Boyd Gaming Corporation (NYSE:BYD) Q1 2024 Earnings Call Transcript

Boyd Gaming Corporation (NYSE:BYD) Q1 2024 Earnings Call Transcript April 25, 2024

Boyd Gaming Corporation misses on earnings expectations. Reported EPS is $1.51 EPS, expectations were $1.57. Boyd Gaming Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, and welcome to the Boyd Gaming First Quarter 2024 Conference Call. My name is David Strow, Vice President of Corporate Communications for Boyd Gaming. I will be the moderator for today’s call, which is being recorded on Thursday, April 25, 2024. At this time, all lines are in listen-only mode. Following our remarks, we will conduct a question-and-answer session. [Operator Instructions] Our speakers for today’s call are Keith Smith, President and Chief Executive Officer; and Josh Hirsberg, Executive Vice President and Chief Financial 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 the 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, 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. Today’s call is being webcast live at boydgaming.com and will be available for replay at 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, David, and good afternoon, everyone. Following a record 2023 performance, the first quarter of 2024 was a challenging start to the New Year. While we knew our first quarter results in Nevada were comping to a record first quarter of 2023, our results for the quarter were also impacted by January severe winter weather in the Midwest and South and a softer Las Vegas locals market in the first quarter. However, beyond these challenges, there were encouraging trends during the first quarter. Both in Nevada and across the Midwest and South, play from our core customers improved as we moved through the quarter. In our Midwest and South segment, once January severe winter weather passed, the revenue growth trends that began in the fourth quarter returned in February and March.

In addition, both our online and managed businesses continue to produce strong results. And importantly, our management team stayed focused on maintaining operating efficiencies and a disciplined marketing approach as we achieved property level margins of 40% during the quarter, proving once again our ability to maintain a high level of efficiency. So now let’s review each of our operating segments in more detail. In our Las Vegas locals segment, the EBITDA shortfall to prior year was a result of three main issues, each accounting for roughly one third of the decline. First, as I mentioned a moment ago, and as we discussed on our last call, our local segment was comparing to a record performance last year. While January was a particularly strong month last year, both February and March were also record months for the segment.

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Q&A Session

Second, as expected, we also felt the impact of competitive pressures related to the opening of a new property in the market. The overall impact of these competitive pressures during the quarter was in line with our previously stated expectations of $20 million to $25 million in EBITDAR for the full year. And finally, on a same-store basis, the overall Las Vegas locals market was softer than expected during the quarter. Despite these issues, the fundamentals of our locals business remain intact. During the quarter, play from our core customers grew each month. And when excluding January, play from core customers increased on a year-over-year basis. Non-gaming revenues also grew in the local segment during the quarter, even with a substantial number of hotel rooms out of service for a room remodel project at the Gold Coast.

And finally, we remain disciplined in our marketing strategies and focused on operating efficiencies. Even with lower revenues, we maintained margins of nearly 50% in our local segment during the quarter, consistent with our performance over the last several years. Looking ahead, while we expect competitive pressures and market softness to continue into the second quarter, we remain encouraged by continued strength in play from our core customers and confident in our management team’s ability to achieve efficiencies throughout our operations and maintain a disciplined approach to marketing. Next, in Downtown Las Vegas, similar to our local segment, some of the shortfall to prior year was the result of comparisons to a record first quarter of 2023.

Much of our strong performance in the first quarter of ’23 was driven by pent-up demand from our Hawaiian guests. While we expected some normalization from last year’s elevated levels, high airfares during much of the quarter – during much of the quarter of this year, kept more Hawaiians away than we had anticipated. In addition, gaming revenues in the downtown market declined during the quarter with overall pedestrian traffic trending lower along Fremont Street. Looking at more recent trends, we are encouraged that Hawaiian visitation has improved over the last 30 days as airfare from Hawaii have started to decline from the elevated levels we saw earlier in the first quarter. While our two Nevada segments faced comparisons to prior year record results and market softness, we continue to have long-term confidence in the Southern Nevada market.

On an overall basis, visitation to Las Vegas continues to grow, led by increases in convention business over the last 12 months. Employment remains a positive story as well, increasing 3.3% over the last 12 months, the strongest growth rate of any major metropolitan area in the U.S. This employment growth continues to be broad-based with gains across most employment sectors. The ongoing growth trends we see in visitation, convention business and employment all bode well for the future health of the Southern Nevada economy. Moving to our Midwest and South segment. We saw encouraging trends during the first quarter. While results were down year-over-year, and this was primarily due to severe winter weather impacting January. Beyond January, gaming volumes from our core customers grew continuing the trends from the fourth quarter.

And retail play in February and March was also encouraging, coming in nearly flat to the prior year, the best year-over-year performance we have seen in almost 2 years. We also saw growth elsewhere in the business. Adjusting for rooms out of service related to a hotel renovation project at our Ameristar St. Charles property, nongaming revenues grew 4% in February and March. And our management team successfully maintained their focus on operating efficiently. Excluding the weather impacted month of January, margins were 39% for the quarter, similar to our recent performance for this segment. As we look ahead, we are encouraged by the improving customer trends over the last several quarters, and those trends have continued across our Midwest and South segment in April.

Next, our online segment maintained its strong level of performance with $20 million in EBITDAR in the first quarter, the segment matched last year’s exceptional results, a tribute to FanDuel’s industry-leading position in online sports betting across the country. We are pleased with our online segment’s strong start to the year. And looking ahead, we continue to project the segment will generate $60 million to $65 million in EBITDAR for the full year. In addition to these financial contributions, we also continue to benefit from our 5% equity interest in FanDuel Group. This investment is growing in value with the success of FanDuel across the country, and it remains a valuable strategic and financial asset for our company. Finally, our managed and other business benefited from another strong quarter at Sky River Casino, which we manage on behalf of the Wilton Rancheria Tribe.

Well into its second year of operations, demand at Sky River remains healthy. Thanks to Sky River’s excellent performance since opening, the Wilton Rancheria Tribe is now finalizing plans for a major expansion of the property that will include additional casino space, a hotel tower and meeting and convention facilities. As a result of Sky River’s continued strong performance, we now expect our managed and other business to generate approximately $86 million to $88 million in EBITDAR this year. While company-wide results were below prior year during the first quarter, we continue to generate significant free cash flow, allowing us to execute on our balanced approach to capital allocation. First, we are investing in our nationwide portfolio with the objective of driving long-term growth while enhancing the competitiveness and appeal of our properties.

We are repositioning or upgrading many of our food and beverage outlets with nearly a dozen projects planned throughout the year. We are also refreshing and updating our hotel product. Currently, we are in renovating rooms at Gold Coast, Ameristar St. Charles and Blue Chip. And we are set to begin similar projects at the Orleans IP and Valley Forge later this year. Beyond upgrading our property amenities, we are also nearing completion of our land-based project at Treasury Chest Casino. This project will transition the property from a 3-level riverboat to a spatial single-level land-based facility adding significantly enhanced nongaming amenities, expanded gaming options and convenient parking for our guests. Once complete in June, we are confident this investment will significantly enhance the Treasury Chest experience and position the property for long-term growth.

While investing in our portfolio is a key part of our approach to capital allocation, we are also committed to returning capital to our shareholders. During the quarter, we repurchased $105 million in company stock while increasing our dividend for the third consecutive year. We intend to continue returning capital to our shareholders with $100 million per quarter in share repurchases and quarterly dividend payments. And finally, we remain committed to maintaining a strong balance sheet, which provides us with significant flexibility to navigate the current environment, execute a balanced approach to capital allocation and pursue opportunities. In summary, while this was a challenging quarter, there were many encouraging trends in the business, including continued growth in play from our core customers.

We remain diligently focused on our disciplined marketing and operating strategies and our commitment to operating efficiently. And thanks to our significant free cash flow and strong balance sheet, we continue investing in our properties while returning substantial capital to our shareholders. Thank you for your time today. I would now like to turn the call over to Josh.

Josh Hirsberg: Thank you, Keith. I’m going to provide a few additional details on the quarter. With the current trends in our business, we have remained disciplined in our expense management, resulting in property level margins of 40%. We have also remained focused on our core customer strategy and disciplined in our marketing efforts, which has been one of the keys to our success over the last several years. For our online segment, our results include tax pass-through amounts related to our online partnerships. These amounts are recorded as both revenue and expense. During the quarter, the tax pass-through amount was $116 million compared to $96 million last year in the first quarter. In terms of capital expenditures, we invested $90 million in the first quarter, including investments in the Treasury Chest land-based project.

We remain on track to spend $200 million to $250 million in maintenance capital during 2024 and $100 million in growth projects that you should think of as recurring. We also expect to invest an additional $100 million during the year in room renovation projects that Keith mentioned, bringing our total capital expenditures in 2024 to $400 million to $450 million. With respect to our program to return capital to shareholders. During the quarter, we repurchased $105 million in stock, acquiring 1.7 million shares at an average price of $63.62 per share. We also increased our quarterly dividend to $0.17 per share during the quarter, starting with the dividend that was paid on April 15. Since resuming our capital return program in late 2021, we have returned approximately $1.3 billion to shareholders in the form of dividends and share repurchases and reduced our actual share count by 15% to 95.4 million shares.

At the end of the first quarter, we had approximately $221 million remaining under our current repurchase authorization. Our capital return program is an important part of our capital allocation philosophy, and we are committed to $100 million per quarter in share repurchases. We finished the quarter with total leverage of 2.3 times and lease-adjusted leverage of 2.7 times, consistent with year-end levels with low leverage, no near-term maturities and ample borrowing capacity under our credit agreement, we have created the strongest balance sheet in our company’s history. As a result of our strong balance sheet and significant free cash flow, we have created significant financial flexibility to maintain a balanced approach to capital allocation, providing our company the ability to continue reinvesting in our portfolio and returning substantial capital to our shareholders while pursuing growth opportunities.

That concludes our remarks, and David, we’re now ready to take any questions.

A – David Strow: Thank you, Josh. We will now begin our question-and-answer session. [Operator Instructions] Our first question comes from Steve Wieczynski of Stifel. Steve, please go ahead.

Steve Wieczynski: Hey, guys. Good afternoon. So I just want to ask a little bit maybe about the overall Las Vegas market. I mean it seems like there’s what we would call, I guess, kind of mixed messages out there. I mean unemployment, as you mentioned, looks good. It’s low. Housing market still seems relatively strong. So just trying to – just wondering here what you guys think is maybe causing some of that market softness as it just seems to be a bit confusing as to what’s going on out there.

Keith Smith: Yes. So in terms of what’s causing the softness is always hard to kind of unpack and understand exactly what’s driving – the Nevada numbers came out earlier today. And if you look at the locals market on a kind of last 3 months basis, adjusting for a new competitor, it has declined and of mid-single digits. And so – and even if you look back to January and February, there were some small declines on a trailing 3-month basis. So the market has been soft for a couple of months. It’s not just March. As we talked in our prepared remarks, our core customer is actually performing well. We continue to see growth from that core customer. It is more the retail customer where we’re seeing the softness. The retail customer is more economically sensitive, inflation and other changes in the economy. And so my guess is it’s that customer that is simply being more cautious about how they’re spending their discretionary dollars.

Steve Wieczynski: Okay. Thanks for that Keith. And then second question, I guess, in terms of staying in Las Vegas around the promotional environment. Obviously, Durango is open, I assume they’re out there promoting. And it seems like you guys are obviously kind of drilling somewhat of a line here and not going to go down that path too much. But I guess the question is, at what point do you maybe start to think about promoting? Or are you guys just going to kind of hold the line here and again, not go down and kind of chase dollars right now?

Keith Smith: I’d make a couple of comments. One is we think about getting more promotional each and every day. We don’t do it because we’re – you have a strong discipline to not do it. The good news is that our major competitor, even with the opening of a new property really has not elevated the level of promotions. It is some of the other smaller operators, independent operators kind of around town, there are some properties around the Orleans and the Gold Coast that have gotten more promotional late in 2023 and into 2024 that I think are impacting the market. So we are very disciplined. It’s not that we don’t trial things. It’s not that we don’t test different programs. We simply don’t stick to the same playbook, but we’re just trying to stick to a reinvestment level that doesn’t increase our overall costs.

So we’ll continue to monitor. We’ll continue to test the market. We’ll continue to try new programs and monitor the market. But look, today, the team is doing a great job managing through it, generating nearly 50% margins, which significantly elevated than anything we’ve seen prior to the last several years. And so I think the team is doing a great job. Josh, if you want to add anything.

Josh Hirsberg: I think you did.

Steve Wieczynski: Okay, guys. Really appreciate the color. Thank you very much.

Keith Smith:

David Strow: Sure. Thank you. Our next question comes from Joe Greff of JPMorgan. Joe, please go ahead

Joe Greff: Afternoon, guys. I also want to touch on the last Vegas locals market here. And just, Keith, just so we’re crystal clear in understanding how you’re thinking about that market. You said there were three reasons each with about a one third weight in terms of the performance locals, comparisons, last year’s record monthly results, Durango and then same-store softness. So that means each of those things contributed about $5 million in terms of the year-over-year EBITDA [ph] decline, correct?

Keith Smith: Yes.

Joe Greff: Okay. Right. And then Durango and the same-store optimism [ph] was that more pronounced towards the end of the quarter versus the beginning? Because your comments are a little bit different than what you guys indicated 3 months ago on the fourth quarter call. Is that a fair deduction?

Keith Smith: So yes, the market softened or the softness in the market, I think, increased as you went through the quarter. So if you look at – once again, the Las Vegas gaming numbers that come out on a monthly basis, when we last updated at the end of January, 1st of March, we didn’t have the full January numbers at that point. We were looking at the end of the year. When you look at January, February and March came out this morning, you’ll see on a trailing 3-month basis for each of those months, the softness in the market accelerating and when I talk about this, it is making an adjustment for the new competitor, and you can make whatever calculation you want as to the revenue you think that new competitor is doing. But regardless of what level you pick, assuming any reasonable level of revenue, the market has declined. And once again, it’s increased as you’ve gone through January, February, March.

Josh Hirsberg: I think the thing I would add to that, Joe…

Joe Greff: Okay…

Josh Hirsberg: To your follow-up, then I’ll add. Go ahead.