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As we expected, Great Canadian missed the Street's revenue estimate but beat on margins. Most of the call was focused on growing the business in the current state of the economy and use of free cash flow

"Great Canadian's results for the first quarter of 2010 present a mixed outlook for the year ahead. Many of our properties continue to witness the impact of a challenging economy.  While visitation levels have remained relatively robust, our patrons across Canada have become more conservative in their entertainment spending.  Throughout 2010, we will continue to improve every customer-facing facet of our business.  This is the most cost effective route to both recovering those revenues lost during 2009 and generating new growth."

- Ross J. McLeod, Great Canadian's Chairman and Chief Executive Officer

HIGHLIGHTS FROM THE RELEASE

  • "The year-over-year revenue decline was due to the impact of the challenging economy, the mandatory February closure of Hastings Racecourse during the Winter Olympics, and the effect of the weakened U.S. dollar on the Great American Casinos’ revenues.  These declines were offset by a revenue increase of $1.8 at the River Rock Casino Resort."  
  • "Boulevard is currently facing challenges from both a competitor's facility and disruption related to provincial highway enhancements, in addition to the pressure the economy has placed upon its patrons.  We have already begun to address these challenges, and Boulevard will remain an area of focus over the coming quarters."
  • "The Canada Line and River Rock's recent redevelopments have created significant growth in both visitation and gaming volumes at that property.  Increased efficiency allowed this growth to translate into an impressive improvement in River Rock's EBITDA."

CONF CALL "NOTES"

  • The provincial highway construction project causing access issues at Boulevard will be completed in 2013 and will likely continue to cause disruption at the property. Working on property enhancements at Boulevard to offset some of this disruption.
  • Moncton Casino opened in New Brunswick in May and may impact Nova Scotia (this property is over 200km away).

Q&A

  • EBITDA margin guidance in light of the property enhancements that they are planning to implement at Boulevard and across other properties?
    • Will try to deliver similar types of performance. Mgmt basically avoided the question
  • Share buyback?
    • Thinking about it, but there is nothing that they can disclose. Doesn't sound like a decision has been made
  • Competition at Boulevard?
    • Cascades is being more aggressive
    • Quite a bit of construction that is impacting the traffic flow
  • Liquor license at Naniamo
    • They received the license last week and hope it helps on the margin - but won't be a game changer
  • Flamboro downs?
    • What is the risk that they don't renew the license.  OLG has been looking for a new CEO.  There are about 8 licenses that are in a wait and see mode as a result of the vacancy in the office.  It would be expensive for the province not to renew the license given that they receive the bulk of the revenues from the operation.  The OLG has rolled over every racetrack license that has come up for renewal thus far.
  • 1Q2010 is probably indicative for what they seeing going forward for F&B  revenues at Georgian Downs.
  • Hotel revenues at River Rock - is up y-o-y but not benefiting from the Olympic business as it did in the 1Q.
  • Gateway margin comparison - how much room is left?
    • Results at Gateway were achievable before they introduced amenities to their properties.
    • Basically when they had slots in a box, those 50+ margins were achievable not at a "full service" property
  • Capex: $10MM development and $7MM of maintenance for balance of 2010
  • Timeline on cash buildup before returning it to shareholders?
    • Don't want to leave themselves without options or flexibility.  So they will be patient on deploying that cash. Unclear when that happens.  But they are very focused on creating shareholder value.
  • They just paid down the line.  So it's not like they have a lot of cash laying around today - what they have is being used for working capital.  It will accumulate from here.  They are comfortable with their current leverage ratio. They aren't focused on any M&A opportunities.
    • They did hint at being keenly interested in the master redevelopment in Ontario if the law changes to allow table games
  • Boulevard - recently did a refresh of the casino
  • the BC gaming market has changed from a build it and they will come because of under penetration. BC is now a mature market that is fairly saturated and they need to start thinking outside of the box to generate incremental dollars and traffic. Just hired a new marketing person to cultivate new business.
  • Why didn't interest expense decrease when they paid down their debt this Q?
    • Lower interest income in the current Q vs. prior quarter.  The other issue is that they are no longer capitalizing interest.  Thinks that current net interest expense is a good run rate.
  • Higher stock comp?
    • Result of higher stock price (y-o-y) but lower number of options granted so it's valued higher under Black Scholes formula.
  • River Rock is benefiting from the Line opening but also improvements at the property. The Line continues to get more traction in the market place. 
  • Will they be investing more marketing dollars in Nova Scotia to offset any potential impact from Moncton?
    • They are already did a refresh and have some programs in place but think that there will still be an impact initially.
  • How much cage cash does the business require: $4.6MM at the end 1Q2010 + $15MM provided by the BCLC.