Here are the BYI notes from our meetings in Las Vegas last week


Replacement demand:

  • Casino budgets were set by corporate in October/November- so calendar 2009 will remain lackluster
  • They are not expecting big improvements in 2H09
  • They think normal replacement is 7-10 years. So 70-100k is "normal"
  • Ohio, IL and Italy are all centrally determined markets and BYI claims that WMS can't really participate in those markets



New casinos/markets:

  • BYI attained 20% market share at City Center, IGT got 50%, WMS got 22%
  • Illinois - They are meeting with a distributor in Chicago.  Video poker pays back 98% so you need a multi-pack offering. They don’t think that IGT gets more than a third. Systems is another big opportunity.  With respect to timing, they will have a better idea on timing Thursday
  • PA - doesn't think VLTs will happen




  • They only have a few products in the WAP category. They have 700 digital towers in the queue - lap or fixed fee
  • BYI differentiates their participation games by performance solely
  • They have 14 test banks to see what works.  Licenses are tough to get and expensive. They are launching new games in the WAP business, which is a very tough segment to penetrate
  • WMS is doing a great job in WAPs and community gaming. WMS is being very aggressive




  • Steppers: strongest space
  • Video: think that this will be their strongest G2E
  • V32 video is performing very well for them. They don't have great video for cinevision. They will do a bunch of wheel games too



  • The international market is a huge opportunity for them - 16% of revenues and 22% shipped
  • Europe is 70% Novamatic
  • Australia - ALL owns that market 60-70% but is 3rd in terms of ship share. BYI is about 20% there
  • BYI has very good relationships in some European markets/Australia
  • They are re-launching in Australia this month.  A monopoly expires in Victoria in 2012 - so that's a big opportunity consisting almost entirely of video machines
  • They are working on South America/Europe. They are getting bombed by distributor type deals



General commentary:

  • They don't think the economy is recovering - just bouncing along the bottom
  • No question that new units will be way down next year




  • They have 40k S6000k’s in the field
  • They have 46 titles on the big spinning reel games. Digital towers.  V32 (tower like - similar to “Deal or No Deal”).  Have 7 new titles vs just one
  • Dual vision is like a wheel of fortune game - 2 people can play together.  The performance has been very strong - couples play it. Daily fee or participation
  • Fireball - it’s their hottest title. Digital tower series
  • Power strike - very strong - cinevision
  • Reel money - V32 really cool. Cash meteors - can spin - touch screen
  • Cash wheel - spinner on cinevision


Here are our notes from meetings in Las Vegas last week




  • It looks like they have some more room to cut costs, unlike most regional operators
  • They have room to cut/close food outlets – too many amenities
  • It wouldn't take long to implement cuts
  • We think this could be the focus of the Q3 earnings call



General commentary:

  • Last year Labor Day weekend fell in August so it’s a tough comp. September will be better - look at August and September combined to see a real trend. Labor Day is a big weekend
  • Unemployment first, then gas are the major economic inputs
  • They think that the agriculture business is going to be down 38% and the effects of this will hit them
  • Jackpot is having a record year
  • No chatter of Nebraska legalizing gaming
  • Business isn't really improving - bumping along the bottom.  It’s just not employment rate but also that people are working less hours and, therefore, receiving less pay. 17.5% is the real unemployment rate
  • Win per admission has gone up but the admissions are down. They have lost the bottom end - so the number is inflated because it’s also not an apple-to-apple customer
  • ASCA is the only operator that has seen win per admission increase – because they are just not marketing to the bottom customer




  • They think that table games would have been 10% better in Missouri – buoyed by the loss limit removal - if not for the economy




  • Black Hawk- July was a substantial boost, August not as strong (holiday weekend)
  • The hotel will open September 29th




  • Colorado was the last of the big capex
  • Construction costs haven't really decreased. Labor has decreased slightly
  • Council bluffs and East Chicago were the only other projects they ever spoke about - but based on HET results - there is no way they would do it (Chicago).  In Council Bluffs they would spend 100mm but they can't construct anything for that little
  • $50-$60mm in maintenance capex for 2009
  • 2010 will include a little deferred maintenance so capex is expected to be somewhat more substantial that year



Credit facility:

  • They still need to extend the agreement
  • Penn was lower than they thought. So they will pursue one shortly



East Chicago:

  • The 10th license in IL is 45 miles away from ASCA’s nearest property. They think it will be an immaterial event to them
  • IL unemployment increased there much more than in their other markets
  • They think that the Horseshoe impact has already been felt



Investment opportunities

  • Kansas - they already have $400mm invested in the Kansas City market so they are not interested
  • The tax rate is too high in other new jurisdictions
  • There are a few local assets in Vegas that are interesting but not cheap enough
  • Fontainebleau doesn't make sense and will cost 1.5bn to finish. It’s also in the worst location on the strip.  No walk traffic (across from Circus Circus)
  • ASCA would only buy something that's immediately accretive
  • They don't buy into the cross marketing benefit so much (look at Harrah’s)
  • They also wouldn't do anything until City Center opens
  • ASCA took a look at Ohio - taxes and license fee too high
  • They wouldn't be building new projects now (à la PNK). Banks don't like lending south of 5x-ish. They need the multiple to increase to create money. Their problem is the issue of losing the license
  • ASCA would pay 6x EBITDA for an asset if they could improve that EBITDA



Balance Sheet:

  • ASCA can add $6 of value in debt reduction alone over the next few years.
  • Would like to get to 3.5x leverage - no sooner than end of 2011.



River City (PNK) impact:

  • Very few customers come to ASCA from South County – ASCA is the most isolated
  • ASCA thinks that River City will do only $25mm in EBITDA - pay a few hundred million at most for that opportunity, not $250 million. 


Here are our company notes from our Las Vegas trip last week




  • The 5 cent window in their guidance is related to the uncertainty around replacement demand
  • Sentiment has improved meaningfully - but they haven't seen any real pick up in orders. Taking a “wait and see” approach
  • In 2009, most of the casino capex budgets were very conservative and many weren’t really followed as things continued to get worse throughout 4Q08
  • 2010 should be better because you have a budget you will follow. They didn’t really want to quantify any expected increase



Hot Products:

  • Multi Layer Display (MLD) – selling for $19k.  Approximately 900 were shipped last quarter. One of their hottest products.




  • Claim that they aren’t really doing it - and that you can see that in the numbers and the margins that they report. 
  • We are hearing that a lot of discounting and deal-making is occurring.



Consolidating platforms & Cost Cuts:

  • Some of the different platforms are due to different geographies – for instance, Australia has their own platform, a lot through acquisitions (wager works/PGIC/Barcrest). Transitioning people to the same platform is a challenge and something that Chris Sachels (Microsoft former exec) is focused on integrating
  • Reducing material and design costs.
  • Game ops: trying to be more efficient on developed, more stream-lined boxes. SBG concept – they showed us the new MLD boxes that have about 100 different titles on the box (reels/ poker/ video) etc…
  • R&D is at the right level - but need better control about how those games get allocated. Better spend management.




  • Shift in focus towards content away from systems (SBG). 12-18 months title to go soup to nuts. But can compress that by going into vertical development.
  • Outsourcing content? They have a group of people that regularly develop content for them externally. 
  • We’ve heard from reliable sources that IGT plans on outsourcing much more content




  • They are not interested in large scale M&A, but would be stupid not to be thinking about online. Unclear how they will approach it: white label/content/operator?
  • Patti has been telling people that they plan to look outside of gaming. This scares us at Research Edge.




  • SBG purchase? Imperial Palace in Biloxi has signed ($6-10 per day per device) on 60 units.
  • Patty’s Comp: 2010 is tied to EPS growth. But will be TBD going forward – wants a more “soft” formula
  • Pre-G2E show with BYI this year - Sunday Nov 15th.
  • Reel/video: no changes in the mix.




  • Casino Club Rosario will open over Sept/Oct 2009 and IGT got 70% of the floor share
  • IGT provided Casino Clubs Argentina with a $100MM line of credit for development and $40MM line towards floor financing; $93MM was funded as of June 30th
  • Company told me that casinos will have 3,500 units (website says 2,000 so getting a clarification on that)
  • Since IGT also provided the system, they will account for it either in this coming quarter or the following quarter

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Here are our company notes from our Las Vegas trip last week


RiverCity will have 2,100 slots, 300 of which are retrofitted IGT machines.  The breakout of the remaining 1,800 is as follows: 20% IGT, 31/32% WMS, low 20’s% share for BYI (mostly spinning reel)



Missouri and the President:

  • Cannot move, replace, or repair the Admiral President in downtown St. Louis. The governor hates the executive director of casinos and the executive favors another casino since he won't get his job renewed
  • They can probably put a floating device under the boat which the gaming commission doesn't need to approve



Lumiere Place (LP) continues to ramp:

  • Loss limit removal impact difficult to estimate
  • Four seasons is making money now. ADR is around $180. There is very little booking visibility



River City:

  • 15-20% of the LP customers are coming from River City markets. They hope to make that up by expanding and picking up extra visitation per month from people living closer
  • Casino utilization is worst on game days at LP because players hate the traffic - can deflect to River City
  • The target return is 15% on both LP and River City combined but they would be satisfied at 12%. They think they can hit 120mm EBITDA for both Missouri properties on 900mm




  • New Orleans - closest (10-15 min drive) customers have been the weakest because of the traffic
  • Bossier is doing well
  • L'Auberge resumed marketing to slot customers. BP's oil discovery in the region should be a big benefit for New Orleans/Texas economy.  September was ok although there was a weak September comp because they were closed for 9 days last year




  • Haven't started construction. They will start foundation work in 4Q09 - costs $16mm and will take 4-5 months. They are waiting to extend second tranche before ordering steel.  All the bond deal participants had to preliminarily agree on extending in the second tranche. It seems like they can get up to 7x for new construction and 6x for borrowings at L+450
  • Sugarcane could open in the tail end of 2011
  • They believe they can pull out 60mm incremental EBITDA at Sugarcane Bay. 70% of Coushatta’s customers come from TX on weekends because PNK is full. They don't think there will be a lot of construction disruption



Baton Rouge:

  • A year behind Sugarcane Bay
  • They just got another extension from the gaming commission
  • If it’s only 12 months behind then they get tight. 18 months would be ideal, which would bring the opening back to 2013.



General comments:

  • Rated and unrated plays are equally weak across the properties
  • Spend per visit is the issue
  • Reno made money last month - and this month so far.
  • Texas shouldn’t pop back up in legislature until 2011.
  • Bid on Ohio racetrack – but it’s a low ball bid so they won't win.


Not sure if there is anything to do ahead of CCL’s quarter tomorrow. We are slightly above consensus for Q3 and Q4 but below for 2010.



CCL reports its Q3 (ended August 31st) tomorrow morning with a conference call at 10am EST.  Fuel at $438 is 5% higher than when CCL last issued its guidance.  However, exchange rates have moved in the company’s favor.  We are projecting $1.22 in EPS for Q3 versus the Street at $1.20 and the company’s guidance of $1.15-$1.19.  Given the big capacity increase in Q1 2010, forward commentary regarding 2010 bookings and pricing will be critical.


The following table details the company’s guidance issued on 06/18/2009.


CCL YOUTUBE FOR Q3 (REVISED) - ccl guidance table


We’ve also provided a “Youtube” of the forward looking comments from CCL’s earnings release, conference call, and 10Q.


From the Earnings Release

  • The focus on cost cutting will remain intact and cost reductions are expected to continue for the rest of the year
  • The company expects full year net revenue yields, on a constant dollar basis, to decrease by 10 to 12%.  The company now forecasts a 14 to 16 percent decline in net revenue yields on a current dollar basis for the full year 2009 compared to 2008 caused by unfavorable changes in currency exchange rates
  • CCL expects net cruise costs excluding fuel for the full year 2009 to be in line with the prior year on a constant dollar basis. However, based on current spot prices for fuel, forecasted fuel costs for the full year have increased $233 million, or $0.29 per share, since the previous guidance
  • The company's revised 2009 guidance is based on current spot prices for fuel of $416 per metric ton and currency exchange rates of $1.39 to the euro and $1.61 to sterling
    • Fuel is currently at $438 per metric ton and exchange rates at $1.47 and $1.63, respectively
  • Full year 2009 earnings per share is expected to be in the range of $2.00 to $2.10, compared to its previous guidance range of $2.10 to $2.30
    • Research Edge is at $2.14
  • 3Q constant dollar net revenue yields are expected to decline in the 14%-16% range (down 19%-21% on a current dollar basis)
  • 3Q net cruise costs excluding the impact of fuel are expected to be 1% higher on a constant dollar basis.  Excluding the impact of the $26 million insurance settlement received in 3Q08, net cruise costs excluding fuel are expected to be down 1% on a constant dollar basis
  • Based on current fuel prices and currency exchange rates, the company expects earnings for the third quarter of 2009 to be in the range of $1.15 to $1.19 per share, down from $1.65 per share in 2008
    • Research Edge is at $1.22


From the Transcript

  • The fuel prices for the full year, based on current spot prices, are projected to be $252 per metric ton for 2009 vs $558 per metric ton in 2008, would result in savings of $600 million
  • Given these FX rates the year-over-year profit impact from currency is expected to be a reduction in the bottom line of $175 million or $0.22 per share
  • For the third quarter:
    • Alaska at 39% of capacity
    • Pricing for NA is lower across all itineraries with worst impact on Alaska
    • European prices are lower but not as bad as NA
    • Caribbean prices are also lower
    • Occupancies are lower for NA and slightly higher for Europe
    • UK yields only slightly lower, other mostly mid single digit declines, overall European yields lower in the single digit yield range
  • For the fourth quarter:
    • Fleet wide capacity is up 7.6%, 5.7% in North America and 9.4% for CCL’s European brands
    • NA brands Caribbean prices are lower, but booking momentum has been strong
    • European pricing is holding up better than Alaska but lower (on NA brands)
    • Occupancies for NA are still lower, but only modestly
    • European brands pricing better than the US brands during 4Q, and while occupancies still not much lower than last year, expect pricing to be down
  • For 1Q2010
    • Fleet wide capacity up 9.2% (13.3% in European brands, 5% in NA)
    • Do expect yield declines in 1Q2010, as a good portion of 1Q09 was booked during better times
    • However, volumes/ bookings are in line
    • If the strong booking momentum continues, it's possible that pricing may be close to 1Q09
  •  Capacity growth is expected to slow but not to stop (with respect to capacity growth in 2012 and beyond)


From the 10-Q

  • The year-over-year percentage increase in ALBD capacity for the third and fourth quarters of 2009 is currently expected to be 5.5% and 7.6%, respectively.  The ALBD capacity increase for fiscal 2009, 2010, 2011 and 2012 is currently expected to be 5.4%, 7.2%, 5.8% and 3.9%, respectively. The above percentage increases result primarily from new ships entering service and exclude any other future ship orders, acquisitions, retirements or sales.
  • Cash from operations and committed financing facilities for 2009 along with available cash and cash equivalent balances are forecasted to be sufficient to fund expected 2009 cash requirements
  • The company predicts that it will not be required to obtain additional new debt during the remainder of 2009; however, it may choose to do so opportunistically in order to meet expected 2010 liquidity needs
  • It is not expected that the current state of the financial markets will have a significant adverse impact on our ability to maintain an acceptable level of liquidity during the remainder of 2009 and throughout 2010.
  • Based on our forecasted operating results, financial condition and cash flows for fiscal 2009, CCL expects to be in compliance with their debt covenants during fiscal 2009.

Chart of The Week: Copper Cracks...

This is, easily, the most interesting major chart in Global Macro right now.



  1. It’s the only one that’s not saying buy everything Chinese right here and now.
  2. It’s the only one that’s not saying that the Buck is going to Burn below the $74 line (US Dollar Index).
  3. It’s the only major macro chart that has been down for the last 3 weeks in a row (other than the US Dollar).

Last week, Dr. Copper lost another -2% of his value, closing out the week at $2.78/lb. There were plenty of reasons to support weakness in terms of what really matters to an asset’s price – supply/demand.


On Thursday, LME (London Metals Exchange) inventories for copper hit their highest levels since May. This morning, Jiangxi Copper, China’s largest copper smelter, made comments overseas about seeing a resurgence in scrap supply. On the margin, these data points certainly aren’t bullish for Dr. Copper’s price.


Altogether, for now at least, Chinese demand and the US Dollar are the two most dominant drivers of what happens on my screens every morning. Dr. Copper is telling me to pay attention to a scenario where Chinese demand slows (China’s stock market is -14.5% from its YTD high for a reason) and the US Dollar stops going down.


Tops and Bottoms, of course, are processes, not points. My immediate term TRADE point price for Copper is $2.85/lb (dotted red line in the chart below), while my intermediate term TREND point price is $2.54/lb.


Broken TRADE and Bullish TREND. Risk managers, take note.



Keith R. McCullough
Chief Executive Officer


Chart of The Week: Copper Cracks...  - a1


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