Isle of Capri Casinos' (ISLE) CEO Eric Hausler on Q4 2016 Results - Earnings Call Transcript

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

Q4 2016 Results Earnings Conference Call

June 14, 2016, 11:00 AM ET


Jill Alexander - Senior Director of Corporate Communication

Eric Hausler - CEO

Arnold Block - President and COO

Mike Hart - SVP of Accounting and Treasury


Brad Boyer - Stifel

Carlo Santarelli - Deutsche Bank

David Katz - Telsey Group

David Hargreaves - Stifel Financial

Tom O'Shea - Castle Hill

Derrick Jumper - DW Partners

Adam Trivison - Gabelli & Company


Welcome to the Isle of Capri Casinos' Fiscal Year 2016 Fourth Quarter and Year End Conference Call. [Operator Instructions] 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're joined on the call today by Eric Hausler, Chief Executive Officer; Arnold Block, President and Chief Operating Officer, as well as Mike Hart, Senior Vice President of Accounting.

With that I would like to turn the call over to Eric Hausler.

Eric Hausler

Thank you, Jill. Good morning. I want to welcome you to our fiscal 2016 fourth quarter conference call. Our format will shift slightly this quarter as I will make the opening remarks and Arnie Block our President and Chief Operating Officer will discuss the property results in more detail. Mike Hart our Senior Vice President of Accounting and Treasury will take you through the balance sheet.

We benefitted from our geographic diversity during the quarter as we improved adjusted EBITDA and EBITDA margins despite some property specific challenges which Arnie will cover in more detail. We have increased EBITDA and EBITDA margins in 8 of the last 9 quarters. With fiscal 2016 complete, I want to look backward just a moment to provide some perspective on where we are as a company before I look ahead.

Over the last two fiscal years, we organically grew our adjusted EBITDA by $37 million or more than 20% including $10 million in fiscal 2016. Over the same time period, we increased EBITDA margins by 350 basis points including 100 basis points in fiscal 2016, all while reducing our corporate expenses by 5%.

Our shareholders that benefited from our increased profitability as adjusted earnings per share has gone from a loss of $0.06 per share in fiscal 2014 to $1.26 per share in fiscal 2016. Our adjusted earnings per share grew 56% year-over-year in fiscal 2016.

At the same time we reduced our debt to adjusted EBITDA ratio down by two turns from north of 6 times to 4.4 times giving us one of the strongest balance sheets in the gaming industry. In fiscal 2016, we repaid $70 million of debt and spent over $70 million on capital expenditures.

Every property in our portfolio has received significant capital in the past few years. When you walk into our properties, you will find quality games, clean well appointed hotel rooms, good food and restaurants, fun entertainment and friendly people who want to make you feel at home. We are committed to maintaining a strong balance sheet and well capitalized properties, as we believe that in any operating environment these provide us a competitive advantage.

On the last conference call I outlined four things that would be focused on during the transition period to becoming the CEO. Those were operations and culture, internal allocation of capital, external allocation of capital and technology.

On the first, operations and culture. Over the past few months I traveled from the mountains to the sea visiting our properties and meeting with our employees and management team. Our properties in regions are run by smart competitive and dedicated people. As we strengthen our operations in balance sheet, we are tracking new talent to Isle every day.

We continue to drive a culture of continuous improvement in our operations. As we continue to focus on optimizing our marketing expenses, we recently hired a new marketing agency and they are in the process of rolling-out exciting new media and advertising campaigns, as well as business process improvements to our direct mail which we believe will get our customer communications to market faster at a lower cost as it fully ramps over the next several quarters.

Additionally, later in fiscal 2017 we plan to upgrade our fan club which we believe will make us even more competitive in our respective markets and further loyalize our guest.

Second, internal allocation of capital. As we move into our fiscal '17, we will continue to provide our guest with exceptional experiences and our capital plans will bring on the land-based casino and all new restaurants in Bettendorf, as well as new Farmer's Pick Buffet's in Black Hawk and Kansas City, among other projects.

We are continuing to work on our mid to long term strategic capital plans and have identified several moderately priced growth opportunities within the portfolio that we will be scoping over the next several months. With our substantial free cash flow, we expect to fund these projects from cash from operations.

Third, external allocation of capital. With Bettendorf almost complete, we are continuing to review the appropriate balance of allocation of our free cash flow relative to our leverage goals. As I have said before, our target leverage is high 3 times, low 4 times which we believe gives us substantial flexibility and provides some protection in the event of a downturn or unforeseen events. We will continue to be disciplined in our approach to capital allocation and be mindful of the hard-fought battle to get our balance sheet into shape.

Fourth, on technology. On the technology front this year, we will introduce our Lady Luck online branded merchandise site, as well as our inaugural social gaming experience also under the Lady Luck brand. We’re also upgrading many systems across the enterprise and putting new tools into the hands of our employees to make the customer experience better and more responsive.

As a management team, our shared goals are to creative an innovative platform for sustainable improving performance, provide an excellent guest experience and create value for our stakeholders.

With that, I will turn it over Arnie to provide additional color on the quarter.

Arnold Block

Thank you, Eric and good morning everyone.

Many properties performed well during the quarter, 8 properties exceeded prior year EBITDA and 7 properties exceeded prior year net revenue. Caruthersville and Cape Girardeau both posted record EBITDA for the quarter and our other Missouri properties and Boonville and Kansas City grew EBITDA versus prior year.

The Waterloo Property with a new General Manager was able to grow EBITDA by 6% versus prior year. Bettendorf also grew EBITDA versus prior year despite disruption from nearby I-74 bridge construction and construction disruption on the property related to the new land-based facility we’re opening this quarter.

The four properties that made up the majority of the decline in net revenue performance were Pompano, Lake Charles, Black Hawk and Lula. As we discussed on the last earnings call, Pompano experienced the softer snowbird season than in previous years. As the property moved out of the snowbird season late in the quarter performance trajectory versus prior year began to improve.

Dania Jai-Alai reopened in late January after a one year closure for a complete renovation. Dania is approximately 15 miles south of Pompano and we believe trial of new competitor and increased competitive pressures from the Seminoles in the area negatively impacted results especially for customers who reside between the two properties.

Despite the struggles, Pompano still posted its second best Q4 EBITDA results ever trailing over the prior year and best total fiscal year EBITDA results. Lake Charles also experienced the decline in net revenue versus prior year caused primarily by extensive flooding in Louisiana and Eastern Texas in late March.

Interstate 10 was closed for nearly one week due to flooding drastically affecting performance during the big spring break week for customers in the Houston area. Performance of the Lake Charles property was in line with overall market performance for the quarter and the Isle of Capri Lake Charles retained more market share than competitors other than Golden Nugget. Lake Charles was able to mitigate 85% of its net revenue decline with improvements in cost structure.

Blackhawk Isle revenue was down over prior year due in part to a competitor expanding its casino renovation while we benefitted from that disruption in prior year. In addition, the property experienced elevated promotional activity from other area competitors. The property also experienced adverse weather with blizzard conditions affecting Denver Metro area in late March into April.

Lastly, Lula lost market share to expanded Racino competitors in the Little Rock and Memphis area. In addition, the market experienced severe rain with up to 14 inches in February and 7 inches in March, causing flooding in the low lying areas. Many county residents were out of their homes for more than 10 days. This contributed to decreased retail revenue levels from prior year but the property did performed better than its Northern Mississippi counterparts in market share during the quarter.

We continue to stay laser focused on cost management and profitable revenue growth. During the quarter, we launched several new website pages for food and beverage and event sales making it easier for our customers and prospects to see and engage with our properties amenities. Optimizing customer reinvestment continues to be our focus. While gross gaming revenue declined, some of this is attributable to our continued focus on profitable reinvestment.

During the quarter, we saw solid revenue growth from our top segment of customers and an increase in win per visit of 6%. In addition, we reduced labor by 1%and cost of goods sold by 7%.

With that, I would like to turn the call over to Mike Hart.

Mike Hart

Thanks Arnie.

Turning to the capital spending and the balance sheet, we spent $17.6 million in capital during the quarter which includes $6.6 million of maintenance and equipment purchases. We started to take possession of the Bettendorf land-based facility on June 3, and grand opening is scheduled for June 24. To facilitate the move of the casino floor, we will close the floor on Monday, June 20 but the hotel and the rest of facility will remain open.

Since the start of the project we have spent approximately $21.6 million including $11 million during the fourth quarter. We expect the project to come within the budget of $60 million. We also expect to spend approximately $20 million in Bettendorf in the first fiscal quarter of 2017 with the remainder carrying over to the second quarter of fiscal 2017.

During fiscal 2016, we have spent $70.3 million in capital expenditures inclusive of what we spent in Bettendorf. At the end of the quarter, we had $923 million in total debt which is down $993 million at the end of fiscal 2015. We paid approximately $29 million of debt off during the fourth quarter and our revolver balance was $67.5 million at the end of the year.

Our gross leverage was approximately 4.4 times based on trailing 12 months adjusted EBITDA relative to 4.4 times a year ago. Our leverage continues to compare favorably to many of our companies and our peer set.

Over the last 12 months, we have generated free cash flows of approximately $95.3 million excluding the project spend in Bettendorf or $2.31 per share. Our leverage for bank covenant purposes is 4.5 times and we had $224 million in availability on our revolver. Excluding the undrawn letters of credit outstanding, we have full availability of our $300 million bank facility.

In addition to our bank facility, we have $850 million of fixed rate debt with the nearest maturity of our bonds in mid 2020. Our two bond issues are callable and we continue to evaluate our potential refinancing options but at this time do not have any more specifics guidance to this point.

Looking forward to fiscal 2017, we expect interest expense to be $66 million to $68 million assuming today’s interest rates. Depreciation to be $78 million to $82 million and corporate expenses flat with 2016 of $28 million to $29 million which includes $5 million of non-cash stock comp.

Capital expenditures for fiscal 2017 are expected to total approximately $100 million, which includes the remaining approximately $38 million for Bettendorf, $8 million to $9 million is related to the remodel and rebranding of our buffets in Black Hawk and Kansas City, and $50 million in slot and other maintenance capital as we continue to focus on the enhancement of our guest experience across the portfolio.

And with that operator we will open up the call for questions.

Question-and-Answer Session


[Operator Instructions] The first question is from Brad Boyer at Stifel.

Brad Boyer

Thanks for taking my questions. First off, just looking at Lake Charles. I know you guys called out the I-10 closure impact on the quarter, but the margins there were still considerably better than what we were looking for and what consensus was looking for. Just curious if you could walk through some of the steps you're taking there to preserve margins in light of the new competitor in the market?

Arnold Block

We produced marketing by about $1.5 million for the quarter, it includes promotional allowances, slot points coupons and promotional downloads. Then our salaries and wages, cost to sales and other operating expenses were down about $1.6 million. So there's been a big focus on trying to optimize the revenue.

We also saw Golden Nugget anniversary in December. And we think that the market probably, typically would stabilize after about six months after their anniversary date, so it's not unexpected.

Brad Boyer

Okay. Thanks, Arnie. And then second, if we look at some of the state level numbers that have come out for May, clearly, it seems to be a deceleration in the state level comps and obviously the calendars is a headwind in May. Just curious based on what you guys are seeing, do you see any incremental softening in overall demand? Or do you think it's purely just a calendar issue at this point?

Eric Hausler

For sure I think the calendar had a meaningful impact. I think there was a fewer - one fewer Friday and Saturday and an additional Monday and Tuesday. So from calendar SKU standpoint, that's probably about as bad as it can get.

That being said, we thought at the margin, May was softer than our April, but I don't think we're seeing it systemically across the business at this point, but it's certainly something more watching. We have seen periods of volatility for a while now and obviously try to manage around that. It wasn't soft across the board.

We had several properties that actually had very, very strong May's, but a handful as well that you can see in the monthly numbers that were down year-over-year, but most of our properties, if you look at Iowa for instance, two of our three properties were in the top five performance for the month even though they were down. Missouri is a similar type of trend.

Brad Boyer

Perfect. Thanks, Eric, and congrats on a great quarter.


The next question is from Carlo Santarelli of Deutsche Bank.

Carlo Santarelli

Thanks for taking my question. As you wrap up Bettendorf and just think about the 15%, I believe you said on prior calls, for hurdles on an EBITDA ROIC basis, how should we think about you guys ramping that property or that new facility being able to come out on a margin level and revenue boost as we think about the fiscal 2Q through fiscal 1Q 2018 period?

Eric Hausler

Sure. Yes, we've said historically that when we're building new projects we're going to target 15% return, but I think I've been pretty cautious on Bettendorf and particular indicating that we expected to get a modest return, but that it would not hit our - we didn't expect it to hit our hurdle rates.

In part, because the shifting dynamics of the market up there where Devonport is opening a brand new casino, Thursday of this week, and then we'll follow-on June 24. And so, the market is going to take a little while to shift and normalize. I think what's most important for us is that the alternative to doing nothing was pretty catastrophic we thought for the property.

In lieu of that we think we've built what we believe is the most competitive facility in the market. We've got 500 hotel rooms. We've got the most group and convention space and its relatively new. We've renovated that hotel. The casino is not just the casino. We also rebuilt the entire food and beverage operation at the facility. So everything walking in is brand new. Consolidating the hotel check-ins, they were two, they are down to one, our brand new [indiscernible].

So as we've build this property, we've been mindful of the competitive nature of the market and try to put ourselves in the best possible position to ramp it up over time.

To your question Carlo, I think you're probably - you're going to take six months to figure it out. I can tell you the products we're building is materially better and exceptional experience for the customers compared to the riverboat they currently gamble on and the current boat does 69 million, 70 million GGR. So overall it's still a pretty good fundamental market.

And as long as we're talking about it, I do want to commend the team up there who has done an outstanding job of getting us ready to open, as well as actually putting up year-over-year EBITDA growth. If anybody has been up to Bettendorf lately, it is a mess up there.

Carlo Santarelli

Eric, thanks for that. If you wouldn't mind me asking just from the perspective of cost versus revenue. I would assume the permanent facility has a little bit of a tougher margin structure. Would that be accurate?

Eric Hausler

I don't think so. I think they will be comparable to better. In part we've designed it with efficiency, so we're operating multiple level riverboat. We will be down to one single level casino.

In terms of walk distances, for not only customers but for employees, we materially shortened that. The food and beverage is much more strategically located. So I think we've built it with the idea Carlo that, while we recognize that we may not see a tremendous amount of gaming revenue growth, what we've try to do is build the most efficient physical plant we can in order to maximize our ability to drive margins.

That properties margins overall are - I believe 38%. It’s a pretty solid margin property as we see it today.

Carlo Santarelli

Great. Thanks so much, Eric.


The next question is from Chad Beynon of Macquarie.

Unidentified Analyst

This is John on for Chad. Thanks for taking my questions. Given the current VLT trends, I was wondering if you could speak to the environment and your view on Pennsylvania going forward? Thanks.

Eric Hausler

I'm sorry, you mean VLTs in Pennsylvania or VLTs in general?

Unidentified Analyst

In Pennsylvania.

Eric Hausler

I believe that bill obviously hasn't gone anywhere yet. We're watching it over there in Pennsylvania. I think we've said in the past, if VGTs are growth area for the business that is something we'll explore, it doesn't necessarily mean that we'll go into a new market per say, but if it comes into our backyard it maybe something that we take a look at it.

Unidentified Analyst

Great. And one follow up. Flow through in the last couple quarters has been a little bit better than expected. If revenues remain flat, are there more levers you guys think you can pull to continue this one run margin expansion? Thanks.

Eric Hausler

I think the best opportunity for us as a company is still to optimize our marketing spend and as I alluded to, we brought in a new advertising media agency. We recruit all our media bias for our fiscal 2017. New systems coming in, things like that, those are immediate impact items but they accrued as the value of margins overtime as we get smarter in our reinvestment rates.

Obviously, labor is something that we continue to fine-tune and move and I think we've had a good experience. The operating team had a good experience in cost of goods sold particularly as we manage our food and beverage operations more efficiently.

So we're continuing to work at it every day. And we operate under the presumption that this is not a high growth business and that best operator wins.

Unidentified Analyst

Okay, great. Thanks, guys, and congrats again on the quarter.


The next question is from Susan Berliner at JPMorgan.

Susan Berliner

Good morning. The first question I had, I was wondering if you could quantify the flooding impact in Lake Charles? I know you talked about it a little in the press release, but I was wondering if you could specifically quantify the impact?

Arnold Block

We believe best we can tell that it had about $1 million revenue impact. And we feel that without this flooding, we would have had a better quarter year-over-year.

Susan Berliner

Great. And then the second question, I guess, for you, Eric, is more big picture. I guess, what's next? Bettendorf is basically done. Can you talk about how you look to the Company in the future, and if you have any appetite to sell any properties into a REIT?

Eric Hausler

Under the right circumstances, we've always said that if we obviously run the math and it creates value for our shareholders we will certainly explore it. We continue to manage the portfolio. You saw that we moved Natchez during our fiscal '16. And so I think what we look at is both sides, either properties that we would be interested in either operating or acquiring outright or on the other side are there opportunities on the real estate side.

With the balance sheet where it is, options are on the table and we can look at them from a position of strength. We found in the past as we looked it at acquisitions out there we knew - that functionally with our leverage where it was and our cost of capital where it was that we were likely to get outbid by better capitalized operators that have lower cost of capital.

Susan Berliner

Great. Thank you.


The next question is from David Katz of Telsey Group.

David Katz

Good morning. I wanted to ask - and I appreciate the context around capital allocation, But clearly without being specific and understanding that you probably look at everything, what kind of M&A buy-side opportunities are you seeing out there? What is that landscape like, and what kinds of things pique your interest, would you say, just in a general or subjective way?

Eric Hausler

In any given week there is one or two banks, wondering to our offices here in St. Louis with the pitch book under their arm. So, folks are always trying to move certain assets. There is a lot of stuff so from a criteria standpoint we are looking at markets we're not in, properties that don’t require a tremendous amount of capital to get in the door unless we see a clear path to accretive free cash flow.

We want to own things that we believe fit well with what we do well, which we think we operate regional casinos at mid price points very well. And from there David, I think it gets pretty vague, to the extent that stuff comes to the market, we will - as you would expect, we will review and make a decision as to whether we want to pursue it.

There is plenty of assets that have come to the market and traded in past few years, that we have looked at, and either opted to pass on or in some cases we have put bids in but they were not the winning bids. I think we have an approach that we want to make sure that first and foremost, that we are not doing something that compromises our ability to get capital to our own properties and to keep our balance sheet in good shape.

David Katz

Perfect. Thanks very much.


The next question comes from David Hargreaves of Stifel Financial.

David Hargreaves

First, thank you for continuing to provide a lot of detail. We appreciate that. I'm wondering if you could speak a little bit about return on capital deployed for new equipment, new slots? Some guys are seeing a pretty big increase in productivity. What are you seeing, and can you give us any color and does it impact your plans?

Eric Hausler

We are spending I would say fairly aggressively - I think we did $19 million of games and equipment this year across the enterprise, that included everything that touches the casino floor. And I expect that we will be doing something similar in our fiscal '17.

What we are seeing is, some of our less productive games - let me put it this way, we strive and optimized our casino floors in terms of at peak times. There are games that our customers want to play that we don’t have available, to the extent that that dynamic exists on some of our casino floors, we are aggressively moving to remedy because I want to make sure when a customer comes in our goal is to make sure they have the game they want to play because we operate on a premise that that will allow us to capture more of their share wallets.

So, overall I think we have seen a pretty good return on game purchases. We continue to be very vigilant about least cost and sharing cost on our casino floor. It's a limited amount of retail space that we have. We want to make sure we're getting the most bangs for the buck.

David Hargreaves

Can you give us any additional color as to what types of games are working versus what's outdated and not working anymore?

Eric Hausler

I think the trend has been pretty consistent. I'm not sure I have real additional color. We continue to move the norm down in general I would say. And obviously on our floors, reels have never been a big - we have some reels but it’s not a big piece of our business like you would find in Vegas or on the coast.

So we've always been a much more video driven company. We are buying from nearly every manufacturer pretty regularly. Every quarter we're out buying games and we’re buying a fair amount of them and we’re spreading those purchases out. Everybody I think has - product is very competitive these days.

David Hargreaves

You talked about a pretty big change in Waterloo driven by a new general manager. Could you give us an idea as to what that person brought in with him, what they changed?

Arnold Block

Well, we moved a General Manager that was formally at our Boonville property for a number of years functioning in as Director of Operations. We moved him from there to Caruthersville when we had a opening for his first GM assignment to give him some experience as the Head of the Property. And then we had an opportunity to move him to a mid size property similar to Boonville and our thoughts there were that he has seen - if the margins tell the story arguably as 39% margin flow through property in Boonville to Waterloo and see what the experience of that great operating team and Boonville has been and how we can transfer those same business practices to Waterloo.

So primarily labor, food cost, questioning on a marketing expenses, promotions, entertainment, just in general how we do business up there and he has the benefit of Boonville as a great proxy to kind of level set what is the best path forward and how to best be efficient.

David Hargreaves

Got it. And then in Black Hawk, so you had some competitive impact. Can you talk about the hotel metrics? Did they hold in as well? Or were they down as well? How did the hotel do?

Arnold Block

The hotel was down slightly. Some of that was some of our own spending in Q4 we optimized our spend, we cut back some spending in electronic media in Denver, and tried to reduce promotional cost and we did have some hotel revenue down as well.

David Hargreaves

Last question. I haven't been to any of the Little Rock or Memphis Racinos, and I'm wondering if that competition is more amenities based or convenience based? Are they starting to develop those as opposed to just adding machines?

Eric Hausler

We are seeing some diversification of their amenities. Obviously they are primarily convenience based but they are pretty good facilities at this point particularly the Oklahoma facility outside of Little Rock. The reality is just closer to Little Rock than we are in - as Little Rock and its meaningfully closer to Little Rock than the Tunica properties are.

But they’ve done a nice job. That's always been a very nice facility with the track there and they’re starting to expand their amenity basis. This has been going on for several years down there generically in the Tunica and obviously our Lula property which is a little ways out of Tunica.

David Hargreaves

Thank you very much. Sorry about that phone going off in the background.


The next question is from Tom O'Shea with Castle Hill.

Tom O'Shea

Thanks. One of the things about the release that was impressive was how close on GAAP net income was to adjusted net income. Is that something that we can look forward to this fiscal year as well?

Eric Hausler

That's a good question. We obviously report the GAAP net income, occasionally there are adjustments that we think makes sense to highlight for our stakeholders in order for them to see what is really running through the operations. We did not in this case for instance last year we had some asset impairments as we ran through the first quarter- ran through the fourth quarter which we did not have this year.

We’ll have a little bit of pre-opening expense in our Q1. I wouldn't call it material overall but I do like to highlight things that are otherwise outside what you would see on the normal scope of operations.

Tom O'Shea

Okay. And then just given all of the REITs that are either out there or have been announced and the implied multiples being paid by the market, why not just launch a formal process to either convert to a REIT or sell into that expanded multiple? Thanks.

Eric Hausler

I think, well one converting to a REIT with the new IRS regs is not nearly as easy and the tax consequences have changed quite a bit. So simply spinning off your real estate into a tax-free entity is not - the vehicle that GLPI use is no longer efficiently available.

As I've said before, we will continue to pursue creating shareholder value and if we see something that makes sense, then we would - we’re not sitting idle but I don’t have any comment on us launching a process or not, I don't - we have anything to say about that, we will say it.

Tom O'Shea

Thanks very much.


The next question is from Derrick Jumper, DW Partners.

Derrick Jumper

Congrats on a good quarter. Given you're going to be starting to generate some substantial levered free cash flow now, are you guys considering a stock buyback program?

Eric Hausler

It is under consideration and obviously with the entire cap structure callable, we want to make sure that we find the appropriate balance there because if we do pull the trigger on refinancing some parts of a debt, the debt stack and there are cost associated with that as well.

Derrick Jumper



The next question is from Adam Trivison of Gabelli & Company.

Adam Trivison

Thanks for taking my question. Can you provide performance across your player segments?

Arnold Block

In general our A segment is up, our lower end of our database for C and D are down by design as we try to optimize our spend. So we focus - as I think I’ve said before on inputs, so great service, great products, best games, right restaurants, the right prices and in general the right employees at all levels, if we do that what comes out of the other end, our EBITDA will be there but we have to optimize it and we clearly know that our high end segments are the highest worth, although we try to spread that across all segments.

We have been able to preserve our VIP and A segment very well and by design, the less profitable business has been pushed to retail.

Adam Trivison

Eric, in your remarks you mentioned multiple systems implementations and a reworking player's club program. How should we think about the costs to these initiatives, and where they may show up in the P&L?

Eric Hausler

Those are embedded in the capital expenditures guidance for the year. So the expenditures guidance for the year has the gear and hardware and all of that it would normally get expensed running through there.

Adam Trivison


Arnold Block

The rest of it players club and stuff that is internal programming talent here at the company and that is deployment of resources that are already upward.

Adam Trivison

Great. Thank you very much.


This concludes our question-and-answer session. I would like to turn the conference back over to Eric Hausler for any closing remarks.

Eric Hausler

I want to thank everybody for joining us and we will see you after the first quarter.


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