Josh Hirsberg - Boyd Gaming Corp. Keith E. Smith - Boyd Gaming Corp..

Felicia Hendrix - Barclays Capital, Inc. Daniel Politzer - JPMorgan Securities LLC Carlo Santarelli - Deutsche Bank Securities, Inc. Thomas G. Allen - Morgan Stanley & Co. LLC David Brian Katz - Telsey Advisory Group LLC Shaun C. Kelley - Bank of America Merrill Lynch Harry Curtis - Nomura Instinet Brian David Egger - Bloomberg LP (Research).

Good afternoon, and welcome to the Boyd Gaming First Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Josh Hirsberg. Please go ahead..

Thank you, Aimee. Good afternoon, everyone, and welcome to our first 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 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. Thanks for joining us today. As you saw in today's press release, our board has authorized the reinstatement of our quarterly dividend program and also reaffirmed our existing share repurchase program.

This is an important step in the evolution of our company, and it is the direct result of the successful execution of our strategic plan. Over the last several years, we have consistently grown EBITDA and improved margins across all of our operations. Our acquisitions of IP and Peninsula have delivered significant returns for our company.

And more recently the purchases of Aliante, Cannery and Eastside Cannery have positioned us for continued growth. We have enhanced the competitiveness and appeal of properties through our non-gaming amenity initiative with positive results.

And we've made steady progress reducing debt and moving toward our long-term leverage target of 4 times to 5 times debt-to-EBITDA. Overall, the successful execution of our strategic plan has significantly strengthened our free cash flow. And as a result, we are now able to once again return capital to our shareholders.

We believe a balanced approach of deleveraging, investment in organic growth projects, and opportunistic acquisitions combined with returning a portion of our free cash flow to shareholders is the right strategy to maximize long-term shareholder value.

The decision to reinitiate our capital return program reflects the great confidence our board has in the overall strength of our company and in the future prospects of our business. But before getting into the details of this program, I would like to first take a few moments to review our operating results for the first quarter.

This is another solid quarter for our company, as the positive trends that we have seen over the last several quarters, continued throughout our operations. Nowhere are we seeing stronger results than Las Vegas Valley where our Local segment achieved its eighth consecutive quarter of EBITDA growth and margin improvement.

Thanks to our successful focus on driving profitable revenue growth, we achieved double-digit EBITDA gains in this segment on both an overall basis and also on a same-store basis as all nine properties in the Local segment delivered EBITDA growth and higher margins. Several factors contributed to this strong performance.

First, our newly acquired assets, Aliante, Cannery and Eastside Cannery grew EBITDA by a combined 17% in the first quarter over their standalone results last year. This performance was in line with our expectations.

Our leadership teams at these properties are doing a great job executing on synergy opportunities, improving margins by 385 basis points in the first quarter. Our new acquisitions are also benefiting from the solid local economy, the trend that is helping every property in our Las Vegas portfolio.

Southern Nevada's economy has continued to build upon the positive trends of last year with tourism, consumer spending and employment all at or near record highs. Las Vegas Valley has added more than 46,000 new residents last year, making Southern Nevada the fourth fastest growing metro area in the U.S.

Total employment has grown more than 3% over the last 12 months and average weekly wages have grown by more than 5%. Our properties are clearly benefiting from this continued economic growth. But we're also benefiting from the investments we made in our properties over the last several years.

We are now in the final stages of a multi-year campaign to update and reinvent non-gaming amenities across our entire portfolio. In the Las Vegas Valley alone, we have upgraded and modernized several thousand hotel rooms and introduced 15 new food and beverage concepts.

During the first quarter, The Orleans provided a good example of how this initiative can further enhance our results. Over the last several years, we have reinvented The Orleans hospitality experience, including a complete hotel remodel and five new dining concepts.

These investments have given our existing customers reason to visit more often and they've expanded The Orleans appeal to entirely new groups of customers. And as a result, The Orleans was able to deliver strong revenue and EBITDA growth during the quarter. We are seeing equally encouraging results throughout our Locals portfolio.

Across the segment, cash room rates were up nearly 10% during the first quarter. Thanks in part to our enhanced hotel profit. Our food and beverage business is showing improved profitability as well, driven by our new dining concepts.

Our investments in Las Vegas Valley, including our acquisitions and our reinvestments in our existing properties are paying off, putting us in a stronger position to take full advantage of the growing local economy. Growth trends are continuing in Downtown, Las Vegas as well.

Despite higher fuel cost in our charter service, which impacted the segment by nearly $500,000 during the quarter, our Downtown operations delivered solid growth in the first quarter. We are seeing growing business volumes coming from our Hawaiian customer base, while at the same time, visitations to Downtown continues to rise.

As a result of the increased visitation to Downtown, we are picking up additional foot traffic at our properties as evidenced by games in our non-rated play.

While we are pleased with the results at all three Downtown properties, the strongest growth of the segment is coming at the California, where we are realizing solid results from our recent investments. Over the last two years, we have completely remodeled and updated the California's casino and restaurants.

We have also redesigned about half of the Cal 780 hotel rooms and plan to complete the other half this summer. Thanks to strong customer response to our new product, as well as the end of construction disruption, business volumes at the Cal were up significantly year-over-year in the first quarter revenue driving a 26% EBITDA gain at this property.

Moving outside of Las Vegas, we were encouraged to see continued EBITDA stabilization in our regional operations. In Indiana, Blue Chip grew market share for the 11th time in the last 12 quarters, successfully leveraging its market-leading amenities to outperform its competition. This property has now recorded 11 straight quarters of EBITDA growth.

To the south of Mississippi, the IP reported much improved results after reaching the one-year anniversary of new competition in its market in December. Next door in Louisiana, localized economic leases continued to impact Amelia Belle and Evangeline Downs.

However, conditions are much stronger at Treasure Chest where we achieved double-digit EBITDA growth and higher revenues. Of note, Treasure Chest has now grown market share for 10 straight quarters. And at Delta Downs, our newly expanded hotel is performing well and has been well received by our customers.

The Delta Downs team is successfully using this increased hotel capacity to drive incremental visitation and revenue, especially during the weekends. So in all, we're quite pleased with how our operations began this year and we are actively setting the stage for further growth.

We are continuing work on our business improvement initiative and using our nationwide size and scale to drive incremental cost savings throughout our operations.

We're also continuing to deploy new marketing and analytical tools across the enterprise, which is allowing us to invest marketing dollars more efficiently and effectively than never before.

Together, we are confident that these initiatives will deliver continued improvements in our operating margins and drive further EBITDA growth throughout our business. We also see the opportunity for growth in free cash flow. With our non-gaming amenity initiative nearly complete, our capital expenditure requirements will decline.

And thanks to our refinancing efforts, as well as our continued progress reducing debt, interest expense will be lower as well. With our enhanced free cash flow, we are confident we will be within our long-term leverage targets in 2018, making now an ideal time to resume capital distributions to our shareholders.

As noted in our press release, our board of directors has approved the reinstatement of our dividend program with an initial quarterly payment of $0.05 per share, approximating a 1% yield. This represents a cash distribution to our shareholders of approximately $23 million on an annualized basis.

Our board has also reaffirmed our existing share repurchase program, which is $92 million still remaining. We intend to make purchases of our stock from time to time under this program. To be clear, returning capital to our shareholders is an important step for our company, but it does not reflect a change in strategy.

We remain focused on pursuing future growth opportunities through investment in our existing assets, new developments, and strategic acquisitions. We also remain committed to maintaining a strong financial structure and expect to be within our long-term leverage targets next year.

Given our strengthening free cash flow, we are confident we will be able to achieve both of our objectives, growth and deleveraging, while returning capital to shareholders through dividends and share repurchases. Thank you for your time today. I'd now like to turn the call over to Josh.

Josh?.

Thanks, Keith. A few remarks and then we'll open it up for Q&A. During the quarter, we refinanced our term-loan B facility, reducing interest expense and aligning the maturities on our term loans to September 2023. Our quarter-end debt and cash balances were provided in our earnings release.

We expect to be below 5 times EBITDA by the end of this year and within our long-term leverage target of 4 times to 5 times EBITDA in 2018.

In terms of capital expenditures during the quarter, we invested $37 million in our properties including maintenance capital, non-gaming investments and the remaining spend related to the Delta Downs hotel project. Our investment in non-gaming amenities will be completed in the first half of this year.

As we discussed on our fourth quarter earnings call, during the first quarter we also invested $35 million to acquire land that was taken into trust on behalf of the tribe or the Wilton Rancheria development. We expect to be reimbursed these funds once project financing is in place later in the development process.

We also invested $43 million to exercise the purchase option to acquire leased land under The Orleans. Separately, later this year, we expect to receive $36 million representing our share of Borgata's property-tax settlement with Atlantic City.

In terms of guidance, as noted in our release we are reaffirming our previously provided EBITDA guidance of $585 million to $605 million. While it is still early in the year based on what we know today, we anticipate we will be at the high-end of this range. In all, this was another solid quarter for our company. Our business is on a solid footing.

We are generating significant free cash flow allowing us to continue to deleverage and pursue growth opportunities. And we currently envision achieving our leverage goals during 2018. It is within this favorable environment that we are reinstituting a program of returning capital to our shareholders.

Aimee, that concludes our prepared remarks and we're now ready to take any questions. Thank you very much..

Thank you. Our first question is from Felicia Hendrix of Barclays..

Hi. Good afternoon..

Hi..

It was nice to see the reinstatement of the dividends. Just wondering do you have an optimal payout ratio you're working towards and how should we think now that your priorities for free cash flow now that you have dividends, buybacks? I know you guys are pretty close to your leverage levels, opportunistic acquisitions.

Maybe you could kind of talk about that?.

Sure, Felicia this is Keith. We've obviously worked very hard over the last several years to position the company to get to this point through a combination of improving our operating results and making some solid acquisitions that are producing very strong free cash flow, reducing our leverage.

And we're pleased to be at this point having a natural evolution of the company. We don't have any specific goals in mind in terms of where we're headed with the program. This is where we're starting. As the company grows, as our free cash flow continues to grow, you'd expect that the dividend would probably grow along with it.

But this is where we're starting and we'll see where the future takes us. We think it's important both to have a dividend and a share repurchase program as part of this and returning capital to shareholders program. And we'll just kind of see where that takes us in the future.

Josh, I don't know if you have any additional comments?.

Just from our perspective, it is about being balanced. We have not achieved the leverage targets that we want to yet. We can see that it is within our reach during 2018. So, we feel like we need to maintain flexibility while starting a program of returning capital to shareholders.

So, I think the key word for us right now is just balancing both a return of capital to shareholders while at the same time understanding that we continue to focus on deleveraging, as well as believe we have inherent growth in the business through opportunities to invest in our business, as well as potentially participate in acquisitions as they become available to the company..

Yeah, maybe one other comment. As I said in my prepared remarks, this really is not a change in our strategy. We are clearly focused on continuing to delever the balance sheet. It's just that we kind of have – can see that coming in late 2017 into 2018, we'll be at the level we want to be at.

And so, it's kind of a natural time to be doing something like this. But clearly we have not changed our strategy in terms of deleveraging and looking for good solid acquisitions or good solid growth opportunities. We're just adding this element to the overall plan..

And are you guys still evaluating a REIT transaction, a spin-off, a REIT spin?.

I would say that we continue to study and talk about it. I don't know that it's anywhere other than we continue to study and talk about it..

Okay. Actually we haven't talked about it in a while, just asking..

Oh, we talk about it internally..

What's that?.

I said we talk about it internally..

I'm sure. Look, the three new properties, you said in your prepared remarks that the organic operations were in line with your expectations. I was wondering if you could – and I think you touched upon synergies a little bit, I might have missed that.

So, I was wondering if you could just talk about the cadence and amount of synergies, if there was any upside or surprises there. And can the organic operations do better than you expected just before the synergies? I thought you also alluded to that in your comments..

I think we are once again on track to achieve the numbers that we set out when we acquired these assets. I think we said that we'd make some $60 million in EBITDA combined out of these three assets that included $8 million in synergies at Aliante, another $8 million in synergies at the Cannery.

So, taking kind of their existing results, looking forward and adding the synergies, we thought we'd be at $60 million for the year. We feel very comfortable with that number and we're very much on track.

I don't think there were any real surprises good or bad as we've been into these operations; in the case of Aliante for better than six months now; in the case of Cannery, just for about four months now. No real, once again, positive or negative surprises.

I would say the one plus is that there are some very, very good team members in both of those organizations, team members we've been able to promote up into other places in the company. And so that's been kind of nice to have the ability to take those team members and offer them opportunities throughout the Boyd Gaming Organization.

So, that's been a nice plus for us..

Great. And then just the final for me, Josh, on the cost side. Last quarter you discussed the new cost savings program that could save you about 250 basis to 350 basis points of margin over the next several years.

Just wondering if you saw beginning benefits from that in this quarter or kind of when would that officially begin if not yet?.

It's going to be a gradual process. I think we really expect to see more of the benefits. I mean, I guess gain traction or start to see them deliver some results in the second half of this year just because of how they're sequencing and timing. We are seeing some benefits today, but it's just the beginnings of some of these programs.

I just want to caution people, I think we are very confident that we can deliver on kind of the results that we've laid out for folks, but it's not going to be something that you're going to see every quarter. There's going to be things that work our way, there's going to be things that don't work our way.

But generally that trend or that direction is where we are headed, and we feel very confident about that. We have the programs in place to achieve it, we have the initiatives stage to execute on those.

And so, it's just a continual evolution of what we've been trying to do over the last several years in terms of improve our overall operations as well, so it was just a continuation of our efforts overall..

Great. I really appreciate it. Thanks..

Thanks..

The next question is from Jason (sic) [Joseph] (20:30) Greff at JPMorgan..

It is actually Dan Politzer on for Joe Greff. Thanks for taking my question. So, just circling back on the Locals math, for the Aliante and Cannery, my math implies that you're already pretty much at run rating near that $60 million to $62 million.

Is that in the ballpark? And I guess if it is, should we still expect it to continue to ramp as the year progresses?.

Yeah. I think we got some of the synergy – we have benefited from some of the synergy, but I would say that we're not necessarily run rating it to $60 million number just yet. We still have other synergies to obtain. I wouldn't want folks to think that where we're – we're comfortable with kind of the $60 million number at the bottom line.

That's all I can tell you. We're not run rating at the $60 million run rate at this point. We still have opportunities to get more synergies and we've got plans for those but....

Okay..

(21:53)..

You guys also mentioned the guidance as far as CapEx $37 million for the quarter.

Is your full year guidance for $150 million still a reasonable kind of assumption and I guess what goes into that as far as maintenance and non-gaming and then the strong cushion?.

Sure. So, just to give a little color on Q1, of the $37 million, about $20 million was maintenance and about $5 million to $7 million was related to the Delta Downs Hotel project, the residual CapEx related to that. And then the remaining $11 million to $12 million was non-gaming amenity spend.

I think when we look at full year 2017, we guided more toward a $100 million to $110 million of maintenance and so that number feels pretty good to us relative to where we spent in terms of maintenance for Q1. Non-gaming, we said it would be about $20 million to $25 million. So, we spent about half of that in Q1 and we spent the other half in Q2.

And then kind of Delta Downs and kind of other catch-all projects was another $10 million to $15 million. So, again, I think it's pretty much in line with what we had previously guided. I think run rate maintenance is about $100 million to $110 million and then you've got the non-gaming amenities investment that will roll off at middle of this year.

And obviously, the Delta Downs stuff and kind of other little (23:25) catch-all projects will be done in the first half of this year as well. So, that's when we should start to see free cash flow start to accelerate in the second half of this year and going into 2018..

Got it. And one last one, your higher level thinking on the dividend versus share repo.

I guess how do you think about the differences between the two and how you allocate capital and where do you guys see yourselves buying stuff?.

I'll take the first shot at it and then Keith can add anything that he may think about that I missed. Look, we think about those as honestly both returning capital to shareholders with very different characteristics.

The dividend is certainly more disciplined, certainly more defined, something that is kind of going to be recurring and dependable in its sense. The share repurchase program for us gives us a little bit more flexibility.

No one should read anything into that other than it is more flexible and we felt like that both of these were necessary given where we are in terms of achieving our overall leverage targets.

We want to kind of start small for both and move from there and it's driven by a desire where we can see leverage ending up or headed into 2018 and understanding how we want to manage that as we go forward with this opportunity to introduce return on capital to shareholder now and that all kind of made sense to us..

Right. Look it's not a new concept for the company. We had a dividend. Previously, we have had a share repurchase program for years. So we're just at a point in time now where this feels like the right time to reinstitute both of those and continue to move the company forward..

Got it. Thanks a lot, guys..

Welcome (25:27)..

Thank you, Dan..

The next question is from Carlo Santarelli, Deutsche Bank..

Hey, guys. Thanks for taking my question..

Sure..

As you guys, Josh – I don't want to read too much into your words earlier. But you mentioned kind of more of the margin story would be in the second half and you would kind of work your way there, and it wouldn't necessarily be linear.

Is there anything specifically in the 2Q that we need to be thinking about, just given the comments about second half and non-linear and could be choppy that may be a headwind for EBITDA growth in the 2Q?.

No. I think you are giving me too much credit. I don't think there was meant to be much in that messaging other than just thinking about the programs we have underway and when we think they'll start yielding results. There was nothing meant to be implied around the second quarter..

And maybe to keep it in context here, I think we were asked the question a year or so ago, if we thought we had more room for margin improvement in the company.

And I think we said yes and we categorized it into 200 basis point to 300 basis point range and we've been working on that since that time, and I think we're well into that 200 basis point to 300 basis points. The programs that we've talked about, business improvements and some of the marketing tools kind of incrementally roll out every month.

And so, there will be no kind of major seminal event where you will see a significant change in the margin. You saw some last year. You saw some in Q1, you'll see some more in Q2. Maybe you'll see a little more in Q3 and Q4 as that feels like a point in time we'll roll out some of the bigger initiatives, but it's just all based on how it rolls out.

But overall, we continue to believe that there's a couple of 100 basis points of margin improvement through a number of events, not just business improvement, just to continue refinement in the operation of the business. And quite frankly, continued growth in the business..

Yeah. I mean, you saw margin improvement in Q1. And I think generally what we're trying to get folks to focus on is just the big picture trend of where we think our business is headed over the next two to three years. And, I think, Keith made a really good point.

It's not going to be like there's some sort of light switch that turns on and you go, oh, this is when all of these programs are starting to hit because I don't believe that's going to happen. It's just going to be a gradual trend to achieve the objectives that we've laid out for ourselves..

Great. Thanks. That's helpful. And then if I could, just one follow-up.

Specifically, when you guys think about the one quarter, full quarter now at least with Cannery, if you think about the synergy targets that you guys laid out, kind of, as a standalone basis, and now that it's been plugged in and you've had the experience with it under ownership for a full quarter, thinking specifically about the property on the Boulder Strip and the relationship with Sam's Town, have you guys been able to maybe identify any incremental synergies stemming there from the portfolio of assets that potentially could be additive to not necessarily the $60 million for those assets but to the portfolio on a halo effect?.

No, I don't think anything has come to our attention that we weren't expecting. We had done quite a bit of research and thinking about this ahead of time when we developed kind of our synergy profile, if you will, thinking about what we could achieve out of these. We know the properties were next door to each other.

We had a view as to how they would operate and run and how it would be additive to the overall portfolio. So, really nothing incremental, no real new surprises, no real new benefits. As I said earlier, some really, really strong team members that were able to leverage up in other parts of the company but other than that, nothing surprising..

Okay, great. And then, sorry, if I could, just one follow-up. I think the Locals GGR, the way we all see it through, obviously that the state reporting was up about 3.5% this quarter. Now you guys given some of the more targeted marketing, et cetera, had lagged that from a net revenue perspective on a same-store basis a couple of quarters last year.

Would you care to comment on whether or not the same-store portfolio was able to kind of approximate that 3.5% growth?.

I guess, I'd say this in response to the question. As we look back maybe over a little longer period of time only because there's noise in the numbers with how they drop and count things. And if you back over the course of a year, our market share in the local market has remained flat. And so we have grown kind of with the market.

We haven't gained market share but as you think about – as we've talked about kind of dialing back some of the marketing programs and some of the investments and not incenting some play to show up, being able to maintain our market share where it is, is a strong statement. So I think we're pretty happy with where we're at.

I can't comment to the quarter specifically because there's still some noise in those numbers..

Sure. Sure. Thanks a bunch, guys..

Yes..

The next question is from Thomas Allen at Morgan Stanley..

Hi. On the first quarter results, how did you perform versus your internal expectations and what were the biggest surprises? Thank you..

Yeah. I think, in general, we performed in line with what we would have expected from our assets. I think corporate expense was a little bit higher than what we would have expected and so we're going to have to watch that as we go through the year because our guidance on the $65 million may end up being a little bit light.

But I would say relative to the businesses themselves, they generally performed where we would have expected them to be. I think the regional assets out of Las Vegas did a really good job of managing EBITDA to the revenue declines that they experienced. And so while the revenue was not where we expected to be, the EBITDA was pretty close.

And so, I think that is generally high level how we thought about the quarter when we gave guidance at the end of the fourth quarter..

Okay. And then on the Las Vegas Locals market. Obviously, the first quarter, the broader Las Vegas market benefited from CON/AGG. How are you thinking about kind of the growth for the rest of the year? Thanks..

Yeah. Look, I think when we came in to 2017, we generally thought of Las Vegas as being, and really pretty much all of our segments from a big picture perspective, being pretty much similar to 2016. So, I don't know the exact number of the Las Vegas Locals growth in 2016. It was around high 2% to low 3% growth.

That's generally what we would expect in 2017 as well..

Okay. Helpful. Thank you..

Sure..

The next question is from David Katz of Telsey Advisory Group..

Hi. Afternoon, everyone..

Good afternoon..

Hey, Dave..

Hi. So, just one quick detail. Josh, you mentioned $36 million portion of tax settlement. What was the timing on that? And then I have sort of a little question about your leverage..

Yeah. Sure. There's an agreement between Borgata and Atlantic City as to when it has to happen. It all has to be done by year-end. So, we're just saying some time this year, we would expect to receive the $36 million. It may come in two pieces or one piece. We'll just have to see how they're able to raise their funds, but that's the agreement..

I see. Okay. And if I'm hearing correctly, you said that your target range is 4 times to 5 times leverage and that you expect to get there by next year.

And so, is that implying that you're still going to be above that leverage level through the remainder of this year, that's a reasonable expectation for us to have?.

Well, we've given you kind of two guideposts. One is that we expect to be below 5 times by the end of this year. And so, I think our implicit assumption is that leverage will be declining over time. So, you would expect us to be above 5 times between now and the end of the year.

And then, as we go into 2018, we would expect leverage to continue to decline. And so therefore, we will be between 4 times and 5 times as we move into 2018. That's the general thought process..

Got it. And just one last question, if I may. And I want to ask it carefully because I don't want to express any disappointment with $92 million of share repurchase.

But when might the board be able to consider expanding that into something a little bit larger?.

Yeah. I think the board will consider expanding that once we utilize the $92 million and not before that..

Yeah. I think the $92 million recognizes the theme of what we've been talking about through this call, David, which is leverage still remains high in our eyes. And leverage will continue to be a focus of the company as we get to those target leverage levels that we have set for ourselves. But we can see achieving that in 2018.

We have to be careful that, at some point, we understand that it becomes inefficient to continue to deleverage the balance sheet, and so that's why we feel now is the right time to start having these conversations and executing on these programs.

We believe that continuing to deleverage is the right thing to do in the near to intermediate term to achieve our targets.

Doing something otherwise, we feel is not the right thing for the strategic opportunities that will present themselves for our company as well as just prudent manage of the balance sheet relative to economic volatility, that no doubt will occur as it tends to repeat itself over time..

Understood. And again, it's certainly been a very long progression to get to that sort of target level and so forth. And I'm not suggesting that deleveraging isn't the right thing to do that you should just leave the leverage high and buy back a whole bunch of stock.

I was just curious when the issue might come up to expand over the next several quarters?.

Well, I think it will probably be more than a couple of months and less than a couple of years..

Yeah..

That's a great set of brackets. Thank you..

Thanks, David..

The next question is from Shaun Kelley, Bank of America..

Hey. Good afternoon, guys. All of my questions have been asked and answered, but just one very specific one which is just in the release and as you referred to it in the prepared remarks.

When you were talking about same-store adjusted EBITDA and revenue growth, are we talking same-store including as if you'd own the three properties last year? Or is it the Local's portfolio you had excluding those three properties? I know it's specific, but I was just curious..

It's the latter. It excludes the new acquisitions..

Okay. Great. Thanks for that, Keith. And then, second and again this is just because I think lot of these calls have been focused on the local environment for good reason, but could you just give us any sense on how the regional markets trended for you guys across the quarter? I know we saw some volatility in some regions, March seemed very good.

Just how are you feeling about that business and possible stability there relative to competition and the like in your portfolio?.

Sure. I think, as we look at our regional results it is tough to paint it with a broad brush because we operate in so many different markets that have a lot of unique aspects to them. In many of our markets, we are growing market shares and growing revenues.

We talked about Blue Chip, we talked about Treasure Chest, we have the addition of the hotel at Delta Downs. We grew market share at Delta Downs and feel very good about that. Look, we had some properties, we didn't perform as well as we'd like, the economic impacts of the oil industry at Amelia Belle and Evangeline.

We saw revenues decline more than we'd like at Paradise. The impact at VGTs continues to impact that property more than we'd like to see. Now, we've been able to stabilize EBITDAs in many cases, but we haven't seen kind of the revenue growth there. (38:38) properties are kind of holding their own, Kansas continues to perform well.

And so, it's hard to paint it with a broad brush. Overall, I think we're pleased with the progress the region's making. We'd like to see a little more revenue growth but the team did a great job stabilizing EBITDAs in the market with lower revenues.

And lower revenues are also, I'll just remind you, kind of colored by some of the refinements to the marketing programs that we're working on as we're not reinvesting in some of the lower tiers and spending more time reinvesting in the upper tiers of our business..

Great. Thanks for that..

Welcome..

The next question is from Harry Curtis at Nomura..

Hey, good afternoon. A quick follow-up on leverage. Josh, how much of an appetite do you have to actually pay down debt, particularly with payments coming in from Borgata, Wilton Rancheria.

Do you get there without having to actually use free cash flow to pay down debt?.

Well, first, the way I think about it is money is fungible. I'm looking at just where we're projecting our leverage to be over time and looking at getting there through a combination of those payments coming back to us, free cash flow as well as growing EBITDA.

So, I guess, I could say kind of try to be focused on what am I going to do with those exact dollars and it would be hard in the context of overall being able to provide you a definitive answer. But generally, I think of those payments is helping us to achieve where we're going to be in terms of leverage.

I don't know if that helps you, Harry, but that's kind of how I think about it..

I don't think I want to press any further. The second question is, Keith, you've talked about your interest in solid acquisitions. I wonder if you could define solid. In the regional markets, it seems to me most of your success in making accretive growing acquisitions is not in the regional markets, given the amount of competition in those markets.

And so, today, do you have an appetite for regional assets given the lack of revenue growth?.

Well, as I've said before, we're somewhat agnostic in terms of the market. We're more focused on the asset and the opportunities and the price, what the operating environment is like.

And at the end of the day, frankly, what the free cash flow profile in the free cash flow yield or return is, of those assets, I think there probably are still opportunities in the regional markets for assets that we'd like to see be a part of our portfolio. And it just isn't here in Nevada because Nevada is hot.

We'd love to have more assets here in Nevada. But I think there's opportunities in the regional markets. We've always been very selective. We've always been very thoughtful about the assets that we've bought, whether it be regionally here in Nevada.

And once again, when you look at the Peninsula, the IP or the most recent acquisitions, they've all had one characteristic that goes across all of them, it's very strong free cash flow yield. We feel very good about that. So, we'll be disciplined. We've been disciplined in the past.

And we'll just keep our eyes open and look at the opportunities that present themselves..

Okay. Thanks very much..

We have time for one more question from Brian Egger of Bloomberg Intelligence..

Good afternoon. I'm just wondering in terms of the previous comments about the local Las Vegas market, I think in an earlier call, you had said that the expectation was – I'm sorry, this is for the regional Midwest and South markets. That seems your growth would likely be somewhere in the order of 1% or so which is certainly how the market is growing.

But just in view of the first quarter, are you still comfortable with that expectation, is it too early to tell whether or not you're likely to see some positive growth in the regional markets this year?.

Yeah. So, Brian, this is Josh. When we think about the regional markets, I think we're still pretty comfortable with the 0% to 1% kind of growth for the regional markets. I think what we really focus on is the EBITDA that's coming out of that.

And so similarly, as my comments earlier while the revenue wasn't where we expected it to be from the regional markets, the EBITDA largely was. And so, from our perspective, as we look out the rest of the year, we're challenging ourselves to deliver on the EBITDA side whether we get that revenue growth or not.

Certainly having the revenue growth will make achieving the EBITDA and the margin growth much more easy to accomplish, but we're focused on delivering the EBITDA at the end of the day. So, we would like to see the revenue growth, but it's not there. We are really charged to look at the EBITDA side of it..

Understood. Thank you..

Yeah..

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

Thank you, Aimee, and thank you for all joining the call today. If you have any follow-up questions, feel free to reach out to the company and we'll try to be as responsive as we can. Have a good rest of your day..

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