Solid quarter in a tough environment. ASCA continues to be prudent in capital deployment as cash flow accelerates.
“The second quarter of 2011 may be considered one of the most significant periods in Ameristar’s history because of the foundation it set for future growth. As we seek external growth opportunities, we believe the combination of our ability to generate substantial free cash flow and our recent strategic transactions will help to deleverage the Company at a solid pace, particularly when the economy begins to show meaningful recovery."
- Gordon Kanofsky, Ameristar’s Chief Executive Officer
HIGHLIGHTS FROM THE RELEASE
- As a result of ASCA's debt refinancing and stock repurchase they "recorded on a pre-tax basis an $85.3 million loss on early retirement of debt and $3.4 million in non-operational professional fees during the 2011 second quarter. The refinancing extended the maturity of all our debt, reduced our weighted-average interest rate, resulted in more favorable covenants and provides us with flexibility for meaningful growth opportunities in the future.”
- "While gross revenues were relatively unchanged, promotional allowances decreased $12.7 million (15.5%) from the prior-year second quarter. Promotional costs were reduced as a percentage of gross gaming revenues at each property, with an overall decrease from 26.0% in the second quarter of 2010 to 21.9% in the second quarter of 2011."
- "In May 2011, Indiana reduced its state income tax rate from 8.5% to 6.5%, which will be phased in over a five-year period beginning July 1, 2012. This change reduced the value of our state deferred tax assets (net of federal taxes) that can be realized in the future."
- "Adjusted EPS for the 2011 second quarter was favorably impacted by $0.15 (net of fees and taxes) by the reduction of approximately 21.0 million in the weighted-average number of diluted shares outstanding from the April 19, 2011 share repurchase. The increase in Adjusted EPS from the prior-year second quarter was also attributable to efficient revenue flow-through and decreased interest expense resulting from the termination of our interest rate swap agreements in July 2010 and the lower interest rates achieved through the refinancing."
- Debt: $2.01BN. "In July 2011, we repaid an additional $35.0 million. After taking into consideration the July debt repayments, we have $221.8 million available for borrowing under the revolving credit facility."
- Net Leverage Ratio: 5.48x
- Capex: $16MM
- 3Q Outlook: “Although the magnitude of the year-over-year growth seen in the last two quarters may be difficult to sustain for the entire year, we expect our stream-lined operations, profitable marketing strategies and top-flight product and service offerings to result in another strong and efficient financial performance for the third quarter"
- D&A: $26-$27MM
- Interest expense: $27-28MM (incl non cash interest expense of $1.3MM)
- Tax rate: 20-25%
- Capital spending: $10-15MM
- Stock comp: $3.5 - $4MM
CONF CALL NOTES
- Operating in a stable promotional environment. 5 of their properties grew their net revenues. 6 of their properties grew their adjusted EBITDA. Their promotional spend was down across all of their properties.
- No significant guest impact from flood waters. Had $400k of flood related expenses excluded from Adj EBITDA.
- East Chicago - strong performance across all key metrics including 100% flowthrough of revenue growth. Attribute the improvements to normalization of hold at table games, marketing and cost efficiencies
- Kansas City: EBITDA growth was more than 2x net revenue growth
- Very confident that they can continue to achieve strong flow through in the coming quarter
- Blackhawk - construction on Canyon Rd that has had some negative impact on the property's performance
- They had a number of deferred tax assets in Indiana calculated at the higher tax rate, now that the tax rate is lower they had to revalue and write down the value of the deferred asset
- Share count going forward: 34.5MM shares and 41.7MM average weighted at year end
- New facility allows them more flexibility to pursue growth opportunities
- FCF is $7MM higher post transactions
- YTD $156MM of debt repayments have been made including the July repayment
- R/C has a $200MM accordian feature which they haven't used yet
- Now they have a total 'Net' leverage ratio vs a Total Leverage ratio.
- Sr. Secured Ratio was 3.2x vs 4.5x
- Interest coverage is still over 3.5x times - can't be lower than 2x
- Lower tax rate going forward is due to certain state allocation changes that will impact them in the quarter. In Q4 the blended tax rate will be 40%.
- Expect to continue to generate significant FCF - retire $40-45MM of debt in 3Q (prob closer to $45MM)
Q&A
- East Chicago - surface street project will help them but timing is uncertain
- Confident that they can continue to grow YoY for the balance of the year. Seeing greater signs of stabilization in consumer spending. Saw increases in consumer spending in 2 of their markets despite lower promotional spending
- Vicksburg had a good quarter despite elevated water levels. 2 operators in the market were closed and two remained opened (incl themselves) - so they obviously had some benefit from decreased competition
- Favors acquisitions over greenfield opportunities. Would rule out acquiring an entire company - not a top priority. Opportunities that allow them to diversify revenue and EBITDA. There are a lot of assets that they could improve operating performance if they folded them into their system.
- Have a lot of flexibility (financially and from a leverage standpoint) regarding acquisitions - their covenant is 7x
- Is most of the improvement driven by their high end customers?
- See that admissions have declined while the average loss per customer has gone up- all of which adds up to them getting higher quality of revenue
- Bridge construction will last next year (St Charles). Will close the Westbound span for about a year- currently there are 5 lanes going in east direction will go to 3 lanes with dividers. Shouldn't be too disruptive since there are lots of options to avoid the traffic, but they will likely suffer some revenue losses.
- Blackhawk - 2 projects- sewer line work - finishing up and will pick up later this year down the hill. There is also a project to straighten and widen I114 - encompasses an area a mile or so from Blackhawk. Construction is mostly during off hours - but it likely still has some small impact on them.
