Dover Downs Gaming & Entertainment's (DDE) CEO Denis McGlynn on Q1 2016 Results - Earnings Call Transcript

| About: Dover Downs (DDE)
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Dover Downs Gaming & Entertainment, Inc. (NYSE:DDE) Q1 2016 Earnings Conference Call April 28, 2016 9:30 AM ET

Executives

Denis McGlynn – President and Chief Executive Officer

Tim Horne – Chief Financial Officer

Analysts

Frank Santini – Bell Canada

Operator

Welcome and thank you all for standing by. At this time all participants’ lines are in a listen-only mode. [Operator Instructions] Today’s call is being recorded. If you have any objections, you may disconnect at this point.

Now, I will turn the meeting over to our host, Mr. Denis McGlynn. Sir, you may begin.

Denis McGlynn

Thank you and good morning everyone. I am joined by Ed Sutor, our Executive Vice President; 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, as I’m sure you’ve noticed we’re reporting another first quarter loss this year and I am certain most of you realize it’s the gaming revenue share imbalance between the state and the casinos in Delaware that’s the root cause of our lack of profitability.

To illustrate, this quarter Dover Downs gave $22 million to the state, the horsemen, slot machine vendors yet we’re stuck with a net loss of $239,000. As you know, there have been two very minor adjustments to the revenue sharing model in the past few years, but as predicted these adjustments have been insufficient to the cover the constant escalations and expenses such as the skyrocketing cost of employee healthcare, cost associated with the mandatory minimum wage hike and other general cost increases such as those imposed by the slot machine vendors.

You may recall in January, Senate Bill 183 was introduced in the Delaware Senate calling for the enactment of recommendations made by two successive convening’s of the Delaware Lottery and Gaming Study Commission, which itself was appointed by the Delaware Legislature. At this particular point in time, the subject of this legislation and the flight of the Delaware casino industry are coming into focus and we expect some action will be taken before the end of the legislative session on June 30.

Right now, however, I am not able to offer any more color on this including any quantification or possible benefits of the industry, these are discussions that are underway and specifics just aren’t available at this time, so stay tuned. I’m going to turn it over to Tim now for his review of the financials and then we’ll open it up for your questions.

Tim Horne

Thanks, Denis. If you look at the first quarter statement of earnings, you’ll see our total revenues of $44.7 million, which were about 1% higher than the first quarter of last year. Gaming consisting of slot win, table win and to a lesser extent horse racing and sports commissions in our gaming win increased about 1.5% compared to last year to a little more than $39 million.

Our slot win was almost identical to the last year. We had bad weather this January, but we have had bad weather in February of last year, so they essentially offset each other. Our whole percentage was down a little compared to last year, which contributed to a slight decline in March. And all in all slot performance was in line with the state as a whole.

Despite a lower drop, our table game revenue was up about 8% compared to last year due to a whole percentage that was about three points higher this year. We are currently about 35% of the total Delaware table game win. It really weren’t any significant changes in the demographic trends for the first quarter with the average number of trips for our club players and the spend per trip essentially identical to last year and our higher end play remaining strong.

Regarding our operating profits, our gaming operating margins declined slightly compared with last year to about 4.7%, primarily from somewhat higher marketing spend as well as the higher healthcare cost as Denis mentioned. Other operating revenues which are net of promotional allowances of approximately $4.6 million consist of the cash portion of our hotel, food and beverage and other miscellaneous revenues.

And then we’re down 3.6% compared to the last year and about $5.4 million. That decrease was primarily for the lower cash rooms and FMV revenue compared to last year’s first quarter, primarily from somewhat lower convention business and more of a mix towards comps this quarter, which can be seen in the marketing expense.

Those revenues decreases and higher healthcare expenses led to lower gross profit margins for our non-gaming activities compared with the first quarter of 2015. Our hotel occupancy was about 74% for the quarter compared to about 75% last year and more than 36% of our casino revenue came from our hotel guests and our total win per room remain well in excess of $500 for the quarter. Our pure cash rate for the quarter was $126.

G&A expenses were down more than 11% compared to last year from lower legal expenses and we have some severance costs last year. So our EBITDA for the quarter was just over $1.9 million versus almost $2.2 million for the first quarter of 2015 and that’s basically from lower cash rooms and FMV revenue, slightly higher marketing and healthcare expense.

Interest was down at $229,000, which is lower than last year from our average borrowings as well as from lower rates. You can see we had a net loss for the quarter of $239,000, or $0.01 per share, compared with $352,000 and also a penny per share last year.

On the attached balance sheet, the only thing I’ll highlight is that our total debt was $31 million in March 31st and was reduced by $500,000 during the quarter. That debt remains classified it’s a current here as our facility, which was extended last September currently expires on September 30, and we will be working on getting that extended.

Our operating cash for the quarter was $2.4 million, which is slightly lower than last year and that’s from the lower net income and the timing of payments to the state and we had just short of $1.3 million capital expenditures in the quarter and as mentioned paid down $500,000 of debt.

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

Question-and-Answer Session

Operator

Certainly, participants, we will now begin the question-and-answer session. [Operator Instructions]

Denis McGlynn

Operator, are you seeing any questions?

Operator

At this point, we don’t have question in queue. [Operator Instructions]

Denis McGlynn

Operator, it appears – if there aren’t any questions, and if that’s – if you agreed in, I think we’ll end this call.

Operator

I do have a question in queue right now and – can we take it now?

Denis McGlynn

Yes.

Operator

Thank you. And the first call – question is coming from the line of Frank Santini [Bell Canada]. Sir, your line is open.

Frank Santini

Yes, thank you. Denis, a couple of questions on the legislative outlook. Number one, how confident are you that you will get material relief this year? And number two, if the legislature never gives you material relief, what – where just Dover Downs go from there?

Denis McGlynn

Well, the way we survived so far Frank is by concentrating on reducing expenses as our revenues have been challenged from the competitive environment. We have no choice, but to cut back into a variety of ways. As you know, we have gotten rid of our retirement plan. We have thrown as much of the increases in the medical cost on our employees as we there to. Last year, we laid off 72 employees. All we can do is continue to contract if we don’t get help.

As for confidence, I do believe after four, five years that we have made considerable headway and convincing the general membership of the house and the Senate that something material needs to be done. It’s always a question of what that ultimately results in. And I have been around long enough to know, not to try to predict anything. So, all I can tell you is our message is being repeated constantly and it’s being heard. I do think we’ll get something. I just can’t quantify it for you.

Frank Santini

Great. Okay, well, good luck with it.

Denis McGlynn

Thanks, Frank.

Operator

Thank you. At this time, we no longer have question in queue.

Denis McGlynn

Okay. Well, thank you everybody and we will look forward to contacting you again after the next quarter.

Operator

Thank you. And that concludes today’s conference. Thank you all for participating. You may now disconnect.

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