Q4 2019 Earnings Call
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Investor Relations.
Thank you Carmen and good afternoon, everyone by now everyone should have access to our fourth quarter 2019 earnings release, which can be found on the company's website at www dot Golden and Dot com under the Investor section.
Before we get our formal remarks, we need to remind everyone that today's discussion will include forward looking statements within the meaning of the federal Securities laws. These forward looking statements, which are usually identified by the use of words such as we'll expect believe anticipate showed or other similar phrases are not guarantees of future performance. These statements are subject to numerous risks or uncertainties I could cause.
Actual results could differ materially from our corporate working statement and therefore, you should exercise caution interpreting and relying on them.
We're free or the risk factors in our recent FCC filings, including our most recent form 10 Ks updated by or subsequent quarterly reports on form 10-Q, four more detailed discussion of the risks that could impact our future operating results in financial condition and other forward looking statements.
During today's call, we will discuss non-GAAP financial measures, which management uses and believes are useful in evaluating the company's operating performance.
These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with gap.
A reconciliation of these measures to the most directly comparable GAAP measures is available in our fourth quarter 2019 earnings release.
On today's call is Blake Sartini, the company's founder Chairman and Chief Executive Officer, and Charles protect all the company's President and Chief Financial Officer.
Charles will start the call after which Blake will make some comments anymore. Then open the call to your question.
With that it's my pleasure turn the call the call over Charles Patel Charles Please go ahead.
Thanks, Jill Golder labor that greater fourth quarter revenue and adjusted EBITDA as we grew both our casino and distributed gaming operations. We also made further progress across several initiatives primarily the completion of our major renovations at the strategy and the rollout of our new loyalty program true rewards.
The fourth quarter net revenue grew 15.2% to 242.1 million and adjusted EBITDA rose, 25.1% to 43.1 million.
We're in Nevada casinos fourth quarter revenue was 133.9 million a 24.1% from the prior year well adjusted EBITDA grew 18.6% to 36.9 million.
Growth from our Nevada casinos reflects the contribution from the Edgewater, Colorado pellet loughlin as well as year over year increases in revenue and adjusted EBITDA across the rest of our Nevada Casino segment.
The disruption on the strike casino floors. The second half of 19 impacted the properties performance, despite strong room and SMB revenue growth at the property at the end of December we completed the majority of the renovations at the strategy and are now operate in 2020 without construction disruption.
For a loughlin properties, we continue to see increased cross play between our three assets since we consolidated our loyalty programs and rationalize promotional spending.
We are focused on bringing more entertainment to the market and expect our laughlin operations to benefit from a stronger event calendar compared to 29 gene.
Our local Arizona, Charlie's casinos performed very well growing revenue mid single digits, an EBITDA by double digits for the quarter.
At Rocky gap in Maryland, Q4 revenue increased 3.2% on a year over year basis, while EBITDA increased over 24% to 4.8 million. This growth reflects the property lapping some of its regional competitive pressures that emerged to 19 in our efforts to rightsize its marketing spend.
And our Nevada distributed business total revenues during the fourth quarter grew 4.6% to 72.8 million adjusted EBITDA of approximately 11 million was up more than 16% over the prior year. This reflects stabilize performance from our chain store locations the healthy local economy and contributions from 16.
Caverns, hoping to 2019.
In Montana or distributed operations generated revenues of 19 million in Q4 up 13.2% year over year adjusted EBITDA for the Montana distributed gaming business grew 6.7% to 2.3 million.
Our growth in Montana, as a result of new locations as well as the exclusive games. We are offering that are currently generating the highest win per unit in the state and double the state average.
In December we rolled out our two rewards players club, which became the first loyalty program to Lake points earned yet resort casinos and distributed gaming locations in doing so we've created the industry's largest physical network with over 140 gaming locations, mostly in southern Nevada.
Our distributed customers are now able to earn rewards that are taverns and local supermarkets that they can redeem it any of our properties and we're excited about this new opportunity to drive revenues across our platform.
Our loyalty program allows us to reward our customers with a variety of experiences from a show at the stride to tavern happy hour with the Golden nights. We believe this unique offering can drive wallet share gains with their existing customers and attract new patrons. Our proxy saw new card sign ups increased over 25% year over year in January.
And by 30% in February.
Moving to the balance sheet at year end, we had 772 million outstanding a first lien term loans. In addition to 375 million of senior unsecured notes. We continue to have no outstanding borrowings under our 200 million dollar revolver. Our term loan has no financial covenants amateurs.
In October of 2024, while our unsecured bonds mature in April 2026.
We ended the fourth quarter with cash and cash equivalents of 112 million, resulting in net leverage for approximately 5.6 times.
Reducing leverage as a priority and with our continued significant free cash flow. Our goal is to be below five times within 12 months.
Total capex for the quarter was 32 million with approximately 21 million spent on the strategy.
Since starting our renovations in June of 18, we spent approximately 90 million on property renovations through December and expect to spend approximately 20 million of additional capex on the strategy first half of this year, bringing the total spend to about 110 million on the strike.
Distract spend primarily relates to payments for renovations completed the fourth quarter and we'll continue to be funded with cash flow through operations through the first half this year.
Many of you have seen the work we've done and if you haven't yet please come visit the property. So we can give you a tour based on the reaction from others I'm confident you'll be impressed with the results, particularly relative to our total spend of 110 million.
With feedback from our guests on their renovations. The strategy is now positioned to be more attractive option for visitors to Las Vegas as we've said several times our goal with these renovations is to provide our current customers with opportunity just spend just a little more.
With over 2 million annual visitors to the strategy only a modest incremental spend for gas will drive an attractive return on our investment.
For 2020, we plan to harvest free cash flow from our operations, which will position us to allocate capital Accretively for shareholders.
We have a diverse portfolio of businesses, including casinos with wholly owned real estate with about 80% of our EBITDA generated from local and regional casinos as well as distributed gaming operations.
At the strategy, which accounts for about 20% of our property level EBITDA most of our guest live in the U.S. with only 7% of our room nights coming from international guests last weekend. The property was sold out obviously at this time it is tough to handicap, the duration and severity of the current a virus, but we RCR.
Extra business that is remotely proportionate to the impact on our equity valuation.
Now I'll turn the call over to Blake to provide additional color.
Thanks Charles.
Charles mentioned.
We're coming off very strong fourth quarter and are continuing to make progress.
On all of our company initiatives.
Having operated in Nevada for over 30 years I've managed through other local enrolled events each and every case Las Vegas has proven its resiliency, let us come back bigger and stronger than before I'd like to remind everyone. I am a larger share of Golden Entertainment and have an obvious vested interest.
Along with all other shareholders to see our valuation grow I can't control the current of ours and Unfortunately don't have a cure, but we do have what are the most highly regarded management teams and boards and the gaming industry.
Which together have significant equity ownership that is aligned with all of our public shareholders.
As we've communicated in the past, where a different gaming company and we have deliberately built Golden entertainment with a focus on positioning ourselves to profit from the fastest growing region in the country that being southern Nevada, which has the most stable regulatory environment highest population growth as well as other positive X.
Factors all of which have been key drivers that led to consistent organic growth for Nevada businesses.
We have a strip asset we are not news for a company not one of our business units requires air traffic to visit.
And in addition, each of our local and regional properties are not dependent on any large group business.
As I've said, we built this diverse gaming platform by design to include the local and regional markets. Most would hear in Nevada, as well as our operations in Maryland, and Montana I think is extremely important to point out, but along with our unique gaming platform, we own 100% of the real estate under each of our casinos.
Other than in Maryland, where we have a 50 plus your ground lease with state.
All of which has to say we have the asset mix, including owned real estate and the market leadership to bare steel with the impact of the Corona virus and to continue to harvest the strong free cash flow, we will generate into the future.
Finally, just a bit of additional color around what is actually happening here in southern Nevada.
At lunchtime to that people are out in public and people are generally going about their lives in our normal manner.
Our properties are not go steps and seemingly normal activity is taking place. Most guess are exhibiting conscious efforts to mitigate their own risks along with the heightened efforts of our best in class team members. There's no shortage of traffic on major thoroughfares, including nice 15, as well as local traffic corridors are locals.
Properties are convenient and easy to drugs.
Construction activity remains robust with a new Las Vegas Convention center, the MSG sphere, the resort roll project and Andy now very visible new Allegion Stadium for the Las Vegas readers will play.
These large projects along with significant commercial and residential activity continue on in a row.
Restaurants, I frequent are busy.
Activity is consistent.
I wasn't a local casino restaurants, this past Saturday night, and it was completely full with away well the casino was very busy I.
I was at my local Starbucks this morning, and way to 10 minutes for a lot to amid a dozen or so more people all pretty much carrying on as normal.
I'm not trying to minimize the challenges at this current environment presents our will continue to present quite the contrary because we're all taking our responsibly responsibilities very seriously and we are not blind to the business and individual threats that are clearly Evan.
I simply wanted to share with you some first hand observations in real time.
And the reality that gold entertainment and certainly the Las Vegas locals and southern Nevada regional markets in general our maneuvering through this macro challenged at this time with some form of normalcy.
In summary, we had a strong fourth quarter and we have a very clear set of operating priorities for 2020.
We will find we operate the portfolio without construction for integration disruption.
While leveraging our new and uniquely integrated players club.
In addition, we continue to have real growth opportunities and potential new distributed gaming markets. We are one of the highest free cash flow yields in the industry.
And we own all the real estate associated with our casinos.
Bullish on our future.
With that operator, please open the call for questions.
Thank you NFL reminder, ladies and gentlemen to ask a question you will need to press star one on your telephone to withdraw your question press. The pound are asking please standby, while we compile the <unk>.
Our first question is some Carlo Santarelli with Deutsche Bank. Please go ahead.
Great. Thank you so much lake Charles Thank you both very much for for all the perspective.
Provided.
Both of you eat in your remarks did reference the real estate several times and my question is more along the lines of in in the changing conditions like we have today and that continue to evolve on a daily basis [noise].
The presence of your real estate and your views of your real estate changing in what manner in terms of how you think about its value to you.
Hello. This is Blake I think.
First of all.
No. It all options are on the table at this point in time, given as you've mentioned.
Good day to day, moving but the goal posts that's occurring as a result of this macro environment.
And.
As a company, we're looking to grow long term shareholder value, we have no short term plans.
To do anything other than what we're doing an operating our business as it is currently.
But we do see I mean, the share price today in fact, all of our compatriots on the phones share prices are trading today like we're closing forever.
And I think the reality is I tried to give some perspective and some some.
Take a pause here the reality is and the company like ours, not only our weve diversified as I have mentioned given the given to the distributed gaming local and regional properties. It can be driven to we also own are on real estate to your question.
I see that has an advantage I see the as flexibility I see that as variability for us and and as we continue through this depending on how long this last or if we continue to be under appreciated and our share price we'll consider opex.
Great. Thank you that's very helpful. In the second question needs.
And I want to be very careful and how award this but I I actually I want to kind of get your opinion [noise].
What do you view as the likelihood with everything that's going on from from the NC Doubly tournament being canceled two schools being canceled you closed.
In your opinion looking at the broad picture of the United States do you believe there is the potential and possibly even a welcome relief to potentially close regional casinos indoor Las Vegas casinos for a brief period of time infill until things were to cool off a little bit do you believe that potential exists that this.
Point.
It's hard for me to comment on that.
At this time.
I mean from a person perspective, we're not anticipating that.
However, again as the scope as moves daily we're not going to I think it's a response for us to comment.
I think at the moment, that's built into our share price if that occurs I might Carla we could go into thought we'd be talking about the NC to a canceling a national championship and not play games. So yes in that in the vein of anything's possible sure, but we're not planning for it at this point no and I think Charles and into both of your point.
So I mean, it does feel at this point like we're pricing in things beyond that so if that were to be the start of the healing process here for for all of this and the bigger picture thing. So my point was not one of trying to be negative indoor alarmist. It was more of one that could potentially be [noise].
The solution to this problem in the near term as we get things closed and then start to come out of this is as we move further down the road and figure out how everything works at that point in time, but but I. Appreciate your perspective on all of it. Thank you guys, yes. Thanks.
Thank you our next question.
It's from Chad Beynon with Macquarie.
For taking my question.
But how are Ya guys I wanted to focus on I guess fourth quarter, particularly at the strategy if you could.
Maybe provide some additional capesize anything to kind of help us think about.
How the property uptick or uptake occurred anything like Revpar restaurant covers I know there was some disruption I believe early on in the corridor, but could you help us think about any of those data points.
Gave you the confidence.
The things are moving in the right direction and then maybe even anything it in January or February before we started to see the impact from the current situation next tour to chat its trials for the fourth quarter, we're still maintaining a 20 dollar 80, our premium and other items that we've been renovating.
And we still are hotel revenues up call. It mid single digits over the quarter. Despite disruption that was going on at the property.
We've gotten some our table games that we are back online that business has been doing very well for us revenues on the table game side again up high single digits in.
In the quarter and in the SMB revenues that Weve tie those are also depending on the venue mid to high single digits.
From that from that perspective, we had a little erosion in terms of slot performance with the casino floors still down, particularly through October and.
And disruption throughout their front desk in other areas the casino.
Created a little bit of the drag on EBITDA that we've talked about but for where we've taught and it's a little bit ER.
China give finer putting as weve venues weve types weve seen very good results yet now for January and February those numbers for US clearly are on plan I'm. So feel very good about the investment that we've made in the property opt in to this point in terms of.
In talking to our span and what we've seen there are through the fourth quarter and January February of 2020.
Okay, Great and then without I guess, telling your competitors secrets of how you're going to handle the situation. It was probably about a year and a half ago. When there was some weakness on the strip and some of the bigger players we're discounting.
Heavily.
That starts to happen.
You know over the next.
Quarter or maybe even.
Beyond that and those operators are digging deeper into their database and you guys just given.
A different type of mix with your F.I.T. customers and gaming customers you know how should we expect for you guys.
To run the business from a discounting standpoint or will you be going for occupancy will you be.
Trying to kind of hold your own on pricing because this hopefully will be a short term blip I'm just maybe help us think about if there is massive discounting.
Hi, how are you guys will handle maybe March in the second quarter listen I think Chad that's a good period to use as a reference point and so I think at that time, everyone was fighting for occupancy based on rate driving that occupancy on a retail perspective is group business did not materialize as others had to.
The paid it so from our perspective, what did that due to the strat you had we didn't that quarter EBITDA was down about 18%, which to give a sense a magnitude was around two to two and a half million dollars of EBIT.
So you did.
If we're at that point in time, you know, it's our view that those are the type of impacts were looking at.
Given the current situation it groups that are cancelling and they see that for a quarter potentially.
Okay, and then lastly, just on the state of Maryland, Your property that Rocky gap could you just update us on where that is from a sports betting standpoint legislatively.
Legislation is being proposed it's working its way through at this point. We're obviously excited about it it's a limited number of gaming casino gaming licenses in the state right now we're one of them on CES stay tuned for that.
Okay. Thank you very much guys best of luck.
Correct.
Thank you.
Our next question is from.
Dan Politzer with JP Morgan.
Hey, good afternoon.
Thanks for taking my questions and certainly I appreciate all the color on the on the current situation there and on southern Nevada.
So I wanted to touch on the free cash. So obviously, that's been a big part of this story.
Stock I mean, how should we be thinking about free cash flow for next year.
As we've talked about maybe being in that mid three dollar range and granted today the world looks a lot different than it did maybe a few months ago. When we last when we last spoke but I guess, how should we be thinking about that and I guess, what levers do you have your day, we unlock the value than your stock given it seems that investors are not really.
Appreciating it given inwards and trading.
So Dan we have less than 60 million.
ER that applications largely cash interest expense costs.
Other than that we don't have to really spent the dollar.
So you know I think that everyone has their models, we're not giving guidance.
You guys. Every obviously the sector is taken a haircut for views on what that's going to be for this year. Yeah. This point, it's priced in that we may as well not even have the strap within our portfolio at this point in time to do anything with or without real estate.
So yeah fin from my perspective, Yeah, we can certainly manage our cash flow and we can manage our obligations.
And like I said right now all the 80% of our EBITDA really isn't seen much of an impact to our expectations. If at all some assets or even up particularly on the local side.
So again I'm not going to give guidance, but you should have that as a data point that 60 million is what we have to cover a so you guys can do the math in there.
Okay, and then I just wanted to follow up on the real estate, obviously that.
Topical here and as you think about.
You know option there maybe monetize that you need it. He would you look at your entire portfolio certain properties certain properties in certain markets can you kind of maybe rain, how you're thinking about that.
Yeah.
As I said in my prior comments pretty much all at this at this particular time all options are on the table.
The Oh I see this flexibility I see it as a.
As certainly a very valuable assets to our portfolio and the and I think over time, you know if we see share prices continued to be under appreciated and businesses continuing be traded are in line. Although they are very different many cases, we'll make a well make that.
It will draw conclusion at that point in time as I said right now, we're not anticipating doing anything, but but I like having not like having wholly owned real estate as a part of our portfolio.
All right I appreciate the color. Thanks, so much guys.
Thanks.
Thank you.
NFL reminder, ladies and gentlemen to get into can you just press Star then one on your telephone keypad.
Our next question is from David Katz with Jefferies.
Hi, good afternoon, everyone.
And thank you for the commentary.
Yes, Hi, I know you've talked about around about this a bit Charles but.
Can you talk about the book of business that you may have.
And visibility that you may have or at least you know that you appear to have at the moment at the stratosphere.
And the degree to which you know you've been able to you know separate your performance or at least the trajectory of your performance relative to the rest of the strip or are you really tethered to whatever the environment.
As you know how correlated or those.
So as you know we have a we have a relatively short booking window at the strife. We do not have group business is strap becomes the derivative.
Trip as it relates to that as rain occupancy goes within the town and we then we've done the stress that said as soon as distressed here. We compete is that that's at levels with either with or with their peers.
And like I said the property, we sold out last weekend I don't we're tracking to a relatively high occupancy rates. This weekend. It's yeah, but this is obviously evolving if you every hour in every minute with each new announcement to advance getting cancels another things I'd say that they tend to dig context.
Hey, I'm gave the Chad is probably the right. One is we've seen this before we saw in the summer is 18, we saw a.
Price competitiveness or competing for occupancy along the strip and it impacted various properties in different ways and some people report that is very specific place of folks to go check that ferocity was about an 18% drop in EBITDA for the quarter on a year over year basis for the strike.
I have a strategy that is around 50 million EBITDA annually. So you guys could they do the math on what the impact is on a quarterly basis.
Right.
And if I can just follow that up with respect to sort of T. A.
Business, you know being able to drive you know more of more direct versus Oh, yeah.
Can you just in the quarter was quite good can you sort of talk about progress. There also yeah. I mean look we made a lot of progress. If you looked on a percentage basis up quite a bit remember our direct bookings are relatively low we're actually seeing direct bookings steel increase, particularly as we rolled out our true awards player loyalty.
Program, it's giving us more access to customers for getting crossovers in terms of marketing other people in the database coming from other assets. So thats. All helpful. I think is there kind of relatively small numbers tell the over to the overall bookings were still you know highly you know T.A. dependent type of property depending on.
The time, yet because anywhere from 65% to 70% or the bookings are coming on okay channel still.
But thats improving over time and like I said, we're pretty encouraged with the rollout of true awards and our ability to drive more direct casino bookings at all ties in to some of the metrics we talked about in terms of driving more table game play. So we're pushing that we're finding those players and ER and that should get.
A little less reliant on that but that will be a process over time.
Got it one last one if I may loughlin. It you know having having been there the degree to which it is you know connected plugged into and or you know tethered some of the goings on within Las Vegas meeting.
No impact from events et cetera, you know it struck me as.
Somewhat separated.
From kinda, though the vibe of of of the Las Vegas strip or what are you seeing there in the past in a week or so in reaction to the situation listen we had a meeting yesterday with all of RG happens to ask that very question and quite frankly, our customers down there or whatnot.
Las Vegas, they see it as a value play less crowded less hassle easier to get an out to drive to not fly to.
And they're comfortable there. So we don't see that changing we're still seeing him coming we have a big concert event. This weekend minutes on so.
We're just not seeing the adverse impact yet spillover into that market.
Okay. Thank you great quarter.
Thanks, Dan.
Thank you and our next question comes from John D. Clean with Union Gaming. Please go ahead.
Hi, Blake I Charles Thanks, John My question Yep, I wanted to talk about the distributor business, a little bit and any opportunities that you're monitoring had an outside of southern Nevada, right now, Pennsylvania is kind of up it going and there's been some talks about.
Missouri, possibly considering NASA.
I wanted to know if you guys had updated thoughts on on some of those opportunities and if you think the kind of current situation when run a virus.
Might have distracts politicians at this point it kind of what you're what the prospects are for up though that business outside of Nevada for you guys right now.
Yes, John so as we spoken in the past on the last.
Couple of quarterly calls, we continue to be very active and very involved in pursuing.
Distributed gaming opportunities wherever they may arise in particular right now in the short term, Pennsylvania that we've discussed and in Missouri seem to be two places that in the near term have real possibilities of extending or and or legalizing. This form of gaming.
We will have a lot more of an update to your point on our next call. The I think the session runs through June and Pennsylvania.
There are lot of catalyst that were that we're monitoring there that are that are positioning this legislative effort positively I want to get to acquire in front of it but the skill game issue in this not only Pennsylvania, but other states.
It's called the proliferation of those games, which are not tracking any revenue back to the state in the form of any tax that are being placed in literally hotdog shops, barbershops and elsewhere are creating a situation where the state's ultimately are having to deal with US I think Pennsylvania has reached that nexus.
And and that being a catalyst and also the potential revenue being generated from these games.
Oh from the BDC legalization.
Is proving to be a catalyst not only there, but but in a in Missouri as well so without repeating myself. We are very involved or we are in real time.
Speaking to folks back there on a pretty much a daily basis, and and we will have an update for you.
Much more detail on our next call.
Thanks, Mike that's a good update helpful.
Say business in Las Vegas, you guys have had a pipeline of new openings for a while on the tavern segment.
Four to six over the last couple of years.
Can you talk about your pipeline you still expect skill openings and good morning, 20, and kind of still targeting a handful of new openings.
Every year at this point or what's the latest in terms of unit growth.
Having been a continuing significant bright spot in our portfolio. We now have approximately 66 taverns and the market.
In the southern Nevada, us or or Clarke County, I guess market.
As Charles mentioned in his comments our our.
Focus this year has on debt reduction.
And not necessarily on growth capital spend and the taverns would fall into the growth capital spend category. So specifically, we're not anticipating any new openings. This year. We are always looking for what we call three three star AAA locations to.
Our brand.
Having said that we don't have really anything in the pipeline at the moment.
It is an opportunity for us to operate that business as I mentioned in my written comments uninterrupted this year without.
Without having to fix a lot of energy to open tavern believe or not and six of them one year. What's it puts a lot of stress on the upstream. So we're focused on that operation as it is we're focused on paying down debt and there's nothing right now in the foreseeable future per new openings.
Great. Thanks, Blake appreciate any additional color.
Thank you. Our next question is from that if a route with Wells Fargo.
Thank you operator.
Charles I'm, just wondering we've seen a bunch of companies across all the industry's I cover gaming logic leisure starting to drawdown of revolvers, just to say precautionary liquidity move I'm just given the uncertainty in the environment I wanted to get her thoughts about.
If you think that's logical thing to do or if you've done that already.
And your plant there.
Look I think that's probably important for companies that do that have liquidity or maturities or yeah that have issues with their financial covenants that they see in the future. I mean look we're fortunate we have no financial covenants and our current debt structure. We think we have plenty of liquidity we haven't done.
Drawn $200 million revolver as you noted.
We have cash on the balance sheet bonds. So look we're kind of comfortable where we are right now, but you know level well obviously the watching is certainly always an option for us as we look going forward.
But I think its situational dependent on companies and their needs, what's coming up in the future.
Okay, and then would you say that your age of your customers I guess skew like a higher age or or just kind of in like the like in because it's like the average 55 year old or did you say, it's like an all excuse older.
I think it depends on the business you're looking at store locals properties on it because he is nice certainly skew older. Our taverns skew younger strap ends up being somewhere in the middle of the still.
Okay.
All right. Thank you very much guys. Good luck it.
Okay.
Thank you and at this time I would turn Nicole back to Mr. Sartini for his closing comments.
Thank you operator, and thank you for joining us today. So we are we anticipate the hosting youre enough call for the next quarter and look forward to updating everyone. When we report our first quarter results 2020. Thank you.
[noise] and we've done ladies and gentlemen, thank you for participating and you may now disconnect.
[music].