BYD 3Q REPORT CARD

In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance

BYD 3Q REPORT CARD - byd12

OVERALL

  • WORSE:  Even adjusting for low hold and the impact from Hurricane Isaac, results would have still missed the low end of BYD's guidance

ATLANTIC CITY

  • WORSE:  Low table hold and volume drove the big EBITDA miss.  According to BYD, low table hold affected EBITDA by $11 million.  However, if we use the 6 quarter trailing average hold of 13.3% and apply it to the $378MM of drop that was recorded this quarter, we come up with a revenue impact of just $7MM, and an EBITDA impact of $6MM.  Promotional expenses were also elevated in the quarter- equal to 38.5% of reported gaming revenue - the highest level since 4Q10. On the bright side, BYD was pleased with slot and hotel performance.
  • PREVIOUSLY:  "In Atlantic City, Borgata is contending with heightened competition, but we expect to see solid results during the busy summer season. We've really seen limited impact from our customers from Revel. They've had an impact on our food and beverage side of things, maybe some of the lower-end customers, but certainly not the core components of our business. And so, our thesis continues to remain intact; that is that we don't really expect to see the most significant impact from Revel until the fourth quarter just given the seasonality of the business."

MIDWEST/SOUTH SEGMENT

  • WORSE:  Despite strong performance at the IP, record EBITDA at Delta Downs, and market share growth at Treasure Chest and Blue Chip, this segment missed expectations.  Mgmt blamed Hurricane Issac.
  • PREVIOUSLY:  "In our Midwest and South region, the results were more encouraging. We maintained or grew market share in every market where we operate. This has been the strongest region of the country for the domestic gaming industry for some time now and it is also our most robust business segment. As it relates to the rest of the Midwest and South operation, [promotional] spend is, I would say, stable on a year-over-year comparable basis in all markets relative to ourselves. We are also stable except for in Biloxi where we have made, obviously, a calculated decision to actually reduce marketing expense and drive profitability versus the prior owners."

PENINSULA ACQUISITION

  • SAME:  Kansas regulators will look at the transaction in the week of November 12.  BYD expects  to complete this transaction in the 4th quarter. 
  • PREVIOUSLY:  "Based on our progress to date, we anticipate this transaction will close as intended sometime in the second half of the fourth quarter. I think we plan to receive a management fee."

LV PROMOTIONAL ENVIRONMENT

  • SAME:  Promotional spending continues to be heightened, the same state since this past summer.
  • PREVIOUSLY:  "We are contending with an aggressive promotional environment in the Locals business but, importantly, this competition has had no impact on our top tier business. In fact, the tremendous relationships we've built with our top tier customers has been a real bright spot in our Locals business this year, as business volumes among our core customers have continued to grow. The promotional environment has, however, had a significant impact on play of customers in our lower tiers, customers we consider to be casual gamers."

LV DOWNTOWN

  • BETTER:  Stronger Hawaiian charter business attributed to changes in their weekly flight schedule contributed to a 6% increase in EBITDA.  BYD expects the positive trend to continue in 4Q.
  • PREVIOUSLY:  "We experienced an EBITDA decline in this business segment as well but are confident that the causes are temporary....expect business to stabilize in the third quarter and resume growing in the fourth."

IP

  • BETTER:  Despite flat revenues, improved operating efficiencies and the introduction of the B Connected player loyalty program drove EBITDA 35% higher. 
  • PREVIOUSLY:  
    • "We recently began introducing our nationwide player loyalty program B Connected and it should begin to have an impact in the third quarter. This will allow us to make more strategic marketing investments which will drive more profitable business to the property [IP]."
    • "We are also seeing the positive effects of efficiency measures at the IP where we are saving money without compromising the IP's reputation for strong customer service and outstanding amenities. The IP is running ahead of our expectations and is demonstrating our ability to unlock significant value with acquisitions."

AC PROMOTIONAL SPENDING

  • SLIGHTLY WORSE:  Regional environment remains competitive.  Borgata promotional spending was up 2% despite an 7% decline in revenues.  Revel was very active with marketing. Golden Nugget's recent renovation also increased promotional activity.  Pennsylvania continues to be more aggressive with promotions.  BYD expects the aggressive promotional environment to continue in AC.
  • PREVIOUSLY:  "When you look at the promotional spend in the numbers that come out of Atlantic City, you will see that some operators are down and other operators have really increased the level of promotional expenditures that they are spending. And so there's really a wide variety happening in the city right now. But Revel clearly is increasing the overall spend."

LEVERAGE

  • SAME: Senior secured leverage ratio in 3Q came in at 3.48x (covenant: 4.5x).
  • PREVIOUSLY:  "The secured leverage ratio is really not a pressure point for the company going forward. In fact, I think we've got plenty of cushion under there."