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BYD 2Q2010 CONF CALL NOTES

A rough quarter followed by a rough conference call. Not much positive going on at BYD. Here are our notes from the call.

 

"Despite a difficult May and June, our overall performance was consistent with the previous two quarters, and generally in line with our expectations. The lingering effects of the recession have left consumers unusually sensitive to shifts in the economy, and they now react more quickly to economic data and other developments, such as fluctuations in the stock market. Although conditions remain uncertain, we believe long-term stabilizing trends are still in place, and that year-over-year growth is achievable by the end of 2010."

- Keith Smith, President and Chief Executive Officer

HIGHLIGHTS FROM THE RELEASE

  • "In Las Vegas, the Locals business declined at a slightly higher rate than the first quarter, but still showed marked improvement over the large quarterly declines we saw throughout 2009."
  • Downtown: "Continued lower spend per visit and reduced visitor volumes."
  • Midwest & Southwest: "Our Louisiana properties continue to account for the majority of the region's year-over-year decline, as they face tough comparable results from the strong levels experienced throughout most of 2009. Overall, the Midwest and South region continued to show trends similar to the previous two quarters."
  • Borgata: "Quarterly performance was negatively impacted by higher promotional activity from competitors in Pennsylvania, higher utility costs due to unseasonably hot weather, and reduced day trip visitation to the Atlantic City market in June."
  • Additional information: 
    • Cash, excluding Borgata: $78.2MM
    • Cash at Borgata: $21.9MM
    • Debt, excluding Borgata: $2.52BN
    • Debt at Borgata: $626.9MM

CONF CALL NOTES

  • Fragile state of the consumer is impacting their results.  
  • However, they still believe in the long term stabilizing trend and that YoY growth is possible by year end
  • Discontinuing their efforts to acquire STN's assets and spend on those efforts given the Ferritta's advantage
  • Will focus on strengthening their balance sheet and reducing leverage
  • The stabilizing trend that Las Vegas locals experienced in the first quarter moderated in the second quarter
    • However, for the 4th consecutive quarter, they saw normal seasonality in that market
    • Orleans EBITDA was flat YoY for the first time in over 2 years
  • Downtown results showed improved trends
  • So far, no impact of the oil spill
  • Anticipate that the 3Q results will be down again YoY but expect to improve some due to easier comps in 4Q
  • AC: July trends have normalized and improved vs. June results. Too early to predict impact of tables games in PA on Borgata. Unseasonally hot weather impacted utility costs at Borgata in 2Q. Adjusting for weather, results are running in line.
  • Refinancing of Borgata debt will provide them with a $100MM distribution if approved by the NJ regulatory authority
  • Total corporate expense for 2010: $40MM
  • Pre-opening was related to Echelon
  • Expect 30% tax rate for the remainder of the year
  • Las Vegas locals market - what changes they have seen vs. a few months ago?
    • As they got into June & July, which are the slowest time of the year for the locals market, they saw similar trends to 1Q and 2Q and expect similar trends for the rest of the year.
    • Any improvement YoY given how dismal last year was?
      • Optimistic but guarded given the sensitivity of the consumer
  • Incremental impact of slot promotions with the introduction of table games in PA
    • Their slot business continues to perform quite well.  They think that the promotional activity is just to facilitate the rollout of table games and is low margin.
  • Utility cost impact was just an impact of a very hot summer. Don't expect it to be replicated in 4Q. Was a usage, not rate, issue
  • Any interest in getting in PA?
    • Not currently looking there. No particular interest in that market
  • Echelon?
    • Years away before they decide to do anything with it. The improvements that the strip is seeing is just a slow gradual build.
  • Borgata - Any contingency plan to cut costs if they get hit harder than expected by table games in PA?
    • Will wait and see - they are prepared to manage around any impact that they see from PA
  • Frequency of visitation to their properties has trended upwards, but spend levels continue to be depressed
  • Midwest/ South?
    • Louisiana contributed to the majority of the decline. Delta Downs had record performance last year this time - so the comps are very hard and that will continue into 3Q.  Expect an improvement in the 4th quarter.
    • Louisiana and TX were hit with trends just later on
  • Given the lack of acquisitions opportunities, is there a point to ramp up capex?
    • Claim that their properties have been well maintained
    • Expect Capex to increase in 2011
  • What's the strategy, aside from waiting for a recovery, given that Echelon is on hold and STN is no longer a priority?
    • Still focused on Las Vegas - just don't have any compelling M&A opportunities. Think that it is better to buy than to build EBITDA today. The best opportunity for them is in the locals Las Vegas business. It's all about gaining distribution points. If valuation makes sense though, they will look elsewhere
    • Bid on M Resorts? No comment - according to Lerner they bid on it.
  • Given that FTE's in Vegas are down despite high occupancies with no plans to add FTEs, what's their plan?
    • Construction segment is the real problem for them, and may get worse as more projects wind-down
    • Those people have already adjusted their spending levels to the new reality
  • Texas?
    • If it happens, they would be interested in participating
  • July in Louisiana?
    • Still tough comps - won't improve until comps ease
  • They did take out some machines at Borgata when they reconfigured the floor - to be more efficient
  • Refinancing by mid 2011
  • Would buy EBITDA if it was deleveraging and had a good cash on cash return, and how it strategically fits into their company.
  • Will use FCF to delever
  • They wouldn't risk the company to do an acquisition. Factor in their capital structure/ refinancing needs going forward.