Boyd Gaming Corp (BYD) 2014 Q2 法說會逐字稿

Good day and welcome to the Boyd Gaming second quarter 2014 earnings conference call. All participants will be in listen-only mode. (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, Andrew. Good afternoon, everyone, and welcome to our second quarter earnings' conference call. Joining me on the call this afternoon 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 and 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 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 www.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 being webcast live on our web site at www.boydgaming.com. And will be available for replay on the Investor Relations section of our website shortly after the completion of this call. I would now like to turn the call over to Keith Smith, our President and CEO. Keith?

Thanks, Josh. Good afternoon, everyone. Thank you for joining us for our second quarter earnings' call. The reports we reported earlier today for the second quarter, clearly, did not meet our expectations. The persistent weakness in spending among casual players in the shifting spend pattern of today's consumer, continued to impact our industry and our operations across the country. This level of performance in the second quarter is not acceptable to us and we remain focused on very strategic initiatives, aimed at improving our results in the current environment. I'll walk through the progress we are making in those initiatives in a moment, but first let me take a few minutes to review our top line results and provide some color on the trends we're currently seeing in the business and the factors that drove the quarter.

Revenues across our wholly-owned business declined approximately $25 million on a year-over-year basis, while wholly-owned property EBITDA was down approximately $12 million, as we were able to mitigate more than half of the revenue shortfall through cost efficiencies. The softness in our wholly-owned business was concentrated in our regional operations, which accounted for [$23 million] of the $25 million revenue shortfall. And, approximately, half of this decline was attributable to three properties that are dealing with capacity issues in their market. Outside of these areas, the vast majority of our regional markets are fairly stable, from a competitive perspective, and in most cases, we saw a sequential EBITDA improvement from the first quarter.

Our Las Vegas [locals] business saw topline trends that were similar to the first quarter, and had it not been for lower hold and higher utility expenses, EBITDA would have been on par with the prior year. Our long-term outlook for our Nevada business remains positive. The Southern Nevada economy is clearly strengthening, and with the cost structure we've put in place, we're well-positioned to generate increased profitability as the economic recovery drives growth. The challenge we have is predicting exactly when and exactly how that recovery will translate in a consistent increases in spending from local residents, especially those at the lower end.

The East Borgata continues to outperform the competition. Borgata's land base business saw topline growth of more than $2 million; however, the gain in EBITDA was much more substantial, due to our recent property tax settlement, which contributed $11.8 million to quarterly results. This was not the sole cause of Borgata's strong quarter.

Even without the tax-related benefit, Borgata's land-based operation would have posted a strong year-over-year increase in EBITDA. Quarter-after-quarter, we see that Borgata's customers are willing to bypass more convenient options to enjoy our brand of hospitality and first-in-class gaming and non-gaming amenities. For three of the last four quarters, Borgata has gained market share in the broader Northeast region, which includes Atlantic City, Eastern Pennsylvania, New York, Maryland and Delaware.

The same cannot be said for our Atlantic City competitors. In recent weeks, several properties have announced plans to close. This is, obviously, not welcome news for any one. While these closures are painful for the local economy, they should help create a more rational environment in this market. Looking at our business nationwide, we continue to believe that economic recovery will help drive sustained growth in our business, especially as casual play recovers. However, as our second quarter results clearly show, this is not happening, yet.

Accordingly, we have revised our full-year guidance, as you saw in this afternoon's press release. This revised guidance assumes that our performance in the third and fourth quarters will be similar to last year. While we believe that these revisions are realistic, given what we are seeing in our markets today, we are not satisfied with this level of performance and we are not simply waiting for the economic recovery to show up in our business.

We're working diligently to refine and strengthen our operations to address the trends we are seeing in our markets and to position the business to return to sustainable and predictable growth. Let me outline the progress we've made in the last three months. First, we've strengthened our Senior Management Team.

As we announced last week, we're increasing our focus on strategic marketing, naming Chris Gibase to the newly-created position of Chief Marketing Officer, with oversight of all marketing and advertising efforts across the Company. We, also, have announced several additional executive appointments.

We appointed Steve Schutte to the position of Senior Vice President of Operations, with oversight of our two Iowa properties, Sam's Town Shreveport and Sam's Town Tunica. Steve brings significant operating experience and a fresh perspective to our Senior Management Team, having previously served in Senior Operating positions with Hard Rock Cleveland and Station's Casinos.

We promoted Vince Schwartz, General Manger of the IP, to the position of Senior Vice President of Operations at the IP, Treasure Chest and Amelia Belle. And we've expanded the responsibilities of Ted Bogich, giving him oversight of Blue Chip, Par-A-Dice, Kansas Star, Delta Downs and Evangeline Downs. By expanding responsibilities of Vince and Ted, two of our talented Operations executives, we're able to further leverage their skills and expertise

Next, as we've talked about in our last several calls, we have identified targeted opportunities to reposition and transform select amenities throughout our portfolio. Our industry has seen a significant and sustained shift in consumer behavior over the last few years; spending patterns have changed and we need to make sure that our products are aligned with what the customers are looking for today. We must, also, prepare for long-term changes in the demographic makeup of our customer base.

While mindful of the great value of our existing base of loyal customers and the need to find ways to expand our relationship with them, we see meaningful upside potential in attracting new customers with redesigned and re-imagined amenities. These include hotel rooms, food and beverage facilities, nightlife and event programming, among others. We firmly believe these initiatives will not only speak to a new customer, but will also help us gain a greater share of wallet from existing customers.

Many of our properties across the country can be successfully enhanced to take advantage of the shifts in consumer spending that we are seeing in our industry. While our gaming product remains appealing to our core customer, delivering an experience that has appeal beyond the casino floor, one that speaks to consumers that we aren't seeing today, will broaden our customer base, improve our competitive position, and generate long-term sustainable growth. The potential of this strategy is being demonstrated by The Orleans [and] Gold Coast, where both properties are benefiting from recent hotel upgrades. Redesigned rooms at these properties gave us a fresher and more appealing room product, which is driving higher rates and expanding our audience.

In the coming months, we will be continuing this strategy by investing a portion of our existing capital budget towards upgrading the remaining room product at The Orleans and at the IP. We, also, plan the reposition our room product at the Suncoast and our original hotel, Tower of Blue Chip. In addition, we are in the early stages of redesigning and reconcepting a number of our food and beverage facilities in our last Vegas local properties. This strategy will be a multi-year process to reposition and upgrade our properties in ways that will allow us to expand our customer base and diversify our business. And while it is early, we are already seeing encouraging results from customers, both existing and new.

We are enhancing our operations in other ways, as well. Over the last several years, our focus on creating efficiencies has helped us build strong flow through potential into our business, without compromising the high quality experience our customers expect. While we've already removed significant costs, we are committed to finding additional opportunities to improve our margins and maximize profitability. We will also continue to leverage B Connected, our nationwide loyalty program, as an opportunity to enhance topline results.

We continue to make progress on this front in the second quarter and are nearing the completion of the rollout of this program at the five peninsula properties. While it is still early, we are seeing encouraging initial results with meaningful gains in cross property play at Evangeline Downs and Amelia Belle in the first two months following their launch of B Connected. Going forward, we'll focus on using the expanded B Connected network to increase our share of wallet and keep customers loyal to our nationwide family of properties.

Looking beyond our existing portfolio, we are continuing to pursue important development opportunities and remain on the outlook for additional ways to strengthen our growth pipeline. One important part of that pipeline is online gaming. And while early results in New Jersey have fallen short of initial expectations, we continue to see online gaming as a long-term, strategic opportunity to expand our customer base, diversify our business, and create a new channel for marketing our land base business.

Since launching our online operations last November, approximately 75% of the accounts that have been created are customers who are not active players at Borgata. And we are seeing great initial response and actively marketing our land based product to them. While online revenues have flattened out in recent months, we believe this is due to seasonality in the business, similar to what has been experienced with online gaming in Europe. During the warm summer months, people simply spend less time online.

As colder weather returns, we believe the trend should reverse, increasing visitation and spending on our online gaming sites. Accordingly, we believe trends will strengthen in this business later this year. And while our online business posted an operating loss of, approximately, $1.8 million in the second quarter, we reached a key milestone in July, as our online business broke even for the month. We believe this business will continue to operate on a breakeven basis in the third and fourth quarters.

Looking ahead, we believe there is opportunity for further growth online and we are well-positioned to take advantage of this growth, should other states decide to move forward with the legalization and regulation of real money online gaming. And we are actively taking advantage of online and mobile growth opportunities that are available to us now. For example, in the next several weeks, we will be formally launching a mobile sports wager product in Nevada, in time for the upcoming football season.

Finally, strengthening our balance sheet remains a top priority for us. We paid down, approximately, $100 million in debt so far this year, and remain on track for $200 million in debt reduction in 2014. We will, also, continue to benefit from our $1.1 billion loss carry forward, which eliminates our federal tax burden for the foreseeable future. We will remain diligent and focused in our efforts to strengthen our balance sheet, using free cash flow to reduce debt and we will remain resolute in our commitment to maximizing shareholder value.

Thanks for your time, and I would like to turn the call over to Paul to provide more details on our operating results. Paul?

Thanks, Keith. Hello, everybody. Obviously, we are not satisfied with the performance of our operations in the second quarter. Conditions remain quite challenging in markets throughout the country, but as Keith noted, we are aggressively addressing the issues we are seeing in the business, and we continue to make good progress implementing our long-term strategy throughout our operations.

Let's start with the review of our Las Vegas locals business. We saw modest revenue decline, in line with what we experienced in the first quarter. Results fell below expectations for several reasons. One factor was lower hold, with reduced EBITDA by about $1 million, and had a negative impact on revenues, as well. Absent this issue, revenues would have been close to flat with the prior year.

We were, also, affected by two separate rate hikes by the local electric utility earlier this year, which impacted EBITDA by an additional $1 million in the second quarter. But there were positive developments. We saw growth in hotel revenues across the market, and gains in our food and beverage business, as well. The Orleans posted a solid quarter, as strong destination business generated topline and EBITDA growth.

Our newly upgraded room product at The Orleans and Gold Coast puts us in good position to continue building on encouraging trends in our destination and meeting business. As Keith noted earlier, we are actively looking for additional opportunities to enhance and reposition our amenities within our current capital budget. We will be completing our renovation of our meeting space at the Gold Coast later this year; an upgrade of our rooms at the Suncoast is scheduled to begin in the coming months; and we are in various stages of planning for several new restaurant concepts at our locals properties.

Moving to our downtown Las Vegas business, the most significant factor impacting our results was unusually low business volumes throughout the downtown area during May and June. However, this dip appears to have been temporary, as visitation to our properties has recovered in July. We continue to outperform our competition during the quarter, growing our leading market share by an additional 40 basis points, and business from our Hawaiian customer segment remains solid.

Despite temporary softness in the second quarter, we remain optimistic about the long-term outlook for the downtown market, and we plan to execute on opportunities to selectively reposition or non-gaming amenities in this business segment, as well.

Next, let's discuss our business in the Midwest and South, where conditions were most challenging in three markets contending with increased capacity. Biloxi, Shreveport and central Illinois. These three markets accounted for about two-thirds of the EBITDA shortfall in our regional business segments. At our nine other properties, our performance was much closer to prior year levels.

Delta Downs remained the strongest performer in the Company, growing EBITDA by nearly 12% and setting second quarter records for, both, revenue and EBITDA. Blue Chip's first class amenities helped out perform the competition in a challenging market, as the property gained 40 basis points in market share.

And EBITDA trends at Kansas Star significantly improved from Q1 to Q2. This property is now operating at a margin of more than 45%, by far, the best in our Company. Looking ahead, the second Phase of our expansion project at Kansas Star remains on time and on budget. A 150 room hotel expansion is nearing completion, which will soon double the property's room count.

And with the addition of meeting space and equestrian and support facilities later this year, Kansas Star will be in excellent position to generate further growth through enhancements to its non-gaming amenities. We expect to see benefits from the introduction of B Connected at the five peninsula properties, as well. While it will take some time to realize the full benefits of this program, we are confident that B Connected will give us a competitive advantage in these markets, helping drive long-term growth and cross-property play across our portfolio.

I'll conclude with Borgata, which posted a solid performance in the second quarter. Much attention has been paid to the difficulties of the Atlantic City market, but as our results show, the difference between Borgata and its competition could not be clearer. Borgata grew top- and bottom-line results, growing market share by more than 240 basis points. Our 23% share of gross gaming revenue was the largest second quarter share in Borgata's history.

We also set second quarter market share records for slots, tables, and poker revenue. Borgata's EBITDA benefited significantly from our recent property tax settlement with the City, which was an extremely positive development for the property. This settlement resulted in a $11.8 million benefit during the quarter, and lower property taxes, should benefit EBITDA by approximately $6 million a quarter, on an ongoing basis. We saw solid growth in slots and hotel business during the quarter; table game revenue rose, as well, but this was primarily a function of improved hold.

We also continued to solidify our market lead in online games. Since our launch in November of 2013, Borgata has posted a standalone market share of 28.8%. And combined with our partners at Party Poker, the Borgata network holds a ten-point lead on our nearest competitor.

So, to recap, conditions remain challenging, however, we saw some encouraging developments in our business, as well. Destination business was solid at our Nevada properties, as prior enhancements to our amenities paid off with growth in hotel and food and beverage revenues. We will continue to pursue opportunities to strategically reinvest in our business, repositioning the product to appeal to broader groups of customers.

And while our regional business had had a difficult quarter, the majority of the decline was attributable to just a few markets. Compared to others in our business, our regional operations are much less exposed to increased capacity, and as a whole, in those regional markets where new competition is not an issue, we are seeing sequential improvement in year-over-year trends.

In Atlantic City, our confidence in Borgata is unchanged. Our first-in-class amenities are driving growth throughout the business, and our recent property tax settlement will benefit EBITDA in the quarters ahead. Borgata has firmly established itself as one of the East Coast's leading entertainment destinations and we believe we will continue to gain market share in the months ahead.

Thanks for your time today. And now, over to Josh.

Thanks, Paul. Despite weakness in our business in the second quarter, we continued to make progress [and] strengthening our balance sheet. As noted earlier, year-to-date total debt reduction has been approximately $100 million. And we expect this pace of debt reduction to continue through the remainder of the year.

Over the last 18 months, we have reduced debt by more than $600 million. Our quarter end debt [and] cash balances were provided to you in our earnings release. In terms of capital expenditures, during the quarter, we invested $35 million, including $8 million at Peninsula, and $7 million at Borgata. Year-to-dates, capital expenditures have been $54 million. For the year, we expect to spend $120 million between Boyd and Peninsula, and another $25 million at Borgata.

Now, for guidance. Given our results in the second quarter, we are taking a more guarded view for the remainder of the year. More specifically, we expect our property level segments to perform in the third and fourth quarters of this year on par with the second half of last year. For the second half of this year, we expect our Las Vegas locals and downtown segments to be even with the second half of last year.

For the Midwest and South segment, remember to consider the $9.3 million property tax adjustment that benefited Blue Chip in the fourth quarter of 2013, that will not reoccur in 2014. After removing that fourth quarter benefit from 2013, this segment should generate third and fourth quarter EBITDA, even with the second half of last year.

For Borgata, before the estimated property tax benefit of $6 million, applicable for each of the third and fourth quarters, we expect the property to generate EBITDA even with, or slightly better than, the second half of last year, given the weak fourth quarter for this property last year. For corporate expense, we expect to incur $27 million for the second half of the year. Given all of this, we have updated our guidance for full-year EBITDA to a range of [$580 million] to $600 million.

Finally, I will discuss a couple items that are not included in our guidance, related to Borgata. Borgata has two remaining actions, yet, to be finalized, related to its property tax appeals. First, we expect to receive a onetime cash benefit of $88 million, related to the 2011 through 2013 property tax settlement. This payment is dependent on the city of Atlantic City issuing bonds.

Upon our receipt, this payment will be used to reduce term debt at Borgata. Additionally, our 2009 and 2010 appeal is moving through the legal process. Recall, in October 2013, the tax court ruled in our favor, and that ruling is currently being appealed by the city of Atlantic City. We remain optimistic about Borgata's prospects, given its proven ability to compete regionally and potential long-term benefit from online gaming and property tax reductions.

Operator, that concludes our remarks and we're now ready to take any questions.

We will now begin the question-and-answer session. (Operator Instructions). At this time, we will pause momentarily to assemble our roster. The first question comes from Joel Simkins of Credit Suisse. Please go ahead.

Yes. Hey, Keith, and Josh, and Paul, I have to ask the question investors are asking us, can you sort of give us your view on some of the shareholder activism out there? If you say no, I'll certainly move to the next question.

Yes, Joel, I don't think we have anything to report, in particular, on that. The short answer is we have nothing to report.

Okay. In terms of the online gaming business, I thought there was some pretty helpful color, in terms of how that's tracking for you. I guess my question is, if you're the market leader right now in online gaming, New Jersey, and you're operating at a breakeven, it's probably fair to assume everybody else is losing a lot of money, like the Atlantic City bricks-and-mortar business, do you think you're going to see some of your peers slowdown operations or cease operations, potentially, in that market, as it takes time to build revenue?

I think that over the course of time that we will see consolidation in the online business, just like we've seen in the consolidation in the land-based business; how quickly that happens, while little difficult to estimate. It's still very early. This a product that has only been out there for some eight months now. I do suspect consolidation will be occurring, probably, in the near future.

Okay. And one final question. You mentioned some renovations that you're going to move forward with at The Orleans, and I believe Suncoast, obviously, the convention market in Vegas continues to get better. I imagine those properties get a bit of overflow on convention. Is there any potential impact, as you take those hotels under the knife and that convention business continues to recover?

Well, I mean I think obviously there is certainly upside for us and that's why we're focused on those investments. I think we've gotten pretty good at being able to renovate hotel rooms, meeting space, and those things, in periods where we can kind of take advantage of lulls in the market. Those projects tend to move pretty quickly, with only a few rooms out of service. So, if, indirectly, you're asking if we think it has any impact while that's going on? The answer is, certainly not.

Thank you.

The next question comes from Carlos Santarelli of Deutsche Bank. Please go ahead.

Hey, everyone, good afternoon. I just wanted to touch on Borgata a little bit. You had mentioned that the property tax benefit in the quarter was $11.8 million, so if we were to strip that out and look at, kind of, the flow through on the incremental $9 million of revenue you guys did, it looks like it's about 33% and you, obviously, had favorable year-over-year hold, both the slot and table side there. So, I guess the question is, has the market become a lot more promotional, despite some of the closures? Or are you guys doing a little bit more in terms of promoting to gain share? Or is this mainly the drag that we're seeing entirely from online, kind of, coming through?

Right. So, Carlos, I think that if you take the numbers that are actually provided, online is included in the revenue numbers. If you strip out online, revenue is up about $2 million or so, I believe, and I think the EBITDA number is up greater than that. It's about a 17% increase in EBITDA on the land base side, by itself. So, we did see some very good flow through.

I would not say that the environment is overly promotional. I think it's, probably, about normal. I think our Team there has been in place since we opened the property, more than ten years ago; does a great job of knowing when to step on the gas, [from] a promotional environment, and when to back off, and not overspend. So, once again I think we had a very strong quarter, both driven by good revenues and good flow through.

Great. Thanks, Keith. That's helpful. And just quickly, Josh, I know you guys had provided some non-op guidance earlier in the year. I'm not going to ask you guys to repeat it. But has anything meaningfully changed, as it pertains together DNA pre-opening any of those things?

All of those things should be pretty much on track as to what we provided year end. I appreciate you not asking me to provide it because I don't have it with me.

Okay. Thank you.

The next question comes from Shaun Kelley of Bank of America Merrill Lynch. Please go ahead.

Hey, good afternoon, guys. Keith, I think in terms of prepared remarks, you guys mentioned a little bit about Atlantic City and how some of the competitors there, the competitive landscape is changing quite significantly, and I was wondering if you could possibly elaborate a little bit further and how do you see the landscape playing out? Do you think some of these closures can benefit Borgata in the short- or medium-term? Maybe what your experience was after the Atlantic Club closure? And, then, just kind of maybe see how you see this playing out over the next, more, 18 to 24 months for people?

I think the Borgata ends up benefiting in a couple different ways. First of all, I think, as capacity goes, out of a market that has too much capacity today, that it does start to rationalize. I think promotional environment should settle down, as there are more customers and just less places for them to go, so that will work to our advantage. I think some of those customers will find their way to the Borgata. It, clearly, is and always has been the premier facility in the area. So, I think we will see some pickup from there.

We didn't see a tremendous pickup in business from the closing of the Atlanta Club property. I think, as you look at the numbers, you saw a lot of that go to the other properties in the market. I think, as we see additional properties close, we'll definitely see some pickup on the revenue side and we'll definitely benefit from just a more rational promotional environment.

Thanks for that. And I guess the other question would be the same region, but there have been a number of headlines more recently about the possibilities of Northern New Jersey starting to kind of look at a gaming facility, again. What are your contacts? I mean, obviously, you guys know as much, or more, about the market than anyone. What are your contacts telling you about the possibility there? And is that something that you worry about or think about at all? Or do you think it's a long shot, at this stage?

I think if you think longer term, beyond the next couple of years, I certainly think it's a conversation that's out there. There's a lot of conversation by the politicians about it. I think it's something we're clearly paying attention to because it could have an impact on Atlantic City.

I think the flip side of that is, Borgata has a very, very strong brand, and once again, one of the strongest brands in the Northeast there. If something were to happen in Northern Jersey, I think the Borgata will have a very good chance of being able to participate in that, given the strength of its brand in the market; the strength of our Management and leadership there. But I don't think there's anything imminent. I don't think we're overly concerned that something is going to happen in the next year or two. As you look further out, something certainly could happen.

Got it. My last question would just be on CapEx. You mentioned some of the initiatives that you guys are targeting around some of the properties. It sounded like, and I'm pretty sure you said, a lot of this is just re-deploying or altering, kind of, capital spend that's already been designated, but is that true? Or is there some incremental CapEx you see or envision spending as you lay out your plans for 2015, to start to do some of these initiatives on food and beverage and more the non-gaming stuff we talked about?

A we sit here today and we look at those projects and look at the spend, we believe it's within the existing capital budget. As we go forward, if that changes, that guidance will be provided, as we look at the 2015 capital budget. But sitting here today, I would not see any real increase spend in our CapEx to accomplish those projects. We're simply going to [be] refocusing those dollars, spending them a little differently. We think they (indiscernible) will give us a higher return. And so we're confident it's within the existing numbers we've provided or the guidance we've provided.

I was going to add, I think Keith's last point is what may differentiate the answer to your question. That is, it's how we think about spending dollars that we previously allocated to some of the property, so that at the end of the day, instead of, perhaps, coming at it for just a refurbishment or an upgrade to an existing amenity, we may try a totally different approach, but not spend anymore incremental dollars. At least, that's the plan for now.

Got it. Thanks, both. Really appreciate it.

The next question comes from Felicia Hendrix of Barclays. Please go ahead.

Hi, good afternoon, everybody. Josh, just a point of clarification on the EBITDA guidance that you provided in the release, the [$580 million] to $600 million, I was just wondering, does that include or exclude the Atlantic City tax benefit from the second quarter; and what is left to realize in the second half?

Felicia, it includes the $11.8 million that we would have recorded in the second quarter and it. also. includes $6 million in each of the third and fourth quarter that are coming out for the rest of this year.

Okay. Great. Perfect. And, then, Keith, I just wanted to get back to Atlantic City and the promotional allowances that you spend in this quarter, in the past and in the first quarter. So, they were higher in the first half of the year, this year versus last year, and I'm just wondering, is some of that being driven by online? And if so, I'm wondering what the promotional allowances look like, excluding the online expense. Actually, I'm not just trying to be tricky to find out what you're spending online. I'm just trying to figure out, because you said, obviously, you guys have done so well there and you have competitors leaving the market. I'm trying to figure out why the promotional allowances would be higher year-over-year?

I think you, actually, did answer the question. It is online. And that is why it is driven higher. We're not going to break those numbers out, but the increases [is] clearly related to online.

Okay. So, just excluding that, we should assume that you're at Borgata, the promotional allowances are lower year-over-year?

I would think of them as flat, not as lower.

Okay. So, with the competition kind of diminishing there, would you expect those to decline through the rest of the year?

Yes, well, I would say that the promotional environment should be rationalized. Where we spend that money, whether it shows up in promotional allowances, or other marketing costs, or giveaways, I mean, how we incent and how we speak to customers shows up in a number of different line items, so I can't say it's going to show up in any one line item, but we're, clearly, expecting the overall promotional environment will be rationalized, as a result of those closures. So, I wouldn't just focus in on that one line item.

Felicia, as Keith talked about, he compared Borgata to the markets in the Northeast that, obviously, we have full information on. And I think you have to start to think about Borgata in that context. So, when you look at promotional activity or marketing expense for Borgata, it's competing against a much larger set, including all the states around it. So, that's why we started to give you those sorts of numbers. And it's doing quite well in that competitive group.

Yes. Okay. Thanks. That's helpful. And, then, either Keith or Paul, just my final question is, obviously, [your challenges] in the quarter [in] Las Vegas locals, but you gave us a lot of information there, particularly some of the adjustments to EBITDA and to revenues that would have made your revenues flat year-over-year. But just wondering, you probably spent a lot of time over the past year or so talking about your strategies with Penny Lane and B Connected, and I'm just wondering, to what extent did those programs help to somewhat offset what could have been an even weaker quarter?

It's always hard to answer that question. I'm certainly glad we executed on those different programs, but here and [in] Las Vegas, as well as throughout the country, with really only a couple of markets left to go on the Peninsula side. And that's all good stuff. It's given us a lot to talk to our customers about and it's given us a differentiating factor.

I mean, look, the facts are you see the numbers that are posted out of Nevada, the locals market, however you measure it and however you group them, is slightly down year-over-year in gaming revenue. And that is just the challenge to the business. There are some competitive threats within Las Vegas that have been talked about, up to the casual player. And I think the bigger players in the market have done well, given the dynamic, but it is as complicated a market as there is out there.

Thanks. And, Josh, just on the[$600 million] to [$620 million], the prior EBITDA guidance, that did not include the property tax benefit in Atlantic City; correct?

That's correct; it did not.

Okay. Got you. Thanks.

(Operator Instructions). The next question comes from Thomas Allen of Morgan Stanley. Please go ahead.

Hey, good afternoon, guys. (Indiscernible) for Northern Illinois properties, you know it drove a lot of your EBITDA shortfall. You guys talked about increased capacity. Can you just give us a little more detail there, where the increased capacity is coming from? I mean, we know Margaritaville, it seemed like that was [lacking] this quarter. So, can you just give us some more color there? Thanks.

Sure. Margarittaville in Shreveport did lap at the very end of this quarter. It opened in the middle of June of last year. So, as far as Shreveport competitive set is concerned, the third quarter will be your first apples-to-apples comparison. In Biloxi, there has been a significant amount of gaming expansion in the State of Alabama, on the Native-American side. And our property VIP, tends to focus on destination-oriented play. There's no question about that.

Our reach tends to be to the East and just with more capacity and more product in those regions. It, certainly, adds to the cost of doing business in that part of the world. And, then, that opened up just earlier this year, is when there was a big expansion on the Native-American side in Alabama. Central and Southern Alabama, in particular.

And then, lastly, with Central Illinois I referenced, for us that's Peoria, I think everybody has been following the expansion of, effectively, slot machines, VLTs in the State of Illinois, now some 17,000-plus units at bars and taverns; really, well beyond anybody's expectations of where this would go and the types of restrictions that would be put on the ability to have these types of units.

And it is not ending. I mean, it's surprising to us every month, there seems to be another thousand or so units that goes into that market, which, by the way, excludes Cook County because Cook County opted out of the expansion, as compared to others. So, it just is another casual alternative closer to markets, because it's just down the street from everybody, with really no controls from a responsible gaming perspective, and no controls from marketing, because it's just a whole separate set of rules that those operators are allowed to participate with.

Helpful. Thanks. And, then, my follow-up question, high level, as we think about guidance, in the first half your EBITDA, declined around 6% and now you're guiding to flat EBITDA growth in the second half. It seems (indiscernible), for example, the $9 million property tax benefit in 4Q 2013 is offset by the Borgata -- more or less offset by the Borgata adjustment in the second half of 2014. What gives you confidence, just given the current revenue trends, that things can be flat? You know, I think some of us -- some of us thought that your guidance seemed optimistic last quarter and it seems like you cut it a lot but still seems when other people -- other operators are talking about current trends, they're still, kind of, seeing down revenue trends. Thanks.

Sure. Thomas, I'll take a shot at that. So, basically, I think the way we thought about the guidance and the way our conversations have been, were in the context of what happened year-over-year in the second half of last year? We were surprised by the weakness of our business in the second half of last year, and we pinpointed it, largely, to really two months, September and December. And we felt like, as we came into the year, we had weather impacts, both, in Q1 of this year, as well as late last year, it was very difficult to kind of figure out where the consumer was. And our perspective was, look, the consumer is generally stable. We feel like we can grow year-over-year.

And our guidance now reflects what we've seen in the second quarter. Continuation of those trends in the second quarter would put us kind of towards the low end of the guidance, but what gives us some comfort to be flat is the large declines that we saw in late last year. I mean, in September of last year, our regional businesses were down over 20% in EBITDA. In December, they were down another 25%. So, kind of middle of the range just assumes that we do on par with that level of performance in the second half of the year. And so that's how we kind of thought about it and we, also, have some general benefit of what's going on more recently, as well. So, those are the kind of factors that we considered as we adjusted our guidance.

Helpful. Thank you.

The next question comes from Chad Beynon of Macquarie. Please go ahead, Mr. Beynon.

Hi. Thanks for taking my questions. Outside of the weakness from the casual and retail players, could you talk broadly about what you're seeing from your core players, whether it be on trips or spend per trip, in the second quarter?

Sure. You know, I think every market might be slightly different, but overall, for our better players, both their frequency, which means the number of times they come per month, as well as their spend per visit, are flat year-over-year. Which is really a positive statement from where we've been.

Okay. Thanks. And, then, are there any other regions in your portfolio where you are seeking lower property taxes that you can talk about right now? That could also be a lift in future margins going forward?

Yes, I think the one that is going through an appeal process now is in Kansas. So, there's opportunity there. We don't necessarily expect any of it will be this year and, frankly, may not even be next year, but there is a process going on in Kansas.

Okay. Thanks. And then, lastly, with the B Connected launch at your Peninsula properties, could you talk about the maturation or evolution of the program? How long it takes to drive, whether it be overlap play or higher visits, maybe some anecdotes when you rolled it out at your programs over the past 12-months?

Sure. I mean, we see and, frankly, have seen sort of an immediate change in cross-property play, simply because you made it a lot easier for folks to play. We, then, have to go back and dissect it because some of it is simply a person who would have players' club cards at both properties, if you will, that now has one. And so, the play starts to get consolidated. Once we look at that and make those adjustments, we still see uplift in play.

But what typically happens, and why it takes a little bit longer is that, obviously, certain of our properties, whether they're in Las Vegas, or in the Gulf Coast, or even up in the North, tend to be, I'll call them, special occasion type properties for folks that live throughout the country. And folks do tend to consolidate their play, and build points in order to be able to transport them with them for vacations, and other events, or whether they're meetings, or conventions, or anything else. And that's where you start to see a longer-term effect and more of an aspirational effect of the program.

Okay. Thank you very much.

And the last question for today comes from John Maxwell of Jefferies. Please go ahead.

Hey, good afternoon. Josh, the $88 million from Atlantic City that you said is dependent on them issuing bonds, any timetable when that is expected to happen? And any concern on your part that they won't be able to pay you back?

We don't have any concern that they won't pay us back. I think the agreement contemplates various scenarios, if that were to happen, but the timeframe is, generally, by prior to year end.

Okay. So, does it sound like Atlantic City waits for all of these property tax appeal, you know, the one that you're appealing on your other rebate, as well as other properties, to do it all in one bond issue? They are going to do it -- it sounds like they could be doing it piecemeal.

They typically go to the market in the fall for the city's needs and so they're just going to put this in with their normal bonding issues that they do in the fall, and so that's why the fall is kind of the timing that they have setup for this.

Okay. Great. That's all I have. Thanks, guys.

Thanks, John.

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

Thanks, Andrew, and thanks to each of you for joining the call today, and if you have any follow-up questions, we're certainly available. Thanks again.

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