Boyd Gaming Corporation — FY 2015 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2015, not only the fourth quarter. Boyd operated 21 wholly owned gaming properties across multiple U.S. states and held a 50% non-controlling interest in Borgata in Atlantic City. Borgata was deconsolidated in September 2014; Boyd reports its investment using the equity method thereafter, making year-over-year consolidated revenue comparisons difficult.
Key financial results
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Net revenue | $2.199 billion | $2.701 billion |
| Operating income | $344.6 million | $251.5 million |
| Net income (loss) attributable to Boyd | $47.2 million | $(53.0) million |
| Diluted EPS | $0.42 | $(0.48) |
| Adjusted EBITDA (non-GAAP) | $629.5 million | $605.3 million |
| Cash from operations | $339.8 million | $322.9 million |
| Capital expenditures | $131.2 million | $149.4 million |
- Revenue declined 18.6%, primarily because Borgata’s revenue was no longer consolidated for most of 2014 and any of 2015. Boyd’s wholly owned segments generally improved: Las Vegas Locals revenue rose 2.9%, Downtown Las Vegas 4.4%, Midwest and South 2.5%, and Peninsula 1.8%.
- Operating margin was approximately 15.7% of net revenue; net margin was approximately 2.1%. Gaming revenue was about 76% of 2015 gross revenue. Gaming segment margin was 51.2%, versus 52.9% in 2014.
- Adjusted EBITDA increased about 4.0%. Operating income benefited from lower impairment charges and controlled operating expenses. Net income also reflected Boyd’s share of improved Borgata results, partly offset by higher debt-extinguishment losses.
- Operating cash flow less cash capital expenditures was approximately $208.7 million. Cash and cash equivalents were $158.8 million at year-end, compared with $145.3 million a year earlier.
Debt, liquidity and capital allocation
- Year-end debt principal was $3.323 billion, down $159.1 million from 2014; reported long-term debt, net of current maturities and issuance costs, was $3.240 billion. Cash was $158.8 million. Boyd reported $297.2 million of availability under its credit facility and Peninsula reported $30.0 million, subject to covenants and each entity’s own liquidity needs.
- In May 2015, Boyd issued $750 million of 6.875% notes due 2023, using proceeds in part to redeem all $500 million of 9.125% notes due 2018 and reduce revolving borrowings. It also repaid the $157.8 million HoldCo Note in November. Debt-extinguishment losses totaled $40.7 million, including premiums, consent fees and write-offs.
- Current assets of $257.2 million were below current liabilities of $355.1 million. The company manages Boyd and Peninsula separately and reported working-capital deficits for both.
- No dividends were declared in 2015; quarterly dividends have been suspended since 2008. No shares were repurchased in 2015.
Outlook, commentary and risks
- Management expected approximately $192 million of 2016 capital expenditures, including property maintenance, non-gaming amenity upgrades and the Delta Downs expansion. The announced $45 million Delta Downs project adds 167 hotel rooms and was scheduled for completion by year-end 2016. Boyd expected to invest more than $100 million in non-gaming amenities through 2017. No earnings or revenue guidance was provided.
- Management cited improving economic conditions and operating trends, while emphasizing cost control, balance-sheet improvement and disciplined acquisition and development decisions. Boyd noted that customers continued to spend differently and less per visit than before the recession.
- Material risks include high leverage and refinancing needs, variable-rate exposure, restrictive debt covenants, intense competition and possible new gaming capacity, regulatory and tax changes, construction delays or cost overruns, and sensitivity to economic conditions and discretionary spending. Weather, flooding, hurricanes, cybersecurity, environmental compliance and reliance on regional customer markets are also identified risks.
- Unusual items included $18.6 million of asset impairments, primarily a $17.5 million gaming-license impairment, and a $7.2 million income tax benefit. A full valuation allowance remained against deferred tax assets, although management said a partial release could be possible within 12 months depending on earnings and visibility into future results.
- Management and Deloitte reported effective internal control over financial reporting; Deloitte issued an unqualified opinion on the financial statements. The company stated that ordinary-course legal claims were not expected to have a material adverse effect.
Important facts for investors to verify
- Compare operating performance on a consistent basis for Borgata, given the 2014 deconsolidation and equity-method accounting thereafter.
- Review debt maturities and refinancing exposure, especially Peninsula’s $654.5 million scheduled 2017 facility maturity and $350 million of notes due 2018, along with Boyd’s 2018 and 2020 maturities.
- Assess covenant headroom, credit-facility availability and the effect of higher interest rates on floating-rate debt.
- Track whether planned 2016 capital spending and the Delta Downs project stay within budget and schedule, and whether investment produces stronger cash flow.
- Evaluate the sustainability of earnings improvement after debt-extinguishment costs, impairments and tax benefits, and monitor evidence supporting any deferred-tax valuation-allowance release.
- Monitor gaming competition, regulatory developments and property-specific exposure to weather, environmental and regional-market risks.