Boyd Gaming Corp (BYD) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the second quarter 2010 Boyd Gaming earnings conference call. My name is Chris, and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to our host for today, Mr. Josh Hirsberg, Senior Vice President, Chief Financial Officer and Treasurer. Please proceed.

Thank you, Chris, and good morning, everyone and welcome to our second quarter earnings conference call. Joining me on the call this morning are Keith Smith, our President and Chief Executive Officer, and Paul Chakmak, our Executive Vice President and Chief Operating Officer. Our comments today will include statements relating to our future results, including, among others, the financial outlook for the Company, our expansion and development projects, and other market, business and property trends that are forward-looking statements within the Private Securities Litigation Reform Act. All forward-looking statements in our comments are of as of today's date and we undertake 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 statements as a result of certain risks and uncertainties including, but not limited to, those noted in our earnings release, our periodic reports and our other filings with the SEC.

During our call today, we'll make reference to non-GAAP financial measures. For a complete reconciliation of historical non-GAAP to GAAP financial measures, please refer to our earnings press release and our Form 8-K furnished to the SEC today and both of which are available in the investor section of our website at boydgaming.com. Finally, as a reminder, we are broadcasting this call on our website at boydgaming.com and streetevents.com. I'd now like to turn the call over to Keith Smith, our President and CEO. Keith.

Thanks, Josh, and good morning, everyone. Thank you for joining us this morning. Earlier this morning, we released our results for the second quarter of 2010. As we mentioned in our release, it's been quite a difficult May and June. Our overall performance was consistent with the last two quarters and generally in line with our expectations. The weakness we experienced following our last conference call in early May is a reflection of fragile nature of today's consumer and the fragile nature of consumer confidence in general. Whether it's the burgeoning federal deficit, volatility in the stock market, the European debt crisis, or stubbornly high unemployment, the consumer is reacting more quickly to the news then ever before. Their current reaction has been to pull back on their spending. The severity and length of this recession has clearly had a profound effect on consumer behavior. Through the fluctuations we experienced in May and June, we continue to believe the long-term stabilizing trends we've discussed on previous calls would be in place. And while the last several months shown a difficulty of predicting consumer behavior, we continue to believe that year-over-year growth is achievable by the end of this year.

On a national note, while our national economy continues to find its footing, there's some positive signs occuring in our business. Las Vegas visitor counts have been up or stable for nine consecutive months. Las Vegas convention attendance in March, April and May increased between 3% and 5% and we expect to see meaningful growth in bookings in 2011. In addition, the national economy has grown or has been positive the past four quarters. As I said before, we need to have sustained growth in our national economy before we can expect to see a recovery in our industry, as continued growth in the national economy is a positive sign. However, as long as the economy remains on fragile footing, it's possible we will experience further volatility in future quarters. Of course, recovery can be driven by factors beyond consumer behavior. As an example, we are very pleased to see Governor Christie has announced to plans to revitalize Atlantic City. As I've noted before, the future of Atlantic City depends on our ability to effectively market it as a unique entertainment destination. We need to focus on promoting those things that set Atlantic City apart from other entertainment options in the area.

Governor Christie's action are a welcomed step in the right direction. In the meantime, we remain confident in Borgata's position as the premiere property in that region. Turning back to Las Vegas, we recently announced that are we discontinuing our efforts to acquire the OpCo assets of Station Casino. We'd note we've devoted significant resources to this effort over the last 18 months. Unfortunately, it had been procedures that favor Station insiders and our current view of limited potential value of the operating development assets, we concluded that this opportunity no longer makes sense for our company. As we have said before, we'll only push through transactions we believe are financially sound, fit well with our existing business and offer attractive long-term returns for our shareholders. In final analysis, this opportunity did not meet these criteria. As we look ahead, Boyd Gaming remains committed to growth. But only growth that recites long-term value for our shareholders. And this is not just growth by acquisition, we understand that the most efficient form of growth often comes from improved profitability of our existing aspects.

We will be persistent in continuing to find ways to operate more efficiently to maximize profitability throughout our company. Our current business model allows us to generate significant increases in profitability from modest revenue growth. We're committed to growth, we're also equally committed to ensuring our company is well-positioned to take advantage of the economic recovery whenever it occurs. As such, we will focus on strengthening our balance sheet, and using our free cash flow to reduce debt and improve our leverage. Finally, I want to recognize the outstanding contributions of our thousands of employees who have done a tremendous job in improving the quality of our guest experience, even as we continue to streamline our operations. Thank you again for joining us this morning. Now I'd like to turn the call over to Paul Chakmak to talk more specifically whether the results in each of our regions. Paul.

Thanks, Keith. Hello, everybody. Let's take a brief look at each of the regions. First, the Las Vegas Local segment. The stabilizing trends the Las Vegas Locals region saw in the recent quarters lost some momentum in the second quarter. But the overall direction of the business did not change. The year over year EBITDA decline in Q2 was approximately 16%, up from a Q1 figure of about 11%. While we prefer to see this gap continue to shrink, the Q2 results were still much improved from the 20% to 30% declines we experienced in 2009.

Looking deeper into the results, we see further signs of improvement to give us confidence in the Las Vegas Locals market, despite a recent pull back in consumer spending. Results in the second quarter of 2010 showed that for the fourth consecutive quarter, we've seen normal seasonality patterns return to the business. Normal seasonality for the Las Vegas Locals market shows a low point in the third quarter and a peak in the first quarter with the second and fourth quarters lying in between. This is precisely what happened in the last 12 months, indicating there is a measure of stability in today's market that has not been present since 2008. Additionally, we saw encouraging results at The Orleans, which posted second quarter EBITDA results right in line with our 2009 numbers, the first time one of our properties has done so in more than two years. While we are cautious about reading too much into a single data point, this is certainly an encouraging sign from our largest Las Vegas property.

Now let's take a look at Downtown Las Vegas. Results in the Downtown region showed a sequential quarterly improvement, despite continued lower spend per visitor, and reduced visitor volume. Even with the downturn in business throughout the market, our properties continued to outperform our competition. During the second quarter, we increased our market share by over one full percentage point to 30.5%, up from 29.2% in the second quarter of 2009. The Midwest and South region generally continued to show results similar to the previous two quarters. Although softness was evident in May and June, with more than 85% of the second quarter year-over-year EBITDA decline coming in those months. Our Louisiana properties continue to account for the majority of the year-over-year decline, as they faced tough comparable figures from the strong, and in some cases, all time record levels of 2009.

Now, a few thoughts about the Gulf oil spill. It's still too early to tell what the long-term effects of this disaster may be, but so far we have not seen any effects on our business. However, continued offshore exploration and drilling are critical to the future health of Louisiana and Texas economies. So, we'll be watching the situation closely. We anticipate that the third quarter will trail last year's results, but as we have said in the past, starting in the fourth quarter, we will have much easier comparisons going forward.

Finally, I'd like to touch on Borgata and Atlantic City. Results in the second quarter were adversely impacted by higher promotional activity from competitors in Pennsylvania, higher utility costs due to unseasonably hot weather and reduced day trip visitation in June. However, starting in late June and continuing into July, we have seen a return to expected summer levels of business, with occupancy and business volumes more representative of a typical summer season. And if you factor out the impact of poor weather earlier this year, EBITDA for the trailing 12 months is consistent with the full year levels we posted in both 2008 and 2009. As you know, Atlantic City faces new competition from cable games being rolled out in Pennsylvania. We expect the additional gaming supply to have some effect on the Atlantic City market, although it is simply too early to predict the extent.

In any case, we believe the Borgata provides an experience for Atlantic City visitors that is unmatched and cannot be duplicated in Pennsylvania or elsewhere in the area. This is evidenced by our 50 basis point gain in market share during the second quarter. In summary, the general trends we experienced in the first quarter continued into the second quarter, although there was unanticipated softness resulted from economic volatility. I would believe the long-term trend toward stabilization and recovery remains in place. We are confident we can successfully manage our business through the coming months, and continue to believe the year-over-year growth by the end of this year is an achievable goal. I'd like to turn the call over to Josh now for discussion on the financials.

Thanks, Paul. Before I review a few financial items from the quarter, let me spend a minute on the accounting for Borgata. I want to bring to your attention the differences in accounting for Borgata in this quarter versus second quarter last year. The second quarter of this year is the first full quarter that we are presenting Borgata completely consolidated and devoid results. The GAAP results for the second quarter of last year, however, continue to be reported with Borgata as an unconsolidated subsidiary. In addition, as you may recall, our results in the first quarter of this year included eight days of Borgata consolidated into our financials, as a result of the timing of the amendment to the Borgata operating agreement. So, when we discuss performance relative to last year for the second quarter, we will discuss it on a comparable basis to this year. That is, with last year's second quarter presented as if Borgata had been fully consolidated.

Additional tables attached to this morning's earnings release provide pro forma results as if Borgata were fully consolidated for the second quarter last year and the year-to-date period for 2009 and 2010. Moving beyond Borgata's accounting in terms of our balance sheet, excluding Borgata, our debt balance was just over $2.5 billion, a reduction of $53 million from the debt balance at the end of the first quarter. At the end of the second quarter, we were in compliance with our covenant, leverage covenant, and going forward expect to remain in compliance. Borgata ended the quarter with a debt balance of $627 million. We issued an 8-K last week regarding a potential refinancing of Borgata's debt. If the transaction is approved by the New Jersey Casino Control Commission, a distribution of approximately $100 million will be made to Boyd. We are unable to answer any questions you may have on this financing until the transaction closes.

Other items that I want to point out from the quarter include, corporate expense was $11.2 million for the quarter compared to $8.2 million last year, largely due to timing differences. We continue to expect total corporate expense for 2010 to be $40 million, in line with our previous expectations. Depreciation expense was $55 million, compared to $62 million in the second quarter last year. The year-over-year difference is due to lower depreciation at both Boyd, of $5 million and Borgata, of $2 million. Pre-opening expense in the quarter was related to Echelon, just like last year. Examples of these expenses include security, property taxes, storage and insurance. Interest expense was approximately $9 million lower than last year, totaling $34.7 million in the second quarter of this year.

Boyd's interest expense was about $7 million lower, due primarily to the reduced borrowing rates, while Borgata's interest expense was down nearly $2 million due to lower debt balances. We recorded a gain from the early retirement of debt in the quarter that totaled approximately $1.9 million, from the repurchase of $17.5 million of our 6.75 senior subordinated notes due 2014. Our consolidated tax rate for the quarter was 29%. This rate is lower than last year, due to the consolidation of Borgata's operations. We expect this rate to be approximately 30% for the remainder of the year. So with that, Operator, we're now ready for any questions.

(Operator Instructions) Questions will be taken in the order received. (Operator Instructions) Our first question comes from the line of Felicia Hendrix of Barclays Capital. Please proceed.

Hi, good morning, guys. My first question is on the Las Vegas Locals market. Obviously, a lot changed has the quarter progressed versus where we all were when you reported the first quarter. So, obviously the locals didn't show the trend that you all were expecting at the time of your prior conference call, but I was just wondering specifically if you could give us some more color about what kind of changes you've seen, what the environment looks like now, and how's this market trending now? And maybe, what you're thinking about the market for the rest of year? And if maybe you could give us some color on how July was, that would be great.

Well, Felicia, I'm not sure what everyone has a slightly, I think different expectation of each one of, obviously the business segments, and the Company overall. From a top line perspective, or a net revenue perspective, the decline to the prior year was very similar. Obviously, slightly reduced revenue numbers as a result of the seasonality patterns resulted in a slightly greater decline as I said on the EBITDA line. Roughly a couple million dollars different to, maybe the same rate of decline if you applied that from the first quarter. So not huge disparities overall in numbers. I think as we got into July and the summer, which I think as everyone know is the slowest time of the year in the Locals market overall as a result of folks and families in town obviously having summer plans even in the tough economy, getting out of town, getting away from the hot weather, et cetera, et cetera. We naturally gear the business to those types of levels, and I think what we saw in July and what we'd expect to continue to see throughout the summer, we'll continue to be in the trends that we generally saw in the first and second quarter.

Okay. And then, okay, but do you expect to see any kind of improvement in the market, just year over year given how dismal it was last year?

Well, I think when we look at year-over-year comparisons, I guess you're specifically asking about the (inaudible). I'm just a little hesitant to make commentary on the quarter overall, as with both Keith and I said. I mean, going into even our last call, we were certainly optimistic, based on what we had seen, but very subtle. To some extent in some certain cases, very dramatic changes from an overall economic perspective or statements from an overall economic perspective seems to create a significant amount of sensitivity and an immediate reaction by the consumer. So we're optimistic, but just guarded since we don't know what tomorrow will bring.

Right. Totally understandable. Just moving to Atlantic City, on the road, on your road show, you lay this out really clearly, the anticipated impact from Pennsylvania table games, so I understand that. But I'm just wondering, those slot promotions that you discussed in your release, are those incremental? Or basically, can you quantify the incremental impact that you're seeing there? And then also, how should we think about the higher energy costs you discussed?

I can answer the slot question. Really the slot, and I would say this is in line with what we would have expected to happen with the introduction of table games, recognizing that it's all happening at one time, it obviously creates a significant PR event for those operators that anyone would want to naturally take advantage of. So, as a result of that, they are promoting aggressively their slot product. I will say from our perspective, our slot business continues to hold up quite well and we'll let the numbers speak for themselves when they come out and you'll see how that performs. But our expectation is, is the significant amount of promotional activity that's going on is to try to just facilitate the rollout of table games and probably doesn't have the margin associated with that business as has been historically been represented in that marketplace. So, I don't -- what was your question on utility costs?

Yes, just the energy costs, I'm just wondering how we should think about that for the rest of year?

I think that's largely due to just the unseasonably warm whether we're having in the summer. Going forward, we wouldn't expect to have increased utility costs in the fourth quarter, largely because we had such terrible weather in the fourth quarter last year. It wouldn't be our expectation that that would be replicated. So, if you recall, both in the fourth quarter of last year and the first quarter of this year, there were significant winter weather storms that you probably had to live through. We were fortunate to be out in Las Vegas at that point, but that obviously would have affected not only the top line business, but also other costs in the income statement including the utility costs. So, I think our expectation would be that wouldn't be replicated as we go into the fourth quarter. Obviously in the third quarter, it should be higher just because of the extreme heat that we're dealing with right now.

More specifically it is not a rate issue. We didn't see rates dramatically increase. It really is a usage issue.

Yes, that makes sense. That makes sense. I just wanted some more color on that. I appreciate it. Thanks, guys.

Yes.

Our next question comes from the line of David Katz of Jefferies. Please proceed.

Hi, good morning or afternoon. I just wanted to ask a question about some of Keith's comments in the opening remarks. And now with the Station opportunity gone by, just thinking about where else you might focus? Do you have any thoughts about looking for opportunities in Pennsylvania where some of the competitive pressure is coming from for Borgata? And then secondly, we've heard this earning season some of the Las Vegas operators talk about inflection points or the early stages of inflection points in Las Vegas on the strip, and I wonder if that leads to any thoughts about revisiting Echelon in some form or another?

Starting with your last comment, we said several months ago that Echelon was several years off into the future, and it is still our view, that is, several years into the future there's additional capacity coming online on the strip at the end of this year. And some of the good news we are seeing, while it is good news, it is a slow gradual build. And it's not a spike or a bounce that's occurring, it's just a slow gradual build and doesn't give us reason to revisit our Echelon decision as of this moment. We'll obviously continue to watch the metrics on the strip to pay attention to it, but today, no reason to revisit that decision. In terms of growth, we spend a lot of time looking at opportunities around the country, and for the most part it seems like the sellers expectations and buyers expectations have not come together. That people are looking for higher multiples and higher valuations that many buyers, including us, are willing to pay. Pennsylvania particular, we are not currently looking there. Don't have any particular interest in that market. If obviously something were come available at the right valuation, we may take a look, but we don't have any ongoing dialogs going on in Pennsylvania right now.

Okay. Thanks very much .

Our next question comes from the line of Chris Woronka of Deutsche Bank. Please proceed.

Hey, good morning, guys. I was hoping you'd talk a little bit about Borgata and if we do see a larger than anticipated impact there from Pennsylvania or some other jurisdiction? Is there a way -- do you have a contingency plan to cut costs there in terms of F T E's or anything like that?

Well, I think as occurred over the course of the last year, year and a half with Borgata, the management team there is prepared and is always looking at ways to reduce expenses when things occur. The -- having an anticipation of what the effect of table games with Pennsylvania will be and we have good marketing plans to help blunt that. If revenues fall further than we anticipate, the management team there is well prepared to make whatever the adjustments are required. Obviously, Borgata being the premiere asset in that market, I think it stands the best chance of a significant of an impact from that as other properties in the market. But management team there is prepared to react as they have done in the past.

Yes, I'd add to that one concept, which is I think most people when they hear that we took expenses out of the business of Borgata, or really the management team at Borgata took expenses out of the business, they associate that with labor. It's not all labor-related. It's looking at the business, looking at what processes can be made more efficient. It's looking at about, looking at strategies around the different business activities that you're pursuing, as well as being as efficient as possible, as you can be around marketing efforts. Remember, Borgata has been historically, and we don't see it changing going forward, am enormously successful property. It was a property this had more demand than it knew what to do with.

Now, with the introduction of competition, it has the opportunity to not only grow business with existing customers, but reach out to segments of the markets that are within a three hour drive to gain new customers and to do all of those sorts of things in a more efficient manner. And so I think it's all of those things that come together that create the opportunity. It's taking costs out of the business and just being more efficient around processes that leads to the ability to generate stable EBITDA that they've done over the last couple of years. And really, on an LTM basis when you exclude weather, continues to be stable. So, it's not just about labor and there continues to be a lot more opportunities to look at ways to be efficient, should the impact be greater than what we expect.

Okay. Great. And just a second question I think applies to your whole portfolio, are you seeing any change in your same customer behavior, as I would call it? And are you seeing foot traffic up but spending down or flat or is foot traffic flat and spending flat and just how maybe, are you changing any of that or trying to change any of that with your marketing programs?

Well we look at, obviously, a number of different factors. One item we refer to is frequency, which is how often folks, the same folks come into our buildings. That number each month obviously varies considerably by the property. An emphasis on locals versus destination business. But overall frequency continues to trend up. In other words, folks that enjoy our products coming more often.

With that said, when you compare their spend levels to the same time last year, (inaudible) continues to be depressed. Not surprising, I think that's really impacted every consumer-oriented business. Though we do tend to see and have been seeing some positive signs with some of our better customers who obviously enjoy the products to a higher level than maybe some of the more casual gamers in those particular tiers which shouldn't be surprising, again, since, since that's where you'd initially see the first uptake. So, all the trends are going the right direction. Obviously, we'd all love them to be happening a little bit faster than maybe they are. But, definitely a list of positive signs directionally.

Okay. Very good. Thanks.

Our next question comes from the line of Shaun Kelley of Banc of America. Please proceed.

Hi, guys, good morning. Just wondering if maybe you could give us a little bit more color on the Midwest, or the Louisiana and Midwest side. Specifically, that seemed to be one of the properties that -- or one the areas, the region that was the biggest delta to our expectation. What are you seeing in promotional activity there and any specific properties, Treasure Chest or anything, or any one in particular that stood out in terms of the results there?

I think as we said, Louisiana accounted for a majority of the decline, so it's really all three of the properties combined we make that statement to the decline over the prior year. Keep in mind Delta Downs, in particular, at this time in 2009 had all time record performance levels. Really is one of those cases where everything was going right for us from an economic perspective, from a competitive perspective, et cetera, et cetera. And that really continued into the third quarter where delta had third quarter record levels as well, which buoyed the Midwest and South region and obviously Louisiana specifically. That goes back to our comments, which I think we've been consistent on for the last few quarters, that until we get through the third quarter in the Midwest and South, it is just a tough comparison, especially given economic trends which have, in particular in Louisiana and Texas, have crept into with kind of rest of the country.

It all started a little bit later, but nonetheless, they didn't get through the recession immune from everything that is going on. In particular, in the case of, of Delta, the market did draw us from which are not really Louisiana markets, it's more the southeast Texas markets, if you look and take a little dive into everything between Houston and Lake Charles across the border, you'll see that there are certainly some impacts as a result of the recession on those particular markets and that obviously effects our consumer directly. So, I don't think they're trending frankly any different, and like we said, we see and anticipate good things happening and positive comparables again in the fourth quarter.

Got it. And then on the strategic side, maybe to follow-up there a little bit, if the multiples aren't really there on the acquisition front, are there any near term priorities in terms of maybe ramping up capex or internal initiatives on the capital spending front that you're evaluating today that would make sense even in the current environment?

In the last couple of years as we've worked our way through this recession, I think we, most companies in the business have pulled back on what we call maintenance capital, and I think our focus going forward is to make sure our properties are well maintained and are competitive. And so we have a focus on making sure that they're maintained and the maintenance capital is at the right level instead of pull back over the last couple of years to work through this. So, there's a focus on that. There are no -- there's not a focus or there's no other projects within the existing asset group that we're currently looking at in terms of hotel additions or other expansions.

So, just to be clear then, is your maintenance capex budget increasing in 2010 or in 2011 over 2010?

In 2011, you could expect that.

Got it. And then maybe just one last one for Josh. Josh, could you just let us know where your total leverage covenant was? Your leverage was for covenant purposes at the end of the quarter? Thanks.

Yes. Sure. Our, the covenant test, I guess it is, was seven times and we were just under that. At 6.9 times, when it rounded out. Operator I think we're ready for the next question. I think that was Shaun's last question

Our next question comes from the line of Bill Lerner of Union Gaming. Please proceed.

Thanks. Hey, guys. A few questions. One, can you just talk about, this is a longer term strategy question. In the past, obviously, you had plenty to or something to do with the hub in Vegas with Echelon, more recently bulking up in the Las Vegas Locals market obviously, with those Station assets. Now, with those things not taking shape in the form that you had in mind, what's the strategy? I understand the recovery piece is obvious, but where do you go from here?

Well, Bill, I think the comment about Las Vegas as the hub doesn't go away simply because Echelon is first off, given market supply demand characteristics or anything to do with Station. In fact, we more so then ever use Las Vegas as the hub to drive destination business in from all the markets we operate across the country and we'll continue to do that. I think it's a significant advantage that we have given our presence here as both a player in the regional markets as well as in the Las Vegas market. Obviously, The Orleans benefits the most from that.

And the, the fact that Echelon is not moving forward or the fact that the Stations acquisition didn't come through for us, doesn't change our view of the importance of those markets. We still have a lot of confidence in the Las Vegas Locals market and if opportunities presented themselves there, we look to continue to grow that market. Opportunities, same thing on the strip. In the meantime, we'll continue to look for other assets that fit strategically, markets we're not in, markets where we can possibly purchase a market-leading asset. Something that's number one or number two in the market will go well in our existing business. But we're still focused on Las Vegas, once again, we still believe in the long-term market. None of it changes our overall long-term strategy, but just changes it in the short-term.

Just changes the timing of it. I think at the end of the day, we still believing buying EBITDA is better than building EBITDA in the current environment. Longer term, that obviously will evolve as the opportunities change and the environment changes.

Okay. So, just to follow that up. I think that's a pretty good segueway to the next one. I'll put you on the spot a little bit. In terms of buying EBITDA, I'm reasonably sure that you either are or were involved in auction for M Resort here? Can you give me -- whether you'd want to comment on that or not, I don't think it matters, but where does it -- actually, I'm asking you to comment. Where does that asset fit in? Would that be a destination story for you or a hybrid in a way?

Josh, you want to respond to that?

I was about to jump in. I don't think we want to comment on specific acquisitions we may or may not be involved in. I think what we want to direct people to think about is as we've always said that we believe the best opportunity for us was in the Locals business. We not only have the financing ability, but we obviously have the management experience, and the depth in our management team to consolidate or absorb Locals opportunities into our business. And as you know, Bill, the -- it's all about distribution points in the Locals business, and so gaining more distribution points is what we've been all about. So, I would say from our perspective without naming specific opportunities is, Locals continues to be kind of top of mind for us. But also to the extent that valuations make sense, we will consider opportunities outside of Las Vegas as well.

So we are, I think, going back to the theme of acquiring EBITDA as opposed to building it, really focused on what makes the most sense given what opportunities are available for us and fit strategically within that framework. If there was a riverboat asset for sale at the right valuation we're going to look at that just as hard as we would a Locals opportunity. We just think there are probably more obvious opportunities today in the Locals business. So, I think that probably adds some color for you.

That's helpful, Josh and then I guess just as a follow-up to that, we just heard as a proxy, MGM talk about FTE is down something like 14% from the peak, obviously that's fairly aligned with current unemployment right now, interestingly enough. But it seems as though with improvement in occupancy and rates going forward, we won't have FTE's added back. And so if the rest of the service sector here is, if that's a proxy for the rest of service sector, how the rest of the service sector behaves, how do you change how you operate in the Locals market since of course, it's such an important part of your story and a focus of your balance sheet going forward?

Bill, I guess I didn't follow the, the tie in. Give that to us again.

In other words, it seems as though we won't get -- unemployment won't improve to the level it seems as it was a couple of years ago at any point in the, it seems medium or somewhat longer term, and as a proxy, we're seeing MGM improve occupancy and in some cases other guys take room rates up, but not add any employees back, and I don't think that they plan to. So, what I'm saying is, if that's a proxy for the service sector in Las Vegas, how they behave on the hiring or the employee front, how does that extend to how you'll be behave in a smaller Locals revenue story from here?

The -- from an unemployment perspective, it's, I think as anyone that's close to the Las Vegas market knows that it's really the construction sector that's continuing to drive unemployment higher. In fact, we won't be shocked, as projects continue to wind down, particularly some of the strip projects wind down, unemployment has the potential of continuing to creep up as a result of construction jobs no longer in the market. And obviously no comparable jobs for those folks to move to given this current economic conditions in the city. And I think that the behavior of those, of that particular sector is different materially from where it was a couple years ago relative to their consumer behavior since they've certainly adjusted spend patterns based on what they know the future will be. So, don't necessarily see a direct correlation any longer between potential increases in unemployment and the business overall. And to your point on the service sector, I think, look across corporate america, the theme is when does job growth start to creep in? And as profits have been so significantly impacted, obviously, companies are looking to regain some of the footing that they have lost over the last couple of years. I also say that through tough times folks find a way to work smarter and run their business better.

Ultimately, there will still be some openings of hotel rooms, et cetera, on the strip and there will be a gradual improvement to the service sector overall. I think led by strip business, led by that mid-week visitation, which will continue to buoy the business overall, and I think, look overall, and it comes back to some of that consumer sentiment gains, retirees are a big part of our business as well. Obviously, not really impacted by the service sector, not impacted by unemployment, but certainly significantly impacted by their retirement benefits and the value of that, whether it is in cash or on paper. And with that the trends in the broader economy, we think demands for our product will be impacted positive.

Okay. Thanks, guys.

Our next question comes from the line of Larry Klatzkin of Chapdelaine Credit Partners. Please proceed.

Thank you. Hey, guys. Couple questions, Texas (inaudible) legalization and would you guys look to get involved if it happens? And I thought it died with Ann Richards, myself, but do you think there's any chance this could happen?

Larry, Texas has been talking about it for a decade, maybe as long as Massachusetts and I think you just have to follow it. We don't expect anything to happen this time around, but we are paying attention and you can never say never. I think if it were to happen, we would certainly want to have an opportunity to participate the Delta Downs, close to the Texas border, gets a lot of business out of Texas, so we're watching very carefully. If it were to happen, we would want to find a way to get involved.

Okay. And then, same with Massachusetts, I think it's going to die a death in the next day, but it's obviously going to come alive again, and it actually looks more of a chance than before, would you be someone at least looking at what's up there to possibly do?

There's always opportunities. It depends ultimately, on what the exact regulations and structures and terms are. Looking at the preliminary bill for Massachusetts, it's certainly more favorable than some that have come out (inaudible). And so it could be something that we'd want to take a look at. (inaudible) Here quickly.

All right. And then last -- I'm sorry to ask you guys this, but Steve Wynn indicated if the Foxwoods license would come up in downtown Philly, he'd be interested in bidding. It's a pretty attractive license, would you guys, in a defensive mood or even synergistically what you have, would you consider going to downtown Philly if that became available?

It would probably depend once, again, exactly what the opportunity would look like. What the overall return might be for us in something like that.

All right. All right. Sorry to hit you up on those things. As far as, does July look any better in Louisiana? Do you see -- has that shown any turn or are you saying it's kind of more of the same going forward?

No, I think in Louisiana as we get deeper and deeper into the year, in the next few months counts, to some extent, we'll continue to expect to see improvement.

Okay. Well thanks, guys. I appreciate it.

Our next question comes from the line of Joe Greff of JPMorgan. Please proceed.

Hey, everyone. Most of my questions have been asked and answered. But Paul, your earlier comment with respect to Atlantic City and Borgata's performance, I think in late June and July, and performance there returning to expected levels. Are you basically saying that there wasn't a negative revenue impact from new competitive pressures in July in Atlantic City or there was an impact but it was in line with what you guys see as expectations going forward?

My comment specifically was, it's too early with just a couple of weeks under our belt, for a long term comparison to what's happening with table games, I think you're referring to specifically, and with that said, the comment was also that on an LTM basis we have the performance of Borgata adjusted for the pre-material weather impacts we had in both the fourth quarter and in the first quarter of this year, continue to run from an EBITDA perspective in line with where they were the last two.

And I know you talked about reacting or proactively making changes to the property, are you actually taking out gaming capacity? It looked like you took out some slots during the 2Q at Borgata?

We did take out some slots as part of an overall reconfiguration of the floor. It wasn't so much at aimed at reducing capacity, it was just reconfiguring the floor. Upgrading some of the machines on the floor, so part of an overall moving around of some of the parts and pieces there at Borgata.

And I think it was also to make some of the dead spots on the floor more efficient, so it was just around an overall efficiency effort.

Okay. Great. Thanks, guys.

Our next question comes from the line of Steve Ruggiero of CRT Capital. Please proceed.

Thanks for taking the questions. Just two. First, after Borgata refinancing closes, would you tack the high yield market to term out your Boyd debt? And if not now, when do you plan on doing that?

Well, I don't think we want to exactly tell everybody when we plan to do our financings, but I would say it's a safe bet to suggest that we will be doing some refinancing between now and sometime middle of next year.

Okay. That's fair. And also, you referred to buying EBITDA, what parameters would need to be met to buy EBITDA, cash on cash return, dilution, et cetera?

Yes, I think the way we look at it is a confluence of all those metrics, really. We look at it, number one to ensure that it's a deleveraging transaction from our perspective, and then generating an excess return over our weighted average cost of capital, ensuring that we're getting the cash on cash return, and make sure that you're that we're not relying for all the return in the terminal value that it actually generates -- is a good investment for our shareholders.

And in that it also includes looking at how it fits strategically within our company, what are the benefits it brings, how it competes in its own market, where it sits competitively within its market and include those factors in addition to simply a cash on cash return review, or at least we do.

Great. Thanks very much.

Yes.

Our next question comes from the line of David Farber of Credit Suisse. Please proceed.

Thanks. Hey, guys. I just wanted to follow up on Steve's question around the 2012 bank maturity. I understand you guys don't want to talk too much in detail, but given Borgata's pending bond deal and its response do you guys take anything from that as far as tapping the high yield market one way or another?

We would say it's encouraging.

Okay. Next question, absent the Station acquisition, just curious to hear any specific thoughts on free cash flow revolver availability, anything around debt pay down or stock buyback, how you're thinking about free cash flow going forward would be helpful? Thank you.

As some of the opportunities we've looked at, including Station, haven't come to fruition, we use our free cash flow to pay down debt, reduce our overall debt load and improve our leverage ratio. Just going forward as we look to delever the Company, absent some good solid acquisitions, as Josh said earlier, as we look at acquisitions, one of the points for them they need to be delevered for the Company overall, so use to pay down debt.

Okay. Just last one for me, just, you guys have mentioned in the press release, you're still seeing or reiterating positive growth year over year. I'm just curious if there's anything tangible in this quarter that you guys look to that gives you more or less comfort with that going forward?

Well, I think, I got into it a little bit answering one of the previous questions relative to the particular segmentation of our database and that consumer behavior overall, which for the most part is occurring across the board. So it's -- when you take a deep dive into how people are responding, not just responding to marketing related events, but just responding overall absent some significant event that will turn people off, directionally, we're going where we need to be.

Okay. Thank you.

Our next question comes from the line of Mark Strawn of Morgan Stanley. Please proceed

Hi, guys. I know there's been a lot of questions on the uses of free cash flow, and potential acquisition. I was just hoping to bring those two thoughts together somewhat. Given your liquidity profile today, how are you thinking about the balance between acquisitions and other growth opportunities and maintaining cash cushions for future covenants and maturities? Are you, that's basically the question is, are you confident you can continue to refinance and amend existing obligations if you commit capital elsewhere?

Josh, do you want to take a shot at that?

Yes, I'm not sure I understand the question completely, Mark. Can you run it by me again?

Yes. The basic question is, if you look at your uses of free cash flow going forward, if you do commit capital elsewhere to a growth opportunity or an acquisition, are you confident you can -- do you have enough cash available or enough comfort with your banks that you'll be able to amend and extend and refinance existing obligations?

Yes, think you're basically saying, you're asking about increasing refinancing risks by taking on an acquisition, is that what you're saying?

That's fair. Yes.

Yes. Yes. Obviously, we're cognizant of that issue, and I will tell that you that while we've not been in a position where we had to deal with any significant refinancings of the Company, over the last several years we've been in constant conversations with many of our significant relationship lenders about the time when we're ready to refinance. What that's going to look like, where we can expect them to participate and so we have a very good idea, I would say we have a -- we know exactly what we're going to do and when we're going to do it and we have a lot of optionality around it and so we want to leverage that optionality for as long as we can. We take that into consideration when we're obviously thinking about acquisitions. So we're not going to, as we say this internally quite a bit, we're not going to risk the Company to do an acquisition. We're going to do an acquisition in a prudent fashion.

I think you've seen us make some very prudent credit-related decisions around not only the Station decision, because I think others may have kept going just to say they could do the transaction. We could have fully done the transaction, we felt it no longer represented the value that we initially came into the transaction expecting. Around the Echelon decision, we made the right decision there. So, we have a history of being very prudent around our capital uses and making sure that we factored all that in for the capital structure needs going forward. So, I would say that we are certainly cognizant of the issue that you're talking about, but we're -- we wouldn't do it in a vacuum, so to speak. We wouldn't just go out and do an acquisition without already having a plan of how to deal with it.

Okay. Thank you.

Sure.

That concludes our question and answer session. I would now like to hand the call back over to Mr. Josh Hirsberg.

Thank you for participating today. A lot of good questions and to the extent there are anymore, please feel free to call the Company and we'll get back to you as quickly as we can to try to get those answered. So, thanks again.

Thank you for your participation in today's conference. This concludes the presentation, you may now disconnect. Have a great day.