BOYD GAMING CORP - Quarter Report: 2023 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________________________
FORM 10-Q
____________________________________________________
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2023
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1-12882
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![logo1.jpg](https://www.sec.gov/Archives/edgar/data/0000906553/000143774923029754/logo1.jpg)
BOYD GAMING CORPORATION
(Exact name of registrant as specified in its charter)
____________________________________________________
Nevada | 88-0242733 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
6465 South Rainbow Boulevard, Las Vegas, NV 89118
(Address of principal executive offices) (Zip Code)
(702) 792-7200
(Registrant's telephone number, including area code)
____________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
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| Common stock, $0.01 par value |
| BYD |
| New York Stock Exchange |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "non-accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ |
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Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
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| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
The number of shares outstanding of the registrant’s common stock as of October 30, 2023 was 97,862,123.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2023
TABLE OF CONTENTS
Item 1. Financial Statements (Unaudited)
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, | December 31, | |||||||
(In thousands, except share data) | 2023 | 2022 | ||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 269,155 | $ | 283,472 | ||||
Restricted cash | 2,479 | 11,593 | ||||||
Accounts receivable, net | 103,577 | 109,053 | ||||||
Inventories | 20,640 | 22,173 | ||||||
Prepaid expenses and other current assets | 72,174 | 49,379 | ||||||
Income taxes receivable | 1,223 | 2,558 | ||||||
Total current assets | 469,248 | 478,228 | ||||||
Property and equipment, net | 2,499,725 | 2,394,236 | ||||||
Operating lease right-of-use assets | 798,932 | 830,345 | ||||||
Other assets, net | 97,257 | 147,439 | ||||||
Intangible assets, net | 1,417,230 | 1,427,135 | ||||||
Goodwill, net | 1,029,219 | 1,033,744 | ||||||
Total assets | $ | 6,311,611 | $ | 6,311,127 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 105,664 | $ | 129,946 | ||||
Current maturities of long-term debt | 44,275 | 44,275 | ||||||
Accrued liabilities | 433,480 | 411,913 | ||||||
Total current liabilities | 583,419 | 586,134 | ||||||
Long-term debt, net of current maturities and debt issuance costs | 2,864,850 | 3,005,134 | ||||||
Operating lease liabilities, net of current portion | 722,229 | 758,440 | ||||||
Deferred income taxes | 308,608 | 318,609 | ||||||
Other liabilities | 64,024 | 52,185 | ||||||
Commitments and contingencies (Notes 6 and 7) | ||||||||
Stockholders' equity | ||||||||
Preferred stock, $ par value, shares authorized | — | — | ||||||
Common stock, $ par value, shares authorized; and shares outstanding | 984 | 1,028 | ||||||
Additional paid-in capital | 3,355 | 305,152 | ||||||
Retained earnings | 1,765,111 | 1,285,827 | ||||||
Accumulated other comprehensive loss | (969 | ) | (1,382 | ) | ||||
Total stockholders' equity | 1,768,481 | 1,590,625 | ||||||
Total liabilities and stockholders' equity | $ | 6,311,611 | $ | 6,311,127 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
(In thousands, except per share data) |
2023 |
2022 |
2023 |
2022 |
||||||||||||
Revenues |
||||||||||||||||
Gaming |
$ | 641,168 | $ | 667,975 | $ | 1,966,205 | $ | 2,020,854 | ||||||||
Food & beverage |
70,986 | 67,792 | 212,936 | 201,834 | ||||||||||||
Room |
48,720 | 46,672 | 148,546 | 138,985 | ||||||||||||
Online |
90,288 | 52,353 | 298,153 | 164,203 | ||||||||||||
Management fee |
17,153 | 10,159 | 54,629 | 10,159 | ||||||||||||
Other |
34,849 | 32,312 | 103,611 | 96,421 | ||||||||||||
Total revenues |
903,164 | 877,263 | 2,784,080 | 2,632,456 | ||||||||||||
Operating costs and expenses |
||||||||||||||||
Gaming |
251,536 | 251,814 | 751,330 | 756,356 | ||||||||||||
Food & beverage |
59,672 | 58,502 | 177,623 | 169,892 | ||||||||||||
Room |
19,180 | 17,783 | 54,880 | 51,058 | ||||||||||||
Online |
79,080 | 45,827 | 252,478 | 140,715 | ||||||||||||
Other |
11,549 | 11,370 | 34,119 | 33,984 | ||||||||||||
Selling, general and administrative |
99,944 | 92,950 | 299,333 | 280,659 | ||||||||||||
Master lease rent expense |
27,236 | 26,828 | 81,163 | 79,788 | ||||||||||||
Maintenance and utilities |
41,720 | 40,789 | 115,337 | 108,196 | ||||||||||||
Depreciation and amortization |
64,797 | 64,956 | 188,577 | 194,191 | ||||||||||||
Corporate expense |
27,872 | 26,375 | 88,232 | 90,251 | ||||||||||||
Project development, preopening and writedowns |
2,405 | 9,645 | (11,268 | ) | 528 | |||||||||||
Impairment of assets |
— | 5,575 | 4,537 | 5,575 | ||||||||||||
Other operating items, net |
301 | (12,610 | ) | 959 | (12,324 | ) | ||||||||||
Total operating costs and expenses |
685,292 | 639,804 | 2,037,300 | 1,898,869 | ||||||||||||
Operating income |
217,872 | 237,459 | 746,780 | 733,587 | ||||||||||||
Other expense (income) |
||||||||||||||||
Interest income |
(1,585 | ) | (2,073 | ) | (22,445 | ) | (2,976 | ) | ||||||||
Interest expense, net of amounts capitalized |
42,352 | 36,001 | 128,933 | 110,125 | ||||||||||||
Loss on early extinguishments and modifications of debt |
— | — | — | 19,809 | ||||||||||||
Other, net |
(30 | ) | 170 | 596 | 3,667 | |||||||||||
Total other expense, net |
40,737 | 34,098 | 107,084 | 130,625 | ||||||||||||
Income before income taxes |
177,135 | 203,361 | 639,696 | 602,962 | ||||||||||||
Income tax provision |
(41,902 | ) | (46,359 | ) | (112,278 | ) | (136,269 | ) | ||||||||
Net income |
$ | 135,233 | $ | 157,002 | $ | 527,418 | $ | 466,693 | ||||||||
Basic net income per common share |
$ | 1.34 | $ | 1.46 | $ | 5.16 | $ | 4.24 | ||||||||
Weighted average basic shares outstanding |
100,804 | 107,743 | 102,139 | 110,002 | ||||||||||||
Diluted net income per common share |
$ | 1.34 | $ | 1.46 | $ | 5.16 | $ | 4.24 | ||||||||
Weighted average diluted shares outstanding |
100,850 | 107,840 | 102,187 | 110,135 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
(In thousands) |
2023 |
2022 |
2023 |
2022 |
||||||||||||
Net income |
$ | 135,233 | $ | 157,002 | $ | 527,418 | $ | 466,693 | ||||||||
Other comprehensive income (loss), net of tax: |
||||||||||||||||
Fair value adjustments to available-for-sale securities |
(119 | ) | (151 | ) | 467 | (954 | ) | |||||||||
Foreign currency translation adjustments |
(254 | ) | — | (54 | ) | — | ||||||||||
Comprehensive income |
$ | 134,860 | $ | 156,851 | $ | 527,831 | $ | 465,739 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
Accumulated Other | ||||||||||||||||||||||||
Common Stock | Additional | Retained | Comprehensive | |||||||||||||||||||||
(In thousands, except share data) | Shares | Amount | Paid-in Capital | Earnings | Loss | Total | ||||||||||||||||||
Balances, January 1, 2023 | 102,816,110 | $ | 1,028 | $ | 305,152 | $ | 1,285,827 | $ | (1,382 | ) | $ | 1,590,625 | ||||||||||||
Net income | — | — | — | 199,731 | — | 199,731 | ||||||||||||||||||
Comprehensive income, net of tax | — | — | — | — | 474 | 474 | ||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | 4 | 4 | ||||||||||||||||||
Stock options exercised | 32,000 | — | 315 | — | — | 315 | ||||||||||||||||||
Release of restricted stock units, net of tax | 45,942 | 1 | (1,926 | ) | — | — | (1,925 | ) | ||||||||||||||||
Release of performance stock units, net of tax | 318,878 | 3 | (12,777 | ) | — | — | (12,774 | ) | ||||||||||||||||
Shares repurchased and retired | (1,726,308 | ) | (17 | ) | (106,994 | ) | — | — | (107,011 | ) | ||||||||||||||
Dividends declared ($ per share) | — | — | — | (16,289 | ) | — | (16,289 | ) | ||||||||||||||||
Share-based compensation costs | — | — | 7,819 | — | — | 7,819 | ||||||||||||||||||
Balances, March 31, 2023 | 101,486,622 | 1,015 | 191,589 | 1,469,269 | (904 | ) | 1,660,969 | |||||||||||||||||
Net income | — | — | — | 192,454 | — | 192,454 | ||||||||||||||||||
Comprehensive income, net of tax | — | — | — | — | 112 | 112 | ||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | 196 | 196 | ||||||||||||||||||
Release of restricted stock units, net of tax | 17,871 | — | (63 | ) | — | — | (63 | ) | ||||||||||||||||
Shares repurchased and retired | (1,492,451 | ) | (15 | ) | (101,001 | ) | — | — | (101,016 | ) | ||||||||||||||
Dividends declared ($ per share) | — | — | — | (16,041 | ) | — | (16,041 | ) | ||||||||||||||||
Share-based compensation costs | — | — | 12,198 | — | — | 12,198 | ||||||||||||||||||
Balances, June 30, 2023 | 100,012,042 | 1,000 | 102,723 | 1,645,682 | (596 | ) | 1,748,809 | |||||||||||||||||
Net income | — | — | — | 135,233 | — | 135,233 | ||||||||||||||||||
Comprehensive loss, net of tax | — | — | — | — | (119 | ) | (119 | ) | ||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | (254 | ) | (254 | ) | ||||||||||||||||
Release of restricted stock units, net of tax | 1,974 | — | (56 | ) | — | — | (56 | ) | ||||||||||||||||
Shares repurchased and retired | (1,627,777 | ) | (16 | ) | (107,345 | ) | — | — | (107,361 | ) | ||||||||||||||
Dividends declared ($ per share) | — | — | — | (15,804 | ) | — | (15,804 | ) | ||||||||||||||||
Share-based compensation costs | — | — | 8,033 | — | — | 8,033 | ||||||||||||||||||
Balances, September 30, 2023 | 98,386,239 | $ | 984 | $ | 3,355 | $ | 1,765,111 | $ | (969 | ) | $ | 1,768,481 |
Accumulated Other | ||||||||||||||||||||||||
Common Stock | Additional | Retained | Comprehensive | |||||||||||||||||||||
(In thousands, except share data) | Shares | Amount | Paid-in Capital | Earnings | Loss | Total | ||||||||||||||||||
Balances, January 1, 2022 | 111,303,140 | $ | 1,113 | $ | 827,725 | $ | 710,088 | $ | (180 | ) | $ | 1,538,746 | ||||||||||||
Net income | — | — | — | 162,928 | — | 162,928 | ||||||||||||||||||
Comprehensive loss, net of tax | — | — | — | — | (184 | ) | (184 | ) | ||||||||||||||||
Release of restricted stock units, net of tax | 115,686 | 1 | (2,720 | ) | — | — | (2,719 | ) | ||||||||||||||||
Release of performance stock units, net of tax | 294,344 | 3 | (8,113 | ) | — | — | (8,110 | ) | ||||||||||||||||
Shares repurchased and retired | (2,096,660 | ) | (21 | ) | (131,768 | ) | — | — | (131,789 | ) | ||||||||||||||
Dividends declared ($ per share) | — | — | — | (16,480 | ) | — | (16,480 | ) | ||||||||||||||||
Share-based compensation costs | — | — | 8,734 | — | — | 8,734 | ||||||||||||||||||
Balances, March 31, 2022 | 109,616,510 | 1,096 | 693,858 | 856,536 | (364 | ) | 1,551,126 | |||||||||||||||||
Net income | — | — | — | 146,763 | — | 146,763 | ||||||||||||||||||
Comprehensive loss, net of tax | — | — | — | — | (619 | ) | (619 | ) | ||||||||||||||||
Stock options exercised | 101,675 | 1 | 1,804 | — | — | 1,805 | ||||||||||||||||||
Release of restricted stock units, net of tax | 140,899 | 1 | (2 | ) | — | — | (1 | ) | ||||||||||||||||
Release of performance stock units, net of tax | 307 | — | (8 | ) | — | — | (8 | ) | ||||||||||||||||
Shares repurchased and retired | (3,018,031 | ) | (30 | ) | (167,954 | ) | — | — | (167,984 | ) | ||||||||||||||
Dividends declared ($ per share) | — | — | — | (16,026 | ) | — | (16,026 | ) | ||||||||||||||||
Share-based compensation costs | — | — | 14,099 | — | — | 14,099 | ||||||||||||||||||
Balances, June 30, 2022 | 106,841,360 | 1,068 | 541,797 | 987,273 | (983 | ) | 1,529,155 | |||||||||||||||||
Net income | — | — | — | 157,002 | — | 157,002 | ||||||||||||||||||
Comprehensive loss, net of tax | — | — | — | — | (151 | ) | (151 | ) | ||||||||||||||||
Release of restricted stock units, net of tax | 7,407 | 1 | (212 | ) | — | — | (211 | ) | ||||||||||||||||
Shares repurchased and retired | (2,473,683 | ) | (25 | ) | (134,971 | ) | — | — | (134,996 | ) | ||||||||||||||
Dividends declared ($ per share) | — | — | — | (15,656 | ) | — | (15,656 | ) | ||||||||||||||||
Share-based compensation costs | — | — | 5,653 | — | — | 5,653 | ||||||||||||||||||
Balances, September 30, 2022 | 104,375,084 | $ | 1,044 | $ | 412,267 | $ | 1,128,619 | $ | (1,134 | ) | $ | 1,540,796 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended |
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September 30, |
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(In thousands) |
2023 |
2022 |
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Cash Flows from Operating Activities |
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Net income |
$ | 527,418 | $ | 466,693 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
188,577 | 194,191 | ||||||
Amortization of debt financing costs and discounts on debt |
5,854 | 6,307 | ||||||
Non-cash operating lease expense |
59,302 | 46,892 | ||||||
Non-cash expected credit loss (income) on note receivable |
(34,371 | ) | — | |||||
Share-based compensation expense |
28,050 | 28,486 | ||||||
Deferred income taxes |
(9,995 | ) | 26,777 | |||||
Non-cash impairment of assets |
4,537 | 5,575 | ||||||
Gain on sale of assets |
— | (12,800 | ) | |||||
Loss on early extinguishments and modifications of debt |
— | 19,809 | ||||||
Other operating activities |
(516 | ) | 8,422 | |||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable, net |
5,473 | 2,965 | ||||||
Inventories |
1,533 | (2,233 | ) | |||||
Prepaid expenses and other current assets |
(22,086 | ) | (19,333 | ) | ||||
Income taxes (receivable) payable, net |
1,335 | 3,930 | ||||||
Other assets, net |
3,262 | 1,896 | ||||||
Accounts payable and accrued liabilities |
(2,876 | ) | (3,932 | ) | ||||
Operating lease liabilities |
(59,302 | ) | (46,892 | ) | ||||
Other liabilities |
1,057 | 1,281 | ||||||
Net cash provided by operating activities |
697,252 | 728,034 | ||||||
Cash Flows from Investing Activities |
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Capital expenditures |
(279,023 | ) | (173,032 | ) | ||||
Payments received on note receivable |
82,459 | — | ||||||
Insurance proceeds received from hurricane losses |
— | 530 | ||||||
Proceeds received from disposition of assets |
— | 21,350 | ||||||
Other investing activities |
(3,022 | ) | — | |||||
Net cash used in investing activities |
(199,586 | ) | (151,152 | ) | ||||
Cash Flows from Financing Activities |
||||||||
Borrowings under credit facilities |
1,086,700 | 1,554,400 | ||||||
Payments under credit facilities |
(1,232,700 | ) | (1,412,897 | ) | ||||
Retirements of senior notes |
— | (300,000 | ) | |||||
Premium fees |
— | (12,939 | ) | |||||
Debt financing costs |
— | (15,315 | ) | |||||
Share-based compensation activities |
(14,503 | ) | (9,244 | ) | ||||
Shares repurchased and retired |
(312,656 | ) | (434,769 | ) | ||||
Dividends paid |
(47,805 | ) | (32,506 | ) | ||||
Other financing activities |
(138 | ) | (1,211 | ) | ||||
Net cash used in financing activities |
(521,102 | ) | (664,481 | ) | ||||
Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash |
5 | — | ||||||
Change in cash, cash equivalents and restricted cash |
(23,431 | ) | (87,599 | ) | ||||
Cash, cash equivalents and restricted cash, beginning of period |
295,065 | 357,128 | ||||||
Cash, cash equivalents and restricted cash, end of period |
$ | 271,634 | $ | 269,529 | ||||
Supplemental Disclosure of Cash Flow Information |
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Cash paid for interest, net of amounts capitalized |
$ | 124,132 | $ | 102,553 | ||||
Cash received for interest |
10,804 | — | ||||||
Cash paid for income taxes |
120,449 | 105,158 | ||||||
Supplemental Schedule of Non-cash Investing and Financing Activities |
||||||||
Payables incurred for capital expenditures |
$ | 8,091 | $ | 3,786 | ||||
Dividends declared not yet paid |
15,804 | 15,656 | ||||||
Expected credit loss (income) on note receivable |
(34,371 | ) | — | |||||
Operating lease right-of-use asset and liability remeasurements |
— | (11,224 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
as of September 30, 2023 and December 31, 2022 and for the three and nine months ended September 30, 2023 and 2022
______________________________________________________________________________________________________
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Boyd Gaming Corporation (and together with its subsidiaries, the "Company", "Boyd", "Boyd Gaming", "we" or "us") was incorporated in the state of Nevada in 1988 and has been operating since 1975. The Company's common stock is traded on the New York Stock Exchange under the symbol "BYD".
We are a geographically diversified operator of 28 wholly owned gaming entertainment properties. Headquartered in Las Vegas, Nevada, we have gaming operations in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana, Mississippi, Missouri, Ohio and Pennsylvania. In addition, we own and operate Boyd Interactive, a business-to-business ("B2B") and business-to-consumer ("B2C") online casino gaming business. We also manage the Sky River Casino located in California under a management agreement with Wilton Rancheria.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and footnote disclosures necessary for complete financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP"). These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes for the year ended December 31, 2022, as filed with the U.S. Securities and Exchange Commission ("SEC") on February 24, 2023.
The results for the periods indicated are unaudited but reflect all adjustments, consisting only of normal recurring adjustments, that management considers necessary for a fair presentation of financial position, results of operations and cash flows. Results of operations and cash flows for the interim periods presented herein are not necessarily indicative of the results that would be achieved during a full year of operations or in future periods.
The accompanying condensed consolidated financial statements include the accounts of the Company and its subsidiaries. Investments in unconsolidated affiliates, which are 50% or less owned and do not meet the controlling financial interest consolidation criteria of the authoritative accounting guidance for voting interest or variable interest entities, are accounted for under the equity method. All intercompany accounts and transactions have been eliminated in consolidation.
Recasted Condensed Consolidated Statements of Operations (Unaudited)
In the first quarter of 2023, the Company separated out online revenue and management fee revenue from other revenue. This change was a result of increased contributions to the Company in these two areas and related update to our reportable segments discussed in Note 10, Segment Information. Revenue for the three and nine months ended September 30, 2022 has been recast to conform to this presentation. The disaggregation of online revenue and management fee revenue from other revenue did not impact the Company's total revenues, net income or earnings per share as previously reported for the three and nine months ended September 30, 2022.
Additionally, during the first quarter of 2023, the Company evaluated its reportable segments and changed them to the following
reportable segments: (i) Las Vegas Locals; (ii) Downtown Las Vegas; (iii) Midwest & South; and (iv) Online. To reconcile to the condensed consolidated information, the Company has aggregated nonreportable operating segments into a Managed & Other category. These changes reflect the growth of the Company beyond its traditional wholly owned gaming entertainment properties and the increasing importance to the Company of other growth sources. Segment information for the three and nine months ended September 30, 2022 has been recast to conform to this presentation. See Note 10, Segment Information, for additional information.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments, which include cash on hand and in banks, interest-bearing deposits and money market funds with maturities of three months or less at their date of purchase. The instruments are not restricted as to withdrawal or use and are on deposit with high credit quality financial institutions. Although these balances may at times exceed the federal insured deposit limit, we believe such risk is mitigated by the quality of the institution holding such deposit. The carrying values of these instruments approximate their fair values as such balances are generally available on demand.
Restricted Cash
Restricted cash consists primarily of: (i) amounts restricted by regulation for gaming and racing purposes; (ii) amounts restricted by regulation for the value in players' online casino gaming accounts; and (iii) advance payments received for future bookings with our Hawaiian travel agency. These restricted cash balances are invested in highly liquid instruments with a maturity of 90 days or less. These restricted cash balances are held by high credit quality financial institutions. The carrying values of these instruments approximate their fair values due to their short maturities.
The following table provides a reconciliation of cash, cash equivalents and restricted cash balances reported within the condensed consolidated balance sheets to the total balance shown in the condensed consolidated statements of cash flows.
September 30, | December 31, | September 30, | December 31, | |||||||||||||
(In thousands) | 2023 | 2022 | 2022 | 2021 | ||||||||||||
Cash and cash equivalents | $ | 269,155 | $ | 283,472 | $ | 252,344 | $ | 344,557 | ||||||||
Restricted cash | 2,479 | 11,593 | 17,185 | 12,571 | ||||||||||||
Total cash, cash equivalents and restricted cash | $ | 271,634 | $ | 295,065 | $ | 269,529 | $ | 357,128 |
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of September 30, 2023 and December 31, 2022 and for the three and nine months ended September 30, 2023 and 2022
______________________________________________________________________________________________________
Leases
Management determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset. Operating lease liabilities are recognized based on the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. For our operating leases for which the rate implicit in the lease is not readily determinable, we generally use an incremental borrowing rate based on information available at the commencement date to determine the present value of future lease payments. The incremental borrowing rate is determined based on the weighted average incremental borrowing rate at the lease commencement or modification date that is commensurate with the rate of interest in a similar economic environment that we would have to pay to borrow an amount equal to our future lease payments on a collateralized basis over a similar term, including reasonably certain options to extend or terminate. The determination of the incremental borrowing rate could materially impact our lease liabilities. Operating right-of-use ("ROU") assets and finance lease assets are generally recognized based on the amount of the initial measurement of the lease liability. Lease expense is recognized on a straight-line basis over the lease term. Lease and non-lease components are accounted for separately.
Revenue Recognition
The Company’s revenue contracts with customers consist of gaming wagers (including both those made at our gaming entertainment properties and online B2C wagers), hotel room sales, food & beverage offerings and other amenity transactions. See Collaborative Arrangements below for further discussion of revenues earned under our online collaborative arrangements. The transaction price for a gaming wagering contract is the difference between gaming wins and losses, not the total amount wagered. Cash discounts, commissions and other cash incentives to customers related to gaming play are recorded as a reduction of gaming revenues. The transaction price for hotel, food & beverage and other contracts is the net amount collected from the customer for such goods and services. Hotel, food & beverage and other services have been determined to be separate, stand-alone performance obligations and the transaction price for such contracts is recorded as revenue as the good or service is transferred to the customer over their stay at the hotel, when the delivery is made for the food & beverage or when the service is provided for other amenity transactions.
We have established a player loyalty program to encourage repeat business from frequent and active slot machine customers and other patrons. Members earn points based on gaming activity and such points can be redeemed for complimentary slot play, food & beverage, hotel rooms and other free goods and services.
Gaming wager contracts involve two performance obligations for those customers earning points under the Company’s player loyalty program and a single performance obligation for customers who do not participate in the program. The Company applies a practical expedient by accounting for its gaming contracts on a portfolio basis as such wagers have similar characteristics and the Company reasonably expects the effects on the financial statements of applying the revenue recognition guidance to the portfolio to not differ materially from that which would result if applying the guidance to an individual wagering contract. For purposes of allocating the transaction price in a wagering contract between the wagering performance obligation and the obligation associated with the loyalty points earned, the Company allocates an amount to the player loyalty contract liability based on the stand-alone selling price of the points earned, which is determined by the value of a point that can be redeemed for a hotel room stay, food & beverage or other amenities. Sales and usage-based taxes are excluded from revenues. An amount is allocated to the gaming wager performance obligation using the residual approach as the stand-alone price for wagers is highly variable and no set established price exists for such wagers. The allocated revenue for gaming wagers, excluding race and sports wagers, is recognized when the wagers occur as all such wagers settle immediately. The allocated revenue for race and sports wagers is recognized when the specific event or game occurs. The player loyalty contract liability amount is deferred and recognized as revenue when the customer redeems the points for a hotel room stay, food & beverage or other amenities and such goods or services are delivered to the customer. See Note 5, Accrued Liabilities, for the balance outstanding related to the player loyalty program.
The Company collects advance deposits from hotel customers for future hotel reservations and other future events such as banquets and ticketed events. These advance deposits represent obligations of the Company until the hotel room stay is provided to the customer or the banquet or ticketed event occurs. See Note 5, Accrued Liabilities, for the balance outstanding related to advance deposits.
The Company's outstanding chip liability represents the amounts owed in exchange for gaming chips held by a customer. Outstanding chips are expected to be recognized as revenue or redeemed for cash within one year of being purchased. See Note 5, Accrued Liabilities, for the balance related to outstanding chips.
The retail value of hotel accommodations, food & beverage, and other services furnished to guests without charge is recorded as departmental revenues. Gaming revenues are net of incentives earned in our player loyalty program such as cash and the estimated retail value of goods and services (such as complimentary rooms and food & beverage). The estimated retail values related to goods and services provided to customers without charge or upon redemption of points under our player loyalty program included in departmental revenues, and therefore reducing our gaming revenues, are as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(In thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Food & beverage | $ | 29,978 | $ | 29,062 | $ | 87,573 | $ | 85,970 | ||||||||
Room | 15,873 | 16,879 | 46,367 | 48,668 | ||||||||||||
Other | 2,328 | 2,371 | 6,265 | 6,718 |
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of September 30, 2023 and December 31, 2022 and for the three and nine months ended September 30, 2023 and 2022
______________________________________________________________________________________________________
Gaming Taxes
We are subject to taxes based on gross gaming revenues in the jurisdictions in which we operate. These gaming taxes are assessed based on our gaming revenues and are recorded in the condensed consolidated statements of operations as a gaming expense for gaming entertainment properties and online expense for Boyd Interactive operations. Gaming taxes recorded as gaming expense totaled approximately $128.1 million and $130.9 million for the three months ended September 30, 2023 and 2022, respectively, and were $387.8 million and $397.8 million for the nine months ended September 30, 2023 and 2022, respectively. Gaming taxes recorded as online expense, excluding taxes paid under collaborative arrangements (see Collaborative Arrangements below for further discussion), totaled $2.1 million and $3.9 million for the three and nine months ended September 30, 2023, respectively. There was any gaming tax recorded as online expense for the three and nine months ended September 30, 2022.
Income Taxes
Income taxes are recorded under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. We reduce the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. Use of the term "more likely than not" indicates the likelihood of occurrence is greater than 50%. Accordingly, the need to establish valuation allowances for deferred tax assets is continually assessed, as facts and circumstances change, and at a minimum quarterly, based on a more-likely-than-not realization threshold. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of profitability and taxable income, the duration of statutory carryforward periods, our experience with the utilization of operating loss and tax credit carryforwards before expiration and tax planning strategies. In making such judgments, significant weight is given to evidence that can be objectively verified.
In performing our second quarter valuation allowance analysis, we determined that the positive evidence in favor of releasing a portion of our valuation allowance for certain state jurisdictions, outweighed the negative evidence. We utilize a rolling twelve quarters of pre-tax income adjusted for permanent book to tax differences as a measure of cumulative results in recent years. We transitioned from a cumulative loss position to a cumulative income position over the rolling twelve quarters ended June 30, 2023. Other evidence considered in the analysis included, but was not limited to, a trend reflective of improvement in recent earnings, forecasts of profitability and taxable income and the reversal of existing temporary differences. The change in these conditions during the three months ended June 30, 2023 provided positive evidence that supported the release of the valuation allowance against a significant portion of our state deferred tax assets. As such, we concluded that it was more likely than not that the benefit from our deferred tax assets would be realized. As a result, during the second quarter of 2023, we released $35.9 million of valuation allowance on our state income tax net operating loss carryforwards and other deferred tax assets. During the three months ended September 30, 2023, we determined that there were not any adjustments necessary to our valuation allowance.
Other Long-Term Tax Liabilities
The Company's income tax returns are subject to examination by the Internal Revenue Service and other tax authorities in the locations where it operates. The Company assesses potentially unfavorable outcomes of such examinations based on accounting standards for uncertain income taxes, which prescribe a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.
Uncertain tax position accounting standards apply to all tax positions related to income taxes. These accounting standards utilize a two-step approach for evaluating tax positions. Recognition occurs when the Company concludes that a tax position, based on its technical merits, is more likely than not to be sustained upon examination. Measurement is only addressed if the position is deemed to be more likely than not to be sustained. The tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon settlement.
Tax positions failing to qualify for initial recognition are recognized in the first subsequent interim period that they meet the "more likely than not" standard. If it is subsequently determined that a previously recognized tax position no longer meets the "more likely than not" standard, it is required that the tax position is derecognized. Accounting standards for uncertain tax positions specifically prohibit the use of a valuation allowance as a substitute for derecognition of tax positions. As applicable, the Company will recognize accrued penalties and interest related to unrecognized tax benefits in the provision for income taxes. If applicable, accrued interest and penalties would be included in other long-term tax liabilities on the condensed consolidated balance sheets.
Collaborative Arrangements
We hold a five percent equity ownership in and have a strategic partnership with FanDuel Group ("FanDuel"), the nation's leading sports-betting operator, to pursue sports-betting opportunities across the country, both at our properties and online. Subject to state law and regulatory approvals, we have established a presence in the sports wagering industry, both at our gaming entertainment properties and online, by leveraging FanDuel's technology and related services. We offer online sports wagering under the FanDuel brand or under market access agreements with other companies in Illinois, Indiana, Iowa, Kansas, Louisiana, Ohio and Pennsylvania. We also operate sportsbooks under the FanDuel brand at one of our Downtown Las Vegas gaming entertainment properties, our gaming entertainment properties in Mississippi and all of the gaming entertainment properties in the states noted above where we offer online sports wagering. In addition, we offer online casino gaming in Pennsylvania through our partnership with FanDuel. Under our online collaborative arrangements, we receive a revenue share from the third-party operator based on actual wagering wins and losses. The activities under these collaborative arrangements related to online wagering, are recorded in online revenue and online expense on the condensed consolidated statements of operations. The activities under these collaborative arrangements related to sportsbooks at our gaming entertainment properties, are recorded in gaming revenue and gaming expense.
Under certain of our collaborative arrangements, we are the primary obligor and are responsible for paying gaming taxes and other license payments owed as the gaming licensee for the related online gaming activities. We are reimbursed for these taxes and other payments by the third-party operators. We report these gaming taxes and other expenses paid as online expense and the reimbursements we receive as online revenues. These taxes and other payments totaled approximately $71.4 million and $45.2 million for the three months ended September 30, 2023 and 2022, respectively, and $230.6 million and $135.1 million for the nine months ended September 30, 2023 and 2022, respectively.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of September 30, 2023 and December 31, 2022 and for the three and nine months ended September 30, 2023 and 2022
______________________________________________________________________________________________________
Currency Translation
The Company translates the financial statements of its foreign subsidiary that are not denominated in U.S. dollars. Balance sheet accounts are translated at the exchange rate in effect at each balance sheet date. Income statement accounts are translated at the average rate of exchange prevailing during the period. If a material income statement event occurs, the transaction would be translated at the exchange rate in effect on the date of occurrence. Translation adjustments resulting from this process are recorded in other comprehensive income (loss). Gains or losses from foreign currency transaction remeasurements are recorded as other non-operating income (expense).
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Recently Issued Accounting Pronouncements
A variety of proposed or otherwise potential accounting standards are currently being studied by standard-setting organizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards, we have not yet determined the effect, if any, that the implementation of such proposed standards would have on our condensed consolidated financial statements.
NOTE 2. ACQUISITION
Pala Interactive
On November 1, 2022, Boyd Interactive Gaming Inc. ("Boyd Interactive Inc."), a wholly owned subsidiary of the Company, completed its previously announced acquisition of Pala Interactive, LLC ("Pala Interactive") and its subsidiaries, including its Canadian subsidiary Pala Interactive Canada Inc. ("Pala Canada"), pursuant to a Purchase Agreement and Plan of Merger (the "Merger Agreement"), entered into on March 28, 2022, by and among Boyd Interactive Inc., Boyd Phoenix Acquisition, LLC ("Merger Sub"), a wholly owned subsidiary of Boyd Interactive Inc., Boyd Phoenix Canada Inc., a wholly owned subsidiary of Boyd Gaming, Pala Interactive, Pala Canada Holdings, LLC and Shareholder Representative Services LLC as representative of the holders of the membership interests of Pala Interactive. Pursuant to the Merger Agreement, Merger Sub merged with and into Pala Interactive (the "Merger"), with Pala Interactive surviving the Merger. Pala Interactive is now a wholly owned subsidiary of Boyd Interactive Inc.
Pala Interactive is an innovative online gaming technology company that provides proprietary solutions on both a B2B and B2C basis in regulated markets across the United States and Canada. We view this acquisition as an important step forward in our online growth strategy as it provides us with the talent and technology to begin building our regional online casino business. While online casinos are now limited to just a few states, over the long term, we believe there is growth and additional profit potential for our Company from online gaming. By owning and operating an online gaming business, we are able to leverage our nationwide portfolio and extensive customer database to grow in the online casino space. The acquired company is aggregated into our Online segment (See Note 10, Segment Information).
Consideration Transferred
The fair value of the consideration transferred on the date of the Merger included the purchase price of the net assets transferred. The total gross cash consideration was $175.2 million (with $7.3 million of cash acquired, for total cash paid for acquisitions, net of cash received of $167.9 million).
Status of Purchase Price Allocation
The Company followed the acquisition method of accounting pursuant to FASB Accounting Standards Codification Topic 805 ("ASC 805"). For purposes of these condensed consolidated financial statements, we have allocated the purchase price to the assets acquired and the liabilities assumed based on their fair values as determined by management with the assistance from third-party specialists. The excess of the purchase price over the fair value of the assets acquired and liabilities assumed has been recorded as goodwill. The Company has recognized the assets acquired and liabilities assumed in the acquisition based on fair value estimates as of the date of the Merger. In the second quarter of 2023, the Company finalized its determination of the fair value of the intangible assets acquired, along with the related allocation of goodwill. There was no change in the fair value of the intangible assets acquired or the related allocation of goodwill from the preliminary values included in the consolidated financial statements at December 31, 2022, to the final fair value determination included in the condensed consolidated financial statements at September 30, 2023.
The following table summarizes the purchase price allocation as of the acquisition date of November 1, 2022, December 31, 2022 and September 30, 2023:
(In thousands) | As Recorded | |||
Current assets | $ | 10,456 | ||
Property and equipment | 445 | |||
Other assets | 740 | |||
Intangible assets | 77,000 | |||
Total acquired assets | 88,641 | |||
Current liabilities | 4,462 | |||
Other liabilities | 3,007 | |||
Total liabilities assumed | 7,469 | |||
Net identifiable assets acquired | 81,172 | |||
Goodwill | 94,037 | |||
Net assets acquired | $ | 175,209 |
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of September 30, 2023 and December 31, 2022 and for the three and nine months ended September 30, 2023 and 2022
______________________________________________________________________________________________________
The following table summarizes the values assigned to acquired property and equipment and estimated useful lives:
Useful Lives | ||||||||
(In thousands) | (in years) | As Recorded | ||||||
Buildings and improvements | 5 | $ | 22 | |||||
Furniture and equipment | 2 - 5 | 423 | ||||||
Property and equipment acquired | $ | 445 |
The following table summarizes the values assigned to acquired intangible assets and weighted average useful lives of definite-lived intangible assets:
Useful Lives | ||||||||
(In thousands) | (in years) | As Recorded | ||||||
Developed technology | 10 | $ | 36,000 | |||||
B2B relationships | 7 - 10 | 28,000 | ||||||
B2C relationships | 12 | 13,000 | ||||||
Total intangible assets acquired | $ | 77,000 |
The goodwill recognized is the excess of the purchase price over the values assigned to the assets acquired and liabilities assumed. All of the goodwill was assigned to reporting units included in the Online reportable segment. All of the goodwill, except $7.8 million allocated to Pala Canada, is expected to be deductible for income tax purposes.
The Company expensed acquisition related costs of less than $0.1 million and $0.3 million for the three months ended September 30, 2023 and 2022, respectively, and $0.1 million and $2.6 million for the nine months ended September 30, 2023 and 2022, respectively. These costs are included in project development, preopening and writedowns on the condensed consolidated statements of operations.
The revenue and earnings from the Merger are not material for the period subsequent to acquisition through December 31, 2022. The pro-forma revenue and earnings from the Merger assuming all impacts as if it had been completed on January 1, 2022 are not material through December 31, 2022.
NOTE 3. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
September 30, | December 31, | |||||||
(In thousands) | 2023 | 2022 | ||||||
Land | $ | 333,899 | $ | 334,368 | ||||
Buildings and improvements | 3,213,915 | 3,172,676 | ||||||
Furniture and equipment | 1,823,169 | 1,707,212 | ||||||
Riverboats and barges | 241,980 | 241,898 | ||||||
Construction in progress | 174,964 | 87,612 | ||||||
Total property and equipment | 5,787,927 | 5,543,766 | ||||||
Less accumulated depreciation | (3,288,202 | ) | (3,149,530 | ) | ||||
Property and equipment, net | $ | 2,499,725 | $ | 2,394,236 |
Depreciation expense is as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(In thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Depreciation expense | $ | 60,586 | $ | 62,771 | $ | 176,051 | $ | 188,399 |
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of September 30, 2023 and December 31, 2022 and for the three and nine months ended September 30, 2023 and 2022
______________________________________________________________________________________________________
NOTE 4. GOODWILL AND INTANGIBLE ASSETS, NET
Intangible assets, net consist of the following:
September 30, 2023 | ||||||||||||||||||||||||
Weighted | ||||||||||||||||||||||||
Useful Life | Gross | Accumulated | Effect of Foreign | |||||||||||||||||||||
Remaining | Carrying | Accumulated | Impairment | Currency | Intangible | |||||||||||||||||||
(In thousands) | (in years) | Value | Amortization | Losses | Exchange | Assets, Net | ||||||||||||||||||
Amortizing intangibles | ||||||||||||||||||||||||
Customer relationships | 0.4 | $ | 35,050 | $ | (34,776 | ) | $ | — | $ | — | $ | 274 | ||||||||||||
Host agreements | 9.7 | 58,000 | (20,622 | ) | — | — | 37,378 | |||||||||||||||||
Development agreement | 5.9 | 21,373 | (3,434 | ) | — | — | 17,939 | |||||||||||||||||
Developed technology | 8.8 | 39,068 | (3,464 | ) | — | 35 | 35,639 | |||||||||||||||||
B2B relationships | 6.3 | 28,000 | (3,588 | ) | — | 9 | 24,421 | |||||||||||||||||
B2C relationships | 11.1 | 13,000 | (993 | ) | — | — | 12,007 | |||||||||||||||||
194,491 | (66,877 | ) | — | 44 | 127,658 | |||||||||||||||||||
Indefinite lived intangible assets | ||||||||||||||||||||||||
Trademarks | Indefinite | 204,000 | — | (36,375 | ) | — | 167,625 | |||||||||||||||||
Gaming license rights | Indefinite | 1,378,081 | (33,960 | ) | (222,174 | ) | — | 1,121,947 | ||||||||||||||||
1,582,081 | (33,960 | ) | (258,549 | ) | — | 1,289,572 | ||||||||||||||||||
Balances, September 30, 2023 | $ | 1,776,572 | $ | (100,837 | ) | $ | (258,549 | ) | $ | 44 | $ | 1,417,230 |
December 31, 2022 | ||||||||||||||||||||||||
Weighted | ||||||||||||||||||||||||
Useful Life | Gross | Accumulated | Effect of Foreign | |||||||||||||||||||||
Remaining | Carrying | Accumulated | Impairment | Currency | Intangible | |||||||||||||||||||
(In thousands) | (in years) | Value | Amortization | Losses | Exchange | Assets, Net | ||||||||||||||||||
Amortizing intangibles | ||||||||||||||||||||||||
Customer relationships | 0.6 | $ | 63,050 | $ | (62,070 | ) | $ | — | $ | — | $ | 980 | ||||||||||||
Host agreements | 10.4 | 58,000 | (17,722 | ) | — | — | 40,278 | |||||||||||||||||
Development agreement | 6.6 | 21,373 | (1,145 | ) | — | — | 20,228 | |||||||||||||||||
Developed technology | 9.8 | 36,445 | (600 | ) | — | 53 | 35,898 | |||||||||||||||||
B2B relationships | 7.0 | 28,000 | (652 | ) | — | 12 | 27,360 | |||||||||||||||||
B2C relationships | 11.8 | 13,000 | (181 | ) | — | — | 12,819 | |||||||||||||||||
219,868 | (82,370 | ) | — | 65 | 137,563 | |||||||||||||||||||
Indefinite lived intangible assets | ||||||||||||||||||||||||
Trademarks | Indefinite | 204,000 | — | (36,375 | ) | — | 167,625 | |||||||||||||||||
Gaming license rights | Indefinite | 1,378,081 | (33,960 | ) | (222,174 | ) | — | 1,121,947 | ||||||||||||||||
1,582,081 | (33,960 | ) | (258,549 | ) | — | 1,289,572 | ||||||||||||||||||
Balances, December 31, 2022 | $ | 1,801,949 | $ | (116,330 | ) | $ | (258,549 | ) | $ | 65 | $ | 1,427,135 |
The following table presents the future amortization expense for our amortizing intangible assets as of September 30, 2023:
(In thousands) | Customer Relationships | Host Agreements | Development Agreement | Developed Technology | B2B Relationships | B2C Relationships | Total | |||||||||||||||||||||
For the year ending December 31, | ||||||||||||||||||||||||||||
2023 (excluding nine months ended September 30, 2023) | $ | 234 | $ | 967 | $ | 764 | $ | 1,058 | $ | 975 | $ | 271 | $ | 4,269 | ||||||||||||||
2024 | 40 | 3,867 | 3,053 | 4,208 | 3,914 | 1,083 | 16,165 | |||||||||||||||||||||
2025 | — | 3,867 | 3,053 | 4,208 | 3,914 | 1,083 | 16,125 | |||||||||||||||||||||
2026 | — | 3,867 | 3,053 | 4,208 | 3,914 | 1,083 | 16,125 | |||||||||||||||||||||
2027 | — | 3,867 | 3,053 | 4,208 | 3,914 | 1,083 | 16,125 | |||||||||||||||||||||
Thereafter | — | 20,943 | 4,963 | 17,749 | 7,790 | 7,404 | 58,849 | |||||||||||||||||||||
Total future amortization | $ | 274 | $ | 37,378 | $ | 17,939 | $ | 35,639 | $ | 24,421 | $ | 12,007 | $ | 127,658 |
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of September 30, 2023 and December 31, 2022 and for the three and nine months ended September 30, 2023 and 2022
______________________________________________________________________________________________________
Goodwill consists of the following:
September 30, 2023 | ||||||||||||||||||||
Effect of | ||||||||||||||||||||
Gross | Accumulated | Foreign | ||||||||||||||||||
Carrying | Accumulated | Impairment | Currency | Goodwill, | ||||||||||||||||
(In thousands) | Value | Amortization | Losses | Exchange | Net | |||||||||||||||
Goodwill, net by Segment | ||||||||||||||||||||
Las Vegas Locals | $ | 593,567 | $ | — | $ | (188,079 | ) | $ | — | $ | 405,488 | |||||||||
Downtown Las Vegas | 6,997 | (6,134 | ) | — | — | 863 | ||||||||||||||
Midwest & South | 636,269 | — | (107,470 | ) | — | 528,799 | ||||||||||||||
Online | 94,037 | — | — | 32 | 94,069 | |||||||||||||||
Managed & Other | 30,529 | — | (30,529 | ) | — | — | ||||||||||||||
Balances, September 30, 2023 | $ | 1,361,399 | $ | (6,134 | ) | $ | (326,078 | ) | $ | 32 | $ | 1,029,219 |
December 31, 2022 | ||||||||||||||||||||
Effect of | ||||||||||||||||||||
Gross | Accumulated | Foreign | ||||||||||||||||||
Carrying | Accumulated | Impairment | Currency | Goodwill, | ||||||||||||||||
(In thousands) | Value | Amortization | Losses | Exchange | Net | |||||||||||||||
Goodwill, net by Segment | ||||||||||||||||||||
Las Vegas Locals | $ | 593,567 | $ | — | $ | (188,079 | ) | $ | — | $ | 405,488 | |||||||||
Downtown Las Vegas | 6,997 | (6,134 | ) | — | — | 863 | ||||||||||||||
Midwest & South | 636,269 | — | (107,470 | ) | — | 528,799 | ||||||||||||||
Online | 94,037 | — | — | 20 | 94,057 | |||||||||||||||
Managed & Other | 30,529 | — | (25,992 | ) | — | 4,537 | ||||||||||||||
Balances, December 31, 2022 | $ | 1,361,399 | $ | (6,134 | ) | $ | (321,541 | ) | $ | 20 | $ | 1,033,744 |
Goodwill as of December 31, 2022 has been recast to reflect changes made in first quarter 2023 to the Company's segments. Goodwill in total as of December 31, 2022 did not change. See additional discussion in Note 10, Segment Information.
During the nine months ended September 30, 2023, we recorded goodwill impairment charges of $4.5 million related to Managed & Other, our aggregated other nonreportable operating segments category. These noncash impairment charges are recorded in impairment of assets on the condensed consolidated statements of operations.
NOTE 5. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
September 30, | December 31, | |||||||
(In thousands) | 2023 | 2022 | ||||||
Payroll and related | $ | 73,011 | $ | 73,619 | ||||
Interest | 18,739 | 17,864 | ||||||
Gaming | 69,890 | 77,638 | ||||||
Player loyalty program | 22,588 | 25,852 | ||||||
Advance deposits | 19,315 | 20,792 | ||||||
Outstanding chips | 7,778 | 7,704 | ||||||
Dividends payable | 15,804 | 15,476 | ||||||
Operating leases | 94,458 | 88,776 | ||||||
Other | 111,897 | 84,192 | ||||||
Total accrued liabilities | $ | 433,480 | $ | 411,913 |
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of September 30, 2023 and December 31, 2022 and for the three and nine months ended September 30, 2023 and 2022
______________________________________________________________________________________________________
NOTE 6. LONG-TERM DEBT
Long-term debt, net of current maturities and debt issuance costs, consists of the following:
September 30, 2023 | ||||||||||||||||||||
Interest | Unamortized | |||||||||||||||||||
Rates at | Origination | |||||||||||||||||||
September 30, | Outstanding | Unamortized | Fees and | Long-Term | ||||||||||||||||
(In thousands) | 2023 | Principal | Discount | Costs | Debt, Net | |||||||||||||||
Credit facility | 6.901 | % | $ | 1,041,800 | $ | — | $ | (14,485 | ) | $ | 1,027,315 | |||||||||
4.750% senior notes due 2027 | 4.750 | % | 1,000,000 | — | (8,279 | ) | 991,721 | |||||||||||||
4.750% senior notes due 2031 | 4.750 | % | 900,000 | — | (10,449 | ) | 889,551 | |||||||||||||
Other | 5.208 | % | 538 | — | — | 538 | ||||||||||||||
Total long-term debt | 2,942,338 | — | (33,213 | ) | 2,909,125 | |||||||||||||||
Less current maturities | 44,275 | — | — | 44,275 | ||||||||||||||||
Long-term debt, net | $ | 2,898,063 | $ | — | $ | (33,213 | ) | $ | 2,864,850 |
December 31, 2022 | |||||||||||||||||||
Interest | Unamortized | ||||||||||||||||||
Rates at | Origination | ||||||||||||||||||
December 31, | Outstanding | Unamortized | Fees and | Long-Term | |||||||||||||||
(In thousands) | 2022 | Principal | Discount | Costs | Debt, Net | ||||||||||||||
Credit facility | 6.166 | % | $ | 1,187,800 | $ | — | $ | (17,865 | ) | $ | 1,169,935 | ||||||||
4.750% senior notes due 2027 | 4.750 | % | 1,000,000 | — | (9,740 | ) | 990,260 | ||||||||||||
4.750% senior notes due 2031 | 4.750 | % | 900,000 | — | (11,460 | ) | 888,540 | ||||||||||||
Other | 5.208 | % | 674 | — | — | 674 | |||||||||||||
Total long-term debt | 3,088,474 | — | (39,065 | ) | 3,049,409 | ||||||||||||||
Less current maturities | 44,275 | — | — | 44,275 | |||||||||||||||
Long-term debt, net | $ | 3,044,199 | $ | — | $ | (39,065 | ) | $ | 3,005,134 |
The outstanding principal amounts under the Credit Facility are comprised of the following:
September 30, | December 31, | |||||||
(In thousands) | 2023 | 2022 | ||||||
Revolving credit facility | $ | 175,000 | $ | 285,000 | ||||
Term A loan | 814,000 | 847,000 | ||||||
Swing loan | 52,800 | 55,800 | ||||||
Total outstanding principal amounts | $ | 1,041,800 | $ | 1,187,800 |
With a total revolving credit commitment of $1,450.0 million available under the Credit Facility, $175.0 million and $52.8 million in borrowings outstanding on the Revolving Credit Facility and the Swing Loan, respectively, and $13.4 million allocated to support various letters of credit, there was a remaining contractual availability under the Credit Facility of $1,208.8 million as of September 30, 2023.
Early Extinguishments and Modifications of Debt
During the nine months ended September 30, 2022, the Company incurred $16.5 million in loss on early extinguishments and modifications of debt due to the redemption of $300.0 million of our 8.625% senior notes due 2025 ("8.625% Senior Notes"), which was accounted for as a debt extinguishment. The $16.5 million incurred is comprised of $12.9 million related to premium fees paid and $3.6 million related to the write-off of unamortized deferred finance charges. In addition, during the nine months ended September 30, 2022, the Company incurred $3.3 million in loss on early extinguishments and modifications of debt as a result of entering into a new credit agreement (the "Credit Facility") that replaced the then existing credit agreement. The $3.3 million incurred related to the write-off of unamortized deferred finance charges associated with the portion accounted for as a debt extinguishment.
Covenant Compliance
As of September 30, 2023, we were in compliance with the financial covenants of our debt instruments.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of September 30, 2023 and December 31, 2022 and for the three and nine months ended September 30, 2023 and 2022
______________________________________________________________________________________________________
NOTE 7. COMMITMENTS AND CONTINGENCIES
NOTE 8. STOCKHOLDERS' EQUITY AND STOCK INCENTIVE PLANS
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(In thousands, except per share data) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Shares repurchased (2) | 1,628 | 2,474 | 4,847 | 7,588 | ||||||||||||
Total cost, including brokerage fees (3) | $ | 106,302 | $ | 134,996 | $ | 312,656 | $ | 434,769 | ||||||||
Average repurchase price per share (4) | $ | 65.30 | $ | 54.57 | $ | 64.51 | $ | 57.29 |
(1) Shares repurchased reflect repurchases settled during the three and nine months ended September 30, 2023 and 2022. These amounts exclude repurchases, if any, traded but not yet settled on or before September 30, 2023 and 2022, respectively.
(2) All shares repurchased have been retired and constitute authorized but unissued shares.
(3) Costs exclude 1% excise tax on corporate stock buybacks that was enacted under the Inflation Reduction Act of 2022 and became effective January 1, 2023.
(4) Amounts in the table may not recalculate exactly due to rounding. Average repurchase price per share is calculated based on unrounded numbers and excludes the 1% excise tax.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of September 30, 2023 and December 31, 2022 and for the three and nine months ended September 30, 2023 and 2022
______________________________________________________________________________________________________
Dividends
The dividends declared by the Board of Directors and reflected in the periods presented are:
Declaration date | Record date | Payment date | Amount per share | |||||
February 3, 2022 | March 15, 2022 | April 15, 2022 | $ | 0.15 | ||||
June 1, 2022 | June 30, 2022 | July 15, 2022 | 0.15 | |||||
September 15, 2022 | September 30, 2022 | October 15, 2022 | 0.15 | |||||
December 8, 2022 | December 19, 2022 | January 15, 2023 | 0.15 | |||||
February 14, 2023 | March 15, 2023 | April 15, 2023 | 0.16 | |||||
May 4, 2023 | June 15, 2023 | July 15, 2023 | 0.16 | |||||
August 15, 2023 | September 15, 2023 | October 15, 2023 | 0.16 |
Share-Based Compensation
We account for share-based awards exchanged for employee services in accordance with the authoritative accounting guidance for share-based payments. Under the guidance, share-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense, net of estimated forfeitures, over the employee's requisite service period.
The following table provides classification detail of the total costs related to our share-based employee compensation plans reported in our condensed consolidated statements of operations.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(In thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Gaming | $ | 278 | $ | 191 | $ | 806 | $ | 712 | ||||||||
Food & beverage | 53 | 36 | 154 | 136 | ||||||||||||
Room | 26 | 18 | 74 | 65 | ||||||||||||
Selling, general and administrative | 1,415 | 967 | 4,098 | 3,618 | ||||||||||||
Corporate expense | 6,261 | 4,441 | 22,918 | 23,955 | ||||||||||||
Total share-based compensation expense | $ | 8,033 | $ | 5,653 | $ | 28,050 | $ | 28,486 |
Performance Shares
Our stock incentive plan provides for the issuance of Performance Share Units ("PSU") grants which may be earned, in whole or in part, upon passage of time and the attainment of performance criteria. We periodically review our estimates of performance against the defined criteria to assess the expected payout of each outstanding PSU grant and adjust our stock compensation expense accordingly.
The PSU grants awarded in fourth quarter 2019 and 2018 fully vested during the first quarter of 2023 and 2022, respectively. Common shares under the 2019 and 2018 grants were issued based on the determination by the Compensation Committee of the Board of Directors of our actual achievement of net revenue growth and Earnings Before Interest, Taxes, Depreciation and Amortization and Rent under master leases ("EBITDAR") growth for the three-year performance period of the grant. As provided under the provisions of our stock incentive plan, certain of the participants elected to surrender a portion of the shares to be received to pay the withholding and other payroll taxes payable on the compensation resulting from the vesting of the PSUs.
The PSU grant awarded in December 2019 resulted in a total of 519,782 shares being issued during the first quarter of 2023, representing approximately 2.00 shares per PSU. Of the 519,782 shares issued, a total of 200,904 were surrendered by the participants for payroll taxes, resulting in a net issuance of 318,878 shares due to the vesting of the 2019 grant. The actual achievement level under the award metrics equaled the estimated performance as of the year-end 2022; therefore, the vesting of the PSUs did not impact compensation costs in our 2023 condensed consolidated statement of operations.
The PSU grant awarded in November 2018 resulted in a total of 408,609 shares being issued during the first quarter of 2022, representing approximately 1.58 shares per PSU. Of the 408,609 shares issued, a total of 114,265 were surrendered by the participants for payroll taxes, resulting in a net issuance of 294,344 shares due to the vesting of the 2018 grant. The actual achievement level under the award metrics equaled the estimated performance as of the year-end 2021; therefore, the vesting of the PSUs did not impact compensation costs in our 2022 condensed consolidated statement of operations.
Unamortized Stock Compensation Expense and Recognition Period
As of September 30, 2023, there was approximately $10.7 million, $2.7 million and $1.6 million of total unrecognized share-based compensation costs related to unvested restricted stock units ("RSUs"), PSUs and career shares, respectively. As of September 30, 2023, the unrecognized share-based compensation costs related to our RSUs, PSUs and career shares are expected to be recognized over approximately 2.0 years, 1.9 years and 3.6 years, respectively.
NOTE 9. FAIR VALUE MEASUREMENTS
We have adopted the authoritative accounting guidance for fair value measurements, which does not determine or affect the circumstances under which fair value measurements are used, but defines fair value, expands disclosure requirements around fair value and specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of September 30, 2023 and December 31, 2022 and for the three and nine months ended September 30, 2023 and 2022
______________________________________________________________________________________________________
These inputs create the following fair value hierarchy:
Level 1: Quoted prices for identical instruments in active markets.
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
As required by the guidance for fair value measurements, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Thus, assets and liabilities categorized as Level 3 may be measured at fair value using inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Management's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy levels.
Balances Measured at Fair Value
The following tables show the fair values of certain of our financial instruments:
September 30, 2023 | ||||||||||||||||
(In thousands) | Balance | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents | $ | 269,155 | $ | 269,155 | $ | — | $ | — | ||||||||
Restricted cash | 2,479 | 2,479 | — | — | ||||||||||||
Investment available for sale | 13,098 | — | — | 13,098 |
December 31, 2022 | ||||||||||||||||
(In thousands) | Balance | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents | $ | 283,472 | $ | 283,472 | $ | — | $ | — | ||||||||
Restricted cash | 11,593 | 11,593 | — | — | ||||||||||||
Investment available for sale | 13,670 | — | — | 13,670 |
Cash and Cash Equivalents and Restricted Cash
The fair values of our cash and cash equivalents and restricted cash, classified in the fair value hierarchy as Level 1, are based on statements received from our banks as of September 30, 2023 and December 31, 2022.
Investment Available for Sale
We have an investment in a single municipal bond issuance of $17.1 million aggregate principal amount of 7.5% Urban Renewal Tax Increment Revenue Bonds, Taxable Series 2007 that is classified as available for sale with a maturity date of June 1, 2037. We are the only holder of this instrument and there is no quoted market price for this instrument. As such, the fair value of this investment is classified as Level 3 in the fair value hierarchy. The estimate of the fair value of such investment was determined using a combination of current market rates and estimates of market conditions for instruments with similar terms, maturities and degrees of risk and a discounted cash flows analysis as of September 30, 2023 and December 31, 2022. The fair value of the instrument is estimated using a discounted cash flows approach and the significant unobservable input used in the valuation at September 30, 2023 and December 31, 2022 is a discount rate of 13.1% and 12.4%, respectively. Unrealized gains and losses on this instrument resulting from changes in the fair value of the instrument are not charged to earnings, but rather are recorded as other comprehensive income (loss) in the stockholders' equity section of the condensed consolidated balance sheets and in the condensed consolidated statement of other comprehensive income (loss). At both September 30, 2023 and December 31, 2022, $0.7 million of the carrying value of the investment available for sale is included as a current asset in prepaid expenses and other current assets, and at September 30, 2023 and December 31, 2022, $12.4 million and $13.0 million, respectively, is included in other assets, net on the condensed consolidated balance sheets. The discount associated with this investment of $2.1 million and $2.2 million as of September 30, 2023 and December 31, 2022, respectively, is netted with the investment balance and is being accreted over the life of the investment using the effective interest method. The accretion of such discount is included in interest income on the condensed consolidated statements of operations.
The following table summarizes the changes in fair value of the Company's Level 3 investment available for sale asset:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(In thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Balance at beginning of reporting period | $ | 13,215 | $ | 14,116 | $ | 13,670 | $ | 15,822 | ||||||||
Total gains (losses) (realized or unrealized): | ||||||||||||||||
Included in interest income | 41 | 40 | 128 | 125 | ||||||||||||
Included in other comprehensive income (loss) | (158 | ) | (203 | ) | (20 | ) | (1,359 | ) | ||||||||
Purchases, sales, issuances and settlements: | ||||||||||||||||
Settlements | — | — | (680 | ) | (635 | ) | ||||||||||
Balance at end of reporting period | $ | 13,098 | $ | 13,953 | $ | 13,098 | $ | 13,953 |
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of September 30, 2023 and December 31, 2022 and for the three and nine months ended September 30, 2023 and 2022
______________________________________________________________________________________________________
We are exposed to valuation risk on our Level 3 financial instruments. We estimate our risk exposure using a sensitivity analysis of potential changes in the significant unobservable inputs of our fair value measurements. Our Level 3 financial instruments are most susceptible to valuation risk caused by changes in the discount rate. If the discount rate in our fair value measurements increased or decreased by 100 basis points, the change would not cause the value of our fair value measurements to change significantly.
The fair value of indefinite-lived intangible assets, classified in the fair value hierarchy as Level 3, is utilized in performing the Company's impairment analyses.
Balances Disclosed at Fair Value
The following tables provide the fair value measurement information about our note receivable and obligation under assessment agreements:
September 30, 2023 | |||||||||||||
Outstanding | Carrying | Estimated | Fair Value | ||||||||||
(In thousands) | Face Amount | Value | Fair Value | Hierarchy | |||||||||
Asset | |||||||||||||
Note receivable | $ | 32,498 | $ | 32,498 | $ | 32,498 | Level 3 | ||||||
Liabilities | |||||||||||||
Obligation under assessment arrangements | 20,659 | 18,079 | 23,835 | Level 3 |
December 31, 2022 | |||||||||||||
Outstanding | Carrying | Estimated | Fair Value | ||||||||||
(In thousands) | Face Amount | Value | Fair Value | Hierarchy | |||||||||
Asset | |||||||||||||
Note receivable | $ | 118,162 | $ | 83,791 | $ | 82,338 | Level 3 | ||||||
Liabilities | |||||||||||||
Obligation under assessment arrangements | 22,293 | 19,304 | 25,738 | Level 3 |
The following tables provide the fair value measurement information about our long-term debt:
September 30, 2023 | |||||||||||||
Outstanding | Carrying | Estimated | Fair Value | ||||||||||
(In thousands) | Face Amount | Value | Fair Value | Hierarchy | |||||||||
Credit facility | $ | 1,041,800 | $ | 1,027,315 | $ | 1,019,415 | Level 2 | ||||||
4.750% senior notes due 2027 | 1,000,000 | 991,721 | 917,500 | Level 1 | |||||||||
4.750% senior notes due 2031 | 900,000 | 889,551 | 762,750 | Level 1 | |||||||||
Other | 538 | 538 | 538 | Level 3 | |||||||||
Total debt | $ | 2,942,338 | $ | 2,909,125 | $ | 2,700,203 |
December 31, 2022 | |||||||||||||
Outstanding | Carrying | Estimated | Fair Value | ||||||||||
(In thousands) | Face Amount | Value | Fair Value | Hierarchy | |||||||||
Credit facility | $ | 1,187,800 | $ | 1,169,935 | $ | 1,183,565 | Level 2 | ||||||
4.750% senior notes due 2027 | 1,000,000 | 990,260 | 928,750 | Level 1 | |||||||||
4.750% senior notes due 2031 | 900,000 | 888,540 | 784,125 | Level 1 | |||||||||
Other | 674 | 674 | 674 | Level 3 | |||||||||
Total debt | $ | 3,088,474 | $ | 3,049,409 | $ | 2,897,114 |
The estimated fair value of our obligation under assessment arrangements and the estimated fair value of our note receivable as of December 31, 2022, is based on a discounted cash flow approach after giving consideration to the changes in market rates of interest, creditworthiness of both parties and credit spread. The fair value of our note receivable as of September 30, 2023, was estimated to equal its carrying value after consideration of the expected repayment timing of the remaining balance. The estimated fair value of our Credit Facility is based on a relative value analysis performed on or about September 30, 2023 and December 31, 2022. The estimated fair values of our senior notes are based on quoted market prices as of September 30, 2023 and December 31, 2022. The other debt is fixed-rate debt consisting of finance leases with various maturity dates from 2024 to 2025. The other debt is not traded and does not have an observable market input; therefore, we have estimated fair value to be equal to the carrying value for these obligations.
Other than the retirement of the 8.625% Senior Notes (Level 1) during the nine months ended September 30, 2022, that was funded through a combination of cash on hand and borrowings under the Credit Facility (Level 2), there were no transfers between Level 1, Level 2 and Level 3 measurements during the three months ended September 30, 2023 and 2022, and no transfers during the nine months ended September 30, 2023.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of September 30, 2023 and December 31, 2022 and for the three and nine months ended September 30, 2023 and 2022
______________________________________________________________________________________________________
NOTE 10. SEGMENT INFORMATION
During the first quarter of 2023, the Company evaluated its reportable segments and changed them from
reportable segments consisting of: (i) Las Vegas Locals; (ii) Downtown Las Vegas; and (iii) Midwest & South, to the following four reportable segments: (i) Las Vegas Locals; (ii) Downtown Las Vegas; (iii) Midwest & South; and (iv) Online, (collectively "Reportable Segments"). This change reflects the growth of the Company beyond its traditional wholly owned gaming entertainment properties and the increasing importance to the Company of other growth sources. The Online segment includes the operating results of our online gaming operations through collaborative arrangements with third parties throughout the United States and the operations from our recent acquisition of Pala Interactive and Pala Canada (individually and collectively rebranded, "Boyd Interactive") on November 1, 2022, and such operating results were previously included with the Midwest & South segment. To reconcile Reportable Segments information to the condensed consolidated information, the Company has aggregated nonreportable operating segments into a Managed & Other category. The Managed & Other category includes management fees earned under our management contract with Wilton Rancheria for the management of Sky River Casino in northern California and the operating results of Lattner Entertainment Group Illinois, LLC, our Illinois distributed gaming operator. These nonreportable operating segments were previously aggregated with our Midwest & South segment. The table below lists the Reportable Segment classification of each of our gaming entertainment properties that were aggregated based on their similar economic characteristics, types of customers, types of services and products provided, the regulatory environments in which they operate and their management and reporting structure.
Las Vegas Locals | ||
Gold Coast Hotel and Casino | Las Vegas, Nevada | |
The Orleans Hotel and Casino | Las Vegas, Nevada | |
Sam's Town Hotel and Gambling Hall | Las Vegas, Nevada | |
Suncoast Hotel and Casino | Las Vegas, Nevada | |
Eastside Cannery Casino and Hotel (1) | Las Vegas, Nevada | |
Aliante Casino + Hotel + Spa | North Las Vegas, Nevada | |
Cannery Casino Hotel | North Las Vegas, Nevada | |
Jokers Wild | Henderson, Nevada | |
Downtown Las Vegas | ||
California Hotel and Casino | Las Vegas, Nevada | |
Fremont Hotel & Casino | Las Vegas, Nevada | |
Main Street Station Hotel and Casino | Las Vegas, Nevada | |
Midwest & South | ||
Par-A-Dice Casino | East Peoria, Illinois | |
Belterra Casino Resort (2) | Florence, Indiana | |
Blue Chip Casino Hotel Spa | Michigan City, Indiana | |
Diamond Jo Casino | Dubuque, Iowa | |
Diamond Jo Worth | Northwood, Iowa | |
Kansas Star Casino | Mulvane, Kansas | |
Amelia Belle Casino | Amelia, Louisiana | |
Delta Downs Racetrack Hotel & Casino | Vinton, Louisiana | |
Evangeline Downs Racetrack & Casino | Opelousas, Louisiana | |
Sam's Town Shreveport | Shreveport, Louisiana | |
Treasure Chest Casino | Kenner, Louisiana | |
IP Casino Resort Spa | Biloxi, Mississippi | |
Sam's Town Hotel and Gambling Hall Tunica | Tunica, Mississippi | |
Ameristar Casino * Hotel Kansas City (2) | Kansas City, Missouri | |
Ameristar Casino * Resort * Spa St. Charles (2) | St. Charles, Missouri | |
Belterra Park (2) | Cincinnati, Ohio | |
Valley Forge Casino Resort | King of Prussia, Pennsylvania |
(1) Due to the current levels of demand in the market, Eastside Cannery remains closed since it was closed on March 18, 2020, in compliance with orders issued by state officials as precautionary measures intended to slow the spread of the COVID-19 virus.
(2) Property is subject to a master lease agreement with a real estate investment trust.
Results of Operations - Total Reportable Segment Revenues and Adjusted EBITDAR
We evaluate profitability based on Adjusted EBITDAR, which represents earnings before interest expense, income taxes, depreciation and amortization, deferred rent, share-based compensation expense, project development, preopening and writedown expenses, impairments of assets, other operating items, net, gain or loss on early extinguishments and modifications of debt, other items, net and master lease rent expense, as applicable. Total Reportable Segment Adjusted EBITDAR is the aggregate sum of the Adjusted EBITDAR for each of the properties included in our Las Vegas Locals, Downtown Las Vegas and Midwest & South segments and Adjusted EBITDAR related to the online operations in our Online segment. Results for Downtown Las Vegas include the results of our Hawaii-based travel agency and captive insurance company as our Downtown Las Vegas properties cater to the Hawaiian market.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of September 30, 2023 and December 31, 2022 and for the three and nine months ended September 30, 2023 and 2022
______________________________________________________________________________________________________
EBITDAR is a commonly used measure of performance in our industry that we believe, when considered with measures calculated in accordance with GAAP, facilitates comparisons between us and our competitors and provides our investors a more complete understanding of our operating results before the impact of investing transactions, financing transactions and income taxes. Management has historically adjusted EBITDAR when evaluating operating performance because we believe that the inclusion or exclusion of certain recurring and non-recurring items is necessary to provide a full understanding of our core operating results and as a means to evaluate period-to-period results.
The following tables set forth, for the periods indicated, departmental revenues for our Reportable Segments and our Managed & Other category to reconcile to total revenues:
Three Months Ended September 30, 2023 | ||||||||||||||||||||||||||||
Food & | Management | |||||||||||||||||||||||||||
Gaming | Beverage | Room | Online | Fee | Other | Total | ||||||||||||||||||||||
(In thousands) | Revenue | Revenue | Revenue | Revenue | Revenue | Revenue | Revenue | |||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||
Las Vegas Locals | $ | 165,153 | $ | 21,454 | $ | 21,324 | $ | — | $ | — | $ | 13,902 | $ | 221,833 | ||||||||||||||
Downtown Las Vegas | 31,916 | 9,876 | 5,312 | — | — | 2,441 | 49,545 | |||||||||||||||||||||
Midwest & South | 433,650 | 39,656 | 22,084 | — | — | 17,638 | 513,028 | |||||||||||||||||||||
Online | — | — | — | 90,288 | — | — | 90,288 | |||||||||||||||||||||
Managed & Other | 10,449 | — | — | — | 17,153 | 868 | 28,470 | |||||||||||||||||||||
Total Revenues | $ | 641,168 | $ | 70,986 | $ | 48,720 | $ | 90,288 | $ | 17,153 | $ | 34,849 | $ | 903,164 |
Three Months Ended September 30, 2022 (1) | ||||||||||||||||||||||||||||
Food & | Management | |||||||||||||||||||||||||||
Gaming | Beverage | Room | Online | Fee | Other | Total | ||||||||||||||||||||||
(In thousands) | Revenue | Revenue | Revenue | Revenue | Revenue | Revenue | Revenue | |||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||
Las Vegas Locals | $ | 172,263 | $ | 21,120 | $ | 19,982 | $ | — | $ | — | $ | 12,426 | $ | 225,791 | ||||||||||||||
Downtown Las Vegas | 31,872 | 9,583 | 5,552 | — | — | 2,500 | 49,507 | |||||||||||||||||||||
Midwest & South | 452,052 | 37,089 | 21,138 | — | — | 17,257 | 527,536 | |||||||||||||||||||||
Online | — | — | — | 52,353 | — | — | 52,353 | |||||||||||||||||||||
Managed & Other | 11,788 | — | — | — | 10,159 | 129 | 22,076 | |||||||||||||||||||||
Total Revenues | $ | 667,975 | $ | 67,792 | $ | 46,672 | $ | 52,353 | $ | 10,159 | $ | 32,312 | $ | 877,263 |
Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||
Food & | Management | |||||||||||||||||||||||||||
Gaming | Beverage | Room | Online | Fee | Other | Total | ||||||||||||||||||||||
(In thousands) | Revenue | Revenue | Revenue | Revenue | Revenue | Revenue | Revenue | |||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||
Las Vegas Locals | $ | 513,460 | $ | 66,436 | $ | 70,000 | $ | — | $ | — | $ | 43,147 | $ | 693,043 | ||||||||||||||
Downtown Las Vegas | 102,765 | 30,515 | 17,797 | — | — | 8,016 | 159,093 | |||||||||||||||||||||
Midwest & South | 1,317,175 | 115,985 | 60,749 | — | — | 50,138 | 1,544,047 | |||||||||||||||||||||
Online | — | — | — | 298,153 | — | — | 298,153 | |||||||||||||||||||||
Managed & Other | 32,805 | — | — | — | 54,629 | 2,310 | 89,744 | |||||||||||||||||||||
Total Revenues | $ | 1,966,205 | $ | 212,936 | $ | 148,546 | $ | 298,153 | $ | 54,629 | $ | 103,611 | $ | 2,784,080 |
Nine Months Ended September 30, 2022 (1) | ||||||||||||||||||||||||||||
Food & | Management | |||||||||||||||||||||||||||
Gaming | Beverage | Room | Online | Fee | Other | Total | ||||||||||||||||||||||
(In thousands) | Revenue | Revenue | Revenue | Revenue | Revenue | Revenue | Revenue | |||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||
Las Vegas Locals | $ | 522,728 | $ | 64,257 | $ | 62,528 | $ | — | $ | — | $ | 40,301 | $ | 689,814 | ||||||||||||||
Downtown Las Vegas | 99,249 | 29,865 | 17,152 | — | — | 6,624 | 152,890 | |||||||||||||||||||||
Midwest & South | 1,363,445 | 107,712 | 59,305 | — | — | 49,072 | 1,579,534 | |||||||||||||||||||||
Online | — | — | — | 164,203 | — | — | 164,203 | |||||||||||||||||||||
Managed & Other | 35,432 | — | — | — | 10,159 | 424 | 46,015 | |||||||||||||||||||||
Total Revenues | $ | 2,020,854 | $ | 201,834 | $ | 138,985 | $ | 164,203 | $ | 10,159 | $ | 96,421 | $ | 2,632,456 |
(1) Revenues for the three and nine months ended September 30, 2022 have been recast to reflect the breakout of online revenue and management fee revenue from other revenue and the segment changes made during the first quarter of 2023.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of September 30, 2023 and December 31, 2022 and for the three and nine months ended September 30, 2023 and 2022
______________________________________________________________________________________________________
The following table reconciles, for the periods indicated, our Reportable Segments and our Managed & Other category Adjusted EBITDAR to net income, as reported in our accompanying condensed consolidated statements of operations with Adjusted EBITDAR for the three and nine months ended September 30, 2022 recast to reflect the segment changes made during the first quarter of 2023:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(In thousands) | 2023 | 2022 (1) | 2023 | 2022 (1) | ||||||||||||
Adjusted EBITDAR | ||||||||||||||||
Las Vegas Locals | $ | 105,985 | $ | 111,733 | $ | 350,540 | $ | 355,762 | ||||||||
Downtown Las Vegas | 15,857 | 17,704 | 57,876 | 58,216 | ||||||||||||
Midwest & South | 190,588 | 211,292 | 591,105 | 642,351 | ||||||||||||
Online | 11,005 | 6,350 | 45,028 | 22,916 | ||||||||||||
Managed & Other | 18,997 | 12,553 | 60,094 | 17,458 | ||||||||||||
Corporate expense | (21,611 | ) | (21,934 | ) | (65,314 | ) | (66,296 | ) | ||||||||
Adjusted EBITDAR | 320,821 | 337,698 | 1,039,329 | 1,030,407 | ||||||||||||
Other operating costs and expenses | ||||||||||||||||
Deferred rent | 177 | 192 | 531 | 576 | ||||||||||||
Master lease rent expense | 27,236 | 26,828 | 81,163 | 79,788 | ||||||||||||
Depreciation and amortization | 64,797 | 64,956 | 188,577 | 194,191 | ||||||||||||
Share-based compensation expense | 8,033 | 5,653 | 28,050 | 28,486 | ||||||||||||
Project development, preopening and writedowns | 2,405 | 9,645 | (11,268 | ) | 528 | |||||||||||
Impairment of assets | — | 5,575 | 4,537 | 5,575 | ||||||||||||
Other operating items, net | 301 | (12,610 | ) | 959 | (12,324 | ) | ||||||||||
Total other operating costs and expenses | 102,949 | 100,239 | 292,549 | 296,820 | ||||||||||||
Operating income | 217,872 | 237,459 | 746,780 | 733,587 | ||||||||||||
Other expense (income) | ||||||||||||||||
Interest income | (1,585 | ) | (2,073 | ) | (22,445 | ) | (2,976 | ) | ||||||||
Interest expense, net of amounts capitalized | 42,352 | 36,001 | 128,933 | 110,125 | ||||||||||||
Loss on early extinguishments and modifications of debt | — | — | — | 19,809 | ||||||||||||
Other, net | (30 | ) | 170 | 596 | 3,667 | |||||||||||
Total other expense, net | 40,737 | 34,098 | 107,084 | 130,625 | ||||||||||||
Income before income taxes | 177,135 | 203,361 | 639,696 | 602,962 | ||||||||||||
Income tax provision | (41,902 | ) | (46,359 | ) | (112,278 | ) | (136,269 | ) | ||||||||
Net income | $ | 135,233 | $ | 157,002 | $ | 527,418 | $ | 466,693 |
(1) Adjusted EBITDAR for the three and nine months ended September 30, 2022 has been recast to reflect the segment changes made during the first quarter of 2023.
For purposes of this presentation, corporate expense excludes its portion of share-based compensation expense. Corporate expense represents unallocated payroll, professional fees, rent, aircraft expenses and various other expenses that are not directly related to our casino, hotel and online operations.
Total Reportable Segment Assets
The Company's assets by Reportable Segment and Managed & Other category consisted of the following amounts with assets as of December 31, 2022 recast to reflect the segment changes made during the first quarter of 2023:
September 30, | December 31, | |||||||
(In thousands) | 2023 | 2022 | ||||||
Assets | ||||||||
Las Vegas Locals | $ | 1,612,047 | $ | 1,613,553 | ||||
Downtown Las Vegas | 291,815 | 265,876 | ||||||
Midwest & South | 3,759,733 | 3,745,476 | ||||||
Online | 223,566 | 226,800 | ||||||
Managed & Other | 154,187 | 207,962 | ||||||
Corporate | 270,263 | 251,460 | ||||||
Total Assets | $ | 6,311,611 | $ | 6,311,127 |
NOTE 11. SUBSEQUENT EVENTS
We have evaluated all events or transactions that occurred after September 30, 2023. During this period, up to the filing date, we did not identify any subsequent events, the effects of which would require disclosure or adjustment to our financial position or results of operations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview
Boyd Gaming Corporation (and together with its subsidiaries, the "Company", "Boyd", "Boyd Gaming", "we" or "us") was incorporated in the state of Nevada in 1988 and has been operating since 1975. The Company's common stock is traded on the New York Stock Exchange under the symbol "BYD".
We are a geographically diversified operator of 28 gaming entertainment properties. Headquartered in Las Vegas, Nevada, we have gaming operations in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana, Mississippi, Missouri, Ohio and Pennsylvania. In addition, we own and operate Boyd Interactive, a business-to-business ("B2B") and business-to-consumer ("B2C") online casino gaming business. We also manage the Sky River Casino located in California under a management agreement with Wilton Rancheria. During the first quarter of 2023, the Company evaluated its reportable segments and changed them from three reportable segments consisting of: (i) Las Vegas Locals; (ii) Downtown Las Vegas; and (iii) Midwest & South, to the following four reportable segments: (i) Las Vegas Locals; (ii) Downtown Las Vegas; (iii) Midwest & South; and (iv) Online, (collectively "Reportable Segments"). This change reflects the growth of the Company beyond its traditional wholly owned gaming entertainment properties and the increasing importance to the Company of other growth sources. The Online segment includes the operating results of our online gaming operations through collaborative arrangements with third parties throughout the United States and the operations from our recent acquisition of Pala Interactive, LLC ("Pala Interactive") and Pala Interactive Canada Inc. (individually and collectively rebranded, "Boyd Interactive") on November 1, 2022, and such operating results were previously included with the Midwest & South segment. To reconcile Reportable Segments information to the condensed consolidated information, the Company has aggregated nonreportable operating segments into a Managed & Other category. The Managed & Other category includes management fees earned under our management contract with Wilton Rancheria for the management of Sky River Casino in northern California and the operating results of Lattner Entertainment Group Illinois, LLC, our Illinois distributed gaming operator ("Lattner"). These nonreportable operating segments were previously aggregated with our Midwest & South segment. The table below lists the Reportable Segment classification of each of our gaming entertainment properties that were aggregated based on their similar economic characteristics, types of customers, types of services and products provided, the regulatory environments in which they operate and their management and reporting structure.
Las Vegas Locals |
||
Gold Coast Hotel and Casino |
Las Vegas, Nevada |
|
The Orleans Hotel and Casino |
Las Vegas, Nevada |
|
Sam's Town Hotel and Gambling Hall |
Las Vegas, Nevada |
|
Suncoast Hotel and Casino |
Las Vegas, Nevada |
|
Eastside Cannery Casino and Hotel (1) |
Las Vegas, Nevada |
|
Aliante Casino + Hotel + Spa |
North Las Vegas, Nevada |
|
Cannery Casino Hotel |
North Las Vegas, Nevada |
|
Jokers Wild |
Henderson, Nevada |
|
Downtown Las Vegas |
||
California Hotel and Casino |
Las Vegas, Nevada |
|
Fremont Hotel & Casino |
Las Vegas, Nevada |
|
Main Street Station Hotel and Casino |
Las Vegas, Nevada |
|
Midwest & South |
||
Par-A-Dice Casino |
East Peoria, Illinois |
|
Belterra Casino Resort (2) |
Florence, Indiana |
|
Blue Chip Casino Hotel Spa |
Michigan City, Indiana |
|
Diamond Jo Casino |
Dubuque, Iowa |
|
Diamond Jo Worth |
Northwood, Iowa |
|
Kansas Star Casino |
Mulvane, Kansas |
|
Amelia Belle Casino |
Amelia, Louisiana |
|
Delta Downs Racetrack Hotel & Casino |
Vinton, Louisiana |
|
Evangeline Downs Racetrack & Casino |
Opelousas, Louisiana |
|
Sam's Town Shreveport |
Shreveport, Louisiana |
|
Treasure Chest Casino |
Kenner, Louisiana |
|
IP Casino Resort Spa |
Biloxi, Mississippi |
|
Sam's Town Hotel and Gambling Hall Tunica |
Tunica, Mississippi |
|
Ameristar Casino * Hotel Kansas City (2) |
Kansas City, Missouri |
|
Ameristar Casino * Resort * Spa St. Charles (2) |
St. Charles, Missouri |
|
Belterra Park (2) |
Cincinnati, Ohio |
|
Valley Forge Casino Resort |
King of Prussia, Pennsylvania |
(1) Due to the current levels of demand in the market, Eastside Cannery remains closed since it was closed on March 18, 2020, in compliance with orders issued by state officials as precautionary measures intended to slow the spread of the COVID-19 virus.
(2) Property is subject to a master lease agreement with a real estate investment trust.
We also own a travel agency and a captive insurance company that underwrites travel-related insurance, each located in Hawaii. As our Downtown Las Vegas properties cater to the Hawaiian market, financial results for these operations are included in our Downtown Las Vegas segment.
Most of our gaming entertainment properties also include hotel, dining, sportsbook, retail and other amenities. Our main business emphasis is on slot revenues, which are highly dependent upon the number of visits and spending levels of customers at our properties.
Our gaming entertainment properties have historically generated significant operating cash flow, with the majority of our revenue being cash-based. While we do provide casino credit and the ability to transfer digital funds from the players' cashless wallet "BoydPay", subject to certain gaming regulations and jurisdictions, most of our customers wager with cash and pay for non-gaming services with cash or by credit card.
Our industry is capital intensive, and we rely heavily on the ability of our gaming entertainment properties to generate operating cash flow to fund maintenance capital expenditures, fund acquisitions, provide excess cash for future development, repay debt financing and associated interest costs, repurchase our debt or equity securities, and pay income taxes and dividends.
Our Strategy
Our strategy is to increase shareholder value by pursuing strategic initiatives that improve and grow our business.
Growing Revenues and Operating Efficiently
We are committed to growing revenues and building loyalty among core customers through targeted marketing investments and a focus on maximizing gaming revenues while operating as efficiently as possible.
Balance Sheet Strength
We are committed to maintaining a strong balance sheet and finding opportunities to diversify and increase our cash flow. We intend to take a balanced approach to our cash flows, with a current emphasis on investing in our business and returning capital to shareholders.
Environmental, Social and Governance ("ESG") Commitment
We fulfill our commitment to ESG through four core pillars: Environment, People, Communities and Corporate Governance. We are committed to the well-being of our communities and future generations through reducing our carbon footprint and economic contributions, strive to be an employer of choice where every team member is treated with dignity and respect, and conduct business with the highest level of integrity.
Evaluating Acquisition Opportunities
Our evaluations of potential investments and growth opportunities are strategic, deliberate, and disciplined. Our goal is to identify and pursue opportunities that grow our business, are available at the right price and deliver a solid return for shareholders. These investments can take the form of expanding and enhancing offerings and amenities at existing properties, development of new properties, expanding and enhancing online sports wagering and online casino offerings as they are legalized in and around the states we operate today, and asset acquisitions.
Maintaining Our Brand
The ability of our team members to deliver great customer service helps distinguish our Company and our brands from our competitors. Our team members are an important reason that our customers continue to choose our properties over the competition across the country. In addition, we have established nationwide branding and a loyalty program. Our players use their "Boyd Rewards" cards to earn and redeem points at all of our gaming entertainment properties and online casino gaming offerings. The "Boyd Rewards" club, among other benefits, rewards players for their loyalty by entitling them to qualify for promotions, earn rewards toward gaming and nongaming activities and receive benefits such as vacations and luxury gifts.
Our Key Performance Indicators
We use several key performance measures to evaluate the operations of our gaming entertainment properties. These key performance measures include the following:
• |
Gaming revenue measures: slot handle, which means the dollar amount wagered in slot machines, and table game drop, which means the total amount of cash, including digital funds transferred from the players' cashless wallet "BoydPay", deposited in table games drop boxes, plus the sum of markers issued at all table games, are measures of volume and/or market share. Slot win and table game hold, which mean the difference between customer wagers and customer winnings on slot machines and table games, respectively, represent the amount of wagers retained by us and recorded as gaming revenues. Slot win percentage and table game hold percentage, which are not fully controllable by us, represent the relationship between slot handle to slot win and table game drop to table game hold, respectively. |
• |
Food & beverage revenue measures: average guest check, which means the average amount spent per customer visit and is a measure of volume and product offerings; number of guests served ("food covers"), which is an indicator of volume; and the cost per guest served, which is a measure of operating margin. |
• |
Room revenue measures: hotel occupancy rate, which measures the utilization of our available rooms; and average daily rate ("ADR"), which is a price measure; and the cost per room, which is a measure of operating margin. |
RESULTS OF OPERATIONS
Overview
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
(In millions) |
2023 |
2022 |
2023 |
2022 |
||||||||||||
Total revenues |
$ | 903.2 | $ | 877.3 | $ | 2,784.1 | $ | 2,632.5 | ||||||||
Operating income |
217.9 | 237.5 | 746.8 | 733.6 | ||||||||||||
Net income |
135.2 | 157.0 | 527.4 | 466.7 |
Total Revenues
Total revenues for the three months ended September 30, 2023 increased by $25.9 million, or 3.0%, compared to the prior year comparable period, primarily due to an increase in our online revenues of $37.9 million, including an increase of $26.2 million over the prior year comparable period of revenues from reimbursements of gaming taxes and other expenses paid on behalf of our online partners. Total revenues for the nine months ended September 30, 2023, increased $151.6 million, or 5.8%, as compared to the prior year comparable period primarily due to an increase in our online revenue of $134.0 million, including an increase of $95.5 million over the prior year comparable period of revenues from reimbursements of gaming taxes and other expenses paid on behalf of our online partners. Online revenues increased year over year due primarily to: (i) the launch of online gaming in Ohio in January 2023; (ii) the increase in revenues from reimbursements of gaming taxes and other expenses, as discussed above; (iii) organic growth in Pennsylvania as the online market continues to mature; and (iv) the acquisition on November 1, 2022, of Pala Interactive, our online gaming technology company that provides proprietary solutions on both a B2B and B2C basis. Other than our online operations in Pennsylvania, there was not any revenue associated with these new markets and business for the three and nine months ended September 30, 2022. Additionally, during the three and nine months ended September 30, 2023, we earned $17.2 million and $54.6 million, respectively, in management fees related to our management agreement with Wilton Rancheria. As Sky River Casino opened on August 15, 2022, there was only $10.2 million of revenue associated with this management agreement for both the three and nine months ended September 30, 2022. Offsetting the increase in online revenue and Sky River Casino management fee income, is a decline of $26.8 million and $54.6 million in gaming revenue for the three and nine months ended September 30, 2023, respectively, as compared to prior year comparable periods. The decline in gaming revenue is primarily due to softness in retail play throughout all three of our gaming entertainment property segments that became more prominent starting in the fourth quarter of the prior year as the retail player is generally more sensitive to changes in the economy. In addition, we had a strong prior year comparable period, particularly in Las Vegas, for the nine months ended September 30, 2023, as Las Vegas benefited from the lifting of mask mandates and COVID restrictions during the prior year second quarter, which was the first full quarter without restrictions since the COVID closures in 2020.
Operating Income
Operating income decreased by $19.6 million, or 8.2%, for the three months ended September 30, 2023, compared to the prior year comparable period. While revenues grew by $25.9 million during the three months ended September 30, 2023, $26.2 million of the revenue growth is due to reimbursements of gaming taxes and other expenses paid on behalf of our online partners that results in zero operating income as an equal amount of the reimbursement is also recorded as expense. Operating income was favorably impacted during the three months ended September 30, 2022 by a $12.6 million one-time gain from insurance proceeds received in the third quarter of 2022 related to Hurricane Laura, that was not recurring in the current year. Operating income was further impacted by inflationary impacts and increases in costs including wages, utilities and property insurance costs during the three months ended September 30, 2023 as compared to the prior year comparable period.
Operating income increased $13.2 million, or 1.8%, for the nine months ended September 30, 2023, compared to the prior year comparable period, primarily due to a 5.8% growth in revenues, including a $44.5 million increase in management fees, as discussed above. While an increase in online revenues of $134.0 million contributed to the revenue growth, as noted above, $95.5 million of the revenue growth is due to reimbursements of gaming taxes and other expenses paid on behalf of our online partners that results in zero operating income as an equal amount of the reimbursement is also recorded as expense. Operating income was also favorably impacted by a $20.1 million reduction of the allowance on a note receivable with Wilton Rancheria ("Wilton Note") during the first quarter of 2023 for development advances over the last 10 years as we evaluated the current expected credit losses after an amendment to Wilton's third-party construction loan in March 2023 that allowed for payments to us to begin in March 2023. For the nine months ended September 30, 2022, operating income was favorably impacted by a $12.6 million one-time gain on insurance proceeds received related to Hurricane Laura, that was not recurring in the current year. Operating income for the nine months ended September 30, 2023, as compared to the prior year comparable period, was negatively impacted year over year by a $49.6 million decline in gaming profit due to softness in the retail player and inflationary pressures as discussed above.
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
(In millions) |
2023 |
2022 |
2023 |
2022 |
||||||||||||
REVENUES |
||||||||||||||||
Gaming |
$ | 641.2 | $ | 668.0 | $ | 1,966.2 | $ | 2,020.9 | ||||||||
Food & beverage |
71.0 | 67.8 | 212.9 | 201.8 | ||||||||||||
Room |
48.7 | 46.7 | 148.6 | 139.0 | ||||||||||||
Online |
90.3 | 52.3 | 298.2 | 164.2 | ||||||||||||
Management fee |
17.2 | 10.2 | 54.6 | 10.2 | ||||||||||||
Other |
34.8 | 32.3 | 103.6 | 96.4 | ||||||||||||
Total revenues |
$ | 903.2 | $ | 877.3 | $ | 2,784.1 | $ | 2,632.5 | ||||||||
DEPARTMENTAL OPERATING EXPENSES |
||||||||||||||||
Gaming |
$ | 251.5 | $ | 251.8 | $ | 751.3 | $ | 756.4 | ||||||||
Food & beverage |
59.7 | 58.5 | 177.6 | 169.9 | ||||||||||||
Room |
19.2 | 17.8 | 54.9 | 51.1 | ||||||||||||
Online |
79.1 | 45.8 | 252.5 | 140.7 | ||||||||||||
Other |
11.5 | 11.4 | 34.1 | 34.0 | ||||||||||||
Total departmental operating expenses |
$ | 421.0 | $ | 385.3 | $ | 1,270.4 | $ | 1,152.1 | ||||||||
MARGINS |
||||||||||||||||
Gaming |
60.8 | % | 62.3 | % | 61.8 | % | 62.6 | % | ||||||||
Food & beverage |
15.9 | % | 13.7 | % | 16.6 | % | 15.8 | % | ||||||||
Room |
60.6 | % | 61.9 | % | 63.1 | % | 63.2 | % | ||||||||
Online |
12.4 | % | 12.4 | % | 15.3 | % | 14.3 | % | ||||||||
Other |
67.0 | % | 64.7 | % | 67.1 | % | 64.7 | % |
Gaming
Gaming revenues are comprised primarily of the net win from our slot machine operations and to a lesser extent from table games win. The decrease in gaming revenues of $26.8 million, or 4.0%, during the three months ended September 30, 2023, compared to the prior year comparable period, was primarily due to declines in slot handle of 3.2%, slot win of 2.5%, table game drop of 4.4% and table game hold of 8.6%. While core customer play was up over the prior year in all three of our gaming entertainment property segments, softness in our retail customer, which is more sensitive to changes in the economy, drove gaming revenue declines year over year.
The decrease in gaming revenues of $54.6 million, or 2.7%, during the nine months ended September 30, 2023, compared to the prior year comparable period, was primarily due to declines in slot handle of 3.1%, slot win of 2.1%, table game drop of 5.2% and table game hold of 7.1%. The decline in gaming revenue is primarily due to softness in the retail customer, as discussed above. In addition, the second quarter of 2022 was particularly strong as Las Vegas benefited from the lifting of mask mandates and COVID restrictions for the first full quarter since the COVID closures in 2020.
Food & Beverage
Food & beverage revenues increased $3.2 million, or 4.7%, during the three months ended September 30, 2023, compared to the prior year comparable period, primarily due to an increase in average guest check of 4.5%. Food and beverage margins increased from 13.7% to 15.9% for the three months ended September 30, 2023, primarily due to the increase in average guest check.
Food & beverage revenues increased $11.1 million, or 5.5%, during the nine months ended September 30, 2023, compared to the prior year comparable period, primarily due to an increase in average guest check of 5.0%. Food & beverage margins increased from 15.8% to 16.6% for the nine months ended September 30, 2023, due to the increase in average guest check.
Room revenues increased $2.0 million, or 4.4%, during the three months ended September 30, 2023, compared to the prior year comparable period, primarily due to an increase in average daily rate of 0.8%. Despite the increase in average daily rate, room margins for the three months ended September 30, 2023, declined due to an increase in cost per room of 8.2% driven primarily by increased wages.
Room revenues increased $9.6 million, or 6.9%, during the nine months ended September 30, 2023, compared to the prior year comparable period, primarily due to an increase in average daily rate of 2.4%. Room margins were essentially flat at 63.1% and 63.2% for the nine months ended September 30, 2023 and 2022, respectively.
Online
Online revenues increased $37.9 million and $134.0 million during the three and nine months ended September 30, 2023, compared to the prior year comparable periods, primarily driven by the launch of online gaming in Ohio in January 2023, organic growth in Pennsylvania and results from Pala Interactive which was acquired in the fourth quarter of 2022, all as discussed above. Online revenues include reimbursements of gaming taxes and other expenses paid on behalf of our online partners which represented $26.2 million and $95.5 million of the increase for the three and nine months ended September 30, 2023, respectively, as compared to the prior year comparable periods.
Management fee
Management fee revenues during the three and nine months ended September 30, 2023 of $17.2 million and $54.6 million, respectively, relates to our management agreement with Wilton Rancheria to manage the Sky River Casino in northern California. The Sky River Casino opened on August 15, 2022, and thus the $10.2 million of management fees earned under this agreement for both the three and nine months ended September 30, 2022, represented less than two months of fees earned in the prior year.
Other
Other revenues relate to patronage visits at the other amenities at our properties, including entertainment and nightclub revenues, retail sales, theater tickets and other venues. Other revenues increased $2.5 million, or 7.9%, and $7.2 million, or 7.5%, during the three and nine months ended September 30, 2023, as compared to the corresponding periods of the prior year. The increase is driven primarily by the Las Vegas Locals segment as tourism and convention business has grown over the prior year comparable periods with the lifting of mask mandates and COVID restrictions in February 2022 in Las Vegas.
Revenues and Adjusted EBITDAR by Reportable Segment
We determine each property's profitability based on Adjusted Earnings Before Interest, Taxes, Depreciation, Amortization and Rent ("Adjusted EBITDAR"), which represents earnings before interest expense, income taxes, depreciation and amortization, deferred rent, master lease rent expense, other operating items, net, share-based compensation expense, project development, preopening and writedown expenses, impairments of assets, loss on early extinguishments and modifications of debt and other items, net, as applicable. Reportable Segment Adjusted EBITDAR is the aggregate sum of the Adjusted EBITDAR for each of the gaming entertainment properties comprising our Las Vegas Locals, Downtown Las Vegas and Midwest & South segments and our Online segment. Results for Downtown Las Vegas include the results of our travel agency and captive insurance company in Hawaii. Results for our nonreportable operating segments, including Lattner and our Sky River Casino management fees are aggregated in the Managed & Other category. Corporate expense represents unallocated payroll, professional fees, rent, aircraft expenses and various other expenses that are not directly related to our casino, hotel and online operations. Furthermore, for purposes of this presentation, corporate expense excludes its portion of share-based compensation expense.
EBITDAR is a commonly used measure of performance in our industry that we believe, when considered with measures calculated in accordance with accounting principles generally accepted in the United States of America ("GAAP"), facilitates comparisons between us and our competitors and provides our investors a more complete understanding of our operating results before the impact of investing transactions, financing transactions and income taxes. Management has historically adjusted EBITDAR when evaluating operating performance because we believe that the exclusion of certain recurring and non-recurring items is necessary to provide a full understanding of our core operating results and as a means to evaluate period-to-period results.
The following table presents total revenues and Adjusted EBITDAR by our Reportable Segments and our Managed & Other category to reconcile to total revenues and total Adjusted EBITDAR:
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
(In millions) |
2023 |
2022 |
2023 |
2022 |
||||||||||||
Total revenues |
||||||||||||||||
Las Vegas Locals |
$ | 221.8 | $ | 225.8 | $ | 693.0 | $ | 689.8 | ||||||||
Downtown Las Vegas |
49.6 | 49.5 | 159.1 | 152.9 | ||||||||||||
Midwest & South |
513.0 | 527.5 | 1,544.1 | 1,579.6 | ||||||||||||
Online |
90.3 | 52.4 | 298.2 | 164.2 | ||||||||||||
Managed & Other |
28.5 | 22.1 | 89.7 | 46.0 | ||||||||||||
Total revenues |
$ | 903.2 | $ | 877.3 | $ | 2,784.1 | $ | 2,632.5 | ||||||||
Adjusted EBITDAR (1) |
||||||||||||||||
Las Vegas Locals |
$ | 106.0 | $ | 111.7 | $ | 350.5 | $ | 355.8 | ||||||||
Downtown Las Vegas |
15.8 | 17.7 | 57.9 | 58.2 | ||||||||||||
Midwest & South |
190.6 | 211.3 | 591.1 | 642.3 | ||||||||||||
Online |
11.0 | 6.3 | 45.0 | 22.9 | ||||||||||||
Managed & Other |
19.0 | 12.6 | 60.1 | 17.5 | ||||||||||||
Corporate expense |
(21.6 | ) | (21.9 | ) | (65.3 | ) | (66.3 | ) | ||||||||
Adjusted EBITDAR |
$ | 320.8 | $ | 337.7 | $ | 1,039.3 | $ | 1,030.4 |
(1) Refer to Note 10, Segment Information, in the notes to the condensed consolidated financial statements (unaudited) for a reconciliation of Adjusted EBITDAR to net income, as reported in accordance with GAAP in our accompanying condensed consolidated statements of operations.
Las Vegas Locals
Total revenues decreased by $4.0 million, or 1.8%, during the three months ended September 30, 2023, as compared to the prior year comparable period, due primarily to a $7.1 million decline in gaming revenues. The decrease in gaming revenues was attributable to declines in table game hold of 6.8%, table game drop of 6.7%, slot handle of 4.3% and slot win of 4.2% over the prior year comparable period. While core guest play grew year over year, softness in play from retail customers drove declines in the current year quarter. Offsetting the decline in gaming revenues were increases in other revenue of $1.5 million, which was primarily driven by increased entertainment, and room revenue of $1.3 million, which was driven by an increase in average daily rate of 0.7% and hotel occupancy rate of 0.6%.
Midwest & South
Total revenues decreased by $14.5 million, or 2.8%, during the three months ended September 30, 2023, as compared to the corresponding period of the prior year, due primarily to an $18.4 million decline in gaming revenues. The decrease in gaming revenues was attributable to declines in table game hold of 10.5%, table game drop of 3.0%, slot handle of 2.7% and slot win of 2.0% over the prior year comparable period. The gaming revenues decline is primarily driven by softness in the retail customer throughout the segment. Offsetting the gaming revenues decline was an increase in food & beverage revenues of $2.6 million, which was driven by a 2.0% increase in average guest check.
Total revenues decreased by $35.5million, or 2.2%, during the nine months ended September 30, 2023, as compared to the corresponding period of the prior year, due primarily to a $46.3 million decline in gaming revenues. The decrease in gaming revenues was attributable to declines in table game hold of 7.0%, table game drop of 2.9%, slot handle of 2.9% and slot win of 2.2% over the prior year comparable period. The gaming revenues decline is driven primarily by our properties in Louisiana and Mississippi and softness in those overall markets, particularly in the first quarter with trends improving sequentially from quarter to quarter, as well as overall softness in the retail customer throughout the segment. Offsetting the gaming revenues decline was an increase in food & beverage revenues of $8.3 million, which was driven by a 3.4% increase in average guest check.
Adjusted EBITDAR decreased by $20.7 million, or 9.8%, and $51.2 million, or 8.0%, during the three and nine months ended September 30, 2023, respectively, as compared to the corresponding prior year periods, due primarily to the gaming revenue declines, as discussed above, as well as inflationary pressures and increased wages, utilities and property insurance costs, as noted above as impacting both Las Vegas segments.
Online
Online revenues increased $37.9 million and $134.0 million, during the three and nine months ended September 30, 2023, respectively, compared to the prior year comparable period, primarily driven by the launch of online gaming in Ohio in January 2023, organic growth in Pennsylvania and results from Pala Interactive which was acquired in the fourth quarter of 2022, all as discussed above. Online revenues include reimbursements of gaming taxes and other expenses paid on behalf of our online partners and represented $26.2 million and $95.5 million of the online revenues increase for the three and nine months ended September 30, 2023, respectively, as compared to the prior year comparable periods.
Adjusted EBITDAR increased by $4.7 million and $22.1 million during the three and nine months ended September 30, 2023, respectively, as compared to the corresponding period of the prior year, due primarily to the increase in revenue, excluding reimbursements of gaming taxes and other expenses paid on behalf of our online partners.
The following costs and expenses, as presented in our condensed consolidated statements of operations, are further discussed below:
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
(In millions) |
2023 |
2022 |
2023 |
2022 |
||||||||||||
Selling, general and administrative |
$ | 99.9 | $ | 93.0 | $ | 299.3 | $ | 280.7 | ||||||||
Master lease rent expense |
27.2 | 26.8 | 81.2 | 79.8 | ||||||||||||
Maintenance and utilities |
41.7 | 40.8 | 115.3 | 108.2 | ||||||||||||
Depreciation and amortization |
64.8 | 65.0 | 188.6 | 194.2 | ||||||||||||
Corporate expense |
27.9 | 26.4 | 88.2 | 90.3 | ||||||||||||
Project development, preopening and writedowns |
2.4 | 9.6 | (11.3 | ) | 0.5 | |||||||||||
Impairment of assets |
— | 5.6 | 4.5 | 5.6 | ||||||||||||
Other operating items, net |
0.3 | (12.6 | ) | 1.0 | (12.3 | ) |
Selling, General and Administrative
During the nine months ended September 30, 2023, as a result of our first quarter impairment review, the Company recorded an impairment charge of $4.5 million for goodwill related to our Managed & Other category. During the three and nine months ended September 30, 2022, the Company recorded an impairment charge of $5.6 million for a trademark related to a property in our Midwest & South segment.
Other operating items, net, is generally comprised of miscellaneous non-recurring operating charges, including severance payments to separated employees, natural disasters and severe weather impact, including hurricane and flood expenses, and subsequent recoveries of such costs, as applicable. During the three and nine months ended September 30, 2022, $12.6 million of other operating items, net, related to a gain from the settlement of our insurance claim for business interruption and lost profits from the closure of Delta Downs for approximately three weeks in August and September 2020 due to Hurricane Laura.
Other Expenses
Interest Expense, net
The following table summarizes information with respect to our interest expense on outstanding indebtedness:
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
(In millions) |
2023 |
2022 |
2023 |
2022 |
||||||||||||
Interest Expense, Net of Capitalized Interest and Interest Income |
$ | 40.8 | $ | 33.9 | $ | 106.5 | $ | 107.1 | ||||||||
Average Long-Term Debt Balance (1) |
2,899.7 | 2,888.1 | 2,966.6 | 2,998.0 | ||||||||||||
Weighted Average Interest Rates |
5.5 | % | 4.4 | % | 5.4 | % | 4.2 | % |
(1) Average debt balance calculation does not include the related discounts or deferred finance charges.
Interest expense, net of capitalized interest and interest income, for the three months ended September 30, 2023, increased $6.8 million, or 20.2%, from the prior year comparable period primarily due to a $6.4 million interest expense increase driven by a 102-basis point increase in the weighted average interest rate and an $11.6 million increase in the weighted average debt balance.
Interest expense, net of capitalized interest and interest income, for the nine months ended September 30, 2023, decreased $0.7 million, or 0.6%, from the prior year comparable period primarily due to a $19.5 million interest income increase driven by a reduction of the allowance for the expected loss for interest on the Wilton Note and interest earned on such note during the nine months ended September 30, 2023. The increase in interest income is offset by an $18.8 million interest expense increase driven by a 119-basis point increase in the weighted average interest rate offset by a $31.4 million decline in the weighted average debt balance.
Loss on Early Extinguishments and Modifications of Debt
During the nine months ended September 30, 2022, the Company incurred $16.5 million in loss on early extinguishments and modifications of debt due to the redemption of $300.0 million of our 8.625% Senior Notes, of which $12.9 million related to premium fees paid and $3.6 million related to the write-off of unamortized deferred finance charges. In addition, during the nine months ended September 30, 2022, the Company incurred $3.3 million in loss on early extinguishments and modifications of debt as a result of entering into a new credit agreement (the "Credit Facility") that replaced the then existing credit agreement. The $3.3 million incurred related to the write-off of unamortized deferred finance charges associated with the portion accounted for as a debt extinguishment.
Income Taxes
The effective tax rates during the nine months ended September 30, 2023 and 2022 were 17.6% and 22.6%, respectively. Our tax rate for the nine months ended September 30, 2023, was favorably impacted by a second quarter 2023 release of state valuation allowances and the inclusion of excess tax benefits which were partially offset by the unfavorable impact of state taxes and certain nondeductible expenses, as a component of the provision for income taxes. Our tax rate for the nine months ended September 30, 2022, was unfavorably impacted by state taxes and certain nondeductible expenses which were partially offset by the inclusion of excess tax benefits, related to equity compensation, as a component of the provision for income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Financial Position
We generally operate with minimal or negative levels of working capital in order to minimize borrowings and related interest costs. At September 30, 2023 and December 31, 2022, we had balances of cash and cash equivalents of $269.2 million and $283.5 million, respectively. In addition, we held restricted cash balances of $2.5 million and $11.6 million at September 30, 2023 and December 31, 2022, respectively. Our working capital deficit at September 30, 2023 and December 31, 2022, was $114.2 million and $107.9 million, respectively.
We believe that current cash balances together with the available borrowing capacity under our Revolving Credit Facility (as defined in "Indebtedness" below) and cash flows from operating activities will be sufficient to meet our liquidity and capital resource needs for the next twelve months, including our projected operating requirements and maintenance capital expenditures. See "Indebtedness", below, for further detail regarding funds available through our Credit Facility.
The Company may also seek to secure additional working capital, repay respective current debt maturities, or fund respective development projects, in whole or in part, through incremental bank financing and additional debt or equity offerings, to the extent such offerings are allowed under our debt agreements.
Cash Flows Summary
Nine Months Ended |
||||||||
September 30, |
||||||||
(In millions) |
2023 |
2022 |
||||||
Net cash provided by operating activities |
$ | 697.3 | $ | 728.0 | ||||
Cash flows from investing activities |
||||||||
Capital expenditures |
(279.0 | ) | (173.0 | ) | ||||
Payments received on note receivable |
82.4 | — | ||||||
Insurance proceeds received for hurricane losses |
— | 0.5 | ||||||
Proceeds received from disposition of assets |
— | 21.4 | ||||||
Other investing activities |
(3.0 | ) | — | |||||
Net cash used in investing activities |
(199.6 | ) | (151.1 | ) | ||||
Cash flows from financing activities |
||||||||
Net borrowings (payments) under credit facilities |
(146.0 | ) | 141.5 | |||||
Retirements of senior notes |
— | (300.0 | ) | |||||
Premium fees |
— | (12.9 | ) | |||||
Debt financing costs |
— | (15.3 | ) | |||||
Share-based compensation activities |
(14.5 | ) | (9.2 | ) | ||||
Shares repurchased and retired |
(312.7 | ) | (434.8 | ) | ||||
Dividends paid |
(47.8 | ) | (32.6 | ) | ||||
Other financing activities |
(0.1 | ) | (1.2 | ) | ||||
Net cash used in financing activities |
(521.1 | ) | (664.5 | ) | ||||
Decrease in cash, cash equivalents and restricted cash |
$ | (23.4 | ) | $ | (87.6 | ) |
Cash Flows from Operating Activities
During the nine months ended September 30, 2023 and 2022, we generated operating cash flows of $697.3 million and $728.0 million, respectively. Operating cash flows for the nine months ended September 30, 2023 declined due to $12.6 million in business interruption insurance proceeds received related to Hurricane Laura during the nine months ended September 30, 2022. Additionally, cash flows decreased over the prior year comparable period due primarily to a $15.3 million increase in income taxes paid and a $21.6 million increase in interest expense paid offset by a $10.8 million increase in interest income received.
Cash Flows from Investing Activities
Our industry is capital intensive and we use cash flows for acquisitions, facility expansions, investments in future development or business opportunities and maintenance capital expenditures.
During the nine months ended September 30, 2023, we incurred net cash outflows for investing activities of $199.6 million comprised of capital expenditures of $279.0 million, primarily related to our Treasure Chest land-based casino project, Fremont food hall and slot floor expansion and renovation, various guest room remodels, IT equipment and building projects at various properties offset by $82.4 million in payments received related to the outstanding principal on the Wilton Note. During the nine months ended September 30, 2022, we incurred net cash outflows for investing activities of $151.1 million comprised of capital expenditures of $173.0 million, primarily related to furniture and equipment purchases and building projects at various properties, offset by $21.4 million in proceeds from disposition of assets.
Cash Flows from Financing Activities
We rely on our financing cash flows to provide funding for investment opportunities, repayments of obligations and ongoing operations.
The net cash outflows from financing activities during the nine months ended September 30, 2023, primarily reflect share repurchases, payments on the outstanding principal under our Credit Facility, share-based compensation and dividends paid. The net cash outflows from financing activities in the nine months ended September 30, 2022, primarily reflect share repurchases, the retirement of the 8.625% Senior Notes, payment of the associated premium fees related to the retirement of the 8.625% Senior Notes, debt financing costs related to the new Credit Facility and dividends paid, offset by an increase in the outstanding principal under the Credit Facility, which was used in part to retire the 8.625% Senior Notes (see "Indebtedness").
Indebtedness
The outstanding principal balances of long-term debt, before unamortized discounts and fees, and the changes in those balances are as follows:
(In millions) |
September 30, 2023 |
December 31, 2022 |
Decrease |
|||||||||
Credit facility |
$ | 1,041.8 | $ | 1,187.8 | $ | (146.0 | ) | |||||
4.750% senior notes due 2027 |
1,000.0 | 1,000.0 | — | |||||||||
4.750% senior notes due 2031 |
900.0 | 900.0 | — | |||||||||
Other |
0.5 | 0.7 | (0.2 | ) | ||||||||
Total long-term debt |
2,942.3 | 3,088.5 | (146.2 | ) | ||||||||
Less current maturities |
44.3 | 44.3 | — | |||||||||
Long-term debt, net of current maturities |
$ | 2,898.0 | $ | 3,044.2 | $ | (146.2 | ) |
Amounts Outstanding
The outstanding principal amounts under the Credit Facility are comprised of the following:
September 30, |
December 31, |
|||||||
(In millions) |
2023 |
2022 |
||||||
Revolving credit facility |
$ | 175.0 | $ | 285.0 | ||||
Term A loan |
814.0 | 847.0 | ||||||
Swing loan |
52.8 | 55.8 | ||||||
Total outstanding principal amounts |
$ | 1,041.8 | $ | 1,187.8 |
With a total revolving credit commitment of $1,450.0 million available under the Credit Facility, $175.0 million and $52.8 million in borrowings outstanding on the Revolving Credit Facility and the Swing Loan, respectively, and $13.4 million allocated to support various letters of credit, there was a remaining contractual availability under the Credit Facility of $1,208.8 million as of September 30, 2023.
The blended interest rate for outstanding borrowings under the Credit Facility was 6.9% at September 30, 2023 and 6.2% at December 31, 2022.
Debt Service Requirements
Debt service requirements for the Term A Loan include amortization in an annual amount equal to 5.00% of the original principal amount thereof, payable on a quarterly basis. Additionally, under the Credit Facility we have monthly to quarterly interest payment obligations, depending on the rates we lock in, for the Term A Loan, unused line interest payments and any outstanding borrowings under the Revolving Credit Facility, including the Swing Loan. Debt service requirements under our current outstanding senior notes consist of semi-annual interest payments (based upon a fixed annual interest rate of 4.750%) and principal repayments of our $1.0 billion aggregate principal amount of 4.750% Senior Notes due 2027 ("4.750% Senior Notes due 2027") and our $0.9 billion aggregate principal amount of 4.750% Senior Notes due 2031 ("4.750% Senior Notes due 2031").
Covenant Compliance
As of September 30, 2023, we were in compliance with the financial covenants of our debt instruments.
The indentures governing the senior notes contain provisions that allow for the incurrence of additional indebtedness, if after giving effect to such incurrence, the fixed charge coverage ratio (as defined in the respective indentures, which is a ratio of our consolidated EBITDA to fixed charges, including interest) for the trailing four quarter period on a pro forma basis would be at least 2.0 to 1.0. Should this provision prohibit the incurrence of additional debt, we may still borrow under our existing Credit Facility to the extent that borrowing capacity remains under that agreement, as well as from other funding sources as provided under our debt agreements.
Guarantor Financial Information
In connection with the issuance of our 4.750% Senior Notes due 2027 and our 4.750% Senior Notes due 2031 (collectively, the "Guaranteed Notes" or "Senior Notes"), certain of the Company's wholly owned subsidiaries (the "Guarantors") provide guarantees of those indentures. These Guaranteed Notes are fully and unconditionally guaranteed, on a joint and several basis, by certain of our current and future domestic restricted subsidiaries, all of which are 100% owned by us.
Summarized combined balance sheet information for the parent company and the Guarantors is as follows:
September 30, |
December 31, |
|||||||
(In millions) |
2023 |
2022 |
||||||
Current assets |
$ | 435.0 | $ | 443.7 | ||||
Noncurrent assets |
9,418.7 | 8,767.9 | ||||||
Current liabilities |
525.5 | 534.2 | ||||||
Noncurrent liabilities |
3,960.4 | 4,136.8 |
Summarized combined results of operations for the parent company and the Guarantors is as follows:
Nine Months Ended |
||||
(In millions) |
September 30, 2023 |
|||
Revenues |
$ | 2,755.7 | ||
Operating income |
1,312.8 | |||
Income before income taxes |
1,184.4 | |||
Net income |
1,091.3 |
Share Repurchase Program
On October 21, 2021, our Board of Directors authorized a share repurchase program of $300.0 million (the "Share Repurchase Program"). In addition, our Board of Directors authorized increases to the Share Repurchase Program of $500.0 million on June 1, 2022, and $500.0 million on May 4, 2023. As of September 30, 2023, we were authorized to repurchase up to an additional $426.3 million in shares of our common stock under the Share Repurchase Program. We repurchased 1.6 million and 2.5 million shares during the three months ended September 30, 2023 and 2022, respectively, and 4.8 million and 7.6 million shares during the nine months ended September 30, 2023 and 2022, respectively.
Subject to applicable corporate securities laws, repurchases under the Share Repurchase Program may be made at such times and in such amounts as we deem appropriate. We are subject to certain limitations regarding the repurchase of common stock, such as restricted payment limitations related to our outstanding Senior Notes and our Credit Facility. We are not obligated to repurchase any shares under this program, and purchases under the Share Repurchase Program can be discontinued at any time at our sole discretion. We intend to fund the repurchases under the Share Repurchase Program with existing cash resources, cash generated from operations and availability under our Credit Facility.
We have in the past, and may in the future, acquire our debt or equity securities, through open market purchases, privately negotiated transactions, tender offers, exchange offers, redemptions or otherwise, upon such terms and at such prices as we may determine.
Quarterly Dividend Program
On February 3, 2022, the Company announced that its Board of Directors had authorized the reinstatement of the Company's cash dividend program.
The dividends declared by the Board of Directors under this program are:
Declaration date |
Record date |
Payment date |
Amount per share |
|||||
February 3, 2022 |
March 15, 2022 |
April 15, 2022 |
$ | 0.15 | ||||
June 1, 2022 |
June 30, 2022 |
July 15, 2022 |
0.15 | |||||
September 15, 2022 |
September 30, 2022 |
October 15, 2022 |
0.15 | |||||
December 8, 2022 |
December 19, 2022 |
January 15, 2023 |
0.15 | |||||
February 14, 2023 |
March 15, 2023 |
April 15, 2023 |
0.16 | |||||
May 4, 2023 |
June 15, 2023 |
July 15, 2023 |
0.16 | |||||
August 15, 2023 |
September 15, 2023 |
October 15, 2023 |
0.16 |
Other Items Affecting Liquidity
We anticipate funding our capital requirements using cash on hand, cash being generated from our operations and availability under our Credit Facility, to the extent borrowing capacity exists after we meet our working capital needs for the next twelve months. Any additional financing that is needed may not be available to us or, if available, may not be on terms favorable to us. The outcome of the specific matters discussed herein, including our commitments and contingencies, may also affect our liquidity.
Commitments
Capital Spending and Development
We currently estimate that our annual cash capital requirements to perform ongoing refurbishment and maintenance at our properties is approximately $240 million to $260 million. We fund our capital expenditures through cash on hand, operating cash flows and our Credit Facility.
In addition to the maintenance capital spending discussed above, we continue to pursue other potential development projects that may require us to invest significant amounts of capital, including construction of a land-based facility at Treasure Chest which will replace our existing riverboat and renovating the Fremont slot floor, the last phase of the Fremont project. Both of these projects are in addition to our maintenance capital spending, and we expect to spend $100 million during 2023 related to these projects.
Other Opportunities
We regularly investigate and pursue additional expansion opportunities in markets where casino gaming is currently permitted. We also pursue expansion opportunities in jurisdictions where casino and online gaming is not currently permitted in order to be prepared to develop projects upon approval of casino or online gaming. Such expansions will be affected and determined by several key factors, which may include the following:
• |
the outcome of gaming license selection processes; |
|
• |
the approval of gaming in jurisdictions where we have been active but where casino or online gaming is not currently permitted; |
|
• |
identification of additional suitable investment opportunities in current gaming jurisdictions; and |
|
• |
availability of acceptable financing. |
Additional projects may require us to make substantial investments or may cause us to incur substantial costs related to the investigation and pursuit of such opportunities, which we may fund through cash flow from operations or availability under our Credit Facility. To the extent such sources of funds are not sufficient, we may also seek to raise additional funds through public or private equity or debt financings or from other sources to the extent such financing is available.
Contingencies
Legal Matters
We are parties to various legal proceedings arising in the ordinary course of business. We believe that all pending claims, if adversely decided, would not have a material effect on our business, financial position, results of operations or cash flows.
Off Balance Sheet Arrangements
There have been no material changes to our off balance sheet arrangements described under Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 24, 2023.
Critical Accounting Estimates
There have been no material changes to our critical accounting policies described under Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 24, 2023.
Recently Issued Accounting Pronouncements
For information with respect to recent accounting pronouncements and the impact of these pronouncements on our condensed consolidated financial statements, see Note 1, Summary of Significant Accounting Policies - Recently Issued Accounting Pronouncements, in the notes to the condensed consolidated financial statements (unaudited).
Important Information Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such statements contain words such as "may," "will," "might," "expect," "believe," "anticipate," "could," "would," "estimate," "pursue," "target," "project," "intend," "plan," "seek," "should," "assume," and "continue," or the negative thereof or comparable terminology. Forward-looking statements involve certain risks and uncertainties, and actual results may differ materially from those discussed in any such statement. Factors that could cause actual results to differ materially from such forward-looking statements include:
• | the general effect, and expectation, of the national and global economy on our business, including but not limited to interest rates and inflationary pressures, as well as the economies where each of our properties are located; | |
• | the factors that contribute to our ongoing success and our ability to be successful in the future; | |
• | impacts caused by the COVID-19 pandemic or any other public health emergencies we may encounter; | |
• | our business model, areas of focus and strategy for driving business results; | |
• | competition, including expansion of gaming into additional markets including online gaming, the impact of competition on our operations, our ability to respond to such competition, and our expectations regarding continued competition in the markets in which we compete; | |
• | our ability to maintain the integrity of our information technology systems and to protect our internal information; | |
• |
indebtedness, including our ability to refinance or pay amounts outstanding under our credit agreement and our unsecured notes, when they become due and our compliance with related covenants, and our expectation that we will need to refinance all or a portion of our respective indebtedness at or before maturity; | |
• |
our expectation regarding the trends that will affect the gaming industry over the next few years and the impact of these trends on growth of the gaming industry, future development opportunities and merger and acquisition activity in general; |
|
• |
our intention to pursue expansion opportunities, including acquisitions, that are a good fit for our business, deliver a solid return for stockholders, and are available at the right price; |
|
• |
that our credit agreement and our cash flows from operating activities will be sufficient to meet our respective projected operating and maintenance capital expenditures for the next twelve months; |
• |
our belief that all pending litigation claims, if adversely decided, will not have a material effect on our business, financial position, results of operations or cash flows; | |
• |
our estimates and expectations regarding anticipated taxes, tax credits or tax refunds; | |
• |
our compliance with government regulations, including our ability to receive and maintain necessary approvals for our projects; | |
• |
our expectations regarding the expansion of sports betting and online wagering; | |
• |
our asset impairment analyses and our intangible asset and goodwill impairment tests; |
|
• |
the likelihood of interruptions to our rights in the land we lease under long-term leases for certain of our hotels and casinos; |
|
• |
that estimates and assumptions made in the preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles may differ from actual results; and | |
• |
our estimates as to the effect of any changes in our Consolidated EBITDA on our ability to remain in compliance with certain covenants in the credit agreement. |
Additional factors that could cause actual results to differ are discussed in Part I. Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2022, and in other current and periodic reports filed from time to time with the SEC. All forward-looking statements in this document are made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. We do not hold any market risk sensitive instruments for trading purposes. Our primary exposure to market risk is interest rate risk, specifically long-term U.S. treasury rates and the applicable spreads in the high-yield investment market, short-term and long-term SOFR rates, and their potential impact on our long-term debt. We are exposed to a lesser extent to foreign currency exchange risk for funds held in our Canadian operating and restricted cash accounts. While there is risk of fluctuations in the foreign exchange rate between the Canadian dollar and US dollar, our exposure is limited given the size of our Canadian operations and the minimal amount of cash held in Canadian bank accounts. A weakening or strengthening of the US dollar to the Canadian dollar by 2x the current conversion rate, would not cause the value of the funds held in the Canadian operating and restricted cash accounts to change significantly. We do not currently utilize derivative financial instruments for trading or speculative purposes.
As of September 30, 2023, our long-term variable-rate borrowings represented approximately 35.4% of total long-term debt. Based on September 30, 2023 debt levels, a 100 basis point change in the interest rate would cause our annual interest costs on variable-rate borrowings to change by approximately $10.4 million. We believe there have been no other material changes in our exposure to market risks as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 24, 2023.
See also "Liquidity and Capital Resources" above.
Item 4. Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q (the "Report"), we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on the evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Report.
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.
We are parties to various legal proceedings arising in the ordinary course of business. We believe that all pending claims, if adversely decided, would not have a material adverse effect on our business, financial position, results of operations or cash flows.
There were no material changes from the risk factors previously disclosed in Part I. Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 24, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table discloses share repurchases that we have made pursuant to our share repurchase program during the three months ended September 30, 2023.
Period |
Total Number of Shares Purchased (1) |
Average Price Paid Per Share |
Total Number of Shares Purchased as Part of a Publicly Announced Plan |
Approximate Dollar Value That May Yet Be Purchased Under the Plan |
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July 1, 2023 through July 31, 2023 |
— | $ | — | — | $ | 532,607,760 | ||||||||||
August 1, 2023 through August 31, 2023 |
864,583 | 66.53 | 864,583 | 475,086,710 | ||||||||||||
September 1, 2023 through September 30, 2023 |
763,194 | 63.92 | 763,194 | 426,306,209 | ||||||||||||
Total |
1,627,777 | $ | 65.30 | 1,627,777 | $ | 426,306,209 |
(1) All shares repurchased are covered by our share repurchase program as approved by our Board of Directors (the "Share Repurchase Program"). The Board of Directors approved $300.0 million for our Share Repurchase Program on October 21, 2021, and an additional $500.0 million to the Share Repurchase Program on each of June 1, 2022 and May 4, 2023 for a total authorization of $1.3 billion. The Share Repurchase Program has no expiration date.
of the Company’s directors or officers adopted, modified or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company’s fiscal quarter ended September 30, 2023, as such terms are defined under Item 408(a) of Regulation S-K.
Exhibits |
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Document of Exhibit |
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Method of Filing |
22 | List of Guarantor Subsidiaries of Boyd Gaming Corporation. | Incorporated by reference to Exhibit 22 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 24, 2023 | ||
31.1 |
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Filed electronically herewith |
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31.2 |
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Filed electronically herewith |
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32.1 |
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Furnished electronically herewith |
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32.2 |
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Furnished electronically herewith |
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101 |
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The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022, (iii) Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 and 2022, (iv) Condensed Consolidated Statements of Changes in Stockholders' Equity for each of the quarters within the nine months ended September 30, 2023 and 2022, (v) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022, and (vi) Notes to Condensed Consolidated Financial Statements. |
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Filed electronically herewith |
104 | Inline XBRL for cover page of the Company's Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set. |
Filed electronically herewith |
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 1, 2023.
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BOYD GAMING CORPORATION |
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By: |
/s/ Lori M. Nelson |
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Lori M. Nelson |
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Senior Vice President Financial Operations and Reporting and |
Chief Accounting Officer |