Boyd Gaming Corporation (BYD) Q3 2012 Earnings Report, Transcript and Summary

Good afternoon, and good morning. Welcome to the Boyd Gaming Third Quarter 2012 Earnings Conference Call. [Operator Instructions] Please also note that today's event is being recorded. Now I'd like to turn the conference call over to your moderator, Mr. Josh Hirsberg, Senior Vice President, Chief Financial Officer. Sir, please go ahead.

Thank you, Jamie. 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. Our comments today will include statements relating to our estimated future results 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 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 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'll 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. We do not provide a reconciliation of forward-looking non-GAAP financial measures due to our inability to project special charges and certain expenses. Finally, as a reminder, today's call is being webcast live on our website, at boydgaming.com, and will be available for replay on the Investor Relations section of our website shortly after the completion of this call. I'd now like to turn the call over to Keith Smith, our President and CEO. Keith?

Thanks, Josh, and good morning, everyone. Thank you for joining us for our third quarter earnings call. Before I begin my comments on our third quarter results, I want to take a moment to touch on the effects of the storm earlier this week. Boyd Gaming has thousands of team members who live and work in the New Jersey area. Their safety and well-being is our primary concern and our thoughts are with them and their families. A number of our board -- team members stayed on-site during the storm to monitor the situation and keep the building secure, and I am especially grateful for their efforts. We also know that many of you listening to this call have personally been impacted by Sandy. Given everything you're dealing with, we appreciate the time you've taken to join us this morning. Regarding the Borgata itself, it incurred only minor damage as a result of the storm, and we are prepared to reopen the property as soon as we receive approval to do so from the New Jersey regulators. We don't know how long that process will take, but we will keep you posted. Now let's look at our third quarter results. Once again, strength was evident in our Midwest and South region, which posted its eighth consecutive quarter of EBITDA growth. This is currently the healthiest region of the domestic gaming industry and the most robust part of our business. While we saw solid results across the region, we were especially pleased by the continued strong performance of the IP, which delivered its largest year-over-year EBITDA improvement since we acquired it a year ago. The IP's performance demonstrates our ability to successfully integrate acquisitions and to unlock value from them. In the past, our Midwest and South region has accounted for about 1/3 of our total EBITDA. But this region is emerging as the most substantial contributor to our business. When you consider the solid growth at our properties in this region over the last several years, our purchase of the IP and our pending acquisition of Peninsula Gaming, more than 2/3 of our total, wholly-owned EBITDA will be generated by our properties in the Midwest and South. Upon completion of the Peninsula transaction, we will have added 6 properties in just over a year, generating approximately $250 million in additional EBITDA annually. So this is an extraordinary pace of growth by any measure and it reflects a deliberate, strategic decision to acquire assets in the geographic area of our business that is delivering the strongest performance. Moving to Atlantic City. The regional environment remains competitive. Weakness was concentrated in our Table Games business, where both volume and hold fell year-over-year. This accounted for almost the entire EBITDA shortfall. Still, there were encouraging signs as our Slot and Non-gaming business showed growth. Borgata remains the undisputed market leader, and we expect it will be Atlantic City's premier destination resort for years to come. In Downtown Las Vegas, we returned to growth and continue to enjoy a commanding share of the market. As we discussed on our last call, we resumed strategic marketing programs to drive business from our Hawaiian guests and saw immediate benefits. Finally, the Las Vegas Locals business remains extremely competitive. As we indicated in our last call, business began to slow in May and June, and that trend continued into the third quarter due primarily to softness in business from casual players. We're continuing to enhance and refine our marketing strategies in an effort to attract a greater share of this market. Paul will discuss these efforts more fully in a few minutes. Looking beyond the current quarter, we have a number of key strategic initiatives that give us confidence in our prospects for the long-term. First is the pending acquisition of Peninsula. We've already secured approvals from Iowa and Louisiana. Kansas regulators are scheduled to consider [ph] the transaction the week of November 12. And, subject to the receipt of final regulatory approvals, we expect to complete this transaction in the fourth quarter. The Peninsula acquisition will add 5 new properties to Boyd Gaming, bringing our portfolio to 22 properties nationwide and gives us our first locations in Iowa and Kansas. As you know, Peninsula has announced the third quarter results. Their total net revenues increased 55% to $130 million, while consolidated adjusted EBITDA increased 86% to $47 million. These results were in line with our expectations. As we complete this transformative acquisition, our top priority will be to seamlessly integrate these new properties into our business and remain diligent in controlling costs. We expect this transaction to be deleveraging and accretive to earnings within the first year. Next, as discussed in our last call, we have a number of longer-term growth opportunities we're working on. First is our agreement to develop a casino entertainment property at the site of the BB&T Center in Sunrise, Florida should legislation be enacted to make it feasible. Second is our partnership with the Wilton Rancheria Tribe in California, where we are moving ahead with plans to develop a casino entertainment facility. And finally, we are in a strong position to compete in Internet gaming, thanks to our partnership with bwin.party. While we continue to believe that a federal approach is the best solution, we are prepared to compete on the state-by-state basis. We received an interactive gaming license from Nevada last month, and we will continue to prepare for opportunities to offer intrastate online gaming elsewhere in the country. In addition to these growth opportunities, we've also begun to actively seek potential buyers for our Dania Jai Alai property. JPMorgan and Union Gaming have been retained to assist us in this process. To summarize, we have a number of compelling opportunities to enhance shareholder value in both the short-term and long-term. And we will continue our focus on paying down debt and strengthening our balance sheet. Thank you for your time today. I'd like to now turn the call over to Paul, who will review our operations. Paul?

Thanks, Keith. Hello, everybody. Mixed trends we saw in first and the second quarter continued into the third. While we saw declines in our Las Vegas Locals business and at the Borgata, results are more encouraging in Downtown Las Vegas and the Midwest and South. A couple of unusual items had a significant impact on comparisons for the quarter. First, we estimate that business disruptions in late August and early September from Hurricane Isaac reduced this year's EBITDA by about $3 million. And second, a property tax adjustment had a positive impact of $3.3 million in the third quarter of last year. Taken together, these 2 issues accounted for a $6 million swing in EBITDA year-over-year. If you factor out these unusual items, EBITDA would have been up more than 6% in our wholly-owned business in the third quarter. Now let's start with a review of the Las Vegas Locals region. On our last call, we reported that results slowed significantly in May and June. That trend appears to have bottomed out in July as shortfalls in August and September became less severe. We're encouraged that our best customers continue to respond favorably to our industry-leading technological innovations, including B Connected Online, B Connected Mobile and B Connected Social. These products received national and international recognition for their innovation and ease-of-use. In fact, B Connected Online received a gold award for Best Hospitality and Leisure website at this year's International Business Awards, while B Connected Mobile took silver in the Travel App category, finishing only behind AT&T. As Keith indicated, we are continuing our efforts to grow business from casual players. Penny denomination games are popular with these guests, and are one of the few segments of the Locals market to show growth in recent months. So we've recently taken steps to ensure we are well-positioned in this area and are nearing completion of the rollout of some 1,500 new penny themes across our Southern Nevada properties. Starting today, we've begun to aggressively promote these new games. While we believe this initiative will be attractive to slot players, video poker will remain an essential part of our business, especially among our core players. We will continue to offer our guests what we believe is the most competitive video poker product in Las Vegas. Now let's move to Downtown Las Vegas. As expected, we saw growth resume in our Downtown business segment in the third quarter, and we anticipate this positive trend will continue in the fourth. As we discussed on our last call, in the second quarter we resumed certain marketing activities directed at our Hawaiian customer base. We saw the positive results of those programs in the third quarter as they drove growth in our Downtown segment. We also benefited from higher revenues at our Hawaiian charter service. As you'll recall, during the second quarter, we reduced our Hawaii flight schedule from 5 flights a week to 4. Our planes are now running almost full, and we have grown revenue per seat by about 12% without reducing customer traffic from Hawaii. We're also encouraged by continued renaissance of Downtown Las Vegas. What's good for Downtown is good for Boyd Gaming, where we have 20% of the rooms and control more than 30% of the gaming market. Now let's move to the Midwest and South, which continues to be the strongest segment of our business. There were encouraging developments throughout the region. Delta Downs set an all-time third quarter EBITDA record. Treasure Chest grew market share during the quarter by nearly 1 full percentage point. And Blue Chip has been able to consistently grow its share during the past year. The star of the quarter was the IP, which generated 35% EBITDA growth despite the impact of hurricane Isaac. This is our strongest quarterly performance at the IP since we acquired the property last October. During the quarter, the IP recorded a 490 basis-point improvement in EBITDA margins. We are managing that property much more efficiently without compromising the great customer service from which the IP is known. The IP also benefited from the full integration of B Connected. This program allows us to market the IP more strategically and efficiently and will help drive cross-property visitation. As Keith noted earlier, we are on the verge of completing our next acquisition. As we prepare to close on this transaction, we remain encouraged by Peninsula's continued strong performance. And their flagship property, the Kansas Star, is expanding. A new 150-room hotel opened earlier this week, and the permanent casino will open in mid-December, a month ahead of schedule. This will add more than 400 slot machines and 13 table games, bringing the casino's total to more than 1,800 slots and 45 tables. In addition, the facility will feature several new restaurants, including a buffet steakhouse and sports bar. Finally, let's touch briefly on Borgata. The property reported significant declines in both revenue and EBITDA during the quarter. This was almost entirely due to declines in our table games. Total [ph] decline by 215 basis points year-over-year, accounting for about 2/3 of the property's revenue shortfall. And 11% reduction in table game volume was responsible for the remainder of the revenue decline. In spite of these challenges, we are encouraged by strength elsewhere in the business. Slot revenue grew slightly year-over-year. Non-gaming revenue was up as well due to the strength in our entertainment and hotel business. In fact, hotel revenues were up 3% on slightly higher occupancy. Borgata remains a dominant property in Atlantic City. In the third quarter, we controlled 18% of the Atlantic City slot market, 24% of the table game business and more than half of the market's poker business. And we saw record attendance at this year's Borgata Poker Open. During the quarter, our gross gaming revenue exceeded that of our closest competitor by $53 million. And in the 12-month period ended June 30, roughly half of the total EBITDA generated in Atlantic City was at the Borgata. The fact remains the Borgata is in the strongest position of any operator in Atlantic City, and we believe it will maintain its position as the leading resort in the market for years to come. So to recap. In the Locals region, business from our core customers remained solid, and we are focusing on generating profitable revenue growth from casual players. In Atlantic City, Borgata's contending with significantly heightened competition, especially in the table game segment. We remain encouraged by strength elsewhere in the business, and we are confident Borgata will maintain its position as the leading resort in the market for years to come. In Downtown Las Vegas, changes to our marketing programs and our charter operations paid off in the third quarter, and we expect growth to continue in the fourth. And we remain quite encouraged by the continued strength of our Midwest and South business as we saw solid performance throughout the region. We're especially pleased by the results of the IP, and we look forward to adding the Peninsula properties to our company later this quarter. With the addition of these properties, we expect that our properties in the Midwest and South will account for more than 2/3 of our wholly-owned EBITDA. Thank you for your time today, and now let's turn it over to Josh.

Thanks, Paul. Starting briefly with the Peninsula acquisition. In August, we completed all of the necessary financing to consummate this transaction. We raised an $825 million term loan, a $50 million revolving credit facility and $350 million in senior notes. The interest expense associated with part of this financing is included in our interest expense, and has been removed from the adjusted earnings per share calculation. This adjustment is shown in the table in our earnings release and represents $3.6 million. Our total debt balance was unchanged from the second quarter at approximately $2.8 billion. This balance includes our borrowing of $200 million for the Peninsula equity contribution. Of this debt balance, $1.4 billion was outstanding under our credit facility, providing $300 million of incremental availability. Our cash balance at the end of the quarter, including the $200 million Peninsula equity contribution, which is currently held in cash pending the closing of the acquisition, was $322 million. From a financial covenant perspective, as calculated under the terms of our credit agreement, secured leverage was 3.84x compared to a covenant of 4.25x, and total leverage was 7.35x versus a covenant of 7.5x. Borgata's debt balance was $805 million at quarter's end, of which $14 million was outstanding under their $75 million credit facility. Their cash balance at the end of the quarter was $32 million. Moving to the income statement. Corporate expense excluding share based compensation expense was $9.1 million in the quarter compared to $9.6 million last year in the quarter. Our depreciation expense, including $4.7 million associated with IP, was approximately $34 million compared to $31 million in last year's quarter, while Borgata's depreciation expense was $16 million compared to $15 million last year. Preopening expense in the quarter was essentially even with prior year at $4.3 million. Excluding the impact of Las Vegas energy and the interest I mentioned earlier associated with the Peninsula financing, our interest expense was $47 million, or $13 million higher than last year as a result of new financings completed at higher rates and larger debt balances associated with the Peninsula equity contribution. Borgata's interest expense was $21 million, about even with prior year. Our capital expenditures in the quarter were approximately $15 million, while at Borgata, they were $4 million. In terms of guidance, this quarter we will only focus on our wholly-owned business as a result of uncertainties at Borgata related to this week's storm. We expect wholly-owned EBITDA, after the deduction for corporate expense, to be in the range of $70 million to $75 million. Operator, that concludes our remarks, and we're now ready for any questions from participants on the call.

[Operator Instructions] And our first question comes from Shaun Kelley from Bank of America.

Just wanted to ask first of all about kind of the core operations in Atlantic City. Obviously, I think versus your -- the guidance that you provided, which was $47 million to $49 million for the third quarter, obviously $33 million is a significant shortfall. So just wondering what was different, if you could walk us through substantially what was different than your expectations outside of the table games hold? I mean clearly, Revel's having an impact there. And I guess the question is, what are you guys kind of in process of doing to begin to mitigate that?

It's Keith. Let me see if I can't start to answer that question on Atlantic City. As you said, and as we indicated in our comments that almost the entire shortfall in EBITDA, when you look year-over-year, was related to the table games area, both between hold and volume, most of it being hold, but some of it being volume. The volume that we saw move away from us was generally at the lower end. Customers going to trial Revel, not unexpected. And then frankly there was some high-end play that wasn't in the market this year. We had some -- Borgata has a significant amount of high-end play. It was in the market last year, and just wasn't in the market this year. So we missed out on some of that. But we're quite pleased with our slot revenue, and our non-gaming business, as once again they continue to grow, and so those are positive signs. Revel spent a lot of marketing dollars they were very aggressive in buying business and trying to gain trial and gain some traction. We increased our promotional dollars slightly. People get some of our slot promotional credits, they're up slightly year-over-year, but not substantially and not compared to what the rest of the market's doing. We continue to focus on our core customers in our database to make sure they continue visit us. We continue to look at the cost structure of that property and focus on ways we can manage that as efficiently as possible, kind of given where the business is today. So I think we have a very holistic approach, and the property continues to perform very well. I wouldn't read the significant decline in table games this quarter as kind of the new norm. Once again, it was mostly related to hold. And if you look at the first 6 months of the year, hold was fairly normal at the Borgata. So Q3 hold clearly was an anomaly.

And then, Keith, I know it's sensitive right now just given that a lot of the focus is on the safety of the employees and the operations around the casino. But could you just give us your best sense of kind of how we should think about the 4Q impact at the Borgata in terms of just maybe what some scenarios would be around when the property can reopen? The deductible or either the kind of the numbers on the insurance side and just kind of how we should think about it?

Sure. I'll tell you as much as I can or as much as I know. Once again, the property received pretty minor damage, some missing windows, no real water in the building. Borgata's, from an elevation standpoint, built up a little higher, and so the damage was relatively minor. We kept power the entire time. And so physically the building is able to reopen, from a physical standpoint. The issue has to do with the city and the state. There's a travel ban in Atlantic City right now. A lot of it has to do with the fact that there are no streetlights or traffic lights that are working right now. And as I understand it, kind of until the ban is lifted, and until traffic lights and those types of services can be restored, we probably can't reopen. We have no estimate as to what that will be or when that will be. And so, it's tough to estimate kind of what that impact will be, which is why we didn't provide guidance on the Borgata side on this call where we normally would. With respect to insurance, once again I think you want to think of insurance in 2 buckets. One's property damage and the other is business interruption. On the property damage side, once again relatively minor damage, probably will not meet the deductible because it wasn't significant. On the business interruption side, we clearly have coverage. It's a matter of waiting to assess what the final damage is, if you will, given how long we'll be closed and how long will it take for business to get back to normal levels. So it's a little tough to anticipate the size of that claim and what it may be.

Appreciate all that color. And like I said, I think the most important thing is that people are safe. So last question for me would just be on the central region. Clearly, that's the highlight and where you guys are focused more. But if we strip out the IP, it seems to us that same-store revenues were down a notch, and EBITDA was actually down possibly double-digit. And I was aware from the comments that there may have been a property tax adjustment. I'm not sure if that changed some of the difference year-on-year, but that should have probably been the guidance. Just wondering kind of what are you guys are seeing on the core business across those properties excluding the IP? Is there any heightened competition or anything that be might be hurting the margins there?

I think -- it's Paul, Shaun. There's a couple of questions there. I think your point about the insurance -- the property tax credit, it happened the same quarter last year, is completely fair, and we obviously knew about that when we were providing guidance in the earlier quarter. With that said, we obviously didn't know Hurricane Isaac was going to hit and hadn't contemplated that, and that was $3 million of the $6 million that kind of we identified that wasn't part of the thought process when we provided guidance before. Still, a little bit below the low end of the range of $77 million, but not too far off at around $74 million. As it relates to the business more broadly and generally, it's pretty obviously diversified groups. I think when you look at a number of the properties, I think I highlighted 3 or 4 of them in my comments, were doing quite well. I mean unfortunately the hurricane hit in the properties and the areas of the country where we are doing the best. Others are generally holding their own. I mean we know that in certain markets, like Tunica, Mississippi and Shreveport, Louisiana, there is a significant amount of competition both within the specific geographic market as well as within neighboring states. But I've got to tell you, I feel awfully good as to where we perform in those markets relative to our competitors that post those results. And you can see it in the revenue numbers that are published, especially in Louisiana, as it relates to Sam's Town, Shreveport.

Our next question comes from Felicia Hendrix from Barclays.

Paul, wanted to thank you for the color regarding the cadence of the business trends in the Las Vegas Locals market. However, the 5% year-over-year decline was a lot more than what we were looking for. You did say it bottomed in July. So I'm wondering if your guidance assumes more of maybe a low single-digit decline in revenues in the fourth quarter?

Well, I think, yes, I did say that. That it bottomed in July. I think we are cautiously optimistic about where the Las Vegas market is going, whether it's in our business, off the strip or, at some of our competitors have announced their strip results. It's tough out here in the West and the expectation on growth in the market overall, I think, has been practically muted by what we've been going through over the last few quarters. If you go back and look, we saw some very good signs in the first quarter. But those trends certainly were not sustained in the second or the third. With that said, it's an important part of our business. A lot of our customers from throughout the country come out here and we continue to try to expand the impact of B Connected on our properties feeding them, but the challenge remains. And from a practical standpoint, we're very cautious about the direction that we give all of you on all the ultimate kind of long-term recovery of this market.

Wondering if you could further discuss your decision to target the low-denomination slot player? And if you could just elaborate more on what you meant when you said you were rolling out 1,500 new penny themes?

Well, what I said is what I meant. We are going to and have over the last couple of weeks greatly expanded our penny denomination product at all of our properties in Southern Nevada, all our major properties in Southern Nevada, including the 4 Las Vegas Locals as well as 3 in Downtown. As it relates to where the results are, we obviously, as a company, can't impact the direction of growth or decline in the Las Vegas market. It's much, much bigger than we are. That's just been the facts. At the same time, we know where the strengths in the market are. And I think if you look at where there is growth in this market, it is in the penny denomination area. It has been for the last couple of quarters. And in fact, the manufacturers have focused many of their new and best and, frankly, games that are most entertaining in the penny denomination area. Some of our competitors jumped on that earlier, because frankly they had been out of the capital spending business for a few years. And I think that certainly probably helped their business overall. And it was just time for us, albeit capital dollars are precious, to have a heightened focus on what is really the strongest individual segment, which accounts for an awful lot of coin in and an awful lot of gaming revenue and to expand and in fact promote our properties in a very direct way around the penny denomination gains. So if you pick up a copy of the Review-Journal this morning, you'll see a full-page ad about our Penny Lane promotion focused on our Las Vegas Locals business with amongst those 4 properties over 1,000 new game themes out right now. And you'll see an awful lot of that over the course of the month of November.

That's really helpful and then, actually, a good segue on my last question. We're talking about promotion and you said you would aggressively promote. I'm assuming that you continue to focus on promoting profitably?

Well, I think that goes without saying. We've been, I think, conservative in our approach to promotion and spending dollars. And I think we also have to be practical about what is going on in the market. And to say that promotion in Las Vegas is heightened is a fact. Everybody is competing for -- in a market that has had very, very low growth levels. But we're here to make money at what we do, but there are different avenues we can take. And again, you'll be seeing a lot of those over the course of the month of November. It might be a little different for Boyd Gaming, but we're here to make a difference and make a change and attack the market that's there.

Our next question comes from Steven Kent from Goldman Sachs.

Could you just talk a little bit about the IP Casino? It looks like the EBITDA margins are decelerating and continue to decelerate. I know some of that might be Hurricane Isaac in the third quarter. But even in the first to second, second to third, it's starting to move the wrong direction. I just wanted to understand what's going on there and how that reverses in this fourth quarter, and maybe into the first and second next year?

Well, I mean there certainly is seasonality in that market overall. So I guess if you look at it sequentially, which I think is what you're doing, you could say there is some deceleration quarter-over-quarter in overall margin. Now in fairness, the Biloxi market is a very, very competitive market, and we went into that market with our eyes very much wide open. Now also in fairness, we lost a few days of closure at IP in the third quarter, but practically speaking it really impacted us for at least 3 weekends. So that also has an impact on margins as revenues just didn't come back the next day when we opened our doors. With that said, the EBITDA at IP is up rather dramatically on a year-over-year basis on lower revenue which was very much part of spending dollars in the right place in a very competitive market. And I think everybody here, and certainly it goes out to everybody at IP, has done I think a really a phenomenal job in immediately meeting our expectations of what we could do there from a profitability standpoint. And for that matter, I think delivering on the promise that we told you, with some speculation from the street that we wouldn't be able to deliver on a very, very good acquisition that immediately was accretive to the stock price.

If you can still hear me, just one other question. Just CapEx and broadly in any of the markets, and will there be incremental? I think I saw an article on Echelon that you may need to spend some money to spruce that up a little bit.

This is Keith. Regarding CapEx, we're kind of spending at what is, in today's world, a fairly normal level, wouldn't expect anything -- any abnormal capital spending. We have announced or did announce that we'll be wrapping the Echelon property and sprucing up some landscaping. It's to the tune of a couple of million dollars, so it's nothing significant. That work will take place first part of the year, first couple of months of the year. But when you think about CapEx, nothing significant.

Our next question comes from Kevin Coyne from Goldman Sachs.

Just one for Josh. I note that you mentioned that total leverage is at 7 and reduced [ph] about 3 5 and it looks like the covenant's stepping down in the fourth quarter. Are you going to have to go back to the banks to get some relief there? And if not, is there another potential cure there?

We've actually been talking to our largest lenders for really since the beginning of the year. We obviously were aware of the step-downs that are occurring in the fourth quarter, as well as starting to occur a little bit more aggressively in next year as well and beyond. I would say those conversations and those lenders have been very supportive of us, in those -- the context of that conversation as well as just more broadly around the direction of the company. So, been in conversations with those guys. They're supportive of what we want to try to do with respect to the amendment and so we'll roll that out at some point in the fourth quarter.

Great. And just turning to Borgata. Obviously, with the poor hold numbers, I was just wondering if you can give us some color on is it just a couple of players that are really impacting hold? Or is it more broad-based and a dozen big players having an impact? And is it the same players that are impacting month-to-month? Or is it different players?

This is Keith. It's kind of -- the hold at Borgata really is related to a handful of players that played lucky this quarter. Once again, if you look at the first 6 months of the year, the Borgata had a fairly normal hold percentage. And this quarter was just some handful of players getting the best or playing luckier than the house, if you will. So nothing that we would expect to continue into the future.

Okay. And then just one final one on Borgata. The tunnel from Atlantic City Expressway over to the property, I know we had some problems with tunnels up in the Manhattan area. Was there any flooding or blockage of that tunnel?

I cannot specifically speak to that issue whether or not there was water in that tunnel or whether there was any other damage to the tunnel. I don't have any specific information regarding that, Kevin, sorry.

Our next question comes from Dennis Farrell from Wells Fargo.

A couple questions regarding the Borgata. One, could you actually provide what the deductible is for business interruption insurance? And then also, is it fair to say that the table hold impact was about $11 million for the quarter?

Dennis, this is Keith. I'll let Josh talk about the insurance matter. But yes, you're right. With respect to the table hold number. That's correct, about $11 million.

And Dennis, our business interruption deductible is $1 million.

And then in regards to moving away from Borgata, just towards the Peninsula acquisition. Obviously, over time, that could actually be almost double the amount of EBITDA you're doing in the Las Vegas Locals market. And so, just since it's such a big part of your business going forward, what do you see as a synergy amount or a targeted synergy for that acquisition?

Dennis, this is Keith again. As we've talked about this acquisition, I think we've talked about the fact it is somewhat different than the IP acquisition, that this is a very well-run company with very high margins. And the first thing we look to do is assimilate it seamlessly into the company and to continue to run it as profitably at it has been run in the past. There clearly are synergies in the form of purchasing, where we maybe have a little more purchasing power because we're a larger company and a few other things. But we have not talked about or floated a number like we did with the IP with respect to synergies and we won't be doing that. Once again, this is a very well-run company, well-run organization. We just want to continue to maintain it at these high levels and then improve it where we can.

Okay. And then in regards to the locals market, I mean I've noticed that some other operators have announced FTE reductions on the strip. And I was just wondering, is that a continued concern for that business segment? And do you see that kind of persisting within the next 6 to 9 months?

It's Paul. On the FTE side, we obviously took measures, really, at this point years ago, in adjusting FTEs for the business levels. And at this point in time, we really don't see any further opportunity of any significance to do that. It is important from a differentiating factor to make sure we have and can deliver on the best customer service possible in this market. We believe that's one of the key reasons why people come to our properties and I think is a key driver in why, on the higher-end of our database, we have seen continued growth and very positive growth there. The whole direction of our business in the Locals again is to focus on the casual player, who have a lot of different kind of issues that they're dealing with, and -- but we know they're out there. They're a very large part of the market overall. And we want to take care of the folks that are loyal to our brands and obviously make sure we have the right product mix that goes along with the service quality that we have to appeal to that broader base as well.

Okay. I was actually referring to, like, the larger-strip operators cutting back just in terms of unemployment in the city itself. Is that -- have you seen a change in -- I mean, unemployment seems to have bottomed and then it's kind of picking back up again, I'm wondering if that's an issue which is causing some of the revenue declines?

I think, frankly, as we look at jobs in the market, we really haven't seen that in any of the statistical data and really don't necessarily find, at least right now, though it's hard to make a one-for-one correlation, that, that impact was there. So we'll see how it plays out over the rest of the quarter.

Our next question comes from Susan Berliner with JPMorgan. Susan Berliner - JP Morgan Chase & Co, Research Division: Just a couple of questions for you guys again going back to AC. I guess can you talk about what's going on with the competition? Was the tables mostly from Revel? Or are you seeing Harrah's or Golden Nugget or Pennsylvania casinos ramping up as well?

Susan, this is Keith. With respect to kind of table games activity and the promotional environment around that, certainly Revel was extremely aggressive in the quarter. Once again they're to trying to gain traction, we saw some of the low-end, lower end of our customer database go and visit and trial that as they took advantage of some offers. Pennsylvania continues to get more aggressive. They certainly haven't stopped. And once again Golden Nugget's remodel is new to the market. When you look year-over-year, and they've done a good job. We've seen some customers over there. So I think it's probably a little bit of everything, but we focus more on Revel, a little bit on Nugget and Pennsylvania. I don't necessarily see the other competitors doing anything unusual with respect to attracting table game activity. Susan Berliner - JP Morgan Chase & Co, Research Division: And in terms of, I guess, promotions going forward, should we assume that it's going to stay at this elevated level for some time?

I wish I knew the answer to that. We're certainly being cautious and making sure that we understand what's going on in the market, kind of on a day-to-day, week-to-week basis. And we are speaking to our customers as frequently as we can and putting the right offers in front of them. I imagine, if I had to make a guess, that it will continue to be fairly promotionally aggressive in the Atlantic City market. Susan Berliner - JP Morgan Chase & Co, Research Division: And my last question just, I guess, with regards to AC. Is there any, I guess, silver lining to it with the state declared an emergency, more workers having to come in. You guys obviously have experience in the South. How should we think about that going forward?

Susan, I really not sure. I think we're in such in a unique situation and it's so early here that kind of what the overall impact to Atlantic City is. And if there is, ultimately, some uptick in the business as a result of this, is really hard to tell. I think we're in kind of uncharted territory and it's so early that probably best served not to go down that path.

Our next question comes from Joseph Greff from JPMorgan. Joseph Greff - JP Morgan Chase & Co, Research Division: Paul, you mentioned earlier that the Las Vegas Locals market bottomed in July. I was just hoping if you could just talk about, did you see promotions start to ease or abate in July? Or was that different than sort of what you're talking about from a volume or revenue perspective?

Joe, it's Paul. I was really more specifically referring to the revenue side. I wouldn't say that promotions have abated. I think they're at very much kind of the same state they were in through the summer. What we have seen is spend per visitor in the Las Vegas Locals segment flatten out. And that was a positive sign, because we were seeing directionally that in a decline, albeit a modest decline, but in a decline. And so we've seen that flatten out. And the focus on everything we're doing on the penny side in the Locals business is not really specifically targeted necessarily at spend per customer but also at frequency. And I think that's kind of a key component where we have opportunities. Joseph Greff - JP Morgan Chase & Co, Research Division: And I'm sorry if you mentioned this and I missed it, but going back to Borgata, how much is it costing you a day in operating expenses while it's closed?

We don't have that number right now, Joe. It's just too early.

Our next question comes from John Maxwell from Jefferies. John Maxwell - Jefferies & Company, Inc., Research Division: Just a couple of final things for me. Just the way I understand, the IP flow-through you had this quarter, was '11 affected by any weather or was this purely the pickup, the flow-through you saw was due to the operating efficiencies and the plans you put in place when you acquired the property?

No, I think if your reference to 11 is -- lapped the prior year. No, I don't think there was any weather impact that I can recall in the prior-year period. The EBITDA margin improvements and, ultimately, the flow-through is really sort of more of the same that we've been delivering on the last couple of quarters on the operating efficiency side and the synergy side that we had identified when we purchased the property and have now really fully implemented. So this was really the fourth quarter, if you will, of ownership. We acquired the property on October 4 of 2011. So not surprisingly, we're fully implemented, and we can see those type of cost savings over the prior period. John Maxwell - Jefferies & Company, Inc., Research Division: And then Paul, just following up a little bit more on operations overall. I would imagine you've spent a lot more time with the Peninsula guys now. Is there anything that you've been able to look at what they're doing that you guys want to be able to implement going forward? Or just wondering if there's anything we can see going forward as -- once this transaction closes on the Boyd facilities?

I mean the businesses are obviously fairly similar to what we have throughout the Midwest and South. I would say, obviously, the benefit for them and, frankly, for us is for the most part, they operate in markets where they are either really kind of the only player or one of only a very few. And that has led to obviously some very positive results that they've been able to post over the recent -- for the recent past. I think there are opportunities going both ways for sharing of different ideas, whether, to Keith's point, on the purchasing side. I mean they're just going to clearly benefit from being part of a bigger company, even buying the same products. I mean that's just how it kind of works. I think on the marketing side, they do some things that are very, very interesting that will be opportunities for us. And I think likewise, there are things that we do from a marketing perspective, especially with the Las Vegas base that will very much target and enhance what they do for their existing customer base. So I think there are some neat things there. We will be cautious in changing the business. Because we don't want to certainly disrupt a good thing, at the same time, over the course of the next 12 months or so, I think there's kind of great opportunities on both sides to share best practices. John Maxwell - Jefferies & Company, Inc., Research Division: And then just finally for me, and I know -- again, it's early and Keith, I appreciate everything on Borgata, but I was down in the South Jersey area yesterday, not as far down as Atlantic City, but given all the disruptions down there, are you getting the sense from management there that you're going to have any staffing issues once you do reopen?

We have had no such indication, no such reports. But once again, it's very early. Our team members are spread out throughout the South Jersey area or maybe even points farther away. But it depends on the disruption that they may be going through right now, the recovery efforts that they may be going through. And so it's just very early to tell. But we have no reports at this point.

Our next question comes from Brian Egger from Topeka Capital Markets.

Just wondered if you have any thoughts about the lawsuit between the sports leagues in the state of New Jersey with respect to sports wagering? And also if you have any more general thoughts longer-term about the importance of that type of product offering to the Borgata?

Brian, this is Keith. We really don't have probably any comments with respect to the ongoing litigation there and what may ultimately happen. We certainly run a very good and productive and profitable sports business here in Nevada, something we've done for years, it's a very complicated business, but we do a very good job at running it, and making a few dollars on it here. And if it were to be offered in Atlantic City or in New Jersey generally, if it were to be deemed legal and acceptable, we'd certainly want to take advantage of it in Atlantic City. But right now we're just kind of on the sidelines, waiting to see what happens.

My question is more in the direction of -- if it's important to the -- it kind of is a traffic driver or something that might be helpful to the market given some of the challenges there. But I -- comments are understood.

This comes from Kevin Coyne from Goldman Sachs.

Just one question on the business interruption insurance. I know there's the $1 million deductible, but can you give us any sense? Do they look back just 1 year or the average of 3 years in terms of trying to figure out how much the claim could be? And also, if your doors are "open" and yet people still cannot either get to the property or just choose to not come the property, can you still put a claim in for below-average performance? Or do your doors have to be shut to put that claim in?

Let me take a shot at that just more from an operation standpoint, and then Josh can address it from kind of a straight insurance perspective. We have been through, unfortunately, a lot of these business interruption claims. Most of them have been as a result of hurricanes in the South as opposed to hurricanes in the North. But it is a negotiation, it's really what it comes down to. And the impact of business interruption on the business is not necessarily just specific to the time that you are closed. It also includes the time, frankly, leading up to the storm where people obviously don't want to be out and the time after the storm. And there's a lot of different data points that everybody considers on both sides as it relates to what is the economic impact and, frankly, what can you do to abate that economic impact. But overall, it is just not straightforward. So you shouldn't simply think about Borgata's EBITDA was x, and so that will be covered. It is a long negotiation on lots and lots of different points that, frankly, usually takes an extended period of time to ultimately resolve.

Yes, Kevin. The only thing I would say is I think Paul just answered your question.

And at this time, I'm showing no further questions. I'd like to turn the call back over to management for any closing remarks.

Thanks again for the joining the call today. We appreciate it. And should you have any other further questions, please feel free to reach out to the company directly. Thanks.

And with that, we'll conclude today's conference call. We do thank you for attending. You may now disconnect your telephone lines.