Dover Downs Gaming & Entertainment's (DDE) CEO Denis McGlynn on Q2 2016 Results - Earnings Call Transcript

| About: Dover Downs (DDE)

Dover Downs Gaming & Entertainment, Inc. (NYSE:DDE)

Q2 2016 Earnings Conference Call

July 28, 2016 09:30 ET

Executives

Denis McGlynn - CEO

Tim Horne - CFO

Klaus Belohoubek - General Counsel

Operator

Welcome and thank you all for standing by. At this time all participants will in a listen-only mode until the question-and-answer session of today's conference. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this point.

I would now like to turn the call over to your host Mr. Denis McGlynn. Sir, you may begin.

Denis McGlynn

Thank you and good morning everyone. I am joined by Tim Horne, our CFO; and Klaus Belohoubek, our General Counsel. Tim is going to read our forward-looking statement disclaimer and then we will get underway.

Tim 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 McGlynn

Thanks, Tim. Well, for this quarter we're reporting revenues pretty much in line with last year but with capital reinvestment held for the absolute minimum necessary and our focus remaining on debt reduction. Our results reflect benefits from reduced depreciation and interest expenses. These along with reduced G&A expenses enabled us to modestly improve net earnings for the quarter and Tim will have the detail in a minute.

[Indiscernible] shared with your last quarter about possible legislative relief for Delaware casino industry unfortunately disappeared 10 days before the end of legislative session when the state fiscal revenue forecasts were updated and unexpectedly revealed a significant shortfall. This results in a last minute effort by state budget riders to make cuts to a variety of programs and agencies and remove the casino relief issue from consideration for this year.

As I previously stated the industry has made considerable progress in making the case for release and these efforts are certainly going to continue going forward and some reasonable revenue sharing arrangement is achieved. Meanwhile, we will continue to what we're known for that being offering a great facility, friendly employees and best-in-class customer service.

I am going to turn over to Tim now for his review of the financials.

Tim Horne

Thanks, Denis. If you look at the second quarter statement of earnings, you’ll see our total revenues of $46.2 million, which were up 2% compare to the second quarter of last year. Gaming revenue which consist of slot win, table win and to a lesser extent horse racing and iGaming commissions increased 2.6% compared to last year to a little more than $39 million.

Our slot win was up a little more than 1% compare to last year. We had a higher handle but a slightly lower hold percentage, but all-in -all slot performance was a little bit better than the state as a whole and a little better than the region as a whole. Our cable drop was up a little more than 3% and our whole percentage while still little lower about 16.5%, was higher than last year. So our table game revenue was about 8% for the quarter. We remain about one-third of the total Delaware table game win.

As for the demographic trends for the second quarter, our average number of trips for our club players and the spent per trip were both up a little bit compared to last year. Regarding our operating profits, our gaming margins improved slightly compared with last year to about 6%. Other operating revenues which are net of promotional allowances of about $4.6 million consist of the cash portion of our hotel, food and beverage and other revenues and never down about1% compare to last year and just short of $7.2 million.

That decrease was primarily from lower cash rooms revenue largely from the fact that we have the significant cash rooms related to our sister company posting of the Big Barrel Music Festival last year, that event was not held this year. We also had a payment last year from the takeover of our retail operations which impacted the comparison. That loss cash rooms revenues on that retail take a settlement last year led to lower gross profit and margins for our non-gaming activities when compare to second quarter of 15.

Our total hotel occupancy was about 88% for the quarter compared to about 85% last year and almost 40% of our casino revenue came from our hotel guests and our total win per room remains well in excess of $500 for the quarter and is near all time high. Our pure cash rate was $152 for the second quarter.

G&A expenses were down more than 3% compared to last year primarily from lower payroll costs. So our EBITDA for the quarter was a little below last year at 3.46 million versus 3.57 million for the second quarter of 2015 and that’s basically from the lower cash rooms revenue, slightly higher marketing cost offset by the better gaming results.

Interest expense was $218,000 lower than last year from lower average borrowings as well as from lower interest rates and as you can see we had net earnings for the quarter of $796,000, or $0.02 per share, compared with 631,000 or $0.02 per share last year.

On the attached balance sheet, the only thing I’ll highlight is that our total debt was $28 million in June 30th and was reduced by $3 million this quarter. That debt remains classified as current as this facility expire on September 30, and we're currently working on extending that right now and expect to have that done near term.

Also attached as a cash flow statement for the six month period, our operating cash was $5.3 million, which is a little lower than last year primarily from the timing of the payments to state until lesser extend the lower earnings before depreciation.

We have just short of $2 million of capital expenditure so far this year and paid down 3.5 million in debt so far. We expect to spend somewhere around a $1 million in capital expenditures for the balance of the year.

That concludes our prepared marks. So operator, if you please open it up to questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from James Tracy. Your line is now open.

James Tracy

Two questions for me, really the first is on the senate bill, are you able to give an update on what your expectations are in relation to that being passed. You've mentioned January in the release, how confident are you around that? And the second question is, if the senate bill not passed, do you have any plans around operating cost reduction? And the sort of final question is on maintenance CapEx was around 4 million a year the sort of reasonable estimate for what the maintenance CapEx requirements to the business are? Thank you.

Denis McGlynn

As regards to the senate bill, we're going through an election cycle here so if we will need to generate a new bill come January after the election. The bill that was introduced previously will have expired with the session. So I don’t know whether you caught in my earlier comments, but we had a bill at which was senate bill and an expectation of a passage of at least a good portion of it, but that disappear at the last minute when the revenue forecast for the state came in unexpectedly short and there was really no flexibility in the state resources to be able to deal with our issues.

So we're going to run it again come January when the legislature re-convinced and the makeup of the legislature will likely have change somewhat as result of the election and we're going to have a new governor and cabinet. So while we made great progress to-date, we probably have some work to do with whomever the new members are. But I think it's safe to say that there is a general understanding among all those who control our destiny that something needs to be done to fix what's wrong with the current make and revenue distribution program that the Delaware casino industry is currently operating under. So we'll be pressing that issue again right after the November election.

Tim Horne

As per second half of that question as far as operating cost, we're fairly lean operator and we've had to focus on cost for the better part of eight years now on this large attacked which occurred back in 08, 09. So we're fairly lean before still looking at everything. We're working on utilities and recycling and headcount related things all the time. So there is low-hanging fruit there, but we're always looking at it. Healthcare is a challenge. Those costs are up everywhere so that’s some headwinds we're running into, but we're always looking at that. From a CapEx standpoint, our original budget was somewhere in 3.5 million neighborhood. You see we've spent about $2 million through six months. We'll take a hard look at the balance of those CapEx items and probably trim that up a little bit, but still have a little bit more to do this year.

James Tracy

Okay and just a follow-up question, you're paying down your debt for past couple of years, do you have sort of leverage metric that you would target that you would say is appropriate? And then could you buy back shares or anything beyond that or do you not have any plans around the right capital structure?

Denis McGlynn

For the last several years, the appropriate level of leverage was with the bank would allow us to have. We're currently under that now, but we need to stay under that. Our current bank agreement does not allow for stock buy backs currently.

Operator

We show no further questions as on this time.

Denis McGlynn

All right. Well, thank you very much everybody and we'll look forward to getting back to you again after third quarter.

Operator

Thank you. That concludes today's conference. Thank you for your participation. You may now disconnect.

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