Boyd Gaming Corp (BYD) 2004 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to fourth quarter 2004 Boyd Gaming conference call. I'll be your operator for today. [ Operator instructions ] I would now like to turn the presentation over to Mr. Ellis Landau Executive Vice President and Chief Financial Officer. Please proceed, sir.

Thank you. Good afternoon, everyone and welcome to our fourth quarter and full year 2004 conference call. Our statement today may contain some forward-looking statements. The actual results may vary from what's contained in those statements, the variances could be material and we refer you to our public statements for the risk factors you need to know before you invest. As a reminder, we are broadcasting this call on our website at Boydgaming.com and Fulldisclosure.com. Joining me today are Don Snyder, Keith Smith our Chief Executive Officer and Bob Boughner the Chief Executive Officer of Borgata. We will each make remarks and following that we will all be available to respond to your questions.

A short while ago, we issued a release of our fourth quarter financial results. What a quarter it was. All of our segments reported increased results. Some of them being sizable increases. In particular, our Boulder strip and Coast units representing principally the Las Vegas locals market. Put up huge numbers and Borgata continues its powerhouse performance. Across our company, our business models are working very well. Boyd's representation for strong operating management is solidly validated and we are investing and will be investing for growth, right into our sweet spots. Las Vegas strip, Las Vegas locals, our leading Riverboat and Borgata.

In the fourth quarter, we again set an earnings record and again by a large margin. In the quarter, we reported adjusted earnings of $.50 per share, which is 163 percent above the $.19 per share that we reported in the fourth quarter of 2003. That was with almost 23 million more shares outstanding. Now let's look at EBITDA results from the fourth quarter. We reported record EBITDA of $149 million, 122 percent increase over the $67 million we reported in the fourth quarter 2003. And it wasn't just the edition of the Coast Properties Samsung Shreveport that did it. The fourth quarter also showed solid widespread same-store earnings gains across the board. Same store EBITDA was up 25 percent in the fourth quarter. Over the comparable quarter in 2003.

In a few minutes, I will talk about the particular strengths in those numbers but first, I want to go through some other results. Revenue in the quarter were $540 million. That's up 75 percent over the prior year's fourth quarter. Most of that came from property addition. On a same store basis, we were up 5.3 percent in revenue. For the full year 2004, revenues were 1.7 billion, that's a 38 percent increase over the prior year. Mostly, from the property additions that occurred during the year. EBITDA for the full year was up $449 million, a 69 percent increase over 2003. Significantly, our adjusted earnings per share for 2004 were $1.47 a 75 percent increase over the $0.84 per share we reported in '03. That's EPS number is a record for the company and by a wide margin.

We operate our business in five market categories under the Boyd Gaming banner. Las Vegas Strip, Las Vegas locals, downtown Las Vegas, riverboats and Atlantic city. While all were solid contributors, two of them were the drivers behind the great successes,-- the great success we exhibited. Las Vegas locals market, to use a collequy term, is on fire. They're two major players in that business. Boyd Gaming and Station Casinos. For us, that market is reflected in the Boulder Strip and Coast segments. They are a little bigger.

In fact, our four major Las Vegas locals property did about 80 percent of the revenue they did in the major Las Vegas local properties they owned in the fourth quarter. What they so eloquently report about Las Vegas locals market and economy is ditto for us. Population growth, tourist economy, construction and other measurements are excellent indicators of the increasing demand for our products. And with strong demand growth, there's also limited supply growth, making for a bright same store growth story. And we're both doing well.

In the fourth quarter, stations reported their major Las Vegas properties had a 17 percent revenue growth, 34 percent EBITDA growth, both over the prior year. Our combined Boulder Strip and co-segments reported a 16 percent revenue growth and 41 percent EBITDA growth. In addition, to the powerful same store growth story, we have unit growth. We opened a 460 room addition to the Orleans last October and is making a significant contribution to that property. That will help propel 2005 results.

And in 2006, we'll have South Coast, the new property in Las Vegas locals market that will drive growth in 2006. With possible further development of South Coast master plan , we could have growth in 2007 and beyond. With excellent facilities, and with great locations, in Las Vegas, in Nevada, top notch management and a hot market, all I can say is, "How sweet it is." Our second great earnings driver is Borgata. If you weren't sure before about Borgata dominating the Atlanta City market, you have to be now. As I have said before, the beach may be seasonal, the boardwalk may be seasonal, but having fun is not seasonal. And the fourth quarter proved it. Borgata had a couple startup quarters in 2003, then got rolling. In the fourth quarter, 2004 Borgata revenues were $170 million, 27 percent above the prior year. EBITDA was $60 million, 77 percent above the prior year. Its EBITDA margin was 33.5 percent, up almost 10 percentage points over the prior year. Number one in slot revenue, number one in table games revenue, $324 per unit per day in slots, and almost 4700 per unit in tables in the quarter.

In its first calendar year, Borgata did $216 million in EBITDA, right around the 20 percent cash on cash return on our investment. And we're investing more in the public -- more --there -- The public space expansion comes on in 2006 and the rooms expansion comes on in 2007. Beyond the internal growth Borgata is generating, unit growth is on the -- unit growth is on the -- that's coming on should keep that growth pattern going well into the future.

While Las Vegas locals or Borgata were the big story, others segments were also contributors. Downtown Las Vegas, despite a hit from the higher fuel costs in the Hawaiian air charter operations posted a nice revenue in EBITDA gain for the quarter. That business remains very solid for us. Central region with our five riverboats and one casino also turned in a solid performance. Samsung Shreveport joined the group in May and was responsible for much of the revenue and EBITDA gains, but on a same store basis revenue was up 2 percent in the quarter, EBITA was up 5 percent, and margins improved almost a full percentage point.

Finally, Stardust continued its nice turn around. Nearly doubling its EBITDA in the quarter. Without the competitive guest room and amenity product when compared to the newer and larger strip product, they did it the old fashion way. Slot revenue was up 21 percent in the quarter. Of course, as we've been saying for awhile, Stardust is a development story and we're on our way. More about that from Keith in a few minutes. Now in the area of earnings guidance, the first quarter 2005 is off to a good start. Given the current trends, we expect first quarter adjusted EPS and EBITDA to meet the fourth quarter results, that we are reporting today. That's EBITDA of $150 million and adjusted earnings per share of $0.50.

And now before I turn it over to Keith, I want to position our company for you one more time. Boyd Gaming is a five in one company. You get five businesses all under one umbrella. I'm not in the evaluation business but many of you are, but I thought it would be interesting to point out that each of our five businesses has a public or reported proxy to help you get an idea of what the market thinks of each of our businesses. So, here's my helpful hint of the day. For locals business, locals Las Vegas business, well, that's Stations Casinos. For our central region, a lot of riverboats and one racino. That's a good match. Penn National. For your downtown Las Vegas properties, well, there was an announcement just a few days ago of a transaction in that market. So that's fresh data. For our Stardust land, well right in the neighborhood there's Rivera holdings but be sure to adjust for size and shape. And finally for Borgata, there you have two choices for comparisons with our -- with one great mega resort in a major gaming market. Las Vegas Sands and Wind Resorts. Your pick.

With that I would like to turn the call over to Keith Smith. Keith is our Chief Operating Officer and will become our Company's president when Don Snyder retires at the end of next month. Keith?

Thank you, Ellis, and good afternoon, everyone. As Ellis indicated, fourth quarter of 2004 was an impressive quarter and one we're very proud of. We achieve record revenues and EBITA for the second quarter in a row. However, what is most impressive is that the gains we achieved were broad based with the same store EBITDA of 25 percent. These results reflect the fact that we have a very strong core operating business that we can continue to build on into the future.

As we move into 2005, we're very excited, not only about the strength of our core business, but we're also excited about the wonderful growth prospects we have. These growth opportunities are mainly internal, something we control, and are not subject to a new state or new jurisdiction approving gaming. In addition, additional growth opportunities may exist in these new jurisdictions such as Pennsylvania, and we will monitor those and pursue those as appropriate. With respect to the internal growth, as Ellis indicated during the fourth quarter of 2004, we completed and opened a new hotel tower at the Orleans. The additional rooms bring the total room count to almost 1,900 and help continue the Orleans strong performance. At Delta Downs, our racino in southwest Louisiana, our expansion remodel project is nearing completion. We have the remodeled and expanded casino open for the majority of the majority of the fourth quarter, and the hotel, food court and lounge and event center will open in March. This remodeling and expansion project will allow us to build upon the success we've already achieved at this property.

The rooms and other amenities will give the customer more reasons to visit Delta as opposed to traveling further into Lake Charles. At Abusha (ph) Property in Michigan City, Indiana, our expansion and remodel project is continuing on schedule. As you'll recall, we're building a new state of the art riverboat which will allow for all gaming operations to be on one floor, as opposed to the traditional three floors. We're all adding an entertainment lounge, expanding and remodeling our restaurants, and adding a parking garage. This project is scheduled to be completed around the first of the year.

Here in Las Vegas, we're expanding our presence in the strong Las Vegas locals market with the construction of Southcoast. This project is progressing on schedule and we expect to it be complete around the first of the year. When completed, this project will be an attraction for both tourists and locals alike and will include a 64-lane bowling center, 16-screen movie theater, 662 rooms and suites and an 80,000 square foot casino. It will also include 150,000 square foot convention center and state of the art equestrian center. At the Borgata, which Bob will talk about, in a few minutes, we're proceeding on our previous announced plans to expand the casino in public space and add restaurant and room capacity.

Last, but certainly not least, our growth opportunities here in the Las Vegas strip. The Stardust and Barbarea Coast sites represent some of the best real estate on the Las Vegas strip. We've begun the process of assembling a team of professionals to evaluate the Stardust site , and the market to assist in the creation of a master plan for the entire 63 acres. This process, which is similar to the process we use for the Borgata is essential in determining the proper development for this site. All of these projects will help to continue the earning momentum we have achieved in 2004.

As we sit here today, we are extremely pleased with what we've accomplished in 2004, and we're equally as excited about our growth opportunity for 2005 and beyond. We have a wonderful portfolio of strong and diverse operating properties that are performing extremely well, coupled with tremendous internal growth opportunities in some of the most exciting jurisdictions in our business, Las Vegas and Atlantic city. With that, I'll turn it over to Bob Boughner, who will provide an update on the activities at the Borgata. Thank you.

Thank you very much, Keith. And good afternoon, everybody. Well, as you can see, Q4 really was a great quarter for us at Borgata. We enjoyed our highest gaming market share ever at 15 percent. Each month in the quarter produced very strong revenues and earnings. Our Q4 EBITDA of $60 million surpassed the previous Q4 market record of $38 million by 57 percent. And Borgata continued to demonstrate, as you've heard, that our brand of fun is really not seasonal. In a market where Q4 EBITDA has historically dipped 40 percent from the Q3 results, our Q4 EBITDA dipped only 5 percent from the Q3 results. It was very gratifying. Our strategy of continuous improvement is reflected not only in revenues but also in our operations and operating margins. Every quarter since opening in July 2003 has shown marked and steady improvement. Our Q4 margin was even with our Q3 margin. Our business model is working very well. We believe that our $216 million dollar, 2004 EBITDA , truly puts us at the head of the class in Atlantic city. Despite being relatively new to this school. So why is that? That's a question we ask ourselves every day. We believe it's our product, how we've positioned ourselves in the market, the great people we have in the organization, the processes we use and our pricing structure. So not unlike the Super Bowl champions, our fans are really at the core of our strong and growing franchise. I believe that we have great coaches and some truly exceptional player, but our customers, our fans, are driving our growth.

We should point out that the Atlantic city gaming market win was up $318 million in 2004, when compared to the prior year. Well, Borgata was up $370 million. In Q4 alone, the market grew $43.6 million. Borgata grew $43.6 million. And in January, our gaming revenues were up about 12 percent over our very strong results in the prior year. We are clearly paying our way, doing more than our share and growing the market. In that regard, I'm pleased to report that our public space expansion is on budget and on schedule for its 2006 Q2 opening. We are adding three wonderful destination restaurant, one each by Bobby Flay, Michael Mena and Wolfgang Puck. With another 36 gaming tables, 600 additional slot machines and an 85-table poker room, we believe, we will continue to grow this market as we grow our business. Our second tower will add 800 room keys to the 2,000 we already have. That building is scheduled to open in Q4, 2007. We believe the confluence of our results, our momentum and our expansions all position us nicely for a seat at the head of the class for a long time to come. Now I'd like to turn the conference over to Don Snyder.

Thank you, Bob. As you know, this will be my last conference call as president before retiring March 31st. I'd like to thank my colleagues here today. Those of us that are with us on the call today. But also the broader group around the company, who have contributed to the wonderful results which make my final conference call a nice one with which to say farewell. Or to "blow out of here", so to speak.

When I sign -- when I joined the company 8 1/2 years ago, Bill Boyd asked me as my highest priority to help provide the company a strategic framework, a strategic thinking process to help guide us forward. We did that. And I talked about it consistently over the years in these quarterly conference calls and elsewhere, inside and outside the company. There is a strategic framework in place. It is working and it is sustainable. We may have had some frustrations in the early years when it didn't seem that shareholder value was created as quickly as we thought we deserved. But we stayed the course and a great advantage.

The company you see today is very much the company we envisioned and probably more when we started this process several years ago, and we have created value that clearly exceeds what we envisioned in those earlier years. This company has transformed itself in a very positive way. It sits on a strong, broad, diversified operating foundation with wonderful growth opportunities and very strong markets. Its management team has never been stronger, broader and deeper. All our results of a conscious, strategic thought process and execution. Focusing on the most senior operating management levels, you have all come to know and understand the remarkable capabilities that Bob Boughner has brought to the development and operation of Borgata. You also know of the extraordinary talents of Michael Gagne and what he and his colleagues have brought to Boyd Gaming. But you haven't had as much opportunity to experience the talent and leadership that Keith Smith will provide when he becomes president here at the end of March.

I know you will like what you see. After all, he came to this company 15 years ago already with a strong background in our industry. He has been an integral part of every major planning exercise and every major transaction in the intervening years. I do have mixed results about retiring. Feeling good about how far the company has come, but with some regret about not being here to participate directly in the real and exciting growth this company will have in the years ahead. I have also enjoyed and learned a lot from many of the people on the phone today. And will miss those relationships. But I will remain a supporter and cheerleader for this company. And, to the shareholder who calls himself "cowboy", as he signs his note to me last week, and who I think is on the call today, I appreciate your kind words. I look forward to standing alongside you and other investors as a shareholder who expects to see continuing value creation in the years ahead.

And, finally, and not to make this call something that it shouldn't be, I'd like to give a special thanks to Bill Boyd. It is absolutely incredible to have watched what can happen when you combine a remarkable and entrepreneurial spirit with the spirit and the ability to build people, a company, and the communities where it all comes together. It's been great and I appreciate the opportunity that he has given me. With that, we'd be pleased to take your questions and comments.

Thank you. Ladies and gentlemen, (Operator Instructions) And your first question comes from Larry Klatzkin with Jefferies and Company. Please proceed.

Hey, guys. I have to say, I've never attended a call before, but, wow, great results. You definitely bowled me over. Congratulations guys. Don, you'll be missed.

Thank you very much, Larry.

Question, just to try to get our models together. Given how many projects under construction, can you talk about CapEx over the next year on a quarterly basis of how much we should look at how much you're spending at what time?

Larry, I think we look at it, let's take Borgata out for just a second. That's being done out of the joint venture. We'll look at Boyd first. We're looking at about $500 million in the program right now, of which about $400 million will be spent this year and about $100 million tailing off into '06, as we finish all the payments for both the Blue Chip and South Coast. That's pretty much what we have. Delta Downs is just about finishing up, so there's not a lot left there. Borgata expenditures, you know, is a $200 million project that will be spread between '05 and the first half of '06.

Should we put the $400 million evenly throughout the year or more front ways?

I would put it clearly even throughout the year. These projects tend to build up as they get into the major parts of the development. So, I would say if you did it evenly throughout the year or put a little bit more in the back, you'd be safe.

All right. Any word on the phase II monorail, which will bring you right over to Stardust? Any talk about what's going on?

This is Don. I'll answer that question. There's a lot of dialogue as recently as in the press today. The federal funding that is a part of extending the monorail to downtown and the west side of the strip has received a staff recommendation in Washington, not to be funded in its current budget cycle. So that delays the monorail. It's a function of two things. With the first phase.

One is, it's clear that for this project to move forward and receive the type of federal funding that it needs, as well as funds that would be raised in the marketplace, there needs to be a reliable operation and a reliable record of attendance. Both of those things have not happened yet , as a result of some of the challenges that they've had in the early months. We've had some good ridership numbers at time, they've all been down. I think that's created a lack of ability to market the monorail as much as it needs to be. So it's put them in a mode where they have to be able to demonstrate reliability and ridership before they can get additional funding necessary for the extension.

I was in a meeting just earlier today with the RTC, which is the Regional Transportation Commission, and talking about an alternative. They had some good alternatives that will look at both extending transportation non-monorail transportation, but a much better version than what buses provide to downtown and to the west side of the strip. It's just too early to know how that's going sort out. But I think the proposal that they're making will provide better transportation, substantially better transportation in kind of the same time frame that was expected with the monorail. The monorail, unfortunately, has been delayed.

That's not your doing. I say to Bob, you did a phenomenal job. I'd be curious. Do you give any of that gain despite the fact that you were not being -- and how much would you give to the strike as a benefit? Obviously, you made such a gain, obviously there's a lot that's not involved in that.

I think I would answer it this way, Larry. I think the strike was worth something, but not really that much. We had strong results in all three months. So, we really would be difficult to call on the quarter. But that was worth it. If you had to peg it to a number, I would say a couple million dollars.

All right. That's fair. And then I guess your feeling on Lake Charles with the competition coming up. Any feeling for how you're going to be in that market and how you're going to do when the market starts?

We're well positioned with the opening of our new amenities in March if the hotel opens and the food court and events center open. I think we feel pretty good. We're first into that market as you come across the Texas border off I-10. The more cars you get on I-10, the better we feel about it. If there's marketing war, we'll monitor them. We would hope not to get involved in that and dilute our margins, but we'll pay attention to it and see what happens. But we feel good about our position there right now.

All right. Guys, congratulation. Don, good luck in your new venture.

Thanks, Larry.

Thanks, sir. Your next question comes from Larry Haverti with Gabelli Asset Management. Please proceed.

Hi, Ellis. I was just wondering, two things. One, we're the net ended up at the end of the quarter. And then, the second thing, which is more interesting. If you throw in these condo hotels that are under construction and written up today in the journal, with all of the high-end expansion, if you take rooms over 200 a night, the supply in Las Vegas is growing at astronomical rates. How much are you worried about that as you look at the Star Dust project?

First, let me mention the debt balance as we reported was 2.3 billion, but we had 160 million cash at the quarter end. So that takes the net down to about 2.140 billion. Then on the condo comment?

Condo's plus Win, plus Venetian, plus, plus, plus.

First of all, starting with Win, this is Don Snyder, I think the Win project, just as he has done with other properties in the past, will create a tremendous amount of excitement. There will be a tremendous amount of public relatioins attention on this market place and there will be a tremendous amount of advertising that's done. I think that abodes well for the destination as a whole. Also, as a member of the board of the LBCBA, I think it is clear to say that there is a lot of advertising and lot of very effective promotion of this venue taking place right now in anticipation of a lot of rooms. And in a compatible way with tremendous room expansion. This destination does a very effective job of marketing itself, and I think it's reflected in the extremely strong numbers that we're seeing right now as recently in 2004 ended very, very strong for the destination in terms of travel and expenditures and all kinds of things. There was just a major report at the LBCBA yesterday to that effect and reported in the local newspaper.

With regard to the -- with regard to the condominium project, there's no doubt that there's a tremendous amount of conversation with regard to a tremendous number of projects. There's also no doubt that all of those projects will not be built. A lot of them will, and we think, quite frankly, it adds a totally new dimension to this market place. It will put a premium on those people who do things to make sure they have the right product in the right place. Part of being in the right place is to have a total environment. Having 63 acres of land at the Stardust gives us that type of environment. So we think that creating greater attention on this marketplace, then having the right product in the right place gives us great advantage. We're just not concerned about that at all. We see it as a plus.

Great. Thanks a lot.

(Operator Instructions) And your next question comes from Dennis Forst with Key Bank. Please proceed.

Good afternoon. I had a couple of questions for Bob regarding Borgata. You made the point about there being little seasonality fourth quarter cash flow pretty close to the third where there's normally a big dropoff. Looking forward, the first quarter typically is a better quarter than the fourth quarter for the market. Will it be a stronger quarter for you than the quarter quarter?

We don't generally give specific guidance. What I would say is that, you know, with nearly half the quarter, first quarter in the bank, you know, we're tracking very nicely ahead of the prior year. And I would really look at it in that reference as how much are we up over the prior year? And we're tracking nicely ahead of the prior year, maybe by as much as 30 percent.

Okay. And then on -- again, on Borgata, your -- what was the low number? Oh, the interest expense keeps coming down sequentially. It was down dramatically year over year. Are you just paying off the debt at a pretty rapid rate? The interest expense was a million dollars less than the third quarter.

There's two factors. The primary factor is that we're generating a significant amount of cash flow and we're reducing debt. Our CapEx at this point in time is not very high. We haven't really expended that much on the public area expansion. And the other factor is lower rates. We were able to renegotiate our bank agreement. And the other thing you'll need to be watchful for is capitalized interest, and as the project moves forward and its impact on our total interest expense.

Good.

But in any event, the rates are down a touch for us. We're paying less. And we continue to pay down debt quickly.

Okay. Then one question for Ellis. Can you explain the Blue Chip termination fee, where it is in the income statement? And exactly what it was?

The Blue Chip termination fee was a payment made upon the conclusion of a contract.

Is that the purchase contract that there was no competition, so you had to give the sellers $5 million?

Right. There was a consolidating agreement. Upon termination, there was a fee paid. It was paid in December. And it was $5 million. In the -- in the income statement it's under general administrative expense. You see the $90 million fee there.

It's under SG&A. Okay. Great. Thanks a lot.

Thank you, sir. And your next question comes from Fisher O'Connor with Frank Glenn. Please proceed.

Good afternoon. I'm probably missing something here, but just looking at post 10k from last year and the offering document, the operating income was 104.7 million and this year in your release you have 74.7 million. Is Coast being allocated more overhead or purchase investment?

This is the operating income for them for all of 2003. Is that the --

Well, Im just wondering, the 104.7 for 2003 versus 74.7 in 2004 would imply that your operating income decline.

We only report them for the half year we owned them. We bought them July 1st.

Okay.

What I have given in this release, and we talked about comparables, we're really comparing both the pre and post merger numbers, just to give you some comparable data points. But from an actual pointing standpoint, we don't pick them up until July 1. There's nothing in there before July 1 for us. So, when you see year-to-date Coast, it's six months versus 12 months that you're referring to in that 104 number from last year.

Okay. Thank you.

That's it.

You have no further questions at this time. I'd like to turn the presentation back over to Mr. Ellis Landau for closing remarks.

We were very pleased to report these results for you today. We look forward to speaking to you in April to talk about first quarter results. Thank you for your attention today and good-bye.

Thank you for your participation at today's conference. This does conclude the presentation. Have a great day.