Dover Downs Gaming & Entertainment (NYSE:DDE)
Q1 2014 Earnings Call
April 24, 2014 9:30 am ET
Denis L. McGlynn - Chief Executive Officer, President, Director and Member of Executive Committee
Timothy R. Horne - Chief Financial Officer, Principal Accounting Officer, Senior Vice President of Finance, Treasurer and Director
Welcome, and thank you for standing by. I just need to remind everyone that today's call is being recorded. If anyone has any objections, please disconnect at this time. [Operator Instructions] Now I would like to turn the conference over to Mr. Denis McGlynn, President and CEO of Dover Downs Gaming & Entertainment.
Denis L. McGlynn
Thank you, operator. Good morning. 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 begin.
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, this was clearly not a good quarter for the company and it, once again, demonstrates the need for a resetting of the gaming revenue-sharing model among the industry's stakeholders. As a specific illustration, consider that, in this first quarter, the company paid $16 million into the State's General Fund. We provided $4 million for horse racing purses, and we were solely responsible for slot machine lease payments and fees of $2.6 million. Meanwhile, the current revenue-sharing formula caused us to lose $1 million for the quarter. You may recall that the company made $13,000 for all of 2013. At the same time last year, we paid $71 million into the State's General Fund, generated $17 million for our racing purses and paid $9 million to the slot machine providers. No one can argue that this revenue-sharing formula is fair and equitable. To that end, the legislatively established Delaware Lottery and Gaming Study Commission has made recommendations calling for an interim package of adjustments as follows: as proposed, beginning July 1, 2014, 75% of slot machine costs will be shared by the state. Beginning July 1, 2015, the tax rate on table games will be lowered from 29.4% to 15%. At the same time, the $3 million annual table game license fee will be eliminated. Also, in July of 2015, the Lottery and Gaming Study Commission will be reconvened for an update concerning the industry -- our industry in consideration as to any additional adjustments. These recommendations are being drafted in the form of legislation, which needs to be passed during the current legislative session, which ends June 30. Needless to say, we're currently working in support of this legislation along with our fellow casino representatives. Tim has the financial details for the quarter now, and then I'll turn it -- I'll turn it over to him, and we'll come back for your questions.
Timothy R. Horne
Thanks, Denis. If you look to the first quarter statement of earnings, you'll see our total net revenues of $45.5 million, which were down 10% compared to the first quarter of last year. While that decrease is smaller than some of the decreases we've seen for much of the past year, increased competition continues to impact our gaming revenues, while our non-gaming revenues were fairly strong during the quarter. Gaming revenues, which consist of slot win, table game win and, to a lesser extent, horse racing commissions, decreased 12.2% compared to last year to $39.8 million. Our slot win was down about 10% compared to last year. And again, it's primarily attributable to the continued competitive marketplace. Demographic trends remain fairly consistent, as the biggest competitive impact continues to be Annapolis and D.C. markets, while we are improving a little in Delaware, Northern Maryland and Virginia. The average number of trips for our club players is identical to last year, while their spend per trip has improved slightly.
Our table revenue was down more than 25% compared with the first quarter of last year. If you recall, Maryland Live! began offering table games last April, which is the primary reason for the decline, as their table revenue is about 5x that of the state of Delaware as a whole. Our hold percent was a little lower in the quarter, and we were about 35% of the total Delaware table game win.
Regarding our operating profits, our gaming margins were down to 3.6% which is, obviously, lower than last year, and that margin decline is entirely from the impact of the lower slot and table win. Our gaming expenses outside of taxes and other legislative costs were down about $750,000 during the quarter. But the problem, which is apparent to so many, is simply that the impact of our very high gaming tax rates at these lower revenue levels. As Denis mentioned, the Lottery and Gaming Study Commission proposed an interim 2-year fix, which we hope to see in the form of some legislation very soon.
Our other operating revenues, which are net of promotional allowances of about $4.5 million, consisted a cash portion of our hotel, food and beverage and other miscellaneous revenues, and they were up $480,000 compared to last year. That increase was primarily from higher convention and banquet business and higher cash rooms revenue, offsetting lower volumes in most other venues. As a result, the gross profit for those non-gaming activities were improved compared with the first quarter of last year as well with consistent margins. Our hotel occupancy was 80% in the quarter compared to 84% last year. Again, almost 40% of our casino revenue comes from our hotel guests. And our total win per room was again over $500 for the quarter, so the hotel remains an extremely important revenue driver for all involved.
Our pure cash rate for the quarter was $160, which is a nice improvement from last year. G&A expenses, just short of $1.4 million, were down about 9% from last year. So our EBITDA for the quarter was $1.3 million versus $2.7 million for the first quarter of 2013. Again, the effect of the lower slot and table win was somewhat offset by lower G&A and better non-gaming profits.
Interest expense was $460,000, 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 $1 million or $0.03 per diluted share compared with a loss of $283,000 or $0.01 per share last year.
On the attached balance sheet, the only significant change you'll see is that our total debt was $45 million at March 31 and was reduced by just over $2 million this quarter. That debt remains classified as current here as the facility expires in June, but it's obviously our intent to extend, renew or refinance this facility though we are waiting for more legislative clarity before we can finish that process. We also have an attached cash flow statement for the quarter, where you'll see our operating cash used in -- operating activities during the quarter was $100,000. That's lower than last year from the lower net income and the timing of certain payments. We had just over $200,000 of capital expenditures in the quarter. And as mentioned, we paid down $2 million of debt. Our capital spending budget for the year was about $1.5 million, but we're being very prudent in these decisions for obvious reasons. That concludes our prepared remarks. Operator, if you could please open it to questions.
Denis L. McGlynn
Operator, do we have no questions?
There are no questions at this time, sir.
Denis L. McGlynn
All right. Then we'll wrap it up. Thank you, everybody. We appreciate you joining in. We look forward to talking to you again after the next quarter.
This concludes today's conference. Thank you all for joining. You may now disconnect.
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