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Edited Transcript of UWN earnings conference call or presentation 17-Dec-18 9:30pm GMT

Q2 2019 Nevada Gold & Casinos Inc Earnings Call

Houston Jan 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Nevada Gold & Casinos Inc earnings conference call or presentation Monday, December 17, 2018 at 9:30:00pm 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 day, and welcome to the Nevada Gold & Casinos Second Quarter 2019 Financial Results Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Preston Graham, Investor Relations. Please go ahead, sir.

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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 second 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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Thanks, Preston. Welcome, everyone. First, quick update on all of our recent developments. As you'll recall, we closed on the sale of the South Dakota route operation on June 30 of this year, so our current quarter has no contribution from South Dakota.

On June 27, we signed a definitive agreement to sell Club Fortune to Truckee Gaming for $14.6 million. Our financials now reflect this property as held for sale.

On December 5, the Nevada Gaming Control Board unanimously recommended approval of this transaction and the matter now moves to the Nevada Gaming Commission for final review on December 20. We anticipate this transaction will close on December 31.

On August 3, we announced we had entered into exclusive negotiations to sell the company. And on September 18, we signed a merger acquisition agreement with Maverick Gaming, LLC to acquire the company for $2.50 a share in cash.

On November 29, in order to expedite approval by the Washington State Gambling Commission, the company entered into a securities purchase agreement with Maverick. The company issued and sold to Maverick 890,390 shares of our common stock, representing 5% of the outstanding shares in a private placement for $2.42 a share, the closing market price of the last day prior to the issuance. Maverick acquired these shares, which are held in escrow, using the $2 million escrow deposit already made and additional cash.

On December 3, we filed preliminary proxy materials with the SEC concerning this transaction.

This morning, the SEC notified us they had no comment on the proxy. But since the preliminary proxy filing, we have been served with 3 purported class action lawsuits concerning the adequacy of disclosures in the proxy and seeking to enjoin the process. Counsel is in the process of addressing these actions.

Now updating operations for the quarter. Starting with Washington. Last year in October, we made a strategic shift to convert our Red Dragon property to poker only. On a consolidated basis, our poker revenue is now consistently generating an incremental $400,000 quarterly, an increase of over 40%. In addition, our Crazy Moose Mountlake Terrace operation, which is located nearby, is now consistently producing an incremental $1.5 million increase in drop on a quarterly basis since this conversion.

During the recent quarter, we saw some softness in Baccarat but offsetting strength in our other table games drop. Overall, business volumes increased about 2%, and we, again, benefited from the slightly higher hold percent although both periods were in the normal range.

On December 1, a competing property operated by Great American in Des Moines, Washington, which is several miles away from our SeaTac property closed its operations. As a result of that closure, we expect our nearby SeaTac property to benefit. The principal target of this closed property had been a higher-end Asian Baccarat market. So the Baccarat softness I mentioned earlier, we expect to reverse course with the closure of this property up the street.

Club Fortune, just a quick update. Slot revenues for the quarter were down a couple of hundred thousand, partially due to a lower hold percent, and that obviously flowed directly to adjusted EBITDA. But as I said, that -- the sale of that property is on course and expected to close December 31. No real -- no updates on South Dakota. It is now sold and no lingering issues there.

At this point, I'll ask Jim to take you through the details of the quarter's financial performance.

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

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Thank you, Mike. Well, like last quarter, year-over-year comparability is challenging since not only do we have the new recognition -- revenue recognition rules impacting this year and not prior year, the Club Fortune operations are segregated as discontinued operations net of tax, South Dakota was sold and corporate is impacted by sale-related expenses. So our quarter-to date operating income, therefore, represents our Washington operations and corporate.

For the second quarter of fiscal 2019, net revenues were $14.4 million compared to $16 million in the prior year. Operating expenses were $13.8 million compared to $15 million in the prior year. Operating income decreased to $0.5 million compared to prior year's operating income of $1 million. And net income was $0.5 million or $0.03 a share compared to net income of $0.6 million or $0.04 a share in the prior year period.

Net revenues from Washington were up 4% increasing to $14.4 million from the $13.8 million in the prior year period, and adjusted EBITDA increased 18% to $2 million compared to $1.7 million in the prior year period.

So for our discontinued operations, Club Fortune had revenues of $3.2 million, a decrease of $0.1 million compared to prior year period, and adjusted EBITDA decreased by the same amount.

Impacting the comparison to prior year, the South Dakota route operations in Q2 of last year had $2.2 million of revenue and $0.2 million in adjusted EBITDA, which is now segregated as discontinued operations.

Exclusive of $0.7 million of sale-related expenses, corporate expenses were $0.7 million in the quarter compared to $0.6 million in the prior year.

On a consolidated basis, adjusted EBITDA from continuing operations was $1.4 million compared to $1.3 million in the prior year's quarter. We ended the quarter with $9.8 million of unrestricted cash and a $6.9 million outstanding bank loan.

I'll now turn it over to the operator for any questions.

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Operator [5]

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(Operator Instructions) And we have no questions, so I turn the call over to Mike Shaunnessy for closing remarks.

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Michael P. Shaunnessy, Nevada Gold & Casinos, Inc. - President & CEO [6]

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Well, I'd like to thank you all, once again, for joining us. We continue to work diligently towards getting the Club Fortune transaction closed here at the end of the month and, obviously, continuing diligently to try and close the larger transaction, the sale of the company, here in due course. I appreciate your attention, and wish you all a great holiday season. Thank you.

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Operator [7]

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That does conclude today's conference. We thank you for your participation.