Boyd Gaming Corporation — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; unaudited. Boyd operated 28 gaming properties across 10 states; 27 were open at quarter-end. Eastside Cannery in Las Vegas remained closed because of market demand.
Financial performance
Amounts in millions, except per-share data. Comparisons are with the corresponding 2021 period.
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $894.5 | $893.6 | $1,755.2 | $1,646.9 |
| Operating income | $245.1 | $266.3 | $496.1 | $460.1 |
| Net income | $146.8 | $113.7 | $309.7 | $215.9 |
| Diluted EPS | $1.33 | $1.00 | $2.78 | $1.89 |
| Adjusted EBITDAR | $353.9 | $385.4 | $692.7 | $678.0 |
| Cash from operating activities | Not stated quarterly | Not stated quarterly | $456.2 | $499.3 |
Q2 operating margin was approximately 27.4% versus 29.8%; net margin was 16.4% versus 12.7%. First-half operating margin was approximately 28.3% versus 27.9%; net margin was 17.6% versus 13.1%. First-half operating cash flow less capital expenditures was approximately $357.5 million, compared with $403.0 million in 2021.
Balance sheet, debt and liquidity
- At June 30, cash and cash equivalents were $250.2 million, down from $344.6 million at year-end 2021; restricted cash was $13.8 million.
- Total debt principal was $2.950 billion, down from $3.069 billion at December 31, 2021. Long-term debt, net of current maturities and issuance costs, was $2.865 billion; current maturities were $44.3 million.
- Contractual availability under the $1.450 billion credit facility was $1.256 billion, after borrowings and letters of credit. The company reported a $116.8 million working-capital deficit and generally operates with minimal or negative working capital.
- First-half capital expenditures were $98.7 million. Management estimated annual maintenance capital needs of $215–$235 million and expected an additional $50–$65 million during 2022 for projects including Treasure Chest and Fremont.
Material changes and drivers
- Q2 revenue was essentially flat. Gaming revenue fell $42.5 million (5.8%), while food and beverage rose $12.9 million, room revenue rose $10.8 million, and other revenue rose $19.7 million. Management attributed weaker gaming comparisons partly to 2021 government stimulus and fewer competing entertainment options.
- Q2 operating income declined $21.3 million (8.0%), reflecting the shift from higher-margin gaming toward lower-margin non-gaming revenue, as well as higher operating costs. First-half operating income increased $36.1 million (7.8%), supported by revenue recovery, cost discipline and a $12.8 million gain on asset dispositions.
- Q2 net income increased $33.0 million despite lower operating income, principally because debt-extinguishment losses fell to $16.5 million from $65.5 million and interest expense declined. First-half net income rose $93.8 million for similar reasons, including improved operating income and lower interest expense.
- Adjusted EBITDAR fell 8.2% in Q2 to $353.9 million, but increased 2.2% for the first half to $692.7 million. Downtown Las Vegas improved with returning Hawaiian and destination visitors; Midwest & South Adjusted EBITDAR declined in both comparison periods.
Outlook, management commentary and risks
- No quantified revenue or earnings guidance was provided. Management said it expects to fund the next 12 months with operating cash flow, available cash and, if needed, revolving-credit borrowings.
- Boyd agreed to acquire Pala Interactive for $170 million in cash; closing was expected around year-end 2022, subject to customary conditions and regulatory approvals. The planned funding sources were operating cash flow and credit-facility availability.
- The company continued its focus on core customers, targeted marketing, maximizing gaming revenue and operating efficiency. It reinstated a quarterly dividend of $0.15 per share and repurchased 5.1 million shares for $299.8 million in the first half; $480.8 million remained authorized at quarter-end.
- On March 2, Boyd replaced its prior credit agreement with a facility comprising a $1.450 billion revolving facility and an $880 million term A loan, each maturing in five years. It redeemed the remaining $300 million of 8.625% notes in June at 104.313% of principal plus accrued interest. Boyd reported compliance with debt covenants at quarter-end.
- Variable-rate borrowings were approximately 35.6% of long-term debt; a 100-basis-point rate change was estimated to alter annual interest costs by about $10.5 million. The Federal Reserve’s rate increases and further increases pose interest-rate risk.
- Management cited continuing uncertainty from COVID-19, possible changes in customer demand and operations, labor and supplier impacts, economic conditions, competition, regulatory approvals and gaming taxes. It said no impairment charges were warranted in the first half, but future impairments could arise if projected revenues or cash flows are not achieved.
- Ordinary-course legal claims were not expected by management to have a material adverse effect. Disclosure controls were reported effective, and no material changes to internal control over financial reporting were reported.
Important facts for investors to verify
- Whether gaming demand, particularly in Midwest & South, stabilizes after the 2021 stimulus-driven comparison, and whether non-gaming growth can offset lower gaming revenue.
- Actual operating cash flow, capital spending and liquidity needs against management’s stated maintenance and development plans, including the Pala Interactive acquisition.
- Credit-facility borrowing costs, leverage and covenant headroom as rates change; confirm the effect of floating-rate debt and scheduled term-loan amortization.
- Progress and final costs of the Treasure Chest and Fremont projects, and the expected opening and financial contribution of Sky River Casino.
- Whether share repurchases and dividends remain consistent with debt obligations, liquidity and planned investment.