Boyd Gaming Corporation (BYD) Q2 2018 Earnings Report, Transcript and Summary

Good afternoon and welcome to the Boyd Gaming Second Quarter 2018 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I'd now like to turn the conference over to Josh Hirsberg, Executive Vice President and Chief Financial Officer. Please go ahead.

Thank you, Chad. Good afternoon everyone, and welcome to our second quarter earnings conference call. Joining me on the call this afternoon is Keith Smith, our President and Chief Executive Officer. Our comments today will include statements that are forward-looking statements within the Private Securities Litigation Reform Act. All forward-looking statements and our comments are as of today's date, and we undertake no obligation to update or revise the forward-looking statements. Actual results may differ materially from those projected in any forward-looking statement. There are certain risks and uncertainties, including those disclosed in our filings with the SEC that may impact our results. During our call today, we will make reference to non-GAAP financial measures. 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, today's call is also being webcast live at boydgaming.com and will be available for replay in 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. Keith?

Thanks, Josh. Good afternoon, everyone and thanks for joining us today. This was another great quarter for our company as we continue to make significant progress in executing against our strategic plan. Our ongoing initiatives to leverage our increased scale and our enhanced capabilities contributed to revenue growth, EBITDA growth and margin improvement at every segment of our business. And our company-wide operating margin reached the highest second quarter level in our company’s history. Through broad based revenue growth and EBITDA growth we are achieving are driving healthy gains in our free cash flow. And we're putting that free cash flow to work in a disciplined way, balancing deleveraging with returning capital to our shareholders and reinvestments in our business. Beyond strategically deploying our strong and growing free cash flow, we continue to focus on the future. We're successfully integrating our newest properties into our company as Aliante, Cannery and Eastside Cannery continue to deliver the attractive returns we expected when we acquired them. We're preparing to further expand our portfolio and increase our scale through our newest acquisitions, Valley Forge and 4 Pinnacle properties. We expect to add these five properties to our portfolio in the coming months. And we are diversifying beyond our traditional business model, positioning ourselves for leadership in new forms of gaming such as distributed gaming and the expansion of sports betting into new states. I will review the status of our growth initiatives in a few minutes but let's begin with a review of our strong and thriving core operations. Starting with our Las Vegas Locals segment, the strongest segment of our business, we are continuing to execute the strategy that has shown great results over the last several years. This strategy is built upon our continued focus on driving profitable revenues by spending marketing dollars more efficiently, leveraging our upgraded amenities and more effectively yielding our assets. This strategy resulted in a thirteenth consecutive quarter of EBITDA growth in our Locals business and the strongest same-store performance in 10 years. Revenues were up $3.3 million, while EBITDA increased nearly $7 million, a gain of 11%. We improved operating margins in the quarter by more than 270 points to 32%. The second highest second quarter margin in the history of the Locals segment. And we delivered revenue and EBITDA growth at every major Locals property led by the best second quarter ever at the Orleans. Over the last several years, we have repositioned and upgraded amenities throughout the Orleans. We are reaping the benefits of these investments. The successful execution of our operating strategy continues to be enhanced by a strong and growing local economy. The Las Vegas employment base is at record levels and continues to expand growing nearly 3% year-over-year. Average weekly wages are up nearly 5% over prior year. Taxable retail sales are at an all time high, growing more than 3.5% over the last 12 months and based on the most recently available data, the Las Vegas Valley ranks as the second fastest growing major metro market in the country. The Southern Nevada economy is healthy and expanding, setting the stage for continued growth throughout our Locals operations. But our Las Vegas growth story is more than just the Locals market. During the second quarter, each of our three Downtown properties delivered revenue growth, double-digit EBITDA gains and margin improvement. However, overall segment results were impacted by an increased loss of $1 million at our Hawaiian charter service, as fuel costs rose 38% year-over-year. At the Fremont, we delivered yet another record quarter for both revenue and EBITDA highlighted by an all time monthly EBITDA record in June. And our reinvestments at the California hotel continue to pay dividends, our recently renovated hotel room product at the California help drive 15% EBITDA gain at the property with particularly strong gains among our Hawaiian customer segments. Results of the Cal also benefited from comparisons to the prior year and a significant portion of the properties hotel rooms were out of service were part of the quarter. The overall Downtown market continues to see disruption in the project Neon freeway construction project as well as resort construction on Fremont Street. We expect both of these issues will persist in the 2019. However, despite this Downtown remains a strong market, visitation continues to increase throughout the area, new amenities and entertainment offerings continue to come online and additional capital is flowing into the Downtown market. Based on the favorable trends we're seeing in both the Downtown and the Locals markets, there's no reason to expect that our long-term Las Vegas growth story will change anytime soon. Across the Valley, nearly 14 billion of construction activity is now underway, not including residential construction. This robust development activity will support thousands of construction jobs through at least 2020. And once complete, these new projects will support tens of thousands of permanent jobs across Southern Nevada. This ongoing economic development and job creation should support strong population growth well into the future, further expanding the potential customer base for our Locals and Downtown properties. While our Nevada growth story continues, trends are also improving throughout our Midwest and South operations. On the same-store basis, this segment delivered its strongest second quarter results since 2015 and the strongest margins in 16 years. This is also consistent with improving operating trends we have seen over the last several years. Broad based revenue and EBITDA growth throughout the segment was led by a particularly strong quarter at Delta Downs. Delta delivered strong double-digit EBITDA growth for a third consecutive quarter, setting new record for revenue, EBITDA and operating margins. This property is truly on a growth trajectory driven by increased business from our expanded hotel, marketing refinements and a robust regional economy. Treasure Chest just also continued its string of solid EBITDA performances with double-digit EBITDA growth for the quarter. This property has been one of our most consistent performers in recent years, growing EBITDA in all but one of the last 15 quarters. And with the recent passage of gaming reform legislation in Louisiana, we now have an attractive long-term opportunity to potentially expand this business by transitioning Treasure Chest to a land-based model. While Delta Downs and Treasure Chest were our strongest reasonable performers in the second quarter. We saw gains across the segment, with revenue and EBITDA growth at properties like the IP, Kansas Star, Evangeline Downs and Amelia Belle. We were also encouraged by better-than-expected performance of Blue Chip. While the impact of new competition to our East has been above what we expected, the Blue Chip team has done a great job of partially offsetting these losses with growth in other parts of the business. Revenue and EBITDA are down year-over-year but not to the degree we originally anticipated. We are proud of the Blue Chip team’s performance and we're proud of what our property leadership team at nationwide were able to achieve in the second quarter. Across the country in every segment of our business, we're continuing to deliver outstanding results, further refining our business and improving our margins. We're seeing the benefits of our new marketing capabilities and infrastructure and our initiatives to better leverage our increased size and scale to drive greater efficiencies throughout our business. This dedication and operating excellence continues to drive incremental gains in our free cash flow, which in turn allows us to pursue a disciplined approach to growth. In the coming months, we expect to complete our two pending acquisitions and at five new properties to our portfolio, Ameristar Kansas City, Ameristar St. Charles, Belterra Resort, Belterra Park and Valley Forge. Both transactions continue to move forward. In April we secured preliminary approval from the Pennsylvania Gaming Control Board to acquire Valley Forge and we expect to have our final approval here again in September. With respect to the four Pinnacle properties, we received final regulatory approval from Indiana last month and we’re working closely with regulators in Missouri and Ohio. The approval process is going well and we’re confident we’ll be able to close in this transaction by the early part of the fourth quarter. These two acquisitions will significantly increase our scale. Collectively they will expand our overall slot count by more than 25%, our hotel inventory by nearly 20%, and our casino square footage by 30%. They will give us a foothold in four of the nation's largest MSAs; Philadelphia, St. Louis, Kansas City and Cincinnati opening the door to millions of new customers. And we expect that these properties will grow our free cash flow by more than $60 million in the first year alone. Beyond acquisitions our long-term growth strategy includes our Wilton Rancheria project near Sacramento, California. Planning and design work continues on this project and we expect to start construction by the first quarter of next year. This result will further diversify our nationwide portfolio, given it’s our first presence in the Northern California market when we open the stores in the next several years. For approach to growth, includes more than added casino properties as we actively expand beyond our traditional business model. Our traditional casino gaming business is thriving today, but we recognize there are also opportunities to diversify our business and expand our customer base through new forms of gaming. Distributed gaming is a good example of this. Across the state of Illinois and in other states across the country, many customers have opted for the convenience of gaming in locations closer to home. In June we gained the opportunity participated in this business as we completed our acquisition of Lattner Entertainment in Illinois. That now gives us the opportunity to participate in the future growth of distributed gaming across the United States and provides us a way to connect with customers who may prefer this form of gaming over the traditional casino market. In the months ahead we will have another opportunity to expand and diversify our business through the expansion of sports betting across the United States. As we have stated before, we are in an envious position when it comes to this growth opportunity. Few companies can match our 40-plus years of experience in sports wagering, our significance sports infrastructure here in Nevada and our growing geographic footprint across the country. Any regulatory approval, we will put this experience to work in Mississippi in early August as we introduced sports betting amenities at the IP and Sam's Town Tunica. And we expect similar opportunities to emerge in other states. In Pennsylvania, for example, Valley Forge has the opportunity to participate in both sports betting and online gaming. We're closely evaluating both of these opportunities to see if they make sense for us after we complete this acquisition. Together, our many growth opportunities, reinvestments in our existing business, strategic acquisitions, new developments and new business models will further expand our business and further enhance our robust free cash flow. And we will continue to look for ways to leverage that free cash flow in pursuit of growth, remaining disciplined and balanced in our approach to creating value for our shareholders in the long-term. In summary, I'm tremendously proud of what our entire team here at Boyd was able to accomplish in this second quarter. Our existing operations are performing at a high level. We're successfully maintaining our focus on driving profitable revenue gains, delivering some of the strongest margins we've seen in well over a decade. We're making good progress leveraging our size and scale as we continue to build out our capabilities and we're successfully executing a strategy of disciplined growth through acquisitions, reinvestments and new developments. We are making the most of our growing free cash flow to create a long-term value for our shareholders. Thank you for your time this afternoon, and I'll turn the call over to Josh.

Thanks, Keith. This was a great quarter for our company. Our nationwide operations are performing at a high level in generating strong and growing free cash flow. And as Keith noted, we are putting this free cash flow to work by strengthening our balance sheet while pursuing a disciplined approach to growth in capital allocation. I will take just a few minutes to provide some key financial updates, including updates on our capital return program and our deleveraging efforts before opening the call for questions. First, we issued $700 million or 6% senior notes towards the end of the quarter, which we will use in part to finance our pending acquisitions of the four Pinnacle properties in Valley Forge. As a result of this financing at June 30 we have approximately $450 million in cash excluding cage cash and approximately $760 million of credit facility availability. During the second quarter we paid a cash dividend of $0.05 per share. And starting with our July dividend, our board approved an increase in our quarterly dividend to $0.06 per share. We also repurchased approximately 300,000 shares of stock during the second quarter at an average price of $35.12. Through the second quarter we have repurchased approximately 860,000 shares at an average price of $35.25. We have approximately $30 million remaining under our current share repurchase authorization and we expect to utilize this authorization by year-end. We had 112.4 million actual shares outstanding at June 30. Capital expenditures during the quarter were approximately $37 million. We have reduced debt by approximately $116 million year-to-date after adjusting for the debt incurred to acquire Lattner and the excess cash from our recently issued senior notes. And we have returned $42 million year-to-date in share – to shareholders in the form of dividends and share repurchases. Annualizing the free cash flow we have generated so far this year, we're on track to exceed $300 million of free cash flow. And upon closing the acquisitions of the Pinnacle properties and Valley Forge, our free cash flow is expected to increase by more than $60 million. Our leverage at the end of the quarter was approximately 5 times when taking into consideration the excess cash from our recent bond offering. Our target leverage ratio is a range between 4 to 5 times EBITDA. Upon consummating the Pinnacle and Valley Forge transactions, we expect our peak leverage to approximate current levels of 5 times. As noted in our release, we are increasing our full year EBITDA guidance to $618 million to $633 million. This guidance includes $5 million of incremental EBITDA for the remainder of the year attributable to Lattner and revises our estimated full year EBITDA impact on Blue Chip from new competition to $7 million to $8 million. This guidance does not include any expected contributions from the acquisitions of the Pinnacle and Valley Forge properties which we expect to close in the coming months. In conclusion, the second quarter was a very strong quarter for our company in many ways. As a result of our focus on operational efficiency and growing profitable revenues, we translated revenue growth into healthy EBITDA gains and margin improvements in all of our operating segments. Our pending acquisitions are on track and we’ll enhance our distribution and portfolio while contributing further to our growing free cash flow. The continued execution of our strategy focused on operational efficiency and enhanced capabilities will allow us to continue a balanced approach of deleveraging and disciplined capital allocation, all with the goal of maximizing long-term shareholder value. Chad, that concludes our remarks and we're now ready to take any questions from the audience.

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] The first question will come from Joe Greff with JPMorgan. Please go ahead.

Good afternoon, everybody. Congratulations on some impressive results here. I have three little questions here. The first is on the margin opportunity from here. Just given where the margins are across the three reportable segments, would you say that you have more margin opportunity more than the Midwest and South region versus the Locals and Downtown? Or how are we thinking about the margins?

Joe, this is Keith. I think we do have continued opportunities to expand and grow our margins in all segments of the business. The opportunities are different in each segment given kind of where we're at in the process of rolling out our expanded capabilities both on the marketing side and in other parts of the business. So we will continue to grow. I think we're on track to continue that, have higher margins and that's probably about it.

Okay. Valley Forge, if we look at GGR year-to-date it’s almost 13% and you guys announced the deal back in December. When you look at the contribution to EBITDA and free cash flow and you revisit your original underwriting, how much of year-to-date growth did you factor in, I guess, in other words, as we see it as a source of incremental upside?

Well, I think it’s incremental upside. First, I have to thank the Valley Forge team for running such a great business for us in the interim while we're waiting for the regulators to approve it. It has been a very nice increase that we've seen. It has been a surprise. It's nothing that we've built into our projection. So it is incremental to us. We did anticipate getting an additional 250 slots, which we will install after we take ownership. But the upside you're seeing now is just that it's upside and once again I have to thank the Valley Forge team for taking advantage of that.

Great. And then with respect to the $5 million of EBITDA contribution from Lattner and now seeing a $7 million to $8 million impact at Blue Chip, how much of each of those were recognized in the 2Q, in other words, what’s that impact in the back part of the year? And that’s all from me, thank you.

Yes. I think we're going to have – we don't give individual guidance in terms of the performance within the quarter. So it will be hard for me to kind of quantify for you how much of kind of a difference versus kind of rest of the year. I think for Lattner we only had one month and the $5 million represents the six months coming. So it's what's on the comp so to speak, whereas the Blue Chip numbers work for the full year. But we had less than $1 million contribution from Lattner from June.

Thank you so much.

Yes. Our next question comes from Carlo Santarelli with Deutsche Bank. Please go ahead.

Great, thanks. Hey, guys, good afternoon. Josh, just in terms of following up on Joe's question with respect to Lattner, could you maybe provide a little bit of color on kind of the margin profile at the asset? Just trying to get a sense for what will be looking at in the back half of the year as it pretends – as it pertains to tracking your overall Midwest and South margin traction. Obviously, it appears that Lattner is probably going to be a little bit dilutive to the headline margin and I'm assuming that's kind of not the story that's going on obviously in the organic assets.

Yes. Carlo, you hit the nail on the head, so to speak. The margins associated with Lattner relative to the revenue that we are required to report is a lower margin business. So it's approximately 20% to 22% margin based on how we are required to report the revenue. In terms – the reality is that revenue is kind of coining for the business and they share that coining with the state and the bars and taverns that are there, partners and customers, and so they obviously they get about a third of that revenue actually. And when you look at that business, it's about a 60% margin when you cut down to the share they receive.

Great. Thank you, that's helpful. And then just if you look over obviously the last couple of quarters, your Louisiana trends have been a lot better, clearly the Delta Downs ramp with the new hotel and whatnot has started to fire on all cylinders. But how much of the strength in Louisiana stems just directly from the accrual markets and how much of it is just kind of an overall improving economy?

I don’t know. It's a little hard to separate that in Louisiana. I think we have very strong economies with the Lake Charles market itself, continues to be very strong, growing 4.5% or so this quarter growing over 9%, last quarter New Orleans market continues to be strong for us, parsing it out in terms of what's driving it. I'm sure some of it is I think oil and gas. Overall it’s just a healthy economy across the nation and the Southern states are participating in this as well as other parts of the country.

Great. Thank you guys.

Sure.

Thanks, Carlo.

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

Hi, good afternoon. I just wanted to go back to Locals for a second. So last quarter top line was fairly flattish relative to market, this quarter you actually did see some growth. I’m curious like is this sort of – the delta that we saw is this the result of some of your initiatives that have started to played out and you’re going to start to revert back to me any market like growth rates or do you – or is this just the fact that the overall market actually is doing even better than maybe it was doing in the last quarter?

We’ve talked about this for several quarters and so this is playing out kind of exactly as we anticipated. But it is playing out much like we anticipated which as we went through the difficult transition of focusing on profitable revenue. We didn't grow revenue and now that our properties that have been through the process that are in the more mature stage or phase of this. They are actually producing revenue growth well in excess of what the market is doing. And we have other properties, who are still in the early phase of this that are not performing even at the market level. So I think what you're seeing the growth we saw in the quarter is just indicative of the plan playing out the way we anticipated it to.

Got it. And should we continue to expect a bit of a spread with the overall broader market just in terms of the initiatives continuing, is this probably the plan that will continue for the balance of 2018?

Yes, I think we should expect there to continue to be a gap and once again – at the end of the day, we look at the market growth but it's certainly not our badge of honor, we focus more on profit than we do on that market growth. We look at market growth as a metric just to make sure that we're staying in line but we really are focusing on profit but you will still see a gap through the remainder of the year.

Great. And last question would just be on Palms and Palace Station obviously, those are trying to come off of the – some of their very disruptive renovation activity, any anticipated impact do you guys are expecting in the back half, is that incorporated in your guidance at all or how are you guys thinking about kind of a competitive landscape there?

Look, so I didn’t let go all new properties not all openings especially when it's right across the street from one of your own properties, our customers will go and visit it, its very typical in our industry. That people go and try the new product but we're very happy in Q2, very happy with recent trends of how our business is growing specifically at the Gold Coast and at the Orleans, in the year-over-year growth that we're seeing at those properties. So I don't expect anything significant or any significant impact at the Orleans or Gold Coast as a result of those kind of continued openings of those assets.

Thank you very much.

Our question comes from Felicia Hendrix with Barclays. Please go ahead.

Hi, thanks for that. Just to go back to Lattner for just a second. Josh, can you just walk us through the seasonality, am I correct to think that on an annual basis you did about $12.5 million a year in EBITDA. So if you're looking at $5 million for the second half, seasonality is off a little bit of how I was thinking about it?

Yes. So the 12-ish with synergies, we expect to get – so run rate is about $10 million to $10.5 million. And so it’s pretty much even from a seasonality perspective. And as Carlo pointed out the margins just in terms of how we reported is kind of improved the lower end of the 20% range. And so what we expect to happen is over the first – kind of first six months of ownership and into the first six months of next year to start to kind of get some of the synergies that we had identified when we made that acquisition.

Yes, I oversight on my part, sorry, I made it more sense but it’s even. And then can you just talk about Kansas Star for a moment, the property kind of ebbs and flows over time. And it kind of came in a little bit lower than what we were expecting obviously, it's hard to model each property precisely but just wondering if you could give us an update there?

Yes, Felicia, this is Keith. I don't think there's anything unusual going on at the property, that was performing pretty much as we've expected, you're right, revenues in a market where you've been there for a few years. So it quickly becomes a mature market, people know we are there, there's month to month fluctuations, really nothing unusual going on there. I think the business performing well, its margins are good, EBITDA is pretty much where we would expect it to be. So we're – there is really nothing unusual or either way, positive or negative, it's pretty much is performing as we’ve expected.

Okay, helpful. And then just kind of bigger picture, I guess Keith and Josh for both of you, obviously your strategy is working the flow through has been very nice for several quarters now. When you think about the drivers that are kind of benefiting you with the program and you’re embarking through the strategy. Are you now finding areas that are benefiting you that you didn't anticipate at the start of the program?

Absolutely.

Can you elaborate?

But it would be naive to say that we don't uncover things every day that we didn’t anticipate in terms of ability to become more efficient. And as we dig through things and continue to go through it. I think we're always learning and uncovering things. So yes, I’m not going to go into them, no, I think I would categorize a lot of them simply is potentially competitive advantages, I’m not going to highlight those but we do learn every day. But the program is working, the direction is working, we continue to find new areas. And frankly, some of the things we thought we would do and that we thought would work on working. So it’s all balancing out.

I would just add that, I think, as Keith alluded to it, it’s playing our largely in the direction than we expected it to. I would say, we feel like we’re still in pretty much barely innings of what we’re seeing in the opportunity that it represents. And so we are certainly creating a lot of this opportunity on our own, our operations teams are doing a great job, embracing what's going on as well as continuing to do their day to day jobs in a very high quality, very focused fashion, and then we're obviously benefiting from our strong customer really throughout the whole country in reality. And then adding to that is the opportunities that we’re creating from investment and other growth initiatives as well. So we feel really good about kind of the fundamentals of the business and the opportunity for our company going forward.

And maybe just lastly. It’s certainly not lost on us that we’re going through this, as Josh alluded to a very strong economy. And so as we're becoming more efficient, revenue growth and the flow through of that just becomes that much more powerful. And so it's kind of all happening at a very good time with strong economy revenue growth in us and tightening up our margins.

Okay, thank you.

Our next question comes from Steve Wieczynski with Stifel. Please go ahead.

Hey, guys, good afternoon. So, Josh, I'm thinking about this rate with your revised guidance, your midpoint prior was 6.10, now it’s 6.26. That $16 million change seems like it's kind of six is Blue Chip, five is Lattner, the other five is kind of a flow through from 2Q. So I guess the question seems like you are not baking in any material improvements in operating trends in the back half of the year. And is it fair to say that trends pretty much stay on par getting you to the top end of the range? Shouldn't be that difficult?

Well, I think, your own line of thinking is not too far off. I think the reality is, is it makes a little bit of apples and oranges in terms of kind of full year guidance versus partial year guidance and some of them benefits in the second quarter. But I'd say generally what you're saying is accurate. I think that we – the trends in our business are largely continuing along. We continue to see real kind of solid growth in the Las Vegas Local segment. And while we are facing some challenges Downtown with respect to construction and fuel, that business remains strong. And from our perspective the Midwest and South business, sequentially for us continues to get better. And I think the second quarter is really a reflection of that.

Okay. Got it, makes sense. And Keith, I think you talked about this a little bit in your prepared remarks, but I may have missed. When you talked about Blue Chip and obviously your original expectation was a $12 million to $15 million hit, that's down to $7 million to $8 million. Can you provide a little more detail about kind of what the difference is there? Were you guys being overly conservative or you just think in a day Blue Chip is a flat out better property and your customers are kind of gravitating back?

I’ll go to your last comment, which I do think the Blue Chip is a flat out better probably. Thank you for saying that. I will second that. But, look, our original forecast was predicated on certain impact that we thought we would what happened to us and what I'll just call kind of the battleground markets between us and South Bend. And quite frankly what we have anticipated and what we have forecast to happen in those markets has generally happened in terms of the level percentage of decline in revenues. What we didn't anticipate was that the team would really do a great job and grow the business in other areas, areas that are closer to Blue Chip and areas that are further away like the Chicago land area where we're seeing great growth out of Chicago and that does speak to the quality of the asset. We had seen growth out of those markets, but the team is really focused on it, just done a great job of continuing to grow that business and we didn't forecast that. So we've been surprised on the upside by that. But the impact in the battleground markets is about what we expected.

Okay, great. Thanks guys, I appreciate it.

Sure.

The next question will be from Harry Curtis with Nomura Instinet. Please go ahead.

Hey, good morning everyone or afternoon. I was – I wanted to follow up on that that line of questioning. Because I'm just wondering it still seems that you've got or perhaps some more ability to close that gap between reality and your estimated impact at Blue Chip. And I'm just – what are your general thoughts about, could it improve more?

Well, Harry, I think my thoughts are, it really is still early. I mean, we're six months into this. And we don't know ultimately the full extent of marketing that they could throw at us or throw out the process. So could the gap close and narrow further? I think the answer is sure. And could the gap widen if they decide to go full throttle on marketing dollars? The answer to that is sure. We're pleased with the response that our team has been able to execute on so far, deliver so far. They're very focused on it. We're focused on trying to continue to narrow the gap. But we're only six months into it and so maybe I guess the term of art is cautiously optimistic, but that's kind of where we're at.

And so has their marketing so far been relatively rational?

I think that their marketing has been increasing since they opened. And so they started slow and it has been increasing. Has it hit the point of irrationality yet? I don't think so. But it has increased from where it started from.

Okay. And then my other question just following up on Joe's question. I'm curious in terms of rationalizing your own promotional expense. You've been doing that perhaps longer in the Locals market than you have in the regional market. And I don't know if you agree with that, but what I'm wondering is what inning are you in, in trimming your or rationalizing your regional promotional costs?

I’ll take a shot at that, Harry, and then Keith can either contradict me or – had to it. Look, I think it's really – it's not about being in an inning, really, it's a philosophical approach and it's one we started for several years ago. And our objective is to grow as much revenue as we can in a profitable fashion. And so in some cases we may have marketing flat and revenues up and some cases we may have marketing down and revenues up and that's the best – that's when we know we're doing a really good job. And I think you know we continually as I'm sure our peers do as well, continually evaluate how we market, how we think about this business just globally. And I think that we are – it's hard to say where you are because I think we continue to see opportunities to do better and execute better and apply more technology and apply better thinking and analytics to it all. And so if we said we were at one inning a year ago we may still be at the inning or even an earlier in the inning based on what we've learned since then. So I don't – if we were having to start to talk about a different strategy then I think that would be a time when we had felt like we had run the course of this stuff and I don't think we're ready to do that.

Okay. And just wanted to make an observation that you guys have been quite timely in your purchases or repurchases of your stock. Have you at least been tempted to get a bit more aggressive because you really should be running a hedge fund there?

I think we will just stick with the word disciplined. We will remain disciplined as we approach it.

Are you tempted though when your stock gets down to a 12% free cash flow yield, which you did twice in the quarter to get at least a bit more aggressive?

Well, I think as we’ve talked both on this call and over time, it is a balanced approach for us. We're trying to balance the ability to continue to delever, get to a point where we want to get to, continue to fund acquisitions, reinvest in the core business buyback and stock and return capital to shareholders. And so, yes, we're tempted just like we’re tempted to buy other assets and do other things in the business. We try and balance it all and we have a lot of conversations about it. So it's never an easy balance. It is not a path that is set in concrete, it is something that’s a continual discussion on a daily, weekly basis as we see the stock price move, as we see other acquisitions and other growth opportunities presented to us. We keep it all in front of us and just try to balance it all out.

So it's a healthy retention as we try to find the best opportunities for the long-term value of the company.

Well, you guys are very good at this, this talent. So keep it up, I appreciate it. Thank you.

Thank you, Harry.

The next question will be from Thomas Allen of Morgan Stanley.

Hey, good afternoon, guys. You guys have obviously been acquisitive in the past. How is the M&A environment right now? And what are assets you’re being shown? What’s the quality of it? What’s kind of the solid expectation for pricing? How you are thinking about that? Thank you.

Let’s say in short, there are a lot of assets, there are good quality assets and average quality assets, and sellers’ expectations are very high. Josh?

Josh, you’re looking at any deals or do you think that there are ways to get deal over the log?

I think, the way I would answer that is, is you have to have the ability to be disciplined around what your pain creates – to have a strategic rationale I think is really important for the assets you're looking for. And ultimately you have to be able to add value through the price you're paying to create free cash flow for the business. And I think that you have to have the infrastructure and the capabilities to do that. And so some far in the acquisitions that we have done, I think we have found assets that kind of fit our company very well strategically and/or ones where we can add something to the mix that creates incremental value. I think that's what we'll continue to look for.

Yes. And that isn't solely priced. And while sales expectations are high these days it doesn't mean that we can execute it, it just means that we have to make sure that there is this, Josh’s word, strategic reason on the asset so that we can – if we are going to pay a higher price it makes sense for us in some fashion. But, look, prices are higher, doesn't mean we cannot execute. It doesn't mean that we will not execute. It just means that we have to be a little more careful and make sure that the free cash flow yield in the other dynamics of the overall investment makes sense for us.

And I think we weigh that against the other opportunities we have whether that's buying back our stock or other investments that we can make in our own business that generate good returns as well. I mean we – a recent example, we have the opportunity to make an investment in the Delta Downs hotel. And while that had a slow start ultimately, we believed in the asset and the management team there that they could generate that return. And so they're generating a return that was worthy of that investment and so I think that's a good example of where we balanced the opportunity with other things that was available to us at that time and that's what we will continue to do whether it's an acquisition and internal investment or buying back our shares.

Helpful, thanks. And then I think you highlighted in the opening remarks around – opening up sports betting at the IP and then Tunica, hopefully by football season, how are you thinking that going about that are you going to do partnerships. How are you thinking about building it out? Thanks.

Hopefully will be open in very short order, in time for kind of some of the pre-season games and that will be up to Mississippi regulators where we will have the technology ready, we will have the sports books built out and we'll be waiting for regulatory approval. So as soon as they give us regulatory approval, you will see us launch. And we are doing that on our own once again we have 40 years of experience here. And so as we launch into Mississippi, we're using our own knowledge and our own experience. And technology – not our own technology, somebody else’s technology and we're going to launch and see how it goes, we have a lot of history and a lot of experience. We make we set a line for 11 properties right now, setting up for one more isn't too hard.

Helpful, thank you.

Sure.

The next question will be from John DeCree of Union Gaming.

Hey, everyone. Thanks for all the color so far. I wanted to ask specifically about Locals as it relates to M&A strategy, long ago you've increased your exposure there with Cannery and Aliante and certainly paying off when your fastest growing segments and what you can do there kind of in your core D&A, given your size and exposure to Locals now, is there more capacity or more opportunity for you to get bigger in the Locals either reinvestment or M&A. And if so how would that kind of rank in strategic priority to some of the other perhaps markets or MSAs that are still out there in the U.S. for you guys?

We said it in our prepared remarks, Las Vegas is the strongest segment of our business, it's something we've been – we've always felt very strongly about that there's tremendous long-term growth in this market. We would love to continue to be able to grow here in Las Vegas. Can we have more assets to the portfolio in Las Vegas, I think the answer to that is, yes. If you look at Las Vegas as a whole, we look at the different parts of Las Vegas, whether it be in the Locals market or in the Strip. We're not represented in all of what I'll call the sub-markets of Las Vegas. So there are opportunities, so it just depends on what becomes available to us and as you saw as we're seeing with Cannery and Aliante acquisitions, I think there's great upside to being able to plug them into our system. I don’t know Josh, you want to add anything?

No, I think you got it, Keith.

Thanks Keith, helpful. A similar question perhaps on some of the MSAs, you'll be getting exposure to through the pending acquisitions, you highlighted in the prepared remarks, Keith, Philadelphia, St. Louis pretty large MSAs. Is there much of an opportunity for you guys over the medium or long run to kind of as you build out databases in those markets to leverage that perhaps across your – some of your larger properties in the Locals, is that a real medium term opportunity for you guys?

Near-term, medium-term and long-term, right now we have a good amount of play, cross market play either between our properties in Midwest, our customers coming here to Las Vegas. Many of them want to be on the Strip, it is true we don't have a strip asset but many of them come to being at your leisure or the Gold Coast. Quite frankly, many of them are comfortable being in Downtown, Las Vegas. More than half the visitors to Las Vegas end up visiting Downtown, I think the statistic is something like 53% of visitors to Las Vegas visit Downtown. Many of our customers like the walkability of Downtown and the value product or value pricing Downtown. And so we've had very good luck moving customers from the Midwest and from the South to our properties in the Locals market and once again to our properties in Downtown, Las Vegas. So I do think it is yet another opportunity to kind of leverage up these acquisitions and get a return on these acquisitions.

Appreciate the color, very helpful. Thanks for the time.

Sure.

And our final question today will be from David Katz with Jefferies. Please go ahead, Mr. Katz.

Hi, afternoon and congrats on a good quarter. I know that this has been discussed a bit in a variety of different ways. And the answer has been a lot of we'll have to see. But as we think about the vision for Boyd, two to three years from now, are you envisioning more acquisitions, can you see yourself getting into becoming more of a capital returner at some point. What would you – what is ultimately your vision for the company looking out a bit longer term?

Yes, we will have to see.

No, well, Mr. Katz will have to see.

I’m sorry, well, Mr. Katz will have to see. All kidding aside, I think that we talk about growth a lot and once again we are looking to grow into new areas whether it be online or sports betting. If we do see ourselves continuing to be an acquirer of assets, providing that as we talked a few moments ago that we can find those assets that have a combination of the right strategic value, the strategic rationale with the right price that we can leverage into our portfolio for all the right reasons. And as we're able to continue to be leveraged, we're able to continue to have a growing cash flow, to the extent we don't see better yielding investments then you will see us to continue to return that to shareholders. And so as the business continues to grow, as our cash flow continues to grow and expect our return to the shareholders to continue to grow, tempered with if there's a good acquisition. We have to slow down for a bit to make that acquisition happen, that's how we're going to execute on that. It’s – Josh use the term kind of it's a good healthy tension between the different priorities and that's exactly how we view it. But we're not done acquiring assets, we're not done returning capital to shareholders, we are not done deleveraging, we want to continue on all those fronts.

And if I can just ask on the operating side, obviously you put up some very nice quarters but is there any particular capability there or adding to the management team or any of those sorts of things. Anything you'd really like to accomplish over that time as well?

If I understand your question correctly, I would answer, nothing to add just continue to execute. I think we feel like we understand where we're going in terms of our capabilities and what we want to build. And it will just take us time to get there. And I think we've tried to communicate that to folks and try to communicate as best we can without giving way much as to we have a path that we envision and across the portfolio in terms of building capabilities and enhancing our analytics and just overall kind of approaching the business in a more disciplined fashion to ensure we're driving kind of the overarching goal, which is driving profitable revenues and being as efficient as we can be. And I would say, we're just executing on that really.

And look, to be fair there are – we’ll continue to be capabilities, we will add to our toolkit if you will in terms of technology and systems, continue to be people we will add to the process to help us become smarter about what we're doing, do we own all of that tech. And do we own all those people today. No, we don't, we’ll continue to build out that infrastructure. We have a good start, very good foothold, the answer is yes. We feel very good about where we're at. But we're not kind of 100%, we are at the 100% mark in terms of owning all the capabilities or owning all the people, we’re owning all the processes to deploy all of that. But we're well down the road so we'll continue to build it out, we'll continue to acquire capabilities and continue to look for good smart people to help us execute on.

Sounds simple. Thanks very much.

Thank you, Mr. Katz.

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

Thanks Chad. And thanks for everyone joining in today and listening to our comments and we appreciate the questions. And should you have any other, feel free to reach out to the company. And I will be happy to help you in any way we can. Thank you and have a good rest of your day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.