Q2 2023 Boyd Gaming Corp Earnings Call
Good afternoon, and welcome to the Boyd Gaming second quarter 2023 conference call.
My name is David Strauss, Vice President of corporate Communications for Boyd gaming I'll be the moderator for today's call, which is being recorded on Thursday July 27 2023.
At this time all lines are in listen only mode. Following our remarks, we will conduct a question and answer session. If at any time. During this call you require immediate assistance. Please press Star then zero for the operator.
Speakers for today's call are Keith Smith, President and Chief Executive Officer, and Josh Hirschberg, Executive Vice President and Chief Financial 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 statements.
There are certain risks and uncertainties, including those disclosed in our filings with the SEC that may impact our results.
During our call today, we will make reference to non-GAAP financial measures for a complete reconciliation of historical 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 Dot Boyd gaming Dot com.
We do not provide a reconciliation of our forward looking non-GAAP financial measures due to our inability to project special charges and certain expenses.
Today's call is being webcast at Boyd gaming Dot com and will be available for replay in the Investor Relations section of our web site. Shortly after the completion of this call.
So with that I would now like to turn the call over to Keith Smith Keith.
Thanks, David Good afternoon, everyone.
The second quarter was another solid performance by our company as the benefits of our proven operating model, our strong management teams and our successful growth initiatives all contributed to company wide revenue and EBITDAR in line with last year's strong second quarter results operationally, we maintained our focus on driving play from our core Cup.
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During the quarter core customer trends improved sequentially over the first quarter and were consistent with last year's record levels as a result of stable frequency and spend per visit.
However, the consistency and core customer trends was offset by continued softness in retail play that began in the second half of last year.
During the quarter, our management teams continued to do an excellent job controlling expenses in a challenging environment.
Over the last year and a half we have held property level expenses essentially flat. During this highly inflationary environment. As a result, we achieved property level operating margins of 42% in the second quarter consistent with recent quarters and remaining well above our pre pandemic levels.
Finally, we realized substantial benefits from our ongoing growth initiatives, including online gaming sports betting and Sky River Casino.
Combined our online and managed segments generated $33 million in EBITDAR in the quarter, putting these businesses on pace to achieve $135 million and total EBITDAR for the full year.
Let's review each of the segments in more detail.
In our Las Vegas local segment, we faced a difficult comparison to last year.
This comparison was most pronounced in April which accounted for roughly 90% of the quarterly year over year decline in local revenue and EBITDAR. As you may recall early last spring, we saw a temporary surge in business after mask mandates and other COVID-19 restrictions were lifted in Nevada.
By comparison, both May and June were nearly flat with prior year in the local segment.
And we are encouraged that these positive trends.
Into the first few weeks of July .
During the quarter core customer trends remained solid in the segment with core guest counts growing slightly year over year.
This strength was offset by softness in play from out of town gaming customers as well as retail customers in the local market.
However, we continue to effectively manage expenses during the quarter with margins exceeding 51% in the local segment.
Overall, we remain confident in the long term trajectory of our locals business, which should continue to benefit from a strong and vibrant southern Nevada economy.
Visitation to Las Vegas continues to recover increasing nearly 10% over the trailing 12 months, while air traffic to the market is at all time highs.
And while meeting and convention business is still 13% below pre pandemic levels. It is up more than 40% over the trailing 12 months.
We are seeing encouraging metrics within the local economy as well employment in southern Nevada is up more than 4% over the prior year. The third strongest job growth rates among major U S cities and with more than $10 billion in projects now under construction and more in the pipeline Southern Nevada has a solid foundation to.
This employment growth well into the future.
These positive conditions across Las Vegas are also benefiting the downtown market.
During the quarter business levels and pedestrian traffic remained strong throughout downtown Las Vegas, which has become an increasingly popular tourist destination.
Last year, nearly 60% of Las Vegas tourists visit of downtown Las Vegas at least once during their stay driving continued growth in visitation throughout the downtown market <unk>.
Additionally, we continue to see solid demand from our Hawaiian customer base.
While the overall downtown market is performing well our results during the quarter were impacted by construction disruption at the Fremont and main Street station at.
At the Fremont disruption was related to our ongoing casino renovation project that began in January while we had originally planned to complete this renovation in phases throughout 2023, we recently decided to accelerate this work during the slow summer season.
As a result about 20% of our slot machines and a third of our table games were out of service during the quarter. Despite.
This disruption EBITDAR at the Fremont for the quarter was essentially flat with the prior year. This is an encouraging preview of the growth potential of the Fremont once we complete this renovation in October .
Next at main Street station began I hate hotel remodel early in the second quarter as.
As a result, only 20% of our rooms at main street station, where available during the quarter impacting results at both the California and main Street. We expect this amount to be completed early in the fourth quarter.
While construction disruption will continue in the third quarter. We are confident these investments will help drive long term growth in our downtown Las Vegas segment.
Moving outside of Las Vegas resulted in our Midwest and South segment were impacted by continued softness in Louisiana and Mississippi.
However, our performance in this segment has continued to improve with both revenue and EBITDAR increasing sequentially since the fourth quarter of 2022.
We also maintained strong expense controls during the quarter with operating margins of 39% in the Midwest and south.
Across the segment customer trends are encouraging including at our Louisiana, and Mississippi properties with overall play visitation growing sequentially during each of the last two quarters.
And importantly, we saw the year over year gap in revenues and EBITDAR continued to narrow at our properties in the south.
Next our online segment continues to be an excellent story for our company during the quarter. This segment achieved a 75% EBITDAR gains driven largely by <unk> strong performances in Ohio, and Pennsylvania as well as the addition of Boyd interactive.
We also relaunched startup brand online casinos in Pennsylvania, and New Jersey during the quarter. This marks the first time, we have leveraged the Boyd interactive platform to manage our own online casino operations.
Ill.
Mine operations generated $13 million in EBITDA during the quarter.
We now expect our online segment, which includes contributions from Fandel other market access agreements and Boyd interactive to generate $55 million to $60 million in EBITDAR for the full year, an increase from our previous forecast of $50 million.
In addition to these financial contributions from online there are substantial value in a 5% equity stake in <unk>, the nation's clear leader in sports betting.
Finally in our managed and other segment Sky River Casino continues to perform at an exceptionally high level.
This property has consistently exceeded expectations since it opened last August and it did so again in the second quarter generating $17 million in management fees for our company.
Given the success of Sky River to date, the Companys loan to the property is being paid down more quickly than originally anticipated.
We received a $32 million payment on this loan during the second quarter and an additional $33 million payment in July .
This brings the current outstanding loan balance to $31 million, which we expect to be fully paid by the end of the year.
Success of Sky River, there has been a tremendous benefit for the Wilton Rancheria tribe, allowing the drive to finally realize the vision of self sufficiency.
Given the property a strong start to drive is now working on plans to expand sky blue potentially expanding the casino and adding a hotel meeting space and other amenities to the property.
While neither a timeline or scope for this project have yet to be finalized we shared that drives optimism for the potential of this expansion.
Based on Sky reverse current level of performance and including contributions from our Illinois distributed gaming business. We expect our managed and other segment will generate $75 million to $80 million in EBITDAR. This year consistent with the forecast we provided during the last quarter's call.
So in all we are pleased with our company wide results, we delivered during the second quarter.
And as we look ahead to the second half of the year. We currently do not expect any meaningful change in customer trends based on what we're seeing today.
In the Las Vegas local segment, we expect play from our core customers to remain stable at current levels, though we will continue to face challenging year over year comparisons during each of the remaining quarters. This year.
Downtown Las Vegas will continue to experience disruption from the free amount of main street projects in the third quarter, but results will improve once work is completed on these projects early in the fourth quarter.
And in the Midwest and South we expect stabilizing trends will continue.
Finally, our online and managed in the other segments will continue to be important contributors to our overall performance.
Further ahead in 2024, we believe we will see benefits from our ongoing expansion projects.
In Louisiana, the expansion of our treasure chest casino remains on track for completion next spring by.
By moving to a single level land based facility with expanded gaming and non gaming amenities and improved customer access we will significantly enhance this property's appeal contributing to incremental growth in our Midwest and South segment, beginning in the second half of 2024.
And in downtown Las Vegas, we expect to see strong returns from our ongoing property investments given the excellent demand we've seen for our recently completed upgrades at the Fremont. We're confident these enhancements will position our downtown segment for long term growth.
Growth investments in our existing portfolio are an important part of our approach to creating long term shareholder value and we expect to have additional opportunities to share with you.
Current projects near completion.
And thanks to our low leverage and strong free cash flow, we're able to balance these investments with a robust capital return program.
Similar to our second quarter, we intend to continue our pace of share repurchases at $100 million per quarter supplemented by regular dividend distributions.
Since we reinstated our capital return program in late 2021.
On track to return over $1 billion to our shareholders by the end of this year.
Through our capital allocation decisions, we are utilizing our strong free cash flow to create significant long term value for our shareholders, while maintaining a strong balance sheet.
In summary, we are pleased with our second quarter results as our effective operating model strong management teams and ongoing growth initiatives all contributed to solid results during the quarter.
Throughout our nationwide operations per core customer remains healthy.
Our management teams continue to do a great job managing the business efficiently despite higher costs, maintaining property level margins of 42% and we continue to see strong returns from online gaming and Sky River with limited capital Outlays, we have created two new business segments that accounted for nearly 10%.
Of our total EBITDAR this quarter generating a tremendous return on investment for our shareholders.
I would like to thank the entire team for their contributions to our continued success once again.
Have proved that we have the right team in place to achieve solid results through challenging conditions.
Thank you for your time today I would now like to turn the call over to Josh.
Yes.
Thanks, Keith I'm going to present, a few financial items related to the quarter and update you on our capital investments and shareholder return programs.
Total company wide revenues of $917 million rose two 5% over prior year.
While EBITDAR of $351 million nearly matched last years strong second quarter performance.
As Keith described we faced difficult year over year comparisons during the quarter with April accounting for nearly 70% of the year over year property level EBITDAR declines may.
May and June year over year variance improved sequentially with June performing essentially even with prior year.
Property level margins were 42%, while our company wide margins exceeded 38% during the quarter, both consistent with the last several quarters.
As an aside our own line segment included a tax pass through amount of $63 million compared to $48 million last year in the second quarter. These.
These amounts are recorded as both revenues and expenses in this segment.
During the second quarter capital expenditures were $75 million, including spend for both Fremont and treasure chest year to date capital expenditures have been $171 million.
We continue to project total capital expenditures of $350 million for the year, including $250 million in maintenance capital and $100 million related to treasure chest in Fremont.
We repurchased $100 million in stock during the quarter, representing one 5 million shares at an average price of $67 and <unk> <unk> per share.
This brought our actual share count at the end of the quarter to approximately 100 million shares.
In less than two years since we resumed our capital return program, we have repurchased 14 million shares or about 12% of the shares outstanding at the initiation of our repurchase activity.
We had approximately $533 million remaining under our current repurchase authorization as of June 30th. Additionally.
Additionally, we paid a regular quarterly dividend of <unk> 16 per share on July 15th and pending board approval. Our next dividend is expected on October 15.
Our balance sheet remains in excellent shape with total leverage at the end of quarter approximately two three times and lease adjusted leverage two seven times, we have no near term debt maturities and ample borrowing capacity under our credit agreement.
In conclusion this quarter reflected the benefits of our diversified portfolio our growth initiatives, our focus on our core customer segments and efficiently managing our business. We have a very strong balance sheet generates substantial free cash flow, providing us the ability to continue investing in growth while rich.
Turning significant amount of capital to our shareholders.
David that concludes our remarks, and we're now ready to take questions.
Thank you Josh we will now begin our question and answer session. If you would.
I'd like to ask a question. Please press Star then one on your Touchtone phone you will hear three tone prompt acknowledging your request.
Should you wish to withdraw your request. Please press Star then two.
If you are using your speaker phone. Please use your handset when asking your question.
We will pause a moment, while we compile our list of questioners.
Okay.
Our first question comes from Joe Greff of J P. Morgan Joe. Please go ahead.
Good afternoon everybody.
I was hoping we can dig in a little bit.
And the locals market.
And if you could maybe talk about sort of the customer segment, not necessarily by kind of core local or out of town guests.
But in terms of average theoretical or net worth was there a big difference between the upper tiers of your database versus those in the lower tiers of our database in terms of visitation and spend and then how did that how did those sort of buckets of trends.
How did they evolve over the quarter.
Okay.
So Joe this is Keith in terms of the higher end of the database or what we refer to as our core customer versus the lower end.
The upper end of the database our core customers.
Formed well as I said in my prepared remarks, what we saw was some pullback in visits so the number of customers was stable the spend for customers stable just a little lower in visitation.
Lower end of the database, which has been kind of shrinking four years, just continued to shrink it didn't accelerate or decelerate it who has been on.
A trajectory.
Been soft southern's, if theres anything noteworthy there.
And once again.
We saw some pullback in visitation now I indicated in my prepared remarks also that.
July is looking better the trends we're seeing in the first three weeks of July in the locals market visitation is back up.
So those are.
The trends in that that three weeks makes the entire quarter, but the trends of the first three weeks of July have certainly chain compared.
Compared to the second quarter.
The only thing I would add just broad based high level is it was really about softness in April and as we move through the quarter things just sequentially improve and then as Keith mentioned.
Have kind of turned positive in the first three weeks of July .
And we'll see where it goes from here.
Great. Thanks, Keith Thanks, Josh It's all for me.
Thank you Joe.
Our next question comes from Carlo Santarelli of Deutsche Bank Carlo. Please go ahead.
Sure. Thank you.
Hey, Josh So just following up on Joe's question. When you guys kind of looked at that April period, and there was some softness did you notice.
Any any change or any change in the behavior promotional you from any of your competitors in the market or that little soft patch kind of gwent.
Without much.
How much incremental promotions or offers going out.
I would say here in the locals market Carlo that the promotional environment really hasn't changed for a while everybody has kind of laid out their position from a marketing standpoint, and everybody is remaining relatively stable a couple of aggressive competitors, but for the most part everybody is continuing to.
Do what they do April and Josh alluded to this a few minutes ago really it was about a comparison issue to last year. So.
Sometimes are oftentimes, we go back and look at 2019 as a baseline in April of last year April 2022 was up nearly 100% in the locals market compared to two.
2019, and so.
While it was soft.
This April of 'twenty three it was really more of a comparison issue and as Josh said May and June actually.
<unk> to 2022 we're relatively flat. So I do think April was not about more softness than may or June it was really about a comparison issue.
Understood. Thank you and then just in terms of as you look across the operating portfolio.
We should kind of look and see what opex trends look like they all look fairly stable in terms of non gaming tax related operating expenses is it fair to say that kind of any iterations.
<unk> expenses from here would relate more to seasonality.
Certain markets in their respective seasonality or is there are there still pressures or incremental hiring or things of that nature that haven't yet come through.
No I think you are right. If you think about or if we think about our expense levels have been relatively consistent for a number of quarters now.
And we've implemented wage increases we have.
Our team members on a pathway our hourly team members on our pathway to $15 an hour we've completed that.
So.
Utility expenses are high in many markets, but thats in the current numbers. So I think any any future variation will be based on seasonality <unk> demand as revenue goes up we could see some incremental labor but.
Not be any significant changes in the overall kind of expense levels going forward.
Great. Thank you guys appreciate it.
Thank you Carlo.
Our next question comes from Steve <unk> of Stifel. Steve. Please go ahead.
Hey, guys good afternoon.
So Joshua Keith I want to go to the.
The southern markets, which you've now called out.
It's been a couple of quarters at this point in terms of seeing some some softness.
It sounds like it's a little bit more on the lower tier of your database and I guess the question is.
How does that market or those markets.
Is that deteriorating or is that still just it soft, but stable and hopefully that that makes sense.
Yes, Steve I'll take a shot at it and then Keith wants to add something basically I think we in Louisiana, and Mississippi, starting to see real softness in the fourth quarter of last year I think the right way to think about it is as we've kind of come in to this year things have just continued to kind of.
They've started to stabilize along a bottom and starting to show signs of improvement both in terms of customer trends revenue trends and EBITDA trends and so like the variances year over year on narrowing in terms of financial performance the trends with respect to customer behavior, whether it be number of customers.
Frequency span are all starting to tick up and I think it's a little early to say that it is going to keep going in that direction, but it is at least is kind of bouncing off of a stable bottom end seems to be improving and I would say that that's generally how we are starting to gain some confidence that that part of the business has stabilized.
Along with the rest of Canada, even the markets outside of the Mississippi and Louisiana.
Yes, maybe just to reiterate what Josh said fourth quarter of 2022 is kind of a bottom.
Sequential improvement.
And so I wouldn't view it as kind of deteriorating I'd actually gilead stabilizing improving since Q4 last year.
Okay, and then second question for you guys.
We wanted to take this but you guys still have and continue to have one of the better balance sheets out there in the across the industry.
Especially when you compare yourself to some of your peers and you are you remain in a very enviable position with that balance sheet. So I guess the question is can you maybe just update us.
Today in terms of what the appetite is for your company in terms of any.
Large acquisitions at this point or.
Where are you potentially would look at in terms of.
Using that balance sheet from an acquisition acquisition standpoint.
Yes, I think the only thing we could probably comment on.
As those of you who've followed us for a while as the company has grown over.
Over the years quite dramatically through M&A, and what I'd like to call Smart M&A, we've done a great job of picking the right assets and then being able to grow EBITDA from those assets, which has gotten us to where we're at today.
We tend to be very very disciplined in.
If there is something interesting in the future we could take a look at it but we're.
We're not going out of our way to kind of to do anything, but we have we have grown and as our history to grow through acquisitions, but.
We will be continue to be very disciplined.
I think the only concept to what key to saying is.
We like having a low about only levered balance sheet, because it enables us to consider growth opportunities if they come along and if they don't come along that's fine too just because we can do acquisitions doesn't mean that we will it just continues to be one of.
Being disciplined around that.
What we want to really focus on is continuing to be able to return capital to shareholders and be able to pursue growth initiatives at the same time should they come along to be able to do that whether the environment is good or bad and Thats why we have chosen to kind of be at this level from a leverage perspective, it's kind of what we view as an all weather balance.
Sure.
Okay, great. Thanks, guys I appreciate it.
Okay.
Thank you Steve.
Our next question comes from Dan <unk> of Wells Fargo. Please go ahead.
Hey, good afternoon, everyone and thanks for taking my question.
Want to follow up on the on the digital guide the $55 million to $60 million. Just so we can kind of understand where that's coming from is that simply just taking year to date and then adding the back half of last year. Because this is obviously tied to sandal and so to the extent that we're thinking about possibly up possible upside there is that the scenario and along with that.
You can just comment on any kind of early take since you've unplugged.
<unk> side and launched our start ups.
<unk> casino.
Yeah, I'll take the online and then Keith can take Boyd interactive.
So the kind of we were originally a $50 million I think consensus was a little ahead of us so.
The outperformance in Q2 really from a year to date perspective catches us up with.
With consensus if you will and then kind of we think that and then we went in and up to kind of middle of the year kind of Q3 performance to kind of come up with the guidance of 55 to 60. So if we outperform in Q3, then that will probably put us towards the higher end of the range, but what we have basically done is incorporate <unk>.
Year to date improve what we expect to do in Q3 and kind of mirror, what we expect what we did last year in Q4, just given Q4 had kind of some one off payments in there as well as <unk>.
<unk>.
Sure.
Of markets that we think we will have additional competition as we move through this year. So.
We think it's kind of a middle of road expectation for online at this point.
Got it and then just sue.
Great got it.
Let's just say with respect to the second half of your question the launch of startups the online casino business.
Look we did we've relaunched in Pennsylvania, and New Jersey in early May we spent the first 60 days really just fine tuning.
Product.
Havent really launched any marketing July was the month, where we actually started to step out a little bit and do some marketing.
I can say is that we're pleased with the launch we are pleased with kind of the organic growth that we're seeing just from having the product out there without doing a lot of marketing we're pleased with the reception by our land base brick and mortar customers.
Their participation with it but remember this is a small business for us.
We will grow this is about kind of the long term and being set for the long term and not necessarily about the short term. So we don't expect to move the needle materially in the short term, but I think we would consider it a successful launch and are pleased with the early results.
Got it and then just for my follow up moving to downtown if theres any way to just quantify that disruption. There. So we can better kind of frame the third quarter and then as you think about the fourth quarter I would think that you may see.
Just in terms of obviously that coming online and maybe even even in formula one coming to town is that is that a fair assessment directionally.
Yes, I think that's right Dan I think that.
The downtown impact from an EBITDA perspective.
We kind of back of the envelope estimate to be kind of $2 million to $3 million in EBITDA and I would expect that youll see pressures in Q3 related to.
Further disruption and then we will start to try to make some of that back both in Q4 and Q1 as the business has come back online as we make our way through Q4, because it's not all going to come back on queue.
First day of Q4.
So that's kind of how we expect breast.
The rest of the year for downtown to play out.
Got it thanks, so much.
Sure.
Thank you Dan.
Our next question comes from Jordan Bender with JMP Securities Jordan. Please go ahead.
Great. Thanks for taking my question.
Looking into the locals market, maybe just update on the convention and group business, what Youre seeing in the next couple of months and maybe pricing over last year as well. Thank you.
Probably the only comment we have on overall convention business and we have.
Some limited square footage at the Orleans and a few other properties. So it isn't a huge piece of our business, but we see it continue to grow back.
Convention business was up significantly year over year still running slightly behind 2019, but is up significantly year over year. So continues to grow.
Any specific statistics about the next several months.
Summertime here in Vegas is traditionally a very slow time for convention business, probably won't pick up significantly until mid September .
And once again, we participate mainly at the Orleans with that with the C.
Room base, we have there and some of the meeting and convention business, we have there.
Great and then maybe a bigger picture bigger picture question on the distributed gaming business. That's a market that's slowing and maybe lower margin I was just wondering Hal laton youre kind of fits into the portfolio longer term.
Yes, I think look we put our toe in the water with respect to that particular niche market for us just to try to begin to understand it and I think to the extent that it were to be able legalized in other states, we would consider expanding it for now.
It's largely status quo for us in Illinois quite honestly.
We leverage they get the benefit of some of our technology and marketing capabilities over time until they kind of get outsized.
Support.
And so.
Let's just kind of it is what it is.
Great. Thank you.
Thank you Jordan or.
Our next question comes from Brent <unk> of Barclays. Brent. Please go ahead.
Thanks, Good evening everybody.
Just one question if we could go back to the Midwest and South segment and dig in a little bit.
On the seasonality for the back half.
What I'm really trying to get at is Keith you described it as stabilizing here.
Which is reassuring I guess, if you look back at 2019 seasonality it would.
Suggest <unk> is.
Typically weaker than Q2, maybe that was an off year, but.
That would still that would still suggest.
Down down comps at the EBITDA level year over year in the <unk> and.
Maybe you could help us understand.
The stabilization comment how we should think about that into the third quarter.
Yes, I do.
Look.
Frank This is Josh I think season that youre not going to stable stabilization is not going to override seasonality I think there will continue to be seasonality in the business. All we're trying to say is that we saw weakness with respect to specific consumer trends within our Louisiana, Mississippi business and those.
<unk> consumer trends have now started to come back in.
And starting to improve and so it's not to say that we won't see them ebb and flow with respect to the seasonality that normally.
Is characteristic of certain markets or certain business segments.
Just to suggest that.
That business is starting to get a little bit back on track relative to overall performance. So hopefully that helps.
That does thanks, so much that's all for me.
Sure.
Thank you Brian .
Our next question comes from David Katz of Jefferies. David. Please go ahead.
Hi afternoon, everyone. Thanks for taking my question.
Covered a lot of ground I just wanted to if you don't mind touch on the dividend.
Which.
As is.
Okay, well, how do you think about growing it over time, how do you think about its use in value drive today as it sets in.
Where it could lead one day.
Well, if we look at our <unk>.
We look at returning capital to our shareholders.
All type pronged approach, obviously, we have a large share repurchase program committed to us.
As I said.
Supplement that with an ongoing dividend program.
And we will return nearly or over $1 billion between the two of them by the end of this year. We think that look the dividend is just one element of returning capital that's up to our board.
They view this in terms of where it goes each year.
No.
Yes.
I really can't say much more on the dividend and that will be up to the board to sit and talk about it but I think I would see a continuing it as an important part of how we return capital to shareholders not all shareholders view getting capital back the same way many like.
Share repurchases and so I'm like dividends and so we're trying to accommodate kind of all of our investors through that.
Understood and if I can just follow up quickly in another direction with respect to the.
The margin performance, which was which was actually.
Pretty good right I think thats been sort of a recurring focus of how much can you really sustain.
How do you view sort of the next few quarters with with respect to that do you feel like you have Josh all the sort of cost under control that you can foresee at the moment.
And <unk>.
Should we be just a little more conservative about that.
Yes, my own perspective is I think our operating teams do a great job managing to the level of revenues.
That they are seeing come in the door every day quite honestly and thats enabled them to offset pressures, whether it's from labor from time to time.
From utilities that are season out seasonally driven.
Other big increase that we've seen recently is insurance, but yes, yes, but yet despite those pressures they get a lot of press so to speak the reality is as these guys find ways to kind of offset that and continue to deliver what I believe to be very consistent levels of margin performance and we've said from the beginning coming out.
To COVID-19, we weren't going to be able to maintain those levels of margin, but we're going to stay in that neighborhood and I think we've lived up to that our teams have lived up to delivering that and.
I'm sure there'll be periods of time, where it's not always that way, but generally I think that this is what you should expect in terms of levels of performance in terms of margins from from us.
Got it thank you very much.
Sure.
Thank you David.
Our next question comes from Chad Beynon of Macquarie Chad. Please go ahead.
Afternoon, Thanks for taking my questions.
First I wanted to talk about additional projects in the future organically.
Downtown and treasure chest, you've kind of laid those out and those have all been in our models and in <unk>.
You've talked about the returns that we should see in the next six to 12 months as we get beyond that are there other properties, where you could.
Make any adjustments, whether it's hotels casino floors add just something to think about.
Additional returns within the organic portfolio. Thanks.
Yes, so we have a number of things that we are considering and evaluating right now trying to prioritize them. We have several very high performing properties that we can leverage up an existing strong market and strong management team to further grow EBITDA at those properties, we don't have anything to announce right now but.
We will be.
Baird.
Start to lay out what we think those next projects are in the ZIP code of the Fremont.
The treasure chest. So it's nothing significant but once again, we have several very very strong opportunities to continue to grow those just not ready to.
Talk about them at this point.
And the only thing I would add to that the only thing I would add to that Chad is key.
Keith gave you a sense of order of.
Magnitude in terms of size, we're not going to kind of open the flood gate in start ups. So many at one time, it's going to just continue to be paced along just like we did with Fremont and treasure chest and kind of doubled.
Triple them into the capital allocation process.
Okay. Thanks, Josh Thanks, Keith.
And then in terms of the sandal partnership.
We're coming up on the five year Mark I don't know if this was.
Disclosed or if it's public from from when the partnership originally came together, but is there anything that's that's out there that we should be aware of in terms of terms on the deal.
That change after a five year Mark was it a longer.
Partnership we're just hearing a lot of a lot of these three to five year.
Deals.
<unk> are coming up for renewal.
So I think the short answer is there's really nothing pending or coming up in the short term ours, where longer term deals that were structured differently. Because we had a portfolio type of approach across nine states and how it all rolled out.
Extension options were and the whole bit, but there's nothing in the short term.
Excellent. Thanks, guys appreciate it.
Okay.
Thank you Chad.
Our next question comes from Joe Stauff of Susquehanna Joe. Please go ahead.
Good morning, or good afternoon, Keith Josh.
Just two clarifications if I could.
You were asked.
Largely on kind of M&A, but capital markets certainly have opened a bit and I was just wondering.
Maybe if you could describe.
Maybe the number of inbound calls is it fair to say that it has increased.
To some degree and then.
I just wanted to ask to clarify your comments on July trends.
And correct me, if I'm wrong, but I thought you said that.
In terms of your core customer and the number of visits has increased sequentially versus what you saw in the second quarter.
And that spending levels.
Or is it kind of remain consistent.
I guess a clarification on that.
I'm wondering if the out of town visitors have also increased.
Increased again relative to your July guidance for three weeks.
Yes, so with respect to kind of the core customer comment in the loss.
Trends that we're seeing in early July .
I think my comments were that in as we looked at those core customers like in Las Vegas.
In the second quarter.
It really was frequency we had a few less visits that we're spending the same in the core customer count was generally the same as we got into the first three weeks of July were actually seeing.
More visits so visits are back and spend is flattish to up.
Positive trends as I said, a caution that three weeks isn't.
Permanent trend, but certainly a turn from Q2, so positive trend.
And once those are out of town customers coming in.
In terms of M&A.
Yeah.
I'm not sure that the call volume has picked up or slowed down it's always spotty. So I wouldn't say that we're getting more calls or less calls and we've gotten over the last year or two Josh yes. The only thing I would say is is like we are.
We're really focused today.
It's not so much about M&A unless it's an opportunistic opportunity that comes along it's really about just continuing to run the business reinvest in.
Our existing portfolio and return capital to shareholders and we have the balance sheet to continue to do that in an uncertain environment and to the extent that something came along that was attractive we would expect that not to affect kind of are the how we're thinking about running the business today.
Kind of how we're thinking of it its not like were going over two five times leverage generating a ton of free cash flow and will run around looking for things to buy.
The attitude of the company internally.
Okay I appreciate it.
Yes.
Thank you Joe.
Our next question comes from John Decree of CB R. E. John Please go ahead.
Hi, Josh.
Maybe just one question from me on non gaming revenue F&B in room revenue, it's been recovering pretty rapidly.
Last quarter was pretty strong quarter this quarter it looked like that.
Gaming revenue was kind of flattish year over year versus <unk> last year curious if you could speak to the trends that youre seeing in that business is it more seasonal that we'll see uplift does it still recovering.
Tough comp to last year's curious to get your thoughts on those segments.
Yes, John .
I'll take it and then Keith if you have something to add jump in so like when we look at.
Room revenue by segments I think what Youll see are eventually when we put it out in our Q is that room revenue in Las Vegas was actually up.
Where the softness in room revenue largely came from was the construction disruption downtown and then on the <unk>.
In terms of the other kind of segment of non gaming for us in terms of F&B.
We had kind of flattish performance in Nevada, but basically growth consistent with what we were talking about in terms of in terms of a stabilizing and improving trends in Midwest and south growth in F&B kind of outside of Nevada, So kind of consistent with what's going on in the business and the commentary on the quarter.
That's what's coming through on the non gaming side of things Keith I don't know if theres anything that if that covers it.
Thanks, Josh.
That's all for me.
Okay.
Thank you John Our next question comes from Stephen Grambling of Morgan Stanley Steven. Please go ahead.
Thanks, two quick follow ups first on the digital guidance increase.
I don't think I heard you say that kind of what youre thinking about with Tyler.
And as you are talking about this this ramp and startup is that usually when there is this increase in effectively customer acquisition. There could be increased losses are you assuming that there's going to be incremental investment there thats offset by strength in the rest of the business.
Yes, so as you think about power once again, it's a very small part of the overall business and we bought pallet interactive. It was it was profitable and it will continue to be profitable, but it is small when we talk about starting marketing, which we started in the month of July .
It's small.
It's small dollars its nothing thats going to change the trajectory of the business. So.
Yes, I wouldn't I would anticipate.
This even.
This is being visible to anybody as we can so so Steve as Keith suggested it's small.
When we acquired it it was doing about $5 million in EBITDA.
And in our projections, we're assuming that it's going to continue to do $5 million of EBITDA for this year as it transitions and built out its capabilities. It certainly has the opportunity and we expect it to grow from here, but for 2023, its a formative year for that business to kind of transition.
The business over to startup business to our platform and to build out his technical capabilities to kind of continue to grow from here.
No.
This is not we're not running the business similar to maybe how our peers, we're thinking about online where you're used to seeing big marketing budgets and potentially losses early on that's that's not what this is about it Scott.
Got a healthy global business.
And we're not spending more to suggest that it's going to go backwards.
Got it that's helpful and then.
Going back to the South and Midwest you gave a lot of commentary there, but I just want to make sure that.
It's all kind of coming out in the same page, which you.
EBITDAR standpoint, I guess Youre, saying are you, saying revenue is stabilizing and EBITDA should be stabilizing where we are today. So we shouldnt anticipate just sequentially.
Can move around a lot from here.
No no.
Let me.
We're talking about kind of year over year performance.
In terms of so let me back up maybe that's the best place to start Q4, and Q1 Midwest and South was impacted largely by performance in Louisiana, Mississippi those businesses had softness in terms of consumer trends and resulted in revenue and EBITDAR declines that affected the overall.
What we're saying is we and the rest of the business was pretty much stable as we move into Q2, the rest of the business remain stable and what we're starting to see in Louisiana, Mississippi as customers trend starting to inch up and improve and as a result, the economic or financial performance of the Louisiana, Mississippi assets to fall.
Hello, along so year over year, if we were down a certain amount those amounts are reducing as we move through time based on sequential performance going from fourth quarter to first quarter, the second quarter and that's what we're talking about it's not going down any further it stabilized to starting to.
Improve that's what's encouraging from our perspective for Louisiana, Mississippi and that will only contribute to what's happening in the rest of the Midwest and south it doesn't mean that going into.
The third quarter when a certain market is typically down a little bit because of seasonality you won't still see that.
Or that if Louisiana, Mississippi typically go down in Q3 that you won't see that we just expect that the underlying trends of the business continue to improve.
From a customer perspective quite honestly and so that's what we're saying that's where we're seeing continue and hopefully that kind of.
Helps you understand and if not we can talk about it further offline, but it is not meant to suggest that.
We will lose seasonality, it's meant to suggest that the year over year variances should start to diminish.
That all makes sense that's clear thank you.
Sure. Thank you Steven.
Our last question comes from Barry Jonas of true its Securities Berry. Please go ahead.
Thank you.
Just wanted to start can you maybe give us an update on any risks around competitive openings, we should be mindful of from here.
Okay.
Yes, so Barry as it comes to competition. The only I think pending opening is obviously the Durango project here in Las Vegas locals market.
Have had HHR is opening Kentucky, which.
Have impacted and we haven't completely anniversary their impact at <unk> resort in <unk> Park.
<unk> in southern Indiana.
And.
The four winds project in South Bend that opened recently, which has had some minor impact on our blue chip operation in northwest, Indiana, but once again those have been opened for a while.
Durango station will open whenever.
They say, it's going to open later this year.
And my only comment would be I think like other openings that we certainly have a lot of experience with these types of things.
Turning a new properties.
Customers will go visit they always do shiny new toy and the majority of our customers will come back home and that's generally what we've seen happen over the years.
Look here in the Las Vegas locals market when the palms opened a number of years ago, we had customers go and visit and.
The majority of them have come back.
And it has not had a significant overall impact on either the Orleans with the gold coast, which is where it would be felt in so.
We'll go visit and we'll be prepared for it and once again, we certainly have a lot of experience with these type of competitive openings and we are prepared for it.
<unk>.
Great and then I guess just for a follow up I believe there was a change in the board leadership with Mr. Boyd moving to the chairman emeritus role and congratulations to him just wondering if we should expect a pretty seamless transition from here.
Yes, I would expect nothing has changed and nothing will change and it will be kind of status quo. The board is stable and we have a very solid.
Solid board everybody's good.
So yes.
Nothing should expect no changes.
Great. Thanks, so much.
Welcome.
Thank you Barry. This concludes today's question and answer session I'd now like to turn the call over to Josh for concluding remarks.
Thanks, David and thanks, everyone for joining today.
Anyone has any follow up questions on anything we discussed in our hotels, please feel free to reach out to the company and.
We'll try to get those answered those questions answered for you.
<unk>.
Thanks, Josh. This concludes today's call you may now disconnect.
Okay.
Okay.
Okay.
[music].