Boyd Gaming Corp

NYSE:BYD

Earnings Call Analysis

Boyd Gaming's Strong Q4 Caps Record Year

Boyd Gaming concluded 2023 with a solid fourth quarter, as company-wide revenues increased by 3% to $954 million, driven by growth in their online segment. Despite a slight dip, EBITDAR remained high at $355 million. Looking ahead, 2024 presents tougher comparisons due to last year's record performance and new competition. However, trends appear consistent with steady customer volumes. The Downtown Las Vegas sector is expected to see healthy growth, backed by a robust Southern Nevada economy. The Midwest and South returned to growth with stable gaming revenues, and the managed business segment projects maintaining its strong performance with an estimated $85 million EBITDAR. Planned property investments in 2024 include food, beverage, and hotel room renovations, following the completion of a similar project in 2023.

Continued Strong Performance and Ambitious Growth Projects

The company has continued to excel, building on three consecutive years of record revenues and EBITDAR, driven by successful diversification, especially in the online and managed business segments. Despite facing softer retail customer trends and inflationary pressures, the company's strategic focus on core customers is showing benefits as customer trends improve and cost pressures appear to be moderating. They are progressing on transforming the Treasure Chest Casino, aiming to enhance guest experiences and drive long-term growth. Furthermore, the company plans to maintain its shareholder rewards with $100 million in quarterly share repurchases and regular dividends.

Steady Approach Amidst Market Fluctuations

Executives expect the first quarter to be challenging due to tough comparisons with the previous record year and new competition from Durango's opening, although they haven't observed significant impacts yet. They believe that barring disruptions from room remodels at Gold Coast, the year could have similarities to 2023. The company will also see a reduction in interest income as loans to the Wilton Rancheria Tribe have been repaid, expecting net interest expenses to be around $170 million for the year.

Cost Pressures and Expense Management Outlook

Despite a challenging operating environment, the management emphasized moderation in cost pressures, especially in labor and utility costs, suggesting that the worst may have passed. However, they caution against using Q4 as a run rate for expenses. They anticipate a corporate expense increase of about 3% and continue to see EBITDAR margins consistently above 40% for the past three years, demonstrating a well-managed and disciplined business model capable of generating significant free cash flow.

Strategic Initiatives and Online Segment

Boyd Interactive, although a new endeavor with its online casino and social gaming products, is viewed as a long-term initiative performing well, contributing to the company's flat online segment guidance. Furthermore, the executive commitment to running a robust business emphasizes a disciplined investment and M&A approach, focusing on strategic fit and long-term shareholder value.

Earnings Call Transcript 2023-Q4

[David Strow, executive]

Good afternoon, and welcome to the Boyd Gaming Fourth Quarter and Full Year 2023 Conference Call. My name is David Strow, Vice President of Corporate Communications for Boyd Gaming. I will be the moderator for today's call, which is being recorded on Thursday, February 8, 2024. [Operator Instructions]

Our speakers for today's call are Keith Smith, President and Chief Executive Officer; and Josh Hirsberg, Executive Vice President and Chief Financial 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, both of which are available at investors.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.

Today's call is 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 would now like to turn the call over to Keith Smith. Keith?

[Keith Smith, executive]

Thanks, David, and good afternoon, everyone. 2023 was another great year for our company as we continue to build upon the record performances we have delivered over each of the last several years.

We achieved full year records for both revenues and EBITDAR, with operating margins remaining well above historical levels. 2023 was the third consecutive year we set revenue and EBITDAR records on a full year basis.

This full year performance is a tribute to our diversified portfolio with strong growth from both our online and managed businesses. This growth was complemented by stable revenues from our property operations as we saw continued strength in play from our core customers and growth in our non-gaming business. And we finished the year strong with a solid fourth quarter performance.

During the fourth quarter, company-wide revenues rose 3% to $954 million, driven by growth in our online segment. EBITDAR for the quarter was $355 million, down slightly from our record fourth quarter last year.

Looking at property operations, gaming revenues for the fourth quarter were down less than 1%, a notable improvement from the last several quarters.

During the quarter, play from our core customers grew at the strongest rate of the year. While this growth was offset by lower retail play, the year-over-year decline in retail play was the smallest we have seen since the first quarter of 2023, and non-gaming revenue for the quarter continued to grow, rising 1.5% over prior year.

Property level operating margins for the quarter exceeded 40%, this is in line with the margins we have delivered over the last 3 years, reflecting our team's ability to operate efficiently through a variety of economic conditions.

Now moving to results for each segment. In our Las Vegas Locals segment, both revenue and EBITDAR for the fourth quarter were in line with our expectations. Play from our core customers grew at a rate similar to the third quarter, demonstrating the continued strength of this customer segment. Retail play was also sequentially consistent with third quarter levels.

Our non-gaming business continues to perform well with hotel revenues up 4% during the quarter.

Finally, our property teams did an excellent job managing expenses in a difficult environment, with margins once again exceeding 50% in our Locals operations in the fourth quarter.

Looking ahead to 2024 in our Locals segment. Recall that we produced a record first quarter performance last year, so we are facing tougher year-over-year comparisons.

In addition, we also expect to see some impact from the recent opening of a new competitor in the Las Vegas Locals market and the room remodel project at our Gold Coast Hotel.

Having said this, we are encouraged that customer trends in the Las Vegas Locals segment are holding steady so far in the first quarter, with overall play volumes looking similar to fourth quarter levels through early February.

Moving next to Downtown Las Vegas. Revenues rose slightly, while EBITDAR equaled last year's record fourth quarter performance. These results benefited from the completion of construction projects at both Main Street Station and the Fremont during the quarter.

While these construction projects impacted our Downtown results throughout most of the year, these investments are beginning to pay off. The Fremont performed at record levels during the fourth quarter, while Main Street had its best quarterly performance of 2023.

Our Downtown segment also saw solid growth in play from our core customers during the quarter, while retail play also rose.

Looking ahead, we are optimistic about the direction of our Downtown Las Vegas segment. With our construction projects now complete and the Fremont performing at record levels, our Downtown Las Vegas business is poised for healthy growth in 2024.

Our optimism for our Las Vegas operations is supported by the continued strength of the Southern Nevada economy. In the near term, we are excited about Las Vegas' first Super Bowl this weekend, as we are experiencing strong demand in cash hotel business at both our Locals and Downtown properties.

In the longer term, the direction of the tourism sector remains vibrant, with nearly 41 million people visiting Nevada in 2023, exceeding the prior year by more than 5%.

Gaming revenues in Southern Nevada reached a record $13.5 billion in 2023, a 5.5% increase over 2022. And convention business was up 20% in 2023, about 10% below its all-time high in 2019. Average daily room rates continue to trend higher, increasing 12% for the year across the Southern Nevada market. And more than 57 million people pass through the Las Vegas Airport last year, topping the record set in 2022 by more than 9%.

With the strength of the Southern Nevada economy goes beyond tourism. Of the nation's 30 largest metro areas, Las Vegas ranked #1 for job creation last year, with total employment rising more than 4% in 2023. This employment growth was broad-based, with growth across 8 of 11 major job sectors. And with billions of dollars in projects under development across the Las Vegas Valley, the construction sector continues to serve as an economic engine for the Southern Nevada economy.

Moving outside of Nevada, our Midwest and South segment returned to growth in the fourth quarter. Both revenue and EBITDAR increased over the prior year, with operating margins of more than 38%. Gaming revenues were essentially even with the prior year, the strongest quarterly performance we saw from our Midwest and South segment all year. And we saw encouraging results from the various property investments we made in 2023. Our new amenities have been well received by customers and helped drive a 4% increase in food and beverage revenue during the quarter.

Looking ahead, the first quarter results have been impacted by January's severe winter weather. But with these storms now passed, customer trends over the past 2 weeks have rebounded to fourth quarter levels, giving us optimism in the direction of this business.

Next, in our online segment, revenue and EBITDAR growth in the fourth quarter was primarily driven by the introduction of sports betting in Ohio in early 2023. On a full year basis, our online segment performed in line with our earlier estimates, with total EBITDAR of $62 million for 2023.

Looking ahead, we expect the online segment to maintain this level of performance in 2024, with $60 million to $65 million in full year EBITDAR, as no new sports betting markets are expected to come online this year. And finally, our managed and other business produced another strong quarterly performance.

Both revenue and EBITDAR grew over prior year in the fourth quarter, thanks to continued strong results at Sky River in Northern California. For the full year, this segment generated EBITDAR of $84 million, including management fees earned from Sky River.

In 2024, we expect our managed and other business will maintain its current level of performance, with full year EBITDAR of approximately $85 million driven mainly by Sky River. And given the strong performance of Sky River, the Wilton Rancheria Tribe is exploring a significant expansion of the property, including additional casino space, a hotel tower and meeting and convention facilities. While plans have not been finalized, we are optimistic about the long-term growth potential of this property.

So in all, the fourth quarter of 2023 was a strong close to another record year for our company, with continued strength from our core customers, solid growth from our online and managed businesses and strong returns from our recent property investments. The property investments we have been making are improving the customer experience, supporting growth in play from our core customers, and driving increased visitation throughout the business.

After opening nearly a dozen new or upgraded restaurants and bars across the country in 2023 and completing casino renovations at the Fremont, we plan to renovate or upgrade a similar number of food and beverage outlets in 2024. Beyond these investments in our food and beverage offerings, we plan to renovate hotel rooms at the Gold Coast, Blue Chip, Ameristar St. Charles and Valley Forge in 2024. This follows the completion of our room remodel project at Main Street Station in late 2023.

In addition to these property investments, we continue to make excellent progress on our project to transform our Treasure Chest Casino near New Orleans from a 3-level river boat to a spacious single-level, land-based facility with expanded gaming space and additional non-gaming amenities. Once complete around midyear, this investment will significantly enhance the guest experience of Treasure Chest and position it for long-term growth.

As we near completion of the Treasure Chest project, we are finalizing plans for our next set of growth projects, and we'll have more details to share with you in the near future.

Another important element of our long-term strategy is our balanced approach to capital allocation. As part of this strategy, we plan to continue our current pace of $100 million in quarterly share repurchases in 2024, supplemented by regular dividend payments while keeping our focus on maintaining a strong balance sheet.

In conclusion, this was another strong quarterly performance by our company, as we completed our third consecutive year of full year record results. But beyond producing record results, 2023 was a year of significant achievement.

First, we maintained our focus on our core customers, resulting in continued growth from this important customer segment.

Second, our growth initiatives delivered strong results with excellent returns from online gaming, Sky River, the Fremont expansion project and our recent hotel and food and beverage investments.

Third, our management teams continue to execute at a high level of efficiency, with property level margins exceeding 40% for the quarter, a level we have now consistently delivered for 3 years.

And finally, we continue to pursue a balanced approach to capital allocation, returning more than $475 million in capital to our shareholders in 2023, while maintaining the strongest balance sheet in our company's history.

Strong performance in 2023 is attributable to our strategy, our leadership team and our operating model. But most importantly, it is a result of the dedicated efforts of our team members who provide consistently memorable service that keeps our customers coming back.

I'd like to thank every Boyd team member for their contributions to our company's success. Thank you for your time today.

I would now like to turn the call over to Josh.

[Josh Hirsberg, executive]

Thanks, Keith. 2023 was another record year for our company, highlighted by a strong fourth quarter. This was our third year in a row of generating record revenue and EBITDAR on a company-wide basis.

Our revenue and EBITDAR growth in 2023 was driven by our online and managed business segments, reflecting the benefits of our diversification. Our properties have faced challenges all year from a softer retail customer and inflationary pressures. However, we are also seeing improving conditions in our property operations. Our focus on our core customer is paying off, as we continue to see growth in play from this customer segment.

And during 2023, our retail customer trends across the country have been improving. And while cost pressures are not completely going away, they appear to be moderating. Our property operating teams have done a very good job managing in this environment with quarterly property EBITDAR margins consistently above 40% for the last 3 years.

Beyond property operations and our other operating segments, as Keith mentioned, we expect our online segment to generate $60 million to $65 million of EBITDAR in 2024.

As you may recall, our online results include a tax pass-through related to our online partnerships. These amounts are recorded as both revenue and expense. During the fourth quarter, the tax pass-through amount was $97 million compared to $73 million in the fourth quarter of 2022.

For the full year, the tax pass-through amount in 2023 was $328 million compared to $208 million in 2022.

And moving to our managed and other segment, we expect to generate approximately $85 million of EBITDAR in 2024. We expect EBITDAR from this segment to be more evenly spread throughout the year as compared to 2023.

One additional housekeeping item related to this segment. In 2023, we generated interest income from an outstanding loan to the Wilton Rancheria Tribe. The loan has now been completely repaid and therefore, we will not generate $24 million in interest income that we earned during 2023. As a result, net interest expense in 2024 should approximate $170 million.

In terms of capital expenditures, we finished 2023 investing $95 million in the fourth quarter, for a total of $374 million for the year.

For 2024, we expect our capital expenditure program to include maintenance capital of about $200 million to $250 million, plus a recurring $100 million for growth investments.

This year, our growth capital plans include completing the new Treasure Chest land-based facility and starting additional growth projects in the second half of this year. We also expect to spend an incremental $100 million on the room renovations that Keith spoke about.

So for 2024, we estimate total capital expenditures of about $400 million to $450 million.

With respect to our capital return program, during the most recent quarter, we repurchased $100 million in stock, acquiring approximately 1.7 million shares at an average price of $59.15 per share.

For the full year, we repurchased $413 million of stock, representing 6.5 million shares. When combined with our ongoing dividend program, we have returned more than $475 million to shareholders during calendar year 2023.

Since we resumed our capital return program in late 2021, we've returned more than $1.1 billion to our shareholders and reduced our overall share count by 14%. We ended the year with an actual share count of 96.8 million shares and had $326 million remaining under our current repurchase authorization. We remain committed in 2024 to $100 million per quarter in share repurchases.

We finished 2023 with total leverage of 2.3x and lease-adjusted leverage of 2.7x. With low leverage, no near-term maturities and ample borrowing capacity under our credit agreement, we have created the strongest balance sheet in our company's history. We also generate significant amounts of free cash flow from a diversified portfolio of assets.

In 2023, we generated free cash flow of more than $725 million or more than $7.50 per share. As a result of our significant free cash flow and strong balance sheet, we were able to pursue a balanced approach to capital allocation, investing for organic growth in our existing portfolio and returning capital to our shareholders while pursuing opportunities to further grow our company.

David, that concludes our remarks, and we're ready to take any questions.

[David Strow, executive]

[Operator Instructions] Our first question comes from Steve Wieczynski of Stifel.

[Steven Wieczynski, analyst]

So Josh, look, you guys don't give formal guidance for the full year. You have given some guidance here around certain parts of your business. And Keith in his prepared remarks talked about some of the headwinds you guys might face in like the Locals market and coming up the record first quarter of last year and stuff like that.

But just wondering if you could maybe help us from a high level, maybe help us think about how you're thinking about the Locals market, Downtown, Midwest and South this year? And if there's anything else that we need to be thinking about as we build out the cadence for 2024?

[Josh Hirsberg, executive]

Sure, Steve. So look, I think we've tried to outline it pretty well, in our prepared remarks. I think as we think about the Las Vegas Locals market, while it's still early, our properties are performing consistently and very well.

As Keith laid out for you some of the challenges that we may face as we go through the year with respect to the Las Vegas Locals with the new competitor, little early, and so we need to see how that plays out. We've got construction related to Coast that we'll go through third quarter. And then we have the first quarter that we think will be a little bit of a challenge of a comp.

I think the underlying customer trends give us some level of confidence from where we sit today, in terms of the Las Vegas Locals and the trends in that business.

Downtown, I think Downtown has been really plagued with construction disruption on and off throughout the year, and really, 2024 for Downtown will be a year without construction disruption. So it should do better.

In the Midwest and South, I think what we're seeing is more stabilization in the retail customer segment, gradually getting better year-over-year or less bad year-over-year than it has been. While combined with a stronger and improving core customer, which is really true across all of our business segments. I think what's made it difficult -- and looking at the Midwest and South, has just been the difficult weather that we've seen in -- beginning with January. But once we've got that behind us, the customer trends feel very similar to what we've been seeing.

So it's been a difficult start to the year. We've got a difficult comparison in Q1 related to LVL, but as we get some of this behind us, it feels like the customers are not getting worse, but at this point, at least very stable.

Keith, I don't know if there's anything you want to add to that?

[Keith Smith, executive]

No, Josh, I think between our prepared remarks, where we talked about a lot of this in Josh's comments, I think it summarizes it well. Nothing else to add.

[Steven Wieczynski, analyst]

And then, Josh, if we go back to the fourth quarter and think about the Midwest, it's the one market or the one segment that grew margins year-over-year. And just wondering if that essentially was a clean quarter, meaning there was no benefit in there on the cost line. Just want to make sure that's kind of a clean number that you guys put up there in the fourth quarter.

[Josh Hirsberg, executive]

Well, look, I think there is some seasonality into our business. And so from our perspective, when we look at our expenses, we don't necessarily think Q4 is really a good run rate for -- really any segments of our business. I think we would ask people to look back at Q1, Q2 and Q3 and use some combination of that. recognizing we have seasonality with certain aspects of our expenses. So I don't think Q4 is a good run rate in terms of expenses for any of our segments, really.

[Steven Wieczynski, analyst]

Okay. Got you. And Josh, one quick housekeeping. Do you have an idea what corporate expense would look like for '24?

[Josh Hirsberg, executive]

Since most of it is really headcount-related and that's going up like 3% or so, I think that's generally where you should expect that level of increase in corporate expense over what we delivered in 2023.

[David Strow, executive]

Our next question comes from Carlo Santarelli of Deutsche Bank.

[Carlo Santarelli, analyst]

I just kind of -- I wanted to essentially try and understand the Locals commentary for the first quarter. Seasonally speaking, historically, 1Q trends relative to 4Q trends, the 1Q has tended to be a little bit better than the 4Q from an EBITDAR perspective. Clearly, you're going to have a full month of competition but you talked about play levels and volumes quarter-to-date being similar to the 4Q. I do see, obviously, you have a little bit of a tougher comp in the first quarter last year relative to what was experienced in the 2Q through the 4Q.

So from a level of magnitude perspective, is the first quarter expected to be the most challenging quarter? And should it differ materially from historical seasonality when compared to the 4Q?

[Keith Smith, executive]

So Carlo, I think you're right. I think that the first quarter, what we tried to lay out was a very challenging comp because of our record results last year. So we will -- Q1 will be the most challenging quarter of the year. We -- customer trends, as we indicated in January and through the first few days of February, look a lot like Q4, which implies we haven't seen any significant impact as a result of the opening of Durango. Now it's still early, the property has only been open 60 days, but we haven't seen any significant impact. So [indiscernible] it other than that.

I think as you think about the rest of the year in the Locals market, absent some disruption from a room remodel of Gold Coast, which will have half of its rooms out of service at a time, the year should look a lot like 2023.

[Josh Hirsberg, executive]

Yes. I think it's helpful just to remind people, the reason Q1 was so strong last year, in particular for Las Vegas Locals had to do with COVID and the removal of some mask restrictions and things of that nature that was going on, and so that's why I think the seasonality that you referenced, Carlo, correctly is not -- probably not going to play out this quarter.

[Carlo Santarelli, analyst]

Okay. Meaning, Josh, just to simplify, historically, 1Q better than 4Q, this quarter perhaps not better, but [indiscernible]...

[Josh Hirsberg, executive]

That's right.

[Carlo Santarelli, analyst]

Okay. Okay. All right. And then -- yes, sorry. Just as a quick follow-up, as you think about the numerous projects, the room remodels across, I think it was 4 regional properties. There are 3 regional properties and Gold Coast that you mentioned. And I -- based on the $100 million of CapEx on that stuff in second half, more weighted, it seems like should we be taking into consideration those being at all disruptive? Or is that somewhat seamless in the way you can go about that?

[Keith Smith, executive]

So I think with respect to the regional room remodels, we're able to do them differently. There are some structural issues with the Gold Coast that causes us to take more rooms out of service at a time. The other room remodels that will be happening at Blue Chip and Valley Forge and Ameristar St. Charles, we'll be able to do where there'll be smaller number of rooms out of service that will have limited impact on the business. So I would not be factoring in any real disruption from those.

[David Strow, executive]

Our next question comes from Joe Greff of JPMorgan.

[Joseph Greff, analyst]

Back to the Las Vegas Locals market. I know it's only been about 70 days since Durango opened up. But do you think at this point that you've hit the impact of peak trial from your gaming patrons going over to Durango, or do you think the trial impact is different than say, other times when you faced new competitive supply in the Locals market?

[Keith Smith, executive]

It's a really hard question to answer, Joe. Look, it's been open, as you say, 60 or 70 days, we haven't seen a significant impact. We're pleased with the way our operating teams have been able to manage through this. And other than that, we're going to continue to be very cautious very diligent about how we approach the business. But I'm not ready to say that we've hit peak trial and the worst is behind us, so to speak. So every market is different, every opening is different, every property is different. And so it's really tough to peg that.

[Joseph Greff, analyst]

Great. And then, Josh, it's hard not to hear your comments about cost pressures are moderating. Can you highlight in what specific areas you're seeing the most moderation and maybe the magnitude of those operating expense segments on the enterprise?

[Josh Hirsberg, executive]

Yes, I'll do my best to try to help you figure that out, Joe. I think -- look, I'll start at the high level, which is, the 2 largest areas of expense categories that you guys very much know about is labor and marketing. And from a marketing perspective, our cost as a percent of revenues have been very consistent really since coming out of COVID. We've not really deviated from our strategy. Even here in Las Vegas, where we have a new competitor, we continue to remain disciplined with how we will be investing with our customers. So marketing is really not a source of pressure and hasn't been one really coming out of COVID.

From a labor perspective, I would say it's -- there's really 2 aspects to it. One is self-inflicted, where we have chosen to increase the minimum wage of our team member to what we think -- consider a livable wage of $15 an hour, and that has been rolled out really over the last 2 years, with the last piece of that happening in the second half of 2023. So if you think about labor in that sense, it's going to take until the second half of next year before we're able to start to anniversary some of those labor increases. We expect still to see increases, but just not to the levels or the pressure that we've seen over the last 2 years.

Another big category that we've talked about historically has been utilities. For us, in the fourth quarter, we didn't really see a big increase in utilities. It's obviously a seasonal expense, and we're not expecting the level of increases in that category next year. And so we'll work through that year-over-year as we work through the year in terms of seasonality impact.

And then the last one I would call out that we've talked about before is property insurance. At our renewals, which happened in the second half of the year, we saw big increases in those categories. We don't expect those similar level of increases in 24, but we'll have to get through to the second half of the year before we're on a comparable basis.

So those are the bigger categories where we've seen pressure historically. And so it will -- depending on the rollout of those expenses in 2023 will affect how we look at it in 2024. But the main thesis that I think we're saying is, is that we -- we believe we've seen the worst in terms of the increases. We don't expect to see those level of increases. And now we just have to work through what we have experienced. And as I said in an earlier comment, I wouldn't use Q4 as a run rate because it's more like some of the first 2 or 3 quarters of the year 2023.

[David Strow, executive]

Our next question comes from Barry Jonas of Truist.

[Barry Jonas, analyst]

I wanted to start with Boyd Interactive. Can you maybe give us some -- any color on how that's performing? And also help us understand how Boyd Interactive factors into the flat online guidance relative to FanDuel?

[Keith Smith, executive]

Yes. So Boyd Interactive is obviously still a very new venture for us, a little over a year since we've owned that business. We've been successful in launching online casino in New Jersey and PA, I think both performing well. We launched a social gaming product under the Stardust brand earlier in January, that have been out there, but it being run by somebody else. And so I think we're very happy with the way it's performing. Remember, it also has a smaller or B2B business that it operates that existed when we bought it.

So look, overall, we're pleased with this performance. The team is doing a great job executing on the plan that's in front of it and looking to continue to grow that business. It is a long-term play for us. It's not about the short term. And when we describe a flat online segment or online business category, I think it's a combination of both the online sports betting as well as Boyd Interactive that we think will be reasonably flat for the year.

[Barry Jonas, analyst]

Got it. Got it. And just as a follow-up, can -- maybe just talk about the M&A environment and your appetite for M&A here?

[Keith Smith, executive]

So look, our main priority every day is making sure that we're running a strong business that we're looking at ways to grow profitable revenues and bring those revenues to the bottom line and just make sure that we have a very, very strong business and that we're reinvesting in our business at the right level.

Beyond that, if something interesting happens to come up, we'll take a look at it, but we've talked in the past, we've always been a very, very disciplined investor, a disciplined acquirer of assets. It's got to be the right assets at the right price, at the right market, and be the right strategic fit and have the right strategic reason to do it.

And once again, our core priority right now is focusing on running a strong business, generating incremental EBITDAR and incremental shareholder value. And if something interesting comes up, we'll probably take a look at it. But we remain very disciplined.

[David Strow, executive]

Our next question comes from Dan Politzer of Wells Fargo.

[Daniel Politzer, analyst]

I just wanted to follow up with maybe one more on Durango. Could you maybe talk about the overlap in terms of database or geographic or from a demographic standpoint. And then similarly, Josh, I think last quarter, you maybe conservatively benchmarked a $25 million or so impact. I know we're only 70 days into the opening, but I mean, do you still feel like that's a good number or maybe on the more conservative end of the spectrum there could be upside there?

[Keith Smith, executive]

Look, from an overlap standpoint, I certainly don't have any insight into what their demographics look like from just a pure geography standpoint, you look at ZIP codes, where our customers come from, what our various properties, what ZIP codes are closest to them, what ZIP codes are in a jump ball category. We understand all that. We understood all that well before they opened and we're able to put the right plans in place.

Our comments we've made a couple of times today about thus far, we have not seen a significant impact to our operations to our customers as a result of that is about all we can say. We know customers has visited as customers always do. And -- but I think the proof is in the numbers, and we're not seeing a significant impact as of yet, but it's only 70 days, and we'll just be very cautious going forward.

[Josh Hirsberg, executive]

Yes. And Dan, in terms of our 5% and $25 million, I think we characterized it as conservative. And I think for today, we're going to stick to those numbers just given it's still very early. And we'll just have to see how things play out over the rest of the year.

[Daniel Politzer, analyst]

Got it. And just for my follow-up, also on the Locals. This is more of a margin and OpEx question, but you've been running 50%-plus margins, 3 years and certainly, I recognize the first half of this year, you have a couple of headwinds that you called out. But I mean, to the extent that you see things stabilize and overall, the market looks similar to last year. Is there any reason we shouldn't still be in that same margin range over the course of the full year?

[Josh Hirsberg, executive]

Yes. I don't -- I think we've been able to maintain LVL margins, Midwest and South margins pretty consistently, overall, property margins in this 40% range for literally 3 years now. So I'm sure there's going to be quarters where things get out of hand, whatever, but it shouldn't be a permanent change because I think we're running our business in this manner with this philosophy of being disciplined around reinvestment, using our tools and capabilities, and it's yielding the results that you're seeing.

I mean, we're generating a significant amount of free cash flow, a significant level -- consistent level of performance at these levels. So again, I'm sure time to time, we won't deliver, but I think generally, this is what you should expect from us.

[David Strow, executive]

Our next question comes from Jordan Bender of JMP.

[Jordan Bender, analyst]

So the question gets brought up every couple of quarters, but there's a view out there that the FanDuel stake that you own isn't reflected really in your stock. So is there a thought from the company to either look to monetize some of that or all of it, maybe help you recognize some of that value in your shares or I guess, asked another way, I believe in 2028, there's a valuation agreement period between the 2 companies. Like could you imagine a scenario where you would look to monetize it before that date?

[Keith Smith, executive]

I think we have historically and currently view our 5% ownership in FanDuel as a very strategic partnership, a very strategic relationship. And through today, we continue to view it that way. What the future brings, if and when we'd monetize it, we don't have any thoughts or comments on that topic, but it is very much an important strategic relationship and drives a significant portion of the $60-plus million we generated in the online portion of the business. So important, and we'll just see what the future brings.

[Jordan Bender, analyst]

Understood. And then just a housekeeping modeling item, $103 million impairment charge in the quarter. Is there anything to call out on that?

[Josh Hirsberg, executive]

No, not really. It's just the accountants doing their thing. So I wouldn't put too much into that. A lot of it has to do with the changes in interest rates and things like that in terms of what they discount the cash flows at. That's really what it comes down to.

[David Strow, executive]

Our next question comes from Shaun Kelley of Bank of America.

[Shaun Kelley, analyst]

Really, just 2 quick clarifications for me. So first, I think it goes back to Barry's question. But Josh, I mean, with online being flat or the guidance or an outlook being flat, just trying to understand why -- with the market access agreement, why you wouldn't benefit on sort of same-state GGR growth. Appreciate there's no maybe big step function on new state launching. But is there either an offset on the expense base and something else that's there? Or is there something else that caps that number?

I'm just kind of -- yes, why that would be more participatory on a market that still seems like it's growing easily, 15% to 20% a year?

[Josh Hirsberg, executive]

Yes. I guess we just don't share the same view of that. I think -- as we view it as markets open up and then generally mature pretty quickly. And remember, we're just getting a percentage of that growth. I -- it's -- there's no increase in expenses. There's no cap or anything nefarious going on. It's strictly our view of the world that these markets are not just going to keep growing to the sky, and they have more modest growth once they open up and have been around for about a year.

So to the extent that, that we're off on that, that's -- that will drive our results. But again, it's -- we only get a small percentage of that growth.

[Keith Smith, executive]

Look, what Josh's saying, to the extent you're right, Shaun, then yes, we'll see that number go up. We don't know. But...

[Josh Hirsberg, executive]

That's not what we expect.

[Shaun Kelley, analyst]

Okay. So I totally get it and then follow how you underwrote it. So that's helpful.

And then sort of the other clarification, Josh, I appreciate it's not a number that we should be building our expense base off of, but just to go back to Midwest and South because the margin performance was so stellar and the expenses were down quite materially quarter-on-quarter. I guess, just very explicitly was, was there any either tax reversal or insurance benefit or some one-timer that hit in that? Or again, just for that number -- and again, I appreciate that's not the base we would model off of either way, but just curious if that number is -- if there was anything else that might have driven that margin performance, as it just looked very, very strong?

[Josh Hirsberg, executive]

Yes. No. Nothing that is like unusual that we could call out that would -- that you -- yes, it was -- I mean things happen around year-end and things like that, but it's all just normal stuff. So I can't -- yes, nothing jumps out.

[David Strow, executive]

Our next question comes from David Katz of Jefferies.

[David Katz, analyst]

Appreciate all the details as well. I wanted to just pose a question. It's a bit hypothetical. Leverage down at under 3x, makes sense in an environment with elevated interest rates. As interest rates come down, does it make you a bit more comfortable perhaps letting that rise a bit and therefore, implying that some more capital returns might be enabled along with your earnings growth. Where would your target leverage be, hypothetically, if interest rates started to come back down again?

[Josh Hirsberg, executive]

Yes. I'll tell you then Keith, jump in. I think that it's not interest rate-driven really. It's overall leverage driven. And I think we said generally, we're comfortable in this range. We're not opposed to leveraging up over time for whatever reason we so choose if it makes strategic sense to do so. But it will be with the goal of deleveraging back down to around these levels.

So we're comfortable running the business at this leverage level. We think it gives us flexibility to continue to do the things we want to do without being having to deviate from that if something happens economically or if we choose to do an acquisition or something else, and we can keep returning capital to shareholders and keep reinvesting in our existing portfolio. So that's the logic behind the leverage level.

[David Katz, analyst]

So just to follow that up. I mean your -- if you were to sort of drift up into the 3s, it would be with a specific purpose and it sounds like it would be somewhat temporary. But where we're at, that's the new target range where we'd like to be.

[Josh Hirsberg, executive]

Yes. Yes, I think that's right.

[David Strow, executive]

Our next question comes from Brandt Montour of Barclays.

[Brandt Montour, analyst]

So on the improvement that you saw in the retail customer throughout the fourth quarter. I was wondering if you were noticing better traffic or versus sort of spend per visitor coming in the doors. And is it even across the regions in your system? And then what do you think is driving it?

[Josh Hirsberg, executive]

I'll take a big picture shot at it and Keith, you can jump in. I would just say that the comments around the retail segment, which is the lower end of our database and unrated segments. What we're just -- what we're trying to say is, sequentially, throughout 2023, year-over-year, the decline has narrowed, that gap has continued to narrow to the narrowest point that is -- that was achieved in Q4. And then as we come out into January and early parts of February, that trend has generally been consistent as well.

So we don't know as much about the unrated segment. So we can't tell you if it's more trips, less trips, more spend, that mix. So -- and that's what makes up the majority of that retail segment. So I'm not sure we're going to be able to give you much more than that at this point. But Keith, I don't know...

[Keith Smith, executive]

Yes, that's about it.

[Brandt Montour, analyst]

Okay. And on the -- maybe on the Las Vegas Locals and the rated side of things where you're also seeing decent strength, it sounds like. I was wondering if you think you're seeing benefits in that segment from recently renegotiated union contracts and higher wages related to that flowing back into those customers' wallets and pockets in there and they're spending more at your properties this year from that?

[Keith Smith, executive]

I don't think we can specifically say that we've seen that, but many of those team members that work up and down the [indiscernible] beneficiary of those pay package, there are certainly our customers and a number of our properties. And so to the extent that they have more money in their pocket, I assume we're getting some of that, but there's really no way to tell -- no way for us to comment on this at that point -- at this point.

[David Strow, executive]

Our next question comes from Chad Beynon of Macquarie.

[Chad Beynon, analyst]

Wanted to ask about Treasure Chest, I know that the boat is going to stay open, I think, until the land-based property opens. But just curious if we should expect any disruption in the first half of the year? And then should we still expect a mid-teens return on CapEx in the first year or 2?

[Keith Smith, executive]

In terms of the disruption aspect, look, the boat will stay open. It will technically will close. I'm sure for a few days, 3 to 4 days as we have to move some gear off of the boat on the land-based facility, the rules and regulations in Louisiana require us to have everything in working order before we're able to open the door.

So there'll be 3 or 4 days where we'll be out of business, but no other disruption other than that. So in terms of our return, Josh?

[Josh Hirsberg, executive]

Yes, we're trying to be very thoughtful and disciplined around the investments we're pursuing and every one of those is at least contemplated to generate a -- we need to get at least a 15% to 20% cash on cash return to meet our overall internal hurdles. And so that's what we would expect from Treasure Chest. We'll get half a year of that, hopefully this year. Full year in Treasure Chest and next year.

[Chad Beynon, analyst]

Perfect. And then just, I guess, a small, maybe more of a personal question, not as much of a financial question. Super Bowl obviously, being in your market. Any approach this year in terms of taking different-sized bets, different environment there? Should it move the needle for Downtown or LVL versus how you historically run that week or weekend for this one?

[Keith Smith, executive]

Yes, I wouldn't be thinking about that from a pure sports book standpoint, I think if you be thinking about it more holistically, room rates are strong, cash room rates are strong. There are certainly a lot of people in town. So it will be a stronger weekend than normal. I think the week -- this week, the week leading up to the Super Bowl is stronger than in prior years because there's more people in town. But anything in particular or any thoughts in particular about how the book may operate differently, I wouldn't anticipate that.

[David Strow, executive]

Our next question comes from Joe Stauff of Susquehanna.

[Joseph Stauff, analyst]

Keith, I think you had mentioned this, but I apologize if I missed it, but can you talk about, say, the behavior of your core customer out of the Gulf states and what you saw in the fourth quarter. Obviously, that -- those were the first states to really soften up. And just wondering where that business is in terms of trends right now?

[Keith Smith, executive]

So I think as we look at our core customer and play patterns from our core customers across the portfolio, it has been strong and it continues to be strong and continues to grow, that is the case here in the Locals market, it's also the case in our Southern states. More of the falloff last year that we saw down in those states had to do with more of the lower-end retail and the unrated.

So I think we're pleased with the performance of our mid- and upper tier-rated customers and the performance of our core play in the South.

[Joseph Stauff, analyst]

Okay. And then maybe one follow-up on the Locals market. As you try to anticipate, obviously, it's still early, as you mentioned. But would you expect, say, you're out of town visitors in the Locals market. Is that more the type of customer that's going to experiment at Durango, or do you see that also from, say, 80% of your customers that are local?

[Keith Smith, executive]

I think it would be our view that the majority of the customers of our customers, existing -- Boyd, a lot of these local customers who are visiting Durango or the people who live here local customers and people, once again, who's ZIP code is maybe closer to Durango or in between our properties and Durango, so they have a choice. It may be easier to drive there, just maybe a product that they want to go check out. In some cases, maybe a product they enjoy better. And just better [indiscernible] that we have 70 days on our belt, and we're pleased with the overall performance of our business in those first 70 days.

[David Strow, executive]

Next question comes from John DeCree of CBRE.

[John DeCree, analyst]

A lot of ground covered. So maybe I'll try to ask the M&A question a little differently. We certainly appreciate the balanced and disciplined approach to capital allocation that you've taken and in a position to have a very healthy balance sheet now.

So I guess the question is, when you look at growth investments, particularly M&A, are there things that you see that would be a good fit for Boyd and maybe just aren't for sale or the ask is too high. It was, given your size and scale and in the context of margins broadly across the industry. I mean are there opportunities that might exist that would be a good fit? Are there synergies to be had? I mean, is M&A a viable strategy if you can find something that it would be priced accurately in your mind and what you could do with it?

[Keith Smith, executive]

Yes. Look, it's a hard question to respond to. So look, as I said, first and foremost, we have to make sure that our core business is running at optimum efficiencies, and that's our focus each and every day.

Look, as we think about M&A, clearly, given the size and the scale and the scope of the company today, the opportunity has to be larger as opposed to smaller, given our breadth and our geographic breadth where we go is important. It's got to be a market that makes sense for us. It's got to be strategic. It's got to be a strong market. As you look across the portfolio, could we name a half a dozen assets, it would be interesting, sure. But it probably doesn't matter unless they're actually for sale.

And so once again, we're going to focus each and every day on building and maintaining a strong business. And when something interesting hits our radar screen. We'll take a look. But as I have said a couple of times, it's got a hit or tick off a number of boxes before we would take a look at it.

[John DeCree, analyst]

Great. That's helpful. Keith, I think you probably already answered my follow-up on that, but just to ask anyway. So one of the criteria, most likely it would need to be upscale, that's needle moving. So tuck-in might not really be worth your time. Is that fair?

[Keith Smith, executive]

That is fair.

[David Strow, executive]

We have time for one last question from Stephen Grambling of Morgan Stanley.

[Stephen Grambling, analyst]

And this will just be a quick follow-up actually on M&A again. I guess coming out from a different approach, would -- is there anything that would make you shy away from a potential transaction such as you generally want to own your own real estate? Or are you willing to look at opcos? And as a related financial question, do the returns that you target on M&A differ from what you'd be looking at for ROI projects?

[Keith Smith, executive]

So I have attempted to answer the M&A question a couple of times. I'm going to let Josh take a shot at this one.

[Josh Hirsberg, executive]

So I think we have -- I think people who listen to these calls generally know that we're not necessarily large fans of doing opco/propco with our existing assets, but we have been willing to do it and consider it as part of a tool for financing acquisitions, whether they're existing tenants of a REIT or otherwise.

So I think the structure really isn't an impendent, something that keeps us from doing anything like that. I think related to that, people should understand, and I think this is consistent with what we said about other aspects of how we think about things is, look, we're willing to leverage up to do an acquisition and then deleverage over time as well, with the goal of getting back to -- generally in the neighborhood of where we are. So we won't always run the company at 2.5x or less, but that's where we want to be in the long run. So hopefully, that gives you a perspective on it.

I think the other thing is, I think Keith has described it, obviously correctly, which is, acquisitions are just one component of how we think about our company in terms of its strategic growth going forward, we look at the organic growth of the business. We look at the growth from the $100 million a year that we're making. We look at the value that shareholders get from our dividend, but also from the 6% to 7% of shares we're taking out every year.

So all of that accumulates to solid business and then the acquisitions are just purely -- if they make sense, we don't feel like we have to do them. I think we are very well positioned to do them given the strength of our balance sheet and robustness of our cash flow and the diversification of that cash flow. But that's why we generally think about the core business and how we can continue to grow that.

And then somewhat, kind of opportunistically the acquisitions, and yes, they have to have the same levels of returns that any investment we're making, whether it's buying back our stock or making investments for organic growth.

[David Strow, executive]

This concludes our question-and-answer session. I'd now like to turn the call over to Josh for concluding remarks.

[Josh Hirsberg, executive]

Thanks, everyone, for your questions today and participating in the call. And if you have anything to follow-up, please feel free to reach out to the company. Hope you have a great rest of your day.

[David Strow, executive]

This concludes today's call. You may now disconnect.