Boyd Gaming Corporation — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Boyd operated 24 wholly owned gaming properties across seven states. Comparisons are to Q1 2017; prior-period revenue figures were retrospectively adjusted for the new revenue-recognition standard.
Financial performance
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Total revenue | $606.1 million | $610.1 million |
| Operating income | $94.8 million | $94.8 million |
| Net income | $41.4 million | $35.5 million |
| Diluted EPS | $0.36 | $0.31 |
| Adjusted EBITDA | $160.5 million | $155.8 million |
| Operating cash flow | $118.5 million | $117.6 million |
| Capital expenditures | $25.9 million | $80.0 million |
- Revenue fell 0.6%, primarily reflecting Midwest and South weakness. Gaming revenue was $440.5 million; food and beverage $85.4 million; rooms $47.9 million; and other revenue $32.3 million.
- Departmental margins improved: gaming 57.1% versus 56.8%; food and beverage 3.2% versus 2.6%; rooms 56.4% versus 54.5%; and other 35.6% versus 34.6%.
- Net income increased mainly because the income-tax provision declined to $9.9 million from $16.3 million. The effective tax rate fell to 19.3% from 31.7%, principally due to the Tax Act’s reduction of the federal corporate rate.
- Cash and cash equivalents were $179.7 million; restricted cash was $25.8 million. Working capital was negative $80.1 million. Operating cash flow was nearly flat year over year; lower investing outflows primarily reflected prior-year land purchases.
- Debt principal totaled $3.04 billion at quarter-end, down $84.9 million from December 31, 2017. The company reported $595.4 million of remaining contractual availability under its revolving credit commitment and stated it was in compliance with debt covenants.
Changes and operating trends
- Las Vegas Locals revenue was essentially flat, while segment Adjusted EBITDA rose 7.7% to $71.0 million, supported by marketing refinements, reinvestment and regional economic conditions.
- Downtown Las Vegas revenue declined slightly and Adjusted EBITDA fell 3.6% to $13.2 million, reflecting higher Hawaiian charter fuel costs and March roadwork that restricted downtown access.
- Midwest and South revenue fell 1.1%; segment Adjusted EBITDA remained $94.3 million. Management cited severe winter weather and a new tribal casino in South Bend, Indiana, competing with Blue Chip.
- Corporate expense increased to $25.9 million from $20.8 million, largely due to a $5.2 million increase in share-based compensation expense.
- Boyd adopted the revenue standard retrospectively. It changed the classification and allocation of certain promotional, loyalty-program and gaming-related amounts; the company said the effect on annual results was not expected to be material. Cash-flow presentation also changed to include restricted cash.
Outlook, risks and contingencies
- No specific earnings or revenue guidance is provided. Management estimated annual maintenance and refurbishment capital needs of $140 million to $160 million and said cash flows plus credit-facility capacity should meet needs for the next 12 months, subject to covenants and working-capital requirements.
- Pending acquisitions include the Penn National property operations for $575.0 million, Valley Forge for $280.5 million, and Lattner for $100.0 million, each subject to adjustments and closing conditions. The first two were expected to close in the second half of 2018; Lattner was expected to close by the end of Q2. Penn National’s transaction also depended on its proposed Pinnacle acquisition.
- The company continued planning a Wilton Rancheria casino project. It had funded $35.1 million for the site, expected reimbursement when the Tribe obtains permanent financing, and anticipated an 18-to-24-month construction period once work begins.
- Approximately 50.6% of long-term debt was variable rate. Management estimated a 100-basis-point rate increase would raise annual interest costs by about $15.4 million. The weighted-average interest rate on total debt was 5.3%, versus 4.8% a year earlier.
- Key risks include gaming competition and regulation, acquisition approval, financing and integration, project costs and execution, severe weather, economic conditions, and refinancing risk. Management said ordinary-course legal matters were not expected to have a material adverse effect; it reported no material change in previously disclosed risk factors.
- Boyd repurchased 559,089 shares for $19.8 million during the quarter and declared a $0.05-per-share dividend. The repurchase program had $40.3 million remaining at March 31.
Most important facts for investors to verify
- Whether Midwest and South revenue weakness persists, particularly at Blue Chip amid the new South Bend competitor, and how weather normalizes.
- Closing status, final consideration, financing and integration plans for the three announced acquisitions, including regulatory approvals and Penn National’s transaction condition.
- Debt reduction, available credit capacity, covenant headroom and exposure to higher variable interest rates as acquisition spending and capital needs develop.
- Whether operating cash flow can support the stated $140–$160 million annual maintenance-capital range, acquisitions, dividends and repurchases while managing the working-capital deficit.
- Comparability of reported revenue and expenses after retrospective adoption of the revenue standard, and the extent to which lower taxes—not operating growth—drove higher net income.