Q3 2020 Golden Entertainment Inc Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Good afternoon, ladies thank you.
Standing by welcome to the Golden Entertainment third quarter 2020 earnings Conference call.
At this time all participants are in a listen only mode.
And then answer session will follow the formal remarks please.
Please note that this call is being recorded today November 5th 2020.
Now I'd like to turn the conference over to judge a phony Investor Relations. Please go ahead Sir.
Thank you Jim and good afternoon, everyone on today's call is called Entertainment, Chairman founder and CEO, Blake Sartini and Charles Protell, The company's President and Chief Financial Officer.
On today's call, we will make forward looking statements under the safe Harbor provisions of the federal Securities laws.
Actual results may differ materially from those contemplated in these statements.
Additional information concerning factors that could cause actual results continually differ from these forward looking statements are contained in today's press release and in our filings with the FCC except.
Except as required by law, we undertake no obligation to update these statements as a result of new information or otherwise.
During today's call. We will also discuss non-GAAP financial measures in talking about our performance you can find the reconciliation of GAAP financial measures in our press release, which is available on the web site.
That it's my pleasure to turn the call over to Charles Protell. Charles Please go ahead.
Thanks, Joe.
Our record third quarter results demonstrated that our diverse portfolio of locals oriented in regional gaming operations has rebounded quickly from the mandated shutdowns in March we achieved these results even with the scrap performing below 2019 levels and the mandated closure of our Nevada buyer more areas for most of the three corner, which negatively impacted.
Back to the performance of our distributed gaming business art.
Our third quarter adjusted EBITDA was led by our Las Vegas, locals casinos, which achieved double digit revenue growth and collectively doubled their EBITDA contribution over last year. The combined EBITDA margin for two Las Vegas locals casinos exceeded 50% for the third quarter.
In Laughlin with only two casinos open now versus three last year, we grew EBITDA by 8% on lower revenue the.
The combined EBITDA margin for loughlin properties exceeded 40% for the quarter.
For 3% Casino's EBITDA improved almost 40% on flat revenue and also achieve EBITDA margins of 40%.
Distract continues to improve and we are seeing overall occupancy in the 50% to 55% range with over 90% occupancy on some weekends.
Stretch room revenues remain approximately 50% lower than last year, but spend per guest has increased 30% with most of that spend on higher margin gaming revenue.
Given the increased customer spend on gaming combined with the fact that the strategy has never directly dependent on conventions for international bookings. We believe that the strategy is performing better than most strip properties as it is to generate two thirds of the EBITDA from last year.
In Maryland, we also saw improvement in performance at our Rocky Gap resort EBITDA grew over 27% on a 4% increase in revenue. This led to a 39% EBITDA margin for the property.
With Rocky gap combined with our Nevada casinos, our total casino operations grew EBITDA by 20% and improved EBITDA margin by over 1000 basis points to 37%.
If we excluded the stride our total casino EBITDA would be up 38% over last year and our casino margins would show more than a 1300 basis point improvement to 44%.
We believe these margin levels are sustainable primarily based on the fundamental changes to our cost structure within property marketing and labor expenses.
Turning to our Nevada distributed business, we were significantly challenged by the mandated closure of bar areas from July 10th to September 20th as well as the associated cost with closing and reopening these areas. These.
These challenges cost us approximately $7 million in EBITDA for the quarter compared to last year, while revenue decreased 31% as most of our gaming activity and beverage sales obviously take place at the bar Needless to say, we are excited to have or bar areas reopened which is all upside going forward.
Our Montana operations continue to perform well since reopening in May revenue was up over 17% through a combination of new accounts improved performance from existing locations. While EBITDA was up 7% in aggregate total company EBITDA improved 5.5% year over year to 45.4 million despite lower revenue.
This led to improved total EBITDA margin of 440 basis points again, even without the strap performing at 19 levels and with.
Nevada Tavern bar areas close for substantially all of the third quarter.
Strong operating trends, we have seen in our local and regional properties. Since reopening continued through October we're generating positive cash flow in the quarter repaid the remaining $10 million of 200 million borrowed under our revolving credit facility with a 100 million of cash on hand, our balance sheet is essentially at the same level now as it was prior.
Due to the shutdown and we did not need to raise any additional debt or equity capital.
Stain or restart our operations.
Looking forward, our near term focus is on sustaining and improving the performance across our operations, while using excess cash flow to reduce leverage and better position us for future opportunities.
These opportunities include sports wagering in Maryland expansion to distribute a game in new jurisdictions as well as returning capital to shareholders.
Finally, we want to thank all our team members for their continued dedication to our company and commitment to providing exceptional service to our guests. The effort from our team has been extraordinary and has contributed greatly to our success that concludes our prepared remarks operator. Please open the call for questions.
Thank you as a reminder to ask the question you'll need to press Star then one on your Touchtone telephone to withdraw your question from the queue. Please press the pound key please stand by while we compile the culinary roster.
Our first question comes from Carlo Santarelli with Deutsche Bank. Your line is now open.
Hey, guys. Good afternoon, good morning.
Just for starters Charles.
As it pertains to kind of the expansion opportunities coming out of the pandemic with with the route business.
What's the latest you could tell us in terms of what you might be hearing.
[noise] around kind of potential expansion opportunities states, where it maybe it maybe the balls a little bit further down is.
Is there anything new on that front you guys are able to share at this time.
Look we think it's going to be considered in several states I think Matt now more than ever and you just saw referendum to expanding gaming across the country and six six jurisdictions fab sports wagering and otherwise we think this is a.
The likely form of revenue generation, you have four states going forward and we're obviously trying to it and trying to advance that we've talked about Pennsylvania for a while still very active in that market and again I think once we get that some of the noise of the election settled out and people get to work at the start of the year, we are going to see movement.
Hopefully in that state as well as others.
Great. Thanks.
Obviously, there was a disclosure that was made recently that preclude you your sportsbook operations in Nevada, and a potential.
I don't think that would come your way.
As a change of control is there anything you could share with us.
Your thoughts and expectations.
Sure I mean look it's certainly our expectation that when that transaction closes that we would receive all of that payment, but obviously the deal has to close first so yes beyond that we would want to make any comment. We're obviously hopeful that it closes add that and look forward to that sometime next.
Sure.
And then tell US what would you do with your existing business obviously.
Potentially need to find someone new work could stick with the same thing.
Oh, no I mean look we do have a partnership with William Hill throughout throughout Nevada, and the intent to have that same relationship in Maryland, and hopefully Montana at some point in the future to the extent that sports wagering in a form that we like comes to comes to that comes to that.
Stage. So I think you did that is because our specific relationships around sports wagering. Obviously, you know we would be also hopeful for I gaming to be part of a a a mere land initiative as the as a lot actually gets craft it next year.
Thanks very much appreciate it.
Thanks Carla.
Okay.
Thank you. Our next question comes from David Bain with Roth Capital. Your line is now open.
Great. Thank you and congratulations on the quarter first.
First I was hoping to understand a the plans for the Maryland Sports you know that that getting passed yesterday and understand from an online perspective, assuming you get a life license and confirmed that out you know in terms of skin.
Would you be looking to do that or go with some other sort of a scheme there and you know looking at the limited amount of casino licenses and the state would there be potential for premiums to what we've seen in other markets or is it too early to say at this point just any kind of thoughts we sports yeah. I mean look we think think so.
And with that look we're one of six operators, we expect that obviously licenses would go in a limited fashion primarily to those those operators and that would be our hope.
Obviously, the details would get worked out in the legislative session. Starting in January in terms of tax rate or in other you fees or anything else associated with that but certainly for us with their property and rocky gap and ability to market in the state into other populated areas the Baltimore DC.
The area that is very helpful and should be a big threat, but driver of value.
For us in our operations in Maryland.
Okay, Okay, great and then.
Just follow up on what what calls asking on on Pennsylvania, I mean, clearly there's budget shortfalls timing confines of get budget done so looks somewhat promising from our standpoint is there any sort of thought on mobilization should have passed I mean, maybe just flavor in terms of potential number of locations or partnerships that.
You've already secured and just a way we can think about that our opportunity.
In terms of like a rollout.
Look obviously, we've been talking about this for several years. So I think it goes without saying that we wouldn't be doing that to the extent that we felt that we had developed deep and extensive relationships within that state both from an operating and regulatory perspective. So.
We're excited about it and we are committed to expanding distributed gaming not only in that state, but across the country in any shape or form that we can it's a core part of part of our business and I think if you go to come back to looking at Pennsylvania, specifically and you look at Illinois, which is approximately a $2 billion market.
We think Pennsylvania has an opportunity to exceed that based on the number of locations. So we're excited about it if it happens we think it should happen given the budget constraints within that state and others, but legislative processes or are tough to call as you've seen we've been working on it for four years, but again, we're optimistic about.
Where it heads over the next 12.
12 months or so not only in <unk>, but in other jurisdictions as well.
And I take it those opportunities are taking a front C versus the current M&A landscape in terms of casino opportunities yes.
Yeah, I mean look we always look at M&A I think I.
Surprisingly there there is activity on the M&A side and equally surprisingly the you know the prices that we're seeing are are fairly.
Are there M&A process is fairly robust so I think that if that is good and healthy for the industry, but for US yeah, we're going to be fairly disciplined in terms of how we deploy our capital resources and excess cash flow and so unless it's extraordinarily accretive.
To us and strategic in nature, we will be looking more on the distributed side than in the brick and mortar side.
Going forward in the near term.
Perfect. Thank you.
Thanks, Dan.
Okay.
Thank you and our next question comes from Chad Beynon with Macquarie. Your line is now open.
Hi, good afternoon. Thanks for taking my question last.
Last quarter I believe you talked about some of the the cost reductions and I guess today, you're you're confirming that that margins are sustainable here.
Can you elaborate just a little bit more just in terms of.
The reductions I believe it's roughly split between labor and marketing but.
But as as revenues start to improve maybe as some of the customers come back who currently weren't comfortable with the current situation.
How should we think about flow through beyond that Andy attributable labor marketing that goes to those right rising revenues. Thanks.
Yeah. Thanks, Chad So I mean look for for for US We believe that those two components marketing labor entirely controllable not only by us but by the industry. So we saw over the quarter or over 25% reduction in both labor and our reinvestment rate ER and.
And in some markets that was even higher particularly down in Laughlin, where weve consolidated the operations I've got three three properties.
Into two I'd say of the only piece of it and certainly within the labor side that we think could increase would be something that we would welcome which would be some of the labor at the stride mainly in regards to you know housekeeping and operating restaurants.
And other ancillary best business at more normal times, so that would be good and maybe we had more volume coming through that through that through that property with respect to marketing, particularly within the locals market. We are the smallest player here from a local casino perspective, not so much when you factor in the taverns, but ultimately.
We will be not be the ones driving the reinvestment rate.
We then town, we will be watching our own to profitability and controlling that highly on but I'm not sure. I think everyone is kind of realize we don't them, we don't need to spend so much or offer so much to get our customers.
Into our properties and that's a good thing.
Great. Thanks, and then Charles just on the stride as some of the other strip operators.
I wouldn't even goes calling some of 'em competitors, because I think they they operate in a different market, but as they opened up their properties throughout the quarter did you see any degradation in the the.
The strong results for the occupancy levels or do you think it was fairly independent from others coming online.
Well, we didn't not it's fairly independent I mean, it is primarily a drive in property yeah anyway most.
Mostly from a southern.
Southern California and in Arizona.
So you know again, we didn't we did not see that drop off we understand that Theres. Certainly you have properties that are going to be a reason.
Recent announcements of properties closing I think that ultimately may help to stretch a little bit of an extent, but.
But again you know we're pretty pleased given the environment that we're doing two thirds of the EBITDA that we did.
Last quarter, and it's really because the property is has it heavy I know T A's as a traffic as a traffic driver to the asset and not really reliant on direct large convention bookings, we do not have 300000 square feet and convention space and it's less than 7%.
The the visitation in the book into the strategy. Our international So you know those those components were never really big piece direct business and so you see that in terms of that performance being sustained a little bit better than others.
Great. Thanks, and congrats on a great set of results.
Thanks, Chad.
Thank you. Our next question comes from John Decree with Union Gaming. Your line is now open.
Hey, Charles.
Just had a John question on Loughlin EBITDA performance on a year over year basis, there was still very good but compare to.
Some of the other buildings are not not as robust.
I was wondering if you could characterize for that is that because one of the casino is not open is it a <unk> event. That's you know that's really missing there what would what can you tell us about laughlin in and if you'd expect some improvements and where that would come from.
Yeah, its still loughlin would perform quite a bit better to the extent that we were allowed to have concerts at the lack said, we do have a 10 to 12000 feet arena there depending on how we oriented where we book you know relatively large ax that is obviously not a piece of the business right now.
So we're excited for that to come back, it's clearly upside for the market and for our assets as being leaders within that market.
When we talk about the Loughlin performance again, we're comparing it were doing a straight.
A comparison of three assets to even including the drag of having that closed asset right. Now. So there's some ongoing fixed cost with just maintaining the Colorado bell that you're not going to be able to get away with since they really pure apples to apples comparison, we're pretty pleased at EBITDA for us in that market up.
Yeah up roughly 8%.
We have two versus versus three assets.
Yes, great great results and on a forward look Laughlin has quite a few snow birds that come down it can stay for extended periods wondering.
Wondering if you have any insight into the winter in terms of those bookings just a nice piece of business in the winter are you still seeing that same type of trend as you would in normal years or.
Any of those customers behaving differently are holding out on booking any any sense on that would be helpful.
Yeah, I mean look we've seen that those trends are sustained and increasing so we do get a lot of folks that are coming out of the inland Empire in southern California, either to get away from the fires or get away from maybe more restrictive living environment than what we and what we then what we have and we also see that from an R&D perspective.
Even in a proper we have one of the best RV parks in the state in Nevada, So that is absolutely booked solid.
So yes, the RV and a snowbird trend is continuing and I think people are coming out of.
Again, a more restrictive living environment in California, and wanting to spend more time in Nevada.
Thanks, Charles and congratulations on the strong results in spite of all the challenges.
Thanks, John.
Thank you. Our next question comes from Dan Pulitzer with JP Morgan. Your line is now open.
Hey, Charles Good afternoon, Thanks for taking my question.
I was just hoping if there's any detail that you could give on that before Q today trends, obviously, where through October which is the most important month in the quarter generally.
For Vegas, if theres any any kind of commentary you could give on what you're seeing in the market just given the recent uptick in KOVA cases.
So our third quarter trends, we saw that continue through October.
Obviously, we're just starting November right now.
As you all know in every election cycle Theres a minute to slow down certainly with people.
People visiting are spending time traveling.
In general Im going to.
Going to either local or regional casinos instead, we renewed we're no different and seeing that for for this week.
We don't see any beyond that we don't see.
Any other sense is slowing down at this point in time.
Okay. That's helpful and then on on this strategy.
You know.
You've seen a lot of strength in leisure and on weekends I mean, as you think about the fourth quarter.
Do you think that the mix changes significantly for the shred. It you know given what we're seeing across the strip and a lot of midweek properties clothing.
I mean look the strata has never really been a mid week asset, it's really been a tale of being full on the weekends and operating around.
80% during the week anyway, so again it goes back to.
Other properties in it and it was very profitable business had a convention and group business that supplemented their weekends with very high margin Midweek Convention and group business. Our property never had that show the fall off for Sealy seeing is really in just straight visitor volume.
And again that permeates to us.
Certainly on the weekends as well as you know during the week, but not to the same extent does for for other properties.
And I think to some extent not having things open across the strip, whether it's yes entertainment.
And restaurant capacity is not back at the full levels. That's helpful to our to our guests where previously and the reason we made our $100 million investment in the strategy. So that would not be just a dormitory for other people visiting other amenities I think that's also helping us in terms of you know me relatively maintaining.
Some level of performance for the property, because we've actually create an environment, where people can and want to stay on top of the world. For example that restaurant that we spend a lot of time with we've seen no fall off in revenues for the performance of top of the World restaurant and last year, although it is last year.
It was ranked seventh in the country.
From a revenue perspective, and the number one grossing restaurants in Las Vegas, those trends have continued even with capacity limitations.
I think so much for the commentary nice quarter.
I appreciate it.
Thank you and our next question comes from David Katz with Jefferies. Your line is now open.
Hi, good morning, and good afternoon, everyone.
I Charles I appreciate all the color I wanted to go back to the Strat if I may.
Because you know I can recall before everything sort of came on hinged you know there was a notional level of around you know call it 60 million or so.
EBITDA and so much has changed right you know.
Has anything sort of alter that.
No.
Either top line or bottom line right just given.
What we think the structure of the world is going to look like and.
That impacts peoples visitation and secondarily you know the degree to which you may have been able to drive and reset margins with that property that can endure.
So I mean, I would say that it clearly those levels and we were thinking about a four cash benefit from me from having the town fall and having citywide group business as it allows the stride to pick up an over index during that time on you.
You guys are you or making the forecast or when that comes back whether it's in a yeah late next year or early 2022 word sometime later, we'll leave that a bit a bit to you guys, but certainly we think that the signs are positive.
As for things like Raiders being able to play.
And entertainment coming back and a more fulsome manner and that will help drive and get it back closer to those levels. You know again I know there is a lot of focus on the strategy, but if you think about really the business from a run rate perspective, 80% of our EBITDA is coming from regional and local assets not.
Only in Nevada, but into other regional markets. So we we're proud of that building, we like what we've done and we think we made a modest investment in the building, which is helping to sustain levels of EBITDA.
Right now as you know look we're doing what we can do that to maintain and and we think again that thats better better than most and we are trying to take a leadership position, where we can add in terms of opening things like comedy clubs with the right social distancing and other things and talking to show is about going to reopen those types of things.
But that may be a little bit a little bit but far their timeline and then obviously than the recovery. We've seen in the rest of the business, which has been a very sharp V in terms of the.
In terms of the profile.
Understood and.
You know, you've obviously set yourself up and been setting yourself up to generate a lot of free cash.
With the amount of M&A activity that started to.
Bounce around.
You know what is your sort of appetite temptation level, you know to deploy some of that or should we just.
Think about having you did yourself down under a certain leverage level.
Coming out of this.
So I think we've done a pretty good job in terms of managing the capital structure again, if you go back to basically didn't raise any external capital debt or equity throughout this we've paid back everything underneath our revolver. So we have plenty of availability I think it comes down to what is the.
Highest and best use at this point in time and for US it's about de leveraging the balance sheet. So that we can be positioned for better opportunities and I'd say in the extension it clearly seems that way.
Even with some of the momentum that we're undervalued, we're going to be.
Be taking a hard looks at how we efficiently.
Efficiently return capital to shareholders.
Okay. Thank you very much good luck.
Hey, David.
Thank you and I'm showing no further questions in the queue. At this time I would like to turn the call back to management for any closing remarks.
So thanks for joining us and we look forward to updating you when we report our fourth quarter results.
Ladies and gentlemen, thank you for your participation on today's conference that does conclude your program and you may now disconnect.
[music].
Oh.
[music].
Oh.
[music].