Business context and reporting period
Boyd Gaming Corporation filed this unaudited Form 10-Q for the three months ended March 31, 2014, compared with the three months ended March 31, 2013. The company operated 21 wholly owned gaming properties and consolidated Borgata Hotel Casino & Spa, in which it held a controlling 50% interest, across eight states.
Financial performance and liquidity
Unless otherwise noted, amounts are in millions of dollars.
- Revenue: Net revenue was $708.3, down 3.7% from $735.6. Gross revenue was $818.7, less $110.4 of promotional allowances. Gaming generated about 74% of gross revenue.
- Profitability: Operating income fell to $68.5 from $81.4; operating margin was approximately 9.7%, versus 11.1%. Net loss attributable to Boyd improved to $6.2 from $7.3; basic and diluted loss per share was $0.06 versus $0.08.
- Adjusted EBITDA: $144.5, down from $163.5. Segment performance varied: Las Vegas Locals was $40.0 (up from $39.2); Downtown Las Vegas $9.3 (up from $7.1); Midwest and South $44.1 (down from $49.7); Peninsula $44.8 (down from $50.7); and Borgata $20.5 (down from $28.4). These are non-GAAP measures as defined by the company.
- Cash flow: Operating cash flow was $57.2, compared with $88.9. Capital expenditures were $18.3, versus $22.6. Net cash used in financing was $54.9; cash and cash equivalents declined $15.0 to $162.9. Restricted cash of $31.0 is reported separately.
- Debt and interest: Debt principal totaled approximately $4.371 billion at quarter-end, down about $55 million from December 31, 2013. Net debt carrying value, including current maturities, was approximately $4.333 billion. Net interest expense declined to $75.0 from $95.0, primarily reflecting 2013 refinancing and debt repayments.
- Liquidity: Boyd reported $299.5 of remaining contractual availability on its credit facility, Peninsula $34.8, and Borgata $20.1. Management said operating cash flows and facility borrowing capacity were expected to cover projected operating and maintenance needs for at least 12 months, subject to covenants and facility availability.
- Balance sheet: Total assets were $5.680 billion; total stockholders’ equity was $646.8 million. Current assets were $324.4 million and current liabilities $442.3 million.
Material changes versus the prior comparable period
- Net revenue fell mainly because of lower results in Midwest and South and Peninsula, with unusually severe winter weather contributing to weaker visitation and spending.
- Adjusted EBITDA decreased by $18.9 million. The largest segment declines were Borgata ($8.0 million), Peninsula ($5.9 million), and Midwest and South ($5.6 million). Borgata also faced increased competition, higher property-tax accruals, and higher utility costs.
- Lower interest expense partly offset weaker operations and helped reduce the net loss attributable to Boyd. The prior-year quarter also included a $1.0 million loss from discontinued operations.
- Operating cash flow declined by $31.7 million. Prior-year investing cash flow included Echelon sale proceeds; no comparable sale proceeds occurred in 2014.
- Corporate expense increased to $19.9 million from $15.4 million, reflecting corporate initiatives and higher share-based compensation. Maintenance and utilities rose to $43.3 million from $39.2 million, with severe winter weather a key factor.
Outlook, commentary, risks, and unusual items
- No specific quarterly or annual revenue or earnings guidance is provided. Management emphasized balance-sheet strengthening, cost efficiency, and disciplined evaluation of acquisition opportunities; it stated that margin improvement remained a profit-growth priority.
- Management attributed first-quarter pressure to a slowly recovering economy and severe winter weather. It also cited ongoing competition, including regional casino expansion and internet gaming. Borgata’s online gaming operation, launched in late 2013, contributed revenue; the filing reported a 39.1% New Jersey online gaming market share for the quarter.
- Boyd reported a $1.6 million noncash asset impairment, primarily related to planned dispositions of non-operating assets. It also recorded $0.2 million of loss on early extinguishment of debt. The quarter’s effective tax rate was reported as negative 76.0%; the tax provision was affected by valuation allowances and noncash tax expense related to indefinite-lived intangibles.
- Borgata property-tax appeals remain material and unresolved. A tax court decision reduced assessed property values for 2009 and 2010; Boyd estimated potential refunds and statutory interest of approximately $57 million combined, but the city appealed. Boyd said it would record no gain until a final, non-appealable decision. Trials for 2011–2013 were scheduled for September 2014, with the 2014 appeal pending.
- Boyd said it believed Boyd, Peninsula, and Borgata were in compliance with debt covenants at March 31. Key risks include substantial leverage and refinancing needs, covenant restrictions, gaming regulation and taxation, competition, economic sensitivity, weather disruptions, project cost and completion risks, and the uncertain outcome of Borgata’s property-tax appeals. The final Kansas Star project phase was contractually due by January 14, 2015.
- Management concluded disclosure controls were effective; it reported no material change in internal control over financial reporting during the quarter. The filing disclosed no material subsequent events through its filing date.
Important facts for investors to verify
- Whether Midwest and South, Peninsula, and Borgata revenue and EBITDA recover from weather, competition, and cost pressures.
- Debt maturities, facility availability by entity, covenant headroom, refinancing access, and the effect of restrictions on moving cash among Boyd, Peninsula, and Borgata.
- The timing and outcome of Borgata’s property-tax appeals, including the city’s appeal of the 2009–2010 decision and the later tax-year cases.
- Whether Kansas Star’s final construction phase met its contractual deadline and stayed within budget.
- The sustainability of operating cash flow, capital spending needs, and the contribution and competitive position of Borgata’s online gaming business.