Golden Entertainment, Inc. (NASDAQ:GDEN) Q3 2023 Earnings Call Transcript

Golden Entertainment, Inc. (NASDAQ:GDEN) Q3 2023 Earnings Call Transcript November 5, 2023

Operator: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Golden Entertainment Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal remarks. Please note, this call is being recorded today. Now, I’d like to turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead, sir.

Joe Jaffoni: Thank you very much, operator, and good afternoon, everyone. On the call today is Blake Sartini, the company’s Founder, Chairman and Chief Executive Officer; and Charles Protell, the company’s President and Chief Financial Officer. On today’s call, we will make forward-looking statements under the Safe Harbor provisions of the federal securities laws. Actual results may differ materially from those contemplated in these statements. Additional information concerning factors that could cause actual results to differ materially from these forward-looking statements is contained in today’s press release and our filings with the SEC. Except as required by law, we undertake no obligation to update these statements as a result of new information or otherwise.

During today’s call, we will also discuss non-GAAP financial measures in talking about our performance. You can find the reconciliation of GAAP financial measures in our press release, which is available on our website. We’ll start the call with Charles reviewing details of the third quarter results and a business update. Following that, Blake and Charles will take your questions. With that, I will turn the call over to Charles Protell. Charles, please go ahead.

Charles Protell: Thanks, Joe. For the third quarter, we generated revenue of $258 million and EBITDA of $53.2 million. When compared to last year, this quarter is missing almost $6 million in EBITDA from our Maryland property that we sold on July 25th and is also missing approximately $800,000 in EBITDA from our Montana distributed operations that we sold on September 13. In the quarter, we received $260 million from the sale of our Rocky Gap Casino Resort in Maryland and $109 million from the sale of our Montana distributed gaming business. The net proceeds from these transactions increased our liquidity by nearly $300 million, which allowed us to repay $175 million of our term loan that remained outstanding after our May refinancing, pay a special cash dividend of $2 per share in August and fund $9 million of stock buybacks in September.

Our previously announced sale of our Nevada distributed gaming business for $214 million plus cash remains on track to close around year-end, subject to regulatory approvals and will provide additional proceeds to enhance our capital structure and strategic flexibility. The sale of our Maryland Casino and distributed businesses accomplishes our goals of divesting noncore businesses at attractive valuations, increasing our financial and strategic flexibility and leaving us with a portfolio of owned casino assets and the largest gaming tavern footprint in Nevada. Moving to the results of our continuing operations. Revenue at our Nevada Casino Resorts increased 7%, while EBITDA improved 2%. Revenue for the STRAT was up 8% with EBITDA up 16%, reflecting improved occupancy, which led to higher F&B spend and gaming revenue at the property.

Occupancy increased to 75% for the quarter compared to 68% last year. We also completed the renovation of 537 rooms during the quarter and started on an additional 119 rooms that we finished in October. These room renovations created some disruption, which we estimate to be about $1 million of EBITDA for Q3. With our 1,300-room, casino pool, entertainment and restaurant renovations, we feel that the property is now well positioned to capitalize on the high traffic events like F1 and Super Bowl coming to Vegas over the coming quarters and beyond. In addition, Atomic Golf, a new $75 million golf entertainment complex behind the STRAT is on track to open in January, which will further drive visitation and spend at the property. In Laughlin, revenue was up 6%, supported by a more robust event calendar, while EBITDA declined 4%, reflecting higher labor and other operating costs, which we expect to moderate going forward.

During this quarter, we had more entertainment events that drove more revenue versus last year and our new bingo room at the Edgewater continues to have success at targeting local visitation from Arizona that has helped increase midweek business. Additionally, we are using third parties to bring new branded food outlets to our Laughlin properties, which will provide enhanced dining options for our guests, while preserving capital for us to redeploy in our core operations. Q3 revenue and EBITDA for Nevada locals casinos were in line with last year, continuing their stable performance year-to-date. Growth at our Las Vegas properties offset lower revenue and EBITDA at our Pahrump properties, which were largely impacted by summer monsoons that closed a major highway connecting to California through Death Valley.

The promotional environment for our locals properties remain stable and the strength of the Las Vegas economy continues to support a healthy and growing database of core customers. For our Nevada tavern operations, third quarter revenue was flat to last year, while EBITDA was down 9% as our tavern margins were more impacted by Nevada’s July minimum wage increase in our casinos. Despite increased costs, the tavern model continues to generate attractive ROIs for new builds and unit acquisitions. For the last eight taverns, we have built or bought, the average ROI is over 25%. We expect the growth of Las Vegas to support the expansion of our tavern portfolio and we anticipate closing on the purchase of four locations by the end of the year and two locations in Q1.

In addition, we have two signed development sites and a robust pipeline of potential future locations. Nevada third-party distributed revenue was down 9% compared to last year, while EBITDA decreased 23%. The Nevada third-party distributed operations has a strong pipeline of new locations, which will begin to replace the volume loss from certain chain store contracts we did not renew based on the future economics of these locations. Moving to our balance sheet. After using $175 million to repay our old term loan, our outstanding debt at the end of the quarter consisted primarily of a new $400 million first lien term loan and a $335 million of senior unsecured notes. At the end of the quarter, we also had full availability on our $240 million revolver and $296 million of cash on the balance sheet, which includes cash reserves of approximately $74 million for taxes and fees related to our recent divestitures.

After the quarter, we repurchased $49 million of our unsecured notes in the open market at par or less, reducing the outstanding balance to $286 million at the end of October. Given the strength of our balance sheet and the confidence in our future cash generation, we accelerated our return of capital initiatives in the quarter. We distributed $58 million to shareholders in the form of a $2 per share special dividend in August, and we repurchased approximately 252,000 shares for $9 million during our brief open window after closing our Montana distributed sale in September. We intend to be opportunistic with future buybacks and have $91 million remaining under our repurchase authorization. Our pro forma net leverage at the end of the quarter was 2.5x after adjusting for the sale of Rocky Gap and the Montana distributed business, which we anticipate being reduced to less than 2x after the close of the sale of our Nevada distributed business.

Our pro forma leverage obviously gives us a lot of flexibility to invest in our own assets, return capital to shareholders and take advantage of potential opportunities to grow our existing portfolio. With operations that range from local gaming taverns to a strip property, our company remains uniquely positioned to capture growth from the increasing visitor volume and population of Las Vegas. Our core portfolio remains stable and our rated customers are healthy as we look forward into Q4 and next year. Further, we believe our investment in STRAT will support improved results through higher occupancy and spend at the property with new amenities like Atomic Golf and the absence of construction disruption going forward. That concludes our prepared remarks.

Blake and I are now available for questions.

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Q&A Session

Operator: We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Jordan Bender with JMP. Please go ahead.

Jordan Bender: Great. Thanks for taking my question. Just looking at some of the market data, the driving data has been weak in the last couple of quarters, that might just be coming off the all-time highs. And this might pertain more the Laughlin, but are you guys seeing any weakness coming from that California customer that might be driving into the STRAT?

Blake Sartini: No. I would say we haven’t. I would say that maybe a bit of an untold story is there is significant disruption on I-15 right now, just south of the strip probably all the way through the state line, which I’m sure is dissuading some people. But in terms of material impact at our property driving, we have not seen that.

Jordan Bender: Okay. And then just for my follow-up, did you guys benefit any from the cyber hack in the quarter just picking up business at the STRAT?

Charles Protell: Yes. I mean I think we got a little spillover from that. But I mean, obviously, it’s not something that you want to see to anybody in the industry, but it was a little bit not material, maybe for a weekend or so.

Jordan Bender: Thank you.

Operator: The next question comes from Carlo Santarelli with Deutsche Bank. Please go ahead.

Carlo Santarelli: Hey, guys. Just in terms of, Charles, I know you talked a little bit about what you’re seeing kind of in the tavern business. I was wondering, just in general, what you’re seeing from the Las Vegas locals consumer. I know some of it is location driven and whatnot. But just in general, the temperature of the locals gaming patron at this stage?

Charles Protell: Yes. I mean for us, our local market is strong, like our properties are actually performing better than they did last Q3. We talked about a little bit of — we combine that with our Pahrump assets. So, there’s a little bit of weakness in Pahrump that was offset by the strength of our Vegas property. So, our database there is very healthy. And look, I think it’s the continued story and there’s still population migration to Vegas from California, that is not slowing down. The local employment rates are relatively high, unemployment is low. So, folks have more money in their pockets and that is translating into a healthy local economy, and we’re seeing it in our properties.

Carlo Santarelli: Great. Thank you. And then Charles, you also talked about obviously, leverage and position you’ll be in pro forma for the sale execution. As it pertains to kind of the M&A environment, you obviously — there’s clearly things happening. It’s not the easiest market, I would imagine, to get deals done on the buy side or the sell side. But can you maybe educate us a little bit on your thoughts around M&A at this stage?

Charles Protell: Yes. I mean I think if you look at our transactions, we got some good deals executed at attractive prices from a valuation standpoint. To us, I think given where interest rates are, that makes the environment a little more challenging between buyers and sellers. And I think for public companies, our clearest path to acquiring value if we’re trading below 7x on a forward basis is our own stock. And so we’ll look to do that. At the same time, if there are things that may be strategic that come up, we will take a look at it. Our focus will be narrow. It will be an opportunity where we could own the real estate properties that are in the West and where we see strategic value with our existing footprint.

Carlo Santarelli: I appreciate it. Thank you.

Blake Sartini: Thanks, Carlo.

Operator: The next question comes from David Katz with Jefferies. Please go ahead.

David Katz: Hi, evening everyone. Nice quarter. Thank you for taking my questions. I just wanted to pick up right where you left off, which is, we’re thinking the Western half of the United States, are we thinking Nevada? Are we exclusive to Las Vegas? Where are you seeing opportunities? Where would you consider that?