Boyd Gaming Corporation (NYSE:BYD) Q1 2023 Earnings Call Transcript

Boyd Gaming Corporation (NYSE:BYD) Q1 2023 Earnings Call Transcript April 25, 2023

Boyd Gaming Corporation beats earnings expectations. Reported EPS is $1.71, expectations were $1.49.

Operator: Hello, everyone. Thank you all for attending today’s Boyd Gaming First Quarter 2023 Conference Call. My name is Sierra, and I will be the moderator today. . I would now like to pass the conference over to our host, Josh Hirsberg, CFO and Treasurer of Boyd Gaming. Please proceed.

Josh Hirsberg: Thank you, operator. Good afternoon, everyone, and welcome to our first quarter earnings conference call. Joining me on the call this afternoon is Keith Smith, our President and Chief Executive Officer. Our comments today will include statements that are forward-looking statements within the Private Securities Litigation Reform Act. All forward-looking statements in our comments are as of today’s date, and we undertake no obligation to update or revise those forward-looking statements. Actual results may differ materially from those projected in any forward-looking statement. There are certain risks and uncertainties, including those disclosed in our filings with the SEC that may impact our results. During our call today, we will make reference to non-GAAP financial measures.

For a complete reconciliation of historical non-GAAP to GAAP financial measures, please refer to our earnings press release and our Form 8-K furnished to the SEC today and both of which are available at investors.boydgaming.com. We do not provide a reconciliation of forward-looking non-GAAP financial measures due to our inability to project special charges and certain expenses. As noted in an 8-K filed earlier this month, we have recast our segments. Online is now reported separately. Additionally, the results that include Wilton’s management fee and Lattner Entertainment, reported in a separate category Managed & Other. These results were previously reported as part of our Midwest & South segment. For additional information on these segments, including results recast for prior periods, please refer to the Form 8-K we filed on April 11.

Today’s call is being webcast live at boydgaming.com and will be available for replay in the Investor Relations section of our website shortly after the completion of this call. So with that, I would now like to turn the call over to Keith Smith. Keith?

Keith Smith : Thanks, Josh. Good afternoon, everyone. The first quarter of 2023 was an excellent start to the year for our company as we once again improved the strength of our business model and the resilience of our diversified portfolio. Our strategy of focusing on growing play from our core customers and managing our business efficiently has delivered consistently higher levels of performance and record results over the last several years. In the first quarter, it was no exception, led by record performances in our Las Vegas Locals and Downtown segments as well as substantial growth in both our online operations and our management fees from Sky River Casino. On a company-wide basis, revenues were $964 million, and EBITDA was more than $367 million, both first quarter records as operating margins exceeded 38%; and when excluding contributions from the Online and Managed segments, our margins were 40% again, consistent with our margins over the last several years.

During the quarter, play from our core customers across the country rose more than 3% driven by increased spend per visit, while our core customer counts also continued to grow. Our strategic focus on growing core customer play is the foundation of our ongoing success. By tailoring our business to our core customers, we’ve built a more efficient and profitable business model that exhibits both strength and resilience in today’s economic environment. Looking at segment results, our Las Vegas Locals business had another strong quarter, setting first quarter records for revenues, EBITDAR and operating margins. Revenues and EBITDAR each grew about 6% in the segment, while operating margins were 52.5%, once again exceeding 50%. Gaming revenue was up in the Locals segment as core play increased 3% over the prior year, while unrated play also grew slightly.

Non-gaming revenue growth was even stronger, driven by demand from out-of-town guests. Hotel revenue in the segment rose nearly 30% year-over-year, driven by double-digit gains in both occupied rooms and cash run rates. These trends should continue as hotel reservations for the next 90 days at our locals properties are currently up more than 10% year-over-year. We also drove solid gains in our Food & Beverage business at our locals properties. Looking ahead, we expect to see continued benefits from the strong tourism trends across the Las Vegas Valley. Over the trailing 12 months, more than 40 million people visited Las Vegas, up 16% and prior year, while traffic through the Las Vegas Airport, reached 54.7 million passengers during that same timeframe, an all-time record.

And Las Vegas visitors are spending much more during their trips, averaging over $1,100 per visit last year, an increase of nearly 35% over 2019 levels. This resulted in annual visitor spend of approximately $45 billion in Las Vegas last year, an all-time high. Convention business is strengthening as well, rising 86% over the trailing 12 months. The entire market is benefiting from a strong lineup of entertainment and sporting events across the city within the first quarter and throughout 2023. With more than 5,000 hotel rooms in the market, our locals properties are well positioned to capitalize on these strong visitation trends. These trends are also helping to drive solid growth at our Downtown Las Vegas business, which set first quarter records for EBITDAR and margins.

Downtown revenues rose 14%, EBITDAR was up 22% and margins increased 240 basis points to 39.5%. With more people visiting Las Vegas, more of them are stopping by downtown during their stay. 58% of Las Vegas visitors reported they visited Downtown Las Vegas last year. This increased visitation is benefiting all 3 of our downtown properties. But our Downtown growth story goes well beyond increased tourism in the Fremont Street area. We continue to see strong trends in our core Hawaiian customer segments as well, with play from these customers up more than 10% year-over-year in our Downtown properties. And our recent investments at the Fremont, including our new food hall, expanded slot offering and FanDuel Sportsbook helped to drive significant revenue and EBITDAR gains, with rated play up 20% year-over-year at that property.

Moving next to the Midwest & South. Revenues were in line with the prior year, while EBITDAR declined due to softness in Louisiana and Mississippi. However, outside of these 2 states, customer trends remained very stable across our Midwest & South portfolio with core customer play for the entire segment increasing 2% for the quarter. Excluding our Louisiana, Mississippi properties, core play grew 6% and unrated play also grew at our other regional properties. And on a sequential basis, results for the first quarter improved over the fourth quarter in the Midwest & South region. Similar to the rest of our portfolio, we are seeing strong growth in nongaming revenues across the Midwest & South. We have recently made investments to enhance our hotel and food and beverage offering across many of our regional properties, and these investments are now contributing to solid nongaming revenue growth and core customer play.

Next, our Online segment achieved first quarter EBITDAR of nearly $21 million. This is more than double our prior year results, driven by the launch of online gaming in Ohio and Kansas, continued growth in our existing markets and the addition of Boyd Interactive. Based on our strong start to the year and normal seasonality of the business, we estimate our online operations will generate approximately $50 million in EBITDAR in 2023. This projection includes a full year of contribution from FanDuel operations in Ohio and Kansas as well as results from Boyd Interactive. We will soon be expanding Boyd Interactive’s portfolio. We expect to transition subject to final regulatory approvals, our sturdiest online casinos in Pennsylvania and New Jersey to the Boyd Interactive platform during the month of May.

Once complete, this transition will be an important step forward in the execution of our online gaming strategy. Beyond the increasing financial contributions of our online business, we’ve also created significant shareholder value as a result of our 5% equity stake in FanDuel Group which has established itself as the nation’s clear leader in sports betting. Last, our Managed & Other business benefited from exceptional results at Sky River. Sky River continues to perform ahead of expectations generating $20 million in management fees for our company during the quarter. We are proud to have achieved such strong results for the Wilton Rancheria Tribe. And given this early success, Tribe is now considering expanding the property which could further enhance its long-term potential.

Sky River is off to an excellent start, and we look forward to continued success in the years ahead. So in all, our nationwide operations had a great start to the year. Looking ahead, while the economic outlook remains uncertain, we remain optimistic regarding the direction of our business. Our core customer continues to perform well, and we have not seen any meaningful change in consumer behavior. In addition, our results will benefit from online and management fees from Sky River as we expect both to maintain strong year-over-year growth. We also expect continued returns from the investments we are making in our properties nationwide. In addition to driving nongaming revenue growth, these investments are essential to our strategy of attracting and retaining core customers.

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Looking further ahead, we anticipate solid returns from our $100 million expansion of Treasure Chest Casino, which is on track to open next spring. This project will significantly improve our product with a land-based single-level casino facility an expanded array of nongaming amenities and much improved parking. When complete, we are confident this investment will allow us to improve the customer experience, attract new customers and enhance the overall efficiency of operations at this property. Thanks to our robust free cash flow, we are successfully balancing these investments in our portfolio with our capital return program. We plan to continue our $100 million per quarter share repurchase program supplemented by our dividend distributions.

We are also creating value through our ESG initiatives as illustrated in our recently issued ESG report. In this year’s report, we outlined our continued progress on many key initiatives, such as reducing carbon emissions, conserving water, diverting waste from landfills, promoting diversity and inclusion and supporting our communities through contributions to non-profit organizations nationwide. Through these initiatives, we are fulfilling our long-standing commitment to ensure that our company is having a positive and lasting impact on our communities. In conclusion, this was another outstanding quarter for our company, further demonstrating the resilience of our business and the strength of an efficient operating model built on driving play from our core customers.

As a result of our diversified portfolio, our record performances in Las Vegas Locals and Downtown Las Vegas and increased contributions from our online and managed operations, we delivered another quarter of record results. Our core customer remains strong. Our growth initiatives like Sky River, online and property investments are delivering strong results, and we are successfully maintaining strong efficiencies throughout our business, remaining financially disciplined in the allocation of our free cash flow. I’d like to thank every member of the Boyd team for their contributions to our success. Together, we are delivering great results for our shareholders, and it is a privilege to be part of this talented and dedicated team. Thank you for your time.

I would now like to turn the call over to Josh. Josh?

Josh Hirsberg : Thanks, Keith. This was another successful quarter for our company, reflecting a focus on our core customer and a disciplined approach to operating our business. Revenues were $964 million, and EBITDAR after corporate expense was $367 million, both records. Margins were 38%. Excluding contributions from online and management fees, property level margins after corporate expense were 40%, consistent with the margins we have delivered over the last several years. This quarter’s performance stands out for its consistency and for our ability to continue to deliver these results in today’s economic environment. As I mentioned earlier, we are now reporting separately our online operations and our managed operations.

The Online segment consists of contributions from our partnership with FanDuel and other market access agreements as well as results from Boyd Interactive, our online casino business. Revenues in this segment also include tax pass-through amounts that were $96 million in the first quarter and $42 million last year during the same period. Based on Keith’s earlier comments, we expect this segment will generate about $50 million in EBITDAR this year compared to $40 million last year. This performance reflects the growth in our online business as well as a full year contribution from Boyd Interactive. The Managed & Other segment consists of fees generated by our management contract at Sky River Casino as well as contributions from Lattner Entertainment.

On our last call, we indicated we expected to generate about $50 million in management fees during 2023 from Sky River. Given the ongoing success of this property, we now believe it is reasonable to expect that we will earn approximately $65 million to $70 million in management fees this year. In addition to the management fees that we earned during the first quarter, the Tribe began repaying the $113 million we advanced to the project. We received $17 million during the quarter. And based on current projections with ongoing quarterly payments, we expect the loan will be fully repaid by early 2024. As you can see from our results, both of these segments were important contributors during the quarter. For the full year, these segments are expected to generate approximately $130 million of EBITDAR in 2023 compared to approximately $80 million in 2022 on a comparable basis.

During the first quarter, capital expenditures were $96 million, including spend for Fremont and Treasure Chest. For the full year, we expect total capital expenditures to be $350 million, including $250 million in maintenance capital and $100 million related to the Treasure Chest land-based project and completing the renovation of the Fremont. In terms of capital returns to shareholders, we repurchased $106 million in stock during the quarter, representing 1.7 million shares at an average price of $61.59 per share. The actual share count at the end of the quarter was 101.5 million shares and we have approximately $133 million remaining under our current repurchase authorization. During the first quarter, we also announced an increase in our quarterly dividend to $0.16 per share, which was paid on April 15.

Between our share repurchases and dividends, we have returned nearly $800 million to shareholders since late 2021, and we expect to surpass $1 billion in capital returns by the end of 2023. We have a very strong balance sheet with low leverage, no near-term debt maturities and ample borrowing capacity under our credit agreement. As of March 31, total leverage was 2.3x and lease-adjusted leverage was 2.7x. With a robust free cash flow and strong balance sheet, we have significant flexibility in today’s uncertain economic environment to successfully balance our shareholder returns with capital investments. So in all, after another record first quarter, our company remains on very solid footing. Our diversified operations continue to generate substantial free cash flow, and combined with our strong balance sheet, allow us to execute our capital return program while reinvesting in our property portfolio.

As a result, our company is in the strongest position in our history with a proven business model focused on our most loyal customers, robust and diversified free cash flow and a strong balance sheet. That concludes our remarks, and we are now ready to take any questions.

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Q&A Session

Operator: Our first question today comes from Steve Wieczynski with Stifle.

Steve Wieczynski : So Josh, I want to ask about margins in the Midwest and the South segment, which were down about 200 basis points. And I’m just wondering if you could help us think about maybe what the drag was from Louisiana and Mississippi. And then maybe have you seen those markets improve at all? Or at the very least, are they weakening anymore? Or are they pretty stable at this point?

Josh Hirsberg : Yes, Steve. So I think we’ve started to see stability in those 2 markets. It’s really hard for us to understand at this point, totally what’s going on. Some of it is related to onetime events that happened in those markets, but it does seem to be a little bit more broader-based and economically impacted. If we kind of look at margins when you — if you kind of excluded Mississippi and Louisiana out of the Midwest & South and looked at the margins without those 2 properties, margins would be down about 90 basis points to 100 basis points or so. So most of the decline in — those 2 assets make up about a little bit more than half of the decline in margins, excuse me. So hopefully, that gives you a sense of kind of what’s going on.

Steve Wieczynski : Yes, it does. And then second question, Josh, if we think about your guide for the online segment, I think you said you’re still kind of expecting that $50 million-ish for the year. Can you maybe just help us think about seasonality then through the last couple of quarters of the year, given the fact that you guys did $21 million in the first quarter, just trying to kind of square away how you guys kind of think about the year, maybe some of the things we need to be watching for over the balance of the year.

Josh Hirsberg : Yes. So when we think about first — in the first quarter, we generated $21 million, as you stated, Steve, part of that, there were some — there are some onetime items where we receive onetime fees related to some of our market access arrangements. And then also in that number is obviously the first full quarter of Boyd Interactive, which was formerly Pala. But as we think about the seasonality of the business outside of Boyd Interactive, I think the first quarter is one of the better quarters and the fourth quarter will be one of the better quarters. And then second and third are much lighter in terms of performance, just given the normal seasonality. So you can look back at last year and get a sense of the level of magnitude of the business that we saw in the second and third quarter, and get a sense of the difference in that in maybe the fourth quarter that you saw outperformance as well as the first quarter this year.

Keith Smith : Yes. Steve, this is Keith. It really is about the seasonality of the sports calendar. College, NFL, football is what drives most of it and then into Q1 as well as the college basketball playoffs in Q1. It gets pretty soft from a business standpoint in Q2 and Q3.

Operator: Our next question comes from Joe Greff with JPMorgan.

Joseph Greff : I was hoping you could talk a little bit about what you’re seeing on your land-based casino side of things in April, particularly, with maybe some of the lower tiers of your database as well as the 55-year-old plus segment?

Keith Smith : Yes. So Joe, this is Keith. I think the trends we’re seeing in early April are not meaningfully different than what we saw in the first quarter. In the first quarter, we saw good growth from both our 45 and up customers as well as we call our core customers through the kind of high-end customers. As you get lower in the database, they didn’t perform as well, but that is nothing new. It’s been going on for several years, and so it’s kind of an ongoing trend. Our focus is on the higher end of the database. So getting strong growth both across demographics, age categories as well as worth categories.

Operator: Our next question is from Carlo Santarelli with Deutsche Bank.