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Solid quarter, cheap stock


"We saw positive momentum across our operations in March, driving first-quarter results that were ahead of our previous expectations. We were particularly encouraged by improvements in our Las Vegas Locals business, as we were able to generate EBITDA growth for the first time in more than a year"

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

  


CONF CALL NOTES

  • Expect to see better results from their initiatives as external factors abate.  
  • Feel good about the overall direction of their Locals business
  • Borgata: Remains the clear market leader 
  • Cautiously optimistic about the trends they are seeing:  investment portfolios growing, refund checks arrived, people are getting used to higher payroll taxes, Locals economy is improving (home sales, unemployment, etc.).  
  • They are seeing the highest level of development on the Strip that they have seen in years.
  • In AC the recovery from Sandy is strengthening as they enter their peak season
  • On track to complete the sale of Dania Jai Lai in May
  • Starting to see full benefits of the Peninsula acquisition
  • Intend to be amongst the first to offer online gaming in the state in NJ and are evaluating the best way to offer online poker in Nevada
  • Saw strengthening conditions in many of their markets, especially in the Locals markets.  Orleans has done well.
  • Diligently focused on improving operating margins in the Downtown market. 
  • South: difficult comp to a year ago Q. Delta Down still posted an all-time record quarter. 
  • Marketing expense was unusually low at Kansas Star when they first opened. The current spend run rate is more normal. This property remains on track to generate $100MM of EBITDA
  • Focused on improving margins in coming quarters
  • Balance sheet:
    • Debt: $4.1BN ($1.2BN related to Peninsula) 
    • Cash: $322MM ($30MM related to Peninsula) includes proceeds from Echelon sale. Post Q close a portion was used to redeem debt
    • Leverage: 3.89x Secured Leverage vs. 4.5x Max. 7.0x leverage vs. 7.75x covenant
  • Corporate expense includes $1.1MM for Peninsula
  • Increase in D&A is due to inclusion of Peninsula
  • Interest expense was $93MM excluding the LVE.  Interest expense should decrease by $2.5MM/Q as a result of the redemption of the notes.
  • Guidance for 2Q13:
    • EBITDA: 
      • Wholly-owned:  $132-137MM
      • Borgata:  $27-29MM
    • Tax rate of 35%
    • EPS: -$0.02 to $0.03

Q&A

  • Comparables are getting easier. Locals seems to be recovering but it's too early to call what they are seeing a trend given what's happened in the past
  • What was the biggest driver to the strong margins in the Locals market?  On the marketing side they had solid traction on their initiatives.  Staffing was also much more efficient. 
  • Think that the size of the i-gaming market in AC will be in the range of the numbers being projected
  • Think that i-gaming will be a nice addition to their business over the next few years. Not worried about the impact on their brick and mortar operations.
  • Any impact from the table game offerings in MD?  Too early to tell.  Unclear how last year's storm will impact AC this year
  • Locals:  on a spend per visitor basis, they are running about flat. 
  • BWIN will provide most of the software, the capital commitment is really around the marketing expenses. Those expenses typically come out of the revenues generated anyway.
  • No significant change to the promotional environment in AC.  Some small pullback in marketing. 
  • Promotional activity is normal in the locals market
  • No plans to raise equity to reduce leverage
  • Property tax appeal at Borgata is currently awaiting trial. Feel confident that they will get a rebate.
  • More streamlined labor levels? 7000-8000 employees in Nevada. Just adjusted labor to demand levels.
  • Kansas Star is a locals market-oriented casino but the permanent facility should attract a broader base of players
  • No change in capex plan for 2013
  • Biloxi market is a very competitive market.  IP has been more of an efficiency story vs. a revenue growth story for them.  They have done a good job increasing the EBITDA at that property and that should continue.
  • With respect to the LV Strip, they are very interested in being on the Strip at the right time and with the right asset

HIGHLIGHTS FROM THE RELEASE

  •  "As we look forward, we are excited by the potential of our online gaming strategy.  New Jersey and Nevada are now laying the regulatory groundwork for online gaming, and other states are considering legalization as well.  This emerging business provides a compelling opportunity to significantly grow and diversify our business, and we intend to take full advantage of it."
  • Las Vega locals: "Our new slot initiatives and associated marketing programs continued to perform well during the quarter, while EBITDA benefited from improved operating margins."
  • Downtown:  "Declines were the result of softness in business volumes early in the quarter.'
  • Midwest & South: "Winter weather impacted business levels early in the quarter.  However, trends began to improve across the region in March."
  • "The Peninsula properties performed in line with our expectations, including the Kansas Star, which opened a permanent casino and five new food and beverage outlets in late December."
  • "Borgata significantly outperformed the Atlantic City market in slot, table game and poker revenue, further increasing its leading market share as the region continued to recover from the impact of Superstorm Sandy."