Golden Entertainment, Inc.

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 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 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. 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 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 13th. 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 non-core 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 is 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 our 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 remains 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 than 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 in cash on the balance sheet, which includes cash reserved 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 nine 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 two and a half times after adjusting for the sale of Rocky Gap and the Montana distributed business, which we anticipate being reduced to less than two times 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 caverns 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 the Strat will support improved results through higher occupancy and spend at the property, with new amenities like Atomic Golf and an absence of construction disruption going forward. That concludes our prepared remarks. Blake and I are now available for questions.