Aug 4, 2010
Executives
Keith Smith - Chief Executive Officer, President and Director Josh Hirsberg - Chief Financial Officer, Senior Vice President and Treasurer Paul Chakmak - Chief Operating Officer and Executive Vice President
Analysts
Shaun Kelley - BofA Merrill Lynch David Katz - Jefferies & Company, Inc. Lawrence Klatzkin - Jeffries & Co.
William Lerner - Deutsche Bank Securities Felicia Hendrix - Barclays Capital Mark Strawn - Morgan Stanley Joseph Greff - JP Morgan Chase & Co Chris Woronka - Deutsche Bank AG Steven Ruggiero - CRT Capital Group LLC David Farber
Operator
Good day, ladies and gentlemen, and welcome to the Second Quarter 2010 Boyd Gaming Earnings Conference Call. My name is Chris, and I will be your operator for today.
[Operator Instructions] I would now like to turn the conference over to our host for today, Mr. Josh Hirsberg, Senior Vice President, Chief Financial Officer and Treasurer.
Please proceed.
Josh Hirsberg
Thank you, Chris, and good morning, everyone, and welcome to our second 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 future results including, among others, the financial outlook for 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 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 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 Investor 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 President and CEO. Keith?
Keith Smith
Thanks, Josh, and good morning, everyone. Thank you for joining us this morning.
Earlier this morning, we released the result for the second quarter of 2010. As we mentioned in our release, despite a difficult May and June, our overall performance was consistent with the last two quarters and generally line with our expectations.
The weakness we experienced following our last conference call in early May is a reflection of the fragile nature of today's consumer. The fragile nature of consumer confidence in general.
While there's diversion in federal deficit, volatility in the stock market, the European debt crisis, or stubbornly high unemployment, the consumer is reacting more quickly to the news than ever before. Their current reaction has been to pullback on their spending.
The severity and length of this recession has clearly had a profound effect on consumer behavior. Despite [ph] fluctuations we experienced in May and June, we continue to believe the long-term stabilizing trends we've discussed on previous calls will be in place.
And while the last several months has shown a difficulty of predicting consumer behavior, we continue to believe that year-over-year growth is achievable by the end of this year. While our national economy continues to find its footing, there's some positive signs occurring our business.
Las Vegas visitor counts has been up or stable for nine consecutive months. Las Vegas convention attendance in March, April and May increased between 3% and 5%.
And we expect to see meaningful growth in bookings in 2011. In addition, the national economy has grown or has been positive since the past four quarters.
As I said before, we need to have sustaining growth in our national economy before we can expect to see a recovery of our industry, so the continued growth in the national economy is a positive sign. However, as long as the economy remains on fragile footing, it's possible we will experience further volatility in future quarters.
Of course, recovery can be driven by factors beyond consumer behavior. As an example, we are very pleased to see Governor Christie has announced plans to revitalize Atlantic City.
As I have noted before, future of Atlantic City depends on our ability to effectively market it as a unique entertainment destination. We need to focus on promoting those things that set Atlantic City apart from other entertainment options in the area.
And Governor Christie's actions are a welcome step in the right direction. In the mean time, we remain confident in Borgata's position, a premier property in that region.
Turning back to Las Vegas, we recently announced that we are discontinuing our efforts to acquire the OpCo assets of Station Casino. We've devoted significant resources to this effort over last 18 months.
Unfortunately, given bidding procedures that favor Station insiders and our current view of the limited potential value of the operating and development assets, we concluded that this opportunity no longer makes sense for our company. As we have said before, we will only pursue transactions we believe are financially sound, fit well with our existing business and offer attractive long-term returns for our shareholders.
In the final analysis, this opportunity did not meet these criteria. As we look ahead, Boyd Gaming remains committed to growth, but only growth that creates long-term value for our shareholders.
And this is not just growth acquisition by acquisition, we understand that the most efficient form of growth often comes from improved profitability of our interesting assets. We will be persistent in continuing to find ways to operate more efficiently and to maximize profitability throughout our company.
Our current business model allows us to generate significant increase in the profitability from modest revenue growth. We are committed to growth, but we are also equally committed to ensuring our company is well positioned to take advantage of the economic recovery whenever it occurs.
As such, we will focus on strengthening our balance sheet, and using our free cash flow to reduce debt to improve our leverage. Finally, I want to recognize the outstanding contributions of our thousands of employees who has done a tremendous job in improving the quality of our guest experience, even if we continue to streamline our operation.
Thank you again for joining us this morning. Now I would like to turn the call over to Paul Chakmak to talk more specifically about the result in each of our region.
Paul?
Paul Chakmak
Thanks, Steve. Hello, everybody.
Let's take a brief look at each of the region. First, the Las Vegas Locals segment.
The stabilizing trend in the Las Vegas Locals region saw in recent quarters, while some momentum in the second quarter, but the overall direction of the business did not change. The year-over-year EBITDA decline in Q2 was approximately 15%, up from the Q1 figure of about 11%.
While we prefer to see this GAAP continue to shrink, the Q2 results were still much improved from the 20% to 30% declines we've experienced in 2009. Looking deeper into the results, we see further signs of improvement that gives us confidence in the Las Vegas Locals market, despite of recent pullback in consumer spending.
Results in the second quarter of 2010 showed that for the fourth consecutive quarter, we've seen normal seasonality patterns return to the business. Normal seasonality for the Las Vegas Locals market shows a low point in the third quarter and a peak in the first quarter, with the second and fourth quarters lying in between.
This is precisely what happened in the last 12 months, indicating there's a measure of stability in today's market that has not been present since 2008. Additionally, we saw encouraging results at The Orleans, which posted second quarter EBITDA result right in line with our 2009 numbers.
The first time one of our properties has done so in more than two years. While we are cautious about reading too much into a single data point, this is certainly an encouraging sign from our largest Las Vegas property.
Now let's take a look at Downtown Las Vegas. Results in the downtown region showed sequential quarterly improvement despite continued lower spent per visitor and reduced visitor volume.
Even with the downturn in business throughout the market, our properties continued to outperform our competition. During the second quarter, we increased our market share by over one full percentage point to 30.5%, up from 29.2% in the second quarter of 2009.
The Midwest and South region generally continue to show results similar to the previous two quarters, although the softness was evident in May and June with more than 85% of the second quarter year-over-year EBITDA decline coming in those months. Our Louisiana properties continue to account for a majority of the year-over-year decline, as they face tough comparable figures from the strong and in some cases all-time record levels of 2009.
Now a few thoughts about the Gulf oil spill. It's still too early to tell what the long-term effects of this disaster maybe, but so far, we have not seen any effects on our business.
However, continued offshore exploration and drilling are critical to the future health of Louisiana and Texas economy. So we're watching the situation closely.
We anticipate that the third quarter will trail last year's results. As we have said in the past, starting in the fourth quarter, we will have much easier comparisons going forward.
Finally, I'd like to touch on Borgata and Atlantic City. Results in the second quarter were adversely impacted by higher promotional activity from competitors in Pennsylvania, higher utility cost into unseasonably hot weather and reduced day trip visitation in June.
However, starting in late June and continuing into July, we have seen a return to expected summer levels of business that occupancy and business volumes, more representative of a typical summer season. And if you factor out the impact of poor weather earlier this year, EBITDA for the trailing 12 months is consistent with the full year levels we posted in both 2008 and 2009.
As you know, Atlantic City faces new competition from cable games being rolled out in Pennsylvania. We expect the additional gaming supply to have some effect on the Atlantic city market, although it is simply too early to predict the extent.
In any case, we believe the Borgata provides an experience for Atlantic City visitors that is unmatched and cannot be duplicated in Pennsylvania or elsewhere in the area. This is evidenced by our 50 basis point gain in market share during the second quarter.
In summary, the general trends we've experienced in the first quarter continued into the second quarter although there was unanticipated softness resulting from economic volatility. Though we believe the long-term trends for its stabilization and recovery remains in place.
We are confident we can successfully manage our business through the coming months and continue to believe the year-over-year growth by the end of this year is an achievable goal. I'd like to turn the call over to Josh now for a discussion on the financials.
Josh Hirsberg
Thanks, Paul. Before I review a few financial items for the quarter, let me spend a minute on the accounting for Borgata.
I want to bring to your attention the differences on accounting for Borgata in this quarter versus second quarter last year. The second quarter of this year is the first full quarter that we are presenting Borgata completely consolidated in the Boyd's results.
The GAAP results for the second quarter of last year, however, continue to be reported with Borgata as an unconsolidated subsidiary. In addition, as you may recall, our results in the first quarter of this year included eight days of Borgata consolidated into our financials as a result of the timing of the amendment to the Borgata operating agreement.
So when we discuss performance relative to last year for the second quarter, we will discuss it on a comparable basis to this year. That is with last year second quarter presented as if Borgata had been fully consolidated.
Additional tables attached to this morning's earnings release provide pro forma results as if Borgata were fully consolidated for the second quarter of last year and the year-to-date periods for 2009 and 2010. Looking beyond Borgata's accounting in terms of our balance sheet.
Excluding Borgata, our debt balance was just over $2.5 billion, a reduction of $53 million from the debt balance at the end of the first quarter. At the end of the second quarter, we were in compliance with our leverage covenant and going forward, expect to remain in compliance.
Borgata ended the quarter with a debt balance of $627 million. We issued an 8-K last week regarding the potential refinancing of Borgata's debt.
If the transaction is approved by the New Jersey Casino Control Commission, a distribution of approximately $100 million will be made to Boyd. We are unable to answer any questions you may have on this financing until the transaction closes.
Other items that I want to point out from the quarter include: Corporate expense was $11.2 million for the quarter compared to $8.2 million last year, largely due to timing differences. We continue to expect total corporate expense for 2010 to be $40 million, in line with our previous expectations.
Depreciation expense was $55 million compared to $62 million in the second quarter last year. The year-over-year difference is due to lower depreciation at both Boyd, of $5 million and Borgata, of $2 million.
Reopening expense in the quarter was related to Echelon, just like last year. Examples of these expenses include security, property taxes, storage and insurance.
Interest expense was approximately $9 million lower than last year, totaling $34.7 million in the second quarter of this year. Boyd's interest expense was about $7 million lower due primarily to the reduced borrowing rates, while Borgata's interest expense was down nearly $2 million due to lower debt balances.
We recorded a gain from the early retirement of debt in the quarter that totaled approximately $1.9 million from the repurchase of $17.5 million of our 6 3/4% senior subordinated notes due 2014. Our consolidated tax rate for the quarter was 29%.
This rate is lower than last year due to the consolidation of Borgata's operations. We expect this rate to be approximately 30% for the remainder of the year.
So with that, operator, we're now ready for any questions.
Operator
[Operator Instructions] Our first question comes from the line of Felicia Hendrix of Barclays Capital.
Felicia Hendrix - Barclays Capital
My first question is on the Las Vegas Locals market. I mean, obviously, a lot changed as the quarter progressed versus where we all were when you reported the first quarter.
So obviously, the Locals didn't show the trend that you all were expecting at the time of your prior conference call. I'm just wondering specifically if you could give us some more color about what kind of changes you've seen?
What the environment looks like now and how is this market trending now? And maybe what your thinking about the market for the rest of the year?
And if maybe you could give us some color on how July was.
Paul Chakmak
Well, Felicia, I'm not sure what -- everyone has kind of a slightly, I think different expectation of each one of, obviously the business segments and the company overall. I mean from a top line perspective, our net revenue perspective, the decline to the prior year was very similar.
Obviously, slightly reduced revenue numbers as a result of the seasonality patterns resulted in a slightly greater decline. As I've said on EBITDA line, roughly a couple of million dollars different so that maybe the same rate of decline if you apply that in the first quarter.
So not huge disparities overall in numbers. I think as we got into the end of July, end of the summer, which I think, as everyone knows is the slowest time of the year in the Locals market overall as a result of folks and families in town obviously having summer plan even in the tough economy, getting out of town, getting away from the hot weather et cetera, et cetera.
We naturally gear the business to those types of level. And I think, what we saw in July and what we'd expect to continue to see throughout the summer, we'll continue to be in the trends that we generally saw in the first and second quarter.
Felicia Hendrix - Barclays Capital
Do you expect to see any kind of improvement in the market just year-over-year given how dismal it was last year?
Paul Chakmak
Well, I think, when we look at year-over-year comparisons, I guess when you're specifically asking about [Audio Gap] just little hesitant to make commentary on the quarter overall, as both Keith and I said. I mean going into even our last call, we were certainly optimistic based on what we have seen, but very subtle to some extent.
In certain cases, very dramatic changes from an overall economic perspective or statements. From an overall economic perspective, it seems to create a significant amount of sensitive and an immediate reaction by the consumer.
So we are optimistic but just guarded since we don't know what tomorrow bring.
Felicia Hendrix - Barclays Capital
Just moving to Atlantic City. On your roadshow, you laid this out really clearly, the anticipated impact from Pennsylvania table games.
I understand that. But I'm just wondering, the slot promotions that you discussed in your release, are those incremental?
Or basically, can you quantify kind of the incremental impact that you're seeing there? And then also, how should we think about the higher energy cost you discussed?
Keith Smith
I can answer the slot question. Really, the slot, and I would say this is in line with what we would have expected to happen with the introduction of table games.
Recognizing that it's all happening at one time, it obviously creates a significant PR event for those operators that anyone would want to naturally take advantage of. So as a result of that, they are promoting aggressively their slot product.
I will say from our perspective, our Slot business continues to hold up quite well. And we'll let the numbers kind of speak for themselves when they come out and you'll kind of see how that performs.
But our expectation is, is the significant amount of promotional activity that's going on is to try to just facilitate the rollout of table games and probably doesn't have the margin associated with that businesses has been historically represented in that marketplace. So what was your question on utility?
Felicia Hendrix - Barclays Capital
Just the energy cost, I'm just wondering how we should think about that for the rest of the year?
Josh Hirsberg
I think that's largely due to just the unseasonable warm weather we're having in the summer. Going forward, we wouldn't expect to have increased utility cost kind of in the fourth quarter, largely because we had such terrible weather in the fourth quarter last year.
It wouldn't be our expectation that, that would be replicated. So if you recall, both in the fourth quarter of last year and the first quarter of this year, there were significant winter weather storms that you probably had to live through.
We were fortunate to be in the Las Vegas at that point. But that, obviously, would have affected not only the top line business but also other cost in the income statement including the utility costs.
So I think our expectation would be that wouldn't be replicated as we go into the fourth quarter. Obviously in the third quarter, it should be higher just because of the extreme heat that we're dealing with right now.
Keith Smith
More specifically, it is not a rate issue. We didn't see rates dramatically increase, it's really a usage issue.
Operator
Our next question comes from the line of David Katz of Jefferies.
David Katz - Jefferies & Company, Inc.
I just wanted to ask a question about some of Keith's comments in the opening remarks. And now with the Station opportunity gone by, just thinking about where else you might focus.
Do you any thoughts about looking for opportunities in Pennsylvania where some of the competitive pressure is coming from for Borgata? And then secondly, we've heard this earning season, some of the Las Vegas operators talked about inflection points or the early stages of infection points in Las Vegas on the Strip.
And I wonder if that leads to any thoughts about revisiting Echelon in some form or another?
Keith Smith
Starting with your last comment, several months ago that Echelon was several years off into the future, and it is still our view. That is several years into the future, there's additional capacity coming online on the Strips at the end of this year.
And some of the good news we are seeing, while it is good news, it is a slow gradual build and it's not a spike or a bounce that's occurring, it's just a slow and gradual build. And it doesn't give us reason to revisit our Echelon decision as of this moment.
We'll obviously continue to watch the metrics on the Strip. [Audio Gap] to pay attention to it, but today, we have no reason to revisit that decision.
In terms of growth, we spent a lot of time looking at opportunities around the country. And for the most part, it seems like that the sellers expectations and buyers expectations have not come together.
The people are looking for higher multiples and higher valuations that many buyers, including those who are willing to pay. Pennsylvania in particular, we are not currently looking there but don't have any particular interest in that market.
Obviously, if something were to come available at the right valuation, we may take a look but we don't have any ongoing dialogues going on in Pennsylvania right now.
Operator
Our next question comes from the line of Chris Woronka of Deutsche Bank.
Chris Woronka - Deutsche Bank AG
I was hoping you could talk a little bit about Borgata. And if we do see a larger than anticipated impact there from Pennsylvania or some other jurisdiction, is there a way -- do have a kind of contingency plan to cut cost there in terms of FTEs or anything like that?
Keith Smith
Well, I think as it occurred over the course of last year, a year and a half with Borgata, the management team there is prepared and is always looking a way to reduce expenses and when things occur. Having an anticipation of what the effect of table games in Pennsylvania will be and we have good marketing plans to help bloodbath.
If revenues fall further than we anticipate, the management team there is well prepared to make whatever the adjustments are required. Obviously, Borgata being the premier asset in that market, I think it stands the best chance of a significant of an impact from that as other properties in the market.
But the management team there is prepared to react as they have done in the past.
Josh Hirsberg
I'll add to that one concept, which is I think most people when they hear that we took expenses out of the business at Borgata or really the management team in Borgata took expense out of the business, they associate that with labor. It's not all labor related.
It's looking at the business, looking at what processes can be made more efficient. It's looking at strategies around the different business, activities that you're pursuing, as well as being as efficient as possible as you can be around marketing efforts.
Remember, Borgata has been historically, and we don't see it really changing going forward, an enormously successful property. It was a property that really had more demand than it knew what to do with.
Now with the introduction of competition, it has the opportunity to not only grow business with existing customers but reach out to segments kind of the markets that are within a three-hour drive to gain new customers and to do all of those sorts of things in a more efficient manner. And so I think it's all those things that come together that create the opportunity.
It's taking costs out of the business and just being more efficient around process is that leads to the ability to kind of generate stable EBITDA that they've done over the last couple of years. And really on an LTM basis, when you exclude weather, it continues to be stable.
So it's not just about labor. And there continues to be a lot more opportunities to kind of look at ways to be efficient, should the impact be greater than what we expect.
Chris Woronka - Deutsche Bank AG
I think it applies to your whole portfolio. Are you seeing any change in -- your same customer behavior, as I would call it?
And are you seeing foot traffic up but spending down or flat, or is foot traffic flat and spending flat? And just are you changing any of that or trying to change any of that with your marketing programs?
Paul Chakmak
When we look at, obviously, a number of different factors, one item we refer to is frequency, which is how often folks come into our buildings. That number, each month, obviously, it varies considerably by the property, focus on Local versus destination business.
So overall, frequency continues to trend up. In other words, folks that enjoy our products coming more often.
I mean, with that said, when you compare their spend levels to that same time last year and continues to be depressed is not surprising. I think that's really impacted most every consumer oriented business.
Though we do tend to see and have been seeing some positive signs with some of our better customers who obviously where the products to a higher level, and maybe some of it a more casual gamers and those particular tears, which shouldn't be surprising, again, since that's where you'd initially see the first uptake. So all the trends are going the right direction obviously, with all of them to be happening a little bit faster than maybe they are.
But it's definitely a list of positive signs directionally.
Operator
Our next question comes from the line of Shaun Kelley of Bank of America.
Shaun Kelley - BofA Merrill Lynch
Just wondering if maybe you could give us a little bit more color on the Louisiana Midwest side, specifically that can be one of the properties that, one of I guess the region that was the biggest Delta to our expectation. What are you kind of seeing in promotional activity there?
And any specific properties, treasure chests or anything or anyone in particular that stood out in terms of the results there?
Paul Chakmak
Well, I think, as we said, Louisiana accounted for a majority of the decline. So it's really that's called three other properties combined to make that statement to the decline over the prior year.
Keep in mind, Delta downs, in particular, at this time, in 2009, have all-time record performance levels. Really it's one of those cases where everything was going right for us from an economic perspective, from a competitive perspective, et cetera, et cetera.
And that really continued into the third quarter, where Delta had third quarter record levels as well, which buoyed the Midwest and South region and obviously, Louisiana specifically. That goes back to our comments, which I think we've been consistent on for the last three quarters.
That until we get through the third quarter, in the mid-West and South, it is just a tough comparison, especially given economic trends, which have, in particular, in Louisiana and Texas, have crept in with kind of the rest of the country. I mean, it all started a little bit later, but nonetheless they didn't get through the recession immune from everything that is going on.
In particular, in the case of Delta, the market did draw us strong, which are not really Louisiana markets, it's more the Southeast Texas markets. If you look and take a little dive into everything between Houston and Lake Charles across the border, you'll see that there are certainly some impact as a result of the recession on those particular market, and that obviously affects our consumers directly.
So I don't think we're trending frankly any different. And like we said, we see and anticipate good things happening and positive comparables we get in the fourth quarter.
Shaun Kelley - BofA Merrill Lynch
And then, on the strategic side, maybe a follow-up there a little bit. Is the multiples aren't really there on the acquisition front?
Are there any near-term priorities in terms of maybe ramping up CapEx or I guess internal initiatives on the capital spending front that you're evaluating today that would kind of make sense even in the current environment?
Keith Smith
In the last couple of years as we've work our way through this recession, I think we, most companies in the business have pulled back on what we call, maintenance capital. And I think our focus going forward is to make sure our properties are well maintained and are competitive.
And so we have a focus on making sure that they are maintained and the maintenance capital is at the right level. It's going to be a pool of backwork over the last couple of years to work through this, and so there's a focus on that.
There's no focus with no other projects within the existing asset group that we're currently looking at in terms of total additions or other expansions.
Shaun Kelley - BofA Merrill Lynch
I guess just to be clear then, does your maintenance CapEx budget increasing in 2010 or in 2011 over 2010?
Keith Smith
Looking 2011, you could expect that.
Shaun Kelley - BofA Merrill Lynch
And then, maybe just, I guess one last one for Josh. Josh, could you just let us know where your total leverage covenant was?
Your leverage was for covenant purposes at the end of the quarter?
Josh Hirsberg
Yes, sure. The covenant test, I guess it is, was 7x, and we were just under that at 6.9x when it rounded out.
Operator
Our next question comes from the line of Bill Lerner of Union Gaming.
William Lerner - Deutsche Bank Securities
Can you just talk about -- this is a longer-term strategy question. You know, in the past, obviously, you have plenty to or something to do with the hub in Vegas with Echelon on more recently bulking up in the Las Vegas locals market obviously with those station assets.
Now with those things not taking shape in the form that you had in mind, what sort of the strategy? I understand the recovery piece is obvious, but where do you go from here?
Paul Chakmak
Well, Bill, I think the comment about Las Vegas at the hub does go away simply because perhaps wanting to use the hub given market supply and demand characteristics or anything to do with Destination. In fact even more so than ever use Las Vegas as the hub to drive Destination business in while all of the markets we operate across the company, and we'll continue to do that.
I think it's a significant advantage that we have given our presence here as both a player in the regional markets as well as in the Las Vegas market. Obviously, The Orleans benefits the most from that.
Keith Smith
The fact that Echelon is not moving forward with the fact that the Station's acquisition didn't come true for us, it doesn't change our view of the importance of those markets. We still have a lot of confidence in the Las Vegas Locals market.
And if opportunities presented themselves there, we look to continue to grow that market. Opportunity, same thing on the Strip.
In the meantime, we'll continue to look probably at it strategically, markets that we're not in, markets where we can possibly purchase a market leading asset. Something that's number one or number two in the market, wealth our existing business.
We should probably start Las Vegas, which can still within the long-term market. So one of the changes are our overall long-term strategy, just change them to short-term.
Josh Hirsberg
Just changes the timing of it. I think at the end of the day, we still believe buying EBITDA is better than building EBITDA in the current environment.
Longer-term, that obviously will evolve as the opportunities change and the environment changes.
William Lerner - Deutsche Bank Securities
So just to follow that up, I think that's a pretty segue to the next one. I guess I'll put you on the spot a little bit.
In terms of buying EBITDA, I'm reasonably sure that you either are or were involved in auction for M Resort here. Can you just give me as whether you want to comment on that or not.
I don't think it matters. But I mean where does sort of, actually I'm asking you to comment, I guess.
Where does that asset fit in? Would that be a destination story for you or hybrid in a way?
Keith Smith
Josh, you want to respond to that?
Josh Hirsberg
I don't think we want to comment on specific acquisitions we may or may not be involved in. I think what we wanted to direct people to think about is we've always said that we believe kind of the best opportunity for us was in the Locals business.
We not only have the financing ability, but we obviously have the management experience and the depth in our management team to consolidate or absorb Locals opportunities into our business. And as you know, Bill, it's all about distribution points in the Locals business, and so gaining more distribution points is what we've been all about.
So I would say from our perspective, without kind of naming specific opportunities is locals continue to be kind of top of mind for us. But also to the extent that valuations make sense, we will consider opportunities outside of Las Vegas as well.
So we are, I think, going back to the theme of acquiring EBITDA as opposed to building it really focused on what makes the most cents, giving what opportunities are available for us and fit strategically within kind of that framework. If there was a riverboat asset for sale at the right valuation, we're going to look at that just as hard as we would a Local's opportunity.
We just think they're probably more obvious opportunities today in the Locals business. So I think that probably add some color for you.
William Lerner - Deutsche Bank Securities
And then, I guess, just to follow up to that. So we just heard as a proxy, MGM talked about FTE is down something like 14% in the peak.
Obviously, that's fairly aligned with some current unemployment right now, interestingly enough. But it seems as though with improvement in occupancy and rates going forward, we won't have FTEs added back.
And so if the rest of the service sector here is -- that's a proxy for the rest of the service sector. How the rest of the service sector behaves?
How do you change how you operate in the Locals market since, of course, it's such an important part of your story and is focused of your balance sheet going forward?
Paul Chakmak
I guess I didn't follow this high-end, give it back to us again?
William Lerner - Deutsche Bank Securities
In other words, it seems as though we won't get -- unemployment won't improve to the level it seems as it was a couple years ago at any point, and it seems medium or somewhat longer term than as a proxy. We're seeing MGM improve occupancy and in some cases, other guys take room rates up, so had not any employees back, and I don't think they plan too.
And so what I'm saying is if that's a proxy for the service sector in Las Vegas, how they behave on the hiring or the employee front, how does that extend to how you'll behave in a smaller Locals revenue story from here?
Paul Chakmak
I guess from an unemployment perspective, as I think Dylan was kind of closed for the Las Vegas market knows that construction sector that is continuing to drive unemployment higher. In fact, we wont be shocked as projects continue to wind down some strip projects.
Unemployment has the potential of continuing to creep as a result of construction jobs, no longer in the market and obviously, comparable jobs for those folks allude to given this current economic conditions in the city. I think that the behavior of that particular sector is that came materially from where it was a couple of years ago, relative to their consumer behavior since they've certainly adjusted spend patterns based on what they know the future will be.
So don't necessarily see a direct correlation any longer between potential increases in unemployment and the business overall. It's your point on the service sector, I think, look across corporate America, the theme is when this job growth start to creep in?
And as profits have been so significantly impacted, obviously, companies are looking to regain some of the footing that they have loss over last couple of years. I also say that through tough times, folks find a way to work smarter and run their business better.
I mean ultimately, there will still be some openings of hotel rooms, et cetra on the strip, and there will be a gradual improvement to the service sector overall. I think led by Strip business, led by that mid-week visitation with we continue to buoy the business overall.
And I think, look, overall and it comes back to some of that consumer sentiment gain, retirees are a big part of our business as well. Obviously not really impacted by the service sector and not impacted by unemployment, but certainly, significantly impacted by their retirement, the retirement benefits and the value of that, whether it is in cash or on paper.
And if that in a trends in the broader economy, we think demands for our product will be an impact to the deposits.
Operator
Our next question will come from the line of Larry Klatzkin of Chapdelaine Credit Partners.
Lawrence Klatzkin - Jeffries & Co.
Texas, prospects, the legalization and would you guys look to get involved if it happens. And I thought it died with Ann Richards, myself.
But do you think there's any chance this could happen.
Keith Smith
We're intense as I'm talking about it for a decade, and maybe as long as Massachusetts in. I think you just have to follow it.
We don't expect anything to happen this time around, but you're paying attention and you can say never. I think if it were to happen, we will certainly want to have an opportunity to participate guys with a Delta down was to the Texas border.
There's a lot of business outside of Texas, so we're watching pretty carefully of what will happen if we want to find a way to get involved.
Lawrence Klatzkin - Jeffries & Co.
And then same in Massachusetts, I mean, I think it's going to die a death in this next day. But this was obviously going come alive again, and actually it looks more of a chance and then for.
Would you be someone who's looking at what's up there that possibly do?
Keith Smith
I think there are always opportunities, it depends on ultimately with the exact regulations, in structures and terms are. Looking at the preliminary bill for Massachusetts, it's certainly more of payable than some that have come out.
And so it could be something we want to take a look at by here quickly.
Lawrence Klatzkin - Jeffries & Co.
Steve went to kind of indicated if the Foxwood license would come up downtown fully. He'd be interest in bidding, it's a pretty attractive license, would you guys kind of defensive mood or even synergistically what you have would you consider going to the downtown fully if that's became available?
Keith Smith
We're probably depend what going on exactly what the opportunity would look like, what the overall return might be for us and something like that.
Lawrence Klatzkin - Jeffries & Co.
As far as -- does July look any better in Louisiana, do you see any has it tried any churn or are you saying it's kind of more of the same going forward?
Keith Smith
No, I think as in Louisiana as we get deeper and deeper into the year. And I think, every month counts to some extent, we will continue to expect to see again.
Operator
Our next question comes from the line of Joe Greff of JPMorgan.
Joseph Greff - JP Morgan Chase & Co
But Paul, your earlier comments with respect to Atlantic City and Borgata's performance, I think in late June and July, and performance there are returning to expected levels. Are you basically saying that there wasn't a negative revenue impact from new competitive pressures in July, in Atlantic City?
Or there was an impact but it was in line with what you guys see as expectations going forward?
Paul Chakmak
I think it's -- my comments specifically was it's too early with just a couple of weeks under our belt. Florida long-term comparison to what's happening with table games, I think Europe were infused specifically in [indiscernible] that, I mean with that said, the comment was also that on an LTM basis, we have performance of Borgata adjusted for the pretty material weather impact we had in both the fourth quarter and then in the first quarter of this year.
We continue to run from an EBITDA perspective, in line with where they were in the last two years.
Joseph Greff - JP Morgan Chase & Co
And I know you talked about reacting or proactively making changes to the property. Are you actually taking out gaming capacity?
It looks like you took out some slots during the 2Q at Borgata?
Keith Smith
We did take out some slots as part of an overall reconfiguration of the floor, it wasn't so much aimed that reduce the capacity, it was just reconfiguring the floor creating some of the machines on the floor. So its part of an overall moving around at some of the parts and pieces there.
Josh Hirsberg
And I think it was also the kind of make some of the dead spots on the floor more efficient. So it was just around our overall efficiency effort.
Operator
Our next question comes from the line of Steve Ruggiero of CRT Capital.
Steven Ruggiero - CRT Capital Group LLC
First, after Borgata refinancing closes, would you tap the high yield markets and term out your Boyd debt? And if not now, when do you plan on doing that?
Josh Hirsberg
Well, I don't think we want to exactly tell everybody when we plan to do our financings, but I would say it's a safe bet to suggest that we will be doing some refinancing between now and sometime middle of next year.
Steven Ruggiero - CRT Capital Group LLC
And also, you refer to buying EBITDA. What parameters would you need to be met to buy EBITDA cash on cash return, dilution, et cetera?
Josh Hirsberg
Yes, I think the way we look at it is kind of a confluence of all those metrics really. We look at it, number one, to ensure that's the de-leveraging transaction from our perspective.
And then generating kind of an excess return over our weighted average cost of capital, ensuring that we're getting the cash on cash return and making sure that we're not relying for all of the return in the terminal value that it actually generates as a good investment for our shareholders.
Keith Smith
And that ti also includes looking at our strategically within our company, where the benefits it bring, how it competes in its own market, where is this competitively within this market and include those patches, in addition to some play on cash on cash return yields earliest we do.
Operator
Our next question comes from the line of David Farber of Credit Suisse.
David Farber
I just want to follow-up on Steve's question around the 2010 bank maturity. Actually, you guys don't want to talk too much in detail.
But sort of given Borgata's pending bond deal and its response, you guys take anything from that as far as having a high-yield market one way or another?
Josh Hirsberg
We would say it's encouraging.
David Farber
Absent station acquisition, just curious to hear any specific thoughts on free cash flow revolver availability? Anything around debt pay down or stock buyback sort of how you're thinking about free cash flow going forward would be helpful?
Keith Smith
At some of the opportunities we've look at including stations having come to fruition, so we use our free cash flow to pay down debt, reduce our overall debt loan and improve our leverage ratio is going forward as we look to de-lever the company absence. We would seel our acquisitions.
As Josh said earlier, as we look at acquisitions, one of the power points for them is that they need to be de-levered for the company overall. So we used to pay down debt.
David Farber
Just sort of you guys have mentioned in the press release, you're sort of still seeing or reiterating positive growth year-over-year. I'm just curious if there's anything tangible in this quarter that you guys look to that gives you more or less comfort with that going forward?
Paul Chakmak
Well, I think I got into a little bit to answering one of the previous questions relative to kind of segmentation of our database and that consumer behavior overall, which is the close part of it is occurring across the board. So we take a deep dive into how people are responding, not just responding to some marketing related events, but just responding overall.
Absent some significant events that will turn people up directionally, we're going where we need to be.
Operator
Our next question comes from the line of Mark Strawn of Morgan Stanley.
Mark Strawn - Morgan Stanley
On the uses of free cash flow and the potential acquisition, I'm just hoping to bring those two thoughts together, some light I mean. Given your liquidity profile today, how are you thinking about the balance between acquisitions and other growth opportunities and maintaining cash cushions for future covenants and maturities.
Are you, just basically the question, as you continue to refinancing it, amend existing obligations if you commit capital elsewhere?
Josh Hirsberg
I'm not sure I understand the question completely, Mark, can you run it by me again?
Mark Strawn - Morgan Stanley
Yes, I mean the basic question is if you look at your uses of free cash going forward. If you do commit capital elsewhere to a growth opportunity or acquisition, are you confident you can -- you have enough cash available or enough comfort with your banks that you'll be able to amend and extend and refinance existing obligations?
Josh Hirsberg
Yes, I think you're basically saying you're asking about increasing refinancing risk by taking on acquisitions. Is that what your saying?
Mark Strawn - Morgan Stanley
That's fair, yes.
Josh Hirsberg
Obviously, we're cognizant of that issue, and I will tell you that while we've not been in the position where we had to deal with any significant refinancings of the company. Over the last several years, we've been in constant conversations with many of our significant relationship lenders about the time when we're ready to refinance, what that's going to look like, where we can expect them to participate and so we have a very good idea.
I would say we have a -- we know exactly what we're going to do and when we're going to do it. And we have a lot of optionality around it, and so we want to leverage that optionality for as long as we can.
And we take that into consideration when we're obviously thinking about acquisitions. So we're not going to as we say this internally quite a bit, we're not going to risk the company to do an acquisition.
We're going to do an acquisition in a prudent fashion. I think you've seen us make some very prudent credit related decisions around not only the station decision, because I think others may have kind of kept going just to say they could do the transaction, we could have fully done the transaction.
We felt it no longer represented the value that we initially kind of came into the transaction expecting around National on decision we made the right decision there. So we have a history of kind of being very prudent around our capital uses and making sure that we kind of factored all that in for kind of the capital structure needs going forward.
So I would say that we are certainly cognizant of the issue that you're talking about, but we wouldn't do it in a vacuum, so to speak. We wouldn't just go out and do an acquisition without already having a plan of how to deal with it.
Operator
That concludes our question-and-answer session. I would now like to hand the call back over to Mr.
Josh Hirsberg.
Josh Hirsberg
Thank you for participating today. A lot of good questions and to the extent there are any more, please feel free to call the company and we'll get back to you as quickly as we can to try to get those answers.
So thanks again.
Operator
Thank you for your participation in today's conference. This concludes the presentation.
You may now disconnect. Have a great day.