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Boyd Gaming Corporation (BYD) Q4 2023 Earnings Call Transcript

Boyd Gaming Corporation (BYD)

Q4 2023 Earnings Conference Call

Company Participants

David Strow - Vice President, Corporate Communications

Keith Smith - President and Chief Executive Officer

Josh Hirsberg - Executive Vice President and Chief Financial Officer

Conference Call Participants

Steve Wieczynski - Stifel

Carlo Santarelli - Deutsche Bank

Joe Greff - JPMorgan

Barry Jonas - Truist

Dan Politzer - Wells Fargo

Jordan Bender - JMP

Shaun Kelley - Bank of America

David Katz - Jefferies

Brandt Montour - Barclays

Chad Beynon - Macquarie

Joe Stauff - Susquehanna

John DeCree - CBRE

Stephen Grambling - Morgan Stanley

Presentation

David Strow

Good afternoon, and welcome to the Boyd Gaming Fourth Quarter and Full Year 2023 Conference Call. My name is David Strow, Vice President of Corporate Communications for Boyd Gaming. I will be the moderator for today's call, which is being recorded on Thursday, February 8, 2024. At this time, all lines are in listen-only mode. Following our remarks, we will conduct a question-and-answer session. [Operator Instructions]

Our speakers for today's call are Keith Smith, President and Chief Executive Officer, and Josh Hirsberg, Executive Vice President and Chief Financial Officer.

Our comments today will include statements that are forward-looking statements within the Private Securities Litigation Reform Act. All forward-looking statements in our comments are as of today's date, and we undertake no obligation to update or revise the forward-looking statements. Actual results may differ materially from those projected in any forward-looking statement. There are certain risks and uncertainties, including those disclosed in our filings with the SEC that may impact our results.

During our call today, we will make reference to non-GAAP financial measures. For a complete reconciliation of historical non-GAAP to GAAP financial measures, please refer to our earnings press release and our Form 8-K furnished to the SEC today, both of which are available at investors.boydgaming.com. We do not provide a reconciliation of forward-looking non-GAAP financial measures due to our inability to project special charges and certain expenses.

Today's call is being webcast live at boydgaming.com and will be available for replay in the Investor Relations section of our website shortly after the completion of this call.

So with that, I would now like to turn the call over to Keith Smith. Keith?

Keith Smith

Thanks, David, and good afternoon, everyone.

2023 was another great year for our company as we continue to build upon the record performances we have delivered over each of the last several years. We achieved full year records for both revenues and EBITDAR with operating margins remaining well above historical levels. 2023 was the third consecutive year we set revenue and EBITDAR records on a full year basis.

This full year performance is a tribute to our diversified portfolio with strong growth from both our Online and Managed businesses. This growth was complemented by stable revenues from our property operations as we saw continued strength in play from our core customers and growth in our non-gaming business.

And we finished the year strong with a solid fourth quarter performance. During the fourth quarter, company-wide revenues rose 3% to $954 million, driven by growth in our Online segment. EBITDAR for the quarter was $355 million, down slightly from a record fourth quarter last year.

Looking at property operations, gaming revenues for the fourth quarter were down less than 1%, a notable improvement from the last several quarters. During the quarter, play from our core customers grew at the strongest rate of the year. While this growth was offset by lower retail play, the year-over-year decline in retail play was the smallest we have seen since the first quarter of 2023. And non-gaming revenue for the quarter continued to grow, rising 1.5% over prior year. Property-level operating margins for the quarter exceeded 40%. This is in-line with the margins we have delivered over the last three years, reflecting our team's ability to operate efficiently through a variety of economic conditions.

Now, moving to results for each segment. In our Las Vegas Locals segment, both revenue and EBITDAR for the fourth quarter were in-line with our expectations. Play from our core customers grew at a rate similar to the third quarter, demonstrating the continued strength of this customer segment. Retail play was also sequentially consistent with third quarter levels. Our non-gaming business continues to perform well with hotel revenues up 4% during the quarter. Finally, our property teams did an excellent job managing expenses in a difficult environment with margins once again exceeding 50% in our Locals operations in the fourth quarter.

Looking ahead to 2024 in our Locals segment, recall that we produced a record first quarter performance last year, so we are facing tougher year-over-year comparisons. In addition, we also expect to see some impact from the recent opening of a new competitor in the Las Vegas Locals market and a room remodel project at our Gold Coast Hotel. Having said this, we are encouraged the customer trends in the Las Vegas Locals segment are holding steady so far in the first quarter, with overall play volumes looking similar to fourth quarter levels through early February.

Moving next to Downtown Las Vegas, revenues rose slightly while EBITDAR equaled last year's record fourth quarter performance. These results benefited from the completion of construction projects at both Main Street Station and the Fremont during the quarter. While these construction projects impacted our Downtown results throughout most of the year, these investments are beginning to pay off. The Fremont performed at record levels during the fourth quarter, while Main Street had its best quarterly performance of 2023. Our Downtown segment also saw solid growth in play from our core customers during the quarter, while retail play also rose. Looking ahead, we are optimistic about the direction of our Downtown Las Vegas segment. With our construction projects now complete and the Fremont performing at record levels, our Downtown Las Vegas business is poised for healthy growth in 2024.

Our optimism for our Las Vegas operations is supported by the continued strength of the Southern Nevada economy. In the near term, we are excited about Las Vegas' first Super Bowl this weekend as we are experiencing strong demand in cash hotel business at both our Locals and Downtown properties. In the longer term, the direction of the tourism sector remains vibrant with nearly 41 million people visiting Nevada in 2023, exceeding the prior year by more than 5%. Gaming revenues in Southern Nevada reached a record $13.5 billion in 2023, a 5.5% increase over 2022. And convention business was up 20% in 2023, about 10% below its all-time high in 2019. Average daily room rates continue to trend higher, increasing 12% for the year across the Southern Nevada market. And more than 57 million people passed through the Las Vegas airport last year, topping the record set in 2022 by more than 9%.

But the strength of the Southern Nevada economy goes beyond tourism. Of the nation's 30 largest metro areas, Las Vegas ranked #1 for job creation last year, with total employment rising more than 4% in 2023. This employment growth was broad based with growth across eight of 11 major job sectors. And with billions of dollars in projects under development across the Las Vegas Valley, the construction sector continues to serve as an economic engine for the Southern Nevada economy.

Moving outside of Nevada, our Midwest & South segment returned to growth in the fourth quarter. Both revenue and EBITDAR increased over the prior year, with operating margins of more than 38%. Gaming revenues were essentially even with the prior year, the strongest quarterly performance we saw from our Midwest & South segment all year. And we saw encouraging results from the various property investments we made in 2023. Our new amenities have been well received by customers and helped drive a 4% increase in food and beverage revenue during the quarter. Looking ahead, the first quarter results have been impacted by January's severe winter weather. But with these storms now passed, customer trends over the past two weeks have rebounded to fourth quarter levels, giving us optimism in the direction of this business.

Next, in our Online segment, revenue and EBITDAR growth in the fourth quarter was primarily driven by the introduction of sports betting in Ohio in early 2023. On a full year basis, our Online segment performed in-line with our earlier estimates with total EBITDAR of $62 million for 2023. Looking ahead, we expect the Online segment to maintain this level of performance in 2024 with $60 million to $65 million in full year EBITDAR as no new sports betting markets are expected to come online this year.

And finally, our Managed & Other business produced another strong quarterly performance. Both revenue and EBITDAR grew over prior year in the fourth quarter, thanks to continued strong results at Sky River in Northern California. For the full year, this segment generated EBITDAR of $84 million, including management fees earned from Sky River. In 2024, we expect our Managed & Other business will maintain its current level of performance with full year EBITDAR of approximately $85 million, driven mainly by Sky River. And given the strong performance of Sky River, the Wilton Rancheria Tribe is exploring significant expansion of the property, including additional casino space, a hotel tower and meeting and convention facilities. While plans have not been finalized, we are optimistic about the long-term growth potential of this property.

So in all, the fourth quarter of 2023 was a strong close to another record year for our company, with continued strength from our core customers, solid growth from our Online and Managed businesses, and strong returns from our recent property investments. The property investments we've been making are improving the customer experience, supporting growth in play from our core customers and driving increased visitation throughout the business.

After opening nearly a dozen new or upgraded restaurants and bars across the country in 2023 and completing casino renovations at the Fremont, we plan to renovate or upgrade a similar number of food and beverage outlets in 2024. Beyond these investments in our food and beverage offerings, we plan to renovate hotel rooms at the Gold Coast, Blue Chip, Ameristar St. Charles and Valley Forge in 2024. This follows the completion of our room remodel project at Main Street Station in late 2023.

In addition to these property investments, we continue to make excellent progress on our project to transform our Treasure Chest Casino near New Orleans, from a three-level riverboat to a spacious single-level land-based facility with expanded gaming space and additional non-gaming amenities. Once complete around mid-year, this investment will significantly enhance the guest experience at Treasure Chest and position it for long-term growth. As we near completion of the Treasure Chest project, we are finalizing plans for our next set of growth projects, and we'll have more details to share with you in the near future.

Another important element of our long-term strategy is our balanced approach to capital allocation. As part of this strategy, we plan to continue our current pace of $100 million in quarterly share repurchases in 2024, supplemented by regular dividend payments, while keeping our focus on maintaining strong balance sheet.

In conclusion, this was another strong quarterly performance by our company, as we completed our third consecutive year of full year record results. But beyond producing record results, 2023 was a year of significant achievement. First, we maintained our focus on our core customers, resulting in continued growth from this important customer segment. Second, our growth initiatives delivered strong results with excellent returns from online gaming, Sky River, the Fremont expansion project and our recent hotel and food and beverage investments. Third, our management teams continued to execute at a high level of efficiency, with property-level margins exceeding 40% for the quarter, a level we have now consistently delivered for three years. And finally, continued to pursue a balanced approach to capital allocation, returning more than $475 million in capital to our shareholders in 2023, while maintaining the strongest balance sheet in our company's history.

Strong performance in 2023 is attributable to our strategy, our leadership team and our operating model. But most importantly, it is a result of the dedicated efforts of our team members, who provide consistently memorable service that keeps our customers coming back. I'd like to thank every Boyd team member for their contributions to our company's success.

Thank you for your time today. I would now like to turn the call over to Josh.

Josh Hirsberg

Thanks, Keith.

2023 was another record year for our company, highlighted by a strong fourth quarter. This was our third year in a row of generating record revenue and EBITDAR on a company-wide basis. Our revenue and EBITDAR growth in 2023 was driven by our Online and Managed business segments, reflecting the benefits of our diversification. Our properties have faced challenges all year from a softer retail customer and inflationary pressures. However, we are also seeing improving conditions in our property operations.

Our focus on our core customer is paying off, as we continue to see growth in play from this customer segment. And during 2023, our retail customer trends across the country have been improving. And while cost pressures are not completely going away, they appear to be moderating. Our property operating teams have done a very good job managing in this environment, with quarterly property EBITDAR margins consistently above 40% for the last three years.

Beyond property operations and our other operating segments, as Keith mentioned, we expect our Online segment to generate $60 million to $65 million of EBITDAR in 2024. As you may recall, our Online results include a tax pass-through related to our Online partnerships. These amounts are recorded as both revenue and expense. During the fourth quarter, the tax pass-through amount was $97 million compared to $73 million in the fourth quarter of 2022. For the full year, the tax pass-through amount in 2023 was $328 million compared to $208 million in 2022.

And moving to our Managed & Other segment, we expect to generate approximately $85 million of EBITDAR in 2024. We expect EBITDAR from this segment to be more evenly spread throughout the year as compared to 2023. One additional housekeeping item related to this segment. In 2023, we generated interest income from an outstanding loan to the Wilton Rancheria Tribe. The loan has now been completely repaid, and therefore, we will not generate $24 million in interest income that we earned during 2023. As a result, net interest expense in 2024 should approximate $170 million.

In terms of capital expenditures, we finished 2023 investing $95 million in the fourth quarter for a total of $374 million for the year. For 2024, we expect our capital expenditure program to include maintenance capital of about $200 million to $250 million, plus a recurring $100 million for growth investments. This year, our growth capital plans include completing the new Treasure Chest land-based facility and starting additional growth projects in the second half of this year. We also expect to spend an incremental $100 million on the room renovations that Keith spoke about. So, for 2024, we estimate total capital expenditures of about $400 million to $450 million.

With respect to our capital return program, during the most recent quarter, we repurchased $100 million in stock, acquiring approximately 1.7 million shares at an average price of $59.15 per share. For the full year, we repurchased $413 million of stock, representing 6.5 million shares. When combined with our ongoing dividend program, we have returned more than $475 million to shareholders during calendar year 2023. Since we resumed our capital return program in late 2021, we've returned more than $1.1 billion to our shareholders and reduced our overall share count by 14%. We ended the year with an actual share count of 96.8 million shares and had $326 million remaining under our current repurchase authorization. We remain committed into 2024 to $100 million per quarter in share repurchases....

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