Boyd Gaming Corp (BYD) 2013 Q2 法說會逐字稿

Good day and welcome to the Boyd Gaming second-quarter 2013 earnings conference call. All participants will be in listen only mode.

(Operator Instructions)

After today's presentation there will be an opportunity to ask questions.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Josh Hirsberg, Senior Vice President and Chief Financial Officer. Please go ahead.

Thank you, Emily. Good morning, everyone, and welcome to our second-quarter earnings conference call. Joining me on the call this morning our 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 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. We undertake no obligation to update or revise the forward-looking statements. Actual results may differ materially from those projected in any forward-looking statement 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, boydgaming.com. We do not provide a reconciliation of forward-looking non-GAAP financial measures, due to our inability to project special charges and certain expenses. Finally, as a reminder, today's conference call is also being webcast live on our website at boydgaming.com and will be available for replay on the Investor Relations section of our website shortly after the completion of this call. 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 for today's call. Our results for the second quarter represent another quarter of significant progress toward achieving our long-term strategic goals, strengthening our balance sheet and positioning our sales for continued growth. Our focus on these goals and the efforts we are making across the Company are paying off. In May we completed the sale of Dania Jai-Alai, just two months after we divested the Echelon site. By selling these two non-strategic assets we generated more than $400 million in proceeds and eliminated more than $20 million in annual operating expenses strengthening both our balance sheet and our operating cash flows.

On the operating side, we continue to successfully refine our marketing approach, enhance our amenities and effectively manage our expenses throughout the business. And the results speak for themselves. Our second-quarter performance was in line with our expectations, and we saw positive momentum build throughout much of our business. In our Las Vegas Locals region, revenue was up. EBITDA grew for the second straight quarter. We significantly improved our operating margins. And importantly, all four of our major Locals properties reported EBITDA gains.

We were able to achieve 12% EBITDA growth in our Locals business on a relatively modest revenue gain. This speaks to the power and the potential of the operating leverage we have built into the business. We believe these improvements in our operating margins are sustainable, and as revenues grow, these improvements will drive even greater EBITDA gains. And as the Las Vegas economy continues to move in the right direction, the future for our Las Vegas Locals business looks increasingly positive. In the last 12 months, Southern Nevada has added 18,000 jobs with gains in nearly every major sector. And with $6 billion in the development pipeline, more jobs are on the way. Homebuilding activity is at its highest level in years, and existing home prices are up approximately 30% in Las Vegas over the last year.

As these trends continue, they should drive increased consumer confidence. As a result, we are optimistic in our outlook for our Locals business. In our Midwest and South, despite increased competition we posted solid results as well. If you factor out weakness at the IP in the quarter, EBITDA would have been flat in this segment for the quarter, even with lower revenues. Once again, this performance shows the effectiveness of our business model and our ability to overcome external challenges. While gaming supply has grown in many regional markets, general economic conditions remain sound and our confidence in our business throughout the Midwest and South is a strong as ever.

In New Jersey, Borgata marked its tenth anniversary with a performance was well ahead of expectations. Despite regional competition, and the lingering effects from Superstorm Sandy, Borgata grew EBITDA more than 4% year over year, before property tax charge recorded during the quarter. These positive trends have continued into the third quarter, which is the height of the traditional busy summer season. Borgata is clearly moving in the right direction. In the long term, we remain encouraged by the growth potential presented by online gaming in New Jersey.

Over the last decade we have built tremendous equity in the Borgata brand, which is widely known and well regarded in market. This brand leads the Atlantic City market by a wide margin and we are confident it will capture more than its fair share of the New Jersey online gaming market as well. Working in collaboration with our partners at bwin.party, our New Jersey-based online gaming team is now focused on the successful development and launch of a user experience that will represent this brand well. Together we plan to offer a full suite of games, including poker, slots and table games, under the Borgata and Party brands including PartyPoker. We remain on track to be one of the first offer online gaming in the State of New Jersey upon receipt of regulatory approvals.

As we look at where we stand today, we are quite encouraged with the progress we're making as a Company. We remain diligently focused on implementing more effective marketing initiatives, improving our operating margins, making selective investments to enhance our products and strengthening our balance sheet. We continue to make progress integrating the Peninsula properties into our Company. We are pleased with their performance, which is in line with our expectations. With the new arena now open at Kansas Star and other new amenities on the way, we expect continued success of this property.

Our growth pipeline is solid. We have several opportunities to further grow and diversify our business. The most immediate is online gaming starting with New Jersey. And potentially expanding as other states consider introducing various forms of internet gaming. We also have a development agreement with the Wilton Rancheria Tribe in Northern California, where early-stage design work is now underway. And lastly we have our partnership with Sunrise Sports Entertainment in South Florida.

We have the right strategy. We have the right assets. And we have the right team. It is a team that has proven the ability to rise to any challenge. I am proud of the significant progress we have made so far this year, and look forward to what the future holds for our Company. Thank you for your time this morning. I'd now like to turn the call over to Paul, who will review our operations in a little more detail. Paul?

Thanks, Keith, and hello, everybody. This was a very positive quarter from an operating perspective. Across the Company we kept costs under control, refined and improved our marketing, and made selective investments in our product that clearly resonated with customers. Let's start by reviewing the highlight of the quarter. Our Las Vegas Locals business, which posted its best second-quarter EBITDA performance in four years. And notably we were able to achieve top-line gains in a market that has not exhibited any revenue growth so far this year.

We maintained our focus on running our business very efficiently, improving operating margins by 270 basis points over the prior year. That allowed us to magnify modest revenue growth into a 12% EBITDA gain. Once again, we benefited from the slot initiatives we rolled out late last year, as well as effective marketing designed to enhance the new product roll-out. And by reviewing and adjusting our marketing and advertising spending, we've been able to grow gaming revenue without increasing overall marketing expense. As revenue growth strengthens we are confident we will continue to improve operating margins and generate substantial EBITDA gains from our Locals business.

Next let's review Downtown Las Vegas, which also returned to growth in the second quarter, as operating margins improved by more than 200 basis points. There were several significant positives during the quarter. First, changes to our Hawaiian flight schedule have led to improved efficiencies at our Charter Service. And by refining strategic marketing programs, we have been successful in growing visitation and spending among our Hawaiian guests. We are also seeing a significant uptick in visitor traffic as a Downtown's popularity grows. This was particularly noticeable at the Fremont, which benefited from continued growth in pedestrian traffic along the Fremont Street experience. Our Downtown business is clearly moving in the right direction and we expect positive trends to continue.

Now, let's move to our properties throughout the Midwest and South, which performed well in light of the external challenges we faced during the quarter. Increased capacity had an impact, especially on our Gulf Coast properties. And severe weather affected our operations in Iowa and Kansas. These issues led to lower revenues, but efficiencies in our operations helped us mitigate the impact to EBITDA. Looking at the Peninsula properties, this acquisition is playing out pretty much as we expected. There were significant revenue growth in this segment driven by new amenities at Kansas Star. And in late June we opened up the 6,500-seat Kansas Star arena, completing the initial phase of the property's expansion plan.

Over the course of the last eight months, Kansas Star has transitioned to a permanent casino, opened a hotel and arena, and introduced five new food and beverage outlets. We are quite pleased with the performance of this property. Even with severe weather during the month of May, Kansas Star reported gains in both visitation and revenue during the second quarter. But, as expected, the recent expansion increased expenses as well, which impacted margins at the property. Now that the initial phase of the Kansas Star is complete, our job is to carefully review the operations of the expanded property, and ensure that expenses are properly aligned with business volumes. We are confident there are opportunities for margin improvements in the business in the months ahead. We're also prepared for the next phase of Kansas Star's expansion, which will double the size of the hotel and add meeting and conference space, as well as additional amenities to support Western Lifestyle events at the arena.

Finally, I'll conclude with Borgata, where strong operating performance was masked by a $4.3 million property tax charge. Although this charges was recorded in the second quarter, it covers increased property taxes for the first six months of 2013. We recently concluded the trial phase to an appeal of our property tax assessments for 2010 and 2011. And a positive ruling could result in refunds and tax credits, as well as lower assessments going forward. We expect the tax court to make its ruling by the end of the third quarter.

Excluding this charge, Borgata would have generated EBITDA of $32.1 million, an increase of more than 4% versus the prior year, on a margin improvement of about 110 basis points. Like our other businesses segments, Borgata is doing an excellent job of running the business efficiently. But, it's important to note that these efficiencies have not impacted the quality of the Borgata experience. During the second quarter, we increased our share of slot win by 150 basis points and our share a table game drop by nearly 300 basis points. Our customers value Borgata for the quality of its amenities and service and have been less likely to be drawn away by marketing gimmicks. So, not surprisingly, we have not seen significant adverse impact on our business from the increase in promotional activity in the market this month.

So to recap, we are pleased with the progress we made across our operations in the second quarter. Momentum continues to build across our Nevada operations, as both our Locals and Downtown segments posted solid, year-over-year growth on higher revenues and stronger operating margins. We have the right business model in place and we expect we'll see accelerating benefits as the Las Vegas Locals economy continues to recover. In Atlantic City, Borgata overcame a host of challenges to post a strong operating performance that has continued into the third quarter. And we are now preparing for the launch of online gaming in the fourth quarter. And while we are contending with increased capacity in our regional markets, the long-term direction of this business remains sound. Economic conditions are healthy throughout the Midwest and South, and we are benefiting from new efficiencies throughout the region. Thanks for your time today, and now over to Josh.

Thanks, Paul. I will begin by making a few comments on the balance sheet and then I will discuss items from the income statement and provide guidance. Our total debt balance at the end of the quarter was approximately $3.7 billion, which includes $1.2 billion related to Peninsula. Our debt balances declined by over $260 million in the quarter. Given the balance outstanding under our credit facility, we have approximately $305 million of incremental availability at Boyd, and more than $30 million at Peninsula. Our cash balance at the end of the quarter was $119 million at Boyd, and $30 million at Peninsula. During the quarter, we redeemed the entire $216 million balance of our 6.75% sub notes using proceeds from Echelon and Dania asset sales. This redemption saves the Company about $14.5 million in annual interest expense.

From a financial covenant perspective, secured leverage was 3.7 times compared to a covenant of 4.5 times and total leverage was 6.5 times versus a covenant of 7.75 times. Borgata's debt balance was $796 million at quarter's end, including $4 million outstanding under their $60 million credit facility. Their cash balance at the end of the quarter was $34 million. After the end of the quarter, Borgata utilized a provision in its indenture to issue a redemption notice to retire nearly $40 million of its 2015 notes at a price of [$103]. The redemption will occur later in August and will be funded using excess cash on hand and an estimated $10 million of revolver volumes.

Interest expense savings are estimated at over $3 million per year as a result of the redemption. $22.5 million of the excess cash utilized to redeem the bonds represents a return of the CRDA deposits. We recorded a $5 million write-down in the quarter related to the return of the CRDA deposits. Last week we also closed on a new credit facility for Borgata, which extended the maturity from August, 2014 to February, 2018, and reduced the cost of borrowing from LIBOR plus 4.75% to LIBOR plus 4%.

Moving to the income statement. Corporate expense, excluding share-based compensation expense was $12.6 million in the quarter. This number includes the corporate expense for Peninsula. Depreciation expense in the quarter was $70 million, an increase of about $20 million over last year due to the inclusion of Peninsula. Peninsula 's depreciation expense was approximately $22 million, and Borgata's depreciation expense was about $16 million. Our interest expense in the quarter was $88 million, which includes $21 million for Peninsula, and $21 million for Borgata. Our capital expenditures in the quarter were $36 million, including $11 million at Peninsula, and $7 million Borgata.

Now, in terms of guidance we will provide EBITDA guidance for Boyd and Borgata. Boyd's guidance includes Peninsula. We expect wholly-owned EBITDA, after the deduction for corporate expense, to be in the range of $120 million to $125 million. We expect Borgata to generate EBITDA of $44 million to $46 million in the third quarter. In terms of adjusted EPS guidance for the consolidated business, including Borgata, and assuming a tax rate of 35% with this the range of EBITDA guidance, adjusted EPS for the third quarter is expected to range from a loss of $0.02 per share to income of $0.03 per share. Operator, that concludes our remarks and we are now ready for any questions.

Thank you. We will now begin the question-and-answer session.

(Operator Instructions)

At this time we will pause momentarily to assemble our roster. Thomas Allen, Morgan Stanley.

Last quarter you said the trends at the end of the quarter made you cautiously optimistic going forward. Looking at the guidance you just gave, it does seem like it's a bit ahead of expectations. But in this press release and on the call you talked a lot about operating efficiencies. As you think ahead to the second half of this year, how much of your positive outlook is around operating efficiencies versus top-line growth? Thanks.

I think as we've worked our way through the last couple of years, and we continue to be cautiously optimistic looking forward, the operating efficiencies that we put in place in the last couple of quarters, as I said we believe are sustainable, that they are permanent. We've worked very hard to create a more efficient operating model. And Q2 was the culmination of all of that coming together. We think there's probably a little bit more that we can do. We do believe to see some modest revenue growth in most of our markets, not all of our markets, going forward. I think it's a combination. But we are cautiously optimistic because we've seen, in prior years, this recovery in different markets, slow down. So, we remain cautious but optimistic.

I think one thing I would add to that, Tom, is that with respect to the Las Vegas Locals market in particular, we expect modest revenue growth to continue. But even in that environment I think the performance that we've seen in the second quarter and to an extent in the first quarter, we expect to be able to continue to show growth year over year terms of EBITDA.

Helpful, thanks. Some of your peers have talked about seeing a shift and a decline this past quarter in visitation, whereas before they were seeing some weakness in spend per visit. Have you seen any kind of inflection point there? And also, on July, how have trends been? We been hearing mixed signals from some of your peers. Thank you.

Well, I'll talk about visitation, Tom. It's really a market-by-market situation. I think when we've heard from others about visitation, it's typically been outside of the state of Nevada and we can certainly echo that. It's really more what we would call frequency, the number of times during a month a person is coming in, as opposed to straight out visitation, which is simply the number of people coming through the business. In a number of cases, our visitation is up but our frequency is down. And typically what happens as frequency decline, spend per visit goes up. Not surprisingly, as people have so many dollars for entertainment. In certain markets, and Nevada obviously was a bit of a better performer here, you've seen some more consistency year over year in frequency than maybe in other parts of the country.

All very helpful, thank you.

Carlo Santarelli, Deutsche Bank.

As far as your Borgata guidance is concerned, obviously you have had now a little bit of the trial period with Revel being maybe a little bit more promotional. Clearly you have some tail winds coming from what, I believe, was a fairly weak hold last year. Are you guys starting to get comfortable with the overall impact you expect with Revel? Certainly because when I look at the 3Q guidance, definitely stronger than what some of the us were expecting. Just wondering what your thoughts are and if you believe there's costs that can continue to be extracted there on a go forward basis as well?

Sure. I think we are comfortable with the current outlook for Borgata, the current trajectory. Paul said in his comments and it's been true for years, that customers choose the Borgata for the quality of its amenities as well as the quality of our team members and the service they provide. Promotional gimmicks haven't changed that. Revel has been in the market for better than a year now, so we've lapsed the comparisons, our customers have had for more than a year now, an opportunity to go visit that, and they largely have not done that. I think we're very comfortable with where we are at competitively and the position Borgata holds and the current EBITDA trajectory of that property. I think with respect to continued efficiencies at that property, like all of our businesses, that there are always opportunities to continue to refine these operations and find ways to operate more efficiently. It's a constant focus and I think there are more opportunities.

Then, if I could just ask one follow-up with respect to the Locals markets. Outside of the better marketing around the slots that you guys have been able to do here for the first six months, are you seeing or hearing anecdotally a change in the cadence of your customer? Or hearing from your property-level managers that the core customer is spending more and/or visiting more often?

Well, I think first if we take a look at the market overall and how each of us define the Locals markets, I think we all recognize in Nevada it is a little bit tougher given the way numbers are reported. Through May, when we exclude the Las Vegas Strip numbers out, unfortunately we have seen year-over-year revenue declines for the first five months. And so that's part of our story is we're up a little bit about $700,000 in net revenue in the Locals business on a market that still is not showing any growth overall. So that's an important take away. As far as what customers are saying, I think that there are better times ahead, and I think people feel that in Las Vegas, but unfortunately that has not necessarily resonated in overall market numbers that we've all been focused on.

Understood. Thanks a lot, guys.

Anthony Powell, Barclays.

A question on the Peninsula segment. The margins were down sequentially from the first quarter. I know a lot of that was Kansas Star but was there anything else in those numbers that caused the sequential margin declined there?

No, it really is all about Kansas Star. We drove some very good revenue numbers at Kansas Star, as we expected. I think we've talked in the past about going to really the full-scale permanent casino with all the F&B outlets. It's really great experience but it is not something you can run at the 50% plus margins that they were able to in a temporary facility. As a side note, we didn't bring it up, there was up pretty significant $1.3 million property tax difference at Kansas year over year, that wasn't called out or adjusted out. But that was also in the numbers in the quarter based on higher assessments as a result of the improvements, of course of which we're pursuing our options on appeal on that as well.

Thank you for that. I've got a follow-up on Peninsula. What synergies have you found so far after the acquisition and how far are you on that process? Is there a number that you're willing to give out on the total number of synergies you can achieve there?

In my prepared comments we talked about the fact the integration is going pretty much as planned. We are achieving the synergies we expected. We're not quoting numbers as to what they are, but I can tell you we're moving along the path very well. We're very pleased with it. We're getting all the synergies plus some, that we expected to get out of that business. It's performing in line with our expectations, just the way we would have expected it to.

I'd add to that from the day we announced the Peninsula acquisition, we never said it was a synergies story. The Company was run very, very efficiently. Unlike for us, our previous acquisition with the IP or other acquisitions that everyone has been focused on, this was not a situation where there was large corporate overhead that could simply be carved out.

Thank you.

Shaun Kelley, Bank of America.

I just wanted to ask about, start with New Jersey online gaming. Obviously it's a really interesting opportunity. Probably the number one question I get from investors is, if you could describe or give us a little bit more color on the agreement with bwin.party, specifically on the PartyPoker side of the world in terms of your economic split on that?

A couple of comments regarding the agreement and internet gaming in New Jersey. We have a relationship with bwin.party or a contractual relationship whereby they are providing software to us. They will be paid a fee for providing that software and infrastructure with respect to launching a product there. If they are able to launch their own product there, they will do that if that's approved by the regulators. We will own 10% of that business per our contractual relationship, and therefore receive 10% of the profits of that business. If they are able to open a separate US-based business. Now whether that could be in New Jersey or could be any other state in the US.

Just to clarify, wouldn't that separate piece to operate New Jersey still have to fall under the Borgata's license there? You have to be partnered with somebody in that market. Is it your sense that they will be able to do a PartyPoker or in that case, a B2C relationship underneath Borgata? Or will they have to find a different partner?

I think they clearly want to get into that market. It will be up to the regulators if they are allowed to get into that market. We certainly would like them to be under the Borgata banner, but it's up to the regulators in terms of having them get approved and launching a business there. I think if they are approved, then you can look forward to seeing them under the Borgata banner.

Okay. That's helpful. Moving over to the Locals market, you started I think, Keith, in the prepared remarks, talking a little bit about the overall macro backdrop for Las Vegas. As we've seen it today, the growth we've seen in housing, I think the auto market out there is very strong certainly the jobs have picked up, but we haven't seen it translate into revenue in the market wither for you or for anyone else. Where do you think that trickle-down actually starts to happen and you start to see revenue growth? It makes perfect, logical sense but what are you guys seeing on the ground in terms of when did this customer start spending again?

It's a great question in terms of when we'd expect to see that consumer transition, their spending from cars and other large-ticket items and repairing they're own balance sheets, to spending on entertainment products including ours. We would have expected that to happen now. As the recovery continues on I think there's more and more of a case for that to happen more quickly. So we would expect to see in the next couple quarters. But I've said that in the past. Consumers here in Las Vegas, as you pointed out, are buying a lot of cars. Auto sales are up. Those are not from visitors, those are from people who live here. Taxable sales are up, which is driven by both visitors as well as locals. Their savings rate continue to increase and they repair their balance sheets. So we'd expect any time now to see them start to spend more money in our business. But, it's a good question.

I guess the last thing would be, how would you characterize is the overall environment promotionally in that market? I think last year obviously your largest competitor was coming off of a period where they hadn't marketed as much and were really aggressive, which you guys have called out. This year it seems like you've had success with your initiatives and maintained pretty, at least in terms of a marketing budget, maintained pretty rational expense environment. How would you characterize what you're seeing from the market a large promotionally?

Sure, Shaun, I think Josh has a follow-up comment from your last question then Paul will follow up with an answer to that particular question.

I was just going to say, Shaun, I think our view or our perspective on the Locals business and Paul will add his dimension in terms of the promotional environment, is that the underlying economic factors in the Las Vegas market continually get better. And that's a longer-term improving trend that will translate eventually into a stronger consumer for us, overall. In the current environment where we're seeing modest revenue growth in a market that has not shown growth generally, but we're able to show growth, we have an operating environment where we take a lot of costs out of the business. That's what has led to our efficiency to date. And we expect that trend, that latter piece, to continue. Then get the benefit over time from the overall improving economics in the marketplace. I think even today the Las Vegas market was one of the top growing markets in terms of housing price improvement from Case-Shiller. Just the metrics in general continue to improve and we've got to believe that will accrue to our benefit over time.

From promotional environment standpoint, I think I said in my comments, our marketing expense was flat year over year, and so we've been pretty consistent. How we choose to direct those dollars, obviously changes, can change dramatically on a month-by-month, quarter-by-quarter basis just to be as efficient as possible. My sense is that the promotional environment is similar to where we were last year at this time.

Great, thanks, guys I appreciate it.

Kevin McVeigh, Wells Fargo.

Question for Paul or Josh first. Can you give us a sense of how much weather impacted second-quarter results?

Well, the weather, specifically was an issue in Iowa and Kansas. So, obviously focused on the Peninsula assets there. In fact we had a, in the month of May, everyone saw the tragedy that happened in Oklahoma with tornadoes, which honestly isn't all that far from there. We had 18 major weather days in the month of May versus almost none the prior year. The prior year was very calm. Is always a little bit of a challenge to try and pinpoint a number on what that means, but it is very clear on days where there is severe thunderstorm warnings and tornado warnings out, that people obviously just simply stay home.

In Iowa, it was really more of an issue of rain and snow. In fact, in Northern Iowa it snowed in May this year in a pretty significant way. Which again, serves to keep people shut in. Overall, we are a very involved an agricultural community in Northern Iowa in Worth County. Compared to last year, where there was severe drought, there was an unbelievable amount of rain during the planting season, which has led to a number of acreage not being planted this year, because the growing season just got too short. We'll just work through that during the course of the summer as we adjust our business.

Right, thanks. And for Keith or Paul, could you update us on the process as far as online in New Jersey is concerned?

Sure. We've filed our application. We're working with the regulators to submit internal controls, get the software ready and work through the process. We would expect to be ready to launch the business upon regulatory approval, which should be sometime late this year.

Great.

I don't think I have anything else to add besides that.

Okay, great thanks. Finally, results and guidance at Borgata were clearly very good. Any update on ownership of the other 50% of the property there?

We really have no other input, no other information.

Okay, great. Thanks, guys.

James Kayler, Bank of America.

One follow-up on the Borgata guidance. So, the Borgata guidance is, if I'm looking at this right, up about 30%-some year over year. I'm trying to figure out if you think that's going to be driven by the top line or if it's driven by cost savings? Was there something last year that negatively impacted the business?

I think it's a combination of factors as you look at year-over-year comparisons. I think there probably was, I have to go back and verify this, a little bit of softness in the hold last year. But this quarter is done yet, we obviously expect a normal hold. I think we will expect to see continued efficiencies in the business and so the margin improvement we saw in Q2 we'd expect to continue. And I think we do expect to see some revenue growth. Once again, Revel has cycled through the market and is not an impact, it isn't the shiny new penny that people want to go look at. I think it will be a combination of those three factors.

I think what we're seeing, Borgata really from our perspective, the momentum has picked up since Sandy. And that momentum has just continued to grow, not only in relation to Borgata 's performance but then around other aspects of the Business generally. And I think our guidance largely reflects what we're seeing in the business, not only through the second quarter but leading into the third quarter as well. And those business trends were reflected in what we generally expected to happen in Q3. I think the guidance that we put forth there is really what we expected to happen in the third quarter, largely all year long. And actually is probably doing a little better than what we would have expected for this quarter, from the perspective of putting forth our own forecast for this year.

Okay, very good. And another follow-up on the bwin relationship. I get the regulatory approval's necessary. But just to clarify, bwin is your -- because the relation with bwin is kind of two-pronged. One is the JV, and then one is the B2B relationship you have. They will need to get approved for Borgata to launch online poker. Or am I thinking about this the wrong way?

No, I think that's right. We have our JV relationship at the Borgata. Boyd will own the 10% interest in any B2C operation that bwin.party launches. So I think you're looking at it the right way.

Right and, James, the type of license that bwin gets to provide the support to Borgata is some sort of user license or service provider license, which is different than getting a license to provide the online opportunity to customers.

Got you. Is it a regulatory issue or is it structural issue that the State has not decided on yet whether or not non-casino owners can have their own sites?

I think it's just a process issue. They are going through the process of finalizing all those rules and regulations. If that can happen, and if so how many and so --

It's just really a lot to be done in a short period of time. It's just a timing issue, probably.

Okay, very good. The last question is on the proportional environment in the Locals market in Las Vegas. Obviously it's always a very hot topic, relatively few number of players. What is your -- on a scale of one to ten or whatever, how does the promotional environment feel? Does it feel normal, particularly bad, particularly good?

I'm not sure a promotional environment has ever felt particularly good. As I said earlier to another question, it's running about the same as it did last year. Our marketing spend is flat year-over-year in the second quarter versus the second quarter of '12. And I would say it's normal state, steady-state.

Okay, very good. Thank you.

Kevin Coyne, Goldman Sachs.

I want to refer to comment, I think it was either Keith or Paul, that you made on IP casino and that if you normalize for that Midwest and Gulf would have been flat. I was wondering if you could expand on what's happening with IP and is it a broad-based heightened promotional environment in Biloxi with the Golden Nugget recently opening? And then I have a follow-up.

Sure. The Gulf Coast market for us overall is definitely taking a bit of a pause. And I say Gulf Coast excluding Delta Downs because we're seeing a very different, more positive dynamic on the Western side of the state than we are on the Eastern side of the State of Louisiana or in Southern Mississippi. Keith made the comment about IP and it was basically if we factor IP out, the Midwest and South would have basically been flat year over year. Now some of that is operating expense savings that we've instilled in that part of the business as a group. Because obviously we're in a couple of markets, Tunica, Mississippi, Shreveport, Louisiana that are part of that segment that have been under some pretty significant pressure. But we've been able to do better by right-sizing the businesses there.

When we look at Biloxi, and Biloxi has always historically been a very promotional market, I would say that with the opening of the Golden Nugget, there is definitely more pressure on marketing spend in that market as a result of the change of ownership there. Where we've seen the weakness at the IP has all been on the slot aside. IP has a very significant table game business and that business continues to perform quite well. And when we drill down into slots more specifically, it has generally been in our local and mid markets. Remember, IP has 1000-room hotel so our destination business continues to plug away pretty well. We did make adjustments in marketing, actually reducing marketing, in the second quarter. Again, trying to find that niche of efficiency and we'll continue to have to refine that depending on what our competitors do.

That's very helpful. Any thoughts on Golden Nugget as they get ready to go into Lake Charles? Any color you can add in terms of --

Not really. First of all, it's going to be a while before that project gets completed. But I think our view has always been that the more people you can put on I-10 crossing in front of our property, remember we are at exit 4. We're a good 30 to 40 minutes closer than the Lake Charles property. So the more people you put on I-10 crossing in front of us, we're happy about it. We'll get our fair share. We have a great product there at Delta Downs. It caters to a very specific customer. I think it's frankly good news for us that the Nugget bought it. Their relationships in Houston and their ability to drive traffic out of Houston, will just put that many more people on the highway in front of our building. And so I think we're going to do just fine.

Great. And just one final one. Can you give us your best guess as estimated timeline for the Wilton Rancheria project?

We're just now engaged in the environmental impact study or survey. That will take some time and then we'll have to work through the process. We've looked at it as probably a 2016 opening-type of a project. Once we get through the process, we get approval, and then they will actually build a facility and open it, it is probably 2016.

Thank you.

Robert Sullivan, Nomura.

I was wondering if you could give us any more color. You mentioned this quickly around the CRDA refund that you received at the Borgata. I think this was slightly unexpected. If you could give us any additional information about that. And secondly, question about guidance for the Borgata. Is there, built into guidance, anything about the refunds that you may potentially receive from your case?

Thanks, Robert, for the question. With respect to the CRDA, it's just a negotiation that happens between our property that entity. Other casinos have done it in the past and we just had an opportunity to do the same thing. There's not much more I can say about that. In terms of the guidance, we have not built any benefit from either expected property tax reductions nor online gaming benefits, either.

Got it, thank you. And then around the CRDA, would you expect any future amounts to be receipt from that?

No. No, this was kind of a -- never say never, but it was a unique set of circumstances. Again, other casino companies have taken advantage of it and we saw an opportunity to do the same thing.

Great and what was the actual amount received?

$22.5 million.

$22.5 million. Thank you very much.

This concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Hirsberg for any closing remarks.

Thank you for participating in the call today. If you have any other questions or clarifications that you need, please feel free to reach out to the Company. Thank you.

The conference has now concluded. Thank you attending today's presentation. You may now disconnect.