10/31/13 01:25PM EDT

Ugly quarter/guidance and misleading press release comments about October didn't help. But guidance looks too ugly.

"Our third-quarter performance fell below our expectations, as solid results in July and August were offset by significant weakness in September in many of our markets.  However, October year-over-year results have shown improvement in most of our operations. Despite a challenging operating environment, we continued to make encouraging progress in many areas of our business.  Our Las Vegas Locals business grew EBITDA for the third consecutive quarter.  In New Jersey, Borgata generated strong results, and we are now finalizing preparations for real-money online gaming in that state.  And we further strengthened our balance sheet, bringing our Company's total debt reduction to more than $500 million so far this year."

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


  • Weakness in September was concentrated in their Midwest & South region
  • Improved their FCF by more than $70MM annually this year
  • Eliminated $20MM of operating expenses from non-core assets
  • LV Locals:  Seeing benefits of the refinements they have made to their marketing programs.  Applying the same initiatives across their Midwest & South regions.
  • Online gaming:  their goal is to create a first class experience in line with the Borgata name. Efforts are focused on free play offerings right.  They are testing tools - geolocation and know your customers tools. Objective to make it as safe and easy for customers to open up accounts.  Will launch as soon as possible. 
  • In NJ, their customers will now be able to gamble from their rooms
  • Planning further initiatives in LV locals operations
  • They are also going to be rolling out social gaming sites throughout the US
  • Company outlook remains "encouraging" despite 3Q challenges
  • They will continue to reduce debt
  • Will focus on growth opportunities - CA online gaming and S. Florida, and online gaming in NJ
  • In October, most of their operations are showing an improvement MoM
  • Locals LV:  Reduced overall marketing spend by over $1MM. Penny Lane initiative. Will roll out Penny Lane throughout Midwest & South - giving players more bonuses more often. Will launch a new advertising and marketing campaign in the coming months and weeks. 
  • Downtown: Hawaii market is improving and redevelopment remains a positive long term development for the market area.  Over time, this will lead to more visitation to the downtown market.
  • Midwest & South:  casual players pulled back sharply in their spend in September.  In the Midwest, Paradise & Blue Chip were materially negatively impacted by new competition. South: These markets are also impacted by government and military spending.  Some bright spots: Delta Downs. Iowa: Diamond Jo grew visitation and gained 2% share. Kansas Star grew but so did expenses as they opened the permanant facility and to accomodate revenue growth
  • Borgata:  Had a huge summer session. Higher property taxes reduced EBITDA by $2.1MM. But last week Borgata got a favorable ruling that Borgata had overpaid by $48MM in 2009-2010 plus $10MM in interest on that amount. They are also appealing 2011-2012 taxes as well.  This will benefit them through refunds and lower taxes going forward but timing is uncertain as NJ will appeal the ruling.
  • Borgata is posting solid gains in 4Q. Believe there is further upside to the property.
  • Debt Balance:  $3.6BN ($1.2BN at Peninsula). 
  • Cash:  $102MM at BYD and $28MM at Peninsula
  • Secured Leverage:  2.2x  (5x max) / Total 6.6x (8.0x max)
  • D&A:  Peninsula's $22MM/ Borgata $14MM
  • Capex:  $8MM at Peninsula/ $6MM at Borgata
  • 4Q13 guidance:
    • Interest expenses: $79MM; $20MM in Borgata and $20MM at peninsula
    • Share oustanding: 109MM
    • Wholly owned EBITDA: 105-110MM
    • Borgata: $22-24MM (ex tax benefit or online gaming revenues)
    • Non-tax expense of $3MM 
    • Adjusted EPS: 15-20 cent loss


  • Delta Down impact of Golden Nugget coming online in 2014?  They are about 30-40 minutes closer to Texas than Lake Charles - where the Golden Nugget will be.  Delta Downs is a slot only operation so they can treat their slot customers better.
  • Expect very modest revenue growth in the LV locals market in 2014
  • Borgata's online strategy: will be aggressive in attacking the market - have a significant budget allocated to market / attract players
  • Borgata property tax impact of $2.1MM was a YoY # and known when they put out their guidance
  • Government shutdown impact were complete unknowns in September.  Most of the impact that they have seen is in the lower end segment which is most economically sensitive.
  • Guidance of what they are providing is based on what they saw in 3Q and October.
  • Given the fast and dramatic change they saw in September they didn't really have an opportunity to adjust costs in reaction to it- hence the impact on margins. They are still looking for opportunities to take cost out of the business. 
  • In September, they saw a similar number of trips from the lower end of their database but they spent less. That group will recover but they need to feel better about the world.  MoM, they have seen a recovery (not necessarily YoY) across most of their properties. 
  • All they are saying about October is that it's not down as much as September
  • Their business didn't get negatively impacted from new competition in Downtown - their share increased. Dilution from new properties is usually offset by more visitation to the area. 
  • Impact from Sandy last year at Borgata: $11-12MM of EBITDA
  • Property tax discussion at Borgata:  Does affect going forward payments/ rate.  So they will get a refund of past payments and will have lower payments going forward. If you took the government's reassessment from the ruling they would see a $30MM reduction in annual taxes at the property which would boost EBITDA by that amount.
  • Online gaming: Expect that they will launch multiple brands at the same time - Borgata and Bwin as well as others. You can launch up to 5 sites under each license.
  • Penny Lane rollout to the Midwest & South: Launched around Dec 2012 for penny denominated machines and feel like the campaign contributed to the lift that they saw in the first few Q's. They are layering BYI's electronic bonusing suite which will help them create an innovative marketing campaign starting next week and get to the new Peninsula properties early next year.
  • 2014 - Do they expect a pick up from easier comps? Who knows ... 
  • They can't really say what growth in LV Locals would have been without Penny Lane. That wasn't the only change that was implemented to attract more people into their building.
  • NJ online gaming:  You will be able to sign up to gamble if you are within the bounds of the state - you do not need to be a NJ resident
  • View that online gaming opportunities will more than offset any impact to their bricks and mortor operations. They are not modeling any impact in their guidance.
  • What is the promotional environment like in reaction to the softness in the market?  It's really market specific. Overall, the lower end of the database is spending less. They are redeeming past offers based on higher play in the past. 


  • LV Locals: Ongoing refinements to our business continued to drive revenue growth at our four Locals properties during the quarter.  We also benefited from efficiencies throughout our operations
  • Downtown: Weakness at the Fremont during September was primarily responsible for the EBITDA shortfall.  Business at the property was impacted by construction disruption in the Downtown area, which resulted in reduced visitation.
  • Midwest & South; Peninsula: Peninsula segment contributed net revenues of $130.7 million, and Adjusted EBITDA of $45.3 million. Solid performances at Diamond Jo Dubuque and Delta Downs were offset by declines at other properties in the region, particularly in September.  Our operations were impacted by soft economic conditions late in the quarter, as well as increased supply in certain markets.
  • Borgata: Borgata's market share rose 3% and EBITDA margins improved by 550bps, due largely to more normalized table hold as compared to the year-ago quarter.  Despite increased regional supply, Borgata's first-in-class amenities, service and effective marketing programs are providing a significant competitive advantage.  On October 9, Borgata received the first Internet Gaming Permit granted by the New Jersey Division of Gaming Enforcement.  Preparations are ongoing for the launch of our Borgata-branded online gaming site, and we remain on track to be among the first operators to offer real-money online gaming in New Jersey

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