Golden Entertainment Inc (GDEN) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Q4 2013 Lakes Entertainment conference call. My name is Whitley, and I'll be your operator today.

(Operator Instructions)

As a reminder, this call is being recorded for replay purposes. I would like to turn the conference over to your host for today, Mr. Tim Cope. Please proceed, sir.

Thank you, Whitley. Good afternoon, and welcome to Lakes Entertainment's fourth quarter 2013 earnings conference call. On the call with me is a 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 their 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'll 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 2013 earnings call. First, I will discuss the fourth quarter operating results at our Rocky Gap Casino Resort. Rocky Gap is a AAA Four Diamond resort that includes a casino, hotel, spa, four restaurants, and the only Jack Nicklaus' signature golf course in Maryland. The casino currently features 558 slot machines, 10 table games, 3 poker tables, a casino center bar, and a new hotel lobby bar and food outlet.

Although we have been pleased with the overall performance of Rocky Gap since opening the gaming facility at this property in May of 2013, fourth quarter operating results, in particular during the month of December, were lower than expected due in part to difficult weather conditions. We did however make several changes which we believe will enhance the property and operating results.

In the fourth quarter, we added live poker tables to the casinos gaming mix. In addition, we completed the remodel of two of its restaurants, updated their menus, and hired a new executive chef.

In December, we completed the meeting and event center space of approximately 13,000 square feet which includes the new Allegheny Event Center, multiple breakout meeting rooms, and an executive boardroom. The new space will allow the property to seat single group events of over 300 people and supports our focus on corporate group sales.

We recently signed an agreement with the Bonkerz Comedy Clubs to bring nationally recognized comedians to Rocky Gap twice each month. Bonkerz is an established club with more than 20 locations nationwide. Early results have been positive with the first three shows selling out.

We also increased the number of table games and began offering pai gow poker and baccarat. The Maryland Lottery and Gaming Control Agency recently approved our request to increase the number of video lottery terminals offered in Rocky Gap to 577. We anticipate the additional 19 machines will be installed in the second quarter this year.

In addition, we received approval to add 150 additional surface parking spaces located in close proximity to the casino. This is our 25% increase in the overall number of parking spaces. These new spaces will provide additional convenient parking for our guests as part of our outstanding guest service at this property. Construction of the additional spaces is expected to begin this spring and end in early summer. We believe these changes and a continued emphasis on operating efficiencies will positively impact both top and bottom line operating results at Rocky Gap.

We have an investment that equates to an ownership of approximately 5% in the Dania Casino and Jai Alai, located just south of Fort Lauderdale, Florida, which held the grand opening of its casino space last month. Along with the Jai Alai game, the casino features 550 slot machines and 12 poker tables in the first phase of the master plan to expand the existing property into a full-scale casino operation.

We continue to maintain a 10% ownership interest in Rock Ohio Ventures 80% ownership in the Horseshoe Casino in Cleveland, the Horseshoe Casino in Cincinnati, the Thistledown Racino, and Turfway Park. The Horseshoe Casino in Cleveland features approximately 1,900 slot machines, 89 table games, a 30-table poker room, and multiple food and beverage outlets. The Horseshoe Casino in Cincinnati features approximately 2,000 slot machines, 87 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, features its existing racetrack, 1,100 video lottery terminals, and new dining and night life options. Turfway Park is a premier thoroughbred horse racing track, located in Florence, Kentucky.

We currently have cash and short term investments in excess of $80 million. We are continually evaluating various business opportunities to determine the best course of action to add value for our shareholders. With that, I'll turn the call back over to Tim to provide an overview of the financial results.

Thank you, Lyle. Net loss for the fourth quarter of 2013 was $0.9 million, compared to net earnings of $2 million for the fourth quarter of 2012. Loss from operations was $2.2 million for the fourth quarter of 2013, compared to a loss from operations of $1.9 million for the fourth quarter of 2012. Basic and diluted loss per share was $0.03 for the fourth quarter of 2013, compared to basic and diluted earnings per share of $0.07 for the fourth quarter of 2012.

Fourth quarter 2013 net revenues were $11.4 million, compared to prior-year fourth quarter net revenues of $2.8 million. Fourth quarter 2013 net revenues were related to the operation of Rocky Gap Casino Resort. Lakes acquire this property on August 3, 2012, and gaming operations began on May 22, 2013.

During the fourth quarter of 2012, net revenues of $1.4 million were related to the operation of Rocky Gap. Also included in prior-year fourth quarter net revenues were $1.4 million in management fees related to the management of the Red Hawk Casino, near Sacramento, California, owned by the Shingle Springs Band of Miwok Indians. There were no management fees earned during the fourth quarter of 2013, due to the August 29, 2013, termination of the management agreement for the Red Hawk Casino.

During the fourth quarter of 2013, property operating expenses for Rocky Gap were $7.3 million and primarily related to gaming operations, rooms, food and beverage, and golf. During the fourth quarter of 2012, property operating expenses for Rocky Gap were $0.8 million and primarily related to rooms, food and beverage, and golf. The increase in property operating expenses resulted primarily from inclusion of gaming related expenses in the current year quarter. Gaming commenced in May 2013, therefore there are no such expenses in the prior-year fourth quarter.

For the fourth quarter of 2013, selling, general, and administrative expenses were $5.6 million, compared to $3.1 million for the fourth quarter of 2012. Included in these amounts were Lakes corporate, selling, general, and administrative expenses of $1.6 million and $1.9 million during the fourth quarters of 2013 and 2012, respectively. The decrease in Lakes corporate, selling, general, and administrative expenses were due primarily to decreases in professional fees and payroll and related expenses.

Rocky Gap selling, general, and administrative expenses were $4 million and $1.2 million during the fourth quarters of 2013 and 2012, respectively. The increase in Rocky Gap selling, general, and administrative expenses was due primarily to increases in marketing and advertising expenses and payroll and related expenses, related to the addition of gaming during May of 2013.

Depreciation and amortization was $0.8 million for the three months ended December 29, 2013, compared to $0.3 million for the three months ended December 30, 2012. The increase was related to depreciation on Rocky Gap fixed assets. During the fourth quarter of 2013, Lakes recognized a $1.7 million gain on modification of debt due to reduction in the interest rate on its outstanding financing facility that was used to fund a portion of the Rocky Gap project. The Company has existing net operating loss carryover forwards of approximately $72 million that are available to offset future taxable income.

In summary, we are pleased that we were able to recently open the new event center space and complete the remodel of the restaurants at Rocky Gap during the fourth quarter. We look forward to expanding our business with these new amenities, the new table games, and the additional slot machines along with the planned 150 additional parking spaces.

Although inclement weather has impacted Rocky Gap operations this winter, we are encouraged by the property's results since the gaming space opened in May of 2013. We plan to invest approximately $4 million of additional capital in this property during 2014, including the addition of the new parking spaces, expansion of the fitness center, remodel of the golf pro shop, continuing room improvements, and the addition of a retail outlet to help grow our business and satisfy our customer requests. I will now turn it back to Lyle to provide a Company recap.

Thank you, Tim. We currently have the cash and short term investments balance in excess of $80 million. We continue to maintain a $21 million investment in the Rock Ohio gaming properties, as well as a 5% interest in the newly opened Dania Casino and Jai Alai.

In addition, our note receivable due from the Jamul Indian Village, which is currently capped at $60 million, will become due and payable when and if a casino opens and any casino construction and development funds have been repaid. Once the casino opens, we will begin receiving a cash interest payment of 4.25% on our outstanding receivable. The Jamul Tribe is working with Penn National Gaming to develop a casino on the Tribe's existing reservation. Penn previously announced that it has launched construction activities at the site. This note was written off our books in prior years.

In conclusion, we believe our overall assets have substantial value that are not fully reflected on our balance sheet, and that when considered with our cash position, gives us flexibility when considering new opportunities that will enhance shareholder value. With that, I'll now turn the call over to the operator for questions.

(Operator Instructions)

[Colin King], [Kirr] Research and Company.

Hi, guys. Thanks for taking my question. I'm just curious on the recognition of that note receivable that was previously written off, will that come back onto the balance sheet here in the next quarter or so? Or will that be at the time that Penn actually opens the casino?

It won't come back on for sure until the casino opens. Then, we'd have to determine how collectible it is but basically what had happened is we'd recognize it as we were paid.

Okay, so as soon as the casino opens is when you guys will put that back on the balance sheet?

That's when we'd, again, evaluate it. But again, I think it is probably related more to when we actually will receive payments, and just to record the payments as received.

Okay. Got you. Then, just regarding the use of funds, what's going to be the game plan there? Will M&A be more of a focus? Or would you guys look at a similar play book to the Rocky Gap, where you find a hotel resort, and then re-purpose it into some kind of casino? Just what are the thoughts there?

I think it's fair to say -- This is Lyle Berman talking. It's an open book. We are clearly looking to reinvest our assets to enhance shareholder value. We are looking both within and without the gaming industry.

As soon as we find something that we think fits our needs, we certainly will announce it to the public. We have been continually looking, ever since we received the funds from the Shingle Springs buyout, but as yet, we have not found anything that reaches the level of disclosure.

Great. Thanks, guys. I appreciate the color.

Carl Hanson, Feltl.

Lyle answered quite a bit, or you did on Jamul, but I was looking to see to find any status beyond the ground breaking. All I saw was the month-old interview with the opposition. Do you know whether they in fact still are going ahead with the construction?

At this point, we know nothing more than what we read in the newspaper. The last thing we read was that they were starting construction activities. I think that was disclosed several months ago. I think we further heard that they were planning to open sometime in early 2016, but other than that, Tim, do you have anymore?

No, that's the current public knowledge that we have as well. That's the expected plans right now.

Apparently you did not have any spies in the area taking a look?

No spies in the area, Carl.

It didn't look like you're borrowing all you could on the Rocky Gap loan. Obviously, you don't need to borrow it, but if you wanted to, is there still availability under that loan? Or do you think you may wait and renew it at a better rate when you have more history?

We already did reduce the rate. I believe it's around 5.5% or 6%. We have on the Rocky Gap loan I think another $3.5 million or $4.5 million that we can draw, but in addition to that we do have a line of credit with the bank. Obviously, with the money in the bank earning such low interest of our side, we have no intent to borrowing any more money unless we have a documented use for it.

I understand. Let's hope we find something really good.

We will.

David Hargreaves, Sterne Agee.

There's a fair amount of capacity that's slated for the State of Maryland in that area. I'm wondering if you have any comment on whether that might have an impact on Rocky Gap?

Do you mean the two casinos that are going up in the Baltimore area?

Yes, sir.

The Baltimore area is a two-hour drive from our casino. We do get visitation from the Baltimore and Washington DC area for overnight stays, but we do not get a day-trip market. We don't believe those two casinos in any way will impact our results. Tim, any further on that?

I would agree with that. In fact, I think the State of Maryland had engaged an outside firm to do an economic study anticipating the impact of the casinos when the new property, MGM, got approved. I think it came back with approximately 1% or less effect on Rocky Gap operations.

Excellent. With respect to Rock Ohio, since you guys have a material interest there, I am wondering if you have any thoughts on the turnaround process there, what stage they're at? What do you see happening with that?

Certainly the results for the entire state of Ohio have been less than anticipated. Certainly the ramp-up period is taking a longer period of time. But still, there's only four full-blown casinos in the state.

Although the ramp-up is taking longer there, we know our partners are focused both on top and bottom line, top line in revenue but certainly expense control. They've re-engineered their business of course to match the revenues. We're not an active participant, so sometimes we do not know much more than what's going on in the public domain. But clearly the ramp-up is taking a little bit longer than they anticipated, and we.

If we could draw from your experience, do have any theories you'd be willing to share as to why the market hasn't lived up to expectations? We all did the same arithmetic. Were people gambling elsewhere? Or was there something different about their sources of income that we missed when we were running the calculations? Anything you could offer?

The major disappointment to my knowledge has been that they are getting frequent visitation. They're getting the visitation that they anticipated, but that the win per customer is substantially below what they were anticipating. I don't know if that's the economics of the region, or if it goes deeper than that, where they all have other places to go as well. But clearly they're getting visitation, but they're not getting win per customer.

That also has a great deal to do with building your database. As your database grows, as you well know, they'll market more heavily to the gaming customer. What you get when the first casinos open in a new market, we get what we call looky-loos. They're beyond that stage now. The customers that come in now are more likely to be gaming-centric people.

I appreciate your answers. Thank you.

(Operator Instructions)

Steve [Haberkorn], stockholder.

Hi, Lyle. Congratulations on a good quarter. I was just was wondering if there's any ballpark value or weight that you put on the property in Ohio, on the 8%? Or is that completely --

The value we put on it, we carried it on our books on our investment which is about $21.5 million. Other than that, that 's how we are carrying it on the books, and we don't have any other formal valuation of it.

Okay. We'll just be patient then. Keep up the good work. Thank you.

There are no further questions in the queue at this time.

Tim and I think you all for an interest in the Company. We'll be having another conference call after the first quarter, and hopefully we'll be able to announce some good news with our results at Rocky Gap and our efforts in looking for other ventures. Thank you.

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