Golden Entertainment, Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Golden Entertainment Second Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal remarks. Please note that this call is being recorded today, August 4, 2022. Now I'd like to turn the conference over to Joe Giovanni, Investor Relations. Please go ahead, sir.

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 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 is contained in today's press release and 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 and 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 2022 second quarter 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 Protel. Charles, please go ahead. Thanks, Joe.

We have another strong quarter, the second highest quarterly revenue adjusted EBITDA in our history, surpassed only by Q2 of 2021. During the quarter, we delivered revenue of $289 million and adjusted EBITDA of $75 million at a 26% margin. Our adjusted EBITDA margins have remained constant over the last four quarters, which speaks to our continued operating discipline and our confidence in the sustainability of our margins going forward. While we always expected Q2 of 2021 to be a challenging comp due to the pent-up demand and stimulus impacting last year, we achieved sequential revenue and adjusted EBITDA growth of 6% and 11% respectively over Q1, demonstrating the positive trends of our business. Revenues for Nevada casino resorts rose slightly year-over-year to $108 million, while Justly Bada, at $38.9 million, declined from $46.6 million. Sequentially, resorts grew revenue into Justly Bada 11% and 16%, respectively, over Q1. Our resorts margins declined versus prior year, primarily as a result of labor costs increase, which were largely implemented in June and July of 2021. as well as the increased cost of goods and utilities. In June, supply chain issues with our linen provider forced us to hold back significant room night inventory, limiting occupancy primarily at the Strat. We estimate this cost us over 15,000 room nights and 2 to 3 million of EBITDA at the Strat during the second quarter. We have since transitioned to alternative linen suppliers and do not anticipate similar issues going forward. Given our occupancy limits during Q2 at the Strat, we were unable to capitalize on increasing citywide midweek group business as much as we would have anticipated. We're still missing 20 points of occupancy at the Strat relative to our 2019 levels, which offers material upside for the business as this segment continues to recover. In Laughlin, we continue to see improved attendance at our live entertainment, with nearly 33,000 concert tickets sold for various events in the quarter, which has been driving visitation to our Laughlin casinos. For our Nevada local casinos, revenues were $39.8 million compared to $43.5 million a year ago, and adjusted EBITDA was $19.8 million for the quarter compared to $23.6 million in Q2 of 2021. Our decline reflects the challenging comparison of the second quarter last year. However, both revenue and adjusted EBITDA were flat sequentially from Q1 and we anticipate continued stability over the second half of the year. We continue to see a rational promotional environment in the locals market, which has contributed to our ability to maintain margins around 50% despite increases in labor and other costs. Turning to Maryland, revenue was 20.5 million compared to 21.2 million a year ago, and adjusted EBITDA was 7.2 million for the quarter compared to 8.3 million in Q2 of 2021. Sequentially, Rocky Gap grew revenue 15% and adjusted EBITDA 30% over Q1. At Rocky Gap, labor cost increases over last year primarily contributed to declining margins and adjacent to transitioning our hotel revenue management software in May. This caused some disruption, but we have already seen more effective rate and occupancy management going forward. For distributed gaming operations, revenue was flat to prior year at 121 million, while adjusted EBITDA declined to 22.2 million from 24.9 million last year. Sequentially, distributed revenue was up 2% over prior quarter, and adjusted EBITDA grew 1%. Margins were modestly impacted year over year from increased labor costs, but more affected from increased rents within our chain store portfolio in Nevada that were established in June of last year. Our Nevada wholly-owned taverns continue to perform well, with our locations continuing to benefit from the influx of new Las Vegas residents. Our Montana distributed gaming operations also continue to perform in line with our expectations, as we have added new locations since last year, which should continue to benefit us throughout the year. Moving to our balance sheet, in Q2, we used $60 million of capital to repurchase $37.5 million of our senior unsecured nodes and repurchase 515,000 shares of our common stock for $22.5 million. Over the past four quarters, we have paid down $140 million of our debt and repurchased nearly $50 million of our common stock. We ended the second quarter with $179 million in cash, no outstanding borrowings on our $240 million revolver. Currently, our total debt outstanding is approximately $965 million. Given our low net leverage of 2.8 times, the strong level of free cash flow we generate, and the continued margin strength across our operations, we expect to remain focused on improving our balance sheet and opportunistically returning capital shareholders over the remainder of this year. Despite the macro environment, our business remains stable, and July has reflected the same trends as Q2. Our longer-term thesis remains the same. Our strong free cash flow is driven primarily from wholly owned gaming assets in Southern Nevada, which has many long-term favorable demand drivers for Golden and the gaming industry in general. With a portfolio comprised exclusively of cash-generating businesses, zero greenfield development projects, low leverage, and over $400 million of liquidity, we are well positioned for the future and remain confident in our ability to create long-term value for our shareholders. That concludes our prepared remarks. Blake and I are now available for questions.