ISLE F3Q12 CONF CALL NOTES

ISLE F3Q12 CONF CALL NOTES


"Net revenues increased at eleven of our fifteen properties, including each of our properties outside of Mississippi, where the markets have been slow to recover from the flooding last spring and economic issues continue to negatively impact the market. We are continuing to utilize smarter marketing and targeted facility improvements to drive business and improve results.  Our operating successes in Florida, Colorado, Iowa and Missouri were able to largely offset the substantial difficulties facing the Mississippi markets and costs we incurred in Lake Charles while renovating the gaming floor of our primary riverboat and preparing to consolidate our operations."

- President and Chief Executive Officer Virginia McDowell

PREPARED REMARKS

  • Cape G is similar to their operations in Waterloo, Iowa and Boonesville Missouri
  • Getting started on room remodel for the Lake Charles property
  • $1,165MM of debt with $496 term loans, $10MM on R/C. Have $200MM of borrowing capacity at the end of January 

Q&A

  • Lake Charles had a lot of noise in the quarter with the ongoing renovations at the property
  • Paid down about $15MM of debt in the quarter. At the end of Oct they have $1.184BN and Jan they had $1.165BN
  • They think that the cost savings on the sale of the vessel in Lake Charles will be at least neutral to them if not beneficial.  
  • Sub debt becomes callable at par next month.  They will start to look at redeeming some of those notes opportunistically.  They also have some options on refinancing those notes 15-18 months before their maturity
  • Lake Charles will go from 1,782 to 1,262 slots, 51 tables to 40. No change in hotel rooms - still at 440-450.  They used the vessel for overflow on weekends and holidays so it shouldn't be an issue from a capacity standpoint. They are thinking about a potential on the 3rd deck if necessary - more likely for poker. 
  • Mississippi has been really challenged since the floods. Part of it is due to the tracks in Arkansas which had a big spike in business when the casinos in MS closed for flooding and only some of that business came back.  Biloxi was already weak before the floods. They had a lot more customers in that part of the country that had high teens unemployment and then also had a heavy impact from the floods
  • Impact of new competition on their Kansas City facility?  Geographically, we're the property that is farthest away, and with the construction complete on the bridge, traffic is flowing around and through to our property better than it did before. 
  • They can structurally take out the sub notes before the 7.75% seniors come due. As long as they meet the 2 to 1 covenant restriction within 15/18 months to maturity they can refinance those notes with Senior notes
  • The total business interruption receivable will be a lot larger than what they have received thus far. The discussions with BP were one time and separate from the insurance flood receivables. 
  • Pompano: no impact from Seminole Coconut Creek expansion.
  • They didn't quantify the impact from disruptions at Lake Charles. Aside from the hotel the casino floor disruption is done
  • Capex spending for Cape: 
    • $80MM left to spend. $20MM ish in the 4Q. Generally speaking, 50% of the spending is right at the end because that's when the FF&E gets ordered. 
  • Their leverage is 6.3x vs. 7.35x steps down after Cape opens in F4Q13 (one year from now)
  • Database skews more South and East than West in the Kansas City market. 
  • Thoughts on new opening in Biloxi? 
    • No
  • Step up in promotional spending. Will some of the new projects under way will they see more promotional spend?
    • Most of it was customer reinvestment.
    • Spike was temporary and surrounding new product launches at various properties
  • Majority of Iowan's are still against online poker
  • Cape G is tracking at or under budget

HIGHLIGHTS FROM THE RELEASE

  • "We are looking to the future with optimism as we expect to open our Isle property in Cape Girardeau, Missouri by Thanksgiving of this year, subject to regulatory approval, at least a month ahead of our previous schedule."
  • "The Company's results benefitted from increased retail play as a result of generally favorable weather conditions in December and January, several recent facility improvements and continued strong marketing programs."
  • "In Boonville, revenue increased by 3.3% and EBITDA increased by 8%, despite having a buffet closed for renovation during the bulk of the quarter."
  • "With the recent declines in the unemployment rate, we are cautiously optimistic that our retail play trends could continue to improve as we have historically seen a high negative correlation between the unemployment rate in our markets and retail revenues."
  • "Our properties in Mississippi are suffering from a lagging economy and some lasting effects of the flooding which has impacted our overall results. Competition from race tracks in Arkansas, which increased following the floods, impacted revenue streams from Little Rock and several secondary markets."
  • "In Lake Charles, results were directly impacted by renovation disruption, which was completed in early February, and preparing to consolidate operations onto the larger remaining riverboat. We opened a new poker room, installed new carpet on the casino floor and completed other cosmetic refurbishments. We made the decision to invest in improving our product offering during the second and third fiscal quarters, and we believe we are beginning to see positive financial results from that investment. Additionally, we expect to benefit from a lower cost structure now operating only one facility.  We will continue to improve the customer experience with a $15 million refurbishment of the main hotel tower, which is expected to be completed by the end of the second quarter of fiscal 2013."
  • "We are also continuing to upgrade our food and beverage options across the portfolio."
  • "At Rainbow Casino in Vicksburg, we expect to complete the Lady Luck Casino rebranding by the end of the second fiscal quarter of fiscal 2013.  The rebranding will introduce upgraded amenities"
  • "Our upgraded customer rewards program, called Fan Club, is now active in Pompano and Waterloo." 
  • "The decrease [in corporate expense] is primarily due to development expenses in the prior year related to obtaining the Cape Girardeau and Nemacolin licenses.
  • "In the third quarter of fiscal 2012 we recognized $0.9 million of revenue as partial advances of our business interruption claim. Through February 22, 2012 we have received initial payments of $10.1 million related to the claims."
  • Nemacolin Woodlands Resort, Pennsylvania: "The appeal hearing for the gaming license awarded toNemacolin Woodlands Resort for the final resort license in Pennsylvania has been set for March 7, 2012. "
  • 3Q Capex: $11.7MM ($4.5MM related to Cape Girardeau)
  • "Capital expenditures for the remainder of the fiscal year to be approximately $45 million, including approximately $20 million in Cape Girardeau."