Boyd Gaming Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; compared with the three months ended March 31, 2014. Financial statements are unaudited. Boyd operated 21 wholly owned gaming properties and held a 50% non-controlling interest in Borgata Hotel Casino & Spa.
Financial results and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Net revenue | $550.6 million | $708.3 million |
| Operating income | $83.6 million | $68.5 million |
| Net income (loss) attributable to Boyd | $35.1 million | $(6.2) million |
| Basic and diluted earnings (loss) per share | $0.31 | $(0.06) |
| Cash provided by operating activities | $59.6 million | $57.2 million |
| Capital expenditures | $19.3 million | $18.3 million |
- Reported net revenue fell 22.3%, primarily because Borgata was deconsolidated in September 2014. Excluding the $167.3 million prior-year Borgata revenue from the comparison, revenue increased approximately $9.5 million.
- Operating income increased $15.0 million. Net income also reflected a significant income tax benefit; it should not be viewed as solely the result of operating improvement.
- Management reported adjusted EBITDA of $149.2 million, compared with $144.5 million in Q1 2014. The comparison includes Boyd’s 50% equity share of Borgata in 2015 versus full consolidation in 2014.
- Gaming, food and beverage, room, and other gross revenues were $464.8 million, $76.3 million, $39.4 million, and $29.7 million, respectively. Promotional allowances were $59.5 million, producing net revenue of $550.6 million.
- Reported gaming margin was 51.2%, versus 53.2%; food and beverage margin was 45.5%, versus 46.3%; room margin was 74.5%, versus 79.5%; and other margin was 33.8%, versus 28.5%. The gaming margin comparison was affected by the loss of Borgata’s higher-margin consolidated revenue.
- Cash and cash equivalents were $130.8 million at quarter-end; restricted cash was $21.5 million. Operating cash flow less capital expenditures was approximately $40.4 million. Cash declined $14.5 million during the quarter.
- Total debt principal was approximately $3.42 billion; reported debt carrying value was approximately $3.40 billion, including current maturities. Debt decreased about $59.2 million from December 31, 2014. Boyd and Peninsula reported remaining credit-facility availability of $304.5 million and $32.1 million, respectively, after letters of credit.
- Current assets were $232.0 million and current liabilities $334.1 million at March 31, 2015. Boyd reported working-capital deficits for both Boyd Gaming Corporation and Peninsula, managed in part through their credit facilities.
Material changes and management commentary
- Borgata was deconsolidated effective September 30, 2014, following MGM’s reacquisition of its ownership interest and management participation rights. Boyd now accounts for its 50% interest using the equity method. This makes year-over-year revenue and expense comparisons materially non-comparable without adjustment.
- Excluding Borgata’s deconsolidation, management attributed revenue growth mainly to gaming gains in Downtown Las Vegas, Midwest and South, and Peninsula. Adjusted EBITDA improved in Downtown Las Vegas, Midwest and South, and Peninsula, while Las Vegas Locals declined.
- Management said operating cash flow and available borrowing capacity were expected to fund projected operating and maintenance capital expenditures for at least the next 12 months, subject to credit-facility restrictions and covenants. The filing provides no specific earnings or revenue guidance.
- Management’s stated priorities include strengthening the balance sheet, operating efficiently, and evaluating acquisitions selectively. The company did not repurchase shares during the quarter; up to $92.1 million remained authorized under its repurchase program.
Unusual items, risks, and contingencies
- An IRS settlement covering 2005–2009 examinations reduced the Q1 2015 tax provision by $23.2 million, including $17.6 million from recognition of tax benefits and $5.8 million from reversal of accrued interest. Boyd also received an approximately $2.4 million refund. Unrecognized tax benefits fell to $4.5 million; the filing says up to $2.0 million could decrease over the following 12 months.
- Boyd reported a $16.8 million income tax benefit for the quarter, compared with a $4.8 million tax provision in Q1 2014. Tax results are affected by valuation allowances, tax amortization of indefinite-lived intangibles, and audit outcomes.
- Management believed Boyd and Peninsula were in compliance with their debt covenants at March 31, 2015. However, substantial indebtedness, floating-rate exposure, refinancing needs, and restrictive covenants remain important risks. A 100-basis-point rate change was estimated to affect annual interest costs by approximately $13.5 million for Boyd and $7.3 million for Peninsula.
- Key disclosed risks include intense gaming competition (including online gaming), economic and discretionary-spending weakness, regulatory and gaming-tax changes, property and development risks, severe weather and flooding, insurance limitations, cybersecurity and privacy risks, and the ability to refinance debt or fund capital needs.
- Boyd was involved in ordinary-course legal proceedings and stated that pending matters were not expected to have a material adverse effect. The filing reported no material change in commitments and no subsequent event requiring disclosure or adjustment.
Important facts for investors to verify
- Normalize year-over-year revenue, expenses, and EBITDA for Borgata’s deconsolidation and confirm the treatment of Boyd’s 50% equity-method share.
- Assess how much of Q1 net income depended on the IRS settlement and other tax benefits, and whether those benefits recur.
- Review debt maturities, facility availability, covenant headroom, variable-rate exposure, and the company’s refinancing assumptions.
- Compare property-level performance and margins, particularly gaming margin, while accounting for promotional allowances and changing segment mix.
- Monitor consumer spending, competition, gaming regulation and taxation, and weather or other disruptions in the markets where Boyd operates.