Q2 2020 Golden Entertainment Inc Earnings Call

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Welcome to the Golden Entertainment second quarter 2020, Ernie Conference calls.

At this time I'll participant I'm trying to listen only Mount.

A question and answer session will follow the formal remarks.

Please note that this call is being recorded today August 6th 2020.

Now I'd like to turn the conference over to Joe just only Investor Relations. Please go ahead Sir.

And thank you Bridget good afternoon, everyone on today's call is Blake's are teeny, the company's standard Chairman and Chief Executive Officer, and Charles per child, the company's President and Chief Financial Officer.

Today's call, we will make forward looking statements under the safe Harbor provision of the federal Securities laws.

Actual results make different materially from those who contemplated in these statements.

Little information concerning factors that could cause actual results to materially differ from those forward looking statements is containment today's press release, ending Golden Entertainment's filings with the Securities and Exchange Commission.

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 gaps financial measures I'm talking about our performance.

You can find the reconciliation of gap financial measures in our press release, which is available and on the website.

With that it's my pleasure trying to call over to Blake like please go ahead.

Thanks, Joe.

Good afternoon, everyone and thanks for joining us today.

Well the market's what we operate in the country. It was a whole continue to be impacted by the pandemic our business today isn't a much stronger place compared to when we spoke on our first court recall.

[noise] today operations and all of our markets are open and have been performing better than expected.

However, Montana distributor gaming operations reopened in early May.

Followed by all of our in about a casino and distributed gaming operations on June four.

And a rocky got casino in Maryland on June 19th.

With nearly 80% of our 2019 property EBIDTA derived from Opals oriented and regional properties as well as distributed gaming operations.

The diversity bar business provide just with the foundation to recover quickly from mandated shut down.

We can see evidence of that in our financial performance since reopening.

Or two total EBIDTA exceeded expectations and what's up 14% over the same period last year with three fewer do some Nevada, and 18 fewer days, Maryland, reflecting strong demand and sustained expense reduction.

Fight meaningful to clients and stripped visitation the strapped generated positive EBITDA on June and continues to grow occupancy from about 40 per cent in June two over 50% in July.

The <unk> is not reliant on direct group and convention business.

Expect continued improvement and occupancy as airline capacity and drive in traffic to Las Vegas continues to recover.

Our June performance was led by our Las Vegas locals casinos and tavern.

Which of cheap double digit revenue growth and collectively double their EBITA contribution over last year.

[noise] to reopen Laughlin casinos increased revenue by seven per cent.

<unk> EBITA by 58% well, our total loved one EBITA improved 32%.

<unk> casinos experienced similar financial results with revenue up nine per cent and EBITA up 58% for June when compared to last year.

Oh distributed gaming business also perform well across both are Nevada, and Montana operations, which saw collect of revenue growth of six per cent and EBITA increase a more than 18%.

Importantly, we have seen substantial I'm, what we believed will be sustainable margin improvement, particularly within our Nevada Casino segment.

Excluding strat are Nevada casino EBITA margin expanded to almost 50 per cent in June.

2000 basis point improvement compared to last year.

These margin improvements were primarily driven by reduce labor and marketing expenses.

Currently we have reduce the company's total head count and payroll by approximately 25 per cent.

Head count another reductions in corporate expenses has reduced our corporate overhead boy over 20 per cent.

In addition, we have made significant reduction to our marketing expense compared to prior year.

Moving forward, we do not anticipate head count to meaningfully grow and we also expect a promotional environment in our markets to remain subdued.

The annualized run right of these current cost reductions because in excess of $130 million.

Turning toward liquidity last quarter, we discuss the quick actions, we took at the onset of the pandemic cause our properties began to close at that time, we drew down $200 million on a revolver and have had no need to access the capital markets for additional liquidity.

During too too we were paid $190 million on the revolver, which remains available to us if needed in the future.

In addition, we continue to have no near term that maturities no financial covenants and most of the real estate under our casinos.

As a result of our performance since reopening we are generating cash flow, which will be used to reduce leverage.

In the near term and position Us to act on future growth opportunities such as expansion of distributed gaming, a new jurisdictions or pursuit targeted tuck in acquisitions.

Lastly, I Wanna. Thank all of our team members for their dedication a golden entertainment and a fantastic job they did and getting our property is back up and running.

As far as their support and providing a great gas service, while delivering are golden commitment to health and safety our ability to ensure that help them. All most of our team members and guess is critical to a recovery and I'm proud of the way our team members have address the challenges, but for now our new normal.

Although this is certainly one of the most challenging operating environments. We've ever faced I'm confident that are diversified business model will position us to recover and capitalized on future opportunities.

Without operator, please open a call for questions.

Can I need an gentlemen, you have a question at this time. Please press time, the number one or you touchtone kind of phone.

If you question has been answered all you wished your move yourself NICU. Please press the pound key.

Please send that I'll be compiled Q&A roster.

My first question comes from the line of Colorado Central Valley with Deutsche Bank Atlanta's open.

Hey, guys. How are you. Thank you very much for the prepared remarks.

Just in terms of the stratosphere and how do you guys are thinking about kind of a new operating auto right now and in the strip climate that you're looking at what size differently and how much is maybe being able to kind of leverage the database of your your your pop customers and whatnot helped you know augment that property to a degree at.

My stomach gaming floor for the time being and now what do you expect potentially to be able to do at as we move forward ear, assuming that kind of be airlift optionality remains somewhat scared.

Yeah, Hey car, though it's Charles said I think is is Blake mentioned just to remind your ystrad. This property is not relying on group business or international travel sure I think for now you know, we're really focused on our core customer demographic, which has been really driven off O T as the properties.

[noise] to having a sharp booking window that has continued a blake mentioned occupancy rate on average going from 40% Kid you know, 50% for the minds, but we've touched.

70% on the weekend then over the fourth of July weekend, the property with at 90 per cent occupancy. So can I take for US. The property is catering to it's known demographic, we expect that to to continue yeah on the gaming side, we have seen an increase in rated play although as you recall for the strap it from.

A small based on so we're certainly encouraged by that but we think that property is position better than most to break even in exceed expectations and we're seeing it is incremental step ups and occupancy are really direct flow through you had to the bottom line.

For us for distress.

Thanks, Charles and then it if I could <unk>.

You guys talk a little bit Blake's mentioned, the ability to potentially seat tuck in acquisitions <unk> as we think about that kind of <unk> I I guess it the easiest way to ask it is what size considered E. <unk> something that makes sense within the portfolio today or what type of cold would you would you'd look to fill with.

The portfolio today with with an acquisition.

Yeah, I mean, I think it let's start with our capital structure Shake I think we wanted a few companies out there that did not have to go out and raise external capital sure. We have access to approximately 190 million under existing revolver, we have cash on the balance sheet and we think there will be opportunity for it yet.

Smaller bite-size asset to become available over the next call it six to 818 months.

In terms of what we're looking for is certainly were well covered in Nevada, we'll get a lotta synergies for other potential Nevada acquisition, we do not have a presence in northern Nevada, but I'd say, yeah. We also have our our property in Maryland and as for for me very well and so adding density to the eastern seaboard for us as something will certainly.

[noise] take a look at I would say, we're very focused started leverage point and and so we will not be looking do anything that meaningfully or increases leverage from this point. So we'll be pretty focused on something where we feel we could really make a difference in improving the operations that asset.

Great. Thank you Charlie.

Thanks.

And our next question comes on the line Chad painting with Macquarie Your line or something.

Good afternoon. Thanks for taking my question guys.

Like wanted to start with your comments on margin sustainability, particularly within the Nevada casino market, where you've been active for decades.

Can you expand on maybe some of the humanities in the labor intensive items that that could be closed right now they could drag down margins.

If we should expect these to open back up and hurt the margin profile, and then medium and longer term and I think I think this message came across loud and clear, but it seems like <unk>.

The major players in the market you Red rocks Boyd all seem to be reducing marketing could this be a major change in terms of how we think about margins in that region. Thanks.

Yeah sure I think that's a great question I think specifically to the first part of your question.

What other things I I'm I'm I'm confident archon is constant as our corporate overhead being reduce it to the extent that it is.

And I don't see that affecting any of our properties or get service whatsoever. So going forward you can expect or we can expect that our property is running with a much less the most smaller corporate expense specific to the properties you're right as long as the current in the current marketing environment as we see it we.

He used to work subdued and I'm prepared comments.

I do think that's sustainable I do think we're all learning through the course of this of this.

A pandemic or exercise if you Wanna call with that.

That we can operate more efficiently from a marketing standpoint target target.

Better at targeting the appropriate customer consumer.

And going forward as I said I think I think that is sustainable I think the market.

In General you know, we're all susceptible to competitive pressure, but I think the market in general is seeing opportunities in the long run to to reduce the marketing cost.

In addition, I think the biggest thing for US and you mentioned my experience in the in the in the business.

Buffet's R a or an enormous labor expense.

Frankly, they're an enormous comp expense.

And the Buffets are are you know significantly.

We're a significant costs.

Two or post to suit them at Costco, our business. So I I do we see those are properties operating without buffets going forward, Yes, I I think we do and I think we can be creative and how we present that offering in the future, but combined buffet's combined with marketing cost will be the bulk.

Of what we see being sustainable going forward and as I mentioned or corporate expense.

Certainly sustainable going forward.

Alright, Thank you and then switching to the.

Nevada.

<unk> could you just kind of expound on what the day to day looks like from a social distancing standpoint, if the machines at the bar are able to be played you know to the same level.

H as before and you know what's changed in the quarter in any differences that you're seeing I guess weekend versus weekdays. Thank you.

Yeah. So in regards to the taverns.

June let's go don't go back to June when we were fully operational.

Mentioned and are prepared remarks, the significant you over a year.

Economics that we were experiencing.

We see that we see listen to distributed gaming business. We saw it in 2008 nine during me.

The economic crisis, we're seeing it during the pandemic cause they're very resilient business and probably the most resilient part of our portfolio.

Today.

Chad in fact, the bars are essentially closed.

So there is no gaming.

That's that's occurring across our bar tops.

However, we've been allowed to establish a gaming presence by putting standup games irreparate games or flattop games within a restricted locations.

We have we have done that.

At this point with about 25 per cent of our Taborin locations.

And the standup performance.

I would just say is barrett impactful, it's at or a cheese what were you sitting at the bar top and and and so in the for the foreseeable future as long as our state is restricting commerce across the bar top whether it's food beverage or a gaming we will continue to roll out the standup gay.

Ames and these locations where as I mentioned.

The results right now are very strong.

Okay. Thank you very impressive thanks, guys I appreciate it thanks Jed thanks.

Thank you it in the next question comes from the ninth of David Cats, Jeopardize your line or something.

Alright afternoon, everyone.

David.

Alright, well done just two short questions <unk> number one.

You know look at it looks like at the second level. You know you got yourself right around the Rainbow Brite to you then.

Corporate expense.

Pause kind of a driver you know kind of a negative corner alright, alright, you know not advocating that it should be one way or the other just looking across the industry there's been.

Fair amount or furloughing and cutting in and and the like around corporate expense I'm just curious to hear your your thoughts in perspective about how you looked at the corporate expensive you have an aware that is and how we should think about it in the future quarters.

Yeah, [laughter], yeah, David So we did reduce head count across the portfolio, including incorporate by about 25 per cent.

Keep in mind on the distributed side is a little less.

[noise] ability in terms of Phloxine employees on the distributed side yeah at at location. So he cut even harder on the casino side.

From the corporate perfect going forward, yeah, you'd probably you'll see a red right down approximately 10 million.

On an annualized basis, how you doin' roughly $46 million, where we were last year, so pretty meaningful card I'd also mentioned that if there are certain corporate corporate cloth that we don't allocate like some of our peers too.

Okay.

Might argue that.

Some of some of what you see others is not necessarily in the entirety of corporate.

Thank you for that and can you just Charles to talk to us about the.

Cadence you know cash flow positivity as as you see it for the rest of the year that would do.

As well.

Yeah, I mean, if you take a look at all let's just take June for example that we discussed we're certainly Ah.

Very cash flow positive for that month. It is place mentioned were up 14% in terms of EBITDA.

It's like we don't want it give projections on the call, but if you think about yeah, a run right that is at or exceeding Ah last year, and we're seeing that for June and we're seeing that certainly through July.

Given if that we can maintain at least the current level of environment Ied operations are open at their existing level I'd also point out if he looked at June we only had 12 days of Rocky gap, which generally does it over $2 million a month during the summer and it's on that track for for July.

And the <unk> really was a little bit better than breakeven and that's improving that even if you're going to add you make me arguments around sustainability. The local assets, we're gonna be bullied by the improvement of those assets.

From my perspective, you look at cash flow through through there to the rest of the year is certainly again it'd be positive we had more than enough cash flow to service, our our our debt carrying cost and and from a capex perspective, as we said and our last quarter, that's basically shut down unless we have necessary.

Maintenance capex for the balance of the year.

Got it that last comment was exactly what I was gonna follow up with so S can answer thanks very much.

Yep no problem. Thanks.

Our next question comes from the line of ban collect sandwich J P. Morgan.

Or something.

Good afternoon Bland Charles.

Thanks for all the commentary so far.

So I was hoping you could give a little bit more details just don't on what you guys are seeing in joke. Why you saw on July maybe until August and trend across the portfolio are there any specific areas are segments. You maybe highlight so you're saying is significant acceleration or deceleration relative to some deposit a trance we saw on June.

Yeah, I mean, Dan for Us, it's really been a continuation of June and I think that when people ask us about.

Sustainability again, yeah, I know, we were probably the first public operator with operations opened with our Montana distributed operations open and May that business has continued to perform an exciting last year.

And so you know I think that it comes back to most of our portfolio call at 80% of it being Ah Ah EBITDA generated that is your local or regional gaming.

For us that's going to continue to be strong even if it takes time for the strip and destination property figure out.

Shit for US again, it's a continuation of what we've seen in June I think that again, we don't want it really have we don't have a ton of visibility into whether that continues going into the fall.

For now we certainly look at and see those trends is very encouraging and you know given again, we have had a business. That's been open for two months now we just don't see that demand dramatically tapering off as we get into August and September.

Alright. Thank thanks for that and then mm that's distributed gaming I know, that's generally fairly stable, but just in terms of margins and there's agreements with third party benders and things like that is that a business that you've been able to take any costs out in a significant manner.

You know fairly stable.

Okay, I would say with close yeah to look to I think there's two pieces of that business. There's our third party locations that we service, where if you think about that model and how we report we record 100 per cent of that revenue and the biggest pass it that is the statement, where we are giving up.

Yeah cut to our third party partners. So that is a highly that is a highly variable pieces of business. So that's kind of it to get into bed right. It is Blake mentioned in the resiliency as a downturn you really not gonna have a lot of fixed costs that are in into that business.

But yeah. It is margins are gonna be a little bit better, but but fairly stable in terms of how they moved with the revenue up or down the peace, where we are able to see meaningful improvement Orrin are wholly owned tavern side. So we've made.

Staffing decisions around kitchens and hours of operation across the portfolio streamlining menu is pointing and processes and procedures in place that you know hopefully mitigate.

It would cost creep that happens in the F&B side of that business.

So we have been able to <unk> to do some things there that had been impactful for it to that please.

Okay. Thank you and then 111 additional it so you mentioned the $130 million I think of annual number one right sauce take out so I'm just kind of looking at once you guys did in 2019 bearing in mind.

You know the strap was under under construction.

Just dropped in there I mean, he's their pet way on this current portfolio to get the 30 per cent plus margins given the cost take off my you know doing my mouth correctly there.

We could probably get close to that I'd say first stop is gonna be closer more to the mid twenties as a whole after corporate again keep in mind that distributed piece of the business is a lower pace I think if you look at the casino side of the business Windows margins, there's a <unk>.

That is there for all the reasons like talked about yeah, and where we were near 30 per cent going into the pandemic. So.

We were already give or take 30% depending upon corporate allocation you know first as others and some of those nuances, but to your question. We were already near that number. So absolutely. We believe we can operate at a higher level.

Alright, great. Thanks, so much guys congrats on the corner.

<unk>.

Thank you and your question comes from the line of John degree with Union gave me your lettuce open.

I'd like I Charles.

You have with a lot of <unk>.

Cover a lot of ground, but maybe you wanted to stick with the the V. T T business. So two two questions.

One on Pennsylvania, and it looks like what kind of fizzled out.

Back in June, but put a new bill out there I wanted to get your view on on the prospects of that and maybe it's not until fall, but I'm curious if there's any added momentum there.

And then the second question and if I missed that I apologize how do you view.

P G T new markets existing market spell that new for you as possible tuck in acquisition target.

Yeah, John So Pennsylvania.

Oh, Yeah, you're right you have been following it I will tell you that we continue to believe that hour.

Political as well as R. As our is our management efforts to two C V G to your expansion in Pennsylvania occur.

Is going to is going to come to fruition here at some point, where cautiously optimistic that it's sooner rather than later with the with the all the states state legislators.

<unk> and I'm working remotely as a result of the pandemic. Obviously you can assume that the same thing is having reaching some habit can pennsylvania, but we believe the momentum over there I think I think also a catalyst that we believe not only for Pennsylvania, but other markets in particular.

Given given worst state stand now from an economic standpoint, we know that there are other states that are going to consider maybe have to consider this form of of gaming for additional tax revenues. So.

We are continuing very strong push.

In Pennsylvania, because of our last two or three years of activity. There obviously, but also we believe other markets could potentially.

Open up as a result of states needs for funds in regards to existing markets and our potential to to enter that's open to us I think at all times. So I think we're.

Some of the we look at some of the valuations early on something about tuitions now.

And if there's an opportunity, whether it's illinois or or other states certainly we would be we would be opportunistic I'm looking at at one of those types of acquisition. So.

We are I would just leave it that we are active in pursuing growth in that part of the industry.

Great. Thanks, Blake's any additional commentary.

I'm not showing any some of your questions now trying to call back on for you Mr. Santini Foreclosing relax.

Thank you operator, and thanks for that room for joining US today, we look forward to updating everyone. When we report or 2023rd quarter resolved. Thank you.

Ladies and gentlemen, does that conclude the program you may know disconnect.

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