Boyd Gaming Corp (BYD) 2020 Q3 法說會逐字稿

Good afternoon, and welcome to the Boyd Gaming Third Quarter 2020 Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Josh Hirsberg, Executive Vice President, Chief Financial Officer and Treasurer. Please go ahead.

Thank you, Gary. Good afternoon, everyone, and welcome to our third quarter 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 in our comments are as of today's date. And we undertake no obligation to update or revise the forward-looking statements. Actual results may differ materially from those projected in any forward-looking statement. There are certain risks and uncertainties, including those disclosed in our filings with the SEC, that may impact our results.

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.

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.

So with that, I would now like to turn the call over to Keith Smith. Keith?

Thanks, Josh. Good afternoon, everyone. Thank you for joining us today. Our third quarter results clearly reflect the tremendous progress we have made since we began reopening our properties 5 months ago and the strength of our operating teams across the country. Their ability to adapt to the significant changes brought about by the COVID pandemic has been a key factor in our success.

As we discussed on our last call, when we started the reopening process in late May, it was clear we had to adapt our operating strategy to meet a much different environment. The world had changed and we had to change with it. With limited capacity on our casino floors and reduced amenities for our guests, visitation to our properties was down significantly from the pre-COVID world. We knew we needed to rebalance our operating and marketing cost to match this reality. And we had to find a way to control cost without compromising the great guest experience that our customers expect from us.

At the same time, we needed to develop and implement entirely new safety and sanitation protocols throughout our business, aimed at ensuring a safe environment for our guests and team members. Successfully developing and executing this strategy over the course of just a few months was one of the greatest challenges we have ever faced. I'm extremely proud of how our operating teams have responded to this challenge as well as the outstanding results they have produced.

During our first full quarter since reopening, company-wide EBITDAR is up nearly 12%, as operating margins increased more than 1,000 basis points to 36.6%. This is the highest company-wide operating margin in our history. During the third quarter, 18 of our properties grew EBITDAR at a double-digit pace. 8 of our properties achieved all-time record quarters for EBITDAR and 3 more set records for the third quarter, including Delta Downs, which incredibly lost 3 weeks of business due to damage from Hurricane Laura and still produced a record third quarter.

While overall guest counts and revenues are down, our targeted marketing approach is driving strong play from top tier customers. This targeted approach resulted in company-wide gaming revenues for the quarter that were down less than 8%, even with the significant declines in our Downtown Las Vegas region.

On a segment basis, in our Midwest & South segment, margins were up nearly 1,100 basis points to almost 40%, as we delivered the strongest quarterly EBITDAR performance in this segment's history. EBITDAR rose nearly 17% during the quarter despite the repeated closures of our Louisiana and Mississippi properties due to hurricanes. The results were even stronger in our Las Vegas Locals business, as EBITDAR increased more than 23% to a new third quarter record. Overall, segment margins rose more than 1,600 basis points to an all-time high of 46%, as we achieved our best quarterly EBITDAR performance in nearly 15 years.

EBITDAR growth was broad-based across the Locals segment. The one exception was the Orleans, which continues to be impacted by declines in convention business and destination travel to the Las Vegas market. However, our locals play at the Orleans remained strong and kept the Orleans results close to last year's record performance.

The impact of reduced visitation to Las Vegas has been more significant in our downtown properties, which have been particularly affected by a near total shutdown in travel from Hawaii. But with an easing in travel restrictions now underway in Hawaii, we expect our downtown performance to improve in the future.

It is important to keep in mind that today, the Downtown segment represents only a modest portion of our current nationwide business. In 2019, Downtown Las Vegas accounted for just over 6% of our total property EBITDAR compared to 29% for our Locals business and 65% from our Midwest & South segment.

Overall, our business has been remarkably stable since we reopened our properties. With more than 90% of our business coming from customers who live within driving distance to our properties, we've been able to successfully execute a strategy built on visitation from our premium regional customers. And as we look at the first 3 weeks of October, the positive operating trends from the third quarter have continued into this month.

Well, there's no doubt that as conditions begin to normalize, there will be pressure to go back to the way things were to return to normal. There will be pressure to add back operating and marketing cost to drive more people into our buildings and compete for casual play. And there will be some situations where it may make sense to add back some level of marketing and overhead costs. But overall, today is our new normal. We have established a more efficient and a more focused business model over these past several months, and we are determined to sustain higher margins going forward.

And while we are encouraged by strength in our most loyal customer segments, we also believe that there are ample opportunities available to us in the future, as customers who have not yet felt confident enough to venture out feel comfortable in visiting our properties once again.

Just as we are successfully implementing a new way of operating our traditional business, we are also expanding our digital presence. Through the convergence of digital technology and the traditional casino entertainment experience, we are creating new opportunities to engage our customers, both inside and outside of our properties. A good example is the continued expansion of our partnership with FanDuel. In addition to our 5% equity ownership in FanDuel Group, we are increasingly leveraging our partnership with FanDuel to market our properties to millions of FanDuel sports betters across the country.

We are also partnering with FanDuel to offer a growing segment of our customers the ability to participate in our business from the comfort of home. During the third quarter, Boyd Gaming and FanDuel added mobile sports betting products in Illinois and Iowa. With these latest launches, we now offer mobile sports betting in 5 states, encompassing 30 million adults. And we are planning to further expand into the iGaming space with the launch of our own real money online casino product in the coming months.

Consistent with this strategy of growing our digital presence with the launch of our Stardust Social Casino in July; and a new digital initiative, B Connected Mobile that we launched in September. B Connected Mobile will allow us to seamlessly integrate our growing digital portfolio with our traditional casino experience. Developed in partnership with Aristocrat Technologies, this mobile app will become the hub of our customer experience, offering guests frictionless access to a universe of online, social and mobile gaming brands, including FanDuel, Stardust and B Connected Sports, our Nevada-based sports betting app.

In the future, we envision tying together all of our digital and traditional casino experiences into a single digital wallet within B Connected Mobile, fully transferable between our digital brands and our casino properties across the country. Through B Connected Mobile, we plan to give our customers the ability to use their smartphones to make wagers and cash out on slot machines and table games. They will be able to use their digital wallet to make mobile sports bets, to wager in online casinos and to purchase credits in our Stardust Social Casino. And they will be able to use points or cash within their accounts to pay for restaurants, hotel rooms, entertainment and other amenities at our properties.

We are taking the first steps towards this convergence as we speak. A few days ago, with our partners at Aristocrat, we launched our cashless wallet technology at our Blue Chip property in Northern Indiana. During this test, Blue Chip customers can create a digital wallet linked to their B Connected card, then use their card to place wagers and cash out on slot machines.

Based on the success of this initial launch and pending regulatory approvals, we plan to expand this digital wallet to additional amenities and additional Boyd Gaming properties across the country and then integrate that wallet into B Connected Mobile to create a true all-digital experience.

And lastly, we remain focused on our partnership with the Wilton Rancheria Tribe in Northern California. We are putting the final pieces in place to allow the tribe to secure project financing in the next several months and have -- and move ahead with the project construction.

This first-in-class resort will be strategically located on a major highway just south of Sacramento and is ideally situated to capture significant share of the lucrative Northern California gaming market when it opens its doors in the second half of 2022. We are honored to be the tribe's partners on this exciting project, which will allow the Wilton tribe to finally realize a long-standing goal of self-sufficiency.

So in all, our team delivered an outstanding performance in the third quarter. As we look to the future, we believe an important part of our continued success is the health and wellbeing of the communities that we serve. From the day they founded Boyd Gaming 45 years ago, Sam and Bill Boyd instilled in our company a commitment to sharing our success with others. By investing in our communities, we help create healthy communities. When our communities thrive, we thrive.

We have remained firmly committed to this philosophy throughout these last 45 years, and we continue to advance this philosophy today, helping our communities respond to the challenges of 2020.

Following the impact of Hurricane Laura in late August, we provided significant financial assistance to our hard-hit Louisiana team members. We assisted the broader Louisiana community as well with donations to community relief organizations like the American Red Cross. And here in Nevada, we are actively providing support to our hometown as it deals with challenges created by the COVID pandemic.

To assist those who have been financially impacted by declines in travel to Las Vegas, we are expanding our long-term partnership with Three Square Food Bank, providing cash and in-kind contributions to support their mission of helping Southern Nevada residents in need. To assist local children through remote learning while our schools are closed, we are providing funding to the Boys & Girls Club of Southern Nevada to help provide remote learning facilities to low-income K-12 students.

As a company, we are proud of our ability to keep creating shareholder value despite new challenges. And as we continue this long track record of growth, we will keep investing in our communities, strengthening the foundation for our future success.

Thank you for your time today. I will now turn the call over to Josh. Josh?

Thanks, Keith. As we think about our business today, the one word that comes to mind is consistency. Since reopening our properties, our own ability to execute an operating strategy engineered to drive enhanced profitability as well as our customers' behavior has been amazingly consistent. Going forward, we expect to retain much of the efficiency that has been captured in our operational performance since reopening. We are focused on serving our best customers in an environment of reduced operating expenses and highly targeted marketing.

Now turning to the quarter. Corporate expense and taxes were higher than we expected as a result of transitioning our properties from being closed to reopened. We expect fourth quarter corporate expense to be similar to third quarter levels. These are not, however, good run rate levels for 2021 corporate expense, as these amounts include catch-up items for the periods we were closed.

Capital spending during the quarter was $29 million, bringing year-to-date to approximately $105 million. We expect to spend about $25 million during the fourth quarter, excluding investments related to the repairs at Delta Downs, which are expected to be reimbursed from insurance proceeds.

During the quarter, we used a portion of our cash balances to repay our fully drawn credit facility. As a result of completely reducing these borrowings, we had approximately $500 million of cash at the end of the quarter and more than $930 million of availability under our credit facility. After quarter-end, we extended our credit facility and term loan A maturities to align with our term Loan B maturity in September of 2023. And we increased our revolver commitments such that our undrawn availability now exceeds $1 billion.

In all, our operating teams have done a tremendous job executing on the company's strategy since we reopened our properties. Their hard work resulted in the performance we delivered for the third quarter.

Just as exciting, there is no sign of these results changing. October continues the trend of Q3. And while there are certainly risks and challenges that will present themselves, we are committed to sustaining our more efficient and profitable operating model into the future.

Gary, that concludes our remarks, and we're now ready to take any questions from participants on the call.

(Operator Instructions) Our first question comes from Joe Greff with JPMorgan.

Congrats on the results. Josh and Keith, can you just talk about the mix and the rate of recovery between the non-rated retail and the rated database players in the Locals and Midwest & South gaming regions? And then one kind of -- I'd like to go with this and sort of -- to really the crux of what I'm trying to get to is to the extent that the recovery -- looking ahead, the recovery in the rated database player segment is stronger than that non-rated segment, to what extent is that a negative margin mix and reverses some of the margin gains? How do you think about that?

So a couple of comments, Joe. I think as we look at the database, we continue to see strong play from our upper-tier customers and from our higher-worth customers. Those segments, in some cases, are actually growing year-over-year. Unrated play as a percentage of total play is actually up a little bit, and that's just because it declined less than our rated play overall. So this shifted a little bit, not significantly.

I think as we look forward, as I said in my prepared remarks, we think there's still a good deal of upside as customers who have not yet come out and uncomfortable coming out to visit us will come out in the future. And so there continues to be, I think, positive momentum in the business.

Yes, the only thing I would add to that, Joe, is I think Keith's comments certainly are accurate, and they reflect what has been really going on in the business since we reopened. There -- as we said in our remarks, our business has been very consistent. And so the trends that we have seen since we have reopened, whether it's in the rated segment or the unrated segment, have really not changed. And both segments have been equally kind of strong and contributing in their proportionate share, I think, is the point.

We've not really seen any degradation in one segment or the other as we've passed through time, whether it's as a result of unemployment benefits going away or other changes that folks would have perhaps logically thought would have affected one segment over the other. I think largely in the rated segment, certainly, these are customers that we know well and have seen before and are playing at the levels that they have historically, and similarly, from the perspective of the unrated segment.

Great. Excellent. And then just as a follow-up, you obviously couldn't tell by looking at the EBITDAR results in Midwest & South, but can you quantify the hurricane impact in the 3Q?

Well, when you look at Q3, last year, we also had some hurricane impact. And while we haven't quantified it, I'll just say it was -- hang on. Josh, do you have the number?

Yes. So Keith is correct. We had hurricanes last year, and so that mitigated a comparable impact for this year. But this year was obviously worse and impacted us more significantly. And we estimate kind of $3 million to $5 million kind of an impact.

The next question is from Carlo Santarelli with Deutsche Bank.

Josh and Keith, both of you mentioned kind of in your respective commentary that the higher and -- higher-worth customer within database, you've seen a lot more frequency and spend or play from them. Is that something that over the longer term you believe is sustainable? And what do you think is kind of driving the outperformance of that segment specifically?

Well, if you dial the clock back, this actually is a journey we've been on for a number of years as we relaunched our B Connected program a couple of years ago and started to focus on higher-worth play. And then the COVID pandemic and the requirement, we had to shut down the business entirely, allowed us to completely refocus and maybe supercharge that effort. So we are really focused on this high-end play. We are able to, I think, speak to them differently as we reopen the business, speak to them more directly, provide maybe higher touches than we did in the past.

I can't tell you that they're spending at a significantly higher level. We just have more of the higher-worth customers in the building and less of the lower-worth customers in the building. I mean, if you were to look at averages, the average spend is up, but largely driven by just fewer lower-end customers in the building.

That makes sense. And then I don't know if you guys will be willing to kind of take a shot at answering this, but if we ignore the Downtown segment for a second, obviously, the Locals margins up 1,600 basis points year-over-year and the Midwest & South up a little over -- close to 1,100. Would you guys -- like, I think, Josh, you said most of the savings operationally you would expect to keep. If we looked at those 2 growth rates in the margins and kind of assumed more than half of them on a go-forward basis, is that in your eyes at similar run rate levels to what we're looking at right now reasonable? I mean could you maintain 800 basis points and 500-plus basis points in Midwest & South EBITDAR or margins on a go-forward basis?

So I think that it's more in those ranges of a ballpark than either at the upper end or the lower end. If you think about kind of the drivers of expense of our business, the biggest components are obviously labor and marketing. And the changes that we've made to those categories in particular, in a large way, are largely permanent in the way we think about those.

Now there's a certain aspect of marketing that will naturally come back potentially based on consumer demands or competitive pressures potentially, but that's nowhere near the order of magnitude of what we've removed from the business in terms of marketing.

And I think on a much smaller case, the same thing you could say about labor and many of the other categories where we've made -- and I'm sure our peers in the industry are doing the same thing. They've taken a fresh approach, and we've taken a fresh approach on looking at our expenses across the board and largely taking many decisions that are permanently removing many of those costs.

Yes. Some labor will be added back in the business over time as we open additional amenities as we're -- as we deem appropriate. So there will be some incremental labor. But as Josh said, we view a lot of the changes that have taken place as permanent in nature.

Next question is from David Katz with Jefferies.

My primary question, I think you just answered quite artfully, and thank you for that. What I also wanted to ask about is when we look across the space and your peers and the rollout of digital, and I know, Keith, you touched on this a bit. But how -- at what point could we be in a position to pencil something in terms of that opportunity for you, right? Because we have others that have kind of laid out arguably different types of strategies than what you have, but you're a participant as well. What light can you shed for us?

So look, as we look at this opportunity, we started down this road a couple of years ago when we signed our agreement with FanDuel. We approached it strategically a little bit different than others, whereas our focus was on creating cash flow and creating EBITDA and not building large infrastructure and incurring large losses to compete in this business. And so we've executed, obviously, a number of deals with FanDuel across the country, whether it's in Pennsylvania or recently in Illinois, in Iowa and Indiana and Mississippi, and hopefully, there'll be more as sports betting is approved across the nation.

I would tell you that today or as we think about 2020, just kind of the recurring EBITDA coming out of that business today is in the $8 million to $10 million range. And that includes Illinois that just launched in July, so it's not even a full year of Illinois. Now that $8 million to $10 million doesn't account for onetime fees that we will receive as a result of selling additional skins in other states doesn't account for the growth in other states. It doesn't account for the EBITDA and the cash flow will come out of our forthcoming online gaming application that we will launch here in the next couple of months. So it's $8 million to $10 million and it's growing. Once again, the $8 million to $10 million is really a full year or full run rate.

The next question is from Shaun Kelley with Bank of America.

Josh or Keith, either one, maybe I want to start with the Locals margins again. But I think one question we had was from the time you were open, it does look like your margins actually improved in Q3 over Q2. So I was wondering if we could dig into that a little deeper. What would drive that sequential change? I mean, again, you're open for longer. Some costs would come back. And admittedly, you're probably light on some of the low-margin stuff. But I'm just kind of curious on how we'd go from kind of up 1,300 to up 1,600, if you could elaborate on that, because it's very impressive?

Yes. Well, other than saying that we've got a tremendous management team here in the Las Vegas Locals market that is just doing an outstanding job driving the business, that's really at the heart of it. But setting that aside, I think the other explanation is the Las Vegas Locals business, quite frankly, started soft or started slow when we reopened in June, whereas other businesses in the Midwest & South actually started very strong, almost with a bang. Here in Las Vegas, it started a little softly and has grown. And I think as it has grown, we've obviously gotten better and we've learned what works and what doesn't work. And the team has done a great job. But the only real explanation is it did start slow in June and early July, and it has gotten stronger.

And the only thing I would add to that, Shaun, is, is kind of leading back up to the reopening period, there were a lot of questions around the -- what impact any weakness on the strip would have on our customer. And we were and some of our peers in the locals market were basically saying, "Look, this is a regional market like any other regional market. And if anything, we have kind of the backdrop of a very -- fairly strong Las Vegas economy." And I think that's what's proven out here. A regional customer is a regional customer.

Great. And then just as my follow-up, Josh, you've been very clear on, I think, the driving buckets for kind of what's going to be sustainable out of the margin improvement, pointing to both labor on property and then the promotional or marketing side. Now that we've got a full quarter of data, could you just help us a little bit with quantifying any of these aspects, either on the labor front? Maybe just a generic property, how much were down in FTE counts on a year-over-year basis? Or on the promotional or marketing front, how much is like marketing spend down or promo dollars down? Again, just to really help us kind of dial in on what types of magnitude of reduction have come out of the business.

Yes. Shaun, I'd really like to give you that information, but I think our competitors would like to hear the same thing from us at the same time. So I think each of the companies is approaching this in a similar way, but maybe unique to their own approach to the business. And so I think I want to withhold from answering that question.

The next question is from Felicia Hendrix with Barclays.

So Josh and Keith, especially today, we could see there's a lot of concerns in the market about kind of where we are in this COVID cycle. And so as we head into the colder months and the concerns kind of get greater about whatever you want to call it, second wave, third wave, do you see risks in the states that you operate in for reclosures? And then, Josh, your liquidity runway right now is very strong, but if you could just remind us of your balance sheet capacity to raise more funds if you needed to, that would be great.

Sure, Felicia. In terms of the risks of future closures, certainly, we don't control obviously that. And you can see and probably have seen in the state of Illinois, where they have started to put more restrictions on a variety of businesses, including casinos in certain locales or certain counties where the positivity rate has risen beyond a certain level. I think it was 8% in Illinois. So that certainly could be an impact, obviously, or risk to the business. We certainly view that as a short-term risk that obviously would pass through, but you certainly can't ignore that risk.

We don't see that in other states. We're not concerned. We're watching it in Illinois. The jurisdiction we're in as of now is fine. We're not in one of those jurisdictions that has to reduce their capacity to 25%, but we're certainly watching it. But certainly, any huge resurgence could be a risk to the business.

And Felicia, to your second question, in my remarks, I mentioned we have over $1 billion of undrawn capacity. We have cash at the end of Q3 of about $500 million or so. And specifically, we have the ability, even in this period of time with covenant waivers through our amendment, process to raise another. I think it's $600 million or $700 million of secured debt that we're allowed to do.

So we have more than ample capacity to last in excess of 2 years of complete closure. And that's at a run rate when we had kind of run through this the first time of about $65 million of closed run rate expenses. And we had different levels that we could have chosen to pull the trigger on to reduce those expenses even further. So I would say conservatively over 2 years of runway if we had to completely close the business, every property again.

Okay. That's super-helpful. And then, Keith, when you kind of go look at your Las Vegas Locals market, and you made the comment like with the Orleans and you're not seeing the convention business, stuff like that. What are you kind of anticipating in terms of -- I mean it could take a lot to get back to normalized? But just to speak, some kind of like breadth of life back into that part of the business. And then similarly, what would it take for you to open the properties that are closed now?

Sure. So I think as we think about the recovery or the ongoing recovery here in Las Vegas, 2 words come to mind, long and slow. I think it's just going to be a slow recovery. I think there is some pent-up demand, some people wanting to come out. When the governor recently lifted the cap or the ability to have meetings to 250 million or 10% of certain spaces, the phone started ringing and we had people interested in coming out and holding those events.

And so it shows that there is some demand for the product, but it's going to be a long slow recovery. As I said, the good news at the Orleans or -- yes, the good news at the Orleans is we have a strong component of locals play there that kept it very, very close to last year's record results and key last year was a record.

With respect to the closed properties, so there's 3 of them, they're all here in Las Vegas, Main Street, Eastside Cannery and Eldorado, we probably see reopening them in that order, but it will depend on how the business flows. We think that Hawaii and the downtown market will probably come back quicker than the other 2 markets, either the Boulder Strip market. We have good business at Sam's Town. We just don't have enough demand to open Eastside yet or the Eldorado. So as soon as the business demands it, but I'd expect sometime next year, we'd certainly get Main Street open.

Right. And just a quick -- just as far as the properties that were open, how is your market share? Was that relatively steady or improved?

The market share in Las Vegas, I would say, was steady to up. We actually -- depending on what period of time you run the numbers. For the last 3 months that they were reported, which would be June, July, August, we actually were up.

The next question is from Steve Wieczynski with Stifel.

So I want to go back to your overall database. And on your last call, you talked about like significant growth in your database during the second quarter. I just want to ask, was that growth similar in the third quarter? Or did that slow, which I assume is probably the answer? But just trying to gauge here a little bit more about how those new-to-property or new-to-brand folks are trending at this point.

Yes. Steve, I don't think we were alluding to that our database was growing disproportionately, if we -- if you took that away or if that's what we said. I think in reality, the customers we're seeing, we're seeing a rated customer that we obviously know and have seen before, hence they're rated. And they're playing at levels that are similar to prior levels. Win per units are up just because we don't have the dilution of kind of some of the other players that are in the database. And as Keith mentioned, we have a significant portion of the older demographic within our database that is not coming out and playing right now just because they don't feel comfortable.

We are seeing more of a younger demographic. But I would not characterize those as necessarily a new customer in our database, because once again, they -- because we know they're younger and we know their play. They're rated customers. And so we know them. And then lastly, the component that we've seen just as equally strength from that we spoke about earlier in the call in the question-and-answer session was the unrated segment has been healthy as well. And so I'm not sure if that helps answer your question, but that's how we're trying to frame it when we think about it from our perspective.

No, that's super-helpful. And then second question, you talked about October has been very similar to the trends you witnessed through the third quarter. But I guess for the rest of the quarter -- this might be a difficult question, but how are you guys thinking around some of the upcoming events that are going to be coming up in the fourth quarter, whether that's the next week or so around the election and then maybe around the holidays this year, which some folks may stay closer to home, and I guess that ultimately could be a benefit for you guys?

Yes. I don't think our crystal ball is that clear that far out. I mean we're benefiting from a regional business, where once again, largely people can drive to us. And so to the extent people stay closer to home, it just continues to benefit us. And if they decide to come to Las Vegas, then we'll receive that benefit, which is the benefit of having a diversified portfolio geographically. So what happens with the election and how that impacts people, does that impact spend patterns or them going out, you can log on to the sportsbook and place a bet if you want, but I'm not going to make a prediction at this point.

I think the -- one thing I was going to add to it, Steve, is I think that at least the way we think about who our customer is today, this is what they do. This is their past time. This is what they view as their form of entertainment. And so I think that's why we have largely seen this customer perform, quite honestly, so consistently. When they -- when we opened initially, they were the first ones to show up. And when we had to be sure we enforce social distancing and mask wearing, they kind of played through that. And when the unemployment benefits went away, they played through that.

Now there's no guaranteeing that they can overcome every single hurdle that comes their way over -- in the future, but I think in our mind and based on our survey of our customers and the customer trends that we're seeing in our database, that's really what we can discern from who is in our building these days. And it's -- to the extent they showed up on holidays last year, they'll probably show up again this year. That's the best we can go on for right now.

And Josh, could I ask one more real quick one? Have you seen any change in that 65-year-old-and-up customer? Or has it been just pretty status quo?

I think there's been starting to be small improvements in that, nothing I would call a significant trend at this point. But we have started to see some of them come back out and engage with us. If anything, it's positive, it's not negative.

The next question is from Barry Jonas with Truist Securities.

So I wanted to start with maybe approaching the risk question from a different angle. How do you think about risk to this model under the scenario that we have a working vaccine?

Well, so in the sense there's a working vaccine, if the implication or the game theory is that then more people will come out and participate, some of our customers who today aren't yet comfortable coming out will come out and join us. And so there's upside to the business. So I think a vaccine is incrementally positive to our overall business. Is it possible that some of the customers that are with us today then spend a little bit of time somewhere else, spending their dollars somewhere else, certainly, that is possible? As Josh said a few minutes ago, there's -- this tends to be their core form of entertainment. And so they're going to continue to play with us. I think there's a natural balancing effect. And once again, once some of the customers that come out that aren't used to -- or haven't been playing with us come back out, I think it's incrementally positive.

Sorry. I guess I meant more also on the cost side in terms of some of the amenities that have been removed.

Well, we're monitoring that as we go. And to the extent that we need to bring back amenities, we'll carefully monitor that and bring them back and make sure that they are positive and not a drain on the EBITDA of this specific property where we bring them back.

Yes. I think that's the -- I was going to say, Barry, I think that's the key, right? Where there are opportunities presented by customer demand, the -- our operations guys are taking advantage of that, but with the eye toward kind of doing it in a different business model with different pricing or under different circumstances to make sure that we're introducing amenities and other aspects of our business that may not be open today in the most optimal way possible.

So I don't think it's necessarily that we'll be -- we'll probably see some margin compression over time as a result of introducing new amenities. But the reality is, is that we're approaching those historically lower-margin businesses in a much different way with a much different customer.

Great, great. And then just one more from me. I'm curious to get more color on your foray into cashless gaming. How do you think about maybe upside on the top line or else on the cost side to justify the investment?

So first of all, it's about safety and security and providing our guests yet another opportunity to have kind of a contactless opportunity to engage in our form of entertainment as they come out. So that's kind of first and foremost. Second, I think there are opportunities to reduce costs in the business with less cash in the building. And it is obviously a marketing features -- frankly, our higher-worth guests don't need to, don't like to necessarily handle cash and insert bills in the slot machines. They can do it now seamlessly and upload and download cash. I think it's a real marketing opportunity, a real competitive advantage for us.

And in the few days, it's been live at Blue Chip, we've already had several hundred customers take advantage of it, and that's with no marketing. We just kind of turned it on quietly. We're just kicking off the marketing this week. So I think there's a real opportunity for it.

The next question is from Thomas Allen with Morgan Stanley.

(technical difficulty) 2020 EBITDA (technical difficulty) from...

Thomas, you're breaking up.

(technical difficulty) from sports betting (technical difficulty) between market access and what you're seeing on the retail sportsbooks? And I think you've had your (technical difficulty) any interesting trends there as we've kind of gone 2 years in?

Thomas, we really couldn't understand you. Gary, let's go to the next caller, and then we'll circle back and try Thomas again.

And the next question is from Jared Shojaian from Wolfe Research.

So I imagine the slot performance is meaningfully outperforming the tables right now. I know the data is not explicitly broken out that way. But I would also imagine that's probably affecting the mix on the margin side, just given the slots are significantly higher margin. Is that having a meaningful effect on the mix right now on your margins or would you say no?

Not really. I mean while we have fewer opportunities on the table games side, because capacity is limited there to 4 seats and the 21 table and fewer people at a craps table or the baccarat table, the average bets are increased on the table games side. And so we're yielding the table games business just as well as we're yielding the slot business. Clearly, 80% of our revenue as a company comes through slots. And so as they perform better, it obviously has a bigger impact on the overall margin of the business. There's no question. But table games is performing and is not dragging down the overall margin improvement.

Got it. And then just switching gears here. Just given what we've seen with valuations and the sports and iGaming names, can you just talk about how you're thinking about your FanDuel stake over the longer term? Is that something you would ever consider monetizing? Or do you believe there is strategic importance to holding on to it?

I think to date, we're very happy with that partnership, that equity ownership that we have. Obviously, it is worth a tremendous amount of value to the company. They've been a great partner. They've got great tech. They are a leader in the business, whether they're #1 or #2 in almost every state they operate in. So I think right now, the partnership is great. Longer term, 3 to 5 years from now, where that goes, I couldn't really tell you. We're not focused on that. We're focused on the next several years. And today, it's a great partnership, and we're happy with the ownership interest we have.

The next question is from Chad Beynon with Macquarie.

Obviously, extremely early, given that I think it opens in the next 2 or 3 days, Circa that is. But just in terms of what you're hearing with anyone who towed the property, or I guess, what the final product is and kind of who that caters to and how that marketing evolved, has anything really changed just in terms of how you view, how Circa fits into the downtown market? I believe most believe that it is a different product and it won't really take away from you and some of your competitors, but just wanted to get an update on that if you have any views there.

Yes. I would agree. I think it is very much a differentiated product. It is a higher-end product than what is down there today, generally speaking, with maybe exception of the Nugget, which is also a high-end product. And I think it's going to draw a lot of visitors to the downtown area to visit it, to look at it. Obviously, we have a property a block away and a property directly -- 2 properties directly behind it. So we will take advantage of and be the beneficiary of all the foot traffic going in and around there.

Remember, the lion's share of our downtown business is driven by Hawaiian customers mainly out of the island of Hawaii. And so all the traffic that comes down to visit Circa will be incremental. I think it's going to -- I think it is great for the downtown market. I think the investment overall is great. The product is going to be great. And just looking forward to having it open later this week.

Great. And then, Josh, on the CapEx, I believe you said $25 million for the fourth quarter and we're not expecting much in terms of slot CapEx in that budget. But how are you thinking about, I guess, the maintenance CapEx and the mix between gaming product and then other items around your properties going forward? Do you believe that there will be as big of a need or budget for updating gaming products?

Look, I think that folks are playing slot machines. And I think that we have to evaluate and make sure that we have the best slot product out on the floor at all times. And so our budgets will kind of reflect that. I don't think it means that it's any larger than it has been historically. But I'm not -- I don't think we know enough at this point to say if it will be lower or not. I think coming into next year, we would largely think as of today that it will be about the same. But the reality is, is I think that when you had a floor that had much more capacity than you're utilizing today and getting the results that you're getting today, you really have to rethink how the floor is laid out and how many slot machines you have out on the floor as a first step.

And then secondly, develop how you're going to reinvest in slots going forward and other types of gaming technology. But -- and it could be the same, because you're just trying to make sure you have the same product -- improved product, which is fewer kind of overall units out there. And I think that's the process we're going through now to try to figure out and understand exactly how we want to reinvest in a "smaller footprint."

The next question is from John DeCree with Union Gaming.

I think a good follow-up to your last comments, Josh, is a lot of markets you're still operating with pretty significant capacity constraints. I was wondering if you could comment, sorry if I missed it, if you already have about what you're seeing during peak periods? Do you feel capacity constrained at any point? And not sure we know when some of those capacity constraints might loosen. But could you benefit during certain times in having a little bit more capacity back?

So this is Keith, John. I would say for the majority of our properties, today during peak times, we're not really capacity constrained. We have a few properties that have lower machine counts. And therefore, think of the Delta Downs with 1,600 units, and they're generally at 50-ish percent restriction, they could use a few more during peak periods. But for the most part, no, we're not bumping into ceilings with respect to capacity. So -- now remember, we have significant reduced visitation throughout our buildings. So we haven't seen that problem through the opening phases.

Got it. That's helpful. And if I could ask one more, kind of do a 180 here. In kind of assessing, I think, an earlier question about the potential risk of additional closures, like we're seeing some reaction in Illinois. If we saw reduced revenue going forward for whatever reason, closures or the winter gets difficult, how much slack is in the system, realizing you've already cut a substantial amount of cost? I mean, if you saw a notable revenue decline, is there some flex? Are there some variable costs outside of gaming taxes that you could tweak if it was a sustainable period of lower revenue than what you're seeing today?

It's hard to -- it's a hard question to answer in a very theoretical environment. It depends on how much and where, is it slot-focused or game-focused and which customers are not showing up, is it the higher-end customers, is it the unrated customers. So it's a fairly theoretical question. And there's probably half a dozen different ways to answer it, depending on where that revenue decline is coming from, how much can we continue to reduce some of the non-gaming amenities that we have if there are customer reductions. So tough question. I don't think I can provide a very intelligent answer to you.

The one thing I would add to -- though, John, is like one thing that the crisis has given us insight into is, is there are very few fixed expenses in our business. And so we have a lot of flexibility to adapt. And to Keith's point, kind of where you adapt depends on where you're seeing weakness or what's happening to your business from a revenue perspective. But the whole industry has shown an ability to adapt to going from a significant amount of revenue to very little revenue quite quickly. So I think everything in between becomes just kind of iterations of that.

The next question is from Joe Stauff with Susquehanna.

Just 2 follow-ups, if I can, please. So Josh, I don't know if you can answer this or whatever you can give us, but what level of 2019 traffic or normalized trials, however you want to define it, would require, say, a more notable change in marketing spending?

I don't think that we would think about it that way. I think the way we're kind of marketing to our customer today is based on kind of ensuring we have the loyalty of our -- quite honestly, our best customers and then making sure that we are reinvesting at the right levels for the different tiers of customers that we choose to market to and want in the building from a profitability perspective. I think to the extent that -- we have a range of outcomes today. Obviously, customers that perhaps were previously getting reinvestment that aren't today because of their worth. And then you have guys who are worth more who are getting slightly potentially more investment than they were historically.

But I think the result is, is not so much driven by kind of trying to drive the -- historically, we did try to drive based on volume through the building. And I think that's what's different, at least in our approach, and I'm sensing of our peers as well, we're not trying to just drive volume for volume's sake. We were able to see kind of a lot better when the business was closed perhaps better than we ever had, who was profitable and who wasn't profitable and all the incremental costs that are associated with customers that may have been toward the lower end that you thought had some modest profitability associated with them that actually they weren't that profitable. And so I'm not so sure it's really dependent on kind of a return of some level of volume of customer, quite honestly. I don't know if that helps you.

No, it does certainly. I mean it sounds as though it's very [de minimis] driven at this point. And to the extent the world gets better, vaccine, et cetera, whatever, then maybe at that point there would be more increased marketing spending to go after the more casual customer. Is that fair?

Well, I wouldn't read that into it. I think that this model we've created that it's getting more efficient and more profitable that today is driving increased EBITDA vis-à-vis last year is a model we're comfortable with. And as this COVID pandemic fades, hopefully sooner than later, as the vaccine comes out and takes hold, hopefully sooner than later, and the business starts to return to normal, I mentioned in my prepared comments, we are not prepared to return to normal. We're committed to sticking with this refined business model. So right now, the model is creating profits in excess of last year's profits, and we're pretty pleased with that.

Understood. One follow-up, if I can. Just on the digital side, so it sounds as though you'll launch your real money proprietary offering sometime, I guess, in the first quarter of early next year or whenever that is. And you're using FanDuel's tech stack, if I'm correct. And what is -- what are the economics of that? Do you -- is that where you pay them effectively a B2B fee for using that tech stack? How are those economics arranged?

Yes. So you're right, we are using their tech stack, and we're actually asking them to run it for us, because they have the expertise to do this, where we haven't gotten into that business yet. And so we will get a revenue share out of that arrangement. That will continue to kind of -- that $8 million to $10 million that I talked about for 2020 will obviously continue to grow. We'd expect it to be much larger next year.

We have time for one more question, and that question is from Thomas Allen with Morgan Stanley.

So the $8 million to $10 million that you guys are generating this year on sports betting, can you help us just unpack that between the retail sportsbooks and the market access? And then just as a follow-up to that question, there are certain retail sportsbooks like in Mississippi that you opened more than 2 years ago and then some newer sportsbooks, can you just help us think about what you're seeing those doing to kind of benefit the broader properties and if there are different dynamics that you're seeing in more mature sportsbooks versus earlier-stage sportsbooks would be helpful.

Sure, Thomas. I'll take the first one. The $8 million to $10 million number that Keith spoke about is purely revenue share coming from FanDuel. It doesn't include the retail component. Retail component is included in individual property level results. The online piece is separated out. And that's what he was -- that's what Keith was alluding to, kind of the online and digital revenue share that we receive from FanDuel for their mobile sports, for their online real money gaming site in Pennsylvania. That's a business that's building throughout this year, right? So it's not the run rate of the business. So that's the first part of your question. Keith, do you want to take the second part?

Sure. Look, in terms of kind of as the sportsbooks mature, what's really helpful to us is FanDuel being a leader in the market, whether they're 1 or 2 depending on the states you're talking about, and the breadth of kind of sports offerings or the menu type of bets that you can make and having one of the broadest menus, some of the best odds is what attracts players. I think over time, we've seen the business continue to grow, let's say, in the Mississippi and attract more customers as the customers become a little more sophisticated about sports betting overall in a place where maybe it hadn't existed previously. They realize the quality of the app that FanDuel has, the quality of the offering, ease of use as well as just a number of different types of bets that you can make. I think that has helped. And so as the customer becomes more sophisticated, we see an increasing number of customers coming to participate.

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

Thanks, Gary, and thanks to all of you for joining today. And if you have any follow-up questions or would like to discuss further, please feel free to reach out to the company. Thank you very much. Have a good rest of your day.

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