Boyd Gaming Corporation — FY2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. The filing also reports fourth-quarter results. Boyd operated 24 wholly owned gaming properties across seven states, reported in Las Vegas Locals, Downtown Las Vegas, and Midwest and South segments.
Financial results and key metrics
| Metric | FY2017 | FY2016 |
|---|---|---|
| Net revenue | $2.384 billion | $2.184 billion |
| Operating income | $343.5 million | $260.6 million |
| Income from continuing operations, net of tax | $167.8 million | $205.5 million |
| Net income | $189.2 million | $418.0 million |
| Operating cash flow | $414.9 million | $302.9 million |
| Capital expenditures | $190.5 million | $160.4 million |
| Cash and cash equivalents at year-end | $203.1 million | $193.9 million |
| Total debt principal at year-end | $3.122 billion | $3.283 billion |
Net revenue grew 9.1%, mainly reflecting a full year of results from Aliante and the Cannery properties, acquired in 2016. Operating income rose 31.8%, helped by acquisitions, cost controls and the absence of the prior-year impairment charges. Company-defined Adjusted EBITDA was $595.6 million, up from $536.3 million; it excludes, among other items, interest, taxes, depreciation, share-based compensation and certain development and impairment costs.
Net income fell 54.7% from 2016, when results included a $201.5 million income-tax benefit from releasing a valuation allowance and an after-tax gain of $181.7 million on the Borgata sale. FY2017 continuing-operations income included a $60.1 million noncash tax benefit from federal tax-rate changes. Discontinued operations included $36.2 million of Borgata property-tax recovery proceeds before tax ($21.4 million after tax).
Gaming generated about 75% of gross revenue in both years. Gaming revenue rose 8.4% in 2017, largely due to acquisitions; Midwest and South slot volume and table-game drop declined. Departmental gaming margin increased to 53.19% from 51.61%; food and beverage margin was 44.32% versus 44.45%, and room margin declined to 72.34% from 74.10%.
Fourth-quarter 2017 net revenue was $590.8 million, operating income was $80.6 million and income from continuing operations was $82.2 million. Compared with fourth-quarter 2016, net revenue increased from $554.8 million and operating income from $30.0 million; quarterly net income increased from $12.2 million to $82.2 million.
Liquidity, debt and capital allocation
- Cash was $203.1 million; working capital deficit was $50.6 million, improved from $57.6 million in 2016. Management said cash flow and available credit were expected to cover projected operating and maintenance needs for at least the next 12 months, subject to credit-facility covenants.
- Approximately $522 million of credit-facility availability remained at year-end after letters of credit. Total debt principal was $3.122 billion; the reported balance-sheet long-term debt, net of current maturities and issuance costs, was $3.052 billion.
- Average long-term debt declined by $129.7 million and the weighted-average interest rate fell to 4.4% from 5.3%. About 51.9% of debt was variable-rate; management estimated a 100-basis-point rate increase would raise annual interest costs by approximately $16.2 million.
- Operating cash flow increased by $112.0 million. Boyd used cash for $190.5 million of capital expenditures, $161.5 million of net debt payments, $31.9 million of share repurchases and $11.3 million of dividends paid.
- The company reinstated quarterly dividends at $0.05 per share in 2017 and repurchased 1.2 million shares. Annual maintenance capital requirements were estimated at $140–$160 million.
Material changes, outlook and risks
- Las Vegas Locals revenue increased 32.6% to $858.9 million, principally from the 2016 acquisitions. Downtown Las Vegas revenue rose 3.0% to $243.5 million. Midwest and South revenue declined 1.4% to $1.281 billion, with localized weakness at Evangeline Downs and Amelia Belle among the factors cited.
- Boyd agreed to acquire four Penn National/Pinnacle-operated properties for approximately $575 million and Valley Forge Casino Resort for approximately $280.5 million, subject to adjustments, approvals and other closing conditions. Both transactions were expected in the second half of 2018; the Penn transaction also depended on Penn’s proposed Pinnacle acquisition. The Penn agreement could require a reverse termination fee of up to $58 million in certain circumstances. The acquisitions were to be funded with cash and revolver capacity.
- The Wilton Rancheria development remained subject to project development and approvals. Boyd had advanced $35.1 million for the site land, expected reimbursement when financing was obtained, and anticipated construction to begin in mid-2018 and take 18–24 months.
- No impairment charge resulted from the 2017 annual impairment test; 2016 included $38.3 million of impairment charges. Future impairments remain possible if projected cash flows or valuation assumptions deteriorate.
- Principal risks include high competition, economic sensitivity and discretionary consumer spending, gaming regulation and taxation, significant leverage and refinancing needs, variable-rate exposure, acquisition execution and integration, construction costs and delays, cybersecurity and privacy, severe weather, insurance limitations, and dependence on local and Hawaiian customer markets. The company reported compliance with debt covenants at year-end and stated legal proceedings were not expected to have a material adverse effect.
- Boyd planned to adopt the new revenue standard in 2018 using full retrospective application. It expected net revenue not to change, but departmental revenue presentation to change because promotional allowances would no longer be shown as a deduction; certain progressive-game payments would move from contra-revenue to expense.
Important facts for investors to verify
- Whether the Penn and Valley Forge acquisitions closed as anticipated, their final purchase-price adjustments, lease obligations and financing impact.
- Current operating trends at Midwest and South properties, particularly the markets and properties cited as weak, and any further competitive capacity additions.
- Debt maturities, covenant headroom, revolver availability and sensitivity to higher interest rates; also compare total principal with balance-sheet debt reported net of issuance costs.
- The quality and repeatability of earnings and cash flow apart from the 2016 tax-valuation benefit, Borgata sale gain, 2017 tax benefit and Borgata tax-recovery proceeds.
- Actual maintenance and growth capital spending, and progress, financing and approvals for the Wilton Rancheria project.