Golden Entertainment Inc (GDEN) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2009 Lakes Entertainment Inc. earnings conference call. My name is Noellia, and I will be your coordinator for today.

At this time all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of today's conference. (Operator Instructions). As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Mr. Tim Cope. Please proceed.

Thank you. Good afternoon and welcome to Lakes Entertainment's fourth-quarter 2009 earnings conference call. On the call with me is Lyle Berman, Lakes' Chairman of the Board and Chief Executive Officer.

As we begin our prepared remarks, I'd like to remind everyone 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 similar statements concerning anticipated future events and expectations that are not historical facts. These statements do not guarantee future performance and are subject to risks and uncertainties, including those risks described in our filings with the Securities and Exchange Commission.

Lyle will begin our discussion today with a general overview and update on our casino projects. I will then discuss the fourth-quarter financial results and recent business events, and then we will conduct a question and answer session. Lyle?

Thank you, Tim, and welcome, everyone, to Lakes' fourth-quarter 2009 earnings call. As we discuss our current operations and new development opportunities, a common theme is the continuing impact from the economy and the inclement weather conditions throughout the country. While we cannot control the amount of our customers' gaming budget or the weather, we have implemented cost control programs, not only at our casino operations but also in our corporate office. We are encouraged by the fact that our customer counts remain strong at each location, which we consider a key to our long-term success.

With that, I would like to start by discussing the Red Hawk Casino in Shingle Springs California, which is the casino project but the Shingle Springs Band of Miwok Indians.

The casino features approximately 2100 slot machines and gaming devices, 75 gaming tables, five restaurants, six bars, retail space, a childcare facility and arcade, and approximately 3200 covered parking spaces. It also has a dedicated interchange from US Route 50, which is the road connecting San Francisco and Lake Tahoe, allowing direct access for our customers to the casino and the enclosed parking structure.

2009 marked the first full year of operations for the Red Hawk Casino. The uncertain economic environment continues to impact this property's ability to achieve consistently strong results. Because operating results did not meet our expectations, we made a number of substantial changes throughout the year, including the mix of slot machines and table games offered for play, the variety and type of marketing plans and revised restaurant offerings. In addition, many of the senior management positions at the property have either been eliminated or replaced as we remain focused on achieving improved results.

I would next like to discuss the status of our Kansas project. We previously announced that we joined the Chisholm Creek Casino Resort Application currently pending before the Kansas Lottery to develop and operate a casino project in the south-central zone of the state of Kansas.

Phase I of the proposed Chisholm Creek Casino Resort is planned to feature approximately 1300 slot machines, 10 poker tables, 30 table games, food and beverage outlets, and a hotel to be developed by a third-party hotel developer.

Additional phases of the development could include expanded gaming positions and entertainment center, more restaurants and other market-driven amenities. The proposed management contract was recently approved by the Kansas Lottery Commission and has now been forwarded to the Lottery Gaming Review Board for its ultimate decision of awarding the management contract. The decision of which is expected to be made shortly.

If approved, construction of the Chisholm Creek Casino Resort is expected to begin before the end of the year. Lakes will own approximately 17% of the project, and will be the sole manager of the operation of the casino. For its management services, Lakes will receive a return on its equity plus a management fee.

I will next discuss our project in Tunica, Mississippi. As previously announced, we entered into a development services and management agreement with the Abston-McKay Ventures, wherein Lakes will perform certain development and management services for a potential casino located at the former Isle of Capri site in Tunica, Mississippi.

The site plan for this casino was recently approved by the Mississippi Gaming Commission. We are currently working with the owners to design and develop what we expect to be a first-class casino facility with exciting new games, restaurants entertainment, a hotel and other amenities, to which the public has become accustomed with respect to a Lakes-managed casino operation.

Next I'd like to discuss Ohio. As we previously announced, we entered into agreements with both Rock Ohio Ventures and with Penn Ventures, a subsidiary of Penn National Gaming, whereby we funded 10% of certain costs related to the successful referendum in November 2009 to amend the Ohio Constitution to authorize casino gaming in Columbus, Cincinnati, Cleveland and Toledo, Ohio. Pursuant to those agreements, we now have the right to purchase up to 10% of the equity in the entities owning those casinos at a purchase price equal to 10% of the cost of the equity to fund the development of those casinos.

If we choose to invest additional funds in these casinos we will need to obtain additional financing. We are not required to continue to fund up to that amount. Rather, we can discontinue funding at any time for any reason and still keep our equity interest that we purchased up to the time we discontinue funding.

We are a passive investor in these ventures and will have no management or operational responsibility. The details of the proposed casinos, including size and scope and the construction timeline, are still under consideration by our partners.

Near New Buffalo Michigan, the Four Winds Casino again produced operating results which were in line with expectations even though the tough economy and poor weather, as well as additional competition from The Horseshoe Casino barge, Blue Chip expansion and the opening of the Firekeepers Casino near Kalamazoo, Michigan approximately 100 miles northeast of Four Winds, have had a negative impact on Four Winds' operations for the year. We are pleased to report that the casino is still performing well. Four Winds will experience additional competition in 2010 with the planned opening of the Gun Lake Casino, which is approximately 100 miles north of the Four Winds location. We are concentrating on building and maintaining customer loyalty while operating this property as efficiently as possible.

In Perkins, Oklahoma, the Cimarron Casino continues to show strong results. The casino, which is owned by the Ioway Tribe of Oklahoma, contains approximately 370 Class III slot machines with a small food outlet and caters to a good local market. The Ioway Tribe is currently leasing and acquiring land from tribal members, which is held in trust for the individual tribal members by the United States government for the proposed Ioway Casino Resort development, which will be located on US Route 66 near Chandler, Oklahoma. This project has been delayed due to various issues related to current economic conditions and regulatory approvals.

With respect to the Jamul Indian Village casino project near San Diego, the traffic, environmental, engineering and other required studies are now underway and planning is still ongoing to design the proposed Jamul casino. Current plans are to provide for approximately 1,000 Class II gaming devices along with 25 Class II table games. Work with Caltrans is slowly progressing to ultimately determine the best possible site access design.

In Vicksburg, Mississippi, we own or have the option to own 400 plus acres of land. Due to the current financial environment, the proposed casino resort development remains on hold. 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. Lakes reported fourth-quarter 2009 revenue of $5.3 million compared to prior year period revenues of $5.5 million. This slight decrease was due to a decline in fees from the Red Hawk Casino.

For the fourth quarter of 2009, Lakes' selling, general and administrative expenses were $2.9 million compared to $3.5 million in the fourth quarter of 2008. Selling, general and administrative expenses consisted primarily of payroll and related expenses, travel expenses and professional fees. Included in selling, general and administrative expenses were costs associated with the application for a gaming site is the state of Kansas of approximately $300,000 during the fourth quarter of 2009.

Net unrealized losses on notes receivable relate to the Company's notes receivable from Indian tribes, which are adjusted to estimated fair value prior to opening based upon the current status of the related tribal casino projects and evolving market conditions. In the fourth quarter of 2009, net unrealized losses on notes receivable were $1.4 million compared to $18.8 million in the prior-year period.

Unrealized losses on notes receivable during the fourth quarter of 2009 resulted primarily from the recognition of loss associated with the project with the Jamul Tribe because of further delays in the expected opening date of this project.

The net unrealized losses in the fourth quarter of 2008 were due to the recognition of an $11.8 million loss associated with the Jamul Tribe project, which resulted from uncertainty surrounding the completion of the project and a $6.6 million loss on notes receivable from the Shingle Springs tribe, which resulted primarily from a decline in projected interest rates and an increase in the discount rate associated with this project as a result of financial market conditions.

Impairments on intangible assets and land held for development during the fourth quarter related to the Jamul project were $0.8 million in 2009 and $20 million in 2008 due to the issues I just mentioned; and impairments taken on our Vicksburg project, which were $0.5 million in 2009 and $4 million in 2008, due to the continued uncertainty surrounding the development of this project.

Costs associated with supporting the 2008 Ohio Casino Resort initiative were $18.0 million during the fourth quarter of 2008.

Other income or expense, net, for the three months ended January 3, 2010, was income of $2.2 million compared to expense of $300,000 for the three months ended December 28, 2008. The increase was due primarily to interest recognized on notes receivable from the Shingle Springs Tribal Gaming Authority.

As of January 3, 2010, we had $3.8 million in cash and $24.3 million of investments in securities recorded at estimated fair value, including our rights to sell our auction rate securities back to UBS Financial Services Inc. These investments are collateral for an existing line of credit with UBS of $16.3 million.

We currently believe that our cash balance and our cash flows from operations, and the net proceeds from the sale of our auction rate securities back to UBS and the repayment of our line of credit with UBS, will be sufficient to meet our working capital requirements during the next 12 months.

However, we do not believe these cash sources will be sufficient to fund our anticipated investments in the development of the Chisholm Creek Casino Resort in Kansas and four potential new casino projects in Ohio. Lakes currently expects to be able to obtain funds in order to fulfill its potential future capital needs. However, such financing may not be available at all or at acceptable terms or may be dilutive to our stockholders.

In summary, we are pleased with the performance of the Four Winds Casino Resort this past year and past quarter, especially in light of the new competition that entered its market. The Cimarron Casino also continues to perform well.

We continue to focus on improving operating results at the Red Hawk Casino, and we have seen some positive progress in early 2010.

We continue to make progress on the business opportunities in Kansas and Tunica, and we remain focused on making the Jamul and Iowa Tribes' casinos a reality.

Finally, we have invested in each of the four casino projects planned in Ohio that were approved in 2009 election. We believe these investments will add value to our Company, which in turn will benefit our shareholders.

Now I'll turn the call over to the operator for questions. Operator?

(Operator Instructions). Mark Smith, Feltl.

Hi, guys. Just a couple of quick questions for you this morning. First, can you talk about occupancy rates and whether you are seeing any of the people, I guess the occupancy, actually turn into more gaming revenue?

You're speaking specifically in Michigan, I presume, because that's the only casino we have the hotel. The occupancy runs very, very high in Michigan; it's in the 97 to 98 percentile. But understand that we use this hotel; it's 165 rooms and it's primarily used as a comp hotel, meaning we give the rooms away to our better players. Obviously, the higher demand, the higher we go up the pecking order in order to give it away. So clearly we see incremental revenue at the casino level because of the hotel.

Okay. Great. And in Michigan, you guys talked about the competition. Have you seen some of the traffic trends improve at all after people I guess had an initial trial period of some of the new casinos there?

Yes, I think that we are seeing, now that we have a true year-over-year comparison with the Blue Chip Hotel opening January a year ago, I think we are starting to see actually our market share come back from where we were a year ago when they did open. And then in addition with the Firekeepers, we have very great market analysis in terms of where our customers do come from. And initially we did take a bigger hit in that market but we are starting to see that come back around again too.

If you look at, once Blue chip opened their hotel, we saw where they were doing better, relatively, than our run rate had been. But now they have been open a year, I believe it just came out in February that they were down 10%. And our Michigan casino, we haven't released the results yet, but was not down.

Okay. Great. And then last question just on marketing expense and your marketing plan for Red Hawk, did you see any impact from any increase in marketing during the quarter? And if not, what can you do to try to drive some more traffic and spend there?

I think at Red Hawk, what we did, and I think we announced, there was certainly a change of management at the property in the fourth quarter. As a result of that, we became very active in becoming more efficient at the property just in terms of bringing more revenue to the bottom line. As we mentioned, we made several changes there. We just hired a new general manager that started March 1.

And the Lakes team has been very active the past three or four months being there full time pretty much week to week. And the marketing plans have been adjusted accordingly, which now have been implemented primarily in 2010 as compared to the fourth quarter of 2009. And as I mentioned in our prepared remarks we are starting to see some positive results I believe from the new marketing programs and the emphasis on the type of markets that we are after.

Great. Thank you.

(Operator Instructions). [Roy Barry].

This question is for Tim. Tim, in your 2009 third-quarter statements, you said there was going to be a trial in Louisiana versus the taxing authority. In February of 2010. Did that trial occur? And if so, what was the result?

We did say that was going to take place in February; that was the planned date. Since then, that trial has been postponed without a new date set. The reason being that the judge asked for a deferment on his review of the documents that had been submitted so that he could better understand the arguments in the case. So that has not been held yet. I would say we probably now anticipate it to be a May time frame but there's been no new date set yet.

Thank you. That answers my question.

At this moment there are no questions in queue.

Thank you very much, operator, for all of your questions. We will focus on continuing to execute on our long-term strategy in 2010 in order to generate shareholder value. Thank you, once again, for your interest in Lakes, and we will speak with you again on our next earnings call. Thank you.

Thank you for your participation in today's conference. This concludes your presentation, and you may now disconnect. Have a great day.