Boyd Gaming Corporation (NYSE: BYD) — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Financial statements are unaudited. Boyd operated 28 wholly owned gaming properties across 10 states; 27 were open at quarter-end. Eastside Cannery in Las Vegas remained closed due to market demand. Boyd also managed Sky River Casino in California, which opened August 15, 2022.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $877.3M | $843.1M | $2,632.5M | $2,490.0M |
| Operating income | $237.5M | $223.1M | $733.6M | $683.2M |
| Net income | $157.0M | $138.2M | $466.7M | $354.1M |
| Diluted EPS | $1.46 | $1.21 | $4.24 | $3.10 |
| Adjusted EBITDAR | $337.7M | $340.7M | $1,030.4M | $1,018.7M |
- Revenue increased 4.1% in Q3 and 5.7% for the nine-month period. Q3 gaming revenue fell 0.9% to $668.0M, while other revenue rose 49.5% to $94.8M, reflecting online gaming activity and the new Sky River management fee. Nine-month gaming revenue was essentially flat year over year.
- Operating income rose 6.4% in Q3 and 7.4% year to date. Approximate GAAP operating margin was 27.1% in Q3 2022 versus 26.5% in Q3 2021, and 27.9% for the first nine months versus 27.4%. Net income growth also benefited from lower interest expense.
- Q3 Adjusted EBITDAR declined about 0.9% despite revenue growth. For the nine months, it increased about 1.2%. Segment trends differed: Q3 Adjusted EBITDAR declined in Las Vegas Locals, while Downtown Las Vegas and Midwest & South increased.
- Nine-month operating cash flow was $728.0M, down from $777.7M. Capital expenditures were $173.0M, compared with $139.2M. Cash, cash equivalents and restricted cash totaled $269.5M at September 30, 2022, down from $357.1M at year-end 2021.
- At September 30, total debt principal was $2.91B, versus $3.07B at December 31, 2021; long-term debt, net of current maturities and issuance costs, was $2.83B. Cash and cash equivalents were $252.3M. The company reported a $136.5M working-capital deficit and $1.285B of remaining contractual Credit Facility availability. It was in compliance with debt covenants.
- The new Credit Agreement includes a $1.45B revolving facility and an $880M Term A Loan, both with five-year maturities. The Credit Facility’s blended rate was 4.2% at quarter-end. Variable-rate borrowings were approximately 34.7% of total debt; a 100-basis-point rate change would affect annual interest costs by approximately $10.1M.
Changes, outlook and risks
- Management attributed year-to-date revenue growth partly to continued recovery from pandemic-related restrictions, reopened amenities, returning destination and group travel, online gaming growth and a disciplined focus on core customers and costs. Q3 gaming revenue was pressured by lower slot handle and weaker unrated play; management noted that July 2021 had benefited from customer stimulus payments.
- Q3 operating income included a $12.6M gain from settling the Hurricane Laura business-interruption insurance claim and a $5.6M non-cash trademark impairment charge. The nine-month period also included a $12.8M gain on asset dispositions. Nine-month 2021 results included a $10.7M employee bonus charge and $65.5M of debt extinguishment/modification losses, compared with $19.8M in 2022.
- Boyd redeemed the remaining $300M of 8.625% senior notes in June 2022. Management cited lower debt balances and interest rates as contributors to reduced interest expense. The company repurchased 7.6M shares for $434.8M in the first nine months and declared quarterly dividends of $0.15 per share; $345.8M remained authorized for repurchases at quarter-end.
- Management said available cash, operating cash flow and revolving-credit capacity were expected to fund operations and liquidity needs for the next 12 months. Estimated annual maintenance capital spending is $225M–$245M; the Treasure Chest land-based facility and Fremont expansion are expected to require an additional $120M through 2023. The filing provides no specific earnings or revenue guidance.
- On November 1, 2022, after quarter-end, Boyd completed its $170.1M cash acquisition of Pala Interactive, funded with revolving-credit borrowings. Sky River’s opening and management agreement also expanded online-related and management-fee activity.
- Key risks include uncertain consumer demand and potential future pandemic effects, inflation and energy costs, competition (including online gaming), higher interest rates on variable-rate debt, covenant and refinancing requirements, regulatory approvals, and potential further asset impairments if performance weakens or discount rates rise. Legal proceedings were described as ordinary-course matters that management did not expect to have a material adverse effect.
Important facts for investors to verify
- Whether gaming demand and property-level margins stabilize, particularly in Las Vegas Locals and Midwest & South, and how online gaming and Sky River contribute to profitable growth.
- Cash generation relative to capital spending, share repurchases, dividends and the Pala acquisition; also monitor working-capital needs and revolving-credit usage.
- Debt cost and covenant headroom as interest rates change, including the effect of the variable-rate portion of borrowings.
- Progress, spending and expected returns on the Treasure Chest and Fremont projects, and whether the stated capital expenditure plans change.
- Assumptions underlying goodwill and intangible-asset impairment reviews, and any further effects from demand weakness or higher discount rates.