Q3 2022 Boyd Gaming Corp Earnings Call
Hello, and welcome to the Boyd gaming third quarter 2022 cold fill at school My name is Alex and I'll be coordinating the call today, if you'd like to ask a question at the end of the presentation that you can press star one on your telephone keypad.
So the real question you May press Star two.
I'll hand over to your house, Josh HUS Bug Executive Vice President and Chief Financial Officer. Please go ahead Josh.
Thank you Alex good afternoon, everyone and welcome to our third quarter earnings Conference call. Joining me on the call. This afternoon is Keith Smith, our President and Chief Executive Officer.
Our comments today will include statements that are forward looking statements within the private Securities Litigation Reform Act all forward looking statements in our comments are as of today's date and 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.
Risks and uncertainties, including those disclosed in our filings with the SEC that 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 SEC today and both of which are available at investors Dock Boyd gaming 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. Today's call is also being webcast live at Boyd 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 now I'd like to turn the call over to Keith Smith, Keith Thanks, Josh and good afternoon, everyone.
Third quarter was another solid performance for our company, our operating model and management teams are successfully meeting the challenges of the current economic environment.
To deliver consistent results.
As we look at the third quarter, what stands out or the sequential consistency and consumer trends the year over year growth in play from our core customer and the continued operational efficiency driven by our teams starting.
Starting with our financial results revenues were $877 million up 4% from the prior year, while EBITDAR was $338 million with a margin of 38, 5%.
On a sequential basis, our third quarter results were right in line with the solid performance as we delivered in each of the last several quarters as our business continues to perform at a high level.
Throughout the third quarter and continuing into October customer spending has been very consistent with the trends we've seen throughout this year.
And while there are clearly headwinds in the economy, we have not seen any evidence of meaningful change in our customers behavior.
During the quarter rated guest frequency held steady and play from customers on our database continues to increase.
From our core customers as the foundation of our success in this segment in particular continues to grow increasing 5% during the quarter.
This increase in play from our core customers helped to offset year over year declines in spend from retail customers, which was at elevated levels last year due to stimulus in terms of non gaming revenue, we're seeing solid growth with total revenue for the third quarter grew 5% over the prior year, while total rooms occupied were 6% higher than last year.
And cash room rates rose <unk>.
Importantly, we are filling our hotel rooms with high quality guests as gaming revenue from our hotel guests rose nearly 10% year over year.
Looking ahead hotel reservations are trending above 2021 levels in our surpassing 2019 levels at many of our properties.
Our food and beverage business is also growing with revenues rising 11% over the prior year driven by increases in both covers and average check.
On the expense side of the business. Our operations teams are effectively managing the overall cost structure of the business, while dealing with inflationary pressures that exist in the economy today.
Despite the challenges of the current economic environment, we are successfully maintaining a disciplined approach to operating our business.
Total company wide operating expenses in the third quarter were essentially unchanged from both the first and second quarters. This year and our operating margins remain more than 200 basis points ahead of our pre pandemic levels.
Moving on to segment results.
Las Vegas local segment continued its pattern of excellent performances.
Third quarter was our local segment second best third quarter in margin performance trailing only the record results from last year, which was benefited from continued stimulus in the market.
Compared to pre pandemic levels are locals performance was consistent with the improvements we saw in the first and second quarters of this year.
EBITDAR for the quarter was up 74% from the third quarter of 2019 and margins have been consistently at or above 50% since the first quarter of 2021.
While total gaming revenues in the region were down slightly play from our core customers continued to grow rising 2% against a robust third quarter comparison last year.
Moving to downtown Las Vegas revenues, EBITDAR and margins all grew over prior year as we achieved a record third quarter EBITDAR and margin performance.
During the quarter, we saw strong growth in play from our Hawaiian guests.
Overall visitation from our Hawaiian guests is still below pre pandemic levels total play from Hawaiian guests was 7% higher than the third quarter of 2019.
This segment also benefited from a full quarter of contributions at main Street station, which opened in early September last year.
And in our Midwest and South segment business trends remained consistent with the last several quarters, excluding our online business and Sky River management fee.
<unk> rose slightly over the prior year.
Total gaming revenues for the region were in line with the prior year, while play from our core customers increased 5%.
For the segment property margins remained steady around 40% and relative to 2019 EBITDA was up consistent with the first and second quarter of this year rising more than 35% from pre pandemic pre pandemic levels with margins improving more than 1100 basis points.
As we look forward, we believe gaming revenue will return to more normal growth in 2023, and our ability to manage costs will result in continued high levels of operational efficiency.
Our solid nationwide operating results will be strengthened by several projects that are beginning to come online.
One is Sky River Casino, which opened its stores in northern California in mid August we have seen excellent results since opening with very strong visitation and gaming revenues through the first 60 days.
We expect business volumes to moderate as we move beyond the opening phase of this property. However, this strong start demonstrates the high level of demand in the Sacramento market and why we are optimistic about sky reverse potential.
This project will positively impact the Wilton Rancheria tribe, allowing our partners to finally realize the vision of economic self sufficiency.
We also continue to expand our sports betting partnership with <unk> during the quarter launching mobile and retail sports betting in Kansas in early September .
Next up is Ohio, where we have begun preparations with van <unk> to launch the first of the year.
Partnering with the nation's leading sports betting brand, we have established a profitable digital business that we expect to generate approximately $30 million EBITDAR in 2022.
And we expect further growth in 2023, as we benefit from our new operations in Kansas and Ohio.
On top of all of this we also benefit from the substantial value of our 5% equity ownership in <unk>.
<unk> has been a very successful partner for our company and we remain committed to expanding and strengthening this partnership in the future.
In addition to our partnership with <unk>, we will be expanding our online gaming operations with the upcoming acquisition of power interact.
We expect to have all regulatory approvals and close on this transaction in the next several weeks.
Once the Paloma acquisition is complete we will begin to migrate our two startup branded I casinos in New Jersey, and Pennsylvania to our own platform in the first half of next year.
We will also focus on growing <unk> business through acquiring new <unk> customers and enhancing the platforms products features and capabilities benefiting both current and new customers.
We believe we have the foundation to successfully build a profitable regional online casino operation that leverages, our industry wide experience, our existing geographic presence and our proven customer database.
Paolo will provide us the technology products and management expertise to execute this strategy.
Online gaming has become an important part of the growth story for our industry and we are focused on building a profitable online business that will enhance our existing land based operations.
We will also continue to pursue opportunities for growth through strategic reinvestments in our nationwide portfolio.
For example in downtown Las Vegas, our $50 million expansion of the Fremont is nearing completion.
Set to open by year end. This project will include expanded casino floor space.
<unk> of Nevada's firsthand to our sports book and a selection of enhanced quick serve dining options.
We believe this expansion will significantly enhance free months appeal to visitors throughout the downtown area, continuing our growth in that market.
We're also investing in Louisiana, where we recently broke ground on a $100 million land based facility a treasure chest casino <unk>.
I suggest there has been a strong performer of our company for many years, but has potential has been limited by its riverboat setting with a small casino floor and modest amenities movie.
Moving to land will allow us to significantly expand treasure chest non gaming amenities, creating a more spacious and comfortable casino floor and improve guest park at.
Once complete in early 2024, we are confident this project will enhance Tricia just appeal to both existing customers and new ones driving long term growth.
While we continue to strategically invest in growth opportunities, we remain firmly committed to returning capital to our shareholders targeting $100 million per quarter and recurring share repurchases supplemented by quarterly dividend payments.
In summary.
This was another solid quarter for our company.
Customer spending remained steady throughout our business, particularly among our core customer segments driving healthy stable results at the same time, our management teams continue to demonstrate their ability to successfully manage cost pressures in an inflationary environment. Our operating margins remain well ahead of the levels, we delivered pre pandemic over <unk>.
200 basis points this quarter and we remain.
And focused on continuing to execute at a very high level of efficiency.
Our strong results are attributed to our team members, who continue to deliver exceptional service to our guests. We greatly appreciate all of their hard work and the role. They have played in our continued success.
Thank you for your time today I would now like to turn the call over to Josh.
Thanks, Keith for the last two years, we have been executing a strategy that is focused on our core customer.
Operating our business at a much higher level of efficiency and pre pandemic levels.
Third quarter was another example of the continued successful execution of this strategy this quarter demonstrated the strength and consistency of our customer and the sustainability of our operating margins sitting here today. We have no reason to believe this will change our customer trends remained stable and.
And we remain confident in our ability to maintain strong efficiencies throughout our operations.
As Keith mentioned gaming revenue from our core customer continues to grow this quarter. The gaming revenue growth from our core customer helped to offset declines in spend from this from the stimulus driven results. We benefited from last year during the third quarter.
As a result gaming revenues were essentially even with last year.
And the consistency of our margins throughout the year to demonstrate our ability to manage our business in this environment of increasing cost and inflationary pressures.
There are two trends that have continued to be relevant since we reopened our business. These trends were evident in this quarter's results. The first trend is a stable customer gaming spend the quarterly growth in our gaming revenues when compared to 2019 has been consistent for the enterprise and each of our segments.
<unk> 2021 continue to be relevant, but noisy given stimulus driven demand and other impacts resulting from the pandemic.
Stimulus impacted last year's second quarter as well as a portion of third quarter for instance, last year July which is typically an average month in terms of gaming revenue was the best month for us and all of 2021.
July therefore was our most difficult comparison year over year before growth resumed in August and September .
Second trend is labor, we have previously spoken about the need to address staffing levels in our business to provide our appropriate level of service to our guests over the last several quarters, we have been able to achieve more normalized staffing levels given our current levels of business.
One expense category that we have not discussed is marketing our marketing reinvestment has remained stable all year long as we remain committed to a disciplined marketing strategy focused on our core customer.
So given the consistency of our customer and our ability to manage the major categories of expense that impact our business. We feel we are well equipped to continue to deliver results at a very high level of efficiency.
Now changing gears a bit during the quarter capital expenditures were approximately $74 million, resulting in approximately $173 million of capital expenditures invested year to date.
We expect to spend about $80 million in the fourth quarter, including maintenance capital and continued investments at the Fremont and treasure chest.
Next year, we would expect to spend approximately $100 million between the completion of the Fremont project in the treasure chest expansion, which broke ground last week.
And the next several weeks, we expect to complete our acquisition of Paula Interactive for $170 million. This acquisition will be financed through borrowings under our credit facility.
In addition to these investments we are returning capital to shareholders during the quarter, we repurchased $135 million in stock representing two 5 million shares at an average price of $54 57 per share.
This brings our actual share count to $104 4 million shares as of quarter's end.
We continue to target a $100 million and share repurchases per quarter, but we will periodically take advantage of dislocations in our share price as we did during the most recent quarter.
Since we resumed share repurchases last October we have repurchased nearly $8 9 million shares for a total of $515 million.
We also continue to execute our dividend program, making the latest distribution of <unk> 15 per share on October 15th.
Year to date, including share repurchases and dividends, we have returned over $480 million to shareholders.
We ended the quarter with total leverage at two three times and lease adjusted leverage of two seven times, our target leverage remains two five times.
We have the strongest balance sheet in our company's history with low leverage no near term maturities and ample capacity under our credit facility.
All supported by a robust robust and diversified cash flow.
So in conclusion customer demand remains stable and play from our core customer continues to grow we remain.
Focused on operating at very high levels of efficiency, maintaining a strong balance sheet and utilizing our excess cash flow to reinvest in our portfolio and return capital to shareholders.
Alex I concludes our remarks, and we're now ready to answer any questions from participants on the call.
Thank you as a reminder, if you'd like to ask a question Thats star one on your telephone keypad.
If you'd like to have a trivial question. Please press star two.
Please ensure your unmetered lately when asking your question.
Our first question for today comes from Carlo Santarelli from Deutsche Bank Carlos Your line is now open.
Hey, guys. Good afternoon, and thank you for the color.
Yes.
We kind of want to take it all.
Midwest and South line.
Can I start to get a lot of capital.
Thanks for calling margins in different direction obviously.
Contract coming through there.
You, obviously have all of that.
Including the tax pass through.
We will provide some commentary.
<unk> talked about.
Property level performance.
Any chance you can maybe provide some parameters around.
The digital contribution in the quarter from a revenue perspective, perhaps even the management fee contribution.
And then do you have any intentions with that stuff out as we move into 2023.
So Carl I'll start and then turn it over to Josh.
We are looking at as we move into 2023, starting to break out some of that detail.
As it is becoming a big number as it relates to kind of this quarter and probably next quarter look the Wilton project Sky River Casino has started off extremely strong we're very happy with it.
We're not breaking out the management fee currently.
We have said in the past that we would expect annual management fee and the $25 million to $30 million range.
Quite frankly, it probably be a little bit north of that given the early level of performance, but I caution you and everybody. There is early we've had great opening demand. The property is still kind of working through that opening demand and we'll see where it settles in but.
We will provide some more transparency on that starting in 2004 with respect to some of the online detail ill turn it over to Josh.
Yes Carlo so.
In the past we've talked about.
Online revenue, that's strictly related to the tax pass through amount and in Q3 that was about $45 million.
And then.
Kind of a revenue share component on top of that is another $7 $7 million approximately so in total online for US was $52 million 45 is totally revenues and expenses out and $77 million flows right to the bottom line.
Great.
Super helpful guys. Thank you both very much.
Sure. Thank you.
Thank you next.
Our next question comes from Steve Wyszynski from Stifel. Steve Your line is now open.
Yeah, Hey, guys. Good afternoon, so so Keith and Josh I understand you mentioned in your.
Our prepared remarks, we haven't seen any distinct changes in your customer spending patterns.
I Wonder if I asked that question a little bit of a different way I guess, if you look at your rated play during the quarter were there any changes across your call your different tier levels, meaning.
Did you see any changes on that low end that will be level versus the rest of the tiers or is it pretty much. The same answer that you really haven't seen any weakening across.
Any of those tier levels.
Well look I think.
Since we've reopened after COVID-19, we've seen very stable results and if we look back over the last four six quarters, our rated and unrated percentages it remained relatively stable.
Core customers are.
Higher worth customers are the ones that are continuing to grow and perform.
We talked about in our prepared remarks.
Lower end of the database is kind of the non core rated customers.
We are not performing as well and then they are.
Unrated is.
Okay.
Zero rated but it's.
Same frankly over the last four to six quarters. So.
I don't know I don't know that I can provide much more color, but I'll, let Josh way and yes, Steve the only thing I would add to what Keith is saying is like if you're talking sequentially. The trends are generally very stable. It's when you start to compare to 2021, where you see kind of a softness in the lower end and some of the <unk>.
<unk>.
Unrated as a segment.
That's what's being offset by the growth in our core customer and so it depends on whether you're talking sequentially or from a year over year comparison basis, and so just given kind of the.
The robust growth we saw last year.
Why are we kind of backed off from trying to explain it relative to 2021 and just look at 2019 as a baseline year and Youll see everything kind of very very growing very consistently over that baseline year sequentially consumer trends continue to be very stable and it's really just trying to understand and get around the comparisons.
When you look at how robust some of the growth was last year.
Given everything that was going on around stimulus and some of the pandemic related impacts.
Okay got you thanks, guys and then.
Josh you talked about in your remarks July was a down month, just because of comparisons and then August and September were up and I guess.
Listen to your commentary about October .
And I know October is not done yet so you got six more days, but is it is it fair to assume that October should end.
We ended up the month up as well.
Hi.
I guess.
I'm, a little hesitant side, just because we haven't seen it all the way, but I would say we would expect October to be similar to August and September and I think we would expect to see growth year over year in October I think that's about what we can say at this point.
Okay. That's perfect. Thanks, guys appreciate it.
Welcome.
Thank you next question comes from Barry Jonas of Trust Securities.
Your line is now open.
Hey, guys. Thanks for taking my questions.
There's been a bit of talk about several new properties being built in the next few years across the Vegas.
Locals market, we'd love to kind of just get your views on this evolving supply demand dynamic and how Boyd has positioned thanks.
Sure. So you know there's been some announcements we certainly.
Understand the landscape pretty well and understand the competitive impacts of that the one that as soon as to open in a year or so or 15 months whenever it is that.
They opened that.
We will have look we have some customers in an area, but it's not kind of the core market we draw from at any of our locals properties.
So as we look at that addition to the market, which is really the only significant addition in the next 15 months.
We don't see any significant impact to our business will there be some share customers always go and visit new properties, but we don't expect it to be significant.
Got it.
And then just looking at the quarter I noticed on the consolidated P&L P&L maintenance and utilities were up pretty meaningfully just curious if that's impacting any marketer segment more than others and how should we think about that going forward.
Yeah.
It's mainly.
Utilities Berry and its more rate than usage quite honestly.
And so on.
Obviously.
It's more impactful in Las Vegas, given the seasonality of utility usage here in this market.
It was a it was a bigger impact here, but it was also.
An impact of them, but to a lesser degree really across the country.
And even.
If you look at utility.
Expenses.
Year over year versus 2021 utility expenses up in each one of the quarters. It was up a lot more in Q3 and any of the previous two quarters.
So just the trend.
In terms of rate increases has been impacting that particular expense line item.
Yes.
Got it alright, thanks, so much guys.
Sure.
Next question comes from Joe Greff of Jpmorgan. Your line is now open.
Hello, everyone.
Josh Keith.
Question for you on the Las Vegas locals margin result in the <unk>.
Margins were down 350 bps sequentially, a little bit lower than what we forecast and I think what the street also forecasted do you look at this sequential decline is a function of more traditional seasonality or some incremental permanent opex.
Being added and if that's the case on that latter point, if you can help quantify it and when you kind of think going into <unk>.
The end of this year into next year would you expect that segment margins to reflect nor.
Normal or consistent seasonality or do you expect that to be seasonality plus the incremental expense.
Yes, Joe So I think as you look as we look at margins, especially in the Las Vegas locals market.
Where there is settling in and the 50% range really is no surprise them being down from a very very robust Q3 last year. No surprise, you mentioned seasonality and that is a large part of it historically, if you look at 2019 or pre pandemic.
As you moved into Q3, usually lose 200 plus basis points in margin from Q3.
Three points over the last three years.
And so that explains the bulk of it you also had some shift going with more non gaming revenue, which comes at a lower margin, but look overall the margins are settling in where we thought they would have never thought we never thought we wouldn't we've said for the last year six quarters that we would not maintain all of this margin improvement, but we're pretty happy we've made.
<unk> the majority of the margin improvement and we think where they are settling in as an appropriate level.
The only other thing I would add to that.
The only thing I would add to that Joe and it was really kind of the last part of your question around.
I think when you look at expense trends for our business so far year to date, they've been very stable.
From quarter to quarter to quarter, So where we've seen increases where there was labor or to Barry's question around utilities, we've been our management teams and operating teams have been able to either mitigate expense will reduce expense in other areas. So that we can kind of maintain these levels. So it's not like we think.
Operating expenses are really pressuring our businesses and the extent that we're not going to be able to maintain these higher levels of operating efficiency I. Just think that last year just had a lot of things going forward in terms of spanned we couldnt feel all the position from a labor perspective, we had less utility costs as an example, all.
The cost of goods sold were lower so I think we were just able to kind of have everything going right for us last year. This year, we're doing a really good job of just managing where we are seeing increases in cost whether they are because of inflationary pressures or cost with decisions, we're making so consistent consumer assistant ability to manage costs.
And kind of executing at a high level I think of the takeaways that we when we evaluated Q3 relative to the recent quarters and recent performance is what we would hope it would take away.
Great.
Thank you.
And then as a follow up Josh I believe the Wilton Rancheria tribe.
Have something totaling about $100 million of advances.
From you guys over the past several years can you talk about expectations to receive these funds from them now that that property is open.
Yeah. So it's about a 100 just under $110 million today. When you include the advances plus the interest accrued.
Until they.
Have a business that can start to repay that.
Repay those loans so.
I think.
We would again, it's a little early so I think we want to be careful about how we describe the timeframe. We would expect to get paid back but I would expect that just given the early.
Initial signs much better than what we expect it will eventually settle down and then we'll be able to give people a better understanding of when we would expect to get repaid those amounts I think it's premature for us to estimate that at this point.
Yes, there is there is a defined.
Here's a defined waterfall approach for the EBITDA and.
How it gets allocated and so.
There is a path to getting getting repaid, but it's based on the profitability of the operation.
Yes.
Thank you.
Okay.
Thank you our next.
Our next question comes from MS shown Kelly of Bank of America shown your line is now open.
Great. Thank you good afternoon, everyone.
Josh just to sort of be.
Beat the dead horse, a little bit on the operating environment.
And it kind of comes to inflation it does sound pretty encouraging as it relates to your outlook.
Lastly, even heading into next year and I'm just trying to think through is there any reason you need much in the way of revenue growth to maintain your cost structure. Your margin structure here I mean, historically, what we saw.
Call. It back in the late 2017, 18, 19 period was you didn't need much to kind of control your expense base any.
Any reason that sort of changes based on what Youre seeing right now in the business as we think about 2023.
Yeah, Sean. Thank you no I don't I don't really think so I think really what people.
I think the and I hate to sound like a broken record but.
Everything seems to be pretty stable at this point and so it's really about getting beyond unusual comparisons or anything like that that were related to.
Covid or the pandemic are just outside spending due to stimulus.
We've got a really good handle today on our expenses.
Managing through it through it.
And.
I think at some point when we get to more normalized.
Performance will have more normal.
More historical growth off of those levels against a very counter refined expense structure, that's how I think about it.
So I don't think there is.
I think you described it correctly shown at the end of the day.
No Super clear and then the follow up just to sort of change gears to online for a minute you talked about.
Moving.
Some of the startup of operations I think in house at some point, perhaps next year can you just help us think broadly through the accounting implications. There does that mean you start consolidating.
Like directly revenue and costs attached to digital casino business that something that would be material in 2023, just help us think about like again.
<unk>, but maybe parameters how that might start to flow through the statements.
So as you think about it today, we record basically.
The revenue share if you will in the other line with respect to that once we take over ownership of it.
Kind of fully then will flow through as we would any other business operation with revenues expenses and profits.
So it will look materially different but as we talked about earlier, we will look to break that out.
In 2023, so that youll be able to see that in more detail, but it would be it would be a full subsidiary of the company with full revenues expenses and profits.
And the only thing I would add.
Alright, so sorry, guys.
I was just going to say relative to where we are today.
<unk>.
Policy business will be growing off of a fairly small base in terms of our overall scale today.
<unk>.
It will take some time to kind of grow that online business.
Not going to be a significant portion of what's what's what.
Different than what's showing up in our income statement today really it will just be broken out separately.
And maybe specifically to the <unk> initiative.
Is the plan to put significant marketing dollars behind this or.
Organically do you kind of see this able to sort of self fund a little bit as you as you move into Hawaii.
Only running the business.
Yes, so as we've talked about this and kind of thought about this over the last year or 18 months and been focused on an acquisition in this space.
And we use the terms building a profitable regional online business and those are the keys, we think that we have obviously a strong presence in the 10 or 11 states that we're in 11, including California, but the core 10 states. We have a strong databases. We have strong name recognition and we think we can build a strong profitable.
<unk>.
Do we expect to.
Spend marketing dollars to.
Being a platform positioned as they say in the industry would be 1% to three no that isn't the goal we want to have.
I have a strong position we wanted to be in front of our customers, we want to try and generate some new customers through this but we would expect to be profitable.
Sure.
Super Thank you.
Yes.
Thank you next.
Our next question comes from Dan Stefan.
Wells followed by <unk>.
Your line is now open.
Hey, good afternoon, and thanks for taking my questions. So just given that given the benefits from Sky River and the <unk> market access and the ongoing stability that you're seeing in terms of trends is there any reason that you don't feel good about kind of going back to that original bar you set a while back that full year 2022 EBITDA.
We will be at least up and then.
More broadly as you think about 2023 and the stability of the business have you given consideration to bringing back full year guidance. Thanks.
So Dan I want to be sure I understand your question are you, saying that do we expect 2022 EBITDAR to be up over two.
2021.
Given where we're pretty much through October at this point, you'll get the Sky River benefit.
And the sandal market access is there any reason that the <unk>.
Fourth quarter Shouldnt kind of bridge you to full.
Full year, that's at least flat.
Yeah. So.
I'd like to answer the question. However, we are not giving guidance for either 2022 or 2023. There is some good analysts out there that have good estimates and so I think you can use that as a basis for where our business is going to perform.
Alright.
Fair enough.
And then in terms of just the regional landscape next year can you maybe highlight any new properties coming on in terms of competition that we should be thinking about.
Yes, there really.
I'm just going to pause for a second to make sure I don't overlook anything as we think about the southern part of the market there really isn't through kind of the Louisiana, Mississippi neighborhood as we think about the Midwest the hard rock northwest, Indiana opened about a year 15 months ago, and so that's not new.
There will be the <unk>.
<unk>.
Tribal casino in South Bend.
But we don't have a lot of the market in that property that would impact blue chip.
Yes, Theres really no new competition in any of our markets that we're anticipating in 2023.
Got it thanks, so much.
Thank you our next.
Our next question comes from Chad Beynon from Macquarie Chad. Your line is now open.
Afternoon, Thanks for taking my question.
In terms of capital allocation I know you guys have talked about a baseline of $100 million of quarterly repurchases and you've exceeded that every quarter. This year can you just kind of remind us how youre thinking about.
Continuing that thought and then as we look into 2003, when capex increases a little bit is there anything that we should be mindful of as it pertains to share repurchases or the dividend just kind of how youre thinking about the overall capital allocation strategy. Thanks.
Sure.
The way you should think about it is.
Fairly consistent in our messaging that we're targeting $100 million a quarter.
Continues to be our target and as you think about 'twenty, whether it be the fourth quarter. As you think about 2023 that should that should be what you've kind of baked into.
Your analysis is $100 million a quarter. It has been higher in the past as we've taken advantage of what we thought were dislocations in the price to buy a little bit more back that may or may not happen going forward hard to predict that so I would anchor you on that $100 million.
There is nothing in our cap ex plans that would cause us to deviate from that same thing with the dividend. The dividend. We started that and we started the share repurchase program quite frankly looking into the future ensuring that we were at appropriate leverage level and that we were confident enough in our operating results and the level of free cash flow that we could continue this on.
Interrupted so you should think about the dividend going forward is very solid you should think about the share repurchase at $100 million a quarter is very solid.
And.
Through through 'twenty three anyways.
Great. Thanks, and then coming back from or I guess, when we were out at <unk>. There was some extra enthusiasm around some of the events for 2023 on the strip.
MSG sphere, obviously F. One some other events that are kind of more south of you guys from your downtown properties, but I'm just curious do you expect to benefit.
From these overall events given your hotel inventory and how much kind of spillover has been going.
Down to the strip.
<unk> would you expect to benefit from all these different items.
Yes look the short answer is yes, or maybe absolutely as the strip fills up a strip does better as more people come to Las Vegas, whether it's our downtown operations, whether it's our locals operations. The Orleans, which has 9800 plus hotel rooms at a fair amount of meeting convention space all of that allows us both to be.
And to leverage pricing up and so we will absolutely.
Do better as the town continues to be full has more unique events draws more customers into town. So yes.
Great. Thanks, Keith I appreciate it.
Okay.
Thank you. Our next question comes from Brian <unk> of Barclays. Brent Your line is now open.
Hey, good afternoon, everybody and thanks for taking my questions I, just wanted to circle back around on the $7 million fees within digital in the quarter and assuming that sort of <unk> related revenue share.
How are you sort of thinking about that going forward is there any reason why that wouldn't grow sort of one for one with what we all would.
Model for for <unk> revenue growth and then is there seasonality, we should be aware within that line.
Well there is clearly seasonality.
Most of the with a larger share of let's say revenues come during football season. So.
Do you think August through February .
Starts to tail off with basketball summer's pretty soft with baseball's those clearly seasonality in the sports betting business.
One two.
As you think about growth, we talked about we launched Kansas in September and so you'll have that incrementally in 2023, Ohio should launch first of the year, you'll have that incrementally in 2023.
How the base business in existing states grow.
Our growth going forward.
On assumptions about that but do we expect it to grow from there yes.
Okay, great. Thanks for that helpful. And then you guys were pretty crystal clear about the trends.
Stability of your rated database.
Database play.
I don't think we've checked in a while with you guys in terms of the demos within that database and specifically regarding the older demographic.
Where youre at in terms of recovery.
Assuming that there is still some gap is.
Are you concerned at all that some of that is an ever coming back and what I'm specifically.
Im alluding to is the fact that most of those folks are on fixed income.
This inflationary environment just interested in your thoughts thank you.
Sure.
As it relates to the older demographic quite frankly, they continued to return to our business.
And Theo from that group continues to grow if you look year over year Q3 of this year or even over Q3 of last year, which was a very strong quarter for us.
The older demographic continues to grow.
They all come back that's a hard question to answer they probably wont, but here's the key the key is those that have come back even though it's less than what we would assume in 2019, there they're worth to us is much greater and so today, we have fewer of that older clientele, but they're worth is much higher.
And it's continuing to grow so they're not all back yet.
Perfect. Thanks, so much.
Thank you. Our next question comes from David Katz of Jefferies. David Your line is now open.
Hi, Good evening, everyone. Thanks for taking my question, including me.
Covered a lot already I was wondering if you might be able to speak in some qualitative terms about your vision for Paulo once you do get it closed.
And what the trajectory of that ramp might be is this going to be a loss leader for a period of time.
Neutral.
How are we thinking about that as we think about 'twenty three 'twenty four please.
So look I think the vision for expanding the online.
Gaming operation.
Once again to be able to participate in an important growth sector of the business.
We're focused on the states, where we operate and maybe some key adjoining states. So we call. This a regional approach.
We're not looking to have a nationwide approach.
<unk> has to be a profitable business.
Once again, transitioning, Pennsylvania, and new Jersey onto our own platform sometime in the first half of next year and from there. It just depends as states approve the Senate rules out where.
Where we go next do we expect it to be a loss leader the short answer is no we.
We don't expect it to be a loss leader, we expect this to be a profitable venture for the company.
Josh anything you'd looked at.
I guess, what I was going to add anything as like we expect to grow this business in the states, we operate as well as states that we drive a lot of customers that are in our database from so there could be other states beyond where we have a geographic presence that we may have interest in.
And Keith has been pretty transparent that.
We don't intend to invest a lot of money and have a lot of losses upfront, we expect to be.
Be generating free cash flow.
From this business and we expect that to be the theme.
And so we're going to take it one step at a time to be sure that that's what's happening it's not like we are.
Entering into an enterprise to have losses, either for the short term or intermediate term.
Yes.
Okay perfect. Thank you very much.
Thank you. Our next question comes from Joe Stauff Susquehanna Joe Your line is now open.
Thanks, Keith Josh.
Just a couple of questions Keith I just wanted to follow up on your response on the older customer.
You had mentioned that.
They are coming back there is growth that of <unk>.
Higher value say older customers coming back, but I'm curious are they reacting to maybe a particular promo that you are doing or are they just kind of returning naturally.
And then follow up just on.
The California stimulus payments rough.
Roughly 60% of Californians, we will get something.
Right around now and.
Is there any precedent to think about.
If any of that.
Its way into the Las Vegas locals market settle.
So there is not to the older demographic no there's not we're not.
Engaging promotions, Josh talked about the stability of our operating expenses and he did he didn't highlight the fact that frankly marketing has been flat quarter to quarter to quarter and so we're not increasing marketing as we go through.
The 2020, what's been a strong suit of ours to be disciplined and be structure to be stable on marketing and so these customers may be responding to normal offers and may be finding their own way back in their part of the database, but theres nothing special going on.
You spoke to the California stimulus to the extent that consumers or customers from California show up in Las Vegas, and they have more money in their pocket because of stimulus checks, yes, we would expect to get some of it.
We do quite a bit of business out of the state of California at all of our properties and so.
They come and they are healthier than we would expect to.
Be a beneficiary of that.
Thank you.
Okay.
Thank you our final question for today comes from Stephen Grambling from Morgan Stanley Steven Your line is now open.
Hey, Thanks for taking the questions and sneaking me in two follow ups first if we focus on that core customer spend any chance you can quantify where visitation is versus pre pandemic levels and then second how are you thinking about the path to online gambling legislation.
I think through the acquisition and ultimate accretion from talent.
With respect to kind of the online gaming rollout it is hard to predict.
When and how state legislatures will approve this how long it will take this obviously is going to be a slower rollout that online sports betting, which exploded pretty quickly over the last several years with some 35 ish states, who now have legalized it.
Online gaming or <unk>.
As they say right now is maybe six states.
I have no prediction as to who is next and how quickly it will rollout.
I think with respect to.
Visitation trends versus 2019, we don't have that data readily in front of us right now.
Maybe just one more follow up on online gambling I guess do you need to see additional states approve gaming to kind of hit the underwriting assumptions.
No not at all.
Not in all of this is a profitable business that we bought so it has an existing profit base built into it.
<unk> on mainly the <unk> side of the business, but they have a b to C side in New Jersey.
So as we just think about what we've already outlined here today.
We will be fine because we think about kind of a return on this investment.
Steve and the only other thing I would add is.
And to Keiths prior point, we basically.
The business assuming no further expansion beyond what was approved already.
But the other thing I would.
I'd say is this does not impact the <unk> relationship at all we have a great relationship with <unk>.
Revenue share continues just like it is today and so.
Both of these will be kind of components of our own launch strategy with tangible representing the sports betting side of things for us.
Yes.
And Paula helping us build out our own casino portion of it.
Uh huh.
Helpful. Thanks, so much.
Sure. Thank you we have no further questions for space, So I'll hand, it back to Josh for any further remarks.
Alex Thank you much and thanks, everyone for joining today and if anyone has any follow up questions feel free to reach out to the company.
<unk>.
Thank you for joining today's call you may now disconnect.
Yes.
Yeah.
Yes.
Okay.
Yes.