Boyd Gaming “open” to M&A opportunities after mixed Q2

Boyd Gaming refused to rule out new M&A activity in its post-Q2 earnings call as rumours continue to swirl over a potential joint bid with Flutter Entertainment for Penn Interactive.

Reports over a possible offer emerged earlier this month, with The Deal reporting that a deal could be in the works. Neither Boyd nor Flutter have commented on a potential bid for Penn Entertainment, which would see Boyd take the brick-and-mortar operations and Flutter the digital business, including ESPN Bet.

With Boyd posting its Q2 and H1 results yesterday (25 July), M&A was a hot topic during the earnings call. While Boyd remained unsurprisingly coy on the subject, CEO Keith Smith did not rule out some sort of M&A activity.

“If you look back over the history of our company, the majority of our growth obviously has come through M&A,” Smith said. “I think we’ve developed a great expertise at it. We know how to buy properties and companies right, and we know how to extract value out of these companies once they’re part of our portfolio.

“We’ve always been willing; it’s not new news to take a hard look at opportunities that arise. We’ll continue to do that.”

How might Boyd approach new M&A opportunities?
When pushed further on the subject, Smith said if Boyd were to pursue opportunities, it would prefer to buy “wholeco” assets. He said this is easier said than done in the current market, with most assets part of an operating or property company structure. As such, he said Boyd could be open to a different approach.

“We’re certainly willing to do that,” Smith said. “We did it with the Pinnacle assets that we bought several years back. And so, it’s not an impediment to acquire OpCo assets; it’s not an impediment to growing or buying additional assets.

“In terms of monetising our existing real estate, I think we have the same view we’ve always had. We have the opportunity to do it, if there were a transaction where it made sense. We enjoy and think we retain great flexibility by owning our own real estate. We think we can finance in less expensive ways than trying to monetise our real estate.

“So, we think about all of these things with respect to any M&A opportunity. And once again, we’re not opposed to looking at OpCo assets.”

Online drives revenue growth in mixed Q2
Switching attention to how Boyd performance in Q2, revenue in the three months to 30 June hit $967.5m (£752.2m/€891.4m). This is 5.5% higher than in the same period last year.

Without doubt the main success story for Boyd in Q2 was its interactive segment. Here, revenue jumped 52.8% to $129.9m, with Boyd continuing to benefit from its 5.0% stake in Flutter’s FanDuel. 

Such was the success of the Online segment in Q2 that Boyd is increasing full-year targets in terms of adjusted EBITDAR. This is now expected to hit between $65.0m and $70.0m.

Unsurprisingly, this success drew questions in the earnings call on M&A matters to drive more online growth. Smith, however, said there is no immediate plans for online M&A as the business is performing well as it is.

“I don’t see any material M&A on the horizon to all of a sudden have that grow in any significant fashion,” Smith said. “We’re pretty pleased with how it’s rolling out at this point and really don’t see a need to do anything significant to move it along.

“Our equity interest in FanDuel remains a valuable strategic asset for our company that continues to grow in value as we participate in the ongoing growth of sports betting nationwide.”

Vegas locals struggle, Midwest & South sluggish
Away from online, the Midwest & South segment remained the primary source of revenue by some margin, generating $521.8m, up 0.6%. Boyd noted play from core customers continued to grow, while retail play was stable.

There were mixed results in Las Vegas for Boyd. The Las Vegas Locals segment saw revenue fall 2.4% to $225.4m but this was an improvement on Q1.

In contrast, revenue from the Downtown Las Vegas business was 8.9% higher at $57.7m. This growth, Boyd said, was expected as visitation significantly improved over the first quarter.

As to where revenue came from, gaming drew $650.8m, a drop of 1.5% year-on-year. Food and beverage revenue climbed 9.4% to $77.0m, rooms 5.6% to $52.6m, management fees 22.4% to $21.3m and other revenue 6.9% to $35.9m. The remaining $129.9m was online revenue.

Higher costs hit bottom line at Boyd
Looking now to spending, total operating costs in Q2 were 10.0% higher at $740.4m, with gaming costs the main outgoing at $252.1m.

Boyd noted a further $42.9m in finance costs, all of which was interest expense, which left a pre-tax profit of $184.5m, down 9.4%,

The group paid $44.7m, resulting in a net profit of $139.8m a drop of 27.4% year-on-year. In addition, adjusted EBITDAR slipped 2.5% to $316.3m.

The first half in focus
As to how this impacted H1 as a whole, figures for the first half follow a similar pattern. In H1, group revenue increased 2.5% to $1.93bn, with online again the main reason for this rise.

Revenue was lower in the Midwest & South (down 0.9% to $1.02bn) and Las Vegas Locals (down 4.4% to $450.7m) segments. However, Downtown Las Vegas revenue increased 1.6% to $111.2m and online 32.8% to $276.1m.

Breaking down source of revenue, gaming generated $1.28bn, food and beverage $149.6m, rooms $101.5m, management fees $43.5m, and other activity $72.3m – plus the online contribution.

Operating costs climbed 9.6% to $1.48bn and net finance expense hit $84.5m. This meant a pre-tax profit of $362.0m, a drop of 21.8%. Boyd paid $85.7m in tax, leaving $276.3m in net profit, down 29.6%. In addition, adjusted EBITDAR slipped 6.8% to $619.6m.

“In all, Q2 was a solid performance for our company with sequential improvement over the first quarter in our property operations and encouraging customer trends across the country,” Smith said.

“At the same time, we continue to demonstrate our confidence in the long-term prospects of our business through our balanced capital allocation program. An important part of this program are the investments we are making in our operations to drive future growth.”