Earnings Call Transcript - BYD Q1 2024

David Strow, Vice President of Corporate Communications

Good afternoon, and welcome to the Boyd Gaming First Quarter 2024 Conference Call. My name is David Strow, Vice President of Corporate Communications for Boyd Gaming, and I will be the moderator for today's call, which is being recorded on Thursday, April 25, 2024. Our speakers for today's call are Keith Smith, President and Chief Executive Officer, and Josh Hirsberg, Executive Vice President and Chief Financial Officer. Our comments today will include forward-looking statements as defined by the Private Securities Litigation Reform Act. All such statements are made as of today, and we have no obligation to update or revise them. Actual results may differ significantly from those anticipated in our forward-looking comments due to various risks and uncertainties, including those outlined in our SEC filings. We will also refer to non-GAAP financial measures during our call. For a complete reconciliation of historical non-GAAP to GAAP measures, please see our earnings press release and our Form 8-K submitted to the SEC today, both of which can be found at investors.boydgaming.com. We do not provide reconciliations for forward-looking non-GAAP measures because we cannot predict special charges and certain expenses. Today's call is being webcast live at boydgaming.com and will be available for replay shortly after the call in the Investor Relations section of our website. Now, I would like to turn the call over to Keith Smith. Keith?

Keith Smith, President and Chief Executive Officer

Thanks, David, and good afternoon, everyone. Following a record 2023 performance, the first quarter of 2024 was a challenging start to the new year. While we knew that our first quarter results in Nevada would be comparing to a record first quarter of 2023, our results for the quarter were also impacted by severe winter weather in January across the Midwest & South and a softer Las Vegas Locals market in the first quarter. However, beyond these challenges, there were encouraging trends during the first quarter. Both in Nevada and across the Midwest & South, play from our core customers improved as we moved through the quarter. In our Midwest & South segment, once January's severe winter weather passed, the revenue growth trends that began in the fourth quarter returned in February and March. In addition, both our Online and Managed businesses continue to produce strong results. And importantly, our management team stayed focused on maintaining operating efficiencies and a disciplined marketing approach, achieving property level margins of 40% during the quarter, proving once again our ability to maintain a high level of efficiency. So now let's review each of our operating segments in more detail. In our Las Vegas Locals segment, the EBITDAR shortfall to prior year was a result of three main issues, each accounting roughly one-third of the decline. First, as I mentioned, our Locals segment was comparing to a record performance last year. While January was a particularly strong month last year, February and March were also record months for the segment. Second, we also felt the impact of competitive pressures related to the opening of a new property in the market. The overall impact of these competitive pressures during the quarter was in line with our previously stated expectations of $20 million to $25 million in EBITDAR for the full year. Finally, on a same-store basis, the overall Las Vegas Locals market was softer than expected during the quarter. Despite these issues, the fundamentals of our Locals business remain intact. During the quarter, play from our core customers grew each month. When excluding January, play from core customers increased on a year-over-year basis. Non-gaming revenues also grew in the Locals segment during the quarter, even with a substantial number of hotel rooms out of service for a room remodel project at the Gold Coast. We remain disciplined in our marketing strategies and focused on operating efficiencies. Even with lower revenues, we maintained margins of nearly 50% in our Locals segment during the quarter, consistent with our performance over the last several years. Looking ahead, while we expect competitive pressures and market softness to continue into the second quarter, we remain encouraged by continued strength in play from our core customers and confident in our management team's ability to achieve efficiencies throughout our operations and maintain a disciplined approach to marketing. Next, in Downtown Las Vegas, similar to our Locals segment, some of the shortfall to prior year was the result of comparisons to a record first quarter of 2023. Much of our strong performance in the first quarter of '23 was driven by pent-up demand from our Hawaiian guests. While we expected some normalization from last year's elevated levels, high airfares during much of the quarter this year kept more Hawaiians away than we had anticipated. In addition, gaming revenues in the Downtown market declined during the quarter, with overall pedestrian traffic trending lower along Fremont Street. Looking at more recent trends, we are encouraged that Hawaiian visitation has improved over the last 30 days as airfares from Hawaii have started to decline from the elevated levels we saw earlier in the first quarter. While our two Nevada segments face comparisons to prior year record results and market softness, we continue to have long-term confidence in the Southern Nevada market. On an overall basis, visitation to Las Vegas continues to grow, led by increases in convention business over the last 12 months. Employment remains a positive story as well, increasing 3.3% over the last 12 months, the strongest growth rate of any major metropolitan area in the U.S. This employment growth continues to be broad-based with gains across most employment sectors. The ongoing growth trends we see in visitation, convention business, and employment all bode well for the future health of the Southern Nevada economy. Moving to our Midwest & South segment. We saw encouraging trends during the first quarter. Our results were down year-over-year, primarily due to severe winter weather impacting January. Beyond January, gaming volumes from our core customers grew, continuing the trends from the fourth quarter. Retail play in February and March was also encouraging, coming in nearly flat to the prior year, the best year-over-year performance we have seen in almost two years. We also saw growth elsewhere in the business. Adjusting for rooms out of service related to a hotel renovation project at our Ameristar St. Charles property, non-gaming revenues grew 4% in February and March. Our management team successfully maintained their focus on operating efficiently. Excluding the weather impact in January, margins were 39% for the quarter, similar to our recent performance for this segment. We are encouraged by the improving customer trends over the last several quarters, and those trends have continued across our Midwest & South segment in April. Next, our Online segment maintained its strong level of performance with $20 million in EBITDAR in the first quarter, matching last year's exceptional results. This is primarily attributed to FanDuel's industry-leading position in online sports betting across the country. We are pleased with our Online segment's strong start to the year, and looking ahead, we continue to project the segment will generate $60 million to $65 million in EBITDAR for the full year. In addition to these financial contributions, we also continue to benefit from our 5% equity interest in FanDuel Group. This investment is growing in value with the success of FanDuel across the country, and it remains a valuable strategic and financial asset for our company. Finally, our Managed & Other business benefited from another strong quarter at Sky River Casino, which we manage on behalf of the Wilton Rancheria Tribe. Well into its second year of operations, demand at Sky River remains healthy. Thanks to Sky River's excellent performance since opening, the Wilton Rancheria Tribe is now finalizing plans for a major expansion of the property that will include additional casino space, a hotel tower, and meeting and convention facilities. As a result of Sky River's continued strong performance, we now expect our Managed & Other business to generate approximately $86 million to $88 million in EBITDAR this year. While company-wide results were below prior year during the first quarter, we continue to generate significant free cash flow, allowing us to execute on our balanced approach to capital allocation. First, we are investing in our nationwide portfolio with the objective of driving long-term growth while enhancing the competitiveness and appeal of our properties. We are repositioning or upgrading many of our food and beverage outlets, with nearly a dozen projects planned throughout the year. We are also refreshing and updating our hotel products. Currently, we are renovating rooms at Gold Coast, Ameristar St. Charles, and Blue Chip. We are set to begin similar projects at the Orleans, IP, and Valley Forge later this year. Beyond upgrading our property amenities, we are also nearing completion of our land-based project at Treasure Chest Casino. This project will transition the property from a 3-level riverboat to a single-level land-based facility, adding significantly enhanced non-gaming amenities, expanded gaming options, and convenient parking for our guests. Once complete in June, we are confident this investment will significantly enhance the Treasure Chest experience and position the property for long-term growth. While investing in our portfolio is a key part of our approach to capital allocation, we are also committed to returning capital to our shareholders. During the quarter, we repurchased $105 million in company stock while increasing our dividend for the third consecutive year. We intend to continue returning capital to our shareholders with $100 million per quarter in share repurchases and quarterly dividend payments. Finally, we remain committed to maintaining a strong balance sheet, providing us with significant flexibility to navigate the current environment, execute a balanced approach to capital allocation, and pursue opportunities. In summary, while this was a challenging quarter, there were many encouraging trends in the business, including continued growth in play from our core customers. We remain diligently focused on our disciplined marketing and operating strategies and our commitment to operating efficiently. Thanks to our significant free cash flow and strong balance sheet, we continue investing in our properties while returning substantial capital to shareholders. Thank you for your time today. I would now like to turn the call over to Josh.

Josh Hirsberg, Executive Vice President and Chief Financial Officer

Thank you, Keith. I'm going to provide a few additional details on the quarter. With the current trends in our business, we have remained disciplined in our expense management, resulting in property level margins of 40%. We have also remained focused on our core customer strategy and disciplined in our marketing efforts, which has been one of the keys to our success over the last several years. For our Online segment, our results include tax pass-through amounts related to our online partnerships. These amounts were recorded as both revenue and expense. During the quarter, the tax pass-through amount was $116 million compared to $96 million last year in the first quarter. In terms of capital expenditures, we invested $90 million in the first quarter, including investments in the Treasure Chest land-based project. We remain on track to spend $200 million to $250 million in maintenance capital during 2024, and $100 million in growth projects that you should think of as recurring. We also expect to invest an additional $100 million during the year in room renovation projects that Keith mentioned, bringing our total capital expenditures in 2024 to $400 million to $450 million. With respect to our program to return capital to shareholders, during the quarter, we repurchased $105 million in stock, acquiring 1.7 million shares at an average price of $63.62 per share. We also increased our quarterly dividend to $0.17 per share during the quarter, starting with the dividend that was paid on April 15. Since resuming our capital return program in late 2021, we have returned approximately $1.3 billion to shareholders in the form of dividends and share repurchases and reduced our actual share count by 15% to 95.4 million shares. At the end of the first quarter, we had approximately $221 million remaining under our current repurchase authorization. Our capital return program is an important part of our capital allocation philosophy, and we are committed to $100 million per quarter in share repurchases. We finished the quarter with total leverage of 2.3x and lease-adjusted leverage of 2.7x, consistent with year-end levels. With low leverage, no near-term maturities, and ample borrowing capacity under our credit agreement, we have created the strongest balance sheet in our company's history. As a result of our strong balance sheet and significant free cash flow, we have created significant financial flexibility to maintain a balanced approach to capital allocation, providing our company the ability to continue reinvesting in our portfolio and returning substantial capital to our shareholders while pursuing growth opportunities. That concludes our remarks, and David, we're now ready to take any questions.

David Strow, Vice President of Corporate Communications

Our first question comes from Steve Wieczynski of Stifel.

Steven Wieczynski, Analyst

I would like to ask about the overall Las Vegas market. It seems there are mixed signals. Unemployment is low, and the housing market appears strong. I'm curious about what you think might be causing some softness in the market, as it feels a bit confusing.

Keith Smith, President and Chief Executive Officer

In terms of what's causing the softness, it's difficult to pinpoint exactly what's affecting the Nevada numbers that were released earlier today. Analyzing the locals market over the past three months, with adjustments for a new competitor, shows a mid-single digit decline. Even looking back to January and February, there were slight declines on a trailing three-month basis. The market has experienced softness for a few months, not just in March. As mentioned earlier, our core customers are performing well, and we're seeing growth from them. The softness is more pronounced among retail customers, who are more sensitive to economic changes and inflation. It seems that this segment is being more cautious about spending their discretionary income.

Steven Wieczynski, Analyst

Okay. And then second question, I guess, in terms of staying in Las Vegas around the promotional environment. Obviously, Durango is open. I assume they're out there promoting. And it seems like you guys are obviously kind of drilling somewhat of a line here and not going to go down that path too much. But I guess the question is, at what point do you maybe start to think about promoting? Or are you guys just going to kind of hold the line here and again, not go down and kind of chase the dollars right now?

Keith Smith, President and Chief Executive Officer

I'll make a couple of comments. One is we think about getting more promotional each and every day. We don't do it because we have a strong discipline to not do it. The good news is that our major competitor, even with the opening of a new property, really has not elevated their level of promotions. Some of the other smaller operators, independent operators kind of around town, there are some properties around the Orleans and the Gold Coast that have gotten more promotional late in 2023 and into 2024 that I think are impacting the market. So we are very disciplined. It's not that we don't trial things. It's not that we don't test different programs. We simply don't stick to the same playbook, but we're just trying to stick to a reinvestment level that doesn't increase our overall costs. We'll continue to monitor, we'll continue to test the market, we'll continue to try new programs and monitor the market. But look, today, the team is doing a great job managing through it, generating nearly 50% margins, which significantly elevated than anything we've seen prior to the last several years. I think the team is doing a great job. Josh, if you want to add anything?

Josh Hirsberg, Executive Vice President and Chief Financial Officer

No, I think you did it.

David Strow, Vice President of Corporate Communications

Our next question comes from Joe Greff of JPMorgan.

Joseph Greff, Analyst

I also want to discuss the Las Vegas Locals market. Keith, just to ensure we understand your perspective on that market, you mentioned there are three reasons, each contributing about one-third to the performance of the Locals cost comparisons. The record monthly results from last year, Durango, and the same-store softness. This means each of these factors resulted in approximately a $5 million year-over-year EBITDA decline, correct?

Keith Smith, President and Chief Executive Officer

Yes. You're in the ballpark.

Joseph Greff, Analyst

Okay. Right. And then Durango and the same-store softness was that more pronounced towards the end of the quarter versus the beginning? Because your comments are a little bit different than what you guys indicated three months ago in the fourth quarter call. Is that a fair deduction?

Keith Smith, President and Chief Executive Officer

The market experienced increased softness as the quarter progressed. When reviewing the Las Vegas gaming numbers released monthly, it is evident that the softness accelerated in January, February, and March. This observation accounts for the new competitor in the market, and regardless of how you estimate the revenue from that competitor, it is clear the market has declined, particularly from January through March.

Josh Hirsberg, Executive Vice President and Chief Financial Officer

I think what I would add is for you to go ahead with your follow-up, and then I'll provide my input.

Joseph Greff, Analyst

No, I was going to say on that point, Keith, so just we look at isolating for the impact of a competitor in Durango, you're saying that the impact worsened or was more pronounced in March versus February and January. Is that fair?

Keith Smith, President and Chief Executive Officer

Yes.

Joseph Greff, Analyst

Okay. And what are you seeing in so far this quarter, is it consistent? Is it worse?

Keith Smith, President and Chief Executive Officer

What we're seeing within our numbers, I would say it's fairly consistent with what we saw in February and March. We're not seeing an acceleration of the softness, and we're not seeing the reversal of the softness.

Joseph Greff, Analyst

Got it. Josh, you were going to say something that I think...

Josh Hirsberg, Executive Vice President and Chief Financial Officer

I'll add a couple of things. First of all, I think in Keith's remarks, he reiterated kind of our expectation that the impact would be $20 million to $25 million this year. So I think we're not really changing our view with respect to that expectation. The other thing to understand is while we are focused on the newest competitor in the marketplace, what we are seeing is maybe an impact from other smaller competitors that are more responsive to it than we are. You can focus on Durango as the newest operator in the marketplace. They have a great facility, new facility, everyone knows how well it's doing. But there are other competitors in the marketplace, other than ourselves and our largest competitor, that are reacting differently to that new competition than we are. What we're trying to say is, those are the folks that are having an impact on our business, and Durango may have a lesser impact just so you can kind of understand the dynamics of the marketplace.

Joseph Greff, Analyst

Got it. Keith, in your final comments, you mentioned seeing growth in your core players. Can you elaborate on that? Would it be correct to say that while the growth is occurring, it may be at a slower pace, which is still positive? Or is it experiencing slight acceleration? Please clarify what you mean by growth in core players or from core players.

Keith Smith, President and Chief Executive Officer

When we talk about growth in core play, it is revenue from that core group. The revenue has and continues to grow from that core group. I don't have the statistics in front of me to tell you whether it's accelerating or decelerating. My sense is it's relatively stable in terms of the growth rate. Josh may have something to add. But the revenue from that group of customers on a year-over-year basis is continuing to grow. And Josh, you have some...

Josh Hirsberg, Executive Vice President and Chief Financial Officer

You need to keep in mind that we are comparing to record results from last year. When considering core customer growth, it's important to look at it relatively. Excluding January, core customer growth saw increases in both February and March. This influences the results, along with the comparison to last year's records. To add some context, last year's performance in Las Vegas for locals was outstanding, with every month setting new records. However, 75% of the year-over-year performance increase occurred in January. It's essential to maintain perspective as we analyze the situation and progress through the quarter, as much of this relates to comparison issues and a softer market, especially with the emergence of a new competitor and additional competition responding to it.

David Strow, Vice President of Corporate Communications

Next question comes from Carlo Santarelli of Deutsche Bank.

Carlo Santarelli, Analyst

Guys, I think mine involves the fourth quarter a little bit as well. But if I look at Midwest & South, historically speaking, 1Q tended to be a larger period than 4Q. I know with year-end, sometimes there's accruals that true up in your favor and whatnot. And the fourth quarter margin was surprisingly stronger than expected, if I recall. This one a little bit weaker than expected. Was there anything onetime in there that may be caused costs to look a little bit maybe overstated for the period? Should we expect a similar kind of seasonal run rate on the expense side moving forward this year?

Josh Hirsberg, Executive Vice President and Chief Financial Officer

Thank you, Carlo. When evaluating the quarter for the Midwest and South, it's important to focus on the impact of weather, particularly in January, which was significantly affected. To get a clearer picture, looking at February and March can help. While those months represent about two-thirds of the quarter, January's weather had a major influence. In February and March, our margins were 39%, compared to 40% during the same months last year. I don't see this as a significant change in expenses or other factors affecting the Midwest and South, aside from the ongoing challenges we've discussed regarding property, insurance, and labor costs that are likely to persist into the first half and possibly the early third quarter of this year. All revenue declines in the Midwest and South occurred in January.

Carlo Santarelli, Analyst

Understood on that front. And then, I guess along those lines, Josh, from an EBITDAR margin perspective, are you saying margins were up in February and March as well?

Josh Hirsberg, Executive Vice President and Chief Financial Officer

I'm saying February and March, when you look at February and March, margins were, on a combined basis, 39%. When you look at February and March versus last year, on a combined basis, again, just trying to get the weather out of the conversation, they were about 40%. If you look at them on an individual month, they were a little bit less, but not materially less. That's reflective of what the expenses that we've talked about last year that still have to kind of work their way through the system, if you will. Labor, property, taxes, et cetera.

Carlo Santarelli, Analyst

Got it. And when you anniversary the bigger stuff, i.e., when on a static kind of revenue environment should we be looking for kind of margins in that segment to flat out?

Josh Hirsberg, Executive Vice President and Chief Financial Officer

Yes. The most significant effect has been from the implementation of the minimum wage, which was introduced across various regions. If I recall correctly, it started in the Midwest and South in late 2022, with the last of the increases occurring around the middle of last year. It was also around this time that most of the minimum wage increases in Las Vegas took effect. Therefore, during the first half of this year, we will predominantly see the impact of labor increases from both the Midwest and South as well as Las Vegas.

Keith Smith, President and Chief Executive Officer

Said another way, Carlo, second half of the year, we should be on an equal footing.

David Strow, Vice President of Corporate Communications

Our next question comes from Barry Jonas of Truist Securities.

Barry Jonas, Analyst

Sorry. Can you hear me now?

David Strow, Vice President of Corporate Communications

Yes, we can hear you.

Barry Jonas, Analyst

Great. So just following up on the last question, I just want to make sure I'm clear. In terms of the negative flow-through that you saw this quarter in each of the land-based segments, is your expectation that there's another quarter sort of constrained flow-through when you should sort of get back to more normalized in the second half of the year, obviously, assuming sort of a normal top line environment?

Josh Hirsberg, Executive Vice President and Chief Financial Officer

Yes. I believe we were quite transparent when discussing expenses in 2023. To recap what we communicated, we faced labor pressures, as Keith just explained. We expect to overcome those in the second half of this year. There were also increases in property taxes and property insurance, primarily occurring mid-year and to a lesser extent in September. We anticipate that labor issues will be mostly resolved by the second half of the year, and we do not expect property taxes and insurance to rise at the same rate going forward. By the third quarter, we should reach a more stable situation. I hope that clarifies things, Barry.

Barry Jonas, Analyst

Yes. And then just one other question, talk about Locals and what you're seeing there. As you think about the new competition impacting your Locals segment, I'm just curious, is it more specific to any properties or fairly spread out across all the Locals properties in your portfolio?

Josh Hirsberg, Executive Vice President and Chief Financial Officer

I'll take it quickly, Barry. If Keith wants to add anything, he can jump in. It's mainly concentrated in a few properties. One of our advantages is that we own multiple properties in the Las Vegas locals market. We can observe which properties are affected by competition and which are not. This insight helps us understand the broader market trends and the impact of competition. That's how we can quantify the one-third distribution we mentioned in our comments. So, it is a specific subset of our properties that are facing competitive pressures.

Barry Jonas, Analyst

Just geographically closer to the new property? Or I assume that's the common denominator?

Keith Smith, President and Chief Executive Officer

No. I think the new competitor that launched is having a direct impact on our properties, but it's less significant than we expected. There is a ripple effect in the market when competitors start losing customers and are vying for those customers. As I mentioned earlier, we are seeing increased competition around the Gold Coast and Orleans properties, which began to change at the end of Q4 when they raised their spending levels and maintained those levels. I don't view this mainly as the new competitor, Durango, but rather as a general increase in competition from others that are being more aggressive near some of our other properties.

David Strow, Vice President of Corporate Communications

Our next question comes from Dan Politzer of Wells Fargo.

Daniel Politzer, Analyst

Josh, you talked about February and March and juxtaposing that versus January. Have you seen that strength or the relative strength to continue into April? Maybe as comparisons get easier, and have the margins kind of still tracked along that one percent lower level that you called out in February and March?

Josh Hirsberg, Executive Vice President and Chief Financial Officer

Yes, I haven't really checked April margins specifically. However, I believe the trends regarding our customers and asset performance going into April align with what we mentioned about February and March. I feel confident in addressing that topic. If I quickly do some calculations, which I'm not great at, it looks like April is roughly a percentage point behind April of last year. Overall, it seems to be generally moving in the right direction, similar to February and March at this stage.

Daniel Politzer, Analyst

Got it. Just to clarify about the Locals, the $20 million to $25 million estimate reflects Durango being slightly less negative, but there are also larger negative effects. It’s important to note that this does not account for any market softness we’ve experienced this year. Is that accurate?

Keith Smith, President and Chief Executive Officer

That is fair. As I described in my comments, it's one-third, one-third, one-third. The $20 million to $25 million is one of the thirds. The market softness is the other one-third. Yes, the comparison to last year, which was just a very, very strong first quarter is the other one-third. So yes, they're all separate and distinct.

Josh Hirsberg, Executive Vice President and Chief Financial Officer

Yes, based on how we could evaluate what happened in the quarter.

David Strow, Vice President of Corporate Communications

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

Shaun Kelley, Analyst

I think we've explored various aspects of Locals and regionals. Now, I'll briefly address Downtown. You mentioned pedestrian and foot traffic, and I would also like to touch on the Hawaiian segment. Any insights on the pedestrian levels there are important, especially considering that the Super Bowl was hosted in the area. Overall, traffic levels across the strip have been quite good, and we believe they should be somewhat connected. However, we don’t have as much information on this market. What insights do your operators have about the current situation there?

Keith Smith, President and Chief Executive Officer

I think we were surprised by the slow traffic on Fremont Street. Overall, we’ve seen declines in downtown traffic as we monitor the numbers. The Hawaiian business is a significant part of our total revenue, and the gaming revenues in downtown were affected. I don't have specific theories about the slowdown in retail customers downtown; it was just soft for several months. However, as we mentioned, the Hawaiian traffic is picking up, and it seems like general downtown traffic is also improving. But I can't pinpoint a specific explanation for the slowdown.

Shaun Kelley, Analyst

Got it. And then similarly for Locals, I apologize for the repetition, but when we break down the Locals market softness, is that due to a traffic issue, meaning are people going elsewhere drawn in by those promotions? Or is it simply a spending issue, where they're not spending as much?

Keith Smith, President and Chief Executive Officer

Once again, we break it into kind of our core customers, which, as I've said a few times here in the Locals market, continue to grow. They continue to grow just to make sure, Josh, we're trying to ensure people kept us in context, they continue to grow in the first quarter over a very strong first quarter of last year. It’s really a sign that our core customers are continuing to show up and spend more money. It is the retail side, the lower end customer where we're seeing the shortfall in the lack of spend. Is it the economy? Are they going to a competitor? Are they sharing their wallet? A lot of those are unrated players. We just don't have the visibility because they're not rated.

David Strow, Vice President of Corporate Communications

Our next question comes from Chad Beynon of Macquarie.

Chad Beynon, Analyst

Josh, if I got this right, based on the pass-through revenues for Interactive, it looks like Boyd Interactive, I believe year-over-year may have grown double digits. Also sequentially, it looked like it probably grew double digits as well. Can you just kind of give us an update in terms of how that product is being received by customers and any plans to kind of ramp up marketing or drive at least revenue higher in the next couple of quarters?

Keith Smith, President and Chief Executive Officer

So Chad, I presume you're talking about the Stardust online casino product when you referenced Boyd Interactive?

Chad Beynon, Analyst

Yes, please.

Keith Smith, President and Chief Executive Officer

I just want to make sure that I was going to answer the right question. Look, we're very pleased with the steady rollout of that product and where it's at. We're less than a year into the market with our own product because it launched May of last year. We're live in Pennsylvania and New Jersey. The Pennsylvania revenue numbers, frankly, are about double where they were when we took it over. New Jersey hasn't grown quite as robustly as Pennsylvania, but they're both still ahead of where they were when we launched those businesses. There's also the Stardust Social product that we're running out of Boyd Interactive. Overall, it is a small business. As we continue to say, it is a growing business. Remember, we have described this as we're taking a regional approach, not a national approach. We want to launch in the states where we do business and a few surrounding states that are important to us, but the business does continue to grow and is ahead of our expectations from where we thought it would be.

Chad Beynon, Analyst

Great. And then you always get the question sometimes even a few times on these calls about M&A. Anything changed really in the last two months as you've seen more properties or portfolios come across your desk now that some of the sugar high revenues have worn off, and I think we have a better path towards interest rate declines? Any update there?

Josh Hirsberg, Executive Vice President and Chief Financial Officer

Yes. Really not. I would say that we continue to evaluate opportunities. I would say that we're going to continue to be disciplined in how we evaluate those opportunities. There are a lot of things that are for sale that don't meet the criteria that we kind of put forth for ourselves and making a decision. We're going to continue to be disciplined in how we think about acquisitions, continue to be disciplined in terms of our capital allocation strategy, continue to stay committed to reinvesting in our business and our return of capital to shareholders. To the extent something were to come along that is strategic for us, generates the free cash flow that we want to and could create value for our shareholders, that's when we'll kind of be aggressive around it. Otherwise, we'll continue to be a spectator to that.

David Strow, Vice President of Corporate Communications

Our next question comes from David Katz of Jefferies.

David Katz, Analyst

I wanted to go back to Downtown just one more time, if that's okay. Some of the dynamics, Keith, that you described in the prepared remarks about flight costs, et cetera. Can you just give us a sense of whether those are continuing into the second quarter? Or what your expectation is as to how long that particular market is going to be impacted?

Keith Smith, President and Chief Executive Officer

In the past 30 days, we've noticed a decrease in airfares from Hawaii. As a result, our Hawaiian business has shown improvement. The rates appear to be decreasing from their earlier highs this year. We observed that during late January and February, airfares to Las Vegas were significantly high due to the Super Bowl, which likely deterred many Hawaiian customers from traveling because they were unwilling to pay those inflated prices. Now, they seem to be making their trips again, indicating a direct connection. Although I do not have control over airfares, it appears that prices from Hawaii are normalizing or further decreasing compared to earlier this year. We anticipate this trend will continue, leading to a further recovery in our Hawaiian business.

David Katz, Analyst

Got it. If I can just rephrase this, we have discussed this topic thoroughly, but I would like to present it in a slightly different manner. There were discussions about the impact on Las Vegas locals since the new property opened late last year, and it seemed to have a relatively mild effect, or at least that was the feedback we received. Did we possibly misinterpret that information? Did the situation turn out to be slightly worse? Did it worsen at any point? How would you reflect on that?

Josh Hirsberg, Executive Vice President and Chief Financial Officer

I believe we were able to address what was happening during our fourth quarter call. We remained consistent with that. Additionally, conditions did worsen as we progressed through the quarter, mostly not due to the new competitor becoming more aggressive with promotions, but rather because others in the market were increasing their promotional activities. Some competitors have claimed to offer the most attractive loyalty program in the Las Vegas Locals market. We are facing those types of pressures on our properties without resorting to aggressive promotions, as we believe that is not a profitable way to operate. Initially, the market was soft, and a new competitor entered, leading to a stable situation that was slowly being absorbed. However, some competitors, apart from us and our major competitor in the market, began to act much more aggressively, which started to impact our performance.

David Strow, Vice President of Corporate Communications

Our next question comes from Brandt Montour of Barclays.

Brandt Montour, Analyst

So Josh, you mentioned the $100 million of growth projects and suggested thinking about that as recurring. The projects you're currently working on will conclude in June. I know that this won't be a major reveal for the next update, but could you perhaps share some details about the scope or type of projects we might expect to hear about in a couple of months?

Keith Smith, President and Chief Executive Officer

Yes, Brandt, this is Keith. You are correct that there isn't a significant announcement today. We will likely save that for our next call. We have a number of projects in the pipeline that we are preparing to start, but we are not ready to discuss any of them yet. Many are still in the planning and design stages, and we are finalizing budgets and timelines for them. There is a range of projects, and we will be ready to talk about them soon. However, there is nothing to share today.

Chad Beynon, Analyst

So I’ll give it a try. At Sky River, the results have been impressive so far. Thank you for the updated guidance. Regarding the expansion, could you share some insights on the timing and scope that we might expect?

Keith Smith, President and Chief Executive Officer

Look, in terms of scope, once again, expanding casino hotel, meeting and convention space, probably a few additional restaurants is the general scope. It's not to the point where the Tribe has announced. We're not going to announce on their behalf the exact number of slots that we'll be adding or tables or anything else at this point. Timing, we're waiting for final regulatory approval. There's a number of regulatory approvals, including from the NIGC. We’re awaiting those. Once we get all of those approvals, which we certainly hope is in the very near term, I think the Tribe is ready for groundbreaking, but we have to wait for all the final approvals before we can go any further.

David Strow, Vice President of Corporate Communications

Our next question comes from Ben Chaiken of Mizuho.

Benjamin Chaiken, Analyst

I just wanted to clarify about Downtown. When you mentioned the last 30 days showing improvement, were you referring to airfare and Hawaiian visitation, or did that also include the broader demand for Fremont visitation?

Keith Smith, President and Chief Executive Officer

It was more specific to the Hawaiian business, which we have obviously very, very good visibility into. We don't have great visibility on a weekly basis to overall counts Downtown. It really was specific to the Hawaiian traffic.

Benjamin Chaiken, Analyst

Understood. Can you share any insights on the opening of Treasure Chest regarding demand and timing? Will the same customers be returning or will it be new ones? Should we anticipate any disruptions as the development progresses over the next couple of months?

Keith Smith, President and Chief Executive Officer

I think the way to think about it is this is a significantly enhanced facility moving from a 3-story riverboat to on land, much more convenient parking, many more food and beverage amenities and just an overall better environment. We expect a good uplift on the overall EBITDAR from that property, both revenue and EBITDAR. We expect to get a good return on our investment there. It is, yes, the existing customer. Yes, it is a new customer. We're confident that we can grow the market there, and obviously build that business. That's why we did it. We spent a lot of time studying this. Overall, the casino floor will not be larger than it is today, but it will be more efficient because it's not spread over three floors. It will be one floor. We’re not going to have three times as many slots. As a matter of fact, we'll have a similar number of slots, just more efficient because it's all on one floor, same with table games. It will be much more attractive assets, much more inviting, and we're confident that it will draw in significantly more customers. In terms of disruption, there'll be minor. We'll likely have to shut for a few days while we transition some items based on requirements of the Louisiana regulatory authorities and state police. We'll likely have to shut for a couple of days midweek. I would not anticipate any disruption.

David Strow, Vice President of Corporate Communications

Our next question comes from Jordan Bender of Citizens JMP.

Jordan Bender, Analyst

I want to touch on the cadence of your Online EBITDA. So backing out the one-time item in the prior year, I think EBITDA was up about $3 million or so in the quarter. Your guidance kind of implies for the remainder of the year of a flattish outlook. I guess it might be a call on the growth of FanDuel. But can you unpack how you're thinking about the outlook for that segment for the rest of the year?

Josh Hirsberg, Executive Vice President and Chief Financial Officer

Yes, since the fourth quarter, we've consistently expected a range of $60 million to $65 million. We are aware of the one-time items from last year's figures, including some skins sales. There is growth in the business if we can maintain this range, with the possibility of exceeding it. This is a very seasonal business, and we are coming out of our strongest quarter. We will have another assessment toward the end of the year as football season resumes. We expect modest activity until then. As we approach the fourth quarter, we will have a clearer picture of whether performance will improve. Considering the one-time items from last year and some anticipated growth, this is our current outlook.

Jordan Bender, Analyst

Understood. And then within the Midwest & South segment, I guess more in the South, is there any change to that lower tier customer either positive or negative from what we saw in the back half of last year?

Josh Hirsberg, Executive Vice President and Chief Financial Officer

Not really. I would say that in the late part of 2022 is when we saw the South get softer than the rest of the region. I would say as we've moved through, the region has started to perform all similarly in line, and that's what's happening in Q4 of last year and in Q1 this year, all of the customer trends are kind of headed in the same direction, regardless of the region of the Midwest & South or the customer side, whether core or retail.

David Strow, Vice President of Corporate Communications

Our next question comes from Joe Stauff of SIG.

Joseph Stauff, Analyst

I have one more question about Las Vegas Locals. I'm curious if the new competition or the market growth, particularly over the last few years, has influenced your perspective on the necessary level of capital reinvestment. I understand you're not focusing on competing at a promotional level, but are there any significant capital projects you believe are essential for your portfolio in light of the competition or for long-term growth?

Keith Smith, President and Chief Executive Officer

Yes. We think of the capital program that we have going on in terms of upgrading many of our food and beverage amenities and upgrading our hotel rooms as a form of maintenance. Look, it's a very highly competitive business, whether it's here in Las Vegas or it's across the country. We operate in local markets, everywhere we operate outside of Las Vegas. We need to continually refresh those. Customers want to see new and different food and beverage offerings on a frequent basis. These really are not defensive; they will require, we think, to maintain our level of business to maintain our focus on our core customers to ensure that they continue to come back and visit us. It's not in response to anything in particular. Some of the work that we have going on at the Suncoast, that property was opened in 2000 and therefore, it's now 24 years old. Every 24 years, you have to refresh things. That’s what we're in the process of doing.

David Strow, Vice President of Corporate Communications

Our final question comes from John DeCree of CBRE.

John DeCree, Analyst

I'll make it quick. You may have touched on it already, but not sure if I missed it. A lot of talk about the promotional environment in Locals, but if you had any color or commentary on the Midwest & South segment, maybe broadly competitive promotional environment? Any specific areas where you see any different or change in behavior on the competitive or promotional front would be helpful?

Keith Smith, President and Chief Executive Officer

John, as I just reflect on your question quickly, no real significant changes in any of our Midwest & South operating markets from a promotional environment. Nobody is all of a sudden doing anything crazy in the last quarter. We're stepping out and being ultra-aggressive just stepping back. No, nothing to report. It's all fairly stable. Once again, as we've talked over the quarters, some of our competitors got aggressive several years ago, and they've stayed aggressive. Others have remained more disciplined like us, and they've remained more disciplined. So there's really no material changes in any of our markets outside of Nevada from promotional spend or aggressiveness of the promotional environment standpoint.

David Strow, Vice President of Corporate Communications

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

Josh Hirsberg, Executive Vice President and Chief Financial Officer

Thanks, David. Thanks to everyone for joining the call today. If you have any follow-up questions, feel free to reach out to the company, and we'll make ourselves available. Thank you again, and have a good rest of your day.

David Strow, Vice President of Corporate Communications

Thanks, Josh. This concludes today's call. You may now disconnect.