Boyd Gaming Corp (BYD) 2005 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Boyd Gaming third-quarter conference call. My name is Anthony and I will be your coordinator for today. At this time, all call participants are in listen-only mode. We will be facilitating a question and-answer session towards the end of today's conference. (Operator Instructions). I would now like to turn the presentation over to your host for today's call, Mr. Ellis Landau, Executive Vice President and Chief Financial Officer. Please proceed, sir.

Good afternoon, and welcome to our third-quarter conference call. I apologize for a slight delay here. It took a little longer for the news agency to get the release properly formatted and we're starting a little bit late. Thank you for your indulgence with that.

I'm going to make a couple of statements first. Our presentation today may contain forward-looking statements. The actual results may vary from what is contained in those statements. The variances may be material and I refer you to our public filings for the risk factors you need to know before you invest.

Our presentation today includes the use of non-GAAP financial managers, reconciliations for which are contained in our press release and may also be found on our Web site. Today's call is being webcast on BoydGaming.com and StreetEvents.com.

Joining me today are Keith Smith, our President and Chief Operating Officer and Bob Boughner, the Chief Executive Officer of Borgata. They will join me in making some remarks about our results and our future development plans and following that, we will all be available to respond to your questions.

Just a short while ago, we issued our press release of our third-quarter financial results, and the results were excellent, produced once again by our outstanding operating management. This is our first quarter since the 2004 acquisitions where we are comparing 18 properties with 18 properties, so they are all same-sort comparisons now.

We reported adjusted earnings per share of $0.57 versus $0.38 reported in the third quarter last year. That is an increase of 50% and that's after taking into account about $0.05 per share hit that we lost in the last five weeks of the quarter -- came from the effects of two devastating hurricanes in our central region, hitting our properties in Louisiana and Mississippi.

We overcame the central region revenue and earnings declines with very strong performances in all of our other business units, those located in Las Vegas and Atlantic City, where we reported very impressive earnings gains. Our Las Vegas properties reported a 10% revenue increased and a 33% EBITDA increase in the third quarter versus the third quarter a year ago, and everyone joined the party. Boulder Strip EBITDA was up 28%; Coast Casinos EBITDA was up 34%; Stardust EBITDA was up 60%; and downtown Las Vegas was up 23%. And in Atlantic City, we had a quarter that shattered records in so many places. Borgata reported revenues of 15% and EBITDA of 20% in the summer quarter versus last summer. Borgata's EBITDA's was $76 million in the third quarter, which has to be among the best single gaming property quarterly performances in the country.

Looking at all of our operations, third-quarter revenue increased 3% over last year, EBITDA was $156 million in the quarter, up 17% and our EBITDA margin was up 3.6 percentage points over the prior year. We had great results in Nevada in the quarter. The Las Vegas economy remains strong with nation-leading growth in both population and jobs. Also, the Hawaiian economy is very good, which supports our downtown Las Vegas operations.

So let me give you a statistic that really underscores how well our properties and our operating management performed in the third quarter. Our 11 Nevada properties, excluding our travel agency in Hawaii, as a group reported revenues up $28 million from last year in the third quarter. Those 11 properties reported an EBITDA gain of $22.5 million in the quarter, for a flow-through of revenues to the bottom line of 81%. Borgata had a fantastic quarter; Bob will have more to say about the third-quarter results and give you a preview of what's ahead in a few minutes. But let me just say how good $76 million in EBITDA in a quarter is.

The results of our three closest Atlantic City competitors were reported earlier. Harrah's did $51 million of EBITDA in the quarter. Bally's and Caesar's together did EBITDA of 106 million, which averages $53 million each, and we were at $76 million. I think Borgata, after just two years in business, has established itself as a category killer property in that market.

Now let me turn to the central region. Blue Chip and Par-A-Dice in the northern part of that region had normal results. They were even with last year despite some construction disruption in the Blue Chip pavilion and some roadwork around Par-A-Dice. But there was nothing normal about the four properties in the southern part of the reason. Katrina closed Treasure Chest and disrupted operations in the region and Rita closed Delta Downs. To give you some statistics, in the third quarter last year, those four properties did a little over $20 million in EBITDA. Before Katrina, they were forecasting to be up between 10 and 15% for the third quarter this year. Their actual EBITDA for the third quarter was just under $17 million, equating to a $6 to $7 million EBITDA decline from forecast, or about a $0.05 per share reduction from our forecast. The other line in our income statement that you'll see is entitled "Hurricane and Related Expenses," which picks up primarily our ongoing expenses and repair costs at the two closed properties, and that's our probable insurance recoveries. For Delta Downs, we booked in that line the $1 million deductible, with all other costs and expenses expected to be recovered under our insurance policy.

For Treasure Chest, the property damage was small so there is no insurance claim for that. And a few hundred thousand dollars of repair costs are shown in that line item. Mostly (ph) in that hurricane line item represent ongoing costs at Treasure Chest, while the property was closed through the end of the quarter. We have made a business interruption claim for both lost profits and ongoing costs of Treasure Chest to our insurance company, and while we feel our claim is covered under the policy, they are disputing it. We will pursue our claim with them and book any reimbursement we get as income when we know we are going to receive it.

On a brighter note, both of our closed properties are now reopened, and are part of the recovery process in those two hard-hit areas. Treasure Chest has been opened for over three weeks now, and as you will hear from Keith, business has been quite strong at that property. Delta Downs reopened just a few hours ago.

On a separate matter, I want to mention our tax rate for a moment. You will see that the tax rate in the third quarter was 34%. That's 1 point below the federal statutory rate. I want to point out to you that this was the result of favorable adjustments to our tax provision that related to state income taxes in various states. Our expected tax rate for the fourth quarter is a more normal 35.5% and it may be slightly higher than that in 2006. Keith will talk about our growth initiatives in a few minutes, so let me just highlight for you that in the next six months or so, we will be bringing online three projects, representing between Boyd and Borgata almost $1 billion in investment. These three developments, South Coast in Las Vegas, the Blue Chip major expansion into a new boat, and the public space expansion of Borgata, are not just three great-looking developments, which, by the way, they are. Look at the strongest operations Boyd Gaming has -- Coast, Borgata, Blue Chip. We are investing where things are hot, we're spending right into our strengths. I just wanted to tell you about these exciting happenings in the growth area in the next few quarters.

Translating the projects into dollars, we'll be spending about $150 million in the fourth quarter on South Coast and Blue Chip and about $125 million in the first half of 2006 on those projects. After that, we'll be using our free cash flow to pay down debt and further strengthen our already strong balance sheet in anticipation of new growth initiatives to come in the future.

As far as our outlook for the fourth quarter, there are some difficulties surrounding the central region forecast with Treasure Chest and Delta Downs in the early stages of their recoveries or their reopenings. Still, given current trends and expectations, we expect adjusted EBITDA for the fourth quarter to be between 157 million and $167 million and adjusted earnings per share to be between $0.58 and $0.62 per share.

And now I would like to turn the presentation over to Bob Boughner.

Thanks, Ellis, and good afternoon, everybody. Last quarter, I spoke about our focus on quality. It's our view that the quality of our patron database, our quality associates and the quality product of Borgata delivered the quality earnings we reported today. Borgata's third-quarter EBITDA exceeded the prior year by nearly 20%. LTM EBITDA is about $250 million, with a net margin of 33.3%. Casino revenues were up roughly 13%. Our $21 million increase in casino revenues during the quarter was achieved with less than $1 million of incremental promotional spending and our non-gaming revenues were up about 11%. Product and quality do matter. Borgata's third-quarter market share for tables and slots grew 80 basis points from the prior year to 13.5%, a 56% market share premium. In the third quarter 2004, Borgata's gross gaming revenue was $8 million behind the much larger Bally's property. This year in the third quarter, we were $12 million ahead. That's a $20 million pick up year over year. Our slot win per unit per day was $366 in the quarter and that's a 34% above the market average. And our table win per unit per day was $5,381, which is a 90% market share premium.

These results service as a great proxy for next summer, when we will be able to reap many of the benefits of the first phase of our $525 million of expansion projects. Our poker capacity will expand by a multiple of 2.5 times. Table games capacity will increase 25%. Slot capacity will increase 15% to over 4,000 units. And we are adding a total of 960 restaurant seats, bringing the total capacity at Borgata to approximately 2100 seats. This first phase of our expansion is on budget and it's on schedule for a second-quarter 2006 opening. We expect to begin construction on Phase II shortly after the 1st of the year.

This incremental capacity will accommodate the continuing strong demand for the Borgata brand of hospitality, as evidenced by the strong market share premiums we continue to enjoy across virtually all product lines. And while we anticipate some dilution in our market share premiums, given the increase in supply, we believe that our market share itself and our net revenues and our EBITDA will grow nicely when our expansion projects come online.

Now I'd like to briefly mention recent results and our outlook for the balance of the fourth quarter. Borgata October performance in gaming revenues was very strong, facing a very tough comp for the prior year, as Borgata benefited during a city-wide labor dispute during the month of October 2004. We were open and fully operational, as Borgata was not a target of that labor dispute. We are pleased to tell you that our October 2005 casino win increased 5.8% from our very strong October results. Good business fundamentals, our strong cash-based entertainment program and a favorable table games hold percentage all contributed to our very strong October casino win. Perhaps the best part, however, is that we lowered promotional expenses and the incremental dollars had a great flow-through to our bottom line. Frankly, we thought October would be flat or down a notch, but we didn't start the quarter behind, we started it ahead. We actually had an up month, the toughest comp in the fourth quarter, and the outlook going forward seems positive. November occupancy is forecast at 95%, up 4 percentage points from last November. November cash room ADR is projected to be around $200, up 20% from last November. November group bookings are up 10% and November total room demand from our top-ranked players is up 22%. We see signs of strength for Q4 and we anticipate finishing nicely ahead of last year's very strong results.

With that, I would like to turn the call over to Keith Smith.

Thanks, Bob, and good afternoon, everyone. As you heard from both Bob and Ellis, we had another impressive quarter even with the impacts from Hurricanes Katrina and Rita on our Louisiana and Mississippi properties. While I could go on for several hours expanding on the successes that both Ellis and Bob described, I'd simply like to highlight that our third-quarter results, while impressive, are really not new. Our third-quarter results represent the continuation of trend of improving results -- the trend of record-breaking and market-leading results of the Borgata, the trend of impressive growth in our Las Vegas locals properties, the trend of continued strength in our downtown Las Vegas properties and the trend of widespread EBITDA gains. These results reflect the fact that we have a strong and diverse operating base, anchored by operations in some of the strongest markets in our industry, Las Vegas and Atlantic City. It is from this strong base that we will continue to grow our company.

Before I provide you with an update on our development projects, let me spend a few minutes updating you on the status of our two Louisiana properties previously closed due to the hurricanes. First, our Treasure Chest operation in Kenner, Louisiana was successfully reopened a little more than three weeks ago. We opened with a limited staff and limited operations. While we are operating only 14 hours a day, all of our gaming space is open. However, we only have limited food service available. In our first three weeks of operations, revenues have been well above prehurricane levels, as we welcome many new customers as well as seeing the return of many of our existing customers. With revenues up and costs down due to our limited operations, we are seeing a significant increase to the bottom line of the Treasure Chest operation.

In our Delta Downs property in Vinton, Louisiana, we're happy to report that we were able to reopen portions of that facility at 12 o'clock today, 12 noon. The casino and foodcourt reopened and we expect to have approximately one-half of our 200-room hotel available by Monday, with the remaining portion of the rooms opened by the end of November. Our other restaurants, as well as our horse racing operations, will not be reopened until after the 1st of the year.

We were pleased to have both of these properties reopened and to be able to assist in the rebuilding of the local communities. I also want to publicly thank all of the employees of Boyd Gaming for their tireless efforts in helping the Company recover from the impact of these hurricanes. Whether it was providing assistance to their fellow employees, both financial and otherwise, or assisting in the reconstruction of these properties, our employees showed true Boyd style in dealing with the devastation from these storms. It is their hard work and dedication that allowed us to reopen these properties as quickly as we did.

I would also like to single out Jack Bernsmeier, our Senior Vice President of Operations for Louisiana, for his leadership and efforts in getting both Treasure Chest and Delta Downs reopened.

Getting back to our development projects, as Ellis said, in the next six months, we'll be opening three new projects that represent almost $1 billion of new investments in three of our strongest markets.

First, in late December, we will open the South Coast Hotel Casino & Spa. This is somewhat earlier than previously announced. The South Coast will add to our already impressive portfolio of properties in the strong and growing Las Vegas locals market. It is located on 53 acres in one of the fastest-growing areas of Las Vegas and when opened, will be the only major hotel casino to serve the market. The property will open with approximately 662 rooms with an additional 695 rooms coming online early in the second quarter of 2006. The property has been master planned for an additional 695 rooms, bringing the total room count to 2,050. No timetable has been established for the opening of the last -- or the construction of the last 695 rooms.

Next, in the middle of the first quarter of 2006, we will open our expanded and renovated Blue Chip. This project includes a complete renovation of all of our restaurants and public space, the addition of a 950-space parking garage, and a new state-of-the-art gaming vessel, which will allow for all gaming activity to occur on one floor. When complete, the new Blue Chip will be the largest vessel of its kind. The new vessel will have approximately 2200 new slot machines, 450 more than today, and 51 table games. Many of the renovated areas have already been opened to our customers with the steakhouse, deli, and coffee bar opening during the third quarter. Each of these outlets has received overwhelming positive response from our customers. We expect to open our new buffet and pavillion area in December. The opening of the Blue Chip vessel will not only give us additional gaming capacity, it will allow us to compete more efficiently in the northern Indiana gaming market and will also allow us to retain and enhance our leadership position in this markets.

The last of the three projects is the opening of the Phase I expansion at the Borgata, scheduled for the second quarter of 2006. As Bob indicated, this expansion will add much-needed casino capacity and restaurant capacity. This expansion will also help us to strengthen our leadership position in the Atlantic City marketplace.

Beyond these three projects, we are focused on two longer-term development projects, an 800-room hotel tower at the Borgata and the redevelopment of the 63 acres of the Stardust. The new tower at the Borgata will be an exceptional product, designed to raise the bar in the market. And both Phase I and Phase II expansion are complete. The Borgata, with 175 table games, more than 4,000 slot machines, 2800 hotel rooms and an outstanding portfolio of destination restaurants, will be well positioned to effectively compete in the Northeast gaming market. And as we've said since the 1st of the year, we will take most of if not all of the remainder of 2005 to complete the research and conceptual design phase for the redevelopment at the Stardust site, and we're doing just that. We're making significant progress in evaluating our options for the site and we will announce what we plan to do with our development of the 63-acre Stardust site by the end of the year.

Beyond these short-term and long-term projects I've described, we're continually looking for areas to expand and grow. As in the past, we'll be thoughtful about where and how we grow and with our strong core operating base and solid financial base, we're prepared to take advantage of growth opportunities that present themselves.

In closing, while we are extremely pleased with the third-quarter results, we are excited about what we see in the future, from the reopening of our Treasure Chest and Delta Downs facilities to the opening of our South Coast, Blue Chip and Phase I Borgata expansions, to the Phase II Borgata expansions and the redevelopment of the Stardust beyond that. We are excited and confident about the future of our Company. With that, I'll turn it back over to Ellis.

We are available for questions at this time, Anthony.

(Operator Instructions). Larry Klatzkin, Jefferies.

Great results. I'm glad I didn't adjust my numbers though! A couple of things here. One, you say the Stardust will be announced by the end of this year or the end of next year?

We will make some form of an announcement by the end of this year.

Okay, great. That's fantastic. Are you guys looking at the Penn assets for sale? Was that something that might interest you? I know you guys are always looking for good-valued assets.

It's true, we are always looking for good-valued assets. We have no comment on where that search will take us.

Okay. As far as the River Rock opening and everything, how do you think the effect will be on your Coast properties?

You meant Red Rock?

Red Rock, I mean. Sorry, sorry.

I think in the past, we've talked about the upcoming opening of Red Rock and its impact on our Suncoast operation. We're confident that with the expanded market that's occurred since we opened Suncoast, that we're prepared to deal with it. I think we will see some short-term impact to that operation as people always visit new properties, but I think a the end of the day, we're going to be fine, Larry.

Okay. And then as far as business interruption and Treasure Chest, now if the cash flow doesn't go back up to what it was before, or revenues don't, do you get some tail (ph) that you'll get some additional business interruption?

We do. There is a provision that the reduced operations post opening are covered for a period of time. That will be part of the business interruption claim if that's required.

Okay, okay. And then the Indian casino that Lakes (ph) is so much claiming was going to happen years ago, any word on that? I mean at this point your property is so much better, it shouldn't make much of a difference anymore, but any word on that?

You know we really don't have anymore insight as to when they may be opening. I think you are referring to Bohagins (ph) --?

Yes.

-- that would impact our Blue Chip operation?

Yes.

We knew that they were coming when we bought that property years ago and they're still fighting some court battles. If they're able to get that through, I don't imagine we would see any impact until the earliest would be 2007. It could be 2008, but we're continuing to build and expand our facility.

Yes, okay.

You mentioned, Larry, that's a good point, that because our facility will be so improved, we'll be I think a very formidable competitor even if they do come.

Okay. And then I guess the last question, just give us some word on how some of the rest -- you know Bob talked about Atlantic City but how some of the other properties have done in October so far?

I think you've seen from the third-quarter results, business is going along quite well and you've heard our guidance, so we feel good about the way the fourth quarter has started out. We did indicate where we thought the quarter would come out, so I think you can read into it from that.

You said 157 to 167? Did I get that right?

That's correct. Adjusted EBITDA of 157 to 167.

Okay, great. Thanks, guys. Congratulations.

(Operator Instructions). Dennis Forst, KeyBanc.

Ellis, I wanted to hone in on depreciation and get an idea of what you're doing with the properties that were out of service and now back in. Was there any stoppage of depreciation while Treasure Chest and Delta Downs were closed?

There was, Dennis, that's correct. What we did when they closed -- and Delta Downs was just closed for a short period of time in the quarter, Treasure Chest for about 35 days -- the depreciation was moved over to the account entitled "Hurricanes and Related Expenses."

Okay. So that number should go back up a million plus in the fourth quarter?

What was moved over to the third quarter was just under $1 million, into the $7 plus million number. The Treasure Chest opened on October 10th and Delta Downs just opened, so you can sort of then infer what the time periods that they would have remained in that account and then when it would go back into --

Okay. And then also noticed that Coast Casino's depreciation was about 1.5 million below the second quarter; it was down sequentially. Explanation for that?

Let's see, that was just -- I don't have the answer but I'm going to get it here for you.

Okay. If I could ask what Coast Casino win grew, how that locals business is doing? Can you give us a magnitude of gaming win increase in the third quarter over year over year?

Well we did report Coast and Boulder Strip revenue gains. We didn't break it out by type of revenue, if that's what you're asking. But you saw the gains at Coast were close to 12%, in the 7 plus percent range in the Boulder Strip.

You're talking about from the Nevada numbers?

Was that your question, the --?

The gaming win, not the revenue growth.

We don't break out (multiple speakers) gaming win.

Okay. Would it be much different than the total revenue percentage change?

I'll have to get that answer for you. I can get back to you on that. I don't have that right in front of me, as to whether gaming grew more or less than the overall revenue.

And let me also respond to the other question. It had more to do with when we bought Coast and we did the purchase accounting, there were different lives assigned to different assets, and some of those have run off the shorter lives that came on and July of '04 ended and, therefore, you would see the drop just the way the transaction got booked in '04.

Okay. So going forward is 13.2 the right number?

That would then be the --

The third quarter was a normal number?

Third quarter's are normal after some of those short-lived assets ran.

Got you. Can you give us some balance sheet numbers for the quarter?

Well, we don't publish a balance sheet but I can see what I --

Debt at the end of the quarter?

Let me see what I can give you. We do publish in here certain statistical information. Which numbers are you looking for?

The debt at the end of the quarter?

That is in the release. It's $2,391,000,000.

2391. And then cap interest in the quarter?

Cap interest in the quarter was $6.3 million.

Terrific. Hey, thanks a lot. Good job.

Kent Green, Boston American Asset.

Great quarter, Ellis and team. My question pertains to Barbary Coast. It wasn't in the long-term plans for development. Is that still up in the air as far as possible sale development, whatever.

We did mention it, Ken, and we're talking more about the Stardust as being on the front burner in terms of nearer-term development. Barbary Coast clearly is an excellent location and it remains very much in our thoughts. But it is not the front burner. Stardust is really getting more attention right now and will be the subject of our earlier announcement. But Barbary Coast is clearly an excellent site. Whether it will be sold or not is not really known to us. We at this point intend to -- looking at it more as a development site, but as far as what comes out of that, we have no other comment to make.

Do I hear some giggling in the background? Barbary Coast, those lines have to be put underground before you do anything there?

Well, it would clearly widen the site if we did. It's a narrow site as it is and the lines do take up some of it. So it would be advantageous to bury them and widen the site if development did take place on it, that's correct.

Very good. Any other thoughts about Coast developments, land that Coast owns, now that you're close to opening up?

Well the nearer-term Coast developments will come in expanding existing properties. As we mentioned, South Coast is master planned to be larger, and we could expand other Coast's or our own Boyd legacy properties that could be made larger. So that would be the types of development that are currently within our control.

As far as new sites, we continually keep our eyes open for new sites that could be available to us for future development of new resorts. But there's nothing that we have to report right now.

As far as downtown, that was an impressive number. Does that mean that you've got all your charter programs solved?

We really weren't having charter problems except for the fact that the cost of the fuel is high. We do not have problems with the seats being filled and we are bringing in good customers and the program is working well. The fuel issues are what every airline is facing, and we do report the results with those costs in there. So you see a very impressive result even with our paying higher costs for fuel to load the charter operations.

Does that mean that you're able to pass those on through to your customers?

Not really. We try to keep very good value for our customers. It's very important to us. We have long-standing decades-long relationships with them, and we try to keep a very fair price. But we are subject to the market when it comes to fuel pricing.

Steven Ruggiero, CRT Capital.

Hi, Ellis, real quick, what will be your final estimated costs for the Blue Chip project and for Phase I of the South Coast?

Blue Chip project is $170 million all in. The South Coast Phase I, the way we have designated it is it was a $500 million project until last May when we announced that we were adding $100 million of cost to it to develop the technical hotel tower and added a spa and some other amenities. So it is now a $600 million project picking up the second hotel tower.

Okay, so for purposes of calculating out depreciation, we should use --?

$600 million developed of costs because the second tower will open only a few months after the first tower opens and 600 million is probably the number you should use going forward.

Are there any other questions?

Celeste Brown, Morgan Stanley.

I know you're not going to announce anything definitive on the Stardust until the end of the year, but are you still considering using partners or do you intend to do that yourself?

The way the plans are going now is that everything has been on the table and we have said that we are looking at a number of types of development on the site. Clearly, given the strength of our Company, strength of our cash flows and balance sheet, have the wherewithal to do much of the Stardust or all of the Stardust redevelopment ourselves.

What we said about partners is that we would use partners in a strategic sense. If it made sense to have somebody on the site with us, not necessarily for financial reasons, but for strategic reasons if the right group to have in our development, that we would utilize partners for those strategic reasons. But that will be part of what we have to say when we get the plans further along and have an announcement to make.

Mr. Landau, we have no further questions, sir. I'll turn it back to you for closing remarks.

Thank you, everyone. We're very pleased to report this quarter and we look forward to speaking with you again for the fourth quarter. As usual, if you have further questions, please feel free to give either Paul or me a call. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Everyone, have a wonderful day.