Boyd Gaming Corporation — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; comparisons are with the three months ended March 31, 2018 unless stated otherwise. Boyd operated 29 wholly owned gaming properties across 10 states. Results are unaudited.
Financial performance
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Revenue | $827.3 million | $606.1 million | +36.5% |
| Operating income | $117.6 million | $94.8 million | +24.1% |
| Net income | $45.5 million | $41.4 million | +$4.1 million |
| Diluted earnings per share | $0.40 | $0.36 | +$0.04 |
| Cash from operating activities | $164.1 million | $118.5 million | +$45.6 million |
| Capital expenditures | $89.3 million | $25.9 million | +$63.4 million |
- Gaming revenue was $620.3 million, food and beverage $111.1 million, room $57.2 million, and other revenue $38.7 million.
- Operating margin was approximately 14.2%, versus 15.6%; net margin was approximately 5.5%, versus 6.8%.
- Departmental margins: gaming 55.4% (57.1% prior year), food and beverage 8.0% (3.2%), rooms 53.0% (56.4%), and other 38.2% (35.6%).
- Adjusted EBITDAR, a non-GAAP measure, was $223.0 million versus $160.5 million. Reportable-segment Adjusted EBITDAR rose to $245.7 million from $178.5 million.
- Cash, cash equivalents and restricted cash totaled $272.6 million at March 31, 2019. Operating cash flow less capital expenditures was $74.8 million.
- Principal debt was $4.0 billion at quarter-end, down $32.1 million from December 31, 2018. Net balance-sheet debt was approximately $3.7 billion, excluding lease liabilities. The company also reported $919.6 million of operating lease liabilities.
- Cash available on the revolving credit facility was $587.8 million, after borrowings and letters of credit. Boyd said it believed operating cash flow and facility availability would meet its needs for the next 12 months, subject to covenants.
Material changes and drivers
- Revenue growth was primarily acquisition-driven: the Midwest & South segment added $217.9 million of revenue, of which $213.0 million was attributed to acquisitions. Acquired operations included Lattner, Valley Forge, and four Pinnacle properties.
- The acquired Pinnacle properties contributed $160.6 million of revenue and $12.7 million of net income in Q1 2019; Valley Forge contributed $41.2 million of revenue and $6.8 million of net income.
- Operating income increased $22.9 million, reflecting acquisitions and cost control. Net income growth was substantially smaller because net interest expense increased $17.4 million, primarily due to higher average debt and a 0.4 percentage-point increase in the weighted-average interest rate.
- Las Vegas Locals revenue was nearly flat, up 0.3%; Downtown Las Vegas revenue rose 4.2%. Midwest & South Adjusted EBITDAR increased $62.2 million, primarily from acquisitions.
- Boyd adopted the new lease accounting standard on January 1, 2019, recognizing $926.7 million of right-of-use assets and $921.8 million of lease liabilities at adoption. The company said adoption had no material effect on income, equity, or cash flows; comparative periods were not restated.
Outlook, risks and unusual items
- No specific earnings or revenue guidance was provided. Management estimated annual cash maintenance and refurbishment capital requirements of $150 million to $170 million.
- Boyd continued planning a casino development with the Wilton Rancheria Tribe in California. The project budget and construction planning were being finalized; management expected third-party financing and an 18-to-24-month construction period once construction begins and financing is in place.
- Acquisition purchase-price allocations remained preliminary. Final valuations for the Pinnacle properties were expected in Q3 2019 and Valley Forge and Lattner in Q2 2019; final fair values could differ materially from recorded estimates.
- Interest-rate exposure is material: approximately 43.5% of long-term debt was variable-rate. A 100-basis-point rate change was estimated to alter annual interest costs by about $17.4 million.
- Management cited competition, acquisition integration and execution, development costs and delays, gaming regulation and taxes, economic and regional conditions, refinancing, weather, customer preferences, cybersecurity, and insurance availability among risks to future results.
- Management reported a material weakness in general-ledger user access and segregation of duties, which could affect journal-entry preparation and posting. Disclosure controls were deemed ineffective at March 31, 2019. Remediation steps had begun, but the weakness was not yet considered remediated; management expected remediation before the end of Q2 2019. No resulting financial-statement misstatement was identified.
- Boyd repurchased 830,100 shares for $21.7 million and declared a $0.06-per-share dividend. It had $78.9 million remaining under its 2018 repurchase authorization. The company reported ordinary-course legal proceedings and believed adverse outcomes would not have a material adverse effect.
Important facts for investors to verify
- How much future growth and cash generation comes from acquired properties versus underlying same-property performance, and whether acquisition synergies are realized.
- Progress on purchase-price allocations, acquisition integration, and the impact of master-lease costs on acquired-property economics.
- Debt reduction, interest-rate sensitivity, covenant headroom, and the cost and availability of refinancing.
- Actual maintenance and development spending versus the estimated $150 million–$170 million annual maintenance range, including financing and timing for the Wilton Rancheria project.
- Whether the material weakness is fully remediated and whether enhanced controls operate effectively over time.
- Changes in gaming regulation, taxation, competition, and economic conditions in Boyd’s regional markets.