Boyd Gaming Corporation (BYD) Q3 2011 Earnings Report, Transcript and Summary

Good morning, and welcome to the Boyd Gaming Third Quarter 2011 Earnings Conference Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Josh Hirsberg, Senior Vice President and Chief Financial Officer. Please go ahead.

Thanks, Amy. Good morning, everyone, and welcome to our third quarter earnings conference call. Joining me on the call this morning are Keith Smith, our President and Chief Executive Officer; and Paul Chakmak, our Executive Vice President and Chief Operating Officer. Comments today will include statements relating to our estimated future results, including among others, guidance for the fourth quarter, financial outlook for the company, our expansion and development projects and other market, business and property trends that are forward-looking statements within the Private Securities Litigation Reform Act. All forward-looking statements in our comments are as of today's data and we undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise. Actual results may differ materially from those projected in any forward-looking statement as a result of certain risks and uncertainties, including but not limited to those noted in our earnings release, our periodic reports and our other filings with the SEC. During our call today, we will make reference to non-GAAP financial measures. For a complete reconciliation of historical non-GAAP to GAAP financial measures, please refer to our earnings press release and our Form 8-K furnished to the SEC today, and both of which are available in the Investors section of our website at boydgaming.com. I'll provide reconciliation of forward-looking non-GAAP financial measures due to our new ability to deduct special charges and certain expenses. Finally, we are broadcasting this call on our website at boydgaming.com. I'd like to turn the call over to Keith Smith, our President and CEO. Keith?

Thanks, Josh. Good morning, everyone. Thank you for joining us for our third quarter earnings call. On our last 2 calls, we discussed the EBITDA growth we were seeing in our wholly-owned business. I'm pleased to report that the positive momentum we experienced in the first 2 quarters of this year continued during the third quarter. The third quarter represented the third consecutive quarter we posted EBITDA growth in our wholly-owned operations. For the quarter, EBITDA grew more than 17% and was the second consecutive quarter that all 3 regions reported year-over-year EBITDA gains. But more important than 3 consecutive quarters of EBITDA growth was the performance of our Las Vegas Locals region. This region led the company with an 18% EBITDA gain for the quarter and it is the second straight quarter of improved EBITDA in this region. Locals business is moving in the right direction. From an economic standpoint, the recovery of the Las Vegas tourism industry is continuing. We’re looking at 18 straight months of increased visitations, 18 straight months of increased room rates, increases in convention business and sales tax numbers. Coupled with employment numbers, it is clear we are heading in the right direction. Our Midwest and South region continues the strong performance with its fourth straight quarters of EBITDA expansion. This is clear proof that the economic recovery that has -- has taken a firm hold in the region. Compared to previous quarters, strength in the region was widespread, particularly in our properties in southern Louisiana. And the Downtown region continued to show revenue and EBITDA growth as well with our focus on the Hawaiian market driving strong increases in play and visitation. In Atlantic City, the Borgata has been our most challenging segment this year but there are reasons to be optimistic. The purchase of Borgata achieved a gain in revenue market share of nearly 20% for the third quarter, an all-time record. Second, absent the effects of Hurricane Irene, we believe Borgata would have reported year-over-year growth in both revenue and EBITDA during the quarter. Overall, our third quarter results clearly show our strategy of providing an exceptional customer experience and keeping a tight rein and costs, this is paying off on the bottom line, positioning the company for further growth as the economy improves. During more recent developments, the most significant event for the company occurred on October 4, our acquisition of the IP Biloxi, which is a leading property in one of the country's largest gaming markets, a valuable addition to our nationwide portfolio. We believe we can generate significant new visitation by integrating the IP to our B Connected player loyalty program and cross-marketing the IP with our other properties. As of September 30, IP generated about $36 million in LTM EBITDA. This is below the levels we discussed in May when we announced the transaction, and this is due mainly to a lost Labor Day weekend from tropical storm Leah and lower gaming volumes during the quarter in both the IP and Locals market in general [ph]. We remain confident about the prospects with this property and its ability to not only contribute to our future success but also to provide a meaningful return on our investment. Along those lines, we continue to project we'll be able to realize a minimum of $5 million of additional EBITDA from the IP. This is a result of operating efficiencies made possible by being part of a large nationwide gaming company. We are optimistic, our savings will be ultimately be in excess of that amount. In addition to these savings, we expect to see the benefits from cross-property marketing efforts which will only further improve the performance of the property. In Florida, the sale of Dania Jai Alai has been extended to no later than November 28 after the buyers exercise their options to extend closing in exchange for a nonrefundable $2 million payment. Combined with the initial $5 million payment, the buyers made a total of $7 million in payments on this transaction to-date. Exactly what's working towards the closing of this transaction is certainly focused on secured financing. I'd like to offer a few comments on our strategy moving forward. As we look ahead, we remain confident that we're positioned well for future growth in our core business. We will remain focused on delevered -- or delivering great customer service, controlling costs and driving visitations through B Connected, our industry-leading customer loyalty program. We will also continue to focus on strengthening our financial profile, actively managing our balance sheet and deleveraging and diversifying our asset base and sources of cash flow. Our strategy for diversifying our revenue stream has helped support our business over the past several years. We continue to look for opportunities to grow through strategic acquisitions like IP but purchasing existing operations is not the only avenue for generating growth for us. We look also at compelling opportunities to grow our business through development agreements and management contracts in markets that complement our core business in other lines of business such as online gaming. As the conversation about the legalization of online poker continues to gain momentum, we're working aggressively to position the company to take advantage of opportunities that may arise should Congress enact legislation related to the online gaming environment. As we’ve noted previously, we cannot control the national economy or the recovery of consumer spend, but as you can see from our third quarter results, we can ensure that Boyd Gaming is managed efficiently and is positioned for growth. Thank you again for joining us this morning. Now I'd like to turn the call over to Paul to talk in more specifics about the results in these 4 regions. Paul?

Thanks, Keith. Hello, everybody. We're pleased with our results from the third quarter. Every region in our wholly-owned business generated EBITDA growth as margins improved by 270 basis points. First, let's look at our Las Vegas Locals business. This was an exceptional quarter from an operating perspective. The region's 18% EBITDA growth led the company and margins rose by an impressive 320 basis points. This performance was the result of our continued focus on ensuring we maximize returns on our marketing dollars, as well as greater efficiencies throughout the business. We saw growth at 3 of our 4 major local properties, led once again by the Orleans. EBITDA rose 28% at the Orleans during the quarter, making its fourth straight quarter of growth as revenue increased as well. The Orleans provided a powerful example of how our refined cost structure will allow us to flow through a significant amount of future revenue growth to the bottom line. The elevated promotional environment is continuing as well. Our largest competitor has been the most active in this respect, launching its second major marketing initiative in less than a year. At the high end, they are now matching what we have been offering our best customers for quite some time. We take a targeted approach that we believe is more strategic, disciplined and profitable. We do not compete through mass advertising campaigns; rather we focus on developing a personal relationship with our best customers, giving them a consistently entertaining experience and communicating with them through various direct marketing channels. As a result, our customers continue to choose our brands in spite of a heightened promotional environment in the Locals market. To-date, we have seen no impact on business volumes due to our competitor's campaigns. And looking to the fourth quarter, we anticipate that EBITDA growth will continue in the region. Moving to Downtown Las Vegas, we saw continued strength as EBITDA rose nearly 6% on higher revenues. It's important to note that this EBITDA growth came despite an $850,000 year-over-year increase in fuel costs at our Hawaiian charter service, a trend that we expect to continue in the fourth quarter. At the property operating level, EBITDA rose about 11% as all 3 properties recorded year-over-year growth. This performance is being driven by growing strength in our Hawaiian customer segment; visitation and play among geographic Hawaiians was up significantly during the third quarter. There are several factors playing in our favor in Hawaii. First and foremost, Hawaii's economy has been strong, providing our customers greater confidence and more discretionary income. And second, we continue to be successfully in marketing to our Hawaiian customers, which help drive growth in this market segment. Importantly, we are better positioned to take advantage of growing demand from Hawaii after putting a Boeing 767 into service on our Hawaiian charter route earlier this month. This aircraft gives us 12% increase in available seats, allowing us to fly in more than 6,000 additional customers per year based on our current 5-flight-per-week rotation while improving the customer experience. In the Midwest and South, we reported our fourth straight quarter of EBITDA growth. 4 of our 6 properties posted year-over-year EBITDA improvement. Treasure Chest led the region with a 21% EBITDA increase, followed by a 16% gain at Delta Downs. We are particularly encouraged by record monthly EBITDA results at Delta Downs during both July and September. The Midwest and South region and southern Louisiana in particular has shown relative resilience over the last several years. That trend continued during the quarter and demonstrates why geographic diversification is such an important strategy for our company. Our success in this region is about much more than simply going along with the economic tide. Our marketing initiatives have been very effective in driving business to our properties. We’ve kept a tight control on costs as well, further improving our margins during the third quarter. In Atlantic City, we are encouraged by results at Borgata. We believe the property would've reported increases in both revenue and EBITDA during the third quarter had it not been the forced closure in late August due to Hurricane Irene. We estimate that the impact of the hurricane, including the closure of the property for 3 days, cost Borgata more than $6 million in EBITDA and over $10 million in revenue. If you factor out this closure, we believe Borgata would've reported increases in both revenue and EBITDA, which would have been its first year-over-year EBITDA increase in 2 years. In September, for example, the property reported an 11% year-over-year increase in gross gaming revenue. We finished the quarter with a 24% share of table game drop in Atlantic City, which is an all-time record. And as we saw during the second quarter, table hold was stable at 13%, in line with our expectations. The property's non-gaming business continues to perform well as cash ADRs are up throughout the quarter. Looking forward, we see reasons to be cautiously optimistic over the next several quarters. Finally, I wanted to discuss some of the successes we have seen with B Connected, our nationwide customer loyalty program. Since we launched B Connected in 2007, it has become our company's unifying brand, giving our customers an incentive to visit Boyd Gaming casinos across the country. It has been and will continue to be a key driver of growth for our company, and we believe this program will be further strengthened when we add the IP to B Connected by the end of the first quarter of 2012. Over the last several years, we have worked to strengthen B Connected with a robust online and mobile presence. And since its launch in 2009, according to compete.com, B Connected Online has become the most visited website of its kind in the gaming industry. And starting last year, we further expanded the power of B Connected with the launch of dedicated mobile applications for the iPhone, iPad and Android, making B Connected Mobile the first app of its kind available on multiple platforms. B Connected Online and B Connected Mobile give our guests highly personalized and constantly updated information and offers that generate better customer experiences and greater loyalty to our brands. These tools help customers get the greatest value out of their B Connected membership and ensure that our marketing is effective as possible. And earlier this month, the American Gaming Association recognized B Connected Online and B Connected Mobile as the best website and best mobile app in the industry. To recap, the third quarter saw continued improvement in our operations as each of our 3 wholly-owned regions continue to generate year-over-year EBITDA growth. In the months ahead, we’ll remain disciplined and focused on providing our customers with outstanding experience and consistent value. Thanks for your time today. And now, over to Josh.

Thank you, Paul. Let me start with a few items from the quarter. Starting with the balance sheet, excluding Borgata, Boyd's debt balance at the end of the third quarter was approximately $2.4 billion, with $1.4 billion was outstanding under our $2 billion credit facility. Borgata's debt balance was $806 million, of which $15 million was outstanding under their $150 million credit facility. Immediately following the quarter, we consummated the acquisition of IP Biloxi for a purchase price of $288 million. Purchase was financed with cash on hand and a borrowing under our credit facility of approximately $200 million. Pro forma for the acquisition, Boyd has approximately $2.6 billion in outstanding, with approximately $415 million outstanding on our credit facilities maturing in May of 2012, and $215 million of availability under our credit facility that matures in December of 2015. We've stated in the original announcement of the IP acquisition, the company expects to raise approximately $300 million between now and the end of the first quarter next year. We are moving along several paths to complete this financing. We're very comfortable with where we stand in that process. Moving to the income statement. Depreciation expense in the quarter was $46 million, a decrease of approximately $6.4 million from the prior year. Boyd's depreciation expense represented approximately $31 million of that number, which compares to $36 million in the third quarter of last year. The increase in depreciation expense is due to our reduced capital expenditure program. Borgata's depreciation expense of $15.2 million was approximately $1 million below the third quarter last year. Prior to adjustments related to acquisition accounting, we expect depreciation expense in the fourth quarter to include $4 million to $5 million related to the IP acquisition. Pre-opening expense was $4.4 million in the quarter excluding the effects of the consolidation of Las Vegas Energy. Again, excluding the impacts of consolidating Las Vegas Energy, interest expenses for the quarter was $55.1 million. Operating expense at Boyd was $34 million for the quarter, an increase of approximately $5.5 million over the prior year, affecting the impact of our financing activities in the second half of last year, offset by approximately $6 million due to the expiration of outstanding swap contracts. Interest expense for Borgata was $21 million for the quarter and $7 million over prior year, again, due to financing activities that occurred in the later portion of 2010. Other income during the quarter of $1 million was related to payments from the disposition of Dania, that contribute towards the purchase price. The tax provision in the third quarter was 23.75%. Now let's turn our attention to guidance for the fourth quarter. As we did for the third quarter, we will provide quarterly EBITDA and EPS guidance. Because we consolidated Borgata's financial results, we'll provide separate EBITDA guidance for Borgata and provide guidance for adjusted EPS for the consolidated business, including both the wholly-owned segments of Boyd and Borgata. We expect wholly-owned EBITDA, which includes corporate expense, to be in the range of $73 million to $78 million, inclusive of IP's results. Absent hurricanes and earthquakes, we expect Borgata to generate EBITDA of $34 million to $37 million, compared to $34 million last year in the fourth quarter. With this range of EBITDA guidance, including IP's results, adjusted EPS for the fourth quarter is expected to range from income of $0.01 per share to a loss of $0.04 per share. Operator, that concludes our remarks. We're now ready for any question from participants on the call.

[Operator Instructions] Our first question comes from Felicia Hendrix of Barclays Capital.

So my first question is on the Las Vegas Locals market. I was wondering if one of you can just give us some color on how the rate of growth trended in the quarter right. I know it ended up flat but I was wondering if it looked better at the beginning of the quarter, if you saw any change? And then also wondering what you're seeing now. You do face tougher comps in the fourth quarter. Keith, you did allude to continued growth, but I'm just wondering if you could give us some more color on what you're seeing in the fourth quarter so far.

Yes, Felicia, it's Paul. I think as far as the impact of growth within the quarter overall, the summer is, obviously, typically the slower part of the business for the Las Vegas Locals segment overall. The business overall is -- has continued to improve, and if we go back a number of quarters, the rate of decline, obviously, continued to lessen and we've said it was a chance for us finally to post a year-over-year revenue increase for the segment overall. I think the Locals -- the true Locals business is, obviously, the most challenged. Las Vegas is going through its continued recovery and on the long road ahead. Not surprisingly as I said, the Orleans led the performance overall, and I think that has a lot to do with the destination business that accounts for roughly 60% of the Orleans overall business and, to some extent, mirrors what you've been hearing from strip operators as well. From just a nuts and bolts perspective on the gaming side, overall, relatively stable trends when you adjust for practicality of the summer itself. Sports overall, certainly had some impact as our customers played very lucky in August and September. And so that in its own right would've had a more negative impact on the quarter to the back end.

And then just looking forward a little bit, I'm just wondering as you think through next year, can you see continued -- can your non-gaming amenities still continue to grow or do you need gaming growth in 2012 just actually keep that trajectory of improving rate of growth continuing?

Well, I think, I mean, our expectation in the Las Vegas Locals business is we'll see it on both sides. I mean, we've seen some pretty good improvement on the non-gaming site, particularly in the hotel cash ADR aspects of the business. And so that's a positive and, obviously, has very significant flow-through in its own right. Since its up and existing cost structure, it hasn’t really changed. But overall, on the gaming side of the business, we'd continue to see modest but certainly positive improvements throughout the Locals business.

Great. And then just my final question just switching gears over to the IP. I know you all said you were confident in the growth, but as we think about the rest of the fourth quarter and into the beginning of '12, I'm wondering, should we use the EBITDA -- the rate of EBITDA that you mentioned on the call or should -- as a benchmark or should we revert back to prior expectations?

I think from our perspective, our expectations are for the properties to do what we stated when we made the announcement. I think there were some kind of extenuating circumstances that make the LTM EBITDA went off of September 30, not the number that we're building from. And I think that, obviously, there's typically some disruption that goes on around transitions and other factors that affect what happened in the last quarter, but I think we're very confident that the property has a lot of upside from where it is today. We've talked about the $5 million of synergies and we’ve alluded to that we think there’s more than that. But we just need to get in there and get comfortable with what's going on; great property, a great set of employees and a very good market from our perspective, but we also see a lot of opportunity for that asset being part of Boyd overall.

The next question comes from Joel Simkins at Credit Suisse. Joel H. Simkins - Crédit Suisse AG, Research Division: Yes, I guess the first question I have for you, guys, was Massachusetts. How much time are you spending there? We haven't really heard your name in the mix. Is this something you're focused on -- focusing on at this point?

Joel, this is Keith. I can affirmatively state that we are not in Massachusetts at all, so if there's a rumor out there that we are associated with somebody, it's just that, it’s a rumor. Joel H. Simkins - Crédit Suisse AG, Research Division: Okay. And it does seem like Dan Lee and Mojito Pointe are getting a little bit closer to getting capital. Clearly, they affiliated with MGM last week. Obviously, Delta Downs is an important regional property for you. I know it's a couple of years away, but how are you thinking about incremental competition in Lake Charles and how you prepare for it?

I think that Delta has been performing well over the last year, and has been an important part of the Midwest and South region since we purchased it. We've said over the years that more traffic along I-10 is good for us at Delta Downs because we are the first stop as you cross over the border from Texas and Louisiana, and we just think about it that way, that if you put more traffic along that highway, we will get our fair share because the reality is that we run pretty full on that capacity on weekends, on Fridays and Saturdays, and so it's really the mid-week opportunities, and if they put more people on the highway mid-week to go into Lake Charles, we will get a fair share. So it's a few years away; we'll continue to run a great operation. We'll continue to give all our guests a great experience and make sure they maintain -- or they remain loyal to our property. Putting more people kind of on the road and moving passed us is a positive in our opinion. Joel H. Simkins - Crédit Suisse AG, Research Division: And, Keith, you spoke earlier about online gaming. Clearly, you guys are very active on a national and local level on this topic. Can you give us a sense of sort of the timeline in the rest of the year what we can expect in terms of online? And if nothing happens this year, do you think it's sort of a moot topic as we head into election season eventually next year?

The conversation of online gaming is interesting, obviously. It's something that is regulated and regulated in tax in so many countries around the world. It just doesn't happen to be here in the U.S. given our policies here. There are tens of thousands of jobs and billions of dollars of tax revenues at stake, so it’s clearly something that we are supporting to look into and try and get past. While we're in the gambling business, this is a topic I don't think I'd be willing to venture a guess, as to how it plays out over the next several months. We're actively working it. I think there is a lot of -- there are a lot of dialogues going on in Congress right now. We’ll try to move this forward. If it doesn't happen in this session, I don't think it's -- I don't think the conversation is over. I think that it will continue some of the relevant conversation on this if not only as a way to protect consumers today who participate in this activity. There's millions of Americans per year that participate in this activity, so we'll continue to work on it. I -- predicting a timeline is very difficult.

The next question comes from Joe Greff at JPMorgan. Joseph Greff - JP Morgan Chase & Co, Research Division: Paul, looking back at the Locals market in the third quarter, were your gaming revenues up year-over-year or is it more of a function that the contra revenues were down?

The contra revenues, meaning promotional expense, Joe? Joseph Greff - JP Morgan Chase & Co, Research Division: Yes, correct.

I don't -- I mean, we obviously don't break out that level of detail overall. I think we can kind of stick with what we said. Overall, we continue to see improvement in all kind of aspects of the business, gaming and non-gaming. Promotional expenses are driven a lot by slot dollars that are actively used to reward customers for coming in and they tend to honestly ebb and flow with the volumes overall. Joseph Greff - JP Morgan Chase & Co, Research Division: Okay. And, Josh, what's the tax rate you're incorporating in the fourth quarter?

I'm using the same tax rates that we had in Q3 because that's kind of just the best information I have right now. Our tax rate is pretty volatile just given the level of income that we're generating versus some of the permanent tax adjustments that are always there and make the tax rate move around. So it's truly more tied to just the order of magnitude of the income. But for the estimates that I've used, I've used the rate from Q3.

Our next question comes from Dennis Forst at KeyBanc.

I had a couple. Paul, how do you look at your market share in the Locals market? Do you take it as a share of some standard number which is a combination of the Boulder Strip and the North Las Vegas? Most of us do it that way, including the balance of the county and we add up the gaming revenue and then try and look at the market share on that. But what do you look at for your market share?

Well, it really depends on the property, Dennis. As it relates to Sam's Town, which is obviously on the Boulder Strip and on the east side of town, we look at it relative to the Boulder Strip region. Now, in fairness, the Boulder Strip region for various reasons includes the M and Green Valley Ranch, which aren’t on the Boulder Strip and are obviously significant properties in their own right. So that grouping gets clouded by the impact of properties that really aren’t in the kind of mix, concentric mix geographically being part of that region, so you just have to account for it best you can. There's no really clear information. As it relates to The Orleans, The Gold Coast and the Suncoast, we look at them relative to balance of county, though in fairness, the Gold Coast is included in the strip numbers as reported by the Gaming Control Board and so we obviously have to do our own work to factor it out and then move it into the balance of county. Again, very large segment overall in very different geographic locations within the city, but it's kind of the best mix you possibly can use to compare them.

Okay. Has your market share, the way you calculate it, gone up year-to-date and in the third quarter?

Market share, overall, for us has been relatively flat and that is frankly where I’d just as soon have it be, it's pretty easy to move market share from a gaming revenue perspective by just simply enhancing the types of offers because these are all gross revenue type net calculations. So if we were solely here to grow market share, we could do it frankly very quickly in a very unprofitable way. But again, the focus clearly continues to be on EBITDA as opposed to gross gaming revenue.

Okay, good. And then, Josh, I had a couple of questions on write-downs. I think you had a $2.3 million write-down charge in the quarter. What was that?

That was a combination of 2 items. It's acquisition-related costs and then the other item, in that line item was expenses related to the Tunica flooding actually.

Okay. Are the acquisition costs now completed through the third quarter? Will there be any slop over in the fourth?

There might be a few but nothing immaterial.

Okay. And then you explained the other income of $1 million coming from a Dania payment. There was also an other expense of exactly $1 million that I thought was somewhat coincidental. What was that?

That's Dania because the SEC does not allow us to include that in any of our operating segments so that's separated out, into an other expense. So that's still the operating expenses associated with Dania.

Think of it as EBITDA from Dania being a negative million on the quarter.

The next question comes from Shaun Kelley at Bank of America Merrill Lynch.

So Josh, did you give the cash balance? I apologize I was writing quickly, but the cash balance for both the company and Borgata at the end of the quarter if I missed it?

I didn't and I don't know that I have that number readily available. Let me try. Yes, I don't have that number, Shaun. I can get it for you though.

Okay. And just -- could we just -- like just the sources and uses for the deal here because you drew down $200 million and the rest came from cash. I guess the question that we have is really how are you -- if you're planning on raising $300 million, kind of what tools do you guys have at your disposal to do so? I believe there's a basket that is available to you guys under your – in an accordion feature for your bank facility. But one, to get a better sense of kind of the cost of funds there and kind of what different paths you guys might be looking at to bridge that gap.

I think our -- the company's best position is to just let that play out. We have a lot of options from moving up and down the capital structure to execute our financing and I think we'll just kind of leave it at that. I think folks have conjectured about doing different types of financing, and I would say those are all available to us. I don't think that people are just thinking about the company issuing high yield notes or thinking broad enough in terms of what our options are.

Then, I guess to be a little bit more broad, would equity be on the table there?

I think that for the right kind of acquisition and strategic acquisition and something that is transformative in nature, the company would consider equity as long as it creates a good value for shareholders. IP is a good acquisition for us, but it's a plug-in type acquisition. It's not a transformative type of acquisition. Our preference at this point is not equity.

Okay, that's helpful. And then I guess on Dania, you guys -- you had implied back when you announced the IP that you were going to use the proceeds from Dania to help finance the deal, but now things seem like they're getting extended out. So I mean, I don't know if you can give us any more color on the buyers here but did the buyers have financing to close this deal and is your operating assumption that they close or don't close at this point in terms of the financing that you'd be raising, the $300 million?

What I would say is that we never have counted on Dania closing in order to finance our transactions. I mean, that was [indiscernible] I think folks should recognize that when we announced IP, we did it with our eyes wide open in terms of the period of time we'd just come through in terms of 2008 through 2010. So we didn't do it expecting that -- kind of hoping for Dania to close or hoping for a high-yield market to be there. We did it, understanding here's our range of possibility and making sure we have the flexibility and the alternatives available to us so that if certain things don't happen, we kind of go through our playbook, pull out the play and start executing on one of those alternatives. That's basically what we're doing now. We have a lot of different alternatives. We're kind of moving forward on all of those and when one of them kind of seems better than the other, we'll execute on it. But Dania was not part of the financing solution. It was certainly a way to have more cash and reduces the need, but we always said, we're going to raise $300 million. If we don't get Dania, we're still going to raise $300 million.

Okay, that's helpful. And I guess my last question would be on just the pricing behind the IP deal. I mean, from the time you guys announced it to the obvious closing in October, the capital markets changed quite a bit. You also saw the fundamentals of the properties start to change and I guess. I think you called out a tropical storm or something that had a bit of an impact there. We did see the Gulf Coast numbers were fairly light in August and September but I mean the number is down 10%, 12% there, and then the capital markets to the cost of capital becoming higher. Did you guys -- I mean, why not consider changing your underwriting for that or at least postponing until there get to be a little bit more clarity? Why the need to close that deal so quickly?

Well, I think -- again, if you think about it from our earlier comments, and others of my associates can chime in. But from our perspective, we had thought about circumstances such as what are playing out here today. Maybe not exactly the same ones, but we said look what happens if x happens or y happens? We didn't go into IP going well, we sure hope that the world is exactly like it is today and everything is okay. We were prepared for things to not play out the way they were when we entered the IP transaction when we made that announcement. And we just continue to evaluate it. I think what people should recognize is, is that our view of IP has several components associated with it in terms of making it a good value for the company. And market growth is one of those, but it's not the only one. I would say it's pretty far down the list. My perspective is that the opportunities for us at IP come from again plugging it into Boyd and getting the benefits of being part of a big bear [ph] company, and that means not only synergies out below the line, but also revenue-related synergies, from being able to plug it into our systems and benefit from being part of a big loyalty-based card program. And we see that working both ways for both the IP customers and the Boyd-related customers.

Yes, this is Keith. I think the other thing you have to keep in mind is we did sign the contract that had the property or our acquisition closing when certain closing conditions were met. Once they were met, we had an obligation to close the property. I think the softness we saw over the summer while we're focused on it is not our primary concern. The more we learn about this business, the more opportunities we see. And I guess Josh indicated earlier, we’re every bit as confident today about the numbers we talked about when we announced the transaction; we're as confident today as we were then. We believe the synergies are greater. One of the things that I think happened at the property over the quarter, when the revenues dropped they probably didn't manage the business as aggressively as a larger company like ours may have managed it. And so we think there's -- once again a good opportunity there to run this business to a much higher level than the property has seen in the past. So we remain very confident about the prospects for that property.

The next question comes from Carlo Santarelli of Deutsche Bank.

Josh, if you wouldn't mind, could you outline a little bit some of your uses of free cash flow as it relates to maintenance CapEx both at Borgata and at the rest of your properties? And then also have you guys kind of talked through your expectations? As we've seen revenues change here to the positive on a year-over-year comparison in the Locals market, as we move into 2012, how do you guys think about flow-through on incremental revenue growth?

Carlo, I think I understand your first question. If I don't answer it, please just let me know. I think from our perspective, our free cash flow is going to be used to continue to maintain our properties at a level that we think is necessary to be competitive. I think we have a competitive advantage today in -- versus our competition in terms of those products and the condition of our properties. So that affects how we think about what we spend going forward. When we get beyond regular maintenance capital, I think the free cash flow is going to be -- is going to deleverage the business. We do generate a lot of free cash flow as part of the ongoing business and that will be a result of IP acquisition, we believe, over time. Our maintenance capital runs about -- probably this year, about $70 million; maybe a little bit less than that, up $15 million in the quarter. And at Borgata, they have underway a room refurb, which will be done on kind of the first quarter next year. That total refinished project is about $50 million or so. It was originally kind of evenly weighted between the 2 years of fourth quarter this year and first quarter next year, so as usual, kind of some of the spend that will drag out into -- or some of the payments will drag out into more to our first quarter next year. That’s generally kind of where we're -- how we're thinking about that. And we spent about $8 million in the third quarter related to Borgata's maintenance. [indiscernible] Borgata's maintenance is probably in the $15 million to $20 million range, and Boyd's just probably upwards of $80 million.

Carlo, with respect to your comment on flow-through, [indiscernible] we provided comments [indiscernible] to that. I think we've worked very hard over the last several years and continue to work hard to make sure this business runs as efficiently as possible, as we're able -- look every -- kind of every day, we wake up and find a little additional tweaks we can implement to make sure it does that. [indiscernible] on the flow-through that we would expect going forward is from in north of 60%. I can tell you that we're seeing well north of that today as we get incremental revenue, we're seeing a high degree of flow-through, and we're very pleased by that. It's what once again you see it in the margins, you see in the profitability. But as we look into next year, for every additional dollar of revenue that we're able to grow, we focus on profitable revenues that if you can expect 60% or more will flow to the bottom line. Paul?

I don't think I can really add anything to that. I think the amount of flow through obviously varies region by region, state by state, depending on gaming taxes. To my earlier point, in some cases, non-gaming revenue flow-through is actually – if it's on the hotel side and on the cash ADR side, much higher than even the gaming revenue flow-through.

The next question comes from David Katz at Jefferies. David B. Katz - Jefferies & Company, Inc., Research Division: I wanted to -- did you -- if I missed it, I apologize -- did you give out what both maintenance and any other CapEx was for the quarter? And did you comment on what we can expect CapEx-wise going forward and what that would be for? Is there anything going into IP?

Well, I just answered that question but I'll try again. David B. Katz - Jefferies & Company, Inc., Research Division: I apologize.

Okay, Dave. So Boyd was about $15 million in the third quarter related to maintenance. Our run rate probably for this year is about $70 million. We'll probably come in a little bit less than that, I would expect. For next year, Boyd without kind of IP is probably $75 million to $80 million. And Borgata is about $8 million of maintenance for the third quarter, and they have -- they'll end up spending probably -- on top of that, this year, probably about $20 million and capital related to their room refinishment project. So their normal maintenance would be normally around $15 million to $20 million and then about $20 million for the room refinish. Next year, they'll probably have a similar amount of maintenance capital related to both the room refinishment and the Borgata maintenance, so again, $15 million to $20 million of maintenance and probably a little bit more for the refinishment project related to just the cost of the spend. So may end up spending about $25 million to $30 million for that project. IP should be about $44 million of maintenance that we mentioned when we acquired that asset. Now as this largely spend in the first half to 3 quarters of next year, although it will be a little bit of spend in the fourth quarter of this year, probably $5 million or so.

Your next question comes from Kevin Coyne at Goldman Sachs.

If I could just turn to IP real quickly as it relates to the synergies. Can you just confirm, those are basically all expense synergies and can you give us a sense at how it will take 12 months to eventually get to the full run rate or how long do you think it will take?

Kevin, this is Keith. Some from our media, we talked about $5 million and we also talked about our confidence at that number growing, frankly, quite a bit over the course of time. And every day that we spend there, we learn more about the areas that we can make more efficient. There are some areas that will have an immediate impact, and there are some areas that are contractual and will take more time to bring them in as part of Boyd Gaming's larger national purchasing power or their efforts then matures as contracts run their course, when the contracts run their course, so I think you should look at it as north of $5 million in the first year. We'll take a year to get to that run rate. It won't happen on day 1. It wouldn't happen in the first quarter. It will take a year.

Sure. And then if we could just ask -- if I could just ask a question on, I guess, the cross-marketing opportunities. I guess as you think about it, obviously you're going to mine the B Connected database in the region. But what would be your, let's say, ideal increase in visitation to IP as you bring new people to the property who have -- who maybe haven't been there before?

Well, I mean, as you would expect, there is, and I think I explained in the last call, there's quite a bit of less traffic that runs through the Biloxi market. And with properties to the west that both Delta and Treasure Chest, and the fact that Treasure Chest is truly a Locals casino, frankly very similar to, say, the Suncoast here in Las Vegas, no tower rooms at Treasure Chest. Most of our customers come within 5-ish mile radius given what we have to offer with very, very high frequency. And those same folks, very actively frequent the Biloxi market as well. It's about a 90-minute getaway from where they are located. So the amount of folks in the database is significant. Obviously, now that we own the place, we can compare the 2 databases together and make offers as appropriate to Boyd customers that haven't been to IP, and then also take the IP customer base who is from a larger geographic area and offer many more amenities at all of our properties throughout the region.

And then just one housekeeping. I saw a minor, I guess, gain on retirement of debt, I believe, at the Borgata. Can you just give us some color on what that was? And related to that, did you buyback any debt subsequent to the quarter?

Kevin, you're very perceptive. We bought back some bonds in the third quarter related to Borgata. It was $8.5 million worth of bonds.

The next question comes from Mark Strawn at Morgan Stanley.

Quick question on the IP. Could you give us a sense of what peak EBITDA was in kind of maybe the '06, '07 timeframe?

We're really not able to disclose that number as you would expect for our contracts with them. But as you'd expect to happen in the year following Katrina, when they were the first to open in the market, so it was quite some time ago.

Okay. Any sense of kind of sustainable margins in that business at that time or is that also something you can't disclose?

The market was just so different following Katrina and you saw it in our numbers at Treasure Chest as well back in that time. But there -- it was just an anomaly that will probably and hopefully never repeat itself again in all honesty because these circumstances were just so odd.

The next question comes from Joe Greff at JPMorgan. Joseph Greff - JP Morgan Chase & Co, Research Division: Guys, a follow-up, and I apologize if you mentioned it, I didn't catch it. LTM for IP gave us EBITDA. Did you give us what EBITDA margins were?

We did not. Joseph Greff - JP Morgan Chase & Co, Research Division: Can you give it to us or is that also in the category of "we can't give it out"?

Actually, we will give it out, but we don't have it at our fingertips so it's just nothing we were prepared to discuss.

I think we believe that LTM EBITDA is reflective of how we're looking at the business going forward.

The next question comes from John Maxwell at Jefferies. John Maxwell - Jefferies & Company, Inc., Research Division: Just a follow-up, Josh, on the $8.5 million of Borgata bonds, that was repurchased during the September quarter or subsequent to the end of the quarter?

Third quarter. John Maxwell - Jefferies & Company, Inc., Research Division: I'm sorry?

It was purchased during the third quarter. John Maxwell - Jefferies & Company, Inc., Research Division: Okay. Could you -- did you purchase any after or do we have to wait for the fourth quarter to see that?

You have to wait, sorry. John Maxwell - Jefferies & Company, Inc., Research Division: Okay. And then just -- I guess, Paul or Keith, just with the opening of Aqueduct, do you expect anything or is that really not going to be as much of a competitive threat to you as maybe some of the other guys at Atlantic City?

Based on what – based on the intelligence we have, it sounds like Aqueduct could probably open towards the end of this month to the first part of next month. Probably, it'll have some small impact on Atlantic City. We don't expect it to have any real impact on the Borgata operation. As we look at our database, with where customers are from and we looking at our business, we don't expect to have any adverse effects from the opening of that.

Our next question comes from Lawrence Klatzkin at Klatzkin Advisors. Lawrence Klatzkin - Jeffries & Co.: Just going back to Atlantic City. Revel's going to eventually open. Do you guys think that's going to grow the market or might actually benefit you? Are you doing any kind of plans to bring yourself to what they said opening as far as marketing goes as such?

This is Keith. Clearly, we're watching what is going on at Revel and anticipating the opening of that property. I think we're not quite sure exactly what will open in terms of the layout of the amenities that will be offered to the customers. We certainly hope that it grows the market. We expect that as a new product, there will be some additional customers enter the market and that we certainly like our ability to get a shot at those customers and have them visit to Borgata. We're not so naive as to not understand that our customers will probably go and take a look there also. We don't [indiscernible] a little bit of visitation. But we are preparing the property and we're going through a room-to-room remodeling project. We've opened a couple of additional amenities recently in terms of some additional bars and new retail outlets to position the property and make sure it is competitive, and we are the #1 property in the market today, and we look forward to remaining the #1 property even after Revel opens. So we will be prudent but aggressive in maintaining our position. Lawrence Klatzkin - Jeffries & Co.: That does -- it does – they do have to drive by you to get to their property. Do you see it actually growing the market? I mean, your opinion at the -- with the convention and everything they’re offering that it might actually see Atlantic City go up for the first time in for a while?

Yes, we do anticipate and certainly look forward to it growing the market. To what extent, I wouldn't put a number on it, but I do expect it will grow the overall market, Larry.

We have time for one more question, and that is from Dennis Farrell at Wells Fargo.

I was just wondering if you had the total amount of second lien capacity the company currently has, either at quarter end or pro forma of the IP?

Second lien capacity? I don't think we would be limited in that regard.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Hirsberg for any closing remarks.

Thanks, Amy, and thanks for everyone participating, a lot of good questions today, including David Katz's, and we appreciate them all. If you have any other questions, we're available today. Thanks.

This does conclude today's conference. Thank you for attending. You may now disconnect.