Boyd Gaming - Q2 2020
July 28, 2020
Transcript
Operator (participant)
Good day, and welcome to the Boyd Gaming second quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I'd now like to turn the conference over to Josh Hirsberg, Executive Vice President and Chief Financial Officer. Please go ahead, sir.
Josh Hirsberg (EVP and CFO)
Thank you, operator. Good afternoon, everyone, and welcome to our second 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 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 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, and both of which are available in the investor section of our website at boydgaming.com. We do not provide a reconciliation of forward-looking non-GAAP financial measures due to our inability to project special charges and certain expenses. 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 and CEO)
Thanks, Josh, and good afternoon, everyone. Thanks for joining us today. A lot has changed for our company since our last call in April. It was only 90 days ago that all of our properties across the country were closed, and we did not have good visibility as to when we could reopen. But here we are, 90 days later, and we have returned to business across the country. Over the course of six weeks, starting in late May, we successfully and safely reopened 26 properties in 10 states. This is a real tribute to the skill and leadership of our management teams across the country. I'm grateful to them for all their hard work and dedication and for getting our properties reopened in a safe manner. I also want to thank all of our team members who stuck with us through these very difficult times.
When the time came to return to work, our team members were ready to answer the call. They worked hard to get our properties reopened in just a matter of days, dealing with many new safety and sanitation procedures, and they greeted our guests with as much enthusiasm and friendliness as ever. Thanks to the efforts of the entire Boyd team, the reopening of our properties has been a remarkable success. Since reopening, every one of our properties, except for the California and Downtown Las Vegas, have produced positive EBITDA and free cash flow, and overall, we delivered gaming revenues within 11% of prior year levels for the month of June. We achieved these results while operating with significantly reduced casino capacities and limited amenities.
As highlighted in our press release, our Midwest and South region achieved double-digit gains in EBITDA and significant margin improvement, even in the face of declining revenues. In Las Vegas, our locals business was also able to grow EBITDA and greatly enhance margins despite declining revenues. The performance of our Las Vegas locals business was actually much stronger than the reported numbers show. Both The Orleans and Gold Coast generate a considerable amount of business from out-of-state visitors, and with tourism to Las Vegas remaining below pre-pandemic levels, it had an impact on the overall results of these two properties. When you factor out the softness in that segment of the business of these two properties, our locals customers, including at The Orleans and Gold Coast, performed similar to our Midwest and South customers, with strong visitation trends from our higher worth customers and increased spend patterns across the valley.
In Downtown Las Vegas, the business model that has sustained us for over 40 years is presenting a temporary challenge. With the ongoing pandemic, many of our Hawaiian customers are hesitant to fly, particularly with a mandatory quarantine required upon their return. Combined with reductions in overall tourism to Las Vegas, we are seeing lower traffic counts throughout the downtown market. As a result, our downtown business is not performing at the same level as our other two segments right now. While the Cal was the only one of our 26 reopened properties that was not EBITDA positive during the reopening period, thanks to stronger results at the Fremont, our overall downtown operations were still break even on an EBITDA basis.
Overall, we are off to a great start since reopening, thanks to a focused effort by the entire Boyd team and our ability to successfully adapt to the environment around us. Importantly, the solid trends we have seen across the country in May and June have continued into July. Beyond these positive financial trends, there are also encouraging trends within our customer base. While overall revenues are down, we are driving strong visitation among our high-value players, and the average spend per visit and spend per admission are up significantly. In general, our core customers have not been deterred by social distancing measures, limited amenities, or the masking requirements. While we have seen a slight decrease in the percentage of customers from the 65+ age segment as a result of the pandemic, there has been an increase in higher worth customers from our younger customer segments.
In addition, we are seeing healthy growth in unregulated play since reopening. Based on the trends we have seen since our properties have reopened, including trends in July, we believe that these levels of gaming activity are sustainable. While we are successfully driving profitable revenues throughout our operations, we're also successfully controlling expenses, building upon the significant long-term progress we had made prior to the pandemic. Since reopening, we have realized substantial new efficiencies in both marketing programs and SG&A. We have also been selective with our amenities, staying focused on high-margin business to support higher worth play. As a result of these expense reductions and new efficiencies, we are now operating at significantly higher margins than we were before. We understand this is a fluid environment, and that we will need to adapt as necessary, but we will not simply return to the old way of doing business.
We have created a more efficient, highly focused, higher margin business, and we intend to keep that philosophy in place after this crisis is over. Just as we established a new model for our traditional business, we are also positioning ourselves for the interactive future of our industry. We do not see interactive gaming as a separate opportunity from our traditional business, rather, we see it as another way to engage with our customers. By focusing on the convergence of all guest experiences, gaming and non-gaming, digital and traditional casinos, we are seeking to create a seamless, high-quality entertainment experience that stands out from the competition. But the growth potential of this segment of the industry has been illustrated during the recent closures. Interactive gaming revenues have more than doubled in New Jersey so far this year, surpassing the $500 million mark year to date.
In Pennsylvania, they have approached $250 million over the same period. By some industry estimates, interactive gaming could become a $10 billion industry over the next five years. Thanks to our strategic partnership with FanDuel Group, we are confident in our ability to emerge as a leader in the industry. Today, our partnership with FanDuel includes retail sports books at seven Boyd properties, mobile sports betting apps in Pennsylvania and Indiana, and a real money online gaming site in Pennsylvania. But this partnership will continue to grow as new opportunities become available in states such as Illinois. FanDuel currently operates in 47 states, is the nation's leader in both mobile sports betting and online casino gaming, and generates significantly more revenues than its closest competitor.
In considering FanDuel's dominant position in this space, our strong strategic partnership and our 5% equity stake in FanDuel, we are quite bullish on the value we have already created with this partnership and future growth opportunities available to us. In addition to this growing partnership with FanDuel, we took another step forward in our iGaming strategy last week with the launch of Stardust Social Casino, a free play online casino app. This social casino is the first of more iGaming ventures to come, as we establish Stardust as a leading interactive gaming brand. In closing, there's no question that these are the most challenging times we have ever faced, but we have made exceptional progress over the last three months due to the incredible efforts of our team.
While uncertainty clearly persists in today's environment, we are encouraged by the initial response to the reopening of our properties across the country. Customers have been very receptive to the new operating environment at our properties and the new safety protocols, and we are seeing strong visitation spend by our core customer segments. By reinventing how we do business in this new environment, we have established a new operating model capable of delivering higher margins. And through the expansion of our highly successful partnership with FanDuel Group and the launch of our Stardust branded social casino, we're taking steps towards establishing our company as a market leader in interactive gaming. These are extraordinary times, but we've been through crisis before, and each time, we have emerged stronger and smarter, and I have no doubt we will do so again. Thank you. Now I'll turn the call over to Josh. Josh?
Josh Hirsberg (EVP and CFO)
Thanks, Keith. As evidenced by the margins that Keith spoke about in his remarks, we are executing a more focused and efficient operating strategy, one that reflects many of the philosophies we have been developing and implementing over the last several years. Our improved margins are the direct result of many factors, including the continuation of our strategy to focus on high worth customers. These customers have been at the very core of our developing and honing our capabilities over the last several years to drive profitable revenue. In addition, we have taken this opportunity to reduce a wide range of marketing expenses, including lower overall levels of reinvestment. We have been selective in the products and amenities that we offer, focusing only on high-margin components of our business and deliberately avoiding reopening amenities that dilute our profitability.
We have repriced our products to reflect customer demand, limited amenities, and operating restrictions. And finally, we have aggressively reduced SG&A, including corporate expense and other overhead-related items. As a reflection of these changes, corporate expense is expected to be approximately $60 million this year, about 70% of 2019 levels. Our discipline around capital spending will also remain in place. We expect to spend about $115 million of capital this year, including $48 million in the pre-COVID first quarter and $20 million of non-recurring items throughout the year. With the exception of the California Hotel, every property has generated positive EBITDA, as well as positive free cash flow since their reopening.
As of the first week of June, the company as a whole began generating positive free cash flow and continues to grow cash balances as a result of our operations. As of the end of the second quarter, we had approximately $1.3 billion of cash on our balance sheet, creating a net debt balance of $3.7 billion. In a completely closed scenario note, our current liquidity provides 19 months of operating cushion in a zero revenue environment. Since our last call, we amended our credit agreement to waive covenants until June of 2021, and we issued $600 million of senior notes to provide additional incremental liquidity that is included in the $1.3 billion cash balance I just mentioned. We expect to use a portion of our cash to repay the balances currently outstanding under our credit facility.
Discussions are currently underway with our bank group to extend our credit facility and Term Loan A maturities of September 2021. While the crisis and its related challenges are not behind us, we're off to a strong start, and we are focused as a company on ensuring we maintain discipline throughout our business, not allowing unnecessary costs and inefficient practices to creep back into our business. That concludes our remarks, and we are now prepared to take any questions from participants on the call.
Operator (participant)
We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star and two. Our first question today will come from Joe Greff with J.P. Morgan. Please go ahead.
Joseph Greff (Managing Director and Senior Equity Research Analyst)
Good afternoon, everybody, and congratulations on the results. You kind of maybe answered this in a few different ways, and maybe if I had more time, I could probably answer it. But when we look back at the 2Q here, can you maybe EBITDA this way, what it was in the first two months of the quarter than what it was in June? Just so we can have a sense of what it is sort of post reopening or reopening schedule.
Josh Hirsberg (EVP and CFO)
Hey, Joe, this is Josh. We're having a lot of... You're breaking up pretty significantly.
Joseph Greff (Managing Director and Senior Equity Research Analyst)
Is that-
Josh Hirsberg (EVP and CFO)
Try again.
Joseph Greff (Managing Director and Senior Equity Research Analyst)
Okay, where I was going with it-
Josh Hirsberg (EVP and CFO)
That's better.
Joseph Greff (Managing Director and Senior Equity Research Analyst)
Just trying to-
Josh Hirsberg (EVP and CFO)
That's great. That's better.
Joseph Greff (Managing Director and Senior Equity Research Analyst)
From where I am in my house. So what I was trying to get at is I was hoping you maybe break out in the 2Q, what EBITDA was in the first two months of the quarter, because some degree of negative, and then what it was in the last month of the quarter, to get a sense of sort of the run rate level. And then along those lines, too, as for your first, as you're here in
Josh Hirsberg (EVP and CFO)
So, Joe, Operator, Joe is, we can't understand his question, so probably best to move on to the next person, and if someone, if someone else could hear Joe's question, maybe they should ask it on his behalf.
Operator (participant)
Understood. Our next question will come from Felicia Hendricks with Barclays. Please go ahead.
Felicia Hendrix (Managing Director and Equity Research Analyst)
Hi there. Joe, I apologize. I think I heard what you said, and it's part of my question, too, so I'll help out here. I think what Joe was first trying to ask is if you could kind of parse through the quarter and help us understand what June looked like versus the others in the EBITDA, so we could calculate the OpEx per day, which kind of leads to my question. You mentioned that the operating costs in Las Vegas Locals, if you make the adjustments for the Orleans and stuff and Gold Coast, you know, are similar to the regional. So can you really just kind of help us out with, like, what the ongoing or the current level of operating costs per day are so that we can kind of calculate appropriately going forward?
And then, you know, just with this whole kind of cost structure, you know, does this all really apply to when you're fully up and running? I know that there's a lot that you've done to pull out costs from your business, but, it just seems logically that there's got to be some costs that do come back. So maybe you can just help us better understand what's permanently gone. Is it more like back office stuff, you know, versus other stuff? And like, could there be other costs that could come back, and if so, what are they?
Keith Smith (President and CEO)
Sure. Felicia, this is Keith. You had a number of questions there. Let me start kind of at the end on the cost structure, and then I'll let Josh take the first part of your questions. Look, we have carved a lot of costs out of the business. They're down significantly, and those costs are across the board, from corporate expense to marketing costs to labor costs. And, you know, they're a result of both having, you know, less maybe amenities open, as well as just having, you know, smaller footprint, with generally 50% of the casino open.
We feel like, as I said in my prepared remarks, that we have kind of built a new structure for the business, and while admittedly, some costs will come back in over time as the business grows, we think largely that many of these costs will stay out of the business and that we won't have to bring them back in, whether that be in the form of labor or be in the form of maybe not bringing back all the amenities. You know, buffets are a great example. It's sitting here today, kind of hard to understand how buffets come back into the picture going forward, you know, in the environment we're in today. So once again, we believe that the structure we have is applicable going forward.
One of the things you have to remember is that while we're only operating at 50% capacity, that's generally all we need weekdays. It's weekends where we feel the pinch a little bit, where we can use more capacity and pick up more demand. But as we have focused on a higher worth customer right now, you know, the capacity we have is suiting us just fine. Josh, I'll let you pick it up from there.
Josh Hirsberg (EVP and CFO)
Yeah. So Felicia, and partly to Joe as well, I think the difficulty in trying to answer the question about the kind of run rate of expenses, we have to look at just the period of time that we were open. Obviously, we had increased expenses during April, most of April, because you know, we were still paying wages and still had team members employed before we went into a furlough status. So I don't have just the kind of June reopen period. That would be the one I would have to refer to, because that's when we had the most properties open the most consistently. We did even continue to have properties open throughout the month of June.
So I think it's a little hard to answer the question as kind of what the kind of run rate operating expenses is with the information I have in front of me, but if either one of you want to call separately, I'm glad to try to give you more color or help you through it. It's just really difficult to kind of compare the individual months, given how different every month really was. So and I think the other thing I would say, just generally in terms of kind of the sustainability of what we're doing here, is I think we're trying to build in a discipline and a thought process of, you know, we're starting from a clean sheet of paper, really, from being closed.
As we incrementally add amenities or incrementally add marketing, we have a much clearer picture of the actual impact on profitability, and we can make those decisions as to whether, you know, we want to go to that next step or even pull back. So I think two key points, we believe a lot of this is sustainable. A lot of it is philosophical around how we choose to run the business going forward, but a lot of it also depends on what happens going forward with respect to customer demand and competition as well.
Felicia Hendrix (Managing Director and Equity Research Analyst)
Yeah, thanks. Just in terms of trying to back into the number, I mean, can you do something like, you know, use, because you on a fully shutdown basis, your OpEx per day is like $1 million, right? So could you use like that for the first two months and then back into what the third month is? And, like, does that kind of get us there in a back of the envelope kind of way?
Josh Hirsberg (EVP and CFO)
I'd really have to sit back and think about it. I mean, maybe, maybe you can call me after this, and we can-
Felicia Hendrix (Managing Director and Equity Research Analyst)
Okay.
Josh Hirsberg (EVP and CFO)
Help me think it through.
Felicia Hendrix (Managing Director and Equity Research Analyst)
Okay. And just, kind of just as a follow-up, you know, you guys aren't the first casino operators to say that you're seeing more younger players, not only in the numbers, but spending more. You know, what drives your confidence that that's sustainable? And, you know, how much of, and I know this is probably really hard to parse through, but how much of fiscal stimulus do you think is driving your traffic or that traffic?
Keith Smith (President and CEO)
You're right. It is, it is really hard to parse through in terms of where, our customers' kind of disposable income is coming from and, you know, why they're walking through the door. The good news is, they are walking through the door. The good news is they are participating with us. The good news is that most of these younger customers are in a higher worth segment, so we have their information, and therefore, we're able to not just track them, we're able to market to them going forward and, you know, bring them back into the building. You know, we may be getting a larger share of their wallet today, but the point is, they're coming into the building, they're participating with us, they're enjoying the product, and we'll be able to continue to talk to them going forward.
So I think it's very much a positive that we're seeing growth in the younger demographic. Look, when the pandemic finally runs its course, whatever that is, the older customer, you know, will come back, and then we'll end up, you know, with a more robust database of higher worth customers. So look, I think we feel really good about the direction of the business right now and the, you know, the customer traffic we're seeing and the demographics of that customer traffic.
Josh Hirsberg (EVP and CFO)
Yeah, just to add to maybe what Keith said there, a couple of things. Number one is I think the decline in kind of older customers has not been as dramatic as maybe some people may have thought. There is a decline, but it's not in a meaningful way. So I think that should be noted. Secondly, I think, and Keith alluded to this, we do have an opportunity to build increased loyalty from that younger customer demographic as they're coming through the door, and we are seeing increased levels of that younger demographic in our tracked play. What I would point out in terms of this, I do think probably a little bit more of this unrated play is coming from potentially, you know, the government's stimulus and some of those other things.
But the reality is, the customer, the younger demographic that we're talking about, is gaming. And so the alternative, the entertainment alternatives or whatever is driving that customer plays probably a little bit less to the extent of what they're participating in, because they are coming in to participate in what we have to offer and gives us an opportunity to build that loyalty and that relationship with them. So no doubt some of this is driven by, you know, the unique circumstances we all find ourselves, but part of it is also that younger demographic is just participating more in what we have to offer.
Felicia Hendrix (Managing Director and Equity Research Analyst)
Great. Thank you. Appreciate your comments. Helpful.
Operator (participant)
... question will come from Carlo Santarelli with Deutsche Bank. Please go ahead.
Carlo Santarelli (Managing Director and Equity Research Analyst)
Hey, guys, thank you for taking my question. Keith, Josh, if I just came at, I think, similar to maybe what Joe was asking about and what Felicia followed up on. If I look at kind of the data that you did provide or the revenue kind of growth, or sorry, revenue contraction within Midwest and South segment, as well as that of the locals market, coupled with the revenue you reported and the margin growth you reported, it would seem to imply that the Midwest and South, for the period it was open, did about $64 million of EBITDA, and about $22 million in the locals market for the period it was open.
And then if we were to think about those results relative to the period where you were closed and what you ultimately reported, that would kind of give a sense of the burn rate during that period. Is there, is there anything flawed with that? I was kind of getting to a 41% margin for Midwest and South and 45% for locals.
Keith Smith (President and CEO)
I think that's about right, Carlo.
Carlo Santarelli (Managing Director and Equity Research Analyst)
Okay. And then if I think about those margins, you know, clearly, look, I think the locals market is probably advantaged because your competition, although, you know, significant, is kind of in the same operating environment that you are, maybe has similar financial goals and whatnot. But in the Midwest and South, maybe you're consistently competing with a more, a broader array of competitors who might have different strategies of how they're going to go about it. So my question is, the sustainability of the margins, as you kind of spoke about before, how much of that is predicated on kind of the way that your competitors react moving forward?
Keith Smith (President and CEO)
Well, clearly, there is a portion of that where, you know, that is related to that, but I would say it's not the majority of it. You know, we, as Josh indicated, we talked about, you know, we have crafted a different business model as we've come out of this closure period, with the benefit of being closed and able to take a fresh look at everything and have rebuilt segments of the business. And so we're able to delayer some of the marketing programs and have, you know, more efficient process and marketing programs going forward. As we did before the pandemic hit, we weren't chasing revenues, and we weren't chasing our competitors' marketing programs. We pay attention, we may have to react, but we're simply not going to add costs back in because that's what, you know, the property next door does.
We're not ignoring it. We're not being ignorant of what they are doing. We're paying attention, but we'll be very disciplined before we start layering programs back in, because once again, we, we remain focused on a higher worth customer. It's not about volume right now, it's about quality.
Josh Hirsberg (EVP and CFO)
I think, so one thing that I think may help people try to understand this is, it's a big difference starting from a business that is running and trying to change how you operate and implement philosophies that may take us longer to execute on. Whereas from the perspective of starting from really a closed position where you have no customers in the building and building back from that, it's a much different situation and circumstance from which you're coming from and being able to make decisions. And it's easier to get rid of some of the things that you may have been trying to get rid of and were going to get rid of, but just was gonna take longer to get there. And I think that's really what we've been able to do.
And then the question really is, is how far do we go back to where we were? And, you know, I think that's yet to... That story is yet to be told, but we're trying to be disciplined around how we, how far we move back down that path.
Carlo Santarelli (Managing Director and Equity Research Analyst)
Great, thank you. If I just could ask one follow-up. In terms of what you're seeing in July, you guys mentioned that the positive trends have continued into July. If I wanted to kind of parse into that comment as it pertains to the Midwest and South, are you guys seeing potentially a schism between what you're seeing maybe in the Midwest and central regions, relative to the strength of demand in call it the southern areas, Louisiana, Mississippi, et cetera? Or is it pretty uniform across the North and the South right now?
Keith Smith (President and CEO)
So I think the way to think about it, as opposed to North and South, is that the trends that we've seen in July, as I said, are similar to the trends in June. Maybe what I meant to say was the business has been very stable since we reopened. So you know, the, the types of declines in revenue we saw in June, you know, exist in July. It hasn't accelerated, it hasn't decelerated. The EBITDAR that we saw in June, we're seeing similar results in July, not significantly up, not significantly down. Margins are relatively consistent between kind of the June and July time frames.
I didn't look at it between North and South, but once again, whether you're in the Midwest, North or the southern part of the country or Las Vegas, as you look at their June trends, July across the board is similar region by region.
Carlo Santarelli (Managing Director and Equity Research Analyst)
That's helpful. Keith, thank you guys very much.
Keith Smith (President and CEO)
Sure.
Operator (participant)
Our next question comes from Barry Jonas with SunTrust. Please go ahead.
Barry Jonas (Managing Director)
...properties that remain closed, what, what are your plans there? Have you been able to shift any play from those three to other properties? Thanks.
Keith Smith (President and CEO)
Yeah, we—there's currently, there are no current plans with respect to reopening those. One of them is in Downtown Las Vegas, which as you heard us talk about, is right now kind of the most challenged segment for us, just given restrictions in Hawaii and lower tourism overall in Las Vegas. The other two are smaller properties, and it's a demand-based calculation on our part. So once the demand starts to pick up, both downtown as well as around the two smaller properties, that's when you'd see us reopen those. We don't have any dates right now.
Barry Jonas (Managing Director)
Okay, great. And then, look, I think it's striking that trends in July are still strong, despite seeing some second waves of cases. Maybe just any color on why you think there hasn't been that impact. And I guess with that, how should we think about the potential for reclosure risks there? Thanks.
Keith Smith (President and CEO)
Well, you know, thus far, our customers have not overreacted to the safety or sanitation protocols we put in place. In many cases, they're very happy with them. You know, whether it's wearing masks or whether it's increased sanitation, you know, they generally are pleased with what is going on. You know, in many cases, we didn't have to have our customers wear masks when we first opened, and then, kind of, mask requirements came into place. We didn't see much of any deviation in kind of customer behavior between those two periods of time. So, you know, customers seem to be accepting of the product. I will tell you that as a company, you know, we do a very, very good job on sanitation measures.
I don't say that just as a proud CEO, but if you talk to the regulators around the country, when they come into our buildings and talk to us and, you know, look to enforce these things, they tell us that the steps we've taken are above and beyond most, if not all, of our competitors. So we feel very good about that, and our customers feel very good about being in a safe and a clean environment. With respect to future closures, the only thing I can say is those are not, you know, conversation or topics that are coming up as we talk to regulators or, you know, state legislators. The conversations are all about enforcement of existing guidelines, whether it be masks or CDC or other CDC requirements.
Once again, we've kind of – we're kind of at the top of the list when it comes to that. As you've paid attention, you've seen that the requirements have gotten tighter, from no masks to masks. Some cases, bars have had to be closed. So while the restrictions have gotten tighter, it's interesting that the level of play has stayed the same. So it certainly doesn't feel like, and we're not having those conversations about future closures. It's all about enforcement, it's all about compliance, it's all about paying attention to what's going on to help, you know, stem the spread of this terrible virus.
Barry Jonas (Managing Director)
Great. And then just a quick one. Just wondering, did you guys receive any proceeds from the CARES Act?
Josh Hirsberg (EVP and CFO)
We didn't take any loans, if that's what you're referring to, Barry.
Barry Jonas (Managing Director)
Yeah.
Josh Hirsberg (EVP and CFO)
Yeah, no loans. We received partial benefit for some of the expenses we incurred related to keeping our team members on staff and paying them for a longer period of time.
Barry Jonas (Managing Director)
Got it. Okay. Thank you.
Josh Hirsberg (EVP and CFO)
Sure.
Operator (participant)
Our next question will come from Joe Greff with J.P. Morgan. Please go ahead.
Joseph Greff (Managing Director and Senior Equity Research Analyst)
Let's give it another try. Can you hear me now?
Keith Smith (President and CEO)
Perfect. Perfect, Joe. You can't ask the same question again, however.
Joseph Greff (Managing Director and Senior Equity Research Analyst)
Well, I didn't hear the answers to those questions asked me, so I'm not gonna waste anybody's time. So have you noticed any of the Las Vegas Strip operators trying to encroach on the Las Vegas locals customer? And if you anticipate experiencing that, how do you guys compete in that regard?
Keith Smith (President and CEO)
You know, it's interesting, interesting question, Joe. We really haven't. You know, in prior times, you've seen some, you know, big ads and some big offerings to have locals come in and, you know, mostly dine in the restaurants and, you know, maybe go shopping in the, in the retail malls. You're not seeing that this time. And so, you know, that's, that's obviously a good sign just from a competitive standpoint. So nothing has popped up in the time that they've been open and we've been open.
Joseph Greff (Managing Director and Senior Equity Research Analyst)
Great. Then going back to the sort of the question of daily run-rate OpEx. When you're sitting here at the end of July and you're looking at your property and your property portfolio and corporate, are your fixed, or what you deem as fixed expenses, are they the same or lower than where they were run-rating at the end of the quarter? Just to get a sense of maybe, you know, how much more op margin opportunity there is, or conversely, maybe how much you're adding back, given what you anticipate or presently are seeing in terms of revenue recovery. That is all for me.
Keith Smith (President and CEO)
Yeah. So as you think about July, once again, very consistent with June. You think about margins, very consistent. You know, A, I would not think that those margins can grow. They're pretty healthy where they're at today, vis-a-vis where they were at. B, we really haven't added any costs back. And so, you know, when I indicate that business has been very stable, it actually has been remarkable. You know, since the four weeks in June and the first four weeks of July.
Joseph Greff (Managing Director and Senior Equity Research Analyst)
Great. That's perfect. Appreciate it. Thank you.
Keith Smith (President and CEO)
Thanks, Joe.
Operator (participant)
Our next question will come from Steve Wieczynski with Stifel. Please go ahead.
Steven Wieczynski (Managing Director)
Yeah, good afternoon, guys. So if we go back and think about, you know, what you've seen so far in July, I'm not sure if you answered this, and if you did, I apologize, but have you seen any of your competitors, you know, across the country get more promotional over the last couple weeks?
Keith Smith (President and CEO)
I would say, you know, whether it be here in Las Vegas or across the country, that the promotional environment remains rational. As always, you have a one-off here or there that has added back some level of promotional activity, but for the largest part or, you know, to the largest extent, it is relatively stable and relatively rational. Nobody's out there adding back layers of marketing.
Steven Wieczynski (Managing Director)
Are there any markets you would call out as being overly promotional right now?
Keith Smith (President and CEO)
No, not, not at all.
Steven Wieczynski (Managing Director)
Okay. And then, Josh, you're probably gonna hate this, but I'm gonna ask another sensitivity around margin question. So this is gonna be a little bit hypothetical, and I know you love those questions.
Keith Smith (President and CEO)
All right.
Steven Wieczynski (Managing Director)
But, you know, let's say, you know, a year from now, the world is back to normal. There's a vaccine, it's successful, blah, blah, blah. Your casinos aren't capacity limited anymore, and all your non-gaming amenities are fully operational. I guess... I guess what I'm gonna try to get at here is, under that scenario, what, you know, what could your EBITDA flow through look like somewhere in the future? And if you don't want to answer that, maybe do you think that flow through could be significantly higher than where it was pre-virus?
Josh Hirsberg (EVP and CFO)
Yeah. So you're right, Steve, I don't like those kinds of questions, especially in the middle of a pandemic. But I do think maybe this is how I would try to answer it, to provide an answer is, and Keith touched on this in answering other questions before, is number one is, I do think that a lot of what we have accomplished so far, and maybe I should... You know, some of what we have accomplished so far is sustainable in terms of taking costs out of the business. And so by the very nature of that, I think that our flow through can be better going forward, depending on the health of the customer and the revenue that we're seeing from that customer, and where it's coming from, quite honestly.
Right now, we've got the best customer, you know, that. I mean, if you step back and think about the operating environment we're in today, it's the best of all environments other than having it occur in the environment of a pandemic. You have limited amenities, you have slots, which is, you know, largely doesn't need much in the way of labor, and you have a customer that wants to be there that you're not having to market aggressively to get to come in the door, and many are not getting marketed to at all. So these are customers that want to be in the building. If that kind of quality customer is with us a year from now in your hypothetical scenario, and that's what's growing, then the flow through is gonna be fairly significant.
And so I think those are all the kinds of things that make create where we're at a little bit of uncertainty around what amenities are added back, if any. You know, what's the quality of the customer? How far much further down in the database are we seeing increased demand or marketing to that customer? All of those things are yet to play out over time. And we're gonna try to be as disciplined as we can and retain as much as of what we've accomplished so far in the last couple of months going forward.
Steven Wieczynski (Managing Director)
Okay. Thanks, Josh. Appreciate it. Sorry about the hypothetical.
Operator (participant)
Our next question will come from Jared Shojaian with Wolfe Research. Please go ahead.
Jared Shojaian (Managing Director and Senior Equity Research Analyst)
Hi, good afternoon, everyone. Thanks for taking my question. So in the month of July, with the three properties still closed, are you thinking your total company-wide EBITDA could still be higher year-over-year for the month? Is that how we should be thinking about July here?
Josh Hirsberg (EVP and CFO)
Higher than what, Jared? Higher than prior year?
Jared Shojaian (Managing Director and Senior Equity Research Analyst)
than July of last year.
Josh Hirsberg (EVP and CFO)
Yeah. Look, I think all I want to do at this point is just suggest that, reiterate what Keith has said, which is, you know, what we've seen in May, late May and June is continuing in July. And so if that leads us to be, you know, ahead of prior year, so be it. I think that ultimately, the level of business that we are receiving, the, the cost structure and all of those things are not changing. So I don't think I want to get into, you know, projecting individual months going forward or anything like that, but I think what I want to do or what we want to do as a company is just kind of give you the framework with which to make a decision.
And along those lines, nothing is really the trends in the customers and the expenses and everything else is, you know, not—you can't discern any difference between what we saw in June.
Keith Smith (President and CEO)
I think what Josh is trying to say, we're not. We haven't provided guidance, we're not providing guidance. And, you know, when it gets to year-over-year comparisons, you know, we've highlighted trends, but a lot comes into play, last year, calendars, and other things going on. So, but generally just not providing guidance. So unfortunately, it's hard to provide any more color than what we've already done.
Jared Shojaian (Managing Director and Senior Equity Research Analyst)
Okay. Thank you. And Josh, you mentioned you turned free cash flow positive in early June. What's the plan for the cash, assuming these trends continue? Are you hoarding the cash? Are you paying down debt? How are you thinking about that right now, just given, I think you said you have 19 months of liquidity on hand?
Josh Hirsberg (EVP and CFO)
Yeah. So, you know, what we plan to do is, I guess, once we have the extension of the, credit agreement and the Term Loan A in place, which we expect to have happen in the next couple of weeks or so, then we would use the cash to pay down any outstandings under the revolver. That will lead us to have extra cash beyond that. And so our liquidity at that point, which is, we're gonna continue to maintain, is our availability under our revolver and our cash balances at that point. And so we'll continue to kind of manage our liquidity based on what's happening in the world around us.
Jared Shojaian (Managing Director and Senior Equity Research Analyst)
Okay, thank you very much.
Josh Hirsberg (EVP and CFO)
Yes, sir.
Operator (participant)
Our next question comes from Thomas Allen with Morgan Stanley. Please go ahead.
Thomas Allen (Managing Director)
Thanks. Kind of two clarifying questions. The first, it's really encouraging to hear you guys talk about how positive trends have continued into July. But if you look at the hotel industry, for example, you saw a really strong July Fourth, and then business slowed down a bit in the second and third weeks of July. When you say that business has continued, are you saying week by week by week, it's just continued to be stable, or has it been the month of July has continued versus June trends?
Josh Hirsberg (EVP and CFO)
So we get obviously daily reports on our performance, and that daily performance looks consistent with what we saw in June, as well as kind of the month to date. It's not one weekend that's making the month or anything else like that. Keith, I don't know if there's anything you want to add to that, but I think it's... When we say it's consistent, it's not driven by a nuance in the calendar or anything of that nature.
Thomas Allen (Managing Director)
Yeah, that's encouraging. Great. And then, Josh, just thinking, trying to extrapolate first quarter results out to the coming quarters. Did you book CARES Act benefits in... Sorry, the second quarter into, into future quarters. Did you book CARES Act benefits-
Josh Hirsberg (EVP and CFO)
Yeah
Thomas Allen (Managing Director)
in 2Q? And so should we kind of take those out for how we're thinking about forward, forward numbers?
Josh Hirsberg (EVP and CFO)
I don't think so, because then you would have to layer in the incremental labor that we had on, that's no longer in the business, right? It offsets the labor that's not in the business. It's an apples to apples kind of elimination, if you will. We had higher increased labor as a result of carrying staff, in well into April. It is partially, not totally, offset by that CARES Act. So if anything, for the quarter, you would adjust some incremental labor costs out of the results and get even a little bit better results.
Thomas Allen (Managing Director)
Approximately how much was it, Josh?
Josh Hirsberg (EVP and CFO)
I don't actually have the final number. I just know it was just partially offsetting the labor costs that we had, you know, on staff until we made the difficult decision to furlough team members.
Thomas Allen (Managing Director)
Okay, helpful. Thank you.
Josh Hirsberg (EVP and CFO)
Yeah.
Operator (participant)
Our next question will come from David Katz with Jefferies. Please go ahead.
David Katz (Managing Director and Senior Equity Research Analyst)
Hi, afternoon, everyone. To the degree that you can, can you... I you know, I wasn't sure that my question was going to be funny, but I hope everyone finds it, you know, at least interesting, if not amusing. You know, when we look at gaming floors, you know, one of the drawbacks we have is we haven't really had much of an opportunity to go and see properties. I assume that, you know, it's different market to market, but we'd be seeing gaming floors with every other slot machine turned off. We'd be seeing, you know, table games, you know, separated with plexiglass up as we're seeing in, you know, many other aspects of it. Are there any markets where that is not the case today?
You know, if you had to speculate, such a tough word, but I mean, is this some version of what the new normal is gonna look like with spaced out gaming floors? You know, the nuts and bolts of why I'm asking is, you know, we look at our property models, and we're thinking about, you know, whether we should be adding back, you know, slot machines that are shut off today and table game positions that are shut off today, and, you know, what that could turn into.
Keith Smith (President and CEO)
So as you think about our portfolio, you know, 29 properties spread across the country, you know, generally, we are at 50% capacity. Generally, it is every other slot machine. There are some unique issues state by state or property by property. We generally have barriers at our table games, which allow for, you know, 4 people at a 21 table, quote unquote, socially distanced versus 3, and a few more people around a craps table.
... you know, the easiest way to think about it is we're at 50% capacity on our casino floors is the way to think about it. Is that the future of the business? You know, that is, I'm not, I'm not sure that question can really be answered. You know, how does the pandemic change the world around us a year from now? And how are customers reacting to, you know, just being in large groups or larger groups a year from now? I, I don't think any of us, you know, have that answer, and I, for one, am not willing to speculate as to what that could look like.
We're focused on running our business today, focused on kind of maintaining the success and the momentum that we've generated over the last 6 or 8 weeks, and continuing to, you know, evolve this business in a very fluid environment and just kind of adapt as we go. And, you know, that's what our focus is today and will be in the future. And, you know, whatever the, whatever the future brings, we will be prepared for it. But, you know, I'm, I'm unwilling to speculate what that may look like a year from now.
David Katz (Managing Director and Senior Equity Research Analyst)
Fair enough. If I can just follow up on one of the issues that came up earlier around, you know, the degree to which the Strip may be, you know, delving into your customer base. You know, we've had a number of discussions throughout this, and, you know, Josh, I've heard you talk about the notion, you know, that the Strip is largely decoupled, you know, from the fortunes of your locals business. It, you know, again, is that something that, you know, you think is sustainable, you know, permanent, sort of ongoing?
Keith Smith (President and CEO)
I think you have to think about the Strip business and understand how that, you know, that model is built, and I know you do. But when you compare it to the locals business, you know, the casino product is priced differently. In the past, when the Strip has marketed to locals customers, it's really been more on the F&B or the nongaming side, not so much the gaming product. Right now, obviously, you know, there is very limited kind of nongaming amenities that, you know, that exist on the Strip. So, you know, unless there's a wholesale change in how they market their gaming product, I don't think you're going to see locals gravitate in any big numbers to the Strip.
David Katz (Managing Director and Senior Equity Research Analyst)
Okay, I appreciate all the detail. Thanks very much.
Operator (participant)
Our next question will come from Shaun Kelley with Bank of America. Please go ahead.
Shaun Kelley (Managing Director and Senior Equity Research Analyst)
Hi, good afternoon, everybody. Just, I just wanted to follow up. We've talked obviously a lot about the margin and cost side, but maybe we could just dig into the revenue side a little bit more, right? So we're seeing, you know, kind of, or run rating it sort of down high teens or, you know, type revenue numbers in the regional markets. You know, what's your insight or kind of what are your-- what's your thought about how much of that is simply driven by, you know, what seems to be a very meaningful capacity control? And then just kind of what are your thoughts on, you know, how much of this is being driven by the reduced marketing, you know, efforts itself? And is there a piece of revenue that, you know, may not come back?
It's okay, because it's probably quite unprofitable. Obviously, we've been trying to pare that back throughout, but just kind of how do you weigh those different factors based on the data that you're seeing?
Keith Smith (President and CEO)
Well, I think those are all factors that are part of the revenue decline. It's not really possible, and we haven't even attempted to try and discern, is this a capacity issue? You know, is it a marketing-driven issue? Is it a customer issue in terms of how much wallet they have or their discomfort with coming out, you know, to participate? It could be any number of things. And once again, you know, midweek, we don't really have capacity issues. We have plenty of capacity. It's really a weekend issue. So I think, once again, not really possible for us to parse through that and kind of give you any sense of how much is, you know, may be attributable to each one of the things you mentioned.
Shaun Kelley (Managing Director and Senior Equity Research Analyst)
Maybe without quantifying it, Keith, just any thoughts on, you know, do you think there is a material piece of, you know, let's call it unprofitable revenue left in the business? You know, people that were coming on some of these, you know, heavily, heavily discounted, you know, promotions in certain markets that, that, you know, is clearly going away in an environment where you removed, you know, that, that marketing, you know, again, kind of full stop. Is that material to the overall, or do you think you'd already done or optimized for a lot of that pre-COVID?
Keith Smith (President and CEO)
I don't know if it's material. It's certainly a part of the decline, because as you look at the lowest end of the database, you see it continue to shrink. It was shrinking. We've talked about this for a couple of years in terms of our focus on driving profitable revenue. But clearly, during, you know, this pandemic, it and since reopening, it has continued to shrink. It's continued to go down. It actually is decreasing more than the higher worth segments. Frankly, our highest worth segment has grown, which is very, very much a positive. And so the lowest worth segment is down the most. So yeah, that business has gone away, which attributes to the decline in revenues.
Shaun Kelley (Managing Director and Senior Equity Research Analyst)
That's helpful. And then, one last one for me would simply be, Josh, I think, you know, in the prepared remarks, you referred to, a little bit of, of what was going on with the CapEx line. I think you said $115 million, 48 of that was in the first quarter, really sort of pre-COVID. And I think there may have been some finishing up of some projects or something, and then 20 on non-recurring items. You know, can we sort of adjust for those factors and get to a sort of an ongoing run rate? Is that a number you could help us with just for what we should think of in a stabilized environment from here, either per quarter or, you know, for a full year going forward?
Josh Hirsberg (EVP and CFO)
Yeah. So Shaun, I think the reason I gave the components was so people could start to try to figure out what kind of the core maintenance run rate would be if we had to go to that kind of closed or minimal maintenance environment. And that came in around $60 million-$70 million, I think. I don't think that's necessarily a good run rate if we are, quote, unquote, "in a more typical environment." I think it's more like the $120 million number, because you'll have more things that need to be maintained and more, you know, things that need to be freshened up and rooms to re-be done and all of that, where we don't even have all of our rooms available to customers at this point, and all of our restaurant products.
So I think of a more kind of recurring run rate of about 120 or so. But look, I think to be fair, we've got to kind of get through the next several months, evaluate where we're at, look at what we begin to feel like next year is gonna look like, and then we'll kind of update people on what a good number is. But in terms of just base, I think, you know, kind of core, where we have to cut back as far as we need to, you know, it's, it's probably in that $50-$70 million range. More run rate, maintenance, capital, and a more, quote, unquote, "normalized environment," it's probably $115-$120 million.
Shaun Kelley (Managing Director and Senior Equity Research Analyst)
Perfect. Thank you very much.
Josh Hirsberg (EVP and CFO)
Sure.
Operator (participant)
We have time for one last question, and that will come from John DeCree with Union Gaming. Please go ahead.
John DeCree (Managing Director)
Hi, Keith. Hi, Josh. Thanks for taking my question. Josh, I'll try to build on that CapEx question a little bit, and tie it back to some earlier comments about maybe parts of the business that maybe have changed, if not permanently, at least for the foreseeable future. And buffets are something that gets tagged a lot there. And maybe rooms not all coming back online. When you start to pick up CapEx spending again, or even when you think about your maintenance budget, what types of things will you be spending capital dollars on, either maintenance or ROI, you know, as the business shifts, and if it kind of shifts more medium term, if, you know, we're not gonna be doing as many restaurants and F&B or something like that, where do you think the dollars go?
Josh Hirsberg (EVP and CFO)
Yeah, I don't really think it's really different than what we're talking about today. I think it's really that, you know, either the business is growing and the buildings are getting more use and and that's how it's evolved, and therefore, you're getting more use out of the buildings that require, you know, a higher level of maintenance capital. I don't think it's anything incremental to what we're doing today other than for those reasons.
John DeCree (Managing Director)
Fair enough. And I don't think we could let you off the hook without talking about M&A. Obviously, an unusual market, but there'll be some stuff, obviously for sale and curious to get your thoughts on your new operating model, if it changes how you look at M&A, and if, over the near term, if you've got some confidence or enough confidence that you might be an active participant, if there's anything out there worth looking at?
Keith Smith (President and CEO)
Maybe a couple of comments. You know, it's hard in this environment, given everything that's going on, to think about, you know, M&A and purchasing assets. And I said a little bit earlier in my comments in answer to a question, you know, our focus today is just on running this business, continuing the momentum and the success that we've been able to create in the last 6 or 8 weeks, and continuing to adapt and evolve in what's a very fluid situation. As rules change, masks to...
or no masks to masks and closing a few bars and, you know, as, as this evolves, this pandemic evolves, then we need to evolve with it and be extremely focused on our core business and making sure that we're doing everything right, making sure we're not allowing costs to creep back into the business, and that, you know, we continue to focus on driving profitable revenue. So, you know, that is what our focus is today. You know, and we'll just kind of adapt as time goes on.
John DeCree (Managing Director)
Thanks, Keith. That makes sense. Get all the additional help and tell the guys.
Keith Smith (President and CEO)
Sure.
Operator (participant)
This will conclude our question and answer session. I'd like to turn the conference back over to Josh Hirsberg for any closing remarks.
Josh Hirsberg (EVP and CFO)
Yes, thanks for all the good questions today, and we've been able to provide some valuable insight into what's going on in our business, and we appreciate your time today. If you have any follow-up questions that you'd like to dig into, please feel free to reach out to the company. Thanks again, and everybody stay healthy.
Operator (participant)
The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect your lines at this time.