Nevada Gold & Casinos, Inc. (UWN)

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Nevada Gold & Casinos (UWN)

Q2 2014 Earnings Call

December 23, 2013 4:30 pm ET

Executives

Kenneth Maciora - IR

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, and welcome to the Nevada Gold & Casinos, Inc. Second Quarter Fiscal 2014 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ken Maciora of Empire Relations Group. Please go ahead, sir.

Kenneth Maciora

Good afternoon, everyone, and thank you for joining Nevada Gold and Casino's Fiscal 2014 Second Quarter Financial Results Conference Call. With us today from management are Michael Shaunnessy, President and Chief Executive Officer; and Jim Kohn, Executive Vice President and Chief Financial Officer. Before I begin, I would like to remind you that today's webcast and call will be archived on the company's website at www.nevadagold.com. If you have not already received a copy of today's press release or the 10-Q, they're available 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 Securities and Exchange Commission for a more detailed discussion of the risks that can impact the company's future operating results and financial condition. The company's earnings release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the SEC. Included in this afternoon'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 over the call to Michael Shaunnessy, President and Chief Executive Officer of Nevada Gold. Go ahead, please, Mike.

Michael P. Shaunnessy

Thank you, Ken. Good afternoon, and thanks for joining our call today. The 5-year reducing revolving debt refinancing with Mutual of Omaha Bank that we announced today will provide substantial long-term benefits from [ph] the company. Not only did we significantly reduce our borrowing rate from an all-in effective rate of 12% down to about 6.5%, the revolver feature also provides us with some cash management flexibility. In addition, we used some excess cash to reduce our outstanding long-term debt by an additional $1.2 million. So with our new financing in place, our total long-term debt is now $12,750,000. With this new financing in place, our earnings will immediately benefit from reduced interest expense at an annual rate of approximately $700,000 or $0.03 a share. Our first pricing certificate under the new bank deal will be effective July 1, 2014. And based on our current pro forma calculations, our leverage ratio should be below 2.5x, further reducing the borrowing margin by another 50 basis points.

The operating results we reported today reflected a significant rebound in our Washington operations from the difficult first quarter. As you will recall, we had some unusually dry weather in June and July, which impacted our performance. This quarter, revenues were $13.4 million, up $400,000 or 3% compared to the prior year. And we are now moving into the 2 stronger quarters of our Washington operation. In South Dakota, we generated revenues of about $2.9 million, down 13% compared to the prior year. The South Dakota gaming market experienced an 8% decline during that same period, and our results reflect the market, as well as our previously announced reduction in units. However, as we move into the slower period of the year in South Dakota, our cost reduction should help to benefit our operating performance there.

Also, in South Dakota, the city of Deadwood, who within the last month has hired a destination marketing expert, Roger Brooks International, to provide a comprehensive study to address methods of elevating tourist visits to the market through improved marketing, branding and product development. As now that casino style of gaming is present in about 39 states, it is no longer the unique attractive draw for Deadwood that it was when it was first legalized in 1989. This process is set to begin in January, and we're optimistic that some positive suggestions will result. Also, in South Dakota, just last week, the South Dakota regulators approved a proposal by IGT to allow for multistate progressives in South Dakota. This will allow the properties there to offer bigger jackpots as other states enable similar legislation. Both of these initiatives reflect the favorable business environment in South Dakota and the realization by the community and the business operators there that some continual innovation is necessary in order to remain competitive in a changed environment.

On the social gaming front, we have amended our third-party agreements for cost and revenue sharing and that will positively impact our EBITDA to the tune of about $75,000 a year. Gold Star Slots continues to be available on Facebook and in the Apple Store, and the Android compatibility is expected sometime in early to mid-2014. We will also be launching just after the first of the year Gold Star Poker, which provides free poker play. We continue in our efforts to monetize this endeavor, but at least for now it remains fairly immaterial, except for the $75,000 in savings we expect to realize going forward. We continue to maintain tight controls in the cost side of our business, both at the corporate level and at our operating properties.

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