perfect.
Thank you very much.
The next question is from Shaun Kelley with Bank of America. Please go ahead.
Hi, good afternoon, everyone. Thanks for taking my question.
Josh or Keith you know either one may want to start with the locals margins again on you know, but I think one question. We had was I you know <unk> from from the time you were opening it does look like your margins actually improved in Q3 over Q2, just wondering if we could dig into that a little deeper what would drive that.
Central change I mean again you are open for longer you know some cost would come back.
You know and and admittedly, you're probably you know probably light on some of the low margin stuff, but Ah, but I'm just kind of curious on how we go from kind of 13 hung up 1300, <unk> up 1600, if you could elaborate on that 'cause it's very impressive.
Well other than saying that we've got a tremendous management team here and the Las Vegas locals market that is just doing.
Outstanding job driving the business, that's really at the heart of it but setting setting that aside I think the other explanation is.
The Las Vegas locals business quite frankly started softer started slow when we reopened in June.
Whereas other businesses in the Midwest and South actually started very strong honest with a bang here in Las Vegas. It started a little softly and has grown and I think as it has grown and we've obviously gotten better and we've learned what works and what doesn't work and and it's gonna team's done a great job, but the only real explanation as it did start slow in June in early June.
July and has gotten stronger.
The only thing I would add to that Sean as is you know kind of leading backup to the reopening period. There were a lot of questions around the you know what impact any weakness on the strip would have on our customers and we were and some of our peers in the locals market. We're basically saying look you know this is a regional market like any other.
Regional market and if anything we have kind of the backdrop of a very.
A fairly strong Las Vegas economy, and I think you know that's what's proven out here, though a regional mark a regional customers or regional customer.
Great and then just as my follow up you know Josh you've been very clear on I think the driving buckets for you know kind of what is going to be sustainable out of the margin improvement pointing to that as you know.
Labor on property and then you know the promotional marketing side.
Now we get a full quarter of data could you just help us a little bit with you know quantifying any of these aspects either on the labor front you know maybe just a generic property how much work down in S.P.E. counts on a on a year over year basis, or you know other promotional or marketing front, how much like marketing spend down or a promo dollars down <unk>.
Just to really help us kind of dial in on what type what types of magnitude to production have come out of the business.
Yeah, Shaun I I'd really like to give you that information, but I think our competitors would like to hear the same thing from us at the same time, so I think each of the companies.
Is approaching this in a similar way, but may be unique to their own approach to the business and so I think I want to withhold from answering that question.
Entirely fair. Thank you both.
Sure.
The next question is from Felicia Hendrix with Barclays. Please go ahead.
Hi, Thanks, good afternoon, and Josh and Keith you know.
Especially at today, we could see you know there's there's a lot of concerns in the market about you know kind of where we are in this cycle.
Cycle and so you know as soon.
As we head into the colder months in you know concerns kind of get greater about whatever you want to call. It second wave thirdly, and do you see risks in the states that you operate in for re closures and then Josh your liquidity runway right now is very strong, but if you could just remind us of your back.
She could possibly need to raise money until you get to that would be great.
Sure sure Felicia in terms of the risks of future closure certainly we we don't control, obviously that and you can see you probably have seen in the state of Illinois, where they have started to put more restrictions on a variety of businesses, including casinos in certain locales or certain counties, where.
The positivity rate has risen beyond a certain level I think it was 8% in Illinois. So you know that certainly could be an impact.
Obviously or risk to the business, we certainly view that as a short term risk that.
That you know, obviously would pass through but.
Certainly can't ignore that risk we don't.
See that another states were not concerned we're watching it and Illinois.
Sure It sticks and we're in you know as of now is fine we're not one of the jurisdictions that has to reduce their capacity to 25%, but we're certainly watching it but is there any huge resurgence could be a risk to the business.
And Oh fleets to your second question in my remarks, I mentioned, we have over a billion dollars of Undrawn capacity, we have cash at the end of Q3 of about $500 million or so and specifically we have the ability you know even.
In this period of time with a covenant waivers through our amendment.
Process to raise another I think it's six or $700 million of secured debt that were allowed to do so you know we have more than ample capacity to last in excess of two years of complete closure.
You know and that's at a run rate when when we had kind of run through this the first time of about $65 million of closed run rate expenses.
And we had different levels that we could have chosen to pull that.
Trigger on to reduce those expenses, even further so I would say conservatively over two years of runway runway. If we had to completely close the business every property again.
Okay. That's super helpful. And then you know Keith when you.
Kinda goes what gets your I think it's locals and market and you made the comment that the our means you're asking the convention business stuff like that and you know what do you kind of anticipating in terms of I mean, you can take a lot to get back to normalized interest to seek some kinda like revenue like you know back in to that part of that business.
Yes, and and then similarly, what would it take you to open the properties that are close now.
Sure. So I think as we think about the recovery or the ongoing recovery here in Las Vegas.
Two words coming to mind long and slow I think it's just going to be a slow recovery I think there is some pent up demand some people wanting to come out when a governor recently lifted.
The cap or.
The ability to have meetings to to 50 or 10% of certain certain spaces. The phone started ringing and we have people interested in coming out and in holding those events and so it shows that there is some demand for the product, but it's going to be a long slow recovery as I said the good news of your lead.
Yeah. The good news at the Orleans, we have a strong component of locals play there that kept it very very close to last year's record results and key last year was a record.
With respect to the close property. So there's three of them, they're all here in Las Vegas Main Street Eastside Cannery Eldorado.
We probably see reopening them.
In that order, but it will depend on.
How the business flows we think that Hawaii in the downtown market will probably come back.
Quicker than the other two markets either the Boulder strip market. Yeah, we have good business at Sam's town. We just don't have enough demand to open he side, yet or the Eldorado. So soon as the business demands it but I'd expect sometime.
Sometime next year, we certainly get Mainstreet open.
Great and just how can you just entered as far as the copies that that were open and how is your market share is that relatively steady.
Or entered the market share marketshare in Las Vegas, I would say was steady to up we actually depending on what period of time you run the numbers for the last three months that they were reported what should be.
June July August we actually were up.
Okay, great. Thank you so much.
Thank you for lunch.
The next question is from Steve was in ski with Stifel. Please go ahead.
Yeah. Good afternoon, guys. So I want to go back to your overall database and on your last call you talked about the significant growth in that in your database during the second quarter I just want to ask what's that growth similar in the third quarter or did that slow, which I assume is probably the answer but just trying to gauge here a little bit more about how those new to property or new to brand.
Folks are trending at this point.
Yeah.
Steve I don't know I don't think we were alluding to that our our database was growing dysport proportionately. If we if you took that away or if that's what we said I think.
In reality.
You know the customers. We're seeing we're seeing you know a rated customer that we obviously know and have seen beforehand, so right and their client at levels that are similar to prior levels. When per units are up just because we don't have the dilution of you know kind of.
Some of the other players that are in the database and as Keith mentioned, we have a significant portion of the older demographic within our database that is not coming out in plane right now just 'cause they don't feel comfortable we.
We are seeing more of a younger demographic, but I would not characterize those as necessarily a new customer in our database, but cost of once again because.
Because we know they're younger we know their plight of rite aid customers and so we know them and then lastly, the component that we've seen just as equally.
Strength from that we spoke about earlier in the call and in the question. You asked that question and answer session was the unrated segment has been healthy as well and you know so I'm not sure if that helps answer your question, but that's how we're trying to frame. It when we think about it from our perspective no. That's the that's soon.
Helpful. Thanks, Josh and then second question you talked about October has been very similar to the trends you witnessed through the third quarter, but I I guess for the rest of the quarter this might be a different question, but.
How are you guys thinking.
You know around some of the upcoming events that are going to be coming up in the fourth quarter, whether that's the let you know the next week or so around the election, and then maybe around the holidays. This year, which you know some folks may stay closer to home and I guess that ultimately could be a benefit for you guys.
Yeah, I don't Oh, I think our crystal ball is not clear that far out I mean.
Who are benefiting from a regional business were once again largely people can drive to us and so to the extent people stay closer to home. It just continues to benefit us and if they decide to go to Las Vegas, then we'll receive that benefit which is you know.
The benefit of having a diversified portfolio geographically so.
What happens with the election, and how that impacts people does that impact spend patterns or them going out.
Oh.
You can you can log on to the Sportsbook in place a bet, if you want but I'm not going to make prediction at this point.
I think though.
One thing I was going to add to its Steve is I think that.
At least the way, we think about who our customer is today.
This is this is what they do this is their past time. This is what they view as their form of entertainment and so I think that's why we have largely seen this customer.
Perform quite honestly, so consistently you know when I. When we opened initially they were the first ones to show up and when we had to be sure we enforce social distancing and mask wearing a you know they kind of.
Play through that and when the unemployment benefits went away. They played through that now there's no.
Guaranteeing that they can overcome every single hurdle that comes our way over the in the future, but I think in our mind and based on our survey of our customers and there's customer trends that we're seeing in our database. That's really what we can discern from who's in our building these days and it's it's it's.
Sure you know to the extent they showed up on holidays last year. They will probably show up again this year and that's the best we can go on for right now.
And just kind of one more real quick when it have you seen any change in that 65 year old enough customers have been just pretty status quo.
I think there have been starting to be you know small improvements in that nothing I would call a significant trend at this point, but we have started to see some of them come back out and.
Engage with us.
Okay, great. Thanks, guys.
The positive it's not negative okay, great. Thanks, guys.
The next question is from Barry Jonas the Truest Securities. Please go ahead.
Great. Thanks, So I wanted to start with maybe approaching the risk question from a different angle how do you think about.
Risks to this model under the scenario that we have a working vaccine.
Yes.
Well, so it's not there's a working vaccine if the.
Implication or the no. The game theory is that more people will come out in participate.
No some of our customers.
Who today are you comfortable coming out will come out and join us and so there is upside to the business.
So I think the vaccine is incrementally positive to our overall business is it possible that some of the customers that are with us today than you know spend a little bit of time somewhere else spending their dollars somewhere else certainly not as possible as Josh said, a few minutes ago. There. There's this tends to be their core form of entertainment and so there goes.
To continue to play with US I think there's a natural balancing effect on once again once some of the customers that come out that aren't used to pull or haven't been playing with its come back out I think it's incrementally positive.
Oh, sorry, I guess I meant more well also on the cost side in terms of some of the amenities.
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Well, we're monitoring that as we go into the extent that we need to bring back amenities. You know, we'll carefully monitor that and bring them back and make sure that they are a positive not a drain on the EBITDA of the specific property, where we bring them back.
Yeah, Great I think that's.
I was going to say better I think that's the key right, where there are opportunities presented by customer demand.
The you know the.
Our operations guys are taking advantage of that or with a with the eye towards kind of doing it at a different business model or with different pricing or under different circumstances to make sure that where we're introducing amenities and other aspects of our business that may not be open today and the most optimal way.
Possible so.
I don't think it's necessarily a that you know will be.
We'll probably see some margin compression overtime as a result of introducing new amenities, but the reality is is that we're approaching those those historically lower margin business is in a much different way with a much different customer.
Great Great and then just one more for me I'm curious to get more color on your foray into cashless gaming <unk>. How do you think about maybe upside on the top line or else on the cost side to justify the investment.
So first of all it's about safety and security and providing our guests yet another opportunity to have kind of a contact lists opportunity to engage in our form of entertainment as they come out. So that's going to first and foremost second I think there are opportunities to reduce costs in the business.
With less cash in the building.
And it is obviously a marketing features are frankly, a higher worth guests.
Don't need to don't like to necessarily handle cash and insert builds into slot machines. They can do it now seamlessly and upload and download cash I mean, it's a real real marketing opportunity a real competitive advantage for us and in a few days, it's been live a blue chip we've already had several hundred customers.
Take advantage of it and that's with no marketing.
We just kind of turned it on quietly were just kicking off the marketing. This week. So I think that there's a real opportunity for.
Great. Thanks, so much.
The next question is from Thomas Allen with Morgan Stanley. Please go ahead.
Thanks.
Well do that.
2020, EBITDA do you think.
Writing from.
How much you're breaking up.
They're going to dominate breaking up.
Yeah Yeah.
Well a little bit.
Well you know Ed.
From sports betting it up between.
Market access and what you're seeing on the retail sports books, and I think you've had your message.
Any interesting trends there, we've kind of gotten two years that like.
Hey, Thomas we really couldn't understand you Gary lets go to the next.
Purse a caller and then we'll circle back and tried Thomas again, Okay and the next question is from Jared Shojaian from Wolfe Research. Please go ahead.
Hi, good afternoon, everyone. Thanks for taking my question.
So I imagine the the slot performances meaningfully outperforming the tables right now I know the data is not explicitly broken out that way, but I I would also imagine that's probably affecting the mix on the margin side just given the slots are significantly higher margin is that having a meaningful effect on the mix right now and on your.
Margins or would you say no.
Not really I mean, well, we have fewer opportunities on the table game side because capacity is limited there too you know four seats of the 21 table and fewer people that have cropped stable. The baccarat table, the average bets or our increased on the table game side and so well.
Yielding the table games business, just as wells were yielding a slot business.
Clearly, 80% of our revenue as a company comes through slots and so as they perform better.
It obviously has a bigger.
A bigger impact on the overall margin of the business. There's no question. The table games is performing and its not dragging down.
Yes, the overall margin improvement.
Got it. Thank you and then just switching gears here just given what we've seen with valuations and the sports and I gaming names can you just talk about how you're thinking about your fandel stake over the longer term is that something you would ever consider monetizing or do you believe there is strategic importance to holding onto it.
Well they said they were very happy with that partnership that equity ownership that we have obviously it was worth a tremendous amount of value to the company has been a great partner they've got great Tech. They are you know a leader in the business whether their number.
For one or number two in almost every state they operate in so right now the partnership is great no longer term three to five years from now where that goes I couldn't really tell you about a well focused on that we're focused on the next several years and today, it's a great partnership.
And yeah, we're happy with the happy with the ownership interest we have.
All right. Thank you very much.
The next question is from Chad Beynon with Macquarie. Please go ahead.
Hi, good afternoon, Thanks for taking my question.
Obviously extremely early given that I think it opens in the next two or three days circa that is but just in terms of what you're hearing with anyone it toward the property or I guess, what the final product isn't kind of who that caters to and how that marketing a ball has anything really changed just in time.
In terms of how you view, how circa fits into the downtown market I believe most believe that you know it is a different product and it won't really take away from from you and some of your competitors, but just wanted to get a an update on on that if you have any views there.
Yes, I would agree I think it is a very much a differentiated product. It is a higher end product that and what is done there today generally speaking with maybe the exception of the Nugget, which is also high end product and I think it's going to draw a lot of visitors to the downtown area to visit it to look at it.
Obviously, we have a property a block away of the property directly to properties directly behind it. So we will take advantage of and be the beneficiary of all the foot traffic going in and around there.
Number two.
The lion share of our downtown business is driven by Hawaiian customers, mainly out of the island of Hawaii. So all all the traffic that comes down to visit circa will be incremental I think it's going to I think it is great for the downtown market I think the investment overall is great the products going to be great and just looking forward to having an open later this week.
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Great. Thanks, and then Josh on the Capex I believe you said 25 million for the fourth quarter and we're not expecting a lot in terms of slot capex in that budget, but how are you thinking about I guess, the maintenance capex and the.
The mix between gaming products and and other items around your properties going forward do you believe that there will be as big of a need or budget for updating gaming product.
Look I think that folks are playing slot machines and I think that we have to evaluate and make sure that we have the best slot product out on the floor at all times and so our budgets will you know kind of reflect that I don't think it means that it's any larger than it has.
Than historically.
But I I I'm not I don't think we know enough at this point to say, if it'll be a lower or not I think coming into next year. When we largely think as of today that will be about the same but the reality is is I think that when you had a floor that had much more capacity.
He then you're utilizing today and getting the results that you're getting today. You know you really have to rethink how the floors laid out and how many per slot machines you have out on the floor a as a first step and then secondly develop you know how you're going to reinvest in slots going forward and other types of gaming tax.
Allergy, but and it could be the same because you're just trying to make sure you have the <unk> the same product.
Improved product would just fewer you know kind of overall units out there and I think that that's the process, we're going through now to try to figure out and understand exactly how we want to reinvest and I quote unquote smaller footprint.
Okay. Thank you very much.
Yes, Sir.
The next question is from John Decree with Union Gaming. Please go ahead.
Hi, everyone. Thanks for taking my question I think.
Good follow up to your last comments, Josh is a lot of markets, you're still operating with pretty significant capacity constraints. I was wondering if you could comment sorry, if I missed it if you already have about what you're seeing during peak periods do you feel capacity constrained that at any point and I'm not sure we know when.
Some of those capacity constraints might loosen, but could you benefit during certain times that having a little bit more capacity back.
So this is this is Keith John I would say for the majority of our properties today during peak times, we're not really capacity constrained we have a few properties.
That have lower <unk> machine counts and therefore.
With Delta Downs, with 1600 units and they're generally it fit.
50%.
No restriction they could use a few more during peak periods, but for the most part no. We're.
We're not bumping into ceilings with respect to capacity. So no remember we have significant reduced visitation throughout our buildings.
So we haven't seen that we haven't seen that problem through the opening phases.
Got it that's helpful and if I could ask one more kind of dual 180 here in kind of assessing I think an earlier question about them.
The potential risk of additional closures like we're seeing some some reaction in Illinois.
If if we saw produced revenue going forward.
For whatever reason closures or the winter gets difficult.
How much slack in the system, realizing you've already kind of substantial amount of cost I mean, if you sell a notable.
Notable revenue decline is there some flex or there's some variable costs outside of gaming taxes that you could tweak if it was a sustainable period of lower revenue than what you're seeing today.
Yes, it's hard to it's a hard question to answer in a very theoretical environment. It depends on how much and where it was a slot focused or game focused and which customers are not showing up.
Yeah. It was at the higher end customers as of the unrated customer. So it's a it's a fairly theoretical question and you know, there's probably half a dozen different ways to answer it depending on.
On where that revenue decline is coming from you know how much can we continue to reduce some of the non gaming amenities that we have through our customer reduction. So tough tough question I don't think I can provide a very intelligent answer too.
The one thing I would add to the John as is like one thing that the Oh crisis has given us insight into is there are very few fixed expenses in our business and so we have a lot of flexibility to adapt and to Keith point, you know kind of where you adapt depends on where you're seeing weakness or what's.
Happening to your business from a revenue perspective, but.
No.
The whole industry has shown an ability to adapt to go.
Going from a significant amount of revenue to very little revenue quite quickly. So I think everything in between become just kind of iterations of that.
Got it that's helpful. Tough question I think you guys answered it a fairly well thank you.
The next question is from Joe Stauff with Susquehanna. Please go ahead.
Oh good afternoon, I'm, just two follow ups if I can please.
So Josh I don't know if you can answer this or whatever you can give us.
You know what level of 2019 classic or or normalized profit, so where do you want to define it would require say a more notable swing.
In marketing spend.
HM.
I don't I don't think that.
We would think about it that way I think.
Well the way were kinda marketing to our customer.
Today is based on kind of ensuring we have the loyalty of our.
<unk> quite honestly, our best customers and then making sure that we are reinvesting at the right levels for the different tiers of customers that we choose to market to them on in the building from a profitability perspective, I think to the extent that you know we have a right.
Range of outcomes today, obviously customers that perhaps were previously getting.
Reinvestment that aren't today because of their worth a try and then you have guys who are worth more who are getting slightly potentially more investment than they were historically, but.
But I think the the result is is is not so much driven by.
I'm kind of trying to drive the <unk> you know historically, we did try to drive based on volume through the building and I think that's that's that's what's different at least in our approach and I'm I'm I'm sensing that of our peers as well, we're not trying to just drive volume for volume sake, we were able to see a lot better.
When the business was closed perhaps better than we ever had who is profitable and who wasn't profitable in all the incremental costs that are associated with customers that may have been toward the lower end that you thought it had some modest profitability associated with them that actually they weren't that profitable and so I'm not so.
Sure, it's really dependent on kind of a return of some level of volume of customer quite honestly.
I don't know about health care.
No. It does certainly I mean, it sounds a little scary database driven at this point and to the extent you.
The world gets better vaccines, such or whatever.
Then maybe at that point, there would be more increased marketing spending until after the more casual customer is that fair.
No I wouldn't read I wouldn't read that into it I think that this model that we've created that as you know, it's going more efficient profitable that hey.
Is driving increased EBITDA vis-a-vis last year.
There's a model we're comfortable with.
And.
You know as this.
Cool that pandemic.
Fades hopefully sooner than later as a vaccine comes out and takes hold hopefully sooner than later and the business start to return to normal I mentioned in my prepared comments, we're not prepared to return to normal.
Committed to sticking with.
Yeah. This this refined business models. So you're right now the model is creating profit Tenaxis last year's profit. So we're pretty pleased with that.
Understood and one follow up if I can just on the digital side.
So it sounds as though you'll you'll want your real money proprietary offering you know sometime I guess in first quarter early next year whenever that is.
And are you using sandals tech stack it if.
If I'm correct and and what is what are the economics of that do you is that where.
You pay them effectively a or b to B C for using that tech stack how are those economics arranged.
Yeah. So you're right we are using their tech stack and we're actually asking them to run it for us because they have the expertise.
To do this will be a we haven't gotten into that business yet and.
And so we will get to we will get a revenue share a lot of that arrangement that will continue to kind of that eight to 10 million that I talked about for 2020, Yeah. We'll obviously continue to grow we'd expect it to be much larger next year.
Thanks very much.
We have time for one more question and that question is from Thomas Allen with Morgan Stanley. Please go ahead.
Hey, good afternoon.
So the $8 million to $10 million that you guys are generating this year on sports betting can you help us just unpack that between the retail sports books and the market access and then.
Just as a follow up to that question, yeah, there's certain retail sportsbook in Mississippi that you opened more than two years ago and then some newer sportsbook can you just help us think about what you're seeing those.
Turing to kind of benefit the broader properties and if there are different dynamics that you're seeing and more mature sportsbook sources are listed sportswear. It would be helpful. Thank you.
I'm sure Thomas I'll take the first one the $8 million to $10 million number that Keith spoke about is purely revenue share coming from Fanduel. It doesn't include the retail component retail component is included in individual property level results.
The online piece is separated out and that's that's what he was that's what Keith was alluding to kind of the online and digital revenue share that we receive from Fanduel for their mobile sports for the hair.
Online real money gaming side in Pennsylvania, you know that's a that's a business that building throughout this this year right. So it's not the run rate of the business.
So that's the first part of your question Keith you want to take the second part.
Sure look in terms of kind of as a sports books mature what's really helpful to us is fanduel being a leader in the market whether there are one or two depending on the state you're talking about.
And the breadth of kind of sports offerings are the menu type of bets that you can make it happen one of the broadest menus.
Some of the best thoughts as what attracts players I think over time, we've seen the business continue to grow let's say in the Mississippi and attract more customers as the customers become a little more sophisticated about sports betting over all in a place where maybe it hadn't existed previously they realize the quality of the you have to federal has the quality the offering.
Easily ease of use as well as.
Just a number of different types of bets that you can make I think that has helped and so is the is the customer becomes more sophisticated we see an increasing.
Number of customers coming to participate.
Okay. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Josh Hirsberg for any closing remarks.
Thanks, Gary and thanks to all of you for joining today and if you have any follow up questions or would like to discuss further please feel free to reach out to the company. Thank you very much have a good rest of your day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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