Boyd Gaming Corporation — Q1 2016 Form 10-Q
Business context and reporting period. Unaudited results for the three months ended March 31, 2016, compared with Q1 2015. Boyd operated 21 wholly owned gaming properties and held a 50% noncontrolling interest in Borgata. Amounts below are in millions of dollars unless stated otherwise.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 / prior period | Change |
|---|---|---|---|
| Net revenue | $552.4 | $550.6 | +0.3% |
| Operating income | $101.1 | $83.6 | +$17.5; +21.0% |
| Adjusted EBITDA (non-GAAP) | $160.4 | $149.2 | +$11.2 |
| Net income | $33.2 | $35.1 | -$1.9 |
| Diluted earnings per share | $0.29 | $0.31 | -$0.02 |
| Operating cash flow | $83.0 | $59.6 | +$23.4 |
| Capital expenditures | $35.3 | $19.3 | +$16.0 |
- Gross revenue was $612.7 million, including gaming revenue of $462.6 million, food and beverage of $76.8 million, room revenue of $41.9 million, and other revenue of $31.5 million. Promotional allowances were $60.3 million.
- Operating costs and expenses totaled $470.1 million, down from $478.7 million. Depreciation and amortization decreased to $47.7 million from $51.9 million; net interest expense decreased to $53.1 million from $56.9 million.
- Cash and cash equivalents were $616.2 million at March 31, versus $158.8 million at year-end. Restricted cash was $22.4 million. Current assets were $712.7 million and current liabilities $338.0 million.
- Debt principal was $3.747 billion, up $424.0 million from year-end; reported debt net of current maturities and financing costs was $3.658 billion. Boyd had $592.9 million of credit-facility availability and Peninsula had $23.4 million. Management reported covenant compliance.
- Stockholders’ equity was $543.6 million; accumulated deficit was $404.7 million. Boyd reported no share repurchases in the quarter.
Material changes and operating trends
- Revenue was nearly flat overall. Room revenue increased 6.4% and other revenue increased 6.0%, while gaming revenue declined 0.5%.
- Las Vegas Locals revenue rose 5.4% and Adjusted EBITDA rose 13.9%; Downtown Las Vegas revenue and EBITDA also improved. Midwest and South revenue fell 3.9% and EBITDA declined $2.2 million, with management citing severe flooding in parts of Louisiana and Mississippi, a new Biloxi competitor, and lower gaming volume.
- Peninsula revenue was broadly stable, with EBITDA up $0.7 million. Boyd’s share of Borgata operating income increased to $18.8 million from $11.7 million; Borgata’s improved results included stronger slot business, online operations, and hotel occupancy.
- Net income declined despite higher operating income, principally because Q1 2015 benefited from a $23.2 million reduction in tax provision associated with settlements of prior-year tax appeals. Q1 2016 income tax expense was $7.6 million, compared with a $16.8 million tax benefit in Q1 2015.
- Operating cash flow improved, while investing outflows increased with higher capital spending, including non-gaming amenities and a Delta Downs hotel expansion. Financing cash flow included $750 million of proceeds from new senior notes.
Outlook, commentary, risks, and unusual items
- Management estimated 2016 capital expenditures of approximately $204 million, excluding acquisitions, mainly for amenities, the Delta Downs hotel expansion, and maintenance. It expected operating cash flow and available credit capacity to cover projected operating and maintenance needs for at least 12 months, subject to facility restrictions.
- After quarter-end, Boyd agreed to acquire Aliante for $380 million net cash and the Las Vegas assets of Cannery Casino Resorts for $230 million cash, subject to specified adjustments. Both transactions required customary conditions and regulatory approvals; Boyd expected closing in Q3 2016 and planned to fund them with cash and revolver availability. The Aliante agreement includes a potential $30 million termination fee under specified circumstances; $20 million of the Cannery consideration is to be escrowed for seller indemnification obligations.
- A $240.4 million valuation allowance remained against deferred tax assets. Management said a significant portion could potentially be released within 12 months if earnings provide sufficient positive evidence; timing and amount were uncertain. Any release would produce a noncash tax benefit.
- Borgata received a property-tax refund award of approximately $62.9 million, including interest. Collection and recognition of the full refund were not yet certain; Borgata offset a current tax installment against the refund and recognized $7.3 million as income in Q1.
- Key risks include gaming competition and regulation, economic and regional conditions, weather and natural disasters, project execution and cost overruns, refinancing and interest-rate exposure, and the realization of tax assets. A 100-basis-point rate change was estimated to affect Boyd’s annual interest cost by approximately $9.0 million, based on quarter-end debt levels.
- Management said pending ordinary-course legal matters were not expected to have a material adverse effect. No material changes to the previously disclosed risk factors were reported. Disclosure controls were assessed as effective.
Investor verification priorities
- Review the debt and liquidity implications of the $750 million 2026 notes issuance and the planned Aliante and Cannery acquisitions, including funding, approvals, and closing conditions.
- Track Midwest and South performance, particularly recovery from flooding and competitive pressure in Biloxi, against stronger Las Vegas and Borgata results.
- Assess the sustainability of operating cash flow and Adjusted EBITDA, noting that Adjusted EBITDA is a non-GAAP measure and that Q1 cash benefited from a $2.7 million distribution from an unconsolidated subsidiary.
- Monitor valuation-allowance judgments and the uncertain timing and amount of any tax benefit, as well as Borgata’s collection and recognition of the remaining property-tax refund.
- Confirm covenant headroom, credit-facility availability, variable-rate exposure, and progress toward the estimated $204 million 2016 capital-spending plan.