Earnings Call Transcript - BYD Q1 2022

Operator, Operator

Good afternoon, and welcome to today's Boyd Gaming First Quarter 2022 Earnings Call. My name is Sam, and I will be your moderator for today's call. At this time, I'd now like to hand the call over to our host, Josh Hirsberg, Executive VP, Chief Financial Officer and Treasurer of Boyd Gaming. Josh, please proceed.

Josh Hirsberg, CFO

Thank you, Sam. Good afternoon, everyone, and welcome to our first quarter earnings 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 in our comments 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 SEC filings 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 and both of which are available 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'd now like to turn the call over to Keith Smith. Keith?

Keith Smith, CEO

Thanks, Josh, and good afternoon, everyone. Our first quarter results were a great start to 2022 as we delivered another remarkable quarterly performance across our business and continued the momentum of a record 2021. Our continued focus on our core customer, enhanced capabilities, and streamlined cost structure all contributed to record revenues, EBITDAR, and operating margins in the first quarter. Company-wide revenues were up more than 14% year-over-year. EBITDAR grew nearly 16%, and operating margins surpassed last year's record by more than 50 basis points. This growth was broad-based as each of our three operating segments posted new first-quarter EBITDAR records. In our Las Vegas Locals business, revenues were up nearly 25%, EBITDAR rose 31%, and margins reached a new first-quarter record of more than 52%. This marks the fourth consecutive quarter that our locals margins have been above 50%. Our Downtown Las Vegas business continued its recovery, delivering record first-quarter EBITDAR and margins of 37%. And outside of Nevada, our Midwest and South segment continues to perform well, growing revenues and EBITDAR over last year's record performances. While January got off to a slow start due to COVID and the Omicron variant, we saw business levels gradually return during the quarter as both case counts and concerns around COVID began to subside. Overall, customer trends during the first quarter remained consistent with the third and fourth quarters of last year, including rated guest counts, frequency, and spend. Unrated play trends also remained consistent with the last several quarters. While some macroeconomic challenges are present today, as we look at the first three weeks of April, we have not noticed any meaningful shift in customer behavior as business trends continue at the levels we have seen throughout each of the last three quarters. Looking at the remainder of the year, we anticipate there will be opportunities to further grow our business. One opportunity for continued growth is through our hotel business. Due to labor constraints, we are currently unable to accommodate all the demand we have from our core customers. As the labor market normalizes, we will be able to host more of these known players in our hotels, providing the opportunity for incremental growth in both gaming and non-gaming revenues. Also, as travel continues to recover nationwide, we expect to see further recovery in our midweek destination and meeting and convention business, particularly at our Las Vegas properties. And we expect to see continued improvement in our Downtown Las Vegas segment over the next several quarters, with all three properties now open and visitation recovering throughout both the downtown and the broader Las Vegas markets. In addition, we're also investing in longer-term growth opportunities in both our land-based and online operations. In Louisiana, we plan to begin construction this summer on a land-based facility at Treasure Chest, which will replace our existing Riverboat Casino. We expect to complete construction and open this facility in late 2023. For more than 25 years, Treasure Chest has been a consistently strong performer for our company. By significantly enhancing its gaming and non-gaming offerings, we'll provide a more attractive entertainment experience that will further expand our customer base while increasing its appeal to our loyal customers. We are also investing in Downtown Las Vegas. We have started work to expand the Fremont's casino space and dining options. Expanding our gaming floor will help us better leverage our location in the heart of the busy Fremont Street experience, especially during weekends. We are also enhancing the casino's appeal by adding a food hall concept that will include six quick service restaurants, including several nationally known brands. Once complete early next year, we are confident these enhancements to the Fremont will drive further growth in our downtown segment. And in Northern California, construction work continues on Sky River Casino, which is on budget and on schedule to open early this fall with 2,000 slot machines, 80 table games, and 17 food and beverage venues. We have a 7-year management agreement with the Wilton Rancheria Tribe to manage Sky River and will receive a management fee typical for these types of arrangements. With a compelling entertainment product in an ideal location just south of Sacramento, we are confident this project will be a tremendous step forward with the Wilton Tribe in realizing their vision of self-sufficiency. We look forward to opening Sky River’s doors in the coming months. In addition to these land-based investments, we advanced our online gaming strategy during the quarter with our announcement to acquire Pala Interactive. The acquisition of Pala will position us to take a direct approach to the emerging iGaming opportunity. With our geographic distribution, strong loyalty program, and significant database, we are confident in our ability to build a profitable regional online casino business. This acquisition will provide us with both the operational and marketing expertise and technology we need to create a successful online casino business. Pala's technology includes a proprietary player account management system and a full suite of iGaming products, including a game studio. As we execute our gaming strategy, we remain fully committed to our sports betting partnership with FanDuel. By leveraging the FanDuel brand and the expertise of one of the nation's clear leaders in online sports betting, we have built a profitable sports betting business that will contribute approximately $30 million in EBITDAR to our results this year. And through our 5% equity ownership in FanDuel, we have the opportunity to participate in the expansion of sports betting across the country. While we actively invest in the future growth of our land-based and online operations, our robust free cash flow allows us to balance these investments with our ongoing program to return capital to our shareholders. We resumed our quarterly dividend on April 15 with a $0.15 per share payment, which is more than double our previous dividend payment of $0.07 per share. At the same time, we are continuing our programmatic approach to stock buybacks, targeting $100 million per quarter in share repurchases. We may also make opportunistic share repurchases from time to time. Our capital return program is an important part of our commitment to creating long-term shareholder value, and we remain on track to return approximately $500 million to our shareholders this year. As we continue to create value for our shareholders, we also remain committed to benefiting our stakeholders through our ESG initiatives. Later this quarter, we will share detailed information on our progress with the release of our annual ESG report. In this report, we will provide updates on our ESG efforts, including environmental, diversity, responsible gaming, and corporate gaming initiatives. We look forward to sharing this information with you when our ESG report is published. Before I conclude, I want to take a moment to thank our team members who have played a vital role in our success over the last two years. Our team has overcome repeated challenges since the pandemic first began in early 2020. Despite COVID-related restrictions and labor shortages, our team members have come through and delivered consistently memorable service to our guests. That level of service is an important reason why we have built such a strong loyalty with our core customers. We are grateful for everything our team has done. And as part of our long-standing commitment to their well-being and professional fulfillment, we continue to invest in our team members in meaningful ways. Earlier this year, we announced that we will be increasing our minimum wage for all non-tipped team members to $15 per hour. We have already started implementing this program and expect to be completed over the next 12 months. This follows the payment of two appreciation bonuses over the last nine months, with more than $20 million paid to our nonexecutive team members. These investments are in addition to the many other benefits and offerings we have extended to our team members as part of our commitment to being an employer of choice. In summary, 2022 is off to a great start as our business continues to perform at a remarkably consistent level. With opportunities for growth throughout 2022 and 2023, we are confident our company is well-positioned for continued success. Thank you for your time today. I'd now like to turn the call over to Josh.

Josh Hirsberg, CFO

Thank you, Keith. This was another successful quarter for our company as we maintained our operating momentum from 2021 with record first-quarter revenue and EBITDAR. Company-wide margins also improved compared to the record first quarter we achieved last year and are well above pre-pandemic levels. The customer trends from the second half of 2021 are continuing, with strong growth in business volumes from our core customers and stability in our unrated business. Looking ahead, we should remember that second-quarter year-over-year comparisons will be more challenging due to the impacts of significant government stimulus and improving COVID trends from last spring. This challenging comparison does not reflect a change in our business direction. The positive trends of the first quarter are carrying into April with business volume consistent with what we’ve experienced over the last three quarters. With ongoing strength in our operations, substantial free cash flow, and the lowest leverage in our company’s history, we can continue to execute our capital return program while balancing strategic investments in our portfolio. We repurchased $132 million in stock during the quarter, which represents 2.1 million shares at an average price of $62.86. The actual share count at the end of the quarter was 109.6 million shares. Since starting our repurchase activity last October, we have bought back 3.4 million shares through the end of March, totaling $213 million, leaving $149 million under our current board authorizations. We plan to continue our programmatic share repurchases of $100 million per quarter and expect these to be supplemented by opportunistic buybacks occasionally. We intend to seek additional authorizations from our Board as needed to continue our programs. We also resumed quarterly dividend payments earlier this month with a $0.15 per share payment on April 15. Overall, our dividend and share repurchase programs are proceeding as planned, and we anticipate returning approximately $500 million to shareholders this year. Concurrently, we are investing to sustain and grow our business. We expect to spend around $250 million this year on maintenance capital expenditures and an additional $50 million on the Fremont and Treasure Chest projects that Keith mentioned. During the first quarter, total capital expenditure was $47 million. Moreover, we have agreed to acquire Pala Interactive for $170 million in cash and expect this transaction to close by the first quarter of next year. We ended the first quarter with leverage at 2.2 times and lease-adjusted leverage of 2.7 times. Moving forward, we will remain focused on maintaining our strong operating performance and growing our business through strategic investments in our existing portfolio and enhancing our online presence. Sam, that wraps up our remarks, and we are now ready to answer any questions from participants on the call.

Operator, Operator

We will now start the Q&A session. Our first question comes from Barry Jonas of Truist Securities. You may proceed.

Barry Jonas, Analyst

I actually had a question on the downtown segment to start. For those of us who've been following you guys for some time, I think it's interesting to note no impact from higher gas prices were noted. Maybe talk about the charter business and the strategy there going forward?

Keith Smith, CEO

Sure. Thanks for the question. Downtown has performed exceptionally well over the last several quarters, and locals are continuing to visit our properties in strong numbers. We are not currently operating our own charter, which means we are not affected by fluctuations in gas prices. Instead, we have adjusted our approach and are purchasing seats on Hawaiian Airlines and several other airlines, allowing us to avoid the risks associated with changes in fuel prices.

Barry Jonas, Analyst

And then I noticed you didn't mention void pay. Just curious if you can give any updates there? Maybe any comments on what you're seeing in terms of adoption? And if you think it's driving higher spend or play levels?

Keith Smith, CEO

Yes. So I would say, and I think I probably said this last quarter, it continues to be a very slow, modest rollout. It is active in 13 of our properties through today. We are launching it or have launched it at one of our properties in Nevada on table games. And so we continue to expand it and roll it out. We continue to kind of work through some of the early kinks in the software that always happens with these types of products. We haven't done a major marketing push or launch yet. So it continues to once again be kind of a slow adoption, but a positive adoption. The people that have used it or that are continuing to use it like it. I can't tell you that they're playing at a significantly higher level, but they do enjoy it. They enjoy the ease and the convenience of it. So something that I think will take just a little more time to roll out and be fully adopted by the customer.

Operator, Operator

The next question is from Steve Wieczynski of Stifel. Steve, please proceed.

Steve Wieczynski, Analyst

So Keith or Josh, I want to ask about your April commentary, which indicates that business trends continue to be very strong. However, there are concerns about the consumer potentially weakening. My question is, have you seen trends remain strong across your entire portfolio, or have you observed any changes in specific markets or in terms of spending patterns between low-end customers and mid- or high-tier customers?

Keith Smith, CEO

Yes. So as we look at the portfolio overall, I think the term we used in our prepared remarks was consistent or remarkably consistent. And that's what we've seen. The higher end of the database, the higher worth customers continue to perform at an exceptionally high level and performed extremely well. The mid-tier is performing well from an aged demographic standpoint. Our older customers once the Omicron and COVID count started to drop kind of mid-Q1, have performed extremely well and are coming out in big numbers. But the younger demographic, that kind of 45 to 65 age group has also continues to perform extremely well. The trends are really consistent. Look, we assume that there is some fall off or degradation in play with some of our customers. But honestly, it's not discernible as we analyze the database. To the extent that they're falling off on the unrated side, they're being replaced with additional players on the unrated side. But when we look at our core customers throughout our database, it's been remarkably consistent.

Steve Wieczynski, Analyst

So that kind of leads into my second question. I'm going to sound probably a little bit pessimistic here again, so excuse me for that. But in terms of your return of capital program, Josh, you went through and kind of said you're still kind of sticking to that $500 million a year this year to shareholders. And I guess kind of given there's much smarter people out there to me that I believe we could be heading into a correction in terms of the economy, does that change your thinking at all? Meaning do you start to potentially hoard more cash versus returning cash to shareholders?

Josh Hirsberg, CFO

Yes, Steve, we approach this with flexibility in mind regarding our programs and plans discussed with the investment community to address potential risks to our business. This flexibility is one reason we are operating at our current leverage levels and not allocating all available free cash flow to shareholder returns, dividends, or share repurchases. Our growth capital programs are not designed to exhaust every dollar of free cash flow we generate. As we evaluate our current position and remain aware of possible risks, we have aimed to create a flexible and robust balance sheet, which allows us to make informed decisions going forward. We believe we've incorporated some buffer in our strategy and execution of these programs at this time.

Operator, Operator

The next question is from Shaun Kelley of Bank of America. Shaun, please go ahead.

Shaun Kelley, Analyst

Just maybe to start, Josh, I wanted to kind of go back to the core consumer that Steve asked about a little bit. I think just if we break down specific markets, could you just give us a sense of maybe some of the patterns you saw in maybe just the core regional side of the business. I think there, there's been some concern that maybe in March, things slowed down a little bit relative to trends seen earlier in the year, certainly, in the back half of last year. So could you just talk about maybe what you saw across some of the core regional markets and some of the behaviors there?

Josh Hirsberg, CFO

Certainly. In March, we observed that our business continued to improve as we moved away from the Omicron effects, building on the positive performance seen in February. By late March, we began to notice some of the stimulus benefits impacting our business significantly, especially in the Midwest and South regions, which saw a quick surge in activity. Las Vegas followed suit shortly after. Overall, when we assess the health of our business and the sequential trends, it remains consistent across different markets, despite some unique challenges in the Midwest and South that were not related to customer demand but rather external factors. We feel optimistic about the current trends, even if we acknowledge a bit of softness in some unrated play; however, our unrated business has maintained a steady presence within our overall volume.

Keith Smith, CEO

Yes, Shaun, you should highlight two points. First, as Josh mentioned, the quarter improved as it went on. January was affected by Omicron, but things got better as case counts dropped and mask mandates were lifted here in Nevada. It’s important to keep that in mind. Secondly, as we approach the second half of March and into April and May, we should focus on sequential improvements rather than year-over-year comparisons, since the year-over-year figures will be more challenging due to last year's stimulus effects. Therefore, we are shifting our perspective to look at the sequential changes from Q1 to Q2. As we have stated multiple times, when we analyze the sequential performance across Q3, Q4, and Q1, the business continues to perform exceptionally well. We are seeing strong growth in our database along with impressive results from the upper tiers of our database.

Shaun Kelley, Analyst

My follow-up question concerns the sustainability of margins and the overall inflation environment. Keith, you mentioned the possibility of moving to a $15 minimum wage. Could you elaborate on how that might affect your cost structure? Additionally, what are your thoughts on the potential labor-related challenges we may face as we move through 2022?

Keith Smith, CEO

Sure. So as we've talked about for probably a year now, these elevated margins that are now just part of our business and part of our core business, while we will not maintain 100% of the increase that we have generated, we do expect to maintain the majority of the increase. So we do expect over time some payroll to come back into the business and some marketing costs to come back into the business. So we expect to maintain very high margins, but not every point of what we've achieved over the course of the last couple of years. Built into our thinking and built into our commentary is the raising of our minimum wage to $15 an hour. And so while it's not insignificant, it has been kind of built into our estimates. And we believe that there are offsets as we are able to attract more team members as we're able to run less overtime by attracting more team members at $15 an hour, as we have less turnover in the business, it all nets out. So it's not a material impact on the overall margin profile of any one of our properties or any one of our regions.

Josh Hirsberg, CFO

And the one other thing I would add to it is I think about adding labor back, it really falls into kind of two categories. One is labor that we need to add back to relieve the strain of our team members where we're just too short in terms of the amount of labor we have. And then on the other side is there are revenue opportunities associated with bringing some of that labor back as well. I mean, Keith, in his remarks, talked about the opportunity on the hotel side of things. So I think we continue to have an opportunity on the non-gaming side as this business continues to return over time, and also on the gaming revenue side as well because it's not just about filling those hotel rooms with hotel guests that pay a cash ADR. It's about filling them with really high-quality casino customers that we're turning away today. So there are elements of costs that are going to come back into the business. And I'm sure there's some unanticipated costs that we aren't aware of today. But at the same time, there's also revenue opportunities that we have the ability to capture over time as well. So it's not just on one side of the ledger, so to speak, that we will see pressure. There's also opportunities.

Operator, Operator

The next question is from Carlo Santarelli of Deutsche Bank. Carlo, please proceed.

Carlo Santarelli, Analyst

Josh and Keith, you guys talked a little bit about the labor front. Just in terms of broader cost pressure and acknowledging, clearly, labor gaming taxes are the vast majority of your expenses, especially in your regional markets. Are you seeing any other signs of kind of pent up cost inflation, be it other utilities, things along those lines that are meaningful in any way?

Keith Smith, CEO

Well, I think you captured it. Labor, marketing and gaming taxes are the largest share of the expenses when we look at the P&L. But certainly, utility costs are up when we look quarter-over-quarter and year-over-year, so there are incremental costs. I think Josh was just alluding to it, we will see incremental costs going up in the business. Are they having a material impact? No, but they are clearly up year-over-year. Outside of utilities, in food costs being up, the food costs being up are also being offset by increased menu prices and increased average check. And so there is a lever that we can pull as cost of food goes up. Utilities, it's hard to offset, so that's just a pure impact on the bottom line. So it's something we're monitoring and watching. But outside of those two issues, Josh, I'm not nothing is coming to mind where we're seeing significant incremental costs.

Josh Hirsberg, CFO

No, I think you and Carlo hit them all, really. It's labor and marketing-related items that are our biggest costs, that we're particularly focused on. And utilities have gone up as well. I think what we're taking some comfort in, at least is our ability to kind of maintain our margins while we're facing some of these cost increases. And so our operations teams are doing a really good job of balancing, trying to get labor into the business, facing some of these costs on the food side and on the utility side. But I think what we're also seeing is just our core customer and that focus on that core customer continue to kind of help us be successful in this environment. And we've just gotten a lot better as a company really since reopening since being closed for COVID. I mean, we were working on this pre-COVID, but just getting really better at kind of being focused on that loyal core customer and continuing to try to drive that business from them is helping us offset some of these cost pressures.

Carlo Santarelli, Analyst

And if I could just follow up kind of on that theme. If you think about kind of your nongaming tax related to OpEx in the first quarter, and then I think I believe it was down in several of the regions with some seasonality. And then you just kind of think about over time, seasonally, the way that, that OpEx has kind of trended, given kind of the minimum wage increase and given some of the other more real-time kind of inflationary pressures that may exist or some of the smaller stuff that you guys just kind of call out, is there a reason to believe like the seasonality of that OpEx changes materially off of the first quarter relative to how it's trended in prior years, normalized years, obviously, going back to '19 and prior.

Josh Hirsberg, CFO

So Carlo, just to make sure I understand your question, you're saying if you took the Q1 OpEx, excluding taxes, is there seasonality related to that as you move through the year, that's your question?

Carlo Santarelli, Analyst

Well I'm saying, would the seasonality be dramatically different than it's been in prior years. If we went back and looked at those numbers, '17, '18, '19 and kind of ran it from there, on a quarterly sequential basis, do you think there's a material change in the way that, that moves throughout the year this year, given some of the things that you're seeing, presumably on the cost side this year?

Josh Hirsberg, CFO

Yes. I’m not sure if this will fully address your question, so please feel free to clarify if I missed something. Looking back, I often use 2019 as a reference point for understanding seasonality when considering 2022. There is some seasonality present, but it’s not particularly dramatic. I’ve observed some variation, but it’s not extremely significant.

Carlo Santarelli, Analyst

Yes. What I'm getting at is whether the increase in minimum wage and the rising costs this year are significant enough to disrupt the historical seasonality.

Josh Hirsberg, CFO

I hear you. If you look at costs in isolation, you might notice some increased seasonality. This means that as the year progresses, costs could rise due to hiring more labor and potentially paying them higher wages. However, it's important to consider that there are offsets in the business, such as moving away from temporary labor or eliminating COVID-related expenses. Therefore, it's not straightforward to say that adding labor will inevitably lead to increased costs over time. There are various factors at play, not just in the first quarter, but they will continue to evolve throughout the year. These factors may not completely balance out the costs, but they will help reduce them to some extent.

Keith Smith, CEO

Yes. If you look at operating expenses on their own, using 2019 as a baseline for seasonality, you would anticipate some additional costs in 2022 due to the increased minimum wage and higher utility expenses that might not be fully accounted for yet. However, it's important to consider the bigger picture. As mentioned, there will be opportunities for revenue and other offsets. We might also use contract labor that could be converted to in-house labor at a lower cost. Therefore, it’s challenging to evaluate operating expenses in isolation without considering the overall context.

Operator, Operator

The next question comes from David Katz from Jefferies. David, please proceed.

David Katz, Analyst

We've discussed in detail how the strength of the strip impacts local business. I'm curious about the relationship and interaction between the strip and local business, especially since there have been times when they haven't aligned. Has there been any change in that dynamic?

Keith Smith, CEO

I believe that as the Las Vegas strip has performed well due to peak demand, our locals business has also done exceptionally well. This could be attributed to factors like overflow pricing from the strip, allowing us to increase our hotel room rates as strip hotel rooms fill up, or simply due to higher visitor numbers in Downtown Las Vegas, where many visitors to the strip also explore Downtown. There has always been a connection between the downtown and locals properties and the strip, as we experience less pricing power when the strip is less busy. This relationship is quite strong now, and over the last decade, it has improved significantly. Our performance improves when more out-of-town guests visit, when travel increases, when more people utilize the airport, and as the meeting and convention business recovers, our locals properties benefit.

David Katz, Analyst

And just as a follow-up, given the financial flexibility that you have, it is a strip asset a possibility in your future under the right circumstances?

Keith Smith, CEO

Look, I think today, we are intensely focused on our core operations kind of continuing to fine-tune and maximize the results and the performance of these properties and making sure that we are focused on the future and have all the amenities and the physical assets, we need to continue to perform at this level. And that's why we're doing things like Treasure Chest and the Fremont and there's a handful of other smaller projects that could follow along once those are further into development. We've grown a lot, as we've talked about on prior calls through M&A. And it's something that we always have our eyes open to. But I think last time on this call, somebody said it may have been Josh, just because you can do something doesn't mean you should do something. And so we've always been a very disciplined acquirer. We'll continue to be extremely disciplined. But I got to tell you, our main focus now is on running our core business and extracting everything we can out of that. And making sure that we find our way through this inflationary environment we're in and continue to have a strong business going forward.

Operator, Operator

The next question is a follow-up from Joe Greff with JPMorgan. Joe, please go ahead.

Joe Greff, Analyst

Hey, everyone. I believe most of our focus on today's call is regarding the situation with lower-end consumers and our outlook on margins, which has been discussed sufficiently. So, I just want to address one last point before we wrap up. As we consider the capital expenditures related to Treasure Chest and Downtown Las Vegas, do you expect any disruptions in the short term before these projects are launched?

Keith Smith, CEO

Yes. Good question, Joe. So if you think about the Fremont, first, the actual construction of the new food outlets, the food hall, if you will, is happening where the buffet used to be and on a piece of land that was vacant, right behind the building that's being incorporated in. And so up until recently when we hung some steel, people didn't even know there was construction going on at the property. So it really is, to a large extent, seamless as we build out that food facility there. And so that's a real benefit. As part of that, we're also building out some additional casino square footage, which once again is behind the wall. And so it has no impact on our existing operations. So that project should be largely not impactful to the Fremont's operations. In the case of Treasure Chest, separate land-based facility on a separate piece of land, the existing Riverboat operation will stay fully in business and producing full results until it's time to move over some of the gear in late 2023. And so really, no impact as you think about '22 or even early '23 on the Treasure Chest business because it's a whole separate building, kind of across the way from the existing facility.

Joe Greff, Analyst

And Josh, how much CapEx for these two projects in 2023?

Josh Hirsberg, CFO

In 2023, we expect to spend around $25 million, with total costs for Treasure Chest estimated at about $60 million to $65 million. There's also an expected remaining budget of $10 million to $15 million for Fremont, which we anticipate will be mostly completed by the end of this year and wrapped up in the first quarter of next year. Treasure Chest will begin later this year and primarily be completed and opened in 2023. Therefore, we're looking at a total expenditure of approximately $60 million to $65 million. After that, we will likely plan our next project to replace Fremont, assuming it offers a satisfactory return compared to our other options. This would be in addition to our maintenance expenses.

Joe Greff, Analyst

And then one final thing. With regard to the Sky River Casino opening in the fall, can you remind us what sort of advances you have out with the Tribe and your anticipation of the timing of that recovery of that advance?

Josh Hirsberg, CFO

Yes, Joe. Currently, we have about $105 million advanced. This consists of approximately $75 million in actual advances, with the remainder being interest accrued on those advances over the years as we've supported the Tribe in arranging their own financing and developing the project. This $105 million will continue to accrue interest until we are reimbursed from cash flow generated by operations. The reimbursement is somewhat dependent on the project’s performance, but it is expected to be a successful endeavor, and we anticipate being reimbursed in the initial years of the project. Additionally, as you may know, we also earn a management fee, which is approximately 25% of the pretax income once the project opens. These are the two sources of cash flow the company will begin to see once the project is operational.

Operator, Operator

Next question is from Dan Politzer of Wells Fargo. Dan go ahead.

Dan Politzer, Analyst

So I think a few months ago, you guys mentioned there was not much reason to think 2022 EBITDA wouldn't be at least equal to 2021 levels. Given you're out to a $45 million or so head start after the first quarter, but there's additional concerns out there on the consumer and on the cost side, how are you thinking about this? And what are you seeing across your portfolio that could maybe be the puts and takes to this?

Josh Hirsberg, CFO

I believe it's challenging to have a different perspective right now. While we acknowledge the concerns surrounding inflation and the war, which understandably worry consumers, we remain confident in the positive trends we're seeing. Our core customers have continued to grow since reopening, even during difficult times like the Omicron surge when our business faced some challenges. This growth in our core customer base is something we can rely on. Looking ahead, we recognize that Q2 last year performed exceptionally well, and while we don't expect to match that, we anticipate that the growth in Q1, Q3, and Q4 will help us make up for some of that difference over time. Our success in Q2 will greatly influence how we address these challenges. We are aware of the inherent risks, but we still see opportunities for growth in our top-line aspects. Our operations team is effectively managing expenses and maintaining focus on executing our business plan, which is what gives us confidence in our current position. I’m not sure how else to address that question.

Keith Smith, CEO

Yes, Josh, there's growth opportunities that he highlighted in terms of Las Vegas and the return of meeting and convention business here, just the return of out-of-town or destination travel to Las Vegas, certainly offset by things like higher wages and inflationary aspects. And so how does all that net out at the end of the day? Well, hopefully, it nets out to 0, and we end up where we were last year. But we'll work our way through it every day and every week as we move forward.

Dan Politzer, Analyst

And then just for my follow-up on Pala Interactive, I mean given the focus is going to be on iGaming, how should we think about the revenue and maybe the EBITDA opportunity? And should we be thinking about there's an additional investment on technology or integration or on your rewards program just to integrate all these things together?

Keith Smith, CEO

I don't expect any significant additional costs. We acquired Pala because it provided the necessary technology and operational and marketing expertise to manage this business. The management team is remaining intact as part of our organization. We don't anticipate any major costs. Their team will need to create an interface with our loyalty program, but that's not a big challenge. Regarding the rollout, it mainly depends on other states approving or legislating this initiative. We are taking a regional approach focusing on the ten states where we operate and a few nearby states with many customers. Our aim is more regional than national. Therefore, we foresee no significant additional costs moving forward and do not expect to make further acquisitions to advance this.

Operator, Operator

Next question comes from Thomas Allen of Morgan Stanley. Thomas, please go ahead.

Thomas Allen, Analyst

So in prior cycles, you guys have benefited from higher oil and gas prices. Are you seeing that this cycle at certain properties?

Josh Hirsberg, CFO

Yes, we are seeing some contribution from our Louisiana assets in our results. However, I would say it is not significant when we consider the overall trends of the business. They are benefiting, but it isn't remarkable compared to the performance we are observing in the rest of the business. I hope that makes sense.

Thomas Allen, Analyst

It does. As a follow-up, in Louisiana, retail sports betting was legalized and launched in the fourth quarter of last year, with online betting starting in the first quarter. Any observations from the past few months?

Keith Smith, CEO

We have successfully launched the FanDuel sports book retail at all five of our properties in Louisiana, and each location is operational. Additionally, the FanDuel online platform is also active and has been positively impacting our customer base. Overall, the situation is improving, but I don’t have any more insights to share at this moment.

Operator, Operator

The next question is from Joe Stauff of Susquehanna. Joe, please proceed.

Joe Stauff, Analyst

I was wondering if you can maybe update us on the promotional environment in your various segments, Locals, South and Midwest. And if you see any competitive responses that you have to match, just wondering where that is now.

Keith Smith, CEO

Overall, the market conditions have remained relatively stable worldwide. Many of our competitors reopened post-COVID at levels comparable to or slightly exceeding those before the pandemic, and they have largely maintained those levels. In contrast, we have not experienced the same results. Like us, some competitors have adopted a more cautious approach to marketing moving forward. Most have remained consistent with their initial positions, while a few have become a bit more aggressive, and some of the more aggressive competitors may have scaled back slightly. However, for the most part, the promotional environment has been neutral in recent quarters, with no significant changes observed in the business across various regions, including Las Vegas, the South, and the Midwest.

Operator, Operator

Thank you, Joe. There are no further questions waiting at this time. So I'd like to hand the call back over to Josh for closing remarks.

Josh Hirsberg, CFO

Thank you, Sam, and thank each of you for your thoughtful questions. If you have any follow-up, feel free to reach out to the company, and we'll try to facilitate getting those questions answered. Everybody, stay well. Thank you.

Operator, Operator

That concludes the Boyd Gaming first quarter 2022 conference call. Thank you all for your participation. You may now disconnect your lines.