Q4 2020 Golden Entertainment Inc Earnings Call
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Good afternoon, ladies and gentlemen, thank you for standing by welcome to the Golden Entertainment fourth quarter 2020 earnings Conference call.
At this time, all participants on a listen only mode.
A question and answer session will follow the formal remarks. Please note that this call's being recorded today March 11 2021.
Now I'd like to turn the conference over to Joe Just Sony Investor Relations. Please go ahead Sir.
Thank you Andre and good afternoon, everyone.
And on the call today, it's Blake so Tony the company's founder Chairman and Chief Executive Officer, Charles per channel, the company's President and Chief Financial Officer.
On today's call, we will make forward looking statements under the safe Harbor provisions on the federal Securities laws.
Actual results may differ materially from those contemplated and these statements and.
Additional information concerning factors that could cause actual results to materially differ from these forward looking statements is contained in today's press release, and our filings with the Securities and Exchange Commission.
And except as required by law, we undertake no obligation to update these statements as a result of new information or otherwise.
During the call. We will also discuss non-GAAP financial measures and talking about our performance you can find the reconciliation of GAAP financial measures and our press release, which is available on our website.
On this afternoon's call Charles will first review details from recent results and provide a business update following that Blake and Charles will take your questions with that it's my pleasure to turn the call over to Charles for tell Charles Please go ahead.
Thanks, Jim before talking about the quarter, we want to thank all of our team members for their continued dedication to our company and commitment to providing exceptional service to our guests 12.
12 months after the start of the pandemic the extraordinary effort from our team members continues and has contributed greatly to our success managing through the unprecedented challenges of 2020.
Similar to other operators are fourth quarter began very strong with record EBITDA and October which accounted for roughly half of our total EBITDA for the period.
As you are probably aware capacity and other regulatory restrictions became significantly more stringent and November and December which impacted the full quarter results.
Even so we generated over $200 million of revenue and almost 40 million of EBITDA for the quarter. Despite increased restrictions our fourth quarter performance provides strong evidence that our operational efficiencies are driving sustained margin improvement at our properties.
While two months don't make a trend January and February were much better than November and December leading us to believe that this was the low point for our properties and that loosening restrictions will continue to support improvement and our business.
Fourth quarter, EBITDA for and Las Vegas locals casinos increased more than 21% year over year as our local casino EBITDA margin improved more than a thousand basis points and.
And Laughlin, which is highly dependent on California, driving customers EBITDA was lower but the EBITDA margin was up over 700 basis points.
For our Pahrump casinos, EBITDA improved more than 14% and we achieved a 650 basis point margin improvement low.
Looking at all our Nevada Casino resort operations. Excluding this drag on EBITDA was up five 6% on and 840 basis point margin improvement.
Our Rocky gap casino operations were hindered by weather and increased restriction, but we still generated over 4 million of EBITDA for the quarter.
When looking at our combined casino operations, excluding the Strat casino property level EBITDA grew nearly 3% on a 670 basis point margin improvement.
While the increased capacity limitations and other restrictions impacted all of our properties. It should be no surprise that the biggest impact is felt that the strategy given the California, our largest driving market with implementing stay at home orders and even further restrictions and Nevada.
With our room based on and fixed cost structure occupancy needs to be above 30% for the property to breakeven and we saw occupancy fall from about 50% of October to just about 30% in December.
The strength still generated positive EBITDA for the quarter and for March occupancy is forecast to be above 50% reaffirming our view that we hit the low point in December with the property.
Turning to our distributed business and Nevada fourth quarter, EBITDA improved to 5% year over year, mostly due to EBITDA growth from our wholly owned tavern portfolio as we simplified our menus and streamlined labor to offset capacity restrictions.
In addition, our Montana operations continue to perform well with revenue up over 5%, while EBITDA was up more than 4% year over year.
Our Nevada, and Montana distributed businesses also grew year over year and January and February and we see this trend continuing as our operating environment becomes less restrictive.
Onto our balance sheet, we and a strong liquidity position with more than $100 million of cash on hand, and no borrowings on our 200 million revolving credit facility.
If you are a shareholder during last year, you know that we did not need to raise any dilutive new equity or debt or sell our real estate to get through 2020. So our capital structure is it essentially the same place now as it was prior to Covid.
Looking forward our near term focus is on improving the performance of all our operations, while prioritizing free cash flow for debt reduction and.
And 2019, EBITDA levels, we would generate over $3 50 per share and free cash flow and excluding the strength all our other businesses collectively already exceeded 2019 EBITDA in Q4.
We are confident and sustained margin improvement from our casino properties, which generated over $600 million of revenues in 2019 and continued growth from our distributed business will further build on our free cash flow.
We are also positioned to capitalize on future opportunities such as sports Wagering and Maryland through our partnership with William Hill, and the potential for expansion of distributed gaming and new jurisdictions. While we are very comfortable with our debt structure, which is long dated with no financial covenants prioritizing leverage reduction and will provide us with more flexibility.
City to pursue accretive opportunities and.
Return of capital to our shareholders.
This concludes our prepared remarks, Blake and I are available for questions. Operator, Please open the line.
Thank you Blake.
And gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.
To withdraw your question press the pound key.
And next I wanted to ask the question.
Please stand by while we compile the Q&A roster.
Our first question comes from the line of Carlo sense of talent with Deutsche Bank. Your line is open.
Hey, Charles and Blake and and Charles Thank you for the comments.
And just in terms of kind of the kinder around the monthly sequencing. Obviously you noted that October was roughly half of your fourth quarter.
And you also and at the January and February and much better than November December and he.
Color you kind of provide around how January and February compared relative to October from an EBITDA perspective.
Yeah, I mean from our perspective EBITDA in October was just a monster monster month for us. So we're not at those levels, but I.
I would say trending trending and quite frankly higher than where we were in 2019 at this point. So we are highly encouraged by what we're seeing so far.
Great and that Charles and Jenny.
He can talk a little bit about kind of capital returns to shareholders and could you call him to talk about and just and provide a little bit of color around what you'll use it.
I posed as to why you feel you are there and at that point when you can start doing stuff.
Yes, I think for US right now if you are on the trend and I think we've said in the past car, though that we're going to get to 19 levels and exceed as faster than people think.
And this year, we intend to prove that out and as we do that as we get towards the back half of the year, we'll be generating cash deleveraging and business and we should be in a position, where we think about yeah.
Potential returning capital to shareholders.
Great. Thank you very much.
And just ask one final follow up as you guys look at obviously October which.
By all accounts and as a leading senior two months, so the strength relative to kind of what everyone's been accustomed to.
Could you talk a little bit about what you guys are seeing in terms of I know the booking windows are incredibly long, but what kind of what you're seeing in terms of a.
Reservation demand and and whatnot.
Over these last several weeks is seemingly the pandemic has kind of backed off at least a little bit.
Yes Carlo.
And your question specific to the strat.
Yes.
And.
We're seeing we're seeing improving and improving trends for sure.
January.
And then obviously the <unk>.
And the fourth quarter last year February better than January and we're seeing weekends. This month that are and the 80%.
Occupancy range.
Which which is highly encouraging and were seeing the trends continue into March as you mentioned and we've talked about before our booking windows with a lack of.
The convention business for business travel in general is a fairly short booking window. So.
Although I'm confident and seeing these early trends.
January and February March and somewhat and the April at this point.
We're seeing we're seeing demand ramp up pretty nicely.
And going forward here.
Great. Thank you guys both very much.
Thanks Carlin.
Thank you.
Our next question comes from the line of David thing with B Riley. Your line is open.
Great. Thank you and congrats on the margin.
Margin and really overall execution.
And kind of following up on the strength, even with the known challenges clearly it's been more resilient than many of the other strip properties with some structural advantages, but I'm wondering how much you believe the remodel completed right before the call.
It really hit work to sustain certain levels of business and looking at 19 if.
And if you can speak to maybe your confidence level now and and a 15, maybe even 20% return on on Capex. After after the environment.
Sure and normalization.
Yes, David.
To be perfectly honest, it's hard to say whether or not the the.
On the $100 million investment or so the remodel of the property.
Had had much to do with the.
With our performance as you said, maybe better than another strip property and was during the year.
And we'll say because COVID-19 will show unpredictable and the the restrictions were so variable on an ongoing basis with managing through those.
It's really hard to say, but I can tell you.
Debt during this time period as shown on time period.
<unk> guest spend was up and we are seeing people stay on the property longer.
Even if these lower occupancy rates, which bodes well for our thesis for investment and the first place.
I can tell you those two things.
Pretty pretty clearly and to your tier one.
One thing I would mention actually is our top of the world restaurant is outperforming even in this environment as we've revamped menus and offerings and environment.
Become a certain attraction here in Las Vegas, a must see if you will or must attend and we're seeing a lot of traffic even and this challenge time go to that restaurant, we're seeing very large numbers. So the property the remodel.
Kept people on the property and longer Theyre spending more top of the world as being a real driver and to your point about 2019.
Property at that time, pre Covid and ran and call it 90% occupancy on a year round basis.
And given we're seeing customers spend more they are sticking around the property more.
We feel confident that as things normalize.
I think we said on prior calls a 15% return we targeted on that capital I feel I feel very bullish very bullish on our ability to generate that return on this remodel property and once things return to normal.
Okay Fantastic and then as a follow up it looks like the William Hill change of control occurs and in April or so and that triggers that up to $75 million cash payment to you.
Little hard from an outsider to decipher the level of the cash and she has meant and whether it's on that kind of and it's gonna be able to lower mid or upper end of that spectrum can you help us.
Understand where that could fall.
Yeah, and I didn't look based on the public information and the valuation that we see we would expect to get substantially all of that $75 million.
And at this point, we have to wait for that deal to close to really engage with that but.
From my perspective, the valuation parameters are clear.
Okay, Okay, great. Thanks, so much.
And thanks, David.
Thank you. Our next question comes from the line of David Katz with Jefferies. Your line is open.
Hi afternoon, everyone.
And then Charles and your remarks, you made a comment about.
On cash flow and.
And doing a little bit better than you have historically.
And.
So if I look at 2019 and see that revenue converted to cash from ops, just using that as a proxy for the moment is around 12%.
Is there anything you can talk about on sort of order of magnitude as to how revenue turns into <unk>.
CFO, Yeah, and when you say better.
There's a little bit of feedback on your line, David but what I was trying to get out and my comments.
And so our night Yeah. If you took on 19 level EBITDA of roughly $184 million and you subtract capex and interest expense and left with about $100 million and free cash flow, we have roughly $200 million of NOL. So I don't expect to be a taxpaying entity for quite some time.
And so if you take that divided by our share count, it's roughly $3 50, a share of free cash flow on.
And if you look forward and what could and trend that we've.
Talking about margin improvement and a very big and meaningful way over the last two quarters. So even if you don't want to underwrite knowledge and basis point margin improvement and you talked about a 500 basis point margin improvement on a conservative side for $600 million of casino revenue.
And that's an extra $30 million of EBITDA and.
And $30 million of cash flow.
Or more than $1 per share.
And that's kind of at least and Rmi again, and the sustainability of the margins that we've now seen.
For the better part of the last two quarters and continuing into Q1 and this year that we think is a tremendous opportunity for us. If we just focus on that to provide the company with a substantial amount of cash throughout this year and will allow us to delever and think about some other opportunities.
Perfect and if I can follow that up which you nicely segue for me.
Just thinking about target leverage or comfortable ranges of leverage before you would start.
Return on capital.
Through buybacks or look through other alternatives how are you thinking about that.
Yeah, I mean look I think those options.
Present themselves to us really when we get below five times on a leverage basis, which I attend we'd be under that by the end of this year. We're on this trajectory.
So again I think as we said earlier I think our goal is to prove out what we think will happen, which is margin expansion and cash flow generation for the first half of this year, we will have cash on our balance sheet, which will be deleveraging and itself and then we'll be positioned to look at how to deploy that capital.
All through.
Net debt reduction and return on capital to shareholders is our number one and number two priority before we move on to other opportunities.
Got it thank you very much.
Thanks, David.
Thank you.
Our next question comes from the line of chat later on.
Gary Your line is open.
Good afternoon, and thanks for taking my question Blake and Charles how are you.
Thanks, Ken.
Wanted to ask about the Montana route.
Portfolio that was sold last week.
Looked like it was a pretty full multiple from our standpoint, I know you guys have talked about obviously growing more and distributed whether it's.
Organically through new markets or integrate and inorganically through M&A, but wondering if you could just kind of chime in on what the market looks like you know whats happened to multiples.
And how youre thinking about this and then also kind of a sidebar on that.
How should we think about the Nevada tavern market.
Are there properties that are that are closing and and you could grow.
And moving into those assets or maybe just gained share on those markets as well. Thanks.
Yes.
Specific to the Excel century transaction you mentioned I think you said full price.
For our business, it's about one third the size.
Of our restricted business and a price competitive market, so its apples and apples.
So your point about about multiples and and prices for these businesses.
Our continuing to prove our thesis all along that size and scale is meaningful in terms of valuing. These businesses. So you guys can do the math as well as we can but.
Again, the business was about a third the size and as you said, we paid full price for it.
And we werent on evolve and those conversations I assume they do.
And we're wanting to lead and main competitor under the tent.
Regarding that but we are well positioned to up there.
A very centralized competitive position, we've grown organically everybody we've been up there and.
And Nevada centuries, and not really relevant business. So we're comfortable with where we're.
Where we stand in regards to kind of in general you know that we've focused about three years.
Three or four years of efforts in Pennsylvania.
Sylvania VTS are already legal as you know and truck stops.
And Pennsylvania is dealing with the issue of skill games being proliferating throughout the state and not providing revenue to anyone other than the operators and the businesses and we'll see.
And which they exist. So we are very continuing to be very active and Pennsylvania. There continues to be movement on on draft bills and things around the expansion of that business.
And frankly as well as other states that we are we are targeting specific states that we are targeting where we think the momentum for this type of business.
And is going to carry it through the legislative process. Some of these we believe maybe in the short term some are longer but you can see the germination period for these things take some time.
But we are.
And I'm confident and I'm more bullish that as one of the one on one if not the leading distributed gaming company out there that are.
Some of this legislative process.
Process will break loose and the states we're targeting.
And youll see growth and that business.
It's hard to determine the timeframe.
And for that but I think Pennsylvania is probably a good template.
Okay, great. Thanks Blake.
And then with respect to your traditional.
Traditional casino customer the demographic I know.
Everyone has talked about that 55 year old and and older age group, which I believe for you guys accounts for a little over 50% and the casino business.
No not really coming back to the properties can you just kind of confirm that you were able to put up these results and the fourth quarter with that piece of the database still largely at home and then.
Did you see any encouraging signs you know and in the past couple of weeks says people are getting more comfortable getting vaccinated and.
Are there any signs that we should be heartened by this recovery. Thanks.
It's a great question to take the second part of your question first.
And we're beginning to see that debt that part of the database at 65 and older. If you will that'll be starting to trickle back in.
Vaccination and become more widespread I think people feel at that age and safer and going out.
Youre right I mean, the fourth quarter as Charles mentioned all of our assets performed better year over year, except for the strat and that was without the substantial part of this database, which was missing I think in our case. It was about 40% of that portion of the database has still not return.
And in the fourth quarter and so as debt continues to come back and as I mentioned, that's beginning to trickle in here as we see destinations and.
And people's attitudes towards getting out.
And loosening up a little bit we see that as a very positive sign along with the <unk>.
Margin improvement and the other the other things that we're doing within the business to improve it and we see that as a great catalyst going forward. So.
And when I say trickle it is kind of trickling and now, but we're seeing we're seeing that trend to build and that's going to be I think it's going to be highly advantageous for us as they come back.
It's great to hear and thank you very much best of luck.
Thank you thanks, Ken.
Thank you our.
Our next question comes from the line of John Decree.
And then and gaming Youre line is open.
Hey, guys. Thanks for taking my question.
Blake if I could ask you a follow up and I know, there's going to be very little data.
But perhaps a little bit I think your comments on that older demographic trickling back and that seems.
Seems to be about football and getting that customer back into the door and curious if even and totally you could kind of talk about how that customer's spending we're all kind of thinking about the notion of pent up demand and this particular customer has been.
On the Dl or the sidelines for better part of the year curious, if youre seeing and spend more than they typically do or if they're kind of spending similar patterns.
It's a little early but any insight would be interesting.
It's a good question as a matter of fact, we are seeing.
We are seeing more spend.
From from from the database, that's coming in and I see that continuing with this portion of the database.
Yet.
And to come back into our properties. If you will I think theres some national stats.
Savings.
Savings accounts and general and savings for people are at all time highs or close to it and I would I would say that a lot of these people that have not entered the cassini and are part of that group and <unk>.
Some of these larger savings accounts, and maybe they've had and the path.
So I think I think yes, I think we're seeing and some cases about 25% per visit more and spend than we had.
Pre COVID-19, if you will or prior and so your question is clairvoyant.
And we're confident that we will continue to see that particularly as the new stimulus package.
Gets released here shortly.
Thanks, Matt that's helpful. That's good to hear.
If I could ask one more on the strat and your perspectives on a recovery and Las Vegas as it relates specifically to your business at the Strat and there's and there's a school of thought a lot of folks waiting for the convention business to really bounce back and.
And the Strat doesn't have much convention space here. So when you think about your customer demographic and and the road to recovery until into Las Vegas, you know what what are your kind of perspective.
On how that might play out over the next six or nine months as people get back pain, and and airlift starts to come back to back a few do you really need to see that Big convention mid week business come back obviously, it helps everyone, but curious how you look at your business specifically.
Yeah.
Look I think it's hard to ignore the fact that big conventions, and large groups and town benefit everyone and and our case certainly they benefit the strat as room.
Room rates associated with those groups trickle down and allow everyone to kind of generate a better yield on their rooms.
So that's not to be ignored, but as we've talked about and the path for the strength.
Scrap is not reliant upon that business.
Typically we do get a lot of foot traffic a lot of flow through from that business into our tower and our restaurants on top of the world, which is a good thing.
We are not dependent upon that and as we've mentioned in the past are driving business.
Is really where that property is going to see the upswing. So as Las Vegas continues to recover in general.
The strength I think is going to be well positioned, particularly as our city reopens with sports events.
National Football League and National Hockey League Entertainment and all of those things tend to fill this basket if you will of Las Vegas.
Payment options.
Our base businesses, the leisure travel is to drive in.
And Thats, where our bread and butter is going to be made at that property.
Do think debt.
I do think that part of the.
And that part of the Las Vegas, and visitor may recover more quickly.
Seen before the restrictions late in the fourth quarter. So people are willing to drive and come to town and our property was spring very well at that time.
So I think we will pick that up maybe earlier than some of the other properties.
Conventions are maybe weighted later and the year.
That's helpful. Thanks, Blake I appreciate all that additional color and congratulations on navigating the unprecedented year.
Thanks, John.
Thank you.
Our next showing any further questions I will now turn the call back over to Mr. Charles Hotel for closing remarks.
Okay, and thanks, everyone for joining us we look forward to updating you with our first quarter results.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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