Joe Greff: No, I was going to say on that point, Keith. So just we look at isolating for the impact of a competitor in Durango, you’re saying that the impact worse more pronounced in March versus February and January. Is that fair?
Keith Smith: Yes.
Joe Greff: Okay. And what are you seeing in so far this quarter, is it consistent? Is it worse?
Keith Smith: What we’re seeing within our numbers, I would say it’s fairly consistent with what we saw in February and March. We’re not seeing an acceleration of the softness, and we’re not seeing the reversal of the softness.
Joe Greff: Got it. And then – and Josh, we’re going to take something that I think mean that…
Josh Hirsberg: To add a couple of things. So first of all, I think in Keith’s remarks, he reiterated kind of our expectation that the impact would be $20 million to $25 million this year. So I think we’re not really changed – we are not changing our view with respect to that expectation. I think the other thing to understand is while we are focused on the newest competitor in the marketplace, what we are seeing is maybe an impact from other smaller competitors that are more responsive to it than we are. And so you can focus on Durango as the newest operator in the marketplace. They have a great facility, new facility everybody knows how well it’s doing. But there are other competitors in the marketplace other than ourselves and our largest competitor here that are reacting differently to that new competition than we are.
And what we’re trying to say is those are the folks that are having an impact on our business, and Durango is maybe a lesser of an impact, just so you can kind of understand the dynamics of the marketplace.
Joe Greff: Got it. And then, Keith, one of your final prepared comments, you talked about seeing growth in your core players. Can you talk about that in some greater detail, is a way to interpret your comments that it’s growing, but at a decelerating pace is still positive? Or is it growth? And is it slightly accelerating? And if you can share us what exactly you mean by that growth in core players or from the core players…
Keith Smith: So we talked about growth in core play, it is revenue from that core group. And the revenue has and continues to grow from that core group. I don’t have the statistics in front of me to tell you whether it’s accelerating or decelerating. My sense is it’s relatively stable in terms of the growth rate. Josh may have something to add. But the revenue from that group of customers on a year-over-year basis is continuing to grow. And Josh, you have some…
Josh Hirsberg: I was just going to say you have to remember, part of what we’re talking about is a comparison to record results last year. So when you start thinking about what is happening with core customer growth, you have to do it in the context of putting that on a relative basis. So excluding January, core customer growth – the core customers grew in both February and March. And so that’s what’s skewing these results as well as that comparison to prior record year results. It was the – and let me just add a little bit more color around that. If you look at Las Vegas Locals, our performance last year, as we mentioned in our remarks, were record results every month was a record but 75% of the year-over-year performance gain that happened last year, all happened in January.
So you have to kind of be sure you kind of keep all this in perspective as you think about what’s happening and as we move through the quarter because a lot of it has to do with just a comparison related issue and then a soft market where we’ve had competitive – a new competitor and incremental competition responding to that new competitor.
Joe Greff: Thanks, guys.
David Strow: The next question comes from Carlo Santarelli of Deutsche Bank. Carlo, please go ahead.
Carlo Santarelli: Afternoon, Keith. Afternoon, Josh. Guys, I think mine involves the fourth quarter a little bit as well. But if I look at Midwest and South, historically speaking, 1Q tended to be a larger period than 4Q. And I know with year-end, sometimes there’s accruals that true up in your favor and whatnot. And the fourth quarter margin was surprisingly stronger than expected, if I recall. This one a little bit weaker than expected. Was there anything onetime in there that maybe caused cost to look a little bit maybe overstated for the period? And should we expect a similar kind of seasonal run rate on the expense side moving forward this year?
Josh Hirsberg: Yes. Thanks, Carlo. I think really what you have to remember when you look at the quarter for the Midwest and South, it’s all about weather, and it’s all about January. I mean January was essentially wiped out because of the weather influence. So if you really want to kind of see what was going on, I think the easiest way to do that, and you obviously can’t do it, but we can. We can look at February and March of this year. I understand it’s two thirds of the quarter, but January was essentially affected significantly by weather. And you look at February and March of last year and say what was going on. Margins in February and March of this year were 39%, margins last year in February and March were 40%. So I don’t look at that, quite honestly, as any really change in direction of expenses or anything else around the Midwest and South, other than really taking into account what we talked about all last year around property insurance and labor-related costs that are going to kind of bleed through the first half and maybe a little bit into the third quarter of this year, especially when you’re looking at the Midwest and South.
So hopefully, that helps kind of – I mean all of the declines that happened in the Midwest and South with respect to revenues happened in January, February or March grew.
Carlo Santarelli: Understood on that front. And then, I guess, along those lines, Josh, from an EBITDA margin perspective, are you saying margins were up in February and March as well?
Josh Hirsberg: I’m saying February and March, when you look at February and March, margins were on a combined basis, 39%. When you look at February and March versus last year on a combined basis, again, just trying to get the weather out of the conversation, they were about 40%. If you look at them on an individual amount, they were a little bit less, but not materially less. And that’s reflective of what the expenses that we’ve talked about last year, they still have to kind of work their way through the system, if you will, labor, property taxes.
Carlo Santarelli: Got it. And when you anniversary the bigger stuff, i.e., when on a static kind of revenue environment should we be looking for kind of margins in that segment to flatten out?
Josh Hirsberg: Yes. So the biggest impact has come from the introduction of the minimum wage, and that was rolled out throughout – it began in, if I remember correctly, in the Midwest and South, late 2022 and the last vestiges of the increases happened somewhere around midyear of last year. Around midyear of last year is also when most of the increases in Las Vegas also went into effect around the minimum wage. So you can – first half of this year will mainly get most of the increases in labor through both Midwest and South and LVL.
Keith Smith: Said another way, Carlo, second half of the year, we should be on a equal footing…
Carlo Santarelli: Yeah. Okay. Thank you very much, guys. Appreciate it.
David Strow: Our next question comes from Barry Jonas of Truist Securities. Barry, please go ahead. Barry, please go ahead.
Barry Jonas: Hi, sorry. Can you hear me now?
Keith Smith: Yes. Yes, we can…
Barry Jonas: So just following up on the last question. I just want to make sure I’m clear. In terms of the negative flow-through that you saw this quarter in each of the land-based segments, is your expectation that there’s another quarter of sort of constrained flow through when you should sort of get back to more normalized in the second half of the year, obviously, assuming sort of a normal top line environment?
Josh Hirsberg: Yes. So look, I think we were pretty – at least I thought we were pretty transparent when we talked about expenses in 2023. So I’ll try to remember what we communicated then. But there were around – obviously, we had labor pressures that, as Keith succinctly described recently just now, we’ll kind of anniversary those in the second half of this year. Secondly, were property taxes and property insurance. Those largely went up in middle of the year and to a lesser, discrete – smaller degree in September. So labor, we’re going to largely get through by the second half of the year. Property taxes and property insurance, we’re assuming not the same level of increases. So that should be kind of a third quarter kind of event also. And then we should be on a level playing field. I hope – hopefully, that helps, Barry.
Barry Jonas: Yes, sorry. Thank you for that clarification. And then just one other question talk about locals and what you’re seeing there. As you think about the new competition impacting your local segment. I’m just curious, is it more specific to any properties or fairly spaced out across all the locals properties in your portfolio?
Josh Hirsberg: I’ll take it real quick, Barry. And if Keith, do you want to add anything, jump in. But it’s primarily – it’s concentrated in a couple of properties. I think one of the benefits we obviously have is we have some property – we have – we own more than one property in the Las Vegas locals market. We can see markets that – properties that are being impacted by competition. And we can see those that aren’t being impacted by competition. That helps us identify what is going on in the market more broadly and then what is the effect of competition. That’s how we can kind of quantify the one third, one third, one third, numbers that we stated in our comments. So it is a subset of our properties that are being impacted by competition.
Barry Jonas: Just geographically closer to the new property? Or I assume that’s the common denominator?
Josh Hirsberg: No. Look, I think we’ve – the new competitor that launched is having an impact on – a direct impact on our properties, but at a lesser extent than we had predicted. It is the ripple effect or the trickle-down effect that happens in the market when everybody starts then to lose customers and compete for those customers. I said in answer to an earlier question, what we’re really seeing is some heightened competition in properties directly around Gold Coast and Orleans that have started to increase, and frankly, it goes back to the end of Q4 when they enhance their kind of level of spend and have kept it at those levels. And so I wouldn’t think of it as really the new competitor. Durango, I would think of it as just there’s a little bit of that, and there are just others that are competing more aggressively or surrounding some of our other properties.
Barry Jonas: Great. Thank you for all the clarification and color.
David Strow: Our next question comes from Dan Politzer of Wells Fargo. Dan, please go ahead.
Dan Politzer: Hey, good afternoon. Josh, you talked about February and March and juxtaposing that versus January. Have you seen that strength or the relative strength to continue into April? Maybe as comparisons get easier? And have the margins kind of still tracked along that 1% lower level that you called out in February and March?
Josh Hirsberg: Yes. Let me – haven’t really looked at April margins, to be honest. But look, I know that the trends with respect to the customers and the performance of the assets going into April is consistent with what we’ve made in terms of comments around February and March. So I feel good about kind of answering that question. And I would say that just doing some math real quick, which I am really good at. Yes. So April is about a percentage point behind April of last year. So it seems like it’s generally kind of headed in the right direct same direction as February and March at this point…
Dan Politzer: Got it. Thanks. And then just to make sure we’re on the same page on the locals. So the $20 million to $25 million that just is basically a little – that’s Durango being a little less worse, but also it’s more – the knock-on effect is worse, but that doesn’t include any of the market softness impact that you’ve seen thus far this year. Is that fair?
Josh Hirsberg: That is fair. As I described in my comments, it’s a third, third, third. And so the $20 million to $25 million is one of the thirds, the market softness is the other third. And yes, the comparison to last year, which was just a very, very strong first quarter is the other third. So yes, they’re all separate and distinct.
