Golden Entertainment, Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Golden Entertainment Third Quarter 2024 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. Now, I'd just like to turn over to James Adams, the company's president of corporate finance and treasurer. 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 Prattell, the company's president and chief financial officer. On this 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. 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 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.

Thanks, James. Starting with our financial results, we generated revenue of $161 million and EBITDA $34 million in the Third Quarter. Our reported prior year numbers include the results from our divested Maryland casino distributed gaming operations. But comparing the results to our continuing operations, total revenue declined 5% and consolidated EBITDA declined 21% in the Third Quarter. Our Third Quarter was challenging for both our casino and tavern segments, with the most significant year over year declines in July. As others have noted, Las Vegas experienced record heat this summer, which contributed to lower visitation at our casino properties and local taverns. In addition, we saw continued weakness at the lower tiers of our database, as those consumers have reduced their discretionary spending in the current economic environment. Despite these challenges, we see Q3 as the lowest level of financial performance for our portfolio, given October trends and our outlook for the remainder of the year. Reflecting that view, we have increased our share repurchase authorization by $100 million. So we now have over $130 million of buyback capacity to add to the $60 million we repurchased over the last two quarters. Now for some color on our operating segments. For our Nevada Casino resorts, revenue declined 6% and EBITDA declined 20%, with most of the decline coming out of the strat. At the strat, our weekend occupancy was slightly up year over year. However, our midweek occupancy was down almost 6% to prior year, and spend per guest also trended lower for the quarter. Las Vegas Citywide occupancy and ADR were weaker in July, particularly for mid to lower tier properties. In addition, without direct meeting space, the strat was unable to benefit from recovering convention business in September to the same extent as other strip properties. For the strat, our Q4 looks stronger than Q3, and we anticipate stable year over year performance, with opportunity for growth in 2025 from returning midweek occupancy and increased spend from our core customer. In Laughlin, despite lower visitation and revenue, our properties increased their market share in the quarter and reduced their operating expenses. Our Riverfront Bingo Room continued to help drive increased local business to offset lower visitation due to having one less major concert at our Laughlin Event Center. For our Nevada Locals Casinos, revenue declined 7% and EBITDA declined 15%, where we saw increased seasonality compared to recent years and decreased spend from our lower tier customers. Our Arizona Charlie's Decatur property was further impacted by disruption from room renovations, which were completed mid-September. The largest revenue and EBITDA percentage declines in our Nevada Locals Casinos continued to come from our smaller Arizona Charlie's Boulder property, which caters to our most value-oriented guests, while our Perump Casinos remain stable year over year. We expect stable year over year performance in Q4 for all our local properties, which will be helped by the Las Vegas promotional environment moderating. For the third quarter, Nevada Tavern revenue declined 2% and EBITDA declined 29%, with margins negatively impacted, mostly as a result of the elevated initial operating expenses associated with our seven new taverns and the last mandated Nevada minimum wage hike in July. Our tavern customers were also impacted by extreme summer heat and less discretionary spending. We typically see our new taverns stabilizing within nine to 18 months of opening or acquisition, and we expect these last seven to follow the same pattern. With regards to our capital structure, we continue to maintain one of the best balance sheets in the gaming industry, with our net leverage at approximately two times EBITDA and 240 million of availability under our revolving credit facility. Since selling our non-core assets at premium multiples last year, we have repaid over 500 million of debt and returned nearly 150 million to shareholders through a combination of share repurchases and dividends, including over 80 million since the end of Q1. Between August and October, we have repurchased approximately 950,000 shares. Combined with the almost 1 million shares repurchased in Q2, we have repurchased nearly 2 million shares over the last six months, representing 7% of our outstanding shares and 9% of the free flow. After increasing our buyback authorization, we have 131 million of availability for share repurchases, which can be funded by cash from operations, as well as our undrawn revolving credit facility. We continue to believe that our portfolio of wholly owned casinos and local taverns will benefit from the favorable long-term demographic and economic trends in Southern Nevada. And we see significant value in continuing to acquire our own equity at this time. While we do evaluate strategic opportunities as they arise, it will be a high bar for acquisitions given our current valuation. And we anticipate continuing to meaningfully buy back stock absent more compelling alternatives. That concludes our prepared

remarks. Blake and I are now available for questions.

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question comes from the line of Barry Jonas from Truist Securities. Please go ahead.

Hey guys, appreciate the comments on A. Charles, appreciate your comments on M&A, but maybe you could just talk about what you're seeing out there, how rich of an environment is there for assets you'd be interested in. And then I'd be curious to get your thoughts on the sale lease back model. You have a slide on the deck as always. Just curious if any updated thoughts given where evaluation sits today. Thanks.

Yeah, I'll take a bit of the first part and Blake may wanna comment on the second. I think from an M&A perspective, we haven't seen a lot out there that's compelling for us. I think when you look at the M&A landscape right now, there's still a bit of a disconnect between buyers and sellers around the bid-ask spread on not so much necessarily maybe the multiple, but more on what's the run rate EBITDA. And I think that as we look into next year, I think there's gonna be a lot more visibility around stabilization of operations, as well as the benefit of declining interest rates, which would help the M&A

environment. Yeah, in addition to that, look, I don't think it's overstating that we are in active mode right now of looking at all of our potential strategic alternatives. And that includes, I think in our investor deck, we provide some math around the value of our real estate and how that may drive values, certainly in our share price, given that our math shows our op-co is really free if you buy our shares. So again, we're in active mode. And in regards to particularly, I'll tag on to Charles comments in the M&A segment. We're looking for whole co-assets. There aren't many of those out there. There's a limited inventory, I think, of whole co-assets. They are out there, but that would be our preference in terms of moving the needle for valuation at golden, given our strength of our balance sheet and so on. But we are considering all, we're active in considering all alternatives at this point.

Great, that's helpful. Then just as a follow-up, you know, also appreciate the commentary on the consumer and certainly the summer heat and seasonality, but curious if you saw any impact from the election in any of your segments and now that that's over, have you seen or would you expect to see any improvements related? Thank you.

Yeah, I think historically around these major federal elections, presidential elections every four years, we do see consumers in the short term prior to the election, you know, pulling back if that's the right term, but certainly cautiously spending before and a little bit after. So much like seasonality, these elections, these broad elections only come around every four years. We do see a pattern of consumers pulling back, certainly in the short term before the elections occur.

Great, thank you so much. Thank you.

Thank you. The next question comes from the line of David Bain from B. Riley Securities. Please go ahead.

Great, thank you. Hi, Blake and Charles. Hi, David. I'm hoping we can unpack the margin stability or opportunity from three key results. It seems like multiple segments will improve to flat -over-year in four Q, so I assume that's a good thing. You meant EBITDA there, and is that a function of higher revenue and some rebound in margins? I understood the commentary on the Tavern with the seven coming online and those normalizing longer term, but maybe across the rest of the portfolio be helpful.

Yeah, I think that quite frankly, the only asset that from a margin perspective remains a bit challenged will be the strat as we look into Q4, and that really has to do with the latest culinary union contract that we signed earlier this year. As we look at the other assets, we see stabilization both on the revenues and the cost structures within that business. Some of it specific to changes we're making. If you look down in Laughlin, focusing a bit more on the locals in our strategy at going to smaller scale entertainment, and in the locals that are here in Nevada, we really just see stabilization of the spend while we continue to manage costs in that business. You mentioned the Taverns already, and I think with respect to the strat, the strat will have inflow with the occupancy of the town and what's going on along the strip corridor. And so we're basically a derivative of that without any of our own direct group meeting space. The one thing we do have is we have an elevated cost structure. It's reflected in our views for Q4 that are generally out there with all of you right now. So we feel confident in our statements about Q3 being the low point for the portfolio.

Okay, and also the 4Q commentary was helpful for this, but maybe if you could speak to F1 and the Super Bowl comp in 1Q and how that translates, not just to the strat, but the Las Vegas portfolio generally. What's the F1 comp like?

Yeah, the F1 comp is, we've made adjustments obviously to our approach last year, certainly on the spend side. So we're going to make significant improvements in regards to what we spent to try to drive traffic to the properties that's gonna result in a positive. I think generally citywide, we're hearing, it's gonna be a tough comp to F1 last year, given ticket prices are low, we're hearing room rates are lower. We've gone out and partnered with the downtown folks to do a kind of a weekend festival that weekend to try and drive some of that customer inertia downtown with entertainment bands, pop-ups and those kinds of things. So we're well, much better positioned for F1 this year than we were speaking for ourselves last year, certainly from a cost standpoint. And it is a tough comp in 1 with Super Bowl. Super Bowl was big for us last year. I think it was big for the city last year. So we're going into Q1 knowing that that's gonna be a tough comp. And to give just a sense of

magnitude of Super Bowl, it was worth about a million dollars in EBITDA to us. And so from my perspective, as we talk over the course of the quarter, we think there's many other drivers that overcome that. Between the taverns stabilizing, between increased occupancy and things that are going on at the strat, we feel fine in terms of fading that comp.

Okay, great. Thanks guys. Thank you.

Thank you. The next question comes from the line of Jordan Bender from Citizens JMP. Please go ahead.

Good afternoon, everyone. With atomic golf up and running, has there been any thoughts around if something else incremental could fit into the excess land between the strat and atomic golf that could help drive more foot traffic, biggest of both properties?

Yeah, look, atomic, it's no secret. We've been talking about atomic golf has been slow to ramp up. Before I talk about the additional potential development on property near us or adjacent to us, I still believe atomic remains a modern competitive facility. It's a $70 million facility. And then regardless of the slow ramp, which it is ramping, it's still gonna continue to be a relevant and significant asset next to our property. It's a world-class asset in terms of physically what it offers. So we're long-term bullish on that. In regards to the adjacent property, I think between the strat and atomic is too narrow. We tried to push that closer to the building to make it convenient for crosswalk traffic. But we do have five and a half acres of developable asphalt flat land across the street which is desirable. We're getting a lot of inquiries into what could possibly be put there. We're trying to fit a highest and best use concept in there that would drive more traffic to the property. So absolutely we have adjacent property that with the ability to put some attractions on there that would benefit the strat. I'd

say we're

also working on development

of extra amenities inside the building. So we have approximately 150,000 square feet of developable space on the mezzanine level of the strat. And so we're working with some third parties to bring some experiential type attractions to the property that we think help drive traffic as well.

Great, thank you. And then Charles, just on the follow-up, as we approach kind of year one of a dividend being paid, is there any cadence or parameters we should be thinking about in terms of, does that go up? Is it based off of a payout, a yield, et cetera?

Yeah, I mean, look, we've talked and thought about it almost as constant dollars, a bit out the door with the fluctuation based on the amount of equity we could buy back into the company. So in other words, when we get to this one year anniversaries, we'll take a look and see what's our projected cash flow going forward. How do we think about how much stock we've bought back and how that translates into overall cash outflow? But clearly, the dividend to us has been a constant piece of our cash flows going forward and we look to increase that as

we get into next year. Thank you very much. Thank you.

The next question comes from the line of David Katz from Jeffries. Please go ahead.

Hi, evening, everyone. Thanks for taking my questions. I just wanna make sure that I'm processing all the commentary properly. We're talking about potentially activating some of the excess land one way or the other. And we're also potentially talking about a sale and lease back and would the proceeds necessarily be used for capital returns or is there a range of potential uses just for the purposes of this exercise?

Yeah, so I think the purpose of highlighting the value of the real estate is to illustrate what Blake had discussed earlier, which is if you look at any reasonable multiple of a rent stream, that is in excess of the total enterprise valuation of the company as it sits here today. From our perspective, clearly undervalued in terms of the combination of the opco as well as the real estate. So that's why, quite frankly, we're confident in increasing the share buyback very meaningfully. We have 130 million of availability on that buyback.

It

represents a little bit over half of our revolving credit facility. We could use that as we see the opportunity within the market to do so. We will have consistent buyback through Q4 and we're gonna be doing that into the future. But I think you're not gonna see us do a sale lease back to fund other development that you're not gonna see as a strategic alternative. I think to the extent that we are trading at levels where the discount remains for a prolonged period and I think some people might point out that it has, but we've been in a challenging interest rate environment which I don't think has helped read multiples. And so as we see the rate cuts that happen today and we anticipate rate cuts in the future, it's our belief that multiples get better and cap rates get better from a real estate perspective and we're gonna let that play out as we get through next year.

Totally agree and totally sensible. If I can follow that up and just, I know we've talked about these things before, but does the field of play, I assume it includes potential mergers or other, when Blake says we're active, does the field of play include corporate type activities like that?

Yes, yes. I mean, we are, it's frustrating and I'm sure it's frustrating to our investors and to those that follow the company, it's frustrating to see we get no credit for the real estate whatsoever. So within that context, we're frustrated with the valuation and we are sitting in a good position with a strong balance sheet, fully owned real estate and a well-run company to look at all alternatives. So yes, corporate merger, we're active in looking at all things that may potentially drive significant value to our current portfolio.

Agreed, I appreciate it and thank you for the

camera. Thank you. Thanks, David.

Thank

you. The next question is from the line of Chad Bannon from Macquarie Asset Management. Please go ahead.

Hey, good afternoon. This is Aaron on for Chad. Thanks for taking the question. Hey, Aaron. Hey, how you doing? Wanted to touch on the direct business at the Strat, which has been a nice success story for you guys. How high do you think that can go or just how do you think about the optimal mix there? Thanks.

Yeah, so we've worked pretty hard and when we first took over the property, the EOTA mix was about over 70%, 72 to 74, 75%. That's down now to between 60 and 65% and we think we could keep moving that lower. I mean, ideally we'd like it to be about 50% of the property. So we're doing a lot of things in terms of boosting our direct booking business, working more closely with the city-wide conventions and filling blocks of rooms into the city-wide and doing a little bit better job capturing customer data once they, even though they may have booked off an OTA, once they get on the property, being able to send them return offers directly rather than through the OTA. So we are pretty excited about that journey. It's a slow journey, but it's a good one and there's upside in the property from doing that.

Yeah, I would just add to that, I think Gerald said it very well. We continue to see bright spots at the property. We are aggressively marketing the casino and seeing improvement in carted play. We're seeing improvement in revisitation, people revisiting the property, which prior to our ownership, was pretty much non-existent. Just for a metric that may or may not be relevant in today's environment, but if you look at 19, our ADRs are still up approximately 20% today over 19 levels. Our occupancy is down a bit, weekend is up, but the midweek is where Charles continues to talk about our upside. So there's a lot of data points in the property that are going in the right direction. We're kind of taking it an inch at a time, but it is going in a positive direction.

Understood, appreciate the color there. Just turning to taverns, in terms of growing the number of your taverns, as we look to next year, do you anticipate adding locations at the same rate as you have this year? Just any color on how you see the opportunities that there would be great.

No, I think we had some unique opportunities in the marketplace to acquire some brands and some locations that we think long-term will be very beneficial to the portfolio. Going forward, we're more focused on developing ground up. And so we look to add one to two next year, and then going forward after that, it's probably in a three to four range.

The only thing I would add to that for a little more color is we're bullish on that green field Charles talks about one to two. We are solely looking for what we call five star or premier locations only to further grow the portfolio. We're having success in providing an inventory of these solid locations for us going forward. And those locations, as Charles said, one to two a year. And still those new locations versus the acquired locations, which admittedly have taken us longer to ramp up, those new build locations still provide a 25% cash on cash return when we build them. So we're very, very confident we will continue in that direction.

Thank you very much.

Thank you. The next question is from the line of John Dickey from CBRE, please go ahead.

Hey guys, I think most of mine have been answered, but maybe one follow up on the Tavern discussion, particularly the new builds and properties required that take I think up to about 18 months to stabilize. Can you give us a little bit more color on that life cycle? I mean, when you bring a new property into the system, a new Tavern or opening ones, you typically lose money and then break even and then moving into profitability. And I guess the follow up is, given the seven or so that you've spoke about earlier, kind of came online at different times, where we are kind of in that life cycle today, and I think about kind of an inflection to profitability and maybe margin enhancement across that business overall.

Yeah, so when we typically open a ground up Tavern, we're spending between two and three million, and it's usually on the shorter end of that scale of ramp up, call it the nine to 12 month range. We usually have them in a location where, we potentially don't have a lot of other locations and there's not the competition around. So they ramp faster and we staff them with people that came out of our existing Tavern. So they know the process, they know our methodology, they know our brands and they know our marketing. And we very quickly see those ramp to 25 to 30% cash on cash ROI as Blake mentioned. With the acquisitions, depending on the staff that we acquire that could either be shorter or longer. In this case for these two brands, it's longer. We have basically turned over the entire staff in the six locations we've acquired. Now we've put in new staff and we're seeing the fruits of that in terms of that ramp up as we're getting into Q4 right now. So we're confident that those will get there. There's some different brands from what we've had in the past, so we like that. We actually opened our new build with one of those brands. So it adds a little diversification to the portfolio, but it's just taken us a little bit longer to get them up to our standard.

Understood. Thanks for that, Charles. That's all for me. Appreciate it,

guys. Thank you. Ladies and gentlemen, we take the last question from the line of Carlo Santarelli from Deutsche Bank. Please go ahead.

Hey, Charles Blake. Thank you for taking my question. Charles, I just wanted to kind of understand a little bit. When you talked about the Nevada Casino segment, and I believe you also mentioned it with respect to the local segment, a 4Q that you expected to be stable year over year. And I just kind of want to understand what you meant with the stable comment. I'm assuming you don't mean you would anticipate they would be flat year over year, but maybe I'm misunderstanding.

Yeah, for 2-4, year over year, flat, right? Other than the strad, which is in my commentary. And in the commentary, my reference is really to the locals. So that's our local properties and our casinos out in Peru. Laughlin should be the same way. I think Stratt should be a little bit down year over year, given where we are from a labor expense perspective. But that's the top. All will be better than Q3.

Yes, okay. Okay, and then just it might have been nuanced and I might not have exactly understood it correctly. But when you talked about the disconnect between buyers and sellers, you made the point that it was not necessarily a difference in pricing in bid ask. It was more of a difference in earnings or EBITDA or cash flows. Is the perception then from a buyer's perspective that sellers are looking for a multiple off of a business that's flat or growing and buyers just are kind of looking for things to continue to kind of slightly kind of erode? Or what exactly is that dynamic you were referencing?

Yeah, I would say the dynamic probably not as specific is that buyers are looking at, like we would look at a more conservative EBITDA to underwrite in the future. Depending on what sellers may be offering, whether they're offering double digit growth rates and we're saying we're not going to get there or they're offering more flat and we think we should be a little bit more conservative. I just think that there is more conservatism, at least from our perspective as a buyer, than what we're seeing in the situations we've looked at from a seller perspective.

Okay, that makes sense. Thank you for the clarification. Thanks, guys.

Thank

you. Thank you. Dear members, we have a follow-up question from David Bain from VLiDee Securities. Please go ahead.

Oh, great. Thank you. Sorry for this. This question may be a little off track, given the Tavern discussion that we're kind of clearly centered around Las Vegas, but have there been any new thoughts around Tavern business expansion outside of Nevada? I believe you still have the J&J relationship, if I'm not mistaken, and you got the proven model, and I would think the brand opportunity as well. That's actually

a very good question. So when we exited the route business, both in Montana and Nevada, I think on prior calls, I referenced the fact we have not exited our potential for remaining in the distributed business through operating the brick and mortars or brands, either that we have or new brands. I think that's an opportunity for us, yes. Although nothing is imminent, I think there's a path for us to do that.

Okay, great. Thank you very much.

Thank you.

Thank you. Ladies and gentlemen, this concludes the conference of Golden Entertainment, Inc. Thank you for your participation. You may now disconnect your lines.