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Edited Transcript of UWN earnings conference call or presentation 26-Jul-18 8:30pm GMT

Q4 2018 Nevada Gold & Casinos Inc Earnings Call

Houston Aug 1, 2018 (Thomson StreetEvents) -- Edited Transcript of Nevada Gold & Casinos Inc earnings conference call or presentation Thursday, July 26, 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

* Victor Hugo Mena

Nevada Gold & Casinos, Inc. - VP of Washington Operations

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Conference Call Participants

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* Roy Smolarz

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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. Fourth Quarter 2018 Financial Results Call. Today's call is being recorded. (Operator Instructions) I would now like to turn the presentation over to your host for today's call, Preston Graham, Investor Relations.

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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; Jim Meier, Chief Financial Officer; and Victor Mena, Vice President of Washington Operations.

The purpose of today's call is to review the company's financial results for the fourth quarter ended April 30, 2018. 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 risk 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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Thanks, Preston. Good afternoon, everyone. I’ll start with a quick recap of our recent news concerning our ongoing strategic review process. We closed on the sale of our South Dakota route operation as planned on June 30. And on June 27, we signed a definitive agreement to sell the Club Fortune Casino in Henderson for $14.6 million to Truckee Gaming. We expect that transaction to close by the end of the year. We also recently announced that effective with the closing of that sale, we will relocate our corporate headquarters from Las Vegas to the Seattle, Washington area, reducing our corporate overhead expenses by about $1.2 million. And at that time, Victor Mena, our VP of Washington Operations, who's on the call with us today, will succeed me as President and Chief Executive Officer.

Our strategic review process is ongoing, and we will not be addressing it further on this call or during questions and answers.

To start, I'd like to formally introduce Victor and have him say a few words. Victor?

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Victor Hugo Mena, Nevada Gold & Casinos, Inc. - VP of Washington Operations [4]

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Thanks, Mike. Good afternoon, everyone. I'm happy to be participating on the call today to get my feet wet with the upcoming new responsibilities. I'm grateful to have Mike here to help me navigate through the early part of this upcoming transition. And I've been with Nevada Gold as VP of Washington Operations since the company first entered Washington card room business back in 2009. And I look forward to what I expect to be a great adventure moving forward. Thank you.

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

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Thanks, Victor. Starting with Washington. During 2018, we faced the first full 12-month period of wage increases in the state. As you'll recall, the wage rates increased $1.50 an hour for the first 8 months of the year and then an additional $0.50 an hour for the remaining 4 that began in January of this year. Despite that 12% increase in the minimum wage over that period, our overall payroll and benefits increase in Washington was only approximately $400,000 or 2% based on the efforts of the management there to mitigate as much as possible the overall payroll wage increases.

During October, as you'll recall, we made a strategic shift to convert our Red Dragon property to a poker-only location. And for the full fiscal year of 2018, which really only had 6 months of operations of that conversion, our consolidated poker revenue increased $650,000 or 17% following 3 years of 10-plus annual declines. In addition, our nearest table game location to the Red Dragon, the Crazy Moose in Mountlake Terrace saw a 24% increase in its drop, primarily resulting from the former plan to Red Dragon being transferred to the property at Crazy Moose.

We did spend some significant additional marketing dollars this year to support that conversion, approximately $250,000. But overall this conversion has already had and will continue to have a positive impact on EBITDA.

In 2018, the management team in Washington effectively managed the impact of that minimum wage increase. In the current fiscal year, wage increase will be less challenging as it's only $0.50 an hour this year for the 12-month period. While continuing our current mitigation strategies, we are continually exploring new ones as well and are currently in the process of finalizing plans to add a brewpub entertainment concept at our Renton location. We'll be using available excess space and leveraging off the existing payroll. We hope to target a slightly younger demographic and introduce them to our table games operation, while at the same time creating an incremental revenue in EBITDA stream.

If this initiative performs to our expectations, then we will look to roll out this concept to a couple of additional locations up in Seattle.

As we begin 2019, we are confident that our Washington portfolio is well positioned for continued -- for operating EBITDA growth.

Now on to Club Fortune. 2018 was a productive year at Club Fortune as some of our early challenges were put behind us. Our revenues increased only slightly, but we were able to increase adjusted EBITDA by $200,000 or 12% through the improved marketing, streamlined operations and a continued focus on the customer.

In South Dakota, the challenges in that market continued into fiscal 2018, and as I mentioned earlier, once the year ended, we were finally able to dispose of this asset. As a result, we avoided advancing over $1 million for the annual license fees that would have, otherwise, been due July 1. And at the same time, we are able to free up about $650,000 in net cash, that we will use to reduce our debt.

As we move forward into fiscal '19, we're excited by the new challenges we'll face, are confident that our initiatives and strategies will continue to provide value to our shareholders as we continue to explore growth opportunities in the Washington market.

And at this point, I'll ask Jim to take you through some of the details.

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James D. Meier, Nevada Gold & Casinos, Inc. - VP, Secretary & CFO [6]

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Thank you, Mike. For the fourth quarter of fiscal 2018, net revenues were $18.5 million compared to $19.8 million in the prior year. Operating expenses were relatively steady at $17.9 million for both years, however, the current year included $0.4 million of impairment expense related to the South Dakota assets. Operating income decreased to $0.6 million compared to prior year's operating income of $1.9 million.

Net income was $0.4 million or $0.02 a share.

During the fourth quarter, net revenues from Washington decreased to $13.7 million from $14.8 million in the prior year period and EBITDA decreased to $2.1 million compared to $2.5 million in the prior year period.

Club Fortune net revenues were $3.4 million compared to $3.7 million in the prior year period and EBITDA decreased by $0.2 million to $0.5 million.

South Dakota route operation revenues were $1.3 million, decreasing $89,000 from the prior year period and EBITDA declined $11,000 for the quarter, reflecting 54 fewer units in operation there.

Corporate expenses were $1.1 million in the fourth quarter, which included $0.6 million of sale-related professional fees. On a consolidated basis, adjusted EBITDA was $2.1 million compared to $2.6 million in the prior year's quarter. For the fiscal year 2018, net revenues increased slightly to $74.6 million from the $74.5 million in the fiscal year 2017, while operating expenses decreased $0.7 million to $72.0 million compared to $72.7 million in the prior year. So for the year, net income increased to $1.3 million compared to $0.6 million in the prior year.

Net revenues for the fiscal year from Washington State operations increased to $54.4 million from $54.3 million, primarily due to increased poker revenue, while adjusted EBITDA decreased to $6.5 million from $7.0 million in the prior year, mainly due to minimum wage and marketing expenses.

South Dakota route operation revenues decreased $0.1 million to $6.6 million, while adjusted EBITDA decreased $0.1 million.

Club Fortune net revenues increased to $13.6 million and adjusted EBITDA was also up at $1.7 million compared to revenues of $13.5 million and adjusted EBITDA of $1.5 million in the prior year.

Corporate adjusted EBITDA was negative $2.3 million compared to negative $2.5 million in the prior year. For the year, adjusted EBITDA was $6 million compared to $6.2 million for the prior year.

We generated $4.9 million in free cash flow during the fiscal year, defined as adjusted EBITDA less cash interest income taxes and capital expenditures.

We spent $1.0 million in capital expenditures and paid $0.5 million in cash interest in addition to our $1.7 million of share repurchases. We reduced outstanding bank debt by $4.3 million. Our total long-term debt at year-end was $8 million even and our borrowing availability was $8.7 million. Our year-end leverage was approximately 1.5x.

And with that, 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) And we'll take our first question from Roy Smolarz with Atalyst Financial Group.

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Roy Smolarz, [2]

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One question relating to the amount of debt on the company. What is the average cost of funds of that existing $8 million of debt?

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

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I would give you the answer off the top of my head, that's probably 90% accurate, but I'll ask Jim to actually look it up and give you the precise answer, Roy. If you recall some time ago, when we initially entered into this loan, we entered into a swap agreement with Mutual of Omaha, our lender, which effectively fixed half of the interest cost under declining swap, which is a complicated financial instrument. But as a result of that, what we end up ultimately having is because we paid down the balance more rapidly than required under our swap amortization schedule, for the most part, our interest has now hit the point where it's fixed, and we get a payment from the bank for the variable underlying portion benefit of our swap. So I think it's approximately about 4.5% at this point in time, and we'll kind of remain that way going forward since our debt is pretty much fixed now. Outstanding is -- it was $8 million.

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Operator [4]

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(Operator Instructions) And we have no more further questions. I'll turn the call back over to Mr. Shaunnessy for any additional or closing remarks.

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

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Thanks very much. We appreciate you all taking your time on your busy day to listen to the call. I look forward to our next conference call in mid-September when we report first quarter results. And potentially, we're at a place where we have some further conversations about our ongoing strategic review process. Once again, thank you all for joining. Have a great rest of the day, and we'll talk in mid-September. Thanks.

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Operator [6]

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And that will conclude today's call. We thank you for your participation.