Solid quarter with good cost controls, particularly with regard to promotional activity. Here are our notes from the conference call.
“During the fourth quarter, we achieved year-over-year growth in net revenues, Adjusted EBITDA and Adjusted EPS, while maintaining a strong Adjusted EBITDA margin. We believe the fourth quarter reflected signs of market stabilization in many of our markets that, together with the strength of our operating strategies, lays the foundation for our return to growth.”
- Gordon Kanofsky, Ameristar’s Chief Executive Officer
HIGHLIGHTS FROM THE RELEASE
- "Promotional allowances decreased $2.3 million (3.1%) ... The decrease in promotional allowances was mostly due to more efficient promotional strategies overall, and in particular, promotional spending relating to the November 13, 2009 bridge closure near our East Chicago property."
- “We are extremely pleased with the fourth quarter financial results, especially considering that the bridge closure near our East Chicago property adversely affected the full 2010 fourth quarter but only about half of the 2009 fourth quarter, Ameristar St. Charles faced new competition beginning in March 2010 and we had already reached the anniversaries of our new hotel and favorable regulatory changes in Black Hawk prior"
- Ameristar St. Charles: "The effective management of costs and the recapturing of market share during the fourth quarter of 2010 resulted in Adjusted EBITDA growth for the first time since the new competitor entered the St. Louis gaming market in the first quarter of 2010."
- Black Hawk: "Our quarterly market share surpassed 28% for the first time"
- "Our Vicksburg property declined in all key metrics, mostly due to an unusually low table games hold percentage in the 2010 fourth quarter that adversely impacted Adjusted EBITDA by approximately $1.1 million."
- 4Q10 Debt: $1.54BN; Leverage ratio (total & sr): 4.76x
- 4Q10 Capex: $19.8MM
- “With the continuation of our key strategies and our ability to maximize revenue flow-through with our dynamic operating model, we are optimistic that 2011 should produce additional top-line and bottom-line growth.”
- 1Q11 Guidance:
- D&A: $26.5-27.5MM
- Interest, net of capitalized interest: $24.5-25.5MM (including non-cash interest of $2.3MM)
- Tax rate: 42-43%
- Capex: $10-15MM
- Non-cash stock comp: $3-3.5MM
- FY2011 Guidance:
- D&A: $105-110MM
- Interest, net of capitalized interest: $98-103MM (including non-cash interest of $9MM)
- Tax rate: 42-43%
- Capex: $65-70MM
- Non-cash stock comp: $13.8-14.8MM
CONF CALL
- Got more of their growth from market share growth than market improvement in the quarter
- Ameristar St Charles seems to be faring better than other competitors in the face of new supply in St. Louis
- 28.5% market share in Blackhawk - continue to garner more share in that market
- Growth in E. Chicago - due to favorable weather comparison, more efficient cost control and lower promotional spend
- Continuing to try to strengthen the property by renovating the hotel rooms and working with the city to improve access to the property
- 4Q market share improved in Council Bluffs, without aggressive promotional spending
- East Chicago cost them $0.18, increased interest expense by $0.16 and competition in St. Charles impacted them by $0.12 for FY 2010
- When they reach 4.5x leverage, their interest expense will decrease by 25bps - which should happen by mid 2011
- Lapping of bridge closure and new competitor in St Charles will help them in 1Q and beyond
- Capex is mostly KC hotel expansion and maintenance
- Interest expense should decrease about $9MM in 1Q11' YoY due to swap expiration and lower debt levels.
Q&A
- Should generate $120-125MM of FCF which they will likely use to retire debt (interest expense guidance assumes debt reduction)
- IL continues to be mired in its usual quagmire
- Indiana - relatively stable environment but there is talk of a smoking ban although casinos will likely get an incentive
- Black Hawk - what is the opportunity there?
- They do anticipate that the market will improve and that their operations will become more efficient - so there is potential for margin improvement. Think that they can operate the hotel with a little more efficiency.
- In East Chicago, they continue to be supportive in efforts to replace the bridge but so far that isn't happening. There is some work going on to improve road access but it's going a little slower than they expected
- Vicksburg market share?
- 44%
- 100 room, $14MM project in KC - open in 2012 - they expect to start construction in mid-2011 and will take 18 months or so to open the hotel
- Will this be a normal year for slot spending?
- Yes, they will continue to spend at their historical levels. Having a fresh floor has helped them gain share in many markets
- What are non-operational professional fees?
- Related to the evaluation of the sale of the company... there will be some continuation of those fees but they can't quantify them at this time.
- Corporate run rate should be at $12MM per Q (excluding stock comp)
- Have implemented some efficiencies that should help control costs. If revenues were flat, they expect margins to be flat
- No opinion on Maritime exemption in Indiana. If it passes, it would help them
- There was a little KC design spend in the capex
- Is 4x leverage still the goal for them?
- No comment, but they could look to refinance some debt in 2011
- Where have they pulled back on promotional spending and how sustainable are those cuts if consumer spending recovers?
- No comment... but think that their changes are sustainable. That said they continuously monitor promotional spending.
- Hope that as the economy recovers, the walk in customer returns- and that's a high margin customer
- Any change in the rated/ unrated play?
- Moderate yes- what they have seen in most markets are stabilization and in a few select markets, some modest improvement
- As the economy declined, gaming lagged the rest of the economy in declining and think they will see the same lag on the recovery
- FTE hasn't really changed - but full time/part time mix has shifted towards more PT
- Have some cross play btw their markets but it's minimal (re: Q to cross market Black Hawk)
- Market share gains were due to excess promotional spending at Black Hawk - they just need to be more focused on the cost efficiencies at the property
