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Takeaway: Weak quarter but low expectations resulting in relief rally.


"While the economic softness being experienced across our industry clearly impacted our results, we successfully increased revenues and EBITDA at several of our properties during the quarter... However, our results at certain properties were impacted by construction disruption, transition costs associated with our enhanced Fan Club and an increased competitive environment." 

- President and Chief Executive Officer Virginia McDowell


  • ISLE has been impacted by a general weakening in economic activity in F1Q
  • Have begun the process of installing slot machines on Cape Girardeau's floor
  • 493MM T/L; 300MM 7.75% senior notes; 357MM 7% sub notes and other debt of $4MM
  • Leverage ratio: 5.6x 
  • $257MM borrowing capacity at F1Q end


  • Not seeing an impact specifically from the drought, but they have seen a pull back in general customer activity starting in April.  Probably won't know the full impact from the drought until the fall since the existing crops are priced at a premium, farmers carry insurance, and lots are sold in the futures market.
  • M&A: Will look at the right opportunities.  Until then, use cash to de-lever.
  • The market near Nemocolin shouldn't be impacted by Ohio.  They are just working to finish the project design and get all the necessary approvals before commencing construction. 
  • Pompano margins, why so weak? 
    • Had a plan prior to the Coconut Creek expansion.  They marketed to the locals and the West.  Their property is battling for market share. Miami Hai Lai also opened.  Wanted to protect rated customers.  Margins were compromised by giving away untaxed promotional dollars. They are figuring out the most efficient way to compete.
    • Since the last call, Coconut Creek has became more aggressive in their promotional activity so ISLE felt like they needed to protect their customers. CC's mailings increased from 3-4 a week to over 10. 
  • Don't expect the storm to expect the closing of Biloxi
  • D&A guidance:  people straight-lined the guidance rather than ramping it - still on target for original FY guidance of $76-78MM, once Cape Girardeau opens, there will be a ramp.
  • Corporate expense: they are at an $8-9MM (closer to $8MM) quarterly run rate. They did have a favorable benefit insurance settlement this quarter. $40MM/year run rate for corporate is still intact; it includes stock comp.
  • Running at $40-50MM range in any given year for maintenance and that should remain a good number going forward. Feel like their slot floors are in good share.
  • Low tax rate in the Q?
    • They are reversing their valuation allowance that they recorded last year. Still expect that going forward, their tax rate will remain in the prior guided range. But as they make money they can offset some of the taxes with their allowance.
  • Lake Charles: Had a big player in 1Q12 last year that contributed to $12MM of table revenue and they aren't there this year. Had about 80 rooms out of service this year (8-10th floor is out of service) and that especially impacts them on the weekends. They also reduced the size of their poker room. They do expect margins to increase, though.
  • The issue in MS is really driven by Lula. Business levels just never moved back to pre-flooding levels they had over a year ago. They are continuing to modify the way they market the property to adjust to current run rates. They believe that they are at a steady run rate now. At Vicksburg, the renovations are having a material impact on the quarter, but that should subside towards the end of the year. 
  •  They are re-evaluating the budget for Nemacolin, but their goal is to build it as economically as possible
    • Sounds like the budget will increase
  • No impact from change of ownership of one of the properties in Black Hawk
  • In Black Hawk, they had a bit of disruption due to the carpet change over, but since then, they have seen good reactions to their renovations. The road disruption is impacting them. They are the last stop now for many visitors vs. being one of the first stops. They are benefiting from the better food mix.  Starting July 1st, they had the tax increase kick in.
  • Florida:  There are a few companies trying to approach expansions through referendums and they expect that activity to increase after the 1st of 2013. Most legislative sessions start in mid-to-late January.
  • Hurricane Isaac: At this point in time, they don't think that they will hit the deductible
  • Comfortable with the game mix they have on their slot floors. Not too much left to do in terms of "right-sizing" their floors. Most of the demand adjustments they are making are on the slot side vs. table side. They have pulled games off the floor (reducing slot floor sizes) and likely have a little more room to do so.  Lula is the property that they spend the most time thinking about how much they may need to reduce the slot floor size.  
  • Still think that the tax guidance they gave on the last call is valid
  • MS river levels are very low. They are monitoring it.  They had to close for a few hours in Natchez last week.  They may need to close the casinos if the vessels sit on the bottom of the river. So far, they have been fine. 


  • "We are making great progress towards the fulfillment of our three primary strategic initiatives.
    • "Our business is more efficient as we continue to trim our costs, realign our casinos and decrease our corporate spending."
    • "Targeted capital improvements and improved service and loyalty programs are elevating the guest experience, attracting new guests and repeat visitation."
    • "We look forward to opening Cape Girardeau at least two months ahead of the original schedule and to beginning construction on Nemacolin, once we complete the design and regulatory processes. We will also soon complete the rebranding of Vicksburg, and the renovation of our main hotels in Lake Charles and Black Hawk by the end of the calendar year." 
  • "Our Pompano and Kansas City properties continue to face increased competitive pressures from major expansions or new competitors in their markets."
  • "Lake Charles, Vicksburg and Blackhawk properties experienced construction disruption from on-going facility enhancements. We also incurred significant transition costs associated with our improved Fan Club in Lake Charles."
  • "Corporate and development expenses were $8.5MM for the quarter, a decrease of $3.8MM compared to prior year, primarily the result of lower incentive compensation and decreased insurance costs."At
  • "Rainbow Casino in Vicksburg, we expect to complete the $5MM Lady Luck Casino rebranding by the end of the 2Q of fiscal 2013."  
  • "We are currently renovating 253 hotel rooms in the main hotel tower in Lake Charles and 237 rooms in the Isle Black Hawk Hotel. We expect the $15MM complete refurbishment of the main hotel tower in Lake Charles to be complete by the end of the calendar year. In Black Hawk, we are replacing carpet, wall coverings, furniture and fixtures at an expected cost of $2.0MM, and expect to be complete by December 1, 2012."
  • "We intend to open four additional Farmer's Pick Buffets in fiscal 2013 at our properties in Cape Girardeau, Pompano, Black Hawk and Waterloo. Additionally, a Lone Wolf bar at our Waterloo facility will open during September 2012."
  • "Our enhanced customer loyalty program, the Fan Club, has been implemented at nine of our properties, and continues to deliver more guest satisfaction through a more efficient platform. We intend to have it fully implemented across the portfolio by the end of fiscal 2013."
  • "Expect to open our new $135MM facility in Cape Girardeau, Missouri by 11/1/2012, two months ahead of the initial schedule. Isle Casino Cape Girardeau will feature 1,000 slot machines, 28 table games, 3 restaurants, a sky deck lounge overlooking the Mississippi River, and a 750-seat event center."
  • Lady Luck Casino at Nemacolin Woodlands Resort:  "Construction of the project is expected to take 9 to 12 months once we begin, and is planned to include 600 slot machines, 28 table games, an Otis & Henry's restaurant, and a Lone Wolf bar."
  • "We continue to move forward with the sale of our Biloxi property and expect to close the transaction by the end of October, subject to regulatory approval."
  • 1Q Capex: $43MM ($27.7MM at Cape Girardeau, $4.1MM at Lake Charles and Vicksburg, and $11.2MM of maintenance)
  • Maintenance capex for the remaining 9M of FY13: $40MM
  • Project capex for the remaining 9M of FY13: $70MM
  • August 7, 2012: Completed $350MM of 8.875% Senior Subordinated Notes offering. ISLE expects to incur charges of ~$3.0MM in F2Q13 related to the write-off of deferred financing costs, issuance costs and other related fees.
  • Interest expense for the remainder of fiscal 2013: Approx $66MM