Q2 2019 Earnings Call
Hello, everyone. This is the conference operator, today's Boyd Gaming conference call.
Just a few moments we actually if we stay on the line and once again todays Boyd Gaming conference call. We'll begin in just a few moments.
Good afternoon, and welcome to the Boyd Gaming second quarter 2019 conference call.
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I'd now like to turn the conference over to Josh Hirsberg Executive Vice President and Chief Financial Officer. Please go ahead Sir.
Thank you Rocco good afternoon, everyone welcome to our second quarter earnings Conference call.
Joining me today 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, 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 there are certain risks and uncertainties, including those disclosed in our filings with the FCC 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 FCC today and both of which are available in the investors section of our website at 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.
Finally, 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.
I'd now like to turn the call over to Keith Smith Keith.
Thanks, Josh good afternoon, everyone.
During the second quarter, our diversified national portfolio continued to yield positive results for our shareholders. As we delivered same store revenue EBITDAR and margin growth in every segment of our business.
Well the pace of our same store growth did moderate from prior quarters. This was primarily due to difficult comparisons to our record performance at the Orleans last year as well as softness in several markets in Louisiana.
However, these issues were more than offset by strong performances elsewhere in our business demonstrating the strategic value of geographic diversification.
On a same store basis, we delivered record results in downtown Las Vegas, and solid growth throughout the remainder of our Las Vegas and regional properties.
Our customers remain healthy our geographically diversified portfolio is performing well and our operating teams continue to successfully enhanced margins throughout our business.
And as I'll discuss in a few minutes, we're successfully executing on strategic initiatives that position us for continued growth into the future.
On an overall basis, our second quarter results were significantly enhanced by strong performances at our five newly acquired properties through focused efforts to drive profitable revenues and efficiencies at these properties. We grew combined EBITDAR more than 7% over the prior year Standalone results, while improving operating margins more than 150 basis points.
In Missouri, Ameristar, Kansas City, and Ameristar Saint Charles each grew EBIT dark at a double digit pace compared to last year Standalone results with EBITDAR at Saint Charles reaching its highest levels in eight years.
And our Belterra properties EBITDAR at Belterra resort in southern Indiana declined slightly due to the impact of new competition in the Louisville market.
While in Ohio, but Belterra Park achieved the best quarterly revenue and EBITDAR performance in its history.
And in Pennsylvania Valley Forge achieved a record second quarter EBITDAR performance boosted by strong growth in spot volumes and contributions from the Fanduel Sportsbook that opened in March.
You know these new properties are off to an outstanding start under our leadership as our operational approach delivered growth above their solid standalone performance as last year.
Once again, we are demonstrating our ability to successfully integrate acquisitions and immediately drive improved performance.
Well. The addition of our new assets accounted for much of the year over year increase in our Midwest and South regional results.
We also continued to drive same store growth as this segment achieved its fifth consecutive quarter of same store EBITDAR gains.
As I mentioned earlier segment results were impacted by a weaker quarter in Louisiana.
This was primarily due to softness across the south western part of the state where last years results benefitted benefitted from hurricane recovery work throughout the area.
Elsewhere in our Midwest and South region results were quite encouraging with solid performances throughout the remaining properties in the segment.
In Indiana Blue Chip had another solid quarter of revenue and EBITDAR gains as it continues to outperform the northwest, Indiana market. Thanks to its market leading amenities in skilled operating team.
And I will both of our Diamond Jo properties delivered revenue and EBITDA growth for the quarter.
On the Gulf Coast, the IP achieved its ninth straight quarter of EBITDAR gains as more efficient and effective marketing programs continue to drive growth.
And to the West we were particularly pleased with our performance at Kansas Star is operational and marketing refinements drove solid growth in visitation revenues and EBITDAR during the quarter.
In Nevada, our Las Vegas locals business produced its highest second quarter EBITDAR since 2005 as continued gains in revenues and operating margins drove our 17th straight quarter of EBITDAR improvement.
Well long term growth continues across our local segment. These gains were partially offset by a challenging quarter at the Orleans.
Results of the property were impacted by unusually low hold during the quarter as well as a difficult comparison to last year when a major event at the Orleans helped drive record results at the property. The Orleans did not have the benefit of that event this year.
After adjusting for these one time items at the Orleans, EBITDAR was up 4.5% or local segment as the balance of our locals properties continued to deliver solid results.
At the Gulf Coast.
We again posted strong revenue and EBITDA targets.
The site Cannery, we saw considerable improvement over the first quarter is operational adjustments reverse the negative trends we saw in Q1.
And only aontais positive trajectory continued during the quarter, thanks to more effective marketing initiatives and a strong management team, we're making the most of strong residential and commercial growth throughout north Las Vegas.
And while growth has been particularly strong in north Las Vegas.
Causative economic trends are continuing throughout southern Nevada.
Las Vegas Valley is a third fastest growing metropolitan area in the country. According to the latest estimates from the census Bureau.
Job growth and wage growth are both outpacing the national average with the local economy, adding more than 21000 jobs over the trailing 12 months.
Taxable sales have grown more than 7%.
And tourism to our community continues to grow driven by strong convention business and record passenger counts through Mccarran Airport.
The strength of the southern Nevada economy is also benefiting our downtown Las Vegas operations as we achieved record results in our downtown segment during the second quarter.
All three of our downtown property set new second quarter, EBITDAR records with strong business volumes and visitation across our operations.
This is from both the Hawaiian customers, an unrated players was up significantly during the quarter a clear indication that we are benefiting from growth throughout the downtown market.
Well, we are encouraged by the health of the down of downtown Las Vegas, We continue to anticipate construction disruption from the circa project adjacent to the California and main Street station.
This disruption will likely have an impact on our results in the coming quarters and is included in our current guidance.
But in the long term, we are confident that circa will be a significant positive for the entire market. When it opens late next year, drawing more visitors than ever to downtown Las Vegas.
In all our nationwide portfolio continues to perform well and we are confident in our ability to continue growing through further operational requirements and strategic initiatives.
The expansion of our B connected program to our new properties is a good example of a growth initiative is helping drive stronger results.
Another promising initiative is the ongoing expansion of sports betting across the country.
At the IP Sam's town Tunica and Valley Forge, our new sports books are drawing new and younger customers through our doors.
And there is more to come over the next several months just days ago Fanduel launched its mobile sports betting app in the state of Pennsylvania, marking the first digital gaming partnership between our companies.
Our retail on premise sports betting presence will also expand in the coming weeks.
By early September Fanduel open sports books, a blue chip Belterra resort Diamond Jo Dubuque, and Diamond Jo worth.
Based on what we've achieved so far in Mississippi in Pennsylvania, We're optimistic our partnership with Fanduel will continue to contribute to growth in visitation and revenues across our regional operations, while further expanding our customer base.
We also see future growth potential from the Wilton Rancheria tribal resort project near Sacramento.
Once complete this resort will be exceptionally well positioned to serve the northern California market.
Located just south of Sacramento, along highway 99 major freeway in the area. The Wilton property will be the closest casino to more than five and a half million people from Sacramento to the Bay area.
This resort and the revenue stream will generate will be a historic step forward for the Wilton Rancheria tribe and its quest for self sufficiency.
And it will be a significant growth opportunity for our company as well.
Beyond these growth initiatives acquisitions will also continue to be a core component of our long term growth strategy.
Over the last eight years, we have acquired 15 separate assets and seven separate transactions and all performed at or above our initial expectations.
As we demonstrated yet again in the second quarter, we have a proven track record of identifying and executing transactions that create value successfully integrating an operating these new assets and taking full advantage of their potential.
As we consider future growth initiatives.
We will remain disciplined and prudent in how we deploy our capital always acting in the best interest of our shareholders and creating long term value.
So in conclusion, we remain pleased with our continued long term progress as a company.
We continue to deliver broad based top and bottom line growth throughout our same store operations.
We are achieving great results at our newly acquired properties.
We are successfully executing on marketing and operational initiatives to further grow and diversify our business.
We are further capitalizing on our partnership with Fanduel, leveraging the nationwide expansion sports betting to drive new visitation, new customers to our properties.
We continue to deploy our expanded free cash flow to pursue a balanced approach to value creation.
We remain focused on achieving our long term leverage target four to five times EBITDA, while returning a portion of capital to shareholders through dividends and share repurchases.
And we will keep executing a proven growth strategy of disciplined capital investment in our business, including Reinvestments in our existing hopper and our existing properties and strategic acquisitions.
Our strategy is sound fundamentals, our business fundamentals of our business are strong.
We remain confident in the direction of our company.
Thank you for your time now I would like to turn the call over to Josh.
Thank you Keith our operating teams delivered another solid performance during the second quarter with all segments showing year over year improvements in revenue EBITDAR and margin.
Our recent acquisitions are performing in line with our expectations and the integration of these properties is going extremely well.
As Keith noted our rate of same store growth during the quarter was below the pace, we have seen over the last several quarters due to challenges at the Orleans casino and in the Louisiana market.
However, given the favorable underlying customer trends in our business.
And the positive economic climate in the markets in which we operate we remain comfortable with our guidance.
As noted in our release, we are reaffirming our full year EBITDAR guidance after corporate expense of $885 million to $910 million.
Providing a few more specifics about the quarter leverage at quarter end was about five times debt to EBITDA and lease adjusted leverage was 5.4 times our target leverage is four to five times EBITDA and we expect to approach the midpoint of this range by year end.
We reduced debt by $43 million in the quarter and by $75 million year to date.
Through the first six months of this year, we have paid $13 million in dividends and repurchased $28 million in shares.
At an average price of $25.82 per share.
We will continue to be measured in the execution of our share repurchase program.
Consistent with our past practice, we will use our free cash flow to pursue the highest returning projects whether those are reinvesting in our business.
Strategically growing our company are returning capital to shareholders.
All balanced with a continued focus on deleveraging our balance sheet.
Capital expenditures during the quarter were $37 million, bringing year to date investment to approximately $126 million.
We now expect capital spending for this year to be approximately $180 million.
Slightly higher than our previous guidance of $160 million.
Our quarter end debt and cash balances were provided in our earnings release.
Finally in terms of our master lease rent coverage for the assets governed by the lease for the LTM period was 1.92 times.
With that Rocco that concludes our prepared remarks and were now ready to take any questions absolutely. Sir we will now begin the question and answer session.
To ask a question press Star then one on your Touchtone phone.
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Today's first question comes from Carlos.
Oh. Please go ahead.
I just wanted to clarify is that ex Orleans altogether or are you, including Orleans, but normalizing for the the.
The event and hold impact.
Her question. It includes the Orleans normalized for the old issue.
Understood. Okay. Thanks, and then you know both of you spoke a little bit about some of the challenges in New Orleans, Obviously July has seemingly gone off to a little bit of a tough start with with some of the weather there obviously that the storms.
I believe at least two of your properties were closed for a period of time could you talk a little bit about how we should think about not only louisiana, but but mississippi as well for for kind of the July and how that relates to the threeq period.
Well, you're right actually three of our properties were close.
For a weekend Friday Saturday Sunday.
Treasure chest, Amelia Belle and evangelism downs, all for different reasons, but all related to hurricane very you'd add.
Additional effects frankly on the IP is people, who would you know who would go from the New Orleans market over to the Gulf Coast for a week on vacation didn't travel. It also had some effect overruns in the southwestern part of the say the delta because the Houston market. After last year's event kind of stayed home and stayed away from the area. So that to a much broader effect now was one weekend out of the month, one weekend out of the quarter.
These are very localized markets and so I think it's it's too early to predict any impact on the quarter and obviously will have an impact on the month of July but it's too early to predict an impact on the quarter.
Understood and then if I could just just one last one you guys laid out here the the contributions in the period from that the four legacy Pinnacle assets that you acquired in mid October of last year.
Which is helpful kind of framing the context of the same store, but obviously with valley forge in the Twoq This year and not there last year in Latin or kind of sprinkled in a little bit last year and there this year.
If you were to exclude those two is it safe to assume that the balance of the legacy Boyd portfolio saw margin expansion and EBITDAR growth as well.
They they we did see same store EBITDAR growth and we saw same store margin improvement as well when you take out the contribution from the acquisitions in both periods. So Carlo our same store commentary and in our prepared remarks excluded the five properties.
In Latin are such a small piece of it.
But it excluded valley forge in the four P and K properties, we acquired and excludes Latin or as well yeah included so the numbers we quoted in our prepared remarks, we're we're we're ex everything all six assets effectively.
Yes, correct.
Perfect. Okay. Thank you guys.
Thank you.
And our next question today comes from Thomas Allen of Morgan Stanley . Please go ahead.
Hi, I'm just you made some comments about.
Potential future M&A I'm just in terms of the topic you know how does it feel like how active does the M&A market feel right now and how willing you to take on incremental leverage here at this part of the cycle to to do deal. Thanks.
Sure well I think we've probably made a comment on M&A on every call for a number of years as we continue to.
No view ourselves as a growth company and look for ways to expand and once again, we got to have a proven track record in acquisitions is always anything we look out we will be disciplined in terms of what price we pay making sure. We can provide the right return to our shareholders and making sure. It fits in the portfolio. There is a reason to acquire it.
I think we are flexible in terms of looking at.
Our leverage going up to acquire the right assets in the right market as long as we see it coming down very quickly.
We will not let our leverage.
Go up without.
You know without a way to see it coming down very quickly.
We're cognizant of the fact that.
You know we are little longer late in this economic cycle, it's been going on for quite a while and so we're a little have little more sensitivity to looking at acquisitions today than we probably did four or five years ago.
Acknowledging where we're at in the cycle, but we're still looking how active is the market. It's hard to tell it feels a little quiet to me right now, but you never know what's going to happen tomorrow.
Thank you and then just two questions on downtown.
Obviously, you highlighted that surface can be more of a headwind, but you've been growing EBITDAR and that not taking about 5% in the first half of this year do you still expect it to grow in the second half of the year and then there's been some talk about you guys expanding in downtown kind of where it where are you. There now thank you.
So I would say that.
Will it continue to grow in the second half of the year.
Yeah, we'll continue to grow just not at the same.
Pace as it did in the first half because of what we expect to be that impact from the circuit development as it goes vertical there's just that much more.
Construction traffic in the area, it's harder for people to get to our buildings whats going to.
Three of our assets are back there so.
I think growth will slow in the second half downtown.
In terms of the Fremont.
Once again, we've owned a piece of land behind the Fremont for a couple of decades, if not longer we've looked at using that piece of land to expand the Fremont any number of times.
We're looking at it again currently because quite frankly, the Fremont just has a great great business going on there with record or near record EBITDA was almost every quarter and so the question becomes is there a way efficiently and effectively at the right price to expand that property and get a return on that investment no decisions have been made still something that we're looking at.
But those are kind of the dynamics surrounding the Fremont.
Helpful. Thank you.
You're welcome.
And our next question today comes from Joe Greff.
Please go ahead.
Hey, guys.
And can you just talk about the promotional environment in the Las Vegas locals market in the 10-Q.
I guess in approaching his question from.
The point of view that we've heard I guess mixed signals at different points during the QQ.
And.
How does it feel now versus.
Different plants to the Threeq here, particularly as you have a couple of your competitors properties that are ramping up relatively new product offerings.
Yeah, the the promotional environment I think in the locals market is pretty transparent it's out there in the paper and on TV every day and if you were looking at it I think you would say that in the months of May and June in particular, it was a little elevated.
Given some of the point multiplier is that were being offered some of the more expensive promotional giveaways.
You know that you're seeing.
We're a little elevated in the market just once again, knowing what was out there.
Okay, Great and then that Josh corporate expense came in lower than what we had anticipated.
Was there anything timing wise or onetime in nature there.
And how are you thinking of the full year corporate expense.
Yes, so I think.
We did a really good job of managing corporate expense in quarter. Two if you kind of look at the trends from even last year. They would suggest Q3, it will be a little bit higher in Q4, maybe even a little bit higher than that but I think we are trending slightly below kind of.
What I've filled as an estimate out there of about $90 million. So I think you know will be kind of in that $88 million to $90 million range not materially different at this time.
Great and just going back to your earlier response Keith on M&A.
How would you assess the risk criteria in evaluating M&A for Las Vegas strip asset versus.
More traditional.
Midwest or southeast regional casino.
Yeah.
I guess I can provide a more generic answer because typically it is a little property specific given the quality of the property or what you're looking at you know you may assign a different risk profile to it like Las Vegas is still very strong market I think has a great future ahead of it.
And therefore.
It has stable regulatory and tax environment.
And so from a risk standpoint, a risk perspective, I put acquisitions in Las Vegas.
Financially it at a lower risk profile, even though it's a much more competitive markets.
You know in many of the other states.
As we've seen your subject to massive gaming expansion bills like happened in Illinois that can impact the.
The landscape very quickly and changes to regulations and other states that can impact to competitively generally hasn't happened here in Las Vegas.
I think the only other thing I would add too.
A consideration for our hours is just how important or strategic is the asset relative to.
The valuation and does that necessarily mean, we're going to have to pursue it in opco propco structure, because I think.
You know to the extent it has an opco component to it I think.
We will pursue that if it makes sense, but thats another kind of consideration for us and how much exposure we want to have.
To that type of capital structure, if you will or that form of financing.
As we consider acquisitions going forward.
Okay. Thank you.
And our next question today comes from David Katz with Jefferies. Please go ahead.
Hi afternoon, everyone.
Josh I wanted to just go back to the.
Last part of the very last sentence answer your last answer.
Which was around the mix of Opcone propco.
And how do you think about what your tolerance for exposure to that.
You know could or would be do you have a notional split.
In mind or you know is is the answer is it is too many other things.
It really depends.
I would like to give you clarity, but I think it really just depends on the opportunity that's presented.
And.
Look I think we've been pretty.
Transparent around how we think about it.
And we think of it as a form of financing clearly and we think of it as a substitute for or issuing equity ourselves and so you know to the extent that we are going to go out and do a project I think we evaluate the return characteristics based on whether we would have to use our own equity or not.
All right to pursue that opportunity and so.
It really is going to be.
Specific to the opportunity as to whether warrants that kind of financing or not in and in that mix goes back to everything he said and everything we've said historically around as we evaluate acquisitions, which is.
How strategic is it how much free cash flow.
The amount free cash, we're going to generate and the value that we can ultimately create from that opportunity and so.
I don't think we have a specific.
Kind of target for Opco exposure, but those are the kinds of things that we would factor and if we had a specific opportunity.
All right.
And if I may since it's you know it's been a while what would be the the circumstances are the boundaries around.
Which boyd would be interested in being on the Las Vegas strip.
At this point.
Well I think we'd look at it like all acquisitions, we have said in the past on prior calls, we certainly would like to get back on the Las Vegas strip with the with an asset at some point in our future. It doesn't drive US we don't think about a day and night, we keep our eyes open for opportunities, we will evaluate it like any other opportunity.
The right asset at the right price I said earlier, we have great confidence in the strength of the Las Vegas market, both short term and long term and so we'd like to be there, but you won't see us do anything stupid and once again being a little late in the economic cycle.
It will be sensitive to whatever it is that we do knowing.
Not knowing what the future is going to look like.
And the only other comment I would add that we talk about quite a bit.
Is that.
No I don't think we feel like we need acquisitions to grow our business. We continue to have significant opportunities and just in terms of operating our business more efficiently and focusing on that aspect of the opportunity for our company going forward and then as an off as an acquisition that that is purely opportunistic comes our way that fits our criteria then.
That's when we'll be interested in it otherwise, we're fine kind of tend into our own business.
Got it thank you very much.
And our next question today comes from Felicia Hendrix of Barclays. Please go ahead.
Hi, Thanks, a lot.
Keith in your responses to M&A recently, not just on this call but recently.
Talked about the economic cycle, and where we are in terms of the potential risk factor with M&A, but as we think about your business today. It doesn't seem like your consumer is reflecting any kind of economic sensitivity. So just and I know there are two separate things, but you know to get to your consumer in particular, I mean, I think your results speak for themselves, but you know are you seeing any sensitivity in any particular like any buckets of sensitivity anywhere.
Fair question, I think that from a consumer standpoint.
I think I used the term consumer our consumer remains healthy.
They are acting normally.
I don't see the business decelerating in the near term I don't see it accelerating either I mean assume more of the same as we look at the first three or four weeks of July across the portfolio.
You see generally the same trends we've been seeing for a while so the consumer remains healthy.
As you know.
As we think about acquisitions, and we think about providing a return to our shareholders.
Over a longer period of time.
Yeah, we're just sensitive to levering up.
When.
The expansionary cycle that were in the economic cycle we're in.
Could be winding down a little bit we are continue to be focused on hitting a leverage profile as Josh said of between four four and five times.
And so we're trying to balance that with the other things that we need to do to continue to grow the company. So we do have flexibility and we remain flexible in terms of seeing that leverage go up as I said in my earlier comments as long as we can see it come back down.
In a rather short amount of time.
So we will remain flexible were.
I don't think in the past, we've let any great opportunity slip through our fingers and we're not going to do that in the future either.
That makes sense and just switching gears to your same store sales can you explain why that was kind of.
Slower.
But if I look at the flow through it was still good just.
You've talked about the initiatives and the stuff that you've done in the past to kind of.
Keep that flow through in a strong place, but it's been a long it's been consistent over time and you.
Don't really seem to significantly anniversary that so are there some new initiatives that you're doing some things that you're reinforcing can you just talk about that for a minute.
Yes look I think it's become part of our everyday culture more so than it has in the past to find ways to continue to drive flow through reduced margins or improve margins reduce costs.
We continue to roll out new tools, you know on the marketing side or on the analytic side that allow us to look at the customer differently talk to the customer differently.
You know some of these things are fully baked in some of them are just rolling out. So I think we continue to benefit from there are more and more initiatives that we uncover and I think we do have more to go. It gets harder you know every month or every quarter to continue to find that next initiative, that's going to drive more margin but.
You know the team is focused on it.
And im confident that that there's more out there.
Great.
And then just Josh quickly what is specifically driving your higher capex.
Oh from the 160 to 180 number yeah. It is primarily.
Last year, we actually spent about 160 and you know we were going to try to manage to that level again again, despite the acquisitions and I think we're finding that we need to spend a little bit more money and so I expect it to be kind of in that 180 neighborhood or as we go through time, but that's largely what we're that's largely the driver of it.
Okay, Mike related to acquisitions, and then just as far as the synergies that you set out those are all on track.
Yes, absolutely I would say, we feel very comfortable with the synergies and also you know whats been great about the the acquisitions is the.
The teams that we that are now part of Boyd or really been very consistent with our culture and it's been a great to have them contribute to our organization as well and so there's been a lot of great collaboration and it's really been very seamless and so not only have we benefited from the synergies but.
But theres just been overall kind of.
One plus one equals more than two in this case because of the collaboration between everyone.
Great. Thanks, so much.
And our next question comes from Jared Shaw Jane.
Research. Please go ahead.
Hi, good afternoon, everybody. Thanks for taking my question.
With respect to the weather impact in Louisiana, you mentioned, it's too early to predict any sort of impact. So I guess my question is how did you think about that in terms of your guidance for the full year and is it fair to say that you would have raised guidance without the weather impact is is it that big of an impact or is it not enough of a needle mover.
Yes, Jared this is Josh you it.
It would not be big enough to raise guidance, we try to give guidance from the beginning of the year. We feel like we can accommodate some ups and downs that are naturally going to occur throughout the year and so that would be just something that we.
Unknowingly built in the costs of our allowance for things to not always go right.
And that's what gives us the opportunity when we kind of.
Hit some bumps in the road to continue to kind of.
Set an expectation that we can meet.
From the beginning of the year so.
That's all it is rolling.
Got it. Thank you and then just switching gears here on the sports betting side can you give us some sort of sense as to what you're seeing from a numbers perspective with gaming revenue and non gaming revenue in markets where.
Sports betting has gone live versus where it was previously or maybe versus some of your other markets.
Yes, so we're not in a position to really kind of talk through that in detail as we look at sports betting.
The what I call kind of the vertical if you will itself of sports betting for our properties in Mississippi in Valley Forge. The profit is nice and that's incremental but it's really.
About the incremental traffic that it drives into the building that supports the casino whether it be table games are slots that support the restaurants and support other parts of the building and we've seen good good traction we've seen good foot traffic from the three operations that we've opened thus far.
Obviously, our Mississippi operations, which opened last August .
We have more experience with.
And once again, we're just seeing good traffic in the valley Forge when it opened in March saw the same thing good traffic so its really about traffic generation.
For us.
Got it thank you very much.
And our next question today comes from Harry Curtis Instinet. Please go ahead.
Hi, guys I I think that Theres, a little life left in this horse. So so I want to beat this horse to death on the issue of acquisitions.
I'm sure you are enthusiastic about that.
The.
The question is if you set aside price.
For a strip.
Asset.
Can you walk us through.
The strategic reasons, it might be appealing and maybe weave into your.
Into your thoughts you know the fact that that that while.
Keith you said that they are it is lower risk, but the fact is that that that strip assets.
Our to some degree.
Higher have higher cyclical risk and then.
And do you think that your your loyalty program. Your your network outside of Vegas has is now broad enough to to support.
Ownership of a strip property without having to rely too heavily on third party.
Booking engines.
So look at selling price aside everything's easy.
But as we think about why a property on the strip. Besides the fact that once again, we have we have tremendous confidence in the long term future of the strip. When you think about the Rader Stadium, you think about more rooms coming into the market you think about the expansion of the convention center and just the growth in the community. We have great confidence one of the successes we've had over the last I don't know year 18 months and that continues to build for US is cross property play.
It is becoming a.
Or larger larger part of our marketing efforts with this expanded portfolio as you highlighted and so I think that that absolutely helps support.
Property on the strip right now we're able to put those those folks whether it's in our downtown properties or many of them go to the Orleans very few of them end up out of the suncoast, because it's too far out of town, but.
I think Kevin the property in the strip will we could support many of many of the room nights in there with.
Cross property play because many people want to be on the strip. That's just what their desire is.
But between that and just confidence, yes strip assets tend to be a little pricier.
You have to have a long term view you have to have a strategic rationale. So I think once again, we'll be we'll be careful we'll be thoughtful.
We've had opportunities to look at your deposits in the past haven't executed on anything and we will continue to.
It will be very prudent about what it is we do with any opportunity that comes up.
Thank you and my follow up question.
It goes back to the locals.
The growth in loan locals revenues really from 30000 feet. It was interesting in the first quarter.
The growth rate.
Was it roughly 3% and that did decelerate a bit to under one and I'm I'm interested in your thoughts as to why it was a bit more subs subdued in the second quarter.
It's it's it's a fair question I think one of the things that happens clearly that it back to the calendar shift when you look at holidays and those types of things.
Outside of that.
When you look at.
The quarter, the second quarter generally impose it felt a little soft because of the calendar shift may fell pretty normal in June felt maybe a little on the soft side or said another way not up to our expectations.
My comments earlier, the first four weeks July .
Looking pretty normal so was it just a soft quarter is it just a soft month outside of the calendar change that's how we're looking at it at this point, we're not reading anymore into it we're not.
Picking up a.
Natural huge deceleration of the business of any sort.
Once again, because as we look at July .
As we look at July it's feeling pretty normal to us we're kind of back to volume increases that.
We would've expected when talking about calendar changes you know from March to April specifically referred to Easter.
Okay all right.
Great well look forward to the second half thank you very much.
Well.
And our next question today comes from Barry Jonas of Sunstroke Suntrust. Please go ahead.
Thanks, maybe just following up on some of the strip commentary you know I I think the locals Gigi are historically correlated fairly high with the strip.
I I would love to get your thoughts qualitatively how correlated do you think the low youre locals business is with the strip and if you see that correlation strengthening or weakening from here.
I'll just make an initial comment Barry and then I think you know Steve keep it wants to add anything goes.
He's obviously observe it longer than I have but I think that.
When.
Just an anecdote when when we when the recession. The car occurred in the strip came back we kept expecting that our business was going to come back pretty short shortly thereafter.
Basically on the premise that.
A lot of our customers or either supply the strip in terms of being having a vendor supplier relationship or are employed by the strip operators and.
That correlation did not hold up and we've seen other periods of time, even as the recession kind of became further in the rearview mirror where.
The locals business continued to perform well in the strip business had its own set of issues. So.
I'm I'm not so sure that there is.
Much of our correlation although kind of leading up to the recession I think everybody would have thought there would have been more of a significant correlation Keith I don't know if you.
I want to add anything to that.
No.
I think thats right look there is a limited correlation as it relates to room rates because you are to a large extent the orleans can trade off of the room rates on the strip, but there isn't as director of a correlation in today's world is there used to be pre recession.
Great and then just had a question about Illinois gaming expansion Bill was passed recently, how should we think about the potential impact to your casinos and and later.
So with respect to take the last one first is easier with respect to Latin or a slot route. It's all good news they are able to add a six slot machine. So you get to go from five to six so as a percentage base, it's a pretty big increase so will benefit that business kind of across the state.
As it relates to the rest of the Bill which was what I just referred as a pretty massive expansion with multiple new casinos across the state.
I will tell you it depends on what actually happens and you know who jumps into build a casino in where they build at places like Danville or waukegan or Rockford.
We're in the southern part of the state.
I think it's too early to tell I don't think we have any risk in the next.
18 to 24 months.
Because nothing will happen that quickly.
And then the longer term risk is clearly dependent on where its built in the quality of the operation that somebody builds and operates so I wish I could give you a better answer I think its just too early to start to try and predict that.
Would you consider participating either in a new build or else an expansion of your existing facilities.
Yes, so we generally don't comment on projects that we may or may not be looking at.
You know in any in any state so.
Well just avoid that.
Fair enough. Thanks, a lot guys.
Thanks Barry.
And our next question comes from Shaun Kelley of Bank of America. Please go ahead.
Hi, everyone I think all my questions have been asked and answered. Thank you very much.
Hi, Joel.
And our next question comes from John Decree of Union Gaming. Please go ahead.
Hi, Keith Hi, Josh.
I have two two more for you not on M&A, but wanted to circle back. Thanks.
Some of the comments Keith I think you made on the consumer and one of the prior questions about no change I was wondering if you could elaborate a little bit on that you talked about downtown seeing nice up tick in unrated play was curious how the database tiers, we're doing outside of Las Vegas in the regional markets, if you're seeing anything notable and unrated play in those markets or the higher end tiers in the database any additional color would be helpful.
Sure. So as we think about as we look at the database generally.
You know some submitted global comments, so visitation is up across all of our operating segments, whether its here in Nevada or across the Midwest and south regions spend is up in all of our operating segments.
Those statistics are particularly strong.
In the higher worth segments, which is very good to see for us because when we relaunched our b connected program in August of last year. One of the focuses was reinforcing the higher end play and trying to.
Do a better job with that customer and it seems to be working as once again those tiers are growing a little higher than the lower tiers.
We do see unrated coin in growing pretty consistently across once again all of our operating segments, whether it's here, whether it's out of state.
Whether you're talking.
14 quarters, or 15 quarters, you're talking several years of continued growth in an unrated coin in.
And you know what as I said earlier, we're seeing good kind of cross property or cross market play from our customers. So.
That's kind of a broad snapshot from 30000 feet of what we're seeing out of the database from our existing consumers.
Appreciate the additional color thats helpful and one more I think going back to some of your earlier prepared remarks, if I remember the number you had given I think combined EBIT are.
I'll take your new acquired property. It was up 7% on a same store basis and I think you noted that about 150 basis points of margin at those properties, if I remember correctly from earlier in the call.
I was just wondering if some of that stuff is the synergies that youve.
He stated that those properties if some of its operational improvements and I guess really at a high level anything that may have surprised you as you kind of get through integrating those properties and kind of how you see the upside, particularly on the margin front at those new acquired properties. If you roll up your sleeves and kind of do what you do.
Yes, I think you do remember the numbers correctly, 7% 150 basis points.
I think it is a combination of synergies, which you know we've extracted a lot of what we're not fully done because those things take a while.
Operational improvements based on kind of our style of operating and you know how we kind of look at the customer and market to the customer and do those types of things I think it is the integration of those properties into.
B connected which occurred at the first of the year I think it is the quality of the management teams and how seamlessly the integrated into the company Josh talked a little bit about that earlier that has helped drive all of that so.
And we feel very good about that.
The other say same comments generally hold true for valley Forge also not just the P and K properties in so we feel very good about all five of those acquisitions and how they are fitting in.
Have we extracted the majority of the synergies that we extracted the majority of the the margin increases we can expect.
Hard to predict right now do I think there's a little more margin I do I don't know if there's a lot more margin to come out of those properties, but I do think they are a little more margin they were.
Admittedly very well run properties under the prior ownership and we've been very happy that we've been able to continue to grow them.
Great I appreciate the additional color and commentary thanks Keith.
And our next question is a follow up from Joe Greff.
Please go ahead.
Despite all my questions have been addressed thanks.
Thanks, Joe.
And our next question comes from David Hargreaves Stifel. Please go ahead.
Hey, everyone I'd love to get an update on welcome.
Number one.
Okay Dave.
This is Josh so.
At this point, we're continuing to work through all the components to be ready for approaching the market for both construction and financing so.
Our expectation is that sometime later this year certainly no later than first of next year that we would be in a place to do that.
And then we're expecting kind of an 18 to 20 month construction period and.
And then it would open in the very successful and so.
But that's basically where raw, we're just kind of going through the process.
To kind of be ready to.
Okay.
When you talk about organic growth opportunities I would think you guys have some good ones in Louisiana and I'm, just wondering if you're getting close to wanting to take advantage of those we should expect anything in the near future.
Well I don't think we're prepared to make any announcements right now and you know there's always.
I think the company has made an announcement when we had something to announce and we didn't really telegraph that ahead of time. So I think really have anything else to say I think we have good opportunities in Louisiana.
In a number of locations, including at our treasure just facility to go on land, but there are other opportunities we have in that state and there's other opportunities organically throughout the portfolio.
To grow the business make investments in existing assets in to get good ROI on those investments the key for US is making sure that if we're going to move forward with something like that whatever that is whatever organic growth opportunity exists that we ensure that that ROI happens.
Just like we built a delta hotel a few years ago that property has benefited EBITDA stronger their results. So we use that as an example of making sure that we get an ROI.
Right.
He would be significantly misguided to say that there are significant growth opportunities organically that we control.
That we don't need to resort to financial engineering to simply.
Improve earnings or EBITDA or somehow raise our stock price, we have lots of opportunities to continue to grow the business.
Because I view that is when your strong points lastly would you talk about any trends in.
Refreshment, if it's going to be spending more or less going forward on replacing machines.
Yes, I think we're at a pretty level stage, and so I wouldn't expect more and I wouldn't expect less even though our operating guys ask me every week for more.
They never asked me for less there was asking for more but.
It's it's steady as she goes it's been that way for a couple of years and we'll continue to.
To hold the line on slot capital at its current level.
I don't want to monopolize things, but if I could ask one more on the way out I'd love to get your thoughts on player development I think there's a trend towards spending less on player development I'd like to hear your thoughts on if it's necessary.
Going forward or not.
Well I think player development is just one part of an overall marketing program. So I don't think you can look at it in isolation or in a vacuum and talk about should you spend more or less in that particular segment of marketing it depends on everything else that you're doing.
And kind of where you're at when you say player development, how deep you are into it what it all means I'm not sure I can provide.
Very.
Very good answer to your question, except to say, it's just one part of a broader marketing.
Platform.
All right well, thank you very much for your.
Youre welcome.
And ladies and gentlemen, we have time for one more question and todays last question comes from from Telsey. Please go ahead.
Good afternoon. Thanks for taking my question I just had a.
Quick question on sports betting how does your arrangement with Fanduel work in the sense that if I'm, an existing fandel customer, Pennsylvania, and I play on the mobile device.
Do you see any benefit from that in terms of revenue and is it how does it work in the other states I guess going forward.
Right. So there is a.
There is a formula so to speak as to how all that works, yes, we do benefit if one of our existing customers goes online and there is a.
There is a mechanism to track all of this.
So that we don't kind of lose wallet from that customer.
Or lose the benefit of that customer all these things get negotiated ahead of time before the launch happens each state is a little bit different given the.
The dynamics in the state.
So it's not a.
A template that you know can we kind of rubber stamp and roll it out each state is kind of a separate conversation to make sure that both parties. Both boys fanduel are treated fairly in the process and once again as fans who has access to those customers remember we have access to 8 million fanduel customers that we get to market to on a regular basis selling so you do get to see their database you benefit from that.
Absolutely.
And you would.
They're playing just coming through Fandel, you you see a piece of that as well so that in theory could be somewhat significant.
Could be.
Awesome. Thank you.
You're welcome.
And this concludes the question and answer session.
Turn the conference back over to Josh Hirsberg for any closing remarks.
Thank you Rocco and thank you all for joining today and participating and should you have any follow up questions Bill feel free to reach out to the company.
Have a good rest of your day.
Thank you Sir and thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.