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Edited Transcript of GC.TO earnings conference call or presentation 5-Nov-19 1:30pm GMT

Q3 2019 Great Canadian Gaming Corp Earnings Call

Richmond Nov 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Great Canadian Gaming Corp earnings conference call or presentation Tuesday, November 5, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Rodney N. Baker

Great Canadian Gaming Corporation - President, CEO & Director

* Terrance M. Doyle

Great Canadian Gaming Corporation - President of Strategic Growth & Chief Compliance Officer

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Conference Call Participants

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* Chris Colvin

Breach Inlet Capital Management, LLC - Founder & Portfolio Manager

* David John McFadgen

Cormark Securities Inc., Research Division - Director of Institutional Equity Research

* George Doumet

Scotiabank Global Banking and Markets, Research Division - Analyst

* Luke Hannan

Canaccord Genuity Corp., Research Division - Associate

* Sabahat Khan

RBC Capital Markets, Research Division - Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Great Canadian Gaming Corporation Third Quarter 2019 Results Conference Call. (Operator Instructions) Also note, this call is being recorded on Tuesday, November 5, 2019. And I would like to turn the conference over to Mr. Terrance Doyle. Please go ahead, sir.

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Terrance M. Doyle, Great Canadian Gaming Corporation - President of Strategic Growth & Chief Compliance Officer [2]

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Thanks, Sylvie, and good morning, everyone, and welcome to Great Canadian Gaming Corporation's conference call to review the company's financial results for the third quarter ended September 30, 2019.

Joining me on the call this morning is Rod Baker, the company's Chief Executive Officer; and John Russo, the company's General Counsel and Chief Privacy Officer; also, several members of the Great Canadian executive finance team.

I would like to remind listeners that the latter portion of this call is reserved for institutional investors and analysts. Any media-related inquiries can be directed towards Chuck Keeling, Vice President, Stakeholder Relations and Responsible Gaming. He can be reached at (604) 247-4197.

Before we begin, I must caution all listeners that this conference call may contain forward-looking statements that reflect management's expectations regarding the company's future. These statements, which will be identified by words such as anticipate, believe, accept (sic) [expect] or similar expressions, are based on information currently available to the company. Investors should not place undue reliance upon these statements, which involve significant risks, uncertainties and assumptions. These statements are made as of the date of this call and the company assumes no obligation to update or revise them to reflect new events or circumstances.

Unless otherwise indicated, all information in this call is presented in Canadian dollars and is in accordance with International Financial Reporting Standards or IFRS, except for adjusted EBITDA, which is a non-IFRS term defined in the company's MD&A.

Unless otherwise noted, all financial information for the current and comparative periods exclude the financial results of the U.S. region as they have been presented as discontinued operations after Great American Gaming Corporation was sold on June 27, 2019.

I will now pass the call to Rod for the review of Great Canadian's financial results for the quarter. He will then provide commentary on the company's overall operation and strategic outlook. Rod?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [3]

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Thank you, Terrance. Good morning, everyone, and thank you for joining us today. Today, I'd like to go over the key highlights of Great Canadian's quarter, followed by an overview of the company's third quarter financial results and future outlook.

I would like to start the call with our recent announcement of the acquisition of Clairvest Group's ownership interest in both the West GTA partnership and the GTA partnership. The total consideration of the transaction was $51.8 million. As a result, Great Canadian now owns 100% of the West GTA partnership and 50% of the GTA partnership.

We are pleased to have been able to increase our ownership interest in some of our key assets. We thank Clairvest for partnering with the company in Ontario and wish them continued success.

I'm now going to comment on the financial highlights for the third quarter of 2019. Great Canadian's revenues have increased by 3% or $8.4 million from $332.7 million to $341.1 million during the third quarter of 2019 when compared to the same period in 2018. The increase in revenues was attributable to the expansion of gaming and non-gaming amenities in the Ontario properties.

Adjusted EBITDA was $142.3 million for the third quarter of 2019, which included a $20.7 million positive impact from IFRS 16, the new lease accounting standard adopted on January 1, 2019.

Adjusted EBITDA was $137.9 million in the same prior year quarter. The increase in adjusted EBITDA was also attributable to the above-mentioned increased revenues in the Ontario region, partially offset by increased operating costs related to expanded gaming in Ontario. Readers are cautioned that the financial results for the comparative period in 2018 have not been adjusted for IFRS 16.

Shareholders' net earnings from continuing operations was $49.7 million or $0.85 per common share for the third quarter of 2019, which decreased by $1.1 million or $0.02 per common share when compared to the same period in the prior year. The decrease was primarily due to the net effect of adopting IFRS 16, which reduced net earnings and increased amortization related to capital investments for the Ontario developments.

During the quarter, we continued to make progress with our Ontario developments. We introduced new food and beverage offerings to complement gaming and improved guest experiences, which include the opening of a new buffet at Great Blue Heron in the beginning of August and the opening of the [VIP] Noodle Bar and buffet launch at Elements Casino Mohawk in August.

In addition, we expanded gaming at Elements Casino Flamboro in mid-September and opened the building expansion at Elements Casino Grand River at the end of September. Also well underway is our greenfield development, Pickering Casino Resort, which once complete will feature a full scope of gaming and entertainment amenities. The casino building with the related dining options are expected to complete by the end of the first quarter of 2020 and the hotel and entertainment venue are expected to open by the end of 2020.

For the remainder of 2019 and into early 2020, we continue to enhance our properties in Ontario, which include completing several renovations at the West GTA Gaming facilities by spring 2020. At Elements Casino Mohawk, developments are underway to introduce expanded VIP gaming and make further enhancements to the gaming floor and its complementary amenities.

At Elements Casino Flamboro, we expect to complete the new buffet by the end of 2019, with interior and partial exterior refreshes to follow. Renovations at Elements Casino Grand River include a revamp of the gaming floor and restaurants. Further developments to the Great Blue Heron Casino to introduce new amenities and the expansion of Casino Woodbine also continue to progress, with the hotel at the Great Blue Heron expected to complete in the second quarter of 2020.

Great Canadian continues to enhance its capital structure. The company completed the refinancing of the revolving credit facility of Ontario Gaming East Limited Partnership, or what we call OGELP, in September of 2019 and subsequent to the third quarter, extended its senior secured credit facility for another year. The new credit agreements provide improved financial flexibility that will enhance the company's ability to achieve its strategic objectives. We continue to increase shareholder interest, as demonstrated by the repurchase of 3.1 million common shares this year under the NCIB at a weighted average price of $41.79 per share, which increased shareholder interest by 5.6%.

As at September 30, 2019, the company remains in a strong financial position, with cash of $309.8 million, available capacity of $397.6 million on our senior secured credit facilities, available capacity of $855.5 million on the GTA partnership revolving and capital expenditure credit facilities, $137.5 million on the revolving credit facility of the West GTA partnership and $76.1 million on the revolving credit facility of OGELP, each subject to compliance with applicable financial covenants. Terrance, we can now invite questions. Thank you.

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Terrance M. Doyle, Great Canadian Gaming Corporation - President of Strategic Growth & Chief Compliance Officer [4]

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Thanks, Rod. And before today's question-and-answer session, I would like to remind everyone that questions will be reserved for institutional investors and analysts. I would also like to reiterate the company's Investor Relations philosophy, which encourages investors and analysts to utilize this public conference call as their principal medium for speaking with Great Canadian senior management. Sylvie, we'll now go to the Q&A. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question will be from George Doumet at Scotiabank.

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George Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [2]

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Looking at the total CapEx, I think in the beginning of the -- earlier on in the year, you guys guided for $800 million for total spending for 2019. It looks like we're tracking around $450 million. Just wondering, is that lower spending all West GTA? Maybe comment on any other bundles that could account for that. Just trying to get a sense of, I guess, the lower CapEx by bundle.

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [3]

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So I think if you go back over, at least my last 12 -- almost 12 years here, everything that we've given you, we've always tracked slower in terms of the cash spend, but not in fact changed the rate of actual development.

I think the way the guys have always done the books have been very pristine and, in fact, conservative from a timing of cash out of our bank account into somebody else's, into a supplier's or a contractor's. And so I think what you're actually seeing is that same phenomenon continuing on. I would tell you, that being said, there is a very significant push going on right now at a very capital-intensive focus, principally around our Pickering asset, that are going to make this quarter that we're in right now, I believe, be our most significant capital spend in a quarter since I've been at Great Canadian, which is both very exciting, because it means we're getting very close to Pickering.

In addition to that, I did give you more granularity today. I think people sort of forget and gloss over when they look at numbers, especially if they're flattish type numbers, that there's not a lot of significant activity going on. There is a very significant activity level at most properties now continuing to improve the amenity base and to set those properties up for even more success in the future.

So we do have in the numbers significant spend out of the West GTA as well, but I would absolutely not read into $450 million versus $800 million at the beginning of the year, showing a material change in the 2019 capital development program.

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George Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [4]

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Okay. And can you -- do you have the number handy in terms of how much CapEx at the partnership level that we invest to date for the West GTA Bundle?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [5]

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I don't actually have that number handy right now. I'd have to get back to you. What I would tell you is if you've watched over the quarters, I think you can almost sort of figure it out if you could guesstimate cash flow. We've -- I think in your morning -- my breakfast read of your notes, so thank you for doing that early, I think you made mention of $26 million of incremental leverage at the partnership level was your estimate. I think if you go back and relook at the change in our West GTA debt levels, they've gone up once since closing, and I think it's roughly half the number that you're referring to there. So I think we're about [100 -- $12.5] million now, in terms of total debt outstanding. And I think from the closing of the transaction, we were like $99 million, $100 million -- so call it $100 million.

So I think operating cash flow out of the partnership net of distributions for taxes payable to partners over the last 18 months since we closed on May 1, the residual cash flow was invested in the development program. Plus, obviously, the incremental debt of, call it, roughly $12 million or $13 million.

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George Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [6]

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That's helpful. Are you able to comment on -- just one last one from me -- are you able to comment on the rationale for the sale of Clairvest -- to Clairvest? And just wondering how you guys priced the minority interest purchase and maybe from an implied cash flow multiple or any sort of valuation you can provide?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [7]

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So I would certainly afford you my view of our rationale. I think it's wholly inappropriate for me to put myself in someone else's shoes and represent their rationale.

What I would say and hopefully, this is a helpful and thoughtful exercise, everybody has their own motives and reasons why, some are specific to an asset. There's other reasons as well. I would tell you that this wasn't a duress situation on either part. So I would believe that you can conclude from that, that both parties are happy with the transaction and the transaction value.

I would tell you, from our perspective, I don't like to say very excited about things, but we're very excited in some of our core asset base, to have increased our economic interest. I think that's going to serve us very, very well in, not only the months, but looking out at years and even for those of you that are young enough and patient enough, to decades ahead. And that's how we look at this as an opportunity.

Clearly, when we partnered with non-gaming, strategic partners, folks that are -- bring tons of value from a gaming perspective, but are principally there for a value creation for their unitholders, they're going to have a different perspective and time line as we would being in the gaming business for the last 35 years and hopefully for the next 35 years and longer.

It's interesting, as we've more than let you know, the West GTA has had some delays and some challenges. And the math, certainly this quarter, it was down materially from the Q3 comp from last year, which is a very, very strong quarter. I think that helped precipitate a transaction that from our perspective, was both very fair to Clairvest and worked very well for the company representing shareholders and the capital here.

And I think one of the pieces that helps make the math work, again, just to go through it, this is the world according to Rod. And those of you that understand P/E and time value of money, I think because we acquired the business only 18 months ago and we used a component of leverage, and if you look at a return on an invested capital amount over a very short period of time, i.e., 18 months versus holding something for multiple years, the ability to earn an appropriate return on an 18-month time frame results in a much lower purchase price because of the compounding of annual required rates of return. So I think we had a real opportunity because the time frame has been relatively short since closing, to afford someone like Clairvest a premium to what they paid and I think a decent return over a very short period of time. But it also has the impact from our perspective, because the purchase price was financed partly by debt, that the premium that we did pay over the invested equity 18 months ago is actually a relatively modest premium on the equity. And then if you extrapolate that premium over the enterprise value of the asset base, it's even a more modest premium over the enterprise value of the asset base.

So I think it was a fortuitous event for us. And I believe Clairvest is happy as well, earning a decent return on their money over a short period of time. And I do believe it's set up -- us for, never to quote great investors like Warren Buffett, but to be able to compound shareholder returns, not only over quarters, but over years and even decades, I think that's the opportunity to create very significant value for shareholders that have the patience to hang in there over a longer period of time.

And so I think -- we were very happy to have 55% and to be running the show. We're even more pleased to have 100% of the West GTA asset base going forward.

If I can just add something that from the readings that I had this morning. I don't want people to get super excited that this was a huge transaction at this super low price, like I think it was a very fair price. As you've seen our West GTA math, there's more work to do there. This is -- all of our assets continue to be improved on an ongoing basis, and the West GTA is not dissimilar. So there's more work to be done. But management is very confident and very focused with a thoughtful plan to continue to execute, not only the capital program, but the operating side of that business to make it be very successful over the short, medium and long term.

And the last piece, you didn't ask this, but I want to settle it with everybody. If you guys are clear on your math on the West GTA on the IFRS 16, $20.5 million assist this quarter, then I'm fine with that. But the things that I read from you and a few of the others already this morning, I think, have been very generous of management in giving us the benefit of the IFRS 16, $20.5 million uplift in Ontario as compared to last year, which is fine if you're going into it eyes wide open, but I would tell you that our results in Ontario are not as good year-over-year when you back that out. And it's hard for you to totally back it out because you don't have the breakdown between bundles of the IFRS 16, but I would tell you, and I think we mentioned it before, the lion's share of it comes out of the GTA and the West GTA partnerships, and the OGELP partnership has virtually none, an immaterial amount, of IFRS 16 $20.5 million benefit. And so I saw some readings that showed us as just big picture the Ontario region being up roughly $5 million of EBITDA over last year.

And I think if you want to compare it apples-to-apples, we're actually down closer to $5 million, and that's coming all off the back of the West GTA, with some counterbalance out of OGELP, which is actually up last year. So I apologize for rambling on, on your time here, but I wanted to make certain that people were clear in terms of the results.

So the West GTA, bunch more work to do. But we're very focused on it, and we're very pleased that we have 100% exposure and upside going forward versus 55%. Sorry, George. I'm (inaudible) there.

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George Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [8]

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No. I appreciate everything. Just to quickly clarify. Did Brookfield actually purchase the other 1% of the GTA Bundle?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [9]

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So I mean it was such a relatively modest event and dollars. The partnership itself just used some of its excess cash and the units were bought back internally. So effectively, both we and Brookfield purchased indirectly the 1% because the partnership brought it -- bought it back in and canceled it. So we went up pro rata. So the cash actually wasn't funded at the Great Canadian level or the Brookfield level for that side of the transaction.

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Operator [10]

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Next question will be from Derek Dley at Canaccord.

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Luke Hannan, Canaccord Genuity Corp., Research Division - Associate [11]

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This is Luke stepping in for Derek this morning. First thing I wanted to ask about, I noticed that you guys have bought up back a lot of stock during the quarter as well as subsequent to the quarter. I was just wondering if you could give any color on what the cadence of that is going to be moving forward?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [12]

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Well, in terms of the cadence, I think we've got maximum cadence from gaining of 1.4 million shares, just by virtue of the NCI bid that we have available right now. We're -- we continue to look at this not only as having excess capital liquidity, but where we think value is, and to be able to create value for shareholders over the short, medium and long term. The one thing that we -- is totally not within our control is the stock price. And if we think it doesn't reflect value, then we are going to invest our shareholders' capital in increasing their ownership interest without them having to call their broker and actually buy more shares themselves.

So if -- I mean depending on how things go here, if the stock price goes down with what we see, it would not be an unreasonable assumption to think that we might be active. That being said, if you look at the price, we've also not gotten giddy and we've been very patient, and we're very disciplined on making sure that we pay what we think is good value with shareholders' money.

And look, I just mentioned West GTA has more work to do. If you look at -- and it happened last quarter, we referenced it, and you see it in our numbers here again, our BC region is not where it needs to be, and we have some more work to do there as well. So I don't know how Mr. Market is going to interpret all of this over the short term. And we -- that's noise to us unless it's an opportunity from an NCIB perspective, in which case we would continue to access that.

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Luke Hannan, Canaccord Genuity Corp., Research Division - Associate [13]

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Okay. And then switching gears to what you talked about there. I know that was something that you had mentioned on the last earnings call, that performance in BC wasn't really up to your standards. And I know that there was some initiatives, some marketing programs that you had developed in the region that you're exploring. I was wondering if you guys have revisited that at all and seen any improvement flow through into this quarter?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [14]

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So I think there's 2 components to our strategy to materially improve our BC business. One is revenue centric and the other is cost efficiency and effectiveness, and some of them interrelate as they are service levels as well as marketing initiatives. That being said, I think there is a shorter-term opportunity, generally speaking, on the cost side to improve the program over the short term, which we have already started to enact. And then there's the part that's not quite as much within our control, and that's growing our gaming revenues. We do have some thoughts and strategies on that.

I think that side is going to be more challenging, and it's going to be more a medium term in order to see material improvement on that side of things. So from what we have here, we've got 2 very unsatisfactory things going on.

One, I think we're going to have a better opportunity to address a chunk of it over the short term. And as I said, we've already actioned some of that. But it's going to take a little bit of time on the revenue side to get things back to where we would like them to be.

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Luke Hannan, Canaccord Genuity Corp., Research Division - Associate [15]

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Okay. And then so on the cost side, is there anything specific there? Is it marketing? Is it human resources? Any additional color there would be much appreciated.

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [16]

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I would say, yes. I would say those are our 2 biggest buckets and our [biggest] opportunity. And I think we can be much smarter at how we execute on both of those. And so we've started that initiative. We've already done a go-through of what I would call the lowest hanging fruit, which, unfortunately, there is low-hanging fruit. So that tells you we haven't been doing our job very well.

So -- but that's behind us. And now we're getting into things that are more opportunity, that are going to take a little more time, both on the HR and the marketing side of things.

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Luke Hannan, Canaccord Genuity Corp., Research Division - Associate [17]

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Okay. And then last one from me, and then I'll jump back in the queue. I know, so Pickering, we're expecting that to be fully operational as of Q2. Is there going to be a bit of a ramp before that asset is operating sort of where you see it long term? Or do you expect once Q2 comes around, it'll be a fairly short ramp up until that maturity?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [18]

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So I think if you look at any new casino in any market, there are different -- there's a ramp that goes, frankly, 5-plus years. And I think this is not going to be dissimilar to that. I think there's a very distinct short-term ramp, and we've been very clear on our disclosures. We are opening what's going to be an amazing casino operation and associated food and beverage at the end of Q1.

So as you said, fully operational Q2. But we're also very clear that the full casino entertainment experience with the hotel and the big show theater, it will not be online and knitted in until the end of 2020. So I think there'll be, look, a ramp that will be a multiyear ramp that will have different inclinations depending on where we are in the life cycle.

I would expect at the beginning, there'll probably be people coming from long distances to check it out. That will be -- it'll be inconvenient for them. So they'll be infrequent visitors in the future, but a lot of people like to come see the shiny, new thing, and it's going to be shiny and spectacular for sure, especially compared to the entertainment offerings in our industry that are more proximate to the GTA.

That being said, those that are not so proximate in terms of location, location, location, they're going to come for the show. They're going to come for the gaming, but also, the fully intertwined entertainment experience, and that's going to take a while to bring online. So I think there's definitely going to be a ramp. And in that ramp, there's going to be maybe little accelerations and then a lowering of the ramp until more things come online. But I think people should look at this not as you -- the old days of -- there has been no casino activity at all in a market, and it was a very first slot in a box that was opened up 25 years ago, and then they came piling through the doors. I don't believe, despite how incredible this facility is going to be and how well we think it's going to resonate in the marketplace, that phenomenon is not going to, I think, avail itself when we open up Pickering at the end of Q1.

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Operator [19]

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(Operator Instructions) And your next question will be from David McFadgen at Cormark Securities.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [20]

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So just a couple of questions. Just on the cost to take Clairvest out, $51.8 million, would it be possible to get the breakdown between the West GTA component and the GTA component?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [21]

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So we're not going to disclose that. And I think, look, the GTA component was such a small percentage, it's basically immaterial. And I've already messaged that there was a premium, but a relatively modest premium, paid on the West GTA component of their invested capital.

So we're just going to leave it at that to -- because I also think if people want to reverse engineer what they think things are worth based on these 2 transactions, one of which, frankly, at 2% is almost irrelevant to extrapolate valuation of the overall bundle, I think people would be misleading themselves if they try to get it down to the last little bit. And an analogy on the way I look at things, which it's really bad if you're trying to pay the absolute right price, buying back 2%, relatively small percentage. And again, as you said, when there's also leverage in the capital structure, if you are buying something for $500 million and you're plus or minus $20 million, that's paying $100 million more or less. But when you're buying something for a few millions of dollars and you pay 20% more or less, you pay $1 million more or less. It actually -- it almost doesn't matter in terms of a materiality component.

So we're just -- we've decided to simplify it and just call it all one lump sum transaction and to leave it at that.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [22]

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Okay. So moving on then. When I look at your Ontario business as a whole, because that's the way it's disclosed, when I look at the cost to generate that gross gaming revenue on a year-over-year basis as a percentage of the GGR, it's going up. And I was just wondering, it's going up because the gaming mix is shifting, you have more tables versus slots? Is it going up because you're just adding more non-gaming amenities and the margins on that are lower? Or maybe it's all of the aforementioned? I was wondering if you could comment on that.

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [23]

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Certainly. So it's all of the aforementioned. That being said, you hit the nail on the head, the opening of tables over time, but particularly Mohawk to the largest extent, and Flamboro. And then obviously, as we've -- as we've lapped Woodbine, very labor-intensive and the mix -- and as you look, as you can see, we've grown -- our growth in GGR has very much been tables-based across our Ontario business as opposed to slot-based. And so that's going to increase our cost side.

So those -- the growth in gross gaming revenues are principally out of the table side, and that comes with labor. I would also mention it, incrementally, Woodbine will and has just recently added some more live tables and removed some ETGs. So there will, I think, continue to be some incrementality on the HR cost side, particularly out of Woodbine, as we feel, despite the profitability margin on those incremental table revenues being on a percentage basis lower, it's still value-accreting and delivering the right kind of profitability. So the team has been tweaking assets in those respects as well to increase profitability despite operating margins going down. And obviously, doing it on a no-capital basis, a few tables, which are de minimis in dollar cost.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [24]

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Okay. And then just another question. Have you heard any discussions from the Ontario regulator about possibly adding in these restrictions that exist in BC, you can't come in with more than $10,000 in cash, otherwise it has to be wired to the casino and so on and so forth. Have you heard any chatter about that, of Ontario copying BC in that respect?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [25]

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So I don't want you to read into this answer one way or the other, because you shouldn't. We would never ever publicly disclose any conversations that we have with our regulators, save and except if it was required from a materiality and from a public company disclosure perspective. That is something that would be so foreign to our DNA and would be taken in the absolute worst way possible by our regulator partners. So unfortunately, questions of regulatory matters, chatter, conversations that we have, are totally off limits in terms of these kind of conversations that we're having right now. So I apologize for that, but that's just the reality of the environment that we work in.

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Operator [26]

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Next question will be from Chris Colvin at Breach Inlet Capital.

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Chris Colvin, Breach Inlet Capital Management, LLC - Founder & Portfolio Manager [27]

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I want to go back to the 2019 CapEx, when you initially guided to $865 million and now expecting $450 million. Obviously, a big drop. So is that primarily due to coming in under budget, so cost efficiencies? Or is that primarily due to delays in spending?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [28]

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So we're good. We're not that good. And we would never pad a budget by that amount with an allowance that big. So no, this is not like a huge amount of found money and you should take your -- the overall development dollars that we've messaged to you in the past and cut them in half.

So this is timing of cash out the door, as I mentioned, as opposed to timing of when assets are being brought online.

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Chris Colvin, Breach Inlet Capital Management, LLC - Founder & Portfolio Manager [29]

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Okay, thanks for the confirmation. I guess related to that, a year ago, you guided to total expected spend on the initial phase of, between the 2, West GTA and GTA, of $1.86 billion. Is that still approximately the amount you expect for this initial phase of development?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [30]

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So that is approximately the amount that we expect at this point in time. I think the West GTA needs to be looked at in terms of some of the components of that, that were in the latter, latter years, and that's something that we're going to look at a little more thoughtfully this upcoming quarter now to see what the timing of those initiatives should be. And see whether the time line should potentially be adjusted. But order of magnitude, that's still very much a good number. And if there is an update for that next quarter and the quarters ahead, we will let you know about that, Chris.

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Chris Colvin, Breach Inlet Capital Management, LLC - Founder & Portfolio Manager [31]

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Okay. And then the $5 million that you cited earlier being because of West GTA. Was that revenue or EBITDA? What was the $5 million number you...

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [32]

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Sorry, that was EBITDA. You may not have seen it yet, but I think some of the research analysts put some writings out already late last night and early this morning. And I believe I read out of that, that there was an assumption that our Ontario region EBITDA in total increased roughly $5 million over last year, which is technically correct, but it did have the assist of IFRS 16 benefit. We have $20.7 million of that per quarter roughly, and the vast majority of that, the benefit, is derived within our Ontario region, $20.5 million of it. So yes, we were up $5 million of EBITDA, but that also had a positive impact because of the IFRS 16 change.

So I was just going back to apples-to-apples, because, yes, I'd like to take the easy lift and say we've done a great job. But we haven't done as great a job, as I think was presented out there. And I just want to make sure people understood that we were actually down roughly $5 million of EBITDA versus up $5 million from last year.

And as I mentioned, that all came out of a decrease in the West GTA performance, partly because last year was very, very strong and it was somewhat offset by improvements at OGELP. And we talked about this with the [Board,] because people forget about it, but OGELP year-over-year, we had a new initiative with the opening of our Peterborough facility. And despite its relatively modest size compared to the overall size of our business now, we are pleased to look back and check in and to be able to acknowledge that we've grown the market by introducing our new Peterborough facility and increased gaming revenues and increased contribution profitability to our shareholders. So that's worked out well.

That was the last piece of that bundle. And that's embedded in these numbers. So that's actually even a positive contribution against an overall net number. So I think that shows you how challenging from a math perspective the West GTA was in fact this quarter over last quarter.

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Chris Colvin, Breach Inlet Capital Management, LLC - Founder & Portfolio Manager [33]

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And then -- that's helpful. And then the lease payments, I presume those will grow with -- as you build out these facilities, obviously. So if we kind of model in...

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [34]

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So no, actually, the lease payments as we've sort of messaged, unless there are material changes in the leases or the terms or the rates, this $20.5 million number in Ontario, and it's been $20.7 million to $20.8 million in each of the quarters of this year so far, we've guided to basically use those as the numbers to use until something materially changes, in which case we'll disclose that those numbers have changed.

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Chris Colvin, Breach Inlet Capital Management, LLC - Founder & Portfolio Manager [35]

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Got it. So a material change wouldn't be adding Pickering Casino, the lease payments still won't change?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [36]

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That's correct.

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Chris Colvin, Breach Inlet Capital Management, LLC - Founder & Portfolio Manager [37]

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Got it. And then last question, sorry if I missed this, but how many slots and tables were added this quarter in the Ontario region?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [38]

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I don't have all of those numbers. I can tell you off the top that we added 52 at Flamboro. I believe, last quarter, we did the majority of our Mohawk. I don't believe there's any material increase at Mohawk this quarter. I did mention that we did a shift at Woodbine, I think -- I mean don't hold me to -- like another 8 or 10 live gaming tables and I think swapping out some floor space for some ETGs. But relatively small. So this wasn't a -- this quarter from a material increase in gaming capacity, that wasn't the theme this quarter. This quarter was more about getting all of our assets in a better position, particularly from an amenity perspective to be able to drive the businesses forward in the months and years ahead.

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Operator [39]

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Next question will be from Sabahat Khan at RBC.

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Sabahat Khan, RBC Capital Markets, Research Division - Analyst [40]

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Just maybe a couple of questions on Clairvest, that you already provided a little bit of color, but if we think about the $52 million that you guys noted in the press release, I guess is it fair to assume that's equity value and then you're also assuming the 45% of whatever debt you have outstanding for that bundle that Clairvest is sort of leaving behind?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [41]

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Yes. Correct.

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Sabahat Khan, RBC Capital Markets, Research Division - Analyst [42]

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Okay. And then in terms of the -- I guess if we think about the -- you mentioned the cash investment and the return to your partner. Is it fair to assume that the total cash investment, both debt and equity to date in the West GTA Bundle is in the somewhere in the ballpark of, call it, $225 million? I'm taking the purchase price and the redevelopment CapEx. So is that kind of a fair number? And then second part is, I think you've noted earlier that about 65% of these sort of investments or up to 60% to 65% would be through debt. So I'm just trying to understand if to think about the equity investment you and your partners have made to date, is a $225 million total number a fair estimate? And then if we assume roughly 60% to 65% of that has been debt to date, are those right, maybe in ballpark numbers...

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [43]

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So those numbers are fair, but they're wrong because of a couple of things. The way we've been funding our CapEx programs at all of these bundles has been through cash flow generated in the business. So I think when you go and you look at that, you need to also back out of your $225 million number, if that's what you want to use, the cash flow that was generated out of the West GTA for the last 18 months. Because otherwise, you're assuming the partners, through debt and equity, have contributed more dollars from outside the system, than we actually have. So did you follow on that?

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Sabahat Khan, RBC Capital Markets, Research Division - Analyst [44]

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Yes. No, that makes sense.

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [45]

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Right? It's like in the East Bundle. I think East Bundle [indiscernible] we basically worked through a 3-year development program, the East Bundle, we contributed our original capital. And then -- and look, it was [tighter times,] don't get me wrong, but the team did a very, very effective job at redeploying operating cash flow to build 2 brand-new casinos and to renovate Thousand Islands casino from the cash flow that was generated within the business. So that was also a very significant and important theme in the West GTA over its first 18 months of life as well.

So that's going to, I think, materially skew some of the math that you were just suggesting you might use then to crunch some numbers.

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Sabahat Khan, RBC Capital Markets, Research Division - Analyst [46]

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Okay. So just to clarify, I guess, whatever total number that we're assuming, if you're then whatever -- and then you're taking your cash from the West GTA Bundle, that reduces the total investment and then you'd still take 65% of that out in the form of debt to pay and then it reduces the cash injections, I guess?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [47]

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Yes. So I think that's much more fair and appropriate, and that'll get you to something closer that would make sense.

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Sabahat Khan, RBC Capital Markets, Research Division - Analyst [48]

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And then to figure out sort of the EV, call it, for the Clairvest payment, can we just take sort of 45% of the leverage you have outstanding for the West GTA partnership?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [49]

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Yes, so -- look, I'd do it differently. I'd take the EV of what we paid there, then I assume all 100% of the equity is worth that, then I add the debt and that gets me to EV. I think maybe gets you there the same way. That's just the way I would do it in terms of valuation [methodology.]

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Sabahat Khan, RBC Capital Markets, Research Division - Analyst [50]

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Okay. And then I guess, just on the same theme of making investments. With the cash flow you're generating, you're obviously, you bought out your partner, you're buying back stock. I guess, do you have other -- are you looking at other options, potential M&A with that cash flow for the, I guess, call it, the next 12, 24, 36 months? Or are you primarily focused on the redevelopment program you have going on?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [51]

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So we're always focused on our real business and business at hand. That's the bird in the hand versus the 2, 3, 4, 5 sexy ones in the bush. So that's business #1. That being said, in the almost 12 years since I've been here, we've always at the same point in time been looking at other opportunities, third-party opportunities, things that come in over the transom or whatnot.

That being said, we've been extremely, extremely disciplined and selective on new opportunities. And in my 12 years, we bought a tiny little bingo business up in BC and turned it into a, what's now been a great little casino out in Chilliwack, BC. And we bought Casino Nova Scotia in 2015, and we spent upwards of 5, 6, 7 years incubating an Ontario process, which has worked out exceedingly well. So we very much picked our spots and would continue to do so and focus on our business, which has a bunch of opportunity and frankly, needs a lot of attention now.

That being said, I think we have the management bandwidth and continue to hold a balance sheet and liquidity profile to capitalize on any M&A type activities that you mention, should they occur and should they make sense.

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Sabahat Khan, RBC Capital Markets, Research Division - Analyst [52]

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And just maybe a quick follow-up on that one. Would you potentially, I know you exited the U.S. business, but would you be looking at opportunities maybe outside of Canada as well? Or is Canada your focus, just on a thematic basis?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [53]

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So look, I think that's a question -- we would not limit ourselves to Canada. But as we've mentioned in the past, in the years gone by, as this has been mentioned, our view is the further you get from home, like you know a lot less, a lot, lot less. And a lot of people get their -- I shouldn't say their a**es handed to them, that's probably inappropriate to say on the phone, but a lot of people, as they stray too far from their core competencies and what they know, even though they do a lot of due diligence, like it's a -- again, we're very conservative and we like to stay realistic on what we know. And so we would absolutely go further afield, but we would really do that carefully and thoughtfully and do our level best for it to be the right kind of opportunity with the right kind of result and outcome versus getting excited about something and getting into it and then realizing that there's more to it in a not-so-good way that we would need to deal with.

So look, I'm not trying to ward you off one way or the other, but I think it needs -- it would need to be absolutely the right thing with the right support and the right thought and the right diligence. But yes, we would still be open to that. And look, we are learning and growing as a company and these assets that we're creating in Ontario and its footprint. I mean it is now, but it is absolutely going to become world world-class on a world world scale. And we are growing along with it and making it happen, and I think that puts us in a much, much better footing to consider over the medium and long term some pretty amazing incremental global opportunities.

But you should learn to walk and walk really well before you jog and then you should jog really well before you like run and then before you sprint, right? So we're -- we -- that's the way we think and that's the way we act.

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Sabahat Khan, RBC Capital Markets, Research Division - Analyst [54]

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Okay. And then one, just, I guess, at a higher level one, maybe a 2-part question. In terms of the interaction with the regulators in BC, I guess, with the AML investigations, can you maybe update on where those are and how, I guess, the regulators relationships are now with the operators, including yourself? And also second part being in Ontario. Can you maybe comment at a high level on the progress that has been made, I guess, specifically with your bundles and the regulators, any feedback in terms of, is this on track with what they had anticipated? Just at a high level, I'm just trying to understand the relationship with you and the regulators, both in BC and in Ontario.

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [55]

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Sure. So I think you should focus your BC questions, there's the Cullen Commission. There's a public website. There's lots of information on it. As we've said from the very beginning, we very much support the initiative out there, and we expect to fully participate in that and we're looking forward to that. So I think it's more work for you, but you shouldn't listen to me in any event, because you can go do some of your own work.

So I think you should go and understand it from a lot of disclosures that's available perspective.

And in terms of Ontario and the regulatory environment, I mean we're here operating some very significant assets. We've been doing it for 3.5 years out in the East Bundle, and we continue to do it to today with a very, very big footprint.

Again, if it's a regulatory question. I would tell you that from management's perspective, it's our view that we are in good standing in every jurisdiction that we operate, and it's our intention to absolutely remain in the very best of standings with all of our regulatory partners.

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Sabahat Khan, RBC Capital Markets, Research Division - Analyst [56]

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Okay. And then one last...

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Terrance M. Doyle, Great Canadian Gaming Corporation - President of Strategic Growth & Chief Compliance Officer [57]

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And I think it's important -- and this is just Terrance. And I think one point on that would be in all of the Canadian jurisdictions, I think we have very strong and very appropriate regulators. And from our point of view and our perspective, the stronger the regulator is and the more in tune they are with being proactive to make sure that the business is being regulated in an appropriate way, the more comfortable we are. And we're happy to say that in all of our jurisdictions, we have very competent regulators and we appreciate the work they do to keep this business, quite honestly, in a very good place.

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Sabahat Khan, RBC Capital Markets, Research Division - Analyst [58]

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And then just one last one on BC. I guess you made some commentary earlier on how the various facilities are doing. But I guess as you look forward, what do you -- I guess what's the time line that you're working with in terms of when River Rock can pick up, when Hard Rock, I guess becomes even stronger? Just trying to understand, I guess if we can call that a turnaround in results there, following some of the regulatory impact you saw over the last 1.5 years. And when those facilities or that entire segment can maybe deliver some sustained growth?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [59]

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So that's a good question. I tried to give some visibility on that from our perspective. Again, the future, we're management, which is awesome, but the future is also the future, like that's -- if I knew the future, I wouldn't have to work, because I could just go and bet on it and it would be a no-brainer. So look, I think it's still going to take time on the revenue side of things, the cost side of things, and we're pretty good at the cost side of things, for those of you that have followed us for a long period of time. So we've already, as I mentioned, started to action the cost efficiency, effectiveness side of the equation, which I think will improve things materially from a math perspective.

In terms of looking for material growth in gross gaming revenues, I think everybody needs to understand in most regional markets, in fact, on almost all of them, very material GGR growth in our industry is very hard to come by. And I think BC for many, many years, had -- it had a unique level of sustainable year-in and year-in GGR growth because of a localized phenomenon. I think it's going to be difficult to have that reoccur where we have very significant GGR increases on a consistent and regular and sustainable year-over-year basis.

I mean, look, I'm not saying that we're not going to try to do that and we may not get there, I'm just trying to be very realistic and level-set. So I think if we can generate some percentages of growth on the GGR side out there, we'll continue to have a very good and strong business that generates tremendous free cash flow and has not only been our roots, but it's afforded us to do a whole bunch of amazing things across the rest of the country off of that engine out there. And I think it will continue to serve us well as an engine to accomplish our corporate objectives for many years to come.

But it's -- this is not like -- and I would never promise, "Oh I think in 3 months, all of a sudden we're going to start growing GGR by 10% out in BC." That should not be an expectation by our shareholders.

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Operator [60]

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And at this time, Mr. Doyle, we have no further questions. You may proceed.

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Terrance M. Doyle, Great Canadian Gaming Corporation - President of Strategic Growth & Chief Compliance Officer [61]

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Thank you, Sylvie, and thanks, everyone, for your participation this morning. Before we conclude, I would like to remind listeners that forward-looking statements were made during this call. For those who joined midway, I encourage you to listen to the replay of this call and hear my earlier comments regarding these forward-looking statements. This replay will be available through the Investor Relations section of our website at www.gcgaming.com.

This now concludes the call. Thank you.

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Operator [62]

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Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.