Boyd Gaming Corp (BYD) 2013 Q3 法說會逐字稿

Good afternoon and welcome to the Boyd Gaming's third-quarter 2013 earnings conference call.

(Operator Instructions)

Please note, this event is being recorded.

I would now like to turn the conference over to Josh Hirsberg. Please go ahead.

Thank you, Amy, and 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 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 and 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 at 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 Chief Executive Officer. Keith?

Thanks, Josh, and good morning, everyone. Thank you for joining us today. As you saw from our earnings release earlier today, our third-quarter performance fell below our expectations. While we generated solid results across our operations in the months of July and August, this performance was offset by significant weakness in September, mainly in our Midwest and South region. However, our year-over-year results of October have shown improvements in most of our markets.

Despite this difficult operating environment, we continue to make significant progress as a Company in the third quarter. Starting with the balance sheet, we refinanced the Boyd Gaming credit facility during the quarter, reducing interest expense and moving our earliest maturity from 2015 to 2018. We also refinanced the Borgata banked credit facility during the quarter. In August, we completed an equity offering, generating nearly $217 million in proceeds which were used to reduce debt, further strengthening our balance sheet.

Since January of this year, we have repaid more than $500 million in debt through a combination of asset sales, free cash flow and our equity offering. And since the beginning of the year, we have improved our free cash flow by more than $70 million annually. We will save more than $50 million a year in interest expense, as a result of debt reductions and our refinancing efforts, and we have eliminated an additional $20 million in annual operating expenses from the sale of non-core assets. We are unquestionably in a stronger financial position today than when the year began. And going forward, we will continue our focus on strengthening our balance sheet.

On the operating side of the business, we continue to make progress refining and improving the business. Our Las Vegas Locals business grew EBITDA for the third consecutive quarter as modest revenue growth continued for a second straight quarter. Across our Locals business, we are seeing the benefits of the refinements we have made to our marketing and operations over the last year. And as Paul will discuss a bit later, we are planning further enhancements to our Las Vegas Locals operations that will help us maintain our competitive edge here in Southern Nevada. Given the success of these initiatives in the Locals market, we are applying the same strategies and initiatives across our Midwest and South operations over the next several months. We are confident they will resonate with our customers across the country.

In New Jersey, we're extremely pleased with our performance in Atlantic City where Borgata generated strong year-over-year EBITDA growth. This reflects the appeal of Borgata's amenities and the quality of service provided by its team members. In addition, Borgata recently received a favorable opinion on its property tax ruling. Over the last 10 years, we have built Borgata into one of the gaming industry's strongest brands, and soon we will leverage that brand to pursue the significant long-term growth opportunity presented by online gaming. Our goal is not simply to have an online gaming presence, but to create a first class experience that is consistent with the Borgata name. New Jersey regulators have set November 26 as the earliest date for online gaming to go live to the public. And as you know, we recently became the first Atlantic City operator to receive a New Jersey Internet gaming permit.

As we prepare for the launch of real-money online gaming at Borgata, our efforts are now focused on three priorities. First, the integration of compelling third-party content into our product. In addition to games provided by B1 party, we will also have titles from a number of major slot manufacturers. Second, adequate testing of the tools that confirm the location and identity of our players. The integrity of our product is essential and that begins with reliable geo location and know your customer tools.

Finally, providing a variety of payment options for our customers including credit cards, checks and prepaid debit cards. Our objective is to make it as safe and convenient for players to open an account. We are making great progress on all of these fronts and we remain on track to be among the first online gaming operators in New Jersey. We will launch as soon as our product meets the high expectations of Boyd Gaming and our customers have for the Borgata brand.

And while we see great potential in New Jersey, I want to emphasize that this is just one important facet of a broader strategy as we look to leverage new technology to diversify our business and deliver products in new ways. First, we are offering our customers new channels for enjoying our gaming product. In New Jersey, Borgata customers are able to play from the comfort of their hotel room now. And in Nevada, we will soon launch B Connected Sports, an easy to use mobile sports betting app for use anywhere in the state. Next, we're expanding into social gaming. Last year we launched B Connected Social, a feature that provides game like incentives to customers for sharing information about Boyd Gaming properties with their friends.

And Stardust Casino, another social gaming product, is certainly in a test period prior to an anticipated roll out in the United States in the coming months. And of course, we remain interested in pursuing domestic online gaming opportunities beyond New Jersey. As lawmakers in other states proceed with the legalization and regulation of interactive gaming, we will carefully consider those opportunities.

So despite some challenges late in the third quarter, our Company's long-term outlook remain encouraging. Going forward, we will remain diligently focused on several key strategies that will position us for future success and growth. First, we will continue our focus on strengthening our balance sheet using free cash flow to reduce debt further. Next, we will continue our efforts to refine and improve our business. These efforts are aimed at both improving profitability and giving customers compelling new reasons to choose Boyd Gaming.

We will continue laying the groundwork for other long-term growth opportunities. In Northern California, early stage design work is under way for a project with the Wilton Rancheria Tribe. And next year, we expect Florida law makers to provide clarity on the future direction of that state's gaming industry. Should they decide to move forward with gaming expansion, we believe we are in an excellent position to expand into the South Florida market thanks to our partnership with Sunrise Sports and Entertainment. Finally, we will launch a market leading online gaming presence in New Jersey, further diversifying and growing our business.

We continue to move in the right direction and I remain confident in our Company's future. Thank you for your time today. I'd now like to turn the call over to Paul who will provide an update on our operations. Paul?

Thanks, Keith. Hello, everybody. Our operations got off to a good start in July and August before slowing rather significantly in September, especially in our Midwest and South markets. But as Keith noted, in October most of our operations are showing improvement over last month.

I'll get into more detail shortly, but first let's talk about our Las Vegas Locals business. We generated our third consecutive quarter of EBITDA gains in the Locals region. Efficient operations and effective marketing continue to pay dividends for our Company. We improved operating margins by 130 basis points during the third quarter, increasing revenue even while we reduced our overall marketing spend by nearly $1 million.

One of the more significant drivers of growth for our business is our Penny Lane initiative which we launched in December of last year. Starting next week, we plan to take this successful concept to the next level when we launch an enhanced Penny Lane at all seven of our major Las Vegas properties. At the same time, we'll also begin a phased roll out of Penny Lane in the Midwest and South. Our goal is to create a more engaging and compelling experience for slot players, and we'll be doing that by giving players what they've told us they want, more bonuses, more often.

These additional bonuses will be delivered through a number of unique game features and player benefits incorporated into many of our Penny titles. And to get the word out about the all new Penny Lane, we'll be launching a creative new marketing and advertising campaign that should generate quite a bit of attention in the coming weeks. As we've said in the past, Penny Lane isn't just another promotion. It's a strategic initiative designed to enhance and improve our gaming product in a meaningful and unique way.

Moving to Downtown. The shortfall in our results are caused by declines at the Fremont, especially during September, associated with construction disruption and roadwork throughout the Downtown area. Despite this, there are reasons to be encouraged about Downtown's prospects. First, we continue to improve yield on our Hawaiian charter service. We also continue to strengthen our leading market position. During the three month period ending in September, we captured a 31.6% market share, continuing our dominant position Downtown.

And as we have noted before, redevelopment remains a positive long-term story for the market. A hotel casino just reopened this past weekend, returning more than 600 rooms to the Downtown inventory. In addition, Zappos recently completed its move into the former city hall. Both of these developments should lead to increased visitation and business for the entire Downtown market as the revitalization of this area continues.

Now let's review our operations throughout the Midwest and South. As noted earlier, casual players pulled back sharply on their spending in September. In addition, gaming supply continued to increase in certain markets. Together, these factors led to declines in visitation and spending at a number of properties in the Midwest and South, especially toward the end of the quarter. In the Midwest, increased competition played a significant role at Paradise and Blue Chip. Illinois bars have added nearly 10,000 gaming machines so far this year, including approximately 2,000 in our market area. And in Indiana, Blue Chip is contending with new capacity in both Michigan and Ohio.

To the South, properties like VIP, Treasure Chest and Sam's Town Shreveport were impacted by soft market conditions, especially among casual players. Increased capacity also impacted results at these properties. These markets are reliant on government and military spending, and many residents have been impacted by the sequester and ongoing uncertainty from Washington. But there was good news as well. Delta Downs remains one of the strongest performers in our Company, setting a monthly EBITDA record in August. We are clearly benefiting from strong economic conditions in Southeast Texas, and we are gaining market share as well. This performance is a tribute to the marketing and operational skill of the Delta Downs team.

And in Iowa, Diamond Jo Dubuque successfully grew visitation, gaining two full percentage points in share despite a relatively flat market. At Kansas Star, our new non-gaming offerings continued to drive top line growth. However, expenses are naturally higher year over year as well to support the significant amenities that have been added. We've removed quite a bit of cost out of the business since we first opened the permanent facility early this year, and we will continue to focus on growing revenue to realize the full potential of our investment.

Finally, I'll conclude with Borgata, which had an enormously successful summer season, particularly in July and August. Borgata finished the quarter with a market share of more than 21%, up 300 basis points. Slot win rose more than 2% and our table game share grew by nearly 150 basis points. Importantly, these gains did not come at the expense of efficiency as we improved EBITDA margins by 550 basis points during the quarter.

A significant factor during the quarter was table hold which was unusually low in the third quarter of 2012 but returned to more normalized levels this year. But this performance is also a tribute to the quality of Borgata's amenities and service which continue to drive strong visitation to the property, despite regional competition. It's also worth noting that Borgata's results would have been even stronger without the impact of higher property taxes which reduced EBITDA by $2.1 million during the quarter.

However, we recently received favorable news on that front. Last week the New Jersey tax court gave a favorable opinion in our property tax appeal, ruling that Borgata overpaid approximately $48.5 million in property taxes in 2009 and 2010. The court also ruled that Borgata is owed interest on its over payments which we believe will add nearly $10 million to the amount we are due. We still have appeals pending for 2011 through 2013, so the ultimate amount owed to Borgata could be much greater. We obviously expect to see significant financial benefits from this opinion including refunds, credits and lower tax bills going forward. But since the city has indicated it will appeal this decision, the timing and amount of these benefits remain uncertain.

So to recap, we remain optimistic about the general direction of our business despite challenges in September. Positive momentum is building in our Las Vegas Locals operations and we expect further gains in the months ahead, driven by enhancements to Penny Lane. We expect these marketing initiatives will provide a boost to our operations across the country. And while we encountered some challenges in markets throughout the Midwest and South, we are confident in our ability to successfully adapt by introducing new strategies and making adjustments to our operations. And we are encouraged by improving trends in most of these markets in the early part of the fourth quarter. In Atlantic City, Borgata is posting solid growth, gaining market share while keeping costs under control. With real-money online gaming and expected benefits from the recent property tax ruling, we believe there is further upside for this property. Thanks for your time today. And now over to Josh.

Thanks, Paul. During the quarter we completed several significant financing transactions. We issued equity and refinanced the credit facilities at Boyd and Borgata, resulting in reduced interest expense and an extension of maturities. Since the beginning of the year, debt has been reduced by nearly $0.5 billion at Boyd, $30 million at Peninsula and $45 million at Borgata. And annual interest expense savings for all three companies is over $50 million.

Let me provide you a few details from the quarter on the balance sheet and income statement and then provide fourth-quarter guidance. Our debt balance at the end of the quarter was approximately $3.6 billion which includes $1.2 billion at Peninsula. Incremental availability was approximately $295 million at Boyd and $30 million at Peninsula under their respective credit facilities. Our cash balance at the end of the quarter was $102 million at Boyd and $28 million at Peninsula.

From a financial covenant perspective, secured leverage was 4.2 times compared to a covenant of 5 times. And total leverage was 6.6 times versus a covenant of 8.5 times. Borgata's debt balance was $768 million at quarter's end, including $16 million outstanding under their $60 million credit facility. Their cash balance at the end of the quarter was $35 million.

Moving to the income statement. Corporate expense, excluding share-based compensation, was $10.4 million in the quarter. Depreciation expense in the quarter was $69 million, an increase of about $19 million over last year, due to the inclusion of Peninsula. In the quarter, Peninsula's depreciation expense was approximately $22 million, and Borgata's depreciation expense was about $14 million. Our interest expense in the quarter was $83 million, which includes $20 million for Peninsula and $20 million for Borgata. Boyd's interest expense was $43 million, a decrease of $7 million from last year. Our capital expenditures in the quarter were $42 million, including $8 million at Peninsula and $6 million at Borgata.

In terms of guidance, we will provide EBITDA guidance for Boyd and Borgata. Boyd's guidance includes Peninsula. Given the financing activity this year, I also want to provide some insight into interest expense and shares outstanding. You can expect interest expense in the fourth quarter to be approximately $79 million, which includes $20 million for Borgata and $20 million for Peninsula. Given the equity offering in August, the weighted average shares outstanding for the fourth quarter should approximate 109 million.

We expect wholly owned EBITDA after the deduction for corporate expense to be in the range of $105 million to $110 million. Excluding any benefits from a property tax reduction or the New Jersey online gaming business, we expect Borgata to generate EBITDA of $22 million to $24 million in the fourth quarter. In terms of adjusted EPS guidance, we estimate a non-cash tax provision -- that is a non-cash tax expense of $3 million for the fourth quarter. For the consolidated business, including Borgata, we expect adjusted EPS for the fourth quarter to range from a loss of $0.15 per share to a loss of $0.20 per share. Operator, that concludes our remarks and we're now ready for any questions.

Thank you. (Operator Instructions)

Joel Simkins, Credit Suisse.

I must be the fastest dialer today or everybody's tired from the MGM call. But in terms of Delta Downs, you spoke pretty highly about that property, obviously it continues to be a nice performer for you. How are you thinking about how that asset's positioned into 2014 with eventually the Gold Nugget coming in that market?

Well I think from a market positioning standpoint, as we've said all along, we geographically love our location. We are about 30 to 40 minutes closer to Texas than any of our competition in Lake Charles, which is where obviously the Golden Nugget project will be. In any situation where new competition comes in, obviously we have the challenges of the capacity that comes along with that. But it's really a slot-only operation which Delta Downs is because it's a horse racetrack and Louisiana only slots are available. We can do really an outstanding job for our slot customers and make them the kings and queens of the property. So we continue to expect good things out of Delta Downs.

And I know you don't give guidance too far out, obviously, but as Vegas clearly seems to be getting better, we're hearing a lot of positive commentary on the book of business for convention next year, we obviously see the Case-Shiller data getting better. How should we be thinking about the top line growth next year? Because clearly you're getting some good margin expansion even on fairly low top line growth.

The things we look at 2014 in the Locals market in Las Vegas, I think we continue to expect very modest revenue growth. I think there are a lot of metrics that are pointing in the right direction. We haven't seen them fully translated into our business, so we just expect modest growth through 2014.

And one final, then I'll give up the floor here. In terms of New Jersey online, can you give us high level overview on how you expect to attack the market share opportunity and overall customer acquisition in the early days?

Well, without going into too much detail and providing a road map for our competitors, I think that the Borgata brand, which we have worked very hard to position over the last 10 years as a leading brand in the market, we think that will provide us a great opportunity to gain a significant amount of market share. Once again, Borgata land based poker currently I think occupies more than 50% of the market in Atlantic City. That's a great starting point. We are working on the product to make sure as we said that it is as attractive as the land based brand is and then we just think we're going to launch a very, very strong product. We have dollars budgeted and we're prepared to be aggressive in terms of attacking the market to acquire players. Those plans are in place and we're ready to go. But I don't think I'm going to go beyond those comments.

That's fair. Thank you.

Thomas Allen, Morgan Stanley.

Two clarifications from your prepared remarks. The first one, on the Borgata you said EBITDA was reduced by $2.1 million in the quarter be to property taxes. Is that versus your guidance or is that versus year over year? And then the second one was you said there's been some impact from Government shutdown, from the US Government shutdown, was that factored in your 4Q guidance? Thanks.

First, on the Borgata question, the $2.1 million was a year-over-year number. So that was certainly known when we put out guidance for the third quarter on our last call, just a reminder, when you compare it to the prior year. As far as the Government shutdown, obviously there were aspects of it -- what happened with the uncertainties in September relative to the budget, Government funding, those sorts of things obviously were complete unknowns. And I think really what you have seen as of monitor the monthly revenue reports from a lot of markets is there was a consumer pull back. And I think you've heard this from not only companies in the gaming industry, but also companies in other areas that touch the consumer. People were concerned and we know that the reaction of the consumer can be relatively sharp and swift. The recovery that we've seen in October I think speaks to the point that the Government pulled it together and kind of kicked the can down the road here and everyone has regained a level of comfort.

And I think I would just add one aspect to Paul's comments. Where we've seen most of the impact has been in that lower end segment which is obviously the most economically sensitive. And that has been one characteristic of that segment that has been very consistent really throughout this start and stop economic recovery that we've seen.

Okay and then second question, so would you say that your guidance is somewhat conservative? Is it using what you've seen -- I mean, how much was September factored in there? And then my last question, so operating efficiencies have offset any kind of revenue weakness over the past few quarters. It did less so this quarter. Was that an impact of the sudden change in trends so you didn't really have time to adjust or do you think that it is more -- or do you think there's less of an opportunity for cost controls going forward? Thanks.

Well, I would say the guidance that we're providing is reflective of what we saw in the third quarter as well as part of October. And so we're trying to be realistic in everything that we communicate publicly and that's the basis for the guidance and all of our other comments as well. We're communicating on what we're seeing real-time and reflecting that in our communication to you.

I'm not sure I fully understand the second question. But I'll take a shot at what I think it is and then you can ask another one if it doesn't completely answer your question. But I think when you had such a dramatic change and it came about pretty quickly in terms of the impact of that lower consumer segment on our business overall, it's very difficult to adjust on a real-time basis to costs. You can certainly do it over time, and that's what you saw us do really in late 2000 -- well, throughout 2012 as we saw weakness in the Locals business, we worked throughout the year to take costs out of that business and react to the trends we're seeing. And we'll do the same thing here to the extent it continues. But we're always looking for opportunities to take costs out. And I think you have to be careful in terms of doing it to make sure that you don't affect your overall operations. So we're very careful in terms of how we approach the behavior that we're seeing, to make sure that we want to react appropriately to it.

Yes, let me add on to that and give you some real examples of what's going on within the consumer base. In September, we saw the lower end of our database, we refer to them as RUBIES, that's the tier that they're in our database, still come into our properties with the similar amount of trips generally speaking they've had in the past, but they're spending less. And we've seen this before in all honesty. It is a reaction to more macroeconomic issues that we've just talked about and that group we believe will recover, but they have to feel better about where the world is for them. As we said, on a month-over-month basis October to September we have seen recovery at most of our properties in that tier of the database. Not necessarily to prior year levels in all cases, but certainly sequentially from September to October improvements. And again, I think that is simply what's on the news and what the Government is doing and how people feel and its overall impact on consumer behavior.

Okay. Thank you.

Carlo Santarelli, Deutsche Bank.

I was hoping if you guys could provide some color on -- I'm a little confused with the guidance relative to the October commentary. Is the October commentary more October has picked up from September, October looks like a little bit better year over year or October's better than the tenor of the entire 3Q? I'm trying to understand that a little bit better.

Yes, I think all we're trying to say, Carlo, is if September was down X, October year over year is not down as much. And we generally are looking at the trends of the business and comparing October year over year to September year over year.

Okay, that's understood. And then one quick one, in terms of obviously a new property, or I don't know necessarily new, but an asset opened recently in the Downtown market, do you guys have any lingering belief that that will have any impact on maybe your share in that market or do you think this quarter was more of a blip, just given some of the construction?

Well, I think relative to share, our share actually improved again this quarter with the numbers from Nevada that actually just came out earlier this morning. Our share was up about 30 basis points year over year for the third quarter. So as far as new capacity that comes Downtown, obviously from a gaming revenue standpoint, things will get carved up a bit. We typically over the past number of years have not seen gaming revenue increases for a market be equal to a new entrant. With that said, we have some pretty compelling brands Downtown. And we think overall the dilution that occurs from a new property opening is offset by the fact that they're adding so many hotel rooms, very large number of hotel rooms to the Downtown market. And we know when people stay Downtown, they walk around Downtown and we'll take our fair shot obviously at those folks because we think they'll enjoy our product as well. So generally speaking, a mixed bag. At the same time, we think it's a good thing for Downtown and we'll continue the revitalization that Downtown has been undergoing for the last really couple years now.

Great, thanks, guys. And then really quickly on Borgata. If you could remind us, last year obviously with Sandy, did you guys -- I don't recall you ever stating an EBITDA impact. But as you think about this year relative to last, could you talk a little about the mindset that goes into your guidance relative to how to handicap that event?

Yes. I think generally we thought of the Sandy impact of around 11 -- I don't have the exact number but it was around $11 million to $12 million in EBITDA. And so that's how we think about the performance when we compare year over year with and without Sandy.

Great, Josh, thanks. That's very helpful.

Shaun Kelley, Bank of America.

Josh, maybe first start off with Borgata, curious on the property tax discussion there. Going forward, do those numbers -- if you guys were to win this or win this on appeal, would that be as simple as basically adding whatever the number is, $15 million to $20 million a year to EBITDA because that will be a reduction in pure property tax or does it not affect the forward and it's just a settlement of prior taxes paid?

It does affect going forward and you can't use the exact same number because you have to -- it's a different year that you're applying the rate to and it applies to whatever is going on in terms of the operations at that point in the valuation that is applied for that particular year. But that's basically in a very simplistic way to think about it. It will be a reduction in expenses going forward to the extent that the ruling of the current tax court is affirmed and applies going forward.

Shaun, this is Keith. Maybe to add to that. So to be clear, if you were to take the current assessment that the judge ruled on and apply it to today's assessment levels or millages, you'd see a reduction in property taxes of about $30 million a year, which would obviously just be incremental to EBITDA of that property. That's in addition to whatever the settlement is for the years that are under appeal right now. So we would have a benefit going forward from a reduction as well as the years under appeal. Two different issues. Two different benefits to the Borgata.

And not to beat a dead horse, but it is an expense, an operating expense that would be -- being reduced. It would increase EBITDA as a result of that.

Sure, got it. That's very helpful, guys. And then second thing, to go back to the online gaming discussion, I think still trying to get my arms around whether or not at launch will there be the -- I guess is it your understanding or your belief that you will launch with the Borgata -- under the Borgata license only one website or will there be -- I guess will you have two websites between borgata.com and likely a partygaming.com or a party gaming offering?

Well I think that we would expect that when we launch that business that there will be multiple websites, multiple brands that will be being launched. There'll be a Borgata brand. I would expect a B1 brand to launch at about the same time we launch. And there could be others that we choose to launch at the same time. So I would expect that there'll be multiple.

Great. And is it your understanding, Keith, to be clear, our latest understanding at least is that you can get up to I think five I guess websites underneath each gaming license. Is that your interpretation as well?

Yes, that's our current understanding of what the DG has ruled on.

Great. Thanks a lot, guys.

Felicia Hendrix, Barclays.

Could we talk about your Penny Lane roll out to the rest of the Locals properties into the Midwest and South. I'm wondering what kind of -- trying to maybe if you could help us quantify it a bit, what kind of lift did you get from the properties where it's been at so far? It was helpful because as we think about next year particularly in the regions, we're estimating much of the same given the macro environment, so it sounds like we should think about layering on some benefit from this promotion, so maybe you could help us quantify that a bit.

Sure. Well, first, the Penny Lane that launched last December, it was December 1 of 2012, was really a marketing campaign centered around obviously penny-denominated slot machines. The focus of that campaign was in the Las Vegas Locals business and we think it contributed to the lift we saw in the first, second and third quarters. We all know that penny-denominated machines are some of the most popular, and frankly from a manufacturer's standpoint where they are investing most of their capital in the development of new brands and new games.

We're taking that to another level by using a product that Bally's has and Bally's is the backbone for most all of our slot systems around the country that is proven and it's out there, called their electric -- electronic bonusing suite. But we're going beyond what the hardware and software does and tying it into what will be a very innovative marketing campaign as I mentioned. And that will launch in Las Vegas as well as in a couple of the Southern properties next week. And then will continue to roll in properties over the course of November and then ultimately get to the new Peninsula properties sometime next year.

Okay, thank you. And then -- okay, that's helpful. And then bigger picture, as we think about next year and most importantly the first quarter and the anniversarying of some of the tax related headwinds the consumers suffered last year, do you think you might see a pick up in the first quarter from easier comps or do you think that the economy generally is weighing on the consumer such that the easier comps might not have much of an impact?

Yes, I think it's hard for us to answer that question right now given we don't give guidance and direction of business that far out. And I also think given where we are in terms of how the consumer has reacted more in September, we need to see more of how, what we can base our trends on. I think September was on a reflection something that we could have expected had we known maybe what was going to happen with the Government and some of the other things, but we don't know if there's going to be a residual impact that continues to affect the consumer and not into the fourth quarter and beyond. And so I think it's hard for us at this point to suggest what our business is going to look like in the first quarter at this point.

Okay, thanks. If I could quickly go back to Paul for Penny Lane roll out for one second. When you think about the impact it had last year, starting from last year on Las Vegas, if you -- is there any way to quantify -- if you removed that would you be still seeing growth ex that promotion?

Well obviously hard to say. We were very pleased with the results we've had throughout this year in the Locals business, relative to obviously the numbers that we can all see from Nevada and others. We think we've made a meaningful impact to where we stand from a market share, where our brands and how our brands are recognized and have been able to take it to another level just like everybody else fights to find that way to really pick up market share in a market that is showing very, very modest revenue growth.

Felicia, this is Keith. I think it's also important to recognize that Penny Lane wasn't the only marketing initiative, it wasn't the own change in the business that was implemented over the course of the last three or four quarters, there have been a number of changes. Obviously we call out Penny Lane because it was probably our most significant one. But we're continually refining the business, continually adjusting marketing programs, continuing to find ways to attract people into our buildings. And so I think it's hard to start to parse out it is this program is this much and another program is a different amount. But I think it's important to note, Penny Lane wasn't the only initiative that was ongoing through the course of the year.

Yes, clearly. Okay, thank you so much.

Kevin Coyne, Goldman Sachs.

Had a question on online gaming in New Jersey. If we assume everything goes smoothly and the roll out happens on the 26th, just to get a sense, if I'm a New Jersey resident, do I have to let's say go down to the property and visit it first to get registered or can I sign up right away to gamble that day or that night?

The anticipation is you will be able to sign up online. But I think once again, you mentioned New Jersey resident, you don't have to be a New Jersey resident of to be able to do this. Have you to be within the boundaries of the State of New Jersey --

Yes, okay.

To be able to play. So this is not limited to New Jersey residents.

You won't have to go to the property first?

No.

Okay, great. I don't think you mentioned much about the Borgata business interruption insurance. Can you give us an update on that?

Yes, we didn't mention anything about that. And I think the reason is, is that I think we balanced the claim versus understanding the relationships that we have with those carriers and understanding the implications of pursuing a claim and the legal challenges of doing such. So I think it's something that I would suggest that people shouldn't count on as some sort of benefit as a result of that event. But we continue to evaluate where we stand.

Okay. And Josh, maybe one more follow up on your Borgata guidance. I think what you said is there would be no benefit from the online business, which I would understand to be a positive. But in the number you gave on the brick and mortar business, does that include any cannibalization of lost traffic at the property?

It -- well let me -- our view is, is that to the extent that there is online gaming opportunities, they will more than offset any kind of impact on our existing bricks and mortar. We actually think that overall our business would improve as a result of pursuing this opportunity or common sensibly we probably wouldn't be doing it. So in terms of the guidance, it's strictly based on the business as is continuing and we would view, as you stated, Kevin, that online gaming would strictly be a benefit to it in terms of the mix and how that plays out. That's not reflected in the guidance. To the extent that there's a marginal impact on the bricks and mortar, that's not affected -- that's not reflected in this guidance. So does that help answer your --?

Yes, I think that helps, thanks. Thanks for the questions.

Steven Kent, Goldman Sachs.

I know Carlo asked this question, I'm going to try and ask it again. Which is the idea that October is better and better than September I think, but is it better than June, July and August? I guess I'm trying to figure out what was the sudden reacceleration more recently. And then separately, how is the promotional environment in reaction to some of the weakness we're seeing broadly within the regional gaming industry? What's the promotional environment like? Are you starting to see some of your competitors press some of the deals?

Let me take a shot at it this time. As far as your last question and the competitive environment, it is really very much a market to market situation. I mean, so we in our case would have to talk through 12 or 13 different markets to really answer that. I would say overall, the more casual gamer, the lower end of the database in September as I said was spending less. So they're coming in. They're redeeming their offers. But effectively you have a higher level of investment in those folks because they're redeeming the offers that they've earned based on their past levels of play but are playing at a lower level we believe because of frankly the psychology of that consumer relative to more macro events.

Relative to the comments about October, everyone sees obviously in all these markets revenue reports come out, revenue reports for September one after the other were not very good. And so to that extent, though I know our numbers relative to the Midwest and the South were a surprise this morning, really they shouldn't have been as much, given the revenue reports that everybody had seen. What we're saying is in October, given we believe that the Government has pull it together obviously at the end of September, early October, that the consumer behavior is starting to improve. So we would not expect revenue declines in October to be anywhere near the levels that we saw in September. Does that help?

Yes, thanks.

All right. Amy, are there -- I don't believe there are any other questions. And so with that, to the extent that you have any follow ups, feel free to contact the Company and we'll be available to answer those. And we appreciate you taking the time to dial in today and have a safe Halloween.

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