MTR Gaming Group's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Mar.11.14 | About: Eldorado Resorts, (ERI)

MTR Gaming Group, Inc. (MNTG) Q4 2013 Earnings Conference Call March 11, 2014 4:30 PM ET

Executives

Garrett Edson - Investor Relations

Joe Billhimer - President, Chief Operating Officer

John Bittner - Chief Financial Officer, Executive Vice President

Analysts

James Kayler - Bank of America Merrill Lynch

Dennis Farrell - Wells Fargo Securities

Joe Hudak - Wells Fargo Advisors

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the MTR Gaming Fourth Quarter 2013 Earnings Conference Call. Today's call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session and instructions will be provided at that time for you to queue up for questions.

I would now like to turn the conference over to Garrett Edson of ICR. Please go ahead, sir.

Garrett Edson

Thank you, Danielle. Good afternoon, everyone. Welcome to the MTR Gaming Group fourth quarter 2013 conference call.

Before we get started, I just want to remind you that company's remarks may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934 as amended concerning the company’s prospects. Actual results could differ materially from those projected or suggested in any forward-looking statements as a result of a variety of factors, which are described in the company’s periodic reports filed with the Securities and Exchange Commission and in the company’s news releases.

Additionally, the company may discuss EBITDA, or earnings before interest, taxes, depreciation and amortization, which is a non-GAAP financial measure. Such information and any disclosure required by the SEC Regulation G can be found in MTR's March 11, 2014 earnings release, which is reproduced on the company’s website under Investor Relations. Finally, under certain circumstances, the Federal Securities laws may require the company to file a transcript of this call, including your questions, with the SEC. Accordingly if you ask a question, the company will assume that you have consented it to the inclusion of your question and identity in any such required filing.

It is now my pleasure to introduce your host, Joe Billhimer, President and COO of MTR Gaming. Mr. Billhimer?

Joe Billhimer

Good afternoon, everyone, and thank you for your interest in MTR Gaming. Joining me on the call today is our CFO, John Bittner. I'll make some brief comments on the fourth quarter performance and the current status of the merger with Eldorado Resorts, and then turn it over to John to cover some financial highlights.

Overall, when you consider the inclement weather in December, as well as the continuing weak consumer environment, the competitive market in Columbus and an extremely active promotional market in Northeast Ohio, we are pleased with our fourth quarter performance.

Our Scioto Downs facility in particular performed extremely well seeing both, double-digit revenue and adjusted EBITDA growth in the quarter as well as [slot] market share gains despite the aforementioned headwinds. This is a testament to the entire Scioto Downs' management team and the facility we built.

For the fourth quarter of 2013, we recorded adjusted EBITDA of $21 million on net revenue of $114.8 million compared to adjusted EBITDA of $21.2 million and net revenues of $115.8 million in the fourth quarter of 2012. Adjusted EBITDA for the quarter excludes strategic initiative related cost of $1.6 million.

Besides our solid Scioto Downs' performance, Mountaineer Park also performed well in the quarter seeing double digit adjusted EBITDA growth driven principally by operating efficiencies. Our property improvements continued in the quarter and specifically our Mountaineer hotel room renovations are ongoing and we expect the new rooms to be well received by our patrons.

Results at our Presque Isle Downs facility were impacted by the severe weather conditions and continued to be affected by the active promotional market in Northeast, Ohio, and we continue to focus on our marketing programs and operating efficiencies to offset some of this impact while focusing on our margins. The construction of the new Wyndham branded Baymont Hotel that we will manage is expected to open in April.

While our fourth quarter performance was solid, the extreme weather in the first quarter has affected everyone in the market and we are not immune. Operations have started to normalize as the weather begins to improve, but weather will have a significant impact on our first quarter results as well. As a side note, we have installed the new General Manager at our Presque Isle Downs facility.

Finally, with regard to our merger with Eldorado Resorts, we announced in January an early termination of the HSR waiting periods satisfying one of the conditions to the merger. We have also received initial approval from the State of Pennsylvania, regarding the transfer of interest as well as the consent from our noteholders and a waiver for our credit facility regarding the change control relating to the merger.

The merger is still on track to close in mid-2014, and remain subject to certain conditions and approvals, including subsequent regulatory approvals from various regulators in Louisiana, Nevada, Ohio, Pennsylvania and West Virginia, and approval by stockholders of MTR Gaming, along with registration and listing of the new company stock and customary closing conditions.

With that, I will turn it over to John.

John Bittner

Thanks, Joe. Rather than reiterate what's already in the press release, I'll just make a few comments and then we will open it up for questions just because I understand that there may be folks press for time.

Capital expenditures for the fourth quarter were $4.3 million, consisting primarily of $3 million for Mountaineer, $1.1 million for Presque Isle Downs and approximately $200,000 for Scioto Downs.

For 2014, we are expecting to spend approximately $15 million for CapEx before any reimbursements by the State of West Virginia. During the period, we did not have any capitalized interest during the fourth quarter, nor did we have any in the prior year quarter.

With respect to the merger, in September, we announced that we entered into the merger agreement with parent company of Eldorado Resorts, Eldorado HoldCo LLC.

Eclair Holdings Company, the newly formed parent company that will become the public holding company for MTR and Eldorado following the completion of our mergers filed a registration statement on Form S-4 on November 4, 2013, which is amended on February 13, 2014. The registration statement includes a preliminary proxy statement of MTR in a preliminary prospectus of Eclair Holdings Company as well as other relevant information concerning the proposed transaction.

The registration statement has not yet become effective and the information in it is subject to change. The registration statement is available at sec.gov under Eclair Holdings Company. Investors and security holders are urged to read these materials and any other relevant documents filed with the SEC, when they become available because they will contain important information about the MTR, Eldorado, Eclair Holdings Company and the proposed transaction.

We will not be making any additional comments on the mergers or information contained in the S4 or the amendment during a question-and-answer portion of the call.

With that I will turn it back over to Joe.

Joe Billhimer

Danielle, I would ask you to open the lines for questions.

Question-and-Answer Session

Operator

Absolutely, (Operator Instructions). We will go first to James Kayler with Bank of America Merrill Lynch.

James Kayler - Bank of America Merrill Lynch

Hey, Joe and John how are you?

Joe Billhimer

Good.

John Bittner

Hey, James.

James Kayler - Bank of America Merrill Lynch

I guess maybe you already said you are not going to answer questions, but can you just recap what the - not necessarily any additional detail, but just what things need to happen before the merger can move forward? What approvals are necessary?

Joe Billhimer

The primary approvals would be the MTR stockholder vote and the regulatory approvals from the respective gaming and potentially racing regulators in each of the states that we outline the Louisiana, Pennsylvania, Ohio West Virginia, Nevada, licensing for any of the principles that are new to any of those respective states. From a shareholder vote perspective, we can't really hold the shareholder vote until the registration statement is deemed to be effective by the SEC, and then that the timeline for holding the shareholder vote starts at that point.

James Kayler - Bank of America Merrill Lynch

Okay. There has been one turn of comment, is that correct on the on the shareholder agreement?

Joe Billhimer

Yes.

James Kayler - Bank of America Merrill Lynch

Okay. That's helpful. I know it's probably very hard to quantify, but can you just give any color on what impact do you think the weather might have had? Whether being -- quantify the number of weather days versus last year, I guess, both in West Virginia and I gave it all three property related. It's obviously been a pretty messy winter across the whole Midwest and East Coast.

Joe Billhimer

Yes, James. I would characterize the winter is the horrific winter for us. I mean, we have been affected at all three properties and there is a lot of noise in those numbers in terms of really being able to ascertain what the effects were.

I think if you look back to December, alone, you could have a #couple of million dollars worth of revenue impact, and then January and February, you could also have couple of million dollars worth of impact as a result of the really some tough weather days.

We felt snowstorms really at all three of the properties that were more than just one-day type storms. They were multiple days. Some affected weekends. Our New Year's Day was also affected. It's really not comparable to anything that we have looked back to in recent memory.

James Kayler - Bank of America Merrill Lynch

All right. Needless to say, if the weather had been more similar to last year, you think the results would have been meaningfully higher?

Joe Billhimer

I think, they would've been meaningfully higher. Yes.

James Kayler - Bank of America Merrill Lynch

Okay. Well, I guess one more snowstorm and then hopefully maybe April will be nicer.

Joe Billhimer

Yes. As we sit here, we are looking at one, hopefully not too bad and at least it's coming mid-week.

James Kayler - Bank of America Merrill Lynch

Yes. I guess changing gears a little bit, can you maybe just go through the competitive dynamics. I mean, obviously, Ohio properties continue to ramp up. Are you seeing meaningful changes versus any of your sort of direct competitors that would be in Columbus or just in the broader market with, I think, some of the Ohio casinos probably underperforming initial expectations, are you seeing sort of equally, more aggressive, less aggressive, or kind of stable promotional environment for all your markets?

Joe Billhimer

Well, I would take Columbus first. I think, we continue to see a fairly rational marketing program from the other facility in Columbus. I think, we continue to be very consistent and efficient in what we are doing in that market. As far as Northeast Ohio, the temperament of the promotional environment that we experienced through the summer and early part of the third quarter has fairly much subsided, so I would characterize that as rational, but with the weather, it's really hard to fully ascertain the effects of Northfield and its opening, but we do feel that most of the impact from the Ohio markets, as it relates to Presque Isle Downs and to Mountaineer, has been felt, but with the noise of the weather, it's really tough to ascertain until we get to a clear path of decent weather. It's going to be hard. Until then, we won't be able to give a very straightforward answer.

James Kayler - Bank of America Merrill Lynch

Sure. I guess, just the last piece is, can you just talk about what your CapEx plans are for this year in terms of dollar amount and if there is anything in particular that you are doing or if it's more just maintaining the assets at this point and waiting for the Eldorado deal to close?

Joe Billhimer

There are probably a couple of things that we are looking at that are included in the $15 million. First of all, that number includes $2 million of the 2014 portion of the hotel renovation for Mountaineer. We commenced that project in 2013. The project started, the ongoing project will run into in the 2014. $2 million included in that number for 2014 with the total project cost for the hotel upwards of $3 million to $3.5 million.

The other thing that we have in there is, we have tentatively budgeted some contemplated expansion at Scioto. We continue to work on some various options, but for now we have budgeted upwards of $3 million in there now for some current expansion considerations. I know there was one other.

John Bittner

The rest is basically slot machines.

Joe Billhimer

Right. Correct. The biggest - obviously, very obvious one. In the slot machines, in the aggregate between all of the properties would be at least $5 million of that number.

James Kayler - Bank of America Merrill Lynch

Got you. What types of changes to the property are you considering at Scioto?

Joe Billhimer

We are looking to add a food beverage outlet with the entertainment component and we will continue to evaluate some options and, you know, we have looked at various concepts and we would hope to come to a conclusion here in the next couple of months and get something going.

James Kayler - Bank of America Merrill Lynch

Okay. Great. Thank you for the update, guys.

John Bittner

Right. Thanks, James.

Operator

(Operator Instructions) We'll go to Dennis Farrell with Wells Fargo Securities.

Dennis Farrell - Wells Fargo Securities

Good afternoon, everyone. I was wondering if you could just touch upon the trends you have seen in March? I know January and February have been challenging from weather perspective, but we've heard from some other operators, they have seen some optimism in the first, I guess, week-and-a-half of the month?

Joe Billhimer

Yes, Dennis. I'll tell you, even in February, as we saw some spurts of some decent weather, we saw signs of life and some pent-up customer demand at all of our facilities and in I think that has continued on into March, I think in a little bit more balanced volume levels, but it's been somewhat encouraging.

Dennis Farrell - Wells Fargo Securities

Correct me if I am wrong. March probably is the most important month of the quarter, correct?

Joe Billhimer

Every month is important to us, Dennis.

Dennis Farrell - Wells Fargo Securities

Relative to January and February?

Joe Billhimer

March is the most important month in our quarter given what's happened in January-February, but yes generally we start to see a bit of an increase in the latter part of February, in the March as the weather starts to turn. That's absolutely correct.

Dennis Farrell - Wells Fargo Securities

Okay. Have you seen any impact on the promotional side from Miami Valley at Scioto?

Joe Billhimer

Very little if any impact based on our database, and how we look at impacts from customers that would be in that region and/or, we call it [cust] region in between the properties.

Dennis Farrell - Wells Fargo Securities

Okay. Then lastly, given the revenue declines at your legacy properties in West Virginia and Pennsylvania, I was wondering if there were any opportunities for property tax appeals at both properties.

Joe Billhimer

In terms of the actual property tax assessments?

Dennis Farrell - Wells Fargo Securities

Correct. Yes.

Joe Billhimer

There would actually, you know, we have done that in the past and we continue to look at that currently for each of those properties in terms of what we can do from an assessed value. As I mentioned, we have done it in past and we currently continue to look at them for both properties.

Dennis Farrell - Wells Fargo Securities

Okay. Actually one last one, what is your current NOL balance?

Joe Billhimer

With 2013, for federal it is upwards of $70 million.

Dennis Farrell - Wells Fargo Securities

Thank you very much.

John Bittner

Sure. Thanks, Dennis.

Operator

We'll go next to Joe Hudak with Wells Fargo Advisors.

Joe Hudak - Wells Fargo Advisors

Good afternoon. Just about every one of my questions have been answered, could you give us a little - where are you staying with headcount on all three properties year-over-year?

Joe Billhimer

Well, in terms of Q4, I think from an MPI, Mountaineer Park standpoint, we saw fairly consistent visitation. From PID, we also saw really at all three properties, we saw very consistent fourth quarter comparables. In terms of spend per visit was comparable at Mountaineer Park and Presque Isle Downs, our spend per customer was down while our spend per customer at Scioto Downs was actually up. John was signaling to me, was that the question you are you asking?

Joe Hudak - Wells Fargo Advisors

Yes.

Joe Hudak - Wells Fargo Advisors

Okay.

Joe Hudak - Wells Fargo Advisors

Thank you.

Joe Billhimer

All right. You are welcome Joe.

Operator

With no further questions in queue, I will turn the call back to our presenters for any additional or closing remarks.

Joe Billhimer

All right. Well, thank you everyone for your continued interest in MTR Gaming. We appreciate you being on the call with us today. We know you have had limited amounts of time and we look forward to speaking to you next quarter.

Operator

Ladies and gentlemen, that will conclude today's conference. Thank you, again, for your participation.

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