Boyd Gaming Corporation — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015; unaudited. Boyd operated 21 wholly owned gaming properties and held a 50% non-controlling interest in Borgata. Borgata was deconsolidated in September 2014 and is now accounted for under the equity method, making year-over-year consolidated comparisons materially affected by a change in presentation.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Net revenue | $559.9 million | $722.5 million | $1,110.4 million | $1,430.9 million |
| Operating income | $98.2 million | $87.0 million | $181.7 million | $155.5 million |
| Net income (loss) attributable to Boyd | $(6.4) million | $0.7 million | $28.7 million | $(5.5) million |
| Adjusted EBITDA | $162.9 million | $160.6 million | $312.1 million | $305.1 million |
| Cash from operations | — | $155.8 million | $138.3 million |
Q2 revenue declined 22.5%, and first-half revenue declined 22.4%, principally because prior-year results included all of Borgata’s revenue while 2015 reflects Boyd’s 50% share through equity accounting. Excluding Borgata, net revenue increased $19.2 million in Q2 and $28.7 million in the first half, with gaming revenue growth across segments. Q2 operating income rose 12.9%; first-half operating income rose 16.9%.
Q2 Adjusted EBITDA increased modestly, but the comparison also reflects the change in Borgata accounting. Wholly owned Adjusted EBITDA was $140.6 million versus $118.0 million in Q2 and $270.9 million versus $242.1 million in the first half. Gaming was 76% of gross revenue in both comparable periods. Q2 gaming margin was 52.0% versus 53.4%; food and beverage margin was 44.9% versus 44.5%, and room margin was 74.8% versus 79.4%.
The Q2 net loss included a $31.0 million loss on early debt extinguishment. First-half net income benefited from a $23.2 million tax-provision reduction arising from settlement of the 2005–2009 IRS examination; the settlement also reduced unrecognized tax benefits and accrued interest. Q2 income tax expense was $6.6 million despite pretax income of $0.2 million, reflecting unusual effective-tax-rate effects.
Cash flow, debt and liquidity
- First-half operating cash flow was $155.8 million; capital expenditures were $58.1 million, leaving approximately $97.7 million of operating cash after capital expenditures. Investing activities used $55.1 million and financing activities used $121.5 million. Cash and cash equivalents fell $20.8 million to $124.5 million; restricted cash was $21.5 million.
- June 30 outstanding debt principal was approximately $3.402 billion, down $79.8 million from year-end. Balance-sheet debt carrying value, including current maturities, was approximately $3.389 billion. Stockholders’ equity was $474.5 million.
- Boyd issued $750 million of 6.875% senior notes due 2023, used proceeds in part to redeem $500 million of 9.125% notes due 2018 and reduce revolving borrowings, and paid $24.0 million of redemption premium and consent fees. Boyd’s credit facility had $508.4 million of remaining availability; Peninsula’s had $30.2 million.
- Management said operating cash flow and available credit were expected to cover projected operating and maintenance capital needs for at least 12 months, subject to debt covenants. Both Boyd and Peninsula reported compliance with their debt covenants at June 30.
Outlook, commentary and risks
- No earnings or revenue guidance was provided. Management estimated 2015 capital expenditures of $165–$175 million.
- Boyd announced a planned $45 million Delta Downs expansion, including 167 hotel rooms, renovation of 200 rooms, and enhanced food, event and pool facilities. Construction was expected to start in Q3 2015 and finish by year-end 2016; about $10 million was expected to be spent in 2015. Timing and spending were subject to agreements, approvals and debt restrictions.
- Management cited revenue growth across wholly owned segments and continued cost-control efforts. Segment Adjusted EBITDA improved at Las Vegas Locals, Downtown Las Vegas, Midwest and South, and Peninsula. Borgata’s property performance improved, but Boyd’s reported share of its Adjusted EBITDA was lower year over year because Boyd now recognizes only 50%.
- Key risks include high leverage and refinancing needs, variable-rate exposure, competition (including online gaming and nearby casino expansion), sensitivity to discretionary spending, gaming regulation and taxes, project cost/timing and approval risks, severe weather and property interruptions, and cybersecurity/privacy threats. A 100-basis-point rate change was estimated to alter annual interest costs by about $11.0 million for Boyd and $6.9 million for Peninsula.
- Management considered pending ordinary-course legal matters adequately covered by insurance or not expected to materially affect results. Delta Downs had begun an EPA-related remediation project; a fine was possible, though none had been assessed as of the filing. No material subsequent events were reported.
Investor verification priorities
- Separate underlying operating growth from the Borgata deconsolidation effect when comparing reported revenue, expenses and EBITDA.
- Assess recurring earnings apart from the debt-extinguishment charge and the IRS settlement tax benefit.
- Review debt maturities, floating-rate exposure, facility availability and covenant headroom, including Peninsula’s separate debt structure.
- Track the $165–$175 million capital-spending plan and Delta Downs project approvals, cost and schedule.
- Monitor gaming competition, consumer demand, regulatory/tax developments and the possible EPA remediation outcome.