Boyd Gaming Corporation (NYSE:BYD) Q4 2022 Earnings Call Transcript

Boyd Gaming Corporation (NYSE:BYD) Q4 2022 Earnings Call Transcript February 2, 2023

Operator: Good afternoon. Thank you for attending today’s Boyd Gaming Fourth Quarter Conference Call. My name is Tamia and I will be your moderator for today. All lines will be in mute during the presentation portion of the call with an opportunity for questions-and-answers at the end. It is now my pleasure to pass the conference over to your host, Josh Hirsberg, Executive Vice President and Chief Financial Officer.

Josh Hirsberg: Thank you, operator. Good afternoon, everyone, and welcome to our fourth 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 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 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. Today’s call is also 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. We began 2022 with the ambitious goal of surpassing 2021’s record results. One year later, we have clearly met that challenge as we sustained the operating momentum we built throughout 2021. We once again delivered a record performance with revenues of $3.6 billion and EBITDAR of $1.4 billion in 2022. And the fourth quarter was a strong conclusion to the year with record company-wide revenues of $923 million and record EBITDAR of $360 million. We also maintained our operating efficiency with company-wide operating margins of 39% for both the fourth quarter and full year. Our results for 2022 are a tribute to our operating teams as we remain focused on growing revenues and building loyalty among our core customers while successfully managing expenses in the current environment.

While 2022 was another record performance, we did experience headwinds at times during the year, and that continued in the fourth quarter with some year-over-year softness in our Midwest and South markets. However, the softness in our Midwest and South region was more than offset by strong performances from our two Nevada segments, growing contributions from online gaming and management fees from Sky River Casino. Now, let’s review each segment in more detail. In Nevada, we finished the year with record fourth quarter EBITDAR performances in both our Las Vegas Locals and Downtown Las Vegas segments. Starting with the Locals segment, revenues and EBITDAR both grew 2% over last year’s records with particularly strong gains in our non-gaming business, including hotel, food and beverage, and entertainment.

Throughout our Locals properties, growth was strongest among out-of-town customers as we benefited from increased tourism across the Las Vegas Valley. Play from our core customers remained healthy, but was offset by declines in retail play. Our teams did an outstanding job during the quarter, delivering strong flow-through on revenue growth with margins in our Locals segment exceeding 52%. We are clearly benefiting from a strong Las Vegas economy as travel and tourism to Southern Nevada continues to increase. In 2022, we nearly 39 million people visited Southern Nevada, up more than 20% from the prior year, and airport passenger counts reached all-time record levels. Convention business continued to recover as well with the convention and meeting attendance more than doubled 2021 levels.

And with more than 5,000 hotel rooms in the Southern Nevada market, our company is well-positioned to capitalize on these growth trends. Looking ahead, 2023 has gotten off to a good start in our Locals segment with January performing well. We have seen no meaningful changes in our Locals business in the early part of 2023. Next, in Downtown Las Vegas, we delivered an impressive performance, beating last year’s fourth quarter EBITDAR record by nearly 38%. We continue to see strong demand throughout the Downtown Las Vegas market as pedestrian traffic and guest counts increased throughout the area. At the same time, our core Hawaiian business has fully recovered and is now exceeding pre-pandemic levels. Additionally, our recent hotel remodel at the Fremont has put us in excellent position to meet growing demand, allowing us to drive further growth in hotel revenues while broadening the property’s appeal.

Going forward, we will also benefit from Fremont’s recently opened casino expansion. This expansion includes incremental slot capacity, a FanDuel branded sportsbook, and a new contemporary food hall. We are encouraged by the early results from this expansion with strong growth in both gaming and non-gaming volumes at the Fremont since the expansion was completed in mid-December. Next, in the Midwest and South, we achieved fourth quarter records for both revenue and EBITDAR, thanks to growing contributions from online gaming as well as management fees from Sky River. However, the performance of our land-based operations was below prior year for the quarter, partially due to December’s severe winter weather and difficult year-over-year comparisons in our Louisiana and Mississippi properties.

Additionally, we experienced some softness in play early in the fourth quarter, although these trends improved later in the quarter and into January. Turning to our online business. Our partnership with FanDuel, the nation’s number one sports betting company, continues to deliver impressive results. We generated approximately $17 million in EBITDAR from online gaming during this quarter, up more than 100% over the prior year, as we benefited from a strong football season, new FanDuel operations in Louisiana and Kansas and contributions from Pala Interactive, which we acquired on November 1st. During the quarter, we also earned $21 million in fees from our Sky River Casino management contract, including a one-time development fee of $5 million.

This was Sky River’s first full quarter of operation following its opening last August. With Sky River, our goal is to develop a compelling entertainment destination and build a thriving business that would allow the Wilton Rancheria Tribe to achieve their vision of self-sufficiency. Based on early results, we have clearly succeeded with extremely strong visitation levels at Sky River during its initial opening phase. We have long believed there was significant unmet demand in the market and with the high-quality entertainment experience we have created, we’re starting to realize Sky River’s compelling potential. As a result, we now expect Sky River will generate approximately $50 million in management fees for our company in 2023. So, in all, despite some challenges in our Midwest and South segment, our company achieved record fourth quarter and full year results.

As we move into 2023, the economic uncertainty that persists today makes it difficult to predict where consumer trends are headed. However, we are cautiously optimistic about the trends we saw in January across all three segments of our business. Going forward, we believe there are additional opportunities to drive growth in our business through strategic reinvestments in our portfolio, the continued expansion of our online gaming business, and organic growth in our land-based operations. Starting with our existing portfolio, we see opportunities to drive long-term growth through selective reinvestments in our highest-performing properties and markets. A good example is the Fremont in Downtown Las Vegas, where, as mentioned earlier, we have completed work on a significant property expansion.

In mid-December, we opened 10,000 square feet of new casino space, increasing Fremont’s total slot count by nearly 15%, while creating a more comfortable gaming environment for our guests. We also added a FanDuel-branded Sportsbook in a food hall with six quick-serve restaurants. The expansion is already delivering growth in both gaming and non-gaming revenues at the Fremont. Going forward, this investment will further strengthen our appeal to customers throughout the downtown area, helping us build on our record results in the Downtown segment. And in Louisiana, work continues on our $100 million land-based facility at Treasure Chest casino. Once complete in early 2024, this project will allow us to take full advantage of demand in the suburban New Orleans market by creating a more spacious single-level casino floor, expanding our non-gaming amenities and improving guest parking.

In addition to these land-based growth investments, we expect our online business, including sports, casino, and social gaming, will continue to grow. We took an important step forward in our online growth strategy with our recent acquisition of Pala Interactive, which gives us the talent and technology to begin building our regional online casino business. While online casinos are now limited to just a few states, we believe in the long-term potential from iGaming. Owning and operating our own iGaming operation will allow us to leverage our nationwide portfolio and extensive customer database to create a profitable online casino business. We will start by transitioning our current Stardust Online Casinos in New Jersey and Pennsylvania to our platform over the next several months.

We will also selectively target growth in the B2B segment of the business by adding new B2Bcustomers and enhancing our platform’s products, features and capabilities, which will benefit both us and our partners. On the sports betting side, we remain fully committed to our successful and growing partnership with FanDuel. This partnership recently expanded into Ohio and Kansas with FanDuel launching mobile and retail sports betting in both states. Our partnership with FanDuel now includes all but one states in our Midwest and South region. In all, our online sports betting, casino and social operations generated approximately $40 million in EBITDAR in 2022. And we expect this business will continue to grow as FanDuel ramps up in Ohio and Kansas.

Beyond these growing financial contributions, we will continue to benefit from our 5% equity stake in FanDuel, which grows increasingly valuable as they further strengthened their position as the nation’s leading sports betting company. While the opportunities from online and land-based reinvestments are compelling, we also believe there is upside from continued organic growth in our existing operations, particularly in hotel revenues, meeting and convention business, and other non-gaming revenues. In all, our growth opportunities and our operating momentum are further strengthening our free cash flow, allowing us to return substantial capital to shareholders. We plan to continue targeting $100 million in share repurchases per quarter in 2023, supplemented by dividend payments while we pursue our ongoing growth investments.

Before concluding, I wanted to note our company’s continued progress on ESG initiatives as we recently received prominent national recognition for these efforts. Last month, Boyd Gaming received a five-star rating in Newsweek Magazine’s Annual Listing of America’s Greatest Workplaces for Diversity. We were the only gaming company to receive a perfect rating in this listing, which was compiled through anonymous employee surveys nationwide. Promoting diversity and inclusion is a central part of our company’s culture, and we are honored to have our efforts recognized by Newsweek. So, in conclusion, this record quarter was yet another example of the resiliency and diversification of our portfolio and the strength of our operating model. We set new fourth quarter records for both revenue and EBITDAR, overcoming softness in our Midwest and South markets, with strong results in Nevada and contributions from new growth opportunities.

We closed on the acquisition of Pala Interactive, further positioning ourselves for long-term growth in the online space. We maintained operating margins at some of the highest levels in our history as our operating teams continue to successfully manage through higher costs and economic uncertainty. And we continue to return significant capital to shareholders, while maintaining a strong balance sheet. In all, our record fourth quarter results concluded another strong year for our company as we set full year records for revenue and EBITDAR for the second year in a row. I would like to thank every member of the Boyd Gaming team for their hard work and their contributions to this outstanding performance. And while it is difficult to predict the future direction of the economy, we remain confident in our operating model and our team’s proven ability to successfully manage the business.

Thank you for your time. I’d now like to turn the call over to Josh.

Josh Hirsberg: Thanks Keith. This was another very good quarter for our company with record results in the quarter and for the full year against very strong comparisons to 2021. Recall that our full year 2021 EBITDAR performance was more than 50% higher than our previous record set in 2019 and that we set quarterly EBITDAR records in every single quarter of 2021. And yet we have continued to improve on those baselines. In each of 2021and 2022, EBITDAR approximated $1.4 billion and margins were approximately 40%. And in 2022, adjusted earnings per share exceeded $6 per share. We have accomplished this by focusing on growing our core customer base and managing our business very efficiently. Our operating teams continue to do an excellent job managing our expense structure and maintaining margins.

As we look ahead to 2023, we continue to see opportunities to grow our business, supported by continued focus on our core customers, expansion in our non-gaming revenues and online operations and further contributions from the investments we are making in our existing portfolio. In addition, 2023 will benefit from a full year contribution from our management contract with Sky River, which opened in August 2022. Now let’s discuss a few key items from the quarter. First, our capital return program remains a priority for our company. We repurchased nearly $107 million in stock during the quarter, representing 1.8 million shares at an average price of $58.22 per share. The actual share count at the end of the year was 102.8 million shares. For full year 2022, we repurchased 9.4 million shares at an average price of $57.48 per share, representing$542 million.

We have approximately $240 million remaining under our current repurchase authorization. When combined with our ongoing dividend program, we returned nearly $600 million to our shareholders during 2022. We remain committed to $100 million per quarter in share repurchases, while continuing our dividend program. At the same time that we are returning capital to shareholders, we will continue to strategically invest in our land-based portfolio. Capital expenditures in 2022 were $270 million. We expect to spend approximately $350 million in 2023 for capital expenditures. This includes $250 million in maintenance capital and $100 million in growth capital primarily related to the Treasure Chest project. Turning to the balance sheet. We finished 2022 with total leverage of 2.4 times and lease-adjusted leverage of 2.8 times.

Our target leverage remains 2.5 times traditional leverage. Our balance sheet remains very strong with significant flexibility as we have low leverage, no near-term maturities and ample capacity under our credit facility. So, in all, we finished the year in great shape as a company. Thanks to our operating model and growth initiatives, we continue to produce a substantial and diversified stream of free cash flow, allowing us to balance a robust capital return program with strategic investments in our portfolio. This formula has produced strong results for our shareholders, and we are confident it will continue to create considerable value over the long-term. This concludes our remarks, and we’re now ready to take any questions.

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Q&A Session

Operator: We will now begin the Q&A session. Our first question comes from Chad Beynon with Macquarie. Your line is open.

Chad Beynon: Hi, good afternoon. Thanks for taking my question. Josh, Keith, you guys talked about — well, first off, congrats on a nice quarter. You talked about some selective reinvestments and the returns that you guide in the back half of 2022 and kind of what you’re expecting in 2023, 2024. But given your leverage at 2.4 times, how are you thinking about the portfolio and other opportunities to maybe selectively reinvest elsewhere and get these double-digit returns that you’re putting up? Thanks.

Keith Smith: Sure. Good question, Chad. So, we have kind of studied our portfolio, and we do have several other opportunities to continue to build into strong properties in what we think are growing markets or markets with strong demand. And so as future quarters go by, you’ll hear us begin to talk about some of those projects. But we have studied it and we do have additional opportunities. We just don’t have anything to announce today. So, you can expect to hear more in the future. I think we’ve talked about it in the past, and these are smaller-type projects. These are sub-$100 million-type projects, many of them in the $40 million to $60 million range. So, we’re not talking about projects that are hundreds of millions of dollars.

Chad Beynon: Okay. Thanks. And then in the Locals market this year, you guys have averaged roughly about $120 million of EBITDA per quarter. Obviously, some exceptional strength in the fourth quarter here. I wanted to focus on some of that destination business that’s coming back. With CES in January, we’ve seen ADRs across the strip, and I’m guessing right off the strip, up somewhere between 30% and maybe even 60%. I’m guessing you guys are benefiting from more leans. But against that average of $120 million of EBITDA per quarter, can you help us think about what is still not on the table from mainly the convention business not back to where it was mainly for 2022 and where we should see it in 2023? Thanks.

Josh Hirsberg: Yes. So, Chad, this is Josh. I think that when we think about kind of the opportunities for our Locals business, it comes from benefiting from the broader recovery in the Las Vegas market overall. And it’s really not only our Locals business that will benefit from that, but also our Downtown business. So, we look at kind of an emerging or recovering kind of strip meeting business to help drive our own meeting and convention business, our kind of occupancy in our hotel rooms as well, which we still have opportunities to do across the portfolio, again, not only in Las Vegas, but also that drives incremental visitation downtown. And we benefit from the investments we’ve been making with Fremont, but also the other properties that we have there as well. Keith, I don’t know if there’s anything you’d like to add to that.

Keith Smith: No, look, I think it’s pretty well known that convention attendance was up significantly in 2022, more than double the prior year number, but still below 2019 levels. So as that continues to build, we can take advantage of it both at the Orleans and several other of our properties. And as Josh said, Downtown will also improve as overall visitation to Las Vegas and convention attendance improved. So, we definitely will be able to leverage off of that going forward.

Chad Beynon: Thanks. Appreciate it.

Josh Hirsberg: Sure.

Operator: Thank you. The next question comes from Joe Greff with JPMorgan. You may proceed.