Boyd Gaming Corp (BYD) 2016 Q2 法說會逐字稿

Good afternoon, and welcome to the Boyd Gaming second-quarter 2016 conference call.

(Operator Instructions)

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

Thank you, Bianca. Good afternoon, everyone, and welcome to our second-quarter earnings conference call. Joining me 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 the 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 also being webcast live on our website at BoydGaming.com and will be available for replay on the investor relations section of our website shortly after the completion of this call. I'd now like to turn the call over to Keith.

Thanks, Josh. Good afternoon, everyone. Thank you for joining us for our second-quarter earnings call. The last several months have certainly been a significant time for our Company as we executed several transactions that will both strengthen our financial foundation and position us for continued growth. First, we agreed to acquire three high-quality assets in the Las Vegas locals market, Aliante, Cannery and Eastside Cannery. Once these transactions are complete, we will have significantly expanded and diversified our presence in the fastest-growing segment of our business.

Next, we completed the disposition of our 50% equity interest in Borgata, unlocking the tremendous value of this highly successful joint venture. With net proceeds of $589 million, we further accelerated our debt reduction efforts, putting us solidly on track to reduce leverage to approximately 5.5 times EBITDA by the end of the year and below 5 times by the end of 2017. In addition, we took the first steps in two important initiatives that will position our operations to deliver continued revenue and EBITDA growth well into the future.

But, before I get to where we're going next, let's review our second-quarter results, which clearly did not perform to the same high level we have seen over the last several quarters. Results for the quarter were mixed across our four business segments. In Las Vegas, strong performances by our locals properties in April and June were tempered by a difficult year-over-year comparison in May, while our Downtown Las Vegas operations continue to deliver a high level of performance.

In our Midwest and South segment, overall performance was slightly improved from the trends that we saw during the first quarter, with shortfalls in Illinois and Mississippi due to new competition. The most significant weakness came in our Peninsula segment, which did not meet our expectations. This was largely driven by a weaker than expected gaming market in Kansas as well as continued economic softness in South Central Louisiana.

Let's walk through each of the segment's results in a little more detail. Despite the difficult comparison in May, our Las Vegas locals business achieved its fifth consecutive quarter of revenue growth, EBITDA growth, and margin improvement. We began the quarter in Las Vegas with a strong April, as EBITDA grew nearly 12% year over year. And we finished with an EBITDA gain of nearly 10% in June. What kept us from achieving yet another quarter of double-digit EBITDA growth was the month of May. We believe this was simply a function of challenging year-over-year comparisons.

If you will recall, May 2015 was an exceptionally strong month for visitation to Las Vegas, driven by events like the Mayweather/Pacquiao fight and the Rock in Rio Festival. Without similar citywide events on the calendar this year, visitation to the Las Vegas market was off nearly 4% in May of 2016, impacting operators throughout the city. But business levels recovered in June and have held steady in our Las Vegas locals business over the first four weeks of July.

Based on the economic data we are seeing, that growth should continue. During June, total employment in the Las Vegas area reached an all-time high, with a more diversified employment base than we saw before the recession. As an example, the construction sector, while still below its pre-recession peak, expanded by nearly 14% in the past 12 months and education, healthcare, business services and retail have all been key contributors to employment growth post-recession. Expansion was reported in nearly every major market job sector by the close of the quarter when compared to one year ago.

Annual wage growth is running around 4%, nearly double the national average. And the median resale home price reached $235,000 in June, up 7% on the year and nearly double what it was in 2012. Permitting volumes for new residential units is also on the rise. All of this is driving continued activity throughout the local economy, with taxable sales at record levels across Southern Nevada.

The tourism sector remains vibrant as well. More than 42 million people have visited Las Vegas over the last 12 months, setting a new record. This is an increase of 3% from the prior year. In June, citywide room rates were up 6% and average hotel occupancy topped 93%. Convention business has been strong also, up 21% on an LTM basis.

On the development side, more than $10 billion in future development is now in the pipeline throughout the Las Vegas Valley, with much of this activity already under construction. These are investments not only in our core tourism industry, but in manufacturing, healthcare, technology, and infrastructure. These are investments in a more diverse and expanding local economy. Nearly every data point shows a strengthening local and regional economy, giving us continued confidence that long-term economic growth trends will continue to benefit our locals business.

Now let's go to Downtown Las Vegas where we posted a sixth straight quarter of revenue and double-digit EBITDA growth. Lower fuel costs at our Hawaiian charter service contributed about $400,000 to the bottom line. But the vast majority of our EBITDA growth came from the strong operating results, as all three downtown properties achieve solid gains. Hawaiian business is up, walk-in traffic is up, and we continue to gain market share.

Our management teams are continuing to find new opportunities to drive revenue growth and operate more efficiently, delivering a 300 basis point improvement in operating margins during the second quarter. Overall, the Downtown Las Vegas market continues to perform extremely well. And we remain encouraged by the long-term direction of this business.

Now let's move outside of Nevada to our regional operations. As trends were somewhat different in the Midwest and South and Peninsula segments, I will review them separately. First, our Midwest and South properties performed slightly better than the trends we experienced in the first quarter on an EBITDA basis.

As has been reported in the various state revenue reports, there has been softness in many regional markets. And we are not immune to this trend. But despite this softness in revenue, our management team's done an excellent job managing expenses. Of our seven Midwest and South properties, five achieved year-over-year EBITDA growth. And as a whole, our Midwest and South segment was able to improve operating margin slightly during the quarter.

Weakness in the segment was concentrated at the IP and Par-A-Dice, as both properties continue to contend with increasing gaming capacity in their markets. But both are also making good progress identifying and executing opportunities to bring costs into line with current revenue trends. At IP, performance stabilized during the quarter as we continue to refine marketing programs and our cost structure. We currently expect EBITDA to return to last year's levels by the end of this year.

Par-A-Dice saw good results from recent refinements to the property's operations and cost structure, improving operating margins by nearly 100 basis points during the quarter. While revenues continue to decline at Par-A-Dice, the EBITDA shortfall was not nearly as significant as the first quarter. Elsewhere in the segment we saw some encouraging bright spots.

In Louisiana, Treasure Chest achieved its seventh consecutive quarter of gaming revenue and EBITDA growth driven by further gains in market share. In Indiana, Blue Chips' growth streak continued as well, with an 8th straight quarter of revenue and EBITDA growth and the 10th consecutive quarter of increased market share. Despite some softness in the Lake Charles market, Delta Downs held steady with last year's EBITDA levels and improved margins by 116 basis points during the quarter.

Next let's touch on the Peninsula segment, which clearly fell below our expectations primarily due to market softness in Kansas and South Central Louisiana. A weakened regional economy continues to impact Evangeline Downs and Amelia Belle. The South Central Louisiana region is highly dependent on the energy industry, and persistent weakness in oil prices continues to have an impact on the regional job market.

As this economic weakness is likely to continue, we recently implemented significant refinements to Evangeline Downs operations and cost structure, and are starting to see progress. EBITDA is still trending below prior-year levels, but the gap is narrowing.

To the West in Kansas, gaming revenue softened across the entire state in the second quarter. Despite these challenging conditions, the Kansas Star held its market share steady during the quarter. Trip frequency is down, but the property's guest counts were almost even with last year's levels. In response to this recent softness in the Kansas gaming market, we are reviewing and adjusting our marketing programs to draw visitation to the property. And through the first four weeks of July, trends at the Kansas Star are improving versus what we saw in the second quarter.

Finally, I will conclude with a few comments on Borgata. As you know, we completed the sale of our 50% equity stake in this property on Monday. The development of Borgata was a major milestone in our Company's history. We open Borgata in 2003, and it has led the Atlantic City market by a wide margin ever since.

As a result of the success of Borgata over the last 13 years, we were able to unlock the tremendous value of this asset for our Company and our shareholders. It has been an honor to oversee this market-leading property for these last 13 years. But the success of Borgata is not merely a function of the quality of the asset that we've built, it is a tribute to the skill and dedication of the entire Borgata team. It has been a pleasure to work with them -- with all of them. And we wish them continued success.

So in all, while our second-quarter operating performance reflected some softness in revenues in a number of our markets, we are pleased that we were able to maintain and grow our Companywide operating margins. The second quarter marked our eighth consecutive quarter of margin improvement, continued the significant progress we have made over the last several years enhancing our operations and creating value for shareholders.

As you look back, we have delivered substantial growth in EBITDA, free cash flow and share price over the last two years. We have steadily improved operating margins across the country. And we have significantly deleveraged our balance sheet and strengthened our financial position.

While we have accomplished much as a Company, we have significant opportunity still ahead of us to further improve our performance and drive additional growth. We are actively pursuing and executing on those opportunities. An example of this is our non-gaming amenity investment initiative, a strategic effort to enhance the appeal of our properties, expand our customer base and diversify our revenue base.

We continue to see good results from this initiative, which is driving non-gaming revenue and growth throughout our portfolio. Our newest restaurants have substantially increased coverage over the restaurants that they replaced. And they are driving strong gains in cash business, a good indicator that we are successfully drawing new customers to our properties.

At Delta Downs, our $45 million expansion project remains on track for completion by the fourth quarter. By adding 167 new hotel rooms and completely redesigning our 200 existing rooms, we are positioning Delta Downs to take full advantage of the long-term growth opportunity at this highly successful property. As we begin the final phases of our amenity initiative, we are quite pleased with the results. And we believe we have positioned our properties well for future growth.

Another key driver of growth will be the pending acquisitions of Aliante and Cannery. By expanding and diversifying our presence in the Las Vegas market, these properties will provide us additional opportunities to participate in the compelling long-term growth potential of Southern Nevada. We continue to work through the regulatory processes for both transactions.

With respect to Aliante, we recently received clearance from the FTC to proceed. We are now working with Nevada gaming regulators to secure final approvals. And we remain on track to close the Aliante acquisition at the end of September.

The FTC process is still ongoing with the Cannery acquisition. The FTC has requested some additional information regarding this acquisition, which we are in the process of providing. We are also working with Nevada gaming regulators to secure their approval. Currently we expect to be able to close the Cannery acquisition early in the fourth quarter.

Targeted acquisitions and our amenity program are growth initiatives we have addressed previously. But our growth opportunities are certainly not limited to these initiatives. On the revenue side, we believe there is room for enhanced growth by leveraging new technology and new systems across our enterprise to strengthen our marketing and analytical capabilities.

Earlier this year, we commenced a major initiative to modernize our technology and marketing systems. Once the rollout has been completed, this upgraded IT and marketing infrastructure will provide improved insight into our customers and their behavior, driving both incremental revenue and more profitable revenue throughout our operations.

In addition, we believe there is continued room for improvement on the expense side of our business. We have made significant progress refining our cost structure and improving our operating margins over the last two years. And you have seen the results of those effort with solid EBITDA growth across our operations. But we know there's still more work to be done.

While we have grown substantially in size and scale over the last five years, we have not yet taken full advantage of the economies of scale that our portfolio offers. Earlier this year we commenced the business improvement initiative aimed at capitalizing on this opportunity. Our business improvement team has begun identifying opportunities to better leverage our nationwide scale, particularly for our back of the house support functions. These will be targeted opportunities to take redundant costs out of the business without comprising the customer experience in any way.

Together, we believe our improved technology infrastructure and business improvement initiatives will make us a more efficient Company and a more customer-focused Company. When combined with the long-term organic growth trends we expect in the business, we are confident these initiatives will help drive continued gains on the top and bottom line. As we continue strengthening our operations and our infrastructure, we will become even more efficient and effective on what we do best, creating truly memorable entertainment experiences for our customers. Thank you for your time today. I will now turn the call over to Josh. Josh?

Thanks, Keith. On Monday we completed the disposition of our equity interest in Borgata. We received cash proceeds of $589 million. These proceeds, in conjunction with the existing cash on hand, will be used to facilitate the refinancing of Peninsula's debt. As part of the refinancing, earlier today we issued the call notice for Peninsula's bonds.

In addition to the proceeds we have received from Borgata disposition, we have the opportunity to receive our share of the proceeds from property tax refunds owed Borgata. We expect our share to be approximately $80 million. As a result of this disposition, Borgata is reported on our second-quarter income statement as discontinued operations. And will be presented as discontinued operations on a going-forward basis as well.

As a Company we remain focused on using our free cash flow to deleverage our balance sheet. Considering the disposition of Borgata, the announced acquisitions and their projected performance, our pro forma leverage is approximately 5.5 times. During the quarter, our wholly owned businesses reduced net debt by $41 million. That brings total year-to-date net debt reduction by Boyd and Peninsula to $120 million.

By the end of this year the hotels and amenities expansion at Delta Downs will be completed. And our investments in non-gaming amenities will be finished in the first half of 2017. Once both of those projects are complete, our run rate free cash flow should increase by approximately $90 million. We are on track to reach our target for wholly owned leverage of 4 to 5 times EBITDA. And expect to be below 5 times by the end of 2017.

Our quarter-end debt and cash balances are provided in our earnings release. In addition to utilizing our free cash flow to deleverage our balance sheet, we're also investing in our business. During the quarter we invested $37 million in our wholly owned properties, including maintenance capital, non-gaming investments, and the Delta Downs hotel project.

Now turning to our 2016 guidance. With the disposition of our interest in Borgata, our guidance will focus only on wholly owned EBITDA. We previously provided guidance during our first-quarter earnings call of $635 million to $655 million. This guidance included our share of a full-year contribution for Borgata of approximately $100 million. With the disposition of our equity interest in Borgata, Borgata's results will be reported as discontinued operations and will not be included in our reported EBITDA.

Removing Borgata's results from our previous guidance yields the range that we are providing today of $535 million to $555 million. This adjusted range is comprised of our guidance for wholly owned EBITDA of $535 million to $545 million. And also assumes a full quarter's contribution from our pending acquisitions of $10 million to $12 million of EBITDA.

Fourth-quarter EBITDA expectations for the pending acquisitions do not include the full effect of synergies, as we expect to capture those throughout the first full year of ownership. As mentioned earlier, we currently expect the acquisitions to close toward the end of the third quarter or early in the fourth quarter.

For the second half of the year, our guidance incorporates the following expectations for each of our business segments. Our outlook for the Las Vegas locals segment continues to be positive and has not changed from the first quarter. We expect this segment to continue to show growth year over year.

We expect our downtown business to also continue to grow, although at a more modest pace given more difficult comparisons with the record fourth-quarter performance of last year. In the Midwest and the South, we expect slight improvements in the trends we have recorded in the first six months of this year. With respect to Peninsula, we are taking actions to achieve results even with prior year.

In conclusion, the second quarter was strategically important for our Company. We expanded our presence in the Las Vegas locals market. And we refined our portfolio, accelerating our ability to deleverage and more quickly achieve our target leverage. We remain focused on executing our operations in a more efficient and targeted approach, which we believe enhances our future revenue and EBITDA growth potential. We also continue to focus on deleveraging our business and growing opportunistically.

With that, Bianca, that concludes our remarks. And we are now ready to take any question from the audience.

(Operator Instructions)

Carlo Santarelli, Deutsche Bank.

Hey, guys. Good afternoon. Thanks for taking my question. On the Peninsula stuff, the numbers, kind of after seen the revenue results for the 2Q, didn't appear that bad. And it seems like you guys did an okay job mitigating the top-line shortfalls.

When you look into the second half, and I think Josh, you said flat year over year. I am assuming you are referring to kind of in EBITDA comparison flattish year over year for the second half period. My question is, what is there on the cost side that you guys feel you have not done yet that you have the opportunity to do here and now?

Carlo, are you asking in respect to just the Peninsula, are you to talking about the entire Company?

No. No, more so Peninsula in regards to your comments about kind of focusing on improving results there.

I think when we think about improving resulted, it's primarily related to Kansas Star. As Keith mentioned, it is primarily focused on refocusing marketing efforts that appear to be paying off in July. It is a little early to know for sure. But that is what we're focused on currently.

I think when you look at the rest of the Peninsula portfolio, in reality the real kind of pressure on our business has been at $1 million Evangeline Downs with respect to the oil-based economies there that are more economically driven affecting those operations. I think just as a side note with respect to Evangeline, I think part of it is economic driven by oil and part of it is kind of what we are doing on the marketing side. We're refocused on that as well to repositioning that asset. I think there is some of that we can control ourselves.

As we look at the Peninsula portfolio, Kansas was inordinately weak. Can't really discern why. It was statewide. And we are refocusing some of our marketing efforts. And that seems to be paying off early on. Evangeline, we are doing a little bit more on the marketing side to kind of reposition that asset, but it is a little bit of economy there. And then Dubuque and Worth seem to be turning the corner from what we saw in terms of a little softness, largely competitive really in the second quarter.

Great. Thank you. That is helpful. And Josh, you touched on it a little bit, that the Peninsula refinancing activity. Could you kind of provide a little bit of color maybe on the timing of how you're thinking about consolidating the balance sheets and when we could expect you guys to be able to start reporting kind of as one?

Yes. Today we put out the notice to redeem the bonds, and that will be within -- it's a 30-day notice. So given the cash on our balance sheet and the cash that we received as a result of selling Borgata earlier this week, we basically have the proceeds, or we do have the proceeds to be able to refinance the Peninsula capital structure.

So we're just waiting, really, for that 30 day period to run. And then we would expect that to happen within a day or two of that event. Then at that point the Peninsula assets will come within to the Boyd restricted group. And it will be as if they are all part of [severly] Boyd.

Great. Thank you.

Sure.

Felicia Hendrix, Barclays

Hi. Good afternoon. Josh, to kind of stay on the guidance. I just want to make sure that I am understanding all of the color that you gave us. So when you said that the Las Vegas locals market hasn't changed, I had in my notes that the prior guidance you gave was 6.5% growth. That is unchanged, correct?

That is what that comment somewhat imply. That's correct.

Okay. It looks like -- so you are pulling some out from downtown and from the Midwest. And that looks like it kind of would what amount to about, at the midpoint, $10 million. Is that the right interpretation?

I think the second quarter, it is hard to tell, or for me to tell kind of where estimates were for the year. Just because some guys had Borgata had in there for the full year, some guys were trying to figure out -- estimate just through the six-month period. Also with respect to the acquisitions, it seemed to range from nothing to something to something with all of the synergy.

So I think the consensus numbers are really hard for me to discern what is going on. So what I chose to do is just look at, in terms of what we think is going on in our business. And I think from our perspective when we looked at Peninsula, it was down relative to where we thought it was going to be by a couple of million bucks.

We've generally said we think that'll -- we'll be able to right-size that and get it back to even with prior year. And we hope we can do better, but we will see how that trends out. I think downtown, we just want folks to understand that the fourth quarter was a record year last year. And while we continue to try to drive to do better than that, I think the comp is more difficult in the second half of the year, because of that for downtown.

Than when we look at the Midwest and South, I think we are basically, at least the way I look at it, kind of recovering from the new competitor on -- facing IP and trying to mitigate the impacts of the continued pressure from VLTs. And over time, what you are seeing -- or over the second half of the year, you are seeing that, or at least in our guidance, seeing that we expect to start to offset those effects in our business. So we expect improvements in the second half of the year versus the first half. I don't know if that -- all that color makes sense, but that is how we're thinking about it.

No, that is great and it also is great because it helps segue into my next question for Keith. Which is you guys are thinking about all of the things that you are doing to mitigate some of the slowdown. And you're expecting to see some improvement there. As you try to mitigate, and I'll echo what Carlo said, which is seems that you did a good job in the first quarter. But if things kind of continue to slow, are you prepared, or your mitigation -- how impactful, or how far out do you think these mitigation programs take you in a slowing environment?

I think what you saw in the second quarter was our ability to react to some softness in revenues by tightening up expenses. And those are not all payroll expenses, they're across the board. There still is a lot of refinement to our marketing programs that we're doing in various markets. And we continue to find ways to refine and lower cost in the business.

So while there may be or may not be some continued slowness in the business as we look into the second half, I think we're prepared to react. You've seen us go to Par-A-Dice in reaction to some slowdown in the business there.

We're also, as I talked about, launching two new initiatives. One on the marketing side with new marketing tools and new technology that we think will help us, as I said, kind of gain better insights into our customers that will help us to operate more efficiently. And at the same time, this business improvement process, which won't fully kick in until next year. But will also provided us some opportunities to continue to refine our operating structure.

Look, we have done a great job over the last couple of years taking costs from the business. But we are far from done. There are -- continue to opportunities, I think, to refine the cost structure of this business. And they happen each and every day.

Thanks. That is helpful. Josh, just last housekeeping. Regarding the balance sheet. Is there a potential opportunity to take out the 9% note?

I think that is obviously something we're looking at. It will be dependent on us getting prepared to do that and getting all the necessary regulatory approvals, and then the market obviously cooperating. But that is something obviously that we think about. I think our first step was really to be in a position to refinance Peninsula. And then we will go from there, if it still makes sense.

Thank you.

Thanks, Felicia.

Thomas Allen, Morgan Stanley.

As we think about the quarter, you guys made a lot of comments about single properties. But as you think bigger picture, can you give us some more color on performance of rated versus unrated players? And budgets versus visits, stuff like that? That would be helpful. Thank you.

We can give you a little color on that, Thomas. From an unrated perspective as you look across the portfolio, you look across the four major operating segments, you continues to see growth in unrated play. Which I think, as we all can appreciate, is a good thing. It was the first part of the business to go away in the recession and the last part to come back. So that continues to be a good sign.

With respect to rated play and the database generally, we continue to see, this is a global statement, strong performance of the mid tier and upper tier. The lowest level of the database, we see a little bit of weakness, nothing too concerning. But there is a little bit of weakness at the lower end of the database.

Visitation, frequency, guest counts vary by markets. And so there's just too much data there to go into property by property or market by market. In some of the markets like the IP where we have new competition, you'll see guest counts down. If you look at Las Vegas as a whole, once again, rated play is good, overall guest counts are flat, spend is up a little bit. I hope that provides you a little bit of color.

Sure. That is helpful. In general, it seems like second-quarter regional trends were worse for a lot of companies. Have you seen a lot of pickup in promotional spending as you were trying to chase business more? Thank you.

Not really. As I look across the portfolio, whether it is in Las Vegas or downtown or into the regional markets, I would describe the promotional environment across the board as pretty normal. Nothing exceptionally elevated. As I always say, from week to week somebody may step out and do something, or from month to month. But overall, pretty rational promotional environment across the board.

Helpful. Thank you.

Steve Wieczynski, Stifel.

Hi. Good afternoon, guys. Josh, I know you have kind of talked before about other assets out there. And I know you guys are still working through Cannery and Aliante and that stuff. But with the assets, I know you've said before that the owners still are looking for big multiples. And a lot of times on next year's EBITDA. So has that changed at all as you guys kind are out there looking around the landscape? Are people and operators still wanting those big multiples at this point?

This is Keith. I think as we -- today we are mainly focused on getting to the finish line on these couple of transactions. I do not know that our commentary would be any different than it was a couple of months ago when we last spoke about it. That is kind of our current focus. Josh, you may have -- anything -- something to add?

No. I was going to say, I don't think really our view has changed at this point. And the way you described it is accurate an reflection of how we see the world today, Steve.

Okay, thanks. Then second question, real quick. In terms of the acquisitions you're in the process of doing with Aliante and Cannery. As you guys have continued to dig in there and continue to do your work, has anything really changed in terms of when the last time we talked to, in terms of your views of the assets' potential in terms of EBITDA potential, especially at Aliante? That would be the most helpful.

This is Keith again. I do not think so. I think we are as excited today is the day we signed them up. The businesses are continuing to perform as we would have expected them to, or as we did expect them to when we signed the acquisitions and we started looking at them. Once again, both of them are participating in the growth of North Las Vegas and the growth of Las Vegas locals market.

They have great management teams. We've had the opportunity to interact and engage with the management teams. And we're going to be acquiring some wonderfully talented people that will make the Company overall stronger. So I think, once gain, we are as excited today as we ever have been.

I think it would just add that I think ever since we have announced it, I think their performance has just affirmed our belief in what they were going to be able to do and contribute to our business. So I think it is just been more and more confidence in the decisions we made to acquire those assets.

Could I ask one more quick one? Did you say earlier that when you look at July and what you seen so far -- or through July, that the trends for the most part did improve?

I think you have to look at it market by market. In Las Vegas the commentary was the July trends looked a lot like April and June, not like May. Once again, May in Las Vegas was an anomaly, because of some events that were not in town. As you look in the Midwest and the South, the July trends are generally good. Kansas is performing better than we saw in June. I think generally overall we feel that in the Midwest and South and in the Peninsula properties, that the trends for the first four weeks of July are slightly improved over what we saw in June.

Okay, great. Thanks, guys. Thanks for the color.

Shaun Kelly, Bank of America.

Hi, guys. You've already covered a lot of ground. But I guess just one on the timing of some of the ramp-up of the acquisitions for next year. A lot of the purchase and the story behind those depends on the recognition of synergies.

So could you just give us a sense for when throughout 2017, and ballpark is fine, obviously. We know you probably don't have this down to a science. But big picture, when you would expect to kind of achieve sort of run rate synergies you laid out at the time of the acquisition announcement?

Yes, Shaun. I will take a stab at and then Keith can jump in if he has a little bit more color. I think generally when we acquire or make acquisitions, we always try to go in and not mess up what the accomplishments have been. We want to learn from them, as well as hopefully have some benefit accrue to the assets that we are acquiring.

I think generally Peninsula has been a pretty good example in terms of being able to maintain their margins and generate enormous amounts of free cash flow with that particular acquisition, that particular set of assets. When we acquired both the two Cannery assets we said they would be about $8 million of synergies. And we said they would be about $8 million similarly associated with Aliante. I think for the first, we'll let the operations guys pace it for us, but I would not expect much in the way of synergies in the first several months.

Then as we get into the second half of owning them for first year, I think that's where you will start to see more of the synergies come to benefit. I think there will be obviously synergies that can happen right away. But those will be largely purchasing related initiatives as we try to capture the benefit of being in the umbrella of a bigger Company.

I think it will largely be business as usual, at least for the initial several months as we try to see what they do better than us. And perhaps in some cases we can add value in some of there processes.

I think Josh make some important points. We obviously acquired a number of assets over the years. And so we have a pretty good template. And as you look at this over the span of 12 months, clearly it is not symmetrical. And it will be more weighted towards the second six months than the first six months.

In the first 90 days I think you will see very little in the way of synergies, as we just want to make sure that we understand what makes these properties successful before we go in and start making changes to them. So it is clearly going to be the bulk of it in the second six months. And I think we are confident that, and we have said this before, that we will achieve all of the synergies by the 12th month on a run rate basis.

So we will be -- we'll have fully acquired all the synergies by the end of the 12-month period. That is probably about as close as a guidance on that topic as we can give you.

That is perfect. My only other question would be, Keith, in the prepared remarks you mentioned a little bit about the FTC possibly looking into Cannery. Is there any reason to have incremental concern there? Do you think this is largely procedural? Just any more color you could give us on that.

I don't know that I have lot more color. We said, Josh said and I said in my prepared remarks, we still expect this to close in the early fourth quarter. They've asked some additional questions, or asked some additional information. They haven't highlighted anything in particular that they're concerned about. They've just asked for some additional information. So we just see it is a normal part of the process. No incremental concerns.

Okay. Great. Thank you very much.

David Katz, Telsey Group.

Hi. Afternoon, all.

Hey, Dave.

When I look back in the Las Vegas locals to prior to the downturn, and I recognize lots of things have changed, the EBITDA margin used to get north of 30%, or peak north of 30% around 32%. I just wondered, looking at your locals business today ex the new acquisitions, how much more you really think you have to go? Do you feel as though there is some good opportunity there?

David, I'll take the first shot at that. I think when we look at our Las Vegas locals market, and I would extrapolate to our entire portfolio and compare it versus our competitors, I think we look at our margins as an opportunity to do better. That is part of what we have been doing over the last 18 months or two years. That is what you have seen in terms of that focus from, really, all the folks in this Company focused on improving how we operate our business.

I think Keith also mentioned another initiative that we have underway to kind of get to the next stage of improving processes and how we execute on our business. But I think whether that you are talking about any particular segment, we see opportunities to improve our margins.

Currently I think the margins in the locals, I think in the second quarter were around 28%. In there, there are some that are in the 30%. There's going to be a span in the mix. It is a portfolio of assets. There are some that are in the low 30%s today. We would be striving to get those higher as well.

So simplistically, do we think we can improve our margins? Yes. That is why we put -- people always ask us, you have done a lot. How can you keep going? That was the purpose, quite honestly, of the remarks that Keith made earlier today, which is we feel we are just actually beginning in our track to improve the performance of our assets and our portfolio.

Okay.

Yes, I think Josh covered the most (multiple speakers) salient points. I don't think I have anything else to add. I think these two new initiatives that we're embarking on will help us to get there, help us to continue to improve them. Do I think we have more than 100 basis point improvement? Absolutely. Where we can improve margins by more than another 100 basis points. I would certainly hope it is more than that. But we have room to continue to grow.

I would say that as we think about our business, it is just a natural progression of continuing to improve. So these initiatives are just similar to other initiatives that we have had and deployed over the last couple of years. It is just more of the same. We just continue to find and have, at least we believe have, opportunities to do better than what we are doing today. I think what is encouraging is the Company is becoming more and more focused on that goal as well.

Got it. If I could follow that up and get your -- and I heard all of your opening comments, Keith, about the Las Vegas Valley economy. And perhaps ironically there is a large article in the New York Times today about real estate values in the Las Vegas Valley and the amount of housing that is still upside down.

How does it feel in terms of sort of what inning you would consider this recovery to be in? Or was this article just making reference to some sort of bubble-related transactions that may have occurred, that may still be around that may not be fixable just by normal growth? How would you characterize where we are in terms of recovery in Las Vegas locals?

I think it is a fairly tough question. We're clearly well off of the trial, post-recession trial that we hit. As you drive around town and as you talk to people and you look at employment and you look at buildings that are going up, you look at commercial real estate and the amount of growth there and what is available. You look at sticks going up for new build for just residential housing. It is tremendous. Home builders are buying land again.

So look, I do not think we are in the 8th or the 9th inning. And we're clearly past the probably the 3rd or 4th. So if I was a ballplayer I'd say we're in the middle innings of the recovery. We're not clearly at the end of it. I cannot comment on the article. But frankly I believe very little of what I read in the press these days anyways.

I do think, it does not feel like the Las Vegas economy is -- it's not robustly growing but it is not -- it's pacing along, it seems. It seems to be moving along at a nice pace. It doesn't seem to be pulling back. It doesn't seem to be hitting any kind of bubble or peak from the perspective. And there is a lot of very positive economic factors, many of which Keith mentioned, that provide a pretty strong underlying foundation to what is going on locally currently.

I think that the big differences is the nature of the growth pre-recession versus now. The nature of the growth pre-recession was development and construction driven. Today it is a much more diversified economy with tremendous number of different businesses. Growth is coming in different places than simply the casino industry, which is a great thing for the State. It's just a whole different type of growth.

Understood. Very helpful. I appreciate it. Thank you.

Chad Beynon, Macquarie.

Hi, great. Thanks. Good afternoon. With respect to your NOLs post-Borgata, and more importantly the cash taxes -- or the outlook on paying cash taxes in the next couple of years when you are running with three additional Las Vegas properties. Josh, could you help us think about where we are with the NOLs and if the cash tax outlook should be dramatically different in the next couple of years versus what we're seeing right now?

Yes. I mean, we had sizable NOLs before and I think we have sizable ones after. I do not think that we will be a cash tax payer in the next couple of years. Maybe in 5 or 6 years, potentially. But, so I do not think our cash tax paying position really changes in the next couple of years.

Okay. Great. Then historically you have giving us CapEx guidance. Are you able to do that today for 2016?

It really has not changed for 2016, Chad. I think we tend to spend a little bit less than what we guide toward, because it just takes a little bit longer to have all of those bills come in and have them paid. But generally we have talked about a maintenance capital number for Boyd of about $100 million. Peninsula, about $12 million to $15 million. And then we have got Delta Downs, $45 million. And the non-gaming amenities of $45 million. So that gets you to around $200 million.

I would say from a forecasting or estimates perspective, I think that number's going to be lower, maybe $180 million to $200 million, just because some of Delta Downs got started early and ended up in 2015, about $5 million or $6 million. And then some of the non-gaming amenities will not be spent this year. They're going to flow over into the first half of 2017, as we finish up the last leg of that initiative.

My comments earlier, in my prepared remarks were, once we get beyond Delta Downs and the non-gaming initiative CapEx program, we really don't see anything other than maintenance. So I think, it will be the middle of 2017 before we get there. But run rate CapEx will be down to the $115 million to $120 million level at that point, because we'll just be doing maintenance and maybe a few little things here or there. So that is where we will pick up that incremental amount of free cash flow as well.

Okay. That is helpful. Thank you very much.

Joe Greff, JPMorgan.

Hey, guys. Just to follow up on that CapEx related question. Josh, how much non-gaming amenity related CapEx do you plan for next year?

It is probably less than $20 million. It will be -- our project for this year was $45 million. And I think in reality most of that will be spent. So I would say $10 million to $20 million max will flow over in the first half of 2017. And I actually think it will be done before middle of the year. We're just saying first half because we do not have a lot of clarity at this point on some of those projects in terms of how they will roll out.

But, we started this program. It was $100 million program. It started late in 2014. We said it would be three years basically. So 2014, 2015, 2016, and the first half of 2017. So we are spending right on top of what we said in the timeframe -- within the timeframe that we stated.

I think we have made numerous remarks over time that we are seeing real positive benefits in terms of visitation, cash, more cash business, better profitability within the entities that we have opened. And so it has been a very productive type of investment for us. It is brought new customers into the building. It is reinforced existing customers to spend more with us and play more with us. So, I think we are pleased with that particular initiative. And so far it is on track and on budget to be done in the timeframe we originally expected.

Great. A question related to your guidance. Piecing all of the different things together, I am interpreting the back half on a same-store basis for the locals market to grow EBITDA at about 5% in the second half. Is that consistent with the different pieces that you talked about?

For the locals, we had previously provided guidance in the first quarter of about 6.5%. And so I think over the -- for the year that is where we expect it generally to be. Maybe a little bit better than that, but that is generally the pace, I think. So I think you take that into consideration.

Okay. Then my final question. There seems to be a disparity in performance in Louisiana between the Louisiana properties in Peninsula and those in the Midwest and South. And, I mean, Delta Downs is not too far from Houston. What is driving the difference there? Is it positioning? Is it local management or different cost structures? I mean, what is the difference there?

Out of the five properties we have in Louisiana, they all operate in somewhat different markets. Delta is growing business mainly out of the Houston market, which even with the depressed oil prices still tends to be a pretty good economy. It is very diversified. Whereas the two markets we are talking about, Evangeline Downs and Amelia Belle, the bulk of the population there are oil service workers or field workers. And with oil prices being depressed now for an extended period of time, the job market and the employment sector has been depressed for a while. And we are just seeing the impacts of that.

You don't see it in New Orleans. It's a different worker. You don't see it at Delta Downs coming out of Houston. You don't see it in Shreveport, which is drawing out of East Texas. So I think that is where the disparity comes from. It's those two properties draw from a unique market. And it doesn't have anything to do with the management teams, doesn't have anything with anything else, competitive situations or the number of properties they compete with. It really is very localized economic issue.

Thank you.

James Kayler, Bank of America.

Hi, guys. How are you doing? I will keep it brief. Everyone hit the -- most of the balance sheet items. Just to clarify, you mentioned that you called the Pen [GM] bonds effective today. Can we assume that you're just going to use cash on the balance sheet to pay off the Pen GM term loan?

Yes, I think that is generally the plan. You can kind of look at in our earnings release we give you the cash balance at the end of the second quarter. We've disclosed that we received $589 million of cash from Borgata. You add those two numbers up and it is significantly more than the amount we need to refinance Peninsula with.

Okay. Very good. You mentioned the expected to be leveraged less than 5 times at the end of 2017, which is helpful. Can you remind us what the long-term target is? Where you kind of want to sort of have mid-cycle leverage and where you would be willing to take leverage to do acquisitions?

I think the way we think about it is generally kind of 4 to 5 times is what we set our target to be. I think in reality when we get somewhere in that range, I think we will revisit that and make sure that is the right level based on our business and the economy. It could be that we're comfortable there. It could be that we feel at that point we need leverage to go a little bit lower. But I think we want generally run the business somewhere in that range, maybe a little bit toward the middle to lower end of the range. But we have to evaluate it when we get there.

I think secondly in terms of where we would go in terms of acquisition, that is a little hard to answer just because you never know what the acquisition -- you're answering that question without really knowing what the acquisition is. I think for really strategic acquisitions we would try to stretch a little bit. And what does stretch mean? I think in this environment maybe 6 times, or whatever.

I think generally we look at kind of running the business at that level that I mentioned, kind of ramping up leverage if it is necessary to acquire an asset here or there and then making sure we have a clear path to get down. We want the acquisitions to generate free cash flow and be deleveraging over time.

We know that, at least initially, you do not get the full benefit of EBITDA so you have to work through that. But we're not talking about running up leverage significantly. I think ideally it would be, in the 5s and then come right down below the 5 shortly after. That is generally how we think about it today.

For really maybe strategic or something very unique you may go to 6. But it is hard to know what that is, or if you would really do that or not until are presented that opportunity and see how comfortable you are with that particular business and with the synergies. So, I think just trying to give folks a framework, that is what my comments are trying to do. Just provide insight into how we're thinking about leverage.

All right. That is very helpful. Last one. Within your CapEx, your slot budget this year, Is it up, down or flat?

It is about the same. Plus or minus a couple of million on either side. It does not really move that very much.

Very good. Thank you very much, guys.

Adam Trivison, Gabelli.

Hey, guys. Can you touch on the quarter's RevPAR performance at the downtown and off-strip properties? And I guess going forward, your ability to pick up incremental occupancy and rate on the cash business there?

I did not hear the first part of your question, Adam.

Sorry. How the RevPAR performance was at downtown and off-strip properties and Las Vegas locals? And your ability to continue to pick up incremental rate and occupancy as rates increase on the strip?

You're basically asking how was RevPAR in the locals and downtown in the second quarter?

Correct.

Adam, I think that we do have the ability to continue to drive rates and drive RevPAR higher. I think that less so in our downtown properties where, remember the business model downtown is largely driven by packages out of our -- from our Hawaiian customers, driven out of the Islands of Hawaii. And so there is not a lot of elasticity in that pricing. We do have some opportunities with some of the rooms on busy weekends to leverage it up. More so in the locals market.

I think in prior quarters we've talked about how we've been able to expand pricing and increase average rates, mainly as a result of a better hotel product because we've remodeled most of our hotel rooms here locally recently. So I think we still have the opportunity to expand that. I do not have the exact growth rates in front of me for the second quarter. But we do have the ability to continue to expand those.

Okay. Great. Thank you.

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

Thank you Bianca. And thank you for everyone who joined the call today. And also for the questions. We appreciate it. And if you have any other follow-up, please feel free to give the Company a call. Thank you.

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