BYD 2Q 2014 CONFERENCE CALL

Guidance again disappointing especially after factoring in the property tax benefit. And the real flow through on higher YoY Borgata revenues was actually not good

 

 

CONF CALL

  • Clearly did not meet expectations.  Weak spending among casual customers.
  • Q2 results not acceptable
  • Revenue shortfall:  Regional properties weakness accounted for $23m of $25m shortfall
  • LV Locals:  top line trends similar to 1Q; excluding low hold and higher utility expenses, EBITDA would have been on par with prior year
  • Southern NV economy still recovering
  • Borgata continues to outperform competition.  For 3 out of last 4 quarters, Borgata has gained share in greater Atlantic market (DE, PA, NJ, NY)
  • Lowered FY 2014 EBITDA guidance:  assumes 3Q/4Q will be similar to 2013
  • Orleans and Gold Coast:  Higher rates and expanding audience
  • Updating room products at Orleans and IP.
  • Updating F&B products (new restaurants) at LV Locals properties
  • B-Connected:  opportunity to enhance topline results.  Near completion of rollout at 5 Peninsula properties.  Still early but results have shown progress.
  • Online gaming:  early results from NJ have fallen short of expectations.  75% of accounts created were not active customers at Borgata.  Seasonality accounted flatness in online gaming trends.  As colder weather returns, online gaming visitation will increase.
  • Online gaming business in 2Q:  $1.8m loss; in July, they broke even
  • Will launch a mobile sports gaming app in Nevada
  • Remain on track for $200m debt reduction in 2014
  • Continue to benefit from $1.1bn in tax carryforwards
  • LV Locals:  lower hold reduced EBITDA by $1m.  Absent low hold, revs would have been flat.  Two utility cost hikes resulted in $1m.  Orleans had rev and EBITDA growth.
  • Downtown:  May/June was slow but recovered in July.  Market share grew by 40bps.  Optimistic on long-term outlook.  
  • Room upgrade at SunCoast in coming months
  • Midwest/South:  Biloxi/Shreveport/Central Illinois (2/3 of EBITDA shortfall).  At other properties, performance was flat YoY.  Delta Downs set new EBITDA/revenue records.
  • Blue Chip:  grew 40bps in market share.  
  • Kansas Star EBITDA grew YoY.  Kansas Star hotel expansion on schedule...will double room count
  • Borgata:  market share grew by 240bps.  2Q share- highest in 2Q record history.  Lower property taxes will benefit EBITDA by $6m per quarter.
  • Borgata:  holds 10% share lead over nearest competitors
  • YTD, total debt reduction has been $100m
  • 2Q capex:  $35m ($8m Peninsula, $7m Borgata); YTD capex:  $54m;  for 2014, $120m capex btw Boyd and Peninsula, $25m Borgata 
  • 2H Guidance:  
    • LV Locals/Downtown:  will be even with 2H 2013
    • Midwest/South:  excluding Blue Chip benefit, EBITDA would be higher
    • Borgata:  EBITDA even or slightly better than 2H 2013
    • Corp expense:  $27m
    • Borgata:  2 tax appeals pending
      • One-time cash payment of $88m; no concerns here; timeline:  probably year-end
      • 2009/2010 tax refunds:  currently being appealed by City of Atlantic City

Q & A

  • Shareholder activism:  nothing to report
  • AC Online gaming:  over time, will see consolidation in online gaming business
  • Suncoast:  no impact from upcoming hotel renovations
  • Borgata:  land-based EBITDA increased by 17% YoY 
    • Yeah, but don't forget they had a $4.3m impairment in Q2 2013 so EBITDA was actually down YoY and flat after excluding the loss from online gaming. There was very little flow through on the YoY increase in land based revenues
  • Closure of competitor casino closures in AC:  capacity goes out in a overcapacity market.  Promotional market should settle down.  No pickup in business from Atlantic Club closing. 
  • Northern NJ possible casino:  not overly concerned in next year or two
  • Not much increase in 2015 capex to complete their many projects
  • 2014 EBITDA guidance includes $11.8m Borgata tax benefit and includes  the lower $6m in property taxes per quarter
  • Borgata promotional allowances: higher because of online gaming; ex online gaming, promotional allowances would have been lower YoY
  • LV:  bigger players have done well but casual players struggle
  • Prior EBITDA guidance did not include property tax credits
  • Increased capacity in Midwest/South: Margaritaville in Shreveport (Q3 will be an apples-to-apples comparison); Biloxi competition- significant casino expansion in Alabama (Native American);  Peoria- IL VGTs affecting performance
  • Continuation of 2Q trends would put them in lower end of FY guidance
  • Regional EBITDA in 2013:  - 20% in September and -25% in December
  • Core player trends:  frequency and spend per visit are flat YoY
  • Lower property taxes going forward at other properties are possible:  Kansas appeals in process (not in guidance this year)

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