Boyd Gaming Corporation — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; comparisons are with Q1 2012 unless noted. Boyd operated 21 wholly owned gaming properties and held a controlling interest in Borgata. Results include Peninsula Gaming, acquired in November 2012, so year-over-year comparisons are not like-for-like.
Financial performance and liquidity
| Metric | Q1 2013 | Q1 2012 / prior date |
|---|---|---|
| Net revenue | $737.0 million | $633.1 million |
| Operating income | $80.5 million | $76.6 million |
| Operating margin on net revenue | 10.9% | 12.1% |
| Net income (loss) attributable to Boyd | $(7.3) million; $(0.08) per diluted share | $5.9 million; $0.07 per diluted share |
| Adjusted EBITDA, as defined by the company | $163.5 million | $133.8 million |
| Adjusted earnings / diluted EPS | $0.4 million / $0.01 | $8.4 million / $0.10 |
| Net cash from operating activities | $88.1 million | $77.5 million |
| Capital expenditures | $22.6 million | $32.8 million |
| Cash and cash equivalents | $358.4 million | $192.8 million at Dec. 31, 2012 |
| Total debt, carrying value | $4.84 billion | $4.89 billion at Dec. 31, 2012 |
| Current assets / current liabilities | $561.4 million / $728.1 million | Working capital deficit of $166.7 million |
Net revenue rose 16.4%, largely because Peninsula contributed $133.9 million. Operating income increased 5.1%, but the company reported a net loss as net interest expense rose to $95.0 million from $63.8 million, primarily reflecting Peninsula acquisition financing and higher Boyd debt. Net cash increased substantially, supported by the Echelon site sale; operating cash flow alone was $88.1 million. The company reported approximately $278.4 million of remaining availability on Boyd’s credit facility, $23.4 million on Peninsula’s facility, and $46.0 million on Borgata’s facility.
Gaming was about 75% of gross revenue, versus 72% a year earlier. Gaming margin declined to 52.9% from 53.5%; food and beverage margin fell to 46.2% from 49.0%. Excluding Peninsula, gaming revenue and same-segment slot and table activity weakened. The filing reports segment Adjusted EBITDA of $163.5 million after corporate expense; it separately reports aggregate Reportable Segment Adjusted EBITDA of $175.1 million before corporate and other costs.
Material changes and unusual items
- Peninsula acquisition: Added five properties and $133.9 million of Q1 revenue. Purchase-price allocation remained preliminary, with final valuations expected by Q3 2013.
- Echelon disposition: Boyd sold the Las Vegas site and improvements for $350 million in cash on March 4. The filing reports approximately $157 million in net proceeds after transaction costs and amounts paid in connection with LVE; cash-flow statements separately show $343.8 million of sale proceeds and a $187 million LVE option payment. Management expects annual savings of approximately $16–$17 million from ending site-preservation costs.
- Dania sale: Agreement to sell certain Dania Jai-Alai assets and liabilities for $65.5 million; closing was expected by May 24, 2013, subject to conditions.
- Debt actions: Boyd redeemed $150 million of 6.75% notes on April 6 and announced redemption of the remaining approximately $65.7 million for May 30. A May 1 Peninsula credit amendment reduced term-loan margins, subject to specified terms and fees.
- LVE deconsolidation: Boyd ceased consolidating LVE after the Echelon transaction, changing the balance-sheet presentation and removing LVE’s assets and liabilities.
Outlook, risks and contingencies
- Management described a slight operating recovery but said consumer confidence and discretionary spending remained weak, particularly among casual players; higher payroll taxes, economic uncertainty, competition and winter storms pressured results. No quantified earnings or revenue guidance was provided.
- Boyd said it would focus on operational efficiency, balance-sheet strengthening and disciplined acquisition opportunities. Management believed operating cash flow and credit-facility availability would fund projected operating and maintenance needs for at least 12 months, subject to covenants and liquidity availability.
- Peninsula’s Kansas Star development continued, including an arena conversion targeted for completion by the end of Q2 2013 and broader project completion no later than January 14, 2015. Construction cost, schedule, financing and regulatory risks remain.
- Debt is substantial, with significant interest costs and restrictive covenants. Management reported covenant compliance at March 31, 2013, but warned that refinancing may be necessary and could be unavailable or unfavorable. Borgata’s cash is subject to its own debt covenants and is not generally available to service Boyd’s debt.
- Legal and tax exposures: The Copeland litigation could threaten the Treasure Chest gaming license, although a ruling limiting certain damages remained in place. Nevada use-tax refund litigation involves a claimed refund estimate of $17.9–$21.4 million; no gain was recorded, and a potential post-February 2012 tax assessment was estimated at $0.8–$3.5 million. Blue Chip property-tax exposure was estimated at $4.5–$15.5 million; Boyd accrued $15.5 million.
- Other major risks include regional casino competition, weaker consumer spending, gaming regulation and taxes, weather-related disruptions, development execution, environmental matters, and Borgata’s partner and refinancing uncertainties. Boyd said disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- How much of reported revenue and EBITDA growth reflects Peninsula versus underlying same-property performance, especially as several established segments weakened.
- Whether operating cash generation and available revolving capacity can support debt service, upcoming maturities, and Kansas Star development while working capital remains negative.
- Actual net cash retained from the Echelon transaction and realization of the projected $16–$17 million annual site-preservation savings.
- Completion and proceeds of the Dania sale, the announced 6.75% note redemptions, and the effect of the Peninsula loan amendment on interest expense.
- Final Peninsula acquisition valuations, Kansas Star construction costs and timetable, and developments in the Copeland, Nevada tax, and Blue Chip property-tax matters.