Golden Entertainment, Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Golden Entertainment Second 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 that this call is being recorded today. I'd now like to turn the conference over to Joe Giaffone, 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 Portel, 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 those in the 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 the 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 will start the call with Charles reviewing details of the 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 Protell. Charles, please go ahead. Thanks, Joe.

For the second quarter, we generated revenue of $287 million and EBITDA $58 million. With revenue essentially flat to last year, but EBITDA impacted by cost pressures as well as disruption at the strat from ongoing renovations, we wanted to complete before the strong Las Vegas calendar this fall. Before getting into the operations, we have a few updates on our previously announced M&A activity. Last week, we closed on the sale of Rocky Gap Casino Resort for aggregate consideration of approximately $260 million, representing 11 times multiple based on the property's trailing 12-month EBITDA. Immediately after closing, we used $175 million of the proceeds to repay the balance of our original term loan that remained outstanding after our refinancing in May. In March, we announced the sale of our Nevada and Montana distributed businesses to J&J Gaming. for approximately $360 million, including cash. We remain confident that both transactions will close by year end, and we look forward to having J&J as our gaming partner in our Nevada taverns. These transactions will accomplish our goal of divesting non-core businesses at attractive valuations, leaving us with a Nevada portfolio of owned casino assets and the largest gaming tavern footprint in the state. Within our segment results, revenue at our Nevada casino resorts declined 4.6%, while EBITDA declined 28%. Revenue for the Strat was down 10%, with EBITDA down 44%, in part due to having 15% less rooms available for the majority of the quarter due to room renovations. Those 537 new rooms were completed in mid-June, and we estimate that we lost $3 million in revenue and about $2 million in EBITDA in Q2 from this disruption. The Strat's Q2 results were also impacted by higher labor expense, weaker spend per guest, and reduced table game volumes. Upon completion of our 537-room renovation in June, we commenced renovations on another 118 rooms in our oldest tower at the property. The budget for these rooms is $8 million and will be funded with proceeds from the Rocky Gap sale. We expect to complete these room renovations prior to the fourth quarter so we can further capitalize on F1, the opening of Atomic Golf, and increase citywide conference attendance in the fall. Atomic Golf construction remains on schedule and we expect it to open by the end of the year, which we expect to drive meaningful new visitation to the Strat. In Laughlin, revenue was up slightly compared to last year, supported by a more robust event calendar, while EBITDA declined 18%, reflecting the impact of higher costs for the added events, as well as higher labor and utilities expenses compared to last year. In June, we initiated a local marketing campaign in Laughlin, highlighted by our new bingo offering at the Edgewater. Since opening our Riverfront Bingo Room, we have seen strong initial results in driving additional traffic from Bullhead City, and we anticipate this accelerating throughout the end of the year. Revenue and EBITDA for Nevada local casinos were both in line with Q2 2022, continuing their strong performance relative to 2019. We are investing modestly in new restaurant offerings and slot capital at these properties to refresh the experience for our loyal customer base. For our Nevada tavern operations, second quarter revenue in EBITDA was down from last year, with declines in gaming revenue partially offset by increased food and beverage sales. Margins at our taverns also continue to be impacted by increased labor and other operating expenses versus prior year. We continue to expect the favorable Las Vegas demand drivers to support our tavern business. We opened our 65th tavern this quarter and have committed to acquire six additional taverns by year end or in Q1. In addition, we have three development sites for future locations. Total third-party distributed revenue is down 4% compared to last year, while EBITDA decreased 14%. We saw some weakness in Nevada across our third-party tavern partners, which is similar to our own Nevada tavern performance for the quarter. In Montana, revenue was up slightly while EBITDA declined slightly, reflecting higher payroll expense. Both Montana and Nevada have strong pipelines of new locations, which will start to come online in the second half of this year. Moving to our balance sheet, in May, we successfully refinanced our first lean term loan in Revolver, lowering the interest rate on our credit facility by 25 basis points and extending maturities. After using $175 million of the Rocky Gap sale proceeds to repay the remaining portion of our original term loan, our current outstanding debt consists primarily of our new $400 million first-lane term loan and our existing $335 million of senior unsecured notes. At the end of the quarter, we had full availability on our $240 million revolver and $166 million of cash on the balance sheet. Pro forma for the sale of Rocky Gap, our current net leverage is 2.5 times, and we intend to maintain our net leverage below three times going forward. Given the strength of our balance sheet and confidence in our future cash generation, we are accelerating our return of capital initiatives. To that end, we announced a $2 per share special dividend and an increase in our share repurchase authorization to $100 million. Looking forward pro forma for the sale of our distributed businesses and this special dividend, our net leverage declines to 1.7 times. Our company remains uniquely positioned to benefit from the growth drivers of Nevada's resort and locals markets. And we believe our properties will demonstrate better performance in the back half of the year. In addition, our strengthened capital structure will allow for maximum flexibility to invest in our core assets return capital to shareholders on a regular basis, and evaluate future strategic alternatives. That concludes our prepared remarks. Blake and I are now available for questions.