Boyd Gaming Corporation — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited results; comparisons are with the corresponding 2022 periods. Amounts below are in millions of dollars unless stated otherwise.
Business context
Boyd operates 28 gaming properties across 10 states, owns Boyd Interactive, and manages Sky River Casino in California. Beginning in 2023, it reports four segments: Las Vegas Locals, Downtown Las Vegas, Midwest & South, and Online. Prior-period segment and revenue presentations were recast for comparability.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $903.2 | $877.3 | $2,784.1 | $2,632.5 |
| Operating income | $217.9 | $237.5 | $746.8 | $733.6 |
| Net income | $135.2 | $157.0 | $527.4 | $466.7 |
| Diluted EPS | $1.34 | $1.46 | $5.16 | $4.24 |
| Adjusted EBITDAR | $320.8 | $337.7 | $1,039.3 | $1,030.4 |
| Operating cash flow | Not separately provided | Not separately provided | $697.3 | $728.0 |
Revenue rose 3.0% in Q3 and 5.8% year to date. Operating margin was approximately 24.1% in Q3 (27.1% prior year) and 26.8% for nine months (27.9%). Net margin was approximately 15.0% in Q3 (17.9%) and 18.9% year to date (17.7%).
- Revenue mix: Q3 gaming revenue was $641.2, down 4.0%; online revenue was $90.3, up $37.9; management fees were $17.2, versus $10.2. For nine months, gaming revenue fell 2.7%, while online revenue rose to $298.2 from $164.2 and management fees to $54.6 from $10.2.
- Profit and segment performance: Q3 operating income declined 8.2% and net income declined 13.9%; nine-month operating income increased 1.8% and net income increased $60.7. Nine-month Adjusted EBITDAR increased about 0.9%, despite a Q3 decline of about 5.0%. Midwest & South Adjusted EBITDAR declined 9.8% in Q3 and 8.0% year to date; Online increased to $11.0 in Q3 and $45.0 year to date.
- Cash flow and investment: Nine-month operating cash flow was $697.3, down from $728.0. Capital expenditures were $279.0, compared with $173.0; cash payments received on the Wilton Rancheria note were $82.5. Cash, cash equivalents and restricted cash totaled $271.6 at quarter-end, down $23.4 from the start of the year.
- Debt and liquidity: Debt principal was $2,942.3, down $146.2 from year-end 2022; balance-sheet long-term debt, net of current maturities and issuance costs, was $2,864.9. Cash was $269.2 and working capital deficit was $114.2. Revolving credit availability was $1,208.8, including the effect of outstanding borrowings and letters of credit. The company reported compliance with debt covenants.
- Other balance-sheet items: Total assets were $6,311.6 and stockholders’ equity was $1,768.5. Operating lease liabilities were $722.2, excluding current amounts.
Material changes and management commentary
- Management attributed gaming softness across property segments primarily to weaker retail play, which it says is more sensitive to economic conditions; core customer play increased. Prior-year comparisons also included a strong Las Vegas period after COVID restrictions were lifted.
- Online growth reflected Ohio online gaming launches in January 2023, Pennsylvania growth, the Pala Interactive acquisition, and higher pass-through reimbursements of partner gaming taxes and expenses. Those reimbursements added $26.2 to Q3 and $95.5 to year-to-date revenue growth, with corresponding expenses and no operating-income benefit.
- Sky River management fees increased following the casino’s August 2022 opening. In Q1 2023, Boyd removed the remaining allowance on its Wilton Rancheria note after an amended third-party loan permitted payments. The resulting $20.1 benefit was recorded in project development, preopening and writedowns, and $14.3 in interest income. Boyd received $82.5 of principal and $10.8 of interest during the first nine months; $32.5 of principal and interest remained outstanding.
- Q3 profitability faced higher interest costs and inflationary pressures, including wages, utilities and property insurance. Q3 2022 included a $12.6 insurance-settlement gain related to Hurricane Laura. Nine-month 2023 results benefited from the $35.9 state tax valuation-allowance release and the Wilton note allowance reduction; 2022 included $19.8 of debt extinguishment and modification losses.
- Departmental margins showed mixed trends: Q3 gaming margin was 60.8% versus 62.3%; food and beverage was 15.9% versus 13.7%; rooms were 60.6% versus 61.9%; and online was 12.4% in both periods. Nine-month food and beverage margin improved to 16.6% from 15.8%; gaming margin declined to 61.8% from 62.6%.
Outlook, risks and contingencies
- No specific revenue or earnings guidance was provided. Management believes cash, operating cash flows and available credit will cover operating needs and maintenance capital expenditures for the next 12 months.
- Management estimates annual maintenance capital requirements of $240–$260 and expected 2023 spending of $100 on the Treasure Chest land-based casino project and Fremont renovations, in addition to maintenance spending.
- Key risks identified include economic conditions, inflation and interest rates, competition and gaming-market expansion, online gaming regulation, cybersecurity and technology, debt refinancing and covenant compliance, licensing and project approvals, and the availability and terms of financing. A 100-basis-point change in rates would change annual interest costs on variable-rate debt by approximately $10.4.
- Boyd had $426.3 remaining under its $1.3 billion share-repurchase authorization at September 30; it repurchased 1.63 million shares for $106.3 in Q3. The quarterly dividend was $0.16 per share. Repurchases and dividends are discretionary.
- The company reported ordinary-course legal proceedings and believes adverse outcomes would not materially affect its financial position or results. It reported no material subsequent events through filing and no material change in risk factors. Disclosure controls were deemed effective.
Investor facts to verify
- How much of online growth and reported revenue reflects pass-through reimbursements rather than incremental operating profit.
- Whether retail gaming trends stabilize, particularly in Midwest & South, and how persistent the reported margin pressure proves to be.
- Progress, remaining cost and timing of the Treasure Chest and Fremont projects relative to the stated capital plans.
- Interest-rate exposure, future debt maturities, credit-facility availability and covenant headroom.
- Collection of the remaining $32.5 Wilton Rancheria note balance and the sustainability of related management fees and tax benefits.