Thunderbird Q&A Mar-03|
With the shareholders' meetings in Vancouver for Jack Mitchell and I and myself in Montreal, we have faced a lot of questions in the past two
weeks. I'll try to relay the essence of the meetings, and the written questions I've received by e-mail.
1) Is the March 7th vote on Proposition 1A in California going to be a key date for the stock?
[Alex Winch] There is a soft link between news and share price. Sometimes we issue a positive release and the share price doesn't react at all. So what will happen to the stock is outside of my knowledge.
Fundamentally, passage of Proposition 1A, which we expect, is important to the company, but it is not critical. Over the past six months since the California legislature approved the constitutional amendment permitting native casinos subject to the referendum and state compacts, we have seen intense interest by well-financed companies seeking to partner with tribes for new or expanded gaming facilities. We have been engaged in several negotiations. Two of these are in the process of negotiation through final documentation in follow-up to non-binding letters of intent.
The negotiations we were unsuccessful in winning saw the "winner" commit to a casino more than three times larger than we believed was justified by the market. We don't think the "winner" won.
We have announced a deal with the Campo tribe which is conditional on 1A passage and execution of final documents. Given the intense competition for these deals, and the short duration (five years) imposed by the Indian Gaming Act, these projects are not as attractive, nor as important, as our projects in Central and South America on a revenue or EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) basis.
2) You announced the market study on your first Venezuelan project indicates revenue potential of U$12.8 million per year. What will Thunderbird report to its shareholders? [Alex Winch] We will report 40% of the revenues and earnings as our equity interest in the project is 40%. What will you earn on this project? [Alex Winch] Oh, crystal ball, bless me with perfect insight. Based on our experience in Panama and Guatemala, and our assessment of the market size and conditions in the City of Guayana, and our third-party market studies, we believe an EBITDA margin of 40% is achievable. What will this project do for the share price? [Alex Winch] Again, I would point out the soft link between fundamental developments and share price. Fundamentally, 40% of 40% of $12.8 million is incremental EBITDA of US$2
million or roughly CDN$3 million or incremental EBITDA of CDN$0.13 per share. In the first nine months of 1999, we reported EBITDA of CDN$0.15 which reasonably suggests an annual run rate of EBITDA of CDN$0.20. Before we announced the Guayana market size studies, the shares were trading at CDN$1.00, or five times EBITDA. If this Price/EBITDA ratio is maintained, an incremental CDN$0.13 of EBITDA is worth CDN$0.65 per share in share price. [Albert Atallah] The information that is being shared here is based on numerous contingencies not the least of which is whether we could duplicate our experience in Panama through a new operation in Venezuela. We urge you to conduct your own analysis as you should not rely on the analysis set forth in these answers.
3) What is happening with your other Venezuelan projects? Are they larger or smaller than your first?[Alex Winch] We are moving to finalizing documentation on one of the remaining three. This project would be of comparable size to the project in the City of Guayana. The remaing two
are conditional on a modification to the regulatory landscape, which we understand is under discussion within the government. Each of these latter two projects would be larger than either of the first two, though the timing is uncertain.
4) What's happening in Panama? [Alex Winch] Our renovations have been well received as evidenced by increased revenues and profitability in the first two months of 2000.
5) What's happening in Guatemala? [Alex Winch] Our operation in Guatemala City continues to operate profitably.
7) What's happening in the signage business? [Alex Winch] We have consolidated casino and commercial signage under Scott Shultz, who has achieved good results in revenues and profitability in the commercial signage side in 1999. Early indications are that 2000 will be steadily
profitable in signage.
8) What's happening with the Shuffler? [Alex Winch] Dave Corbin's now focussed on this area. We continue to make progress with field trials
and have lengthening positive experiences with the product. This week, we have brought sub-distributors together for a training session on the Shuffler, and are optimistic this will invigorate unit sales. We are expecting to meet or exceed internal projections for 2000.
9) Where are you at with your internet strategy? [Alex Winch] We are moving quickly identifying software suppliers, media partners, server
locations, tax and regulatory issues, internal staffing requirements and global geographic areas of focus for our launch.
10) A shareholder posted his revenue, earnings and share price projections on a stock chat room. I engaged him to learn his assumptions behind his projections. He shared his assumptions with me, and I responded as follows:
[Alex Winch] I am interested in your assumptions and projections so I can know what someone, following our story closely, can guess our future looks like. Knowing what you think helps me to offer guidance in the Q&A's.
I'm not going to comment on your projections specifically. Internally, as we review where we are going to invest management time and financial resources, we have forecasts of where we think we will be. I would note that we are breaking new ground in a number of areas in our company. Your projections of modest growth in Guatemala and Panama are safe. When we review where we think we are going in Venezuela, California or the internet, we are setting up operations that didn't exist for us before. We rely on our own experience to make forecasts, and external experts to provide advise on market sizes.
We revise our forecasts frequently, as new information becomes known.
Because of the uncertainty as to size of our new markets, and the frequent internal revisions we make to projections, it would not serve the
corporation or shareholders to try to update the stock market every time we make a revised projection. Let's face reality, there's a lot of
judgement, and a fair amount of guesswork, when opening up a totally new market. Within our framework, we think we have a formula for success: set up a number of operations (Panama, Guatemala, Venezuela, California, Signage & Shuffler, internet), minimize the capital committed to each operation consistent with maximizing the opportunity so failure in any single venture doesn't threaten the corporation (Colorado), then recruit local partners to minimize political risk and source as much as possible of the required capital.
This formula provides us with significant operating leverage so that our balance sheet, and its resources, is not a constraint to our growth. We
are conscious of the constraint imposed by the availability of human talent, and are growing our strength in this area internally and through external hiring. Needless to say if we had huge depth of talent already, our expenses would be out of line with our current revenue.
I appreciate your observation that the stock seems to be gaining momentum in anticipation of a favourable outcome in California to the 1A vote. The stock's appreciation this week may be related to this, but I think more of the price-moving buying came from people who met Jack Mitchell in Vancouver February 18-20. Reading our thoughts and strategies in a Q&A is quite different from meeting the people responsible for the strategy and its implementation and seeing the excitement in our eyes. It is a coincidenece that we will be meeting on March 7th, the 1A vote day, in Toronto, and then flying to Zurich the next day to meet shareholders. It will be a busy week.
By passing on articles on California, I may have unwittingly added to the focus on California. California is important to us, and we are optimistic the vote will be favourable. It is unfortunate that I can not follow the Spanish press. Developments in Venezuela potentially will be even larger for the company, both in revenue and EBITDA terms.
Please note that the meetings that Jack & I are having with shareholders, which shareholders (and we have had an open invitation to any and all shareholders to attend these meetings), do not involve the disclosure of any non-public material information.
Some questions came in by e-mail in the past two weeks as well:
11) Please mail me a prospectus and tell me where I can buy shares.
[Alex Winch] We haven't issued a prospectus in several years as we have not sold securities recently. Old prospectuses do not reflect the current nature of our business in Central and South America, or the state of our business in California, so are not helpful. I would refer you to our web site where you will find our financial reports and press releases at thunderbirdgaming.com or the web site run by the Ontario Securities Commission at sedar.com (Securities Data Archiving and Retrieval). The shares trade only in Toronto. We voluntarily delisted from Vancouver last year as there was insignificant volume there. To our knowledge, there are no brokerage analysts or institutional money managers following our story.
12) Why are you doing these shareholder meetings in different cities, rather than using available technology to host a conference call or a web broadcast? [Alex Winch] We view our primary mission in investor relations is to serve our shareholders. That is, our existing shareholders, not the interest of investors who may, in the future, have an interest in acquiring or flipping shares. So we host Q&A's every two weeks, we tell all our shareholders in our quarterly report that we are doing this, we line up opportunities to meet management in person and we try to respond to requests for information.
The ground is shifting quickly for us. In November, I tried to interest shareholders in meeting Jack Mitchell in Toronto. I called all the major
brokerage houses where our stock is held, and invited brokers to come and hear our story. I invited as many of our sharholders as we could reach to come out. Three people, who are personal friends of mine, bothered to show up. The share price has since doubled. Now I face criticism that we held meetings in Vancouver first, giving them a week's head start on Montreal which has a week's head start on Toronto which has a day's head start on Zurich. On Wednesday March 1st, Jack Mitchell did an audio interview available on wallstreetreporter.com, which was available globally within an hour of the interview finishing. (To hear the interview, go to the wallstreet reporter web site, click on "Interviews", "A-Z arranged" then scroll down to International Thunderbird, then click on International Thunderbird to hear the approx. 30 minute interview in Real Audio)
I look forward to shareholders' suggestions of how we can do a better job of serving your interests. Please note that the meetings that Jack & I are having with shareholders (and we have had an open invitation to any and all shareholders to attend these meetings), do not involve the disclosure of any non-public material information.
13) How many shares are there, basic and fully diluted, outstanding?
[Alex Winch] There 23,159,000 basic and 27,719,590 fully diluted.
How many shares are in the float? [Alex Winch] This depends on definition. Management owns about 600,000 (all purchased in the market, there are no cheap "founders shares" held by current management). These shares are definitely out of the float. We are in touch with owners of over 18 million shares, but there are no voting or ownership trusts which would restrict these shares from trading freely. We think that investors who receive and read our communication are less likely to sell their shares than those who don't follow developments.
So these 18 million shares are somewhere between floating and non-floating. This leaves less than five million shares that, as far as we know, we are not in touch with, held by approximately 2700 individual owners. Each week, more investors contact the company and begin to receive our information.
On this front, it's amazing what a spike in the stock price does for people's interest.
14) When and where will the AGM be? [Alex Winch] First or second week of May, San
Diego California. We believe it will be May 9th, but that may still be subject to change.
A final note: There is still limited (about 10 spaces) seating for our March 7th meeting with Shareholders in Toronto. Please e-mail me if you would like to attend: 4:15pm, Toronto Stock Exchange Conference Center, Street Level, 2 First Canadian Place. Jack and I have about 4 unscheduled hours in Zurich, so if anyone would like to meet there on March 8th, please e-mail me.