Boyd Gaming Corp (BYD) 2017 Q4 法說會逐字稿

Good afternoon, and welcome to the Boyd Gaming Fourth Quarter 2017 Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn your conference over to Josh Hirsberg, Executive Vice President and Chief Financial Officer. Please go ahead.

Thank you, Anita. 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, including those disclosed in our 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 Investors 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'd now like to turn the call over to Keith Smith. Keith?

Thanks, Josh. Good afternoon, everyone. As you saw from our press release earlier this afternoon, we delivered a record fourth quarter performance, which was an appropriate conclusion to a great year for our company. Our success in the fourth quarter and throughout 2017 was not simply the result of a strong economy. Throughout the company, the strategic initiatives we have been focused on for the last several years are paying off.

Our marketing requirements are driving growth in gaming revenues and greater efficiency in our marketing spend. Our improved technologies and analytical tools are allowing for better decision-making, and our shared services infrastructure is delivering new efficiencies in our business. As a result, our core operations are achieving strong pull-through on revenue growth and steadily improving operating margins.

And in our newly acquired properties in Las Vegas, we are successfully realizing synergies and growth opportunities, delivering a strong return on investment from these acquisitions. Thanks to the successful execution of our strategic initiatives and the overall health of the U.S. economy, every segment of our business delivered revenue growth, EBITDA growth and margin improvement during the fourth quarter.

As we saw all year, our strongest results, once again, came from our Las Vegas Locals business, with revenue growth at double-digit EBITDA gains at every major Locals property. This was the 11th straight quarter of EBITDA growth in our Locals segment. It was also our sixth straight quarter of double-digit EBITDA gains and was the strongest fourth quarter revenue, EBITDA and margin performance from our Locals business in 10 years. While our legacy properties continued their long-term growth trajectory, our newly acquired properties: Aliante, Cannery and Eastside Cannery, also continued to grow EBITDA at a double-digit pace for the quarter, beating our guidance of $60 million to $62 million in EBITDA for these properties in 2017.

As we look ahead to the first quarter, we are confident that growth trends will continue across the Locals segment as key economic metrics continue to be positive. Southern Nevada's population continues to grow. Total employment has reached an all-time high of nearly 1 million jobs, up more than 3% year-over-year. Unemployment has fallen below 5%. Average weekly wages have reached record levels, up 4.5% over the trailing 12 months. Home values are up more than 10% over the last 12 months, one of the fastest growth rates in the nation. And today, more than $7 billion in projects are now underway on the Las Vegas Strip alone, including Resorts World, Raider Stadium and the expansion of the Las Vegas Convention Center. And there is much more to follow as new projects continue to be added to Southern Nevada's pipeline of future development.

Construction led the way in local job growth in 2017 with nearly 11,000 new jobs, a year-over-year increase of more than 18%. There are now nearly 70,000 construction jobs, almost twice as many as at our low point in 2012. As new projects pick up steam, thousand of additional construction jobs will be created. And once these projects are complete, each project will support thousands of permanent jobs and, in turn, boosting our local economy for years to come.

These solid growth trends are not isolated to our Locals operations as we continue to see growth throughout Downtown Las Vegas as well. Our Downtown segment delivered near double-digit EBITDA growth during the fourth quarter despite an increase in fuel costs at our Hawaiian charter service. We saw continued increases in unrated play, a reflection of a healthy Downtown market that is steadily growing for more than 4 years now. Play from our Hawaiian guests continues to grow as well. And we are seeing extra returns from our recent investments at the California as our enhanced hotel room product drove a 25% increase in cash room rates in the fourth quarter, well ahead of the mid-single-digit increase for the broader Downtown market. In all, it was another great quarter for our Nevada operations.

In outside of Nevada, our regional properties reported their best quarter of the year. Our operational and marketing refinements, supported by healthy economic conditions in most of our regional markets, helped drive the strongest quarterly results of the year in our Midwest and South segment, with increases in revenue, EBITDA and operating margins. This growth would have been even stronger had it not been for the weekend closures of the IP and Treasure Chest in early October due to Hurricane Nate, as well as a onetime $2.9 million property tax benefit that was included in last year's EBITDA results.

A majority of our regional properties achieved year-over-year EBITDA growth led by record fourth quarter results of Kansas Star and Delta Downs. In Kansas, results were strong with record net revenue and EBITDA for the quarter at Kansas Star. The property delivered solid growth in both rated and unrated revenue with increased visitation and spend per visit from rated players. The Kansas Star management team continues to do a great job leveraging the property's high-quality amenities and marketing programs to attract visitors from throughout the region.

In Louisiana, several factors contributed to double-digit EBITDA growth and record net revenues and EBITDA Delta Downs in the fourth quarter. First, our expanded hotel is performing well, driving increased visitation to the property. Additionally, the refinements we made to Delta Downs' marketing programs earlier this year, which were starting to show results before Hurricane Harvey this summer, have continued to gain traction. And the entire Lake Charles market appears to be recovering from the impact of Hurricane Harvey.

We're also encouraged by results in Illinois where the Par-A-Dice management team delivered a fourth straight quarter of EBITDA growth despite continued pressure from VGTs.

Looking ahead to the first quarter, while we remain optimistic about the long-term direction of our regional business, results over the first 6 weeks of the year have been affected by severe weather throughout our regional markets. We are also beginning to see an impact from the opening of the new tribal competitor in South Bend Indiana, just to the east of Blue Chip. This new competitor has been open for less than 4 weeks, so it is still too early to determine the full extent of this impact. With severe winter weather throughout most of that period, it is hard to discern between the effective weather versus new competition in Blue Chip's January and February results. While there will clearly be some challenges at Blue Chip this year, we remain confident in the property's long-term competitive position as the region's leading gaming entertainment destination.

So in all, the fourth quarter was another exceptional performance for our operating teams across the country. And I have confidence that growth will continue. We expect continued returns from our investments in marketing technologies and infrastructure as well as our ongoing initiatives to achieve greater efficiencies throughout the company. We believe these initiatives will continue to drive profitable revenue growth and further EBITDA gains. Beyond their core operations, we also expect to benefit from our expanding pipeline of new growth opportunities: the most immediately -- the most immediate are the pending acquisitions of Ameristar St. Charles, Ameristar Kansas City, Belterra Resort, Belterra Park and Valley Forge, all of which remain on track to close in the second half of this year.

In the longer term, we also continue to move toward the start of construction of a tribal gamer resort near Sacramento, California. Last month, the Department of Interior formally recorded its approval of the Wilton Rancheria Tribes compact with the State of California, one of the last remaining steps before construction begins. When all of these growth opportunities are successfully realized, Boyd Gaming will operate 30 properties across 11 states. We will expand our reach into Philadelphia, St. Louis, Kansas City, Cincinnati, Sacramento and the San Francisco Bay Area, gaining access to more than 15 million potential customers. This geographic expansion of our nationwide portfolio will create benefits beyond the financial contributions of the 6 new casino properties.

We will gain new opportunities to cross-market our destination properties to new customers, driving incremental growth in markets like Las Vegas. And by expanding our scale and geographic footprint, we will be in a stronger position than ever to capitalize on emerging growth opportunities in our industry. A good example is the potential legalization of sports betting across the U.S. We operate one of the most geographically diversified portfolios in our industry, and we have extensive sports betting experience and infrastructure here in Nevada. As a result, we are confident we will be able to quickly establish a market-leading sports betting presence in new states across the country should the Supreme Court rule in favor of expanded sports betting.

Also, we will soon have the opportunity to enter the future online gaming market in Pennsylvania, thanks to our pending acquisition of Valley Forge. As you know, we have a proven track record of success in this area. At Borgata, we consistently led New Jersey's online gaming industry for more than 2 years. We know what it takes to succeed in online gaming, and we look forward to putting that expertise and experience to work in Pennsylvania and potentially, in other states across the country.

Each of the many growth opportunities in our pipeline, including acquisitions, new developments and new forms of gaming, has the potential to generate significant returns in the future, supplementing organic growth throughout our operations and driving further growth in EBITDA and free cash flow. And we will continue to put our free cash flow to work in several key ways. We will continue to pay down debt and deleverage our balance sheet, with a focus on achieving our long-term leverage target of 4x to 5x EBITDA. We will continue to strategically reinvest in our business through acquisitions, new developments and property enhancements. And we will continue to return capital to our shareholders through regular dividend payments and share repurchases. This balanced approach created an exceptional long-term value for our shareholders in 2017, and I'm confident we will continue to build on that track record of success in the coming year.

Thank you for your time today. I'll now turn the call over to Josh. Josh?

Thanks, Keith. 2017 was another successful year for us, punctuated by record fourth quarter results. We generated over $280 million of free cash flow in 2017 and used our free cash flow to reduce debt by $162 million, make onetime land purchases at the Orleans and related to our Wilton project of $78 million and distributed $43 million to our shareholders in the form of dividends and share repurchases.

In December, we announced the acquisitions of Valley Forge and 4 Pinnacle assets, transactions that we expect to enhance our free cash flow by more than $60 million. Also, 2017 represented the first full year of our ownership of Aliante and the Cannery properties, and as Keith mentioned, we exceeded the expectations we set for these assets we -- when we announced those transactions. Our quarter-end debt and cash balances were provided in our earnings release.

During the quarter, we paid our quarterly dividend of $0.05 per share and repurchased approximately $10 million of stock. For the year, we repurchased over 1.2 million shares at an average price of $26.69. We have approximately $60 million remaining under our share repurchase authorization and expect to utilize this authorization over the next 12 months.

Our capital allocation decisions are based on creating long-term value for our shareholders, balanced with the focus on achieving our long-term leverage target of 4x to 5x EBITDA. At year end, our leverage, excluding cash on the balance sheet, was 5.25x.

As a result of the recently passed Tax Reform Act, our future federal tax rate decreased from 35% to 21%, reducing our deferred tax liability. Our 2017 tax provision is net of a $60.1 million tax benefit due to the reduction of our deferred tax liabilities.

In terms of capital expenditures, during the quarter, we invested $29 million. For the full year, we invested $148 million in capital, excluding the onetime land purchases.

In terms of 2018 guidance for line items that may be of interest, capital expenditures for 2018 are expected to be about $150 million. Annual depreciation expense is expected to be about $220 million. We expect annual interest expense to be approximately $175 million to $180 million, with our cash interest expense approximating $168 million. This interest expense reflects the current forward curve for LIBOR and assumes no refinancings of our current outstanding debt balances or financing activity related to our pending acquisitions.

We expect about $76 million in corporate expense, which is included in the full year EBITDA guidance for 2018. Other income statement items includes deferred rent, which is estimated to be about $1 million for the year; preopening expense, which is estimated to be about $15 million for the year, and share-based compensation is expected to be about $20 million. We expect an effective tax rate of approximately 28%, representing a blend of the lower federal tax rate of 21% and the state tax rates where we operate. Remember, however, from a cash perspective, we are not currently a cash taxpayer for federal income tax purposes because of our NOLs. Our NOL balance at year end was approximately $525 million, and as a result of the recent Tax Reform Act, we expect our NOL balance to last a couple of years longer than it would have under the previous tax law.

As noted in our release, we expect full year 2018 adjusted EBITDA to be in the range of $600 million to $620 million. This guidance includes a $12 million to $15 million EBITDA impact on Blue Chip from new competition in South Bend, Indiana. In addition, this guidance and other numbers I provided for 2018 do not include expected results from the acquisition of Pinnacle's 4 assets or Valley Forge. We continue to expect these 2 transactions will each close in the second half of this year.

Anita, that concludes our remarks, and we're now ready to take any questions from the folks on the call.

(Operator Instructions) First question today comes from Carlo Santarelli with Deutsche Bank.

Josh, you obviously talked about the $12 million to $15 million Blue Chip impact. I think the property does like $160 million of gross gaming revenue. Could you talk a little bit about from a percentage perspective how much that $12 million to $15 million represents of 2017 EBITDA?

We don't -- Carlo, you know we don't break that out individually for a property-specific information, so I won't be able to answer that question. But the $12 million to $15 million is a pretty significant impact to the asset based on the fact that South Bend market is, while not one of the top kind of 5 feeder markets, certainly, in the top 10 feeder markets to this asset and so an important source of customers for the asset.

Okay. Understood. Even if we were to add that back, which I know was not appropriate, but if we looked at your guidance and said, okay, the $12 million to $15 million impact, you're looking at a low end of like $612 million, which only implies about 3% year-over-year guidance. And when we think about, obviously, the growth inherent in your Las Vegas Locals and Downtown markets as well as the margin improvement story, I see corporate expense kind of stayed at a flattish level year-over-year. But if you just think about kind of those tailwinds, it does appear like 3% EBITDA growth would be relatively easy to achieve. Is there something else that's being missed in there?

No, other than I think you're taking the low end of the guidance and adding in the $12 million to $15 million, whatever you choose to be. I think we gave a range of $600 million to $620 million. And we expect to be in that range. And so I think a more probably -- well, certainly, a low-end analysis would lead to the numbers you suggested. Using a midpoint or a high end of the range would lead to a different number. So I think we're not suggesting that $600 million is our bogey; we're suggesting the range is our bogey, and it's been adjusted to factor in the $12 million to $15 million impact.

Okay, understood. Maybe I could just ask it a little bit differently. Do you feel like the low end is overly conservative? Would that be a highly disappointing result in your view?

I think it would be disappointing, but I think we also have to take into account that we've had -- we're off to a slow start primarily in the Midwest and South due to weather. I would say the rest of our business -- if you could reverse the effects of weather, our business is largely performing as may be described or implied by 2017 results. Downtown continues to perform well. Las Vegas continues to perform well. And for the most part, most of our regional assets continue to perform well despite the fact of the weather. But we can't really ignore that, and we can't ignore the impact of Blue Chip. But I think, we feel good about the underlying dynamics of what's going on in our business and the customer trends in our business. It's just that we're having these impacts.

The next question comes from Joe Greff with JPMorgan.

With respect to your 2018 outlook, can you talk about how you're seeing growth in the Las Vegas Locals market from a, I guess, a net revenue perspective and an EBITDA growth perspective? I'm presuming that's going to be the fastest or has to be the fastest-growing component of your segment EBITDA.

Hey, Joe, the first part of your question broke up. Are you asking what's our outlook for growth in revenues for our Las Vegas Locals? Was that your question?

That is correct, Josh.

So look, I think from what we are seeing in the Las Vegas Locals business, I think we continue to believe that the underlying foundation of the economy here in Las Vegas is good and continues to strengthen. I think our -- and that is the basis for the comments from the perspective of construction employment, general housing prices, just everything that's going on in the economy is kind of pointing to that -- continues to point in a positive direction. I think as we look at our business coming out of 2017, I generally think at this point, we would suggest our 2018 trends are going to be very similar to '17. While not necessarily picking up a lot in terms of momentum, continuing to be healthy in terms of year-over-year growth, similar to what we've seen in growth year-over-year for '17. I think that's what underlies our basic assumptions in terms of what we're expecting for 2018 from the Locals business. We don't really see much in terms of anything that could be an impediment to that growth, and we are not suggesting that the momentum is picking up at this point. It's just more of the same but at a healthy pace.

Would you expect Downtown Las Vegas to grow at a faster growth rate than the Locals market?

Joe, this is Keith. I don't think there's anything that is happening Downtown that would indicate that it -- that the trajectory is going to change. In terms of what we're seeing Downtown, we have a healthy business Downtown. There's healthy visitation. That continues. I don't see it changing dramatically one way or the other. I will caution you that as you look at market numbers for Downtown Las Vegas, the Lucky Dragon is included in the Downtown market numbers. And so to the extent that they are no longer reporting gaming revenues now, that you'll see a decline in the overall market, that will not indicate a decline in our business. It's just fact that there's 1 less reporting entity, so you should be cautious of that going forward. But there's nothing that's going to change kind of the current trajectory, I think, in the Downtown business.

Great. And then just kind of going back to the Blue Chip impact, and I know it's been a lower sample size of less than 4 weeks. Sarcasm there. But are you basically just straight lining the impact over the last 3 to 4 weeks for the balance of the year? Or do you may certain assumptions that it gets worse or better, just to arrive to that $12 million to $15 million negative impact?

Well, the $12 million to $15 million negative impact is just our assumption of a full year impact from that operation. What we've seen in the first 4 weeks and can kind of as you indicated, a 4-week survey doesn't certainly make a trend, we really can't discern positive or negative because there have been several weekends with very, very bad weather. And those weekends where the weather has been bad, the impact has been more dramatic. And the weekends where weather has been good, the impact has been, frankly, very muted. And so when you take 4 weekends, which had bad weather to which had good weather, and you have a jump ball here, once again, 2 were really significantly impacted, 2 weren't, it's tough to say what's going to happen. So $12 million to $15 million is just our estimate for the year. It does not come from the first month of competition.

It's really reflective of just our internal analysis of any experience with the market.

Yes, exactly.

The one other thing, Joe, I would point out is I think what we've shown through our performance in the fourth quarter and throughout this year is that we're bringing a lot more flow-through from the revenue that we're getting in the Las Vegas Locals market. And so while we've seen kind of a 4% to 5% kind of market growth in '17, I think that's generally what we would expect to see in '18. And I -- we would expect to see continued kind of flow-through from that number. And so we've generally put out there kind of 70% flow-through from Las Vegas Locals, not to say that's what we continue to believe occurs based on that growth in the Locals market.

The next question comes from Felicia Hendrix with Barclays.

Josh, if we could just stay on this for a second because I might be a little confused and maybe others. So when we look at your guidance, your EBITDA guidance, okay, and let's just talk about the midpoint. The midpoint is calling for 2.4% growth year-over-year. So Las Vegas Locals, you said before that you expect the top line to be 5%, but perhaps you'll get kind of some better flow-through. So did you just say kind of similar EBITDA growth from the Locals that you got this year. Did I hear that right?

Yes. So I think -- let me -- yes, I'll short-circuit this part of this conversation. I think that if you look at consensus estimates for what we can tell as for Las Vegas Locals, no problem; in West and South, no problem. The adjustments really are around the Midwest and South due to Blue Chip.

So you just said -- so you meant Downtown -- Las Vegas, no problem; Downtown, no problem; Midwest, and South is too -- and Midwest and South is too high.

Right because of Blue Chip.

Because of Blue Chip, right. Okay. Great. And then also, with the weather that you're seeing in January, did you guys kind of trickle that through your outlook for Midwest and South as well? Or do just kind of assume that kind of gets offset throughout the year?

We assume that we are able to overcome that, but that's why we have a range to reflect that if we're not able to, then we might be in a different point of the range and where we think we would be today. But our expectation is that the leadership of that segment will be able to overcome the softness that we've seen related to the weather. Keith's comments earlier around Blue Chip are encouraging, just generally because of the fact that when we haven't had weather impacts in many parts of our business, we've seen really good performance in those businesses. So this -- the underlying business, the underlying consumer trends, all of that continues to stay intact for us.

And the weather is, as everybody's watching, is not a small issue. I mean, when you look at the (inaudible) operation in 18 days in February alone, we've had 9 snow days versus 1 last year. In Dubuque, we've got 10 snow days versus 0 last year. Blue Chip, we've had 13 snow days versus 3 last year. And so it is quite significant to the overall business, not to be underestimated.

Yes. No, that makes sense. And then just sticking with Blue Chip for a moment, I mean, you guys have been through this before, situations where you have new competition. So what have you done, and what are you doing at the property to ensure that your own customer, your own traffic stays sticky? I understand that people might -- it's just cutting off some of your source market. But I'm assuming that you guys have thought about this for a while. So can you maybe help us understand some things you've done at that property?

Well, what we did was, frankly, starting a year ago, wasn't anything that we did this year, and it was just making sure that we were touching our customers, and that they knew that we appreciated them and trying to make sure that they stay loyal to the brand. We have a great property with great amenities. We have great team members who have -- and great customers who've been going there for years. And so we have just made sure that we were spending the appropriate amount of time and effort. We haven't ramped up marketing. We're not reinvesting more heavily. We just made sure that we were doing all the right things by our customers and giving them a great experience. It's not to get started today; it's an effort that we ramped up a year ago to make sure that they know that we appreciated them.

Okay. And just -- and last thing on Blue Chip. It's just -- with the $12 million to $15 million impact that you guys have talked about, can you just help us understand from like a flow-through perspective, like how we should be thinking about the decremental margins? So back -- can you help us kind of back into how you're thinking about revenues?

Yes. I think we want to try to stay away from that right now, but I will tell you that, it's...

Felicia, it's hard because whether we compete on a revenue side or whether we just see the revenue go away and try to minimize the expenses, it's hard to determine how we're going to compete it, depends on how the year flows. We could end up buying some business, and therefore, the flow-through will be different than if we don't buy the business. So to give you a revenue decline and an estimated flow-through this early in the game would be kind of give you a false indication of where we thought we would go. I mean, we've done some work. We think it's $12 million to $15 million, and I think we have to -- it's the best information we can give you at this point.

Okay. But just you guys have been very good over the past few years of kind of sticking to your philosophy of not throwing good money after bad. When you say you might buy some revenues, we're not moving from that strategy, right?

We do not intend to move from that strategy, no.

The next question comes from Steve Wieczynski with Stifel.

So for Josh, can you maybe help us think about margins for the Locals segment for the year? And you guys have done a great job of kind of growing that margin by 150 to 200 basis points a year for the last couple of years. But I guess, as we -- what we were wondering is how do you view that margin expansion opportunity in '18, especially as you kind of talked about more of a flattish revenue environment.

Well, look, I think as we think about our business just generally, I think -- and this is not a specific comment to Las Vegas, it's -- it really applies to all our segments, I think we continue to see opportunities to operate our business more efficiently, to leverage our opportunities to more effectively execute on our marketing campaigns and more effectively be more efficient with respect to our marketing campaign. So I think, while we have continued to make progress in the Las Vegas Locals and, to a similar degree, in our other segments, I think that we continue to believe that there are opportunities to do so. So I'm not sure if I'm answering your question exactly as you will want me to, Steve, but I think our view of the world is this that we continue to have opportunities to improve our margins, really, in all of our segments. And that's really what the process we're going through and that we're right in the middle of in reality, so.

Look, said another way, what Josh is indicating is we believe we have additional room to grow margins whether it's in the Locals business or the Downtown business or the Midwest business. As we've been, I think, successful over the last several years, we're kind of in the middle of these processes to leverage our size and scale, what we refer to as BI or shared services. We're not at 100% efficiency yet, so there's more to go there. So I think, again, we have more room to grow our margins, whether it's by marketing analytics or, once again, shared services, there's additional room.

I think our comments on the fourth quarter kind of reiterate that when we saw all of our segments -- all of our properties in Las Vegas grow in terms of revenue and EBITDA. And they all grew double digit in terms of EBITDA, also that is kind of modest, is kind of small to medium-sized growth in revenue. So I think that's what we expect to continue to happen in '18, and that we expect that similar performance to play out again in '18.

Okay, great. That's good color. And then second question, a little bit different. In terms of CapEx, you talked about the $150 million for the year, and obviously, that probably excludes -- or that does exclude the 5 acquisitions that you've made. But I guess, the question is for -- as we look out maybe past 2018 is, as you guys have gotten a little bit more comfortable in looking at the Ameristar properties and the Belterra properties and Valley Forge, is there anything that sticks out in terms of big spending that might have come along as you guys do close on those acquisitions?

I think the -- I've got a chance to go through properties, and quite a bit of detail of properties are in very good condition. They've been well-maintained. They're high-quality assets. So there are no significant CapEx dollars that are immediately required to do anything. I think there are opportunities in all those businesses to find ways to continue to grow the business, but there are no kind of deferred maintenance issues, if that's your question, in terms of something we're going to have to do once we take over the operation.

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

Josh, maybe I just wanted to start with a quick just clarification. I think earlier in the Q&A, you talked about maybe 4% to 5% Las Vegas Locals growth. But were you referring to like -- I think it was a market statistic. But what were you referring to exactly? Was that market, and was that revenues? Or is that more of an EBITDA-type environment?

Yes, Shaun, thanks for asking the question, so I can clarify it. It is market. And so I'm just generally saying that I generally took the question to mean what are we expecting to occur in Las Vegas in 2018. So I -- maybe I jumped to a false conclusion that we were talking about the market overall. I think we're generally thinking of the level of revenue growth that we saw in '17 being replicated in '18, generally, for the market overall. So that was kind of 4% to 5% as I recollect, so that's generally what I would say. We were generally expect in terms of our guidance and our expectations for that segment kind of trickling down to our business.

Okay. And I guess, as you think about the broader backdrop there, I mean, there's some numbers that you can think about versus competitors. But with some of your initiatives, are you -- is it your sense that you are -- I mean, when we look at the overall Locals statistic that we get monthly, and we appreciate that those don't line up exactly to how you guys report, but is your sense right now that you're holding share, gaining share or sacrificing a little bit of share relative to the market-wide numbers, given some of the initiatives you're working on? Just as it relates to revenue.

When you look at it in the aggregate in Las Vegas, we're somewhere between holding our own and losing a little bit, and that losing a little bit is, once again, the strategy we've deployed to spend their marketing dollars more efficiently and not to chase kind of unprofitable business. At some of our Locals properties, we're actually either holding our own or growing a little bit; in some, we're in the other direction. But in the aggregate, it is kind of flat to down just a tick.

Okay. I think that's clear. And then last question but on the same topic, keeping the prepared remarks, you talked a little bit about some of the different marketing technologies, efficiencies, things you're looking. You're either rolling out or looking to roll out across the portfolio just to kind of work on marginal EBITDA gains. As kind of we're sitting here as analysts, which line items do you think is the -- are the best ones to measure some of that progress? Is it EBITDA margins? Or do you think some of that is going to show up in promotional allowances and the difference between net and gross revenues? Just kind of how should we be tracking that or thinking about some of those programs and efficiencies that again, probably hard to judge over a quarter, but we may be able to look back a year or 2 and then see.

Yes. It is hard to judge frankly between properties because each property has unique circumstances. And even though we may have 9 local properties here in the State of Nevada, they operate somewhat differently based on the surrounding competitors and what they're doing. So at the end of the day, I'd focus on margin. I wouldn't focus specifically on promotional allowances that could give a false positive in 1 quarter and a false negative in another quarter. And so I just -- I just stay focused in on the margin and watch that. And once again, as revenues for us maybe don't grow, we're not overly concerned as long as EBITDA is growing and the margin is growing. It's a reflection of smarter reinvestment of our marketing dollars in today's world vis-à-vis a year or 2 ago.

Got it. So as we think about that promotional allowance line, is that maybe -- there may be inefficient spend that then gets redeployed into something else where we see the EBITDA benefit, but the absolute dollar doesn't go down? Is that sort of one way to characterize how that might play out?

I think it's a fair way to characterize it.

Next question comes from David Katz with Jefferies.

I know that we have kind of going around and around with the Las Vegas Locals market a little bit. But I wondered, as you think about what the market should grow this year, what would be the 1 or 2 or 3 things that could drive it one way or the other, up or down? What data points or other things can we be tracking to keep an eye on whether we should come back to you and ask you whether it's -- whether the outlook improves or not, or it gets, worse, for that matter? Obviously, I hope not, but.

Look, I think that the statistics that -- I spoke of it in my prepared months, whether it's employment growth, whether it's kind of the average wage growth that we're seeing in town, or unemployment rates, those are all important indicators to us. Those are things that we watch kind of every month as indicators of kind of the health of the economy. And so if job growth were to double in 2018 over 2017, yes, we probably expect that the local economy would heat up more. If the average wage growth doubled in 2018 versus 2017, then we'd expect that to grow faster. If all of a sudden, 10 new construction projects went in the ground and construction employment went from 70,000 jobs back to 90,000 jobs, we'd expect the market growth will be significantly higher. And conversely, my -- on the converse, my statement will also be -- my comments will also be true. So it's just those -- those metrics, they're not very complicated metrics. They are things that we've been watching for years. There always is a lag effect. And so the minute construction jobs go up doesn't mean spending goes up as we've seen over the last several years. It takes a little while for it to flow into the business, but those are things that you should look at.

If I can follow that up. Within those kind of broad categories, which -- are there subsegments of them that maybe developing unevenly? Whether it be residential real estate prices or different kinds of employment or different categories of wage growth that you look at that may make a difference one way or the other for the company?

Well, I think as we've seen historically, not all jobs are created equal. We like construction jobs, just given the nature of that customer more than we like government sector jobs, as an example. And so it is important in terms of what types of jobs are being created in the local community. It is important as to kind of where the wage growth is occurring because if it's occurring with the right customer group, then we will see a better impact in our business than, once again, other customer groups. So we do look at that in detail. Not enough time in the call today to start go into all of the intricacies of the different metrics and those kind of the subcategories of those, but suffice it to say, we just spend a lot of time watching and monitoring that.

Next question comes from Harry Curtis with Nomura Instinet.

Just following up on Blue Chip. Having watched the progress of that casino for, I don't know, 15 years, it would seem that your guidance implies roughly a 25% to 30% decline in the EBITDA level. Is that just -- am I being too negative?

Yes.

Yes. Yes.

That's probably all I'm going to get out of you? Yes?

Yes.

Yes.

The second question...

(inaudible) answer from now on.

You've given some kind of broad estimate on the closing of your transactions in the second half. It would be helpful to get a more specific estimate on -- is there a month that we can target for each one?

Yes. I think that we certainly love to know it ourselves, and we'd love to have it. We're going through the process of filing our applications, and we're simply waiting to go through the process. And the best information, frankly, we have is second half of the year. And it's -- at this point, it's just hard to narrow it beyond that. What's going -- we also (inaudible) to be able to fill.

If you have today to put a line in the sand at the beginning of the fourth quarter as the midpoint, would you guide us towards the earlier part of that midpoint or the later part of that midpoint based on what you know today?

That's not a yes or no answer.

So you've already discounted the third quarter. Here's what we've learned over the years. Once again, we have 4 or 5 different regular authority -- regulatory authorities who are looking at that, so need to approve the transaction, and we are not going to get out ahead of what they tell us. And so until they give us some indication of when we may be on an agenda, we're simply not going to speculate kind of what -- how long it's going to take them to get through it. So we'd love to give you better -- kind of better insight. Frankly, we just don't have it.

The next question comes from Chad Beynon with Macquarie.

A few months ago, you guys hosted a call on the Pinnacle acquired assets. And now after we've seen the filing from Pinnacle, I guess, the process has even further outlined, so hats off to you guys on the multiple, and it's kind of crystal-clear in terms what the approach is there. So I wanted to ask about the other acquisition, the Valley Forge one. Looks like a lot of things were attractive here. You mentioned location, EBIT/EBITDA multiple. And then I think something that was unique, the expansion of the property. Could you maybe just kind of high level what you liked about it? And then provide a little bit of detail on the unit expansion that may currently be going on at the asset.

Sure. So I think you hit on a lot of the things that we like. Frankly, for us, it was priced at the right point where it's a single, stand-alone property with single, stand-alone property expenses. Once we are able to extract synergies, it's an attractive multiple. It does have expansion capabilities, has the ability to increase the slot count at that property quite significantly by 250 games.

50.

And so it has 600 games today. It has the highest slot win per unit in the state today. And so that will be a nice expansion, has the ability to add a few more table games if the property needs it. But beyond that, we have the opportunity to participate in online gaming, which is just incrementally positive and potentially sports betting, if the Supreme Court rules in its favor. And so I think we looked at all of those things and found it just to be a very, very attractive acquisition. It's a market we're not in. It's a state that we're not in. So it gives us yet another distribution channel in the Northeast where we don't have a presence anymore. So it kind of checked all the boxes as we look for acquisitions.

Okay. Keith, and so with respect to the cat 4 licenses that are, I think one of them is being bid on tomorrow, I believe the process ends before you guys are expecting to close the deal. Could you work with the seller to potentially bid for one of these? And if you could, is this something that you're interested in another one of these licenses that are being bid in Pennsylvania?

Yes. I don't -- I think we probably could, whether or not we would, and if we're interested, we don't kind of speculate on potential acquisitions or new projects. But certainly, I think if we had the appetite to do something like that, we could probably work with the existing owner and find a way through it.

Okay. And then the last one for me, maybe a yes or no question, with respect to your 2018 guidance. You talked about Las Vegas Locals a couple of times. I think Red Rock's reported after you guys did in the third quarter. And since then, they've kind of adjusted Phase 2 at the Palms. Has that announcement changed how you're thinking about your 2018 Las Vegas guidance in terms of either market share or just opportunity in Las Vegas?

Yes. I would say no. I think we look at what's being done at the Palms is really additive to that whole kind of trifecta of Palms, Gold Coast and Rio. And those guys are great operators, and they will be able to do very well with that asset relative to how they are positioned. And we think that the combination of kind of the product we offer and the product they offer will just make that part of the Las Vegas market more attractive, bring more people to the market, and we can kind of a share off of each other's prosperity in that once they get finished over there. So we're not seeing any kind of positive impact on our business as a result of what they're doing over there today, but we expect to benefit once they do finish and deliver a great product that's appealing to people in the Locals market as well as more a tourist destination-oriented folks.

Yes. We've said in the past that, look, some of our best years at Gold Coast where when the Rio and the Palms were kind of at their peak because they drove more business to the area, as Josh was indicating. And so once they're fully out of construction and fully functioning, then I think we're going to do even better as more people are in the area, and they'll stop by to visit our product. And I think they'll enjoy it, and we'll get some business, so.

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

Thanks, Anita. If anyone has any other questions about our guidance or Blue Chip or anything else you want to ask about, feel free to call the company, and we'll be happy to answer those your questions. Goodbye.

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