Not a bad quarter - exactly in-line with us - although sellside had upped whisper expectations the last couple of days so stock is taking one on the chin. Here is our call transcript.
ASCA 4Q09
"Over the past year, we substantially reduced operating costs, completed our last significant construction project and strengthened our balance sheet through a multi-phase debt restructuring. Our efforts in 2009 have created a strong foundation for 2010 that we believe will result in a significant increase in cash available to retire outstanding debt and maintain quarterly dividend payments. We also believe we are well positioned to withstand continuing difficult economic conditions and drive significant growth when the economy improves."
- Gordon Kanofsky, Ameristar's Chief Executive Officer and Vice Chairman
Earning Release Highlights
- "Ameristar Black Hawk achieved record-breaking financial results as the September 29, 2009 grand opening of our luxury hotel and spa complemented the July 2, 2009 Colorado regulatory changes. Ameristar Black Hawk helped to grow the market by 14.9% when compared to the 2008 fourth quarter, and the property increased its fourth quarter market share on a year-over-year basis from 16.9% to 27.1% as a result of the facility and regulatory enhancements."
- "On December 28, 2009, the Indiana Department of Transportation announced that it was permanently closing the Cline Avenue bridge near Ameristar East Chicago. The bridge has been closed since November 13, 2009 due to safety concerns discovered during an inspection of the bridge. Closure of the bridge has significantly impacted the property's operating results, and we expect this to continue unless and until improved access to Ameristar East Chicago is developed."
- "We are working closely with government officials to attempt to mitigate the traffic impact. Additionally, we will continue to evaluate the property's cost structure relative to business levels."
- "At December 31, 2009, our leverage and senior leverage ratios (each as defined in the senior credit facility) were required to be no more than 6.00:1 and 5.75:1, respectively. As of that date, our leverage and senior leverage ratios were each 4.87:1."
- 1Q2010 guidance
- Depreciation: $27.5-$28.5MM
- Interest expense, net of capitalized interest: $33-$34MM, incl. non-cash interest expense of approx.$2.8MM
- Tax rate: 42-43%
- Capex: $30-$35MM
- Capitalized interest: $0.2-$0.5MM
- Non-cash stock-based comp: $2.8-$3.3MM
CONF CALL
- Four properties actually improved their EBITDA margins due to cost management and regulatory benefits
- They extracted $60MM of savings across their properties
- Missouri loss limit removal - $6.8MM benefit at least (ie recovered all their lobbying costs) and in Colorado, they think they recovered all lobbying costs in just 3 months from the regulatory benefits
- Hotel at Blackhawk has been "gangbusters", took 5x their fair share of market growth in that market.
- Think that 27% is a sustainable level of market share in Blackhawk for them (up from 17% pre-hotel and reg changes)
- East Chicago: replacing the bridge is at least 3-4 years out. They are continuing to downsize the cost structure at that property to offset some of the losses from the bridge closure.
- Anticipate a substantial reduction in debt going forward with proceeds from the significant cash flow they generate from operations now that their capital spending is just maintenance related
- Once their swaps expire they should experience materially lower interest expense (save $12MM in 2H2010), assuming current LIBOR rates
- Total capex in the $60-65MM range in 2010 (the $70-80MM in their presentation includes construction payables from 2009 work), spent over $60MM in 2009 on true maintenance capex.
Q&A
- No significant change in Jan trends from what they saw in Dec aside from weather related issues
- Amount in dispute with Colony is not material
- Not really interested in Riveria's property, but they will be opportunistic. However, they don't see a lot of compelling distressed opportunities, but will be prudent now until they get out of this recession
- Corporate expense may see a slight increase in 2010
- Other than seasonality they do believe that Blackhawk can see similar margins that they saw in the 3rd Q. 4Q is always impacted by weather in 4Q.
- The $25.8MM was maintenance capex in the 4Q
- "We are out the of the development business for now"
- Update on the Estate? none
- Corporate and expense includes the $3.8MM of discontinued project development expenses
- CIP of $18.5MM at Dec 31 includes construction payables on Blackhawk
- Market share in Vickburg - 42-43% in 4Q09. Where could it go, used to be in the high 40's.
- Think that 42-43% range is a reasonable expectation
- What do they consider "compelling" valuation for assets
- most workouts leave existing equity in place which complicates the distressed situations. Need a 15-20% ROI to get "excited" about doing due-diligence
- Won't see any more big regulatory changes like what they had in CO & MO but are focused on monitoring smoking bans and the like
- The impact of the bridge on EBITDA should be about $10-15MM in 2010 vs. their original expectation. In 4Q2009, think that there was a $2-3MM adverse impact on East Chicago due to the bridge closure.
- Have been marketing the "heck out of the [Blackhawk] property" and its working, but unclear that there was a negative impact on margins because of that - feel like they got a good return on the marketing expense. Will continue to market heavily there - lots of people in the Denver market are not aware of their property
- Some of the construction payables are included in the $30-35MM estimate
- Hopeful that longer term margins at Blackhawk would be better than what they have at Council Bluffs (lower tax rate in CO)
- Expectation is that dividends will remain flat, assuming that the business remains stable
- Liquidity update for those people that can't (or are too lazy to) do math and didn't bother reading the release: Need $60-65MM of cash on hand to operate + $96.5MM+ plus $100MM of R/C powder
- Original purchase price was $670MM for East Chicago. Written down by $424MM
- Step up in promotional dollars in 4Q09? - Part of it is Blackhawk comp rooms, part is East Chicago based on road being closed (necessity to maintain volume). More than likely this is will go for another Q or 2. In the summer though they can spend less since its peak tourism season anyway at Blackhawk.
