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spk04: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Golden Entertainment Third Quarter 2021 Earnings Conference Call. At this time, all participants are on listen-only mode. A question and answer session will follow the formal remarks. Please note that this call is being recorded today, November 3, 2021. Now I'd like to turn the conference over to Joe Giaffone, Investor Relations. Please go ahead, sir.
spk03: Thanks, Kevin, and good afternoon, everyone. On the call today is Blake Sartini, the company's founder, chairman, and chief executive officer, and Charles Protel, 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 materially differ from these forward-looking statements are contained in today's press release and in our filings with 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 certain non-GAAP financial measures and talk about our performance. You can find the reconciliation of GAAP financial measures in our press release, which is available on the website. We'll start the call with Charles reviewing details of recent results and a business update. Following that, Blake and Charles will take your questions. With that, it's my pleasure to turn the call over to Charles Fortel. Charles, please go ahead.
spk06: Thanks, Jim. Our strong performance continued in the third quarter with revenue of $282 million and adjusted EBITDA of $73 million, both which are third quarter records. Third quarter EBITDA was up over 60% higher than Q3 of 2020 and 70% higher than Q3 of 2019. These results were driven by continued strong performance across our entire portfolio, from our Las Vegas strip asset, to our Laughlin and Locals properties, as well as our Montana and Nevada distributed operations. Even with this strong performance, we still have opportunities for further improvement that we'll touch on in a moment. Last year's third quarter saw the full reopening of most of our operations other than our taverns, which were not allowed to operate games on the bar until the end of September. This year, our bars were fully open for Q3, so you'll notice a big increase in the contribution from our Nevada distributive business over last year. At the Strat, revenue was up over 50%, and EBITDA was up over 150% compared to Q3 of 2020, as we saw occupancy improve and continued strong spend per guest. Occupancy for the quarter was about 73% without meaningful midweek business, and up from around 50% in Q3 of 2020. well below historical occupancy levels of 90%. Our investment in the property's casino floor restaurants, room base, is no doubt playing a role in our ability to capture more of our guest spend. We are seeing record number out of our restaurants, particularly top of the world, and our casino marketing program is having huge success attracting new players. The property is still missing midweek room nights, over 35,000 in Q3 alone, when compared to 2019. so we anticipate meaningful improvement in the Strat's performance as citywide conventions and other traffic drivers continue to return to Las Vegas. Our largest contributor of EBITDA for the quarter came out of Laughlin, with revenue up almost 20% and EBITDA up almost 24% compared to Q3 of 2020. We saw the return of many of our core gaming customers in Laughlin, but we are still missing some key players in our database, so we see more upside from our rated play at these properties going forward. Notably, we just restarted concerts at our Laughlin Event Center with four shows scheduled this quarter. We already had 28,000 guests attend concerts at the Laughlin Event Center in October, and we know concerts will drive improved performance in Laughlin for us in Q4 next year as we're allowed to have a full schedule. Our two Las Vegas local casinos also continue to maintain their high level of performance. with sustained EBITDA margins of about 50% on slightly lower revenues to last year. We saw some impact for our local business in the later part of Q3 compared to last year, as people were finally able to travel for vacations, schools restarted in person, and the Delta variant became more prevalent in Clark County. That said, EBITDA for these properties is still over 100% higher than it was in Q3 of 2019. Additionally, we have not seen any increased promotional spending in the locals' market over the last five quarters, and we don't see that dynamic changing in the future. So we expect to maintain the current margins from these assets. For our Pahrump casinos, EBITDA improved 20% compared to Q3 of 2020, while maintaining margins of over 40%. And in Maryland, our Rocky Gap casino EBITDA was meaningfully up from 2019, but down slightly to 2020. Looking at our casinos in total, EBITDA was up 28% compared to Q3 of 2020, while EBITDA margin improved by 210 basis points to nearly 40%. Compared to 2019, our casino EBITDA is up 54%, with a margin expansion of 1,250 basis points. We expect continued strong performance from our casino operations. given that the Strat and our Laughlin property generate almost 50% of total property EBITDA, where we have yet to see full occupancy return, and we are sustaining the performance of our local and other regional properties. For our distributed gaming operations in Nevada, EBITDA was up exponentially from Q3 of 2020 due to the taverns not being allowed to have patrons at the bar for most of the third quarter last year. Q3 EBITDA was double 2019 levels, with meaningful revenue growth and margin expansion. All of our distributed locations demonstrated strong performance, but our 66 wholly-owned taverns significantly outperformed, reflecting their appeal to Las Vegas locals and the benefits of our streamlined cost structure. We are fortunate also to have several of our newer taverns in areas of Las Vegas that have seen recent residential development as more people move here from other states, particularly California. Our Montana distributed operations showed similar strength as the rest of our business, growing revenue by 15% EBITDA by 27% from Q3 of 2020. Clearly, this was another quarter with tremendous strength across all of our operations. And as we finalize October, we anticipate favorable comps for the rest of 2021 and into 2022. Moving to our balance sheet, in Q3, we continued to aggressively repay debt, reducing our term loan borrowings by $50 million. Combined with last quarter, that's $100 million of debt reduction in the last six months. We ended the quarter with plenty of liquidity, with $219 million of cash and no outstanding borrowings on our revolver. Last month, our liquidity improved further as we expanded our revolver to $240 million, while extending the maturity date by 18 months to April 2024. Our total debt outstanding currently consists primarily of a $675 million term loan and a $375 million of unsecured notes. Our LPM net leverage is approximately 3.2 times. We expect to drop less than three times by year end. This positions us well to refinance our bonds when they are callable next April and to begin returning capital to shareholders. Our current valuation, relative to our Nevada-centric peers, does not reflect the sustainability of our margin improvement, the continued upside in our portfolio of owned casino assets, particularly on the Strip and in Laughlin, or our market-leaning distributed operations. We are a Nevada-based gaming company that owns its own real estate and continues to generate meaningful cash flow. Our investment thesis remains uncomplicated, and given the valuation disconnect to our peers, we believe that using our buyback program is the most prudent way to return capital to shareholders in the near term. As we look into next year, we anticipate using both buybacks as well as special dividends to return capital and further increase value for shareholders. Operator, that concludes our prepared remarks. Blake and I are now available for questions.
spk04: Sorry, I was muted. Ladies and gentlemen, if you have a question or a comment at this time, please press the star, the number one key on your touchtone telephone. If your question has been answered or you wish to move yourself from the queue, please press the pound key. Our first question comes from Carlos Santorelli with Deutsche Bank.
spk08: Thanks, guys. Charles, Blake, whoever kind of wants to take this one. Charles, you kind of spoke there at the end of your remarks to where you intend to exit the year and obviously with the opportunity on the bond refinancing next April and credit ratings. Does that shape at all the cadence or thought process around the timing of kind of getting underway with the buyback program? And obviously, it sounds like, you know, potentially the special dividend is more of a 2022 event than it would be between now and April.
spk06: I think that's right, Carlo, regarding the special dividend. I mean, quite frankly, we see the value disconnect now. We have $50 million that's authorized under our current share buyback program. We have $220-ish million of cash on the balance sheet and growing. So from my perspective, using a little bit of that over the course of the balance of the year and certainly into next year as we can, I think the cadence relative to the bond deal, we'll still have plenty of liquidity and our leverage point given the improved comps relative to the EBITDA that we printed fourth quarter that we anticipate and also going to Q1. We're going to be positioned well, and we'll still be at three times or less when we think about a refi.
spk08: Great, Charles. Thank you. And then just as it pertains to the 3Q, your cash was up, give or take, $70 million sequentially. Your debt was down $50 million, so about $120 million of net debt reduction. My sense is that you got the payment from the Caesars deal in the quarter. Is that correct?
spk06: We did. Yep. As we talked about on our second quarter call, we had received that $60 million in July.
spk08: And there's a little bit more perhaps forthcoming on that potentially when they get done with the rest of the transaction. Is that accurate?
spk06: It depends on ultimately when and what price that deal closes at. But if it closes at the announced price, it's unlikely that we'll receive anything.
spk08: Understood. Okay. Thank you, guys.
spk06: Thanks, Colin.
spk04: The next question comes from David Bain with B Reilly.
spk07: Great. Thanks so much and congratulations on the nice quarter again. So a quick question on color around occupancy trends now and visibility on it getting back to normalcy, I guess, 90% at the strat and at Laughlin. I think you had mentioned back half 22 on a previous call, but correct me if I'm wrong, and I'm wondering if you could kind of opine as to what you think the EBITDA differential would be between those levels and the levels we saw in the third quarter.
spk06: So I mentioned on the prepared remarks we're missing over 35,000 room nights for the quarter. That's similar to what we saw in Q2. So if you just look at for those six months, those 70,000 room nights, to us in the midweek, given a little bit lower rates, that equates to about $5 million of hotel revenue, which is pretty much right to the bottom line for us. That doesn't include any additional spend from the guests that are staying in the room. So from our perspective, it's at least $10 million a year in roughly EBITDA out of the hotel side, plus what we get in terms of lift that would come out of... of our guests that are staying at the Strat. So again, that's why Blake and I feel very strongly that property, which is running about six million a month in EBITDA right now, could be 100 million EBITDA property once the town comes back and once we're, you know, again, we see those citywide and the midweek group business come back the way it was in 2019.
spk07: Okay, perfect. And then on the flight golf deal, how do you think we should look at the return of Given your land contribution, there's $70 million of capex by Flight Golf, and I believe you get a lease payment. I'm just trying to understand if we could see a potential 15% lift off that $70 million from the casino, off that investment from them, or combined with the lease payment. How do you think we should look at the return?
spk06: Yeah, quite frankly, I mean, the pure return in the property, we would get 5% of the revenue that's coming out of that facility. And that's probably to us somewhere in the neighborhood of $3.5 to $5 million as we think about what's the range of potential outcomes for that. But at the same time, we're not as focused on that. We're more focused on driving the bodies to the property. So we try to think about that somewhere in the neighborhood of 700,000 to 800,000 bodies that we think is additional visitation of property. If you think about where that attraction is positioned on the Strip, it's close to the convention center. It caters to downtown. It's obviously the north end of the Strip, and it's very easy for locals to get to off of Sahara, and we have a 4,000-space parking garage that can host them. So I think from all of those types of drivers, we view it as just adding another amenity that's meaningful to our side of the Strip and that could feed more visitation to the Strip.
spk00: Yeah, David, I would add to that. I think Charles mentioned 600,000 or 700,000 or so bodies we think will be driven to that facility. The way it's designed and the way we put that together, we've got approximately a 4 000 space parking garage which most of the time is is pretty uh has some pretty large capacity even given uh you know weekends and so on when we're full on the hotel so that that that parking garage will feed through our casino and through our amenities uh between the south and north end of that property right directly into that top golf so the the ability for us to generate additional spend off of that traffic, along with some going forward potentially targeted food and beverage outlets. We're switching up our entertainment outlet in the showroom. All those things will combine, I think, to keep people on that property, which was the thesis for our original investment in the first place, was to make that property, if you will, more sticky to those that are staying and those that are coming to visit. I think that design is providing for us a confidence level that we can generate some pretty significant spend from the visitation to that atomic range.
spk07: Okay, fantastic. I know I'm going one over, but I have been asked in a while, just given the multiples we've seen for the strip properties out there in terms of M&A, does that cause you to reevaluate the OPCO structure at all for you know, either the strat or even the land values we've seen across the board recently for your other properties, just given you've mentioned the disconnect in your valuation, or are there other long-term, you know, positioning factors to consider when you're looking at that? I'm just kind of wondering your recent views.
spk00: Yeah, I think the bottom line for that, David, is these valuations are important. significantly enhancing the valuations of those that own their own real estate, which were included in that. I look at that real estate as really the third leg of our asset portfolio, along with our brick and mortar and our unique distributed gaming platform. Having our wholly owned real estate, in my mind, has significant embedded value in this overall portfolio of assets. And that, I think, from what we're seeing, that would continue to grow. To answer your question specifically, no, I don't see any change to the current landscape in terms of how we're viewing our real estate. I think we're going to stay the course, continue to own it, and I think that embedded value continues to grow.
spk06: Just to add to that a little bit, I don't think I've seen a transaction where the value of the real estate has gone down from the previous transaction. So when you look at cap rates that are 5% at this point in time, I would think that as The REITs continue to grow and have access to lower cost of capital that enhances their ability to pay for what we view as a scarce asset or increasingly becoming more scarce asset in terms of Las Vegas real estate that's supported by casino cash flow.
spk07: All right, great. Thanks, guys. Thank you.
spk04: Again, ladies and gentlemen, if you have a question or a comment at this time, please press the star, then the one key on your touchtone telephone. Our next question comes from David Katz with Jefferies.
spk01: Hi, this is Cassandra asking on behalf of David. Thank you for taking my question. I'm wondering that in 3Q we saw the casino's margin down a little bit versus 2Q. Is it more of a function of amenities opening, more food and beverage offerings, or does it have anything to do with labor shortage or wage pressure?
spk06: Yeah, Cassandra, I think there is a little bit of wage pressure that we all, the whole industry has been experiencing as we've reopened and started to get going with some of our other amenities on our properties. That we really dealt with in June and July in terms of seeing the full brunt of wage pressure increases. So there's certainly some of that. I think some of it is also the normalization, again, of the volumes that we've seen on our local casinos. versus the increase in the volume that we've seen at the Strat, which operates, because of its cost structure, at a lower margin than our other businesses.
spk00: Yeah, a bit more color to that is July, we were right-sized, if you will, in terms of that labor and fixed cost ratio. August and September showed some, on the top line, some pressure from COVID expanding and other things where we didn't make those adjustments knowing that that would come back. So I think it was really, you know, kind of a function of the volume going from July, August, September, more so than, you know, being a permanent kind of a drag on margins.
spk01: Got it. Thank you. And if I may, another one. In Lawson, I believe you've talked about kind of newer demographics, younger people going to the casinos. Do you have any observations on maybe like longer term stickiness or sustainability of the volume from younger players?
spk06: I'd say for us, it's more in terms of, you know, new players that we saw in terms of what we're doing that, you know, pandemic and coming out of the pandemic. where we saw levels of unrated play that were coming through our local casinos, converting those players into rated play, we have seen increased levels within our player club sign-up. Part of that, we think, is due to the net migration into Las Vegas from out-of-state folks who are experiencing local casinos and our taverns, quite frankly, more so as a form of entertainment. that may not have been available to them from where they moved from. And so we are seeing some stickiness of that. I mean, if you had 10 new folks and you kept three of them, that's still three more than you had before. So I think we're encouraged by our Players Club program and what we're seeing in terms of sign-ups. And I'd say that we commented on the strat where we spent a lot of focus on on the casino marketing program, and we've seen that pay a lot of dividends in terms of the performance of that property. Obviously, we talked about the restaurants. We've added a high-limit room. And so all of that's starting to pay off, and I think the tangible effect of that is, for us, when you look at some of our direct bookings that we see at the property, we are now at a point where we're running about over 30% of our bookings at the Strat are direct. And when we bought the property, it was around 10%.
spk00: Yeah, Cassandra, I would just add, in Laughlin in particular, I think that was the original part of your question. I think it would be aggressive to call Laughlin a young person's market. Although, to Charles' point, coming out of the pandemic with people receiving funds from the federal government and so on, I'm sure there was a lot of experimentation into that market. However... we do have the opportunity through our entertainment offerings down in that market to continue to expand that market through younger people by virtue of the acts that we have come into that left facility, which holds 12,000 people. And we are focused on that. And so just a little bit added color for that particular market.
spk01: Got it. Thank you very much.
spk04: Our next question comes from Omer Sander with JP Morgan.
spk02: Blake, Charles, thanks for taking the question. Just one for us. Just a little bit more on kind of the demand. You hear commentary across the locals market regarding the Delta variant return to school and vacations. Have you seen some of that pick up post-Labor Day and into October? I guess asked another way, was there any meaningful shift in visitation or spend per visit where you exited the 3Q versus the June-July levels?
spk00: Yes. Yes, we have. October has picked up pretty significantly. Keep in mind that going through the remainder of this year, we do have seasonality in our business. However, specific to your question, October did show significant improvement, both in visitation and spend. And we saw that throughout the majority of our both local and resort properties, Strat and Laughlin.
spk02: Okay, awesome. And then just maybe one on the bottom line there, as you kind of see the fluctuations in the pickup in visitation and spend. How do you think about adjusting the OPEX in the labor environment to accommodate that?
spk06: Yeah, so we've already made those adjustments. They're pretty much fully reflected in the Q3 numbers. Like I said, we were doing those adjustments in June and into early July. So for a company of our size, I mean, we measure this in the single millions of dollars in terms of adjustments on the labor side for the entire portfolio. versus the tens of millions of dollars. Again, I think what you're seeing right now in the margins, those are the numbers and those are those adjustments.
spk00: Yeah, and I think part of your question, as Charles mentioned in his comments, as we pick up more room occupancy midweek, we're going to need more guest room attendance, right? We're going to add more labor. But I think those costs will be mitigated and our margin discipline will continue through more revenue opportunities, and more pricing opportunities. And we've anticipated that. So we are committed to our margin discipline. And as we add those positions, I believe we can mitigate through additional revenues and other ways to drive more profitability.
spk02: Awesome. That's really helpful. Appreciate it, guys.
spk04: Our next question comes from Chad Benham with Macquarie.
spk05: Hi, this is Aaron on for Chad. Thanks for taking my question. Hi, Aaron. Hey, can you give an update on any impact or benefit from Resorts World?
spk06: Yeah, Aaron, I think from our perspective, it's a little too early to tell. We really haven't seen much of an impact at all. I think, you know, without meaningful convention, citywide convention business or international travel, I don't think we've really seen, you know, the full potential of that property either way. So there's really not...
spk00: not an impact to be honest with you no there has been but i will tell you aaron going forward as we mentioned i think on our last call there's pretty significant construction going on on that boulevard and it's impacting foot traffic as well as vehicle traffic going both north and south as that as that begins to dissipate that construction goes away conventions come back resource world i think capitalizes on their residencies conventions and so on all of that inertia will ultimately benefit the strat. And that's been one of our theses all along on that property. So we do anticipate no negative impact going forward. I anticipate positive impact as the construction and citywide conventions return, to which I think resort will capitalize on that.
spk05: Great. As a quick follow-up, I just want to go back to the flight golf for a little bit. So you're contributing about seven acres of land. I believe this leaves 10 acres of excess land outside the strat that you own. How are you thinking about uses for that remaining land?
spk06: Well, we get approached with concepts all the time. And quite frankly, we feel the more valuable piece, which sits outside of this, is about six acres directly across from the property along Las Vegas Boulevard. I think that... If you see us do anything with it, it will be in the same type of capital life model. I think we're trying to look for ways to drive, again, additional traffic volume through attractions and amenities for the Strat versus deploying our own capital in those type of opportunities at this point. But a little early in terms of being able to chat about anything over there, but we We certainly have several concepts that are in the works.
spk00: Yeah, we get pissed all the time. We're going to be disciplined, I think, to Charles' point, and making sure that we have one time to paint that canvas so we want to do it right. But as we are being disciplined and receiving these various inquiries on what they could do on that property, there is significant amounts of development that are occurring both south and north of us between downtown and the Strat and between South Strip and the Strat, Sahara and the Strat. There's a piece of property directly across the street from us that's seven acres per cell for $70 million. There's been various trades within that neighborhood for acreage at high dollar amounts in which developers are building anything from boutique hotels to food and beverage facilities, and other things are coming that way. So that whole, again, that whole area, I think, the strat's going to benefit from that continued development. And as that develops, I think, as I said, we'll be disciplined and try to choose something that is the highest and best use of that property to enhance our property.
spk05: That's helpful. Thank you.
spk04: Appreciate the call there. Yep. And I'm not showing any further questions at this time. I'd like to turn the call back to management for any closing remarks.
spk06: Okay. Thank you all for participating, and we look forward to chatting with you next quarter.
spk04: Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.
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