BYD 2Q CONF CALL NOTES

Solid quarter and guidance. Resumption of guidance probably mean its conservative. 

 

 

"Our results for the second quarter reflect continued positive momentum in our business. The improvements during the quarter were broad-based, as all three operating regions posted year-over-year EBITDA gains, and operating margins in our wholly-owned business rose by 240 basis points. We were especially pleased with the continued strong performance of our Midwest and South properties, which reported a 19% EBITDA gain for the region's third consecutive quarter of growth."

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

 

 

HIGHLIGHTS FROM THE RELEASE

  • "Our Las Vegas Locals segment....results reflect stable business volumes and effective cost-control measures, as our EBITDA margin rose 140 basis points over the prior-year period."
  • "Net revenue growth in our downtown operations was almost entirely offset by significantly higher fuel costs at our Hawaiian charter service."
  • "In our Midwest and South region...operating results were impacted by the flood-related closure of Sam's Town Tunica for 25 days in May; however, all five other properties in the region reported EBITDA growth in the quarter. EBITDA margin for the region improved by 370 basis points. We saw particularly strong growth at Treasure Chest, Delta Downs and Par-A-Dice."
  • "Borgata continued to outperform the market despite heightened regional competition, boosting its market share by 80 basis points. The property also posted increases in non-gaming revenue, primarily from improved hotel ADRs and occupancy. These gains, however, were offset by increased promotional expense."
  • "The Company is in the final stages of due diligence related to its acquisition of the IP Casino Resort Spa in Biloxi, Mississippi, and expects to complete the process by August 4. Assuming this process is completed satisfactorily, we will pay a $10 million non-refundable deposit to the sellers on this date. We expect to close this transaction early in the fourth quarter."


CONF CALL NOTES

  • Believe that strengthening trends on the Strip will begin to help their locals business and they are beginning to see that happen
  • Sale of Dania Jai Lai: Process continues to move forward and is scheduled to close in late September
  • They are confident that they can increase IP's earnings potential once they fold it into BYD's operation
  • Focused on finding more growth opportunities
  • Las Vegas locals business: Orleans posted 7% EBITDA growth on higher revenue.  Multiple properties recorded YoY gains. Growth in convention and meeting business increased more than 20% and they expect that run rate to continue. Promotional environment remains elevated but they feel like they have the right strategy.  Feel that locals business has returned to YoY growth.
  • Downtown: If not for much higher fuel costs, EBITDA would have been up 8%.  Starting in September, they will convert to a Boeing 767, making their business more competitive and increasing capacity by 12% for fly-in business.
  • Midwest and South: Strongest margins since 1Q09. Sam's Tunica returned to pre-flood levels of business in July but forward bookings are weak.
    • IP will create substantial cross marketing opportunities
  • Increased promotional spending at Borgata in response to elevated competition for customers. 
  • Share based comp was $2.1MM
  • Expect 3Q interest expense to decrease $5MM sequentially due to expiration of swaps
  • 3Q Guidance:
    • Wholly Owned EBITDA (incl. corp exp):  $65-70MM
    • Borgata EBITDA:  $52-55MM
    • EPS:  $0.00-$0.03

Q&A

  • Las Vegas Locals: Orleans has been a standout for 3Q's in a row.  Rest of the year, they still expect increases in results despite harder comps.
  • They don't have a lot of room to cut expenses but as revenue recovers they should have really good flow through
  • Treasure Chest: continued to expand operating hours where they are now opened 24 hours on weekends and longer hours mid week.  New Orleans market never got hit as hard as other areas and has therefore improved faster.
  • Lake Charles has benefited from smart marketing to Texas. Their unrated play has picked up.
  • Balance sheet: $330MM maturity of their non-extending R/C and IP acquisition expense. Sources of cash: $350MM of availability of the extending portion of the facility, $80MM of non-cage cash available, Dania sale: $80MM of proceeds upon closing.  So that leaves them with $250-300MM of financing that they need to do - sometime before 1Q2012.
  • The $1.1MM of expenses related to Tunica is the deductible plus some additional expenses - that was added back in the adjusted EBITDA calculation
  • Increased promotional activity at Borgata?
    • Have continued to see elevated promotional environment over the summer that they have seen over the last few quarters.  By 3Q they will cycle through the PA table game addition comps.
    • Feel like their results are pretty good given the elevated competition
  • Dania: Received a non-refundable $5MM deposit. Buyer is spending a lot of money preparing to close on the acquisition. Feel like the buyer is showing every indication of intending to close.  The buyer does have the option to extend closing by 60 days under certain conditions.
  • Not commenting on revenue growth in the Las Vegas locals market but do think that results will increase in the 2H.  Flow through on revenue increases - 1% increase in revenue = 2% increase in EBITDA
  • Summer is the peak season along the gulf coast for hotel occupancy and visitation, but the seasonality isn't huge.
  • Capex:
    • 2Q: $12.5MM (including $6MM at BYD and 7MM at Borgata)
    • They are consistently underspending their capex budget - run rate of $15MM in 3Q and 4Q
  • Promotional environment in locals LV market. They are using a lot mailers. Have stayed away from big ticket /broad based promotions as they tend to have a lower ROI
  • Echelon site?
    • Continue to monitor the recovery of the Strip, but there are no current thoughts or conversations to commence construction there. It is important to have a site on the Strip for them at some point in the future.
  • Have not seen any easing of promotional spending in locals LV since Stations re-emerged from bankruptcy
  • Their visitation in Vegas is healthy but spend per visit is down. They don't need to increase FTE's - just maybe increase hours.
  • Cost of charter service increased $1MM YoY and will likely have a similar increase YoY in the 3rd quarter
  • Spend per visit trends in the LV locals market - they have seen improvements in the top two tier segments of their database across all regions.
  • Share losses in Nevada are largely due to promotional expenditures in their opinion.
  • IP strategy: they are looking for acquisitions that are a good fit, help them to diversify, have a top competitive position, and are accretive and provide a good return.  They are agnostic of future geography outside of the mentioned criteria above.
  • Proposed project in Bossier City- challenging market to consider additional capacity
  • Room renovation at Borgata: Includes all the rooms at the original hotel completed from fall of this year through spring of next year to be completed before Revel opens. It's a comprehensive room overhaul. There shouldn't be a lot of disruption.

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