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Is this the most underappreciated company in gaming?

“Ameristar had another record-breaking quarterly financial performance, with new high water marks hit for Adjusted EBITDA and Adjusted EPS in a third quarter and the best trailing 12-month Adjusted EBITDA in the Company’s history,”

Gordon Kanofsky, CEO

CONF CALL NOTES

  • Had river flooding in the quarter at Council Bluff
  • Excluding the buyback, their EPS would still have been up 11 cents or 52% YoY
  • Reduced their promotional expenses significantly which has helped the flow-through at their properties
  • Guided to a 25% tax rate last quarter which they weren't unable to take and it's unclear that they will be able to take them.  Their tax rate this quarter was fairly normal.
  • Retired $63MM of debt in the quarter
  • Used 65% of their Adjusted EBITDA to buyback debt
  • 3.83% interest rate at quarter end based on the leverage grid
  • $10-11MM non-cash interest expenses in 4Q
  • Will only make one mandatory principal repayment at 4Q given their seasonal FCF needs in the quarter

Q&A

  • Corporate OH - why so high in the quarter and why is next quarter stock comp expense so high?
    • Had some one time refinancing expenses and some personnel changes that occurred. 
    • 4Q stock comp expense is also at a higher than normal run rate.  Board has made a decision to extend options from 7 years to 10 years which adds a $3MM charge in the 4Q. The board has also seen fit to establish a retirement program for options which also added $3MM of one time expense 
  • They have cut $60MM of expenses permanently from their cost structure and believe that is why they are seeing such good flowthrough. Have seen some modest net revenue growth.
  • There are some hold changes that caused the volatility in East Chicago - the fact that the slot floor is fresh helps them. The new casino is 40 miles away.
  • There are some "copycats" out there in regard to their marketing campaigns but it's clearly not impacting them. Having better and fresher product helps. 
  • Kansas City is 25 miles from their property - they haven't made comments on the anticipated impact from that opening

HIGHLIGHTS FROM THE RELEASE

  • "The year-over year improvement in net income is mostly attributable to efficient revenue flow-through driven by operating and marketing initiatives."
  • "Notably, Council Bluffs improved year-over-year Adjusted EBITDA by $1.7 million (11.1%) on net revenue growth of $1.9 million (4.9%) while overcoming some operational inconveniences from flood conditions."
  • "Our East Chicago property achieved a 16.1% year-over-year increase in Adjusted EBITDA despite a new competitor opening in Des Plaines, Illinois during the quarter."
  • Net Leverage was 5.15x
  • 3Q Capex: $19.1MM
  • Stock buyback: Repurchased $0.2MM shares at $2.7MM in the 3rd Q and $0.3MM shares for $5.1MM from 10/1-11/2
  • Guidance for FY11:
    • D&A: $104.2 to $105.2MM
    • Interest expense, net of capitalized interest: $106.4 to $107.4MM (incl. non-cash  expense of approx $6.3MM)
    • Tax rate: 41-43% (also for the 4Q)
    • Capex: $65-70MM (predominately maintenance)
    • Non-cash stock-based compensation expense: $22.3 to $23.3MM