Boyd Gaming Corporation — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015. Boyd operated 21 wholly owned gaming properties and held a 50% noncontrolling interest in Borgata Hotel Casino & Spa, accounted for under the equity method after its September 30, 2014 deconsolidation. Amounts below are U.S. dollars; financial statement figures are in millions unless noted.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Net revenue | $546.3 | $738.8 | $1,656.8 | $2,169.7 |
| Operating income | $100.5 | $73.8 | $282.3 | $229.3 |
| Net income (loss) attributable to Boyd | $25.4 | $(15.1) | $54.1 | $(20.6) |
| Diluted EPS | $0.22 | $(0.14) | $0.48 | $(0.19) |
| Adjusted EBITDA | $163.2 | $164.0 | $475.2 | $468.9 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $241.4 | $232.5 |
| Capital expenditures | Not provided for quarter | Not provided for quarter | $87.0 | $94.6 |
- Q3 net revenue fell 26.1%, and nine-month revenue fell 23.6%, primarily because the 2014 comparisons included all Borgata revenue, while 2015 includes Boyd’s 50% share through equity accounting. Excluding Borgata, management cited revenue growth of $17.4 million in Q3 and $46.1 million for the nine-month period, primarily from gaming.
- Q3 operating income increased 36.3% and nine-month operating income increased 23.1%. Boyd attributed improvement to higher gaming revenues and lower operating expenses. Adjusted EBITDA was nearly flat in Q3 and increased for the nine-month period; wholly owned Adjusted EBITDA rose to $125.2 million in Q3 from $107.1 million and to $396.0 million for nine months from $349.0 million.
- Q3 gaming, food and beverage, room, and other margins were 50.7%, 45.4%, 74.2%, and 33.7%, respectively, compared with 53.4%, 46.5%, 80.5%, and 24.5%. Nine-month margins were 51.3%, 45.3%, 74.6%, and 34.5%, respectively, compared with 53.3%, 45.8%, 80.0%, and 26.4%.
- Net interest expense was $56.1 million in Q3 and $169.2 million for nine months, down from $74.9 million and $224.8 million. The comparison chiefly reflects Borgata deconsolidation; refinancing also reduced Boyd’s borrowing cost.
- At September 30, cash was $125.0 million, restricted cash $24.7 million, total assets $4.41 billion, and stockholders’ equity $506.2 million. Current liabilities were $353.5 million versus current assets of $228.2 million.
- Debt principal was $3.34 billion ($3.33 billion carrying value), down from $3.48 billion principal at year-end 2014. Boyd’s credit facility had $502.2 million of remaining availability; Peninsula’s had $32.6 million. The company reported covenant compliance. Variable-rate debt exposure means a 100-basis-point rate increase would raise annual interest costs by about $10.6 million for Boyd and $6.7 million for Peninsula, based on period-end debt.
Material changes and unusual items
- In May 2015, Boyd issued $750 million of 6.875% senior notes due 2023. Proceeds were used to redeem $500 million of 9.125% notes due 2018 and reduce revolver borrowings. The redemption and related write-offs produced a $32.3 million nine-month loss on early extinguishments of debt, including $24.0 million of premiums and consent fees.
- Borgata’s Q3 2015 net revenue was $237.5 million and net income was $36.9 million. Boyd recorded $31.1 million as its share of Borgata operating income and $12.7 million of its share of Borgata non-operating items. Comparisons with 2014 are affected by the change from consolidation to equity accounting.
- Federal and New Jersey tax examination settlements reduced unrecognized tax benefits and related interest and favorably affected 2015 tax results. At September 30, unrecognized tax benefits were $2.5 million; accrued interest and penalties were $0.6 million.
- After quarter-end, on November 6, 2015, HoldCo prepaid its $157.8 million note plus $5.8 million accrued interest, funded with Boyd credit-facility borrowings. Boyd expects a $7.9 million fourth-quarter loss on extinguishment.
Outlook, risks and contingencies
- Management expected 2015 capital expenditures of $165 million to $175 million, including a planned $45 million Delta Downs expansion. Construction was expected to begin in Q4 2015, with completion by year-end 2016; about $10 million was expected to be spent in 2015. Funding was expected from operating cash flow and credit facilities.
- Management stated that cash flows and available borrowing capacity should cover projected operating and maintenance capital expenditures for at least the next 12 months, subject to working-capital needs and debt covenants. This is forward-looking and not a guarantee of funding availability.
- Key risks include intense casino and online-gaming competition; sensitivity to discretionary consumer spending and regional economic conditions; substantial indebtedness, refinancing needs, interest-rate exposure and restrictive covenants; gaming regulation, taxes and licensing; and execution, cost and approval risks for development projects.
- The company’s annual impairment test for goodwill and indefinite-lived intangibles was underway; the filing said it was too early to determine whether an impairment charge would result. Legal matters were described as ordinary-course proceedings not expected to materially affect the company. Delta Downs had begun an EPA-related remediation project; no fine had been assessed, but a fine remained possible.
Most important facts for investors to verify
- Separate underlying property performance from the year-over-year accounting effect of Borgata’s deconsolidation, particularly when interpreting revenue and EBITDA.
- Track debt reduction, refinancing and post-quarter HoldCo repayment, including the additional credit-facility borrowing and expected $7.9 million charge.
- Confirm covenant headroom, facility availability and liquidity against capital spending, debt maturities and interest-rate exposure.
- Monitor results of the 2015 impairment test and any developments in the Delta Downs EPA matter.
- Assess whether the planned Delta Downs project stays within its announced budget and schedule and receives required approvals.