Nevada Gold & Casinos, Inc. (NYSEMKT:UWN)
Q4 2016 Earnings Conference Call
July 28, 2016 04:30 PM ET
Janine Zanelli - Investor Relations
Mike Shaunnessy - Chief Executive Officer
Jim Meier - Chief Financial Officer
Good afternoon and welcome to this Nevada Gold and Casinos Yearend 2016 Earnings Conference Call. Today's conference is being recorded.
I would now like to turn the presentation over to your host for today's call, Janine Zanelli, Investor Relations. Please go ahead.
Thank you and good afternoon. We appreciate you joining us today. With me on the call is Mike Shaunnessy, Chief Executive Officer; and Jim Meier, Chief Financial Officer. The purpose of today's call is to review the Company's financial results for the fiscal year 2016. Following the Company's remarks, there will be an opportunity to ask questions.
This call contains forward-looking statements, which are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. We use words such as anticipate, believe, expect, future, intend, plan and similar expressions to identify forward-looking statements. Forward-looking statements include without limitation our ability to increase income stream, to grow revenue and earnings, and to obtain additional gaming and other projects. These statements are only predictions and are subject to certain risks, uncertainties and assumptions which are identified and described in the Company's public filings with the Securities and Exchange Commission.
With that, I'd like to turn the call over to Nevada Gold's CEO, Mike Shaunnessy. Mike?
Thank you Janine. Good afternoon and welcome to our conference call today. Fiscal year 2016 has been a pretty eventful year. In May of '15 we announced an agreement to acquire Club Fortune in Henderson, Nevada and we closed on that acquisition on December 1st. During the year, we recorded a total of $641,000 of transaction expenses related to this acquisition.
Club Fortune helps to diversify and strengthen our portfolio as it gives us a significant cash flow to offset some of the weakness in South Dakota and compliments our operation in Washington. In June of 2015, we sold our Golden Nugget Casino up in Washington, and realized a gain of 166,000. But more importantly this location was not generating positive cash flow, so the sale allowed us to eliminate the associated expenses and more importantly redeploy the resources for personnel and financial to strengthen the balance of our portfolio in Washington.
Then in December of '15, in conjunction with acquiring Club Fortune, we amended our credit facility. We increased the maximum borrowing amount to $23 million and additionally the applicable margin for determining our rate was lowered and we also negotiated a carve out allowing for either stock repurchases or dividends. We also entered into an interest rate swap to fix the rate on 50% of availability and recorded an initial non-cash swap valuation allowance of 173,000.
In April of this year, we entered into an agreement to sell our excess land in Colorado for 750,000 and recorded an impairment charge of 350,000 in the fourth quarter. Uniquely that transaction is being accounted for under a deposit method, so you will continue to see the land recorded on the balance sheet until such time as we have collected enough proceeds to be able to record the sale. But there will be no further P&L impact as we have recorded 350,000 as an impairment charge.
Also in the fourth quarter, we reviewed the carrying value of our South Dakota route operations and recorded an impairment charge of $835,000 to the goodwill related to that acquisition. Cumulatively all of the transactions noted had a negative impact on reported earnings for the year net of tax of $1.5 million or $0.08 per share. And of course the bulk of them, the two impairment charges of 1.2 million as well as the swap valuation of 173,000 were all non-cash charges.
Now, operationally 2016 was a record year in Washington. We set EBITDA records in every quarter with all the external factors falling in our favor. One of our competitors closed which allowed two of our locations to capitalize on the additional market share. And our table game hold was consistent from quarter-to-quarter-to-quarter-to-quarter as well as year-over-year. There was no minimum wage increase in Washington this year, and the summer weather patterns were fairly normal. So with everything following in our favor during the course of the year, Washington generated 9.1 million in EBITDA, a record and a 23% increase over the prior year.
In Nevada we closed the Club Fortune acquisition December 1st, and we have been implementing a number of operational and marketing efficiencies, aided by the expertise of some of our Washington staff.
In June, we remodeled the restaurant, the kitchen and one of the casino bars there. We have enhanced the slot product and we are expanding some of our table game offerings and we're being cautious and careful and very targeted in the changes that we are implementing, but we expect these improvements to generate positive EBITDA improvement.
In South Dakota, our slot route continues to have revenue challenges, which is highly dependent on both the tourist volume but also the available units we have in the market. And as a route operator, we are dependent on other businesses to provide locations for our slot units. And over the last two years, several of our partners have closed, and although we are hopeful that new locations or the deadwood revitalization project will create future opportunity. The present near term environment caused us to reevaluate the goodwill associated with this route operation. And we recorded impairment charge in the fourth quarter of $835,000.
On the corporate front, the expenses were fairly flat and overall on a consolidated basis our adjusted EBITDA were $7.8 million, 38% increase over the prior year. Our strong free cash flow allowed us to pay approximately 5.7 million towards reducing our outstanding debt. And with the 15.5 million we grew to close on the Club Fortune acquisition, our bank debt at yearend is 17.2 million just two times EBITDA leverage, despite having made an acquisition during the period.
As we previously discussed, we continue to utilize tax loss carry forwards and again paid no current taxes this year. As a result of our strong free cash flow and low leverage, this month our Board at their July meeting authorized a $2 million stock repurchase program to efficiently allocate our capital for the benefit of our shareholders.
I appreciate you joining us today. And at this point, I’ll turn it over to Jim to take you through the financial performance. Jim?
Thank you, Mike. For the fiscal year 2016, net revenues increased [indiscernible] million or 9% to 70.3 million compared to 64.3 million in the prior year. Total operating expenses were 67 million compared to 61.1 million in 2015. Operating income increased by 0.1 million or roughly 2% to 3.4 million compared to 3.3 million in the prior year. Pre-tax income decreased by 0.2 million to 2.5 million. And net income decreased by 0.5 million to 1.3 million or $0.08 a share compared to 1.8 million or $0.11 per share in the prior year.
Net revenues from Washington increased 0.8 million or 1% to 56.7 million over 90% of that increase was due to increased play as the whole percentage was up only slightly from prior year. Washington's EBITDA increased 1.7 million to a record 9.1 million.
Club Fortune, net revenue was 6.1 million and EBITDA was 0.8 million.
South Dakota route operation revenues decreased 0.9 million to 7.5 million. Our South Dakota revenues continue to be pressured by reduced units on soft gaming and tourist market. The route EBITDA was 0.4 million, a decrease of $0.2 million. Corporate expenses excluding acquisition expenses were 2.6 million an increase of 0.2 million. And consolidated EBITDA increased 2.2 million or 38% to 7.8 million and the EBITDA margin increased from 8.8% to 11.1% of net revenues.
Now for the fourth quarter, fiscal year 2016 net revenues increased to 19.9 million from 16.3 million in the 2015 quarter. Operating expenses were 19.5 million compared to 15.2 million in 2015. And net loss was 0.2 million or $0.01 loss per share compared to net income of 0.6 million or $0.04 per share in last year's fourth quarter. The quarter was impacted by the Colorado and South Dakota impairments of 1.2 million before tax. Adjusted net income for the fourth quarter was 0.8 million or $0.05 per share compared to 0.6 million or $0.04 per share in the prior year's quarter.
Our Washington net revenues increased to 14.6 million from 14.5 million in the 2015 period. Washington operations contributed 2.6 million in adjusted EBITDA, an increase of 0.4 million from the prior year period. And in South Dakota, the $112,000 net revenue decline was primarily a result of reduced units. But due to highly variable cost structure our adjusted EBITDA only decline by $14,000.
Club Fortune contributed 0.5 million of adjusted EBITDA for the quarter. Corporate expenses remained controlled at an annual run rate of roughly $2.5 million. Consolidated adjusted EBITDA increased 0.6 million or 58% to 2.5 million compared to 1.6 million in the prior year period.
During the quarter we repaid an additional 1.6 million in debt, bringing in the cumulative current year reduction to 5.7 million, our long term debt is now 17.2 million and we have 11.6 million in unrestricted cash. The availability under our revolver is 4.5 million with a leverage ratio of approximately two times and no net income taxes or principle payments due for at least the next 12 months. We are in a good position to continue debt reduction and buyback shares.
And with that I’ll turn it back over to operator for any questions.
Thank you all of you joining us today. I was a little concerned when I noticed that Steve went and scheduled his conference call for the same time today after we got knocked ahead of him. I appreciate you taking the time, I think we had a very good year here. We look forward to continuing to make additional progress, we are still excited about the Club Fortune acquisition and continue to look for better things in the future. We'll continue to use that free cash flow to pay down debt and continue to increase shareholder value. Again thank you all again. And we will be talking to you again I guess in only 45 days since the quarter -- the current quarter is just about to end. But thank you all again. Have a great afternoon.
Ladies and gentlemen that does conclude today's conference. We do thank you for your participation. You may now disconnect. Have a great rest of your day.
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