Boyd Gaming Corporation — Q3 2014 Form 10-Q
Reporting period: Three and nine months ended September 30, 2014. Unaudited results cover Boyd’s casino and hotel operations across its reportable segments; Q3 and year-to-date results include Borgata through September 30, when it was deconsolidated.
Financial performance and position
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Net revenue | $738.8 million | $738.6 million | $2,169.7 million | $2,212.9 million |
| Operating income | $73.8 million | $78.3 million | $229.3 million | $239.1 million |
| Net loss attributable to Boyd | $15.1 million | $37.3 million | $20.6 million | $32.9 million |
| Reportable-segment Adjusted EBITDA | $164.0 million | $155.3 million | $468.9 million | $478.9 million |
- Q3 operating margin was approximately 10.0% of net revenue, versus 10.6% a year earlier; nine-month margin was approximately 10.6%, versus 10.8%.
- For the nine months, operating cash flow was $232.5 million, compared with $233.8 million. Capital expenditures were $94.6 million. Cash and cash equivalents fell by $56.9 million to $120.9 million; restricted cash was $25.2 million.
- At September 30, balance-sheet debt, net of discounts and fees, was $3.46 billion, excluding Borgata debt following deconsolidation. Cash was $120.9 million. Boyd’s credit facility had $311.1 million of remaining availability and Peninsula’s had $30.0 million. Management reported covenant compliance and expects operating cash flow and facility availability to cover operating and maintenance needs for at least twelve months, subject to covenants.
- Boyd reported a $3.33 million consolidated net loss for Q3 and a $9.22 million consolidated net loss for the nine months. These differ from the larger losses attributable to Boyd because Borgata income was allocated to noncontrolling interests.
Changes versus prior periods
- Q3 revenue was essentially flat; nine-month revenue declined 2.0%. Midwest and South and Peninsula were the main sources of weakness, reflecting competition, lower casual visitation and unusually severe first-quarter winter weather. Nevada segments and Borgata helped offset declines.
- Q3 operating income declined 5.8%, including $18.3 million of asset impairment charges: a $12.1 million loss related to Borgata deconsolidation and a $6.2 million write-down of Echelon-related construction materials. Excluding impairment charges in both periods, management said Q3 operating income rose $12.4 million, or 15.7%.
- Adjusted EBITDA increased in Q3 but declined for the nine months. Borgata’s EBITDA improved, partly due to a lower property-tax accrual following a settlement with Atlantic City; Midwest and South and Peninsula EBITDA weakened year to date.
- Net loss attributable to Boyd narrowed year over year, partly because 2013 included larger losses on early debt extinguishments. The 2013 nine-month comparison also included income from discontinued Dania Jai-Alai operations.
- On September 30, MGM reacquired its Borgata interest and management participation rights. Boyd deconsolidated Borgata, recorded its investment at a fair value of $221.4 million, and will use the equity method thereafter. Borgata’s assets, liabilities and debt are therefore excluded from Boyd’s September 30 balance sheet; reported period results still include Borgata through that date.
Outlook, risks and unusual items
- The filing provides no specific earnings or revenue guidance. Management emphasizes balance-sheet strengthening, cost control, margin improvement and selective evaluation of acquisition and expansion opportunities.
- Boyd identifies consumer spending, intense regional and online gaming competition, gaming regulation and taxation, weather disruption, energy costs, construction execution, and access to financing as important risks. Significant indebtedness and refinancing needs may constrain investment and financial flexibility.
- The final phase of Kansas Star development was required under the state management contract by January 2015; failure to meet the deadline could expose the company to contractual remedies, including cancellation.
- Interest-rate sensitivity is material: a 100-basis-point change in benchmark rates was estimated to change annual interest cost by approximately $13.7 million for Boyd and $7.6 million for Peninsula, based on period-end debt levels.
- Income-tax results were affected by valuation allowances, tax amortization of indefinite-lived intangibles and discrete tax adjustments. Management reported that legal proceedings in the ordinary course were not expected to have a material adverse effect. No material subsequent events were identified through the filing date.
Important facts for investors to verify
- How Borgata’s equity-method earnings, distributions and valuation affect future reported results and cash available to Boyd.
- Debt, liquidity and covenant headroom at Boyd and Peninsula, distinguishing Boyd’s consolidated balances from Borgata’s now-excluded debt.
- Whether Midwest and South and Peninsula revenue and EBITDA stabilize as weather effects fade and competitive pressures continue.
- Progress, cost and deadline compliance for the final Kansas Star development phase.
- The assumptions behind the Borgata fair value and other impairment assessments, and the sustainability of tax benefits and valuation allowances.