Boyd Gaming Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 8, 2024

There are 15 speakers on the call.

Operator

Good afternoon, and welcome to the Boyd Gaming 4th Quarter Full Year 2023 Conference

Speaker 1

Call.

Operator

My name is David Strow, Vice President of Corporate Communications for Boyd Gaming. I will be the moderator for today's call, which is being recorded on Thursday, February 8, 2024. At this time, all lines are in listen only mode. Following our remarks, we will conduct a question and answer session. Our speakers for today's call are Keith Smith, President and Chief Executive Officer and Josh Hirschberg, Executive Vice President and Chief Financial Officer.

Operator

Our comments today will include statements that are forward looking statements within the Private Securities Litigation Reform Act. All forward looking statements in our comments are as of today's date, and we undertake no obligation to update or revise the forward looking statements. Actual results may differ materially from those projected in any forward looking statement. 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.

Operator

For a complete reconciliation of historical non GAAP to GAAP financial measures, please refer to our earnings press release and our Form 8 ks furnished to the SEC today, both of which are available at investors. Boydgaming.com. We do not provide a reconciliation of forward looking non GAAP financial measures due to our inability to project special charges in certain expenses. Today's call is being webcast live@boygaming.com and will be available for replay in the Investor Relations section of our website shortly after the completion of this call. So with that, I would now like to turn the call over to Keith Smith.

Operator

Keith?

Speaker 2

Thanks, David, and good afternoon, everyone. 2023 was another great year for our company as we continue to build upon the record performance we have delivered over each of the last several years. We achieved full year records for both revenues and EBITDAR with operating margins remaining well above historical levels. 2023 was the 3rd consecutive year we set revenue and EBITDAR records on a full year basis. This full year performance is a tribute to our diversified portfolio with strong growth from both our online and managed businesses.

Speaker 2

This growth was complemented by stable revenues from our property operations as we saw continued strength in play from our core customers and growth in our non gaming business. And we finished the year strong with a solid 4th quarter performance. During the Q4, company wide revenues rose 3% to $954,000,000 driven by growth in our online segment. EBITDAR for the quarter was 355,000,000 down slightly from a record Q4 last year. Looking at property operations, gaming revenues for the 4th quarter were down less than 1%, a notable improvement from the last several quarters.

Speaker 2

During the quarter, play from our core customers grew at the strongest rate of the year. While this growth was offset by lower retail play, the year over year decline in retail play was the smallest we have seen since the Q1 of 2023 and non gaming revenue for the quarter continued to grow rising 1.5% over prior year. Property level operating margins for the quarter exceeded 40%. This is in line with the margins we have delivered over the last 3 years, reflecting our team's ability to operate efficiently through a variety of economic conditions. Now moving to results for each segment.

Speaker 2

In our Las Vegas Local segment, both revenue and EBITDA for the 4th quarter were in line with our expectations. Play from our core customers grew at a rate similar to the 3rd quarter demonstrating the continued strength of this customer segment. Retail play was also sequentially consistent with 3rd quarter levels. Our non gaming business continues to perform well with hotel revenues up 4% during the quarter. Finally, our property teams did an excellent job managing expenses in a difficult environment with margins once again exceeding 50% in our Locals operations in the 4th quarter.

Speaker 2

Looking ahead to 2024 in our Locals segment, Recall that we produced a record Q1 performance last year, so we are facing tougher year over year comparisons. In addition, We also expect to see some impact from the recent opening of a new competitor in the Las Vegas locals market and a room remodel project at our Gold Coast Hotel. Having said this, we are encouraged that customer trends in the Las Vegas Local segment are holding steady so far in the Q1, with overall play volumes looking similar to 4th quarter levels through early February. Moving next to Downtown Las Vegas, revenues rose slightly while EBITDAR equaled last year's record 4th quarter performance. These results benefited from the completion of construction projects at both Main Street Station and the Fremont during the quarter.

Speaker 2

While these construction projects impacted our downtown results throughout most of the year, these investments are beginning to pay off. The Fremont performed at record levels during the Q4, while Main Street had its best quarterly performance of 2023. Our Downtown segment also saw solid growth in play from our core customers during the quarter, while retail play also rose. Looking ahead, we are optimistic about the direction of our Downtown Las Vegas segment. With our construction projects now complete and the Fremont performing at record levels, Our Downtown Las Vegas business is poised for healthy growth in 2024.

Speaker 2

Our optimism for our Las Vegas operations is supported by the continued strength of the Southern Nevada economy. In the near term, we are excited about Las Vegas' 1st Super Bowl this weekend as we are experiencing strong demand in cash hotel business at both our locals and downtown properties. In the longer term, The direction of the tourism sector remains vibrant with nearly 41,000,000 people visiting Nevada in 2023, exceeding the prior year by more than 5%. Gaming revenues in Southern Nevada reached a record $13,500,000,000 in 2023, a 5.5% increase over 2022. In convention business was up 20% in 2023, about 10% below its all time high in 2019.

Speaker 2

Average daily room rates continue to trend higher, increasing 12% for the year across the Southern Nevada market. More than 57,000,000 people passed through the Las Vegas airport last year, topping the record set in 2022 by more than 9%. But the strength of the Southern Nevada economy goes beyond tourism. Of the nation's 30 largest metro areas, Las Vegas ranked number 1 for job creation last year with total employment rising more than 4% in 2023. This employment growth was broad based with growth across 8 of 11 major job sectors.

Speaker 2

And with 1,000,000,000 of dollars in projects under development across the Las Vegas Valley, The construction sector continues to serve as an economic engine for the Southern Nevada economy. Moving outside of Nevada, Our Midwest and South segment returned to growth in the 4th quarter. Both revenue and EBITDA are increased over the prior year with operating margins at more than 38%. Gaming revenues were essentially even with the prior year, the strongest quarterly performance we saw from our Midwest and South segment all year. And we saw encouraging results from the various property investments we made in 2023.

Speaker 2

Our new amenities have been well received by customers and helped drive a 4% increase in food and beverage revenue during the quarter. Looking ahead, The Q1 results have been impacted by January's severe winter weather. But with these storms now passed, customer trends over the past 2 weeks have rebounded to 4th quarter levels, giving us optimism in the direction of this business. Next in our online segment, Revenue and EBITDAR growth in the 4th quarter was primarily driven by the introduction of sports betting in Ohio in early 2023. On a full year basis, our online segment performed in line with our earlier estimates with total EBITDAR of $62,000,000 for 2023.

Speaker 2

Looking ahead, we expect the online segment to maintain this level of performance in 2024 With $60,000,000 to $65,000,000 in full year EBITDAR as no new sports betting markets are expected to come online this year. And finally, our managed and other business produced another strong quarterly performance. Both revenue and EBITDAR grew over prior year in the Q4, thanks to continued strong results at Sky River in Northern California. For the full year, this segment generated EBITDAR of $84,000,000 including management fees earned from SkyRiver. In 2024, We expect our managed and other business will maintain its current level of performance with full year EBITDAR of approximately $85,000,000 driven mainly by Sky River.

Speaker 2

And given the strong performance of Sky River, the Wilton Rancheria Tribe is exploring a significant expansion of the property, including additional casino space, a hotel tower and meeting and convention facilities. While plans have not been finalized, we are optimistic about the long term growth potential of this property. So in all, the Q4 of 2023 was a strong close to another record year for our company with continued strength from our core customers, solid growth from our online and managed businesses and strong returns from our recent property investments. The property investments we have been making are improving the customer experience, supporting growth in play from our core customers and driving increased visitation throughout the business. After opening nearly a dozen new or upgraded restaurants and bars across the country in 2023 and completing casino renovations at the Fremont, we plan to renovate or upgrade a similar number of food and beverage outlets in 2024.

Speaker 2

Beyond these investments in our food and beverage offerings, we plan to renovate hotel rooms at the Gold Coast, Blue Chip, Ameristar St. Charles and Valley Forge in 2024. This follows the completion of our room remodel project at Main Street Station in late 2023. In addition to these property investments, we continue to make excellent progress on our project to transform our Treasure Chest Casino Near New Orleans from a 3 level riverboat to a spacious single level land based facility with expanded gaming space and additional non gaming amenities. Once complete around mid year, this investment will significantly enhance the guest experience of Treasure Chest and position it for long term growth.

Speaker 2

As we near completion of the treasure chest project, we are finalizing plans for our next set of growth projects and we'll have more details to share with you in the near future. Another important element of our long term strategy is our balanced approach to capital allocation. As part of this strategy, we plan to continue our current pace of $100,000,000 in quarterly share repurchases in 2024 supplemented by regular dividend payments, while keeping our focus on maintaining strong balance sheet. In conclusion, this was another strong quarterly performance by our company as we completed our 3rd consecutive year of full year record results. But beyond producing record results, 2023 was a year of significant achievement.

Speaker 2

First, we maintained our focus on our core customers, resulting in continued growth from this important customer segment. 2nd, our growth initiatives delivered strong results with excellent returns from online gaming, Sky River, the Fremont Expansion Project and our recent hotel and food and beverage investments. 3rd, our management teams continue to execute at a high level of efficiency with property level margins exceeding 40% for the quarter, a level we have now consistently delivered for 3 years. And finally, continue to pursue a balanced approach to capital allocation, returning more than $475,000,000 in capital to our shareholders in 2023, while maintaining the strongest balance sheet in our company's history. Strong performance in 2023 is attributable to our strategy, our leadership team and our operating model.

Speaker 2

But most importantly, it is a result of the dedicated efforts of our team members who provide consistently memorable service that keeps our customers coming back. I'd like to thank every Boyd team member for their contributions to our company's success. Thank you for your time today. I would now like to turn the call over to Josh.

Speaker 3

Thanks, Keith. 2023 was another record year for our company, highlighted by a strong Q4. This was our 3rd year in a row generating record revenue and EBITDAR on a company wide basis. Our revenue and EBITDAR growth in 2023 was driven by our online and managed business segments, reflecting the benefits of our diversification. Our properties have faced challenges all year from a softer retail customer and inflationary pressures.

Speaker 3

However, we are also seeing improving conditions in our property operations. Our focus on our core customer is paying off as we continue to see growth in play from this customer segment. And during 2023, our retail customer trends across the country have been improving. And while cost pressures are not completely going away, They appear to be moderating. Our property operating teams have done a very good job managing in this environment with quarterly property EBITDAR margins consistently above 40% for the last 3 years.

Speaker 3

Beyond property operations and our other operating segments, As Keith mentioned, we expect our online segment to generate $60,000,000 to $65,000,000 of EBITDAR in 2024. As you may recall, our online results include a tax pass through related to our online partnerships. These amounts are recorded as both revenue and expense. During the Q4, the tax pass through amount was $97,000,000 compared to $73,000,000 in the Q4 of 2022. For the full year, the tax pass through amount in 2023 was $328,000,000 compared to $208,000,000 in 2022.

Speaker 3

And moving to our managed and other segment, We expect to generate approximately $85,000,000 of EBITDAR in 2024. We expect EBITDAR from this segment to be more evenly spread throughout the year as compared to 2023. One additional housekeeping item related to this segment. In 2023, we generated interest income from an outstanding loan to the Wilton Rancheria Tribe. The loan has now been completely repaid And therefore, we will not generate $24,000,000 in interest income that we earned during 2023.

Speaker 3

As a result, net interest expense in 2024 should approximate $170,000,000 In terms of capital expenditures, we finished 2023 investing $95,000,000 in the 4th quarter for a total of $374,000,000 for the year. For 2024, we expect our capital expenditure program to include maintenance capital of about $200,000,000 to $250,000,000 plus a recurring $100,000,000 for growth investments. This year, our growth capital plans include completing the new treasure chest land base facility and starting additional growth projects in the second half of this year. We also expect to spend an incremental $100,000,000 on the room renovations that Keith spoke about. So for 2024, we estimate total capital expenditures of about $400,000,000 to $450,000,000 With respect to our capital return program, during the most recent quarter, we repurchased $100,000,000 in stock, acquiring approximately 1,700,000 shares at an average price of $59.15 per share.

Speaker 3

For the full year, we repurchased $413,000,000 of stock representing 6,500,000 shares. When combined with our ongoing dividend program, we have returned more than $475,000,000 to shareholders during calendar year 2023. Since we resumed our capital return program in late 2021, we've returned more than $1,100,000,000 to our shareholders and reduced our overall share count by 14%. We ended the year with an actual share count of 96,800,000 shares and had $326,000,000 remaining under our current repurchase authorization. We remain committed in 2023 with total leverage of 2.3 times and lease adjusted leverage of 2.7 times.

Speaker 3

With low leverage, No near term maturities and ample borrowing capacity under our credit agreement, we've created the strongest balance sheet in our company's history. We also generate significant amounts of free cash flow from a diversified portfolio of assets. In 2023, we generated free cash flow of more than $725,000,000 or more than $7.50 per share. As a result of our significant free cash flow and strong balance sheet, we are able to pursue a balanced approach to capital allocation, investing for organic growth in our existing portfolio and returning capital to our shareholders while pursuing opportunities to further grow our company. David, that concludes our remarks and we're ready to take any questions.

Operator

Thank you, Josh. We will now begin our question and answer Our first question comes from Steve Wieczynski of Stifel. Steve, please go ahead.

Speaker 4

Yes. Hey, guys. Good afternoon, Keith and Josh. Thanks for taking my questions. So Josh, look, you guys don't give formal guidance for the full year.

Speaker 4

You have given some guidance here around certain parts of your business. And Keith in his prepared remarks talked about some of the headwinds you guys might face in like the locals market and coming off the record Q1 of last year and stuff like that. But just wondering if you could maybe help us from a high level kind of maybe help us think about how you're thinking about The locals market, downtown, Midwest and South this year, and if there's anything else that we need to be thinking about as we kind of build out the cadence for 2024? Thanks.

Speaker 3

Sure, Steve. So look, I think we've tried to outline it pretty Well, in our prepared remarks, I think as we think about the Las Vegas locals market, while it's still early, our properties are performing Consistently and very well. As Keith laid out for you kind of some of the Challenges that we may face as we go through the year with respect to the Las Vegas locals with the new competitor, it's still early and so we need to kind of see how that plays out. We've got the construction related to Coast that will go through kind of Q3 and then we have the Q1 that we think will be a little bit challenge of a comp. I think the underlying customer trends give us some level of confidence from where we sit today in terms of the Las Vegas locals and kind of the trends in that business.

Speaker 3

Downtown, I think, downtown has been really kind of played with Construction disruption on and off throughout the year. And really 2024 for downtown will be a year without construction disruption. So we should do better. In the Midwest and South, I think what we're seeing is more stabilization in the retail customer segment, Kind of gradually getting better year over year or less bad year over year than it has been, while combined with kind of a stronger and improving core customer, which is really true across all of our business segments. I think what's made it difficult And looking at the Midwest and South has just been the difficult weather that we've seen beginning with January.

Speaker 3

But Once we've gotten that behind us, the customer trends feel kind of very similar to what we've been seeing. So It's been a difficult kind of start to the year. We've got a difficult comparison in Q1 related to LVL. But as we get some of this behind us, it feels like the customers are not getting worse, but At this point, at least very stable. Keith, I don't know if there's anything you want to add to that.

Speaker 2

No, Josh, I think between our prepared remarks where we talked about a lot of this In Josh's comments, I think it summarizes it well, nothing else to add.

Speaker 4

And then Josh, if we go back to the Q4 and think about the Midwest, it's the one market or the one segment that grew margins year over year. And just wondering if that essentially was a kind of A clean quarter, meaning there was no benefit in there on the cost line. Just want to make sure that's kind of a clean number that you guys put up there in the Q4.

Speaker 3

Well, look, I think there is some seasonality into our business. And so from our perspective, when we look at our expenses, we don't necessarily I think Q4 is really a good run rate for really any segments of our business. I think we would ask people to look back at Q1, Q2 and Q3 and kind of use some combination of that, recognizing we have seasonality with certain aspects of our expenses. So I don't think Q4 is a good run rate in terms of expenses for any of our segments really.

Speaker 4

Okay, got you. And Josh, one quick housekeeping. Do you have an idea what corporate expense would kind of look like for 2024?

Speaker 3

Since most of it is really headcount related and that's going up kind of like 3% or so, I think that's generally where you should expect that level of increase in corporate expense over what we delivered in 2023.

Operator

Our next question comes from Carlo Santarelli of Deutsche Bank. Carlo, please go ahead.

Speaker 5

Hey, guys. How are you? I just kind of I wanted to essentially try and understand The locals commentary for the Q1. Seasonally speaking, historically, 1Q trends relative to 4Q trends, the 1Q has tended to be a little bit better than the 4Q from an EBITDA perspective. Clearly, you're going to have a full month of competition.

Speaker 5

But you talked about kind of play levels and volumes quarter to date being similar to the 4Q. I do see obviously you have a little bit of a tougher comp in the Q1 last year relative to what was experienced in the 2Q through the 4Q. So from a level of magnitude perspective, Is the Q1 expected to be the most challenging quarter? And should it differ materially from historical seasonality when compared to the 4Q?

Speaker 2

So Carlo, I think you're right. I think that the Q1, what we tried to lay out was a very challenging comp because of our record results last year. So we Q1 will be the most challenging quarter of the year. We customer trends, as we indicated In January and through the 1st few days of February look a lot like Q4, which implies we haven't seen any significant impact as a result of the opening Durango. Now it's still early, property has only been open 60 days.

Speaker 2

We haven't seen any significant impact. So, other than that, I think as you think about the rest of the year in the locals market, absent some disruption from a rumor model at Gold Coast, which will have half of its rooms out of service at a time, The year should look a lot like 2023.

Speaker 3

Yes. I think it's helpful just to remind people. And The reason Q1 was so strong last year in particular for Las Vegas locals had to do with COVID and kind of the Removal of some mass restrictions and things of that nature that was going on. And so, that's why I think the seasonality that you referenced, Carlo correctly is not probably not going to play out this quarter.

Speaker 5

Okay. Meaning, Josh, just to simplify, Historically, 1Q better than 4Q. This quarter, perhaps not better,

Speaker 3

But more so Correct. That's right. Okay.

Speaker 1

Okay. Yes.

Speaker 5

All right. And then Yes. Sorry. Just as a quick follow-up, as you think about kind of the numerous projects, the room remodels across, I think it was 4 Regional properties, there are 3 regional properties and Gold Coast that you mentioned. And I Based on the $100,000,000 of CapEx on that stuff in second half more weighted, it seems like, should we be taking into consideration Those being at all disruptive or is that somewhat seamless in the way you can go about that?

Speaker 2

I think with respect to the regional room remodels, we're able to do them differently. There are some structural issues with the Gold Coast that causes us to take more rooms out of service at a time. The other room remodels that will be happening at Blue Chip and Valley Forge and Mercers St. Charles will be able to do where there'll be smaller number of rooms out of service that will have limited impact on the business. So I would not be factoring in any real disruption from those.

Speaker 5

Great. Thanks, guys.

Operator

Thank you. Thanks, Carlo. Our next question comes from Joe Greff of JPMorgan. Joe, please go ahead.

Speaker 6

Good afternoon. Back to the Las Vegas locals market. I know it's only been about 70 days since Durango opened up. But do you think at this point that you've hit The impact of peak trial from your gaming patrons going over to Durango? Or do you think The trial impact is different than, say, other times, when you faced new competitive supply in the locals market?

Speaker 2

It's a really hard question to answer, Joe. Look, it's been open, as you say, 60 or 70 days. We haven't seen a significant impact. We're pleased with the way our operating teams have been able to manage through this. And other than that, we're going to continue to be very cautious, very diligent about how we approach the business, but I'm not ready to say that we've hit kind of peak trial and the worst is behind us, so to speak.

Speaker 2

So Every market is different, every opening is different, every property is different and so it's really tough to peg that.

Speaker 6

Great. And then Josh, it's hard not to hear your comments about cost pressures are moderating. Can you highlight in what specific areas you're seeing the most moderation to maybe the magnitude of those Operating expense segments on the enterprise?

Speaker 3

Yes. I'll do my best to try to help you figure that out, Joe. I think, look, I'll start at the high level, which is the 2 largest areas of expense categories that you guys very much know about is labor and marketing. And from a marketing perspective, our cost as a percent of revenues have been very consistent really since coming out of COVID. We've not really deviated from our strategy Even here in Las Vegas where we have a new competitor, we continue to remain disciplined with how we'll be investing with our customers.

Speaker 3

So Marketing is really not a source of pressure and hasn't been one really coming out of COVID. From a labor perspective, I would say there's really 2 aspects to it. 1 is kind of self inflicted where we have Chosen to kind of increase the minimum wage of our team members to what we think consider A livable wage of $15 an hour and that has been rolled out really over the last 2 years with the last piece of that happening in the second half of twenty twenty 3. So if you think about labor in that sense, it's going to take until kind of the second half of next year before we're able to kind of start to anniversary some of those labor increases. We expect still to see increases, but just not to the levels or the pressure that we've seen over the last 2 years.

Speaker 3

Another big category that we've talked about historically has been utilities. For us in the Q4, we didn't really see a big increase in utilities. It's obviously a seasonal expense and We're not expecting the level of increases in that category next year. And so we'll work through that year over year Yes, year over year as we work through the year in terms of seasonality impact. And then the last one I would call out that we've talked about Forest property insurance, at our renewals, which happened in the second half of the year, we saw big increases in those categories.

Speaker 3

We don't those similar level of increases in 2024, but we'll have to get through to the second half of the year before we're on a comparable basis. So Those are the bigger categories where we've seen pressure historically. And so it'll take depending on The rollout of those expenses in 2023 will affect kind of how we look at it in 2024. But the main Thesis that I think we're saying is that we've seen we believe we've seen the worst in terms of the increases. We don't expect see those level of increases.

Speaker 3

And now we just have to work through what we have experienced. And as I said in an earlier comment, I wouldn't use Q4 as a run rate because of it's more like some of the first 2 or 3 quarters of the year, 2023.

Speaker 6

Great. Thanks guys.

Operator

Thank you, Joe. Our next question comes from Barry Jonas of Truist. Barry, please go ahead.

Speaker 5

Hey guys. Wanted to start with Boyd Interactive. Can you maybe give us some any color on how that's performing and also help us understand How Boyd Interactive factors into the flat online guidance relative to FanDuel? Thanks.

Speaker 2

Yes. So Boyd Interactive is obviously still kind of a very new venture for us little over a year since we've owned that business. We've been successful in launching online casino in New Jersey and PA. I think both performing well. We launched a social gaming product under the Stardust brand earlier in January that have been out there, but it being run by somebody else.

Speaker 2

And so they were very happy with The way it's performing, remember it also has a smaller B2B business that it operates that existed when we bought it. So look overall, we're pleased with this performance. The team is doing a great job on the plan that's in front of it and looking to continue to grow that business. It is a long term play for us. It's not about the short term.

Speaker 2

And When we describe kind of a flat online segment or online business category, I think it's a combination of both the online sports betting as well as Boyd Interactive that We think we'll be reasonably flat for the year.

Speaker 5

Got it. Got it. And just as a follow-up, can you maybe just talk about the M and A environment and your appetite for M and A here?

Speaker 2

So look, our main priority every day is making sure that we're running a strong business that we're looking at ways to grow profitable revenues and bring those revenues to the bottom line and just make sure that we have a very, very strong business and that we're reinvesting in our business at the right level. Beyond that, if something interesting happens to come up, we'll take a look at it. But we've talked in the past, we've always been a very, very disciplined Investor discipline acquirer of assets, it's got to be the right assets at the right price at the right market and be the right strategic fit and have the right strategic reason to do it. And once again, our core priority right now is focusing on running a strong business, generating incremental EBITDAR and incremental shareholder value and if something interesting comes up, we'll probably take a look at it, but We remain very disciplined.

Speaker 7

Great. Thank you,

Operator

Thanks, Barry. Our next question comes from Dan Pulitzer of Wells Fargo. Dan, please go ahead.

Speaker 8

Hey, good afternoon, everyone. I just wanted to follow-up with maybe one more on Durango. Could you maybe talk about the overlap in terms of your database or geographic or from a demographic standpoint? And then similarly, Josh, I think last quarter you maybe conservatively benchmarked a $25,000,000 or so impact. I know we're only 70 days into the opening, but I mean do you still feel like that's a good number or maybe on the more conservative end of the spectrum there the upside there?

Speaker 8

Thanks.

Speaker 2

Look, from an overlap standpoint, I certainly don't have any insight into what their demographics look like from just a pure geography standpoint, you look at zip codes and where our customers come from at our various properties, What zip codes are closest to them, what zip codes are in kind of a jump all category. We understand all that. We understood all that well before they opened And we're able to put the right plans in place. Our comments we've made a couple of times today about Thus far, we have not seen a significant impact to our operations, to our customers as a result of that is about all we can say. We know Customers has visited as customers always do.

Speaker 2

And but I think the proof is in the numbers and Yes, not seeing a significant impact as of yet, but it's only 70 days and we'll just be very cautious going forward.

Speaker 3

Yes. And Dan, in terms of kind of our 5% $25,000,000 I think we characterized it as conservative. And I think For today, we're going to stick to those numbers just given it's still very early And we'll just have to see how things play out over the rest of the year.

Speaker 8

Got it. Thanks. And just for my follow-up also on the locals, This is more of kind of a margin and OpEx question, but you've been running 50% plus margins 3 years and certainly I recognize the first half of this year You have a couple headwinds that you called out. But I mean to the extent that you see things stabilize and overall the market looks similar to last year, Is there any reason we shouldn't still be in that same margin range over the course of the full year?

Speaker 3

Yes. I don't I think We've been able to maintain LVL margins, Midwest and South margins pretty consistently overall property margins in this 40% range for literally 3 years now. So, I'm sure there's going to be quarters where things get out of hand, whatever, but it shouldn't be kind of a permanent change because I think we're running our business In this manner with this philosophy of being disciplined around reinvestment, using our tools and capabilities and It's yielding the results that you're seeing. I mean, we're generating a significant amount of free cash flow, a significant level of consistent level of performance at these levels. So again, I'm sure time to time we won't deliver, but I think generally this is what you should expect from

Speaker 8

Got it. Thanks so

Speaker 2

much. Thank

Operator

you, Dan. Our next question comes from Jordan Bender of JMP. Jordan, please go ahead.

Speaker 9

Great. Thanks for taking my question. So the question gets brought up every couple of quarters, but there's a view out there that the FanDuel state that you own isn't reflected really in your stock. Is there a thought from the company to either look to monetize some of that or all of it to maybe help you recognize some of that value in your shares? Or I guess asked another way, I believe in 20, 28, there's a valuation agreement period between the 2 companies.

Speaker 9

Like could you imagine a scenario where you would look to monetize it before that date? Thank you.

Speaker 2

I think we have historically and Currently view our 5% ownership in FanDuel as a very strategic partnership, a very strategic relationship. And we through today, we continue to view it that way. What the future brings, if and when we'd monetize it, don't have any thoughts or comments on that topic, but it is very, Very much an important strategic relationship and drives a significant portion of the $60 plus 1,000,000 we generated in the online portion of the business. So, important and we'll just see what the future brings.

Speaker 9

Understood. And then just a housekeeping modeling item, dollars 103,000,000 impairment charge in the quarter. Is there anything to call out on that?

Speaker 3

No, not really. It's just the accountants doing their thing. So I wouldn't put too much into that. A lot of it has to do with the Kind of the changes in interest rates and things like that in terms of what they discount the cash flows at. That's really what it comes down to.

Speaker 9

Great. Nice quarter. Thanks.

Operator

Thank you. Thanks, Jordan. Our next question comes from Shaun Kelley of Bank of America. Shaun, please go ahead.

Speaker 10

Hi, everyone. Thanks for taking my question. Really just two quick clarifications for me. So first, I think this goes back to Barry's question. But Josh, I mean, with online being flat or the guidance or an outlook being flat, Just trying to understand why with the market access agreement, why you wouldn't benefit on sort of same state GGR growth?

Speaker 10

Appreciate There's no maybe big step function on NewStates launching, but is there either an offset on the expense base, and something else that's there? Or is there something else that caps that number? I'm just kind of, yes, why that wouldn't be more participatory on a market that still seems like it's growing easily 15% to 20% a year?

Speaker 3

Yes. I guess we just don't share the same view of that. I think as we view it as markets open up and then generally kind of mature pretty quickly. And remember, we're just getting a percentage of that growth. There's no increase in expenses.

Speaker 3

There's no cap For anything nefarious going on, it's strictly our view of the world that these markets are not just going to keep growing to the sky. And they have more modest growth once they kind of open up and have been around for about a year. So to the extent We're off on that. That will drive our results. But again, it's we only get a small percentage of that growth.

Speaker 2

Josh saying to the extent you're right, Sean, then yes, we will see that number go up. We don't know, But that's

Speaker 3

not what we expect.

Speaker 10

Okay. So I totally get it and follow how you underwrote it. So that's helpful. And then sort of the other clarification, Josh, appreciate it's not a number that we should be building our Expense based off of, but just to go back to Midwest and South because the margin performance was so stellar and the expenses were down quite materially quarter on quarter. I guess just very explicitly was, was there any either tax reversal or insurance benefit or some one timer that hit in that or again just for that number and again appreciate that's not the base we would Model off of either way, but just curious if that number is if there was anything else that might have driven that margin performance as it just looked very, very strong?

Speaker 3

Yes. No, nothing that is like unusual that we could call out that would that you Yes, it was I mean, things happen around year end and things like that, but it's all just kind of normal stuff. So I can't Yes, nothing jumps out.

Speaker 10

Okay. Yes, that's it. Appreciate it. And thank you for all the comments throughout and some of the guidance. Sure.

Operator

Thanks, Sean. Our next question comes from David Katz of Jefferies. David, please go ahead.

Speaker 11

Hi, good evening. Appreciate all the details as well. I wanted to just pose a question. It's a bit hypothetical. Leverage down at under 3 times makes sense in an environment with Elevated interest rates.

Speaker 11

As interest rates come down, does it make you a bit more comfortable perhaps letting that rise a bit and therefore implying that some more capital returns might be enabled along with your earnings growth. Where would your target leverage be hypothetically if interest rates started to come back down again?

Speaker 3

Yes. I'll tell you and then Keith jump in. I think that it's not interest rate driven really, it's overall leverage driven. And I think We said generally we were comfortable in this range. We're not opposed to leveraging up over time for whatever reason we so choose if it makes strategic sense to do so.

Speaker 3

But it will be with the goal of deleveraging back down to around these levels. So We're comfortable running the business at this leverage level. We think it gives us flexibility to continue to do the things we want to do without being Kind of having to deviate from that if something happens economically or if we choose to do an acquisition or something else and we can kind of keep returning capital to shareholders and keep reinvesting in our existing portfolio. So that's the logic behind The leverage level.

Speaker 11

So just to follow that up, I mean, you're if you were to sort of drift up into the threes. It would be with a specific purpose and it sounds like it would be somewhat temporary, but kind of where we're at, that's the new target range where we'd like to be.

Speaker 7

Yes, I

Speaker 3

think that's right.

Speaker 11

Okay, perfect. Thank you.

Speaker 3

Thanks, Dave.

Operator

Thank you, David. Our next question comes from Brandt Montour of Barclays. Brandt, please go ahead.

Speaker 12

Hey, good afternoon, everybody, and thanks for taking my question. So on the improvement that you saw in the retail customer throughout the Q4, I was wondering if you were noticing better traffic or versus sort of spend per visitor coming in the doors? And is it even across the regions in your system? And then what do you think is driving it?

Speaker 3

I'll take a big picture shot at it and Keith you can jump in. I would just say that the comments around kind of the retail segment, which is kind of the lower end of our database and unrated segments. What we're trying to say is sequentially throughout 2023, Year over year, the decline has narrowed. That gap has continued to narrow to the narrowest point that was achieved in Q4. And then as we come out into January early parts of February, that trend has generally been consistent as well.

Speaker 3

So we don't know as much about the unrated segments, so we can't tell you if it's more trips, Less trips, more spend, that mix. So and that's what makes up the majority of that retail segment. So, I'm not sure we're going

Speaker 4

to be able to give

Speaker 3

you much more than that at this point, but keep it all.

Speaker 2

Yes. That's about it.

Speaker 12

Okay. And on the maybe on the Las Vegas locals And the rated side of things where you're also seeing decent strength it sounds like. I was wondering if you think you're Seeing benefits in that segment from recently renegotiated union contracts and higher wages related to that flowing back into those customers' wallets and pockets and then they're spending more at your properties this year from that?

Speaker 2

I don't think we can specifically say that we've seen that, but many of those Many of those team members that work up and down the strip are the beneficiary of those pay packages, certainly our customers in a number of our properties. And so To the extent that they have more money in their pocket, I assume we're getting some of that, but there's really No way to tell, no way for us to comment at this point.

Speaker 12

Okay, thanks. Nice quarter.

Speaker 1

Sure. Thank you. Thanks, Brent.

Operator

Our next question comes from Chad Beynon of Macquarie. Chad, please go ahead.

Speaker 13

Afternoon. Thanks for taking my question. Wanted to ask about treasure chest. I know that the boat is going to stay open, I think until the land based property opens, but just curious if we should expect any disruption in the first half of the year? And then Should we still expect a mid teens return on CapEx in the 1st year or 2?

Speaker 13

Thanks.

Speaker 2

In terms of kind of the disruption aspect, look, the boat will stay open. It'll Technically, we'll close, I'm sure for a few days, 3 to 4 days as we have to move Some gear off of the boat onto the land based facility, kind of the rules and regulations in Louisiana require us to have everything in working order before we're able to open the door. So there'll be 3 or 4 days where we'll be out of business, but No other disruption other than that. So in terms of a return, Josh?

Speaker 3

We're trying to be very thoughtful and disciplined around the investments we're pursuing and every one of those is At least contemplated to generate kind of a we need to get at least a 15% to 20% kind of cash on cash return to meet our overall internal hurdles. And so that's what we would expect from treasure chest. We'll get kind of half a year of that Hopefully this year, full year in Treasure Penn next year.

Speaker 13

Perfect. Thanks. And then just, I guess, kind of a small, Maybe more of kind of a personal question, not as much as a financial question. Super Bowl, obviously being in your market, any approach this year in terms of Taking different sized bets, different environment there, should it move the needle for downtown or LVL versus how you historically, kind of run that week or weekend for this one? Thanks.

Speaker 2

Yes. I wouldn't be thinking about that from a pure sports book standpoint. I think if you be thinking about it more holistically, Room rates are strong, cash room rates are strong. There's certainly a lot of people in town, so it'll be a stronger weekend than normal. I think the week this week, the week leading up to the Super Bowl is stronger than in prior years because there's more people in town.

Speaker 2

But anything in particular or any thoughts in particular about how the book may operate differently, I wouldn't anticipate that. Okay. Thanks. Appreciate it.

Operator

Thanks, Chad. Our next question comes from Joe Stauff of Susquehanna. Joe, please go ahead.

Speaker 14

Thank you. Keith, I think you had mentioned this, but I apologize if I missed it. But Can you talk about, say, the behavior of your core customer

Speaker 8

out of the

Speaker 14

Gulf States and kind of what you saw In the Q4, obviously, that those are kind of the first states kind of really soften up. And just wondering kind of where that business is in terms of trends right now?

Speaker 2

So I think as we look at our core customer and play patterns from our core customers across the portfolio, it has been strong and it continues to be strong and continues to grow. That is the case here in the locals market. It's also the case in our Southern states. More of the fall off last year that we saw down in those states had to do with more of the lower end retail in the unrated. So I think we're pleased with the performance of our kind of a mid and upper tier rated customers and the performance of our core play in the South.

Speaker 14

Okay. Thank you. And then maybe one follow-up On the locals market, as you try to anticipate, obviously, it's still early, as you mentioned, but Would you expect, say, your out of town visitors in the locals market? Is that more The type of customer that's going to experiment at Durango or do you see that also from say 80% of your customers that are local?

Speaker 2

I think it would be our view that the majority of the customers, of our customers, existing Lloyd, Las Vegas local customers who are visiting Durango are the people who live here are local customers, the people once again whose zip code is Maybe closer to Durango or in between our properties and Durango. So they have a choice, it may be easier to drive there, Just maybe a product that they want to go check out in some cases, maybe a product they enjoy better. Again, it just Competitive, we have 70 days under our belt and we're pleased with the overall performance of our business in those first 70 days.

Speaker 11

Appreciate it.

Operator

Thanks, Joe. Our next question comes from John DeCree of CBRE. John, please go ahead.

Speaker 1

Hi, Josh. Hi, Keith. Thanks for taking my question. A lot of ground covered. So maybe I'll try To ask the M and A question a little differently, we certainly appreciate the balanced and disciplined approach to capital allocation that you've taken and in a position to have very healthy balance sheet now.

Speaker 1

So I guess the question is, when you look at growth investments, particularly M and A, Are there things that you see that would be a good fit for Boyd and maybe just aren't for sale Or the ask is too high, just kind of given your size and scale and kind of in the context of margins broadly across the industry. I mean, Are there opportunities that might exist that would be a good fit? Are there synergies to be had? I mean, is M and A a viable strategy if you can you'll find something that it would be priced accurately in your minds and what you could do with it?

Speaker 2

Yes. Look, it's a Hard question to respond to. So look, as I said, 1st and foremost, we have to make sure that our core business is running At optimum efficiencies and that's our focus each and every day. Look, as we think about M and A, clearly given the size and the scale and for the company today, the opportunity has to be larger as opposed to smaller. Given our breadth and our geographic breadth, Where we go is important.

Speaker 2

It's got to be a market that makes sense for us. It's got to be strategic. It's got to be a strong market. Yes. As you look across the portfolio, could we name a half a dozen assets that would be interesting?

Speaker 2

Sure. But It probably doesn't matter unless they're actually for sale. And so once again, we're going to focus each and every day on building and a strong business and when something interesting hits the radar screen, we'll take a look. But as I have said a couple of times, it's got to hit or tick off a number of boxes before we would take a look at it.

Speaker 1

Great. That's helpful. Keith, I think you probably already answered my follow-up on that, but just ask anyway. So one of the criteria Most likely it would need to be upscale that's needle moving. So tuck in might not really be worth your time.

Speaker 1

Is that fair?

Speaker 2

That is fair.

Speaker 1

Thanks. Thanks, Key. Thank you, Josh.

Speaker 3

Thanks, John.

Operator

Thanks, John. We have time for one last question from Stephen Grambling of Morgan Stanley. Stephen, please go ahead.

Speaker 7

Thanks for sneaking me in. And this will just be a quick follow-up actually on M and A again. I guess, coming out from a different approach, would Is there anything that would make you shy away from a potential transaction such as you generally want to own your own real estate or are you willing to look at Opcos? And as a related financial question, do the returns that you target on M and A differ from what you'd be looking at for ROI projects?

Speaker 2

So I've attempted to answer the M and A question a couple of times. I'm going to let Josh take a shot at this one.

Speaker 3

So I think We have, I think people who listen to these calls generally know that We're not necessarily large fans of doing OpCoPropCo with our existing assets, but we have been willing to do it and consider it as part of a tool for financing acquisitions, whether they're existing tenants of a REIT or otherwise. So I think the structure really isn't an impediment kind of something that keeps us from doing anything like that. I think related to that, people should understand, I think this is consistent with What we said about other aspects of how we think about things is, look, we're willing to leverage up to do an acquisition and then deleverage over time as well with the goal of getting back to generally in the neighborhood of where we are. So We won't always run the company at 2.5 times or less, but that's where we want to be in the long run. So, hopefully that kind of gives you a perspective on it.

Speaker 3

I think The other thing is, I think Keith has described it obviously correctly, which is acquisitions are just one component of how we think about our company In terms of its strategic growth going forward, we look at the organic growth of the business, we look at the growth from the $100,000,000 a year that we're making, We look at the value that shareholders get from our dividend, but also from the 6% to 7% of shares we're taking out every year. So, all of that accumulates to a solid business and then the acquisitions are just Purely if they make sense. We don't feel like we have to do them. I think we are very well positioned to do them given the strength of our balance sheet and the Robustness of our cash flow and the diversification of that cash flow, but that's why we generally think about the core business and how we can continue to grow that. And then somewhat kind of opportunistically the acquisitions and yes, they have to have the same levels of returns that any investment we're making, whether it's buying back our stock or making investments for organic growth.

Speaker 7

Makes sense. Thanks so much.

Speaker 3

Yes, sir.

Operator

Thanks, Steven. This concludes our question and answer session. I'd now like to turn the call over to Josh for concluding remarks.

Speaker 3

Thanks, everyone, for your questions today and participating in the call. And if you have anything follow-up, please feel free to reach out

Speaker 4

to the company. Hope you have

Speaker 3

a great rest of your day.

Operator

This concludes today's call. You may now disconnect.

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Earnings Conference Call
Boyd Gaming Q4 2023
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