Golden Entertainment Inc (GDEN) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2011 Lakes Entertainment, Incorporated earnings conference call. My name is Jonathan, and I'm your operator for today. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session after the prepared remarks. (Operator instructions). As a reminder, this conference call is being recorded for replay purposes. And now, I would like to turn the call over to one of your speakers for today, Mr. Tim Cope, President and Chief Financial Officer. You may proceed, sir.

Thank you, Jonathan. Good afternoon, and welcome to Lakes Entertainment's second quarter 2011 earnings conference call. On the call with me is Lyle Berman, Lake's Chairman of the Board and Chief Executive Officer.

As we begin our prepared remarks, I would 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 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'll then discuss the second quarter financial results and recent business events. And then we'll conduct a question-and-answer session. Now I will turn the call over to Lyle Berman.

Thank you, Tim. Welcome everyone to Lake's second quarter 2011 earnings call. As we previously announced on June 30, 2011, the Pokagon Band of Potawatomi Indians paid Lakes $24.5 million and exercised its right to buy-out the remaining term of our management agreement for the management of the Four Winds Casino Resort, which was scheduled to expire on August 1, 2012. Since the buyout agreement terminated the management agreement, Lakes will have no further obligations or responsibilities with respect to the casino. We enjoyed our relationship with the Pokagon Band and are grateful for the opportunity to have developed and managed the magnificent Four Winds Casino Resort. We wish them much continued success in the future.

The Red Hawk casino continues to aggressively compete in the Northern California, despite the continued challenging economic times. Red Hawk's new poker room and classic slot zone have been well received. And coupled with the casino's emphasis on quality food offerings at value prices, continues to drive increased guest traffic volumes. Red Hawk maintains its focus on offering the best guest service, a great gaming opportunity and a superior food experience. We continue to work closely with the Shingle Springs Tribal Gaming Authority to ensure that this property is operated as efficiently as possible for the benefit of the Shingle Springs tribe, as well as Lakes.

With respect to Jamul Indian Village Casino project near San Diego, the Jamul Tribe is currently performing various environmental and traffic studies so that it can continue to move forward with its efforts to develop a casino on its reservation. The tribe has the two basic requirements to do this, federal recognition as an Indian tribe and Indian land eligible for gaming. In addition, the tribe has a compact with the state of California. We invested an additional $7.4 million in Rock Ohio Ventures, LLC earlier this month, bringing our total investment to approximately $15.8 million. Lakes continues to have the right to own up to 10% of Rock's ownership in the planned casino in Cincinnati and Cleveland, provided that Lakes funds a proportionate amount of capital required from Rock to develop such casinos. The first phase of the casino project in Cleveland is underway, with an expected opening of 2012. The first phase of the casino is expected to cost approximately $350 million, and feature approximately 2,100 slot machines, 63 table games, a 30-table poker room, and multiple food and beverage outlets. The Cincinnati casino has recently broken ground, and is expected to cost approximately $400 million. The Cincinnati casinos plan to open in 2013 and will feature approximately 2,000 slot machines, 116 table games, which includes the poker room, food and beverage outlets, and a parking structure with approximately 2,500 spaces.

As a Company, Lakes is uniquely positioned with a relatively large cash balance and no debt. We are diligently evaluating new business opportunities to determine the best possible manner to increase shareholder value. With that, I'll turn the call back over to Tim to provide an overview of recent business issues and financial results. Tim?

Thank you, Lyle. Net earnings for the second quarter of 2011 were $9.5 million, compared to $3.9 million in the second quarter of 2010. Earnings from operations were $15.8 million for the second quarter of 2011, compared to a loss from operations of $3.5 million for the second quarter of 2010. Basic and diluted earnings were $0.36 per share for the second quarter of 2011, compared to $0.15 per share for the second quarter of 2010. Second quarter 2011 revenues were $28.2 million, compared to a prior-year second quarter revenue of $4.8 million. As Lyle mentioned, during the second quarter of 2011, the Pokagon Band exercised its right to buy out the remaining term of our management agreement for the management of the Four Winds Casino Resort, which was scheduled to expire on August 1, 2012. Pursuant to the buyout agreement the Pokagon Band paid to Lakes a buyout fee of approximately $24.5 million. The buyout agreement was the primary reason for the increase in revenue in net earnings during the second quarter of 2011, compared to the second quarter of 2010.

For the second quarter of 2011, selling, general and administrative expenses decreased in comparison to the second quarter of 2010 by approximately $1 million to $2.3 million. Selling, general, and administrative expenses consisted primarily of payroll and related expenses, travel expenses and professional fees, all of which decreased, compared to the prior-year period. Impairment losses were $0.6 million, during the second quarter of 2011, compared to $0.7 million in the prior-year period. Impairment losses in the second quarters of 2011 and 2010 were due primarily to continued uncertainties surrounding the completion of the project with the Jamul Indian Village. Net unrealized losses on notes receivable relate to the Company's notes receivable from Indian tribes for casino projects that are not yet open, which are adjusted to estimated fair value based on the current status of a related tribal casino projects in evolving market conditions.

In the second quarter of 2011, net unrealized losses on notes receivable were $0.1 million, compared to $1.5 million in the prior-year period. The net unrealized losses in the second quarters of 2011 and 2010 were related with the project with Jamul Tribe due primarily to ongoing issues in the credit markets. Amortization of intangible assets related to the operating casinos was $9.2 million for the second quarter of 2011, compared to $2.8 million for the second quarter of 2010. The increase in amortization costs related primarily to the buyout agreement with the Pokagon Band, which resulted in the full amortization of the remaining intangible assets associated with that project during the second quarter of 2011. Other income or expense net for the second quarter of 2011 was $1.3 million, compared to $1.8 million for the second quarter of 2010, a significant portion of which relates to non-cash interest income. The income tax provision for the second quarter of 2011 was $7.7 million, compared to a tax benefit of $5.6 million for the second quarter of 2010. Lakes' income tax provision in this current year quarter consists primarily of current income tax provision. Lakes income tax benefit in the prior year consisted primarily of current income tax benefit.

In summary, I would like to again thank the Pokagon Band for a great working relationship over the past several years and wish them continued success. We remain focused on the results of the Red Hawk Casino as we continue to assist the Shingle Springs Tribal Gaming Authority in the best possible manner. We continue to invest in the new casino opportunities in Ohio with Rock Ohio Ventures. And with no debt and our cash position, we are evaluating new opportunities in order to increase shareholder value. Now I'll turn the call over to the operator for questions. Operator?

(Operator instructions). Gentlemen, your first question is coming from the line of David Hargreaves with Sterne Agee. You may proceed.

Hello. With respect to the Shingle Springs trends, there was a reference to guest volumes being up. I wanted to, we haven't really annualized the Thunder Valley expansion yet. I was wondering, are you seeing an increase, a raw increase in guest volumes right now? Or could you talk a little about that?

We are seeing an increase in raw volumes. As we alluded to, I think Thunder Valley's hotel addition and casino expansion occurred about July a year ago. So we have seen good comparisons year over year, and increased traffic and guest counts at Red Hawk, irrespective of the Thunder Valley opening.

What are you able to share with us about win per visitor quality of play?

Well, I think the quality of play is still there. We don't really share win per visitor accounts, as you are aware. What we are happy to see, obviously is the guest counts are up, and I think the trends are certainly slightly improving there.

Anything you can say about changes in the local economy? The Sacramento area?

I can't say that's improved much. We all know the budget issues in California and their ongoing questions there. Certainly we all read the same economic newspapers, I think, and we see Northern California and Central California are certainly negatively affected probably more than other areas of the country right now.

You have opened up the poker room; it sounds like that's been well received. We see a lot of press about people winning at the slot machines, which is good. I'm just wondering what the next step is for you guys in terms of where you are going to focus.

I think the focus is to continue to do what we are doing there. The emphasis on marketing plans, I think they have a good marketing strategy that they are now sharing publicly, as you'll notice, you can see more and more announcements on what's happening now at Red Hawks. I think that is a plus. They are sharing more publicly the guest expectations. We are doing a lot of guest surveys. We're doing a lot of interaction with the customers to find out what they like, and I think that is going well for us. Like you said, moving the poker room and putting in the classic slot area and some of the other slot product that market likes, so that certainly has helped. I think right now, just focus on operations, be as efficient as possible and continue to be aggressive in the marketing side.

Visibility has improved a lot. Could you talk a little bit about the gating issues with Jamul right now? I guess you mentioned credit markets, but I'm wondering what else needs to be done free to move forward?

Jamul, in the last 12 months now, six to 12 months, they entered into a cooperative agreement with the CalTrans for a highway improvement agreement it is called. That has been a positive step forward. And working together in a cooperative manner with the CalTrans district group in San Diego to agree, at least on -- to agree on the studies that need to be done to eventually go to CalTrans and request an encroachment permit be issued. So I think there is a cooperative attitude taking place, which is real positive. Frankly, that is what has to happen right now. They have to do the environmental reports. We have only done this probably three or four times throughout the history there. Again we have to do the tribal Environmental Impact Report, which is currently underway. It consists of environmental reviews, traffic studies, that sort of thing. Then the tribe can issue their report, and that information then is used in conjunction with CalTrans work to eventually get to that encroachment permit process.

That environmental impact study can take years, right?

No, we anticipate that being done near the end of this year for the tribal Environmental Impact Report. Of course, the encroachment permit process takes place sometime after that.

Lastly, in terms of your contributions for Rock Ohio, it looks like total equity in the project from the bond deal showing like $200 million. I'm just wondering how much more you anticipate needing to fund? You are 15ish in right now?

Yes, this is Lyle. Our total obligation, not even obligation. I guess it is our total commitment was to fund up to $22 million of additional equity, of which we funded $16 million. So if they need the rest and there are some contingencies in there, we will fund $6 million more. That is the extent of our agreement.

Got it. Thank you very much, gentlemen.

(Operator instructions). There is a question from the line of Steve Habercorn, a private investor.

I just had one question. On the Ohio casinos, is the investment going to be 10% of the total project, or is it a little bit more or a little bit less?

Lakes has the right. We will be owning 10% of Rock, LLC. That is Dan Gilbert. Dan Gilbert's company has an agreement where Caesar's Palace -- well, Caesar's will be managing both casinos and have an equity piece. It is our estimate that the Rock, we get 10% of Rock, and Rock will end up, more than likely with 80%. So we will have 10% of 80%, or 8%.

Thank you very much. That is helpful.

Thank you.

(Operator instructions). At this time there are no further questions in queue. I would like to hand the call off to Mr. Lyle Berman, CEO, for closing marks remarks.

Thank you very much operator and for all of your questions. We will focus on continuing to execute on our strategy of generating 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.

Ladies and gentlemen, thank you for your participation in today's call. This does conclude the presentation. You may now disconnect.