Good afternoon. Welcome to the Boyd Gaming fourth quarter 2014 earnings conference call. [Operator instructions.] At this time, I'd like to turn the conference call over to Mr. Josh Hirsberg, Senior Vice President, Chief Financial Officer. Sir, please go ahead.

Thank you, operator. Good afternoon, everyone, and welcome to our fourth quarter earnings conference call. Joining me on the call this afternoon is Keith Smith, our President and Chief Financial Officer. Our comments today will include statements relating to our estimated future results and other market, business, and property trends and information 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 investor section of our web site 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 conference call is also being webcast live on our website at boydgaming.com and will be available for replay on the Investor Relations section of our web site shortly after the completion of the call. I'd now like the turn the call over to Keith.

Thanks, Josh. Good afternoon, everyone. Thank you for joining us today for our fourth quarter earnings conference call. I’m pleased to report that we made meaningful progress throughout our operations in the fourth quarter as every segment of our business achieved EBITDA growth and margin improvement. We made the most out of our top line gains, [during] modest revenue growth into substantial EBITDA gains. The favorable comparisons created by severe winter weather last year certainly played a role in these results, but weather was not the only story. We saw both gaming and nongaming revenue growth in our Las Vegas Locals business, a market that was obviously not affected by weather last year. And, we saw signs of further stabilization in our regional markets as well, independent of the benefits of weather. While falling energy prices and continued job growth and other favorable economic trends throughout the country appear to be having a positive impact on the consumer, revenue growth remains modest. Now, let’s review segment results in a bit more detail. As I mentioned a moment ago, our Las Vegas Locals business achieved solid results. Our operational discipline allowed us to leverage a modest revenue growth into a 20% improvement in EBITDA. This was the strongest year over year growth for our Locals business since before the recession and the first time we achieved gaming revenue growth in 2014. But the strongest growth came from our hospitality business. Hotel revenues in our Las Vegas Locals business grew more than 13% in the fourth quarter, driven by higher room rates. Our food and beverage business rose as well. Through strategic reinvestments in our nongaming amenities, including hotel rooms and restaurants, we are better able to capitalize on customers’ evolving spending behaviors generating additional revenue and EBITDA growth in the Locals…

Thanks, Keith. I’ll cover a few items related to 2014, and then spend most of my time discussing the context in which we are thinking about 2015 and the related guidance we have provided. During the fourth quarter, we continued to make progress in strengthening our balance sheet. Total debt reduction for the year was nearly $200 million, achieving the goal we set for ourselves at the beginning of 2014, and over the last two years, we have reduced debt by nearly $725 million. Our quarter end debt and cash balances were provided to you in our earnings release. In terms of capital expenditures, during the quarter we invested $55 million, including $11 million at Peninsula. Separately, Borgata’s capital expenditures were $7 million during the quarter. For the year we have invested approximately $140 million at both Boyd and Peninsula and $19 million at Borgata. Beginning with the fourth quarter, as a result of MGM being re-licensed in New Jersey and the trust holding MGM’s 50% interest in Borgata being dissolved, we are accounting for our interest in Borgata using the equity method. We have provided supplemental pro forma information in the last pages of our release, presenting both GAAP and non-GAAP results for the fourth quarters and full years of 2013 and 2014, using the equity method. As a note, under the equity method, we do not include Borgata’s revenue in either the GAAP or non-GAAP format. The non-GAAP presentation includes our 50% share of Borgata’s EBITDA and two additional reporting line items below EBITDA to capture 50% of items such as depreciation, pre-opening, taxes, and interest expense. The GAAP presentation includes our 50% share of Borgata’s operating income and a single line item to report the 50% of the items below operating income. In terms of items that…

[Operator instructions.] And our first question comes from Felicia Hendricks from Barclays.

If I can ask a question on downtown Las Vegas for a moment, while visitations to Vegas set a new record last year, it looked like the ADR in downtown dropped by about 4% as a whole. I was just wondering if you could talk about the challenges driving rate in this environment. I know you just said two minutes ago that you thought EBITDA would be flat there, but what kind of challenges might you be seeing? And maybe if you could tell us how, relative to last year, things are looking in Vegas as a whole?

As we look at downtown Las Vegas and the three properties we have down there, the Cal, the Fremont, and Main Street, a large share of our business is driven out of the Hawaiian market, and is driven on packages that are pre-priced. And so the opportunity to drive rate is for a much smaller component of the rooms. And so I think we do have some ability to drive rate there, but once again, we’re more focused on kind of A) driving the Hawaiian business, which has been the foundation of our downtown assets for decades, and B) driving in visitation, either off of the streets or from other hotel guests that are staying downtown. So the real incremental profitability from increasing rates is not significant in our downtown operations, because there’s not that many cash rooms.

And I think the two points are that the Hawaiian business is a significant driver of our business in the sense that 60% to 65% of our rooms come from that segment, and that’s purely driven by how we price those packages and yield the flights that we charter coming from Hawaii. And then the biggest driver, kind of more recently, has just been the increase in visitation downtown, along the Fremont Street, and really picking up traffic as people walk more around the amenities that are offered around that experience.

And just as an indication, we were able to drive our cash rate downtown about 5% in the fourth quarter, so we are seeing increases in our cash rate, even though we don’t have a tremendous number of rooms that we sell for cash.

And then just moving to Atlantic City and regarding the tax settlement that you have there, is there a risk to that because of the cancelled bond offering that Atlantic City was supposed to have?

This is what we know at this point. We have an agreement with the city to receive $88 million as a result of the settlement of those tax years. We were expecting to get that by the end of the year. Didn’t happen. There’s provisions in the agreement that extend it, and so the agreement’s been extended. And other than that, the emergency manager’s been hired, he’s got 60 days to create a plan, he’s in the early phases of that, and I don’t think we know much else until we see what plan is put together by the emergency manager, and what happens with it. So once again, we still have our agreement in place. We’re still, at this point, fully expecting to get the $88 million, and that’s about all we know right now.

Our next question comes from Carlos Santarelli from Deutsche Bank.

Just as it pertains to your growth rates, obviously on the top line, it didn’t take much, and clearly you moved the needle significantly on the EBITDA line. I guess my question is more for the non-weather periods. When you guys think about the promotional environments in the Locals, in the Midwest and South, have you noticed, as you start to pull away from promotions, or to the extent that the market broadly starts to pull away from promotions, if you’re still able to attract that customer who maybe would have opted not to come several years ago?

Certainly, the lower end of the database, the more casual gamer, is more sensitive to those types of promotions. It’s historically been that way. It continues to be that way, where they show up more frequently when there are those promotions, and the richer the promotion, the more they show up. And in today’s environment, when there aren’t promotions, they don’t show up. For us, it’s always been a matter of making sure we can find profitable promotions. We’ve kind of given up on trying simply to drive visitation and drive revenue, and we focus more on driving profitable revenue.

And then just as you mentioned earlier, Keith, in your prepared remarks, could you maybe talk a little bit about the way you guys are thinking about growth? Then obviously you did somewhat mention acquisition as part of the strategy. When we look across kind of your regional landscape, are there certain areas of the country that make more sense, and what is your take on maybe getting bigger within the Las Vegas Locals market?

I think within the Las Vegas Locals market, we have term confidence in the market, and if there were opportunities to add assets to our portfolio here that made sense to us, we certainly would look at that. With respect to kind of looking at acquisitions outside of Las Vegas, and outside of Nevada, we’re not a big fan of having multiple assets in the same markets. We have five assets in Louisiana, they’re all in distinctly different markets that don’t compete with one another, and so when we look around, that makes the opportunities to acquire existing assets a little more limited. But there are markets that we aren’t in. We’re not in the Pennsylvania market, and there are other markets that could be attractive to us that we are not in. We do look at new opportunities. We looked at New York. We couldn’t find an opportunity there that made sense to us. We looked at Massachusetts in the early days, followed it for years, and didn’t find anything there that was attractive. So we look at as many things today as we ever have. We continue to be very prudent and have a very defined set of criteria to enter into a deal. We do have one existing deal, that’s our Wilton Rancheria deal south of Sacramento, in California, which is kind of progressing on schedule. And we’ll continue to look for others, but we don’t have anything specific right now.

Our next question comes from Harry Curtis from Nomura.

Can you give us any signs of demand growth so far in 2015 as it pertains to this elusive gas price dividend that we seem to be talking about? And particularly, your regional markets, are you seeing any evidence of that?

It’s a good question. I think it’s something that we have been struggling with for a number of months trying to understand whether there’s a direct connect, a direct drive, if you will, between the decline in gas prices, the decline in energy prices generally in the Midwest, and some improvements in revenues. Whether it’s that, whether it’s weather, whether it’s a stronger economy generally, and how you allocate all of those to allocate some amount of improvements to each of those areas, I think it’s very difficult to ascribe a specific value to any one of those. And so we haven’t found a magic formula to do that. I think that lower energy prices generally have some sort of a halo effect, and has the consumer feeling better generally, but is that causing them specifically to spend more money? It’s really difficult to tell.

My follow up is related to the stiff arm that you gave the REIT evaluation comment. And I’m just interested in maybe, on a scale of one to ten, how active is your evaluation of that possibility?

Well, I think the stiff arm I gave it was the same stiff arm I’ve given it every quarter. I’m not sure it was any worse or any better. But we spent a couple of million dollars last year evaluating the process. We said kind of last call that we would continue to evaluate it. We are continuing to evaluate that. We’re continuing to engage consultants to take a look at it and I guess I’m unwilling, at this point, to put a metric on where we’re at or the likelihood of us going forward. We’re just continuing to evaluate it. It’s a little bit like an acquisition, and I think I’ve mentioned this before. We don’t generally talk about acquisitions, specifically acquisitions in advance. And when we have something to say, we say it, and we move forward, and the same thing will happen here. Once we come to a conclusion, we’ll announce it and move forward. Until then, we’re really not going to talk much about it.

Our next question comes from Thomas Allen from Morgan Stanley.

Your margins were much higher than I think we and the Street expected. Can you just touch on kind of what drove that? Kind of single items? Was it initiatives that you put in place one, two, three quarters ago? Or was it driven by the new guys that you brought in? And then is there more room to cut costs, or is this kind of a good run rate to look at going forward?

I think it’s a little bit of all of those. I think that first of all, revenue growth, even modest revenue growth, helps improve margins tremendously, given our current cost structure, our ability to bring a large part of that to the bottom line. I think beyond that, there’s a number of initiatives we put in place earlier this year. There’s a number of new initiatives that have been put in place in the last three, four, five months. Different markets are driven by different things, so in some of our markets, we’ve been able to reduce our marketing costs, or have more effective marketing. In other markets, we’ve been able to refine labor and benefit costs more effectively. And so there’s no kind of one single thing that has allowed us to improve margins. It is somewhat market specific, or in some cases, property specific, depending on where we’re operating. We don’t have a homogenous product, and therefore how we approach a business is really not homogenous. Having said that, every time we think we’re done improving margins, we challenge our operating guys to find more, and they’re always able to come up with it. So are we done yet? I hope not, but it does get tougher and tougher to continue to find ways to improve margins. But we’ll continue to go after it.

But definitely modest revenue growth or stabilized revenue helps in that equation as well.

And then just on the Las Vegas Locals market, if you look at the market overall, it seems like we’ve now had four straight months of volume growth that’s either flat or up slightly, which is an improvement on what we were seeing before. I would assume the Las Vegas Locals market hasn’t really been impacted by weather. Do you think there’s been some kind of an inflection point there, where the market’s starting to strengthen?

You’re right, we have not had any weather impacts here in Las Vegas. When you look at gaming revenue in the Locals market for 2014, it’s flat. It was negative in the first quarter, it was negative in the second quarter, it was negative in the third quarter, grew a little bit in the fourth quarter. Is that a trend? Is it the beginning of a trend having to do with lower gas prices or energy prices? Does it have to do with other things, and the consumer feeling better? Hard to determine. I guess I’m unwilling to create a trend after two or three months of positive news. So we’re hopeful that it is the beginning of a trend. We’ll sure be paying attention to it. But I’m unwilling to call it a trend at this point.

Our next question comes from Shaun Kelley from Bank of America.

First question, corporate expense was a little bit higher than what we were thinking this quarter. Was that the REIT expenses? And then what’s a good way of thinking about corporate next year?

It wasn’t related to REIT expenses. I would say that it probably had to do with the ebb and flow with some other kind of timing related expenses. I don’t know specifically what they were. We gave guidance for 2015 corporate expense of $65 million, so that’s what I would use to base the run rate off of, because we are spending incrementally in 2015 on certain items that we didn’t spend on in 2014, primarily the ones I mentioned in the earlier remarks around IT and developing some marketing capabilities and some other capabilities within the company. So that’s about all I can tell you with the information I have in front of me.

And just touching on your prepared remarks, you commented on lower oil prices. Just wondering if you see any risk going forward, especially given your exposure to Louisiana.

As we look at our portfolio in Louisiana and the couple of properties that we operate in the South, business coming out of the Houston area is certainly driven a lot by the oil economy, but a lot of it is the service sector. There are a number of other things that come into play there. When oil prices go up, we didn’t see the business significantly increase, and when oil prices have come down, we haven’t seen it significantly decrease, even in that Houston area. And so we’re not assuming that there’s tremendous risk to the business down there if oil prices stay at this level. There’s also tremendous infrastructure improvements on the table for the Lake Charles area generally, and tens of thousands of jobs being created, and billions of dollars of investment going into infrastructure down in the southwest Louisiana area to deal with liquefied natural gas and those types of things. So it’s a very robust economy down there.

There’s something like $9 billion of investment in infrastructure going in, in the Lake Charles area for related development activity around energy. So that may be offsetting some of the impact that otherwise would have been seen.

Our next question comes from James Kayler from BoA Merrill Lynch.

Just one housekeeping question. What was the asset impairment for?

It’s just part of our annual test that we’re required to do, and what we do every year. So it’s multiple different assets across the portfolio.

And just to get back to the cost side of things, the flow through in the quarter was obviously very impressive. Revenues were up $7 million and EBITDA was up $13 million. That’s like 185% flow through. Is that being driven by reduced marketing costs, or by actual reductions in operating costs?

I think there’s a combination of things that have impacted that. With the current cost structure, we do have a high percentage of flow through to the bottom line, but in certain markets, it was reduced marketing costs, more efficient marketing costs. In some markets, it was reduced labor and benefit costs. In other markets, it was reduced general operating costs, reductions in maybe food and beverage costs on the operating side, or some improvements in other areas. But it kind of ran the gamut, and it just depended on what market we’re talking about, whether it was Delta Downs or whether it was here in the Las Vegas Locals market, or somewhere else. So it’s a combination of factors.

And Josh, you mentioned in the guidance that it assumes that balance sheet stays mostly static. With that said, you have one bond currently callable and another bond that becomes callable this year. What is your thinking around the balance sheet and potentially consolidating the financing?

Yeah, so I think the company’s objective has been pretty consistent around the two capital structures with respect to Boyd and Peninsula, and that our desire is to combine the two, and that has not changed. That is our objective. I think really, it’s simply an economic decision for us, and we’re looking for the right opportunity in terms of what interest savings we can achieve versus the cost to accomplish that financing. So we don’t have any pressure to do it before we’re ready. The two structures can kind of sit out there until the conditions are kind of right for us to execute on that. And with the passage of time, my view today at least is that things just continually get better, just given the assets are generating a lot of free cash flow, deleveraging our businesses, and to the extent that the capital markets cooperate and costs continue to come down, there’ll be a time that makes sense for us. So we want to do it, but we want to do it under the right circumstances, and we can wait if we need to.

Our next question comes from John Maxwell from Jefferies.

Just a couple of questions regarding Atlantic City. The first, I think in the prepared remarks you mentioned that you’re expecting property taxes in AC to go up next year from last year’s rate. And I was hoping you could provide some more color on that?

No, we really can’t. We basically just made an internal estimate that we’re not going to publicize. But we had, based on the settlement we reached in 2014, I guess it was, that established the $88 million, we established property tax values for 2014 and 2015. The rate was then set for 2014, and what we don’t know is the rate for 2015. So we’ve gotten some folks together in a room and tried to estimate what that would be and tried to be conservative so that we can give guidance that was fairly reasonable. But that’s about as far as we can go right now.

And then regarding the profitability of the online business, I think you mentioned that you had $2 million during the quarter, and if that’s correct, could you just give me a sense of what type of cost are in that business? Is it mostly variable? Or is that mostly fixed? Just to kind of get an idea of margin potential.

I think it’s mostly variable costs. The guys at Borgata have done a really good job of matching the level of expenses to the market size and to our position within the market, and 2014 had obviously a startup cost related to the venture that kind of skewed the results on a full year basis. Obviously, we expect 2015 to be different in that regard. And so the $2 million number kind of reflects a clean operating quarter, if you will, from the perspective of online business, but it is a very seasonal business. So for 2015, probably the online business could generate anywhere from $3 million to $5 million of EBITDA as part of the Borgata enterprise-wide EBITDA contribution to the business, but it is seasonal in regard to that market.

And our final question today comes from Chad Beynon from Macquarie.

In your prepared remarks, Josh, you went into some great detail about some pretty extensive capex plans, and I was just curious about the timing of these projects. Was that a matter of what you’re seeing in the market, feedback from customers? You mentioned trying to tap into maybe a younger group? Or was this simply the opportunity that is presented to you given your cash balance? And then secondly, how do you rate these returns on these investments versus buying something that you could kind of work into your portfolio?

There’s a lot of dimensions to the question you’re asking, so I’ll get some of it, and if I miss something, you can let me know. But first of all, the numbers I threw out there are budgets, and typically, we don’t spend all the money that we set aside for ourselves in terms of the budget, so I think you should kind of keep that in perspective as we talk about this. Secondly, I think that with respect to some of the capital, it’s kind of what we would spend in a normal course anyway. I think what we’re doing with respect to some of this incremental capital that we’re spending is really meant to kind of either upgrade maintenance capital purpose. Instead of just replacing something at a restaurant or just replacing something in a room, we’re looking at it from the perspective of kind of upgrading the offering generally. So there’s that aspect of it as well. And then the last comment that I would make just generally, around the order of magnitude, this is probably $10 million to $15 million more than we spent at Boyd and Peninsula in 2014. So it’s not that dramatic of a change from the trajectory of the prior year. I think the purpose of this capital is what we’ve really been talking about throughout 2014, and that’s really to position our amenities, not only to give our existing customers a reason to visit us more often and spend where they want to spend, which is the nongaming aspect of our business in a larger way, but also in some cases to create and introduce amenities and offerings within our portfolio that do have an aspect that we don’t offer some customers that we’re not seeing, or we’re not getting visits from, whether they be younger customers or customers that are either segments we haven’t gone after before or segments that our competitors have done a better job with. So that’s the base for which we’ve decided to kind of reinvest, which is here’s where people are spending money, this is an opportunity for us to kind of capture their wallet and maybe expand our appeal beyond just our existing customer base to a broader customer segment. So I hope that answers all your questions in there.

And then just kind of how you see returns on this. Again, you kind of talked about a $10 million to $15 million delta, so it’s a small amount versus buying something, but maybe just kind of how you view returns on future investments, including buying other assets?

Obviously, the scale on those two investment alternatives is very different. So we wouldn’t view these expenditures on these incremental capital initiatives inhibiting or discouraging or shifting our focus from opportunities to potentially grow strategically. But I would say that these returns are ones that I would say are kind of 10% to 15% cash on cash returns. Some of them will be to, again, get our existing customers to spend a little bit more, spend a little bit more time with us, some to spend more on food and beverage than they have in the past in terms of how we price that product, and then other aspects of it will be driven by getting that new customer to visit.

And then my follow up, since we didn’t touch on the IP, we touched on a few other properties, Gulf Coast was a market where we started to see a nice [skimming] revenue growth turn in the back half, and I was wondering if you could provide some color on anything that’s going on in that market and kind of what you’re seeing at your property. It looks like that market recovered before the rest of the regional gamers, kind of in October, November, December.

I don’t know that I have anything in particular to add or any particular color. I think we’re participating as the market ebbs and flows. I think we’re participating with it. It has tended to be a little bit more promotional at times, less promotional at other times. But really, I guess I don’t have a whole lot to add. It has come back somewhat. In November, I think the market itself was up a little bit. Looks like 3%, and we were up a little less than 3%, so we’re kind of following along with the rest of the market.

And ladies and gentlemen, at this time, I would like to turn the conference call back over for any closing remarks.

Thank you for everyone joining the call today. If you have any follow up questions, feel free to reach out to the company, and we’ll be available to try to address those. Thank you.