Good afternoon. And welcome to the Boyd Gaming Third Quarter 2020 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Josh Hirsberg, Executive Vice President, Chief Financial Officer and Treasurer. Please go ahead.

Thank you, Gary. Good afternoon, everyone, and welcome to our third quarter conference call. Joining me on the call this afternoon is Keith Smith, our President and Chief Executive Officer. Our comments today will include statements that are forward-looking statements within the Private Securities Litigation Reform Act. All forward-looking statements 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 Investors 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?

Thanks, Josh. Good afternoon, everyone. Thank you for joining us today. Our third quarter results clearly reflect the tremendous progress we have made since we began reopening our properties five months ago and the strength of our operating teams across the country. Their ability to adapt to the significant changes brought about by the COVID pandemic has been a key factor in our success. As we discussed on our last call, when we started the reopening process in late May, it was clear we had to adapt our operating strategy to meet a much different environment. The world has changed and we had to change with it. With limited capacity on our casino floors and reduced amenities for our guests, visitation to our properties was down significantly from a pre-COVID world. We knew we needed to rebalance our operating and marketing cost to match this reality, and we had to find a way to control cost without compromising a great guest experience that our customers expect from us. Same time we needed to develop and implement entirely new safety and sanitation protocols throughout our business aimed at ensuring a safe environment for our guests and team members. Successfully developing and executing this strategy over the course of just a few months was one of the greatest challenges we have ever faced. I am extremely proud of our operating teams have respond to this challenge, as well as the outstanding results they have produced. During our first full quarter since reopening, companywide EBITDA is up nearly 12%, as operating margins increased more than a 1,000 basis points to 36.6%. This is the highest companywide operating margin in our history. During the third quarter, 18 of our properties grew EBITDAR at a double-digit pace. Eight of our properties achieved all-time record quarters…

Thanks, Keith. As we think about our business today, the one word that comes to mind is consistency. Since reopening our properties, our own ability to execute an operating strategy engineered to drive enhanced profitability, as well as our customer’s behavior has been amazingly consistent. Going forward, we expect to retain much of the efficiency that has been captured in our operational performance since reopening. We are focused on serving our best customers in an environment of reduced operating expenses and highly targeted marketing. Now turning to the quarter, corporate expense and taxes were higher than we expected as a result of transitioning our properties from being closed to reopen. We expect fourth quarter corporate expense to be similar to third quarter levels. These are not however good run rate levels for 2021 corporate expense as these amounts include catch up items for the periods we were closed. Capital spending during the quarter was $29 million, bringing year-to-date to approximately $105 million. We expect to spend about $25 million during the fourth quarter, excluding investments related to the repairs at Delta Downs, which are expected to be reimbursed from insurance proceeds. During the quarter, we used a portion of our cash balances to repay our fully drawn credit facility. As a result of completely reducing these borrowings, we had approximately $500 million of cash at the end of the quarter and more than $930 million of availability under our credit facility. After quarter-end, we extended our credit facility and Term Loan A maturities to align with our Term Loan B maturity in September of 2023 and we increased our revolver commitments such that our undrawn availability now exceeds $1 billion. In all, our operating teams have done a tremendous job executing on the company’s strategy since we reopened our properties. Their hard work resulted in the performance we delivered for the third quarter. Just as exciting there is no sign of these results changing. October continues to trend at Q3 and while there are certainly risks and challenges that will present themselves, we are committed to sustaining our more efficient and profitable operating model into the future. Gary that concludes our remarks and we are now ready to take any questions from participants on the call.

[Operator Instructions] Our first question comes from Joe Greff with JPMorgan. Please go ahead.

Good afternoon, guys.

Good morning.

Congrats on the results. Josh and Keith, can you just talk about the mix and the rate of recovery between the non-rated retail and the rated database players in the Locals and Midwest and South gaming regions? And then what I am kind of I’d like to go with this and sort of so really the crux of what I am trying to get to is, to the extent that the recovery -- looking ahead the recovery in the rated database player segment is stronger than that non-rated segment, to what extent is that a negative margin mix and reverses some of the margin gains, how do you think about that?

So a couple of comments, Joe. I think as we look at the database, we continue to see strong play from our upper tier customers and from our higher worth customers. Those segments in some cases are actually growing year-over-year. Unrated play as a percentage of total play is actually up a little bit and that’s just because it declined less than our rated play overall, so it shifted a little bit, not significantly. I think as we look forward, as I said in my prepared remarks, we think there’s still a good deal of upside as customers who have not yet come out and comfortable coming out to visit us will come out in the future And so there continues to be, I think, positive momentum in the business.

Yeah. The only thing I would add to that, Joe, is, I think, Keith’s comments certainly are accurate and they reflect what has been really going on in the business since we reopened. There -- as we said in our remarks, our business has been very consistent and so the trends that we have seen since we reopened whether it’s in the rated segment or the unrated segment have really not changed, and both segments have been equally kind of strong and contributing in their proportionate share. I think is the point. We have not really seen any degradation in one segment or the other as we pass through time whether it’s as a result of unemployment benefits going away or other changes that folks would have perhaps logically thought would have affected one segment over the other. I think largely in the rated segments certainly these are customers that we know well and have seen before and are playing at the levels that they have historically and similarly from the perspective of the unrated segment.

Great. Excellent. And then just as a follow-up you actually couldn’t tell by looking at the EBITDA results in the Midwest and South, but can you quantify the hurricane impact in 3Q?

Yeah. When you look at Q3 last year we also had some hurricane impact and what we haven’t quantified it to say it was. Hang on. Josh?

Yeah. Yeah. So, Keith is correct. We had hurricanes last year and so that mitigated a comparable impact for this year. But this year was obviously worse and impacted us more significantly. And we estimate kind of $3 million to $5 million kind of an impact.

Okay. Thank you very much, guys.

Yeah.

The next question is from Carlo Santarelli with Deutsche Bank. Please go ahead.

Hey, guys. Thanks for taking my question. Josh and Keith, both of you mentioned kind of in your respective commentary that the higher end -- higher net worth -- higher worth customer within the database, you have seen a lot more frequency and spend or play from them. Is that something that over the longer term you believe is sustainable and what do you think is kind of driving the outperformance of that segment specifically?

Yeah. If you dial the clock back, because this actually is a journey we have been on for a number of years as we re-launched our B Connected program a couple of years ago and started to focus on higher worth play and then the COVID pandemic and the requirement we had to shut down the business entirely, allowed us to completely refocus and maybe supercharge that effort. So, we are really focused on this high-end play. We are able to, I think, speak to them differently as we reopen the business, speak to them more directly, provide maybe higher touches than we did in the past. I can’t tell you that they are spending at a significantly higher level. We just have more of the higher worth customers in the building and less of the lower worth customers in the building. I mean, if you were to look at averages, the average spend is up, but largely driven by just fewer lower end customers in the building.

That makes sense. Thank you. And then I don’t know if you guys would be willing to kind of take a shot at answering this. But if we ignore the Downtown segment for a second, obviously both the Locals margins up 1,600 basis points year-over-year, and the Midwest and South up a little over close to 1,100 basis points. Would you guys, like, I think Josh said most of the savings operational you would expect to keep. If we looked at those two growth rates in the margins and kind of assumed more than half of them on a go-forward basis. Is that in your eyes at similar run rate levels to what we are looking at right now reasonable and could you maintain 800 basis points and 500-plus basis points in Midwest and South EBITDAR margins on a go-forward basis?

So I think that it’s more in those ranges of a ballpark than either at the upper end or the lower end. If you think about kind of the drivers of expense of our business, the biggest components are obviously labor and marketing, and the changes that we have made to those categories in particular in a large way are largely permanent in the way we think about those. Now there’s a certain aspect of marketing that will naturally come back potentially based on consumer demands or competitive pressures potentially, but that’s nowhere near the order of magnitude of what we have removed from the business in terms of marketing. And I think on a much smaller case the same thing you could say about, labor and many of the other categories where we have made and I am sure our peers in the industry are doing the same thing. They have taken a fresh approach and we have taken a fresh approach in looking at our expenses across the Board and largely taking -- made decisions that are permanently removing many of those costs.

Yeah. Some labor will be added back into the business over time as we open additional amenities as we are -- as we deem appropriate. So there will be some incremental labor, but as Josh said, we view a lot of the changes that have taken place as permanent to nature.

Great. Thank you, guys.

Yeah.

The next question is from David Katz with Jefferies. Please go ahead.

Hi. Afternoon. My primary question, I think, you just answered quite artfully and thank you for that. What I also wanted to ask about is, when we look across the space and your peers and the roll out of digital and I know Keith you touched on this a bit. But how − at what point could we be in a position to pencil something in terms of that opportunity for you, right? Because we have others that have kind of laid out arguably different types of strategies than what you have, but you are a participant as well. What light can you shed for us?

So look as we look at this opportunity and we started down this road a couple of years ago when we signed our agreement with FanDuel, we approached it strategic a little bit different than others, whereas our focus was on creating cash flow and creating EBITDA and not building large infrastructure and incurring large losses to compete in this business. And so we have executed obviously a number of deals with FanDuel across the country, whether it’s in Pennsylvania or recently in Illinois and Iowa and Indiana and Mississippi, and hopefully there will be more as sports betting is approved across the nation. I would tell you that today or as we think about 2020, just kind of recurring EBITDA coming out of the that business today is in the $8 million to $10 million range and that includes Illinois that just launched in July, so it’s not even a full year of Illinois. So an $8 million to $10 million doesn’t account for onetime fees that we will receive as a result of selling additional skins in other states, doesn’t account for the growth in other states and doesn’t account for the EBITDA that the cash flow would have come out of our forthcoming online gaming application that we will launch during the next couple of months. So it’s $8 million to $10 million and it’s growing. Once again the $8 million to $10 million isn’t really a full year or full run rate.

Perfect. Thank you very much.

The next question is from Shaun Kelley with Bank of America. Please go ahead.

Hi. Good afternoon, everyone. Thanks for taking my question. Josh or Keith, either one -- maybe want to start with the Locals margins again. But I think one question we had was, from the time you were open, it does look like your margins actually improved in Q3 over Q2. So I was wondering if we could dig into that a little deeper. What would drive that sequential change, I mean, again, you are open for longer, some costs would come back and admittedly you are probably late on some of the low margin stuff? But I am just kind of curious on how we would go from kind of 1,300 -- up 1,300 to up 1,600, if you could elaborate on that, because it’s very impressive?

Well, I have been saying that, we have got tremendous management team here in the Las Vegas Locals market that is just doing an outstanding job driving the business. That’s really at the heart of it. But setting that aside, I think the other explanation is, the Las Vegas Locals business quite frankly started soft or started slow when we reopened in June, whereas other businesses in the Midwest and South actually started very strong, almost with a bang here in Las Vegas, it started a little softly and has grown. And I think as it has grown, we have obviously gotten better and we have learned what works and what doesn’t work. And again the team’s done a great job, but the only real explanation is it did start slow in June, in early July, it has gotten stronger.

The only thing I would add to that, Shaun, is kind of leading back up to the reopening period, there were a lot of questions around the -- what impact any weakness on the strip would have on our customer and we were and some of our peers in the Locals market were basically saying, look, this is a regional market like any other regional market. And if anything, we have kind of the backdrop of a very fairly strong Las Vegas economy and I think that’s what’s proven out here, regional mark -- a regional customer is a regional customer.

Great. And then just as my follow-up, Josh, you have been very clear on, I think, the driving buckets for kind of what’s going to be sustainable out of the margin improvement, pointing to both labor on property and then the promotional and marketing side. Could -- now we have got a full quarter of data, could you just help us a little bit with quantifying any of these aspects either on the labor front, maybe just a generic property, how much were down in FTE counts on a year-over-year basis or on the promotional or marketing front, how much is like marketing spend down or promo dollars down? Again, just to really help us kind of dial in on what types of magnitudes of reduction have come out of the business?

Yeah. Shaun, I’d really like to give you that information, but I think our competitors would like to hear the same thing from us at the same time. So I think each of the companies is approaching this in a similar way, but maybe unique to their own approach to the business, and so, I think, I want to withhold from answering that question.

Entirely fair. Thank you both.

Yeah.

The next question is from Felicia Hendrix with Barclays. Please go ahead.

Hi, guys. Good afternoon. So, Josh and Keith, especially today we could see there’s a lot of concerned in the market about kind of where we are in this COVID cycle. And so, as we head into the colder months and concerns kind of get greater about whatever you want to call it second wave, third wave. Do you see risks in the states that you operate in for re-closures? And then Josh your liquidity runway right now is very strong, but if you could just remind us of your balance sheet capacity to raise more funds if you needed too? That would be great.

So, Felicia, in terms of the risks of future closures, certainly we don’t control obviously that and you can see, and probably, have seen in the state of Illinois where they have started to put more restrictions on a variety of businesses, including casinos in certain Locals or certain counties where the positivity rate has risen beyond a certain level, I think, it was 8% in Illinois. So that certainly could be an impact obviously or risk to the business. We certainly view that as a short-term risk that, obviously, would pass through, but you certainly can’t ignore that risk. We don’t see that in other states. We are not concerned. We are watching it in Illinois. The jurisdiction we are in as of now is fine. We are not one of the jurisdictions that has to reduce their capacity to 25%, but we are certainly watching it. But certainly any huge resurgence could be a risk to the business.

And Felicia to your second question, in my remarks, I mentioned, we have over $1 billion of undrawn capacity. We have cash at the end of Q3 of about $500 million or so. And specifically, we have the ability even in this period of time with covenant waivers through our amendment process to raise another, I think, its $600 million or $700 million of secured debt that we are allowed to do. So, we have more than ample capacity to last in excess of two years of complete closure. And that’s at a run rate when we had kind of run through this the first time of about $65 million of closed run rate expenses. And we had different levels that we could have chosen to pull the trigger on to reduce those expenses even further. So, I would say, conservatively over two years of runway if we had to completely close the business every property again.

Okay. That’s super helpful. And then, Keith, when you kind of gosh, look at your Las Vegas Locals market and you made the comment I think at The Orleans, I think, the convention business stuff like that. What do you kind of anticipating in terms of, I mean, it could take a lot to get back to normal life, but just to seek some kind of like breath of life back into that part of the business, and then similarly what would it take for you to open the properties that are closed now?

Sure. I think is, as we think about the recovery or the ongoing recovery here in Las Vegas, two words come to mind, long and slow. I think it’s just going to be a slow recovery. I think there is some pent-up demand, some people wanting to come out. When the governor recently lifted the cap or the ability to have meetings to 250 or 10% of certain spaces, the phone started ringing. And we had people interested in coming out and holding those events. And so it shows that there is some demand for the product, but it’s going to be a long slow recovery. As I said, the good news at The Orleans or, yeah, the goodness of The Orleans is, we have a strong component of Locals play there that kept it very, very close to last year’s record results, and key last year was a record. With respect to the closed property, so there’s three of them, they are all here in Las Vegas, Main Street, Eastside Cannery and Eldorado. We probably see reopening them in that order, but it will depend on how the business flows. We think that Hawaii and the downtown market will probably come back quicker than the other two markets, the Boulder Strip market. We have good business at Sam’s Town. We just don’t have enough demand to open Eastside yet or the Eldorado. So as soon as the business demands it, but I’d expect sometime next year we certainly get Main Street open.

Great. And just a quick housekeeping, just as far as the properties that were open, how is your market share, was that relatively steady or improved?

The market share in Las Vegas, I would say, was steady to up, actually depending on what period of time you run the numbers for the last three months that they were reported, which would be June, July, August, we actually were up.

Okay. Great. Thank you so much.

Thank you, Felicia.

The next question is from Steve Wieczynski with Stifel. Please go ahead.

Yeah. Hey. Good afternoon, guys. So I want to go back to your overall database and on your last call you talked about, like, significant growth in that in your database during the second quarter. And I just want to ask was that growth similar in the third quarter or did that slow, which I assume is probably the answer? But just trying to gauge here a little bit more about how those new to property or new to brand folks are trending at this point?

Yeah. Steve, I don’t think we were alluding to that our database was growing disproportionately if we − if you took that away or if that’s what we said. I think in reality, the customers we are seeing a rated customer that we obviously know and have seen before hence rated and they are playing at levels that are similar to prior levels. When per units are up just because we don’t have the delusion of kind of some of the other players that are in the database. And as Keith mentioned we have a significant portion of the older demographic within our database that is not coming out and playing right now just because we don’t feel comfortable. We are seeing more of a younger demographic, but I would not characterize those as necessarily a new customer in our database, because once again they -- because we know they are younger, we know their play that that rated customers and so we know them. And then lastly the component that we have seen just as equally strength from that we spoke about earlier in the call in the question-and-answer session was the unrated segment has been healthy as well. And so, I am not sure if that helps answer your question, but that’s how we are trying to frame it when we think about it from our perspectives.

No. That’s super helpful. Thanks, Josh. And then second question, you talked about October has been very similar to the trends you witnessed through the third quarter. But I guess for the rest of the quarter, this might be a difficult question, but…

Yeah.

… how are you guys thinking around some of the upcoming events that are going to be coming up in the fourth quarter, whether that’s the elect -- the next week or so around the election and then maybe around the holidays this year, which some folks may stay closer to home and I guess that ultimately could be a benefit for you guys?

I don’t think our crystal ball is that clear that far out. I mean, we are benefiting from regional business where once again largely people can drive to us and so to the extent people stay closer to home and just continues to benefit us, and if they decide to come to Las Vegas then we will receive that benefit, which is the benefit of having a diversified portfolio geographically. So, look, what happens with the election and how that impacts people, does that impact spend patterns or them going out? You can log on to the sports book and place a bet if you want, but I am not going to make a prediction at this point.

Okay.

I think the one thing I was going to add to say is, I think that, at least the way we think about who our customer is today. This is what they do. This is their past time. This is what they view as their form of entertainment. And so I think that’s why we have largely seen this customer perform quite honestly so consistently. When they -- when we opened initially, they were the first ones to show up and when we had to be sure we enforced social distancing and mask wearing, they kind of played through that and when the unemployment benefits went away, they played through that. Now there’s no guaranteeing that they can overcome every single hurdle that comes their way over the future. But I think in our mind and based on our survey of our customers and this customer trends that we are seeing in our database, that’s really what we can discern from who’s in our building these days. And it’s -- to the extent they showed up on holidays last year, they will probably show up again this year. That’s the best we can go on for right now.

And, Josh, can I ask one more real quick one? Have you seen any change in that 65-year-old and up customer or has it been just pretty status quo?

I think there have been starting to be small improvements in that, nothing I would call a significant trend at this point. But we have started to see some of them come back out and engage with us.

Okay. Great. Thanks, guys. I appreciate it.

If anything it’s positive…

Appreciate it.

Anything positive. It’s not negative.

Okay. Great. Thanks, guys.

The next question is from Barry Jonas with Truist Securities. Please go ahead.

Great. Thanks. So I wanted to start with maybe approaching the risk question from a different angle. How do you think about risk to this model under the scenario that we have a working vaccine?

Well, so, it’s not there’s a working vaccine, if the implication or the game theory is that more people will come out and participate. Some of our customers who today aren’t yet comfortable coming out will come out and join us and so there’s upside to the business. So I think the vaccine is incrementally positive to our overall business. Is it possible that some of the customers that are with us today then spent a little bit of time somewhere else, spending their dollars somewhere else? Certainly that is possible. As Josh said a few minutes ago, this tends to be their core form of entertainment and so they are going to continue to play with us. I think there’s a natural balancing effect, and once again, once some of the customers have come out that aren’t used to or having complain with us come back out, I think, it’s incrementally positive.

Sorry. I guess, I meant more also on the cost side in terms of some of the amenities that have been removed?

Well, we are monitoring that as we go and to the extent that we need to bring back amenities, we will carefully monitor that and bring them back and make sure that they are positive and not a drain on the EBITDA of this specific property where we bring them back.

Yeah. I think …

Great.

…that’s -- I was going to say, Barry. I think that’s the key, right? Where there are opportunities presented by customer demand, the − our operations guys are taking advantage of that, but with the eye towards kind of doing it in a different business model with different pricing or under different circumstances to make sure that we’re introducing amenities and other aspects of our business that may not be open today in the most optimal way possible. So, I don’t think it’s necessarily that we will be − we will probably see some margin compression over time as a result of introducing new amenities, but the reality is that we are approaching those historically lower margin businesses in a much different way with a much different customer.

Great. Great. And then just one more for me, I am curious to get more color on your foray into cashless gaming. How do you think about maybe upside on the topline or else on the cost side to justify the investment?

So, first of all, it’s about safety and security and providing our guest yet another opportunity to have kind of a contactless opportunity to engage in our form of entertainment as they come out. So that’s going to be first and foremost. Second, I think, there are opportunities to reduce costs in the business with less cash in the building and it is obviously a marketing features, frankly, our higher worth guests don’t need to, don’t like to necessarily handle cash and insert bills in the slot machines, they can do it now seamlessly and upload and download cash. I think it’s a real marketing opportunity, a real competitive advantage for us. And in the few days that’s been live at Blue Chip, we have already had several hundred customers take advantage of it and that’s with no marketing. We just kind of turned it on quietly. We are just kicking off the marketing this week. So I think there’s a real opportunity for it.

Great. Thanks so much.

The next question is from Thomas Allen with Morgan Stanley. Please go ahead.

Thank you. [Technical Difficulty] 2020 EBITDA do you think anything from [Technical Difficulty].

Thomas, you are breaking up.

Are you going to…

Thomas, you are breaking up.

Can you hear me now? Hello?

A little bit.

[Technical Difficulty] million from sports betting hit up between market access and what you are seeing on retail sports books. And I think you have had your [Technical Difficulty] any interesting trends there as we have kind of gone two years in? Thanks.

Hey, Thomas. We really couldn’t understand you. Gary, let’s go to the next person -- caller and then we will circle back and try Thomas again.

Okay. The next question is from Jared Shojaian with Wolfe Research. Please go ahead.

Hi. Good afternoon, everyone. Thanks for taking my question. So I imagine the slot performance is meaningfully outperforming the tables right now. I know the data is not explicitly broken out that way. But I would also imagine that’s probably affecting the mix on the margin side just given the slots are significantly higher margin. Is that having a meaningful effect on the mix right now on your margins or would you say no?

Not really, I mean, while we have fewer opportunities on table game side, because capacity is limited there to four seats at the 21 table and fewer people at a crafts table and baccarat table. The average bets are increased on the table gaming side and so yielding the table games business just, as well as we are yielding the slot business. Clearly, 80% of our revenue as a company comes through slots and so as they perform better, obviously, has a bigger impact on the overall margin of the business. There’s no question. But table games is performing and it’s not dragging down the overall margin improvement.

Got it. Thank you. And then, just switching gears here, just given what we have seen with valuations in the sports and iGaming names, can you just talk about how you are thinking about your FanDuel stake over the longer term? Is that something you would ever consider monetizing or do you believe there is strategic importance to holding onto it?

I mean to-date we are very happy with, that partnership, that equity ownership that we have, obviously, it is worth tremendous amount of value to the company. They have been a great partner. They have got great tech. They are a leader in the business whether they are number one or number two in almost every state they operate in. So, I think, right now, the partnership is great. Longer term, three years to five years from now, where that goes, I couldn’t really tell you. We are not focused on that. We are focused on the next several years and today it’s a great partnership and we are happy with the ownership interest we have.

All right. Thank you very much.

The next question is from Chad Beynon with Macquarie. Please go ahead.

Hi. Good afternoon. Thanks for taking my question. Obviously, extremely early given that, I think, it opens in the next two days or three days, Circa that is. But just in terms of what you are hearing with anyone towards the property or I guess what the final product is and kind of who that caters to and how that marketing evolves. Has anything really changed just in terms of how you view, how Circa fits into the Downtown market? I believe most believe that it is a different product and it won’t really take away from you and some of your competitors, but just wanted to get an update on that if you have any views there?

Yeah. I would agree. I think it is very much a differentiated product. It is a higher end product than what is down there today. Generally speaking, with the exception of the Nugget, which is also a high end product and I think it’s going to draw a lot of visitors to the Downtown area to visit it, to look at it, obviously, we have a property a block away and a property directly -- two properties directly behind it. So we will take advantage of and be the beneficiary of all the foot traffic going in and around there. Remember, the lion’s share of our Downtown business is driven by Hawaiian customers, mainly out of the Island of Hawaii and so all the traffic that comes down to visit Circa will be incremental. I think it’s going to -- I think it is great for the Downtown market. I think the investment overall is great, the product is going to be great and just looking forward to having it open later this week.

Great. Thanks, Keith. And then, Josh, on the CapEx, I believe you said, $25 million for the fourth quarter and we are not expecting much in terms of slot CapEx in that budget. But how are you thinking about I guess the maintenance CapEx and the mix between gaming product and then other items around your properties going forward? Do you believe that there will be as big of a need or budget for updating gaming products?

Look, I think that, folks are playing slot machines and I think that we have to evaluate and make sure that we have the best slot product out on the floor at all times. And so our budgets will kind of reflect that. I don’t think it means that it’s any larger than it has been historically. But I am not -- I don’t think we know enough at this point to say if it will be lower or not. I think coming into next year we would largely think. As of today that it will be about the same, but the reality is, is I think that when you had a floor that had much more capacity than you are utilizing today and getting the results that you are getting today, you really have to rethink how the floor is laid out and how many per slot machines you have out on the floor as a first step. And then, secondly, develop how you are going to reinvest in slots going forward and other types of gaming technology. But -- and it could be the same because you are just trying to make sure you have the same product -- improved product, which is fewer kind of overall units out there. And I think that’s the process we are going through now to try to figure out and understand exactly how we want to reinvest in a quote-unquote smaller footprint.

Okay. Thank you very much.

Yes, Chad.

The next question is from John DeCree with Union Gaming. Please go ahead.

Hi, everyone. Thanks for taking my questions.

Hi.

I think a good follow-up to your last comments Josh is a lot of markets are still operating with pretty significant capacity constraints. I was wondering if you could comment, sorry, if I missed it if you already have about what you are seeing during peak periods. Do you feel capacity constrained at any point and I am not sure we know when some of those capacity constraints might loosen, but could you benefit during certain times and having a little bit more capacity back?

So this is this is Keith, John. I would say, for the majority of our properties today during peak times, we are not really capacity constrained. We have a few properties that have lower machine counts, and therefore, think of Delta Downs with 1,600 units and they are generally at 50%-ish restriction. They could use a few more during peak periods, but for the most part, no. We are not bumping into ceilings with respect to capacity. So now remember we have significant reduced visitation throughout our buildings. So we haven’t seen that problem through the opening phases.

Got it. That’s helpful. And if I could ask one more kind of do $180 million here.

Yeah.

In kind of assessing I think an earlier question about the potential risk of additional closures, like we are seeing some reaction in Illinois. If we saw reduced revenue going forward for whatever reason, closures or the winter gets difficult. How much slack is in the system, realizing you have already cut a substantial amount of costs? And if you saw a notable revenue decline, is there some flex and there’s some variable costs outside of gaming taxes that you could tweak, if it was a sustainable period of lower revenue than what you are seeing today?

Yeah. It’s hard to -- it’s a hard question to answer in a very theoretical environment. It depends on how much and where those slot focused or game focused, and which customers are not showing up. Is it the higher end customers? Is it the unrated customer? So it’s a fairly theoretical question and there’s probably half a dozen different ways to answer it, depending on where that revenue decline is coming from. How much can we continue to reduce some of the nongaming amenities that we have through our customer reduction. So, tough question, I don’t think I can provide a very intelligent answer to you.

The one thing I would add, too, though, John, is like, one thing that the crisis has given us insight into is there are very few fixed expenses in our business. And so we have a lot of flexibility to adapt. And to Keith’s point, kind of where you adapt depends on where you are seeing weakness or what’s happening to your business from a revenue perspective. But the whole industry has shown an ability to adapt to going from a significant amount of revenue to very little revenue quite quickly. So I think everything in between becomes just kind of iterations of that.

Got that. That’s helpful. Tough question. I think you guys answered it fairly well. Thank you.

Yeah.

The next question is from Joe Stauff with Susquehanna. Please go ahead.

Good afternoon. Just two follow-ups if I can, please. So, Josh, I don’t know if you can answer this or whatever you can give us. But what level of 2019 traffic or normalized traffic, however, you want to define it, would require or say a notable change in marketing spending?

I don’t think that we would think about it that way. I think what -- the way we are kind of marketing to our customer today is based on kind of ensuring we have the loyalty of our -- quite honestly our best customers and then making sure that we are reinvesting at the right levels for the different tiers of customers that we choose to market to and want in the building from a profitability perspective. I think to the extent that, we have a range of outcomes today. Obviously, customers that perhaps were previously getting reinvestment that aren’t today because of their worth and then you have guys who are worth more who are getting slightly potentially more investment than they were historically. But I think the result is, is not so much driven by kind of trying to drive this. Historically we did try to drive based on volume through the building and I think that’s what’s different at least in our approach and I am sensing of our peers as well. We are not trying to just drive volume for volume sake. We were able to see a lot better when the business was closed perhaps better than we ever had who was profitable and who wasn’t profitable and all the incremental costs that associated with customers that may have been toward the lower end that you thought had some modest profitability associated with them and actually they weren’t that profitable. And so, I am not so sure it’s really dependent on kind of a return of some level of volume of customer quite honestly. I don’t know if that helps, Joe.

No. It does certainly. I mean, it sounds like it’s very data driven at this point and to the extent the world gets better, vaccine, et cetera, whatever, then maybe at that point there would be more increased marketing spend if you are after the more casual customers, is that fair?

Well, I wouldn’t read that into it.

Yeah.

I think that this model that we have created that it’s getting more efficient and more profitable that today is drawing increased EBITDA vis-à-vis last year is a model we are comfortable with. And as this COVID pandemic fades hopefully sooner than later as a vaccine comes out and takes hold hopefully sooner than later and the business starts to return to normal. I mentioned in my prepared comments we are not prepared to return to normal. We are committed to sticking with this refined business model. So right now the model is creating profits in excess of last year’s profits and we are pretty pleased with that.

Understood. One follow-up if I can. Just on the digital side. So it sounds as though you will want your real money proprietary offering sometime I guess in the first quarter or early next year whenever that is. And you are using FanDuel’s tech stack, if I am correct. And what is -- what are the economics of that, do you -- is that where you pay them effectively a B2B fee for using that tech stack. How are those economics arranged?

Yeah. So you are right we are using their tech stack and we are actually asking them to run it for us, because they have the expertise to do this where we haven’t gotten into that business yet. And so we will get a revenue share out of that arrangement that will continue to kind of that $8 million to $10 million that I talked about for 2020, we will obviously continue to grow, we expect it to be much larger next year.

Thanks very much.

We have time for one more question and that question is from Thomas Allen with Morgan Stanley. Please go ahead.

Hi. Good afternoon. So the $8 to $10 million that you guys are generating this year on sports betting, can you help us just unpack that between the retail sports books and the market access? And then this is a follow-up to that question, there are certain retail sports books like in Mississippi that you opened more than two years ago and then some newer sports books. Can you just like help us think about what you are seeing those doing to kind of benefit the broader properties? And if there are different dynamics that you are seeing in more mature sports books versus earlier stage sports books would be helpful? Thank you.

Sure. Thomas, I will take the first one. The $8 million to $10 million number that Keith spoke about is purely revenue share coming from FanDuel. It doesn’t include the retail component. Retail component is included in individual property-level results. The online piece is separated out and that’s what he was -- that’s what Keith was alluding to, kind of the online and digital revenue share that we receive from FanDuel for their mobile sports, for their online real money gaming site in Pennsylvania. That’s a business that’s building throughout this year, right? So it’s not the run rate of the business. So that’s the first part of your question. Keith, do you want to take the second part?

Look, in terms of kind of as the sports books mature, what’s really helpful to us is, FanDuel being a leader in the market, whether they are one or two, depending on the state you are talking about and the breadth of kind of sports offerings or the menu type of bets that you can make. And having one of the broadest menus and some of the best odds is what attracts players. I think over time we have seen the business continue to grow, let’s say, in the Mississippi and attract more customers as the customers become a little more sophisticated about sports betting overall in a place where maybe it hadn’t existed previously. They realize the quality of the app that FanDuel has, the quality of the offering, the ease of use, as well as just the number of different types of bets that you can make. I think that has helped and so as the customer becomes more sophisticated, we see an increasing number of customers coming to participate.

Got it. Helpful. Thank you.

Yeah.

This concludes our question-and-answer session. I would like to turn the conference back over to Josh Hirsberg for any closing remarks.

Thanks, Gary. And thanks to all of you for joining today and if you have any follow-up questions or would like to discuss further, please feel free to reach out to the company. Thank you very much. Have a good rest of your day.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.