Golden Entertainment Inc (GDEN) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the fourth quarter 2012 Lakes Entertainment, Inc. Earnings Conference Call. My name is Shevely and I'll be your operator for today. At this time, all participants are in listen-only mode. Later, we will facilitate a question-and-answer session.

(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, Mr. Tim Cope, President of Lakes Entertainment. Please proceed, sir.

Thank you, Operator. Good afternoon and welcome to Lakes Entertainment's fourth quarter 2012 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 fourth 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 Mr. Lyle Berman.

Thank you, Tim, and welcome, everyone, to Lakes' fourth quarter 2012 earnings call.

As we previously reported on August 3 of last year, we closed on the purchase of the Rocky Gap Lodge and Golf Resort near Cumberland, Maryland. Rocky Gap is a AAA Four Diamond resort that includes a hotel, convention center, spa, two restaurants, and the only Jack Nicklaus Signature golf course in Maryland. Renovation of the existing facilities to convert convention and meeting space into a gaming facility is ongoing and expected to be completed in the second quarter of 2013. When finished, the gaming facility will feature approximately 550 video lottery terminals, 10 table games, a casino center bar, and a new hotel lobby bar and food outlet. The existing hotel, restaurants, spa, and golf facilities have remained open during the renovation. In addition, we plan to begin construction on the new convention space and meeting rooms at Rocky Gap during the second quarter of 2013, which we expect to open during the fourth quarter of this year.

The total cost of the Rocky Gap project is currently expected to be approximately $35 million. During the fourth quarter of 2012, we closed on a $17.5 million financing facility that will be used to finance a portion of Rocky Gap renovation project. At the end of the fourth quarter, we had invested approximately $12 million in the project, including the $6.8 million purchase price and the $2.1 million VLT license fee.

The Red Hawk Casino, located near Sacramento, California, again showed improvements in both top- and bottom-line financial results during the fourth quarter of this year compared to the fourth quarter of 2011. Red Hawk opened a new lounge that features a bar, stage, dance floor, and space to host VIP events. The lounge has received favorable guest reviews and is another example of how Red Hawk is improving the customers' experience, which translates into greater guest satisfaction and better financial results. With the continued focus on strong business fundamentals and operating efficiencies, the property has been able to convert incremental revenue to improve profitability. We are encouraged by the positive trend at this property.

We continue to maintain a 10% ownership interest in Rock Ohio Ventures; 80% ownership in the open and operating Horseshoe Casino Cleveland, the Horseshoe Casino Cincinnati, which opened March 4, and the Thistledown Racino, which is expected to introduce VLTs next month. The Horseshoe Casino in Cleveland opened during May of last year and features approximately 2,100 slot machines, 63 table games, a 30-table poker room, and multiple food and beverage outlets. The Horseshoe Casino in Cincinnati features approximately 2,000 slot machines, 85 table games, a 31-table World Series of Poker room, several food and beverage outlets, and a parking structure. The Thistledown Racino in North Randall, Ohio, is planned to featured its existing racetrack, 1,100 VLTs, and new dining and nightlife options.

Lakes previously loaned Dania Entertainment Center $4 million, which was written off in 2011, and had a management agreement to manage the Jai Alai facility, which was terminated when the initial transaction to purchase the Jai Alai facility failed to close in 2011. On February 28, Boyd Gaming Corporation announced that it had entered into a definitive agreement to sell the assets of Dania Jai Alai in Dania Beach, Florida, to Dania Entertainment Center. Dania Entertainment Center recently partnered with a third party who is financing the acquisition and who will manage the facility subject to the completion of the Jai Alai purchase transaction, which is expected to take place in the second quarter of this year. Lakes' promissory note has been converted into approximately 5% of Dania Entertainment Center. Lakes' will have no management responsibilities when this expected purchase closes.

As we enter 2013, we continue to evaluate other business opportunities to determine the best possible manner in which to increase shareholder value. We remain well-positioned to pursue these opportunities because of our stable balance sheet.

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.

Net earnings for the fourth quarter of 2012 were $2 million compared to net losses of $12.7 million in the fourth quarter of 2011. Loss from operations was $1.9 million for the fourth quarter of 2012 compared to loss from operations of $16.8 million for the fourth quarter of 2011. Basic and diluted earnings were $0.07 per share for the fourth quarter of 2012 compared to losses of $0.48 per share for the fourth quarter of 2011. Lakes Entertainment reported fourth quarter 2012 revenues of $2.8 million compared to prior-year fourth quarter revenues of $1.3 million.

The increase in revenues was primarily due to the addition of $1.4 million in revenue related to the operation of the Rocky Gap Lodge and Golf Resort. During the fourth quarter of 2012, property operating expenses for Rocky Gap, which primarily related to rooms, food and beverage, and golf, were $0.8 million. Since Rocky Gap was acquired in August 3, 2012, there were no such expenses for the fourth quarter of 2011.

For the fourth quarter of 2012, Lakes' selling, general, and administrative expenses were $3.1 million compared to $2 million in the fourth quarter of 2011. Included in these amounts were Lakes' corporate selling, general, and administrative expenses of $1.9 million during the fourth quarters of 2012 and 2011; and Rocky Gap selling, general, and administrative expenses of $1.2 million during the fourth quarter of 2012, and administrative costs associated with the acquisition of the Rocky Gap Resort of less than $0.1 million during the fourth quarter of 2011. The increase was due to the addition of administrative costs associated with the operation of Rocky Gap after it was acquired on August 3, 2012.

Lakes' recognized impairments and other losses of $0.1 million during the fourth quarter of 2012 compared to $5.9 million during the fourth quarter of 2011. Impairments and other losses for the fourth quarter of 2011 included losses of $3.3 million related to the early termination of Lakes' airplane lease. Also included were impairments of $1.3 million, due to declines in the estimated fair value of land owned by Lakes in Vicksburg, Mississippi, and impairments of $1.3 million due to the continued uncertainty surrounding the completion of the project with the Jamul Indian Village near San Diego, California.

Due to Lakes' corporate strategic objectives, during March 2012, Lakes determined that it would not continue to move forward with the Jamul Casino project and terminated its agreement with the Jamul Tribe. Amortization of intangible assets related to the operating casinos was $0.3 million for the fourth quarter of 2012 and for the fourth quarter of 2011. There were no net unrealized losses on notes receivable during the fourth quarter of 2012. The net unrealized losses of $9.8 million in the fourth quarter of 2011 were primarily due to the termination of the agreement with the Jamul Tribe.

Other income net of expense was $3.6 million for the fourth quarter of 2012 compared to $1.3 million for the fourth quarter of 2011. The increase in other income net of expense during the fourth quarter of 2012 related to a favorable legal settlement of $2.2 million. A significant portion of the remaining other income net of expense in both periods relates to non-cash accretion of interest on notes receivable.

The income tax benefit for the fourth quarter of 2012 was $0.2 million compared to a benefit of $2.7 million for the fourth quarter of 2011. The income tax benefit in the fourth quarters of 2012 and 2011 resulted from our ability to carry back taxable losses to prior year and receive a refund of taxes previously paid.

In summary, we look forward to opening the gaming facility at Rocky Gap -- a company-owned asset that is expected to be accretive to our financial results. Our stable balance sheet continues to provide us flexibility in evaluating new opportunities where we can potentially utilize our available free cash on our balance sheet. Management fees from the Red Hawk Casino were up over the prior fourth quarter and overall compared to 2011 due to continued improvements in performance at this property. We continue to work with the Shingle Springs Gaming Authority to achieve the best possible results at the casino operation. Our focus remains on our existing operations, while evaluating business opportunities that will create shareholder value.

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

(Operator Instructions).

[David Schwartz, PWL.]

Have you heard anything more about needing to contribute any money to Rock Ohio?

No, we haven't. They seem to be moving ahead well on their own with the funds they have and at this point, we have not been notified or requested for any additional capital.

Okay, and you don't think that will change?

We are not led to believe it will be at this time. Obviously, we still have that commitment, but it doesn't appear that it's needed at this time.

Okay. Is there anything new on the Sharp Image lawsuit concerning the Red Hawk Casino?

Not to our knowledge. We don't comment on litigation matters, but there's nothing new at this point that I'm aware of.

Okay. What kind of promotion and advertising are you planning for the opening of the casino at Rocky Gap?

Generally, as all other casinos, do, we'll have an opening event, but that is in our busy season. It's already an existing open operation and we'll open in middle to end of the second quarter, so it's already a busy season there for that type of facility, a Lodge/Resort. We expect a large demand already with existing customers, but certainly we want to make the general public aware that it's now a casino. There'll be a lot of marketing just to explain the fact, not so much that it's open, but that it's now a casino that's open.

What kind of visibility do you have on the occupancy at Rocky Gap at this time of the year?

Currently, our occupancy is quite low, it's a seasonal business plus we're under renovation projects right now. We are purposely not trying to fill the hotel to its maximum because we are redoing the hotel rooms as well. The rooms are under renovation, too, but as we proceed into the summer months, we certainly expect the occupancy to be quite high.

Okay. Thanks for your time.

David Hargreaves, Sterne Agee.

With respect to Red Hawk, I understand that there's a compact amendment going on and that there are certain requirements to reorganize certain obligations or change the various obligations associated. The tribe has and I'm wondering if you could give us any sort of comment on how that process is moving along?

It's probably a better question for the tribe, David. As we all know, the compact is public. There are basically three criteria that the tribe needed to accomplish for the compact to become effective and I think basically they needed to enter a new arrangement with the county, which I think they have done or are very close to have done. They need to enter a new arrangement with Lakes as far as Lakes' debt and they need to enter a new arrangement with the current noteholders, as far as the noteholder debt. All up to the tribe at this point in time. There are certain timeframes, like for example, our situation has a basically the end of 2015 date and I think the noteholders are another year past that. It's in the works, I guess I would say, but it's more of a question for the tribe.

Should I take that to mean that you haven't really started doing anything with respect to Lakes' obligations then yet?

No, like I said, it's really up to the tribe at this point in time. We certainly continue to work with them on the management of the operation at this point.

Could you give us any sense as to what the overall tone of business in the Sacramento area is like now?

I'd say it's probably very competitive, as you're probably aware. Thunder Valley's certainly become very competitive with their marketing campaigns, as well as Jackson Rancheria, they've recently just completed their new, I think, $80 million renovation got completed there in the last few months, so that's become more competitive. Everybody's looking forward to the Grand Rancheria opening probably the fourth quarter of this year and so there's certainly going to be some effect on everybody at that point.

Do you think that's something that could reach as far as Shingle Springs to create an impact?

I think so, only from the standpoint a customer in San Francisco will have now have another choice. They can choose to go to Red Hawk, Thunder Valley, Cash Creek, or now Grand Rancheria. So I am sure there will be some impact.

Okay. Any words on Buena Vista and their efforts to get financing and open something?

Not to my knowledge it hasn't been accomplished. Other than that, I don't know.

All right. Boyd, I think, was working with a Sacramento area tribe in seeking to get land into trust. Do you know they've filed anything?

Not that I'm aware of.

Okay, thank you.

Tim O'Brien, DG Capital.

First, can you elaborate on what you mean by, it's up to the tribe at this point? Have you started negotiations with them or is that something that's not even come up yet?

This is Lyle. I think it is fair to say that we have ongoing preliminary negotiations with the tribe, but certainly nothing of substance has been agreed to, yet.

Okay. Is it contemplated that you'll only consider a new agreement with regards to the debt and that you'll continue to manage the property going forward or is that also up for negotiation?

I think everything is up for negotiation.

Okay.

It's a fluid thing, but clearly, it's a blank piece of paper and everything's negotiable.

Got it. In terms of Maryland, do you have a breakout on how much you think you'll spend of your cash versus how much you'll use the credit facility?

I think it's 50/50. We think it's a $35 million total all-in and we intend to use $17.5 million of our cash and $17.5 million of the credit facility.

Got it. Okay. It looks like right now you're running about, if my numbers are right, about $3 million a quarter for SG&A now with Rocky Gap. Are there any areas where you feel that you can cut to lower SG&A expense, especially if the Shingle management fees go away?

We have done a great deal of looking at reducing our SG&A. Our SG&A, I believe several years ago, was in the -- Tim correct me in the $12 million to $13 million range and I'm discussing now cash out and I think this coming year, it's going to be more like in the $7 million range, $7 million to $8 million. But on the other hand, the Rocky Gap, of course, bumps that up quite a bit.

Is that $7 million to $8 million with Rocky Gap now?

No, $7 million to $8 million without.

Okay. How much do you think Rocky Gap will add to that?

Tim?

We're working on the forecast right now in the budget, but when you talk about SG&A Rocky Gap, you've got to remember it includes things like credit card fees, marketing, media placements. Those are the bigger numbers when you talk about an SG&A number at a Rocky Gap operation as compared to when you're thinking of just a corporate overhead type of a layer.

Right. I guess with operations minus Shingle Springs, do you think you can run the business and generate cash and be free cash flow positive?

If we were not to have Shingle Springs fees?

Yes.

No, we would be in a position to substantially reduce SG&A at the corporation.

[Carl Hansen], (inaudible).

I note the Jai Alai thing, I haven't seen any previous announcement. Is that sort a resurrection of the $4 million matter that you wrote off?

Yes, that's correct. That has to do with the same situation, same facility.

You'll be making an announcement at such time as you make a formal commitment, is that why you haven't done it earlier?

Yes, that's correct. The transaction between the new owner and Boyd has yet too close.

But it will be an additional investment on your part?

No, we will make no more cash investment.

Okay, so you're going to have an interest because of the note matter?

That is correct.

I think you said 5%?

That's correct.

That sounds better than what you had.

That's correct, too.

Anyway, the Rock Ohio matter has got to be a huge (inaudible) going on there. Is there any way that the numbers will be reflected where we can see them? I know you don't plan on taking anything into income until you get dividends and as long as they're continuing to plow the money back in further development, you won't be reporting any income.

At some point, because Caesar's manages it and Caesar's is a public company with a public reporting entity, I believe at the year-end of their statement, they will be disclosing the financial results or at least the revenue line and their management fees.

Will it be readily easy to determine what Lakes is going to get out of it, what value?

I think so because once they've disclosed that publicly, then we will be able to or our people who follow us, investment bankers will be able to ascertain, at least, an idea of what it's worth.

Okay. Sounds good. Thank you.

[Paul Strickner, Esplanade].

Can we just get some more detail on the legal settlement?

Sure, that had to do with, actually it goes back to the WPTE situation when we were a large owner of WPTE. They actually settled a lawsuit with Deloitte and Touche and we were the recipient of our share.

In terms of the change in cash from Q3, you have $2.2 million there. I think you mentioned some tax return money, anything else that was an inflow?

Other than management fees and some deferred payments on our deferred management fees from Red Hawk, that's the cash inflow.

Okay. That's it. Thanks.

At this time, we have no additional questions in queue.

Tim and I want to thank you all for joining our conference call and we look forward to another one in another three months.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.