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Executives

Josh Hirsberg - Chief Financial officer, Senior Vice President and Treasurer

Keith Smith - Chief Executive Officer, President and Director

Paul J. Chakmak - Chief Operating Officer and Executive Vice President

Analysts

Felicia R. Hendrix - Barclays Capital, Research Division

Shaun C. Kelley - BofA Merrill Lynch, Research Division

Dennis I. Forst - KeyBanc Capital Markets Inc., Research Division

Carlo Santarelli - Deutsche Bank AG, Research Division

Kevin Coyne - Goldman Sachs Group Inc., Research Division

David Hargreaves - Sterne Agee & Leach Inc., Research Division

John Maxwell - Jefferies & Company, Inc., Research Division

Boyd Gaming (BYD) Q4 2011 Earnings Call February 21, 2012 12:00 PM ET

Operator

Good day, and welcome to the Boyd Gaming Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Josh Hirsberg, Senior Vice President and Chief Financial Officer. Please go ahead.

Josh Hirsberg

Thank you, Emily. Good morning, everyone, and welcome to our Fourth Quarter Earnings Conference Call. Joining me on the call this morning are Keith Smith, our President and Chief Executive Officer; and Paul Chakmak, our Executive Vice President and Chief Operating Officer.

Our comments today will include statements relating to our estimated future results including, among others, guidance for the first quarter, financial outlook for the company, our capital expenditure plans 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 undertake no obligation to update or revise the forward-looking statements whether as a result of new information, future events or otherwise. Actual results may differ materially from those projected in any forward-looking statement 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 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 Investor section of our website at boydgaming.com. We do not provide a reconciliation of forward-looking non-GAAP financial measures due to our inability to project special charges and certain expenses.

Finally, as a reminder, today's conference call is also being webcast live on boydgaming.com and will be available for replay on the Investor Relations section of that website shortly after the completion of this call.

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

Keith Smith

Thanks, Josh, and good morning, everyone. Thank you for joining us for our fourth quarter earnings call. I'm pleased to report that our results for the final quarter of 2011 showed a continuation of the growth trends we have seen throughout the year. In our wholly owned businesses, revenue grew for the third straight quarter while EBITDA rose for the fourth consecutive quarter even before the addition of IP. A key indicator that our business is continuing to improve is that all 4 of our operating segments, including Borgata, showed both revenue and EBITDA growth on a year-over-year basis for the first time in several years. As we said throughout 2011, our business is clearly moving in the right direction, and we anticipate continued growth in 2012.

Our confidence that these positive trends will continue is primarily driven by 2 factors: Improving economic conditions across the country, including here in Las Vegas; and a relentless, strategic focus on building profitable revenue and maintaining a tight control on costs.

Looking back at 2011, one of the more encouraging developments was the continued recovery of the southern Nevada economy and more importantly, the beginnings of a recovery of our Las Vegas Locals business.

As we all know, over the last 18 months, Las Vegas has experienced consistent improvements in many critical key economic indicators. This included visitor volumes, gaming revenues, taxable sales and employment. Gaming revenue generated by Nevada's casino industry in 2011 was $10.7 billion, a 2.8% increase over 2010. It was the second straight year of growth and the highest annual increase in 4 years. In addition, 2011 was the second best year ever for Las Vegas visitor volume; it was 300,000 short of the record of 39.2 million visitors in 2007. We're confident that 2012 will see Las Vegas set a record and surpass the 40 million visitor mark. And 2011 saw an all-time record for occupied room nights as well.

Looking at other metrics. Core employment continues to grow with gains in the leisure and hospitality, education, healthcare business and professional services segments. As a result, the area's unemployment rate has declined by more than 2 percentage points in the last year. Positive economic news is perhaps most evident in increased consumer spending. We saw an 8.6% gain in taxable sales in southern Nevada in November, marking the 13th increase in the last 14 months. These trends bode well for our Las Vegas Locals business as we are starting to experience revenue increases in this business for the first time in years.

Because we've kept a tight rein on cost in this business, we have significant operating leverage and are able to drive a substantial portion of the revenue gains through to the bottom line.

In the Midwest and South region, the improvements we reported during the first 3 quarters of 2011 continued into the fourth quarter, as we recorded our fifth straight quarter of EBITDA growth. The addition to the IP to our portfolio during the quarter provides us the opportunity to expand this already strong and growing segment of our business. While there's been only 5 months since we acquired the IP, we are confident it will be a significant contributor to this region.

Finally, we are encouraged by our results at Borgata, which generated healthy revenue and EBITDA growth during the fourth quarter.

We continue to build on our leading market share and do not take that position for granted. Borgata's team members are preparing for the challenges of an increasingly competitive landscape. We're focused on improving Borgata's customer service, already the best in the market, as well as the quality of our rooms. We are confident that even with new competition entering the market, Borgata will remain the leading resort in the region. We're not leaving anything to chance.

Before turning the call over to Paul, I'd like to cover a few strategic points. As we've said before, strengthening our balance sheet and lowering the company's overall leverage level is our highest priority. While we made progress toward that goal in 2011, reducing our overall leverage by almost a full turn, we know we must continue this effort during 2012.

While we continue these efforts, we will also look for opportunities to expand our business that are consistent with this priority. Our Dania Jai Alai property is an example of just such an opportunity. While it is clear the gaming legislation in Florida is dead for this session, it was clear during the debate that any legislation that looks to expand gaming in Florida will also look to provide parity for the existing pari-mutuels. Those provisions could lead to parity in tax rates and potentially the addition of table games in places like our Dania Jai Alai property.

Developing Dania may ultimately provide us with a very attractive option for growth. Alternatively, we're seeing growing interest from potential purchases of Dania and we believe the value of this asset has increased as a result of recent legislative efforts. Whether we develop this property or whether we sell it, we believe Dania represents great value to us.

We will also continue to look at other growth opportunities such as Internet gaming. As you know, after our last earnings call, we announced an agreement with bwin.party digital entertainment, the largest publicly traded online gaming company. This agreement positioned the company to be a key player in this exciting new market. While it appears today Federal Legislation for Internet gaming is a little further off than we had hoped, we are well positioned to take advantage of this opportunity.

We believe the best approach is for Congress to enact legislation that creates a national, well-regulated environment for Internet gaming. And while we believe federal legislation is preferable, we will consider entering the market on a state-by-state basis if that's how the issue plays out. We've already applied for an interactive gaming license in Nevada.

Potential acquisitions also remain a focus for the company. However, we will only look at acquisitions that help advance the company's strategic goals. That is, they must be a good fit geographically, deliver attractive returns and strengthen our balance sheet.

And while we consider opportunities to expand our business, we will not lose our focus on improving our existing operations. We made great strides in 2011, creating efficiencies and improving our margins. We will stay focused on this in 2012. But we will be equally focused on driving revenue, profitable revenue that will allow us to drive as much top line growth as possible to the bottom line. And while we anticipate growing revenue throughout 2012, EBITDA growth will remain the key benchmark for measuring our progress.

Lastly, our team members will continue to deliver outstanding service and great guest experiences. It’s our great service day in and day out that keeps our customers coming back.

Thank you for your time this morning. Now I'd like to turn the call over to Paul to talk in more specifics about the results of each of our regions. Paul?

Paul J. Chakmak

Thanks, Keith. Hello, everybody. Our strategy of maintaining efficiencies and pursuing profitable revenue growth is succeeding. We continue to improve margins and generated EBITDA growth in all 4 operating regions for the first time in several years, and we expect positive trends to continue in 2012.

First, let's look at our Las Vegas Locals business. EBITDA growth continued at a healthy pace, rising 8% in the fourth quarter. And for the first time in several years, all 4 of our major Las Vegas local properties achieved EBITDA growth during the quarter, led by double-digit gains at the Gold Coast and Sam's Town. We were encouraged to see revenue growth as well, but we are particularly pleased with the third straight quarter of improved profitability and continued margin improvements. This is a distinctly different approach from some of our competitors who have pursued revenue gains above all other objectives, spending heavily in campaigns that can drive top line growth but not profitability.

A few weeks ago, our largest Locals competitor reported that their 4-property guarantor group, which is comparable in size and location to our 4 major Las Vegas local properties, reported revenue growth of over 7% in 2011. However, their EBITDA was virtually flat year-over-year. By comparison, our Las Vegas local revenues were essentially flat in 2011 but we achieved EBITDA growth of $8.4 million or more than 6%. After a year of margin improvements, our EBITDA margins in the Locals business now stands at 24.1%, identical to the margin of our largest competitor in the market.

Our focus on efficiencies in driving profitable revenues allowed us to achieve healthy increases in profitability, which is our company's most important metric of success. As top line growth accelerates, EBITDA will continue to grow as well, as much of our revenue gains flow through to the bottom line.

Looking ahead, we are optimistic about our long-term outlook in the Locals market. Visitation to Las Vegas has continued to rise and we have been capturing our fair share of this growth, especially at The Orleans and Gold Coast, which operate about half of our 5,000 hotel rooms in the Las Vegas market. We are also well positioned to maintain and build on our market share among Las Vegas residents, but we are focused on providing customers a great experience each time they visit.

In the long run, our business is about relationships. Promotions can persuade customers to try somewhere new but in the long term, they gravitate to where they feel most comfortable, most welcome, and get the best entertainment experience. That's where Boyd Gaming has an advantage. Our team members excel at building meaningful relationships with our guest, providing highly personal expenses and delivering some of the best service in the industry. We are confident this segment will provide an excellent base for sustainable growth, and we expect we will achieve broad-based gains in both revenue and EBITDA in 2012.

Moving to Downtown Las Vegas, factoring out our Hawaiian travel agency, Vacations-Hawaii, EBITDA was up more than 7% in the fourth quarter, led by a near-record performance at the Fremont. This marks our fourth straight quarter of EBITDA growth at the operating level in this region. The region's flat year-over-year EBITDA performance for the quarter was entirely due to a $1 million fuel cost associated with Vacations-Hawaii.

Once again, we saw encouraging strength in our Hawaiian customer segment as both visitation and play from the Hawaiians increased significantly from last year. There are a number of reasons to be optimistic about the future of Downtown. A number of new non-gaming businesses have been moving into the area. Development along the Fremont Street east district continues. In the Smith Center, a 2,000-seat world-class performing arts center will open its doors downtown next month.

These developments will bring new jobs, new visitors and new residents to Downtown Las Vegas. And we're already benefiting from the energy and excitement coming into the area as visitor traffic has grown substantially on the Fremont Street expense, helping to drive our strong results. The outlook for Downtown is bright, and with 1/3 of the total market, Boyd Gaming will benefit from the area's renaissance.

In the Midwest and South, we reported a fifth straight quarter of EBITDA growth, even before the addition of the IP. We were encouraged to see strong operating performances at Blue Chip and Delta Downs, both of which produced double-digit gains in EBITDA on higher revenues. Delta Downs recorded the second strongest fourth quarter in its history, trailing only the fourth quarter of 2008 when the property saw a boost from stimulus related to a hurricane recovery effort at the time.

At the IP, we have made encouraging progress integrating the property into our operations since October. We have refined the property's marketing programs and combined the IP into our corporate structure, realizing significant labor savings without compromising guest service. And by bringing the property under corporate umbrella, we expect to generate additional savings in the months ahead in a number of other areas including overall insurance costs, purchasing synergies and utilities.

Looking ahead, an important milestone will be the introduction of B Connected at the IP. As we've noted before, the IP offers an exceptional customer experience. There is great interest among our existing customers in sampling what the resort has to offer. We are on target to roll out B Connected at the IP during the second quarter, which will allow us to capitalize on the busy summer season and accelerate growth in the year ahead.

In Atlantic City, Borgata produced an 11% EBITDA growth on a 4.5% revenue gain, improving margins by 110 basis points. Gaming win was up significantly during the fourth quarter, driving most of this growth. These games help Borgata extend its market-leading position. During the quarter, the property set records for market share in table drop, table win, slot handle and gross gaming revenue. Slot win rose more than 6%, table game revenue was up 7% and poker win increased more than 16%.

Increases in non-gaming revenue also played a role in the property's quarterly performance. Our hotel operations posted cash ADR of $168 during the quarter, a 15% increase over the prior year. As evidenced by Borgata's margin improvements during the quarter, the property's executive team is doing a great job of running an efficient operation in a very competitive environment, effectively controlling costs without compromising the Borgata customer experience.

Looking ahead, we are preparing for the opening of a new competitor in the market. We are working hard to ensure that Borgata's team members continue to deliver the best possible service to our customers. And the hotel room redesign already underway will be completed by midyear, helping to keep our product at the top of the market. Based on the feedback we received so far, the refresh rooms have been well received by our guests. We're confident Borgata will remain the leader in the market. Over the last 8 years, Borgata has set itself apart as Atlantic City's premier resort destination. We believe that will not change and we expect to set the pace in Atlantic City for years to come.

Finally, I want to provide a brief update on B Connected, our nationwide player loyalty program. As noted on earlier calls, the introduction of B Connected at the IP in the second quarter will be a significant enhancement at the property. We believe B Connected will help drive growth at the property, while also making the program even more valuable to our customers. We're also taking steps to take the B Connected experience to the next level by enhancing its home on the web, B Connected Online.

Today, B Connected Online is the most visited website of its kind in the gaming industry. And over the last several months, it has received numerous national awards. The American Gaming Association has recognized it as our industry's best website and B Connected Online has also received awards from the Hospitality Sales Marketing Association and the Association For Marketing and Communication Professionals for ease of use, creative design and high level of personalization.

We realize that being the best requires constant improvement and innovation and have embarked on a significant upgrade of B Connected Online. When it launches in the second quarter, we are confident that B Connected Online 2.0 will further enhance the exceptional personal experience our customers have come to expect from Boyd Gaming.

To recap, the positive momentum in our operations continued in the fourth quarter. We saw year-over-year improvements across the country, led by growing strength in our Las Vegas Locals business. Pod-based revenue growth has begun, and we expect this to lead to continued gains in EBITDA in 2012, as the majority of incremental revenue gains flow through to the bottom line.

Thanks for your time today, and now I'll turn it over to Josh.

Josh Hirsberg

Thanks, Paul. I will start with a few items from the quarter and then provide guidance. Beginning with the balance sheet, excluding Borgata, Boyd's debt balance at the end of the fourth quarter was approximately $2.6 billion, of which $1.6 billion was outstanding under our credit facility. The increase in our debt balance since the third quarter is due to the IP acquisition.

While debt has increased, the company's true leverage is improved by almost a full turn of EBITDA since the beginning of 2011. We will continue to be focused on strengthening our balance sheet through deleveraging as we benefit from ever-increasing EBITDA and an improving revenue picture.

From a covenant perspective, as calculated under the terms of our credit agreement, at the end of the quarter, secured leverage was 4.2x compared to a covenant of 4.5x, and total leverage was 6.7x versus a covenant of 7.75x. At year end, availability under our credit facility was approximately $135 million and our cash balance was $132 million. Our next maturity of $216 million is April of 2014, and so we have over 2 years until that maturity. However, we would expect to refinance that debt sometime before April of next year.

Borgata's debt balance was $832 million, of which $40 million was outstanding under their $75 million credit facility. Their cash balance was $46 million. On the income statement, corporate expense, excluding share-based compensation expense was $10.4 million in the quarter. For 2012, we expect corporate expense to be approximately $44 million. Consolidated depreciation expense in the quarter, that is including both Boyd and Borgata, was $50 million, a decrease of approximately $1 million from the prior year. Boyd's depreciation expense was essentially even with last year at approximately $35 million, which includes $4.8 million related to the IP.

Borgata's depreciation expense of $14.7 million was approximately $2 million below fourth quarter last year. For 2012, we expect consolidated depreciation expense to be approximately $200 million to $205 million, about $135 million to $140 million of which is attributable to Boyd and the remaining to Borgata.

Share-based compensation expense in the quarter was $2.3 million. We expect share-based comp to be approximately $10 million in 2012.

Preopening expense before the consolidation of Las Vegas Energy was $4 million in the fourth quarter, and that is a good quarterly run rate estimate for 2012. Remember, preopening expense includes the $1 million per month payment to Las Vegas Energy.

The line item other operating charges net is primarily related to acquisition costs. Excluding the impact of consolidating Las Vegas Energy, interest expense for the fourth quarter was approximately $60 million, the increase of $5.3 million compared to fourth quarter 2010. The increase over prior year's quarter is entirely attributable to higher debt balances at Boyd associated with the IP acquisition and Boyd's refinancing that was completed in the fourth quarter.

In November, we issued $350 million of term loans at LIBOR plus 4.75%, subject to a minimum LIBOR rate of 1.25% and retired our non-extended credit facility that was scheduled to mature in May of this year. Boyd's interest expense in the quarter was $38.6 million compared to $33.2 million last year in the fourth quarter, while Borgata's fourth quarter interest expense was essentially even with the prior year at $21.7 million. Using the current forward curve for LIBOR, we expect interest expense to be approximately $160 million for Boyd in 2012 and approximately $85 million for Borgata.

Other income of approximately $11 million in the quarter is related to 2 items. The first is the accounting for the IP acquisition. Accounting rules require a fair valuation to be completed in association with an acquisition. The IP valuation exceeded the net purchase price and as a result, as accounting rules require, we recorded a gain of approximately $4.6 million. The second item is related to our agreement to sell Dania. According to the terms of the agreement with that seller, Boyd received a deposit that was nonrefundable in the event the transaction did not close within a certain timeframe. The buyer was unable to close the transaction and, as a result, we recognized a $6 million deposit as income in November when the agreement when the terminated because of the buyer's inability to close as contractually required.

Tax provision in the quarter resulted in the company reporting tax expense on a pretax loss. This anomaly is caused primarily because we still provide for state taxes despite the company's consolidated pretax base. For guidance purposes, we are assuming a 35% tax rate for 2012 until we have better information to provide you.

In the fourth quarter, capital expenditures were approximately $20 million at Boyd, and $14 million at Borgata. 2012 at Boyd, we expect to spend approximately $100 million and at Borgata, approximately $60 million, which includes $35 million related to the room project that was started last year and is expected to be completed in the middle of this year.

Now let's turn our attention to guidance for the first quarter. As has been our recent practice, we will provide quarterly EBITDA and EPS guidance. Because we consolidate Borgata's financial results, we will provide separate EBITDA guidance for Borgata. We'll provide guidance for adjusted EPS for the consolidated business, including both the wholly-owned segments of Boyd and Borgata. We expect wholly-owned EBITDA including IP and after the deduction for corporate expense to be in the range of $88 million to $93 million. We expect Borgata to generate EBITDA of $32 million to $34 million. At this range of EBITDA guidance, including a full quarter of IP, adjusted EPS for the first quarter is expected to range from $0.05 to $0.09 per share.

Operator, that concludes our prepared remarks. We're now ready for any questions from participants on the call.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question will come from Felicia Hendrix of Barclays Capital.

Felicia R. Hendrix - Barclays Capital, Research Division

So a question just on the Las Vegas Locals market. Just wondering the revenue growth that you're seeing there, is that still mostly non-gaming or are you starting to see some improvement in the gaming arena?

Paul J. Chakmak

Well, I guess it's coming in both sides. Obviously, revenue growth for the quarter in the LVL was relatively small. And as I said in my prepared comments, you can certainly drive revenue in this market if you're willing to pay for it. We are obviously, not playing in that game at the same level as others. And so, to some extent, there is some false revenue being recorded as a result of a lot of promotional activity, overall, within the town. But we feel good about directionally where it's going, how we continue to reinvest in our customers, vis-à-vis our marketing programs, and we think it can be certainly broad-based in 2012 as the recovery takes hold.

Felicia R. Hendrix - Barclays Capital, Research Division

Okay. But I'm wondering if you're seeing -- I know things can be stimulated through promotions -- and I do have a question about your promotional expenses in a second. But I'm just wondering are you seeing any kind of increase in frequency or spend per visitor, or anything like that, that maybe you could parse through?

Paul J. Chakmak

Frequency has stayed pretty consistent overall. Depending on, really the property and whether that's a property in Las Vegas or a property outside of Las Vegas, we are seeing some encouraging signs in spend per visitor. But not necessarily everywhere, all the time or at the same direction; it's kind of unique to each economic situation we're in.

Felicia R. Hendrix - Barclays Capital, Research Division

Okay. And then let's just say hypothetically, obviously, we're all hoping that the revenue growth continues to improve but let's just say it kind of stays at these kind of like sub-1% level, moving forward to 2012, can you still sustain this kind of EBITDA improvement that you've been generating?

Paul J. Chakmak

Yes, we feel good about the model that we've put together. And again, depending on the tax rate in each one of the jurisdictions we're in, we can see $0.60 on the dollar plus or minus flow-through off of any sort of revenue increases.

Felicia R. Hendrix - Barclays Capital, Research Division

Okay. I was more specific to Las Vegas Locals but that applies to that as well?

Paul J. Chakmak

Absolutely.

Felicia R. Hendrix - Barclays Capital, Research Division

Okay. Great. Final question on your promotional expenses for the wholly-owned properties, it looks like they increased 100 basis points year-over-year. I was hoping you could address that.

Paul J. Chakmak

Well, I mean it's obviously, I guess a couple of things. I mean we haven't exactly sat back in Las Vegas, but we have been very strategic about our approach. I think that shows through with those numbers. I think you also got the addition of the IP and, I think, from your experience in looking at the Biloxi market, you know that, that market is very competitive as well. And so that would flow through into those numbers since we owned it for all but 4 days of the quarter.

Felicia R. Hendrix - Barclays Capital, Research Division

Okay, that’s what I was wondering. So would you think would most improvement be coming -- most of the increase be coming from the IP or is it kind of just a combination of both of those issues?

Paul J. Chakmak

Well, it's a combination of a number of things, but I think the IP is a pretty big factor in moving those numbers.

Operator

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

Shaun C. Kelley - BofA Merrill Lynch, Research Division

I was actually interested to ask a little bit about Internet gaming since you brought it up in some of the prepared remarks. Keith, I think, you mentioned that there was a little bit of a setback as it related to some of the federal legislation. I assume you're referring to the lack of attachment to the latest tax bill. Could you just give us your sense of kind of where that stands today and the prospects for federal legislation this year? Is there any other legislation that maybe something could be attached to that we could see a shot at? Or is it kind of what are you thinking about for 2012 there?

Keith Smith

Sure. Well, look when you're talking about federal legislation in Congress, it's really tough to kind of handicap what's going to happen and when it's going to happen. We were hopeful that it would be part of the recent tax cut extensions that were approved by Congress last week. It wasn't. We're still hopeful that there is some legislation that it can get attached to later this year or at the end of the session. So we're continuing to push. We're continuing to advocate for its passage. We believe federal legislation is the right answer to Internet gaming. But it's really tough to predict kind of the how and when. We're hopeful; we're working on it. And we’ll look forward to its ultimate passage one of these days.

Shaun C. Kelley - BofA Merrill Lynch, Research Division

And I guess in the meantime, when do you kind of make the decision on the state level side to proceed there? We know there are a bunch of applications including, I think, yours that's sitting out there at the Nevada level. But the preference is for federal. So could you just help us walk through kind of how the Nevada process proceeds kind of from here, assuming that federal doesn't happen this year or what we should think about for timing on the state level side?

Keith Smith

Well sure, I think it's different obviously, for each state. As you look at Nevada, many of us have submitted applications, including our company. We are waiting for those applications to be processed by the state. I mean, it's unknown as to what -- how long that will take or what that timeframe will be in terms of processing those applications. And what the ultimate kind of rules will be here in Nevada. So the timing is uncertain. As we look at other states, we will monitor those. And I think just about every state, they’re going to have to pass some specific legislation to authorize Internet gaming, specifically. We'll be monitoring that and seeing where it makes sense for us to weigh in. At the end of the day, while we want to be involved in Internet gaming, it has to be a profitable business venture for us. We're not getting involved in it just because it kind of a hot topic. We've got to be able to make money and that speaks to liquidity issues and the number of players that are available at any one point in time. So it really speaks to states with larger population centers. So we'll continue to monitor it. I think it's a longer process, not a shorter process as you look at a state-by-state approach. And each one of those states will have different regulations, which will complicate things even more.

Shaun C. Kelley - BofA Merrill Lynch, Research Division

That's helpful. And last question, I was wondering if somebody could comment a little bit. I believe in the third quarter, you guys disclosed in, I think, in your 10-Q a tribal contract. Is that a $25 million investment? Could you guys just give a little bit more clarity on what that investment was and/or who with? That’d be helpful.

Keith Smith

We really haven't disclosed anything further. We're continuing to work forward on that contract, in California, and when we're ready to kind of announce something, we will. But at this point, we're just – it’s in the very early stages. We're just kind of continuing to work through it and there's really not much more to report.

Operator

Our next question comes from Dennis Forst of KeyBanc.

Dennis I. Forst - KeyBanc Capital Markets Inc., Research Division

I had a couple of simple ones. Josh, you were speeding through some of the numbers, and you gave out a number for depreciation in the fourth quarter for the IP. Was it $4.8 million?

Josh Hirsberg

That's right, Dennis.

Dennis I. Forst - KeyBanc Capital Markets Inc., Research Division

Okay. And then I was wondering if you could give us an idea of what the Vacations-Hawaii revenues component was in the Downtown for the fourth quarter.

Josh Hirsberg

Not only do I not have it, we don't typically break that out. So I don't think I can give you that.

Dennis I. Forst - KeyBanc Capital Markets Inc., Research Division

Okay, and then lastly a general question maybe for Keith or Paul about acquisitions. Is the company still in an acquisitive mode? You made a good acquisition with the IP. Is there anything on the, say, the front burners that could reach fruition in the next 6 to 9 months?

Keith Smith

No obviously, nothing that we're prepared to talk about. I mean, we continue to look for acquisitions that, as I said, kind of are a good fit that will help us to continue to strengthen our balance sheet and delever. Those types of opportunities, frankly, are pretty rare. We think the IP fit that bill, fit it very well and we’re very encouraged by the early indications of what we're seeing at the IP and are very confident it's going to be a great contributor to us. Once again, we continue to look for those but they're pretty rare. So we don't have anything to announce today or anything that we're anticipating in the next couple months.

Operator

The next question comes from Carlo Santarelli of Deutsche Bank.

Carlo Santarelli - Deutsche Bank AG, Research Division

Obviously, we all see the Las Vegas numbers come out and they've obviously been strong through the fourth quarter and you guys have mentioned that maybe some of that slightly artificial. Would you guys mind sharing with us what you think the real revenue growth is in the market if we kind of extrapolate promotions and how you are factoring that into your outlook for 2012?

Paul J. Chakmak

Well, I mean I think the – I mean the revenue growth that we've seen, we think is certainly real revenue growth. Very difficult question, obviously. There's no real scientific way without getting inside really all the companies that are active in the business overall to really answer that question. But we think it's modest at this point. But in fairness, it's 2 quarters now of revenue growth after seeing, frankly, years of revenue decline. So we've turned the corner. We think it's low single digits for 2012, but it's certainly higher than what you've seen in the last couple of quarters.

Operator

Our next question comes from Kevin Coyne of Goldman Sachs.

Kevin Coyne - Goldman Sachs Group Inc., Research Division

Just one question on IP. I know you had mentioned in the past a target of $5 million of synergies. Can you give us a sense of how you've accrued those synergies to-date and now that you're in and operating the property, is there any upsize to that number?

Paul J. Chakmak

First, I would say we definitely feel very comfortable with the $5 million and we think there's pretty good upside to that number. We naturally, during the first 3 months, the fourth quarter of 2011, the numbers we've reported today, sat back and spent a lot of time analyzing where we think we could make a significant difference. We implemented the labor-saving changes in January. And so that is now all behind us, and we feel very comfortable with our approach and certainly, the good work of the team there to identify where we could be impactful from a bottom-line perspective. But also, make sure that we were taking care of the business and the customers that obviously frequent that property. The other items that I mentioned is it relates to things like property insurance, utilities, savings on the procurement side by just being part of a much larger organization and buying it, frankly, to better rates because of volumes are all starting to fold in no; will be completed with the insurance renewal in the second quarter. And I think you will see a full year of 2012 that reflects some healthy synergies, certainly well in excess of the $5 million that we have targeted.

Kevin Coyne - Goldman Sachs Group Inc., Research Division

Great. And then just turning to Atlantic City. You obviously have your new competitor opening and it seems a little earlier than expected. I was wondering if you could just mention if you've had any loss of any key personnel that you would like to point out or have you kind of locked up some of those key people? And secondly, as you prepare for the new competitor, kind of are you doing anything in advance of that to make sure that you can kind of weather it without much disruption?

Keith Smith

Sure. This is Keith. Couple of comments along those lines. We've been fortunate at the Borgata, to have a very stable senior management team. And that senior management team remains intact. And we're very thankful for that. So the key leadership of that property is still intact, and we expect will remain intact. We've certainly lost some employees to the new competitor, to Revel, as they recruit. So that's to be expected, and I think there will be some of that, that goes on, but all the key management is still in place. Once again, we've known that this competitor is coming for some time and so we've been taking kind of appropriate steps whether it's room remodel project that's ongoing or shoring up our marketing plans and how we speak to our customers and just ensuring their continued loyalty when they go forward. We understand it just happens in our business that some of our competitors will go visit. We expect most will return; some will end up staying, that's just part of the business we're in. But we think we've taken appropriate steps to kind of ensure their loyalty. We still have the premier asset in the market. We don't take it for granted. We continue each and every day to try and improve customer service. And we're confident about the future of Borgata. We're confident about our ability to maintain our leadership position there.

Operator

Our next question comes from David Hargreaves from Sterne Agee.

David Hargreaves - Sterne Agee & Leach Inc., Research Division

I'm just wondering, are you aware of any new competition on construction in the Back Bay in the Biloxi area right now?

Paul J. Chakmak

I mean if you're referring to one project, the Margaritaville project that’s scheduled to open in the next few months, I mean, that certainly is well underway. Relatively small project. No hotel rooms. Really, I guess, the best way to describe it is a Locals-oriented property with relatively tough location from an access perspective. Really don't see that impacting our business at all. There have been a number of other projects in the Back Bay that have been talked about, and frankly, have been talked about for years. They all have their own particular peculiarities from whether it's an ownership perspective or other related complexities, including obviously, in today's world, the complexity of can they find any dollars. To my knowledge, none of those properties at this point in time have the availability of capital to start construction.

David Hargreaves - Sterne Agee & Leach Inc., Research Division

Okay. But where would that property be located relative to the IP and how far is it?

Paul J. Chakmak

I mean, the geographic location of just the Biloxi market overall is relatively tight circumference. And it's easiest -- probably if you circle back with Josh where he can kind of point them out to you on a map. But again I don't view that any of these projects have any material impact on our business there or, frankly, anybody's business there because I'm not sure they're viable.

David Hargreaves - Sterne Agee & Leach Inc., Research Division

Got you.

Operator

Your next question comes from John Maxwell at Jefferies & Company.

John Maxwell - Jefferies & Company, Inc., Research Division

Keith, I was wondering, could you provide a timeframe or do you have a timeframe on what you think you'll end up doing with Dania in Florida, whether you're going to pursue a sale or develop it on your own or possibly with a partner, I guess, it would sound like?

Keith Smith

We really haven't set out a hard timeframe for that. Once again, we’ve had a great expression of interest, a number of people approaching us interested in buying that asset. And we'll continue to work our way through that to see if there's something there. We'll also continue to watch the legislation, and try and understand the landscape there, see what's going to happen in Florida to just make sure we make the best decision for the company. It's hard to put a timeframe on it. We don't have one right now, but we're kind of working through the process every week.

John Maxwell - Jefferies & Company, Inc., Research Division

Okay. And then Paul, just a little bit more on what you're seeing with the recovery in both the Locals and Downtown. Would you characterize it, is it more your existing customers maybe staying longer or making a couple more visits or are you seeing a more wider spread of maybe customers that you haven't seen in the past 18, 24 months starting to visit the properties again?

Paul J. Chakmak

No, I mean it's generally relatively stable obviously, as you can see from the revenue numbers in the Locals market overall. It's kind of small improvements in all areas. But when you have relatively flat year-over-year revenue growth, obviously, nothing is necessarily standing out as an overachiever. On the flip side, Downtown, the Fremont, is -- as I mentioned, continues to perform incredibly well. That business at the Fremont is being driven by a visitation to Fremont Street Experience, and I think the team there is just doing a phenomenal job of getting more and more of those folks to come in to our door versus, obviously, somewhere else. I think, frankly, those folks also have more disposable income and are interested in spending a little bit more time and money downtown. That then is also buoyed by the continued strength of our Hawaiian business. I think everyone has heard the Hawaiian economy continues to plug along at a pretty good pace from a positive perspective and, obviously, we get probably more than our fair share of that Hawaiian business given our focus on that market.

John Maxwell - Jefferies & Company, Inc., Research Division

Okay, great. And then just, Josh, one final one, could you comment if there was any debt repurchased either at the Boyd or Borgata level during the quarter?

Josh Hirsberg

No, John, there were not any bond repurchase.

Operator

Our next question is a follow-up from Dennis Forst from KeyBanc.

Dennis I. Forst - KeyBanc Capital Markets Inc., Research Division

I had a question for Paul. Paul made a comment on IP to labor savings, that's what it was, labor savings in January. Can you annualize that for us, Paul at the IP?

Paul J. Chakmak

I think at this point, we have talked about synergies and savings in the context of a total number. The number we put out last quarter was $5 million. Today, I said that I think we can significantly surpass that type of number. Look, not surprisingly, marketing and labor costs are the 2 big expense drivers within our business. So you can assume it's a pretty good piece of that overall number, but I'm not going to get down to identifying it specifically more than that.

Dennis I. Forst - KeyBanc Capital Markets Inc., Research Division

Okay. And you obviously don't break out the total revenues of that individual property. But can I assume that the net revenues from the IP are pretty much what the gaming revenues are, meaning that hotel, food and beverage are somewhat offset by the promotional allowances of the property?

Paul J. Chakmak

I think it's similar to that. I mean, the IP is a resort and so it has probably a little bit different look to it than some of our other Midwest and South businesses. I mean, certainly, our largest hotel in the region, our largest number of restaurant offerings. And so non-gaming is a little bit more significant at the IP than it would be at some of the other properties that you're used to just by how it lays out, who its customer is, et cetera, et cetera. On the revenue side, to kind of have you look out for it. We will be providing some detail in the 10-K and future 10-Qs on the IP as required by -- in a certain accounting guidance. And so you will be able to see the IP as a standalone in our footnotes and then we can talk about that more as we -- as those numbers come out.

Operator

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

Josh Hirsberg

Thanks, Emily. Thanks to everyone participating. If you have any follow-up questions, feel free to contact my office.

Operator

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

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