Dover Downs Gaming & Entertainment Management Discusses Q4 2013 Results - Earnings Call Transcript

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 |  About: Dover Downs Gaming & Entertainment, Inc. (DDE)
by: SA Transcripts

Dover Downs Gaming & Entertainment (NYSE:DDE)

Q4 2013 Earnings Call

January 30, 2014 9:30 am ET

Executives

Denis L. McGlynn - Chief Executive Officer, President, Director, Member of Executive Committee, Chief Executive Officer of Dover Motorsports Inc, President of Dover Motorsports Inc and Director of Dover Motorsports Inc

Timothy R. Horne - Chief Financial Officer, Principal Accounting Officer, Senior Vice President of Finance and Treasurer

Operator

Welcome, and thank you all for standing by. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this time. Now we'll turn the meeting over to your host, Mr. Dennis McGlynn. Sir, you may begin.

Denis L. McGlynn

Thank you very much. And good morning and welcome, everyone. Tim Horne, our CFO is here along with Ed Sutor, our Executive Vice President; and Klaus Belohoubek, our General Counsel. Tim is going to read our forward-looking statement disclaimer, and then we'll get started.

Timothy R. Horne

In order to help you understand the company and its results, we may make certain forward-looking statements. It is possible the company's actual results might differ from any predictions we make today. Additional information regarding factors that could cause such differences appear in the company's SEC filings.

Denis L. McGlynn

Thanks, Tim. Well, the fourth quarter performed in line with the year's previous 3 quarters, thus giving us the year-end numbers reflecting reductions in revenues and earnings. The back story will sound familiar, intense neighboring state competition coupled with a state gaming revenue-sharing formula that is yet to be modified to reflect the Delaware gaming industry's current operating environment. The good news is, The Delaware Lottery and Gaming Study Commission, established last June by the legislature, will soon be making its findings and recommendations to the Governor, the House and the Senate as to how to address our industry's challenges. I think, the Study Commission aided by a report they commissioned KPMG to produce has a good grasp of the issues, and we look forward to their recommendations.

With that, I'll turn it over to Tim for his review of the financials.

Timothy R. Horne

Thank you, Dennis. If you for look at the fourth quarter statement of earnings, you'll see our total net revenues of $46.6 million were down 4.1% compared to the fourth quarter of last year. While that decrease is smaller than the decreases we've seen for the past year, Maryland Live! continues to impact our gaming revenues, while our non-gaming revenues were fairly strong during the quarter. Gaming revenues consisting of slot and table win, and to a lesser, extent sports betting win and horses racing commissions decreased 5.7% compared to last year to $40.8 million. Our slot win was down a little less than 7% compared to last year. As you've heard for the past year, the added competition from the opening and expansion of Maryland Live! was the primary driver of the slot declines during the quarter.

Our demographic trends remain fairly consistent, as the biggest competitive impact continues to be in the Annapolis, Baltimore and D.C. markets, while we are improving a little bit in Delaware and Northern Maryland, and also in Virginia.

The average number of trips for our club players is very similar to last year, while the spend per trip was up just slightly. Our higher-end business remained strong and critical to us, as 13% of our customers account for almost 64% of our club win.

Our table revenue was down a little more than 4% compared to the fourth quarter of last year. Maryland Live! began offering table games in April, and that's the primary reason for the decline. Our table revenue was about $5 million for the quarter, and we had a strong hold of about 19%. We're just over 38% of the Delaware table game win, which is a high point, as the other Delaware tracks have been hurt a little more than we have from the table game competition.

Regarding our operating profits, our gaming margins were down to 4.7%, which is a little lower than last year. That decline is entirely from the impact of the lower slot win during the quarter. Our gaming expenses outside of taxes and other legislative costs were down almost $300,000 during the quarter. So the problem continues to be the impact of our tax rates at these lower revenue levels, and the Lottery and Gaming Study Commission is evaluating that right now, and are expected to report back to the Governor and the legislature in the short term.

Other operating revenues, which are net of promotional allowances of approximately $4.6 million, consisted the cash portion of our hotel, food and beverage and revenues, and they were up more than $500,000 compared to the last year. That increase was primarily from higher cash rooms revenue and also revenue from our Herschel Walker's Restaurant in Athens, which opened back in February. As a result, the gross profit and margins for these non-gaming activities were both improved compared with the fourth quarter of 2012. Our hotel occupancy was 80.7% for the quarter compared to 81.3% last year, so relatively consistent. We now derived more than 40% of our casino revenues from our hotel guests, and our total win per occupied room is over $560 for the quarter. So the hotel remains our most important revenue driver. Our pure cash rate for the quarter was $145, which is up a little bit from the last year.

G&A expenses of $1.3 million were down 11.5% versus the last year. So our EBITDA for the quarter was approximately $2.1 million versus $2 million for the fourth quarter of 2012. The effect of the lower slot win was offset by lower G&A expenses and better non-gaming profits, and last year was impacted to some extent by Hurricane Sandy.

Interest expense in the quarter was $485,000, which is higher than last year, from higher rates and fees offset by lower average borrowings. And as you can see, we had a net loss in the quarter of $418,000, or $0.01 per diluted share, compared with $528,000 or $0.02 per share loss last year.

On the attached balance sheet, the only significant change you'll see is our total debt, which was about $47 million at the end of the year, and was reduced by $5.4 million this quarter and $11.4 million for the year. The debt's classified as current here, as our facility expires in June of 2014, but it's obviously our intent to extend, renew or refinance this facility. Our pension liability is also down significantly, reflecting good asset returns for the year and slightly higher interest rates.

Also attached is the cash flow statement for the year, where you'll see our operating cash flows were about $11.1 million, that's lower than last year from the lower net income, offset by the fact that we paid about $2.7 million less in license fees this year compared to last year. We had just over $1.5 million of capital spending this year and paid down over $11 million in debt, as I mentioned.

That concludes our prepared remarks. Operator, if you please open it to any questions.

Question-and-Answer Session

Operator

[Operator Instructions]

Denis L. McGlynn

Operator, it sounds like we have no questions.

Operator

We do not have any questions in queue.

Denis L. McGlynn

Okay. Then, I think, we'll wrap it up. Thank you, everybody, and we'll report back again after the first quarter.

Operator

Thank you, all. That concludes today's conference call. Thank you, all for participating. You may now disconnect.

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