Boyd Gaming Corp

NYSE:BYD

Earnings Call Transcript 2022-Q2

[Operator]

Good afternoon. Thank you for attending the Boyd Gaming Second Quarter 2022 Conference Call. My name is Matt, and I will be your moderator for today's call. All lines have been muted during the presentation portion of the call with an opportunity to questions and answers at the end. [Operator Instructions]

I would now like to pass the conference over to our host Josh Hirsberg, Executive Vice President and Chief Financial Officer of Boyd Gaming. Josh, please go ahead.

[Josh Hirsberg, EVP, Chief Financial Officer and Treasurer]

Thank you, operator. Good afternoon, everyone and welcome to our second 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 on our website. We do not provide a reconciliation of forward-looking non-GAAP financial measures due to our inability to project special charges and certain expenses.

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.

So with that, I'd now like to turn the call over to Keith Smith. Keith?

[Keith Smith, Chief Executive Officer]

Thanks, Josh and good afternoon, everyone. This was another strong quarter for our company as we delivered an exceptional EBITDAR performance that was surpassed only by our record second quarter of 2021 when we benefited from government stimulus, limited entertainment alternatives and the lifting of COVID restrictions. Thanks to our continued focus on our core customer, and more efficient operations, we are maintaining the strong run of quarterly performances that we have achieved since we reopened our properties more than two years ago.

During the quarter, revenues were $894 million, even with the prior year, while companywide EBITDAR was $354 million and margins exceeded 39% for the fifth straight quarter. As we look at our business today, there are two important themes worth noting, the stability of our financial performance and the continued strength in our customer trends. Looking at our financial results in the quarter, we delivered revenue, EBITDAR and margin performances similar to each of the last three quarters. On a sequential basis, comparing to the first quarter of this year, EBITDAR was up over 4%, reflecting more normal seasonal patterns in our business, while margins improved to 39.6% for the second quarter.

Comparing our results to our pre-pandemic baseline of 2019, revenue was up 6%, EBITDAR was 52% and margins improved more than 112 basis points versus the second quarter of 2019. These trends for the second quarter are very similar to the trends we saw in our first quarter results. Importantly, we are seeing the stability across all three of our operating segments. In our Las Vegas Locals business, revenue grew 4% and EBITDAR grew 6% compared to the first quarter of this year. Margins were 53% during the quarter, marking the fifth straight quarter of margins have been above 50%.

We are seeing excellent performance in our Downtown Las Vegas operations as well, with record EBITDAR and operating margins in the second quarter. And our Midwest & South business continued its steady performance during the quarter. Revenues and EBITDAR were the highest since the second quarter of 2021, and our operating margin has remained consistent at 38% since then. Driving this robust financial performance is the stability of our operating trends nationwide, led by continued strength among our core customer segment.

During the second quarter, play from our core customers was 4% higher than the prior year, a remarkable achievement considering the historic strength of last year's second quarter. And while unrated play has come down some from last year's peak second quarter, it has been stable over the last four quarters, both in total volume and as a percentage of gaming revenue. Customer spend is also strengthening in our non-gaming amenities with increases in non-gaming revenue driven by growing hotel occupancy, higher ADRs and stronger F&B revenues.

Looking ahead, we recognize we're in a period of economic uncertainty. And while there are clearly headwinds facing our business, there are positive signals as well. Unemployment is at or near record lows across the country and customers continue to benefit from strong wage growth. Here in Las Vegas, total employment recently returned to pre-pandemic levels, an important milestone in our largest market. Nationwide, consumers are showing a continued willingness to spend on experiences and entertainment with strength across the leisure sector. Our hotel bookings are running ahead of 2021 levels, with no change in cancellation activity to date. And volumes from our core customers continue to grow, driving overall profitability. Our customer trends in the second quarter and so far in July remain consistent with what we have seen over the last four quarters. And while these trends are encouraging, we recognize there are also challenges in the economy. A strong job market and growing wages are good for our customers, but they also mean increased labor expense. And inflationary pressures related to supply chain issues, higher gas prices and utility costs and increases in the cost of goods and services are all impacting both us and the consumer. Having said that, our teams have done an excellent job managing through these challenges and continued to deliver strong results. Our company-wide margins during the second quarter were consistent with the first quarter, despite the increased cost we are experiencing across the business

And while we are closely monitoring the current economic environment, as of today, we see no compelling reason to believe there will be a significant change in the direction of our business in the near term. Our operations remain strong and stable, our management teams are focused and we remain confident in our strategy, our operating model and our ability to navigate these uncertain times.

Beyond our continued focus on day-to-day operations, we are also positioning ourselves for long-term growth through strategic reinvestments in our business. In Louisiana, we started site work in early July for a new land based facility at Treasure Chest. Once complete, this project will significantly enhance our gaming and non-gaming amenities, creating a more attractive and competitive entertainment experience. We are confident that [indiscernible] Treasure Chest will further expand the properties customer base, while increasing its appeal to our existing customers and drive enhanced results following its opening in late 2023.

In Downtown Las Vegas work continues on the expansion of the Fremont Hotel and Casino. By expanding our Casino space and adding a selection of appealing quick-serve restaurants, this project will help us capture a larger portion of pedestrian traffic throughout the Fremont Street experience. We are making good progress on construction and on track for completion around the end of the year. And in Northern California we are preparing to open Sky River Casino by early September on behalf of the Wilton Rancheria Tribe. We have created a compelling entertainment experience with Sky River with a 100,000 square feet Casino, 2000 slot machines, 80 table games and 17 food and beverage venues. And thanks to its location just south of Sacramento, this property is well positioned to capture a significant share of the Sacramento and Bay Area markets. We look forward to a successful opening of Sky River and are proud to partner with the Tribe as they achieve their vision of self-sufficiency. As a reminder, we have a seven-year agreement to manage Sky River and will receive a management fee typical for these types of arrangements.

Beyond these capital investments, we also continue to expand our presence in sports betting and online gaming. Kansas and Ohio recently passed sports betting legislation and with our partner FanDuel we plan to offer retail and mobile sports betting in both states. Subject to regulatory approvals, we expect to launch sports betting in Kansas in the fall and Ohio around the first of the year, expanding our FanDuel partnership to eight of our nine regional states. We expect our existing online sports betting partnerships to generate approximately $30 million in EBITDAR this year and this contribution should grow next year as sports betting expands into Kansas and Ohio.

We also remain on track to complete our acquisition of Pala Interactive around the first of the year, allowing us to take a direct approach to the emerging online gaming industry. Our online gaming strategy is built upon leveraging our geographic distribution, loyalty program and customer database to build a profitable regional online casino business. Pala will provide us the full suite of products, technology and expertise we need to execute that strategy without the need for additional significant investments or acquisitions. And of course, our 5% ownership of FanDuel is an important strategic asset that will grow more valuable as sports betting expands and FanDuel continue to build on its position as the nation's leader in online sports betting.

In both our online and land-based operations, we are building a strong foundation for long-term growth. With our steady operational performance, attractive growth opportunities, substantial free cash flow and commitment to maintaining a strong balance sheet, we are in an excellent position to continue returning capital to our shareholders. We remain committed to returning $500 million to our shareholders this year through a combination of share repurchases and dividends. As we've noted before, we are targeting $100 million per quarter in recurring share repurchases, supplemented by quarterly dividend payments. We're also creating value through our ESG initiatives. In June, we published our second ESG report detailing our significant progress to date. We are proud of the substantial progress we have made over the last several years and we remain committed to being a leader in our industry when it comes to corporate responsibility and ESG. I invite you to learn more about our initiatives by visiting our website.

So all in all, this was another outstanding quarter for our company. Our business remain stable and robust with financial results and the performance of our core customer sequentially in line with recent quarters and well above pre COVID levels. Importantly, these trends are continuing into July. This exceptional performance is a tribute to our team members who are dedicated to creating memorable experiences for our guests and strengthening customer loyalty. And it is a reflection of the skill of our management teams as they sustain strong operating margins despite increased cost pressures in the business.

Our strong diversified free cash flow and balance sheet are enabling us to pursue growth projects in both the land-based and online spaces, while continuing to fulfill our commitment to return capital to our shareholders. We remain committed to our proven operating strategy and we are confident in our ability to navigate today's uncertain economic environment and to continue to create long-term value for our shareholders.

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

[Josh Hirsberg, EVP, Chief Financial Officer and Treasurer]

Thank you, Keith. This was another strong quarter for our company. The sequential trends in our business continue to be very stable. The second quarter of last year was the best quarter in the company's history, benefiting from significant government stimulus, limited entertainment options and the lifting of COVID restrictions.

EBITDAR in the second quarter of last year grew 66% over 2019 levels and margins improved almost 1,600 basis points. These dynamics began to normalize in the third quarter of last year and the business has remained extremely stable on a sequential basis since then. These sequential trends demonstrate the strength and consistency of our business. We are certainly aware of the economic pressures weighing on the US consumer, and while predicting the future is particularly difficult now. There is no compelling reason today to say that the course of our business is changing. Our consumer trends in July confirm the continued stability we have seen for the last year.

Our focus on our core customer and disciplined execution of our business continue to drive our results. Our operation teams are managing through inflationary effects pressuring our business as demonstrated by our second quarter margins, which were consistent with the margins we have delivered over the last 18 months. The strength in our operations, substantial free cash flow and strong balance sheet, evidenced by the lowest leverage in our company's history enable us to continue to execute our capital return program, balanced with strategic investments in both land based and digital assets.

During the quarter, total capital expenditures were approximately $52 million, resulting in approximately $100 million of capital expenditures invested year-to-date. We expect to spend about $125 million in the second half of this year on maintenance capital and an additional $50 million for the Fremont and Treasure Chest expansion projects that Keith previously discussed. We will also be investing $170 million to acquire Pala Interactive and subject to regulatory approval, expect this transaction to close around the first of the year.

During the quarter, we continued our focus on returning capital to shareholders. We repurchased $168 million in stock, representing more than 3 million shares at an average price of $55.66 per share. This reduced our actual share count to 106.8 million shares at quarter end. Since commencing our repurchase activity last October, we repurchased approximately 6.4 million shares for a total of $381 million. With our Board's recent $500 million increase to our share repurchase authorization we have $481 million remaining under current authorizations. We plan to continue targeting $100 million per quarter of share repurchases as part of our recurring program to return capital to shareholders. We also distributed our second dividend of the year earlier this month, with a payment of $0.15 per share, which is more than double the amount of the company’s previous pre-pandemic dividend. In all, we expect to return over $500 million to our shareholders this year through dividends and recurring share repurchases.

Our balance sheet is a strongest it has ever been. We ended the quarter with leverage at 2.3 times and lease adjusted leverage of 2.8 times. During the quarter, we used a combination of cash and revolver borrowings to retire our remaining balance of [indiscernible] notes, resulting in nearly $20 million in annual interest expense savings. As we move forward, we will remain focused on maintaining our strong operating performance and growing our business through thoughtful investment in our existing portfolio and building our online presence. And we will continue to maintain a strong balance sheet with a commitment to returning capital to our shareholders.

That concludes our remarks and we're now ready to answer any questions from participants on the call.

[Operator]

Thank you. [Operator Instructions] The first question is from the line of Carlo Santarelli with Deutsche Bank. Your line is now open.

[Carlo Santarelli, Deutsche Bank]

Hey, Keith. Hey, Josh. Guys, if you want to mind, I know you guys both mentioned in your remarks that kind of what you've seen over the last year has carried through into July. Is that statement kind of representative of what you're seeing both in Las Vegas, between the Locals and Downtown market, as well as the regional markets?

[Keith Smith, Chief Executive Officer]

Yeah. Carlos, it’s Keith. So it is relatively consistent kind of across the portfolio. So the trends in July throughout the different regions are mirroring what we saw earlier in the year, there's really not much of a change.

[Carlo Santarelli, Deutsche Bank]

Okay, great. And then, obviously, you guys talked about some of the ambiguity that’s out there and kind of the cost pressures and the way you guys have managed them. As you look ahead, if you had to kind of think about where the bigger risk comes from and the two buckets were kind of the health of the consumer, the health of the gaming customer versus kind of the competitive aspects, whether that is -- any kind of new supply coming into market or whether that is competitor promotions, things of that nature. How would you kind of look at those to options?

[Keith Smith, Chief Executive Officer]

Look, sitting here today, the consumer remains healthy in all the statistics that we see, in all the trends that we see in our own business it shows that the consumer is healthy. They've got strong balance sheets. And while may be consumer spending is off a little bit, it's coming off of historical highs, and so, it's still extremely robust. Competition is always coming into the business, we're operating in a number of, obviously, different markets, but our team has a lot of history in fending off competition and competing with new entrants into the various markets that we do business in. And so, look, they both could be impactful, obviously, if a consumer all of a sudden becomes unhealthy or sort of healthy it will impact our business and a big building goes up next door to one of our major EBITDA producers, it will be impactful, but I don't -- I want to be naive here, but I think we're confident in the near term that neither of those are significant issues for us.

[Carlo Santarelli, Deutsche Bank]

Great. Thank you very much, Keith.

[Operator]

Thank you for your question. The next question is from the line of Joe Greff with JP Morgan. Your line is now open.

[Joe Greff, JP Morgan]

Good afternoon, guys. My question is probably going to sound like I'm being very negative, but it's really not meant to be negative, it's just to get an understanding of sort of a certain scenario analysis. If we think about, say, like next year as an example, we are in recession and we are seeing the gaming consumer retrench a bit. And let's just see, in that scenario, guys, that it's more spend per visit than visitation. How do you think about the flow through on -- declining revenue environment and the flow through percentage in both the Locals and in the Midwest & South?

[Josh Hirsberg, EVP, Chief Financial Officer and Treasurer]

Yeah. Joe, I think that is the question that we need to try to answer. And I think, ultimately, the way we think about that is trying to measure and understand what flexibility we have in managing adjustments in revenue quite honestly. We can certainly scale marketing and labor and some of these other costs based on the levels of revenues that we're seeing at any particular time. I think one of the things that we have -- really had kind of learned through COVID and while we were closed it’s just a really good understanding of our cost and how they are interrelated. And so, we feel like that gives us the ability to be in a better position to manage through softness in revenue if that were to come as a result of declines in spend per visit. I don't think we're in a position really to kind of quantify what happens to flow through our margins very effectively, it just really be a shot in the dark quite honestly.

[Keith Smith, Chief Executive Officer]

Yeah. There are is many variables, if there is a kind of reduction in spend per visit as it is coming through, is it Gaming, is it non-gaming, is it Hotel, is it F&B, what's happening to the actual volumes in the building, is it 2008 type recessionary environment or is it a different recessionary environment that we find ourselves in. Trying to model it out in play what if is very difficult in this environment and probably more difficult on a phone call like this.

[Joe Greff, JP Morgan]

Thanks for the thoughts guys.

[Operator]

Thank you for your question. The next question is from the line of Steven Wieczynski with Stifel. Your line is now open.

[Steven Wieczynski, Stifel]

Yeah. Hey, guys. Good afternoon. So this is going to sound very similar to Joe's question I think. I'm just going to try to ask this a little bit differently and I think you're probably give me the same kind of answer as we don't know, but I would assume at this point you guys internally have probably run some different scenarios in terms of what recession could look like on your business. And I guess as high level as you can give, how do you go about doing that? Meaning are you looking at the last couple of recessions and kind of viewing those as what potentially could impact you or are you saying this -- I think this is probably a little bit more on the economic side of things, are you -- you are saying that this recession this time around might not be as bad, I guess, any kind of commentary around how you're thinking about the impact would be helpful.

[Josh Hirsberg, EVP, Chief Financial Officer and Treasurer]

Yeah. So I think, Steve, we do, obviously, try to model different scenarios and you can imagine some of our more detailed than others and some are very high level, just assuming different levels of revenue or EBITDAR declines, just choosing different levels and running those through the models and understanding what happens. And also trying to replicate what happened previously in 2008, even though we understand that today is very different than what happened and what drove 2008. And so, we try to say those are the extremes if you will.

I think the other thing that we try to understand is the business today at least feels very different than the business even pre-COVID in the sense of who our customer is and our focus on that customer and also how we're marketing to that consumer. What is particularly insightful for us at least today is that, our core customer that we're reinvesting in continues to be very stable and grow. I know you got that message from the commentary from other comments that we've made. But what's driving our business is really a focus on a very loyal high quality customer and that's what's driving our overall performance.

And so, then we look at like to Keith's comments earlier to Joe's question, it's like we look at how our different customer segments potentially reacting, because maybe it's just the lower-end consumer or a unrated consumer that falls away and trying to understand those impacts. So it's a non-answer answer that I'm going to try to give you, because I'm not going to give you any kind of numerical result of it, but just to say that we are looking at all just blatant assumed revenues are down [indiscernible] see the impact. And at the other extreme assume different segments are impacted differently. So that's how we're thinking about it and we also, obviously, are modeling in the end what we're seeing from cost pressures as well. So all that just gets put in and we think about it, obviously, every day to try to understand what's going to happen and how we're going to react.

[Steven Wieczynski, Stifel]

So, I guess, then a simple follow-up to that answer is. I guess, under any scenario that you guys have potentially modeled out inside the company, as draconian as you guys think things could get. I guess the simple answer is, how do you feel about your -- is there any scenario I guess where you don't feel comfortable with your financial position at that point. I guess that's the simple question here.

[Keith Smith, Chief Executive Officer]

Well, I think we've worked extremely hard and diligently over the last couple of years to have the strength of the balance sheet that we have and have extremely low leverage level. And all the scenarios we run have us comfortable given our low leverage. And at least in the near term, what things may look like. So we are dealing in a very uncertain environment in a very uncertain economy, but everything we see says the business is pretty stable. But if something were to happen given our current financial strength, we're not losing sleep.

[Josh Hirsberg, EVP, Chief Financial Officer and Treasurer]

Yeah. I think part of the whole philosophy of having a lower leverage level, the access to undrawn capacity that we have is to be able to weather the uncertain times that we find ourselves in that everybody is thinking about and wringing their hands about today. At this point, we're kind of just continuing to move through.

[Steven Wieczynski, Stifel]

Okay. Great. Thanks for the color, guys. I really appreciate it.

[Operator]

Thank you for your question. The next question is from the line of Barry Jonas with Truist. Your line is now open.

[Barry Jonas, Truist Securities]

Hey, great. Thanks guys. I wanted to talk a little bit more about the labor environment, is it still fairly tight? Are you -- have you been able to still more positions? And with that, do you see opportunities to grow revenues as you add more FTEs?

[Josh Hirsberg, EVP, Chief Financial Officer and Treasurer]

Yeah. So I think labor is still a challenge for us. Not as much of a challenge it was a year ago. So we have more team members and we've been successful in adding team members and have more today than we did a year ago. I would say that, our retention rates are higher, our turnover rates are lower today than they were six months ago. Applicant flow is higher today than it was six months ago. And so things are easier, but it's still a challenge. I think we still have the opportunity to add staff and be able to sell more hotel rooms and serve more people in our restaurants. So I still think there is some upside there. But things are improved today over a year ago or even six months ago.

[Barry Jonas, Truist Securities]

Great. Thanks, Josh. And then just as a follow-up, how are you guys thinking about Eastside Cannery here? I know a competitor is planning on permanently closing some of their closed properties. So just curious how you're thinking about your options here?

[Keith Smith, Chief Executive Officer]

Yeah. I think we've consistently thought about it in the context of demand. At this point, our view is that, we've been able to kind of leverage the benefit of Sam's Town Las Vegas which is near Eastside Cannery and until we see perhaps more demand or something else to suggest we should consider reopening in Eastside Cannery, for now it will remain closed.

[Barry Jonas, Truist Securities]

Great. All right. Thank you, guys.

[Operator]

Thank you for your question. The next question is from the line of David Katz with Jefferies. Your line is now open.

[David Katz, Jefferies]

Hi. Afternoon, gentlemen. Thanks for taking my question. I hope I can ask you something that you can answer, which is, the margins came across and honestly that was not intended anywhere in particular, the visibility, I understand, is quite limited for all of us. With respect to margins, they came across better than what we expected. And assuming that there is no change in business levels and that revenues continue to be approximately straight across or even up a little bit, how do you see your normalized new world post-COVID margins for each of the segments? And if you could just give us a little color on each that would be helpful.

[Josh Hirsberg, EVP, Chief Financial Officer and Treasurer]

Yes. So, David, I appreciate your commentary, I think that it's almost -- and I don't want to be flippant about it, but it's almost like what you see is what you get from what the various regions are delivering. They've been very consistent really for the last 18 months or more. And it's -- while we have said that we expect a little bit of pressure as a result of incremental marketing over time, a little bit of labor being added back, ultimately some of that is associated with revenue growth as well. And so, we generally think that the levels that you're seeing today are ones that in the neighborhood you should expect to see from us kind of going forward. And I think that's been a consistent message from us for quite some time. And we generally feel pretty good about where the business is these days in terms of being able to deliver those levels of margins.

[David Katz, Jefferies]

Got it. So assuming that not a ton of changes, which is totally potentially unfair, right? But in the Locals market of 53% EBITDAR margin is the neighborhood Downtown 41% and MW&S is 30%-ish. That's a good place for us to hang out, notwithstanding some major change in the topline.

[Josh Hirsberg, EVP, Chief Financial Officer and Treasurer]

I think the Locals is 50 plus percent, Downtown is high 30’s percent and Midwest & South is high 30's percent.

[David Katz, Jefferies]

Okay. Helpful. Thank you.

[Josh Hirsberg, EVP, Chief Financial Officer and Treasurer]

Sure.

[Operator]

Thank you for your question. The next question is from the line of Shaun Kelley with Bank of America. Your line is now open.

[Shaun Kelley, Bank of America]

Hi, everyone. Josh, Keith, just I wanted to ask a little bit about a question we get fairly regularly. So kind of in this consumer environment one thing we're seeing throughout company’s reporting in a broader space is sort of a return of promotional activity right across areas of the consumer that weren't promotional over the last couple of years. We get this question as it relates to gaming and I wanted to kind of turn it to you a little bit. So the question is really just, how would you think about a return of more normalized promotional activity impacting gaming? And I'm just kind of curious, first of all, is that a lever that you would lean on if you did see the consumer soften or might you react differently? So that's kind of the first part.

And then the second part is just more of a mechanical. How it plays through the P&L. I think in general, we're thinking about this as a net against revenue, but just how would you think about it actually playing through revenues versus margin?

[Keith Smith, Chief Executive Officer]

Sure. Let me take a shot at it, Shaun, and Josh I can jump in. I think when we talk about the promotional environment in this industry, as we've come out of COVID players have -- different companies have staked out a position. Some have gone back to pre-COVID levels of spend and they got their fairly early after reopening after COVID. Some have actually exceeded pre COVID levels of spending. Others, us being in this camp to stay very disciplined with what we continue to refer to as kind of a new operating model and are targeting the customers in different ways. And we don't see ourselves getting back into these types of marketing wars. Once again, we have competitors in probably every jurisdiction where we do business that are marketing at pre-COVID levels. We have competitors in every jurisdiction where we do business that are marketing ahead of pre-COVID levels and we're standing patent. So I just don't see us getting back into that game. If we were to would have a significant impact on margins, obviously, if we were to get back into that -- into that promotional environment. I just don't see us doing it.

[Josh Hirsberg, EVP, Chief Financial Officer and Treasurer]

Yeah. I don't have anything to add.

[David Katz, Jefferies]

Perfect. That's very helpful. And then second question or just follow-up would be, Josh, you brought it a couple of times, cost pressures. Barry asked a little bit about the labor side, but I guess the real question here is, this environment has been pretty dynamic even over the last quarter, is there anything incremental that really sticks out? I mean, obviously, you're always battling against some new cost line, I mean, that's part of the job, but is there anything new or new pressure that anybody should be aware of, be it, energy and utilities or something of the [indiscernible] that stands out or is it just sort of normal course albeit in a much more rapid inflationary environment today.

[Josh Hirsberg, EVP, Chief Financial Officer and Treasurer]

Yeah. Look, I think there are other cost pressures, but they're just not to the order of magnitude when you start talking about, say, labor for instance. So that's why labor is kind of the poster child for it, but we see it in the cost of goods sold, as Keith mentioned, and utilities across the board and our teams have done -- we've been very fortunate of really good job in managing through those cost pressures. And we continue to stay focused on it. And some of it has to do with -- the business is continuing to come back as well, certainly on the hotel side and the F&B side. And as we've mentioned some aspects of our gaming customer continuing to grow, so that that helps us also offset some of the pressures that we're seeing. So it's -- I wouldn't say it's just one, certainly not one line item and our teams are really doing a good job to remain focused on that and staying disciplined around kind of how we think about running the business going forward.

[David Katz, Jefferies]

Pretty clear in the results. Thank you very much.

[Keith Smith, Chief Executive Officer]

Thanks.

[Operator]

Thank you for your question. The next question is from the line of Dan Politzer with Wells Fargo. Your line is now open.

[Dan Politzer, Wells Fargo]

Hey, good afternoon. Thanks for taking my question. On the Downtown margins, they were pretty strong in the quarter. As we think about this business, I think revenues are still, call it, 15% to 20% below 2019. I guess, where are we in terms of the recovery? Is there still more room to go there, or was it just a function of unprofitable revenues or low margin revenues being removed from the business?

[Keith Smith, Chief Executive Officer]

Yeah. So I would say it's a combination of both that Downtown is largely driven by visitation on the strip. And so as the strip continues to build back as meeting and convention continue to build back on the strip and volumes there continue to build back, we expect there to be some continued growth in the business Downtown. I think there also was at least for us fair amount of unprofitable or marginally profitable business that we're just not catering to these days. And so, I think it is both factors as you describe them, it's not one or the other.

[Josh Hirsberg, EVP, Chief Financial Officer and Treasurer]

Just to remind -- Dan, just to remind everyone, Downtown had kind of a later start than the other two segments of our business. So they are just as our other two businesses we're battling more difficult comps, Downtown will start to experience that as well, but it's a business that is kind of coming back and getting to the same level that the rest of our segments are quite honestly. And that's what we kind of contemplated for this year from that segment.

[Dan Politzer, Wells Fargo]

Got it. And then just sort of follow up. It's been pretty clear, you're seeing sequentially stable results in the business, you repurchase, I think, 165 million plus of stock in the last quarter. Given you're trading kind of in that same neighborhood, is there any reason to expect that there -- you shouldn't be above that kind of $100 million bar per quarter that you've thrown out for buybacks.

[Keith Smith, Chief Executive Officer]

Yeah. It's a fair question, but we continue to [indiscernible] target of $100 million a quarter, because that is our target. It could be higher, but I wouldn't expect it to be. That is our goal and that's what we're putting out there. It could be higher if there is a dislocation and we decided to buyback more, but I would not assume we will.

[Dan Politzer, Wells Fargo]

Got it. Thanks.

[Operator]

Thank you for your question. The next question is from the line of Brandt Montour with Barclays. Your line is now open.

[Brandt Montour, Barclays]

Hey, good afternoon. Thanks for taking my questions. You guys spoke a lot about the growth in your core consumer that was pretty clear. I was hoping you could talk through ways in which you're taking pricing in the casino? Is it the case that there isn't much perceived inflation within the four walls, which is actually helping driving traffic and spend? Or is it -- is there also a pricing component that you're able to take?

[Keith Smith, Chief Executive Officer]

Yeah. So I don't think we've made any “pricing adjustments” within the four walls of the gaming floor, if you will. Look, we have higher average bets today than pre-COVID, but that's about it. Look, on food and beverage we continue to increase prices where we can. Hotel rates continue to be up year-over-year. We have increases in cash room sales which are good with higher rates. Within the four walls of the casino it's pretty limited in terms of what we've done. We haven’t done anything currently, whatever we've done has been in place frankly since we reopen the business.

[Brandt Montour, Barclays]

Okay. That's very helpful. Thanks. And then on the unrated side and I got your comments that it's stable. I was just curious maybe if you could unpack that a little bit, if you're still seeing a fair amount of turnover there, but with those numbers being replaced? Or if that's sort of slowing down, it's getting a little stickier?

[Josh Hirsberg, EVP, Chief Financial Officer and Treasurer]

Yeah. So unrated, it's really hard to answer with specificity. But what we expect is going on, or same is going on, it’s similar to what we're seeing in some of the lower tiers year-over-year, which is, we are seeing declines in that part of the business that benefited the most from stimulus and the lack of entertainment options in COVID that was largely at the lower end of the database where we saw a lot of activity last year that we're seeing a little bit more softness this year. Now, in the unrated segment we're assuming that part of that what's going on as well, but as in Keith’s comments, he said it's been stable. So some of that softness is getting replaced by other unrated business either from increased spend or new customers coming in. We know that we are signing up higher quality new customers and that's contributing to the overall business and that's coming from that unrated pool of customers. So it's all kind of kind of regenerating itself at this point to maintain a stable unrated business.

[Brandt Montour, Barclays]

Great. Thanks everyone.

[Operator]

Thank you for your question. The next question is from the line of Chad Beynon with Macquarie. Your line is now open.

[Chad Beynon, Macquarie]

Thanks. Good afternoon and thanks for taking my question. Keith, just to follow-up on your position of strength with the 2.8 times levered balance sheet and the free cash flow. I know you talked about $500 million of capital return, but how are you thinking about opportunistic M&A in the regional markets where you could benefit from an operational improvement strategy and maybe even a long-term by gaming license, or separately on the strip, where you can send your customers. Thanks.

[Keith Smith, Chief Executive Officer]

Yeah, sure. So look, in the environment we find ourselves in today we really are spending almost all of our time focused on and maintaining the strength of our current operations, maintaining the strength of our balance sheet and ensuring that we can maintain returning this $500 million to our shareholders. That is kind of job and priority number one. Look, we've been active over the decades in the M&A space, but today and I think in the very near term it's really about running this business at the optimum level and continuing to produce the results we're producing and ensuring that we can continue to return this capital to shareholders.

[Chad Beynon, Macquarie]

Okay, thanks. And then, in terms of Pala after the deal closes, how quickly can you be up and running communicating with your customers and trying to cross sell them an iGaming product, is that something that can be done within a few quarters or is that something that might take a little bit longer? Thanks.

[Keith Smith, Chief Executive Officer]

Not expect within, call it, six months of the close of the transaction. So if we're able to close and we get all the regulatory approvals around the first of the year, think about middle of 2023 we should have a product where we're able to offer it to our customers.

[Chad Beynon, Macquarie]

Appreciate it. Congrats on the quarter.

[Keith Smith, Chief Executive Officer]

Yes. Thank you.

[Operator]

Thank you for your question. We only have time for one more question. So the last question is from the line of Joe Stauff with Susquehanna. Your line is now open.

[Joe Stauff, Susquehanna]

Thanks, Keith, Josh. Two quick ones. I was curious from a Las Vegas Locals perspective, certainly can’t tell by the results, so I'm wondering if that you've seen any of the your California-based customers just moderate in terms of their visitation? If there had been maybe any changes or in those trends that you saw, whether that be in the second quarter and/or kind of July thus far?

And then the second question is, really about sort of your capital reinvestment, in particular, buying back about $100 million of stock per quarter. Is there any -- like, are there any discussions possibly to maybe increase the dividend more so than what is roughly a 1% yield? Whether it be at the expense of the buyback or not? Is there any discussions about boosting the dividend? Thank you.

[Keith Smith, Chief Executive Officer]

Sure. So on your last question, I think, obviously, with respect to any conversation about dividends. It will be up to our Board, but we're only two quarters into the restatement of our dividend. And so, I think we're ways away from revisiting whether what the trajectory of that is in the future. We've only just last week made the second payment. With respect to the California traffic here into Las Vegas is an interesting question. We've actually been monitoring it the best we can through zip codes where we draw customers and other information we are able to access. And even with the increase in gas prices over the last couple of months, we really haven't seen any significant change kind of in the business for our properties coming out of California. It's been quite stable. I mean, it moves around a little bit, but it is not significant. So it is something we're watching, haven't seen any significant trends surprising to us, but those are the facts.

[Joe Stauff, Susquehanna]

And I would imagine that commentary applies thus far in July.

[Keith Smith, Chief Executive Officer]

Yes. No change thus far in July.

[Joe Stauff, Susquehanna]

Okay. Thanks very much.

[Operator]

Thank you for your question. There are no additional questions waiting at this time, so I will pass the conference over to Josh Hirsberg for any closing remarks.

[Josh Hirsberg, EVP, Chief Financial Officer and Treasurer]

Thank you, Matt. And thanks to everyone for joining the call today. If you have any follow-up questions, please feel free to reach out to us. Thank you.

[Operator]

That concludes the Boyd Gaming second quarter 2022 conference call. Thank you for your participation, you may now disconnect your lines.