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ISLE 3Q13 CONF CALL NOTES


"Similar to other operators in the regional gaming industry, our results were impacted by softness in consumer spending, including the effect of payroll and income tax modifications early in the calendar year.  In addition, last winter was one of the mildest on record in the Midwest, while in contrast this winter we have had some measurable weather disruptions at key times, including New Year's Eve weekend." 

- Virginia McDowell, president and chief executive officer

CONF CALL NOTES

  • Pleased that they are attracting customers from surrounding states at Cape Girardeau
  • Just over $1MM of pre-opening and development expenses impacted the quarter's operating loss
  • $10MM R/C, $491M on T/L, $350MM senior sub notes, $4MM of other debt
  • 5.7x leverage per covenant calc
  • $800k capitalized interest
  • Last year 4Q was a 14 week quarter

Q&A

  • There's no particular market that they are dying to get into; aside from AC, there are no markets that they are avoiding like the plague
  • PA Gaming Control Board expects to announce the winner by year end.  If they win, they can roll their $25MM commitment into a loan to the property or into another part of the properties capital structure aside from equity.
  • Carrutherville and Missouri in general were impacted by bad weather over NYE's weekend. They did have some impact from Cape Girardeau (5-10% impact) at Carruthersville. They are now shifting how they are marketing the Cape property.
  • They would like to explore options to make Betterdorf a land based facility but they are far away from pulling the trigger
  • Renovation and upgrade to the floor in Boonville is coming later too
  • They opened in Cape Girardeau with stronger margins than they expected. They didn't do a lot of marketing. Wanted to see what the organic market was. In the past month they just started marketing to their database. Boonville and Waterloo are good comps for this property margin wise.
  • Thoughts on online and social gaming?  Think that they do a good job on the social front on Facebook and Twitter. Social is more of a marketing tool vs. true social gaming. They don't think that online gaming in the US will be very successful on a state by state basis. Not front burner issue for them.
  • The payroll tax increases coupled with delays in early filers have impacted them in the lower end of the database and in their retail play since the first of the year
  • Mississippi has been hit the hardest since they had the highest unemployment to start with
  • Confident that Iowa will look at the impact of cannabilization before looking at any new licenses
  • Any of their assets can be had at the right price. But there is nothing that they are looking to shed as non-core.

HIGHLIGHTS FROM THE RELEASE

  • Consolidated EBITDA of $41.9MM
  • Cape Girardeau opened on October 30, 2012..."The property's appearance and experience has been extremely well received by customers, and our focus is now on the continuing ramp up in operational performance at the property."
  • "During the quarter...we completed the rebranding of our Vicksburgfacility to a Lady Luck and completed renovations to our main hotel tower in Lake Charles. We also began construction on Lady Luck Nemacolin and completed the sale of our Biloxi property on November 29, 2012.  We are beginning to see the positive impact from the capital projects we have completed, and are confident our strategy to revitalize our asset base is working."
  • "We are also very excited to have entered into an agreement with Tower Entertainment, LLC in Philadelphia, to manage its proposed, $700 million, luxury casino entertainment complex, The Provence, subject to the project being selected by the Pennsylvania Gaming Control Board."
  • Black Hawk: "Results were positively impacted by the continued impact of recent capital improvements at the properties and targeted marketing promotions."
  • Iowa results were negatively impacted by "inclement weather during the period"
  • Lake Charles: "The renovation of the hotel rooms in the main tower was completed during the period, causing some construction disruption that negatively impacted revenues; however, we were able to offset the impact through improvements to the cost structure, primarily from the consolidation of our operations to a single facility, after the sale of our second casino vessel in late fiscal 2012."
  • "Our new Cape Girardeau facility contributed $16.1 million in net revenues and $2.9 million in Adjusted EBITDA during the quarter and we are experiencing a steady ramp up in operations as we have increased our database marketing programs at the property." 
  • "Boonville results were negatively impacted by inclement weather over New Year's weekend"
  • "Caruthersville was impacted by both weather and the opening of Cape Girardeau."
  • "Results in Vicksburg were impacted by construction disruption early in the quarter and increased marketing costs associated with the Lady Luck rebrand launch."
  • "In Natchez, a new competitor opened in the market in December."
  • "In Lula, we were able to mostly mitigate continuing competitive challenges with approximately $1.1 million of decreases in gaming taxes, marketing and operating expenses." 
  • "Expect to open Lady Luck Nemacolin during summer 2013. The facility is planned to include 600 slot machines, 28 table games, an Otis & Henry's Bar & Grill, and a Lone Wolf Bar.  The Company currently expects the total project to cost approximately $57 million to $60 million, including the $12.5 million license fee." 
  • Cash: $67.8MM and total debt: $1.1BN
  • Capex: $34MM of which $19MM related to Cape Girardeau, $3.4MM related to Nemacolin
  • Capex 4Q13: $45-50MM, "including maintenance capital and construction costs in Nemacolin of approximately $25 million to $30 million"