Isle of Capri Casinos' (ISLE) CEO Virginia McDowell on Q1 2015 Results - Earnings Call Transcript

Aug.27.14 | About: Isle of (ISLE)

Isle of Capri Casinos, Inc. (NASDAQ:ISLE)

Q1 2015 Earnings Conference Call

August 27, 2014 11:00 AM ET

Executives

Jill Alexander – Senior Director-Corporate Communication

Virginia McDowell – President and Chief Executive Officer

Eric Hausler – Chief Financial Officer

Arnold Block – Chief Operating Officer

Analysts

Steve Wyszynski – Stifel Nicolaus

Chad Beynon – Macquarie Research Equities

Wade Pontius – JPMorgan Chase & Co.

Operator

Ladies and gentlemen, thank you so much for standing by. Welcome to the Isle of Capri Casinos Fiscal Year 2015 First Quarter Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with the analysts. Instructions will be given at that time. As a reminder, today’s conference is being recorded and will be made available for replay.

I will now turn the call over to Jill Alexander.

Jill Alexander

Good morning. All statements made during this call that relate to future results and events are forward-looking statements that are based on our current expectations. Actual results and events could differ materially from those projected in the forward-looking statements because of risks and uncertainties, which are discussed in our annual and quarterly SEC filings and in the cautionary statement contained in our press release. We assume no obligation to update our forward-looking statements.

We are joined on the call today by Virginia McDowell, President and Chief Executive Officer; Eric Hausler, Chief Financial Officer; and Arnold Block, Chief Operating Officer.

With that, I’ll turn the call over to Virginia.

Virginia McDowell

Thank you, Jill, and good morning, everybody. During my opening comments on our year-end conference call three months ago, I noted that Isle was engaged in a disciplined balancing act based on the new reality of regional gaming.

Our team was focused on simultaneously reducing costs through operational efficiencies and improving the customer experience, both necessary to improve shareholder value in an environment where the top line remains challenged.

For nearly a year we have diligently pursued a profit improvement plan that continues to pay dividends as operating smarter becomes more ingrained in our culture. At the same time, however, we’ve been laying the foundation for building even stronger relationships with our customers by looking at nearly all our marketing programs for the first set of eyes and a results-driven perspective.

We’ve talked about some of the changes such as the launch of the second phase of our Fan Club customer loyalty and rewards program and our emphasis on Net Promoter scores on our past conference calls. While much of the organization was focused on finding ways to right-size our cost structure based on the current operating environment, we were also taking the time to reinvent our business with the direct help of our customers.

Our results this quarter show the impact of the changes we have made and we plan to launch additional new programs and exciting initiatives over the next couple of months that we’ll discuss in more detail on our next quarterly call.

We are pleased that nearly three-quarters of our properties were paid bonuses based on their Net Promoter scores in the first quarter, which further validates that our customers approve of our new direction and they voted with their wallets as well, as evidenced by the success of the Summer Seafood promotion that I discussed last quarter. While only three properties participated in our beta launch in their respective buffets, the promotion at these sites resulted in an increase in cash covers, cash revenues and casino revenues during the target months.

The feedback from our customers was so positive we’re launching the next version of the promotion in the fall with even more fun and more food and more fanfare, and 11 properties have already added it to their fall marketing calendars. Don’t get me wrong, times are still tough and our world has changed, but the Isle team is determined that we will change right along with it, and we believe we’re up to the challenge.

And with that, please welcome Eric Hausler to the hot seat.

Eric Hausler

Thank you, Virginia. Good morning, everyone. As we outlined in the press release, net revenues were $242 million, an increase from $238 million in the prior year. Excluding Nemacolin, which was open for only one month of last year’s quarter, net revenues were $233 million relative to $235 million.

Consolidated adjusted EBITDA was $43.7 million, up 4.3%. That is compared to $41.9 million in the prior year quarter. Excluding Nemocolin adjusted EBITDA increased 3.9% year-over-year. There were a few items in the quarter that impacted our earnings and are excluded from consolidated adjusted EBITDA, which we highlighted in the press release.

Notably these include $2.3 million in severance expense related to the restructuring of our corporate office and $1 million in expenses related to the referendum in Colorado. In the prior year, we had $1 million gain from the sale of our corporate airplane.

Our EBITDA increase was driven primarily by better results from our property in Lula, Mississippi as well as our properties in Bettendorf and Waterloo, Iowa. Additionally, all four properties in Missouri reported increased EBITDA year-over-year. Our property in Pompano continued to be a solid performer with a 9% EBITDA gain.

Excluding non-recurring items, corporate and development expense was down 10.7% year-over-year. Interest expense was also lower year-over-year, primarily as a result of lower borrowings on our credit facility. Adjusted income per share, adding back severance in the Colorado referendum expense, was $0.02 per share for the quarter, relative to an adjusted loss of $0.07 per share in the prior year.

On a GAAP basis, we reported a loss of $0.06 per share on a continuing basis relative to a loss of $0.14 per share in the prior year. During the quarter, we spent about $9 million in capital, almost all related to maintenance and equipment purchases. We expect to spend approximately $38 million to $40 million in maintenance capital throughout the remainder of fiscal 2015.

At the end of the quarter, we had $1.06 billion in total debt, our revolver balance was $55 million relative to approximately $65 million at the end of our fiscal fourth quarter. We also had $1 billion in bonds outstanding. Our leverage for covenant purposes was 6.3 times and we had $125 million in available capacity on our revolver.

At this time we can open the call for questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer portion of the call. (Operator Instructions) Our first question comes from Steve Wyszynski of Stifel. Please go ahead.

Steve Wyszynski – Stifel Nicolaus

Hi, good morning, guys. Virginia, I guess in the release you talked about, you saw a 4% increase in retail play and you also saw a decrease in some of your customers from some of your lower segments of your database. Can you just give a little more detail around that comment? And maybe is it something that – has it gotten worse, has it gotten better, is it stabilizing? A little more color there would be helpful. Thanks.

Virginia McDowell

We’ll let Arnold answer that.

Arnold Block

We’ve seen a little bit of deterioration and migration. Some of our efficiencies in our Fan Club 2.0 have caused a little bit of this. But really it’s all wound up being more profitable, better EBITDA results. So, we’re not unhappy with the results and the strategy that we put out there.

Steve Wyszynski – Stifel Nicolaus

Okay, got you. And then maybe, Virginia, help us understand how you guys are thinking about Colorado at this point. And if something happens there, have you guys tried to figure out what the potential impact could look like on your two properties there?

Virginia McDowell

We’re more focused at this point on the campaign to defeat the referendum. It is something that the Colorado properties are united in. We have a tremendous focus on making sure that we get the strategy of this right. We were very encouraged by what happened last Friday with the Denver School Board, which is the largest school board in the state, but basically said that they were not going to support the referendum. So we will just continue to work with our coalition and do everything that we can do defeat this going forward.

Steve Wyszynski – Stifel Nicolaus

Okay, great. Thanks, guys.

Operator

Our next question is from Chad Beynon of Macquarie. Please go ahead.

Chad Beynon – Macquarie Research Equities

Hi, good morning. Thanks for taking my question. First question for you, Eric. With regards to the 6.3 times leverage that you talked about, could you talk about a level of comfort that you’re looking to reach that would maybe allow you to consider expanding the portfolio given some of the properties that are for sale in regional gaming at this point?

Eric Hausler

Well, I think we’re always looking at where we’re at. We’re opportunistic in the way we look at properties that are for sale. If we see something that makes sense and would add to free cash flow and we could do it under our existing capacity, we would certainly consider it. I’m not sure there’s necessarily a target for an acquisition standpoint that way. We’ve historically said we’d like to get to five times leverage. I think you can see we continue to be aggressive about reducing debt with our free cash flow while also making prudent investments in our existing portfolio.

Chad Beynon – Macquarie Research Equities

Okay, thanks. And then with regards to any property tax appeals that are outstanding, is there anything out there that could be meaningful from a cash standpoint going forward over the next 12 to 18 months?

Eric Hausler

I would say that overall we continue to evaluate where we are paying property taxes and where it maybe out of what would be the current market. But there’s nothing we have guidance on at this point.

Chad Beynon – Macquarie Research Equities

Okay, thanks. And the last one on Cape Girardeau, it looks like margins fell sequentially on kind of similar revenue as to what we saw last quarter. Yet you mentioned retail play improved. Anything going on there that would prohibit you from getting margins back into the high teens or low 20s, as we saw in your fiscal fourth quarter?

Eric Hausler

Most of it will be labor improvements and cost of goods sold. As Virginia mentioned, we had the Seafood Takeover promotion and we’re going to a better job of controlling cost of goods at that property. And then we’re attracting a larger Asian market and our player development efforts are a lot better at that property going forward as well.

Chad Beynon – Macquarie Research Equities

Okay, thanks. And congrats on the results.

Virginia McDowell

Thank you.

Eric Hausler

Thank you.

Operator

Our next question is from Susan Berliner of JPMorgan. Please go ahead.

Wade Pontius – JPMorgan Chase & Co.

Hey, guys. This is actually Wade Pontius on the phone for Sue. Just have a quick question on the two properties that are potentially underdevelopment. The first one being, I know you guys received approval to go ahead or you submitted a proposal for a land-based property in Bettendorf. And I was just wondering if there’s any update on that.

Virginia McDowell

The permits are ready. We are still working with the city of Bettendorf and our non-profit partner on finalizing our agreements with them. We are hopeful that we will get that done in the very near future, because we would love to go to our Board of Directors and get approval for this project so that we can start prior to the winter and not start next spring.

Wade Pontius – JPMorgan Chase & Co.

Okay. And just the second question is just on Golden Nugget’s property. Has there been any of update on that in terms of it still being expected to open by year-end?

Arnold Block

I believe that’s still the case.

Wade Pontius – JPMorgan Chase & Co.

Okay. That was all I had. Thank you.

Virginia McDowell

Thank you.

Arnold Block

Thanks.

Operator

This concludes our question-and-answer session. I’d like to turn the conference back over to Virginia McDowell for any closing remarks.

Virginia McDowell

No, thank you very much. As I said, we’ve got some exciting stuff coming up that we’re going to launch in the next quarter and we look forward to talking to you in a few months. Have a great day.

Operator

To access the digital replay of this conference you may dial 1-877-344-7529 or 1-412-317-0088, beginning approximately one hour from now. You will be prompted to enter a conference number, which will be 10051402. Again that is 10051402. Please record your name and company when joining. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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Isle of Capri (NASDAQ:ISLE): FQ1 EPS of $0.02 in-line. Revenue of $241.6M (+1.5% Y/Y) misses by $1.17M.