Golden Entertainment Inc (GDEN) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2011 Lakes Entertainment, Inc. earnings conference call. My name is Louisa and I will be your Operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions)

I would now like to turn the call over to Mr. Tim Cope, President of Lakes Entertainment, Inc. Please proceed, sir.

Thank you, Louisa. Good afternoon. And welcome to Lakes Entertainment's third quarter 2011 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 would like to remind everyone that this call may contain forward-looking statements, including statements concerning business strategies and intended results. And similar statements concerning anticipated future events. These statements are subject to risks and uncertainties, including those risks described in our filings with the SEC. And actual results may differ materially.

Lyle will begin our discussion today with a general overview and update on our casino projects. I will then discuss the third quarter financial results and recent business events. Then we'll conduct a question-and-answer session. Now I will turn the call over to Mr. Lyle Berman.

Thank you, Tim. Welcome, everyone, to Lakes' third quarter 2011 earnings call. The Red Hawk Casino located near Sacramento, California, continues to aggressively market to one of the most economically challenged demographics in the country. An emphasis on quality food offerings at value prices has proven to be successful strategy to drive guest traffic. New and repeat customers alike are enjoying the slot product, which is continually revised to provide a great gaming experience. As a result of these efforts, Red Hawk guest counts have grown, along with improvements in both top line and bottom line results. The Shingle Springs Tribal Gaming Authority, Lakes, and property management continue to diligently pursue opportunities to improve overall operating results.

With respect to the Jamul Indian Village project near San Diego, the Jamul Tribe is currently working with the various state agencies, along with architects and engineers, to complete 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.

During the third quarter we invested $7.4 million in Rock Ohio Ventures, bringing our total investment in that entity to approximately $15.7 million. We continue to have the right to own up to 10% of Rock's ownership in the planned casinos in Cincinnati and Cleveland, Ohio, provided that we fund a proportionate amount of the equity capital from Rock to develop such casinos. The estimated amount of additional capital that we may be required to fund to maintain our 10% position is currently expected to be no more than $9.4 million. The first phase of the casino project in Cleveland is underway with an expected opening date in early 2012. This 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 casino is planned to open in 2013. And will feature approximately 2,000 slot machines, 116 table games which includes poker, food and beverage outlets and a parking structure with approximately 2,500 spaces.

We were also very busy this quarter with two new projects. First, we entered into a joint venture with Dania Entertainment Center for the management and redevelopment of the existing Dania Jai Alai Fronton in Dania Beach, Florida, to convert it into a destination casino which will include slot machines, Jai Alai, entertainment, a variety of bars and restaurants, and other related amenities. Dania previously entered into an asset purchase agreement to purchase the Dania Jai Alai Fronton from Boyd Gaming Corp. During the third quarter we made an initial investment of $4 million related to the project via a convertible promissory note, as a result of third-party litigation recently filed against the city of Dania Beach, relating to the development agreement for the renovation of the Dania Jai Alai Fronton, The Florida legislature introducing legislation to promote full casino resorts in southern Florida and the deterioration of the credit market since advancing the funds for this note, the viability of financing of this project is in question. Therefore, the value of the note was written down to zero at the end of the third quarter. Although these factors have caused us to write down our convertible note receivable related to this opportunity, we continue to closely monitor the status of this project.

Second, we recently announced that we entered into a joint venture to perform Evitts Resort which submitted a response to a Request for Proposal by the state of Maryland Video Lottery Facility Location Commission for a video lottery operation license in Allegheny County, Maryland. The Commission will evaluate applications and award the license to operate the video lottery operation at the Rocky Gap Lodge and Golf Resort in Cumberland, Maryland. The license has an initial term of15 years, and is expected to be awarded in late 2011. Contemporaneous with the execution of the joint venture agreement, we entered into a development services and management agreement to develop and manage the gaming facility and existing facilities at the resort, if we are awarded the license. The current facilities include a 225-room hotel, three restaurants, a 15,000 convention center, and a Jack Nicklaus signature golf course. The plan we submitted provides for new construction of a 50,000-square-foot gaming facility, which will feature approximately 850 video lottery terminals, a number of food and beverage outlets, and a retail component. We believe the operating history of Lakes, the proposed scope of the resort project, and the related benefits that will be provided to the state of Maryland make our application worthy of selection.

As a company, Lakes continues to be uniquely positioned with a relatively large cash balance and no debt. We continue to evaluate 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.

Thank you, Lyle. Third quarter results. The net loss for the third quarter of 2011 was less than $100,000, compared to net earnings of $15.1 million in the third quarter of 2010. Losses from operations were $10.5 million for the third quarter of 2011, compared to earnings from operations of $2.2 million for the third quarter of 2010. Basic and diluted losses were less than $0.01 per share for the third quarter of 2011 compared to earnings of $0.57 per share for the third quarter of 2010. Third quarter 2011 revenues were $0.3 million compared to a prior-year third quarter revenue of $8.2 million. The elimination of revenues from the management of the Four Winds Casino Resort as a result the buyout of the management agreement for that property during the second quarter of 2011 was the primary reason for the decrease in revenues during the third quarter of 2011 compared to the third quarter of 2010.

For the third quarter of 2011, selling, general, and administrative expenses decreased in comparison to the third quarter of 2010 by approximately $400,000 to $2.5 million. This decline resulted primarily from decreases in payroll and related expenses, partially offset by an increase in professional fees related to a potential casino development project in Maryland. As Lyle mentioned, during the third quarter of 2011, Lakes entered into an agreement for the purpose of managing and redeveloping the existing Dania Jai Alai Fronton in Dania Beach, Florida. Lakes made an initial investment of $4 million related to the project via convertible promissory note that was written down to zero as of October 2, 2011, due to several factors that Lyle indicated. As a result, Lakes recognized a loss on the convertible note receivable of $4 million during the third quarter of 2011.

Lakes recognized impairments and other losses of $1.1 million during the third quarter of 2011, compared to $600,000 in the prior year period. Impairment losses of $0.8 million in the third quarter of 2011 and $0.6 million in the prior year period were due primarily to continued uncertainty surrounding the completion of the project with the Jamul Indian village. Also included in the $1.1 million impairments and other losses for the third quarter of 2011 were other costs of $0.3 million, which represent estimated selling cost of land owned by the Company in Vicksburg, Mississippi. This land was previously being held for development and was listed for sale during the third quarter of 2011.

In the third quarter of 2011, net unrealized losses on notes receivable were $2.7 million compared to net unrealized gains of $0.5 million in the prior year period. The net unrealized losses in the third quarter of 2011 were related to the project with Jamul Tribe, due primarily to ongoing issues in the credit markets. The net unrealized gains in the third quarter of 2010 were related to the project with the Jamul Tribe and were due to improvements in the credit markets during that quarter. Amortization of intangible assets related to the operating casinos was $0.3 million for the third quarter of 2011 compared to $2.8 million for the third quarter of 2010. The decrease in amortization costs related primarily to the buyout of the management agreement for the Four Winds Casino Resort which resulted in the full amortization of the remaining intangible assets associated with that project during the second quarter of 2011.

Other income, net for the third quarter of 2011, was $1.3 million, a significant portion of which relates to non-cash interest income. Other income, net for the third quarter of 2010, was $23.8 million, which included a gain on the divestiture of a cost method investment of $23 million. During the third quarter of 2010, Lakes entered into a termination agreement with Penn Ventures in which the Company divested its interest in an entity to be formed in collaboration with Penn Ventures, in exchange for a $25 million payment from Penn Ventures resulting in this gain.

The income tax benefit for the third quarter of 2011 was $9.1 million compared to the tax provision of $11 million for the third quarter of 2010. Lakes' income tax benefit in the current year quarter is primarily due to 2011 timing differences and related valuation allowances. Lakes' income tax provision in the prior year period consisted primarily of current income tax provision.

In summary, we're very excited about the potential new opportunity in the state of Maryland. And we continue to actively monitor the status of the project in Dania Beach, Florida. We continue on with our involvement with the two casino projects in Cincinnati and Cleveland, Ohio. And await the opening of the first of these projection in early 2012. We remain focused on the results of Red Hawk Casino. And work continues with the Jamul Indian Village and development efforts for a casino operation near San Diego.

Now we'll turn the call over to the Operator for questions.

(Operator Instructions) David Hargreaves with Sterne Agee.

I was hoping you could maybe give us some more color on how things are going at Red Hawk. You guys mentioned improvement in top line and bottom line results. But since it's so material to the business, any more color you could give us would be appreciated.

Sure, Dave. And hopefully you will join us Friday for the Red Hawk conference call, as well.

It's guaranteed.

Good, I'll invite you for sure. Generally speaking, the revenues are definitely up. Gaming revenues and total revenues are up year over year. They had a very good quarter. I think you'll see that the July-August particularly were strong on a year-over-year comparison. If you remember a year ago, we were still up against the Thunder Valley Hotel opening and the concerns related to that. I think Red Hawk has recovered from that well. Recaptured many of the customers back to the Red Hawk property. Red Hawk is doing some quality marketing programs. We've talked before about the value offers they have in their food product. And in general, just to say that, while they're spending a little bit more marketing, it is resulting in better top line and better bottom line results.

Are there any systems or elements that might make for a little bit of a tougher comp this year relative to last? Any one-time items that might be a little higher, other than just marketing?

No, I don't think so. I think, again, I think the difference that we're seeing is the pick-up in our customer counts at Red Hawk. Again, overcoming the prior year issues maybe with the Thunder Valley Hotel opening. But I think it's just a matter of sticking to the program, the marketing programs and the good guest service they provide here. I think customers are realizing that, and coming back to Red Hawk again.

Just shifting gears real quick, in the past with Jamul, you weren't too enthusiastic about the idea of possibly doing the Class 2 development. But given how Class 2 machines continue to evolve and be more competitive, I'm wondering if you've rethought that at all.

It's not an issue of Class 2 versus Class 3. At this point, the Tribe has a compact with the state, and they have the right to have up to 2,000 Class 3 machines. They have the right to get 300 of them for no fee. And then they have the right to buy licenses for the rest, the 1,700. And currently, because the state agreed with the courts that there were a total of 62,000 licenses as opposed to only 42,000 licenses originally, there's plenty of licenses to go around. With Jamul, the issue has to do, working with CalTrans to get the permit -- to do what's called an encroachment permit -- in order to access the reservation off of the road.

So, how are you going to go around that?

We're working with the Tribe and ourselves and all of our consultants are working on a diligent basis doing all the studies that CalTrans needs in order to issue the permit.

I see. Okay, thank you.

(Operator Instructions) And at this time, I show no further questions.

Mr. Cope and I want to thank everyone for listening in. And we look forward to talking to you about the full year and the fourth quarter. Thank you very much. Bye now.

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