Business Context and Reporting Period
Company: Boyd Gaming Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2011
Overview: Boyd Gaming is a diversified operator of 15 wholly-owned gaming entertainment properties and one controlling interest in a limited liability company (Borgata Hotel Casino and Spa). The company operates in four reportable segments: Las Vegas Locals, Downtown Las Vegas, Midwest and South, and Atlantic City. The reporting period reflects the full consolidation of Borgata, following the effective change in control obtained on March 24, 2010, and the consolidation of the Las Vegas Energy Partners (LVE) variable interest entity.
Key Financial Metrics
| Metric (in thousands) | Q1 2011 | Q1 2010 |
|---|---|---|
| Net Revenues | $564,946 | $415,135 |
| Operating Income | $48,104 | $44,030 |
| Net Income (Loss) Attributable to Boyd | $(3,521) | $8,435 |
| Net Cash Provided by Operating Activities | $77,345 | $73,074 |
| Cash and Cash Equivalents (Ending) | $173,848 | $108,202 |
| Total Debt (Long-term + Current) | $3,187,482 | $3,218,755 |
| Working Capital Deficit | $(330,000) | $(331,300) |
Note: Debt figures represent carrying value. Working capital deficit is calculated as Current Assets minus Current Liabilities.
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 36.1% to $564.9 million, primarily driven by the full-quarter consolidation of Borgata (which contributed $169.1 million in net revenues). Excluding Borgata, net revenues declined slightly by 0.6%.
- Profitability Shift: While Operating Income increased 9.2% to $48.1 million due to cost containment and lower depreciation, Net Income attributable to Boyd turned negative at $(3.5) million compared to $8.4 million in the prior year. This decline was driven by a significant increase in interest expense ($57.3 million vs. $29.0 million) due to the full consolidation of Borgata's debt and higher average interest rates.
- Segment Performance:
- Atlantic City: Adjusted EBITDA surged to $31.7 million from $13.1 million (partial quarter in 2010), though Borgata faced increased competition and a decline in table games hold percentage.
- Midwest and South: Adjusted EBITDA increased 4.9% despite a slight revenue decline, aided by effective marketing and economic strength in Louisiana.
- Las Vegas Locals: Adjusted EBITDA declined 1.9% due to cautious discretionary spending.
- Impairment Charges: The company recorded a $5.0 million impairment charge on the Borgata trademark due to adverse changes in the Atlantic City business climate and increased regional competition.
Guidance, Outlook, and Risks
- Outlook: Management expects continued stabilization in business trends but notes that the recovery from the economic recession remains uncertain. Consumer confidence and spending on discretionary items remain key drivers.
- Development Projects: The Echelon development project on the Las Vegas Strip remains delayed. Management does not expect to resume construction for three to five years due to depressed demand and unavailable financing. The company continues to incur annual recurring costs of approximately $13.0 million to $17.0 million for the project.
- Liquidity and Covenants: The company is in compliance with its Amended Credit Facility covenants. However, management estimates that an 8.1% decline in trailing twelve-month Consolidated EBITDA would breach the Total Leverage Ratio covenant. Borgata is also in compliance with its covenants, though an 8.7% decline in EBITDA would breach its minimum EBITDA covenant.
- Subsequent Events:
- Dania Jai-Alai Sale: On April 29, 2011, Boyd entered an agreement to sell Dania Jai-Alai for $80.0 million, expected to close in Q3 2011.
- Sam's Town Tunica Closure: Due to Mississippi River flooding, Sam's Town Tunica was ordered closed indefinitely effective May 1, 2011. The impact on operations is uncertain.
- Legal Contingencies: Significant litigation continues regarding the Treasure Chest Casino license (Copeland matter), which could result in license revocation if lost. Additionally, property tax assessments at Blue Chip remain uncertain, with a liability accrued of approximately $19.8 million.
Investor Verification Checklist
- Debt Covenants: Verify the sensitivity of the Total Leverage and Interest Coverage ratios to potential declines in EBITDA, given the narrow margins for compliance.
- Borgata Performance: Monitor Borgata's table games hold percentage and revenue trends amidst increased competition from Pennsylvania and Delaware casinos.
- Echelon Project Costs: Track the ongoing cash outflows for the suspended Echelon project and the potential for future impairment charges on the $1.1 billion in assets held for development.
- Legal Risks: Assess the status of the Treasure Chest license litigation and the final resolution of the Blue Chip property tax assessments.
- Refinancing Needs: Evaluate the company's ability to refinance Borgata's debt maturing in 2014 and 2015, and Boyd's own senior notes maturing between 2014 and 2018.