Boyd Gaming Corp (BYD) 2016 Q4 法說會逐字稿

Good day and welcome to the Boyd Gaming fourth-quarter 2016 earnings 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. Sir, please go ahead.

Thank you, Steven. 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. 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 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 at boydgaming.com and will be available for replay in the Investor Relations section of our website shortly after the completion of this call. I would now like to turn the call over to Keith Smith. Keith?

Thanks, Josh. Good afternoon, everyone. Thank you for joining us today.

The fourth quarter was the culmination of another eventful and successful year for our Company. Through the execution of our strategic initiatives, we positioned ourselves to continue the long-term growth story that has been underway for more than two years now. In mid-December, we completed the acquisition of the Cannery in North Las Vegas and Eastside Cannery on Boulder Strip.

This came just three months after we closed on the acquisition of Aliante, the premier gaming asset in the northern part of the Las Vegas Valley. Thanks to these transactions, we now have 12 properties across southern Nevada, giving us a substantial presence in this attractive market. Based on the positive economic and business trends we saw in the fourth quarter throughout our locals business, including at our three new properties, we are optimistic about what lies ahead for us in Las Vegas.

We also invested in the key growth market of southwest Louisiana, as we completed our expansion project at Delta Downs in late December. This investment greatly expanded the capacity of one of our most successful properties, and it is already driving strong results at Delta Downs.

The fourth quarter was about more than investing in our future. Across the country, our operations kept delivering solid performances. Despite some short-term challenges in the fourth quarter, including sports hold in Nevada, severe winter weather in the Midwest, and some construction disruption in downtown Las Vegas, we saw solid underlying trends throughout our business.

In Las Vegas, our locals segment delivered its seventh consecutive quarter of EBITDA growth and margin improvement. We benefited significantly from the addition of three new properties to this segment and we continue to see organic growth from our existing properties as well. On a same-store basis, we delivered our strongest fourth-quarter EBITDA and operating performance in nearly a decade, with growth at our properties all across the valley. This performance is largely the result of our ongoing focus of refining our marketing programs, which continues to drive growth and profitability.

These results would have been even better had it not been for unusually low hold in our sports book, as well as unusual timing of the holiday calendar. We estimate the low hold in our sports books reduced EBITDA by about $2 million in the locals segment in the fourth quarter. When adjusted for hold, same-store operating margins improved by 130 basis points in the fourth quarter.

Our local operations continue to grow at a healthy pace as we benefit from a strong local economy. Visitation to Las Vegas reached an all-time high of nearly 43 million visitors in 2016. Taxable retail sales are at a record levels, up 4% over the prior year. The Las Vegas Valley's population continues to grow at one of the fastest rates in the country as well. Southern Nevada posted a 2.7% growth rate in 2016, nearly four times the national average.

Our new residents are finding jobs. Total employment has grown nearly 3% over the last 12 months, with gains in nearly every employment sector. Unemployment has fallen to 5%, an improvement of 120 basis points in just 12 months. Average weekly wages were up over 4% in the month of December. Just a few weeks ago, Gallup reported that Nevada now leads the nation in its job creation index, going from worst to first in just six years.

Southern Nevada is a robust and strengthening market, and today we are better positioned than ever to capitalize on this long-term growth opportunity, thanks to our recent investments in this market. Additionally, over the last two years we have enhanced the competitiveness and appeal of our existing Las Vegas portfolio through a program of strategic reinvestment in our non-gaming amenities. We have remodeled and updated 2,700 hotel rooms in Las Vegas and premiered more than a dozen new food and beverage concepts throughout the market.

We have also expanded our portfolio with the addition of Aliante, Cannery, and Eastside Cannery, giving us a foothold in some of the fastest growing communities in the Las Vegas Valley. Across the markets served by Aliante and Cannery, residential and commercial growth is accelerating. Employment has grown for 79 consecutive months in North Las Vegas, and more job creation is on the horizon.

More than 10 million square feet of manufacturing and warehouse space is either planned or under construction in the northern part of the Las Vegas Valley. Large-scale retailers are targeting the North Valley for major distribution facilities. Examples include an 800,000 square foot fulfillment center by Amazon, a 525,000 square foot eCommerce operation by Bed Bath & Beyond, and 400,000 square foot facility by Fanatics, an online sports apparel company. New home sales are up 38% year over year and thousands of additional homes are on the horizon, with several major subdivisions now under way across the northern part of the Valley.

But North Las Vegas is more than a future growth play. Indeed, we are seeing significant growth at our North Las Vegas properties today, and we remain comfortable with our full-year EBITDA projections for Aliante and the Cannery properties for 2017.

Long-term trends remain encouraging in downtown Las Vegas as well. Our downtown business achieved its highest full year EBITDA in a decade, led by a record performance at the Fremont. Our full-year and fourth-quarter results would have been even stronger had it not been for construction work at the California, which took a significant number of the property's hotel rooms out of commission over the last two quarters. This renovation work was completed in late January.

Despite this disruption, the underlying trends in downtown Las Vegas remain solid, as visitation continues to grow throughout the downtown area. Downtown Las Vegas is a vibrant market and thanks to our recent investments, we are well positioned for the future.

Outside of Las Vegas, we were encouraged to see sequential improvement in our Midwest and South segment in the fourth quarter. After three quarters of declines, fourth-quarter EBITDA was essentially even with the prior year, ahead of our expectations. While segment results include a $2.9 million property tax benefit, this was entirely offset by the impact of severe winter weather across the upper midwest. Our four properties in Illinois, Indiana, and Iowa performed well during the quarter and we believe they all would have grown EBITDA year over year had weather not been an issue.

Further west, Kansas Star delivered a record fourth-quarter EBITDA performance. The Kansas Star's leadership team has this property back on a solid trajectory, leveraging its expanded amenities to drive new visitation in the Wichita market. In Louisiana, Evangeline Downs delivered its second consecutive quarter of double-digit EBITDA growth and strong margin improvement, as cost efficiencies and marketing refinements continue to deliver positive results.

At Delta Downs we completed work on our expansion project in late December. We increased Delta Downs hotel room inventory from 203 rooms to 370 rooms and gave every room at the property a fresh and modern look and feel. With this expanded and upgraded hotel capacity, Delta Downs is now in an excellent position to meet growing demand throughout this region. We are already seeing encouraging results. Delta Downs achieved an all-time record coin in [level] during the last week of the year, the first time that all the new hotel rooms were available to guests.

In all, our operations finished 2016 on a solid note. Thanks to the growth initiatives we executed throughout the year, we're in a strong position for the future. With the completion of our acquisitions in Las Vegas, the process of integrating these properties into our Company is now well underway. We are already realizing many of our planned synergies and we are pleased with the property's current performance.

While these acquisitions were a significant step for our Company, this week we took an important step forward on another expansion opportunity, this one in northern California. As you may recall we currently have an agreement to develop and operate a casino on behalf of the Wilton Rancheria Tribe of Sacramento County. Earlier today we announced that the Department of Interior has officially taken lands into trust on behalf of the Tribe. The Tribe's new land is located next to a mall being developed by the Howard Hughes Corporation, approximately 15 miles southeast of Sacramento. The project is located on highway 99, one of the two major north-south freeways in the Sacramento area.

While this is a significant achievement for the Tribe, several steps still remain before we can proceed with the development of a gaming project at this site. The Tribe must reach an agreement with the State of California on a compact and receive approval from the National Indian Gaming Commission for their management contract with our Company. This process will take time, but we are encouraged by the progress we are making and are optimistic about this long-term opportunity.

Looking forward, I'm confident there will be other growth opportunities available to us as well, and we will continue to actively pursue ways to further expand our portfolio through acquisitions and new developments. But as we grow larger, we will not lose our focus on operational efficiency. We have improved our operating margin substantially over the last couple of years and I am confident we can drive further improvements.

As I've noted on prior calls, we have an opportunity to realize additional cost savings by better leveraging our size and scale. This represents an opportunity for us to continue delivering the level of margin improvements we have achieved over the last several years. Through the implementation of new marketing and analytical tools, we will continue to invest our marketing dollars more effectively, resulting in enhanced profitability in the future.

Finally, we have made consistent progress strengthening our balance sheet over the last several years and we remain focused on continuing to deleverage our business. As our operations continue to grow, we expect free cash flow to strengthen, keeping us solidly on track to achieve our leverage target of between four and five times EBITDA by the end of the year.

As our balance sheet strengthens and we approach our long-term leverage targets, we will review our capital allocation strategy to ensure we are maximizing long-term value for our shareholder. This includes looking at how we prudently allocate capital between investing in our existing business, growing opportunistically, and returning capital to our shareholders. As a reminder, the Company currently has a repurchase plan in place with $92 million still authorized and available under this plan.

Thanks to the hard work of our entire team, the successful execution of our strategic growth initiatives and the stronger capital structure, we now have more flexibility and an expanding range of ways to accomplish our objective of maximizing long-term shareholder value. In all, we made great progress as a company both in the fourth quarter of 2016 and throughout the entire year. As a result, we are in excellent position to continue growing our Company.

Thank you for your time. I will now turn the call over to Josh.

Thanks, Keith. 2016 was a significant year for our Company, as we strengthened our balance sheet while positioning the Company for sustainability long-term growth. Our investments in the acquisitions of Aliante and Cannery and our non-gaming amenities, as well as our ongoing initiatives related to business improvement and marketing will continue to yield EBITDA growth and margin improvements over time. Our quarter-end debt and cash balances were provided to you in our earnings release. We remain on track to achieve our target leverage of four to five times EBITDA and expect to be below five times by the end of 2017.

In terms of capital expenditures, during the quarter we invested $43 million. For the full year, we invested $160 million. Investments related to the Delta Downs hotel were completed with the opening of that project in December, and our non-gaming initiative spending willing be completed in the first half of this year. Capital expenditures for 2017 are expected to be about $150 million.

In addition, in January, we invested $35 million to acquire land that was taken into trust on behalf of the tribe for the Wilton Rancheria development. We expect to be reimbursed once project financing is in place later in the development process. Also in February, we invested $43 million to exercise a purchase option to acquire land underlying the Orleans.

In terms of 2017 guidance for the other line items that may be of interest, annual depreciation expense is expected to be about $230 million. Our estimate for depreciation is likely to be adjusted as we finalize the purchase price accounting for the acquisitions of Aliante and Cannery. We expect total annual interest expense to be approximately $175 million, with our cash interest expense approximating $165 million. This interest expense reflects the current forward curve for LIBOR and assumes no refinancings of our current outstanding debt balances.

In terms of corporate expense, which is included in the full-year EBITDA guidance for 2017, we expect about $65 million. This number reflects incremental investments over 2016 spend levels in information technology, business analytics, and enhanced corporate capabilities. We expect these investments in people, processes and technology to result in further improvements in our operational efficiency that will drive improved margins over time.

Other income statement items include deferred rent, which is estimated to be about $1 million for the year, pre-opening expense, which is estimated to be about $9 million, and share-based compensation is expected to be about $17 million. We expect our effective tax rate to be about 40%. Remember, however, from a cash perspective, we are not a cash taxpayer for federal income tax purposes because of the $620 million in federal net operating losses that the Company benefits from.

Weighted average shares outstanding should approximate 116 million shares. As noted in our release, we expect full-year 2017 adjusted EBITDA to be in the range of $585 million to $605 million. Trends in our regional markets are improving while we continue to see positive momentum in our Las Vegas and downtown segments.

As we look past the events that impacted our business in 2016, ranging from weather and competition in select markets, to construction disruption and sports hold, we are seeing our consumer, and by extension our business, exhibiting solid fundamentals. We are encouraged by the strength in our business as well as the many initiatives we have underway to continue to improve the efficiency of our operations and grow our Company. Our leverage and free cash flow metrics are improving based on an improving business, benefits from NOL balances, reduced interest expense, and a limited capital expenditure program. As we approach our leverage target, we will balance opportunities to invest for growth with returning value to shareholders.

Steven, that concludes our remarks and we're now ready to open the call for questions from the group.

(Operator Instructions)

The first question comes from Carlo Santarelli with Deutsche Bank. Please go ahead.

Hey, guys, thanks for taking my question. Keith, in your remarks earlier you talked a little bit about low hold in Las Vegas and mentioned that ex the low hold your margins would have been up 130 basis points on a same-store basis. Could you talk a little bit about the influence that Cannery and Aliante had on margins in the quarter, maybe even with the hold in there to kind of keep it cleaner, and talk a little bit about kind of same-store flow through maybe on a hold-adjusted basis?

Once again, the 130 basis points improvement in margins was without Cannery and Aliante. We continue to find ways to improve our margins, improve the business. Cannery and Aliante we think we have some significant margin opportunities there. They're well run operations, but as part of the synergies we expected to get out of them, we would expect those margins to grow and be able to enhance and catch up with our other margins. Overall, we would expect margins to continue to expand with those operations.

In terms of flow through, I don't have that information in front of me right now, Carlo.

That's no problem. Just on the same topic of Cannery and Aliante, clearly from what you guys showed, I think [44] was the prior same-store peak in terms of EBITDA, if we look back to 2015, so we know the number is somewhere between $9 million at the high end and probably $5 million to $6 million for the Aliante and Cannery.

But my question is, you had talked about a full-year synergy pro forma kind of $60 million to $65 million run rate of EBITDA from those two assets. My guess is, as we move into the first quarter, we'll be kind of below the -- that range on a quarterly basis. Is that fair, and then we should expect to see a little bit of a sequential ramp as we go through the year and the synergies flow through in their entirety?

I think that is exactly the way to look at it. The synergies don't come all at once on day one. They ramp into the operation. We're starting to achieve some of those synergies today, but many more will be achieved throughout the course of the year. I think when we made the acquisitions we generally talked about something in the low $60 million, $60 million to $62 million in terms of annualized EBITDA, but as you say, it will ramp and be more towards the back end than the front end.

Great. Thanks. Josh, one quick follow-up. You noted $150 million of CapEx and then, I think, outlined about $78 million of spend on land for Orleans and land at Wilton.

Two-part question. Is the $150 million in addition to those two items? The second part is, is the $35 million for the Wilton land the biggest chunk of anything you will spend there prior to them reimbursing you for it, or will you fund any of the development on a go-forward basis to the extent they need financing?

All right, so the answer to your first question, Carlo, the $150 million is our run rate maintenance number, plus or minus a little bit, and the land purchases for Wilton and the land under the Orleans are incremental or additional to that number, so they're not included in the $150 million. Just as with any Native American development, we as the developer and as the manager of the project, ultimately when it gets open we will advance funds to the tribe until we're able to get to the point where we will raise financing. We have been advancing and spending money really over the last couple of years as we've developed this project, but by far the $35 million is going to be the largest amount that we spend in any one particular time related to the development.

I think we would expect to have the financing in place before any significant dollars were having to be expended on behalf of the project. While we are funding it in the short term, once again we'll have financing in place before the large dollars start rolling out.

Okay. Josh, the number that you gave for this year's CapEx, the $160 million, that was basically the $85 million or so of maintenance and another $75 million or so of project? Is that about right?

No, not really. The number is $150 million, and it primarily reflects --

No, I'm sorry, I was talking about 2016. I apologize. For 2016, I meant.

Sorry. Ask your questioning again, Carlo.

The $160 million from 2016, with $43 million, I think you said in the fourth quarter. Could you chop that up between maintenance and project?

Yes. I'll do it the best I can off the top of my head. The $160 million includes Delta Downs, which is probably about $37 million. Then there was probably about $25 million or so of non-gaming amenities spend, and then the rest would be just run rate maintenance.

Okay. Great. Thanks a bunch.

Sure.

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

Hey, good afternoon, everyone. Happy Valentine's Day. Can you just talk about, on the 2017 guidance, can you just talk about what you are reflecting in terms of same-store trends, how you are thinking about organic growth and maybe comparing it to what you are seeing currently? Thank you.

Sure, Thomas. Happy Valentine's Day to you and your wife. I think what we tried to reflect in the guidance was, first of all, obviously the addition of the acquisitions of Aliante and Cannery, and then we reflected kind of trends that we had seen throughout the year for each of the various segments. So no real acceleration is expected in any of those segments. So kind of top-line revenue growth of kind of 3%, 2% to 3% in the locals business, probably kind of about 1% in the regional markets, and then we factored in some pickup from Delta Downs because of the investment and the return that we expect from there.

How are you thinking about cost inflation?

We basically, from our perspective, assume that we will generally get about the minimal inflation, and similar levels of flow through that we've generally put out for folks to expect from us of around 60% or so, 60% to 65%.

The negative weather impact that you had in the fourth quarter, are you assuming you don't have that in 2017?

Well, you have to remember that in the first quarter, we've experienced some weather already in January and we've had -- obviously some of the calendar impact that we felt in the fourth quarter will be felt in the fourth quarter, so that kind of evens itself out.

Thomas, this is Keith. As a reminder, the first quarter of 2016 was a mild winter, and this -- so far the first six weeks, I wouldn't say it's been severe but it has been a typical, more normal winter, where as last year was, once again, a mild winter. Just depends on how the next six or eight weeks play out.

That's helpful. Finally, just following up to an earlier question, if you think about the Wilton Rancheria investment, any timeline on when you think that property could open and kind of the cadence of the spend?

No, we haven't put kind of a pin in when exactly that we will start construction and when an opening date is. We haven't disclosed an exact timeline, so don't have anything to talk about here.

Maybe what you are trying to get to, and this might be helpful, is we've spent kind of in 2015 we were at a run rate of kind of less than $1 million a quarter. Now we're at $1 million to $2 million a quarter. That may help folks generally think about it. It generally shows up in the pre-opening number.

Helpful. Thank you.

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

Hi. Just to be clear for one second, how much did the sports book hold impact you in the quarter?

I'm sorry, the sports hold?

Yes.

The sports hold in the Las Vegas locals region accounted for $2 million. It was $2 million less year over year in sports.

Okay.

Just an unlucky season.

Yes. Okay. With the weather, the comments in the release were that you had a gain, a tax gain or tax benefit, and that was offset by weather. If we assume that the number is basically similar, it seems like that's kind of 4% of the quarter's EBITDA in that region. That just seems like a lot of -- you mentioned a variety of areas that were impacted, but could you just walk us through that more?

The weather impact, if you think about it, actually was quite significant in Q4. The first three weekends in a row at our Blue Chip property were snowed out.

Unfortunately, all the weather occurrences were Friday, Saturday, Sundays, not Monday, Tuesday, Wednesdays. It affected Blue Chip, it affected our Iowa properties. It affected our Illinois property. It affected our Kansas property, and even though Kansas posted a record quarter, it could have done better without weather.

So the $2.9 million property tax adjustment of Blue Chip that we called out was completely offset by weather. We -- when doing the math, the weather accounted for $2.9 million, almost $3 million year over year.

Remember, as I said a moment ago, Q1 weather last year was good. December weather last year was good also, so we're comparing kind of a more normal winter with a very mild winter, so it did have an impact.

Okay. That's helpful. I understand that, it just seems like a lot to walk through it by property and talk about the weekends. That was helpful.

Josh, with your guidance, given the solid performance that you've had now for some time, excluding one-offs here and there, and then how you just recently walked through the guidance, kind of similar growth to what you have been seeing, you went through the regions a few moments ago, it seems like given your positioning, given the investments that you've been making in your properties, that guidance seems a bit conservative at the high end -- that the high end of the range was kind of right on top of consensus. Just trying to figure out where the puts and takes could be there.

I think your characterization is pretty fair, and we have a whole year to go.

Looking for a little Valentine's Day present, here. Okay. You've opened those -- you have the construction disruption is now complete in downtown, so early days, what are you seeing there?

At a minimum, we have more hotel rooms able to rent every night, and that's a hotel at the California Hotel that continues to run 95%-plus occupancy day in and day out, and therefore those additional hotel rooms are very important to us, so we are seeing is enhanced business.

One of the things to continue to remember, at some point properties like the Fremont on Fremont Street in downtown Las Vegas just reach capacity on weekends. You literally can't put any more bodies through there.

It's a fixed footprint. You can't add more tables, can't add more slots. You begin to literally max out on the opportunities at a property like the Fremont. We would expect some uptick at the Cal because of the hotel rooms, expect maybe a little bit of uptick at the Fremont, but it is getting near maximum capability.

Okay. That's helpful. Thank you.

The next question comes from Joe Greff with JPMorgan. Please go ahead.

Hey, guys. Keith, in your earlier prepared comments you talked about additional cost saves from here. Can you talk about how you size that opportunity? Secondarily, can you talk about maybe what's baked into 2017 EBITDA guidance with respect to additional cost?

I'm sorry, I didn't hear the second half of your question, Joe.

How much of that is baked into your 2017 EBITDA guidance contribution from additional cost savings?

I understand. Look, if you look back over the last couple of years, we've improved margins in the neighborhood of 300 basis points. I think as we look forward over the next couple of years, that we see a similar trajectory, the ability to drive margins another couple hundred basis points going forward.

There is clearly some of that baked into our 2017 guidance and our property operating budgets. How much of that, I actually don't have here. Josh will maybe be able to help answer that question, but clearly some of that is baked in there. Once again, we think we have quite a bit of room to continue to grow our operating margins going forward.

Joe, what I would say is, is most of the initiatives that we have underway are probably going to be more impactful in the second half of the year as opposed to the first half. We have incorporated some of those benefits that we expect to accrue to our benefit from the efforts that we're putting forth.

But really what we're focused on is those efforts yielding to margin improvements, as Keith spoke about, 250 to 300 basis points over the next couple of years or so, really that's the direction we're headed. It's not going to be all at one time. It's not going to happen and be very -- it may or may not be consistent, because things will go wrong, and things will go right through that time period, but that's the general trajectory of where we see our business and really see the opportunity for our business, and that's really what we work on every day as a company and think about it. That might be a little helpful in thinking about it.

Okay. Back to the project CapEx topic, if you spent $160 million in 2016, with $37 million from Delta Downs and $25 million from other non-gaming initiatives, the balance of it, just under $100 million in maintenance CapEx. You guided to $150 million for 2017, so what's that incremental non-maintenance CapEx number in 2017, that roughly $50 million or so?

Yes, so the way I think about it is our maintenance capital is about $100 million to $110 million. We have about $20 million to $25 million left over from the non-gaming amenity initiatives rolling into 2017 from 2016.

Then we have a little bit of cushion for other projects around, whether it be a hotel here or there or restaurant here or there. We have historically not spent our budgets, but that is our budget, and that's what we guide to and live by, and then we --

That's my next question, Josh, how much of that is maybe overestimating? Okay.

We adjust accordingly to what's going on in the business, so as the business gets better, we're going to continue to invest in the business. You have to kind of factor in the change of where we've been to the kind of environment that we're moving into as well, to be realistic. But it's fair. We're going to manage to spend less than that but we want people to understand that, that's our budget and that's what we're targeting to spend.

Understood. Keith, you mentioned again, earlier in the prepared segment, that the two acquisitions in the locals market are going to contribute in 2017 based on what you previously discussed, so that's you're reaffirming the $60 million of EBITDA contribution from Cannery and Aliante, correct? Is that how I should interpret that comment?

That's exactly how you should interpret it. It's reaffirming would we have previously disclosed, so, yes, we're reaffirming the $60 million.

Great. I may have missed this and you may have talked around it in a couple of way and maybe I could reverse engineer an answer. Did you actually give a fourth-quarter same-store net revenue and same-store EBITDA growth rate? If you didn't, can you disclose that?

Are you talking about for the business overall, or for --

Las Vegas locals. Basically locals at Aliante and Cannery, what same-store revenue growth was, same-store EBITDA growth was.

We did not, because we don't break out individual property performance. What we did say is that the businesses on a core basis continue to grow and the acquisitions are performing, I would say, a little bit better than what we would have expected at this point.

Okay. Would you -- I'll ask it this way, then. Would you say that same-store Las Vegas locals EBITDA growth in the fourth quarter was consistent, maybe a little bit below what it was in the third quarter? Is that a fair commentary?

EBITDA growth in the third quarter was 12.5%, I think.

11.4%, backing out the contribution there, but -- so fourth quarter would be something a little below that?

I would say fourth quarter was a little bit below that.

Good enough. Thank you, guys.

Yes.

Next question comes from David Katz with Telsey Group. Please go ahead.

Afternoon, everyone. Just going back to the Native American opportunity, what is the earliest that, that project could, as you could tell today, be in the ground and be consuming capital? I just want to make sure I'm understanding the way it's structured.

When does it go in the ground, I assume that the financing is going to be arranged by you all rather than sort of at the project level until it's open and then would you pay yourselves back. Is that how it's going to work?

We would expect to have project financing in place right around the time we go in ground and start the construction of the project would be would we anticipate today. We don't after defined time frame on when we will go in the ground. We still have several things to accomplish, such as reaching agreement with the state on a compact and getting our management contract with the tribe approved by the NIGC.

But we're pleased with the progress we're making. The project is moving ahead. We're very excited about the opportunity. We just don't have enough visibility or clarity to pick a date.

Right. How large a scale of a project are we envisioning at this point? Just to be 100% absolutely clear, the project financing is going to be on Boyd's balance sheet, correct?

No, this would be project financing, not on Boyd's balance sheet, is what we expect today. The Company is not putting its balance sheet up, if you will, or at risk. Josh will go out and use his best efforts to go out and arrange financing for this, and we certainly expect it to be successful, but we're not putting up our balance sheet for it.

With respect to the size and a scope and scale, the amenities that will be included in the project, we have not publicly at this point disclosed any of that. Once we finish working with the Tribe on this project in defining all of that, with the Tribe we'll prepare a release and kind of disclose all those details. But we're not at that point yet of describing any of that.

Right. One other question, if I may. In terms of the acquisitions that you closed on recently, Cannery and Aliante, I see that you're holding your outlook for this year the same, but since you have closed, can you talk about any surprises, either pleasant or otherwise, that you have encountered since you've gotten in there and put your people in place and started to run the properties?

I think any of the surprises, there are surprises with every acquisition we have. I would say there's nothing significant either on the upside or downside.

I think all kind of normal type things you go through when you buy properties. I think that they've got very strong team member bases. They do a great job with the customers, and their cultures are very strong.

I think the integration will probably be a little easier than we were anticipating in terms of bringing them on board as we go forward. So nothing significant one way or the other. All pretty normal, typical stuff.

Perfect. Thanks very much.

The next question comes from Harry Curtis with Nomura Instinet. Please go ahead.

Hi, guys. Two quick questions. First, Josh, do you see any -- or do you have any plans to take down debt on an absolute basis more, or do you think EBITDA lifts enough with Aliante and Cannery to get you inside your target leverage ratio?

Yes, I think we're mainly focused on deleveraging through utilizing a portion of our free cash flow to pay down debt. Certainly the contribution of free cash flow from those acquisitions, as well as the acquisitions we made over time, contribute to our amount of free cash flow. We see our free cash flow kind of strengthening over time, not only from the underlying business, but also the fact that, as we talked about earlier on some of the other questions about the CapEx, a portion of the CapEx will mainly be concentrated in the first half of the year, and so you would expect an acceleration of free cash flow as we go through time.

Then obviously, also to an earlier question, with respect to improving margins over the next several years, based on even a kind of the same level of revenues we expect to generate more EBITDA and free cash flow from it. That's how we think about deleveraging, really. Less about -- well, just really driven by the amount of excess free cash flow that we have.

Off the top of your head, do you get a -- is it $100 million that you need to pay down? Is it $200 million to get inside the 5 times?

I mean, right now we're at kind of 5.5 to 5.75 times as of year end, so we expect to be below 5 times by the end of the year. I would think it's probably -- I haven't done the math, but it's more than $100 million, I think.

It's not simply debt pay down. It's a combination of increasing EBITDA as well as a reduction in debt, so both the numerator and denominator will move.

My second question is, as you survey the potential acquisition landscape, if could you give us a sense of is there much in southern Nevada that is of interest, either from new build or an acquisition perspective?

I'm not sure there's anything of interest really from a new build standpoint in southern Nevada. I think those opportunities are few and far between. I think when we look at acquisitions, and we've said this before, we're somewhat agnostic to geography.

We look for places where potentially either we're not at or they're strong in growing markets, like here in Las Vegas. We look for places like stable regulatory environments with good tax structures.

We look for some place we can buy a high level or high quality asset. Once again, whether that's here in Las Vegas or outside of Las Vegas, if there are other opportunities here, it's great.

I think if you look back at our track record, we're fairly patient, fairly disciplined when it comes to acquiring things. Hopefully something will come along this year, but if it doesn't, that's fine by us. We will be prepared when it does.

That was going to be the follow-up question. Focusing in more on the regions where there's not a lot of GGR growth, are the river boat markets particularly interesting to you at this point? Shouldn't you want to see some GGR growth?

We think -- when we think about acquisitions in the regional marks, we acquired Peninsula 2012 and IP before that. When we made those acquisitions, we were clear that those were not acquisitions for growth but for free cash flow. Both of those acquisitions have paid off handsomely from the perspective of generating a free cash flow.

If you just look at Peninsula, while the EBITDA performance turned out not to be where we expected it to be when we bought it, the free cash flow has increased by almost, I don't know, 40% to 50%. When we first acquired it, free cash flow it was $70 million, now it's $100 million to $120 million, depending on what time period you are looking at. We would be interested in regional assets from the perspective of some strategic ability to access customers, but primarily from the ability to create -- enhance free cash flow from those entities.

Okay. Very good. Thanks.

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

Hi. Good evening, guys. I think most of my questions have been answered, so just one high level one for you which is, as we think about Las Vegas, Keith, in your prepared remarks you laid out a fairly compelling case of metrics that are growing at mid-single digits, or low-single digit including even just general population growth in the Las Vegas Valley. I guess the question is this, right, we've still only seen kind of low-single-digit type growth across the locals market, and sort of digging back in your memory banks, when do you think cyclically is sort of the right time to see maybe a little bit more elasticity from this customer?

Is there any kind of thought or sense you guys have when we might actually see gaming revenue growth start to outperform what we're seeing is in terms of overall macroeconomic growth? Is that even possible this cycle? Just curious for your high-level thought.

It's an interesting question because I'm largely of the belief or the opinion that the trends that we experienced prior to the recession, prior to 2008, really aren't applicable in today's world. As we kind of look at the growth metrics here in the Las Vegas Valley, whether it's employment or taxable sales or all the other metrics that we look at, and you try and extrapolate to when we would see a pickup in gaming revenue, I think it is difficult to do that.

The growth came later than we expected, and it's been maybe a little slower than we expected, but it is there. Where it goes from here is really hard to, once again, understand when the consumer will start to spend a little more money.

The good news is that the metrics are positive and that it is strong. The good news is that there is some growth in GGR, but also remember consumer dynamics have changed and that they're spending money beyond the game floor today and they're spending money in nicer food and beverage products and that's why we had our initiative aimed at enhancing those. Other cash registers are ringing for us, not just the gaming floor, so you have to kind of broaden your view when you look at the locals market and not just think about GGR.

That's helpful. I guess maybe just same idea to follow up then. What about your thoughts on -- are you seeing fairly consistent patterns across all your properties, or are you seeing meaningful differences, whether -- I think the Orleans probably gets some compression from the strip versus what you might see out in North Las Vegas. Are you seeing really big differences by property, or are you seeing a broader local trend?

Well, there are differences by property, mostly because the properties are significantly different. The Orleans with 1,900 hotel rooms, significant amount of meeting and convention space and its proximity to the strip vis-a-vis Suncoast with 400 hotel rooms and quite a distance from the strip and the local neighborhood. The amount of local business versus out of state business at the Suncoast is vastly different than it is at the Orleans and so they are acting differently.

I think that if we strip it down and just look at the local customer at each of our core Las Vegas locals properties, you are seeing similar trends. You are seeing good growth, you're seeing a healthy customer, and so from that perspective, the local customer in each of the properties is generally behaving, not identical by any means, but similar.

Okay. That's what I was getting at. Thank you very much. Really appreciate it.

The next question comes from Adam Trivison with Gabelli & Company. Please go ahead.

Hey, guys. Thanks for taking my questions.

Sure.

First, can you provide some color on performance by player segment and visits versus spend per visit, just high level? Secondly, can you comment on the M&A environment as you see it, particularly have you seen a slowdown in activity as there's been some policy uncertainty? Thanks.

With respect to the first question, without getting into too much detail, I think the trends we're seeing in our player database are similar to what we have seen in the last couple of quarters. The mid to high end part of the database is continuing to grow, and grow to healthy pace, and so we're very comfortable with those trends. The low end of the database is a little bit of a mixed bag, some of -- some actions taken by the Company and some customers not showing up.

The good news in all of that unrated play, unrated coin in, if you will, continues to grow in most, not all of our marks, but most of our markets. Once again, unrated coin in was that play that was the first to leave and the last to come back, so we've seen unrated, or we've seen growth in unrated coin in for several quarters now and so we're very pleased by that trend.

Great.

With respect to your M&A question, I think the only thing we've seen recently is prices going up. I don't know that we have actually seen a slowdown because of policy issues or the change in the political landscape. I think it's more of a pricing issue and, as always, buyers and sellers trying to agree on a price.

Okay, great. Thank you very much.

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

Hi, great. Thanks for taking my question. Just one maintenance question. Josh, I may have missed this, but did you say that the Orleans CapEx, I guess the outflow in the first quarter, was removing a lease, or you were buying that out? Could you explain that again? More importantly, is there something that you could do to drive additional revenues on that piece of land? Thanks.

Sure, Chad. The purchase was for $43 million. The Orleans is -- sits on land that it had previously leased and we had the opportunity under the lease to -- under our purchase option to acquire the land at a price that we felt was an attractive price. There's no incremental development opportunity that existed before or after the purchase. It just converted a piece of land that was being rented to one that we now own.

Okay. So all things equal, the EBITDA should be better in 2017 versus 2016 simply moving the land from a lease to an owned line item. Is that correct?

Yes, but you have to understand, this lease is not like the lease associated with a propco/opco structure. It's a much lower lease rental stream that we paid.

Okay, thanks. That's all I had. Everything else was asked and answered. Appreciate it.

Thanks.

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

Thank you, everyone, for joining today. We wish you and your family a happy Valentine's Day. If you have any follow-up questions, please feel free to reach out to the Company. Thank you.

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