Boyd Gaming Corporation Q2 2009 Earnings Call Transcript

Aug. 5.09 | About: Boyd Gaming (BYD)

Boyd Gaming Corporation (NYSE:BYD)

Q2 2009 Earnings Call

August 5, 2009 12:00 pm ET

Executives

Josh Hirsberg – Senior Vice President and Chief Financial Officer

Keith Smith – President and Chief Executive Officer

Paul Chakmak – Executive Vice President and Chief Operating Officer

Analysts

Joseph Greff - J.P. Morgan

David Katz - Oppenheimer & Co.

[Larry Klatzpin – Chapter Line]

Steven Kent - Goldman Sachs

Jane Pedreira - Clear Sights Research

[Larry Haverty – Gameco]

Justin Sebastiano - Morgan Joseph & Co., Inc.

Felicia Hendrix - Barclays Capital

[John Maxwell] – Jefferies

Operator

Good day ladies and gentlemen, and welcome to the second quarter Boyd Gaming earnings conference call. My name is [Jeri] and I’ll be your coordinator today. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to Mr. Josh Hirsberg, Senior Vice President and Chief Financial Officer of Boyd Gaming. Sir you may proceed.

Josh Hirsberg

Thank you, Jeri. Good morning everyone, and welcome to our second quarter earnings conference call. Joining me on the call this morning is Keith Smith, our President and Chief Executive Officer and Paul Chakmak, our Executive Vice President and Chief Operating Officer.

Our comments today will include comments relating to our future results, including among others the financial outlook of the company, our expansion and development projects and other market, business and property trends 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 take no obligation to update or revise our forward-looking statements whether as a result of new information, future events or otherwise.

Actual results may in fact differ materially from those projected in any forward-looking statements as a result of certain risks and uncertainties, including but not limited to those noted in our earnings release, our periodic reports and our other filings with the SEC.

During our call today we will make reference to non-GAAP financial measures. For a complete reconciliation of historical, non-GAAP to GAAP financial measures, please refer to our earnings press release and our Form 8-K furnished to the SEC today, and both of which are available in the Investors section of our website at BoydGaming.com.

Finally, as a reminder, we are broadcasting this call on our website at BoydGaming.com and StreetEvents.com.

I’d now like to turn the call over to Keith Smith, our CEO. Keith?

Keith Smith

Thanks, Josh, and good morning everyone. Thank you for joining us this morning. Earlier today we released our results for the second quarter. And beyond meeting our expectations for the quarter, our results reflect the fact that the positive trends we noted in our first quarter conference call continued into the second quarter. Business trends across each of our regions continue to stabilize, and the work we’ve done to improve margins appears to have taken a firm hold.

We believe we’ve reached the low point in this economic cycle, and that the precipitous declines that began in the second half of 2008 are behind us. We are now at a new base to build from. However, while the business trends may have stabilized, we are not currently seeing any indications that point to a meaningful recovery in the short term. While we believe the worst is clearly over, challenging times still lie ahead.

In Las Vegas Valley, unemployment has surpassed 12% and home prices are nearly 50% below their peak as foreclosures continue to weigh in the market. These factors are having a significant impact on consumer spending in Las Vegas. But these challenges that Las Vegas faces will not last forever. We have tremendous confidence in the long term viability of the Las Vegas locals market, and Las Vegas generally, and believe that growth will resume as economic conditions improve.

But Boyd Gaming is not just a Las Vegas local operators. We are a geographically diversified company, and our results in our other markets are much stronger. Our downtown Las Vegas and Midwest and South regions both showed continued resilience during the second quarter. And in Atlantic City, while revenues declined at Borgata, cost containment initiatives led to increases in both adjusted EBITDA and operating income during the quarter.

Before I turn the call over to Paul to provide more color on our operating results, I want to briefly touch on a few other topics of interest. First, with regard to our Echelon development, we continue to review our options for this site and are investigating alternative design approaches for the project. In the mean time, construction remains suspended. As I said earlier, we have tremendous confidence in the future of Las Vegas and while the new projects coming on line in the next year will certainly present challenges for the Las Vegas Strip, we continue to view our site on the Strip as an important, long term strategic asset for the company.

Next, I’d like to turn to our ongoing efforts to acquire some or all of the assets of Station’s Casinos. As all of you know, Station’s filed for bankruptcy last week. This filing does not change the fact we remain extremely interested in pursuing a transaction that makes sense for us. Bankruptcy can be a lengthy and complex process. The constraints, expenses and distraction associated with this process can take an unfortunate toll on a company, its employees, vendors and its customers.

We believe we can play a key role in helping to resolve the situation. To that end, we remain actively engaged with various parties. As the bankruptcy process continues and the creditors consider their options, they know Boyd Gaming remains serious and committed in being an active participant. They also know we have the ability and the financial resources to swiftly execute a transaction, and we have more than 35 years of experience in the Las Vegas market. Both of these factors will allow us to provide a smooth transition for Station’s employees and customers. We will keep you updated as the situation develops.

Lastly, before I turn the call over to Paul, I would like to leave you with a few thoughts. First, as I’ve said in the past, Boyd Gaming is not interested in merely surviving these difficult times. We will learn from them, take advantage of opportunities that may present themselves, and emerge from these challenging times a leaner, smarter and stronger company. Second, we view acquisitions as an option and not a requirement. As we look to grow the company we will do it thoughtfully, strategically, with the goal of creating greater shareholder value as we have done in the past. Third, our management team remains committed and focused, focused on providing improved performance, focused on providing improved results and focused on providing improved shareholder value.

And the last, maybe more importantly, we believe that our existing business franchise is of a sufficient size and scope to provide significant stock price appreciation in the future, once a recovery takes hold.

Thank you for your time this morning. I’d now like to turn the call over to Paul Chakmak. Paul?

Paul Chakmak

Thanks Keith. Hello everybody. Business conditions remained difficult in the second quarter, but overall our results met expectations. The dramatic steps we have taken to remove costs from across the enterprise have helped us maintain our operating margins. Business trends were similar to the first quarter. Our Las Vegas locals region remains the most challenged. However, the rate of decline has continued to slow, and provided us with more visibility than we had six months ago. And we’re encouraged by continued solid performances in the balance of our business. These trends are continuing in the third quarter.

And now I’d like to take a more detailed look at our business by region. We’ll start with the Las Vegas locals region. During this recession, Las Vegas has returned to its historical roots as a value oriented destination that is driving visitors back to the city, but they are spending less than in years past. We’re seeing this dynamic at our Las Vegas locals’ properties. Customers are still visiting our properties in large numbers, but spending per visit remains below the levels we saw over the last several years.

As we’ve noted previously, we’re also being impacted by softness in room rates, a trend that is aggravated by the historically slow summer season. Rooms are being filled in Las Vegas, but only through significant discounting. The resulting decline in cash ADR reduced our EBITDA by nearly $5 million compared to the second quarter of 2008. The competition we face in Las Vegas is not limited to hotel rooms. As tourism spending continues to decline, Las Vegas Strip operators have embarked on a short term strategy of promoting their non-gaming amenities to local residents. More significantly, we’re seeing extremely aggressive, broad based promotional offers from our local competitors. Despite the heightened marketing environment, we are taking a disciplined approach to our business and focusing on rewarding the loyalty of our customers.

While times are difficult in Las Vegas, we’ve lessened the impact on our bottom line through improved efficiencies throughout our operations. That helped us hold operating margins steady in the Las Vegas locals region compared to the first quarter, even as revenues declined. This is an encouraging development, and will benefit us in the future as the economy recovers.

We’re also encouraged by continuing deceleration in the rate of decline. EBITDA declined roughly 30% year-over-year in the first and second quarters, down significantly from the 40% decline posted in the fourth quarter of 2008. And we expect the comparison to continue to narrow.

Things are a bit brighter in downtown Las Vegas, as EBITDA rose for the second consecutive quarter. Disciplined cost control measures and reduced fuel costs have helped improve our operating margins, and effective yield management is filling our Hawaiian charter flights with valued customers. While the downtown Las Vegas market is declining, our targeted marketing has been effective, and our market share continues to grow. We now have a 29.2% share of the downtown market, up from 27.7% in the comparable period last year.

The Midwest and South region continues to be resilient, reporting stable EBITDA in revenue year-over-year. Once again, Delta Downs was the star of the quarter. Though competitors tried to imitate us, the property still grew EBITDA by more than 16%, setting an all time second quarter record. Innovative marketing campaigns and an emphasis on creating a memorable customer experience have helped Delta Downs grow its share of the market’s gaming revenue by over 300 basis points during the quarter, compared to the same period last year. All this occurred while the property was boosting its EBITDA margin by about 200 basis points. Delta Downs second quarter was an impressive achievement, especially during these times.

I also want to highlight Paradise, which posted solid year-over-year growth. Revenues were up slightly, and EBITDA increased by 12%, reflecting a more focused operation.

At Blue Chip, we continue to see increased business levels from the expansion we opened in January. As with any expansion of this magnitude, operating costs have been high during its initial opening phase. However, we have spent the last several months refining costs at the property, bringing expenses back into line with business levels. I do want to note that yet another competitor is opening in southern Michigan about 90 minutes from Blue Chip. While it’s always a concern when new gaming capacity comes online, we have gained substantial experience in responding to the competition over the last few years, and we are prepared to deal with any challenges that arise. Blue Chip’s full service product also gives us a sizable competitive advantage against an operation that will have only limited amenities.

In Atlantic City, Borgata once again outperformed an extremely challenged market. Although revenues fell, EBITDA and operating income both increased year-over-year during the quarter, as we benefited from cost control measures implemented over the last several quarters. The quality of the Borgata experience clearly separates us from our regional competition, as demonstrated by our continued growth in market share.

In the second quarter, Borgata posted a 17.7% share of the Atlantic City market, up from 15.6% in the year ago quarter. Atlantic City faces numerous challenges going forward. However, our results demonstrate that Borgata is an entertainment destination without rival in the tri-state area.

To summarize, it was more of the same in the second quarter as we continued to deal with the challenges created by the worst economic conditions since the 1930s. As we’ve noted on previous calls, we’ve removed significant costs from our business and improved the efficiency of our operations across the country. I want to emphasize that those savings will not be temporary. While we removed significant costs from our business model, we haven’t sacrificed the exceptional service that customers have come to expect from us. In fact, our most recent surveys show that customer satisfaction with our service is extremely high, and continuing to improve. This speaks to the strength and potential of our new business model. As the economy recovers and business rebounds, we will be vigilant in making sure costs are not unnecessarily added back into our business.

At this point, I’d like to turn the call over to Josh to update you on our financials. Josh?

Josh Hirsberg

Thanks Paul. I just have a few comments to make with respect to the finances of the company. In terms of the balance sheet, our debt balance at the end of the second quarter remained relatively unchanged from the first quarter at $2.7 billion, of which approximately $2 billion was outstanding under our $4 billion revolving credit facility. At the end of the quarter, we were in compliance with our covenants and expect to remain in compliance.

Our leverage calculated in accordance with our credit facility was 6.05 times versus a covenant of 6.50 times. Our covenant remains at 6.50 times for the remainder of the year before increasing further in 2010.

A few other items that I want to point out from the quarter. Corporate expense in the quarter was $3.5 million, below the prior year’s second quarter, demonstrating the focus we have on managing expenses across the board. The opening expense recorded in the quarter was related to Echelon.

Interest expense was slightly more than $36 million in the quarter. As a reminder, we are no longer capitalizing interest expense associated with Echelon, and therefore have not recorded any significant capitalized interest since the beginning of this year. Last year in the second quarter we had approximately $8 million of capitalized interest.

We received a tax distribution in the quarter from Borgata of $2.9 million, and we expect to receive distributions approximating $19 million in total for this year, of which we have already received $12.6 million. And finally, our tax rate in the second quarter was 40.5%. Based on what we know today, we expect the tax rate to be approximately 40 to 43% for each of the remaining quarters.

So with that, operator we’re now ready for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Joseph Greff - J.P. Morgan.

Joseph Greff - J.P. Morgan

Paul, your comments about the Las Vegas locals market, aggressive promotions by competitors, was that a backwards statement or a statement also talking about what you’ve experienced so far in the third quarter? And then along those lines, can you just give us a sense of how either revenues or EBITDA has trended so far in the Las Vegas locals market in the third quarter here?

Paul Chakmak

Well I guess the last one first. As I mentioned we’ve continued to see the same trends, really across the country, as we saw in the second quarter. And I also made the comment that we expect the GAAP from the comparable period in the Las Vegas locals region specifically to continue to narrow. As it relates to marketing in Las Vegas, really it’s generally been more of the same. Our largest competitor had a promotion expire over the weekend and has not come back out with anything specific in similar form. So we’ll just have to wait and see if they continue on that path or choose to spend marketing dollars in a different way. But I would say it’s, you know, clearly been heightened certainly over the last couple of quarters and we’ll just see how that trends since as you know July and August are really the low point so to speak of the cycle and seasonality in the Las Vegas locals market, just given the summer here.

Joseph Greff - J.P. Morgan

And then with regard to your comments about still being interested in Station’s assets, since they have filed have you had recent conversations with Station’s management and/or their debt holders?

Keith Smith

Well, I don’t think we’ll comment on specific conversations that we’re having, but we are having ongoing conversations. I think we’ll just leave it at that. We remain interested. We think they are a good fit for the company. It would be a good acquisition for us and we continue to have conversations.

Operator

Your next question comes from David Katz - Oppenheimer & Co.

David Katz - Oppenheimer & Co.

So you mentioned that you all are looking at a range of options for Echelon, and if you could maybe dust off the edges of that and talk about, you know, how broad a range of opportunities you’re talking about or JV as a consideration. You know, what’s on that, what could prospectively be on that list?

Keith Smith

David, this is Keith. I think, you know, when we suspended the project just about a year ago, we talked about the fact we’d be looking at a number of options including, you know, phasing opportunities for the project, including what the equity may look like, joint ventures, other partners, what the size and the scope of a future project may look like. And, you know, we continue to investigate all of those things. We haven’t drawn any conclusions, but we certainly continue to look at all of those as we go forward.

David Katz - Oppenheimer & Co.

With respect to, you know, the Station’s conversations, when I step back and look at your company and how it’s concentrated and where you make your living, are there not some, you know, potential opportunities that might be on the cheap so to speak in Atlantic City that might sort of balance out your revenue and profit streams just a little bit geographically? And why not favor some of those potentially over a greater concentration in Las Vegas?

Keith Smith

I think we’ve looked at a lot of opportunities over the last year. In many cases, pricing hasn’t come down to the levels that we think is appropriate to purchase an asset in this market. In some cases, we didn’t think it was a good fit for the company. And, you know, as we look at the Station’s assets we think it’s a good fit. Clearly today the locals market is under pressure, but we have a lot of faith in the market in the future, and so as we look to what would be a good strategic fit, we think that those assets are a good fit. We’re not limiting ourselves to those assets. We continue to look around to see if there are other assets in other parts of the country that would fit, where the price would be right, and quite frankly we just haven’t seen anything yet.

Paul Chakmak

David, its Paul. I’d also say that, you know, it’s pretty obvious that Atlantic City is the most susceptible to competitive threats from surrounding states. And obviously the population base, the customer base specifically, will continue to see more and more alternatives. And we love our positioning at Borgata at the top of the market there, but that doesn’t necessarily imply that moving further down the market in Atlantic City would make the best sense.

David Katz - Oppenheimer & Co.

And does that include, you know, the prospect of owning a greater percentage if not all of Borgata?

Keith Smith

Well, I think we’ll not kind of speculate on what may or may not happen at Atlantic City. I mean, MGM’s been a great partner over the years. It continues to be a great partner. And if an opportunity comes up in the future, we’ll address it then but we’re not going to speculate today on what may occur.

Operator

Your next question comes from [Larry Klatzpin – Chapter Line].

[Larry Klatzpin – Chapter Line]

I guess everything’s buying at the right price or worth buying at the right price, right?

Keith Smith

Everything but the right price is certainly a key.

[Larry Klatzpin – Chapter Line]

Capitalized interest in the second quarter? That’s just housekeeping.

Josh Hirsberg

Zero.

[Larry Klatzpin – Chapter Line]

It’s at zero because you said it was fractional. In both cases it’s zero. And Paul, you know with AC with an aqua duct and two in downtown Philly and table games possible in Pennsylvania, I mean you’re definitely gaining share and you may be the only property open there, but do you see any prospects for Atlantic City recovering in the next decade? Or is that just it is what it is?

Paul Chakmak

Well, a decade’s an awful long time, Larry. I’m just trying to figure out next quarter. But, you know I think obviously some positive economic developments in the Northeast relative to certainly the financial community and then just generally much more broad based than that will be helpful. You know my point clearly related to there is a relatively long list of potential supply that is going to be entering the market, and to satisfy that supply clearly you need to see some significant push in demand.

[Larry Klatzpin – Chapter Line]

You’ve done a great job doing cost cutting around the country. Are you starting to get to the limit of how much you can cut, or do you think there’s a little bit more you can cut to the bone and we could see a little bit more margin improvement?

Paul Chakmak

Well, it’s never over. Although there may be a few more pieces of fruit on the tree, but obviously we have spent a significant amount of time and effort. We continue to work on as we look at it the breakevens for each of our properties, make modifications, think about doing business differently. But we’ve certainly captured a huge chunk of what’s practical.

[Larry Klatzpin – Chapter Line]

Would you be willing to sell the whole Echelon project or is the game from the Harrah’s swap just so much it could make it very difficult to do an outright sale of the whole thing?

Keith Smith

Well, we’re not looking at that option right now, Larry. As I said earlier we’re looking at kind of what the future of that project may look like and whether it’s a different size or scope or phasing or different partners. So we haven’t contemplated that at this point.

Operator

Your next question comes from Steven Kent - Goldman Sachs.

Steven Kent - Goldman Sachs

Just two questions. Just on the Echelon issue, can you just review with us what the gating issues are, how that decision tree is going to be worked out over the next 12 to 18 months and what specifically you’re waiting for or any of the other issues? Certainly the credit markets seem like they’re a little bit hospitable. And then second, on the Borgata and some of MGM’s legal problems, can you just talk about what the original agreement has in there for exiting that property? Or if somebody had to exit that property, are there agreements as to how it would work? If somebody loses their license, what happens? Are there appraisals involved? Are there buy out scenarios? Maybe you should walk through that with us.

Paul Chakmak

Sure. Well, with respect to your first question, Echelon, I think the decision tree is related, we’ve said this in the past, focused on both the economy and recovering the economy and our views of Las Vegas Strip as well as the credit markets. And we’ve got to have a clearer picture of when those come back, when they will be healthy, so we can go forward with the project. In the meantime, we continue to study the project. We continue to look at options for the project, once again whether to build it in phases, whether it’s continuing to build it all at once, whether it’s to, you know, change the look of the property, to go after a different market, whether it’s additional partners or different partners. And so we continue to spend a lot of time looking at it and, you know, watching the economy and watching the credit markets. And when we have some more visibility there or some more clarity there, we’ll certainly report back. We just don’t have anything else to say right now.

Keith Smith

Hey, Steve, there’s, you know, one obvious thing is the amount of new supply that’ll be coming on the strip between now and say the end of the year. And that’s certainly not lost on us and, you know, I think to understand factually as opposed to on a speculative basis how that supply impacts the dynamic on the strip I think is another important factor in decisions on the timing and scope of Echelon.

Paul Chakmak

I think at the end of the day, time is our friend on this. Time is not our enemy as we get to continue to see how, you know, the market plays out. So we’ll continue to look at it and understand it and watch it closely. With respect to Borgata and the MGM situation, once again we’re surely not going to speculate on what may or may not occur. MGM’s been a great partner and continues to be a great partner.

The JV agreement is not a public document and so many of the questions you’ll ask, while they are addressed to the JV agreement is not something that we’re going to get into on the call, but all those questions are addressed in the agreement itself. So I hate to provide such a short answer on that, but that’s the answer.

Operator

Your next question comes from Jane Pedreira - Clear Sights Research.

Jane Pedreira - Clear Sights Research

There’s been some news, recent news out of Hawaii that they’re going to start taxing differently on gaming winnings, and I guess you don’t get to net off the losses. Just wondering if you can comment on that at all and if you have heard any anecdotal data from your customers, if you expect that to impact the downtown properties?

Paul Chakmak

Yes, the state of Hawaii did pass a modification to their tax law that is actually effective January 1 of this year, so is effectively retroactive, that no longer allows for state income tax purposes, obviously not federal income tax purposes, but for state income tax purposes the deductibility of losses subject to typical maximums that are outlined by each individual state on the deductibility of those losses.

I think the state has quantified the amount they expect in additional revenue from this at $300,000, so not a hugely meaningful number overall. Obviously not a positive relative to our customer base. At the same time, you know, we think we’ve got some great customers that come out of the state of Hawaii and don’t necessarily see something like that impacting their patterns.

Jane Pedreira - Clear Sights Research

Just a question on The Water Club, you were closing The Water Club as I understand it mid-week. Can you just tell us now whether are all the rooms open 24/7? Or are you still closing some of the rooms mid-week?

Keith Smith

Generally The Water Club is fully open during the summer. It is demand based. When it was closed, it was simply based on the overall demand for the total rooms at the property. When you look at the Borgata it’s a 2,800 room property and so as we in the spring season we didn’t have that much demand. As we are in the summer season, we do have that much demand so the rooms are open and we’ll look at it again in the fall.

Jane Pedreira - Clear Sights Research

In Illinois my understanding is that there were VLT’s approved at the pubs. Do you anticipate that having any significant impact at all on Paradise?

Paul Chakmak

No. We really don’t see it having a significant impact. You know, in fact, there are various different gaming devices already at a number of the bars and taverns that aren’t necessarily, you know, part of the law today. And this would effectively regulate, if you will, something that has been out in the market in the state of Illinois for some time.

Operator

Your next question comes from [Larry Haverty – Gameco].

[Larry Haverty – Gameco]

A couple of quick questions. One, what in Heaven’s name are you doing in Louisiana from a marketing standpoint? Those numbers are pretty extraordinary. That’s the first one.

Keith Smith

Well, thanks Larry. I’ll just take that as a compliment.

[Larry Haverty – Gameco]

Well, it is what it is. I’d just like to know what’s in the secret sauce.

Paul Chakmak

It wouldn’t be secret if we told you, Larry.

[Larry Haverty – Gameco]

You’re not going to be very forthright on that?

Paul Chakmak

Well, I mean, I think Larry in all honesty, I mean I think one of our competitors made some comments on their call. You know, obviously from a marketing perspective, you know, what we have out there, some of which is a little more visible, obviously direct mail is not. I think at the end of the day we’ve created a great product at Delta Downs with a super team that runs it from a day-to-day perspective. We always hold customer service very, very high.

And, you know, I think being 30 minutes closer to the Texas border given the population base obviously also helps us significantly as we can match up with our slot only product, keep in mind because we have no table games at Delta Downs, very, very competitively with the other alternatives in the Lake Charles market.

[Larry Haverty – Gameco]

Now I just want to move west. This Station deal is fascinating, and there’s two aspects of it or potential deal that I’d love you to comment on. The first is that you guys to my knowledge, although I don’t know what the numbers are, have spent a fair amount of money on customer loyalty programs as did Station when it was a public company. And it would seem that combining these customer loyalty programs and creating basically one card locally would be a mind boggling marketing advantage. And I’m just interested in whether, you know, that is giving you any traction.

And then the second thing is that you have a fairly unique situation, where the individual in charge is also in charge of this basically gold mine called the UFC, where he seems to be thoroughly engaged. And I’m kind of wondering whether, you know, he would like to get dis-engaged from business that started him up because it’s no problem at all for him to be fully occupied on the latter. So you have two kind of unique things wandering around there in this negotiation, and if you could comment on them that would be very helpful.

Keith Smith

Yes, Larry, this is Keith. I’m not sure that we can provide any commentary, and I wouldn’t certainly speculate on your second quarter regarding the [principle] and UFC and those types of issues, so I’m not going to provide any more direction on that. With respect to the customer loyalty card, I think you’re absolutely right. There are tremendous benefits to combining those under one heading, under the Coast brand. And there’s a lot of benefit. And that’s one of the reasons we’re interested in the assets. We think there are many synergies that come into play. There’s a lot of marketing opportunities. We think we can integrate those quickly and that’s why we’re very interested in those assets. And that is one of the reasons.

[Larry Haverty – Gameco]

And then last, you guys are probably the most interested observer in the success or lack of that on City Center and I’m seeing stuff on the Street that’s all over the place. I’m just kind of curious off the record what your opinion is on what that’s going to mean for the town?

Keith Smith

Well, we certainly wish MGM great success with City Center. I think it is important for the city, for the city of Las Vegas, for it to be successful. And so we’re rooting for them. The city of Las Vegas or Las Vegas generally has grown quite dramatically over the years by building new product, by building very compelling product that visitors have to come and see. You know over the last 20 years that has provided a great deal of success for the city and for the operators and developers. The question is in this market will that hold true going forward and I guess we will see come later this year. But we’re certainly rooting for them. We certainly wish them the best. We’re going to need quite an increase in the number of visitors to Las Vegas to absorb that capacity, so it is probably a little bit of a challenge in today’s market to see that many more visitors come to town. But we’re rooting for them.

[Larry Haverty – Gameco]

If I were to give you an ATF with UCC for Up City Center and DCC for Down City Center, which one would you buy?

Paul Chakmak

Is this like a quiz, Larry?

[Larry Haverty – Gameco]

Oh, yes. You can do that on houses now, you know, on [Kay Schiller] so why not on City Center? At least theoretically?

Paul Chakmak

I will talk about my views on how City Center will impact the company, our company specifically. I think overall it is a net positive and I say that from the standpoint of the negative side is certainly Keith’s real concern about the impact of so many more hotel rooms in this town at a time where obviously we just don’t need more hotel rooms. On the flip side of that is City Center will bring a substantial amount, I think their number is about 10,000 new permanent jobs and I think there was a time when construction jobs in this town were viewed as permanent because folks just moved to the next construction site. That obviously isn’t the case any longer, and so I think the spending patterns of folks in that business probably have changed as they are concerned about, you know, where their next project will be and certainly the jobs associated with City Center specifically are permanent jobs for the local community, and we know that those local folks are our customers.

Operator

Your next question comes from Justin Sebastiano - Morgan Joseph & Co., Inc.

Justin Sebastiano - Morgan Joseph & Co., Inc.

You talked about Paradise and Delta Downs and, you know, specifically about their EBITDA gains year-over-year being up double digits. But the Midwest and South region EBITDA was down over 2% as a whole, so if you could maybe give us more color on the other property? What property specifically maybe dragged down the EBITDA?

Paul Chakmak

Well, I mean I think we’ve talked about our challenges at Blue Chip and with, you know, more capacity and obviously a continued focus on the cost side I think, you know, the implications and I’ll just directly say that Blue Chip on a comparable basis to last year was down. And, you know, that certainly had an impact on the region overall. With that said, the summer is certainly the strongest time for Blue Chip and we have certainly very positive expectations out of the refinements to the business that we have made, and ultimately what that means as we get into the back half of the year and frankly the comparison to the disruptions that we had prior to opening the new hotel in 2008.

I’d also note that that kind of northern Indiana, southern Michigan geographic region all told is one that is probably suffering amongst the most because of its focus on manufacturing and automotive related businesses than any really in the country. So there’s some just kind of macroeconomic issues in the region overall.

Justin Sebastiano - Morgan Joseph & Co., Inc.

So you’re telling us then that Blue Chip is solely responsible for the drag down in that entire region. So Treasure Chest was fine, Sam’s Town was fine, so that’s what we’re supposed to take from this?

Paul Chakmak

No, that’s not what I said at all. I was just specifically commenting on Blue Chip. Other properties, you know, were up and down a bit but not of any sort of magnitude, but certainly contributed to the down of the other properties generally speaking for the region.

Justin Sebastiano - Morgan Joseph & Co., Inc.

I’m sorry if you were specific about Paradise, but what led to those good gains? What was that?

Paul Chakmak

Well, as you said I mean revenues which are reported were flat, EBITDA was up, so it really comes down to a focus by that team on overall profitability and frankly, ultimately a focus on the customer and getting just frankly a greater share from the customer base that may also frequent some of the other properties in the region overall.

Justin Sebastiano - Morgan Joseph & Co., Inc.

So it wasn’t necessarily cutting out costs but just providing better service for your customer and maybe having some more profitable marketing programs?

Paul Chakmak

That would be the best way to look at it.

Operator

Your next question comes from Felicia Hendrix - Barclays Capital.

Felicia Hendrix - Barclays Capital

Just on your balance sheet, I’m just wondering, have you guys continued to buy back bonds in the open market and if so what are your plans going forward?

Josh Hirsberg

We did buy about $35 million of bonds in the second quarter, largely the 7.75, Felicia. And as we’ve said historically we will continue to be interested given kind of the opportunities that come our way. Now I will say that the bonds have rallied tremendously in conjunction with the high yield rally over the last couple of weeks, so I think it would be, you know, the prices have gotten significantly higher than where we have bought bonds historically.

Felicia Hendrix - Barclays Capital

So therefore it’s fair to say if there was some kind of pull back in price, you’d be back in the market.

Josh Hirsberg

Well, I’ll just stick with my statement and people can.

Felicia Hendrix - Barclays Capital

Opportunistic.

Josh Hirsberg

Exactly.

Operator

Your last question comes from [John Maxwell] – Jefferies.

[John Maxwell] – Jefferies

Paul, just wondering with Delta Downs I guess it looks like Pinnacle’s moving ahead with Sugar Cane Bay and obviously it’s going to be in the future, but any kind of comments in terms of how you view that competitor or additional competition coming in down the road?

Paul Chakmak

Well I mean I think we saw that the Lake Charles market in the last month reported, which was June, was actually down quite a bit. But it’s the first real downward pressure you saw in that market and ultimately, you know, it’s a result of one some pretty significant growth even during a time when the overall country was not doing well. But, you know, I think it comes to roost that oil prices when we saw the boom in that part of the world at $140 a barrel leading to a lot more oil speculation and exploration, have waned a bit as the price has basically been cut in half. So it doesn’t appear that the market in all honesty needs any additional capacity, but obviously, you know, some folks may have a different view on that.

I think there’s reasonable returns being gained on all the investments that folks have in that market, but it just does not appear that there is additional demand or need for more capacity.

[John Maxwell] – Jefferies

With it coming, or it seems like it is, you had great improvement in the second quarter. Do you just keep doing what you’re doing or would you have to, you know, think, do something differently when that gets added?

Keith Smith

I think, John, we’ve already said that being the first casino as you cross the Texas border in Louisiana puts us in a great position. And we have a great product, which is what allowed us to grow revenue and earnings in the second quarter. So putting more people on I-10 heading from Texas into Louisiana is just going to serve to benefit us. So I think in the long run we’ll be fine. I like our position, I like our product, we’ve done a great job with it. And once again more traffic on I-10 heading into Louisiana is a good thing for Delta Downs and Boyd Gaming.

[John Maxwell] – Jefferies

And then just lastly I guess, you know, since you guys do have the ability to do, you have options that obviously your competitors don’t, how do you balance that with your balance sheet? Are you looking to do something that’s, you know, no worse than leverage neutral or when the opportunity comes around and you need to increase leverage to go ahead, you’re willing to do that?

Keith Smith

Well, as you look at the history of the company we’ve grown very carefully and very thoughtfully with the right acquisitions at the right time for the right price. And, you know, we’ll continue to look at that. And it has to be the right opportunity, the price has to be right, it has to be a strategic fit for the company. And so there’s a lot of dynamics that come into play. There’s a lot of, you know, parts and pieces on that decision tree when you go to make that decision. So they all have to be right.

Operator

And this does conclude the question-and-answer portion of your conference. I would now like to turn the conference over to Mr. Josh Hirsberg for his closing remarks. Please proceed sir.

Josh Hirsberg

Thanks Jeri and thanks for everyone joining the call today. If you have any other questions, feel free to reach out to the company. We’ll be available for any follow up questions. Thanks again.

Operator

And we thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect and have a great day.

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