Boyd Gaming has refused to rule new M&A activities in its earnings call following the Q2 quarter, as speculation continues to swirl about a possible joint bid for Penn Interactive with Flutter Entertainment.
The Deal reported that an offer could be on the table earlier in this month. Boyd and Flutter are yet to comment on the potential offer for Penn Entertainment. Boyd would take over the physical operations, while Flutter would handle the digital side, including ESPN Bet.
M&A took center stage during Boyd’s earnings call yesterday, 25 July. Boyd had just released its Q2 results and first half of the year. Boyd was, as expected, reticent on the topic. However CEO Keith Smith didn’t rule out any M&A activities.
Smith stated that the M&A has been the main source of growth for his company. I think that we have a lot of expertise in this area. “We know how we can buy companies and properties right, and how to get value from them once they are in our portfolio.
We’ve been ready to look closely at any opportunities. It’s nothing new. “We’ll keep doing that.”
What is the best way for Boyd to approach a new M&A opportunity?
Smith responded that if Boyd was to look for opportunities it would rather buy assets from “wholecos”. Smith said that this was easier said than accomplished in the current marketplace, as most assets are part of an operational or property company. Boyd, said he, could consider a new approach.
Smith replied, “We are certainly open to that.” We did that with Pinnacle assets we purchased several years ago. It’s also not a barrier to acquiring OpCo assets, or to expanding and buying more assets.
We have always held the same opinion about monetizing our real estate. If there was a deal that made sense, we could do so. Owning real estate gives us a lot of flexibility, and we think that’s a good thing. Our real estate can be financed in a less costly way than if we tried to sell it.
We consider all these factors when considering any M&A opportunities. We’re open to considering OpCo assets.
Online drives revenue growth in mixed Q2
Switching attention to Boyd performance in Q2, revenue in the three months to 30 June hit $967.5m (PS752.2m/EUR891.4m). The revenue for the three months to 30 June was $967.5m (PS752.2m/EUR891.4m).
Boyd’s interactive division was the most successful segment in Q2. Boyd’s interactive segment saw revenue jump 52.8%, to $129.9m. Boyd continues to reap the benefits of its FanDuel stake, which is worth 5.0%.
Boyd has increased its full-year target in terms adjusted EBITDAR due to the great success the segment experienced in Q2. The new target is between $65.0m to $70.0m.
This success led to questions during the call about M&As and how they could be used to boost online growth. Smith said that there are no plans to acquire online as the company is doing well.
Smith stated, “I do not see any M&As on the horizon that will suddenly have this grow in a significant manner.” We’re happy with the way it is going at this stage and don’t think there’s a real need to make any significant changes to it.
Our equity in FanDuel is a strategic asset that will continue to increase in value, as we take part in the growth of sports gambling in America.
Locals in Vegas struggle; Midwest & South sluggish
The Midwest & South Segment, which generates $521.8m in revenue, is the main source of revenues, despite the online component. This segment has seen a 0.6% increase. Boyd said that play by core customers was growing, and retail activity was steady.
Boyd had mixed results for Las Vegas. Las Vegas Locals saw revenues fall by 2.4%, to $225.4m. This was an improvement over Q1.
The Downtown Las Vegas revenue was $8.9% higher, at $57.7m. Boyd stated that this growth was to be expected, as the visitation had significantly increased over the first three months.
Gaming revenue was $650.8m. This is a 1.5% drop from the previous year. The revenue from food and beverages grew by 9.4%, to $77.0m. Rooms revenue increased by 5.6%, to $52.6m. Management fees increased 22.4%, to $21.3m. Other revenue rose 6.9%, to $35.9m. Online revenue accounted for the remaining $129.9m.
Boyd’s bottom line hits higher costs
In terms of spending, the total operating costs for Q2 increased by 10.0% to $70.4m. The main expenditure was $252.1m in gaming costs.
Boyd reported a further $49,9m in financing costs. This was all interest expenses, leaving a $184,5m pre-tax loss, down by 9.4%.
In the end, after paying $44.7m in taxes and fees to the group, it generated a profit net of $139.8m. This is a decrease of 27.4% on an annual basis. The adjusted EBITDAR fell 2.5%, to $316.3 million.
First half of the year in Focus
The first half of H1 figures follow the same pattern. The group’s revenue in H1 increased by 2.5%, to $1.93bn. Online was again responsible for the increase.
The Midwest & South segment (down by 0.9%, to $1.02 billion) and Las Vegas locals (down by 4.4%, to $450.7 million) saw lower revenue. Downtown Las Vegas revenues increased by 1.6%, to $111.2m. Online revenue grew 32.8%, to $276.1m.
Gaming generated $1.28bn in revenue. Food and beverages brought in $149.6m. Rooms accounted for $101.5m. Management fees brought $43.5m. Other activities brought $72.3m.
Net finance expenses reached $84.5m, a 9.6% increase in operating costs to $1.48bn. The pre-tax profits dropped by 21.8% to $362.0m. Boyd had to pay $85.7m for taxes, which left a net profit of $276.3m, a drop of 29.6%. The adjusted EBITDAR fell 6.8%, to $619.6m.
Smith stated that “Q2 saw a strong performance from our company, with sequential improvements over our first quarter and positive customer trends throughout the nation.”
Our balanced capital allocation program continues to show our belief in our long-term business prospects. This programme is a key part of our investments in the future growth of our business.
