ASCA 2Q2010 CONF CALL NOTES

ASCA's revenues were in-line but higher promotional expenses across numerous properties led to an EBITDA miss. However, it's all about expectations and clearly, they were low going into this print.

 


"As we look into the third quarter, we are optimistic regarding the performance of the properties in our more stable markets, including Kansas City, Council Bluffs and Vicksburg. We anticipate Black Hawk will continue to produce year-over-year growth ...We also expect some opportunities for growth in Missouri, as both of our properties have been permitted to operate 24 hours daily (except for one hour each Wednesday morning) since July 1, 2010. Prior to the change in operating hours, our Missouri properties were required to be closed for three hours per day on non-holiday weekdays."

- Gordon Kanofsky, Ameristar's Chief Executive Officer.

 

HIGHLIGHTS FROM THE RELEASE

  • "East Chicago property's financial results were adversely affected by a nearby bridge closure to a degree much greater than originally anticipated"
    • "The Company has significantly reduced forecasted financial results for the property based on the actual operating results since the bridge closure. As a result, in the second quarter of 2010 the Company recorded a non-cash impairment charge of $56.0 million ($33.2 million on an after-tax basis) that completely eliminates the remaining net book value of goodwill associated with the acquisition of the East Chicago property and reduces the carrying value of the property's gaming license to $12.6 million."
  • "Ameristar Black Hawk once again posted substantial year-over-year improvement in all financial metrics thanks to the September 2009 opening of its luxury hotel and the July 2009 regulatory reform in Colorado"
  • "Our St. Charles property was negatively impacted by new competition that entered the St. Louis gaming market in early March 2010, although to a lesser degree than we had anticipated prior to its opening"
  • "Assuming no significant changes in LIBOR, we expect to save approximately $6.5 million in interest expense per quarter from the July 19, 2010 expiration of our interest rate swap agreements."
  • 3Q2010 Guidance:
    • Depreciation: $27 to $28 million
    • Interest expense, net of capitalized interest:$27.5 to $28.5 million, (non-cash interest expense: $2.8 million)
    • Tax rate: 42.5% to 43.5%.
    • Capital spending: $15 to $20 million
    • Capitalized interest: $0.1 to $0.2 million
    • Debt reduction: $25 million
    • Non-cash stock-based compensation: $3.4 to $3.9 million

CONF CALL NOTES

  • A little more than half the declines they are seeing are attributed to the economic environment and new competition in St. Louis
  • Things in St. Louis are stabilizing from a market share standpoint
  • At East Chicago, the marketing efforts have been unsuccessful. Think that the impact will be $25MM unless the bridge opens. Working on some improvements to the hotel. The reduced forecast to this property led them to take a $56MM impairment charge.
  • 80% of the market growth in Blackhawk was attributed to their property
  • CIP is immaterial - mostly just payment negotiations on prior projects
  • Anticipate $45-50MM available under the R/C by December
  • Anticipate that the additional hours of operations in Missouri should give them a bump up in performance

Q&A

  • East Chicago - only improvement will be from more efficient operations now that they know what to expect from it
  • Until they see general economic improvement in the economy, they think holding on to cash is the best idea for them
  • Think that the old President license will go to Cape Girardo
  • Kansas City - why the bigger than usual gap between reported state numbers and reported numbers?
    • Promotional spending - which turned out to be a bad decision- they pulled back going forward
  • Are they going to put some new swaps on?
    • No
  • Any changes to consumer behavior - traffic stable but spend per visitor down?
    • Not really
  • Impact of 24 hour rule in Missouri over the last month
    • Too early to say....or shall I say that it's not that material otherwise they would mention it
  • Peak margins at Blackhawk? Looks like expenses came down a bit
    • Think that they have some more revenue opportunity there as they continue to penetrate Denver
    • Will try to get incremental margin improvements
    • Seasonality is impacted by weather - (July - September) is their best quarter
  • Doesn't think that they will see material increases in market share in Blackhawk
  • They aren't giving up all marketing efforts in East Chicago 
  • Hotel in Kansas City - 100 rooms - in design now. 15 months of outflows of cash related to it
  • Need about $70MM of cash to operate their properties
  • How have competitors reacted to their promotional spending?
    • At Blackhawk, it is really about giving away hotel rooms

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