ISLE: CONF CALL HIGHLIGHTS

ISLE missed and contrary to popular belief, July was not any better than the difficult months of May and June. Trends haven't improved in August either. Not good for the regional gamers.

 

 

ISLE 1Q2010 EARNINGS CALL

 

Highlights from the release:


"Our results during the quarter make it clear to us that the economy appears to be engaged in a slow, long-term recovery process, and consumers are being more discriminating about their leisure spending"

 

"First quarter results were generally in line with our expectations at most of our properties, with the decrease in company EBITDA primarily attributable to decreases in gaming revenue and EBITDA at the Company's properties in Biloxi and Lula MS, Lake Charles, LA and Bettendorf, IA. The Mississippi properties were impacted by continuing softness in their respective markets and an increase in unemployment rates, Bettendorf was negatively impacted by access issues caused by bridge repairs and the opening of a new gaming facility by one of our competitors in the Quad Cities, and Lake Charles was negatively impacted by changes in the promotional spend in the market."

 

" It is, however evident that our year-over-year revenue and margin comparisons are difficult because government stimulus checks during the same period of the last fiscal year clearly had a positive impact on consumer spending."

 

"We are holding firm in our resolve to defer the great majority of our planned renovation and project capital expenditures until we achieve more visibility into an economic turnaround. However, we are continuing to evaluate the competitive landscape in Colorado to capitalize on the opportunity presented by recent regulatory changes in that market, and we are also looking forward to the substantial completion of our Lady Luck conversion projects by the end of this month at our properties in Caruthersville and Marquette."

 

General management observations:

  • Biggest operating challenge is consumer spending
  • Industry is going through significant changes. Over the next few years supply increases will likely outpace demand

 

Q&A:

  • Color on August in Colorado
    • Not seeing trends in August quite as strong as what they saw in July, but will add some tables to accommodate demand. Up in line with the market in July (19%)
  • Betterdorf - we're encouraged by the opening of the 2 way bridge - which was one of biggest issues they had.
    • Last year in 1Q09, Betterdorf benefited from Davenport being closed.  Lots of noise in the market to just back out bridge opening impact
  • Florida:
    • Just waiting to see what happens.  Governor has until end of August to sign the compact with the Seminoles
      • Unclear what happens if the deadline passes.  Seminoles are still trying to change the compact. However, if those changes are substantive than the legislature may want to reopen the session to get comfortable.
    • Still hoping for the tax cut
      • Minimum will be an aggregate number from parimutuel - must pay at least what they paid last year but there will be 2 new facilities to split among more facilities (ongoing)
      • Tax will be split equally by casino, not "pro-rata" by revenue
  • International - Zero in 2011
  • Cost structure is just about as lean as they can get it, so future opportunities hinge on better flow through whenever a recovery occurs
  • They are seeing slightly better to constant volumes in most locations.  However, there is a decrease in what people are spending per patron when they show up.  Seeing an increase in unemployment across all locations.  Increase in gas prices isnt going to help.  They have seen an increase in promotions across most markets, but they are trying very hard not to buy revenues
  • Why not look at new states like Maryland/ Kansas for a managment opportunity?
    • That's what Eric Hausler has joined the company to focus on
    • A lot of these situations will take a long time to play out, whether bankruptcy situations or new markets
    • Don't have the capacity for a new greenfield project
    • Why not look at new states like Maryland/ Kansas for a management opportunity
  • Decrease promotional spending at Lake Charles
  • Still buying and replacing slot machines, maybe not to same extent as in the past
  • Growth capital spending?
    • Very little committed right now: Colorado, renovations at Lake Charles
    • Won't commit until they see some economic recovery
  • Corporate expense?
    • $40MM for 2010, including $7MM of stock comp
  • Rated vs non-rated play trends?
    • 3% decrease in rated play vs 8% in retail play
  • Lake Charles and Mississippi unemployment rates are going up
  • New licenses in Iowa, impact on ISLE? Probability?
    • Only accepting applications from counties where referendum has passed
    • Very conscious of impact on other casinos
    • Appears that the upper NW corner of the state that shows some growth potential without significantly cannibalising another property
  • $93MM R/C balance
  • May and June were pretty rough for ISLE and the industry, and July looked to be a little better, how about August?
    • ISLE didn't see a big difference / improvement in July
    • Middle of their 2009 was when they saw their business fall off the map (Sept), so comps will start to get easier
    • However, fundamentally, August is no better
  • Bank line EBITDA calculation: EBITDA + losses from UK operations (unrestricted sub) (+/-) non cash charges/ gains ; Net Debt: get to net cash over $65MM

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