Q1 2020 Earnings Call

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[music] good afternoon, ladies and gentlemen, thank you for standing by welcome to the goal then injury team.

First one third.

Like Eattwenty earnings Conference call.

At this time all this it then I am I missing only even though it.

A question answer session will follow the formal remarks.

Please note that this call is being recorded to date me so they might be lumpy.

Now I'd like to turn the conference where digital.

Just maybe.

That's true nation.

Please go ahead.

Thank you very much Catherine and good afternoon, everyone. Then we apologize for any difficulties you may have had in conducting the call. It seems like the call provider is having some issues.

In any case gold Medicare Macabre, Chairman and Chief Executive Officer, Blake, Sartini, and the company's President and Chief Financial Officer, Charles propeller on today's call 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 the statement.

Additional information concerning factors that could cause actual results to materially differ from these forward looking statements is contained in today's press release. When there are filings with the Securities Exchange Commission, except as required by law. We undertake no obligation to update these statements as a result of new information or otherwise.

In the call. We will also discuss non-GAAP financial measures in talking about our performance.

And you can find a reconciliation of GAAP measures in our press release, which is available on our website right now.

With that it's my pleasure turn the call over to Blake Sartini Blake. Please go ahead.

Thanks, Joe Good afternoon, everyone and thank you for joining us today.

To begin I want to extend our sympathies to everyone that that's been affected by the Coke 19 pandemic.

Express our appreciation for all of the health care providers first responders and other essential workers, who are helping to protect our communities throughout this crisis.

During this challenging time, our focus has been on supporting our team members stay connected to our guests and preparing the company to address the business environment.

Hard to gaming industry for more than 30 years and of operating because she asked for a number of challenging times, including the Dot Com bus post 911, the great recession of 2008 in 2009 and the tragic events in our community here about over the first.

Each time, the gaming industry, including want to space and Nevada in particular has recovered and overtime come back even stronger. The current challenge is certainly significant but given what we've seen in the past I have great optimism that the gaming markets, where we operate.

We'll return to normalcy.

Over the last several years, we have built Golden entertainment into a unique gaming company with operations across several diverse markets, including Las Vegas strip Las Vegas locals regional destinations in Washington, and Marilyn and our own and third party tavern, another distributed gaming locations across Nevada, and Montana reopened.

One of our properties and recovery of our businesses will come in phases, but they will recover our diversity as outlined will play a significant role and golden's ability to recover as fast if not faster than others as we feel our local casinos hyper local distributed gaming platform.

And consolidated regional properties will outperform in the early stages of reopening.

To emphasize this point, our Montana distributed operations, which span almost 300 locations and approximately 3000 devices across the state.

Fully resumed operations this past Monday.

Although it has only been a few days, we have seen pent up demand and customer volumes comparable to pre closure levels as patrons returned to their local taverns, where social distancing and enhance cleanliness standards have been implemented.

Turning to Nevada in Maryland, we continue to wait a clear guidance on an opening day. However, we are prepared and plan to open by the end of this month.

Our ability to ensure the health and safety of our team members and guess will be critical to a full recovery and as such we continue to work with our various state and local issues officials to ensure we established best practices as we open.

Since the beginning of the covert 19 outbreak we have taken a quick and prudent action to enhance our liquidity by preserving cash our balance sheet and drawing down our revolver to create over $300 million of cash on hand at the end of March.

As a result of the actions we've taken and many other difficult decisions, we have reduced our cash burn rate to approximately $7 million per month.

Until our next bond interest payment in October.

At this time, it's a very significant to note that our financial flexibility is enhanced by only 100% over the real estate under each of our casinos, except in Maryland, where we have a 50 plus year ground lease with the state.

Taken together, our liquidity and balance sheet, which has no near term maturities are owned real estate and the diverse mix of our operations, which primarily includes local and regional markets positions us to recover quickly.

Through February our total revenue was up over 8% and our EBITDA was up 10%.

We were well on our way to capitalizing on investments we made in 2019, which included completing the renovations at strap integrating two acquired properties and Laughlin and introducing our true rewards one card player loyalty program that links our casino resorts.

With our distributed gaming operations the benefits from these initiatives were apparent early in Q1 and will be again, as we reopened our properties and reestablish our growth and free cash flow generation and amongst ahead with that operator. Please open the call for questions.

Sorry, Sir at this time, if you would like to ask a question.

Press Star one on your telephone keypad.

Yes that is our one on yard telephones.

Well pause for just a moment to compiled the Kim.

Yes.

[noise] and your first question comes from the Big Katz from Jefferies. Sir. Please go ahead.

Hi, good afternoon, everyone. Good to hear from you.

And thank you for taking my question.

Look I wanted to just focus on the stratosphere and I know it may not be or we may not know much but can you just talk about the.

Prospective contingency plans that you know you've gone through so far.

And you know anything that you may be seeing or hearing with respect to the strip.

As we've really I guess, just this earnings season started to get a little more insight from.

Companies as to what their plan is and how they plan to roll back into the market I would say cat.

Yeah, Hey, David its Charles I mean, like with respect to the strategy along the stress and.

Yeah, we intend to hoping they were allowed to that property has relative to others that fairly limited rebase that 2400 rooms. It has a smaller casino floor in public spaces.

So we again, we have no intent to not open that asset when looking where a lot.

Playwear lots to do so I point out that way to stratospheric here before this.

Before this happened our our level of group business, we certainly.

Nonexistent, it's something we're working to develop a bike we're not dependent on that to generate revenues were also not depended on international travel in less than 7% of our bookings are international and our biggest feeder market is really driving hearses flyer market from southern California.

So I think the strategy performance going forward it will be highly dependent on.

If any.

I agree and states in California.

And then how comfortable how customers are in terms of driving driving here to Las Vegas, and then lastly, what's the supply level, while strip out it be yeah, 80000 hotel rooms, how many those are actually going to be open our 2400 will be a part of that and to.

We take that Dan we could see.

He has some benefit from being one of his first open a strip.

Yeah, I would add to that data to give you. Some some forward looking.

Metrics, if you were saying we're seeing limited.

Occupancy demand in June, but we're seeing that bill pretty favorably into labor day, and so we do see a ramp up over the summer just in specific to the stride as Charles mentioned, we will be opened the more allowed for anticipated by the end of this month.

But we are we are seeing people step back into the <unk> the market.

Tepidly admittedly in June, but it's building pretty rapidly into labor day.

Good.

And Oh excuse me, we think the call drops.

Hello did the call drop.

No Sir we are on lives.

I can't hear the call.

Please put me back in the conference then.

HM.

Yes, Joe.

I guess are there any other questions. David can you hear a favorite artists alone.

No. Sir you are online can you hear me.

We can sit here you are there any other questions in the care, yes, Sir we do have a question.

That's why don't you put in Ohio, and logic wouldn't mind liquidity, we finish our question here with what they have to say the answer before dropping that yeah, sorry child.

Your next question comes from benign.

Yeah.

Lester from JP Morgan Sir Please go ahead.

Hey, Hey, good afternoon, everyone and thanks for taking my question.

So on this.

On the strength I guess is there any additional color you can provide on and how we should think about the breakeven levels in terms of maybe occupancy or EBITDA in terms of you know getting to sit back but at least the cash flow positive number.

Yes, sure that fit our whole portfolio I mean, like we think that the business it really be operating at 25% to 30% habits historical volume leverage levels in aggregate you distribute it could be a little bit last distract navy needs to be a little bit more.

And I know there is a lot of focus on what's going on in the stress I do want to say, 80% of our business comes from distributed in regional assets. I mean, I think we are unless someone can correct me if first public company, we had like gaming operations right now.

In Montana.

And if that any indication in turn to how we view the rest of our distributor business and our local business here in Las Vegas, Diablo looks pretty good now only it's only a few days we're looking at customer accounts in traffic will have more to report is we get gelling, but.

Yeah again from our perspective, the way that we view our is nikolic holistically is the locals and our distributed or if it ramped very quickly and we have not missed a beat this week and in Montana at gets an example, it's one data point small piece of our business, but that that's out there with risk.

Back to the strip I think everyone is making the assumptions and we are as well that group business is going to be much weaker on highly dependent on how you see raiders and whether they're playing life gains are not going to fall here in terms of picking back up but the other bigger guide on the strip will have much more visibility into there.

Convention bookings and at least from what I've heard those are all being rebooked in high frequency towards the fall in the first half at 20 2021.

This strategy will be opened when we're allowed to aim will have low volumes to start, but we need to get start we need to get people into the building and people getting comfortable with the new normal.

And listen we have a or a plan with a high degree of conviction that we could operate without a lot of the cost structure that exist in that exit not only at the strap and the rest of her operations as well.

Got it that that's really helpful. And then and then I guess just kind of piggybacking on that is as far as how you open up the strategy you maybe talking about you know you know how does because you don't forget reconfigured there versus maybe some of your regional properties as well that the taverns and I guess, where the whereas you're going to be the most burdensome undertaking to get it to kind of making.

Socially compliant yeah, I think if you will take a couple of things I think if he.

So just today, Nevada Gaming Commission I came outweigh the food regulations for both Nonrestricted, the casinos and restricted which is a distributed operations.

We and others in industry has been part of the input that form says, we're very comfortable with what's out there. We think it's very reasonable inferior to integrate road map to get everyone. When we're allowed.

Back to work in operating safely for both our team members in our guess too.

We are we're very excited about that in terms of social different requirements a lot of that's going to be geared towards occupancy if you'd be three that I mean again very comfortable from that perspective, and also limiting it at the odd that positions that you're going to have on the tables as well its ability to sit at slots I, yet every other store or or or.

Or otherwise.

Yes.

Going back historically, if you look at distract and look at other casinos that had been built 20 years ago plot on this trip you up one point the stratosphere had over 2000 slot machines and now we have 750. So there is plenty of spacing within that casino floor.

Already built into the structure on and from our perspective, we have Ah on very rare weekend, we can add to slide occupancy north of 50% anyway. So I don't think the question is about four for most of us meaning does.

Our relied on group or international travel I don't think the question is about what is the impact on revenue about social distant seen in occupancy guidelines I think the question is ultimately whats the consumer demand and that is obviously very tough the forecast right now we do have one data point, so far it's been very good.

Stronger than what we've expected in Montana, and again, that's a barometer for local and hyper local gaming and if you that there's a pent up demand at least in regional markets in local markets for this form as entertainment and we think that to.

You know at that side of things pick up.

Got it. Thanks, I appreciate all the detail and best of luck.

Okay. Thanks, Dan.

Thank you and you have your next question Sir.

From the line Chad Beynon from Macquarie. Please ask your question. Your line is now open.

Hi, guys. Good afternoon, and thanks for taking my question.

Yup.

Blake I guess, because you mentioned January February maybe I'll ask your question on that so I think you said revenues were up eight.

EBITDA up 10.

Can you maybe talk about how the strat performed during the I guess weekdays or weekends. When there were some bigger conferences I believe CES was within there or anything else you know maybe in just some some nuggets from that would be helpful. Just as we think about the other side.

When everything is completely up and running thanks.

Yes, its shot on the on the strength.

The first two months, we showed significant improvement in revenues in fact, we were at or above our budgeted numbers and general inside of the everywhere around the revenue side and that's inclusive of CES that didn't pan out as a as it was originally scheduled no. There was some degradation in demand in that.

And Conagra came later in the in that time period, and again was just at the beginning of the kind of the coven.

Situation as well as to kind of a tree top it was going back and forth between China and the U.S. So given those challenges along with kind of some was in horizon a table game hold PC, we did flow through a lot of that additional revenue, but the positive signs we're we're on that topic.

We're significantly yet we were saying we were seeing return on those investments from the topline.

And there's no question on mine that we would manage on the expense side to bring that into line. So the first couple of months, we're very bright for poor the strap and ER and I think to your point as the strip ramps up or you know we would continue to benefit from that from that's up from that additional business.

For the stress Standalone January February.

Given those challenges that I mentioned performed on the topline at or above our expectations.

Thanks, and then on the I guess, the hyper local in the local businesses.

How should we think about.

Margin recovery, if volumes are off a little bit and I'm, assuming a lot of those cost once you're completely open or relatively fixed just in terms of keeping the lights on and employing the people that are in there do you have much flexibility just in terms of.

You know flexing down that that cost structure, a little bit or just trying to get a sense of how those margins will ramp.

Yeah, I mean, absolutely Chad to I mean in fact hyper local sector at that to distributed business. It is margins are highly variable because we actually had revenue splits with our third party customers and there's really no events. We haven't infrastructure is really not a lot to it.

From that perspective.

No casinos side, we're not opening every restaurant at the same time. For example, you mean that we're going to be allowed to open and you're not going to have a full amenities within its within those properties.

We may not Ryan in a table games shifts the same way that we did before so we're looking at all of that the cost structure, it's highly variable from a.

From a labor perspective, we own around all of all of our assets as you know on that gets you decide to we don't have a large and component.

So you can look like I said before yeah, we view that our breakeven cash flow capital. So again being able to service that is around the yeah poly at 25 to 20 Fiveish percent level from a revenue perspective, we don't think will be anywhere close to that on a local side, meaning it will be much higher than that.

You had given what we're seeing right now.

I mean to odd that is a very clear indication there is pent up demand.

Point out most of the customer base that is in the local market here in Las Vegas. These results were not in the workforce a broad fixed income before they're out of the workforce now that the as the workforce in the future all too on fixed income. So this is the goal for all of US as operators will make people feel comfortable in terms.

Coming back to the property safely into into a joint itself.

Obviously, we've been working hard you to do that both within our own operations when industry and the gaming.

Okay. Thanks, Charles let the are you guys are well.

Thanks.

And Sir your next question.

Comes from the nine of Carina sensory E problems like Keybanc, Sir Please ask your question.

Hey, great. Thanks, guys couple of my questions have already been answered but.

That's the line as he took a cabling business up to the extent that you guys have looked at their alternative forms of finding at all or to these studies needed it looks pretty good pass on hand at your burn rate.

Like you do.

How much you guys way type of the alternative of taking incremental financing at any point.

I will look I mean, thanks, Carlos that you're able to get onto the call I think at this point given that we have over 300 million a cash on the balance sheet in a very low burn rate, we don't see the need for any type of incremental financing or for the foreseeable future shale, it's not really.

In me in the current for US in terms, if you're talking about looking at it has to be able to another types of things I think that the treasury made it pretty clear that it's not bad for public company.

I'll have or for companies that access to other forms of financing an acquisitive, but clearly we do.

So we get look at that a little bit start up even though this businesses at this point would qualify.

Across the state.

It almost 100 city.

I can't show the.

The traffic if we're seeing a niece locations.

A lot harder where it was before the shut down now offices from Monday to now. So we're you know all three and a half days into that <unk> doesn't make a trend, but it could have in the other day. So we think that's very encouraging a that customers feel comfortable coming if they want to get out of the house they want.

To go experience a form of entertainment they want to get back into their routine and they're thankful that we could provide that for them.

<unk> Oh, just just for clarity every single game 'cause on every single game. It was played a boulder none of them are dark.

But it's just you know within the distance requirements within those facilities, but I think it's important to know one more time. There are no games that are dark all 3000 games are played.

Got it tanks Blake Thanks Charles.

Yeah. Thanks, Yeah.

Mm.

And three centers that is all the questions on cue.

Oh, Okay, Oh, right T.F.I. closing your Mike.

Thanks operate on things that are room for joining us to that.

We look forward to updating every one again when we report our second quarter results.

And that's kind of needs today conference Oh, Thank you I'm sorry.

Yeah, you may now disconnect.

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