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Weather and calendar proved helpful, but ASCA shows the days of margin improvement are not quite over

"Mild winter weather, highly efficient operations and leap year contributed to a quarter where we eclipsed $100 million in Adjusted EBITDA for the first time, as well as established all-time records for Adjusted EBITDA margin and Adjusted EPS."


- Gordon Kanofsky, Ameristar's Chief Executive Officer 

CONF CALL NOTES

  • Everything that could have gone right this quarter did go right for them
  • 1Q is usually their strongest quarter, so that's something that investors need to take into account
  • A good chunk of Council Bluff's growth came from taking more marketing share in a growing market
  • Low tax rate was due to some tax elections they took 
  • Reduced the add-on rate on their R/C given their lower leverage rate in the Q
  • 3.33x interest coverage vs. 2.0 covenant
  • Sr Leverage 2.72x vs. max of 4.0x
  • Pro-forma for notes issuance:
    • 4.94x Leverage
    • 2.13x Sr Leverage 
    • 3.15x Interest coverage
  • Don't expect to borrow much under the R/C in 2012 to fund the Lake Charles project.  Houston is 142 miles away from their property.  Hope to get regulatory approval to commence construction in July. 
    • Demographics similar to St. Louis market
    • 1.5MM more adults in Lake Charles than St Louis (including Houston) and income is 40% higher
    • Total # of competitors are the same
    • Think that any Texas gaming legalization is low probability and far away.  Ballot initiative would be needed to legalize gaming and they believe that would occur during a Presidential election which is 4 years away
  • Springfield MA office will be staffed by a government relations employee.  They are very excited about their location and have broad support from the city of Springfield.

Q&A

  • Kansas City:  they were very well-prepared for the new competition.  They benefited from weather and leap year- so it's a bit too short of a time line to draw a conclusion of the competitive impact.  They are the farthest away from Kansas Speedway.
  • They stretched their max leverage when they did the stock buyback.  They are generating a lot of cash over the next 24 months.  Therefore, their leverage should max out at around 5x, right before opening Lake Charles.  They can also do a pro-forma of their first quarter performance of the property - which would bring leverage down to where they are today.
  • $80-85MM of normal maintenance capex for the year
  • Think that there is tremendous opportunity to grow the market in Lake Charles.  Thinks that L'Auberge is also going to be ok and that they will create a resort cluster.  There will likely be some cannabalization but it's more likely to hit other properties in that market.
  • Customer sentiment now:  Consumers have had lower utility bills offset by higher gas bills.  People are still being guarded by what they are spending. Hard to say that there is an economic boom going on. 
  • April's calendar isn't as good as last year.  So don't get too excited about the regional #s when they come out.
  • Any impact from the shut down of Grand Vicksburg?
    • No - it was too small to matter
  • East Chicago bridge situation is moving very slowly. Their customers in that market have learned how to adjust since the closure 3 years ago. They just completed a major room renovation in the property. Their main competitor in that market doesn't have a hotel. If the bridge gets rebuilt that will help them but they are not relying on that happening.

HIGHLIGHTS FROM THE RELEASE

  • 2Q12 Outlook: 
    • D&A: $26.5-27.5MM
    • Interest expense: $28-29MM (including non-cash interest of $1.3MM)
    • Tax rate: 39-41%
    • Non-cash stock comp: $3.5-4MM
    • Corporate expense: $12-13MM
    • Share count: 34.3
    • Capex: $20-25MM
  • 2012 Outlook:
    • D&A: $105-110MM
    • Stock Comp: $14.8-15.8MM
    • Interest expense: $109-114MM (non-cash interest expense: $5.3-5.8MM)
    • Capex: $160-165MM (including $75MM related to Lake Charles)
    • Corporate expense: $52-53MM
    • Share count: 34.5
  • "We are excited about our recently announced plans to develop our ninth property -- a $500 million casino hotel spa project in Lake Charles, La. We intend to construct a high-quality property that will cater to patrons from southwest Louisiana and east Texas, including the Houston metropolitan area, which is one of the country's largest and most underserved gaming markets."
    • ASCA plans to develop a "casino with approximately 1,600 slot machines and 60 table games, a hotel with approximately 700 guest rooms (including 70 suites), a variety of food and beverage outlets, an 18-hole golf course, a tennis club, swimming pools, a spa and other resort amenities, and approximately 3,000 parking spaces, 1,000 of which will be in a garage"
    • Mid-2014 opening
  • "Council Bluffs...continued to benefit from market share growth in a strong market."
  • "The year-over-year improvement in net income was mostly attributable to efficient revenue flow-through, a $15.7 million reduction in the income tax provision due to certain income tax elections and the absence of non-operational professional fees in the current period. We anticipate the tax elections will lower our quarterly blended tax rate by three to four percentage points for future quarters." 
  • Debt: $1.9BN with $285MM available on their R/C
  • Net Leverage Ratio: 4.88x vs. 6.5x
  • "On April 26, 2012, we issued $240.0 million principal amount of 7.50% Senior Notes due 2021. These notes were issued under the same indenture as the $800.0 million principal amount of 7.50% Senior Notes due 2021 that we issued in April 2011. The new notes were sold at a premium to the principal amount, resulting in a yield to maturity of 6.88%. The net proceeds from this offering were $244.0 million, of which $236.0 million was used to repay all the outstanding indebtedness under our revolving credit facility.... After applying the proceeds to the outstanding revolving credit facility, we had $496.0 million available for borrowing under the revolving credit facility."
  • Capex: $31MM 
    • "In January 2012, we spent $16.9 million (including fees and commissions) to purchase approximately 40 acres of land in Springfield, Massachusetts as the site for a possible future casino resort"