Golden Entertainment Inc (GDEN) 2006 Q1 法說會逐字稿

Good afternoon. My name is Kevin and I'm be your conference facilitator today. At this time I'd like to welcome everyone to the Lakes Entertainment first quarter 2006 earnings conference call. (OPERATOR INSTRUCTIONS). I would now like to turn the meeting over to Mr. Tim Cope President and CFO of Lakes Entertainment. Thank you. Mr. Cope, you may begin you conference.

Good afternoon everyone. Thank you for joining us today for the the Lakes Entertainment first quarter 2006 conference call. On the call with me today is Lyle Berman, Lakes Chairman of the Board and Chief Executive Officer. As we begin our prepared remarks I'd like to remind everyone that this call may contain forward-looking statements within the meaning of the Federal Securities Law including statements concerning business strategies and their intended results and simular statements concerning anticipated future events and expectations that are not historical facts. These forward-looking statements are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. These statements do not guarantee future performance and therefore undue reliance should not be placed on them. A replay of this call will be available beginning today at approximately 3:00 pm central time through Thursday May 16th. You may access the replay by visiting the lake Lakes Entertainment website at www.lakesentertainment.com. Or by dialing 1-800--395-0403 using the pass code 88069886. Lyle will begin our discussion today with an update on our casino projects. I'll then discuss our first quarter financial results and our outlook for the future. Lyle? Lyle, I'll turn it over to you now.

I had it on mute. Good afternoon. Thank you for joining us today. Before I provide an update on our various projects I'd like to say we -- we were pleased to announce the recent addition of Larry Barenbaum to our Board of Directors. Larry brings a wealth of Board room experience to Lakes and we are benefiting from his valuable insight as we move forward with our strategic objectives. Let me reiterate how extremely proud we are to be associated with each of our travel partners as we move forward with the successful development and management of their casinos. Building, designing and opening a large casino project is no small undertaking and we are fortunate to be working with such dedicated people. As I review each casino project, please keep in mind that they are not in any order of significance or state of completion. Dates of construction and anticipated openings are subject to change.

Let me briefly explain the requirements for an Indian tribe to have a casino. They must be a federally recognized tribe. They must have what is legally deemed to be Indian land. And to operate any type of class three gaming which includes well-known slot machines and most of the popular table games they must have an [acompact] which is an agreement with the state. Finally, if a company like Lakes is engaged to manage the casino, that management company must have a contract which is approved by the National Indian Gaming Commission. Once these types of conditions are met, construction may commence and upon completion the casino opens. Each of the projects in our portfolio has met the first three requirements. They are federally recognized, they have Indian land and all have compacts with their respected states. Three of our respective management contracts have now been approved by the National Indian Gaming Commission, or as commonly referred to as NIGC, while other's continue to await approval. None the less, project of this magnitude also entail a variety of legal and regulatory issues which I'll outline as part of each project update.

I'll begin with the Foothill Oaks Casino with the Shingle Springs Tribe near Sacramento California. Lakes has contracts to develop and manage this planned casino and has received NIGC approval of the management contract. This casino project is planned to be built on the Rancheria of the Shingle Springs Band of Miwok Indians in El Dorado County, California, approximately 30 miles east of Sacramento and is planned to include approximately 2,000 gaming devices and 100 table games, along with other amenities. The two lawsuits pending again this project still exist. The first is a lawsuit filed by the U.S. District Court for the Eastern District of California by El Dorado County raising two issues. First the validity of the environmental assessment as required by the NIGC for the approval of the management contract. The second issue challenges the validity of the tribe and whether the Rancheria is properly Indian land, which -- with which will allow gaming. In early 2005 the judge in this case issued a final ruler -- ruling dismissing all allegations. The plaintiffs have filed an appeal which is still spending.

The second suite challenges the validity of environmental documents prepared for this approval of the highway 50 interchange by the California Department of Transportation under the California environmental quality act. This case received an initial ruling in late December 2003 which denied all claims of the plaintiffs except one. All approvals have been received from the California Department of Transportation and the [BIA] to allow this portion of the project to proceed and the design of the interchange is complete. Upon issuance of a final positive ruling on the state lawsuit, Caltrans has indicated it's willingness to immediately issue the final permit to allow construction of the interchange to commence. Assuming a positive outcome in the state court case, construction of this casino could begin approximately 120 days later. We continue to estimate the Foothill Oaks Casino will open in the first half of 2008.

The next project is the Four Winds Casino with the Pokagon Band of Potawatomi Indians. Lakes has contracted to develop and manage the Four Winds Casino Resort to be built on land placed in trust for the Pokagon Band of Potawatomi Indians in New Buffalo Township, Michigan, approximately 75 miles east of Chicago. During the first quarter we announced that the Federal Government had taken the necessary action to acquire the Pokagon Band's 675 acre parcel of land into trust for the tribe paving the way for the Pokagon Band to move forward on the Four Winds Casino. In early April lakes and the Band received notica -- notification from NIGC that it had approved our management agreement to manage the casino. The first phase of the project includes approximately 3,000 slot machines and 110 table games, a hotel, several restaurants, enclosed parking and other casino amenities. When complete, the Four Winds Casino will be the only land based casino in the Northern Indiana, Western Michigan market. We expect to begin construction as early as next month with a target opening date in the the third quarter of 2007.

The next project is the Jamul Indian Village. Lakes has an agreement for the development and financing of a casino resort operation with the Jamul Indian Village located wha -- in what is rapidly developing into one of this countries most exciting gaming regions. The planned Jamul Casino boasts what may be considered the number one location in the greater San Diego market, just 20 minute from downtown San Diego. The casinos plan to include approximately 2,000 gaming devices and 75 table games, along with related amenities. At the end the March -- March we announced that Lakes had signed a development financing and service agreement with the Jamul Tribe to assist them in developing this first-class casino on the existing six acre reservation. Let me take a moment to outline the terms of this agreement. Under the terms of the agreement in addition to providing development design and construction over site Lakes will also advance the Jamul Tribe sufficient sums to finance the design and construction of the casino project. Lakes will receive a flat fee of 15 million for it's development design services and flat fee of 15 million for it's construction oversight services. Each of the fees will be payable to Lakes evenly over the first five years of the opening date of the casino project. In connection with Lakes financing, the Jamul Tribe will pay interest over a ten year period on sums advanced by Lakes equal of the rate charged to Lakes for obtaining the funds neccessary plus 5%. Sums previously advanced by Lakes to the Jamul Tribe in connection with the Tribe's proposed casino resort on land adjacent to reservation are to be included in the financing for this project.

We are very pleased for the Jamul Indian Village as they continue to take steps to achieve economic self sufficiency. This casino project presents a tremendous opportunity for them and we are pleased to be associated with the this Tribe. We are actively working through the design process and the Tribe is cons -- is completing the environmental work required under the State Compact. Construction should begin within the next 12 months with an opening date in mid 2008.

Lakes has signed a consulting and managing agreements for three casino projects in Oklahoma with the Pawnee Nation. One is the existing Trading Post Casino located in Pawnee Oklahoma. The second is the expansion of a existing travel plaza and convenience store to provide a gaming facility on a major highway between Tulsa and Stillwater Oklahoma. And the third is a full scale re -- casino resort project on the Tribe's trust land three miles south of the Kansas boarder. The Pawnee Nation has signed the State Compact for all three locations. In each project consulting and management agreements with the Tribe are under final review by the Tribe and NIGC.

Let me take a few moments to -- to outline each of these Pawnee Nation casino projects. Trading Post Reservation. The Trading Post is an existing property that is opened. Lakes assisted the Tribe under it's consulting agreement with renovations to the Trading Post Casino by replacing 40 under performing class two machines with 66 new electronic gaming devices and completing some physical improvements to the interior of the property. The Travel Plaza Casino is an expansion of the existing truck stop. The initial phase will upgrade the facility with approximately 200 electronic gaming devices and a 65 seat restaurant. We could -- currently anticipate construction to commence in the July/August time frame with an opening date of late 2006. The largest of the Pawnee Nation Casino Resort developments will be located on approximately 800 acres of Indian gaming land owned by the Pawnee Nation in Northern Oklahoma near the Kansas border. This project is planned into include a large first class casino, hotel and meeting space, multiple restaurants and bar venues, and entertainment, and an event center, a golf course and various other casino related amenities. The first phase of the project is planned to include approximately 1200 gaming devices, various restaurants and bars, poker, 150 room deluxe hotel, and up to 24 table games. Once all the approvals are received and construction financing is obtained, construction should commence with an anticipated opening date as early as mid 2007.

Lakes has consulting and management contracts with the Iowa Tribe of Oklahoma in connection with the development, equipping and management of two casino projects. The Cimarron Casino,an existing casino facility in Perkins, Oklahoma and a new casino project located approximately 30 miles from the greater Oklahoma City market. The Cimarron Casino was an existing 204 gaming machine and 200 seat Bingo parlor located near Stillwater. Lakes is working with the Iowa Tribe to renovate this property to provide space for approximately 350 gaming devices, including video poker and video black jack, a new food outlet, and neccessary back office space with the existing structure. We were pleased to report earlier this month that Lakes received the necessary NIGC approval for the management contract and that phase one of the renovation which includes approximately 145 gaming devices opened last week. The completion of the casino renovation will take place over the next few months.

The second project with the Iowa Tribe of Oklahoma is the development of a full service casino resort on the Tri -- on Tribal land on route 66 midway between Warwick and Chandler, which is part of the greater Oklahoma City market. The the proposed development will have an initial phase of approximately 1500 slot machines, four restaurants, a Kids Quest child care center, parking and required back office support facilities. Additionally a 250 room hotel is planned to open with phase one. Last quarter we began drafting the environmental asses -- assessment required for the approval of the NIGC management contract. We continue to anticipate that the construction on this new property will begin later this fiscal year with an opening to follow in 2008.

The other casino project we are involved in is our own casino project in Vicksburg Mississippi. We are working to finalize the sight plans and acquire all the necessary land. We look forward to moving ahead on this Lakes owned facility. But as I reported last quarter, the necessary capital may not be available until after one of our other projects opens which is expected to be sometime in late 2007. Our table game business continues to move forward. The rollout of our World Poker Tour All-In Hold 'Em game has been successful, with approximately 16 casino locations. We continue to work hard to expand the table games presence in other casinos across the country. With that I'll turn the call back over to Tim to provide an overview of recent business issues and financial results.

Thank you Lyle. Revenue for three months ended April 2, 2006 totalled $6.6 million compared to 4.1million reported for the same period one year-ago. Earnings from operations were 10.2 million in the first quarter of 2006 compared to a loss from operations of $2.8 million for the first quarter of 2005. Net earnings for the quarter were $11.7 million and basic and diluted earnings were $0.52 per share and $0.48 per share respectively. This compares with a net loss of $2.1 million and basic and diluted losses of $0.10 per share in the same period one year-ago. Revenues in the first quarter were derived primarily from television licence fees related to the World Poker Tour television series. The increase in revenue was primarily the results of the delivery of six WPTE episodes and one Professional Poker Tour episode during the first quarter of 2006 versus five WPTE episodes during the first quarter of 2005. During the first quarter of 2006 WPTE and the Travel Channel entered into an agreement to air WPTE's Professional Poker Tour television series This Professional Poker Tour features a series of invitation only tournaments that are limited to the highest ranked planes -- players in the world. The PPT series is expected to begin airing in the third quarter of 2006. Also contributing to the increase of revenues were P -- WPTE on-line gaming revenues of approximately $900,000 during the first quarter of 2006. There were no on-line gaming revenues during the first quarter of 2005.

During the first quarter of 2006 we reported a net unrealized gain on notes receivable of $15.5 million versus 2.8 million one year-ago. As Lyle reported in his discussion of our casino projects, Lakes recently received NIGC approval of the management contracts with the Pokagon Band and land was placed into trust by the Bureau of Indian Affairs for the Pokagon project. In addition, Lakes and Jamul executed a development and financing agreement during the quarter for that casino project. These approvals increased the probability of opening these casinos. As much, Lakes reported an increase of approximately $12.7 million in unrealized gains on notes receivable year-over-year. SG&A expenses during the first quarter of 2006 were $9.2 million compared to $6.5 million reported for the same period one year-ago. WPTE's production was cost were 2.4 million for the three months ended April 2, 2006 compared to 3.2 million for the three months ended April 3, 2005. It is WPTE's policy to expense production cost if a firm commitment or an executed distribution agreement is not in place. With the agreement to broadcast the PPT completed in January 2006 WPTE began capitalizing ongoing cost incurred associated with the the production of the show during the first quarter of 2006 and will expense those costs as episodes are delivered to the Travel Channel. During 2005 all production costs associated with the PPT were expensed as occurred resulted in higher production cost during the prior year period.

A primary factor in our increased SG&A during the quarter was the adoption of the much talked about SA -- FAS number 123 R share based payment, which requires companies to recognize in the income statement the grant date, fair value of equity based compensation issued to employees and directors including stock options granted and stock purchases made by employees and directors. Stock based compensation expenses rec -- recognized under 123 R in the first quarter of 2006 totalled $2.2 million, of which approximately 1.5 million was related to WPTE and $700,000 related to Lakes. There was no stock-based compensation expense recognized during the first quarter of fiscal 2005. The remaining increase in SG&A expenses during first quarter of 2006 related primarily to head count related cost. Other income increased year-over-year to $5.5 million in the first quarter of 2006 compared to $500,000 in the first quarter of 2005. Other income in the 2006 period included a gain on sale of investment of $5.7 million related to a sale of 630,000 shares of common stock of [Poker Tec Inc.] held by WPTE at a price per share equal to $9.03. WPTE had a minimal basis in the Poker Tec stock. Also during the first quarter of 2006, Lakes settled a short swing profit matter which resulted in a payment to Lakes of approximately $2.8 million. This settlement did not impact Lakes earnings.

During February 2006, we closed on the $50 million financing facility with an affiliate of Prentice Capital Management LP. An initial draw of 25 million was made under the facility. Approximately $10 million of the initial draw was used to repay in full our 2005 loan from the Lyle Berman Family Partnership. We continue to explore additional financing alternatives to fund our operational and development needs.

We are very excited about the progress we made in our first quarter. We anticipate beginning the construction phase of various projects during the 2006 and are looking forward to successfully opening and operating these casino projects with our travel partners. Finally, we are pleased to report that during first quarter of 2006 our common stock was relisted on NASDAQ after successfully resolving all issues with the SEC during 2005. We want to thank the many shareholders who continued to support the Company throughout that process. We will now turn the call back over to our operator, Kevin, for questions.

[OPERATOR INSTRUCTIONS] Todd Eilers, Roth Capital.

Good afternoon guys.

Hi Todd.

Couple quick question, first off on SG&A on the quarter, it looks like X World Poker Tour, you guys had about 4.1 million with -- including stock-based comp. Can we kind of use that as a good quarterly run rate going forward? Do you guys anticipate kind of the same level of stock based comp on -- on your end as well as do you -- or do you foresee any one time or -- or unusual expenses over the next couple quarters through the remainder of the year that we should be aware of?

Tim.

Yes, the stock based comp is -- is about the same. It might go down actually a little bit in subsequent quarters. Other than that, we don't anticipate any unusual items.

Okay. Let's see, and Tim can you -- can you maybe break down the long term tribal assets by tribe, or at least the three largest?

Sure, I can do that. Hang on a second. The notes receivable portion, think that's what you are referring to, right?

Either that or just the total. What -- whatever is handy for you.

Notes receivable -- I'm looking at Shingle Springs, 28.6 million. Jamul was 20 million. And Pokagon is about 50 million.

Okay. And then just in terms of, I guess I want to ask a question regarding total project costs for some of the projects. Obviously for -- for the ones that are a little bit more further out, you probably can't give maybe an updated estimate there, but for the Pokagon, I know you guys are kind of finalizing the financing there and maybe the two large Oklahoma projects, can you maybe give us an update on -- on what you think the total project cost will be for those?

Probably my best way to answer that is we are filing our -- our 10 Q Friday. Okay. We'll have that detail included in there.

Okay.

And we'll have that detail included in there.

Okay.

Best -- best we know.

Okay. Just -- and then final question -- can you maybe update us on your guys intentions for your World Poker Tour ownership interests? Are you guys still actively considering the sale of a portion or all of your ownership interests or are you guys maybe taking a more passive approach now that you have a new financing in place? Can you maybe just kind of update us on that?

I think we're taking a little bit more of the passive approach -- this is Lyle Berman, but we are still considering the possible sale of some of our stock to finance our additi-- additional capital needs. We are also looking at debt financing as another possibility. So, it's kind of a moving target. But I would say we are more passive than we were six months ago.

Okay. That helps. Just one final question, World Poker Tour, on their call has mentioned that they're considering other on-line casino operators, potentially. Do you guys see any impact or risk in terms of your licensing? Can you maybe talk about that?

Well, certainly we are very sensitive, as World Poker Tour is to all of our licensing requirements. And that's one of the burdens that World Poker Tour has because they not only have to run to the legal -- the absolute legal law, but they also have to run to all of the licensing issues throughout the nation. Because we are licensed everywhere. And they're very sensitive to that and World Poker Tour will never do anything that jeopardizes our licenses in any way.

Okay. Thanks guys.

Clint Morrison, Feltl & Co.

Hey Tim, can you do a quick review on your financing. Obviously you -- you took down 25 million but you have a $4.5 million discount, I think, as a result we have also have some -- some preferred stock on the balance sheet. Can you kind of just give a quick review of that?

That's the -- that was the initial draw we took on the Prentice loan. We have a commitment from Prentice for up to $50 million. We have an additional 25, which included 1.25 million warrants with the initial 25 million and they're entitled to additional warrants but only as we draw the additional money. We can draw an additional ten for any or no reason and then we can draw the subsequent 25 million at $5 million increments based on certain criteria at that point.

We only have 20 million on the balance sheet. There is a discount in there.

Yes and the discount is really the warrants.

Okay and explain the preferred stock that wasn't there at the end of the year an is now. The 4.4 million series A preferred?

That was all as part of the Prentice loan.

Okay. So that's essentially -- or that is the Prentice loan is what ?

That's correct.

Okay.

Correct.

And then you guys are going to be going out on the road doing a financing for your Michigan pro -- project here pretty shortly, I believe. Can you kind of talk about that? And the question is you have sort of this $50 million note involved, does any of that get paid off if you go out and sort of raise a few hundred million dollars? Do you get taken care of or does that loan stay out there?

For our contract arrangement with the tribe, our loans get repaid with interest over the -- ratably over the five years of the management contract, once the casino opens.

Okay. So -- and can you refer, how -- how much money are you going to be helping to raise for that project?

You know, I don't think we can talk about that right at this point in time. It's -- we're -- we're soon to go out to the market on that. And I think that information then will come better known.

Okay. Fair enough. But when -- when that transaction is completed, that should have no impact on your balance sheet or income statement, correct?

All the project financing is on the books of the tribe.

Right. So it doesn't -- won't impact you at all?

That it's correct.

Okay. Thank you.

You're welcome.

[OPERATOR INSTRUCTIONS] There are no questions at this time. Please of proceed.

This is Lyle Berman. I want to thank everyone for participating in today's call, and thank you for your continued support of Lakes Entertainment. We are excite about the progress we have made on our casino development projects this is quarter and look forward to reporting additional successes to you as they come about. Thank you.

This concludes today's conference. You may now disconnect