Q1 2020 Earnings Call
Good morning, ladies and gentlemen, and welcome to the Great Canadian Gaming Corporation first quarter 2020, <unk> results conference call. At this time all lines are not listen only mode, but following the presentation. We will conduct a question and answer session.
Anytime during the call you find you require assistance. Please press star zero for the operator also note that a call is recorded on Tuesday May 15, 2020, I would like to turn the conference over to Mr. parents dwell. Please go ahead Sir.
Like Sobi and good morning, everyone and welcome to Great Canadian any Corporation's conference call to review the Companys financial results for the first quarter ended March 31st 2020.
Joining me on the call. This morning, as Rod Baker, the company's Chief Executive Officer, not Antonson, the company's Chief operating officer and genre. So the company's general counsel and she privacy officer.
I'd like to remind listeners that latter portion of this call is reserved for institutional investors and analysts any media related inquiries can be directed towards truck healing executive Vice President stakeholder relations and responsible gave me.
He can be reached out six so for two for 7.197.
Before we begin I must caution all listeners that this conference call may contain forward looking statements that reflect managements expectations regarding the company's feature.
These statements, which will be identified by words such as anticipated.
<unk>, except or similar expressions are based on information currently available to the company.
That's true should not place undue reliance upon these statements, which involve significant risks uncertainties assumptions you state and certainly that's what the data this call and the company assumes no obligation to update or revise them to reflect new events or circumstances.
Unless otherwise indicated all financial information on this call is presented in Canadian dollars and it's in accordance with international financial reporting standards or I FRS.
Except for adjusted EBITDA, which is a non <unk> FRS term defined in the company's mdna.
Unless otherwise noted I all financial information for the comparative period excludes the results for the U.S. region as they have been presented as discontinued operations. After Great American Gaming Corporation was sold on June 27 2019.
I'll now pass the call the Rod will begin with some opening remarks, not will then review break Canadians finance for results and overall operations and Rod will follow with some commentary on the company's liquidity and outlook Rod.
Thank you Karen good morning, everyone and thank you for joining us today.
We'd like to start off the call by expressing my gratitude to the healthcare workers on the front lines grow Street transport and all other essential personnel, helping keep communities running during his cobot 19 Corona buyers can damage.
Your dedication and efforts are beyond measure.
And he is uncertain times, our thoughts are foremost on the health and wellbeing of our team members yes.
As part of the company's efforts to contribute to the containment pandemic temporarily suspended the operation. It's all of our gaming facilities effective March 16 2020.
In addition to temporary suspension or operations government a bunch here a man do the closure of all non critical construction projects sector April four 2020, which temporarily halted the remainder of the company's I'm sure a capital projects under development.
During this call we will go over.
Our first quarter 2020 results and provide an overview of the operating and financial measures taken by the company response to the temporary suspension of operations.
I'm going to pass the call to my comment on the financial highlights for the quarter to first quarter of 2020.
<unk>.
Thank you Rod.
The first quarter of 2020 started well results were strong until the days, leading up to the temporary suspension of operations in response to the pandemic.
Canadians revenues for the first quarter of 2024 $273.8 million, a decrease of 10% or $29 million when compared to revenues of $302.8 million and the first quarter 2019.
The decrease was primarily due to the closure of all gaming facilities, and then salary amenities across the country on March 16th.
Partially offset by improved revenues during the quarter in the period prior to the gaming facility closures.
Adjusted EBITDA was $103 million into first quarter of 2020, which decreased by 6% for $6.3 million when compared to the same period and 29 change due to the above mentioned facility closures, which had a negative impact on revenues.
The company took measures to significantly reduce its operating expenses in response to the decline in revenues from the gaming facility closures.
Shareholders net earnings from continuing operations up $19.2 million in the first quarter of 2020 decreased by $11.8 million when compared to the same period in 2019, primarily due to the decrease in adjusted EBITDA increased business acquisition restructuring as.
This is primarily related to preopening cost of the Pickering casino resorts and the GCA and the gain on sale of land that occurred in the first quarter 2019.
Other notable events during the first quarter 2020 include the issuance of the company senior unsecured debentures for an aggregate value of $180 million on March 2nd 2020, and a subsequent closing of an additional $9 million through the overallotment that closed on April Thirtyth 2020.
This has provided the company I diversified financing structure by rebalancing interest rate exposure and varying loan maturity profiles.
We note that there was a government mandated closure of all noncritical construction projects effective April 420 20.
The revised timelines for the continuation of the developments will be reassessed once the terms and reopening timing of the government mandated closures are better understood and workplace conditions can proceed and assays inappropriate manner I will now pass the call back to ride for an update on outlook right.
Thank you Matt.
In response to the closures. The company has made significant operational contractual adjustments that were deemed necessary in response to the pandemic.
Reduced in deferred our human resources and property marketing and administration expenses never to minimize it cash outflows during that period.
Be true $375 million cash in our various revolving credit lines before the closure of our sites combined with the receipt of the 100 800 million a cash proceeds from the issuance of our unsecured.
Ventures, increasing our cash liquidity position as well as our debt levels on a dollar for dollar basis.
As at March 31, 2020, the company had a cash balance of $881.9 billion at $858.9 billion available Undrawn credit on its credit facilities subject to applicable covenants.
Furthermore, subsequent to quarter end the company executed amendments to each of its credit agreements the temporarily waves certain financial and other covenants in order to provide us with additional.
Flexibility through these challenging times.
Management continues to actively monitor the companys liquidity position with the expectation that we will remain closed for the foreseeable future.
Given that dynamic nature pandemic, the duration and magnitude of the temporary suspension remain unknown, including the impact if any additional health and safety measures introduced on reopening accordingly, the long term impact on the company's consolidated results of operations cash flows.
Financial position cannot be recently estimated at this time.
Health and safety of her Jackson team members, it's great Canadians primary concern during this period and will be a foundational element in our decision, making as we move forward.
I would also like to acknowledge the hardship being faced by a significant portion of our workforce.
We're on temporary suspension.
We look forward to date, we can welcome them back.
The remaining great came team members are working tirelessly to make sure that the company. It's in the best possible position as we work forward through this period.
We are anticipating the start up in post launch ramp up period of our gaming facilities in capital projects under development will be a demanding time for a great Canadian and are very fortunate to have so many dedicated and hard working team members, including invaluable oversight from our board of directors, leading us as we navigate this future.
I would like to conclude by reiterating our gratitude the dedication that our shareholders have shown us during this unprecedented time.
We remain committed to working hard in making the best possible decisions to drive the company treat is very difficult period.
Parents, we can now invite questions. Thank you.
Thanks, Rod I before we begin today's question and answer session I'd like to remind everyone that questions will be reserve for institutional investors and analysts.
I'd also like to reiterate the company's Investor Relations philosophy, which encourages investors and analysts to utilize its public conference call at their principal medium for speaking with great Canadian Senior management.
So we can now go to the acuity.
Thank you Sir.
Ladies and gentlemen, if you do have a question. Please press star followed by one on your Touchtone phone you will hear a three Tom prompt acknowledging you request and if you decide to withdraw your question simply press star followed by too and if using a speaker phone. We do ask that you. Please lift your handset before pressing entities.
And your first question will be from George to me at Scotiabank. Please go ahead.
Yeah, Good morning, Rod <unk>, Hey, I'm, just not as the probably a tough question to answer.
But how do you see I guess gaming behavior.
Changes within the out of our patrons a once the casinos finally do open anecdotally I think about touchy chips and certain things like that and maybe talk a little bit about how you see that in our or you're all familiar worry that we could lose some some folks to maybe the online offering just thoughts are on that please.
Sure I mean.
Hi, I'm, obviously on the inside more than you, but that's a question Scott I think it's a very challenging one for anyone to answer at this point in time and I think there's a most thoughtful uh huh.
Lens on it at this point in time would be I graduated lens overtime. I think you know we're dealing with the scenario at their compounding of obviously, a very very significant health.
Issue that has some.
Some concrete aspects to it and we'll also have some emotional aspects to it I think for the foreseeable future certainly until we have a vaccine in place I.
I think that will cause all businesses significant challenges.
Including ours, I think there's other pieces as well too it where.
You know people of change behavior by not enjoying our experience for some amount of time as well as the economic challenges that many you're going to have.
Their levels of discretionary dollars I think there's a number of factors you know the health aspect of it being I think the predominant one for our particular industry.
I think there's no question.
That there will be an impact.
And certainly that impact will be more hard felt in the early days and I think less so through the evolution of time.
But for me to go and tell you right now what I think that profile looks like would be frankly reckless in my mind.
And inappropriate feeder rely on I do think that there are some items.
That's a work to our favorite and our strengths a little pets as we are faced with a very very challenged environment. Today, obviously, but also I think what's going to be a very difficult environment when its secret appropriate to open.
And you know a couple of the themes for those of you did a follow is for long time, you hear over and over again it because it's really it's really what are the fabric of our industry is all about is that you know we talk about how we are highly regulated and talk about compliance.
And I think those features although to a large extent, we tried to a heightened from our gas as they go to enjoy an entertainment experience. Those are the foundational elements of our industry and I think those are the foundational elements that will serve us well as we navigate their reopening up our facility.
And the reopening our construction sites and you know highly regulated are basically <unk> code language for we've got a lot of rules. We've got an awful lot of rules, we've got a procedures and compliance we understand fully and 100% through every.
One of our team members and frankly virtually every one of our gas that we need to follow the rules.
Otherwise they will not be allowed to participate in our environment and so.
As we talk about those rules in terms of the integrity of gaming I think that same philosophy and approach and those that rule based environment and frankly boundaries will serve is very well, we reopened and in fight gas back into our facilities and I. You know you read certain things not just I grass.
The governors are saying businesses reopened and.
I guess don't want to where a mask in there for a single we can enforce that so we don't see that we haven't really special ability and our industry too right.
Safest environment I believe of.
Any restaurant bar sporting event, Ethan grocery store experience pharmacy, we have.
I used in the Sky boots on the ground through surveillance and security and procedures and protocols as well.
Every one of our team member to go and manage the environment it as safe as a matter as possible and our guests know that and the reality is when people understand what the game.
Plan and rules are 99% an abide by it so I think we'll be able to create a very safe and comforting environment compared to many many other businesses.
Let alone entertainment experience it out in the marketplace and for those.
Very few that for whatever reason will not abide by the protocols that will be instituted when we reopened they will be dealt with with that the very small 0.1%. They don't follow our current rules and it's called barring people. So no I think there's going to be lots of Chow.
On June.
I think we definitely are going to have a ramp up I think we will have customers that will not return absolutely, but I also think through all of this and a massive amount of work that we're doing in collaboration uncooperative Lee with our Crown partners, we will be setting up an environment that will be safe when appropriate.
At the for at the right time to reopen and I believe our guests will understand and see that and be comforted by it and continue to enjoy the amenities that we offer but this is not going to be an easy straight line and I have no expectation that the ramp up is going to be image.
Yes, and back to the levels that we saw a just a couple of months ago.
Well, that's really hard facts I I took a little more [laughter] off everything to questions that one I hope that was okay. [laughter] now. Thanks, I was really awful can you talk a little bit about some of the initiatives. The bcl be CLC, sorry is doing to support us maybe operationally or financially during these difficult times.
Look I I don't think it's appropriate.
For me to get into any details of how we are working collaboratively and cooperatively with any of our stakeholders.
Whether it's our crowns our regulators are back to suppliers or construction trades I really think that that would be disingenuous I would tell you as we have disclosed and I am and I am.
Very very appreciated the grateful there has been a coming together of all stakeholders that we touch with a realization clearly Pat. This is a very very difficult period of time and all of us including ourselves are not only thinking of ourselves we're thinking.
[noise] of greater good realizing that we need to think a bit from everyone's perspective, but harder to get through these scenarios. It. So no we have contractual relationships and there'll be no surprise that virtually all of our operating agreements did not contemplate a extended.
Suspension of operations of our facilities.
And that would have put us oxide with all of our agreements are there and I think was Nova Scotia, who had there is a force mature specifically relating to the so it starts with something as simple as an understanding that and working through that all the way through to some of the other requirements at some of the other items that.
Our not necessarily critically important now but are are you know their cost centers for accomplishing activities. So there's there's a lot of good work and thinking going on into collaborative but appropriate fashion with all stakeholders to help the industry works, you're just curious and look I've said this.
Many times and in some respects superior shareholder it might it might a nerve you.
The reality is bricks and mortar happened to be held within our corporate entity, but I think there's a very strong realization.
Got it, particularly with our Crown partners and our provinces and our local communities that.
We all alone could this business together this is all of ours and and it's important to protect your knees extremely challenging times that we all come to the table and understand that and do what we all can in order to.
Get to a much better future as efficiently as effectively as we can't so there's lots of good stuff that's going on I could tell you George there's a massive massive amount of work people are very focused both within great Canadian and also at not only crowns put the regulators and our banking partners and suppliers and construction.
Trades.
To do what we all can to put us in the best position as we normally go through this but come out the other side.
Okay, maybe on last time, maybe I'm talking a little bit on this question, but I guess, what we're saying I guess is reading between the lines, both be CLC and the LG and whatever structure the out in place to be a straight or thresholds or anything they do understand that this is probably a multi year phenomenon and they're willing to be co-operative above and beyond.
The period, when the casino opens and kind of look out a few years out in terms of being available.
No I didn't say that.
And I, specifically won't say that I'm never going to speak for anybody even if they said anything in particular, but a particular item other than that we disclose in writing would be wholly inappropriate and this is a process and it's going to be a multi week multi month potential.
Even multiyear process and and and you would be absolutely not reading into what I said properly or if the conclusion was that statement that you made what I said was right now we're working very cooperatively through many things we have a great. Many things yet to work through many more things yet still to work through.
And we've already gone and partially tackled here. This is early days and I don't want to mislead you or be disingenuous to any stake holder that we may be having conversations with today are down the road as to what our expectations are for or from them or frankly from or for us.
To them at this point in time, so please don't step further than that.
The good sites and there and I think the collaborative work that is going on right now.
Okay understood. Thanks, Rod and good luck during these Ah Okay time. Thank you George I appreciate your comments.
Thank you next question will be from Derek delay at Canaccord Genuity. Please go ahead.
Yes, hi, thanks, guys appreciate.
The color that you can provide us here just in terms of your commentary and the way traffic and revenue is tracking.
Up into the call the two weeks before the closure shortly before the close or can you just put in context. The magnitude of how you were doing it seems like things where were positive and up year over year in terms of revenue in traffic both in Ontario NBC.
Sure Derrick so.
Things were up and things were good I think if you when you haven't opting to read our fine print.
Are you there is a comment there about.
The days before the closure of May 16th.
So in the days before the closure of May 16th we saw a some accelerating degradation or more concentrated within certain facilities and others and then obviously closed I may 16th if you. If you go literally a way.
Earlier than that.
I would say from a math perspective, it was almost business as usual and if you interpret laid out a basically two weeks of full suspension and then some number of days of.
Yeah incremental degradation over some number of days I think you could see that ER business was pretty decent before and if and when you spend more time I think you'll come to realize that business was.
Or.
More de sit in Ontario than our other geographies now.
Like I want to because I always.
The kind of Guy you got to call a spade a spade so I.
I've been doing four I added up now and I almost recount I've been involved great King for 46 quarterly conference calls.
And over those 46 quarters, we tried to collate leaks lay the weather card twice, because we don't like to blame other things so.
And the second time in my 46 quarters was Q1 of last year.
So the comp for Q1 of last year, particularly Ontario, we had some very challenging weather that impacted our business and its compounds when it falls over weekends in particular and we disclose that so.
I don't want you being left with.
Too much duty is obviously for the world changed here that things were like rocking along at four actually they were doing well, but they were rocking along at two x. not forex so.
So just to be totally fair and transparent and to help you.
Triangulate quarter over quarter little bit I think you need to temper or some of the goodness a little bit from that perspective.
Well that's a good reminder, and just in terms of some of your construction or expansion projects Pickering was one.
Notably that was slated to go to be at least on the casino portion complete by the end of March I believe.
And I'm sure it wasn't quite but how much of that build is really left like where you guys were you close where you on your previous timelines and moving into.
Covidien, obviously now the closure of non essential construction and Ontario.
Yes, so we were on our previous timelines as we had disclosed ER and the facility was going to be completed when when we had said by the end of the corridor.
There was no decision that was ultimately made in terms of Dimmock states and a large state and whatnot. So I would want to hear and say that it was going to 100% guaranteed be open another 31st it might have been a few days in terms the opening but absolutely it was on track and on budgets.
You know unfortunately, it's been shovels down since the fourth and.
You know things need to obviously start up again in order to consider how that might reopened and in what way and at what point in time.
And then in terms of the Capex that you had sort of earmarked for the year, obviously, we've had a big slowdown or.
Zero Capex for the most part in.
During the front part of Q2 here should we sort of think of that as as just pushing out some of these projects a little bit furthered yards are you use your attention to try and make some of that up.
Over 20, the balance of 2020 and 2021.
I think it's premature for a for us to say what our plans are.
At this point in time, I think it can be certainly broken down.
Into a number of items, we've obviously.
Had a suspension, but we were working full tilt. So we have a bunch of bills for work has been guys that have to be addressed or my financial perspective, now, we're not actually spending money and moving the projects forward, we will come to a point in time as you said when we will have the opportunity in a safe.
Taken appropriate fashion to restart all projects.
And in particular, our two major initiatives being both catering and Woodbine facilities.
It would be premature for me at this point in time to give you any commentary on.
Went that will happen, whether we would try and accelerate things whether they would fall back to the same timeline is they were on I think I think there's just way too many variables still to be understood including.
Construction site timing health requirement regular regulations.
Huh.
Capital liquidity.
Market and then I think also the opening side of things in terms of Pickering as the short term initiative you know looking at the operating environment in the early days and what we foresee so I think there's many many items yet it has to be worked on as I mentioned earlier and I apologize. If you can give you more visit.
Ability and clarity on that but if I did I'd be misleading you because we have I think a bunch more that we can do and as time passes more clarity comes the table that will help us make better decisions. So anything that I say today would be a very.
Thoughtful decision and piece of feedback for you. So I apologize for that none of that's fine that's fine and then last one for me just on the.
The service provider fee that you're still going to be receiving.
On the AOL. He has has there been a change in the.
Magnitude or amount of that fee per annum and can you remind us what that was.
No. So those are contractual and they're sick subject to cpis, so and they have been disclosed in the past and so I will I will repeat them now.
For the and they're on a bundle by bundle basis I missed an annual number so the the GCA is roughly $74 million.
West teaching is roughly $44 million and our east bundle is roughly $27 million.
Great. That's very helpful. Thank you Brad.
Thank you there.
Thank you next question will be from Subodh Con at RBC capital markets. Please go ahead.
All right, Thanks, and good morning sort of the color you provided around.
No just kinda ratcheting back of labor and so for can you maybe walk us through the flexibility that you have to sort of unwind the labor and then slowly bring it back are you able to bring back a portion of employees for certain month numbers. How are you broadly managing your human resources for the next few quarters.
After sort of locked down and or even trying to lock down sort of other furloughed or how are you doing with that.
Oh look it's a very very challenging a period of time.
ER and it's not a hockey period of time, and we have a great. Many team members, who are not working right now and that.
Extremely challenging for them and we feel that terrible about that equally we have a.
Much smaller number of team members, who are working like crazy and stress cases in a whole bunch of other ways trying a with as much a passionate terminations they can to get us reopened as soon as possible. So that we can as I mentioned I prepared marks invite back our AR.
Remaining team members, it's a very very difficult period.
We've tried to.
Balance that out.
In the best way, we can realizing we have everywhere on the continue from.
25, bricks and mortar sites disbursed across the country that need to be safe and secure.
And in care and maintenance mode. All do we have through to a guy to talk too much like me, making sure that we're doing everything we can to put the pieces in place to get our business reopened as soon as possible in a safe inappropriate fashion and that takes quite a few team members. If you think through on.
Site security surveillance, even when were suspended.
Some operational people obviously <unk>.
HR as much as we have many people who are not actively.
You know at work right now.
It's an insanely busy period for our team members. There. So it's a very very difficult period of time and I don't like to talk about people.
Lightly or in terms of math because these are all our team members and frankly people are suffering tremendously through this period of time I do think.
There will be a phased approach as we go and grow our business.
You know, it's we have a variable cost structure, but by and large we have a very very heavy fixed cost structure. If our sites are close that's one thing as soon as we opened our sites.
There's a very very heavy financial burden on opening a site.
A big part of it is a core group of.
Team members need to be there when a site is operational you know how can cater businesses. How many aspects are UQM, there's obviously.
Incrementality portion to team members being onsite are not as gross gaming revenues grow a materially and that will be more so the case, obviously on the table side. As you are aware tables is more labor intensive, but there's a very very signal.
Yes, good chunk of team members that will be welcome back as soon as we opened our doors.
Which is both I think a very good saying, it's also something that we have to be very cognizant of when we open up that we can do it in a cost effective fashion.
And have a business that.
From a financial perspective remains in a solid position. So I think I think you'll see.
The cost structure will go up.
Very very materially.
From what it is right now in suspension mode.
And then they'll be incrementality beyond that as we get traction and grow more revenues and not to scare you, but I just.
2019, our total PML costs were 1.050 billion hundred $50 million that was amortization. So non cash you know 2019 call. It a full up and running breakthrough year before a Pickering addition, $900 million of annual costs throughout her business.
So it's a very substantive number.
And a big part of it is going to a kick in as we open facility. So we have some challenges ahead of US yeah for sure and I think I don't want to overly comfort people to comfort that I can give you is we are.
Extremely sensitized to all of these matters and that's why we're doing serious amount of work to make sure that we set ourselves up for the best path forward with the most success in the most financial stability that we can.
Okay. Thanks for that and then I'm just kind of commentary you had in your disclosures around the waiver of some a covenant related.
Metric I guess, how should we think about that does that is that am I reading that correctly in the sense that covenant or wavered over the near term for some period of time or did you get some sort of flexibility on that can you maybe help us think a little bit through kind of the.
Capacity you have on that front.
Sure so.
Our banking partners have been supportive and and very thoughtful to work with.
So we have received the wafers.
Against covenants and some other.
Items that were non financial covenants in nature for a certain amount of time.
Within all four of our banking arrangements.
Okay, and then the Oh the project level that there's a fair to assume that stuff doesn't apply to order calculation.
So.
Each each one is different.
And I think if you.
I'm going to take you down a little bit deeper GCA.
We've disclosed does not have financial covenants, but it does have other covenants like continuity of business operations, our continuity of the development program. So it had non financial covenants are remaining.
Facilities, all have financial covenants.
Including the ones that are quote you called them construction related if you. If you were referring to say the west GTL, we have financial covenants in there, but the G. T. A we do not have financial covenants in there. We do have other types of covenants in there that that business continuity type covenants. So it's a little bit of a mix.
Bag and it's difficult to answer that with one answer.
Okay. That's fair and then I'm just in terms of kind of that costs are you're talking about where are you able to apply for a qualify for some of these weight substitutes or wait subsidy programs from the government or word.
What your fixed payments I heard receiving will continue to pursue kind of being offset so you may not qualify have you looked into or a qualified triangles programs.
So we've looked into all of the programs in detail. Many of the programs are not necessarily qualifying throughout the employee level and Weve I think we've done as best job, we can in educating our team members and and supporting them informing them.
What is available out there through the myriad of.
Government offered support opportunities some of them are also.
Corporate driven and corporate based and we have.
Spend a lot of time looking at all of them they are.
Very complicated they have been releasing information over time, which has made it be difficult to land in the early days on anything it makes sense or not you mentioned a considerations there whether you could qualify or not there's a number of other considerations.
Their businesses or entities within businesses can qualify for some of these programs or not.
And I can tell you that in some places we absolutely do not qualify for some of them.
But I really don't want to get into the details of which ones, we do or which ones. We go to kind of where we're sitting right now and frankly, where we might you could be going.
In the time ahead, I don't think that that's the right kind of.
Detail that should be presented publicly I would leave you with hopefully the comfort that we're doing our level of best to navigate all aspects of this including those that may or may present opportunities for ourselves and our team members and if there is a case, where it doesn't make sense we are ABS.
Absolutely.
Going to or have access those.
Okay. That's a couple of quick ones from me and left I'm on the kind of the total cost number that you referenced for 2019, North as you mentioned you don't want to get into discussions you're having with your partners and stakeholders the banks lenders and so the lenders and a landlords but.
Can you make a general statement on whether just directionally speaking relative to the cost last year, where you're able to get some relief in some areas. If we turn to think about the costs you might incur over the coming quarters or should we assume a similar run rate ex the kind of the HR component.
So I think our team has done a really really fantastic job.
And as I mentioned, not only the HR side, but property marketing into man there are great. Many costs. In addition to HR cost.
That.
We've been able to not incur or defer as we've gone into suspension period.
Obviously things like.
Marketing costs, which are.
Light items for us as well.
That's been those initiatives have been.
You know, 100% curtailed through the suspension period, and there's a whole host of other items. There are some there are some I wouldn't want to come stranded costs, but there are some real costs and there's significant that we need to continue to fund.
But they are much much less material, Dan that total aggregate up and running across the entire system number that I had mentioned a short while ago there.
Okay, and then on the covenants. So we've talked about earlier are you able to share what or just how long those covenants or wait for or is that sort of an ongoing discussion.
So I think I think we actually had some clarity in our disclosures.
But I, but I think we should look at a certain way here and I think we should look at this way with all stakeholders and I think it's more than fair in appropriate.
The kind of conversations that we're having.
Thank you with everybody, but let's talk about the banks for a moment are.
Months, not years and add months not weeks and I think it's fair because.
Nobody knows where the environment is going and how much things will change and I think the right amount of time, that's fair in appropriate for stakeholders on both sides of the equation is to have sufficient runway to do lots of good things to get to a better place and a place it's much better known as well.
In terms of.
Where we're going forward.
Because right now we have very little visibility on a particular is a timeline and whatnot. So really I think you should think in terms of we have flexibility for quite a number of months not quite a number of weeks, but not quite a number of years that yeah.
So I think its puts us in a very good place to do a lot of work and stay focused with supported stakeholders ER and to help develop to plan and get clarity on.
The reopening timing and strategy and protocols and and all the fact that goes along with it.
Okay, and then just last one for me I'm I know you mentioned that obviously the reopening processes TBD end, there's lot of uncertainty, but is there have you had discussions on a date with the government because somebody other retailers that we would talk to who were under closure.
Under quarter since March some of them have started to kind of talk about dates in may and so forth that the reopening.
Are those the type of discussions you're having with the government yet.
No.
Those are not the type of conversations that are being had.
At this point in time I think it's it's it's too premature for our industry to be honest I would also want to just Ah.
And that's it a little bit those would be the conversations we would collaboratively be having with our crown partners.
And obviously relying on health authorities and guidance.
And direction from our for provinces.
But the conversations would be I had is true the Crown Corporation with the government as opposed to when you said is talking to the government's I just.
Didn't want to I wanted to be clear in terms of the roles that we foresee going forward in managing this that didnt want there to be any misunderstanding publicly out there that we were happening direct conversations with any of the governments or provinces.
Oh for sure. Thank you.
Okay. Thanks, a lot.
Thank you next question will be from Simon to.
<unk> Associates. Please go ahead.
Hi, guys. Thanks for taking my question.
I guess just one question.
Do you see any opportunities in terms of other Ontario bundle operators that might not have the liquidity or the balance sheet that you up right now.
Any potential for some opportunities or M&A when we come over this.
So Simon.
I think coming out at this is.
Absolutely the lowest thing on our priority in terms of other opportunities. We are very focused right now on our business at hand.
And what we need to accomplish this is I'm not that old, but I'm old enough to have been in business for 35 years.
This is by far the most challenging period I've ever been through Barr Nunn, and we need all of our resources focused on our business and setting ourselves up for the most success, we possibly can going forward. So that is our singular focus right now anything beyond that.
In terms of M&A opportunities in Ontario, or anybody or anywhere else in the world.
It is not on our radar screen at this point in time.
Got it a appreciate you had the clarity on that and then just a housekeeping questions or were there any a rough in Newport permitted Cabot capex in Q and Ontario.
So I think you bring up a good point art, the Ontario bundles have committed capital expenditure.
ER revenue item and as we've disclosed over the past three years that isn't an item that hit our revenues and also our balance sheet.
In the second quarter of our second quarter of every year. So in Q2 is when we will see the full benefit of the permitted capital expenditures are PC as we call it in relation to our street, Ontario bundles.
And then how material would that be this year for us so if they but the number last year.
So it just goes up by a little too.
And it's roughly $24 million this year in totality between the three bundles.
Okay. So we should expect to see that ER next quarter.
Yes, so in Q2, that's going to thankfully or help us partially offsets are on what's going to be our our operating cash flow burn rates.
Okay got it thanks very much a that's all my questions you're welcome Simon.
Thank you next will be David Mcfadgen Cormark Securities. Please go ahead.
Hi, I'm, a couple of questions I, David Hi, How's it going.
Mario that not too bad.
I just just following up on that last question you know you talked about the PC he Ravi helping to.
Offset the operating task firms to assuming I'd say the operations remain closed for the entire in Q2 can you tell us what the operating cash costs and me and the quarter just help us model it.
So if I do this what are you gonna do for me.
[laughter].
[laughter] I don't know what do you want.
I wanted to be permits so look.
I thought long and hard at though how much visibility to give all of you in Q2, realizing that whatever I say, we'll 100% be wrong and will also changed extremely materially as our environment changes and.
Construction and door reopening a initiatives start to gain traction. So it's a very very misleading analysis and you guys shouldn't hold me to it but I am prepared to walk you through a little bit of that since you've asked.
And nobody else did but I want to earn points of view on it too so.
Here It goes and again huge tablets that it will be wrong and this is and this is neither accounting or cash flow. It's a bastard innovation are both system. So it's it's it's not going to show up anywhere at the end of Q2, but if you did make an assumption.
Right.
Eight more or less as we are right now through Q2.
[noise] roughest numbers that we have.
We'll be.
Cash outflow of $132 million in.
Total made up of.
Our development program, obviously was well underway and as we've talked about rich Derrick how Pickering was getting very close so we had very big payables. There. So we have.
$77 million of that is.
Construction payables that we're dealing with right now and paying we have and this is going to be a lumpy number because of.
Debenture interest that's.
It's not every quarter and even some or other facilities because depending on how long are ease our for this lumpiness in paying but if you look at our now new leverage level of roughly $1.5 billion have roughly $15 million of cash expense a corridor. So thats 15.
A million dollars and are reasonably best estimates.
Our operating loss.
After factoring in the 24 million dollar of P.C.E. benefit, which obviously is a benefit for this quarter only is about $40 million. So the quarters, that's $132 million negative cash that we have some financing initiatives as well as.
Cash outflow that are going to.
Look after that number.
I would remind you that since March 31, the over allotment of the debenture issue brought into another $9 million gross so we have $9 million there that we can put toward 132 million outflow.
We have.
Both construction debt at a GTH partnership level in the west GCA level that should be able to fund another $53 million of that $132 million.
Which means we have a total I think financing ability of $62 million.
The next point is an unwinding of working capital, obviously, when you're going along and you have a regular business you're working capital statements within a certain level.
As you know all payables get paid and new ones replace it unless the businesses growing materially or declining obviously when the business suspends you have a more wholesome unwinding of noncash working capital.
And so we've looked obviously very closely at our receivables and our payables.
And Oh, we have another.
Fortunate event. This Q2, along the lines the PC, but from a different perspective, and I don't want to get into too much detail, but our operating agreements and on our three Ontario bundles.
How are they.
A hold back over the course of the fiscal year of a certain amount of our revenues that becomes a receivable for us that gets paid once the financials are finally determined in Q2 of every year and that's fairly substantial number.
Number basically offsetting a other payables that we need to pay results in a net working capital.
Improvement of our cash balance of $15 million in Q2, so of that hundred 32 million of cash that we're going to spend in Q2 15 million us. It is going to be looked after by unwinding of our working capital, which is great which leaves us with.
Roughly.
On a cash depletion in Q2, all else being equal staying as meet more or less are now in Seoul suspension of $55 million in Q2. So it's a very significant number and obviously, we're also increasing our debt by 62 million so from a shareholder value.
You perspective, it's 55 million or dollar share out and it's more than a dollar share in incremental debt, we're going to suffer as we if we were to remain a suspension incurred mode through Q2 now so.
It's pretty painful we're very focused on it we're trying to manage things is intelligently as we can.
Realizing that it's a very difficult you know situation, we have a great many assets.
That were stopped like debt in their tracks and it's a it's a difficult position to be in but so that's a very.
Detailed picture of Q2, assuming things stay as they stay currently obviously, if we start to work on the future a little more heavily then that's going to obviously have an impact here.
These numbers, David you only big time now.
[laughter] alright, Thank you know I'm, not saying I welcome.
Hum that 40 million a quarter and out of the PC revenue that's net of those 16 Frank.
Correct.
Okay. That's so that's yes, that's that's and that's also we get a little bit of rent on wonderful. So there's some other distant other incidentals in there in terms of revenues, but yes, that's that's net of everything.
Okay.
And then if I can just gone to the revenue threshold sees disclosed and you're on DNA that while you're waiting ceased operations you won't be paying any any of the revenue threshold than that as you start up operations again, it's going to kind of gradually increase.
I was wondering if you can I.
I don't know provide any sort of color on how that might gradually increase scientific and oh.
Go back to what it was over two years six nine so any help there that when we can do you like model provides you I can provide you know color I can also I will say one thing that.
Just so that you understand where we are in this process, we have not even had our first conversation.
Where are all geez stakeholder partner in that respect we are still totally focused on matters that need to be addressed long before we can even get to that so I cannot give you any color as we have not even started.
Any conversations.
In that respect at this point in time.
Okay.
And then I don't know if you saw that Nevada put out last Friday.
Guidelines on reopening and I'm talking about reducing the gaining capacity at least temporarily by 50%, reducing the number of positions in the tables PPI by 50%.
Another thing I don't know if you've looked at those I was just wondering what your hi, hi, same commentary on D.C. and so on night.
I.
I have some guidelines so when you reopen any any thoughts or not or it's just too early.
So we've looked at all guidelines that have been put out we've we've I've, even wasted my time listening to crazy Mariners and stuff like that too.
<unk>.
The health and safety of our team members and our guests and our communities is Paramount and and yeah. It's our first priority and I see that not just to be altruistic I say that.
Being eight capitalist mercenary.
Our our long term.
Interest and value creation totally rests on making sure. We are very best in early days here in all respects, including having a safe and appropriate environment.
Turning to whatever takes in order to accomplish that if we don't do that.
We could be.
Forever damaging what is I think an absolutely tremendous and unique franchise. So so I think there are a great great great many strategies and protocols and procedures and our team is working.
Very thoughtfully in collaboration with our Crown partners on what all of those look like and how they might come together and at what point in time to drive an appropriate and safe environment. When we can reopen and some of those items that you mentioned would absolutely be up for considered.
Ration.
As as potential appropriate strategist and protocols and procedures to how at certain points in time as if and when when we open but I don't think it. It I think it's a waste of all of our time for you and I start talking about.
Capacity, how many people at a table and for how long plexiglas or not you know how far apart line should be on the floor stars Telecom stuff I mean, there's there's a great amount of technology, that's being developed out there right now not only three businesses that are close but for those essential businesses that are open I think there's lots of learnings I think there's lots of learnings on.
Also on what's more safe and less safe as I said I think we have really tremendous DNA in our highly regulated environment at our compliance focus to be able to execute better than than virtually every other industry out there in terms of these strategies to keep our team members and.
I guess safe and we're very focused on creating that environment. So it could include those things that you mentioned it could include a whole bunch of other things, but I don't think at this point in time.
I can give you any particular visibility on anything in particular.
Okay.
Any idea when that construction like Brazil.
Yes, I think in Ontario on their allowing construction turning down assets.
Thoughts on that for you.
So no we have not just building on that yet I think there was a earth works. So I knew seems moving dirt around there was there was announcement that that would be coming back online. So I think look governments are trying to do things in a safe inappropriate fashion.
And whether things accelerate or whether things slow down or pause or whether they stayed a certain phase.
You know your assessment would be justice thoughtful as mine, we're obviously watching closely and were very supportive of whatever our provincial governments deemed to be sacred appropriate for our communities.
We're going to follow along an appropriate fashion from the guidance that were given by those authorities, but at this point in time movie premature for me to make any assessment on what I think our timing is in any of these respects.
Okay.
If we could add like just hypothetically, if let's say.
Casinos are allowed to open saying I'm on.
Hypothetical how long do you think it would take for picker and open up 'cause it sound like you're pretty close to opening this virus than pet.
So I I'm not going to comment on when any particular facility would open or not including and especially Pickering. The only comment that I would make in terms of opening.
Whenever we decide that we have affirm opening that we have a go we have an inordinate amount of work.
In order to bring people back to get everything organized.
To actually opened the doors and we would be looking at.
Three weeks two a month.
From a definitive let's open date until we can actually open so it's not going to help you with when things are going to open next to help you got areas say, an interim gestation added minimum.
Once.
Date is known that it's going to take a certain amount of time after that known date in order to actually physically open our properties.
Okay.
And given that construction started on Hong for went buying I'm in the past you know your target was to have that suite of UBS.
Q1, 2022, do you think from modeling purposes mission, just assume that it's going to open.
A year later or.
Early January 2023, Aegis, then we should just take that approach any any thoughts there.
You know I don't have any I don't have any thoughts for you are obviously if were closed for a very material period of time, it becomes more challenging to hits.
Historical deadlines, if you've lost very immaterial chunks of time, I think thats, just a truism, sometimes things can be done two accelerates.
But there's only so much that can be done there's also a cost element to acceleration or extreme acceleration. So there's a great many dynamics from which it so uncertain I cannot tell you how to model.
But if we have a long passage of time here then I think it's natural that you would think.
Think about losing at least some amount of that time in terms of the development profile.
Okay, and then system earlier on the call. Yeah. There was some discussion about how the business is doing I was doing fairly well up until this virus heads.
Can you give us sort of an indication how much the revenue was up on a percentage basis up until the time in the quarter before the viruses I don't know if he can provide that but I'd be helpful.
Honestly I don't actually have it on my fingertips, right now, but and I think.
As I said.
On the business was up principally in Ontario, which was a good thing, but I also wanted to temper it because.
Comp was.
Quite a quite low last year. So it was a decent percentage in Ontario, not so in our other jurisdictions.
Some of that percentage increase was.
Not earns not organic it was because of our low cost base in our view, so but I don't have the numbers right now and so I can't give it to you.
Okay, all right that's it for me thank you.
You're welcome David.
Thank you.
A reminder, ladies and gentlemen, if you don't have any questions. Please press star followed by one under Touchtone phone.
Your next question will be from Chris Coldren, I breach and let capital. Please go ahead.
Hey, Rob Thanks for the color you answered most of my questions, but I just want to clarify on the second quarter, you said there'd be a cash outflow of 132 million and then I thought you said you would have to net that against 15 million, but are you arrived at a net number 55, so what am I.
I, Miss and there's $132 million.
Gross how did you get to 55 net.
So 132 million gross were hopeful that we're going to finance 62 million of that with leverage. So we're gonna increased leveraged by 62 million, we're going to liquefy net working capital to the tune a $15 million. So we're going to actually.
Generate $50 million out of net working capital unwind in Q2.
And then the residual is $55 million should I be funded and drawn out of our existing cash balances as at March 31.
Got it okay. That's that's all I had I appreciate the color.
You're welcome. Thank you next question if some some Jason I Bloomberg. Please go ahead.
Hey, Rod.
All my questions Ron.
Never heard you want to call Sanjay.
Well I know, it's and maybe it'll be another 10 years. When you do you know all those guys. They had all the great questions. Then you I'm I'm starting to add the amount of detail you have given.
And the warm between you and everybody has been starting to see so thanks for everything.
Okay. Thanks for calling the [laughter].
What's your question are they were all done, but you did a great job like qualitatively talking about you know the nature of cost that you.
Well keeping in taking out and then as you said just just giving people a stab at a the quantitative side of what the cost the cash burn and what you were going to use from working cap and and so yeah. It was those all my questions really it was just like what's your cost structure and right now, but you did that.
Alright, Okay, well, thank you for calling in.
Thank you.
Thank you.
At this time Mr. Doyle, we have no other questions. So please proceed.
Thanks, Toby and thanks, everyone for your participation in this morning's call before we conclude I would like to remind listeners that forward looking statements Mermaid during this call.
For those who joined midway I encourage you to listen to the replay of this call to hear my earlier comments regarding these forward looking statements. This replay will be available through the investor relations sections of our website at www Dot GC gaming Dot com.
This now concludes our call. Thank you.
Thank you Mr. Doyle, ladies and gentlemen, this doesn't need to do conference call for today. Once again, thank you for attending and at this time, we do ask Mr. Please disconnect your lines.
[noise].