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Nevada Gold & Casinos, Inc. (NYSEMKT:UWN)

F1Q09 Earnings Call

September 10, 2008 9:00 am ET

Executives

James J. Kohn - Chief Financial Officer, Senior Vice President, Treasurer

Robert B. Sturges - Chief Executive Officer, Director

Analysts

Michael Friedman - Noble Financial Group

Vincent Staunton - Wedbush

Mitchell Sacks - Grand Slam

Operator

Welcome to the Nevada Gold & Casinos, Inc. first quarter 2009 earnings conference call. (Operator Instructions) For opening remarks and introductions I would like to turn the call over to Jim Kohn, Chief Financial Officer.

James J. Kohn

With me today is Bob Sturges, our Chief Executive Officer.

A webcast of today's call will be archived on the company's website at NevadaGold.com. If you have not already received a copy of yesterday's press release, it is also available on the website.

Before we begin, I would like to remind everyone that part of today's call will include forward-looking statements. These statements are not guarantees of the future performance and therefore undue reliance should not be placed on them. We refer all of you to the company's filings with the SEC for a more detailed discussion of the risks that can impact the company's future operating results and financial condition.

With that, I would like to turn the call over to Bob Sturges.

Robert B. Sturges

We're happy to have the opportunity to speak with you again and to talk about our first quarter results and our ongoing progress in positioning Nevada Gold for the future.

Jim will walk you through the financial results in a moment, but I would like to briefly highlight one important point and that is the strength of our cash position, which exceeded $18 million at the end of August. We believe this leaves us very well positioned to aggressively pursue compelling growth opportunities and we are regularly evaluating both acquisitions and management contract opportunities.

There are a number of interesting acquisition prospects in today's market that we are actively reviewing. While we do not have any specific prospects or management contract agreements to talk about today, we are confident that the company will effectively use its healthy cash position to move forward as we identify those projects that will form the cornerstone of Nevada Gold's future growth.

We continue to make progress in divesting non-core assets, and we are working diligently to finish streamlining our portfolio. Last month we announced that Restaurant Connections International or RCI sold Internacional Restaurantes do Brasil Ltd., a majority owned subsidiary, to another Brazilian company for $5.5 million. Nevada Gold is a founding shareholder of RCI and currently owns 56% of RCI. IRB owns 16 Pizza Hut restaurants in Sao Paulo, Brazil.

From the proceeds of the sale, RCI repaid the promissory note and accrued interest due Nevada Gold in the amount of $4.7 million. The RCI note to Nevada Gold replaced the notes and accrued interest previously due from Clay County Holdings and Service Interactive. We received the $4.7 million on August 12, 2008 and we believe this represents another key step that will be another boost of our liquidity and enable us to focus on our core strengths in casino acquisitions and management contracts.

Turning now to our current project portfolio, we have been spending a great deal of time evaluating our planned acquisition of the Horizon Casino Hotel from Tropicana Entertainment. Due to the confluence of several factors, we are no longer planning to acquire this property under the previously negotiated terms and conditions. We are currently in discussions with Tropicana regarding how best to proceed, and we are considering several options. We cannot comment in detail regarding the status of these discussions as they are ongoing, but we look forward to keeping you apprised in the future.

Overall, we are happy with our ongoing progress. We believe we are building a sustainable platform for the future and we will continue to implement initiatives that will result in a compelling growth oriented portfolio of projects that will return value to our shareholders.

With that, I'll turn it over to Jim Kohn for our financial review.

James J. Kohn

Looking at the first quarter results, we recorded a loss of $800,000 or $0.06 per share compared to net income of $500,000 or $0.04 per share a year ago. If earnings per share were adjusted to account for the sale of American Racing, which resulted in the company recording a $1.3 million gain in the prior year quarter, as well as the sale of our interest in Isle of Capri Black Hawk, we would have reported an adjusted earnings per share loss of $0.06 in the first quarter of this year compared to a loss of $0.09 a year ago.

Our net revenues came in at $1.6 million compared to $2.0 million a year ago, primarily due to the impact of the statewide smoking ban enacted in January 2008 on our Colorado Grande casino.

Operating expenses decreased to $3 million from $3.2 million.

As we've noted previously, with the sale of the Isle of Capri Black Hawk property, complete as of January 27, 2008, our future financials will not include earnings from this property.

With regards to Cripple Creek, EBITDA for the first quarter was $100,000 compared to $400,000 in the prior year. This property, like so many others in the market, has been subject to challenges, driven not only by the smoking ban but by new competition as well as general macroeconomic factors that are impacting the gaming industry, including gas prices and decreased discretionary spending.

Despite these challenges, our Colorado Grande Casino has continued to exceed its fair share of coin in and win in the market.

Our management team is working hard to navigate this difficult environment, and we will continue to look for ways to improve performance and increase market share at Cripple Creek. In addition, as we have discussed previously, in Colorado the gaming industry is currently supporting a ballot initiative to amend the constitution to authorize an increase in the bet limits, allow additional types of table games, authorize 24-hour gaming instead of the current 18hour gaming day, and establish a fixed tax rate. Depending on the outcome of the initiative through the November general election, we believe Cripple Creek is well positioned to benefit from these changes should the amendment pass. We will keep you posted as events develop.

And with this, I will turn the call back to Bob.

Robert B. Sturges

We continue to make progress positioning Nevada Gold for growth, and we are optimistic that, bolstered by a very strong cash position, we are now better positioned than ever to move forward and pursue compelling opportunities that will return value to our shareholders.

As far as today's questions are concerned, we request you limit yourself to one question and then return to the queue so that everyone has had an initial opportunity to ask a question without too much delay. You'll be able to ask as many questions as you wish but please, just one at a time. I thank you for your cooperation in that regard.

We will begin the question-and-answer session now.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Michael Friedman - Noble Financial Group.

Michael Friedman - Noble Financial Group

A question about the Horizon situation. I know it's somewhat sensitive but can you give us idea if there's some sort of a breakup fee that the company may receive related to this situation?

Robert B. Sturges

What the economics ultimately are for the company, Michael, is something that is under discussion and we really don't want to negotiate in a public forum. We have a very constructive and we think good line of communication with Tropicana Entertainment. We've had a number of discussions and we will continue to. And I think we're going to have to leave the specifics at that at this particular point in time.

Operator

(Operator Instructions) Your next question comes from Vincent Staunton - Wedbush.

Vincent Staunton - Wedbush

I was wondering if you could provide an update on Buena Vista?

Robert B. Sturges

Sure. Buena Vista continues to move forward with the permitting process. They are about to begin the cultural consultation phase that EPA is coordinating on behalf of both the state environmental people as well as the Army Corps of Engineers. It's a requirement of both permits, and it's being handled in a consolidated manner. The last filing is expected in the next couple of days from the tribe in that regard. So that permitting process is on the same kind of time track we had announced previously and it's still on target to assume that we could be in the financing phase in the first part of 2009, with a possible beginning of construction date in mid-2009.

There is one additional development since we last spoke about this publicly. The county, there has been a federal lawsuit filed. It's been pending for quite some time. There's a pending motion to dismiss that complaint which has not been ruled upon yet by the court. The tribe's lawyers are cautiously optimistic that the federal court is not going to enter a negative ruling here and it would be unprecedented for the federal court to intervene in this manner.

But the county has pressed ahead and has actually filed a motion for injunctive relief that would prevent the project from moving forward until a ruling is received. This again would be absolutely extraordinary, and it's highly unlikely that this will be successful. As a matter of fact, the U.S. Attorney's Office is also a party of this case, representing the Department of the Interior. They are vigorously opposing this, as is the tribe, and it's not expected that this is going to slow progress in the long run for the project.

Operator

Your next question comes from Mitchell Sacks - Grand Slam.

Mitchell Sacks - Grand Slam

Back on the Vicksburg thing again, because it's a little bit amorphous the way I understand it now, was this something that you guys initiated? Was this initiated from the other side? Can you sort of give us a little bit more color to understand what this sort of entails?

Robert B. Sturges

Sure. We really can't get into it in too much detail, Mitch, but I will characterize it this way. Price from our point of view certainly became an issue as a result of a series of events and material adverse conditions arose which took place subsequent to this contract being signed. We have brought that to the seller's attention. We have had a number of constructive meetings with the seller as to how we might be willing to proceed, how they might be willing to proceed. And those discussions are ongoing and we're cautiously - again, cautiously - optimistic that something constructive is going to come from this.

But that's about all I can comment on at this time.

Operator

Your next question comes from Michael Friedman - Noble Financial Group.

Michael Friedman - Noble Financial Group

I hate to keep harping on the Horizon, but can you just give us any color on the down payment, what may or may not happen there? Do you still think that, should this deal not go through, that that will not be at risk?

Robert B. Sturges

Our position is clearly that we would expect the $2 million to be returned to us if the negotiations that I've already made reference to are unsuccessful.

Michael Friedman - Noble Financial Group

And then can you give us a little idea of how much corporate expense do you project on an annual basis and legal as well? And what are the annual run rates for those, any idea?

Robert B. Sturges

I'll ask Jim to see what can be said in that regard without being too forward-looking here with projections.

James J. Kohn

We would use a figure of approximately $3.5 million on a go forward basis annualized for corporate and legal expenses together.

Michael Friedman - Noble Financial Group

And then can you give us any color on the consulting type arrangements that you might have? I know you've mentioned in the past you're making progress, and I think, Bob, you made mention of something again in your prepared remarks. Are you getting any closer? Is there anything that comes to mind that might happen within the next 12 months? Is that a possibility?

Robert B. Sturges

I would tell you that there are a couple of discussions that are continuing. And I don't want to put a timeframe on it; that's always, of course, dangerous when you've got two parties that both have to agree. But I can tell you we have ongoing discussions right now as we speak for those kinds of arrangements, and we're hopeful that they're going to make sense for us and make sense for the other side. But other than tell you that there are actual discussions in progress, Michael, I can't say anything more than that.

Michael Friedman - Noble Financial Group

And then as far as the credit environment out there, it seems as though it's tightening even more. Can you give us a little bit of insight as to your experience or what you're hearing out there as far as funding for casino acquisitions at the size of a Horizon, for instance, or some other similar size casino deals?

Robert B. Sturges

Well, clearly, as everyone knows - as you know and every other observer would feel - the credit market is very difficult. However, there are deals that have gotten done. And again, we're encouraged by the Fire Keeper's financing. We think that cash becomes even more important in this environment clearly and that's why we have been putting ourselves in the best cash position that this company's been in in a very long time, because we think we're going to need that kind of firepower to actually execute on acquisitions.

So the $18 million that's sitting on our balance sheet we're very pleased to have, and we think we can put it to good use. And yes, we can't leverage like we once could, but we still feel with the cash we have that we will be able to make some significant progress on the acquisition front.

Operator

Gentlemen, with no other questions at this time, I'll turn it back to you for closing remarks.

Robert B. Sturges

I'd just like to once again thank everybody for your interest. If there are any follow-up questions, you know where to find us. And we're happy to continue to communicate as best we can about the progress we're making to better position Nevada Gold for the future. Thanks again for your attention and interest. Bye bye, everyone.

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Source: Nevada Gold & Casinos, Inc. F1Q09 (Qtr End 07/31/08) Earnings Call Transcript
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