KeyCorp Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 25, 2024

There are 12 speakers on the call.

Operator

Good afternoon, and welcome to the Boyd Gaming Second Quarter 2024 Earnings Conference Call. My name is David Strou, Vice President of Corporate Communications for Boyd Gaming. I will be the moderator for today's call, which we are hosting on Thursday, July 25, 2024. At this time, all lines are in listen only mode. Following our remarks, we will conduct a question and answer session.

Operator

Our speakers for today's call are Keith Smith, President and Chief Executive Officer Josh Hirsberg, Executive Vice President and Chief Financial Officer. Our comments today will include statements that are forward looking statements within the Private Securities Litigation Reform Act. All forward looking statements in our comments are as of today's date, and we undertake no obligation to update or revise the forward looking statements. Actual results may differ materially from those projected in any forward looking statement. There are certain risks and uncertainties, including those disclosed in our filings with the SEC that may impact our results.

Operator

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 ks furnished to the SEC today, both of which are available at investors. Boygaming.com. We do not provide a reconciliation of forward looking non GAAP financial measures due to our inability to project special charges and certain expenses. Today's call is being webcast live at boygaming.com and will be available for replay in the Investor Relations section of our website shortly after the completion of this call.

Operator

With that, I will now turn the call over to Keith Smith. Keith?

Speaker 1

Thanks, David, and good afternoon, everyone. Our company delivered a solid performance in the Q2 as our nationwide operations performed in line with our expectations. During the quarter, we saw strength from our core customer segment and continued stability in retail play across the country. In our Las Vegas Local segment, the overall market improved from the Q1 and we achieved sequential improvement in our year over year results. Importantly, we also grew our market share in this segment during the quarter.

Speaker 1

Our Downtown Las Vegas segment delivered strong growth during the quarter, consistent with our expectations for Downtown as visitation recovered from a temporary decline in the Q1. And our Midwest and South segment continued to produce steady results during the quarter. As a result of these solid performances across all three segments of our operations, 2nd quarter property revenues were even with the prior year. At the same time, our operating teams continued their successful focus on managing the business efficiently during the quarter as we achieved property margins of nearly 41% consistent with the last several quarters. Also during the quarter, we opened our new land based casino at Treasure Chest on June 6.

Speaker 1

And while it is still early, our new property is off to a great start with revenues nearly double the prior year since it opened. And we continue to produce strong results in both our online and managed and other businesses during the quarter. In all, we were pleased with our company's performance in the 2nd quarter. In terms of operating performance by segment during the quarter, conditions across the Las Vegas locals market improved both in total and on a same store basis when compared to the Q1. The Orleans and Gold Coast continue to face competitive pressures similar to those we outlined during our Q1 call.

Speaker 1

Absent these competitive pressures, our Las Vegas locals properties performed in line with the same store market. Looking at the segment more broadly, we saw encouraging customer trends across our Locals business in the quarter. Play from our core customers grew during the quarter, while retail play trends improved compared to the Q1. We saw healthy growth in our non gaming business as food and beverage and hotel revenues increased nearly 6 percent year over year. And we achieved EBITDA margins of approximately 49% during the Q2, reflecting our ability to maintain strong operating efficiencies.

Speaker 1

In all, we are pleased with the direction of our Las Vegas Local segment as our focus on driving play from our core customers and maintaining operating efficiencies produced solid results. Next, our Downtown Las Vegas segment delivered a strong performance in the 2nd quarter, achieving the year over year growth we expected this year as visitation significantly improved over the Q1. Hawaiian visitation recovered as airfares normalized from the elevated levels that occurred in the Q1, while pedestrian traffic in the downtown area also improved from the Q1. And we continue to benefit from our investments downtown, including our recently completed renovation and expansion of the Fremont and the remodel of Main Street Station's hotel. For both our Las Vegas locals and Downtown Las Vegas segments, the continued strength of the Southern Nevada economy gives us reason for optimism.

Speaker 1

More than 41,000,000 people visited Las Vegas over the last 12 months, up 2.6% from the prior year. Over 58,000,000 passengers traveled through the Las Vegas airport over the same period, setting a record for the city. Southern Nevada Gaming revenues exceeded $13,500,000,000 over the past 12 months, also an all time record. A particular note, monthly gaming revenues in Clark County have been above the $1,000,000,000 mark for 23 of the last 24 months. And the local job market continues to strengthen.

Speaker 1

Total employment increased more than 3% on a year over year basis in June and the Las Vegas metropolitan area has been the fastest growing major job market in the country for 8 consecutive months. As economic trends remain stable across Southern Nevada, we remain confident in the long term prospects for our Southern Nevada operations. Moving next to our Midwest and South segment, we were pleased with the overall performance of this business in the Q2. During the quarter, play from our core customers continued to grow, while retail play was stable. As noted in public revenue reports, regional markets across the country were surprisingly soft in April.

Speaker 1

However, this softness was short lived. Business levels recovered in May June and as a result, we were able to post modest revenue growth in the Midwest and South segment during the quarter. And in early June, we opened our new land based facility at Treasure Chest Casino near New Orleans. This project replaced a 30 year old Riverboat Casino with a modern land based facility offering a single level expanded casino floor, 4 new restaurants, meeting space and improved parking. While it is still early, customer demand for our new product has been very strong.

Speaker 1

And in the month of June, revenues nearly doubled the treasure chest on a year over year basis. Next, our online segment achieved healthy revenue and EBITDAR growth in the second quarter. Our industry leading partnership with FanDuel continues produce strong results for our company. And as a result, we are increasing our expectations for the online segment to $65,000,000 to $70,000,000 in EBITDAR for the full year. As we've noted before, our 5% equity interest in FanDuel remains a valuable strategic asset for our company that continues to grow in value as we participate in the ongoing growth of sports betting nationwide.

Speaker 1

Finally, in our online I'm sorry, finally in our managed and other business, we continue to benefit from the exceptional performance of Sky River Casino in Northern California. Nearly 2 years after opening, demand at Sky River remained strong as the property continues to post year over year growth. With Sky River solid performances through the Q2, we now expect our managed and other business to generate approximately $90,000,000 in EBITDAR for the full year. Building on Sky River's continued success, the Wilton Rancheria Tribe recently broke ground on a major expansion of this property. First phase will expand Sky River's casino floor with an additional 400 spots and enhanced properties access with a new 1600 space parking garage.

Speaker 1

Following the completion of the first phase next summer, work will begin on a significant expansion of Sky River's non gaming amenities, including a 300 room hotel, 2 additional food and beverage outlets, a day spa and an entertainment and event center. We share the Wilton Ranch Ria Tribe's pride in the success of Sky River and are confident this expansion will help drive continued long term growth at this property following its completion in early 2027. So in all, 2nd quarter was a solid performance for our company with sequential improvement over the Q1 in our property operations and encouraging customer trends across the country. Same time, we continue to demonstrate our confidence in the long term prospects of our business through our balanced capital allocation program. An important part of this program are the investments we are making in our operations to drive future growth.

Speaker 1

We saw the promising results of these investments during the Q2. Fremont is now performing at record levels and while it is still early, business at Treasure Chest is up significantly from its previous baseline. Having demonstrated our ability to drive incremental growth capital investments, we are now beginning work on the next projects in our growth pipeline. In Missouri, we're beginning an expansion our meeting and convention space at Ameristar St. Charles, allowing us to capitalize on significant unmet demand for our product there.

Speaker 1

And combined with our ongoing hotel renovation at Ameristar, this investment will expand this property's appeal to new and existing customer segments, driving additional long term growth at the property following its completion in Q4 of next year. And in Southern Nevada, we are finalizing design work for Cadence Crossing Casino, a new property located in the Southeast portion of the Las Vegas Valley. We expect to begin construction on this project late in the year with expected completion by early 2026. This new property will be built on a 15 acre site that currently hosts our existing Jokers Wild Casino and is directly adjacent to the master plan community of Cadence. This community will have more than 12,000 homes upon final build out with 5,200 homes already built.

Speaker 1

In its initial phase, Cadence Crossing will feature a 10,000 square foot casino with 4 50 slots, several dining options and live entertainment. While we are starting with a modest investment, the property will be designed for future expansion as cadence grows with the ability to add a hotel, additional casino space and more amenities during future phases of development. Combined, we anticipate investing $100,000,000 between the Ameristar and Cadence Crossing projects. Additionally, we are continuing our program of refreshing and upgrading our properties across the country. This program includes new and refreshed food and beverage offerings and renovating many of our hotel rooms across the portfolio.

Speaker 1

Renovations of our hotel rooms at Gold Coast, Ameristar St. Charles and Blue Chip will wrap up over the next several months. And following the completion of these projects, we will begin work on our hotels at the Orleans, IP and Valley Forge. In addition to investing in our properties, we remain committed to returning capital to our shareholders. The Q2, we repurchased $176,000,000 in stock and we remain committed to our ongoing share repurchase program of $100,000,000 per quarter supplemented by our dividend program.

Speaker 1

We also remain committed to maintaining a strong balance sheet. Our total leverage today is just 2.4 times, providing our company with significant flexibility to execute on our capital allocation plans. So as we look back at the Q2, we are pleased with the performance of our business. We delivered total property level revenues even with prior year results with encouraging customer trends throughout the country. Our leadership teams efficiently managed our operations, delivering property level margins of nearly 41%.

Speaker 1

Our new treasure chest casino was off to a great start, marking the latest success in our ongoing property investments. We continue our commitment to returning capital to our shareholders with over $300,000,000 in share repurchases and dividend payments since the start of the year. I want to thank our leadership teams and our team members for their contributions to our success, their hard work and their commitment to memorable guest service are the bedrock of our company. Thank you for your time today. I'd now like to turn the call over to Josh.

Speaker 2

Thanks, Keith. As noted, the Q2 was a solid performance for our company. For the remainder of the year, we expect our Q2 commentary regarding customer trends and market conditions to continue. In terms of our operating segments for the rest of the year, in Las Vegas locals, we expect the Orleans and Gold Coast will continue to face competitive pressures similar to those we have experienced over the last 6 months, while overall market conditions are expected to remain stable. In our downtown business, we expect positive trends to continue.

Speaker 2

However, remember the Q4 this year will be comparing against a record 4th quarter downtown last year. In our Midwest and South segment, we expect continued stability in same store revenue with incremental contributions from our new property at Treasure Chest. Treasure Chest is off to a great start, but it take several months of operating the new facility before we know what to realistically expect for revenue and EBITDAR. Keith's earlier remarks, he provided full year EBITDAR guidance for our online segment of $65,000,000 to $70,000,000 and managed of approximately $90,000,000 For managed, we expect EBITDAR contributions of approximately $21,000,000 for each of the next two quarters. Recall the Q4 last year was a very good quarter for the company with each segment of our business performing very well.

Speaker 2

So that will create a difficult comparison for the last quarter of the year. Next turning to a few additional items from the quarter. For our online segment, during the quarter the tax pass through amount was $104,000,000 compared to $63,000,000 last year in the second quarter. Excluding the tax pass through amount, company wide margins for the Q2 this year would have been approximately 40% or about 4 20 basis points above the margin we reported. In terms of capital expenditures, we invested $114,000,000 during the time, including our investments in the treasure chest land based project.

Speaker 2

We have invested $204,000,000 in capital expenditures year to date and continue to project total capital expenditures of $400,000,000 to $450,000,000 for this year. Our annual capital program can be thought of in 3 buckets. The first bucket is recurring maintenance capital, which is expected to be approximately $200,000,000 to $250,000,000 per year. The second bucket is incremental maintenance capital associated with room remodel projects that were delayed due to COVID. This spending is not recurring.

Speaker 2

We expect these investments to be approximately $100,000,000 in each of 2024 2025. And finally for the 3rd bucket, beyond maintenance related capital, we have allocated a recurring $100,000,000 per year for growth capital projects. In 2024, for example, this $100,000,000 includes capital investments to complete treasure chest, as well as starting both the Ameristar St. Charles Convention Center expansion and Cadence Crossing Casino. Following the completion of the Ameristar and Cadence projects, we would expect to announce another set of projects.

Speaker 2

Think of this recurring growth capital as a pipeline of projects that we choose from each year in order to invest about $100,000,000 per year in growth related capital. Accounting for each of these three buckets, you should expect total capital of about $400,000,000 to $450,000,000 in both 2024 and 2025 before stepping down to $300,000,000 to $350,000,000 in and beyond following the completion of our hotel renovations. These property investments are one component of our capital allocation plan. Other element of our capital allocation philosophy is returning capital to shareholders in the form of dividends and share repurchases. We currently pay a quarterly dividend of $0.17 per share, representing $16,000,000 in the 2nd quarter.

Speaker 2

Also during the quarter, we repurchased $176,000,000 in stock, acquiring 3,100,000 shares at an average price of $55.88 per share. As previously stated, we remain committed to repurchasing $100,000,000 in shares each quarter. However, have the financial flexibility to do more as reflected in our actions during the Q2. Turning capital to shareholders is an important part of our capital allocation philosophy. When combining our share repurchases with our dividend program, we have returned $313,000,000 to our shareholders through the first half of twenty twenty four and are on pace to return a total of approximately $550,000,000 this year or nearly $6 per share.

Speaker 2

Since we began our capital return program in late 2021, we've returned $1,500,000,000 sorry, dollars 1,500,000,000 to shareholders in the form of dividends and share repurchases, resulting in a reduction in our overall share count by nearly 18%. As of June 30, there were 92,300,000 actual shares outstanding and we have $545,000,000 remaining under our current repurchase repurchase authorizations. Also important to us is maintaining a strong balance sheet, which provides us the flexibility to continue to invest in our existing business while returning capital to shareholders. We ended the quarter with total leverage of 2.4 times, lease adjusted leverage of 2.8 times, consistent with recent quarters. With low leverage, no near term maturities and ample borrowing capacity under our credit agreement, we have the strongest balance sheet in our company's history.

Speaker 2

Combined with the significant free cash flow our operations generate, our company has a strong foundation to continue a balanced approach to capital allocation. David, that concludes our remarks and we're now 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 3

So let me start with a question that you're probably not going to answer. But obviously, there's been a lot of rumors out there across the gaming space about M and A activity and your name has been mentioned a lot. So let me ask this in a way maybe you'll give me an answer. But just wondering if you could give us your current appetite for maybe large scale M and A versus maybe one off type acquisitions and where you would feel comfortable from a leverage perspective if you did go down an M and A path?

Speaker 1

Thanks for the question. So look, if you look back over the history of our company, we've obviously the majority of our growth obviously has come through M and A. And I think we've developed a great expertise at it. We know how to buy properties right, companies right. We know how to extract value out of these companies once they're part of our portfolio.

Speaker 1

And look, we've always been willing, it's not new news, to take a hard look at opportunities that arise. And so we'll continue to do that. In terms of how we may finance a particular transaction, it's wholly dependent on the specific facts and circumstances around the transaction. And so it's hard to speculate on how we might do that.

Speaker 2

Only thing I would add to that, Steve, is that to the extent that we were to leverage up to do some sort of transaction or pursue some sort of opportunity, whether it was a development opportunity or acquisition or anything of that nature, we have set a long term leverage target of to be below 3 times traditional leverage in the neighborhood of where we are today. And so we would have the objective of getting back to that level very quickly.

Speaker 3

Okay. That's actually more of an answer I thought you'd give me. So appreciate that. And then second question, I want to just ask, Josh, maybe the promotional environment in the Locals market. And I know last quarter, you mentioned there were a couple of what we call kind of non public bad so called players in the market who were overly aggressive on the promotional front.

Speaker 3

And just wondering if you've seen that level of promotions from those guys essentially settle down?

Speaker 1

Yes, thanks. This is Keith. So I hope you didn't use the term bad actors, but nonetheless, the promotional environment particularly surrounding the Gold Coast and Orleans in the Q2 is very similar to the Q1. And so we continue to see pressure from some of the private operators operating around two properties didn't change much. The rest of the market remained very rational, very stable, properties and companies kind of doing what they've done historically, but we continue to feel pressure around those 2 properties.

Speaker 3

Understood. Thanks guys. Appreciate it.

Operator

Our next question comes from David Katz of Jefferies. Please go ahead.

Speaker 4

Hi, afternoon. Thanks for taking my questions. I wanted to talk about the locals market in New Orleans in particular and just get your thoughts on sort of strategies for mitigating the impact that you're seeing, right? The competition is looking to grow and even expand. And how do you how do you and how much can you sort of offset that over a period of time?

Speaker 1

I think when we look at the locals market, probably it's a couple of things. One, as it relates to the competitive pressures around New Orleans and the Gold Coast, it is we've been at this a long time. It's really a matter of being patient. So the strategy is patience. We can chase it, and it would not be profitable.

Speaker 1

We don't believe what competitors are doing is a long term sustainable program. And so we just need to be patient and wait it out. In terms of broader strategies and how we compete with additional competition in the locals market, Look, we've been at this a long time. We know our customers well. We know how to talk to our customers.

Speaker 1

The reason we haven't seen a significant impact as a result of the most recent new competitor opening is because we do have specific strategies and specific tools to talk to our customers and they enjoy the relationships they've built with our team members. They enjoy the facilities and the products that we offer. And so we'll just kind of continue to do what we've been doing. Look, to go any further, to go any deeper, we'd simply be providing our competitors a pathway is how we think about the business. And so I'm going to stop there.

Speaker 4

Okay. I don't want you to tell us anything. We won't tell anybody. But what it sounds like is that there is an initial wave of competition trying to induce trial and that may ebb and flow back over time. And is that a fair characterization of it?

Speaker 1

That is a good way to think about it.

Speaker 2

Okay. David, I think I would

Speaker 5

add. Yes.

Speaker 2

Yes. I would add just a few things to think about also is underlying what Keith mentioned is, we're not responding dollar for dollar with what's going on. We're staying focused on our strategy. We're not being aggressive in terms of marketing. In fact, our overall marketing as a percentage of revenue has remained very consistent.

Speaker 2

And you can see even with consistent levels of reinvestment, we've been able to grow share. We don't think it's a profitable strategy to kind of go head to head to that level of competition that we're seeing. And so we stay focused on our core customer. We stay focused on pursuing profitable business. And that's how we think about our business going forward even in the face of when the competitive environment starts to change and is dynamic.

Speaker 4

Okay. Thank you very much.

Speaker 2

Yes, sir.

Operator

Our next question comes from Joe Greff of JPMorgan. Joe, please go ahead.

Speaker 6

Good afternoon, guys. Maybe this is an indirect way of asking an M and A related question. Keith, Josh, have you have the Board's view on sort of the propcoopco model changed? And can you talk about that a little bit? And has the view changed with respect to utilizing that model under large scale M and A versus just kind of looking at it as a way to sort of optimize the capital structure for your existing portfolio?

Speaker 1

Look, as we talk or think about kind of OpCoPropCo, we still prefer from an M and A standpoint to buy whole co assets. That is more difficult today because most assets are part of an OpCo PropCo structure. And so we're certainly willing to do that. We did it with the Pinnacle assets that we bought several years back. And so it's not an impediment to acquire buying an OpCo assets, not an impediment to growing or buying additional assets.

Speaker 1

Look, in terms of monetizing our existing real estate, if you will, we have the same view I think we've always had. We have the opportunity to do it if there were a transaction where it made sense. We enjoy and think we retain great flexibility by owning our own real estate. We think we can finance in less expensive ways than trying to monetize our real estate. So look, we think about all these things with respect to any M and A opportunity.

Speaker 1

And once again, we're not opposed to looking at OpCo assets.

Speaker 6

Okay, great. Thanks for that, Keith. And then, Keith, you mentioned before within the Midwest and South segment in the 2Q, April was soft and then May June recovered. Can you talk about what you think happened with your consumer May June versus April behaviorally? And how much maybe of that improvement might be related to things like calendar or year over year weather or things like that?

Speaker 6

And that's all for me. Thanks.

Speaker 1

Yes. That's a fair question. I think it's probably more about April, Joe. April was particularly soft. We lost a Saturday Sunday on the calendar, although Easter, which was in April last year, it was in March this year.

Speaker 1

We thought we'd benefit from the move of Eastern and it just didn't turn out. I would say that May June were more in line with what we expected, some slight growth in revenues and April was just softer than we had anticipated. Once again, we knew the calendar shift was happening, but we thought we'd pick it up with the move of Easter, it just didn't happen. So other than that, I wish I had a better explanation for you, Joe, but we've been scratching our head over April since it happened.

Speaker 6

Great. Thank you.

Operator

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

Speaker 5

Hey, guys. What's the negative impact been so far from the Durango opening relative to that $20,000,000 to $25,000,000 impact you previously guided? And is that range still valid? Thanks.

Speaker 2

Yes. So Barry, I would say that the $20,000,000 to $25,000,000 is still intact from our perspective. I would say, I think we believe the mix has changed because it's coming more from kind of an indirect impact from around the Orleans and Gold Coast that we've spoken about.

Speaker 5

Got it. Got it. And then, I guess as you think about the outlook in Midwest and South and Locals, just curious to get your perspective on when you think EBITDA could return to growth for both segments, year over year growth?

Speaker 2

So look, I think we tried to lay that out in my remarks. I think we think of the Las Vegas locals market for us kind of continuing to deal with those competitive pressures around the Orleans and Gold Coast for the rest of this year. We're starting to see some kind of lessening and declines year over year in the lower end of the database and so that's encouraging. And that's similar to what we saw, although it was on a different timescale in terms of what was happening in the Midwest and South. I think it was late in 2022, I think, and 2020 maybe it was late 2023, by late 2022 and throughout 2023, sorry, getting my timeframes mixed up, that we were dealing with the Midwest and South before it kind of flatlined and that's where we are from a retail customer in that particular segment.

Speaker 2

So I would say we believe that the Midwest and South will continue to kind of bounce around being stable for the rest of this year based on what we're seeing in the customer trends and then hopefully start to pivot to growth at some point, but next year. But I think I would characterize Midwest and South as more stable and flattish at this point, obviously excluding treasure chest and then, LVL kind of still starting to flat line a little bit before we start to see growth maybe sometime early next year.

Speaker 5

That's really helpful. Thanks. Appreciate it.

Operator

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

Speaker 7

Hey, Keith, Josh, thank you. I wanted to just follow-up on something you said earlier as it pertains to the locals market. And I think partially what Davis might have been asking you about earlier as well. If you guys I think, Keith, you said if you take out the Orleans and Gold Coast, the rest of the portfolio is performing kind of in line with the market. I guess my question is, was that statement like revenue in line, EBITDA in line?

Speaker 7

What do you kind of see as the way the market is performing?

Speaker 2

Yes. I'll take a shot at that Carlo and then Keith can correct me or add to it depending on Basically, I think we think the Las Vegas market as best we can estimate is down slightly, very little. You could describe it as almost flattish, but kind of down about 1% or so. And so when we look at our overall portfolio, including some of the impact quite honestly at the Orleans and Gold Coast, we start to try to dissect how much was competitive and how much was market. And that's the level of that's what we are saying we performed in line with was take out the impact that we estimate was competitive related to the Orleans and Gold Coast and what are you left with there and what's going on with the rest of the business, you kind of get something that's pretty close to what's going on in the overall market generally.

Speaker 2

That's how we that's what we were trying to say in those few words.

Speaker 7

Okay. And then if I could, Josh, in terms of lapping some expense increases that occurred in 2023, is that are we kind of there now in the second half of this year where we should start to see kind of OpEx reduce from a year over year growth perspective?

Speaker 2

I'm going to say it's a lot of the changes happened during Q3 that certainly affected. So we've disaggregated this in the past and I'll do a little bit of it to the extent I can remember. The wage growth in Las Vegas really increased during Q3 of last year. So we're going to need to get through Q3 largely before we are on a comparable basis. Same thing with property taxes and property and utilities and things like that.

Speaker 2

That was a broader base comment across the entire portfolio. So I'd say sometime in the Q3 period as we move into Q4 is when you would start to be on a kind of apples to apples basis.

Speaker 4

Does that

Speaker 2

make sense? Great.

Speaker 7

Thank you, Josh. Yes, absolutely. Thank you.

Speaker 2

Yes, sir.

Operator

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

Speaker 5

Great. Thanks for taking my question. I'm not asking this in terms of kind of the rumors out there, just more of a strategic question. But with Boyd Interactive now ramping for a few years, could you see yourself get bigger within that business either through M and A or stepping in and investing more, just given the learnings over the last quarters to years?

Speaker 1

Look, I would say that we're very pleased with where Boyd Interactive is in terms of its growth and where it is in kind of our expectations, operating well in Pennsylvania and New Jersey, growing the business. I don't see any material M and A on the horizon to all of a sudden have that grow in any significant fashion. Once again, when we started that business a couple of years ago, we talked about having a regional strategy, not a national strategy, but a regional strategy that allowed us to speak to the customers in the states where we do business, importantly, and in some of the surrounding states where we draw large portions of our customers. That remains our strategy. And once again, we're pretty pleased with how it's rolling out at this point and really don't see a need to do anything significant to move it along.

Speaker 2

I would add that we our approach is not to kind of estimate the TAM and expect we're going to get a percentage of that and apply our margin. It's really, as Keith mentioned, kind of building it bottom up from our existing customers and markets where we bring or draw customers from. We're not in the business of making big investments and losing a lot of money to get market share. That's just not our philosophy. Others may have a different strategy.

Speaker 2

That's just not our strategy.

Speaker 5

Okay, great. And then on the follow-up, just touching on the capital allocation piece here for a second. You stepped up share repurchases in the quarter here, obviously above your 100,000,000 dollars My question here is just why is the $100,000,000 still kind of that target number? Could we see that go up just given some of the visibility that you do have on some of your CapEx spend here for the next couple of years? Thank you.

Speaker 1

The $100,000,000 that we've been using for maybe going on 2 years now or at least 18 months is really meant to anchor the investment community and what we're committed to. As Josh said in his prepared remarks, we certainly have the financial flexibility to do more. We certainly don't do not want to drive dollars 1 100,000,000 a quarter and we're just not at a point where we're going to reset expectations to a different number.

Speaker 5

Great. Thank you very much.

Operator

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

Speaker 8

Good afternoon, guys. Thanks for taking my questions. Maybe a follow-up and a point of clarity. If I heard correctly in the prepared remarks, I think you mentioned maybe gaining a little share. I think in reference to the locals, Mark, if I heard that correctly, I was wondering if you could just maybe if I did hear that correctly, put it in context of what you're seeing at the promotional or competitive pressures at Gold Coast in Orleans, and some of the other comments you've made on the locals so far?

Speaker 1

Sure. So you heard it correct. We were able to grow share in the Q2 in the Las Vegas locals market. But to be crystal clear, it was we grew share over the Q1, not year over year. Obviously, with the addition of a new competitor, it would be very difficult to grow share year over year.

Speaker 1

So we grew it quarter over quarter Q2 versus Q1, but it did grow. In terms of the competitive environment, once again, absent what we've discussed around Orleans and Gold Coast, it remains relatively stable. And really nobody stepping out in any particular fashion, doing anything odd. As I've said in prior calls, those that got aggressive post COVID or over the last couple of years remain aggressive, those that have remained disciplined, have remained disciplined and the promotional environment you could call stable, rational, really hasn't changed outside of what's happening around Gold Coast and Orleans.

Speaker 8

Got it. Thanks for the clarity on share gains sequentially. Maybe one more Keith or Josh on the locals market. We've I guess historically pre pandemic have noticed seasonality in the locals market from 2Q into 3Q, but it's been a little harder to read the last couple of years for various reasons. I know we're only a couple of weeks into July, but do you have expectations for seasonality?

Speaker 8

It's been particularly hot in Las Vegas, given where your assets are. Do you expect some normal seasonality or any thoughts there would be helpful? And that's all for me. Thanks, guys.

Speaker 2

Yes, John, it's a good question. Yes, we do. I mean, short answer to the question is we expect seasonality. I think if you look back at the trends that we've seen going from Q2 to Q3 or however you want to analyze it, it's been pretty consistent over the last couple of years since 2020. And so I think that that's what you can largely or that's what we're expecting.

Speaker 2

And even going back into pre COVID, the trend seasonality, I think, are what's kind of what is what we're seeing today. So

Speaker 6

Thanks, Josh.

Operator

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

Speaker 9

Curious on Downtown Las Vegas. A quarter ago, there was a you guys called out soft foot traffic and you didn't back then you didn't really have an idea of why it had softened. Wondering if you learn more about that, if it came back explicably or inexplicably, and then just sort of how you think about I mean, Las Vegas Strip has been quite strong. There's been supply coming out of the Strip. I have to imagine it can't hurt you guys in the downtown area for that.

Speaker 9

So just curious an update on that part of that business.

Speaker 1

Sure. So as we look at our downtown business in Q2, we saw 1, a significant rebound in our Hawaiian play that we talked about. We talked in the Q1 call with the price of airfares in the first one, Q1 mostly driven by Super Bowl that we had less Hawaiian occupancy than we typically do that rebounded in Q2 that drove a big portion of our increase that and probably some pent up demand from the Hawaiian guests that typically visit us. I think the traffic on the street or the traffic in downtown generally seem more robust in Q2 than it did in Q1. You're right, historically, large percentage of the people who visit the Strip visit downtown.

Speaker 1

We didn't see that as much in Q1 and whether that was once again a result of Super Bowl and the activities occurring somewhere else and just not enough going on downtown. We just didn't see that traffic downtown. I can't articulate, I think in any more detail why there's more traffic downtown in Q2 versus Q1. But there is or there was, I should say, better traffic flow in the downtown area in Q2 versus the flow in Q1.

Speaker 9

Okay, great. That's helpful. And then just sorry to split hairs, I'm going to circle back on the locals share question because I was also trying to square your comments. So if you grew in line with the market ex those two properties that you mentioned, but then you gain share overall. Does that imply that you bought back a little bit on those two properties even though promotions were about the same?

Speaker 6

I guess, is that am

Speaker 9

I thinking about that right?

Speaker 2

What was the last you bought did you say bought back?

Speaker 9

Well, you thought back. You gained a little bit of share on those two properties even though promotions were the

Speaker 7

same? Yes.

Speaker 2

I think it was basically that you're exactly right. We did a little better relative to competition, but we also kind of yes, that's what happened. Rest of the market was or the rest of our assets performed pretty much in line with the market overall. Maybe a little bit better, but we're just kind of calling it all. There's estimates in all of this.

Speaker 2

So that's best I can tell you really.

Speaker 9

Fair enough. Thanks so much guys.

Operator

Our next question comes from Dan Politzer of Wells Fargo. Dan, please go ahead.

Speaker 10

Hey, good afternoon everyone. First question, treasure chest. I know it's still early, but June was very strong out of the gate. How should we think about the ramp of this property going forward? Was June maybe an outlier in strength or are we kind of just getting started here in terms of what you're expecting?

Speaker 1

So look, since it's open over the last 7 weeks or so, even early July, as I said in my prepared remarks, revenues have doubled. And I would say that we're beyond pleased with revenues doubling in the first 6 or 7 weeks of operation. Where it settles in, look, we'd be ecstatic if it stayed double. We're not fully expecting it to stay double. And so, and then as Josh, I think talked about, we have to then work through the normal inefficiencies of opening a new property to dial in the EBITDA completely.

Speaker 1

So I don't think we're going to ramp up from here. I would never forecast that we're going to go beyond double. That was not our expectations when we built the property. It will probably settle in at something of less than double. But even if it settles in at 50% or 60% above the prior year, I think we'd all see that as a great success.

Speaker 10

Got it. Thanks. And then just in terms of the M and A line of questioning, obviously, there's been some more activity in the market. I mean, does it feel like maybe the environment is loosening up a little bit and the financing availability is maybe improving? And then if you could maybe just kind of remind us what your maximum leverage would be for any transaction that you may or may not pursue?

Speaker 2

Yes. So, I would say for us, when we it's not really about the financing markets that drives our ability to execute in transaction. I'm sure at some point it could come to that. I think really for us it's about the same things we've talked about before. It's acquiring assets that have a strategic rationale is an acquisition that generates free cash flow and the valuation makes sense for us.

Speaker 2

And so once it gets through that filter, then we can start to think about financing alternatives and leverage and all of those things. And really, I think it's all those things that get mixed together that then determine whether we should move forward or not. So to say there's a maximum leverage level, I'm not going to be able to say that because it's going to be on based on market conditions, it's going to be based on the value creation or the opportunities that we see from an acquisition. And so just as we've done historically, we've tried to be very disciplined in how we think about acquisitions and how we execute on them. And that's all I can give you as a framework to kind of think about it in terms of answering your question around leverage.

Speaker 10

That's very helpful. Thanks so much.

Operator

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

Speaker 11

Afternoon. Thanks for taking my question. With respect to the Cadence Crossing announcement, you mentioned that in that Henderson sub community, there continues to be development and rooftops going up. So, A, how did you come up with the size and scope of that market, given it's going to take a little bit of time in the market, the number of homes might grow? And then separate from that, any update in terms of Eastside Cannery and opportunities in that region?

Speaker 11

Thank you.

Speaker 1

On Eastside Cannery, really no change in our thinking around that. The market around that particular product, which once again is right next to our Samsung Las Vegas property hasn't changed significantly and therefore we just don't have any further views on what and when something may happen there. With respect to Cadence Crossing, we've been watching that property community develop for a long time because it's in our backyard. Our Jokers Wild Casino sits on the existing site where we're building Cadence Crossing today. The Jokers Wild Casino is a slightly smaller footprint and a slightly smaller operation.

Speaker 1

And so we have a sense of how we can build that business going forward. And so we're opening what I call a modest investment with the square footage and the slots and the food outlets that I described. But clearly with the opportunity to expand it, We'll be able to keep Jokers Wild open while we build a new property and then when we open a new property, we'll be able to shut it down. So we won't lose any EBITDA in the process, But clearly have the expansion opportunity as that community grows, we can grow with it based on demand. So we feel pretty good about the opportunity.

Speaker 1

Once again, modest investment on day 1 opportunity to grow into the future.

Speaker 11

Thanks. And just to follow-up on that. So that 3rd bucket of CapEx, are there other entitled land opportunities or adjacent opportunities in LVL? Or is this 3rd bucket, again, it could be an additional hotel somewhere else, convention center? Any view on where that focus would be for that 3rd bucket of CapEx geographically?

Speaker 1

We have a list of projects that we have prioritized and that we continue review as they start to kind of come next in line. Josh described the next 2. We believe those are the 2 highest ROI projects we have, the most important at this moment in the company's life. We've got several more behind that. And once these 2 get further down the line, we'll start to evaluate those.

Speaker 1

To your point, look, we do have a lot of land adjacent to our existing operations here in Las Vegas, whether it be at the Orleans or the Gold Coast or at Samsung or at Aliante, we have opportunities at all those properties to continue to expand the footprint there if demand warranted that. And what we have, once again, plenty of opportunities outside of Nevada properties like Ameristar St. Charles that are extremely strong producers, have extremely strong demand that we can build into. So number of projects, not ready to disclose anything other than what we disclosed already, but we have lots of additional opportunities in the pipeline.

Speaker 2

The only thing I would add is we have more than enough projects is finding the ones that generate the returns we need and then just kind of pacing spreading those out and pacing them.

Speaker 11

Thank you both very much. Appreciate it.

Operator

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

Speaker 2

Thanks everyone for dialing in today. If you have any other questions,

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Earnings Conference Call
KeyCorp Q2 2024
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