Q1 2020 Earnings Call
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I would now like turn the conference over to your Speaker for today, Craig <unk> Executive Vice President and General Counsel. Please.
Please go ahead Mr. right.
Good morning, everyone. Thank you for joining us in today's call I hope that each of you your family friends and colleagues are safe and staying healthy.
Now he should have received a copy of our Q1 2020 earnings release issued earlier this morning.
If you haven't the earnings release and presentation that accompanies this call are available in the Investor Relations section of our website at Www Twin River W.W. Holdings Dot com under the news and events and presentations tab.
With me on todays call or George Pappan year, our President and Chief Executive Officer, Steve Campbell, Our Chief Financial Officer.
Hi, Chris a fully our executive Vice President and President of Twin River, Rhode Island.
Gee minus our VP of finance and Joe Grill, our Chief Accounting Officer.
Before we begin we would like to remind everyone that comments made by management will contain forward looking statements. These forward looking statements include plans expectations estimates and projections that involve significant risks and uncertainties. These rest are discussed in the company's earnings release and FCC filings.
Actual results may differ materially from the results discussed in these forward looking statements.
During today's call management will refer to certain non-GAAP financial measures reconciliations to the most comparable GAAP financial measures are included in the schedules contained in our earnings release for the presentation that accompanies this cool.
I'll now turn the call over to George.
Thanks, Craig good morning, everyone.
Good day, everyone to stay safe during these Unprecedent times I appreciate everyone joining us.
He's trying times remind us how secret life family friendships or.
I would like to take all the frontline workers for their hard work bravery every day and fighting that battle.
In response to the Cobot 19 outbreak, we announced an have executed on a multi facet at response.
Which have been outlined over the last several weeks to a press releases, including this morning journeys and beliefs.
We'll have more on a response in a few minutes. However, this is our first public opportunity to discuss some exciting new developments and our ongoing corporate strategy.
I wanted to start there.
But to half weeks ago, we announced our intention to acquire the Eldorado Shreveport resort, Louisiana and the monthly resort casino in spot only talking about up from Eldorado as well as an agreement to acquire valleys Atlantic City from Caesars and beat you properties.
These transactions are expected to be immediately accretive to earnings we're extremely excited about the prospect for future growth from these three properties.
Acquisitions represent a unique opportunity to continue executing on our expansion and diversification strategy and attractive markets and even more attractive valuation multiples.
As we've stated before our disciplined approach to M&A strong balance sheet, and low leverage compared to others in the industry as well as our proven track record of successfully integrating new properties and to effectively compete position us well to take advantage of opportunities as they lives and these acquisitions are a perfect example.
Starting with the Eldorado transaction the company will acquire Sri ports operations, and real estate and Mop lose operations 155 million dollar purchase price for these two properties includes a $15 million deferred cash payment.
Having no interest payable one year after closing.
This purchase price on a combined basis represents an implied trailing 12 month pro forma EBITDA multiple of approximately 4.1 times, excluding any potential impact from cost and revenue synergies.
We also entered into an amended agreement with month, whose landlord, including the extension of the lease terms to the end of 2035 with options to extend through 26.
Shreveport doesn't talk to your property in Shreveport, but would you see the market well a lot of characteristics of our hard rock Lexsi property, where we have had considerable success.
Blue is a beautiful resort property in recently went through a major renovation. We're looking forward to offering an experienced there is great reward destination for customers throughout our portfolio.
The company's proposed acquisition that these two properties is subject to see and state and local regulatory approvals and is conditioned upon the completion of the merger of Eldorado Caesars.
The acquisition has been subject to financing conditions. However that was satisfied this past Monday, we closed on our new debt financing of 275 million, which Steve will cover in a few minutes.
Turning to the Bally's acquisition purchase price of 25 million represents an implied trailing 12 month, even a multiple of approximately 2.1 times, excluding any potential impact from cost and revenue synergies. The agreement with season, he chooses structured as an asset purchase covering certain assets of valley.
And the property on which they are operator.
As part of this acquisition, we will also acquire the license to build out of sports book.
Launch online sports betting and I'd game, which we believe will provide nice upside for the existing cash flows from a property.
Executive team collectively has had many years of experience in that market. We believe our current model fits very well.
Being able to acquire Bally's center of the Boardwalk location was also incredibly attractive to us.
We know that all three of these assets have been well maintained that do not require any material deferred maintenance capex or any short term significant capital investment.
We do expect to refurbish 700, or so on the grounds that bally's, which will be phased over three year period does not expect to require significant capital investment tool.
Along with our previously announced acquisitions of Kansas City Vicksburg, We believe that the addition of these five contracted properties will meaningfully enhance or financial profile, while strengthening our president and a number of key geographic markets.
See significant opportunities to create cross marketing for customers multiple twin river locations.
We believe all these assets are great fit to our portfolio are eager to apply are proven operating and integration approach to drive incremental revenues and cash flows.
We're currently working diligently through the regulatory process, including obtaining the required approvals from the FTC respective state jurisdictions and note that Kansas City in Vicksburg acquisitions remain on track to close in Q2, 2020, Andy Missouri regulatory approval, we expect the.
She will close in late 2020.
Freeport month Blue are likely to close in the first half of 2021. We're currently on the agenda for the next Gaming Commission meeting in Missouri later, this month and expect to close on that transaction soon after.
I'm extremely excited about our M&A successes and what they will mean for the company going forward within the next 12 months, we will be operating five additional properties, which we collectively acquired at five times.
I'll now turn it over to Steve to provide an update on our recent financing liquidity Steve.
Thank you George.
As George mentioned this past Monday, we closed on our new 275 million dollar term loan b that financing satisfied the financing contingency under twin River previously announced agreement to acquire this report and month Blue assets from Eldorado resorts as the regulatory approval process for these transactions will take some time the company.
He did repay all $250 million of revolving credit borrowings under the bank credit facility.
However that revolver will be available for future borrowings in accordance with the credit agreement.
Borrowings under the increase terminal facility will bear interest at LIBOR, plus 8% per annum.
Through the 2026 maturity date.
Well, let me let me make a couple of comments about our abadi up the Covenant Amendment that we are successfully.
Hey executed very recently.
First of all we were in compliance with our leverage covenant through the March 31st 2020 quarter.
Nonetheless on April 24th and prior to the new financing. We also announced that we had worked with our lenders to amend the financial covenants, you financial Covenant I should say and certain other terms on the company's bank credit facility to provide financial covenant relief from the effects of the cold with 19 pandemic.
The company need no longer complied with the maximum total net leverage ratio covenant applicable under the bank credit facility, but instead must comply with a minimum liquidity covenant measured at the last day of each month during their belief period.
In essence, the company will be required to have unrestricted cash on hand at the end of each month in the following amounts we need $75 million of of liquidity at April Thirtyth, which we had.
$65 million at the end of June $55 million at the end of July and $50 million, even at the end of each month thereafter through the Covenant relief period, which is March 31st of 2021.
Following the leverage ratio covenant relief period leverage ratio, which is essentially net debt divided by trailing 12 treat a 12 month or L. LTM EBITDA.
6.250.
For that quarter at March 31st 2021.
Six times at June 30, about your 5.75 and as of September and then five and a half as of December 31st 2021, and five times thereafter, which brings it back into conformance with the original terms of the credit agreement.
And by the way in that in those calculations. There is a calendarization effect. If you will they pro rata effect on most most recent of cash flows.
This will be annualized for purposes of that measurement. So it's a very cut commonsensical Oh I'm in for US we believe the optimal and interest rate on credit facility borrowings will be LIBOR, plus 275 for the entirety of the leverage ratio Covenant period through March 31st in 2021, Let me turn to a key.
Cash balances liquidity and our expense burn rate.
Cash on balance sheet at the end of March 30, Onest 2020 was $361 million.
Pro forma for the addition of the 275 million dollar financing.
Concurrent repayment of the full $250 million balance on our revolver and factoring in the fees and expenses.
We had cash of more than $370 million together with the availability of the 250 million dollar.
Under the under the revolver for total liquidity of more than $620 million and we have no substantial debt maturities before 2024.
Even pro forma for the effect of all five of the contracted acquisitions, our liquidity, including availability under the revolver.
He is in excess of $210 million.
As George will discuss in a few minutes, we've taken steps to manage our expenses. We have used the March April period to both position to reopen and prepare for the possibility of a lockdown mode of reducing costs to the bare minimum.
If the situation dictates that we moved to lock down or phase two was we refer to it perhaps in the June or July timeframe, assuming we do not see a path toward opening on the horizon, we expect to produce our monthly opex cash burn rate to approximately $3 million.
That will position us to endure a prolonged shutdown given our current liquidity position in excess of 18 months, including funding all five acquisitions and debt service costs.
Based on our current cash requirements and ability to endure a phase two extended shutdown scenario, our cash balances provide us sufficient resources. During these challenging times in terms of Capex all major capital projects have been suspended and we have greatly reduced our expected capex spend for the remainder of the year depending on the timing.
Of our facilities reopening.
We are definitely still committed to moving forward with our proposed Capex in Kansas City for approximately $40 million as we think the project there will greatly enhance the property and guest experience to drive growth and a very nice return on investment however, with the timing of the close and the need for required approvals. This capex spend is largely a 2021 event.
We also have talked about capex related to the proposed BLT contract and joint venture with AG tea, which would include an expansion to our flagship property in Lincoln Mark will provide an update regarding isn't a few minutes, but again that is subject to living legislation being approved.
On taxes, we expect there are certain aspects of the cares act, we will be able to benefit from these include but are not limited to utilization of any will carry backs as well as some additional interest deductions. We think these combined with refunds owed could result in positive cash flow as of as much as 15.
$20 million, perhaps even somewhat more into next year or so.
On the subject of a return of capital program.
Under the program, we purchased approximately 1.6 million shares for a total investment.
$30 million during the quarter, which is just under $19 per share as a result, our current shares outstanding or 30.4 million, which has reduced from a total of approximately 41.1 million shares. When we went public in March of 2019, that's down a full 26%.
Since those repurchases and that's a condition of the amendment, we signed two our credit facility, we have halted spending under our capital return program, including share repurchases and the payment of a quarterly dividend.
On the subject of guidance.
As we noted in our release this morning, given the uncertain impacted the covert 19 pandemic. We are withdrawing our 2020 full year guidance provided on March 3rd 2020, and will not be providing for the guidance at this time.
But I'll finish in reiterating comments by George earlier within the next 12 months will be operating five properties not previously reflected in our historical financial results remember, we're acquiring all five of these for an average purchase multiples of approximately five times, which reflects the most recent three acquisitions at a purchase multiple of 3.6 times.
Which actually is both highly accretive and de leveraging simultaneously. So we're very excited about the future prospects if the company.
With that George I'll turn it back to you.
Thanks, Steve.
So turning your attention back to the quarter, while the mandate a closure over properties was necessary part of the broader effort to stop the spread of cobot My team.
The impact to our company or team members and our communities have been impactful.
With a pandemic began in March.
The company was on track to report strong first quarter results opening the year two consecutive months of solid year over year revenue and adjusted EBITDA growth across all but one of our properties the level of which exceeded our internal expectations.
Through February overall revenues for the company were up $17.1 million were 23% adjusted EBITDA was up $2 million or 8% compared to the same period 2019.
This included strong start to the you're at Bloxom, which saw revenue and adjusted EBITDA increased as a 13% and 35% in the first two months of your respectively.
As well as dividend with increased as a 15% and 66% year over year, respectively.
Which continued to ramp and showed market resilience in the face competition finally, Dover contributed $17.3 million or revenue and $3.8 million of adjusted EBITDA in the first two months a continuation of the success story there.
We also closed on our acquisition of Mardi Gras Golden Gate in Golden Goce casinos and Blackhawk in late January These transactions were immediately accretive generating positive EBITDA in February in line with our expectations.
And we integrated those properties in the first month of operations. In addition, or May for sports betting included online and mobile went live in Colorado through or announced partnership with Draftkings and Fanduel.
We're excited about the opportunity look we're the opening or drafting sportsbook lounge inside the Mardi Gras later this year.
The only property did not record year over year increases to revenue and adjusted EBITDA in the first two months of year was twin River in Lincoln, which will not lap the year over year impact of new competition or reagent until late in Q2.
However, this story there was one of the stabilization and recovery as on a GAAP pieces gaming revenue for the first two months at Lincoln was down 21% year over year slot volume's down only approximately 1%.
Factoring into gaming revenue contributed in total gaming revenue for Rhode Island was down approximately 15% in the first two months, while our slot volumes were actually up approximately 3.6% year over year.
Upon the Kubat 19 closure twin River is that we handling the storm or the new 2.6 billion dollar onboard casino that opened in June 2019.
Wind River was continuing to outperform market expectations in the fourth quarter 2019, and more importantly profitability through the first two months of this year, we're exceeding not only the performance for the fourth quarter 2019, what our expectations of the first quarter 2020.
With the $8.6 million of adjusted EBITDA in the March.
February representing the strongest month of operating contribution at Lincoln Since Encore open and we believe we were on track to exceed a recovery expectations.
As expected performance deteriorated dramatically in March as a result, with the closing of all our properties mid month as a result with total Q1 consolidated adjusted EBITDA was down just under 50% to $22 million.
Rhode Island down, 53%, Lexsi down 42% compared to the prior year.
Offset by the full quarter impacted Dover and partial quarter of Black Hawk, which were acquired in late Q1, 2019 and current quarter respectively.
Response to the shutdowns, we've taken broad based actions to reduce expenses and also enhance liquidity is seen just mentioned.
Beginning with our key members the crisis has forced us to make some difficult decisions by for the most difficult was placing most of our team members on for low.
Care deeply about the well being and her team members and we recognize the impact that these furloughs.
I've had on those affected and while we can't possibly mitigate the full impact to them. We have sought to provide continued support in the form of ongoing health benefits coverage at no cost. We also establish a fund to provide financial assistance. So those employees experiencing significant margin.
We hope to bring these employees back to soon as possible and as Mark will speak more detail in a few minutes. We are actively preparing to do so.
When we do protecting health safety and her team members and customers will be our utmost priority and the safety protocols, we put into place will meet or exceed the standards set forth by local state and federal health officials.
Those team members, who have remained on the job throughout these closures. Thank you for your hard work and keeping your property safe and secure dedication and efforts have positioned us to open quickly when the time comes.
As we look forward and prepare for a return to business. We believe we will benefit from our status as a regional gaming company that is largely focused on local and regional visitation. The majority of our business comes primarily from local customers were not reliant on airlift destination or convention businesses to drive results.
As operations resumed we believe our local customer base will position well within our industry.
Well. These are certainly unprecedented times, we know that they will come through and then we will look forward to the start of the recovery.
One by product of the current environment was a heightened focus on cost control and the potential to leverage the experience gains. We this experience to better manage costs in the future.
Would you think will help us improve margins and profitability long term.
No barely slightly by property, we estimate that property level EBITDA will break even 30% to 36% of prior year revenues should be noted that even socially distance. We believe we can achieve 65% of prior years revenues after an adjustment period based on occupancy.
I will now I'll turn it over to mark to discuss a bit more detail some thoughts and updates on reopening efforts mark.
Thanks, George I wanted to reiterate that I hope everyone is safe and healthy as we think about reopening consumer confidence is going to be the key to economic recovery and thoughtful reopening strategies are going to be crucial to success for us in the short term and the long term.
We have been laser focused in hard at work on this and while it will vary slightly from state to state. Let me briefly outline our thinking about the question of how we reopened using Rhode Island as the example.
In Rhode Island Governor Rolando stay at home order expire this past Friday and the state has begun the process of reopening its economy in a smart in measured fashion. It has not yet been determined when state will authorized us to reopen the casinos. However, beginning almost from the moment we closed the properties. We started working on a detailed comprehensive reopening play.
We've been working very closely with state and local government officials public health officials and experts and epidemiology and biosafety to develop a phased approach to reopening with a set of protocols that will help deliver a safe environment for everyone. We cannot emphasize enough how focused we are on the safety of our team members and our guest.
The plan is likely to include among other things screening of team members and guest upon interest on the properties potential use of thermal imaging cameras enforcement of social distancing guidelines, including spacing between VLP and limited or no table games to start.
Frequent claiming incentivizing protocols for all areas not protection and public awareness signage.
The plan is also likely to rollout in several phases with the first phase designed to opened with more significant restrictions and limitations, including limited hours fewer gaming options and reduced amenities overtime as experience and broader environmental factors in the state improve the expectation is that some of the restrictions and limitations will be.
Relapsed and more options will be made available for our guests again in a smart and measured fashion.
We will continue to be driven by data by science and by public health guidelines as we evaluate and evolve our operating practices and guest interactions and we remain focused on prioritizing long term outcomes over short term considerations.
As for the timing of reopening it will ultimately depend on decisions made by government officials consulting with public health authorities and industrial company Representatives. We are preparing to open our properties in phases as soon as we are allowed to reopen.
At this point it would appear our hard rock Biloxi property is closest to reopening and we expect that to occur very soon potentially as early as next week.
We are optimistic that openings at our other properties will follow shortly with both Rhode Island, and Delaware potentially opening within the next month.
It also appears that Missouri may join Mississippi, and opening next week as George mentioned about Kansas City. We are scheduled for our regulatory approval hearing later this month potentially positioning us to close on the Kansas City and Vicksburg acquisition in June.
Well it is impossible to predict and the situation remains somewhat fluid. We may have as many as six casinos open in Mississippi, Missouri, Rhode Island, and Delaware by mid to late June if not sooner.
None of this is finally determined however, and it is subject to change and depending on a myriad of factors, including the health and safety of our team members and customers, which will remain a paramount importance.
I also wanted to provide an update on the status of the IBT Twin River joint venture as we discussed on our last quarterly call. The new contracts in amendments with the state require authorizing legislation that legislation was introduced by leadership of the house and Senate in February and March 11th and Twelveth, Rhode Island House incentive.
Finance Committee conducted hearings on the proposed legislation.
Media only after those hearings, Rhode Island suspended legislative activity due to the cobot 19 crisis thrown around the legislature has resumed some level of activity, while being careful about the health and safety of everyone involved we remain hopeful that the legislature will address this legislation during this session, but we cannot make any prediction about whether that will occur immune.
It does we remain committed to proceeding with the expansion of twin River in Lincoln as soon as we can complete the design and receive all necessary permits and approvals. Our expectation is that all material provisions are as previously described although the date that twin River is able to assume management of a portion of the VLP piece on the floor may be delayed.
From July one of this year until honor before October one given the current circumstances.
It should be no impact however, on the timing of the joint venture with RG tea, which we expect will remain as January one twentytwenty too we will provide a further update on all of this as it develops I'll now return it to you George Thank you.
Well. Thank you Mark. So this concludes the prepared remark section of the call ill now ask the operator open it up to your questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
Withdraw your question. Please press the pound how sticky.
Our first question today comes from Barry Jonas from Suntrust. Please go ahead.
Hey, guys good morning.
So just to start we've seen some really encouraging anecdotes from the first few tribal reopening so far that really point to pent up demand. It's too early to think that could be the case properties and with that how should we think about.
Reduced gaming supplies impact revenues.
Hey, Barry This is a this is george so yeah, we've been encouraged by the.
Results of the first six tribal casinos that of open.
Yeah, certainly appears to be some pent up demand there are now they've been operating at 50% capacity.
Indications that we're getting from where regulators as it relates to Mississippi should be around 50% and from Rhode Island, Although we have 40.
40% of our gaming positions that will be able to utilize that that effectively equates to about 65%.
Of the positions that are utilized at any period of time. So we feel comfortable about that so we think there do we think theres going to be some pent up demand.
We think the openings will be limited from an amenity perspective.
So you'll be getting more of a pure gamer that comes to the facility.
I've been obviously reading up a lot when everything that's been occurring in that it appears like a game or is a risk taker and a that bodes well for us and certainly makes sense. So it's it's to be seen would happen, but we're prepared for all scenarios.
We can certainly going at any level of detail from are phased in perspective as it relates that we're encouraged by the initial results would be field because we're in a regional market you'll have the upper hand as opposed to being in a a resort where an area that requires any like airlift transportation.
Great. That's really helpful. And then look the northeast saw somewhat aggressive promotional environment.
Current admire started.
I think the environment.
Upon reopening.
Northeast and I guess across all your properties.
<unk>.
So listen we we instituted a communication plan immediately after closing that focus on all our customers.
With special attention to our top 20% effectively to responsible for about 80% of a business depending on the property. So we have been continue to communicate the email.
We placed updates on our web sites, where regularly a player development has been very active contacting it's 20% group for the most part.
And as usual normal methods like by phone email for example, certainly to tech so.
You know, we feel we feel encouraged that.
They've been very responsive to our or outreach communication that we feel that they're going to be.
I'm excited about returning we've provided all levels.
Obama scenarios, we're communicating a mill either traditionally electronically.
No. So we're going to be opening in phases in Rhode Island. Initially I talked about that on last question. So we're cautious about oh the levels of staffing initially and we're going to be scheduling staffing to volumes as we experience or whatever the reaction from the customers you're going to date.
Sorry, just just I guess, what I'm getting at is do you think.
See more aggressive.
More aggressive promotional environment out of the gate here that could impact to margins as everybody just gonna be hyper focused on cost no I can you try to <unk>.
So yeah, it's going to be it's going to be a little bit of a wait and see I don't think anybody going to come out to get aggressively.
As it relates to a regular regulatory bodies, they seem to be very cautious about going aggressively after a high promotional activity.
They're concerned about.
Getting too much of a response, where where you're you're a interrupting any of the physical distancing requirements that they have so we're going to open a little bit more cautious which is in line with the fact that they're only allowing us open at a percentage of capacity.
And in some cases, not even with restaurants, depending on the jurisdiction. So we're not going to be aggressive.
Certainly ready we have all types of programs that are shell and and ready to go so.
Ryan approaches.
And yeah, we're going to react based on that yet the initial responses. So it's a little bit more of a wait and see initially not to put any additional burden or concern on the the department of health and each of the markets.
Got it and then last one from me.
Okay about capital allocation once the credit release period ends specifically should we expect the dividends or E commence or maybe the focus potentially more higher ROI M&A, just just any color there would be helpful.
Steve when you take that.
Yeah sure a very good morning, thanks to the questions. This morning.
Yeah listen we.
<unk>.
Endeavor to exercise a balanced approach to capital allocation from from day one.
Particularly as a public company from last year, well, we'll continue to continue that going forward. So the you know the split between Capex and capital return.
Buybacks or dividends and M&A cash for that is all of the goal of balancing act, but the.
Unilateral Oh singular concept that weve that we'd look to move forward is is accretive investment and so if you know if the stock price is X and the M&A opportunity is why have you know the Capex is a is a Z return.
We look at X y and Z and make decisions.
According to accretive opportunity and strategic.
That's true.
Dick initiative, so not a question that I think we can answer specifically today other than will be will be guided bye bye.
By that kind of.
Analytical.
Exercise for sure.
Great. Thanks, so much guys.
Thanks Barry.
Our next question comes from Brad player from Stifel. Please go ahead.
Hey, guys. Thanks for all the color thus far this morning very helpful. First question.
Just around the the Bally's acquisition I know, it's it's a small number on face, but I know, it's a market where a lot of folks on this call spent a lot of time over the years. So George if you could just help.
You know provides some additional color around how you're thinking about that deal not only in the near term, but sort of a longer term. It's so what that could be concrete you guys that would that'd be helpful.
Sure Brett how you doing so isn't.
As far as the.
Rationale the pre covert 19, the market as was the stabilized $3 billion market, leading I gaming.
This acquisition, which were excited about certainly allows us entry into what I consider to be profitable, New Jersey, I gaming market as well as providing we're sportsbook licenses. So you know the locations that are the boardwalk seems very heavy summer traffic.
It's been well maintained its really the for Capex or as we stated earlier will be implementing a rooms refurbishment program.
To address some data rooms over the next several years, but.
Another point about the screaming is about this agreement was that we were able to negotiate with Caesars that they would retain the and found unfunded liability under the existing multiemployer pension plan.
With the unions their local 50, we're has allowed us to enter into a new adjusted pension plan as a couple other facilities in the market that also under this new adjusted pension plans, but that effectively has no historical unfunded balance so that was a nice concession and that was a direct benefit to us. So we feel side from a.
Recapturing lost market share and which was really was orchestrated over the last few years by Caesars.
Really purely to benefit its sister properties. So we feel we can capitalize one to recapture that based on the way we aggressively marketed and we're not a three to compete also there's 80000 square feet convention and meeting space that facility and that's effectively one of the largest and in a c. So that allows us some.
Drew opportunity to you know to get some through traffic or into the into the facility. So you know it's historically, it's LTM somewhere in the.
$12 million, you, but at a rate well, we think that there's an opportunity.
It's probably that almost up to 100% gain over the next three years.
That's helpful and then.
The spectrum Optblue, it's obviously, a a smaller assets I think there's some chatter in the market that is potential expansion opportunities around that asset I guess can you provide us some some additional color around your rationale to acquire that asset given its size and sort of how it fits into the portfolio and any thoughts around.
Again sort of long term opportunities there.
Sure. Brian This is a beautiful property recently went through with $25 million renovation.
We feel weekend or establish that property, which would be beneficial to us as a destination property for customer base.
You know, who we can cross market too and this provides considerable incentive for you know we consider to be our most loyal customers and no other than Biloxi, we really didnt have an opportunity to do that so we think that will be a direct benefit to our database, we see opportunity in a again and capture not only lost market share, but but oh look.
Our market share.
Recently, there was an announcement of one of the five facilities that that's in Tahoe that close in that effectively surface the local market.
We are I think we were the second second market or to a local market behind this facility. So again there is some potential upside there that that's not going to be open post kogut 19.
We also feel were direct beneficiary of the recent city approved Convention center as that is literally bill perimeter of our site. So yeah. We're gonna we're going to see if that comes to fruition.
If it does.
There is some opportunities to do some project capex it would be complementary to that.
Okay, and then lastly, just kind of a a bigger picture question around you know sort of some of the fallout from from co bid yourselves and others have talked enough about.
How the shutdown has allowed you to really honing in on the operation and find some inefficiencies within the business potentially offset any incremental cost related directly to enhance sanitation would have you can you provide us any additional color or granularity around any of these efficiencies that youve uncovered.
Thus far I think that would be helpful. Thanks [noise].
Yes so.
So anytime you have something like this you pick and time when your hands effectively from an operational perspective, you have an opportunity to try to go back and looked just how you Oh you write things versus how you would have to run things and of course is so isn't really do seem to be some initial cost.
Certainly more initial costs associated with a sanitizing throughout the facility as well as other other product is gonna be required for example, face masks and potentially gloves Oh, there's some other physical barriers that needs to be construction. So you put that saw.
Cost of side subsequent to the Togut 19 crisis once they find whether it's a therapeutic where a oh, we're a a vaccine.
Then we then you get into the kind of how you see you ran your operation and a lot of that.
Does evolve around levels of staffing that your that you're providing based on volume so.
Certainly some opportunities there as you.
Find out you can run a little bit more efficiently I.
I think it art case, though we've always been a very efficient fishing operation so from a a from a variable perspective.
There will be phone I don't know, we could overstate the amount of that we'll certainly learn more as we go through the phasing for a process, but we do find from a fixed perspective, there is opportunities as well. So we think overall, there's going to be passed at the margins. We saw this unfortunate exercise.
Thanks, guys very helpful.
Our next question.
Our next question comes from John degree from Union Gaming. Please go ahead.
Good morning, everybody. Thanks for taking my questions.
Q for me one on that the acquisitions and then one housekeeping fighting for out for Steve on the liquidity.
I guess first as it relates to treat port Admob Blue, obviously that the valuation you guys had was quite attractive given the environment, but that meet these assets where for sale.
Well months ago curious if you had look at the men and then kind of what you know other than that they kind of valuation what different lands that you kind of C.
These buildings this time around a relative to last time, if you did take a look last time.
Yes, so we.
We did we did take a look as you.
Aside from the fact that the properties in our opinion each brought something unique to our portfolio.
These were opportunities are presented to us at different times in 2019, so well we were familiar with them.
We had an opportunity to do a fair amount of due diligence at the time.
We did pass on them.
At the time, where specifically.
Hi, Raj report so they were already on our radar when the and the opportunity arose again, we negotiated the good price and.
And.
And we felt comfortable with though.
The opportunity.
Got it okay.
Okay, and then maybe for Steve.
Just wanted to clarify your comments about liquidity and cash need from your prepared remarks, I think I heard you did the cash need would be about 3 million.
A month and I think that was if you had to take additional mitigation measures clarify that and then if so what's up if you could give us some colors to what the the kind of cash need is before you take any additional mitigation measures.
Yeah, John so.
You know harkening back to the original press release, we made about liquidity in light of the co bid.
Mandated shutdown of all of our properties.
We had mentioned we.
Intended to adopt kind of a phase one phase two approach in phase, one, which frankly, we're still in to we're still in today kind of a modified version of that.
Was focused on.
Two things maintaining a posture for reopening.
Quickly and efficiently.
In the event that that would happen in the near term.
That's as Mark as Mark commented that certainly seems to be the case.
But if that.
We're not to be the case in phase two we would flip to which was a defensive kind of a cold call at lucky locked down or or multiple types of mode, where we would.
Eliminate I should say.
Furloughs.
Any.
Any and all the employees.
Not otherwise necessary to maintain the properties will maintain.
Our corporate.
Great and Binbin and presence.
And so that would be a very kind of draconian scenario, we would have maybe maybe oh.
A handful of employees per property, including just a couple of.
Of salaried staff ins and facilities security surveillance, just bare minimum per property.
And at corporate we'd we'd cut way way back and would maintain a reporting.
Requirements.
And overall kind of strategic initiatives staff and the like would it be.
Bare minimum strategy and and that's the basis that second phase that phase II based on which we we could pair our opex back 3 million bear in mind, John That's that's Opex. So that's that's property in corporate.
On a monthly basis.
But no debt service costs than some of the lumpy stuff is in addition to that so property tax payments you know in insurance payments are kind of lumpy and and separate from that so.
There are two buckets of costs and.
The three millions is the monthly opex.
But.
To your question. So we're running we're running it.
You know seven $8 million today on that out Opex number and we could take that down by more than half to 3 million if we needed to.
And that was the basis for my comments when you take that number and if you were to average out the other lumpy cost debt service and then you up as I mentioned.
That we have even in even in the context of funding for cash all in all five acquisitions over the next six to nine months, we'd have in excess of 18 months of liquidity in this environment in a phase two lock down type of mode.
Oh, great that answers my question, Steve Thanks for the additional clarity as to get good luck on a quick and say free opening up the property. Thanks George.
Thank you Don Thank you very much.
Our next question comes from Lance Vitanza from Cowen. Please go ahead.
Hi, guys. Thanks for taking the questions and congratulations on all of the announced M&A.
I actually I guess I wanted to sort it asked two questions. The first is with respect to.
Profitability levels in margins and so forth as the casinos begin to reopen.
And then I had another question about the ballerinas acquisition in particular, but with respect to first question you know at 50% capacity, let's just say can you turn an operating profit Kim Your service. Your debt is there a sort of a breakeven percentage that you need to kind of have going through the casinos.
Even either you know achieve operating profit or to be free cash flow positive and and just how more generally how do you see this recovery. This discovery playing out versus what you saw coming out of a great recession, I mean, I gather it's going to be different but in what ways to think it'll be better or worse for operators like twin River.
So uptick of I'll pick piece of this Steve you want to.
Add onto the first part of the question and then we can get into the second part of question, but at the first part of the question are we think somewhere in a 55% to 60% of.
Historical revenues gets us to breakeven.
With all debt service included a this is a pre pre a pro forma of the new assets.
But based on our existing operations existing levels of debt and.
Give me example of you asked a question about profitability. If we use twin River for example, we get the 50% of historical.
Historical revenues, we'd be doing or close to 3 million EBITDA as result of that.
Okay.
Super helpful.
Second question was.
Well you know what do you see any major differences in terms of how this recovery plays out and as as Gamblers returns are the casinos does this I mean is there any kind of.
So I was too you know.
Who would come back first and what sort of impact that may have on your ability to get back to profitability.
Yes, George George I'll take a swipe and then you can.
And as well.
No land site.
I think the fundamental differences.
Maybe I don't want to see this was too much.
[noise] pretend like this there's too much definition to this but the you know the state of the state of the consumer is probably the biggest difference that I think we see from the OE financial crisis to today, but what I mean is.
You know back then in the oil we don't nine context.
The consumer with was you know the consumers really beat up unemployment was was it was very high discretionary income was except for color of that obviously and we'd come off a strong bull market and we were in a serious.
Trough that we that we all look around and new was going to take what's going to take years to dig out you know this one just when we think.
That could be very different from that not in a sense that we were just kind of.
You know gallantly, declaring a V shaped recovery and he's going to be great, but rather that you know with with the with the governmental support.
Of small businesses and furloughed or.
We are unemployed.
Workers.
There's been a tremendous amount of liquidity provided to the system.
And.
You know, where we're filling the context of they have a.
The pre cobot bull market.
We would it was it was raging pretty pretty well at that time. So we think a combination of of a potential for a kind of a U shaped.
Recovery the.
Overall American spirit to kind of break out of our filter in place.
Shackles, if you will.
And.
And then begin at beginning new too too to get out and rebuild together with the massive amount of liquidity provided by the various federal agencies. We think we think this could be different.
And at some of the initial results that George touched on earlier about casino reopening. We think are perhaps evidence that that that may be the case for us.
Thanks, So just okay.
To that you know kind of occurs which these saying if you recall.
Regional markets after the recession, they bounced back pretty quickly obviously there were declines in 2008 2009, but by 2010 they were at a pre recession levels and grew from there.
We also we think that incurred an encouraging point to us, which I think I mentioned earlier is that our properties are markets, where the customer.
Local market. So we're really regional operator at this point or customer comes within 20 to 30 minutes distance from a drive time perspective, certainly no airlift.
Required to get through our properties and we don't rely on convention and meeting business as well. So we have an opportunity really relates to track the where the.
Pure gamer.
Thank you and I just lastly from me some the Bally's acquisition and I appreciate the comment about none of these acquisitions, having deferred capex needs, but I would think that you don't see theres never put a lot of money. We recently had some put much money that property I would think would be an opportunity should you want to avail yourself of it.
To to put some money into that property at whether its upgrading you know you know or updating rather or what have you do you.
But it doesn't sound like that sort of on the agenda instead of the near term am I getting that Ray and I'm, just wondering and then more broadly.
What are you seeing geared at Caesars Eldorado didn't see.
Makes you think you can read the property more effectively or was this just simply an opportunistic situation, where those guys had to sell the property to get their deal close.
So don't.
And I made the point that we have a lot of Atlantic city market gaming experience within or the ranks of our company Oh I certainly was there around resorts Oh, even though dating myself in the early two thousands.
So there certainly is potential there the location was very appealing to us we're excited about that but we also took into consideration. The fact that we get a sports book license and we also have an opportunity to get into I gaming will be the first market or company is involved in outside the Delaware and Delaware.
Really not set up appropriately so lannach cities much better model for gaming. So we're excited about that I had mentioned that we would be putting money into the refurbishment of a 700 rooms, others 1200, there's a little over 12 or was there something on 700 of them or little data.
We'll be we'll go back in and do a refurbishment on that over the next few years, we will absolutely be looking to introduce brands to to that market. We've done that quite successfully and hard rock, we run our way to doings in Delaware.
We've done that in other markets.
See opportunity in potential there they have a great location in front of valleys, which is a summer summer bar a beach bar area I think it's the most profitable Atlantic City, we have an opportunity to capitalize on that one of the biggest areas and convention business.
Were they sell 80000 square feet. It's one of the largest in Atlantic City on and also actually larger than Caesars and what they've been doing over the last several years.
Is moving a lot of the business to the sister properties, which are primarily Caesars and ER and Howard So they bought some market share that we feel we believe we capture so there could be some capex going into the convention side of the business.
I will leave more time to evaluate that the other thing. That's that's interesting is you know they eldorado is a they're not they're not.
Secretive about it they are a an operation that goes in looks for efficiencies due that quite well, but what they do as they do sacrifice market share as result of that so we're not afraid to compete and competitive markets.
We think that we're more aggressive or in a more profitable way were targeted profitable way than other operators. So we think that's an opportunity that market share has been taken away. Because we you know we do we do acquired asset with the existing database Ah that's very helpful.
Able to market too. So you know well be looking introduced brands, which we think the accretive to the property and ER and also we'll be looking to reintroduce customers that have been there.
Thanks, guys.
Thank you last.
This concludes the came in a portion of our call I'd like to turn it back to Georgia sang for final comments.
Well, Oh I want to thank you operator, and I wanted to thank you all for joining our call today. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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