Boyd Gaming Corp (BYD) 2007 Q3 法說會逐字稿

Good day, day, ladies and gentlemen, and welcome to the third quarter 2007 Boyd Gaming earnings conference call. My name is Francis, and I will be your coordinator for today. At this time all participants are in listen-only mode. We will conduct a question and answer session toward the end of this conference. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded for replay purposes.

I would now like to turn the call over to Mr. Keith Smith, President and Chief Operating Officer. Please proceed.

Thank you, operator. Good morning, everyone. Welcome to our third quarter conference call. Joining me on the call is Paul Chakmak, our Executive Vice President, Chief Financial Officer and Treasurer.

Before we begin, I need to remind you that our comments today will include statements relating to our future results including the financial outlook and expectations for our fourth quarter 2007, our expansion and development projects and other market, business and property trends that are forward-looking statements within the Private Securities Litigation Reform Act. The Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. Actual results may differ materially from those projected in any forward-looking statement as a result of certain risks and uncertainties, including, but not limited to those noted in our earnings release, our periodic reports and our other filings with the SEC.

I would also like to remind everyone that 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 8K furnished to the SEC today, both of which are available in the investors section of our website at www.boydgaming.com. We do not provide a reconciliation of forward-looking measures due to our inability to project special charges and certain expenses including pre-opening expenses.

Finally, as a reminder, we are broadcasting this call on our website at boydgaming.com and streetevents.com.

Earlier this morning we released our third quarter results. The results for the quarter were in line with the earnings guidance we provided to you on our last call and reflect continued improvement at three of our four core operating segments. Here in Las Vegas we recorded our highest quarterly adjusted EBITDA increase in two years, and downtown Las Vegas again reached a new record level in adjusted EBITDA for the third quarter. In the Midwest and South Treasure Chest has achieved a new baseline level of performance generating net revenues and adjusted EBITDA at similar levels for the fourth consecutive quarter. However, still far ahead of pre-hurricane levels.

As expected, Blue Chip's results decreased due to the opening of a new competitor in August 2007. In Atlantic City, Borgata continues to lead the market in almost every category, but most important Borgata's operating income for the quarter grew almost 6%, as we continue to refine our operations and avoid participating in the aggressive promotional environment that continues to exist in the Atlantic City market. Lastly, at Borgata we're looking forward to the opening of The Water Club to further elevate the Borgata brand and maximize the potential of last year's expansion.

Now I would like to spend a few minutes talking about the progress we're making on each one of our current growth initiatives. Although the fire at The Water Club set back our opening schedule, we're looking forward to the opening of The Water Club prior to next year's busy summer season. We expect all costs to repair The Water Club fire damage will be covered by insurance less certain deductibles. Furthermore, we're very excited about the plans that our partner announced earlier in the month for their new property in Atlantic City. The addition of another must-see property to the market will continue Atlantic City's transformation into a true resort destination. There is little doubt in our mind that Borgata will benefit from this new development, not only because of the additional visitation it will compel, but also because the two properties will be connected.

Lastly in Atlantic City there was also some news recently about the Atlantic City Express or as we refer to ACES, a joint venture that includes Borgata and Harrah's. The venture is planning to launch a train service between New York and Atlantic City in the second quarter 2008, and we'll have more information on this new service before the end of the year.

In Northwest Indiana at Blue Chip, our 300-room hotel project, we'll add a new dimension to the operation that we believe will allow to us expand our reach with a more complete regional destination experience. We remain on track to open the new tower in late 2008, and we continue to feel optimistic that this project will strengthen our long-term competitive position in the northern Indiana market.

In south Florida, as we have said previously, in light of the challenges facing the new casinos in Broward County we're taking our time to carefully and thoughtfully study the market and develop a project that that will be successful and will provide an acceptable level -- an acceptable return on our investment.

And on the Las Vegas strip construction on Echelon continues to ramp up in accordance with our development schedule. Construction procurement is well underway with significant interest from the contracting community and all aspects of the project. As we've indicated before, our development team including our contracting partners, remain confident that we will be able to attract sufficient construction personnel to complete the work.

With regard to our branding initiative, we began the first phase of our implementation process a few days ago with the realignment of our Club Coast program resulting in a player's club platform that is consistent throughout the Company.

As we have previously mentioned, our branding initiative will position our individual properties as part of a larger network, creating additional synergies and further leveraging our highly regarded blend of gaming excitement and personal service. Our goal is to build and reward customer loyalty, drive cross-property visitation and offer the ability to seamlessly earn and redeem rewards in any Boyd Gaming property throughout the country. We're poised to begin the second phase of this initiative in January with the launch of our new One Card program. We anticipate completing the roll-out of our new One Card program in the second quarter of 2008. We will share more information with you on our next call as we continue to roll out this program.

In summary, while we faced a number of challenges this quarter, we remain focused on the goals we set out earlier this year, mainly improving our operating performance, rolling out our branding initiative, executing on our existing growth initiatives, and continuing to look for attractive growth opportunities to expand the Company. And I am happy to report that we've made solid progress in each of these areas during the quarter. Now I would like to turn the call over to Paul Chakmak, our Chief Financial Officer. Paul.

Thanks, Keith. Hello, everybody. As we reflect on the third quarter, we're pleased to see results that are in line with our expectations and accentuate the considerable effort that we've put forth this year.

At the end of last year we announced our intentions to improve the financial performance of our Las Vegas locals region by integrating our properties and applying the Boyd Gaming operating model to our Coast brand. We are clearly seeing the results of those efforts. Notably, EBITDA margin for the Las Vegas locals segment improved nearly 200 basis points over prior year third quarter results. Our margin improvement led the way to a 9.1% increase in adjusted EBITDA from Q3 2006 to Q3 2007. We believe the efficiencies gained in this segment will provide a strong foundation to continue EBITDA growth.

We saw equally encouraging results from our downtown Las Vegas properties where EBITDA grew 8% over prior year levels. This marked the highest September quarter EBITDA ever achieved by the three properties in spite of increasing jet fuel prices affecting our charter operation.

Third quarter EBITDA for the Midwest and South was down $8 million versus prior year, primarily due to the final leg of normalization at Treasure Chest and the opening of a new competitor near Blue Chip. Treasure Chest is still well ahead of pre-hurricane levels. Our current trend shows that we have established a new baseline for the property and therefore we do not expect any further material year-over-year EBITDA declines from our New Orleans River Boat.

Blue Chip's EBITDA declined slightly more than anticipated costing us approximately $0.06 per share versus the prior year level. Although the decline in gaming revenue was in line with our expectations, marketing related expenses were greater than anticipated. We're currently refining operations to better match the current business volume. Collectively the balance of our Midwest and South properties improved EBITDA on a year-over-year basis.

In Atlantic City, as Keith said a moment ago, Borgata continues to lead the market in almost every category. I want to share with you some of the many highlights. Borgata was number one in table game drop with a 21.4% market share achieving a 57.4% market share premium. Borgata was also number one in poker win with a 38% market share and number one in race book win with a 35.1% market share. Overall Borgata was number one in the market for total Casino win, achieving $204 million in the third quarter. Borgata's operating income was in line with our guidance, slightly up from our Q3 2006 results. We look forward to the opening of The Water Club, the final phase of our expansion, and having a complete destination offering in Atlantic City.

To begin the guidance portion of our call, I would once again like to offer some additional details in regards to Blue Chip. Although we now have some clarity on the operations, experience has shown us that the trial phase of a competitor opening can last several months. As such, we are forecasting a reduction of $0.09 per share compared to the prior year level. Additionally, corporate expense in Q4 is forecasted to be approximately $0.03 per share higher than the prior year level due to increased spending on our branding and One Card initiatives. Therefore, including both the impacts of Blue Chip and corporate expense for the fourth quarter 2007, we're estimating adjusted EPS from continuing operations to range between $0.37 and $0.42 per share and the comparable adjusted EBITDA to be between $135 million and $145 million.

Before we move on to any questions, I wanted to make one last point. Keith and I will be assuming our new roles in January, that said, our search for a new Chief Financial Officer is progressing well and we expect to have that person in place by the end of the year. Operator, at this time we'd be happy to take some questions.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Bill Lerner with Deutsche Bank. Please proceed.

Thanks. Hey, guys. Just a question on locals market, sort of development and how you're thinking about it, there's -- my sense is there is a couple of sites, one down in Henderson that I suspect you're aware of, maybe involved in, and then off 215 at Flamingo that seems to be covered by SB208. Just want to get your view on new development. Obviously you're going to keep some stuff close to the vest, but whatever you can share with us on perhaps new locals development for you guys and not including of course the north Las Vegas site. Thanks.

Hi, Bill. This is Keith. I don't know that we have anything new to report. We're very proud and we have a very successful Las Vegas locals franchise. It is a very big part of our business, and we are looking to continue to expand it, and we're always looking for new opportunities in the Las Vegas locals market. We think it is a very strong market. We think it is continuing to grow, and over the course of time will continue to grow and expand, and as you said there are sites available that are out there; not all the sites are locked up. So we continue to look for opportunities, but we don't have anything else to say.

Okay. Thanks, guys.

Your next question comes from the line of Felicia Hendrix with Lehman Brothers. Please proceed.

Hi. Good morning, guys. Just two questions. First also on the Las Vegas locals market, just wanted to know what -- or get some idea from you how the promotional environment is looking and when you think the inflection point might be regarding the full supply absorption? And then also if you think that your new branding initiatives can help to stimulate that absorption. And then the second question is on Borgata. Your EBITDA margins came in better than we had expected on lower revenues, and, Keith, you had touched upon just generally some things that you were doing there to kind of offset the promotional environment, but I was wondering if you could be more specific. Thank you.

Let me start with the Borgata and then I will turn it over to Paul for the Las Vegas locals part. Basically at Borgata we simply have been very prudent with our marketing spend. Last year when we launched the expansion we spent a significant amount of marketing dollars to introduce the product to make sure we had people in the building to visit the property and sample the new product and get the word out. Through the course of this year I think we've, through the course of these calls have indicated that the promotional environment has been very aggressive in Atlantic City. I think that some of our competitors would blame Borgata for being part of that, but if you look through the numbers, Borgata actually has not been part of that.

We have kind of stood down or not participated in that increased marketing, so the short answer is we have simply been very prudent and very cautious with those marketing dollars, and that is the result. I think the other part of that, maybe to a lesser extent, is simply fine tuning the operation. When we launched the new restaurants a year ago, they were very inefficient as new restaurants are when you open them, and throughout the course of '07 we have dialed those restaurants in, dialed in the efficiencies, and have understood how to run those much better, so those are the two main areas, but nothing in particular.

Felicia, I think on promotional environment for the Las Las Vegas locals market, I don't think we've seen any material change for the good or the bad in that particular category during the third quarter, so it really seems to be status quo at this point. I think relative to absorption, obviously we are coming off of a new base in comping year-over-year, and as you can see, growing both revenue and EBITDA, and so I think that speaks to the absorption piece.

We continue to see good healthy growth in the Las Vegas local economic and population environment. Obviously, there continues to be a significant amount of construction-related jobs, and soon with the opening of some of the new strip product significant increase in labor demand, which all tie back to our core customer base for our Las Vegas local properties. So we think we're positioned well relative to the climate in Las Vegas, and obviously, broader economic issues for the country as a whole would really have to be evaluated separately.

Okay. Thanks.

Your next question comes from the line of Adam Steinberg with Morgan Joseph. Please proceed.

Yes. Hi. Just a couple real quick questions. Paul, in the release where you talk about your growth CapEx for the quarter at $77 million, does that include the $5 million in capitalized interest or is that extra?

It includes it.

Alright, so that's 77 -- it's $72 million plus the $5 million in capitalized interest?

That would be correct. We capitalize interest as part of CapEx.

Okay. And then just also in terms of CapEx at Water Club, how has the construction time line been delayed there and how should we transition some of the spend at that property?

We issued a press release several weeks ago at this point that indicated that we expect to be open before the summer season. We were initially looking for an opening in early '08; the best we can peg it right now is before the summer season, and once again the damage is covered by insurance.

Right. I was just thinking in terms of the CapEx timing, had you been paying most of that budget, that $4 million budget by the end of this year, and how much should I take out of the next couple quarters in transition?

I think you'll probably see the CapEx number as you'd expect is most intense right prior to the opening and actually trails opening, and so I think the trends in your model are probably still accurate. Now, again, that's off of Boyd's balance sheet, relative to debt funding or for that matter the asset base, so it probably doesn't necessarily appear in how you look at us.

Right. And then just the last question, Paul, if I do the math on the $0.03 impact from the higher corporate expense, translates to about $4 million over last year's 4Q.

As I've said in the past, every $0.01 is about $1.4 million in EBITDA.

Right. How long are you going to run at that elevated level? Is that going to be a one or two quarter thing or is that going to be kind of forward?

It won't be forever. It will definitely run in through the first quarter and maybe to a limited extent into the second quarter as well, as we fully launch the One Card program. We're calling it out because it is not meant to be permanent by any stretch of the imagination, but is meant to support the launch and image portion of that overall campaign.

All right. Thank you.

Your next question comes from the line of Larry Klatzkin with Jefferies & Company. Please proceed.

Hey, guys. CapEx for all of next year, would you have kind of a number to throw out there?

Larry, I think on CapEx as we've done in the past, we'll give some specific guidance on that in our next call as we're really right in the middle of completing our '08 CapEx budget process.

Alright. The Indians just started doing some heavy duty bussing outside of Chicago. Does that really more affect the Chicago boats or do you think you're going to feel some of the pressure from that?

We don't do a lot of bussing at Blue Chip. We don't expect to see a big impact from that. I think you're right, Larry, I think the Chicago boats would feel more of that impact than we will at Blue Chip.

All right. And as far as the law changes in some of the states here, are you seeing anything happening in like Illinois or anything else legislation wise that may affect you?

Well, there is always a lot of conversations going on, specifically in Illinois, but in other states, and we obviously monitor all of those conversations, but at this point they're just conversations. So we'll pay attention to them. And if there is something to react to, we'll be prepared to react.

All right. And what kind of upside -- when you get this One Club going, what do you see the benefit will be? What kind of financial benefit or return on the extra spending of CapEx do you think you'll get back on that?

I don't think we're prepared to specifically quantify publicly what that is, but we believe that there is tremendous upside by being able to keep people within our portfolio of properties as they come to Las Vegas. One of the reasons we started this several years ago was the understanding that our customers didn't have a full appreciation for the breadth of our portfolio properties, when they came to Las Vegas they did not always stay with us. So we want them to be able to earn points to be able to use here in Las Vegas. We think that's a big part of the program, and we know that that occurs. They do travel here, so --

So you think actually more the real benefit of that will be when you have a major strip property open and at that point, points they've earned over the next couple years can then be translated into visiting your property at that point in time?

I think that certainly will help. I think we'll see a big benefit initially also, but certainly having a major strip presence will add to that.

Larry, let's not forget that we've got 5,000 hotel rooms in Las Vegas today as we sit here. Obviously, Echelon adds another 5,000 to that complement, but with properties in particular a property like The Orleans that has nearly 2,000 hotel rooms, it is well positioned to compete with that mid-priced target segment that many of our customer from the Midwest seek.

Okay. And then in Shreveport the Indians continue to expand in Oklahoma. Do you see that market having any chance of stabilizing, or is that going to continue to be a slow hit to the market?

Well, we certainly expect it to stabilize. Our performance at Sam's Town Shreveport is fine. We see some improvement there year-over-year, so we expect it to stabilize.

All right. Then the last question just your guys' view on Bader Field, and would you -- if that became available would you look to maybe bid on it? I know MGM said they would be interested or are you going to fight it to the death or what's your opinion on that?

I think from a development standpoint, we obviously are interested in continuing to grow the Company. We've said that publicly quite often. When we look to invest our dollars in new projects, we look to invest them in markets that have stable tax and regulatory environments. New Jersey and Atlantic City certainly qualify for that. We've also been on record as saying we're very excited about the Atlantic City market. We think there is much more capacity that you can add to that market. There is much more demand from New York and Philly that many more people will come to the market. So we'd love to have an opportunity to look at the Bader Field site, and when the state or the city get ready to do something with that, we'll certainly be looking at that.

All right. Thank you, guys.

Your next question comes from the line of Dennis Forst with KeyBanc. Please proceed.

Yes. Good morning. I wanted to get a clarification on the branding initiative. I think you said that you started off and are -- completed the first phase? Am I right?

Yes. What had to occur first is we had different platforms between our Coast properties and our Boyd properties, so we have to conform them to the same platform before we could take the next step. That occurred earlier this week actually.

So you moved Coast to the Boyd platform?

Correct.

Okay. Great. And then starting in January you said you'll start with a One Card rollout. Is that going to be in some particular region?

Well, at the risk of giving our play book to our competitors, we probably won't go into any more detail.

Okay. About how much is this going to cost in terms of hardware and software to initiate or to launch? Not necessarily in the marketing costs involved, but just the hardware and software to get it all ready to go?

The capital cost is really already hit us. That was part of the ACSC upgrade that we talked about last year in a very material way, so from a capital cost standpoint there is no additional significant material cost.

Okay. And how much was that, Paul? I don't recall that.

I would have to get back to you on that, Dennis. We've certainly talked about it. I just don't remember it off the top of my head.

Okay. Fine. And also on the locals business, are there any concrete plans about north Las Vegas?

No, not at this point. We're still monitoring that market waiting for the growth to catch up with --

The capacity?

Correct.

Okay. And then how did your market share do during the quarter? Do you have a way of monitoring how your properties did vis-a-vis the whole locals market?

I think there is different services that provide headcounts, if that's what you're referring to. Obviously, our competitors haven't announced yet, so we don't have any data from them to compare it to, and I think until that occurs you really can't have any judgment. But like we said, we feel very good about the performance and the penetration of the business and look forward to continuing to grow that.

Okay. Then lastly, I think it was stated that Shreveport showed some improvement. Is that third quarter cash flow up year-over-year because gaming revenues were up about $1 million in Shreveport, and was that enough to generate an increase in the EBITDA from Shreveport?

What we said is the four other properties, Blue Chip and Treasure Chest aside taken as a whole grew EBITDA modestly quarter over quarter of '06 to '07. We don't necessarily obviously break out the specific properties because we don't want people to necessarily focus on individual type microscopic operations, but suffice it to say we think the Shreveport business is a stable business today and we expect it to continue to grow in the future.

Okay. Great. Thanks a lot.

Your next question comes from the line of Celeste Brown with Morgan Stanley. Please proceed.

Hi, guys. Good afternoon or good morning.

Hi, Celeste.

A couple of questions. First, Paul, you said in reference to the corporate expense, sounds like it will be right around $17 million for the next few quarters. What is a reasonable level after that? Is it the $13 million we saw in the third quarter?

I think our guidance for this year was in total a number around $50 million, and that is within range of a reasonable baseline. So I think if you take that estimate, your $13 millionish number a quarter, absent One Card launch costs, etc., is probably pretty realistic for '08.

Okay. And then in the central region I know you talked about tax change in Illinois last quarter as being beneficial to you. Is that the primary reason why EBITDA didn't decline as much as revenue in the quarter?

Well, it was certainly a key contributing factor. It was a meaningful piece of upside benefit that we achieved, but it certainly wasn't the sole piece.

So, have you been cutting costs in that region in general?

I don't think the focus has necessarily been cutting costs. I mean, we've run the Midwest and South business quite efficiently. With that said, marketing is always a key expense element, and as we get smarter and smarter as to how we focus marketing dollars, we can achieve better performance.

Okay. Great. And then finally, I know you guys have talked about going to the construction loan market with your partners, Morgans on the -- on Echelon. Are you seeing any issues in that market given the (inaudible) we've seen in the debt markets?

Obviously, suffice it to say the debt markets are materially different than they were back pre-summer of 2007. We are actually just beginning that process with Morgans in the very early stages. We'll break ground on that project in the second quarter of 2008, but I still feel very comfortable that we'll have sufficient access to capital at competitive rates to make that project very successful.

So can you wait until you break ground, or if you don't like what you're seeing will you just wait until you need to raise the capital?

Well, we always have that option. I think to date Morgans and Boyd collectively have spent $15 million to $20 million in total on the design development phase, so it is material from that perspective, and we're certainly not just sitting on the sidelines waiting. At the same time you need to move forward at some point, and provide the capital funding to the overall project.

Okay. Thank you.

Your next question comes from the line of David Katz with CIBC. Please proceed.

Good day, everyone.

Hi, David.

I wanted to just follow up one of the earlier questions on Atlantic City, and thinking about that market looking out the next year or two, we've seen I guess a couple of dynamics, right, some promotional competition and then the potential impact of pocket share from Pennsylvania ramping up. When we look at Pennsylvania, there should be quite a bit more to come over the next couple of years. What are you -- what if anything are you feeling on that, and how are you positioning yourself over time to hang onto your pocket share?

Well, at the Borgata, I think the Borgata's positioned itself quite well. When you look at the expansion we opened last year and the upcoming 800-room Water Club, I think those products will continue to keep Borgata a leader in the Atlantic City market. What you've seen so far in 2007 is a lot of the day trip business visiting those slot parlors, and there are slot parlors in Pennsylvania, are racinos. They have a lot of slot machines in the building. They're not complete facilities. Those day-trippers, if you will, the competition for that dollar is what has escalated I think the marketing expense in the Atlantic City market.

So our -- part of our marketing is our building and our brand and our image, and people come to visit for that reason. We have a very good product there, and I think a very strong product. We'll continue to have that with The Water Club opening next year. So I like our position going forward. And I think the market will continue to be aggressive from a promotional aspect, as people fight for those customers.

Right. And one more if I may. Or maybe two more. But on Florida, obviously, a potential opportunity for an interesting market, and if you could talk a little bit more, I know you mentioned it in your comments, but if you could talk a bit more about what the range of strategies you're considering are. Is it waiting to see how the compact shakes out? What needs to change for you to, I guess, reach a decision to move forward one way or another?

Well, I don't think there is any one guiding factor that needs to change. Certainly understanding what's going to happen with the compact is important in determining our total level of investment and what the competitive landscape will be out there. There is still a lawsuit out there, and we're still in the process of studying and designing the facility, so a lot of those things come into play, but it is not any one thing in particular that's going to cause it to be a go or a no-go. We just have to design and develop a project that will give us an acceptable return on investment before we can go forward.

Great. And one last quick one. Granted -- in view of the fact you have quite a bit on your plate, do you have an appetite at this point for acquisitions, and are there markets that you would like to be in that if opportunities presented themselves you would pursue aggressively?

I think as I have said in the past, David, we will continue to stay very inquisitive related to acquisitions. You're absolutely correct. We have a significant amount of development on our plate. And we believe we have that well managed with great teams involved in the day-to-day aspects of that. With that said, we will not ignore opportunities on the acquisition side that may come to bear.

Are there specific markets you would like to be in?

I think as we've said, markets need to be strategic to our overall business. And they need to be major markets, whether they're domestic or international for that matter. And so those tend to be the guiding lights, given the size and base of the overall company, to remain focused on continuing to build the platform.

Perfect. Thanks very much.

(OPERATOR INSTRUCTIONS) And your next question is from the line of Joseph Greff with Bear, Stearns. Please proceed.

Hi, guys.

Good morning.

I have an Echelon-related question. Yesterday, our friends at MGM talked about construction costs going up for City Center. I know you're at a different stage than they are, but maybe you can just talk about how comfortable you are with total construction costs, and how you're thinking or involved in the planning process to mitigate construction cost inflation. Thank you.

Well, we're very -- obviously, very early, and we're in the very early stages of what is a long and difficult process. The design process is going very well. The contract and community has shown a great deal of interest in our project, and we have confidence that we'll be able to staff it properly. Frankly, we have a very talented development team working on this and a very experienced development team. Having said all of that, I think we're very satisfied where we're at today from both a design standpoint, a budget standpoint and a schedule standpoint. We're moving forward as we had planned, or moving forward as we had laid out our plan, and we're comfortable with where we're at. I don't know that I have more to say other than that.

Yes, Joe, obviously we would update everyone to the extent there were changes, and to date we have no change.

Great. And then, Paul, back towards the acquisition appetite question, how important is size and scale and -- in looking at acquisitions?

I think size and scale is important. Whether it is an acquisition or a development, they are all challenging in their own right. By way of example, though, as a development opportunity you did not see us bid on the licenses that came up in Kansas, and that speaks exactly to the philosophy that I am trying to portray here as far as what we're looking at. Not that they weren't good opportunities, but the size and scale didn't fit with what we're trying to achieve.

Great. And you talked about the promotional environment easing in the third quarter in Atlantic City, and obviously that was very helpful on the margin side. Could you comment what you're seeing right now in that market?

Yes. Maybe just a point of clarification. I don't believe that in the Atlantic City market that the promotional environment eased. I said that the Borgata in particular simply didn't participate. We were very prudent with our dollars. And I don't see it easing in the fourth quarter, at least through October you generally see the same level of aggressive spending on the promotional side that we saw throughout the course of this year. I am not sure the third quarter was too much different than the first quarter or second quarter. So --

Great. Thanks, guys.

Your next question is a follow-up from the line of Larry Klatzkin with Jefferies & Co. Please proceed.

Hi, yes. Just one clarification. Your $135 million to $145 million EBITDA, is that after taking out option expense or is that before taking out option expense?

It is before.

Okay. So after option we reduce it. Okay. Thank you very much.

Larry, EPS would be after, obviously.

Your next question is from the line of Justin Sebastiano with Nollenberger Capital. Please proceed.

Thanks. Hi, guys. The $0.09 number you're saying that's going to be -- come down from the increased competition for Blue Chip. That's about $12 million, $13 million in EBITDA. Does that mean the rest of the Midwest and the South region is pretty much flat with last year's fourth quarter?

I think that's -- depending on how your model runs, that's probably a pretty fair estimation.

Yes. Okay. I am looking at last -- at the fourth quarter of last year's EBITDA number and backing that out. Okay. And as far as just some housekeeping, are you still looking at about $3 million in stock-based comp because that's for the third quarter was a little bit lower than it was in the first half of the year.

Well, the way the accounting works for stock-based comp, we typically issue grants in the fourth quarter. Obviously none have been announced or approved at this pointed in time, but that has been the historic cycle the Company has been on. With that, you would typically see a slight bump-up in stock-based comp in the fourth quarter, so it might be a little bit higher than $3 million even, but not materially higher.

Okay. Thanks a lot.

And your next question is a follow-up from the line of Celeste Brown with Morgan Stanley. Please proceed.

Hey, Paul, back to the acquisition question again, you mentioned international which is not something I think you guys have discussed before. Do you -- when you think about international without obviously getting you to name a company, do you think about more regional type gaming businesses like you see in Europe and the U.K., or are you looking for something bigger like something we'd see in Asia?

Well, I would think it would be more the latter if we were to pursue it. My point was to not exclude from the way you think about Boyd Gaming to be limited domestically, and it obviously needs to fit strategically into what we're doing not only with obviously Echelon and Borgata, as the flagships on both parts of the country, but as -- within our business overall. We're not looking necessarily to build from scratch a ground-up business in an international market.

Okay. Thank you.

And there are no other questions at this time. I would like to turn the call back over to Mr. Keith Smith for closing remarks.

Well, thank you for joining us here today, and we look forward to speaking to you again for our next call. Have a good day.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a good day.