Boyd Gaming Corporation — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; unaudited. Boyd operated 24 wholly owned gaming properties across seven states, reported in Las Vegas Locals, Downtown Las Vegas, and Midwest and South segments. Prior-year figures are presented with Borgata as discontinued operations.
Financial performance
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Net revenue | $605.3 million | $552.4 million | +9.6% |
| Operating income | $94.9 million | $82.3 million | +15.3% |
| Adjusted EBITDA | $155.8 million | $137.7 million | +13.2% |
| Income from continuing operations, net of tax | $35.1 million | $21.6 million | +$13.6 million |
| Income from discontinued operations, net of tax | $0.4 million | $11.6 million | -$11.3 million |
| Net income | $35.5 million | $33.2 million | +$2.3 million |
| Diluted EPS | $0.31 | $0.29 | +$0.02 |
| Cash from operations | $112.0 million | $80.4 million | +$31.7 million |
Gaming revenue was $500.0 million, food and beverage $87.4 million, rooms $47.3 million, and other revenue $34.0 million. Gross revenue was $668.8 million, less $63.5 million in promotional allowances. Operating income margin was approximately 15.7% versus 14.9% in Q1 2016. Gaming margin improved to 53.7% from 51.7%; food and beverage and room margins declined to 43.4% from 45.6% and 72.3% from 74.9%, respectively.
Capital expenditures were $80.0 million, with a further $35.1 million advance for the Wilton Rancheria development agreement. Investing cash outflow was $115.1 million; financing cash outflow was $24.2 million. Cash and cash equivalents ended the quarter at $167.0 million, down from $193.9 million; restricted cash was $22.0 million. Working capital deficit was $76.4 million.
At March 31, total debt principal was $3.265 billion (debt net of discounts and fees: $3.212 billion). Long-term debt, net of current maturities and issuance costs, was $3.188 billion. The company reported $482.2 million of remaining credit-facility availability after letters of credit. Management said it expected cash, operating cash flow, and available credit to cover projected operating and maintenance needs for at least 12 months. The company believed it was in compliance with debt covenants.
Material changes and business drivers
- Revenue and operating income growth primarily reflected the Aliante and Cannery properties acquired in 2016, along with ongoing cost controls. These acquisitions drove Las Vegas Locals revenue up 38.8% and Adjusted EBITDA up 49.6%.
- Midwest and South revenue fell 3.1% and Adjusted EBITDA fell 1.9%, amid soft markets. Slot handle declined 3.2% and table-game drop declined 5.0%; management highlighted weakness at Evangeline Downs, Amelia Belle, and Kansas Star.
- Interest expense, net, decreased $9.4 million to $43.2 million. Management attributed the reduction to lower average debt and a lower weighted-average interest rate, following prior debt redemptions, refinancing, and repayment of Peninsula debt. Weighted-average rates were 4.8% versus 5.6%.
- In March, Boyd refinanced its Term B-1 and Term B-2 loans with $1.265 billion of Refinancing Term B loans, due September 2023. The company also purchased the land under The Orleans for $43.0 million after exercising its purchase option.
- Boyd sold its 50% Borgata interest in August 2016 for $900 million gross consideration and approximately $589 million in initial net cash proceeds. Q1 2017 discontinued-operations income included $0.6 million of property-tax recovery income. Boyd retained a right to its share of future Borgata settlement payments; related income is to be recognized when received.
Outlook, risks, and unusual items
- Management estimated 2017 maintenance and refurbishment capital needs of $140–$160 million and total 2017 capital spending of $235–$255 million, including development and land spending.
- Boyd funded $35.1 million for land intended for the Wilton Rancheria casino; the land was placed in trust for the Tribe in February 2017. Project completion, cost, approvals, financing, and returns remain uncertain.
- After quarter-end, the board reaffirmed a share-repurchase authorization with approximately $92 million remaining and reinstated a quarterly dividend of $0.05 per share, payable July 15, 2017 to holders of record June 15, 2017.
- Adoption of share-based compensation accounting guidance increased retained earnings by $15.8 million as a cumulative accounting change. It did not represent operating-period earnings.
- Acquisition purchase-price allocations remained preliminary; management expected to complete valuations by Q3 2017 and noted final fair values could differ materially from recorded estimates.
- Management cited gaming competition and regulation, economic and market weakness, acquisition integration, development and construction risks, debt refinancing, interest rates, and tax matters among factors that could affect results. A 100-basis-point change in variable rates was estimated to change annual interest cost by about $17.6 million. Management considered ordinary-course legal matters not likely to have a material adverse effect; no material risk-factor changes were reported.
- The company reported effective disclosure controls and procedures and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- How much reported growth and EBITDA improvement came from the newly acquired properties versus underlying comparable-property performance.
- Whether Midwest and South market weakness persists and whether operating cost controls can protect segment margins.
- Cash generation, capital spending, and liquidity against the stated $235–$255 million full-year capital plan and the working-capital deficit.
- Debt terms, variable-rate exposure, covenant headroom, and the company’s ability to reduce leverage while funding development and shareholder distributions.
- Final acquisition valuations and the timing and amount of Boyd’s share of Borgata property-tax settlement proceeds.
- Progress, approvals, funding needs, and potential returns for the Wilton Rancheria project and other development initiatives.