Boyd Gaming Corporation (NYSE: BYD) — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Financial statements are unaudited. Boyd operates 28 gaming properties, an online gaming business, and manages Sky River Casino for Wilton Rancheria.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $917.0 million (+2.5%) | $894.5 million | $1,880.9 million (+7.2%) | $1,755.2 million |
| Operating income | $244.0 million | $245.1 million | $528.9 million (+6.6%) | $496.1 million |
| Net income | $192.5 million (+31.1%) | $146.8 million | $392.2 million (+26.6%) | $309.7 million |
| Diluted EPS | $1.89 | $1.33 | $3.81 | $2.78 |
| Adjusted EBITDAR | $351.4 million | $353.9 million | $718.5 million | $692.7 million |
| Operating cash flow | Not separately provided | Not separately provided | $463.3 million | $456.2 million |
Margins: Q2 operating margin was approximately 26.6%, versus 27.4% a year earlier; net margin was approximately 21.0%, versus 16.4%. Six-month operating margin was approximately 28.1%, versus 28.3%; net margin was approximately 20.9%, versus 17.6%.
Revenue mix and segment trends: Q2 gaming revenue fell 3.5% to $660.7 million, while online revenue rose 49.7% to $85.0 million and management fees contributed $17.4 million. Six-month gaming revenue declined 2.1% to $1,325.0 million; online revenue increased to $207.9 million, and management fees were $37.5 million. Online growth reflected Ohio market entry, Pennsylvania growth, Pala Interactive, and reimbursements of partner taxes and expenses. Midwest & South revenue and Adjusted EBITDAR declined; management cited softness in Louisiana, Mississippi, and retail play. Q2 Las Vegas Locals and Downtown Las Vegas Adjusted EBITDAR also declined, with Downtown affected by renovation disruption. Online and Managed & Other Adjusted EBITDAR improved.
Departmental margins: Q2 gaming margin was 62.2% versus 62.8%; food and beverage 16.8% versus 18.2%; rooms 62.7% versus 65.3%; and online 16.0% versus 13.9%. The filing attributes weaker food and room margins mainly to higher costs.
Cash, debt, and liquidity
- Cash and cash equivalents were $260.8 million at June 30, 2023, down from $283.5 million at year-end; restricted cash was $11.6 million. Working capital deficit was $87.5 million.
- Six-month operating cash flow was $463.3 million. Investing cash outflow was $123.9 million, including $171.4 million of capital expenditures and $49.7 million of note principal collections. Financing cash outflow was $362.0 million, including $206.4 million of share repurchases and $31.8 million of dividends. Cash, cash equivalents, and restricted cash decreased $22.7 million.
- Debt principal totaled $2.979 billion, down $109.4 million from December 31, 2022. The credit facility carried a 6.652% rate at quarter-end; its blended borrowing rate was 6.7%. Cash interest paid in the first half was $84.1 million.
- Remaining contractual credit-facility availability was $1.183 billion. Boyd reported compliance with debt covenants. Management believes cash, operating cash flow, and available borrowing capacity will cover operating and maintenance needs for the next 12 months.
- Variable-rate borrowings represented approximately 36.2% of long-term debt; a 100-basis-point rate change would change annual interest costs by approximately $10.8 million.
Material changes and unusual items
- Net income growth substantially exceeded revenue growth, aided by a $35.9 million release of state tax valuation allowances. The Q2 income tax provision was $11.1 million versus $42.1 million in Q2 2022; the six-month effective tax rate was 15.2% versus 22.5%.
- The company removed the remaining expected-credit-loss allowance on its Wilton Rancheria note in Q1 after amended financing arrangements enabled payments. This produced a $20.1 million operating benefit and $14.3 million of interest income. Boyd received $49.7 million of principal and $8.5 million of interest during the first half; $66.3 million of principal and interest remained outstanding at June 30.
- Q2 revenue growth included $15.3 million of online partner tax and expense reimbursements, which had an equal expense and no operating-income contribution. The comparable first-half reimbursement increase was $69.3 million.
- First-half capital expenditures rose to $171.4 million from $98.7 million. The filing identifies the Treasure Chest land-based casino project and Fremont improvements among the uses. Boyd estimated 2023 maintenance capital needs of $240–$260 million and expected to spend $100 million in 2023 on Treasure Chest and the final phase of Fremont work, in addition to maintenance spending.
- Boyd repurchased 3.2 million shares for $206.4 million in the first half and declared dividends of $0.16 per share in each of Q1 and Q2. $532.6 million remained authorized for repurchases at June 30.
Outlook, commentary, and risks
The filing provides no earnings or revenue guidance. Management describes a strategy of growing customer loyalty and revenue, operating efficiently, maintaining balance-sheet strength, investing in the business, and returning capital to shareholders. It sees longer-term potential in online gaming as additional markets legalize, while noting that expansion and investment depend on licensing, approvals, suitable opportunities, and financing.
Risks highlighted include economic conditions, inflation and interest rates, retail-customer sensitivity, competition and online gaming expansion, regulatory approvals, information technology and cybersecurity, debt refinancing and covenant capacity, leased-property rights, and the possibility that estimates or impairment assumptions differ from actual outcomes. Legal matters are described as ordinary-course proceedings that management does not expect to have a material adverse effect. No material risk-factor changes were reported.
Important facts for investors to verify
- How much online growth represents underlying wagering economics versus pass-through partner reimbursements, and whether online margins can be sustained.
- Whether gaming softness, particularly in Louisiana and Mississippi and among retail customers, persists or reverses.
- The recurring earnings and cash-flow outlook excluding the $35.9 million tax allowance release and Wilton note allowance reversal.
- Execution, total cost, and expected returns for Treasure Chest and Fremont projects, alongside maintenance capital spending.
- Floating-rate debt exposure, refinancing requirements, lease obligations, and ongoing capacity for dividends and share repurchases.