Nevada Gold & Casinos, Inc. (UWN)

UWN 
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Nevada Gold & Casinos (UWN)

Q4 2013 Earnings Call

July 29, 2013 11:00 am ET

Executives

Harriet C. Fried - Senior Vice President - New York Office

Michael P. Shaunnessy - Chief Executive Officer and President

James J. Kohn - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Secretary and Treasurer

Presentation

Operator

Good day, everyone, and welcome to the Nevada Gold & Casinos Inc., Fourth Quarter Fiscal 2013 Earnings Conference Call. Today's call is being recorded. At this time, I'd like to turn the conference over to Harriet Fried of LHA. Please go ahead.

Harriet C. Fried

Good morning, everyone. With us today from Nevada Gold & Casinos are Michael Shaunnessy, President and Chief Executive Officer; and Jim Kohn, Executive Vice President and Chief Financial Officer.

Before we begin, I'd like to remind you that today's webcast and call will be archived on the company's website. I would also like to remind everyone that part of today's call includes forward-looking statements. These statements are not guarantees of future performance and therefore, undue reliance should not be placed on them. The company undertakes no obligation to update these forward-looking statements. We refer all of you to the company's filings with the SEC for a more detailed discussion of the risks that can impact the company's future operating results and financial conditions. The company's earnings release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the SEC. Included in this morning's release is a reconciliation of these non-GAAP financial measures to the comparable financial measures calculated in accordance with GAAP.

With that introduction, I'd now like to turn the call over to Mike Shaunnessy. Go ahead, please, Mike?

Michael P. Shaunnessy

Thanks, Harriet. Good morning, and thank you, everybody, for joining our call this morning. The results we announced earlier clearly show the progress we've made in positioning Nevada Gold & Casinos over the last year. As you know, we took many steps to improve the operating performance of our asset portfolio, reduce our cost structure and sharpen the company's business focus. All of these actions contributed to our strong showing for the year. And we generated $5.8 million in adjusted EBITDA from continuing operations, which was above the target we have set, and also, reduced our outstanding debt by $2.3 million.

I'd like to walk you through a bit of our operations with a little bit of an overview. First of all, I'll start with Washington. Those of you who have been following us for a while know that we have 8 locations in the greater Seattle area and 2 locations in the south eastern part of the state referred to as the Tri-Cities. Altogether, we are the largest single operator in each of those 2 markets.

Our Seattle properties experienced some seasonality with our first and second fiscal quarters being the weakest, and the third and fourth being the strongest, which you can kind of see from the financial pattern reflected in our financial statements. The seasonality is primarily driven by weather, and the revenue variance between the best and worst quarters can range between 10% and 15%.

The climate in Seattle being rainy and overcast oftentimes helps the card rooms, but in December periods, June to September, when the weather turns sunny and warm, there are many outdoor entertainment opportunities that keep customers busy and out of card rooms. By contrast the Tri-Cities market, which represented about 23% of our Washington revenues in the last fiscal year, doesn't experience the same seasonality as the weather patterns there are pretty consistently normal. The Seattle seasonality contributed beneficially, obviously, to the strong fourth quarter that we just posted.

Our operating cost model in Washington is very labor and capacity cost intensive, with these costs accounting for almost 75% of our expenses. With the remaining 25% or so being relatively variable based on volume. This creates significant leverage for revenue to flow through the EBITDA, which unfortunately is a double-edged sword, so fluctuations in revenue, up or down, tend to flow through the EBITDA at a 50% to 60% rate. So there's an even greater fluctuation in our seasonal EBITDA as revenues vary and the flow-through is significant.

During 2013, we reviewed each of our locations and implemented some repositioning: changing the mix of games; modifying our marketing strategy; upgrading some of the physical facilities with remodeled restaurants, bathrooms, casino floor layouts; all of these efforts have paid off and we have adjusted EBITDA in Washington improving over 10% in the fourth quarter to $2.2 million, and for the full year, the adjusted EBITDA from Washington rose more than 20% to $7.9 million. The staff in Washington has done a great job of maximizing the efficiency of the operation out there, and portfolio is in very good shape. We're pleased with the overall operations, and we'll be focusing primarily on further opportunities to trim cost, while at the same time driving incremental revenue.

As I noted earlier, our largest cost components are labor and capacity, and each of these increase annually. For example: CPI clauses in our leases and increases in the minimum wage in Washington, which is currently about $9 an hour and one of the highest state minimum wages. Since our revenues are derived from card games, and obviously, isn't practical to pass along these 2% and 3% cost increases to our pricing, but I can't change the table minimum to $5.15, so we need to be much more creative in managing our business on a going-forward basis to address the ever-increasing cost structure.

Read the rest of this transcript for free on seekingalpha.com