Golden Entertainment, Inc.

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.

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.

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.