Boyd Gaming Corporation — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. Unaudited results; dollar amounts below are in millions unless noted. Boyd operated 24 wholly owned gaming properties across seven states.
Financial performance
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Net revenue | $587.7 | $531.9 | $1,792.9 | $1,629.2 |
| Operating income | $78.7 | $67.9 | $262.9 | $230.7 |
| Continuing-operations income, net | $23.0 | $161.9 | $85.7 | $194.7 |
| Net income | $23.0 | $342.6 | $107.0 | $405.8 |
| Adjusted EBITDA (non-GAAP) | $140.3 | $121.9 | $447.2 | $397.5 |
| Operating cash flow | Not presented for quarter | Not presented for quarter | $323.2 | $256.9 |
- Q3 net revenue increased 10.5% and operating income increased 15.8%; nine-month growth was 10.0% and 14.0%, respectively. Operating margin was approximately 13.4% in Q3 and 14.7% year to date, versus 12.8% and 14.2% in the comparable periods.
- Growth was driven primarily by the Aliante and Cannery acquisitions. Las Vegas Locals revenue rose 39.2% in Q3 and adjusted EBITDA rose 55.1%; Midwest and South revenue declined 1.5% and adjusted EBITDA declined 0.6% in Q3.
- Q3 gaming revenue was $487.4; food and beverage $85.6; rooms $48.1; and other $31.6. Gaming represented about 75% of gross revenue. Q3 gaming margin improved to 52.9% from 51.1%; room margin declined to 71.9% from 74.0%.
- Cash and cash equivalents were $158.8 at quarter-end, down from $193.9 at year-end 2016; restricted cash was $26.7. Working capital deficit was $104.4, versus $57.6 at year-end.
- Debt principal was $3,118.1, down $165.0 from year-end; carrying value was $3,069.6. The credit facility had $591.4 of remaining availability after $12.9 allocated to letters of credit. Management reported covenant compliance.
Material changes and unusual items
- Net income fell sharply versus 2016, chiefly because the prior-year period included a $190.4 tax valuation-allowance release and substantial Borgata discontinued-operation income, including an after-tax sale gain of approximately $181.7 in Q3 2016. These items make headline earnings comparisons poorly representative of underlying operating trends.
- 2017 nine-month discontinued operations included $36.2 of Borgata property-tax recovery proceeds before tax ($21.4 net of tax). Boyd sold its Borgata interest in August 2016.
- Interest expense declined: nine-month net interest expense was $128.3 versus $167.6, reflecting lower average borrowings and interest rates. The 2016 comparison also included $42.4 of debt-extinguishment and modification charges; 2017 charges were $0.9.
- Hurricane Harvey disrupted Delta Downs and, to a lesser extent, other Louisiana and Mississippi properties for several weeks. Evangeline Downs also faced localized economic weakness. Midwest and South slot handle and table-game drop declined year over year.
- Corporate expense increased, which management attributed in part to establishing centralized back-office support functions. Nine-month capital expenditures were $161.3; Boyd also advanced $35.1 for land intended for the Wilton Rancheria casino.
Liquidity, outlook, and risks
- Management expects operating cash flow and credit-facility availability to cover projected operating needs and maintenance capital expenditures for at least the next 12 months, subject to credit-facility covenants and working-capital needs.
- Estimated 2017 total capital spending was $235–$255, including expected ongoing maintenance and refurbishment spending of $140–$160. These are spending estimates, not earnings guidance.
- Boyd expected to begin Wilton Rancheria casino construction in mid-2018, with an estimated 18–24-month construction period, following approval of a tribal-state gaming compact. Project timing, costs, approvals, and returns remain uncertain.
- Approximately 51.9% of long-term debt was variable-rate. Management estimated that a 100-basis-point rate change would alter annual interest costs by about $16.2.
- Other stated risks include gaming competition and regulation, acquisition integration, construction delays or overruns, weather and natural disasters, refinancing availability, economic weakness, and the ability to realize tax benefits. The company reported no material change to previously disclosed risk factors and no legal proceedings expected to have a material adverse effect.
- The company reinstated its quarterly dividend at $0.05 per share and repurchased approximately 870,000 shares during the first nine months, spending $22.2; $69.9 remained under the repurchase authorization at September 30.
- Revenue recognition guidance effective January 1, 2018 was expected to change revenue presentation, including reducing reported gaming revenue by an amount equivalent to promotional allowances; Boyd anticipated full retrospective adoption, with effects still under assessment.
Most important facts to verify
- Separate acquisition-driven growth from performance at established properties, particularly the weakness in Midwest and South markets.
- Normalize earnings comparisons for the 2016 tax benefit, Borgata sale and discontinued operations, and debt-refinancing charges.
- Review debt maturities, variable-rate exposure, covenant headroom, and whether available credit remains adequate as capital spending proceeds.
- Track Wilton Rancheria approvals, construction timing and cost, and the expected funding and return profile.
- Confirm the eventual quantified impact and presentation changes from adoption of the new revenue standard.