Boyd Gaming Corp (BYD) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2011 Boyd Gaming earnings conference call. My name is Alicia and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session.

(Operator Instructions)

This conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Josh Hirsberg, Senior Vice President, Chief Financial Officer. Please proceed, sir.

Thank you, Alicia, 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 estimated future results including, among others, guidance for the third quarter, the financial outlook for our 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 would 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 for our second-quarter earnings call. Results of the second quarter reflect a continuation of the positive momentum we discussed on our first-quarter call. During the current quarter we saw wholly-owned EBITDA grow more than 13% and our margins improve 240 basis points. Most encouraging is that all 3 of our wholly-owned operating regions reported year-over-year growth. These impressive results were led by our properties in the Midwest and South with EBITDA by 19% and improved margins by 370 basis points.

In addition, the Las Vegas Locals region returned to year-over-year growth, which is an encouraging milestone. Positive results generated by our wholly-owned operations during both the first quarter and the second quarter clearly demonstrated we have finally turned a corner in our business. We expect that our wholly-owned business will continue to show improvement throughout the rest of this year.

With Atlantic City we face more difficult comparisons as the market continues to experience intense competition from surrounding markets. While Borgata was clearly impacted by this competition, it continues to outperform the market, growing its market share by 80 basis points in growth in non-gaming revenues. From an economic standpoint, the recovery of the Las Vegas tourism industry is continuing, all metrics are showing improvement. The visitation is now increased by 15 straight months, city-wide occupancy is up more than 4 percentage points so far this year, EDRs have risen by nearly 10% and airline traffic through McCarran has increased 3.5%. Officially, so far this year the leisure and hospitality sector is at nearly 8,000 jobs in southern Nevada.

We have long held the belief that strengthening business trends on the Las Vegas Strip will lead to improved results in our Las Vegas Locals business. We believe we are finally beginning to see these results reflected in [employee] patterns of our customers. Paul will touch on this more in his remarks.

In the Midwest and South region where the economic recovery has taken firmer hold, 5 of our 6 properties posted positive comparisons to the second quarter of 2010. The exception was Sam's Town Tunica, which was closed for nearly the entire month of May, due to flooding on the Mississippi River. Factor out this closure, and we would have seen even healthier growth in both revenue and EBITDA during the quarter. Due to the growing predictability and consistency in our business over the last several quarters, we have made a decision to resume quarterly guidance. Josh will review guidance for the third quarter during his comments.

Switching topics to the Company's pending transactions, we have 2 significant transactions we are working on. First is our sale of Dania Jai-Alai and the second is our acquisition of the IP. I want to take a moment to provide you a quick update on each of them.

With respect to the sale of Dania Jai-Alai, the process continues to move forward. The transaction is scheduled to close in late September; however, the buyers do have the option of extending closing by 2 months (technical difficulty) circumstances for an additional $2 million payment. With respect to the IP, the acquisition remains on track and we expect to have due diligence wrapped up by August 4. Barring any complications, we will make a $10 million nonrefundable deposit payment to the sellers at that time. We currently expect to close the acquisition early in the fourth quarter.

As we work our way through the diligence process and continue to learn more about the IP operation, we are more confident than ever that this acquisition will be a great addition to our Company. The IP in the Mississippi Gulf Coast offered attractive destination experience for millions of B Connected members nationwide, which will allow us to generate additional revenue of the property and we believe there are substantial opportunities for cross-property marketing. Beyond the wonderful physical assets and amenities that are part of the property, the IPT members have created an outstanding service (technical difficulty). As a result, they have given the IP brand a tremendous reputation in the market. Based on this, we have determined that upon closing of the transaction we will be keeping the IP name and brand as a testament to the efforts of all the IP team members and their hard work.

In addition, as we learn more about the property, we remain confident about our ability to improve the bottom line for more purchases of goods and services at more competitive prices than the IP can at the stand-alone property. The IP generated approximately $41 million in EBITDA over the last year, but we believe its potential as part of Boyd Gaming is significantly higher. Last month we said we could generate a minimum of $5 million in immediate annual cost savings and we remain very comfortable with that projection. Look forward to welcoming the IP to our Company and anticipate it will be a significant contributor to our future results.

Now, I would like to offer a few comments on our strategy moving forward. As we have come to appreciate over the recent past, we cannot control the national economy or the recovery of the spending habits of the consumer, but what we can control is our focus. Our focus on ensuring our existing operations are managed as efficiently as possible and remain positioned for growth. Our focus on our capital structure and strengthening our balance sheet, not just by paying down debt but also by strengthening our operations and diversifying our asset base, and our focus on our growth strategy both on finding those assets that are good strategic fit and provide an appropriate return to our shareholders. The IP is one example, but we do not believe it will be the last.

Finally, once again we need to recognize our wonderful team of employees and commend them for the outstanding job they are doing offering consistently great customer experiences each and every day. The great service people have come to expect from Boyd Gaming remains a differentiator for our Company, and for our brands. Thank you for joining us this morning. Now, I'd like to turn the call over to Paul to talk more specifically about the results of each of our regions. Paul?

Thanks, Keith. Hello, everybody. Our operating performance continued to strengthen in the second quarter. As anticipated, our wholly-owned business showed EBITDA growth. We are particularly pleased with the continued strong performance of our Midwest and South region, which produced an EBITDA gain of 19% and its third consecutive quarter of growth.

During the second quarter, before corporate expense, our wholly-owned properties posted an EBITDA margin of 23.1%. This is our best quarterly margin in 2 years and represents a 220 basis point improvement over the second quarter of 2010. The fact that we were able to generate a double-digit increase in EBITDA on flat revenue is a powerful example of the growth potential created by efficiencies in our business. As revenue growth accelerates, we believe there is potential for substantial improvements in EBITDA. Results were driven by improvements in visitation and play in our 2 premium tiers across all 3 regions. We have also begun to see initial signs of growth from unrated play in our stronger-performing Midwest and South properties.

Now, let me discuss our regional operating results in a little bit more detail. First, let's look at our Las Vegas Locals business returned to year-over-year growth in the quarter. On past calls we discussed strong operating performance at the Orleans. That continued in the second quarter as the property posted 7% EBITDA growth on higher revenue. This marked the third consecutive quarter of growth at the Orleans; but the growth story was about more than the Orleans, as multiple properties reported year-over-year gains in the second quarter. Our management teams continued to excel at operating efficiently while maintaining a high level of customer service.

During the second quarter our Locals business posted an EBITDA margin of 25.4%. This is a 140-basis-point increase over the second quarter of 2010. Growth in our convention and meeting business continues to be a bright spot in the region. As we predicted on our last call, convention and meeting business revenue increased more than 20% during the second quarter, in line with the growth we saw in the first quarter. We expect that run rate to continue.

The promotional environment in the Locals region remains elevated. We believe, however, that we have the right mix of promotional activities in place and remain disciplined in our marketing efforts. The soundness of our strategy helped us produce EBITDA growth. We are extremely pleased that the Las Vegas Locals region has returned to positive year-over-year comparisons. This is a significant step for our Company and we expect growth to continue for the rest of the year.

The Downtown Las Vegas region also reported a strong performance. Revenue grew 2.5% year over year. EBITDA rose only slightly, but it's important to note that this was entirely a function of much higher fuel costs at our Hawaiian charter service. We estimate that higher fuel expense cost us nearly $1 million during the quarter. If you back out that expense, EBITDA would've grown more than 8% during the quarter which is a much more accurate reflection of how well the properties performed.

Growth on the top line is primarily a function of continued growth in our geographic Hawaiian customer segment, similar to what we saw in the first quarter. This customer base is essential to our Downtown operations, and we continue to invest in them. For example, starting in October we will convert to a Boeing 767 on our Hawaiian charter route. This will allow us to offer our Hawaiian customers a flying experience as competitive as anything currently offered in the Las Vegas-to-Hawaii route. Just as important, this new aircraft will be more efficient on a per seat basis, while providing us with a 12% increase in available seats, allowing us to transport 6200 more customers annually based on our current 5-flight-per-week rotation.

In the Midwest and South the growth story continues to brighten, as the region posted its third straight quarter of year-over-year EBITDA gains. Margin improvements played a key role as the region recorded its strongest margins since the first quarter of 2009. As in other regions, this was not a case of isolated growth at a single property. Excluding Sam's Town Tunica, all properties in the Midwest and South region reported EBITDA growth, while 3 properties showed double-digit gain. Sam's Town Tunica was able to reopen on May 25 and is back to full operations. Visitation to the market was slow to pick up, but returned to pre-flood levels in July; however, booking windows remain much shorter than normal.

Also in the region, our strongest growth came once again at Treasure Chest, which reported 60% EBITDA growth during the quarter driven by effective marketing programs and growing demand. Looking ahead, we believe our MSR properties will benefit from the IP acquisition. The IP will be an attractive destination for B Connected members throughout the region and should create substantial cross-marketing opportunities in the future, particularly with our Louisiana properties.

Our most difficult comparison in the quarter were at Borgata, which posted a 2% decline in net revenue and a 10% decrease in EBITDA. As we noted previously, competition is elevated in the region and we responded by increasing customer reinvestment. This increase spending made for a difficult EBITDA comparison to the prior year.

Our quarterly table game whole percentage was 13%, which is in line with our long-term expectations. However, this rate was 80% -- 80 basis points below prior-year levels, further impacting EBITDA. Despite these challenges, the remainder of Borgata's business performed well during the quarter --slot win rose slightly and table game volume was flat year over year. This allowed us to increase our share to 90 -- 19% of the Atlantic City market, an increase of 80 basis points over the prior year.

Other areas of the business posted growth. A majority of these gains came on the hotel side as cash ADR rose 14%, $174, occupancy for the quarter was 87%, 2.5 percentage points above the year-ago quarter. Despite challenges in Atlantic City, Borgata continues to outperform the market, offering a guest experience unmatched in the region.

To recap, there were many highlights in the quarter from an operating perspective. The efficiencies we built into the business over the last several years are paying off. We believe this is a preview of what to expect in the quarters ahead. As customer spending and visitation continue to recover, revenue growth should accelerate and drive additional bottom-line gains in the quarters and years ahead. Thanks for your time today. I'd now like to turn it over to Josh.

Thanks, Paul. I'd like to start with a few comments on items from the quarter. Starting with the balance sheet, excluding Borgata, Boyd's debt balance at the end of the second quarter was approximately $2.4 billion, of which $1.4 billion was outstanding under our $2 billion credit facility. Borgata's debt balance was $820 million, of which $20 million was outstanding under their $150 million credit facility.

On the income statement, corporate expense -- excluding share-based compensating expense for the quarter -- was $10.5 million, an improvement over last year by $700,000. Share-based compensation expense was $2.1 million, also $700,000 below prior year. Depreciation expense in the quarter was $48.5 million, a decrease of approximately $7 million from the prior year. Boyd's depreciation expense represented approximately $32 million, which compares to $37 million in the second quarter of last year. The decrease in depreciation expense is due to our reduced capital expenditure program. Borgata's depreciation expense of $16.2 million was $2 million below second quarter of last year.

Excluding the impacts of consolidating Las Vegas Energy, consolidated interest expense for the quarter was $61.4 million. Interest expense at Boyd was $40 million for the quarter, an increase of approximately $11 million over the prior year, reflecting the impact of our financing activity in the second half of last year. Interest expense for Borgata was $21.3 million for the quarter, an increase of $15.7 million over prior year, again due to the financing activity that occurred in the latter part of 2010. Sequentially, from the second quarter, we expect interest expense for the third quarter to decline approximately $5 million due to the expiration of swaps at the end of June.

The income tax line item in this quarter may seem a little odd to those of us who aren't tax accountants. We recorded income tax expense on a pretax loss. Typically, we would expect a tax benefit from the loss. This outcome reflects the impact of permanent adjustments and state income tax expense, which exceeded our federal income tax benefit.

Changing gears a bit to guidance, given the consistency and greater visibility we now have in our business, we are reinstating quarterly guidance. We will provide quarterly EBITDA and EPS guidance. Because we consolidate Borgata's financial results, we will provide separate EBITDA guidance for Borgata; and we will provide guidance for adjusted EPS for the consolidated business, which includes both Borgata and our wholly-owned segments of Boyd.

We expect wholly-owned EBITDA, which includes corporate expense, to be in the range of $65 million to $70 million, versus $61 million reported in the third quarter last year. We expect Borgata to generate EBITDA of $52 million to $55 million. With that range of EBITDA, adjusted EPS for the third quarter is expected to range from breakeven $0.03 per share. This guidance assumes no contribution from IP during the third quarter. With that, Operator, that concludes our remarks and we're now ready for any questions from participants on the call. Alicia?

(Operator Instructions) Your first question comes from Felicia Hendrix. Please proceed.

Hi. Good morning, guys.

Good morning.

A few questions, Keith. In your prepared remarks when you were, and actually also Paul, when you guys were talking about Las Vegas locals you mentioned Orleans as generating higher year-over-year revenues, but overall revenues were down year-over-year, so I'm just wondering was Orleans the other property that generated high year-over-year revenues, and in light of that, how are you thinking about the Las Vegas locals market revenues as comps get tougher in the second half.

I think Orleans obviously has been a stand out now for 3 quarters in a row and on the revenue line item naturally we have seen pretty significant declines over the last 3 years. The rate of decline has obviously continued to shrink on a year-over-year basis. So, flat or slightly down as a group overall but approaching really flat at a couple of the other properties as well. So, year-over-year types of improvements.

As we look out to the rest of the year and kind of the reference to kind of tougher comps if you will in the LVL region in particular, we still feel very comfortable about our statements around seeing year-over-year growth in the third and fourth quarter based on the historical comparable numbers.

We, in fact, last summer saw a pretty significant downdraft in the Las Vegas locals market and actually in July. The comparables started to recover at the back half of the year but, again, based on business volumes, booking trends, et cetera., about the direction that region is going.

That is very helpful because that gets to my next question. Just, on the margin side you have obviously done well. Just wondering how much room you had to go there. Obviously, increasing revenues will help margins but absent that.

Well, I think obviously we worked hard to refine the expense side of the business and there is really nothing else in our bag of tricks as it relates to the expense side of the business at this point, some 3-plus years in to this whole thing. But, as you can see as revenues improve and in some cases you don't actually have revenue growth in specific properties but the rate of decline lessens, the relative improvement we're able to continue to flow through on a pretty substantial pace. The EBITDA line which has an exponential impact on increasing margins.

Okay. Helpful. And then just moving to Midwest and South, based on the monthly revenues that the states put out, your Lake Charles and New Orleans properties really surprised us on the upside. I was just wondering what was going on there in particular. Is it coming from higher priced oil or what is driving that?

Well, I think in the case of Treasure Chest, we have continued to expand hours of operations. Really, if you go all the way back to Hurricane Katrina, Treasure Chest is not operated on a 24-hour basis 7 days a week.

As we have seen improvements in the economy, we have continued to modify that schedule to a point now where we are open 24 hours on weekends and have just a longer business day on weekdays based on demand. That has certainly helped us from a revenue perspective.

I also would say that the New Orleans market overall never probably hit the lows that a lot of parts of the overall economy hit over the last few years and, as a result, has improved quicker than in other areas as well.

As it relates to Delta Downs, I would say the Lake Charles market is very, very competitive. There is no question about it. Obviously our geographic positioning relative to the Lake Charles operations and the Texas markets obviously beneficial to us.

That has been part of our strategy ever since we bought Delta Downs and, again, it is not marketing for just marketing sake. It is marketing in a very smart way, and I made a comment that our stronger properties we have started to see unrated play pick up, and that kind of ties back to a couple of those properties and with unrated play picking up, start to see some very positive momentum.

Great. And then just Josh, final question. Regarding the balance sheet. Following the IP acquisition we have calculated that you have a funding shortfall in 2012. Can you update us on how you are thinking about that?

Sure. I think we think about that question really in kind of 2 perspectives. One is the where the uses of capital and we have 2 of those. One is the $330 million non-extending portion of our credit facility which matures in May of 2012 and then we have the IP acquisition itself which is $288 million and includes a $10 million contribution to the trust.

So, kind of from the sources side of things, we have $350 million of availability under our 5-year extended credit facility. So, and kind of backup situation that $350 million can really take care of the non-extending portion of the credit facility. In addition, we have about $80 million on our balance sheet right now in terms of cash, cash that is not in the cage.

So, that is available to us, and then to the extent that Dania closes, that is $80 million as well. You have about 160 of the 288 associated with funding the IP acquisition. So, that leaves us, as we mentioned on our call, when we made the announcement with approximately $250 million to $300 million of financing that we would like to do, and I expect that we would do that some time before first quarter of next year and that is what we are comfortable with at this point.

Okay thanks. Very helpful thanks guys.

Your next question comes from the line of Shaun Kelley from Bank of America. Please proceed.

Hi. Good morning, everyone. Josh maybe I just want to start with 1 quick clarification on the actual printed numbers. There is a little bit of I guess expense that you guys took for the Tunica flooding and I just wanted to clarify. Is that something that actually dragged down your numbers more in the quarter and we should kind of be adding that back? I think it is like $1.1 million or so if I looked at the schedule correctly.

Yes. That is related to expenses that are companies responsible for related to the claim because of the closing in Tunica. So, that is the deductible plus some incremental expenses. And in our calculation of the adjusted EPS number, we have added that back or removed the impact of that.

But, what about for adjusted EBITDA?

It is not in adjusted EBITDA. It is not included there, because it is below the line.

Okay. Got it. That's helpful. And then just to think about the operation. I think you hit on the Midwest and South, but I did want to ask about Atlantic City. You mentioned the elevated promotional environment there.

Paul, I think in your comments it just could you give us some thoughts about the summer, where some of that increasing promo activity may be coming from and is there any I guess like any line of sight to an environment where Atlantic City could actually bottom and start to improve or is it still just trying to do as best as you can in what is obviously a very challenging environment?

Shaun, this is Keith. Clearly, Atlantic CIty has a lot of the increased competition and I think what we're seeing over the summer is the same thing we've seen for the last couple of quarters in terms promotional environment and, as Paul indicated in his remarks, we responded in kind to make sure that we retain the customer base.

As we move forward, obviously we will start to cycle through Pennsylvania table games in the current quarter, so those started ultimately July of last year, so we will start to have some better, or maybe easier comps as we move forward and I think we are going to continue to slug it out over the next couple of quarters.

Clearly as the market leader we like our position there. I think we are doing a great job running the business. We continue to see good improvements in our non-gaming side and we are able to basically maintain on the casino side of gaming revenue as we talked about slot coin in and table game volumes being flat.

Some pretty positive results given the level of competition and we are focused on margins there also, trying to operate as efficiently as possible, but I think it will continue to be a battle as we look forward over the next couple of quarters.

Okay. Thanks, Keith. And then I guess last question for me was on Dania. Could you just give us a little more color on the deal there since, I know -- I'm sure -- it being in contract specifically, what I'm thinking of is do you guys have a hard deposit today and how committed is the potential purchaser at this point? Just trying to get a sense because it does factor into the funding equation that Josh referred to in his last answer.

We did receive a $5 million nonrefundable deposit when we signed the contract, when the contract was signed. They had spent -- I should say they are currently spending significant sums preparing for the ultimate closing of that transaction on architects, designers and meetings with city council and moving it forward. They have had meetings with the people that live in the area and the surrounding community to let them know what their plans are so they are actively and aggressively going to be moving forward with respect to the project.

But, again, (audible cut out) we expect to close late September. They do have the ability to extend for 60 days under certain circumstances. We, at this point, would expect it to close. We don't have any information otherwise.

And, Shaun, just a clarification on my remarks to the extent the $250 million to $300 million of incremental financing that we would expect to do takes into consideration whether Dania closes or not. So, that number wouldn't go up of Dania did not close by chance.

Okay. Thanks guys I appreciate it.

Your next question comes from the line of Joe Greff.

Good morning, everybody. Paul, just want to clarify. I think your comments or answers to the first question. With respect to your 3Q guidance and how you're thinking about the fourth quarter, is it your expectation that you would actually see revenue growth in Las Vegas locals market?

Well, I think -- I mean I didn't talk about revenue growth specifically in the fourth quarter so I do not think you missed anything there, but my point to Felicia's earlier question relative to comparables and how those comparables roll out is we're very optimistic that we will continue to grow the business.

Obviously, as we continue to move forward, those types -- that type of growth in EBITDA would naturally come with revenue growth and I think I even got specific in to kind of property by property we're certainly not up year-over-year in every single case today, but the directionally we are going to the right place.

Okay. My followup question on that is in the locals market if we do see some level of net revenue growth say in the +1% to +5% range, how much of the incremental revenue drops down to the EBITDA line with the flowthrough? You have obviously have done a great job of controlling expenses and controlling margins. How do you think about that flowthrough?

Well, the flowthrough will continue to run on a pretty substantial base. Obviously marketing expense and labor are 2 kind of key components to the overall impact, but generally the rule of thumb you can use is a 1% increase in revenue is a 2% increase in EBITDA.

And then on the IP, can you give us a sense of EBITDA seasonality as a quarterly basis over the last 4 quarters or if you want to look at it full year 2010?

I think the -- not surprisingly, the summer is the peak season along the Gulf Coast relative to certainly things like hotel occupancy and visitation. I mean it is a summer destination, but with that said there is quite a bit of snow bird travel in the winter and then the Biloxi market overall is very much a destination for the likes of golfers and sport fishers in the spring and fall as well.

So, there isn't -- there is a bit of seasonality skewed to the summer, but it is probably similar to what you see in other markets that have that same kind of makeup.

Great. And then, Josh, thank you. Josh, I don't know if you gave capital expenditures for the second quarter. If you can give us a sense of 3Q and 4Q CapEx?

Yes. In the second quarter we spent about $12.5 million in CapEx and that includes Borgata as well as Boyd, so Boyd was about $6 million of that and Borgata was about the remaining portion, about $7 million.

I think it at Boyd we have consistently kind of under spent our CapEx budgets. And I think generally we have talked about spending somewhere between $60 million and $70 million this year, I think we are probably on a run rate to spend kind of $15 million in each of the next 2 quarters.

Great. Thank you.

Your next question comes from David Katz from Jefferies. Please proceed.

Hi. Good morning. I wanted to ask about Las Vegas locals market, if I may, and what the promotional environment is like. We certainly heard some things and then we see the results which are pretty good. If you could just talk about what that landscape has been like.

This is Paul. I think I mean, obviously, promotions take many different forms from very broad-based promotions to direct mail which is, we've talked about in the past, direct mail is very much a tool we use quite considerably in focusing on kind of our key customer base.

Things ebb and flow between those, between companies. Right now you don't see in this town any significant broad-based public promotions, but we factually know as our competitors know that there is quite a bit in the mailbox and through the various electronic forms of communication with customers. So, as we would consider reinvestment in the customer base, it continues to be at high levels.

Now, we as a company have stayed away from some of the large ticket broad-based promotions because, in all honesty, we just haven't seen the types of returns on those that really made them make sense for us. They can drive revenue.

There's no question about it, and I'm sure they have driven revenue considerably for some of our competitors, but it is always a challenge in making that flow to the EBITDA line and, again, we are just focused on where we can get the right types of returns on investment.

And 1 last 1 if I may and this may be an odd question, it just has not come up for a while. You do have a Las Vegas strip site that is there and circled on a map as an opportunity 1 day. Has there been any discussion or any thought given to doing something there?

This is Keith. We continue to monitor the progress and the recovery in the Las Vegas strip and the Las Vegas market generally. There are no active conversations to date.

We obviously haven't, as part of our longer range plans, reengaged in that site, so, there is no current conversation about starting to redraw or anything of that nature on that site. It is important to us as we look to the future the Company and still ultimately look to have a presence on the Las Vegas strip as we look a few years down the road.

Right. Okay. Thank you very much.

Your next comes from the line of Steven Ruggiero from CRT Capital. Please proceed.

Thank you. A few questions here, following up. When the Las Vegas locals market you improved margins notably and I wanted to get a better sense of if this was specific cost, or if there is any easing in the locals market vis a vis promotions, especially coming off The Station Casino exit from bankruptcy.

Well, Steve, I think you know, as I said, it's on the marketing side and promotion side we have not seen any easing up ending. We, again, are just trying to focus on spending the right dollars in the right places and that is translated in to really the numbers you see. There is no real magic about them.

Okay. And then this is not only for the Las Vegas locals market but also for your other segments and that is full-time equivalents. When do you see a potential need, especially with some of these properties generating some nice top-of-the-line growth for your FTEs to start increasing again? Is that something you can hold and check for the remainder of this year and even in to the beginning of next year?

Well, I mean our Las Vegas local properties are very busy. We've talked about in the past spend per visit, which is really where the focus is. Obviously, through the decline in the economy folks have spent less. That, as we said, the top end of our data base has started to recover and our property is relative to occupancy and just people in the building running as full as they frankly ever have.

Our customer service scores and we use a third party group to touch base with our customers and give us an assessment on how we are doing are as good as they ever have been. And so it's a tribute to the group of employees we have, as Keith talked about, and obviously a first step is continuing to expand hours that people receive via scheduling, but it is really about spend per person as opposed to more people in the building.

So, you feel that you still have flexibility there to maintain your number of employees at this point? Is that the answer?

We absolutely do.

Okay. And then 1 last quick question with regards to downtown. You stated that year-over-year was about $1 million of incremental fuel costs related to your charter service in the second quarter that dragged the EBITDA down. What do you see as the year-over-over fuel cost comparison for the third quarter?

Well, the third quarter is on from a charter-only standpoint is probably going to run in that same zip code of $1 million a tire.

Okay. Great. Thank you very much.

Your next question comes from the line of Amir Markowitz with Morgan Stanley. Please proceed.

Hi. Just as a followup question. You were talking about before about spend per visit levels. Can you, I guess, just give a little more color about spend for visit trends in the Las Vegas locals market over the past the past few quarters and kind of how this past quarter compared to those levels. Are you seeing any sort of improvement?

As I said before in my comments about the data base overall, we have seen improvements in the top 2 tiers of the data base amongst all 3 of the regions, so that is locals, downtown, and the Midwest and South. So, that directly translates in to spend per visit.

Okay. And just 1 more follow up. I guess looking at the Las Vegas locals market it looks like overall, at least through May, it was kind of up low single digits, so, is it fair to assume that the apparent, I guess, share losses in the market reflect your competitors' increased promotional activity or was there something else going on?

Well, I mean, I think obviously the numbers that you see reported by any state, including Nevada, relate to revenues and we talked quite a bit on this call about efficiency and reinvestment in the customer base. If we were totally focused on revenue, we could do an awful lot to drive the revenue number, but I don't think anybody would be very happy with the ultimate bottom line performance.

Some of our competitors have taken a different approaches to that relative to how they have looked at continued reinvestment in their customers. Revenue numbers are kind of what they are, and I would suggest that they are not necessarily the end all and be all, as it relates to ultimate profitability.

Thank you.

Your next question comes from the line of Dale Lerner from Union Gaming. Please proceed.

Hi. My question is really 1 of strategy or more strategic, I guess, in nature related to the I. I know you talked about the transaction, but I don't think you touch on this. What's the strategy there? I mean, it sounds like it's going to be an accretive deal. It rounds out the regional story further for you.

In the not too distant past you wanted to bulk up in Las Vegas locals and that didn't pay out as you may have hoped. But I'm just wondering, is this isolated in that its accretive for the network or is there where you likely direct capital and regionals going forward?

This is Keith. We talked about strategically in the past looking for acquisitions that we think are a good fit to help us through the first asset base, that tend to be market leaders, and that would provide a good return. In this case, I think that IP fits the bill and clearly is the top 2 assets in the market. It's clear, as you said, is accretive to the Company, provides a great return, it helps to continue to geographically diversify the company.

In terms of specific markets, we are agnostic as to what market it is, whether it is the Midwest or the South or Las Vegas, it provides a good return and it helps to further diversify the asset base and they are market leading properties we are interested in the acquisition. We've look at a lot of things, we will continue to look at a lot of things, but they have to be a good fit and they have got to fit those [inaudible]. I don't know if that answers your question.

That helps. Thank you.

Your next question comes for the line of Joel Simkins from Credit Suisse. Please proceed.

Yes. Hi. Good morning, guys. A couple of quick questions. First, you may eventually have another competitor in Lake Charles, if the family gets financing and similarly if this license moves from that market into Shreveport. Just curious how you are positioning both your assets in those markets longer term.

With respect to Lake Charles market, we've said for a long time, the more people you put on I-10 heading in to Lake Charles, given our position in the market and being pushed in to the market, we certainly like our position, we've got a great asset there. That property obviously is a number of years off from being developed and will continue to (inaudible) the property to reap the benefits of more people being on I-10 crossing from Houston into the Lake Charles area. We are positive about there being additional traffic. I will let Paul talk about the Shreveport asset.

Well, I think with the Shreveport market, as we have touched on, everyone has [inaudible, cut off] been challenged by more and more competition in neighboring states that have focused on the Dallas market in particular, and that has come from the state of Oklahoma and native American tribes that have built very substantial operations up in that market.

I think as it relates to the proposed project in Bosier City that has been discussed, again, we haven't seen a lot of depth in that market overall and I think it's certainly a challenging market to consider additional capacity coming in.

One final followup here. On the Borgata, I think you may have embarked already on this rooms renovation. Can you just give us a sense of the scope of that project, timing of completion, potential disruption, sort of maybe what specifically you are doing to each room, et cetera.

The project will include all the rooms in the original Borgata hotel, completed between generally the fourth quarter, the fall of this year and spring of next year we expect all those rooms to be completely remodeled Reveille and it is a pretty complete renovation. We will be touching all the parts of the room from furniture to carpet to wallpaper and the like. So, it's a comprehensive overhaul of the roofs and will be done by the time Reveille opens.

Relative to the question about disruption. You can go through this process and obviously you have a couple of floors out of service at a time, but managing it through certain seasons of the year, you clearly have rooms available gone. It is not frankly very disruptive to the overall business at all.

Thanks a lot.

At this time, you have no further questions in the queue. I will now turn the call back over to Josh Hirsberg for closing remarks. Please proceed, sir.

Thanks, Alicia. We had a very good quarter and we really don't see those trends changing for our wholly-owned business going forward. We appreciate your participating on the call and to the extent you have followup questions, feel free to reach out to the company and we will be available to answer those questions. Thank you.

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