Boyd Gaming Corporation — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. Financial statements are unaudited. Boyd operated 29 gaming entertainment properties across 10 states, reported in Las Vegas Locals, Downtown Las Vegas, and Midwest & South segments.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $819.6 million | $612.2 million | $2,493.0 million | $1,835.1 million |
| Operating income | $113.4 million | $69.6 million | $357.7 million | $260.6 million |
| Net income | $39.4 million | $11.8 million | $133.3 million | $92.2 million |
| Diluted EPS | $0.35 | $0.10 | $1.17 | $0.80 |
| Operating margin | 13.8% | 11.4% | 14.3% | 14.2% |
- Q3 revenue rose 33.9% and operating income rose 63.0% year over year. Nine-month revenue increased 35.8%, operating income 37.3%, and net income 44.6%.
- Gaming generated approximately 75% of Q3 revenue. Q3 departmental margins were 55.0% for gaming, 5.6% for food and beverage, 53.2% for rooms, and 37.0% for other revenue.
- Adjusted EBITDAR was $213.5 million in Q3 versus $148.8 million; nine-month Adjusted EBITDAR was $669.1 million versus $472.6 million. This is a non-GAAP measure.
Cash flow, liquidity, and debt
- Nine-month operating cash flow was $415.4 million, compared with $332.2 million. Capital expenditures were $166.8 million, implying operating cash flow less capital expenditures of approximately $248.6 million.
- Cash and cash equivalents were $235.1 million at September 30, down from $249.4 million at year-end 2018; restricted cash was $26.4 million. Cash, cash equivalents and restricted cash together declined $11.8 million during the nine months.
- Current assets were $393.7 million and current liabilities $554.3 million. Management says it generally operates with minimal or negative working capital.
- Debt principal was $3.851 billion, down $179.3 million from December 31, 2018. The bank credit facility had $636.5 million of remaining contractual availability, after borrowings and letters of credit. Boyd reported compliance with debt covenants.
- Operating lease liabilities totaled $909.7 million, recognized following adoption of the lease accounting standard in January 2019. The Master Lease generated $24.7 million of Q3 rent expense and $73.1 million year to date.
Material changes and management commentary
- Acquisitions were the principal driver of growth: the Midwest & South segment added $201.4 million of Q3 revenue and $644.4 million for the nine months versus prior-year periods. These comparisons include Lattner, Valley Forge, and the Pinnacle Properties acquired in 2018; they are not like-for-like growth measures.
- Q3 Midwest & South revenue was $545.7 million and Adjusted EBITDAR $156.2 million. Las Vegas Locals and Downtown Las Vegas revenue increased 2.2% and 2.5%, respectively, in Q3.
- Management attributed improved operating income to acquisitions and cost controls. Lower project development, preopening and writedown costs also benefited results. Higher debt balances and interest rates increased interest expense: nine-month net interest expense rose to $180.9 million from $140.7 million.
- Boyd continued share repurchases and dividends. It repurchased $28.0 million of shares in the first nine months and paid $21.2 million in dividends. The declared quarterly dividend rose from $0.06 to $0.07 per share in 2019; $72.5 million remained under the 2018 repurchase authorization at quarter-end.
Outlook, risks, and contingencies
- No specific earnings or revenue guidance is provided. Management believes cash from operations and available credit will meet operating needs and maintenance capital requirements for the next 12 months, subject to covenants.
- Estimated annual cash spending for ongoing property refurbishment and maintenance is $170 million to $190 million. The Wilton Rancheria project remained in planning; management anticipated third-party financing and an 18-to-24-month construction period once work begins and financing is in place.
- Variable-rate borrowings represented approximately 41.4% of long-term debt. A 100-basis-point rate change would affect annual interest expense by approximately $15.9 million, based on quarter-end debt levels.
- Risks cited include gaming competition and regulation/taxation, acquisition integration and development execution, refinancing and interest-rate exposure, economic and regional conditions, severe weather, cybersecurity, and possible impairment charges. The filing reports no material change to previously disclosed risk factors.
- Boyd said ordinary-course legal claims, if adversely decided, were not expected to materially affect its business, financial position, or results. No additional material subsequent events were identified through the filing date.
Important facts for investors to verify
- How much reported revenue and earnings growth reflects acquired properties versus organic performance.
- The cash cost and terms of the Master Lease, and the effect of lease obligations on leverage and future cash commitments.
- Debt repayment, refinancing needs, covenant headroom, and exposure to floating interest rates.
- Capital spending against the $170–$190 million annual maintenance estimate and the financing, budget, and timing of the Wilton Rancheria project.
- Whether segment-level operating trends and margins continue to support cash generation after acquisition-related comparisons normalize.