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ASCA misses consensus due to surprisingly higher promotional spend.  After PENN, PNK, and BYD, expectations were pretty low 

TRANSCRIPT 

  • Think they had a pretty solid quarter.  They are very pleased with the margin performance
  • Huge synergies at Black Hawk, full quarter of regulatory reforms can be seen in 3Q and in the 4Q there is a substantial improvement in revenues and EBITDA as a result of the hotel opening
  • East Chicago was flat, which was a "pretty outstanding result" given the new competition and the fact that a competitor was closed last year
  • Vicksburg was impacted by a new competitor but they are seeing some improvement as a result of management efforts
  • Are in the process of working with lenders on an extension of their R/C ... "we are in striking distance of getting it done..."
  • Blackhawk:
    • So far they are very encouraged, and the initial results are exceeding expectations
    • Characteristics in the first month of hotel performance are more in line with a mature property
      AKA margins will be good
    • Very pleased with the reception from the Denver market
  • Seeing a little less spending per trip per patron and continued impacts of the weak economy across their portfolio (aside from Black Hawk)
  • Margins improved at all properties except at Vicksburg
  • Don't expect borrowing any funds on R/C in 4Q
  • Fixed charge covered was 3.12x, but expected to decline slightly as a result of higher interest from unsecured note offereing
  • Expect Black Hawk margins to improve going forward

Q&A 

  • Blackhawk - when they started the project they thought they could get a 15-17% ROI, putting them in the $60-65MM range, but since then, smoking ban was implemented offset by favorabl regulatory changes and hotel
    • Customer base in the "metro area" has been waiting for a first class facility
  • Vicksburg - significant impact from the economic weakness, impact from new competition
    • Some light at the end of the tunnel from operating the facility better.  Are starting to see some margin improvement there.  Making some adjustments to increase customer satisfaction and profitability
  • 2010 capex in the neighborhood of $75-80MM including several projects to increase air quality and site stabilization in Vicksburg ($20MM for those two - which is front-ended)
  • Capitalized interest will be very minimal
  • What's in the 4Q09 maintenance number? What was it for 3Q09?
    • 4Q09 number is a cash number, and a number of FF&E purchases made in the 3Q are being paid for in 4Q
    • Run rate is still approximately $11 million per quarter
    • Growth Capex is mostly carryover from Blackhawk - have about $15MM of payments to make ... some may flip over to Jan ($5-6MM)
  • What is the new normal for Vicksburg and East Chicago?
    • In Vicksburg - consumer confidence is still weak
    • Some lag affect there too, between Wall street and regional economies
    • Are seeing some encouraging signs of consumer confidence coming back a little bit, think it will be a longer and slower recovery in consumer spending.  Too soon to say that the recession is over and all economies are local
    • East Chicago - for 9 days in July Horseshoe was closed as they transitioned to new facility.  Still see unemployment going up for the next quarter or 2 which will impact them
  • Still in the process of making changes in Vicksburg but began making those changes a quarter ago
    • Hope that 3Q09 will be a trough in margins, especially taking seasonality into account
    • Changes they are making there will be completed in 4Q.  Adjusted the casino layout and the F&B outlets to make them more attractive.  Costs will be adjusted for seasonality
  • Modified stock forfeiture rate.  Last year they had a substantial reduction in work force which positively impacted the forfeiture rate.  Normalized run rate is going to be around $4MM
  • Tax rate was very low in Q3.  A few years ago they booked a deferred tax liability, and now the statute of limitations has expired so now they were able to make the permanent adjustment in the quarter.  Next year it will still be 42-43%
  • Increase promotional spending for next year?
    • Because of hotel at Black Hawk (comped rooms), but saw a higher cash occupancy then they expected
    • Will be higher in terms of dollars but similar as a % of revs
  • Hotel in Blackhawk is performing pretty well, occupancy rate consistant with other properties that have similiarly sized hotels. Rate has been strong with more cash rooms.  However, its still very early.  The increased bet limit, being able to add more table games, coupled with hotel all add up to the expectation of higher margins going forward
    • Huge increase in table game play
    • With the hotel opened the day time mid-week play is also improving
    • Attracting some new guests and the ones that were coming before are staying lower and spending more
  • Uptick in promotional allowances?
    • As long as it continues to produce EBITDA they are ok with it being a little higher.  Believe that any change they see to the promotional line item will be efficiently spent on increasing reveneues
    • There are some competitors that have chosen certain markets to be more competitive in.  "Sporadic fighting" but "they are choosing not to engage in it,"  that said they "do test marketing initiatives" on a continuous basis
  • Interest payments are made semi-annually, that's part of the "better cash flow"
  • Debt?
    • Have over $500MM of R/C commitments, will likely close next week
    • Confident that they won't need to issue anymore senior notes
    • Won't comment on increased cost but it will be "more of a footnote than a headline"
  • Market share in Vicksburg is down bc of the impact of Riverwalk.