Boyd Gaming Corp (BYD) 2015 Q4 法說會逐字稿

Good afternoon, everyone, and welcome to the Boyd Gaming fourth quarter 2015 conference call.

(Operator Instructions)

Please also note that today's event is being recorded. I would now like to turn the conference call over to Mr. Josh Hirsberg, Executive Vice President and Chief Financial Officer. Sir, please go ahead.

Thank you, Jamie. Good afternoon, everyone, and welcome to our fourth quarter earnings conference call. Joining me on the call this afternoon is Keith Smith, our President and Chief Executive Officer.

Our comments today will include statements that are forward-looking statements within the Private Securities Litigation Reform Act, including statements regarding our guidance for full year 2016. 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. There are certain risks and uncertainties that include, but are not limited to, those disclosed in our earnings release, our periodic reports, and our other filings with the SEC that may impact our results.

During our call today, we will make reference to non-GAAP financial measures. For a complete reconciliation of historical non-GAAP to GAAP financial measures, please refer to our earnings press release and our Form 8-K, furnished to the SEC today, and both of which are available in the Investor section of our website, at boydgaming.com. 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, today's call is being webcast 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. Keith?

Thank you, Josh, and good afternoon, everyone. Welcome to our fourth quarter earnings call.

The fourth quarter was a strong conclusion to a year of solid progress for our Company, thanks to the continued execution of our strategic plan, the strong focus of our management teams, and a healthier consumer, we achieved revenue growth and double-digit EBITDA growth in every single quarter of 2015. We have also improved margins for seven straight quarters, as company EBITDA margins increased nearly 280 basis points in the fourth quarter.

Across the country, our property management teams continue to do an excellent job. Let's take a few minutes to walk through what they achieved in each segment of the business during the quarter.

I'll start with Las Vegas, which continues to be an encouraging market for our Company. The southern Nevada economy continues to strengthen, with a steadily improving labor and income picture. Total employment grew nearly 3% in 2015, with gains in every major job sector, while unemployment fell to a seven-year low.

Average weekly wages were up 4%, one of the strongest growth rates in the country. The southern Nevada housing market continues to trend positively, with growth in both sales and prices.

Construction activity is accelerating, with more than $10 billion in projects now in the pipeline across the Las Vegas Valley. This is driving strong growth in construction employment, which increased more than 14% last year.

And the local economy is benefiting from record visitation. Last year, Las Vegas hosted more than 42 million visitors, up nearly 3% from the year before. These positive trends are contributing to strong growth in both gaming and non-gaming revenues throughout our Las Vegas business, helping drive our strongest fourth quarter results in eight years.

During the fourth quarter, we saw growth in every geographic segment of our customer base and grew our share of the locals market, as well. We also continued to make the most of our revenue gains, with strong flow-through across our locals portfolio. EBITDA increased nearly 11% in the segment during the fourth quarter, as operating margins improved more than 150 basis points.

Within our Las Vegas Locals market, the Orleans remains a great story, producing EBITDA growth of nearly 20%, thanks to solid broad-based revenue gains. With the recent completion of our hotel remodel at the Orleans, we were able to fully leverage our 1,900 hotel rooms and drive incremental business to the casino floor, contributing to 7% growth in gaming revenues. The enhanced room product directly contributed to non-gaming revenue growth, as well, with an 11% gain in cash ADR at the Orleans.

We are also seeing strength elsewhere in our locals portfolio, as both Sam's Town and Gold Coast delivered strong EBITDA gains. Suncoast achieved growth in business lines as well during the quarter, but saw EBITDA decline year over year due to lower slot hold.

Next, in our downtown Las Vegas segment, we achieved 23% EBITDA growth on 5% higher revenues. Our Hawaiian business remains steady and growth in pedestrian traffic and visitation throughout the downtown area is driving significant gains in our casual and unrated play. Additionally, lower fuel costs at our Hawaiian charter service contributed about $800,000 to the segment -- to segment EBITDA during the quarter.

Moving outside of Nevada, we continue to see steady growth across our regional business, as EBITDA rose nearly 5% on a combined basis in our Midwest and South and Peninsula segments. Once again, Blue Chip continues to be one of our Company's strongest performers, with 6% revenue growth and year-over-year EBITDA increase of more than 20%. This was Blue Chip's sixth straight quarter of revenue and EBITDA growth and its eighth consecutive quarter of increased market share.

Despite significant competition throughout its region, the Blue Chip team continues to leverage their market leading amenities to deliver exceptional results. Most of our customers have closer gaming options, but they continue to choose Blue Chip because of its compelling entertainment product and outstanding customer service.

In Illinois, Paradise continues to be challenged by the continued expansion of video gaming throughout the state. There are now 22,000 video gaming machines in operation in Illinois, including nearly 4,000 in Paradise's immediate market. That's the equivalent of three new river boat casinos in our market alone. Not surprisingly, this is having a significant impact on Paradise, with EBITDA down $1.3 million during the quarter.

The picture is brighter in the neighboring state of Iowa. Marketing refinements and a competitive product drove EBITDA growth of 10% at Diamond Jo Dubuque, which has outpaced the state in gaming revenue growth for the last three quarters. We also achieved solid revenue and EBITDA growth at Diamond Jo Worth.

In Mississippi, we saw revenue and EBITDA growth at both the IP and Sam's Town Tunica. For the IP, it was the property's fourth straight quarter of both top and bottom line growth, as EBITDA grew more than 20% year over year. And while the Tunica market continues to face its share of challenges, the team at Sam's Town also delivered both revenue and EBITDA growth, thanks to refinements in marketing and operations.

In Louisiana, Treasure Chest continued a string of exceptional quarterly performances. With growth in table and slot volumes, as well as higher guest counts, Treasure Chest delivered its fifth straight quarter of revenue growth, market share growth and double-digit EBITDA gains, with EBITDA increasing 15% year over year in the fourth quarter.

To the west, Delta Downs has successfully adapted to new competition, matching last year's fourth quarter EBITDA performance while improving operating margins by more than 70 basis points. When comparing to last year's results, remember that Delta Downs didn't face new competition until December, 2014, making this year's performance even more impressive. And in the face of this new competition, for the full year, Delta Downs showed an EBITDA decline of less than $900,000. That's an outstanding performance by our properties management team, as they demonstrated their ability to effectively compete in the expanded Lake Charles market.

Next, in Kansas, positive trends continued at the Kansas Star, as the property overcame ice storms during two of the quarter's busiest weekends to achieve its fifth straight quarter of revenue and EBITDA growth.

And lastly, in Atlantic City, Borgata delivered yet another great performance, with 8% revenue growth and a 27% year-over-year EBITDA increase. Higher table hold accounted for about one half of our EBITDA growth in the quarter, but Borgata saw strong increases in business volumes, as well. Borgata set fourth quarter records for gross slot win and hotel rooms occupied, and we set an all-time record for quarterly market share of just over 30% of the Atlantic City market.

The results are a reflection of the Borgata team's continued success in leveraging our market-leading product and amenities. No other gaming property in the northeast region can match the breadth and quality of the Borgata experience, our gaming, our dining, our live entertainment, our hotel product and, most importantly, our exceptional customer service delivered by an exceptional group of team members.

Our unique brand of hospitality gives Borgata a significant edge over the competition, but we don't take that for granted. We continue to invest in this brand by constantly innovating and upgrading our product; and over the next 12 to 14 months, Borgata is set to debut a number of new amenities to ensure we remain the market leader.

In the next few months, we will take Borgata's live entertainment to a new level, by adding a new night life experience, as well as a new outdoor pool area featuring outdoor dining and entertainment. Along the same time line, Borgata will add a fast casual dining venue, called The Marketplace Eatery, featuring cuisines from around the world.

Early next year, we will be adding 25,000 square feet to Borgata's convention space, further enhancing the property's growing meeting and convention business. And in the spring of 2017, we will open a new fine dining concept by celebrity chef Michael Symon.

Of course, Borgata is just one piece of an ongoing strategic initiative to enhance non-gaming amenities of Boyd Gaming properties across the country. This is a multi-year initiative aimed at ensuring our properties remain competitive and compelling to consumers of all generations.

This initiative began in 2014 and will be complete in 2017. During that three-year period, we expect to invest over $100 million, including $34 million that we spent in 2015 and $45 million we expect to spend in 2016. To date, we have redesigned and enhanced about 3,000 rooms across our wholly owned portfolio, including 700 -- or 1,700 rooms last year alone at the Orleans, Suncoast and Blue Chip.

Next up is Delta Downs, where we are now adding 167 hotel rooms and completely redesigning our existing 200-room hotel tower. This expansion project should be complete by the fourth quarter of this year.

On the food and beverage side, we introduced five new concepts in 2015, the California Noodle House, the Filament Bar at the Fremont, the Spotted Horse and Fast and Lucy's Pub at Evangeline Downs, and Briggs Oyster Company at Suncoast. We have seen encouraging results from these concepts, as they each drive incremental visitation.

There is more to come in 2016, with about 20 new food and beverage concepts coming to our properties across the United States. We began earlier this month, with the opening of Alder and Birch at the Orleans, the property's new marquee fine dining experience. In just a few weeks, we will premiere Ondori, a new Asian dining concept. Three more concepts are scheduled to follow at the Orleans by the end of the year, as we continue enhancing our largest Las Vegas property.

But the Orleans will not be alone. Last week, Delta Downs celebrated the grand opening of Rosewater Grill and Tavern, a new fine dining experience. And our design and construction team is at work on new concepts across the country at properties like Suncoast, Gold Coast, Sam's Town Las Vegas, the California, Kansas Star and Diamond Jo Dubuque.

These new concepts will help ensure that we provide a competitive and attractive dining product to customers nationwide. And thanks to our strong free cash flow, we are able to make these strategic investments in our business while continuing to pay down debt.

So in all, 2015 was a year of significant progress for our Company and we remain focused on continuing this performance into 2016. As we look ahead, we see no reason that the current consumer environment is going to change.

Nationwide, our customers are healthier and more confident, and we expect the revenue growth that began in 2015 will continue. That's been the case so far in the first quarter, as the positive trends we experienced in 2015 have continued throughout our business over the first six weeks of this year.

While we are obviously benefiting from an improving consumer, we will also continue to actively drive revenue growth through enhancements to our operations, including strengthening our technological capabilities in marketing and analytics and giving our property teams the realtime data they need to make smart and effective decisions. And we remain diligently focused on maintaining efficiencies in our operations while identifying new opportunities to eliminate costs. While it is not realistic to expect margins to continue to improve at the same pace we saw in 2015, we do believe there's potential for further progress on the cost side of the business.

So as we look ahead, I remain confident about the direction of our business. 2015 was a great year for our Company and we are well positioned for continued growth and success in 2016. Thank you for your time. I'll now turn the call over to Josh for a review of our financials. Josh?

Thank you, Keith. I will cover a few items from 2015 and then discuss 2016.

During 2015, we continued our focus on debt reduction, while at the same time investing in our business. Total debt reduction for the year, including Borgata, was nearly $220 million. Over the last three years, we have reduced debt by over $900 million. Our expectations for 2016 are to reduce debt by similar amounts as 2015.

Our quarter-end debt and cash balances were provided to you in our earnings release. During the fourth quarter, we utilized approximately $164 million of availability under our credit facility to retire the Peninsula seller note. Also during the quarter, Borgata made tax distributions to its partners of $14 million each. We expect Borgata to continue distributions in 2016.

In terms of capital expenditures, during the quarter we invested $44 million in our wholly owned properties. For the full year, we invested $131 million. Borgata's capital expenditures were $13 million during the quarter and $34 million for the entire year. Capital expenditures for 2016 are expected to be about $110 million in maintenance for Boyd and Peninsula combined.

In addition, as Keith mentioned, we expect to invest $45 million to continue our non-gaming amenities initiative, and approximately $37 million remains to complete the hotel and related expansion at Delta Downs. Our company-wide non-gaming amenities initiative has been very successful, attracting new customers while at the same time providing existing customers a new reason to visit. Our expansion project at Delta Downs is on track to be completed on budget and on time by the end of the fourth quarter of this year. Separately, at Borgata, we expect to spend approximately $35 million in capital in 2016.

2016 guidance for other remaining items includes annual depreciation expense is expected to be about $205 million. Borgata's depreciation, which is not included in that number, is expected to be about $60 million.

We expect total annual interest expense to approximate $210 million. This interest expense assumes a modest increase in LIBOR rates and no refinancings of our current outstanding debt balances. Of this amount, we expect Boyd's interest expense to be about $140 million and Peninsula's to be around $70 million. Borgata's interest expense should be about $45 million to $50 million, which is not included in the numbers I just mentioned.

In terms of corporate expense, which is already incorporated in the full-year EBITDA guidance that we provided in our release, we expect about $60 million to $65 million. This number is similar to 2015 levels.

Other income statement items include deferred rent, which should approximate 2015 levels at about $3 million for the year; pre opening expense, which is estimated to be about $10 million; and share based compensation is expected to be about $15 million. Weighted average shares outstanding should approximate 116 million shares.

As noted in our release, we expect full-year 2016 adjusted EBITDA, which includes 50% of Borgata's EBITDA, to be in the range of $635 million to $655 million. As Keith mentioned, we expect a continuation of the consumer trends we saw in 2015; and based on what we have seen so far this year, we have no reason to expect that environment is changing. However, given current volatility in the financial markets and the uncertainty that naturally creates, we have set the low end of our range to a level that is below what we would expect from the current operating environment. Given what we know today, we expect the business to perform around the midpoint of our guidance.

Consistent with this guidance, we expect revenue growth for our wholly owned businesses of about 1% to 3%. We expect EBITDA flow-through on our revenue growth of approximately 55% to 60%.

In each of our Las Vegas Locals and downtown segments, we expect EBITDA to grow about 5.5% for the full year. In our Midwest and South and Peninsula segments, we expect full-year EBITDA on a combined basis to grow about 2.5%. And at Borgata, we expect EBITDA to be $195 million to $200 million, of which 50% of this amount is included in our guidance.

When considering this expected performance relative to the highly successful year the property completed in 2015, recall that higher than normal hold contributed an estimated $9 million in EBITDA in 2015. In addition, the property has been negatively impacted by winter weather in the first few weeks of January by about $15 million in EBITDA. Our expectations for Borgata include a level of property taxes similar to the amount paid in 2015.

In conclusion, we had a very solid quarter that capped off a successful year. The operating trends that existed in 2015 are continuing. Our consumer is healthy. Our non-gaming amenity strategy is paying off. Our management team is focused on not only driving profitable revenues, but also operating efficiently by continuing to focus on removing costs from our business. And finally, our balance sheet remains healthy.

With that, Jamie, that concludes our remarks and we are now ready to entertain any questions.

Ladies and gentlemen, we will now begin the question-and-answer session.

(Operator Instructions)

And our first question comes from Joe Greff from JPMorgan. Please go ahead with your question.

Good afternoon, everybody. Josh, thank you for your comments. You took some of my questions away. Just thinking about your outlook for the Las Vegas Locals market this year, how do you think about the growth throughout the four quarters of 2016? Do you see higher growth in the first half versus the second half, given how the comparison evolve over the year? Can you help us understand that a little bit in terms of what's baked into your guidance?

Joe, this is Keith. I think that that's probably right. We'd expect to see a little more growth in the first half of the year. The summertime is notoriously slow here in Las Vegas, especially in the Locals business. And once again, we did have a great fourth quarter, as things built throughout the year. So we expect the momentum we saw in the fourth quarter to carry into the first and second quarter. So it's probably more heavily weighted to the first half of the year.

And then with respect to your non-gaming enhancement-related capital expenditures, baked into your guidance, do you have any renovation disruption, if you could help us quantify that, if there is any?

Yes, Joe, this is Josh. We really haven't built in any expectation of disruption. We have seen -- given our experience so far in 2015, we have seen very little in the way of disruption. You know, we have had some external impacts on our businesses, whether it was -- not related to the construction, like weather and things of that nature. But I would say really related to the non-gaming amenity strategy, the only property that I can think of that could be significantly impacted is in our Downtown segment with the casino floor renovation at the California. But as I run through the -- think through what we're planning to do for 2016, I would expect minimal disruption throughout the year.

Got it. And then my final question, I believe I heard that you said the winter weather impact at Borgata was $15 million in EBITDA, 1-5?

No, no. I'm sorry. My accent probably threw you off there. We definitely want to clarify that. It was about $5 million. And there was about $9 million of hold in 2015 and then $5 million in January related to winter weather.

And then have you seen any of that lost business come back this month, following Jonas?

Yes, we have started to see it come back.

Okay. That's all for me. Thanks, guys.

Sure.

Our next question comes from Chris Jones from Union Gaming. Please go ahead with your question.

Hello. Great. Thank you. Just first question is going back to the Borgata here, just two things. First, any details you can give us about the ongoing battle or issue you are having with the tax issues, whether or not you have started withholding tax there, or not paying your gaming tax with the city? And secondly, on the Borgata, any comments or thoughts about what's going on in northern New Jersey, if whether or not the Borgata JV would be interested or looking to pursue something there, if that was to pass?

With respect to the property tax settlement, we certainly stand ready and willing to engage in serious negotiations. Unfortunately, none have occurred yet. We are certainly hopeful that some will occur in the near future. But other than that, all that we know is out there and is public. We did exercise some, what I call, self-help about 10 days ago, where we withheld our quarterly property tax payment, as we are legally allowed to do as a way to, I guess, start the process of getting us repaid, because no other progress had been made. And once again, we're hopeful that there will be serious negotiations sometime in the near future. But other than that, that's all we know, it's all we have to report.

I think with respect to, North Jersey, it's an evolving situation. They are talking about two licenses and a $1 billion minimum investment. What they haven't talked about is what the tax rate would be and some of the other rules and regulations. And so it's a little difficult to decide whether or not that will be a benefit or a detriment at the end of the day to New Jersey, not knowing what's going to be built, because I think some of that will be driven by the tax rate. So we need some clarity on some more of the rules around what they are actually proposing for North Jersey before we can understand whether we think there's an opportunity to play there or not.

Excellent. Thank you. And just a quick follow-up on Vegas. I think, Keith, did you mention that there was a low hold in Suncoast this quarter? And what was the impact there?

Yes, we had an abnormally low slot hold. It just happens from time to time in the business. It's nothing that is systemic or ongoing. It made the difference between the Suncoast posting an up quarter in EBITDA versus posting a down quarter in EBITDA. And so that is the significance of the whole difference. It's come back and, like I said, it was temporary and it does happen occasionally, although not frequently in the slot area.

And so do you think if you hadn't had that, you would have seen materially better performance from some of the non-gaming initiatives and such that you've made in there?

The non-gaming initiatives performed just fine. Once again, it really was -- we had good volumes. We had great coin in at the Suncoast, as we recovered from some of the road construction that impacted us during the first nine months. And we had plans to ramp the business back up and try and grow coin in, and that all happened on schedule and as we had planned. It just -- the luck of the draw, if you will. We just didn't run lucky in the quarter. And that was the difference between, once again, posting up EBITDA versus posting down EBITDA. So it would have been a great quarter, if not for that.

Perfect. Thank you very much.

You're welcome.

Our next question comes from Steve Wieczynski from Stifel. Please go ahead with your question.

Good afternoon, guys. Keith, I know you called out, you said in the Locals market in Vegas, you threw some effective marketing programs out there that really seemed to work. Can you go into a little bit more detail as to what you guys essentially did there, and then also talk about the promotional environment right now in the Locals market?

In terms of the detail of our ongoing marketing efforts, probably so that we can continue the success that we've achieved to date, we're not going to talk about them in any specific detail. But with respect to the marketing -- the promotional environment overall, I would say it's been fairly flat, it's not overly aggressive, nobody's stepping out and doing anything too aggressive. So I'd say that for the majority of 2015, if not all of 2015, it was a fairly rational promotional environment. And we certainly hope that that continues into the future.

I would add to that, that comment is not only true about Las Vegas Locals, but is really across the portfolio in the markets that we operate in, the competitive marketing environment has been very, what I would call, rational or more consistent with historical levels, just generally.

Okay. Thanks. And a second question, I guess for you, Josh, in terms of your guidance range, you talked about the midpoint of 645 would be if the business ran itself today. And you talked about what would get you to the low end of that range. But to get to the high end, I guess the question is, do you think that would be a function more of stronger revenue growth or better increases on the margin front?

I think it would be primarily revenue growth driven. So our guidance generally expects revenue of 1% to 3%, so it would be near the higher end or exceeding that growth rate in revenue, and then, obviously, margins improvements associated with that revenue growth, as well.

Okay. Great. Thanks, guys.

Sure.

Our next question comes from Carlo Santarelli from Deutsche Bank. Please go ahead with your question.

Thanks, guys. Josh, on the subject of Borgata, obviously you mentioned the $14 million distribution for tax purposes. As you think about that property now, I believe coming out of the 4Q, it's about 3.2 times net debt to EBITDA. How are you guys thinking about future, maybe more broad distributions from that asset as we go forward, and how much does the North Jersey situation play on your thinking around how to handle the balance sheet or the capital structure to that asset? Thanks.

Yes. That's a good question, Carlo. I think we are going to continue to balance the success of that asset and its ability to deleverage with the prospect of northern New Jersey, quite honestly. I think to the extent we get better visibility on northern New Jersey, that will certainly weigh on our decisions. But the asset in the meantime continues to generate significant amounts of free cash flow and will continue to deleverage. And I think, we are comfortable with the levels of leverage in terms of where it is currently and in the current environment, and then you have both the prospects of northern New Jersey to factor into the thought process going forward. But also, we expect to eventually get paid on the property tax amount, too, which will also help continue to deleverage the business. So I think we have a lot of moving pieces around that and we will just make those decisions under the best understanding of what's going on at that particular time.

Great. And then if I could just ask a follow-up in terms of how you're thinking about maybe the proper leverage ratio at that asset. Is there a certain level where you'll believe that you are underlevered, so to speak?

You know, I think that the capital structure is set up to allow the asset to continue to deleverage and also make distributions. So currently, as you mentioned, it's around three times leverage, a little bit more than that. I think we're generally comfortable with that. I think to the extent that northern New Jersey started to come on the radar screen, we may want to get a little bit more conservative with the leverage. But I think that three times leverage is a pretty comfortable level, given where the business is and how it's performing and just the competitive environment that it's operating within currently.

Great. Thank you very much.

Sure.

Our next question comes from Steven Kent from Goldman Sachs. Please go ahead with your question. And Mr. Kent --

Yes. Can you hear me?

We can hear you now. Please go ahead with your question.

Yes, Steve, we can hear you.

Sorry about that. Can you just talk about visitation trends versus average spend per visit? It would seem to me that given where employment is going and also where gas prices are going that you should start to see a pickup in that. So I just wanted to understand that. And then just on a more modeling question, stock comp came in a little bit higher than -- stock comp expense came in a little bit higher than we thought. Are we missing something about how you do fourth quarter recognition of stock comp? Because it seems to change a little bit in that fourth quarter and I'm just trying to understand it.

Steve, with respect to visitation and spend per visit, we are seeing continued strength in both visitation and average spend across the country that's generally coming in our mid and upper tiers. We're also seeing strength in the unrated play growing across the country also. And whether that's a function of lower gas prices or just a healthier consumer, a fuller employment market, probably a combination of all those things, but we are seeing good growth in visitation and continued growth in average spend at the mid and upper tiers.

And Steve, in terms of the stock compensation expense question, it really has to do with the mix of employees and the number of employees that are receiving the stock equity grants, as well as their years of service and their age. So there's quite a complex set of circumstances that drives how much -- what gets recorded and when, and it has to do a little bit also with when options and equity compensation is granted. So it's really all of those factors that comes into play. I'm not -- yes, nothing really has changed in the program or anything of that nature. It's just the mechanics of how the program works. Are you there? Okay.

Yes, thanks.

Okay. See you.

Our next question comes from Demetri Typadis from Barclays. Please go ahead with your question.

You talked a little bit about the fact that the levels of flow-through have been rebust and we can't really expect that to continue going forward, as high as it's been. But can you talk a little bit about the cadence? Should we be thinking about a step down in flow-through starting in the first half of the year, or is there still room to outperform in the first half and then maybe it's the second half when the comps get more difficult that we should be considering a lower level of flow-through?

I think that you should probably be looking at a step down in Q1 and in Q2. We've been successful in improving our margins over the last six or seven quarters, and it's bound to slow down at some point. And while we are intensely focused on continuing to find ways to take cost out of the business, the levels that we achieved last year are just -- we don't believe are repeatable. So you should expect that step down to occur in Q1 and be consistent throughout the year.

Yes. It's just getting more and more difficult to achieve cost savings as quickly as we've been able to do historically. We continue to believe that there are opportunities, they are just going to be more difficult to achieve and take longer to obtain. And so we're trying to be realistic with respect to our own expectations, and we understand generating the levels of flow-through that we saw certainly in the last four or five quarters as everything went our way, we don't expect that to continue.

Got it. Helpful. And in Illinois, you talked about the impact of VLTs. Is there really anything that can be done or should the expectation be that this is just going to weigh on all properties in the market? And on top of that, are there any other markets that you're concerned that could open up? I know Pennsylvania has discussed it. I don't think any jurisdictions are at a very advanced stage. But any competitive threats in any other jurisdictions that are on your radar?

I think you understand the situation, right? I think in Illinois, the genie is out of the bottle and we really don't see any real slowdown in the approval process of those. They continue to grow each and every month, as the state approves more. And the only other state where we are talking about it is Pennsylvania, which I think would have a significant impact on operations in the state. We don't have an operation there. But we're not aware of other states that are actively engaged in that conversation.

All right. That's great. That's it for me. Thanks.

Thanks, Demetri.

Our next question comes from David Katz from Telsey Group. Please go ahead with your question.

Hello. Evening. So I think as we look at the total picture here, what we're seeing is continued fairly modest revenue growth and the strong flow-through. But I've heard the same message a number of quarters in a row where you say, please don't expect us to drive the kind of margin growth that you've been seeing, and then you do it. And so I mean this in a complimentary way, but how do you really feel like the levers that are available to you to pull throughout the year? The guidance is quite good and it's a little bit better than, obviously, most of us were expecting. Has your scale of conservatism changed, let's say, over the last four quarters in terms of how you forecast, I suppose, is the bottom line question I'm trying to get at.

David, this is Josh. You know, I think we really believe in the guidance that we are providing you and we are not trying to be conservative in the sense of what we are telling you. I think what has happened in 2015, and we have said it before and perhaps there's -- is everything that goes in our direction, and those are the things that we really don't incorporate in our guidance that ultimately have accrued to our benefit. So we have been more successful than we expected in taking costs out of the business at the same time that we had a little bit more robust revenue growth than we expected, and those are the factors that really contributed to our outperformance.

I think as you get -- start to anniversary those kind of performances, you end up with a smaller likelihood of continuing to perform on the upside on the revenue side, unless the consumer starts to deviate to the upside and gets stronger. And I think the same thing plays out on the expense side. There's only so many times that you can really continue to drive expense savings in excess of what you expect.

And so we're trying to give you the best sense of what we see today. Our comments and guidance are definitely in the middle of the road, in terms of what we expect to achieve. And we would say that there's probably, if there was going to be upside performance, it would come from outsized revenue growth. If there's going to be downside performance, it's going to come from a change in the consumer, more than likely, and therefore, a change in revenue on that side of the equation, because we will not be able to turn the ship quickly enough to take costs out and move into a revenue decline from here. So I think that's the best way to put things in perspective for you.

Okay. I meant not to accuse you of sandbagging in any way.

We're not trying to sandbag.

I think you made that clear.

We are trying to give you a realistic view of how we see the business and give us a realistic expectation of performing within that guidance range.

Okay. All right. Well taken and congratulations on a good quarter. Thanks very much.

I hope we keep doing it.

Our next question comes from Shaun Kelley from Bank of America. Please go ahead with your question.

Good afternoon, everyone. Josh, I know you covered most of the ground that I had, but just one thing that came out in the fourth quarter throughout, I think, was that some of the REIT laws were updated and some surprise legislation. And I was curious, I believe there is some grandfathering that can be done or has been done for some companies, but does the new IRS ruling prevent or change in any way the way you guys were thinking about pursuing the opportunity of a REIT conversion?

I don't think so. I think that we have -- we are continuing to think through the issue and monitor developments in our space, and I think we always try to remain prepared for what's going on in that arena, so --

Shaun, this is Keith. I think -- look, we've said before, we're really not going to provide any other color on this until we have something to announce, but look, the REIT structure still remains an option for us. We continue, as Josh said, to learn from what's going on in the market, and I'm sure we will learn more from MGM's proposed transaction and we will continue to evaluate what the right structure is for the Company going forward.

Okay. That's it for me, guys. Thanks a lot.

Thanks, Shaun.

Our next question comes from Thomas Allen from Morgan Stanley. Please go ahead with your question.

Good afternoon. So just related to the guidance, as you think about the Louisiana properties, you're still doing well in Treasure Chest, but it does seem like the broader energy market sell-off is starting to impact Shreveport, Delta Downs, Amelia Belle, and Evangeline Downs. So how are you thinking about their performance in 2016? Thanks.

Well, I think with respect to the energy and what's going on in oil and gas and everything else, that we're really not seeing much of an impact at Treasure Chest or at Delta Downs. It's really not impacting Shreveport. Where it is impacting -- the Shreveport decline in revenues is more directed, self-directed, as we are just trying to take some costs out of the business and get to, as I think Josh used the term, profitable revenue growth.

We are seeing some impact at Evangeline Downs and Amelia Belle, mostly because the populations around those properties are mostly folks that work in the production facilities. And so we are seeing some impact there, not significant, but some impact, clearly. And we'd expect that that probably will continue through 2016 at those two properties, that we'll continue to see some modest impact as a result of low oil prices.

I think at the same time, once again, it has benefit to the broader consumer group out there that has more money in their pocket. So there is an offset to that.

Definitely. And then in terms of the Las Vegas Locals market, so just trying to think through the guidance. You guys got to 5.5% EBITDA growth. But for the past two quarters, you've been running at about 4.5% to 5% revenue growth. So I guess, are you expecting a meaningful slowdown in revenue or you're expecting cost inflation to start picking up in the market now that employment -- or unemployment starts to decline? What's the expectation of the two, the top line, and then the expense drivers? Thanks.

Yes. I think it's strictly a matter of just comps are getting more difficult in an improving environment, and we want to see consumer translate into better performance before we get out ahead of ourselves on that. That's it, Thomas.

Okay. Thank you.

Thanks.

Our next question comes from Chad Beynon from Macquarie. Please go ahead with your question.

Great, guys. Thanks for taking my questions. First, just wanted to talk about your appetite for M&A. You've done a nice job paying down debt, reducing leverage. And Josh, you gave the target of potentially paying down another $200 million in 2016. But what's your appetite for M&A and what do you think is out there at this time?

Well, I think we continue to be very interested in growing the company and acquiring assets that are in markets that make sense for us and that will move the needle for us. And it's a matter of coming to an agreement on price, in many cases. So we'll continue to look around, we continue to look at as many things as we ever have, and one of these days we'll find something that is in the right market at the right price that we think should be part of our portfolio.

We tend to be fairly selective. We are not anxious. We are not going to buy something just to have a deal or to do a deal just to do a deal. We will find the right asset in the right market at the right price and then we will execute on it. In the meantime, we will just focus on paying down debt, we'll focus on our non-gaming amenity strategy, and strengthening the existing portfolio until we find someplace else to invest. But we are clearly interested in continuing to grow the company. We just have to find the right opportunity.

Okay. Thanks, Keith. My follow-up, a property we haven't talked about, IP. Keith, you mentioned that in the quarter, EBITDA grew 20%. And I know that at some point in December, a new competitor across the bay opened up. Could you just talk about maybe how those trends occurred during the quarter -- or yes, within the quarter? Thanks.

So they opened in early December. And so we've seen, just the last three weeks or so of the fourth quarter with that competition, and obviously, the first six weeks of this new year. And I would say that the impact is about what we were expecting. It's a little less on the slot side, a little more on the table game side. They're driving a lot of visitation with some aggressive marketing programs/ And like I think all consumers, that they are going to take a look, but that's the nature of our business, when a new property opens, people go and take a look. And so we're just going to have to wait and see how and where it settles in and where they settle in from a marketing standpoint and how aggressive they end up being on a longer term basis.

So nothing we are overly concerned with. Once again, the impact about what we would have expected it to be. So we'll continue to monitor it and watch it, but nothing we're really concerned about sitting here today.

Okay. Thank you. Thank you, all.

Thanks, Chad.

Our next question comes from James Kayler from Bank of America. Please go ahead with your question.

Hello, guys. How are you doing?

Good.

Good. Just a bigger picture question on the Locals market. So I think the Locals market is still 40-plus percent off of its prior peak. What needs to happen in the Locals market to start to narrow that gap and what kind of time frame do you think is reasonable to think about that gap declining?

I'm not sure how much more you close that gap, because what drove that gap is what drove the economy generally when you look back at 2005 through 2007. Large part of that here locally were construction jobs and the tremendous amount of construction that was going on in this town. And while we're building construction jobs back, we won't get back to 125,000,135,000 construction jobs in the town, as well as just the freedom at which people, the consumer, generally spent money. And so thinking we'll gravitate back towards that number, it's certainly not in our thinking any time in the near future.

Okay. That's helpful. Just one question on the CapEx. I think, Josh, you said $110 million of maintenance CapEx. Can you just remind us what that is, how that compares to last year's number, and I guess more specifically, what's your plans for spending on slots this year versus in 2015?

Yes. So in reality, it's very similar to the maintenance capital we spent last year and we, in fact, talked to everyone about last year. We generally said $100 million to $110 million last year, and that's essentially what we're saying this year. In terms of slot capital, our budgets are essentially flat, we really are ensuring that our floors have the best product out on them to provide our customers the best experience, and we don't see any need, in order to meet that objective, to spend any more than what we are doing currently. So we feel comfortable about where our floors are and we feel comfortable with the budget we're applying to accomplish that objective.

Very good. Just one last balance sheet item. You mentioned refinancing the Penn Game seller note. Can you just remind us what the terms of that were and how it will affect your income statement and cash flow statement? If I recall, there was -- I know there was a [pic] component, I'm not sure if there was a cash component also of interest.

It was not a cash component of interest. We could have chosen to pay a portion of it in cash. We chose not to. It was a note that was put in place in 2012. The first year had 0% interest, the next year, I think it was 6%, and then 8%, and then 10% thereafter. It was just about to reach 10% when we decided to pay off the seller note. It had a principal amount of about $164 million. And so basically, we used our revolver to fund that retirement. The note was recorded at a discount, according to the proper way to account for it, and so when we retired it, there was a charge related to retiring the note, but that's related simply to how it was accounted for on the books. I don't know if that answers all your questions around it, James, or not.

That was a full answer. Thank you, Josh. Thank you, guys.

Good.

And our next question comes from Joel Simkins from Credit Suisse. Please go ahead with your question.

Thanks, guys. I'm actually all set now. Appreciate it.

Okay. Thank you.

And gentlemen, at this time, I'm showing that we have no additional questions. I'd like to turn the conference call back over to you for any closing remarks.

Sure. Thanks, Jamie, and thanks for each of you for joining the call today. If you have any follow-up questions or questions that you would like answered, please feel free to call the Company and we'll be as responsive as we can to get you the answers you need. So thank you for dialing in today.

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your telephone lines.