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Edited Transcript of UWN earnings conference call or presentation 13-Sep-18 8:30pm GMT

Q1 2019 Nevada Gold & Casinos Inc Earnings Call

Houston Sep 18, 2018 (Thomson StreetEvents) -- Edited Transcript of Nevada Gold & Casinos Inc earnings conference call or presentation Thursday, September 13, 2018 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* James D. Meier

Nevada Gold & Casinos, Inc. - VP, Secretary & CFO

* Michael P. Shaunnessy

Nevada Gold & Casinos, Inc. - President & CEO

* Preston Graham

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and welcome to the Nevada Gold & Casinos, Inc. First Quarter 2019 Financial Results call. Today's conference is being recorded.

I would now like to turn the presentation over to your host for today's call, Mr. Preston Graham, Investor Relations. Please go ahead.

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Preston Graham, [2]

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Thank you, and good afternoon. We appreciate you joining us today. With me on the call is Mike Shaunnessy, Chief Executive Officer; and Jim Meier, Chief Financial Officer.

The purpose of today's call is to review the company's financial results for the first quarter of 2019. Following the company's remarks, there will be an opportunity to ask questions.

This call contains forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We use words such as anticipate, believe, expect, future, intend, plan and similar expressions to identify forward-looking statements. Forward-looking statements include, without limitation, our ability to increase income streams, to grow revenue and earnings and to obtain additional gaming and other projects. These statements are only predictions and are subject to certain risks and uncertainties and assumptions, which are identified and described in the company's public filings with the Securities and Exchange Commission.

With that, I'd like to turn the call over to Nevada Gold's CEO, Mike Shaunnessy. Mike?

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Michael P. Shaunnessy, Nevada Gold & Casinos, Inc. - President & CEO [3]

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Thank you, Preston. Well, good afternoon, everyone. First, I'll start with a quick recap of where we are with our ongoing strategic review process. We closed on the sale of our South Dakota route operation on June 30. As you'll recall, on June 27, 2018, we announced that we had signed a definitive agreement to sell Club Fortune for $14.6 million, which we expect to close in December of this year. And on August 3 of this year, we announced that we had entered into exclusive negotiations to sell the company. This process is ongoing, and we will not be addressing any further details during this call.

Now let's get to the first quarter. The quarter numbers are unique and confusing, since not only do we have the new revenue recognition rules impacting comparability between periods, but the Club Fortune operations, due to the signed sale agreement, are now classified as held for sale in the accounting parlance, and they are reflected on the income statement as a single net of tax amount, and the associated assets and liabilities are included on the balance sheet under assets held for sale. In addition, with the sale of South Dakota, this quarter's operations reflects 2 months for South Dakota this year versus a full 3 months in the quarter of last year. So the main body of the income statement, therefore, represents our Washington operations and the final 2 months of our South Dakota route operation, all under the new revenue recognition rules for the current period.

So, having said that, let's start with Washington. During October of last year, we made a strategic shift to convert our Red Dragon property to poker only. And our consolidated poker revenue increased over $400,000 or 44% for the first quarter, pretty much on plan with our expectations and where we had been trending since we made the conversion. In addition, our nearest table games location, the Crazy Moose Mountlake Terrace, had approximately $1.5 million in additional drop through the quarter, primarily resulting from the play that previously had been at the Red Dragon. We continue to spend some additional marketing dollars on this conversion, but the positive impact on EBITDA has already occurred and is significant and continuing.

In last year's first quarter, as you'll recall, our volumes were negatively impacted by some absolutely beautiful weather in the Seattle area. This year, we still didn't get much rain. However, unseasonably warm temperatures combined with the high humidity, kind of tempered the draw of the outdoors. So this year, weather was actually nice to us in Seattle. And in addition, we benefited from a slightly higher hold percent as well. And although both periods, the hold percent was in the normal range, the difference, nevertheless, added approximately $400,000 to our revenues for the quarter.

We spoke before about our plan to transition or to add a brewpub concept at one of our properties, specifically our Renton location. We have received our building permits and are finalizing our plans for this concept, which we hope to target a slightly younger demographic and introduce them to our table games, while at the same time, creating an incremental revenue and EBITDA stream by leveraging off the existing staffing levels at the property. If this initiative performs to our expectations, we will look to implement this concept at a couple of additional locations that we think it would be a good fit.

For Club Fortune. Slot revenues at Club Fortune were down about $200,000, partially due to a lower hold percent. And of course, that revenue shortfall pretty much flows right through to adjusted EBITDA. And in Las Vegas, although it's always hot, this summer has been painfully hot. So the weather did us no favor here because none of us likes to be out in the heat of the day when it's 110 degrees.

South Dakota, very quickly, clearly impacted by the sale, which closed on June 30. So since we're comparing 2 months this year to 3 months last year, the month we're losing is July, which is seasonally one of the best months of the year. But also, as a result of the sale, we didn't have to advance over $1 million in license fees. And consequently, we were able to apply approximately $650,000 in freed up cash to pay down debt.

At this point, I'll ask Jim to take you through the details as best as we can, given all the anomalies occurring in this quarter.

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James D. Meier, Nevada Gold & Casinos, Inc. - VP, Secretary & CFO [4]

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All right. Thank you, Mike. For the first quarter of 2019 -- fiscal 2019, net revenues were $14.9 million compared to $15 million in the prior year. Operating expenses were $14.7 million for both years. Operating income decreased to $0.2 million compared to the prior year's operating income of $0.3 million, while income from continuing operations was $0.1 million in both periods. We had a net loss of $0.1 million or $0 per share this year compared to net income of $0.1 million or $0.01 per share in the prior year.

During the fourth quarter, net revenues from Washington increased to $14.1 million from the $13.1 million in the prior year period, and EBITDA increased to $1.8 million compared to $1.2 million in the prior year period.

Club Fortune net revenues were $3.2 million compared to $3.4 million in the prior year period, and adjusted EBITDA also decreased by $0.2 million, down to $0.2 million. As a result of the planned sale, Club Fortune had a $0.2 million impairment charge.

South Dakota route operation revenues decreased to $0.8 million compared to the $1.9 million in the prior year period, primarily due to 1 less month of operations, and EBITDA declined $0.3 million for the quarter.

The South Dakota sale was not treated as discontinued operations, as the sale did not have a major effect on the company's operations. We recognized a $58,000 gain on the sale of South Dakota operations.

Corporate expenses were $0.7 million in the quarter, exclusive of the $0.5 million of sale-related expenses, compared to $0.6 million in the prior year.

On a consolidated basis, adjusted EBITDA was $1 million compared to $1.1 million in the prior year's quarter.

We generated $0.8 million of free cash flow during the quarter, defined as adjusted EBITDA less cash interest, income taxes paid and capital expenditures. We reduced outstanding bank debt by $1.1 million. We ended the quarter with $8.4 million of cash, $6.9 million of long-term debt and borrowing availability of $9.2 million.

I'll now turn it over to the operator to open up the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question from [Lee Lignos] with [Rubicon Capital Group].

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Unidentified Analyst, [2]

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I apologize, I got on the call a bit late. Just a couple of questions for you. I guess, for starters, can you give us a sense of when you think the sale transaction will be done for the Nevada and North Dakota assets, and what your expected after-tax proceeds would be from that? That's the first question. And then secondly, I know, you mentioned in some press releases that you'll be eliminating some corporate costs. I was hoping you could just kind of give us a sense of, on an annualized basis, what you think the corporate expense will be just for the Washington assets. And that's all I've got.

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Michael P. Shaunnessy, Nevada Gold & Casinos, Inc. - President & CEO [3]

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Sure. Let me start with South Dakota, because that's the easiest because it's already in the past tense. We closed on that on June 30. And our actual cash proceeds, adjusted by cash, was $505,000. And at the same time, it kind of freed up what balance sheet commitment we had there. So net-net-net, we were able to free up about $650,000 in cash, inclusive of the proceeds received from the sale.

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Unidentified Analyst, [4]

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Okay. And I'm assuming that will be accounted for in the numbers, correct?

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Michael P. Shaunnessy, Nevada Gold & Casinos, Inc. - President & CEO [5]

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Yes. That is reflected there. And in fact, because for accounting purposes, we had taken an impairment provision in prior periods, in the current quarter, when we actually consummated the sale, we actually recorded a small gain on the transaction, which is reflected in the face of the income statement. Most of that gain on -- or the gain on asset sales of $58,000 is attributable to the South Dakota sale. Let me take the tax question next. On a tax basis, we are still in an NOL carryforward position. So the net of tax is really the gross number. There are no taxes applicable to either that transaction or the transaction that will happen in the future. On the sale of Club Fortune, the agreement is for a sale of $14.6 million, subject to some working capital adjustments, et cetera. But again, there will not be a tax impact on the gain. Our loss will be relatively small. And due to the NOLs, there will be no tax impact. So those proceeds will be effectively tax-free. We did announce -- I forget which one of the announcements it was, in our strategic review of the operations, we had decided we were closing the office location in Las Vegas at the time that the Club Fortune transaction closes, which we, again, assume is December time frame. And we will be relocating the corporate office up to the Seattle, Washington area. And at that time, Victor Mena will be taking over as the CEO, and we expect our ongoing corporate overhead to be approximately $1.2 million versus the current normalized run rate of approximately $2.4 million. I think I got them all, but...

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Unidentified Analyst, [6]

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Okay, great. That's very helpful. Yes, no that's wonderful. I guess -- I'm sorry, please go ahead.

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Michael P. Shaunnessy, Nevada Gold & Casinos, Inc. - President & CEO [7]

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No, that's it. I was going to say if I missed any of them, please ask me again.

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Unidentified Analyst, [8]

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No, that was great. Just one final question, given your expertise in the space and knowledge of the asset landscape, can you just kind of give us a sense of what multiples are for assets that are comparable to the current Washington assets that you own?

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Michael P. Shaunnessy, Nevada Gold & Casinos, Inc. - President & CEO [9]

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Wow. Boy, is that a hard question? That one is very hard because you used the word comparable. You can look at multiples of what "gaming assets" sell for, and it's a pretty wide spread. When you narrow it to the Washington operations, it becomes very difficult because there are no real transactions that we're even aware of to be able to grasp at what a comparable multiple would be.

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Unidentified Analyst, [10]

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Got it. That was a good general answer. But I guess, it's safe to assume that even where the stock is trading following the closing of the transaction, that the stock is very cheap on an EV to EBITDA basis?

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Michael P. Shaunnessy, Nevada Gold & Casinos, Inc. - President & CEO [11]

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Okay.

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Operator [12]

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(Operator Instructions) And at this time, there are no further questions in the queue. I'd like to turn the conference back over to Mr. Mike Shaunnessy for any additional or closing remarks.

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Michael P. Shaunnessy, Nevada Gold & Casinos, Inc. - President & CEO [13]

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Thanks, Cody. Again, thank you all for joining us. I know some of your pressing questions, we couldn't address. But thanks again, and we'll be talking to you in another few months here. Have a great day. Thank you.

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Operator [14]

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That does conclude today's conference. Thank you all for your participation. You may now disconnect.