Earnings Call Transcript - BYD Q3 2021

Operator, Operator

Good afternoon, ladies and gentlemen. Thank you for attending the Boyd Gaming Third Quarter 2021 Conference Call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I will now pass the conference over to your host, Josh Hirsberg, Executive Vice President and Chief Financial Officer of Boyd Gaming. You may proceed.

Josh Hirsberg, Executive Vice President & Chief Financial Officer

Thank you, Operator. Good afternoon, everyone. And welcome to our third quarter conference call. Joining me on the call this afternoon is Keith Smith, our President and Chief Executive Officer. Our comments today will include statements that are forward-looking statements within the Private Securities Litigation Reform Act. All forward-looking statements are as of today’s date and we undertake no obligation to update or revise the forward-looking statements. Actual results may differ materially from those projected in any forward-looking statement. There are certain risks and uncertainties, including those disclosed in our filings with the SEC, that may impact our results. During our call today, we will make reference to non-GAAP financial measures. For a complete reconciliation of historical non-GAAP to GAAP financial measures, please refer to our earnings press release and our Form 8-K furnished to the SEC today, both of which are available in the Investor Relations section of our website at investors.boydgaming.com. We do not provide a reconciliation of forward-looking non-GAAP financial measures due to our inability to project special charges and certain expenses. Today’s call is also being webcast live at boydgaming.com and will be available for replay in the Investor Relations section of our website shortly after the completion of this call. So, with that, I would now like to turn the call over to Keith Smith. Keith?

Keith Smith, President & Chief Executive Officer

Thanks, Josh and good afternoon, everyone. The third quarter was another outstanding quarter for our company, as we achieved our fifth straight quarter of exceptional results since reopening our properties last spring. This sustained level of strong performance is the direct result of the fundamental changes we made to our operating philosophy last year. Upon reopening, we sharpened our focus on driving play from our most loyal guests. We streamlined our cost structure and we adopted a more efficient approach to doing business that touched every part of our operations. Our record third quarter performance and our results over each of the last five quarters are attributable to the transformation of our business model and the disciplined approach we have taken to operating our business. These exceptional results have significantly enhanced our free cash flow and strengthened our balance sheet with our leverage declining to 2.75 times at the end of the third quarter. As a result of our strong financial position and our prospects for continued growth, our Board of Directors has authorized a share repurchase program of $300 million, allowing us to return a portion of our robust free cash flow to our shareholders. So, let’s review the operating performance that helped make this possible. For the second straight quarter, revenues exceeded both 2019 and 2020 levels, setting a new third quarter record. Strong flow-through resulted in adjusted EBITDAR of more than $340 million, also a third quarter record. Our quarterly EBITDAR was 42% higher than the third quarter of 2020 and 60% higher than the third quarter of 2019. And our companywide operating margins exceeded 40% for the second straight quarter. Our third quarter margin grew nearly 400 basis points over last year’s record and is up more than 1,400 basis points from 2019. Every segment of our business contributed to this outstanding performance, as we set new third quarter EBITDAR records in each of our three operating segments. In our Las Vegas Locals segment, revenues grew 35% over last year and EBITDAR was up almost 60%. Operating margins exceeded 54% and have been at or above the 50% mark every quarter this year. In Downtown Las Vegas, we posted record third quarter EBITDAR of $13.2 million on margins of 31%. This is a substantial improvement over the EBITDAR loss we reported a year ago and is up double digits over our record third quarter 2019 results. And in our Midwest & South segment, we set new third quarter records for both revenues and EBITDAR, as EBITDAR grew 22% over the prior year and 42% from 2019. This strong performance was broad based as 11 of our 17 regional properties set new EBITDAR records for the third quarter. Nationwide, of the 26 properties that were open the entire quarter, 21 grew EBITDAR by double digits over last year with 18 setting new third quarter EBITDAR records. As I mentioned earlier, the record levels of revenues, EBITDAR and margins we have produced throughout 2021 are the result of deliberate actions we have taken since reopening last year, including focusing on the right customer, transforming our operating model and implementing new capabilities and refinements throughout our business, and we are continuing to implement initiatives and technologies to enhance customer convenience, build loyalty, streamline processes and reinforce our operating efficiency. An example of this is our BoydPay cashless technology, which is now live at 11 properties in four states. While initially BoydPay was focused on our slot product, we are quickly expanding BoydPay’s capabilities to other areas, both gaming and non-gaming. In the next several weeks we will be expanding BoydPay to the majority of our restaurants in Las Vegas. In addition, we recently launched a field trial for BoydPay at table games in Nevada with Pennsylvania soon to follow. Our goal is to create a tool that will make it easier for our guests to make wagers and pay for non-gaming amenities right from their smartphone. We are making excellent progress toward this objective and expect BoydPay will become available at every Boyd Gaming property next year pending regulatory approvals. We’re also using technology to create new revenue opportunities and enhance the guest experience in other ways as well. For example, in Nevada, we recently re-launched Boyd Sports, offering an unmatched selection of betting opportunities through the most expansive wagering venue in the state. We are pleased with the customer reception so far, with strong increases in activity from both new and reactivated guests. Beyond these new initiatives, we also have additional organic growth opportunities available throughout our operations. Across the country, many of our hotels have been running below capacity since reopening due to a tight labor market. As a result, we have not been able to accommodate many rated customers who have established gaming histories with us. As the labor market normalizes, we will be able to bring more hotel rooms online driving gaming revenue growth from these customer segments. In Downtown Las Vegas, we anticipate continued growth, as tourism throughout the city recovers and Hawaiian visitation improves. And we also have opportunities for future growth in our midweek business and our meeting and convention business. Overall, we expect to see further recovery in visitation throughout our portfolio as restrictions are lifted, COVID numbers improve and travel resumes. On top of our organic growth opportunities, we are well-positioned for further gains in the digital space. We view online gaming and online casinos in particular as a strategic growth opportunity for our company. With gaming operations across 10 states and a strong player loyalty program, we have the foundation to build a robust digital complement to our land-based casino operations. Our iGaming operations are off to a good start in both Pennsylvania and New Jersey, where our Stardust branded online casinos have delivered strong results since launching in April. Expanding our iGaming operations is a strategic priority for our company and we will look to further build our online casino capabilities and geographic presence over time. In sports betting our partnership with FanDuel continues to grow. Our current focus is Louisiana, where we are preparing to launch sports betting at our five properties in that state by year end pending regulatory approval. Once live, this will extend our partnership with FanDuel to six of our nine regional states. In all, we expect our digital operations, including sports, casino and social casino, will generate more than $20 million in EBITDAR this calendar year. Digital is a profitable business for us today and it will be an increasingly important part of our overall strategy in the years ahead, generating incremental revenue and EBITDAR for our company, expanding our customer base, and importantly, building loyalty among our guests by providing us another opportunity to engage with them. We also continue to benefit as a 5% equity partner in FanDuel’s accelerating expansion across the country and their position as one of the leading online sports and casino operators in the country. Since our last call, FanDuel has launched new sports betting operations in Arizona and Connecticut, and expects to go live in Maryland, Washington State and Wyoming by the end of the year. With sports betting operations in 15 states by year end, FanDuel is a clear leader in the expansion of digital gaming and we are participating in its success as an equity owner and a partner. While the opportunity in digital is substantial, we also have strategic opportunities to further expand our traditional gaming operations. In Northern California, construction on the Wilton Rancheria Tribe Sky River Casino is progressing well. The steel structure was topped off last month and we are quickly moving forward with both exterior and interior construction. This project remains on time and on budget, and we are on track to open Sky River early in the fourth quarter of next year. And in Louisiana, we continue to make progress on development plans for a new land-based facility for Treasure Chest Casino featuring expanded gaming space and significantly upgraded non-gaming amenities. Treasure Chest has been a strong performer for years and this project will allow us to further enhance a property that is already producing strong results. Before turning it over to Josh, I want to provide an update on our ESG initiatives. Since issuing our first ESG report earlier this year, we have convened teams of corporate and property executives to focus on a number of strategic ESG initiatives, including reducing our water and energy consumption, lowering our carbon footprint, encouraging employee volunteerism and workplace giving, enhancing the diversity of our workforce and refining our responsible gaming efforts. We look forward to providing you with an update on our progress in next year’s ESG report. We also continue to support our communities during times of need, as we did after Hurricane Ida struck South Louisiana in late August. To assist our South Louisiana communities with recovery efforts, Boyd Gaming made a significant contribution to our partners at Second Harvest Food Bank, helping them provide much needed food and water to thousands of local residents in the immediate aftermath of the storm. At the same time, we extended full pay and benefits to our team members at Treasure Chest and Amelia Belle while those properties were closed following the storm. We also provided immediate cash benefits to all of these employees and we are providing additional relief as needed through the Boyd Gaming team member crisis fund. Giving back to our communities and being a responsible corporate citizen have always been core tenets of our company. We were proud to uphold that commitment after Hurricane Ida and we will continue to honor that commitment as a central part of our company’s ESG philosophy. In summary, after our fifth strong quarterly performance in a row, we have great confidence in our future and our ability to grow our business. Our restructured operating model and our tight focus on the right customer are delivering exceptional results. Company-wide EBITDAR has exceeded the $1 billion mark in just nine months, with margins significantly higher than pre-closure levels. We are confident that this level of performance is sustainable and that we will maintain much of the margin improvements we have achieved over the last 18 months. Our free cash flow has more than doubled and our balance sheet is the strongest it has ever been giving our Board the confidence to authorize a new share repurchase program and we have opportunities for incremental growth ahead. As the pandemic fades, additional visitors will return to our properties. As the labor market normalizes, we will be able to bring more hotel rooms online, increasing our capacity to host profitable customers. And we will further leverage our nationwide portfolio, our extensive customer database and our partnership with FanDuel to continue expanding our digital business. We’re well-positioned for the future and while our recent success is a result of our transformed operating strategy, there’s also a tribute to the strength of the entire Boyd Gaming team. Our team members are successfully executing the strategy that is creating these exceptional results. I cannot say enough about their dedication and effort over these past 15 months in dealing with the COVID pandemic in an uncertain environment. It is an honor to lead this team and we look forward to continued growth and success in the months and years ahead. Thank you for your time this afternoon. I’d now like to turn the call over to Josh. Josh?

Josh Hirsberg, Executive Vice President & Chief Financial Officer

Thanks, Keith. Our results for the third quarter and year-to-date have been truly outstanding. Our performance reflects a transformed operating philosophy that we implemented after reopening our properties in the third quarter of last year, focused on building loyalty and efficiently serving our core customer. This operating philosophy structurally changed how we execute our business, including reevaluating our approach to marketing, as well as scrutinizing every other facet of our operation. And as you have seen in our results, we have consistently executed this strategy for five quarters, generating revenues that are now surpassing 2019 levels, with significantly higher EBITDAR across our business. And as Keith mentioned, we are optimistic about our future, as we have multiple avenues for continued growth, as well as confidence that we will continue to operate at higher levels of margin. Today, we are financially a much stronger company than at any point in our history. Total EBITDAR over the last 12 months surpasses $1.2 billion and leverage at the end of the third quarter was 2.75 times and expected to further decline by year end. As a result of our strong operational performance, we are now generating robust levels of free cash flow, approaching $700 million over the past 12 months. To reflect our confidence in the company’s future, our Board authorized a $300 million share repurchase program. This amount is in addition to $61 million remaining from our prior approval. Given our sizable and growing free cash flow, we will also continue to invest in opportunities that generate high returns for our company. These growth opportunities will be balanced with returning capital to shareholders and maintaining current levels of leverage over the long term. Operator, that concludes our remarks and we’re now ready to take any questions.

Operator, Operator

Absolutely. Operator Instructions: To ask a question, press star one on your telephone keypad. The first question is from the line of Carlo Santarelli with Deutsche Bank. You may proceed.

Carlo Santarelli, Analyst, Deutsche Bank

Hey, Keith and Josh. Thank you. Josh, maybe this one’s best for you. As you think about bringing staffing back to better optimize the hotels and bring some of your rooms online, when you think about the magnitude of labor that returns relative to what was reduced during the pandemic, I think you guys had said in the past something about potentially bringing back about 20% of that cohort. Has that thinking changed at all as you guys have gone through and gotten more accustomed to operating with current levels or is that perhaps exactly what you thought it would be?

Josh Hirsberg, Executive Vice President & Chief Financial Officer

Yeah, Carlo, thank you for the question. Ultimately, our labor has been significantly reduced from a pre-COVID level and I don’t think that we’ve ever suggested that we were going to bring back about 20% of total staffing. I think it was more that as we introduce amenities we expect to bring some labor back within the operating environment. In terms of order of magnitude, pre-COVID we had something like 24,000 to 25,000 team members. Today we’re operating at around 14,000 team members and it is the general expectation that we will add back team members over time, but nowhere near the order of magnitude of the amount of staffing that’s been reduced as a result of coming out of COVID. So we do expect some labor, but not on the order of magnitude of adding back 20% of total pre-COVID staffing.

Carlo Santarelli, Analyst, Deutsche Bank

Yeah. I guess I was referring to 20% of the 10,000, so kind of a 14,000 to 15,000 number? Does that sound roughly appropriate?

Josh Hirsberg, Executive Vice President & Chief Financial Officer

Oh, I see. Yes. I believe that remains in line with how we’re thinking about our business going forward over the next several quarters.

Keith Smith, President & Chief Executive Officer

Yeah, Carlo, just importantly, and I think you alluded to this, that will come along with increased revenues as we are able to staff and occupy or open up more hotel rooms and open up more shifts at our restaurants and other amenities. So it’s not just a labor increase; it will come associated with revenues and profit.

Carlo Santarelli, Analyst, Deutsche Bank

Yes. Thank you, Keith. And a quick follow-up, as it pertains to the buyback authorization— you’ve certainly done buybacks in the past—how are you balancing the buyback decision versus the ROI opportunities you outlined, including Treasure Chest and other projects? How aggressive should we expect you to be with that authorization?

Keith Smith, President & Chief Executive Officer

So I think the way we think about it is the $300 million was sized based on all the other things you mentioned. We took a look at the investments we need to make in our properties, things like Treasure Chest. We took a look at maintaining leverage at around current levels or slightly lower. We expect to be closer to 2.5 at the end of the year and I think that is where we want to run the business long term. Putting all of that in the hopper is how we sized the $300 million. So you should expect that we will execute on the $300 million and that when we’re done with that, we will take a look and see where we’re at and what our next step is. We can continue to invest in our business, keep our leverage where it is and execute on the $300 million. It is a balanced approach.

Carlo Santarelli, Analyst, Deutsche Bank

Great. Thank you very much.

Keith Smith, President & Chief Executive Officer

Yeah. You’re welcome. Thanks, Carlo.

Operator, Operator

Thank you, Mr. Santarelli. The next question is from the line of Barry Jonas with Truist. You may proceed.

Barry Jonas, Analyst, Truist

Hey. Maybe just following up on the return of capital question, how are you thinking about resuming the dividend here? What would you like to see first?

Keith Smith, President & Chief Executive Officer

Well, obviously, our Board, as we just announced, authorized the share repurchase. We believe that is the most efficient and flexible way to return capital to our shareholders and that was the decision that was made. If others decisions are made in the future then we will certainly report on it. But that’s all we have to report for now.

Barry Jonas, Analyst, Truist

Got it. Okay. Then can you talk a little bit about the promotional environment, how that’s been trending across your markets and maybe specific to the Las Vegas Locals market? I believe some competitors have talked about targeting that customer. Curious what your forward expectations might be there.

Keith Smith, President & Chief Executive Officer

Sure. As we think about Las Vegas Locals specifically, it hasn’t significantly changed over the last quarter or two. Our main competitor and larger operators are being disciplined and maintaining their focus. Some of the smaller operators, several quarters ago, had fallen back to pre-COVID levels of marketing and being aggressive. So we haven’t seen the landscape change much. Those that got more aggressive several quarters ago have stayed aggressive. Those that remain disciplined have stayed disciplined. I expect that will continue through 2022. Looking at our Midwest & South properties, largely the same. Those who have remained disciplined with respect to marketing spend have generally stayed that way. There are a number of properties in the Midwest & South that went back to pre-COVID levels of spending and got very aggressive; they haven’t changed. We monitor and watch it, and we try not to react to it. Once again, we expect through 2022 that those who are disciplined will stay that way and those who have already gotten aggressive are likely to remain aggressive. We don’t expect a significant change in the promotional landscape, whether here in Nevada or outside Nevada.

Barry Jonas, Analyst, Truist

Perfect. Thanks so much, guys.

Operator, Operator

Thank you, Mr. Jonas. The next question is from the line of David Katz with Jefferies. You may proceed.

David Katz, Analyst, Jefferies

Hi. Evening, everyone. Thanks for taking my questions. I appreciate all the color and information. I wanted to ask about updated boundaries around M&A. The company has a history of being opportunistic in certain situations. I’d love some color on whether corporate would be in bounds or out of bounds, OpCo/PropCo would be in bounds or out of bounds, or how you’re thinking about all that given a very attractive leverage profile at this point?

Josh Hirsberg, Executive Vice President & Chief Financial Officer

I’ll start and then Keith can jump in. When we think about M&A and OpCo/PropCo, we do it the same way we have historically. Owning real estate is important to the company. It gives us optionality for flexibility down the road should we ever feel like we need to execute on that. Our balance sheet is significantly stronger today and our cash flow generation capabilities are significantly stronger, so that changes the way we think about it in the current environment. We’re not going to do a deal just because we’re lowly levered or generating free cash flow. We will retain the same discipline we have had throughout the company’s history. We believe we’ve been disciplined, strategic and value oriented in pursuing acquisitions and that will not change. We have a refined view of how we execute our business and the same applies to our balance sheet, but it does not mean we’re changing our philosophy about acquisitions. Keith, anything to add?

Keith Smith, President & Chief Executive Officer

No. Josh summarized it well. We’ve grown historically through M&A and we’ve done a good job. We’ve been disciplined and we will remain disciplined. The acquisitions need to be strategic and priced right. Josh covered it well.

David Katz, Analyst, Jefferies

Perfect. Thank you very much.

Operator, Operator

Thank you, Mr. Katz. The next question is from the line of Joe Greff with JPMorgan. You may proceed.

Joe Greff, Analyst, JPMorgan

Hello, everyone. Maybe this is a question for you, Josh. Was there a big delta in property-level EBITDAR margins at the end of the quarter versus how the quarter started? How do exit rates compare versus June/July levels? And when you think about Midwest & Southeast excluding any bad weather impact in Louisiana or Mississippi?

Josh Hirsberg, Executive Vice President & Chief Financial Officer

Not really. We were able to maintain our margins throughout the quarter. We did have challenges with periods of softness toward the middle of the quarter related primarily to hurricanes and the increased awareness around the Delta variant, which also played a role. But our team did a great job of managing expense levels during those periods. We adjusted accordingly. Margins did not fall off the chart as a result of softness in revenues. Margins were fairly consistent month to month throughout the quarter.

Joe Greff, Analyst, JPMorgan

Great. And where are you in terms of the NOL balance and when do you start becoming a cash taxpayer?

Josh Hirsberg, Executive Vice President & Chief Financial Officer

We still have an NOL balance left. I typically check this before calls and didn’t this time, but I expect it will most likely run out sometime in 2022. That depends on the performance of the properties and the company through next year. We will have an NOL balance coming into year end.

Joe Greff, Analyst, JPMorgan

Great. Thank you, guys.

Operator, Operator

Thank you, Mr. Greff. The next question is from the line of Steve Wieczynski with Stifel. You may proceed.

Steve Wieczynski, Analyst, Stifel

Hey, guys. Good afternoon. Josh, the next time you report will be your year-end report and typically you gave guidance for the upcoming year. If you had to theoretically give us a view of the next 12 months today, any high-level thoughts on potential headwinds or tailwinds you would be watching if you were trying to model the business out today?

Josh Hirsberg, Executive Vice President & Chief Financial Officer

So you’re asking for guidance for next year?

Steve Wieczynski, Analyst, Stifel

No. More high-level thoughts—some potential margin pressures or opportunities on the revenue side—anything high level you might be watching at this point?

Keith Smith, President & Chief Executive Officer

Steve, as we think about 2022, we’ve alluded to this in our comments—we believe there are a number of revenue opportunities as we move into 2022. As the labor market recovers and we’re able to rent all of our hotel rooms and open up more amenities, we believe there are revenue opportunities. As COVID restrictions are lifted—here in Louisiana we received a note that they’re lifting the mask mandate tomorrow; in Nevada we still have a mask mandate and hopefully by mid-November that will run its course—we think there’s opportunity for recovery in visitation. Convention business will continue to grow across the U.S. and out-of-town travel will continue to grow here in Nevada. On the flip side, we will be adding back some labor as discussed in earlier quarters, and some marketing will come back into the system. That’s why we talk about maintaining much of the margin improvement we’ve seen, but not all of it, because we know there will be some incremental expense flow into the business. The team is doing a great job dealing with inflationary pressures, whether it be cost of goods or wage inflation, and we’re not seeing it have a material impact on margins due to the work the team is doing. So as we think about 2022, we net-net see continued upside.

Josh Hirsberg, Executive Vice President & Chief Financial Officer

One additional point: when we look at what’s happened so far in 2021, there’s really only one quarter that had some outsized tailwinds, and that was Q2. Underlying Q1, Q3 and the greater results are at a level of business we think is sustainable based on the customer trends we’re seeing among both our rated and unrated customers. We expect those trends to underlie our business as we go into 2022, with the added benefits Keith mentioned and maybe a little pressure here or there, but not outweighing the opportunities.

Steve Wieczynski, Analyst, Stifel

Got you. That’s perfect color. Second quick question: your older demographic—what did that demographic look like during the quarter and was there any material improvement from those folks?

Keith Smith, President & Chief Executive Officer

As we think about our 55-plus and 65-plus customers, they continued to grow in the third quarter, whether you look at visitation, trips, guest counts or Theo; they all continued to grow in the quarter. Those customers continue to return to us in good numbers and we continue to see good results, especially through our core customer base and particularly at the high end.

Steve Wieczynski, Analyst, Stifel

Okay. Great. Thanks, guys. Appreciate it.

Operator, Operator

Thank you, Mr. Wieczynski. The next question is from the line of Shaun Kelley with Bank of America. You may proceed.

Shaun Kelley, Analyst, Bank of America

Hi, everyone. Keith or Josh, on the color you gave on the over-65 segment—very helpful—have you seen any change in unrated play behavior? That’s a profitable segment and one we ask about often. Any change in that pattern as the quarter progressed?

Josh Hirsberg, Executive Vice President & Chief Financial Officer

The short answer is no change. It has been remarkably consistent and stable since reopening last year and so no change in trends during the quarter.

Shaun Kelley, Analyst, Bank of America

Great. And a follow-up: Keith, you’ve provided more on digital every quarter. Could you remind us what it would take to increase your own direct online casino presence through Stardust or take back more responsibility from FanDuel? You sound pleased with the relationships, but where do you want to take that medium-term in terms of your own control versus the partnership?

Keith Smith, President & Chief Executive Officer

In the longer term, we believe it is important that we control a bit more of the digital product as we move forward. We have a great relationship with FanDuel. It has been a very profitable relationship and continues to work well. We’re able to leverage their technical expertise not only from a software and product standpoint, but from a marketing standpoint as they understand the business well. We’re learning and getting educated; longer term we will take more control of that product. But in the short term we’re very pleased with how it’s going and don’t expect to make real changes in the near term.

Shaun Kelley, Analyst, Bank of America

Thank you very much.

Operator, Operator

Thank you, Mr. Kelley. The next question is from the line of Thomas Allen with Morgan Stanley. You may proceed.

Thomas Allen, Analyst, Morgan Stanley

Thanks. In your prepared remarks, Keith, you highlighted the Boyd Sports relaunch in Nevada and having the largest betting menu in the market. Can you talk about how you put that together and the importance of it?

Keith Smith, President & Chief Executive Officer

We’ve had an online sports product here for years and we took the opportunity, working with our partners at FanDuel and with upgraded technology, to switch providers and relaunch it with a much more fulsome betting menu. We learned from FanDuel’s experience in other states and leveraged those learnings to provide a better selection of options than others in the state. That’s the value of learning from our partner and bringing that to market.

Thomas Allen, Analyst, Morgan Stanley

That’s helpful color. Just one more: as we near the end of October, have revenue and demand trends been relatively consistent with Q3, or have they slowed or accelerated?

Keith Smith, President & Chief Executive Officer

There was a little softness in mid-Q3 with the Delta variant, but as we exited the quarter the last several weeks of September we were back to normal. The trends we’re seeing thus far in October are very similar to what we saw at the end of Q3.

Thomas Allen, Analyst, Morgan Stanley

Helpful. Thank you.

Operator, Operator

Thank you, Mr. Allen. The next question is from the line of Dan Politzer with Wells Fargo. You may proceed.

Dan Politzer, Analyst, Wells Fargo

Hey. Good afternoon, everyone. Thanks for taking my questions. Following up on increasing labor to bring rated players back, given the margin expansion you’ve seen in the Locals segment versus Midwest & South, how should we think about bringing back non-gaming amenities and increasing labor expenses?

Josh Hirsberg, Executive Vice President & Chief Financial Officer

Thanks, Dan. Our approach was different than some peers where we slowly reintegrated non-gaming amenities and expanded hours and offerings. Other than hours, we’ve largely gotten to the place where amenities are open. Labor on the F&B side and hotel side is about finding people to fill open positions, which has been difficult. The staffing we bring back will be associated with occupancy from known gaming customers—customers we know are profitable. So it’s filling open positions across the board, and in each case we expect to be able to staff and backfill where needed to serve more customers and drive incremental revenue. It’s not just adding labor without an offset; it should be tied to revenue opportunities.

Dan Politzer, Analyst, Wells Fargo

Got it. Thank you. A follow-up on the share repurchase: even after the repurchase you’ll be well below your historical target 4x to 5x leverage range. Has there been a fundamental shift in that target range and how should we think about getting back there over time?

Keith Smith, President & Chief Executive Officer

Yes, there has been a shift. Pre-COVID we were comfortable running the business in the 4x to 5x range and had been talking about being comfortable in the low 4s. Today we’re at 2.75 times and likely 2.5 times at year end. We think that is the new range for us and where we want to run the business long term, being flexible in any given quarter or year, but that is the long-term target for leverage.

Dan Politzer, Analyst, Wells Fargo

Got it. Housekeeping: CapEx for the quarter and any guidance for CapEx for next year?

Josh Hirsberg, Executive Vice President & Chief Financial Officer

No guidance yet for next year as we’re in the process, but for this year we are still pretty much on track for about $200 million of CapEx and we spent about $40 million in Q3.

Dan Politzer, Analyst, Wells Fargo

Got it. Thanks so much, everyone.

Josh Hirsberg, Executive Vice President & Chief Financial Officer

Sure.

Operator, Operator

There are no additional questions at this time. I will now pass it back to Josh Hirsberg for any further remarks.

Josh Hirsberg, Executive Vice President & Chief Financial Officer

Thank you, Tia, and thanks to everyone for joining today. If anyone has any follow-up questions, please feel free to reach out to the company and we will try to answer those questions for you. Everybody stay well. Thank you again.

Operator, Operator

That concludes today’s conference call. Thank you and have a great day.