Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Kenneth Maciora

Michael P. Shaunnessy - Chief Executive Officer and President

James J. Kohn - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Secretary and Treasurer

Analysts

Vincent Staunton - WEDBUSH

David Luebke

Nevada Gold & Casinos (UWN) Q1 2014 Earnings Call September 13, 2013 4:30 PM ET

Operator

Good day, everyone, and welcome to the Nevada Gold First Quarter Fiscal 2014 Earnings Conference. As a reminder, today's presentation is being recorded. At this time, I would like to turn the conference over to Mr. Ken Maciora of Empire Relations Group. Please go ahead, sir.

Kenneth Maciora

Good afternoon, everyone, and thank you for joining Nevada Gold & Casino's Fiscal 2014 First Quarter Financial Results Conference Call. With us today from management are Michael Shaunnessy, President and Chief Executive Officer; and Jim Kohn, Executive Vice President and Chief Financial Officer. Before we begin, I would like to remind you that today's webcast and call will be archived on the company's website at www.nevadagold.com. If you have not already received a copy of today's press release or the 10-Q, they're available on the company's website.

I would also like to remind everyone that part of today's call includes forward-looking statements. These statements are not guarantees of future performance, and therefore, undue reliance should not be placed on them. The company undertakes no obligation to update these forward-looking statements. We refer all of you to the company's filings with the Securities and Exchange Commission for a more detailed discussion of the risks that can impact the company's future operating results and financial condition. The company's earnings release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the SEC. Included in this afternoon's release is a reconciliation of these non-GAAP financial measures to the comparable financial measures calculated in accordance with GAAP.

With that introduction, I'd now like to turn over the call to Mr. Shaughnessy. Go ahead please, Mike.

Michael P. Shaunnessy

Thank you, Ken. Good afternoon, and thanks for joining our call today. The financial results we announced today were affected by the unusual favorable weather in the Seattle area during the months of June and July. It's important to note that this revenue shortfall is not reflective of the underlying business fundamentals but is really a weather-related anomaly.

Overall, revenues were down by $1.1 million, almost 7%, totally attributable to our Seattle properties during June and July. And our significant operating leverage resulted in the majority of that revenue shortfall impacting EBITDA. As we have discussed before, during the May to September period, rainy weather works to our benefit while sunshine and warm temperatures present our customers with many other outdoor entertainment alternatives.

During the month of May and also the month of August, with more normal weather patterns, our revenues have tracked consistent with prior year periods. Last year, June and July were unusually rainy, with about 21 days of rain; while this year, those 2 months were unusually dry, with only 9 days of rain. By contrast, in the first quarter, our 2 properties in the Eastern Tri-City areas produced increases in both revenue and EBITDA year-over-year. However, not nearly enough to offset the performance in Seattle due to the weather anomaly.

Turning to South Dakota. Our South Dakota properties generated revenues of $2.9 million compared to $3 million in the prior year. The revenue decline is consistent with expectations given the decrease in our slot units due to the Bourbon Street location closure on June 30. But as we previously noted, we expect that the annual impact of this closure will benefit EBITDA by approximately $120,000 as the reduced revenue during the peak's months is more than offset by the expense savings over the balance of the year.

Also in South Dakota, this weekend, the Miss Kitty's location on the Main Street, where we route approximately 80 games, is being closed by the owner. At the same time, we began, yesterday, installing approximately 30 games in the newly remodeled, reopened Deadwood Station hotel at the northern entrance to town. We also expect to add an additional 20 to 25 games at another hotel location on the southern end of town within the next several weeks. Although these changes will be a net reduction in units, having a greater concentration of games in locations with hotel rooms and a reduced presence on the Main Street actually improves our diversification and strengthens our slot portfolio because in general, hotel locations perform better than non-hotel Main Street locations during the off season because they actually have an in-house customer base available, as opposed to depending upon tourists wandering the streets downtown.

On the corporate and administrative side, we continue to maintain tight controls on the cost side of our business. And in keeping with that philosophy and approach, the recent departure of our Vice President of Development. We do not intend to replace that position, but rather, I will be assuming those responsibilities. I've been intimately involved in those efforts since joining the company, and with my many years in the gaming business and the extensive contracts I've developed, we are confident we won't miss out on any opportunities by having that position unfilled for at least the time being, if not permanently.

We continue to use the company's cash flow to pay down debt and strengthen our balance sheet and are now further along in the process of refinancing our debt with the intention of reducing rates, extending maturities and improving our overall financial flexibility. Our social gaming initiative, Gold Star Slots, which has been available on Facebook since January, is now available in the App Store for a free download to iPhones and iPads. Although this enables us to reach a broader market of the mobile gaming user base, our efforts to monetize this venture continue, but this remains a relatively immaterial market for us, and we continue to explore avenues to make it better.

On the acquisition and expansion front, we continue to look for practical growth opportunities, either acquisitions or management contracts, but have not yet found the right fit. And we'll continue to be patient in these efforts.

I appreciate you joining us today. I mean, of course, the most important takeaway is this first quarter performance is not reflective of any underlying fundamental weakness in our business model, merely a weather anomaly. And I guess, on the bright side, next year's first quarter should provide for an easy comparable to the one we just booked.

At this point, I'd like Jim to walk you through the details of the quarter's financial performance. Jim?

James J. Kohn

Thanks, Mike. I will go over the consolidated financial results for our continuing operations. As a reminder, we completed the sale of the Colorado Grande Casino in May of 2012. As a result, Colorado Grande's results have been reclassified as discontinued operations for the prior year.

For our first quarter of fiscal year '14, net revenues from continuing operations were $15.7 million compared to $16.8 million in the 2013 quarter. Washington Gold contributed $12.8 million, while South Dakota Gold contributed $2.9 million. For the 2014 quarter, total operating expenses were $15.7 million compared to $16.1 million in 2013. Operating income from continuing operations was $27,000 compared to $721,000 in last year's first quarter. Net income from continuing operations was a loss of $216,000, or $0.01 per diluted share, compared to a net income of $168,000, or $0.01 per diluted share, in the 2013 quarter.

Turning to our balance sheet. As Mike said, we have been taking steps throughout the year to strengthen our balance sheet. During the quarter, excluding the short-term note to pay the South Dakota license fees, we reduced our consolidated debt balance by $400,000 while increasing our cash position by over -- by approximately $500,000. In line with past practices, we obtained a short-term loan of $1.5 million from Wells Fargo in June 2013 to pay the South Dakota annual device fees. As of July 31, 2013, the outstanding balance on this note is $1,050,000. We are paying this debt down rapidly, and we expect to fully repay the loan by March 31, 2014. As of July 31, 2013, we had $7.2 million in cash and cash equivalents, which excludes restricted cash of $1.4 million on our balance sheet.

Operator, we're now ready to open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Vincent Staunton with Wedbush.

Vincent Staunton - WEDBUSH

I guess, what gives you so much confidence that the decline in revenue was primarily due to weather? Was this -- other casinos in the area had similar revenue declines?

Michael P. Shaunnessy

Unfortunately, we haven't seen any official revenue reports from the state of Washington yet because they're a little slow doing it, and they only do it quarterly. We've got anecdotal evidence from conversations with other operators in the marketplace. And there was at least one other public company, Canadian company, that has released their information, and they're on a calendar year, which included in their quarter the month of June. And they made special note in their MD&A discussion about the unusual softness in June. So we've seen it there. The other part that gives me that confidence, as I mentioned, in the month of May and in the month of August and for the first 10, 11 days of September, we're seeing none of the deterioration that we saw in the months of June and July. And when I gave you the days of rain, it was a factual count of days of "measurable rain." And a couple of those days actually had 1/100 of 1 inch. So with the disparity in that 20% of that 60-day period was flipped upside down from being rainy to being nice. And the outdoor activity season in Washington is pretty short in that May to September window. There are a multitude of outdoor activities or affairs that are going on, and when the weather is nice, it's the opportunity for people and families to go out and take advantage of that. The rain is not as big a deal in the other parts of the year because the temperature has also dropped and it's not summertime, and that's why the first quarter and into the second quarter are our 2 softer seasons in the Seattle market. The other piece of the confidence comes from looking at the other side of the state, where we have 2 card clubs. Same business model, same product, same people. Revenues and EBITDA were up in those 2 locations. Revenues were up about 6% in the Western Washington -- excuse me, the Eastern Washington in that exact same time period.

Vincent Staunton - WEDBUSH

So subsequent to the end of the quarter, at the casinos that suffered revenue declines, you're seeing revenues return to normal?

Michael P. Shaunnessy

Yes. For the month of August and so far in the first 10 days of September.

Vincent Staunton - WEDBUSH

Okay. And in terms of cost cuttings. For the quarter, corporate and legal expense was $617,000. Is that pretty much what you would expect the run rate to be going forward, or you expect lower?

Michael P. Shaunnessy

That's the run -- that's pretty close to the run rate at this point. It will come down a little bit with the departure of our VP of Development that we're not going to replace, but not materially. So a $600,000 to $625,000 is about the right range currently.

Operator

[Operator Instructions] And we'll go next to David Luebke with J.P. Turner & Company.

David Luebke

They say the book value on Nevada Gold & Casinos is about $1.71 a share. Have you ever seriously considered liquidating the company as being the best thing for shareholders?

Michael P. Shaunnessy

I don't know I would use the word seriously to describe it. But yes, we have actually taken a look at that. In fact, the company, before I joined it, took a very hard look at all strategic options for maximizing its value. Although the book value is $1.71, as you have indicated, the balance sheet is not made up of significant tangible assets. There are a fair number of intangibles, and whether, in a liquidation mode, you would be able to realize that value is somewhat speculative.

David Luebke

So the next question, then would be these acquisitions that you have, Washington I, II and III and South Dakota, especially Washington I and II, were purchased in, what, March of '09 at the very bottom of the stock market and Washington II, I think, in the next year. So if those acquisitions have gone down in value, how can we expect -- what would be different to think future acquisitions would do anything different?

Michael P. Shaunnessy

They, in fact, have not gone down in value, David. We actually acquired the Washington portfolio for approximately $28 million all-in, I believe. Most of it was intangibles because there was only 2 properties where we acquired bricks-and-mortar. The cash flow from that portfolio is just shy of $8 million. So at a $28 million purchase price, that's pretty decent value. My only indication is the amortizable assets on the books just have to find the right buyer at the right price. And I'm saying that is somewhat speculative. The value is there, and the assets are performing well. We had a little blip this quarter based on weather, but...

David Luebke

The stock prices has gone nowhere since 2009, so that's why I'm questioning the strategy.

Michael P. Shaunnessy

I understand the question, David. But the company's strategy and operating portfolio have done a 180-degree turn since that point in time. So we obviously are in a rebuilding process. The stock has been slowly moving forward as we have been solidifying operations and generating consistent cash flows, paying down debt, reducing interest rates; all of that will accrete to the value of the underlying common shareholder equity.

David Luebke

In theory?

Michael P. Shaunnessy

Yes. But I'm going to do my damndest to make it happen in practical reality. Provided I can't control the market, but...

Operator

[Operator Instructions] And our next question comes from Clark LaChapelle [ph], a private investor.

Unknown Attendee

I understand, some time ago, there was talk about the state of Washington allowing our casinos in the state of Washington to have slot machines and other gaming tables. Is there something along that line in the future?

Michael P. Shaunnessy

You're correct. There was a discussion in the past. It occurred a good 2 years ago plus, and it was a result of some severe budget issues in Washington, predominantly the need to fund some education initiatives, and they were desperately in search of additional revenues. And at that time, they were considering allowing the card clubs to place slot machines into the card rooms in order to generate the revenues that they needed to be able to plug their budget gap. They ultimately figured out other solutions, modified some of their spending, and that initiative kind of died. And it hasn't really resurfaced. The challenge of that in Washington is that there's a fairly sizable presence of Native American gaming operations that are full-fledged casino operations throughout the state, and they would prefer to continue to have the exclusive right for slot machines. And consequently, they are a pretty significant adversary in the efforts to try and get slot machines into card rooms in Washington. So I am not hopeful that it will happen any time soon, absent some exigent circumstances that bring it back to the forefront.

Operator

And Mr. Maciora, at this time, there are no further questions in the queue. I'll turn the call back to you.

Kenneth Maciora

Ladies and gentlemen, thank you very much for joining Nevada Gold & Casinos' Fiscal 2014 First Quarter Financial Results Conference Call. If anyone has any questions, they could contact the company or contact myself at (917) 670-9541. We appreciate everyone's support and thank you, once again, for joining this conference call.

Operator

And ladies and gentlemen, that does conclude today's presentation. We thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Nevada Gold & Casinos Management Discusses Q1 2014 Results - Earnings Call Transcript
This Transcript
All Transcripts