Boyd Gaming Corp (BYD) 2015 Q1 法說會逐字稿

Good afternoon, and welcome to the Boyd Gaming first-quarter 2015 earnings conference call.

(Operator Instructions)

Please note this event is been recorded. I would now like to turn the conference over to Josh Hirsberg. Please go ahead.

Thank you, Amy. Good afternoon everyone, and welcome to our first-quarter earnings conference call. Joining me on the call this afternoon is Keith Smith, our President and Chief Executive Officer.

Our comments today will include statements that are forward-looking statements within the Private Securities Litigation Reform Act. All forward-looking statements in our comments are as of today's date, and we undertake no obligation to update or revise the forward-looking statements. Actual results may differ materially from those projected in any forward-looking statement. There are certain risks and uncertainties that include, but are not limited to, those disclosed in our earnings release, our periodic reports, and our other filings with the SEC that may materially impact our actual results.

During our call today we will make reference to non-GAAP financial measures. For a complete reconciliation of historical non-GAAP to GAAP financial measures, please refer to our earnings press release and our Form 8-K furnished to the SEC today, and both of which are available in the Investor section of our website at BoydGaming.com. We do not provide a reconciliation of forward-looking non-GAAP financial measures, due to our inability to project special charges and certain expenses.

Finally, today's call is also being webcast live on our website at BoydGaming.com and will be available for replay on the Investor Relations section of our website shortly after the completion of this call.

I'd now like to turn the call over to Keith Smith. Keith?

Thanks, Josh, and good afternoon everyone. Thank you for joining us today for first-quarter earnings call.

This was another great quarter for our Company as we built on the positive momentum that began in the second half of 2014. The operational restructuring we completed in the middle of 2014 is delivering clear results throughout the business. And our strategic initiative to enhance our non-gaming amenities is delivering encouraging results, another important part of our performance.

On the customer side, we're seeing signs that the consumer is getting healthier, growing more confident and spending more. There are still considerable room for improvement with the consumer, and we need to see more durability, but the trends are encouraging and continue to move in the right direction. For the quarter, this resulted in modest but broad-based revenue growth of approximately 2%, which we were able to convert into an 11% gain in EBITDA. This performance repeats the impressive flow-through we achieved in the fourth quarter and represents the fourth straight quarter we have improved operating margins across our business.

Our management teams across the country are doing an excellent job keeping their focus on operational execution, growing the business and maintaining cost controls. Let's walk through what we saw in each segment. In Las Vegas, the fundamentals of both the Las Vegas market and the Las Vegas locals market and our locals business, remain solid. The southern Nevada economy is strengthening, the local population is growing [as] more people have jobs. Visitation is rising and consumers are spending more. This is translating into continued growth throughout our locals business, especially in our non-gaming areas where we delivered our seventh consecutive quarter of growth. In addition, results at the Orleans and Gold Coast were solid in the first quarter, with growth in gaming and non-gaming revenue at both properties.

While we did see a shortfall in EBITDA in our locals business, this was the result of two unique events. First, we saw a significant business disruption at the Suncoast due to an extensive road work project adjacent to the property. This disruption led to a $1 million EBITDA decline at the Suncoast in the first quarter. And while we're working hard to mitigate the impact of this project on our business, we expect these declines to continue until the road work ends in late June. Additionally, EBITDA was reduced by approximately $1 million across the locals segment due to lower holds on Super Bowl wagers. The outcome of this year's game impacted sports books throughout the state, with wins down more than 80% from last year. Absent these two events, EBITDA continued to grow in the locals segment during the first quarter.

Moving to downtown Las Vegas, we continue to manage this business very efficiently, translating 2% revenue growth into a 15% EBITDA gain. This was our third straight quarter of EBITDA growth in the downtown segment. Gaming revenue grew, driven by solid Hawaiian play and increased traffic on Fremont Street. Non-gaming business was up more than 3% as well. We continue to benefit from growing visitation to downtown, driven by new attractions throughout the area. And our Hawaiian charter service is realizing significant savings from lower fuel costs.

While our Nevada business has continued to perform well during the quarter, our regional properties delivered an even stronger performance. We successfully leveraged higher revenues into double-digit EBITDA growth across the combined Midwest and South and Peninsula segments. We improved operating margins by more than 170 basis points across the two segments, marking the third consecutive quarter of margin improvement in our regional business. This operating strength was broad-based, as 10 of our 12 regional properties achieved year-over-year revenue and EBITDA growth. Obviously, more favorable weather helped. But this is also the result of strong execution by our property management teams as well as a healthier consumer.

We saw strong performances of properties throughout the country. Kansas Star produced its second consecutive quarter of solid revenue and EBITDA growth, as the property benefited from marketing and operational refinements, as well as a recent hotel expansion. At IP we saw encouraging growth in slot revenue and extremely strong flow-through. This property is also generating solid results from ongoing enhancements to its operations and marketing programs. At Blue Chip we achieved our third straight quarter of revenue and EBITDA growth as our first-in-class amenities continue to drive increases in visitation and market share. And Treasure Chest increased revenues by nearly 8%, thanks to growth in visitation and strong slot business. Operating efficiencies allowed us to capture these revenue gains on the bottom line as EBITDA rose by nearly 20%. This was the second quarter in a row we were able to produce both revenue and EBITDA growth at this property.

And in markets affected by increased capacity, we did a much better job managing the business to meet changing conditions. A good example is Paradise, which achieved 13% EBITDA growth year over year. This is particularly impressive when you consider that there are more than 19,000 video gaming machines now operating in Illinois, accounting for more than $700 million in annual gaming revenue. Despite this significant increase in gaming capacity, the Paradise team is successfully refining the business and adapting to the new competitive landscape.

Sam's Town Shreveport achieved strong EBITDA growth as well. By adjusting marketing efforts and tightly controlling costs, we're delivering much-improved results at this property. And to the South, Delta Downs performed well ahead of expectations, nearly matching last year's record EBITDA performance despite the opening of the Golden Nugget in Lake Charles last December. Visitation by the property's core customers remains strong, a real tribute to the talented group of team members we have at Delta Downs, and a reflection of the overall strength of the regional economy. In all, we delivered strong performances throughout our regional operations. And we are increasingly optimistic about the potential for further growth in the quarters ahead.

Finally, Borgata continued to be one of our strongest performers. The property nearly doubled EBITDA to $38 million in the first quarter, marking its fourth straight quarter of solid performance. Our core land-based business continued to perform exceptionally well, growing EBITDA by about $13 million year over year. This included $5.5 million of property tax benefits.

The right-sizing of the market over the last 12 months has helped stabilize the operating environment in Atlantic City. The remaining operators, including Borgata, are seeing improved trends as a result. While 12 casinos may have made sense when Atlantic City held a near monopoly on casino gaming on the East Coast, there was too much capacity for today's highly competitive East Coast gaming market. With eight properties, Atlantic City appears to have reached a level of supply that is appropriate to current demand. And the remaining properties are generally seeing better results, with same-store gaming revenues increasing more than 5% across the market in the first quarter.

And as the clear market leader in Atlantic City, Borgata continues to successfully attract more than its fair share of these new customers and new business. In the first quarter, Borgata saw solid growth in visitation as we continued to gain local and regional market share.

Gaming volumes increased across the board in our core land-based operation, driving a 9% increase in reported gaming revenue. Slot wins showed double-digit growth, even as we were more efficient with reinvestment expense. Table games wins also rose on higher volumes. We generated revenue growth across the non-gaming side of the business as well. Strong leisure sales and convention and meeting business contributed to an additional 14,000 room nights for the Borgata in the first quarter. And we increased food and beverage revenues by 11%.

Our online business continued to perform well, generating profit for the third consecutive quarter. Borgata's online gaming business contributed more than $4 million to the property's EBITDA gain, as last year's $3 million loss swung to a profit of $1 million during the first quarter of this year. As a reminder, last year's first quarter was the first full quarter of operation for our online business and included significant start-up marketing costs that were not repeated this year.

Across the country, it was another strong performance by all of our operating teams. The operating environment is clearly improving, and we continue to successfully refine the business, identify additional cost savings, and drive the majority revenue gains to the bottom line.

As we look to the future, it's clear to us that our customer base is changing. We are seeing a younger demographic of customers who are looking for high quality and engaging amenities. At the same time, our existing customers have shifted more of their spending away from the casino floor. To ensure our properties are well positioned for future growth, we continue to pursue our strategic initiative to reposition and enhance our non-gaming amenities, in the area of our business where we have seen consistent growth for the last couple of years. While gaming remains at the core of our business, refining and expanding our non-gaming amenities is essential to the future of our Company. We continue to make progress on this strategic initiative.

On the hotel side, we're seeing improved results from earlier room upgrades and renovations, which helped drive a 14% increase in cash room rates in our Las Vegas locals properties. And we continue to bring additional redesign room product online. Earlier this month we completed an upgrade of nearly 800 rooms at the Suncoast and IP. And next week we will begin work on the renovation and modernization of 1,250 rooms and suites at the Orleans and Blue Chip, scheduled for completion by the end of 2015.

On the food and beverage side, we're seeing an increase in cash business at the new restaurants we opened recently in Las Vegas, a clear indication that these amenities are successfully expanding our customer base by drawing new visitors to our properties. We're now ramping up this component of our initiative with about 20 new food and beverage concepts scheduled to open throughout our portfolio over the next 12 months. Based on the trends we have seen in our business and results from our initial investments, we believe this initiative will create significant value for our properties through incremental revenues as well as increased visitation and increased exposure for our brands.

In addition to our focus on improving operating results and positioning our properties to be more competitive, we're maintaining our focus on strengthening our financial position as well. Thanks to continued growth in our operations, we generated a substantial amount of free cash flow in the first quarter and paid down more than $80 million during the quarter. Debt reduction will remain a strategic priority for our Company as we look for ways to further increase our financial flexibility.

In summary, I am encouraged by our Company's continued progress in the first quarter in the successful execution of our strategic plan. We're achieving clear results from the work we have done to strengthen our operations. We're generating broad-based revenue and EBITDA growth, improving margins, and successfully flowing revenue gains to the bottom line. We're seeing encouraging results from the initial enhancements we've made to our non-gaming amenities. This strategic initiative ensures that our properties will remain competitive and attractive to a broad demographic of customers for years to come. And finally, we will continue to strengthen our financial position and remain diligently focused on growing long-term shareholder value.

Thank you for your time today. I'll now turn the call over to Josh. Josh?

Thanks, Keith.

During the quarter we continued to make progress in strengthening our balance sheet by reducing debt by more than $80 million. Our quarter-end debt and cash balances were provided to you in our earnings release. In terms of capital expenditures, during the quarter we invested $19 million, including $7 million at Peninsula. Separately, Borgata's capital expenditures were $5 million during the quarter. Much of our capital spending is scheduled for later this year, and as a result we continue to expect to meet our previously issued guidance for capital expenditures.

In terms of EBITDA guidance, we are raising our guidance to incorporate first-quarter performance. As noted in our release, we expect wholly owned EBITDA, after the deduction for corporate expense and including Peninsula and 50% of Borgata's EBITDA, to be in the range of $542 million to $567 million for the full year of 2015.

This guidance incorporates the following expectations: in the Las Vegas locals segment, we expect road construction to impact the Suncoast in the second quarter. This disruption impacted the first quarter by $1 million in EBITDA, and we expect a similar impact to the business in Q2. Excluding this impact at Suncoast, we expect our Las Vegas locals and downtown businesses to each grow EBITDA year over year by 2% to 3%. We expect EBITDA in each of our Midwest and South and Peninsula segments to grow year-over-year EBITDA by 3% to 4%. The growth expectations, as I just discussed for the full year, are also good indications for our second-quarter EBITDA performance.

At Borgata we are increasing our EBITDA expectations to $160 million to $165 million, of which we will record 50% in our results. Our expectations for Borgata include an assumption of increased property taxes for 2015. Borgata has performed impressively in a highly competitive market. Borgata's leverage ratio at the end of the first quarter was 4.2 times, down from over 7 times leverage in March 2014. This property is clearly running on all cylinders. Beyond its capital program, excess cash flow will be used to continue to deleverage Borgata's balance sheet.

In conclusion, we had another solid quarter. The operating trends in our business are improving. We have taken costs out of our business such that we're able to improve margins and grow EBITDA. And our capital plans are targeted to capture how customers are spending their money.

With that, Amy, that concludes our remarks. And we're now ready to take any questions from the listeners.

(Operator Instructions)

Felicia Hendrix, Barclays.

Hi. Good afternoon. Thanks for taking my question. Keith, you give us a lot of very good colorful detail about what is going on in your various regions. And you talked about the many successes in the Midwest and the South, given your cost-cutting efforts and revenue-enhancing strategies. And you highlighted several properties that have done well.

Just wondering, in that region, where is there's still more work to do? And while Josh kind of intimated this in the guidance, before we get too excited in terms of margins you reported in that region, in Midwest South, do you think those levels are sustainable?

Thanks for the question, Felicia. A couple of comments. One, I think there's more work to do everywhere. While I think we had a very good quarter and posted some very good numbers, there's continued room for improvement at each and every one of those properties in the Midwest and South and in the Peninsula group.

I think the margins are sustainable. Once again, we have posted four straight quarters of margin improvement. It's not coming out of any one area. They tend to be broad-based refinements to the business, whether it is payroll or marketing or other costs in the business.

And the team's just intensely focused on improving results. So I think we'll continue to see kind of improvements across the board.

Okay, great. And then just as a follow-up, in Lake Charles I know that the outcome thus far is a lot better than everyone expected initially. January was certainly strong. And then Delta Down had about flattish February. And that was down about 4% in March.

So just kind of wondering that trajectory, should we read into that too much? What are seeing there right now in terms of your property going forward?

No, actually I don't think you should read anything into the trajectory. It is choppy from month to month, depending on what competitors may be in doing or depending on how we may have done in a prior month, given a specific promotion we may have had or even the movement of the calendar.

Simply swapping a weekend day for a weekday can move a number at Delta Downs a $0.5 million in revenue. So there are those subtleties that take place, but I would tell you, you should not read anything into the trajectory. The Delta business, when you look through April, continues to be very strong.

Great. Thank you so much.

Thomas Allen, Morgan Stanley.

Good afternoon guys, and congrats on the 40-year anniversary.

Thank you Thomas.

So on his call a couple of days ago Steve Wynn gave a pretty negative outlook on Vegas and highlighted some of the forward-looking data going into the summer. Clearly you have a pretty different customer base. But can you give -- can you put your optimism in the context of his comments?

I would say this. That as we look through the second quarter, Thomas, that the trends that we saw in the first quarter are continuing into the second quarter, which I think we are having a good April. May is certainly shaping up to be a good month. And June is probably looking a little soft, but June typically looks a little soft.

I cannot speak in a lot of detail about the July, August and September bookings right now. I just don't have it in front of me. There's nothing that gives me concern.

Look, the locals economy continues to be very strong with employment up, with the housing market doing well, the number of electrical meter hookups. All of these point to a continued strengthening of the locals market from an economic standpoint. Taxable sales that are up. I understand what Mr. Wynn said, but I think there are some positive signs out there across the board.

All right, thank you. And then we have gone 23 minutes without anyone asking you for an update on the OpCo/PropCo discussion. Do you mind touching on it quickly?

I'm not sure I'm familiar with that topic. (Laughter) All kidding aside. As we've said on previous calls, this is something that we continue to evaluate. And when we have something definitive to say, we'll come out and say it at that point.

Our goal was to determine if pursuing this path will create longer-term sustainable increases in shareholder value. So we will continue to look at it and analyze it. And once again, when we have something to say, we will say it.

And a quick numbers question. Is there a way to quantify the benefit of lower fuel costs to your downtown business for the Hawaii charter business? Is that significant? Do you have a number? That'd be great. Thanks.

Yes, Thomas. This is Josh. I would say that of the increase that we saw in the first quarter attributable to downtown, about 0.5 of it was related to the fuel and the rest was related to running the business efficiently and capturing flow-through from the revenue growth.

Thanks, Josh.

Shaun Kelley, Bank of America.

This is Barry Jonas in for Shaun. Just had a couple of questions. First, in regards to the Borgata property tax, can you maybe give a little more color to help us model that for the remainder of the year?

Yes, I don't think we're in a position to do that at this point. We've made our own assumptions based on information we've gathered and the experience we have in the marketplace. But I think until we get a better idea what the rate is, which typically comes July/August timeframe, I don't think we want to go there, Barry.

Okay, great. Then in terms of the guidance increase, how much of that is just flowing through a stronger Q1 than was expected as opposed to just optimism for the remainder of the year?

Yes, it's really, Barry, it's a good question. It's all really reflective of what happened in Q1. I think when we looked at the performance in Q1, we continue to really believe that it's difficult to discern how much is weather and how much is a stronger consumer.

I think we believe we will get more color and visibility into that in the second quarter when we have more comparable numbers. I think from our perspective, while we had a good quarter in the first quarter, we want to really see not only how much of it is the consumer and where the consumer -- how the consumer feels, but just -- and Keith mentioned it in his remarks. We want to see some consistency, some broad-based durability and continuity with respect to the consumer spend.

That's really hard to discern from the business that we saw in Q1. So we extrapolate -- we basically built in all of Q1. And I looked at where business was trending for the rest of the year. And that is what is reflected in the guidance.

Got it. Last one from me. You gave some positive commentary on Treasure Chest in the opening comments. Just wondering, is that a -- in regards to the smoking ban in New Orleans, how do you see that benefiting the property?

I think -- Barry, this is Keith. It's a little early to make any determination or assessment. It's probably been one weekend, maybe 10 days at this point. And they've had some pretty bad weather down there over the last 10 days. It's really hard to understand if there's any impact at all to that.

The improvements we saw in Q1, which was similar to the improvements we saw in Q4, are all just about increased visitation and just driving the business better.

We will obviously monitor the smoking situation and see if we get any benefit out of it. But at this point we don't know.

Okay. Thanks so much.

You're welcome.

Carlo Santarelli, Deutsche Bank.

Hey, guys. Good afternoon. Just following up on the OpCo/PropCo question earlier. I think one of the statements you guys made when you first discussed that option was when you made your determination, we would know. So my question is more along the lines of as you think about it today and the Company obviously has done some work with deleveraging and generating free cash flow to pay down debt, when you look out at the transaction landscape today in the US, is there anything that has changed over, say, the last three to six months?

In terms of being able to execute a transaction, Carlo?

In terms of -- I would say yes, the landscape, multiples, things of that discussions, to any extent that you have had any?

I would say that really there are plenty of things that we have found to potentially acquire. It's more about finding what makes strategic sense for the Company has the ability to generate free cash flow and deleverage the business.

Same criteria we have had, really, for quite some time in terms of being able to, I guess, engage in a potential conversation around acquisitions. I would say generally we have not -- feel we've have not been precluded from pursuing any that kind of fit our criteria.

So strategically we continue to look at the REIT as a strategic alternative. We look at acquisitions as a strategic alternative. And we look at other things as well. We just balance all of those alternatives. I would say pretty clearly today we don't feel precluded from any of those options in terms of being able to execute on our various strategic initiatives.

Great. Thanks Josh. And then if I could, just one housekeeping. I know you said your CapEx spend was the same. But just to kind of refresh, it was $100 million for Boyd and Peninsula on the maintenance side and than another $45 million or so in project, if I'm not mistaken?

Yes, that's pretty close. It was $100 million in maintenance for Boyd and then $15 million in maintenance for Peninsula. And then about $45 million of the kind of strategic capital to reposition non-gaming amenities. In total, it's about $160 million total.

And Borgata remains unchanged at kind of $25 million and $15 million?

Yes, exactly.

Okay, great. Thanks, Josh.

Thank you.

Harry Curtis, Nomura.

I'm all set. Thanks.

All right. Thanks, Harry.

Larry Haverty, GAMCO.

A couple of quick questions. One, there's a couple events in Las Vegas this May that are somewhat unusual, and they may result in excess business. The fight this weekend. And then Rock in Rio, which is going to put hundred of thousands of people into the town. Are you going to be able to capitalize on this in terms of rates in your hotels, and possibly play?

Larry, this is Keith. Clearly we will be able to capitalize to some extent on this coming weekend with the fight in town by being able to leverage up room rates. Unfortunately the fight was booked late in the cycle.

So I think many of us had prior bookings that had filled the hotel with other business, because you don't wait until the last minute to fill the hotel. But the rooms we have left, we clearly have been able to take advantage of higher room rates, and we certainly expect to get some good casino business throughout the weekend.

With respect to Rock in Rio, once again we're able to leverage up rates a little bit. We'll see exactly what that customer, what the gaming profile of that customer is. Whether that looks like the customer that comes in June for the other music festival we have here, the Electric Daisy Carnival, or whether it's a different customer. We will just have to wait and see.

Second, with the efficiencies that you are getting, are some of them related to taking slots out and/or changing participation game ratios?

No, I would say that are slot replacement cycle is fairly normal. Our participation games, we're looking at all the times to make sure that they are productive.

I couldn't quote you today the number of games we have now versus later. It's probably pretty flat.

But yes, the costs we're taking out of the business really is across the board. And once again as I said in my prepared comments, from payroll to marketing costs to other costs.

Great. Thanks, Keith.

That does conclude our question-and-answer session. Would you like to make any closing remarks, Mr. Hirsberg?

Thanks Amy, and thanks for each of you dialing in today. We hope it was beneficial. And we will look forward to speaking to you again in about another quarter. If you have any questions in the meantime, feel free to reach out to the Company and we will make ourselves available. Thanks again, and have a great rest of the evening.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.