Boyd Gaming Corp (BYD) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2010 Boyd Gaming earnings conference call. My name is Caris and I will be your coordinator 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 call is being recorded for replay purposes.

I would now like to turn the call over to your host for today, Mr. Josh Hirsberg, Chief Financial Officer. Please proceed, sir.

Thank you, Caris. Good morning, everyone, and welcome to our third-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 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 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.

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 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. Good morning, everyone, or good afternoon, depending on where you're at. Thank you for joining us for our third-quarter earnings call.

Overall, our results for the third-quarter were in line with our expectations. Most notably, we produced our best revenue and EBITDA comparison for the year during the quarter, largely as a result of the continued stabilization and improvement of our core business volumes. We're pleased to report that the positive trends we've experienced in the third quarter are continuing into October. Given these trends, we expect our fourth-quarter comparisons will be the best of the year.

While we are encouraged by our recent results, we continue to watch the broader national economy for additional positive signs -- signs of a continuing recovery, and believe that they are there. The DOW and S&P both rose more than 10% during the third-quarter alone. Business travel is rising, as our overall occupancies and ADRs in the lodging sector nationwide. The manufacturing sector continues to expand and business investment is slowly growing. GDP continues to expand on a quarter-by-quarter basis, albeit at a much lower rate than any of us would like.

These data points show that the national recovery that began last year is continuing, although it is clear that this recovery will be a slow process. As I have said previously, the recovery of the nation's economy is an important predicate for recovery in our business. So beyond the broader economic recovery, it appears as though Las Vegas is finally beginning its own recovery. There are several facts that support this.

The first and most importantly, customers continue to show up in increasing numbers every month. September marked the 12th consecutive month of either flat or increased visitor counts to Las Vegas. I believe that constitutes a trend.

Second, taxable sales in July showed the largest increase in nearly two years. Consumer-oriented segments spurred the growth, with clothing retailers and furniture stores showing meaningful year-over-year growth. It's not a trend yet, but it's certainly a positive sign, especially when compared to the double-digit declines and taxable sales we saw throughout 2009, and the fact it was consumer-oriented segments that spurred the growth.

Also, as has been widely reported previously, gaming win on the Las Vegas strip rose 21% in August. But more importantly, slot win grew 13.2% and all three Las Vegas local sectors, including Boulder Strip and North Las Vegas, reported year-over-year growth in gaming revenue during the month.

As important as all the above is, equally important is that convention attendance continues to grow, which is not only a positive for Las Vegas, but also, I believe, a window into the broader national recovery. Companies devote resources to conventions based on expectations they will secure new business. Rising convention attendance and increased convention square footage reflects rising confidence in the business community at large.

As a matter of fact, many of the major conventions in the last 12 months have seen both an increase in attendance and an increase in square footage used by exhibitors. The calendar for 2011 appears to be very strong.

Switching to the Las Vegas locals market, I believe that there's a misperception that a recovery in this market will only occur when there is a recovery in the local housing market and a significant change in our employment statistics. We do not fully subscribe to this theory. Improvements in our Las Vegas locals business is more about increased spend per visit than it is about increased visitation. Increases in spend per visit, or consumer spending, is more about consumer confidence than it is about job growth or housing statistics.

Job growth will return when businesses need to meet increased demand for the products or services. Job growth is more a result of consumer confidence, or consumer spending, than it is a cause of it. We firmly believe that increases in consumer confidence can and will have an impact on our business long before the metrics in the housing and employment show significant improvement. You only have to think about the impact of the flash crash and the impact it had on our business to understand the importance of consumer confidence.

So while lower unemployment rates and rebounds in housing are necessary components of a robust, long-term recovery, we are more focused on data points that will lead to increased consumer confidence, such as stable employment, price stability, and real growth in wages, all of which, I believe, we are beginning to see.

In Las Vegas, total employment has been relatively stable in recent months despite increases in the unemployment rate. While we have seen continuing declines in the construction sector, those losses are being offset by a modest growth in the leisure and hospitality sector and the trade/transportation/utility sector. In September, the Las Vegas economy actually added 3,000 jobs over the prior month. This stability in the labor markets suggest people who have jobs can be more confident that they will keep them. Increases in ADRs and improvement in occupancy over the last several months is leading to increased hours and wages for workers in our industry.

The other frequent misperception is that in order to see a recovery, we need our customers to significantly increase their levels of spend. This is simply not true. Because of the high frequency of visitation we enjoy in the Las Vegas locals market and the efficiencies we have created in our business during the last several years, even a very modest increase in spend per visit will have a meaningful impact on our overall cash flow out of this market.

Beyond Las Vegas, we are also seeing encouraging signs. Visitation to our Midwest and South properties continues to increase and we have grown market share during the quarter. In Atlantic City, the Governor's focus on reinvigorating the Atlantic City market is beginning to take shape. Last week's announcement of the Atlantic City Alliance is an important first step in revitalizing the Atlantic City market. We are fully supportive of the direction the Governor has outlined for Atlantic City. Paul will speak in more details about each of these markets during his comments.

As more robust growth returns to our business, we will continue to pursue several long-term strategies. First and foremost, we will dedicate free cash flow to paying down debt and deleveraging our balance sheet. Deleveraging is our highest priority, as a strong balance sheet will give us flexibility to pursue new growth opportunities created by an improving economy.

Second, we are actively examining opportunities to refinance our debt and extend our maturities.

Third, we will continue to evaluate a variety of growth opportunities across the country. While we're interested in acquisitions, we will continue to be thoughtful, strategic, and disciplined, as we have done historically, and we will only pursue transactions or acquisitions that make strategic sense and are priced correctly. We will only pursue deals that deliver an attractive return for our shareholders and do not stretch our balance sheet.

With that in mind, we announced today that we have decided not to exercise our right to match the offer MGM received for their interest in the Borgata. Given other opportunities and our current focus on deleveraging our balance sheet, the current offer would not provide a sufficient return on investment for our shareholders. Despite this decision, we remain very confident in the future of Borgata. The property represents a major investment by Boyd Gaming and it has delivered substantial value for our shareholders. We remain comfortable with our current position as managing member and 50% owner of Borgata, the region's premier destination resort.

Finally, we will continue to focus on ways to improve and operate more efficiently. We have made significant strides in taking costs out of the business during the last several years, creating a more efficient operating model. These efficiencies will pay off as our business recovers, as even modest increases in revenue will result in substantial gains in EBITDA.

Thank you again for joining us this morning. Now I'd like to turn the call over to Paul Chakmak to talk more specifically about the results in each of our regions. Paul?

Thanks, Keith. Hello, everybody. Overall, our business levels continue to stabilize during the third quarter. As Keith has noted, each of our regions performed in line with our expectations, and in all cases, we gained market share.

Let's start by looking at the Las Vegas locals segment. The EBITDA GAAP was almost identical to what we saw in the second quarter. This was expected, as consumers remain cautious with their discretionary spending. However, we see reasons to be optimistic moving forward. Our third-quarter results were in line with the expectations we outlined on our last call. The gap in year-over-year results is well below the 20% to 40% declines we reported from the third quarter of 2008 to the fourth quarter of 2009.

On a dollar basis, EBITDA matched the smallest decline in the last two years. These trends are improving, and we have started the fourth quarter on a strong note by posting positive comparisons so far in the month of October.

The base of our locals business remains strong. Our best customers have shown resilience through the downturn and that continued in the third quarter. Run rated and lower tier players we believe improved consumer confidence will lead to increased per-visit spending. This will be an important driver for growth in future quarters.

Visitation in the Las Vegas locals market, as in the region more broadly, continued to grow during the quarter. In addition, we calculate that we increased our market share in the locals region by a full percentage point in the three-month period ending August. We are building a very solid foundation for additional growth and profitability in this business, especially when spend-per-visit increases.

Moving to downtown Las Vegas, we reported lower revenue and EBITDA due to decreased spend per visit as well as higher fuel costs and lower ticket prices at our Hawaiian charter service. However, there are encouraging signals in this region as well. In fact, while spending per visit declined in Q3, the decrease was the lowest in the last seven quarters.

We continue to gain market share downtown, posting an impressive 310 basis point increase in the three months ending in August, and we saw modest increase in visitation by rated players as well. In addition, there are indications the Hawaiian economy is strengthening, as tourist visitation and spending in Hawaii have both risen in recent months. We anticipate improvements in the Hawaiian economy will eventually lead to improved revenues for our properties in the downtown market.

In the Midwest and South, we are particularly pleased with our results. Our EBITDA decline was under 10% compared to gaps of more than 20% in each of the last three quarters. Revenue trends showed similar improvement as well -- business is clearly stabilizing across the region as visitation grew.

As was the case in our other regions, we gained on our competition, as all six properties in the region either maintained or increased their market share. Non-gaming revenue in the MSR was up as was occupancy across the region. Our Louisiana properties have been comparing against strong results in 2009, but they have made considerable progress toward closing that gap.

Finally, I'd like to touch on Borgata. The most significant factor impacting Borgata's results was lower table game revenue, which was largely a function of unusually lucky play by our customers. However, there were a number of positive factors during the quarter as well. Slot win was nearly flat for Q3, even as it declined about 9% in the overall Atlantic City market. This was an encouraging performance, especially considering new competition from casinos in eastern Pennsylvania. In addition, occupancy at Borgata and Water Club was more than 96% for the quarter, up nearly a full percentage point from 2009.

With respect to our table game business, had we experienced historical table game hold, we estimate revenue would have been $9 million higher during the quarter. There were other factors impacting table game business as well, including reduced consumer discretionary spending, an increasingly competitive environment in Atlantic City, and the introduction of table games in Pennsylvania.

As Keith noted earlier, Borgata offers a resort entertainment experience unlike anything else in the region. That gives our customers a reason to bypass casinos closer to home and make the trip to Atlantic City. While it's too early to determine the long-term impact of increased competition in the region, we are more than holding our own and are pleased with our position with the leading asset in the market.

To summarize, our business continues to stabilize and we are on track to report the best year-over-year comparisons of the year in the fourth quarter. Visitation has remained strong across our business; even though spend per visit is down, we maintained or gained market share at all of our properties. Our relatively strong position is largely a reflection of our customer loyalty. That in turn, is a tribute to the efforts of our property management and employees. We continue to see improving customer satisfaction scores throughout the business and exceptional service keeps customers loyal to the Boyd Gaming brand.

Thanks for your time today. I'd now like to turn the call over to Josh for a review of our financials.

Thanks, Paul. I would like to begin by discussing a few items from the quarter. Excluding Borgata, our debt balance was approximately $2.4 billion, a reduction of approximately $165 million from the end of the second quarter, largely due to the distribution we received from Borgata as a result of refinancing their credit agreement. I'll discuss that later in my remarks.

Of our total debt balance, the amount outstanding on our credit facility was 1.73 billion at the end of the third quarter. Our leverage ratio, calculated in accordance with our loan documents, was 6.89 times, versus a covenant of 7.25 times. Our leverage covenant remains at 7.25 times for the fourth quarter and we expect to remain in compliance with our covenants going forward.

Corporate expense was $9.1 million, even with the third quarter last year. Pre-opening expense, which primarily related to Echelon and other new business development opportunities, was $2.7 million for the quarter.

Interest expense was approximately $46 million, $7 million higher than last year in the third quarter. The increase in interest expense is a result of the new financing at Borgata, where year-over-year interest expense during the quarter increased by $11 million, due to higher debt balances and rates, as well as a one-time, non-cash write-off of $2 million in debt amortization fees related to the prior credit facility. We expect the fourth quarter interest expense for Borgata, including debt amortization fees associated with the new financing, to be approximately $22 million. Boyd's interest expense decreased about $4 million, primarily due to lower debt balances.

Our effective tax rate for the quarter was 30%. This rate is lower than last year due to the consolidation of Borgata into our results. We expect the tax rate to be approximately the same for the fourth quarter of this year.

As I mentioned above, we completed the refinancing of Borgata's credit facility during the third quarter. We replaced the existing $740 million credit facility with $950 million in new financing, comprised of two $400 million secured notes and a $150 million revolving credit facility.

As a result of the financing, Borgata made a $240 million distribution to its partners, including a $10 million consent fee paid to Boyd by MGM and a priority distribution of $31 million to reimburse Boyd for prior excess capital contributions, we received total distributions and fees of $145 million. The distributions and fees reduced debt at Boyd. A $2.5 million gain resulting from the reimbursement of Boyd's prior excess capital contributions and the $10 million consent fee were recorded as income in the quarter.

Finally, Borgata's total debt balance at the end of the quarter was $847 million, including $800 million of notes at par and $47 million outstanding under their revolver. The property reduced debt by $28 million since the 1st of August when the new financing was complete.

So with that, Operator, we're now ready for any questions from the audience.

(Operator Instructions). Mark Strawn, Morgan Stanley.

Just a quick question on the Las Vegas locals market. You mentioned that October is trending quite well and actually trending positively. Is that on the revenue line or the EBITDA line or both?

Well, it's really a function of both.

Okay. And is what's driving that just higher spend per visit out of the customer base at this point?

Well, I mean, again, we're comparing it to October of 2009, so obviously, higher revenue will be generated by higher spend per visit. I don't know that we're creating a lot of new customers today, but we certainly have seen customers come back that have been sitting on the sidelines giving their own personal economic conditions; so there's certainly benefit from the lower tier and unrateds as well.

Okay. Thank you very much.

Carlo Santarelli, Wells Fargo.

Would you guys mind putting the framework around how you're thinking about a Borgata decision or how you thought about your decision to pass on Borgata? And then I have a quick follow-up on the locals.

Well, I think the decision actually was outlined fairly well in the release. We just have other opportunities. We're focused on deleveraging our balance sheet. Those are things that are extremely important to us. And we didn't think that, as we looked at that acquisition, that it would provide a sufficient return to our shareholders. It doesn't go beyond that, actually.

Okay. Alright. So should I take from that that there aren't many levels that would be attractive to you guys as it relates to Borgata?

I think that what you should probably take away from that is that the offer that was made was something that we chose not to exercise a first right of refusal on and probably not go beyond that.

Thank you. Okay, that's helpful.

Larry Klatzkin, Chapdelaine.

A couple questions. Just some housekeeping, Josh. Capital -- CapEx expense and capitalized interest at the Borgata?

Oh, at Borgata?

Yes.

I don't know that off the top of my head; I'll get it for you perhaps during the call here.

Alright. Sorry about that, man.

It's no problem.

Borgata -- as far as the EBITDA effect of the bad table luck, does that come in between $4 million and $5 million, do you think? Or do you guys -- could you quantify that $9 million of revenue effect for the bottom-line?

Yes. Really, hold would largely float to the bottom-line absent taxes, so (multiple speakers) --

You said $8 million.

-- we think 90% to 92% of it would come to the bottom-line.

Alright. So, $8 million. So, okay. Good.

Yes. It's a pretty large -- it has been a significant impact. Table games has been much less of an impact on our business than we would have expected prior to the introduction.

Alright. Would you guys still look in Las Vegas locals? I mean, would you make a pitch toward Green Valley management or even owning?

Well, I think that -- and we've said this before, as we looked at the Stations Casino acquisition, that we are very bullish on the Las Vegas locals market long-term and are interested in acquisitions at the right price. So if those opportunities came our way at the right price, yes, we would look at them.

Alright. Thanks, guys. Appreciate it.

Larry, as soon as I get the number, I'll either -- for Borgata CapEx, I'll either repeat it on the call or we'll let you know. I would say that all they've been spending is maintenance capital and that's running $15 million to $20 million a year, so I can't imagine it's more than $4 million or $5 million for the (multiple speakers) [quarter].

Alright. And then capitalized interest too.

Yes. We'll get it.

Alright. Thanks, man.

David Katz, Jefferies.

A couple, if I may. Josh, can you help me think through -- I admit to not knowing fully the conventions around how long we should keep Borgata as a consolidated portion right of your business. Does that stay in there until such time as whatever offers out there closes? Or at the time that you've announced your decision this morning? And then I was hoping we could -- and I apologize if I missed it -- I was hoping to have CapEx numbers for the quarter and what those allocations were for.

Sure. David, the process around Borgata will really not affect the consolidation. It would just -- the consolidation would potentially be affected if there was some new joint venture agreement or changes to the joint venture agreement, which we wouldn't anticipate occurring. So I think we're going to be living with consolidation for quite some time in respect to Borgata and Boyd's financial statements.

So, this [hold] -- in other words, the -- whoever the bidder is will have to go through gaming commission approval, et cetera and whatever sort of other due process goes on until ownership formally changes hands? And that's the point at which we would unconsolidate it?

No, maybe I wasn't as clear as I was trying to be. Basically, they can go through -- they need to go through -- assuming that a deal is consummated and there are no changes to that deal -- because recall, if there is any change to that deal, then we get another 30-day look. So, that first right of refusal isn't a one-time shot.

But once a deal is reached between a potential buyer and MGM, then they would go through the process of the required regulatory approval process. But once again, assuming they consummate their transaction, unless there was some kind of change in the joint venture agreement, consolidation would not be impacted by that.

So what I'm trying to say is, is we will consolidate Borgata, assuming no change to the joint venture agreement, which we're not going to be likely to entertain. And so whatever happens with the other 50% is not going to affect the consolidation. Does that make sense to you?

Yes. Yes, mostly. And if you could just talk through the CapEx, please, for the quarter, and again, I apologize if I missed it.

Well, David, first on Borgata, just assume it stays consolidated, I think is what Josh is trying to say.

Yes, it doesn't -- whatever happens in this process does not change consolidation.

Okay. It's staying in the model as though you own 100% of it?

Yes.

For the time -- for the indefinite future until further notice?

Yes.

Understood.

Cap interest for -- I mean capitalized -- cap expenditures for Boyd? Is that what you're asking?

Yes, please.

Only maintenance capital, about $7 million.

Okay. And have you given any sort of forward commentary about what you expect to spend and on what for the quarter or next year or anything like that?

You know, given the current environment, I'll let Paul add some color, if he'd like, but just given where things are, I would say that the numbers that we had for 2010 are probably good ones to use for 2011. We're going through our process right now for budgeting for 2011 and we'll look at that and update guide when we have a more formal budget, complete that process.

I would say right now we expect stabilization to continue and then slowly start to see a recovery. And as that comes to fruition, then we may take a different approach to maintenance capital. But right now, I think we're doing what we need to do to ensure that the customer interfaces and our competitiveness of our properties are there. But we really don't feel a need, given the current environment, to spend more than what we're allocating and what our run rate is.

Okay. If I can just sneak one more last one in there. In Atlantic City and the competitive landscape, I know there are periodic rumblings about Revel moving down the road. And I guess I'd like your perspective on whether it would be better or worse for you to have a brand-new competitor in that market and how you see that -- what is a very fluid landscape evolving next year or two.

Well, look, in the Atlantic City marketplace right now, there is plenty of capacity and so that any additional capacity will just create additional competition that I think is not needed. So we'd certainly like to see the competitive landscape kind of stay as is and not see additional capacity added to the marketplace.

Okay. Thank you very much.

Joe Greff, JPMorgan.

You mentioned in the press release that you're comfortable with your current position and ownership stake in Borgata. Are you currently thinking about potentially selling your stake? Or have there been any discussions or overture with the interested party that has talked with MGM?

Once again, I think that the release probably speaks for itself. The only decision point we have right now at this moment is whether or not we are interested in matching the offer. And as we indicated, we're not, for the reasons that were spelled out, and there haven't been, frankly, any conversations beyond the actual offer and right of first refusal, so.

Great. Thank you.

Steven Ruggiero, CRT Capital.

A couple of questions related to the Borgata also. You had indicated earlier that the Pennsylvania table games had less impact on Borgata than you expected. Can we take away from that that table play in the third quarter, the mix of that and the comping of that was pretty constant on a year-over-year basis and/or sequentially? And if not, if you could comment further on that.

Are you saying table play for Borgata?

Yes, the mix of play. I'm just looking at the whole percentage and trying perhaps to derive something more from that.

Yes. I would say the whole percentage is really it's largely in blackjack, but there's no material change that has occurred that would suggest that the hold should be different than what we've experienced historically.

We haven't changed our credit policies. We've been always very disciplined around that. We haven't changed anything really in terms of how -- other than our kind of our own normal business practices in terms of promoting. I think the market itself in Atlantic City has gotten more promotional around some of the credit policies and some of the play, but Borgata has largely not participated in that.

So, to get to your core question, anything we're doing around credit or promotional activity couldn't really be attributable to impacting the whole percentage.

We're looking diligently into other reasons, potentially. We're looking at length of play and not found that to be material. We're looking at customers have been a little bit less risk-averse, meaning when they win, they tend to walk. But again, that hasn't been a material impact either.

That's very helpful. Thank you. And also, one follow-up. Now that there's an announced potential sale of the MGM 50% interest in Borgata, will that likely accelerate the room remodel that you folks have talked about in prior meetings?

No, they're really unrelated issues. We continue to manage and operate the Borgata in the same fashion that we always have, and any change in MGM's ownership interest really has no bearing on the ongoing operations of the property. It continues to be operated as it always has.

And so, can we take away that you're still looking at end of 2011, perhaps, as starting that room remodel?

Yes. It probably will occur sometime during calendar '11.

Okay. Thank you.

David Farber, Credit Suisse.

Just any more color you can provide on potential refinancing and what are the necessary steps remaining in that process for you guys?

Yes, I would -- David, I'd say basically that we have in our own mind the components of what we want to execute on. We've really had that plan formulated since 2008. And we've just, as markets have changed and become more viable and different markets more appealing than others, we've modified that. But we will just be prudent and take our time in terms of executing our refinancing. And I would say that we'll do it sometime between now and middle of next year when the credit facility goes current. So that -- just kind of put it in perspective.

Okay. And have you guys started having conversations with the banks yet with respect to maybe how you want to go after refinancing?

We've -- consistent with my earlier remarks, we've been really speaking with them since 2008. So, I wouldn't say that they've necessarily changed in terms of the subject matter or anything else; it's just that we're very much involved in conversations with our bank to consider all of our different alternatives that are available to us.

Okay. And then I actually have a bigger picture question. Given Station's pending reemergence and resort and some other maybe one-off assets that might see a new owner at some point, how do you guys see the locals environment in the next six to nine months? Have things changed as assets changed ownership and has it become more promotional? Just any help around that would be great.

Well, I mean, that's a little bit of a prognostication there. I guess I would say relative to Stations, who's clearly our biggest and most formidable competitor, they have definitely ramped things up relative to reinvestment in the customer base and positioning in the market since the process kind of concluded. And I think that's had some impact and you've seen that impact on margins a bit in the third quarter.

Really hard to make comparisons relative to M or other things at this point in time. I mean, frankly, we just don't compete with M on any sort of direct basis, given its geography and the geography of our properties in this town.

Okay. Thanks.

Kevin Coyne, Goldman Sachs.

Did you repurchase any bonds during the third quarter or subsequent to the quarter?

No, we did not.

Okay, great. Thank you.

Sure. Larry Klatzkin had a question on capitalized interest and capital expenditures for Borgata. We had no capitalized interest in the quarter and we spent $4.5 million on capital expenditures, all maintenance-related. I'm sure he's saying thank you, right now. Next question.

David Bain, Sterne, Agee.

I just have two questions. One was on -- just going back to the changes and perhaps the aggressiveness in marketing spend in the locals market, how do you see that rolling out in the fourth quarter and what's the response going forward, if any? I know you noted the geographical diversification or difference than Station, but at the same time, looking at margins, maybe there was some changes in your own marketing spend.

Well, I would first say that, I mean, the third quarter in Nevada is typically the low watermark relative to volumes, given it's the summer. And that is when, in good times or in bad, you see the lowest revenue numbers.

When you combine low volumes, obviously, with to some extent, a fixed cost base in the business, you naturally have margin compression. Means we get into the fourth quarter and then the first quarter, the first being the highest volume quarter of a calendar year, I think you'll see improvements.

As far as direction on marketing, I would say that we're obviously not going to sit back and ignore what's going on in the town. I think we want to pay strong attention to and continue to establish customer loyalty that we have, and you'll see us be as aggressive as we need to be to compete in a very competitive market.

Okay. And then just a broad-based one. In the state of Nevada, are there any issues at the local level that we need to be aware of with regard to the upcoming elections? Or do you consider that a completely neutral event?

No, I don't see the outcome of any -- of the elections within the state really impacting our business, whether -- regardless of who wins the races. I don't see an impact on our business based on who wins.

Okay. No other issues with any upcoming votes?

No.

Okay. Alright, thank you.

Adam Steinberg, Merriman Capital.

Yes -- I got disconnected for a little bit there, so I apologize if I ask any questions again. Can you actually give the CapEx for the parent company throughout the quarter?

That was $7 million, approximately.

Is that inclusive or exclusive of the Borgata $4.5 million?

It's exclusive. Borgata was $4.5 million additional.

Okay. And with regards to Borgata, I mean, the hold's been slow all year long; you know, for the entire year, it's been under 14%. Is there -- what other factors are you looking into there? Do you think there's some sort of collusion or do you have some sort of [churn] or is it just a change in consumer behavior?

No, look, we have, as you can imagine, when the hold drops in any one of our properties beyond historical levels, that we spend a great deal of time and we have a great deal of resource -- or great number of resources that we can look at to ensure that there is nothing wrong with the game. And we can ensure you that everything is fine and we've done all of our diligence and looked at it.

I think it is a function of luck. It happens in our business where you can run for a number of months with a low hold. It is possible that there is some altered consumer behavior, but I think that's the smaller part, if it is. It really is about luck and we fully expect it to come back to a more historical level at some point in the future. Nothing we can do about it.

Are you seeing low hold in any of your other properties as well that would lead you to believe it's a change in consumer behavior or not?

No, we really have not. I mean, you'll naturally have some ups and downs relative to normative levels, which are frankly different in every market based on game mix. But nothing to the level we've seen at Borgata.

Okay. And Josh, you mentioned (multiple speakers) -- I'm sorry, go ahead, Josh.

Adam, I was going to say, the hold is not limited to one area of the casino. It's kind of throughout the table game area. So, again, that suggests that -- and it's not throughout the market either, so there's something unique at Borgata at this point.

Josh, you had previously mentioned that including Borgata and consolidating it resulted in the lower tax rate. If I kind of learn to normalize with last year's tax rate, I mean, that helped you guys by about $0.03. And even -- was even about $0.01 off of a 35% tax rate. Was that something we'll see going forward? What was the dynamic there that resulted in the lower tax rate?

I mean, I'm pretty simplistic about it. I just see -- Boyd's tax rate is -- say, corporate tax rate is 35% and Borgata only pays state taxes of 9%, so you kind of put those together and average them out. That's kind of what the impact is. It's just a lower effective tax rate as a result of that.

Said another way, Adam, I mean, keep in mind that Boyd and MGM, for that matter, paid federal tax on Borgata income prior to the consolidation. So that was always in our income tax provision, the federal portion, which is by far the largest portion historically.

Alright. And is -- did this change the cash tax portion? Or just the amount that you kind of are estimating there?

It didn't affect the cash tax portion.

Okay. And then last question with regards to downtown Las Vegas -- and I know it's the smallest part of your business, but an 11% margin rate -- is there something you can do there with costs? Or is that all related to the higher fuel prices?

Most of it relates to Vacations-Hawaii. So it's, as I said, really a combination of fuel and, frankly, what we're able to charge for charter seats and charter packages on our flights. That was a significant portion of the overall decline.

We run the business downtown very, very efficiently. I think it does get back to typical declines in margins during the summer, which for downtown is also a lower volume period. And we would expect as we see some uptick on the revenue side, for the reasons we noted in our comments, that you'll see margins expand again in downtown Las Vegas.

Okay. You know you usually break out the revenue from Vacations-Hawaii; you didn't do it -- or at least, I didn't see it in the press release. But can you give that figure?

In the tables?

Yes, I'd have to look back in the tables.

We didn't really, Adam, change anything.

Yes. There was no intention to change anything.

No, it's usually a footnote that I could just be missing because my eyesight is getting bad -- but that's okay. Alright, that's my question. Thanks.

Steven Kent, Goldman Sachs.

It's Neil Portus for Steve. Could you comment on what you've done in the Midwest and South region to gain market share? Thanks.

Well, I think it's been our continued focus from a marketing perspective on who our customer is. I mean, we've done quite a bit through both direct mail and electronic media to continue to focus on our local customer, which is different relative to geography to what you think of is a local customer in Las Vegas. But nonetheless, we operate six properties that have a significant local flair to them.

And I think it's also a statement on recovery in a more advanced stage in both the Midwest and the South, relative to what you're seeing in the West and particularly in Las Vegas.

Great. Thanks.

John Maxwell.

Actually, Paul, just a little bit more on it. So, in Louisiana, you've been seeing -- is that gains at all the properties you were seeing improvements at?

Well, I think as we said, we were -- it's pretty transparent, obviously, in Louisiana, because you see the actual monthly revenue numbers as reported and that's the same numbers that we use to gauge market share.

If you look at our performance over the quarter relative to the same quarter last year, all the properties, all six of the properties -- Louisiana, Mississippi, Indiana, and Illinois -- are all up in market share relative to the competitive set we use. That isn't always the same set in each state, obviously, because an example would be in Peoria, Illinois, we compete against operations that are to the south of us and to the north of us. And they aren't all in the state of Illinois. Some are, obviously, in the state of Iowa as well.

So that's really that direction on the market share comment and where it's going.

Thanks. Could you maybe -- I guess a little bit on Treasure Chest. When Pinnacle opens up their site in Baton Rouge, is there a sense of how many customers are coming from that region that you think would be competing against Pinnacle with?

Next to none.

Okay. Alright. That's good. And then just lastly, with the, I guess, multiples, things changing around a little bit, any update on the Company's plans with Florida and the site there?

No, there is currently no update on our Dania Jai Alai facility down there and what we may do with it or what the timing of that may be. We're still kind of in the mix or in the queue.

Okay. Alright, thanks, guys.

Chris Woronka, Deutsche Bank.

Just on the property expense side, if I understood your comments correctly earlier, you're assuming that going forward, you might see more in the way of spend per visit increase as opposed to total visitation increase. I mean, does that imply that you're kind of, from a staffing standpoint in other -- most of the other property expenses, that you would not expect any material increase there going forward?

I think relative to labor, you're absolutely correct. I mean, obviously, it will impact nominally marketing expense, because as people play more, they earn more as our programs go. But we are very focused on flowthrough to the EBITDA line as we see spend-per-visit move up.

Okay. Very good. Thanks.

And at this time, there are no further questions in queue. I would now like to turn the call back over to Mr. Hirsberg for closing remarks.

Thank you, Caris. A lot of good questions today and we appreciate you participating. If you have any follow-up questions or would like to reach out to the Company, please just call my office and we'll try to get back to you as soon as possible. Thank you very much. Have a good day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.