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Headline miss but ASCA actually beat our EBITDA slightly. Below the line was worse. Maybe we were too conservative but East Chicago wasn't the disaster we thought.

 

 

Despite the weather, George Bush, low hold, and other excuses, ASCA actually beat our EBITDA estimate slightly.  They missed the Street, of course.  Below the EBITDA line items were worse so EPS looked bad.  While the excuse game gets a little much sometimes, we actually feel a little better about the properties going forward, particularly East Chicago.  However, EPS will likely go down significantly going forward, due to a higher tax rate, corporate expense, and interest expense.   

 

 

"NOTES"

"In comparison to the extremely strong first quarter of 2009, when we established several all-time financial performance records, the initial quarter of 2010 proved to be more challenging due to a variety of negative factors that impacted our operating results....We continue to see soft consumer discretionary spending in most of our markets, as most significantly evidenced by market contraction on a year-over-year basis in our Vicksburg, Kansas City, Council Bluffs and Jackpot markets"

- Gordon Kanofsky, Ameristar's Chief Executive Officer

HIGHLIGHTS FROM THE RELEASE

  • "Our luxury hotel and the favorable regulatory changes in Colorado spurred year-over-year gross gaming revenue growth of $12.0 million in the Black Hawk market during the first quarter, and we were able to capture more than 100% of that"
  • "Ameristar East Chicago's admission levels and operating results continued to be adversely affected by a permanent bridge closure in the fourth quarter of 2009 that has made access inconvenient for many of the property's guests. The bridge closure contributed significantly to the 47.2% decrease in Adjusted EBITDA as compared to the prior-year first quarter."
  • "The first quarter of 2010 was adversely impacted by low table games hold at several of our properties, including Ameristar East Chicago where a high-limit player affected Adjusted EBITDA by approximately $1.6 million."
  • "Our Midwest properties were negatively impacted by the increased frequency of inclement weather... Additionally, the poor weather conditions were often present during weekends and holidays."
  • "Employee benefits expense increased year over year by $1.9 million."
  • Outlook: "Although we were presented with several challenges during the first quarter, we are fortunate in that some of them are expected to be subject to the law of averages, such as the inclement weather, low table games hold percentages and spikes in health benefits claims"
  • 2Q2010 Guidance:
    • D&A: $27 to $28MM
    • Interest expense, net of capitalized interest: $34 and $35MM (includes non-cash interest expense ~$2.8MM)
    • Tax rate: 42.5% to 43.5%.
    • Capital spending: $15 to $20MM
    • Capitalized interest: $0.2 to $0.3mm
    • Non-cash stock-based compensation expense: $3.0 to $3.5MM

CONF CALL

  • Comparison between 1Q09 and 1Q2010 was difficult as everything went right for them last year
  • Implemented almost all of their cost controls by 1Q09, and therefore they are particularly happy with their margin performance given the top line results.
  • Used 42% of Adjusted EBITDA to pay down debt
  • Still playing around with the marketing & promotions at East Chicago to get maximum efficiencies. 
  • The bridge is permanently shut down, but the state will allow the use of the highway to improve access to the property late this year. By 2012 they will complete the second phase of a project to really help the egress to the property
  • Continue to see the consumer being very frugal with their money
  • Few unexpected items in the Q included:
    • increase in benefits to healthcare charges and some particular non-recurring timing issues, weather- especially on peak times like holidays and weekends and low hold
  • Hotel occupancy at Blackhawk has been exceeding 90% since opening. Attracting a lot of visitors from the Denver market. Their gross gaming revenues increased by $14.9MM and market share grew to 26.9%
  • Game plan is to retire debt with their FCF.  Retired an additional $12MM of debt in April
  • High cash balance is related to certain interest payments they need to pay in 2Q2010
  • Expect to retire $70-80MM of net debt for the year and are slightly ahead of that plan.
  • Once the swaps expire on 7/19/2010, they will see a substantial reduction in interest expense in the 2H of the year by roughly $12MM

Q&A

  • Weather likely impacted them by several million
  • Overall impact of low hold was a couple million
  • Also getting impacted by road construction / access issues in St. Louis which will be completed over the next few months
  • Didn't seem to be particularly interested in acquiring any Stations assets
  • Any signs from the consumer that things are improving?
    • No
  • Are East Chicago costs normalized this quarter?
    • Yes but they are still tweaking the promotional campaigns
  • Benefit charges had to do with changing providers and a large claim settlement that was outstanding. There has also been some accelerating trends on healthcare costs. However, those costs will be more balanced going forward
  • There were also increases in SG&A as well. Corporate run rate excluding stock comp should still be $47MM for the year
  • Capital spending for 2Q 2010: $15-20MM
  • Still have over $4MM of construction payables outstanding pending the outcome of their lawsuit with Walton in St. Charles
  • The stock comp guidance doesn't include the deferred comp plan.
  • The point of their hotels is largely for promotional purposes
  • Gas prices did have a negative impact on them last time they were over $3.50/ gallon
  • Found that the consumer was very happy to spend ASCA's money in 2008 when things were weak but that wasn't efficient for them - as soon as their promotions dried up, so did spending.