• It's Here!

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

  • It's Coming...

    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

Cheap and now there is some visibility.

"We continued to see improvement in our business during the quarter. Our wholly-owned operations achieved quarterly EBITDA growth for the first time since the recession began, giving us confidence that we have reached a turning point for our Company. We expect to see further growth through the remainder of this year."

 

- Keith Smith, President and Chief Executive Officer of Boyd Gaming

HIGHLIGHTS FROM THE RELEASE 

  • Las Vegas Locals market: "Results reflect a particularly strong performance at The Orleans, which reported its best quarterly comparison in three years."
  • Downtown: "Regional results reflect higher spend among our Hawaiian customers and greater efficiencies in our operations, offset by significantly higher fuel costs at our Hawaiian charter service."
  • Midwest & South: "Year-over-year growth continued to accelerate due to strong performances at Treasure Chest and Delta Downs."
  • "Borgata's results were impacted by lower table game volume and hold percentage; however, the property reported growth in overall market share and slot win during the quarter."

CONF CALL

  • Their 1Q results were encouraging. 8 of their properties posted YoY gains.  In March, 11 of their 13 properties reported YoY gains - including all of their Locals properties in LV.
  • Based on results from the first 4 months, they are encouraged that results will improve over the remainder of the year - especially in their Las Vegas locals business
  • Fly in business is really helping LV as those visitors spend more than drive-in customers
  • Cash room rates increased 7% in their LV locals business in 1Q
  • Haven't seen an impact from a spike in gas prices so far and do not believe that they will
  • Borgata - saw their most difficult YoY comps this quarter. They are encouraged by actions of the local government there.
  • Remain focused on strategies to strengthen their balance sheet - i.e. Dania sale - the property also had a $4MM drag on their operating income - should add 6 cents a year to their EPS (with assumed debt reduction)
  • Focused on improving their operating margins and looking to expand through new opportunities
  • Seeing the benefits of their more efficient operating structure as things begin to improve
  • Orleans had 20% EBITDA growth - increase in both gaming and non-gaming revenue.  New marketing initiatives are helping.
  • Locals business saw an increase in convention meeting business which was up over 20% in the first quarter which should continue throughout the year. While the promotional environment remains elevated, they are not being impacted by it. They expect to show growth in the LV locals regions for the balance of the year.
  • Downtown - for the second consecutive quarter, they saw improvement from their Hawaiian customers despite increased fuel costs of their charter business - expect this to continue
  • Treasure Chest performed well from a strengthening regional economy.  All 9 casinos in Tunica were forced to close on Tuesday and will have a modest impact on 2Q results. However, they do have flood and BI insurance which cover everything above a $1MM deduction.
  • Borgata: Table game volume was negatively impacted from PA competition. $4MM impact of low hold. Customers are reducing their length of play which can cause hold to decrease. Customers also played lucky in April - only 9% which cost them about $6MM. Do believe that table game hold will ultimately stabilize at 2010 levels of 13%.
  • $1.4BN was outstanding on their credit facility
  • Borgata debt: $892MM, of which $29 million was outstanding under their $150 million credit facility. 
  • Share-based compensation expense was ~$1MM higher due to one-time accounting adjustment; not a good run rate for remainder of year
  • Reduction in Boyd depreciation expense ($31.7MM) due to their reduced capital expenditure program
  • Tax rate was 33%
  • Tax loss of $60MM - will reduce cash taxes by $20MM and a gain of $40MM included in their covenant calculation

Q&A

  • Las Vegas locals is seeing the strongest improvement in their top tier players
  • AC did have some elevated marketing expense - not necessarily indicative of future spend, but it was profitable for them. They still have one of the lowest levels of promotional spend in the market though.
  • Is the increase they saw in April in the LV locals business?  Frequency was up in the top tier and stable in their lower tiers.
  • Spend per visit is generally no worse than flat and starting to improve in some markets like LV locals
  • Quarter end cash balance: $25MM at Borgata and $150MM at BYD
  • Spend $4MM of Capex at Borgata ($40MM capex for the year- room remodel).  $25MM will be spent in 1Q12. At BYD - $50MM of capex for the year
  • Acquisitions: looking for new markets or ones that have stable regulatory and tax structures and that offer good returns.  Would they rule out a transformational transaction? No - they will look at anything to create shareholder value - size is not a deterrent.
  • Expect the summer to be challenging as it always is regardless of the year
  • Continue to keep Echelon as an option, and monitor when is the best time to commence construction there or sell some of the land.  Clearly, they aren't going to commence construction this year or next.
  • Will remain disciplined on the marketing front during the summer in LV
  • Utilities costs are down despite prices being up - are purchasing smarter and being more efficient in their consumption
  • Starting to see some improvements in midweek rates which were very challenged over the past few years for them
  • Not all the LV locals properties were up in April - but the group as a whole performed well.
  • Absent fuel cost, they were happy with their performance downtown. 
  • Hawaii - Japan accounts for 20% of the inbound tourism into Hawaii. On the flipside, there will be a lot of rebuilding in Japan.
  • Echelon - is $12MM per year and classified in pre-opening expense
  • Had some property taxes that were reversed in the first quarter - predominately at Blue Chip that benefited them by $3MM and offset the $3MM weather impact
  • Recovery in the locals region will be a slow and gradual one
  • Leverage ratio: 4.2x (secured) and 7.1x (total). Secured ratio will improve by 60bps and total will improve by 90bps post Dania transaction.
  • They can always use the extending R/C portion to repay the non-extending part. Don't currently have the need for a huge amount of R/C capacity given their lower capex run rate.