Boyd Gaming Corp (BYD) 2020 Q2 法說會逐字稿

Good day, and welcome to the Boyd Gaming Second Quarter 2020 Earnings 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 and Chief Financial Officer. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone, and welcome to our second 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, and good afternoon, everyone. Thanks for joining us today. A lot has changed for our company since our last call in April. It was only 90 days ago that all of our properties across the country were closed, and we did not have good visibility as to when we could reopen. But here we are 90 days later, and we have returned to business across the country. Over the course of 6 weeks, starting in late May, we successfully and safely reopened 26 properties in 10 states. This is a real tribute to the skill and leadership of our management teams across the country. I'm grateful to them for all their hard work and dedication for getting our properties reopened in a safe manner.

I also want to thank all of our team members who stuck with us through these very difficult times. When the time came to return to work, our team members were ready to answer the call. They worked hard to get our properties reopened in just a matter of days, dealing with many new safety and sanitation procedures, and they greeted our guests with as much enthusiasm and friendliness as ever. Thanks to the efforts of the entire Boyd team, the reopening of our properties has been a remarkable success.

Since reopening every one of our properties, except for the California and Downtown Las Vegas have produced positive EBITDAR and free cash flow. And overall, we delivered gaming revenues within 11% of prior year levels for the month of June. We achieved these results, while operating with significantly reduced casino capacities and limited amenities.

As highlighted in our press release, our Midwest and South region achieved double-digit gains in EBITDAR and significant margin improvement even in the face of declining revenues. In Las Vegas, our Locals business was also able to grow EBITDAR and greatly enhanced margins despite declining revenues. The performance of our Las Vegas Locals business was actually much stronger than the reported numbers show. Both the Orleans and Gold Coast generate a considerable amount of business from out-of-state visitors and with tourism to Las Vegas remaining below pre-pandemic levels, it had an impact on the overall results of these 2 properties. When you factor out the softness in that segment of the business of these 2 properties, our Locals customers, including at the Orleans and Gold Coast, performed similar to our Midwest and South customers with strong visitation trends from our higher worth customers and increased spend patterns across the Valley.

In Downtown Las Vegas, the business model that has sustained us for over 40 years is presenting a temporary challenge. With the ongoing pandemic, many of our Hawaiian customers are hesitant to fly, particularly with a mandatory quarantine required upon their return. Combined with reductions in overall tourism to Las Vegas, we are seeing lower traffic counts throughout the Downtown market. As a result, our Downtown business is not performing at the same level as our other 2 segments right now.

While Downtown was the only 1 of our 26 reopened properties that was not EBITDAR positive during the reopening period. Thanks to stronger results of the Fremont, our overall Downtown operations were still breakeven on an EBITDAR basis. Overall, we are off to a great start since reopening, thanks to a focused effort by the entire Boyd team and our ability to successfully adapt to the environment around us. And importantly, the solid trends we have seen across the country in May and June have continued into July.

Beyond these positive financial trends, there are also encouraging trends within our customer base. While overall revenues are down, we are driving strong visitation among our high-value players and the average spend per visit and spend per admission are up significantly. In general, our core customers have not been deterred by social distancing measures, limited amenities or the masking requirements. While we have seen a slight decrease in the percentage of customers from the 65-plus age segment as a result of the pandemic, there has been an increase in higher worth customers from our younger customer segments.

In addition, we are seeing healthy growth in unrated plays since reopening. Based on the trends we have seen since our properties have reopened, including trends in July, we believe that these levels of gaming activity are sustainable. While we are successfully driving profitable revenues throughout our operations, we are also successfully controlling the expenses, building upon the significant long-term progress we had made prior to the pandemic. Since reopening, we have realized substantial new efficiencies in both marketing programs and SG&A.

We have also been selective with our amenities, staying focused on high-margin business to support higher worth play. As a result of these expense reductions and new efficiencies, we are now operating at significantly higher margins than we were before. We understand this is a fluid environment and that we will need to adapt as necessary, but we will not simply return to the old way of doing business. We have created a more efficient, highly focused, higher-margin business, and we intend to keep that philosophy in place after this crisis is over.

Just as we established a new model for our traditional business, we are also positioning ourselves for the interactive future of our industry. We do not see interactive gaming as a separate opportunity from our traditional business, rather, we see it as another way to engage with our customers. By focusing on the convergence of all guest experiences, gaming and non-gaming, digital and traditional casinos, we are seeking to create a seamless, high-quality entertainment experience that stands out from the competition. The growth potential of this segment of the industry has been illustrated during the recent closures. Interactive gaming revenues have more than doubled in New Jersey so far this year, surpassing the $500 million mark year-to-date. And in Pennsylvania, they have approached $250 million over the same period. By some industry estimates, interactive gaming could become a $10 billion industry over the next 5 years. And thanks to our strategic partnership with FanDuel Group, we are confident in our ability to emerge as a leader in the industry.

Today, our partnership with FanDuel includes retail sportsbooks at 7 Boyd properties, mobile sports-betting apps in Pennsylvania and Indiana and a real money online gaming site in Pennsylvania. But this partnership will continue to grow as new opportunities become available in states such as Illinois. FanDuel currently operates in 47 states, it is the nation's leader in both mobile sports betting and online casino gaming and generates significantly more revenues than its closest competitor. And considering FanDuel's dominant position in this space, our strong strategic partnership and our 5% equity stake in FanDuel, we are quite bullish on the value we have already created with this partnership and future growth opportunities available to us.

In addition to this growing partnership with FanDuel, we took another step forward in our iGaming strategy last week with the launch of Stardust Social Casino, a free play online casino app. This social casino is the first of more iGaming ventures to come as we establish Stardust as a leading interactive gaming brand.

In closing, there's no question that these are the most challenging times we have ever faced, but we have made exceptional progress over the last 3 months due to the incredible efforts of our team. While uncertainty clearly persists in today's environment, we are encouraged by the initial response to the reopening of our properties across the country. Customers have been very receptive to the new operating environment at our properties and the new safety protocols, and we are seeing strong visitation spend by our core customer segments. By reinventing how we do business in this new environment, we have established a new operating model capable of delivering higher margins. And through the expansion of our highly successful partnership with FanDuel Group and the launch of our Stardust-branded Social Casino, we are taking steps towards establishing our company as a market leader in interactive gaming.

These are extraordinary times, but we've been through crisis before. And each time, we have emerged stronger and smarter. And I have no doubt we will do so again.

Thank you. And I'll turn the call over to Josh. Josh?

Thanks, Keith. As evidenced by the margins that Keith spoke about in his remarks, we are executing a more focused and efficient operating strategy. One that reflects many of the philosophies, we have been developing and implementing over the last several years.

Our improved margins are the direct result of many factors, including the continuation of our strategy to focus on high worth customers. These customers have been at the very core of our developing and honing our capabilities over the last several years to drive profitable revenue. In addition, we have taken this opportunity to reduce a wide range of marketing expenses, including lower overall levels of reinvestment. We have been selective in the products and amenities that we offer. Focusing only on high-margin components of our business and deliberately avoiding reopening amenities that dilute our profitability.

We have repriced our products to reflect customer demand, limited amenities and operating restrictions. And finally, we have aggressively reduced SG&A, including corporate expense and other overhead-related items.

As a reflection of these changes, corporate expense is expected to be approximately $60 million this year, about 70% of 2019 levels. Our discipline around capital spending will also remain in place. We expect to spend about $115 million of capital this year, including $48 million in the pre-COVID first quarter and $20 million of nonrecurring items throughout the year.

With the exception of the California Hotel, every property has generated positive EBITDA as well as positive free cash flow since they're reopening. And as of the first week of June, the company as a whole, began generating positive free cash flow and continues to grow cash balances as a result of our operations. As of the end of the second quarter, we had approximately $1.3 billion of cash on our balance sheet, creating a net debt balance of $3.7 billion.

In a completely closed scenario, our current liquidity provides 19 months of operating cushion in a 0 revenue environment. Since our last call, we amended our credit agreement to waive covenants until June of 2021, and we issued $600 million of senior notes to provide additional incremental liquidity that is included in the $1.3 billion cash balance, I just mentioned. We expect to use a portion of our cash to repay the balances currently outstanding under our credit facility. Discussions are currently underway with our bank group to extend our credit facility and term loan A maturities of September 2021.

While the crisis and its related challenges are not behind us. We are off to a strong start, and we are focused as a company on ensuring we maintain discipline throughout our business, not allowing unnecessary costs and inefficient practices to creep back into our business.

That concludes our remarks, and we are now prepared to take any questions from participants on the call.

(Operator Instructions) And our first question today will come from Joe Greff with JPMorgan.

And congratulations on the results. You kind of maybe answered this a few different ways, if I may be have had more time, I could probably ask, right? But when we look back at the 2Q here, maybe EBITDAR (inaudible) that was in the first 2 months of the quarter than what it was in June? Just so we can have a sense of what it is sort of post (inaudible).

Joe, this is Josh. We're having a lot of -- you're breaking up pretty significantly.

(inaudible)

Try again.

Okay. If I was going with...

That's better.

I'm just trying to (inaudible). So what I was trying to get at is I was hoping if you could maybe break out, in the 2Q, what EBITDAR was in the first 2 months of the quarter (inaudible) some degree of negative? And then what it was in the last month of the quarter, to get a sense of sort of maybe the sort of run rate EBITDAR at the base level. And then just along those lines was (inaudible) as you are here in (inaudible).

So Joe -- operator, Joe, as we can't understand his questions, so probably best to move on to the next person. And if someone else could hear Joe's question, maybe they could ask it on his behalf.

Our next question will come from Felicia Hendrix with Barclays.

Joe, I apologize. I think I heard what you said, and it's part of my question, too. So I'll help out here. I think what Joe was first trying to ask is if you could kind of parse through the quarter and help us understand what you look like versus others in the EBITDA, so we could calculate the OpEx per day, which kind of leads to my question. Keith, you mentioned that if -- the operating costs in Las Vegas Locals, if you make the adjustments for the early stuff and Gold Coast are similar to the regional. So can you really just kind of help us out with like what the ongoing or the current level of operating cost per day are so that we can kind of calculate appropriately going forward?

And then just with this whole kind of cost structure, does this all really apply to when you're fully up and running? I know that there's a lot that you've done to pull out costs from your business. But it just seems logically that there's got to be some costs that do come back. So maybe you can just help us better understand what's permanently gone. Is it more like back office stuff versus other stuff? And like could there be other costs that could come back and if so, what are they?

Sure. Felicia, this is Keith. You had a number of questions there. Let me start kind of at the end on the cost structure, and then I'll let Josh take the first part of your questions. Look, we have carved a lot of cost out of the business. They're down significantly and those costs are across the board from corporate expense, to marketing costs, to labor costs and the result of both having less maybe amenities open as well as just having a smaller footprint with generally 50% of the casino open. We feel like, as I said in my prepared remarks, that we have kind of built a new structure for the business. And while admittedly, some costs will come back in over time as the business grows, we think largely that many of these costs will stay out of the business and that we won't have to bring them back in, whether that be in the form of labor or be in the form of maybe not bringing back all the amenities, buffets are a great example. Sitting here today, kind of hard to understand how buffets come back into the picture going forward in the environment we're in today. So once again, we believe that the structure we have is applicable going forward. One of the things you have to remember is that while we're only operating at 50% capacity, that's generally all we need weekdays. It's weekends where we feel the pinch a little bit where we can use more capacity and pick up more demand but as we have focused on a higher worth customer right now, the capacity we have is suiting us just fine. Josh, I'll let you pick it up from there.

Yes. So Felicia and partly to Joe as well, I think the difficulty in trying to answer the question about the kind of run rate of expenses, we have to look at just the period of time that we were open. Obviously, we had increased expenses during April. Most of April because we had -- we were still paying wages and still had team members employed before we went into a furlough status. So -- and I don't have just the kind of June reopen period. That would be the one I would have to refer to because that's when we had the most properties open consistent, the most consistently. We did even continue to have properties open throughout the month of June.

So I think it's a little hard to answer the question is kind of what the kind of run rate operating expenses with the information I have in front of me, but if either one of you want to call separately, I'm glad to try to give you more color or help you through it. It's just really difficult to kind of compare the individual months given how different every month really was.

So -- and I think the other thing I would say just generally in terms of kind of the sustainability of what we're doing here is I think we're trying to build in a discipline and a thought process of -- we're starting from a clean sheet of paper, really, from being closed. And so as we incrementally add amenities or incrementally add marketing, we have a much clearer picture of the actual impact on profitability, and we can make those decisions as to whether we want to go to that next step or even pull back. So I think to Keith's point we believe a lot of this is sustainable. A lot of it is philosophical around how we choose to run the business going forward. But a lot of it also depends on what happens going forward with respect to customer demand and competition as well. So...

And just in terms of trying to back into the number, I mean, can you do something like use -- because you on a fully shut down basis, your OpEx per day was like $1 million, right? So could you use like that for the first 2 months and then back into what the third month is? And like does that kind of get us there in a back of the envelope kind of way?

I'd really have to sit back and think about it. I mean, maybe you can call me after this and we can help think it through.

Okay. And just kind of just as a follow-up, you guys aren't the first casino operators to say that you're seeing more younger players, not only in the numbers but spending more. What drives your confidence that that's sustainable? And how much of -- I know this is probably really hard to parse through, but how much of fiscal stimulus do you think is driving your traffic or that traffic?

You're right. It is really hard to parse through in terms of where our customers' kind of disposable income is coming from and why they're walking through the door. The good news is they are walking through the door. The good news is they are participating with us. The good news is that most of these younger customers are at a higher worth segment so we have their information. And therefore, we're able to not just track them, we're able to market to them going forward and bring them back into the building. We may be getting a larger share of their wallet today. But the point is they're coming into the building, they're participating with us, they're enjoying the product, and we'll be able to continue to talk to them going forward.

So I think it's very much a positive that we're seeing growth in the younger demographic. Look, when the pandemic finally runs its course, whenever that is, the older customer will come back and then we'll end up with a more robust database of higher worth customers. So look, I think we feel really good about the direction of the business right now and the customer traffic we're seeing and the demographics of that customer traffic.

Yes. Just to add to maybe what Keith said there, a couple of things. Number one is I think the decline in kind of older customers has not been as dramatic as maybe some people may have thought. There is a decline, but it's not in a meaningful way. So I think that should be noted. Secondly, I think is -- and Keith alluded to this, we do have an opportunity to build increased loyalty from that younger demographic as they're coming through the door, and we are seeing increased levels of that younger demographic and our track to play.

What I would point out in terms of this -- I do think probably a little bit more of this unrated play is coming from potentially the government's stimulus and some of those other things. But the reality is, is the customer -- the younger demographic that we're talking about is gaining. And so the alternative -- the entertainment alternatives or whatever is driving that customer plays, probably a little bit less to the extent of what they're participating in because they are coming in to participate in what we have to offer and gives us an opportunity to build that loyalty and that relationship with them. So no doubt, some of this is driven by the unique circumstances we all find ourselves, but part of it is also that younger demographic is just participating more in what we have to offer.

Your next question will come from Carlo Santarelli with Deutsche Bank.

Keith, Josh, if I just came at, I think, similar to maybe what Joe was asking about and what Felicia followed up on. If I look at kind of the data that you did provide or that the revenue kind of growth -- or sorry, revenue contraction within Midwest and South segment as well as that of the Locals market, coupled with the revenue you reported and the margin growth you reported, it would seem to imply that maybe this -- the Midwest and South for the period that it was open, hit about $64 million of EBITDA and about $22 million in the Locals market for the period that it was open. And then if we were to think about those results, relative to the period where you were closed and what you ultimately reported, that would kind of give a sense of the burn rate during that period. Is there anything flawed with that? I was kind of getting to a 41% margin for Midwest and South and 45% for Locals?

I think that's about right, Carlo.

Okay. And then if we -- if I think about those margins, clearly, look, I think the Locals market is probably advantaged because your competition, although significant, is kind of in the same operating environment that you are and maybe has similar financial goals and whatnot. But in the Midwest and South, maybe you're consistently competing with a more -- a broader array of competitors who might have different strategies of how they're going to go about it. So my question is the sustainability of the margins, as you kind of spoke about before, how much of that is predicated on kind of the way that your competitors react moving forward?

Well, clearly, there is a portion of that, that is related to that. But I would say it's not the majority of it. We -- as Josh indicated, as we talked about, we have crafted a different business model as we've come out of this closure period, with the benefit of being closed and able to take a fresh look at everything and have rebuilt segments of the business. And so we're able to delayer some of the marketing programs and have a more efficient process and marketing programs going forward. As we did before the pandemic hit, we weren't chasing revenues. We weren't chasing our competitors' marketing programs. We pay attention. We may have to react but we're simply not going to add costs back in because that's what the property next door does. We're not ignoring it, we're not being ignorant of what they are doing. We're paying attention, but we'll be very disciplined before we start layering programs back in, because once again, we remain focused on a higher worth customer, it's not about volume right now, it's about quality.

I think the one thing that I think may help people try to understand this is it's a big difference starting from a business that is running and trying to change how you operate and implement philosophies that may take us longer to execute on, whereas from the perspective of starting from really a closed position where you have no customers in the building and building back from that, it's a much different situation and circumstance from which you're coming from and being able to make decisions. And it's easier to get rid of some of the things that you may have been trying to get rid of and we're going to get rid of, but just was going to take longer to get there. And I think that's really what we've been able to do. And then the question really is, how far do we go back to where we were? And I think that's yet -- that story is yet to be told, but we're trying to be disciplined around how far we move back down that path.

Great. If I just could ask one follow-up. In terms of what you're seeing in July, you guys mentioned that the positive trends have continued into July. If I wanted to kind of parse into that comment as it pertains to the Midwest and South, are you guys seeing potentially a schism between what you're seeing maybe in the Midwest and Central regions relative to the strength of demand in, call it, the Southern areas, Louisiana, Mississippi, et cetera, Or is it pretty uniform across the North and the South right now?

I think the way to think about it as opposed to North and South is that the trends that we've seen in July, as I said, are similar to the trends in June, maybe what I meant to say was the business has been very stable since we reopened. So the types of declines in revenue we saw in June exists in July. It hasn't accelerated, hasn't decelerated. The EBITDAR that we saw in June, we're seeing similar results in July, not significantly up, not significantly down. Margins are relatively consistent between kind of the June and July time frames. And then look at it between North and South. But once again, whether you're in the Midwest north or the southern part of the country or Las Vegas, as you look at their June trends, July across the board, a similar region by region.

And our next question comes from Barry Jonas with SunTrust.

Just to start, I believe there are still 3 properties that remain closed. What are your plans there? Have you been able to shift any play from those 3 to other properties?

Yes. We -- there's currently -- there are no current plans with respect to reopening those. One of them is in Downtown, Las Vegas, which as you heard us talk about, is right now, kind of the most challenged segment for us just given restrictions in Hawaii and lower tourism overall in Las Vegas. The other 2 are smaller properties, and it's a demand-based calculation on our part. So once the demand starts to pick up, both Downtown as well as around the 2 smaller properties, that's when you'd see us reopen those. We don't have any dates right now.

Okay. Great. And then, look, I think it's striking, the trends in July are still strong despite seeing some second waves of cases. Maybe just any color on why you think there hasn't been that impact? And I guess with that, how should we think about the potential for reclosure risks there?

Well, thus far, our customers have not overreacted to the safety or sanitation protocols we put in place. In many cases, they're very happy with them. Whether it's wearing masks or whether it's increased sanitation, they generally are pleased with what is going on. In many cases, we didn't have to have our customers wear masks when we first opened, and then kind of mask requirements came into place. We didn't see much, if any, deviation and kind of customer behavior between those 2 periods of time. So customers seem to be accepting of the product.

I will tell you that as a company, we do a very, very good job on sanitation measures. I don't say that just as a proud CEO, but if you talk to the regulators around the country, when they come into our buildings and talk to us and look to enforce these things, they tell us that the steps we've taken are above and beyond most, if not all, of our competitors. So we feel very good about that. And our customers feel very good about being in a safe and a clean environment.

With respect to future closures, the only thing I can say is those are not conversation or topics that are coming up as we talk to regulators or state legislators. The conversations are all about enforcement of existing guidelines, whether it be masks or other CDC requirements. And once again, we've -- we're kind of at the top of the list when it comes to that. As you paid attention, you've seen that the requirements have gotten tighter from no masks to masks, in some cases, bars have had to be closed. And so while the restrictions have gotten tighter, it's interesting that the level of play has stayed the same. So it certainly doesn't feel like, and we're not having those conversations about future closures. It's all about enforcement, it's all about compliance, it's all about paying attention to what's going on to help stem the spread of this terrible virus.

Great. And then just a quick one. Just wondering, did you guys receive any proceeds from the CARES Act?

We didn't take any loans if that's what you're referring to, Barry. We -- Yes, no loans. We received a partial benefit for some of the expenses we incurred related to keeping our team members on staff and paying them for a longer period of time.

And our next question will come from Joe Greff with JPMorgan.

Let's give it another try. Can you hear me now?

Perfect.

Joe. You can't ask the same question again, however.

Well I didn't hear the answers to those questions asked for me. So I just -- I'm not going to waste anybody's time. So like have you noticed any of the Las Vegas ship operators trying to encroach on the Las Vegas Locals customer? And if you anticipate experiencing that, how do you guys compete in that regard?

It's interesting question, Joe. We really haven't. In prior times, you've seen some big ads and some big offerings to have Locals come in and mostly dine in the restaurants and maybe go shopping in the retail malls. You're not seeing that this time. And so that's obviously a good sign just from a competitive standpoint. So nothing has popped up in the time that they've been open, and we've been open.

Great. And then going back to the sort of the question of daily run rate OpEx. When you're sitting here at the end of July and you're looking at your property -- and your property portfolio and corporate, are you fixed to what you deem is fixed expenses? Are they the same or lower than where they were run rating at the end of the quarter? Just to get a sense of maybe how much more margin opportunity there is? Or conversely, maybe how much you're adding back given what you anticipate or presently are seeing in terms of revenue recovery? And that was all for me.

Yes. So as you think about July, once again, very consistent with June, if you think about margins very consistent, a, I would not think that those margins can grow, they're pretty healthy where they're at today vis-à-vis where they were at; b, we really haven't added any costs back. And so when I indicate that the business has been very stable, it actually has been remarkably stable, since the 4 weeks in June and the first 4 weeks of July.

Our next question will come from Steve Wieczynski with Stifel.

So if we go back and think about what you've seen so far in July, I'm not sure if you answered this, and if you did, I apologize, but have you seen any of your competitors across the country get more promotional over the last couple of weeks?

I would say, whether it be here in Las Vegas or across the country, that the promotional environment remains rational. As always, you have a one-off here or there that has added back some level of promotional activity. But to the largest part or to the largest extent, it is relatively stable, relatively rational. Nobody's out there adding back layers of marketing.

Are there any markets you would call out as being overly promotional right now?

No, not at all.

Okay. And then, Josh, you're probably going to hate this, but I'm going to ask another sustainability around margin question. So this is going to be a little bit hypothetical, and I know you love this quite, but let's say, a year from now, the world is back to normal. There's a vaccine, it's successful, blah, blah, blah. Your casinos aren't capacity limited anymore, and all your non-gaming amenities are fully operational. And I guess what I'm going to try to get at here is under that scenario, what could your EBITDA flow-through look like somewhere in the future? And if you don't want to answer that, maybe do you think that flow through could be significantly higher than where it was pre-virus?

Yes. So you're right, Steve. I don't like those kinds of questions, especially in the middle of a pandemic. But I do think -- maybe this is how I would try to answer it to provide an answer is -- and Keith touched on this in answering other questions before. Number one is I do think that a lot of what we have accomplished so far, and maybe, some of what we have accomplished so far is sustainable in terms of taking costs out of the business. And so by the very nature of that, I think that our flow-through can be better going forward, depending on the health of the customer and the revenue that we're seeing from that customer and where it's coming from, quite honestly. Right now, we've got the best customer that -- I mean, if you step back and think about the operating environment we're in today, it's the best of all environments other than having it occur in the environment of a pandemic. You have limited amenities, you have slots, which is largely doesn't need much in the way of labor. And you have a customer that wants to be there that you're not having to market aggressively to get to come in the door, and many are not getting marketed to at all. So these are customers that want to be in the building. If that kind of quality customers is with us a year from now in your hypothetical scenario, and that's what's growing then the flow-through is going to be fairly significant.

And so I think those are all the kinds of things that make -- create where we're at, a little bit of uncertainty around what amenities are added back, if any? What's the quality of the customer? How much further down in the database are we seeing increased demand or marketing to that customer? All of those things are yet to play out over time. And we're going to try to be as disciplined as we can and retain as much of what we've accomplished so far in the last couple of months going forward.

And our next question will come from Jared Shojaian with Wolfe Research.

So in the month July, with the 3 properties still closed, are you thinking your total company-wide EBITDA could still be higher year-over-year for the month? Is that how we should be thinking about July here?

Higher than what Jared? Higher than prior year?

Than July of last year.

Yes. Look, I think all I want to do at this point is just suggest that -- reiterate what Keith has said, which is what we've seen in late May and June is continuing in July. And so if that leads us to be ahead of prior year, so be it. I think that ultimately, the level of business that we are received -- that we are receiving, the cost structure and all of those things are not changing. So I don't think I want to get into projecting individual months going forward or anything like that. But I think what I want to do or what we want to do as a company is just kind of give you the framework to make a decision. And along those lines, nothing is really -- the trends and the customers and the expenses and everything else is not -- you can't discern any difference between what we saw in June.

Maybe what Josh is trying to say, we're not -- we haven't provided guidance, we're not providing guidance. And when it gets to year-over-year comparisons, we've highlighted trends, but a lot comes into play last year, calendars and other things going on. So -- but generally, just not providing guidance. So unfortunately, it's hard to provide any more color than what we've already done.

Okay. And Josh, you mentioned you turned free cash flow positive in early June. What's the plan for the cash, assuming these trends continue, are you hoarding the cash? Are you paying down debt? How are you thinking about that right now, just given, I think you said you have 19 months of liquidity on hand?

Yes. So what we plan to do is, I guess, once we have the extension of the credit agreement and the term loan A in place, which we expect to have happen in the next couple of weeks or so, then we would use the cash to pay down any outstandings under the revolver. That will lead us to have extra cash beyond that. And so our liquidity at that point, which we're going to continue to maintain, is our availability under our revolver and our cash balances at that point. And so we'll continue to kind of manage our liquidity based on what's happening in the world around us.

Our next question comes from Thomas Allen with Morgan Stanley.

Kind of 2 clarifying questions. The first is really encouraging to hear you guys talk about how positive trends have continued into July. But if you look at the hotel industry, for example, you saw a really strong July 4 and then business slowed down a bit in the second and third weeks of July. When you say that business has continued are you saying week by week by week, it's just continued to be stable? Or has it been the month of July has continued versus June trend?

So when we look at the -- so we get, obviously, daily reports on our performance, and that daily performance looks consistent with what we saw in June as well as kind of a month-to-date. It's not one weekend is making the month or anything else like that. Keith, I don't know if there's anything you want to add to that. But I think it's -- when we say it's consistent, it's not driven by a nuance in the calendar or anything of that nature.

Great. That's encouraging. Great. And then, Josh, just thinking, trying to extrapolate first quarter results out to the coming quarters. Did you book CARES Act benefits in -- sorry, the second quarter into the future quarters. Did you book CARES Act benefit in 2Q? And so should we kind of take those out for how we're thinking about forward numbers?

Well, I don't think so because then you would have to layer in the incremental labor that we had on that's no longer in the business, right? It all sets that labor that's not in the business. It's an apples-to-apples kind of elimination, if you will. We had higher increased labor as a result of carrying staff well into April. It is partially, not totally, offset by those CARES Act. So if anything, for the quarter, you would adjust some incremental labor cost out of the results and get even a little bit better results.

Approximately, how much was it, Josh?

I don't actually have the final number. I just know it was just partially offsetting the labor costs that we had on staff until we made the difficult decision to furlough team members.

Our next question will come from David Katz with Jefferies.

To the degree that you can, can you -- I wasn't sure that my question was going to be funny, but I hope everyone finds it at least interesting, if not amusing. When we look at gaming floors, one of the drawbacks we have is we haven't really had much of an opportunity to go and see properties. I assume that it's different market to market, but we'd be seeing gaming floors with every other slot machine turned off. We'd be seeing table games separated with plexiglass up as we're seeing in many other aspects of it. Are there any markets where that is not the case today? And if you had to speculate such a tough word, but I mean, is this some version of what the new normal is going to look like with spaced out gaming floors? And the nuts and bolts of why I'm asking is we look at our property models, and we're thinking about what -- whether we should be adding back slot machines that are shut off today and table game positions that are shut off today and what that could turn into.

So as you think about our portfolio, 29 properties spread across the country, generally, we are at 50% capacity. Generally, it is every other slot machine. There are some unique issues state-by-state or property by property. We generally have barriers at our table games, which allow for 4 people at a 21 table socially distance versus 3 and a few more people are on the craps table. But the easiest way to think about it is we have 50% capacity on our casino floors is the way to think about it.

Is that the future of the business? That is -- I'm not sure that question can really be answered. How does the pandemic change the world around us a year from now, and how are customers reacting to just being in large groups or larger groups a year from now, I don't think any of us have that answer, and I for one, I'm not willing to speculate as to what that could look like. We're focused on running our business today, focused on kind of maintaining the success and the momentum that we've generated over the last 6 or 8 weeks and continuing to evolve this business in a very fluid environment and just kind of adapt as we go. And that's what our focus is today and will be in the future. And whatever the future brings, we will be prepared for it, but I'm unwilling to speculate what that may look like a year from now.

Fair enough. And if I can just follow-up on one of the issues that came up earlier around the degree to which the Strip may be delving into your customer base. We've had a number of discussions throughout this. And Josh, I have heard you talk about the notion that the Strip is largely decoupled from the fortunes of your Locals business. Again, is that something that you think is sustainable, permanent sort of ongoing?

I think you have to think about the Strip business and understand how that model is built, and I know you do. But when you compare it to the Locals business, the casino product is priced differently. And in the past, when the Strip has marketed to Locals customers, it's really been more on the F&B or the non-gaming side, not so much the gaming product. And right now, obviously, there is very limited kind of non-gaming amenities that exist on the Strip. And so unless there's a wholesale change in how they market their gaming product, I don't think you're going to see Locals gravitate many big numbers to the Strip.

And our next question will come from Shaun Kelley with Bank of America.

I just wanted to follow-up. We've talked obviously a lot about the margin and cost side, but maybe we could just dig into the revenue side a little bit more, right? So we're seeing kind of -- or run rating at sort of down high teens or type revenue numbers in the regional markets. What's your insight? Or kind of what's your thought about how much of that is simply driven by what seems to be a very meaningful capacity control?

And then just kind of what are your thoughts on how much of this is being driven by the reduced marketing efforts itself? And is there a piece of revenue that may not come back? It's okay because it's probably quite unprofitable. Obviously, we're trying to pare that back throughout, but just kind of how do you weigh those different factors based on the data that you're seeing?

Well, I think those are all factors that are part of the revenue decline. It's not really possible, and we haven't even attempted to kind of discern, is this a capacity issue? Is it a marketing-driven issue? Is it a customer issue in terms of how much wallet they have or their discomfort with coming out to participate? It could be any number of things. And once again, midweek, we don't really have capacity issues. We have plenty of capacity. It's really a weekend issue. So I think once again, not really possible for us to parse through that and kind of give you any sense of how much is maybe attributable to each one of the things you mentioned.

Maybe without quantifying it, Keith, just any thoughts on -- do you think there is a material piece of, let's call it, unprofitable revenue left in the business? People that were coming on some of these heavily, heavily discounted promotions in certain markets that is clearly going away in an environment where you removed that marketing, again, kind of full stop. Is that -- do you think that's material to the overall? Or do you think you'd already done or optimized for a lot of that pre-COVID?

I don't know if it's material. It's certainly a part of the decline because as you look at the lowest end of the database, you see it continue to shrink. It was shrinking. We've talked about this for a couple of years in terms of our focus on driving profitable revenue. But clearly, during this pandemic and since reopening, it has continued to shrink, it's continued to go down. It actually is decreasing more than the higher worth segments. Frankly, our highest worth segment has grown, which is very much a positive. And so the lowest worth segment is down the most. So yes, that business has gone away, which attributes to the decline in revenues.

That's helpful. And then one last one for me. It would simply be, josh, I think in the prepared remarks, you referred to a little bit of what was going on with the CapEx line. I think you said $115 million, $48 million of that was in the first quarter, really sort of pre-COVID. And I think there may have been finishing up with some projects or something and then $20 million on nonrecurring items. Can we sort of adjust for those factors and get to a sort of an ongoing run rate? Is that a number you could help us with, just for what we should think of in a stabilized environment from here either per quarter or for a full year going forward?

Yes. So Shaun, I think the reason I gave the components was so people could start to try to figure out what kind of the core maintenance run rate would be if we had to go to that kind of closed or minimal maintenance environment. And we had -- and that came into around $60 million or $70 million, I think. I don't think that's necessarily a good run rate if we are "in a more typical environment." I think it's more like the $120 million because you'll have more things that need to be maintained and more things that need to be freshened up and rooms to be done and all of that, where we don't even have all of our rooms available to customers at this point and all of our restaurant products. So I think you have a more kind of recurring run rate of about $120 million or so. But look, I think to be fair, we've got to kind of get through the next several months, evaluate where we're at, look at what we begin to feel like next year is going to look like, and then we'll kind of update people on what a good number is.

But in terms of just base, I think kind of core where we have to cut back as far as we need to. It's probably in that $50 million, $60 million, $70 million range. More run rate maintenance capital in a more "normalized environment", it's probably $150 million to -- $115 million to $120 million.

And we have time for one last question, and that will come from John DeCree with Union Gaming.

Josh, I'll try to build on that CapEx question a little bit and tie it back to some earlier comments about maybe parts of the business that maybe have changed, if not permanently, at least for the foreseeable future, in buffets or something that gets tagged a lot there. Maybe room is not a lot coming back online. When you start to pick up CapEx spending again or even when you think about your maintenance budget, what types of things will you be spending capital dollars on either maintenance or ROI as the business shifts and if it kind of shifts more medium term, if we're not going to be doing as many restaurants and F&B or something like that. Where do you think the dollars go?

Yes. I don't really think it's really different than what we're talking about today. I think it's really that either the business is growing and the buildings are getting more use and that's how it's evolved. And therefore, you're getting more use out of the buildings that require a higher level of maintenance capital. I don't think it's anything incremental to what we're doing today other than for those reasons.

Fair enough. And I don't think we could let you off the hook without talking about M&A. Obviously, an unusual market, but there'll be some stuff, obviously, for sale. And curious to get your thoughts on your new operating model as it changes how you look at M&A? And if over the near term, if you've got some confidence or enough confidence that you might be an active participant if there's anything out there worth looking at?

Maybe a couple of comments. It's hard in this environment, given everything that's going on to think about M&A and purchasing assets. I said a little bit earlier in my comments and answer to your question, our focus today is just on running this business, continuing the momentum and the success that we've been able to create in the last 6 or 8 weeks and continuing to adapt and evolve in what's a very fluid situation. As rules change masks -- or no masks to masks and closing a few bars and as this evolves, this pandemic evolves, we need to evolve with it and be extremely focused on our core business and making sure that we're doing everything right, making sure we're not allowing cost to creep back into the business and that we continue to focus on driving profitable revenue. So that is what our focus is today. And we'll just kind of adapt as time goes on.

And this will conclude our question-and-answer session. I'd like to turn the conference back over to Josh Hirsberg for any closing remarks.

Yes. Thanks for all the good questions today. And we've been able to provide some valuable insight into what's going on in our business, and we appreciate your time today. And if you have any follow-up questions, that you'd like to dig into, please feel free to reach out to the company. Thanks again, and everybody stay healthy.

And the conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines at this time.