Q2 2021 Golden Entertainment Inc Earnings Call
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And good afternoon, ladies and gentlemen, thank you for standing by and welcome to the Golden Entertainment Second quarter 2021, and earnings Conference call. At this time, all participants are in a listen only mode.
And and answer session will follow the formal remarks. Please note that this call is being recorded today August 5.2021, now I would like to turn the conference over to Joe jump on the Investor Relations. Please go ahead.
Thank you very much joelle and good afternoon, everyone on the call today is Blake <unk>, the company's founder Chairman and Chief Executive Officer, and Charles per child, 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 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 SEC.
Except as required by law, we undertake no obligation to update these statements as a result, as a result of new information or otherwise.
On today's call. We will also discuss non-GAAP financial measures and tell and talking about our performance you.
You can find the reconciliation of GAAP financial measures and our press release, which is available on our website.
To start the call with Charles reviewing details on recent results and our business update following that Blake and Charles will take your questions.
And for your patience and with that it's my pleasure to turn the call over to Charles per Child Hotel. Charles Please go ahead.
Thanks, Joe.
<unk> performance continued in the second quarter with record revenue of $292 million.
And record EBITDA of $91 million second quarter, EBITDA was over 50% higher than our previous record EBITDA achieved and the first quarter and.
And over 80% higher than Q1 and 2019.
These results were driven by significant growth across the entire portfolio from our Las Vegas strip asset to our local taverns and we still see room for improvement.
Given the shutdowns during last April and May performance comparisons for the second quarter of 2020 are not really relevant.
And I will provide comparisons to our second quarter 2019 results as indicators of our momentum and our business.
And Q2, the strat generated its highest ever quarterly EBITDA over double what we did in Q1 and up 45% and Q2 and 19.
Correct.
And by 1100 basis points over Q2 and 19.
Okay.
This was achieved occupancy levels of just 70 per cent for the quarter compared to the properties historical occupancy of about 90%.
Weekend occupancy and rate are equally and comparable periods in 2019 and midweek business is improving.
Our $110 million investment completed in January of 2020 is helping us capture more of our guests wallet and we are earning a significantly higher ROI than we expected.
We also anticipate the property's performance will improve as midweek business increases with return of citywide conventions and international visitors.
Our 2 Las Vegas locals casinos also continue to outperform historical results with Q2, EBITDA, increasing a 124% compared to Q2 and 2019.
Our local EBITDA margin improved to over 2300 basis points to 55% per the quarter, continuing our margin expansion and sensory opening.
Even with the strength of our 2 locals properties were still missing some of our rated players who we expect to return this year.
We're also seeing continued increases and other state enrollment for our players club, which reinforces long term Las Vegas population growth and ongoing driver of the locals market.
And Laughlin EBITDA improved by 47% compared to Q2 of 2019 with margins over 50%.
Our 12000 feet outdoor Laughlin event center is a major driver of visitation, but it wasn't even opened in Q2, given the restrictions on large events. However, we have 6 concerts currently scheduled in the fall that are expected to drive additional traffic to our Laughlin properties.
From our Pahrump casinos EBITDA improved more than <unk>.
100, 100% compared to Q2.2019, while margin expanded by 9800 basis points.
We operate with an EBITDA margin of over 50% and Pahrump and in Maryland on Rocky gap and keynote improved EBITDA by 55% from Q2, and 19, while expanding margin by over 1000 basis points to 39%.
Looking at our casinos in total EBITDA was up 64% compared to Q2, and 19 and EBITDA margin improved by almost 600 basis points to 46%.
Given that we have yet to see full occupancy returned to the strat or Laughlin and we're still missing some of our rated players we see sustainable and potential improved performance to our casino operations and the future.
Turning to our distributed gaming operations in Nevada, and EBITDA improved over 86% from Q2 thousand 19, and margins were up 650 basis points.
All of our distributed locations from gas stations to supermarket demonstrated strong performance in line with our casino operations, but our 66 wholly owned taverns really outperformed reflecting the benefit of our streamlined cost structure combined with meaningful revenue increases.
And that only went to a 100% capacity on June 1 so we haven't yet seen the full potential for our taverns.
In addition, we are currently seeing out of town enrollment for our players start and sub cavern up 10 X over historical levels.
Our Montana distributed operations showed the same strength as the rest of our businesses growing EBITDA by 61% from Q2.2019.
So this was really a quarter with absolutely no weakness and any of our operations and that strength continued in July.
Moving to our balance sheet and Q2, we repaid over $50 million of debt, including $47 million of our outstanding term loan borrowings. We ended the quarter with plenty of liquidity with $153 million of cash on hand, and no outstandings on our $200 million revolver and.
And July our liquidity improve further after receiving a $60 million cash payment from Caesars entertainment related to their purchase of our sports wagering and partner William Hill.
We appreciate our long standing relationship with William Hill, and look forward to their continued operation of the sports book and our Nevada casinos.
Currently our total debt outstanding and consists primarily of $725 million of term loans and $375 million of unsecured notes, including the cash received from Caesars, our pro forma cash balance of $213 million, which puts our LTM net leverage at approximately 3.8 times.
And so our balance sheet is in very good place to start evaluating options to return capital to our shareholders. Operator that concludes our prepared remarks, Blake and I are now available for questions.
Thank you as a reminder to ask a question you're on mute the press star 1 on your telephone and so let's try your question touched upon key please standby, while we compile the Q&A roster.
Our first question comes from David Bain with B Riley Your line is open.
Great. Thank you a phenomenal quarter obviously.
So I guess my first question would be you mentioned that very strong data point about.
Migration and visitation to Las Vegas distributed gaming.
And sort of a long term driver on top of the other transit at this point.
Have you identified the migrate demographic or whatever you want on capsulate on <unk> versus the core visitor in terms of spend frequency.
And is there.
More of an opportunity perhaps to do cross promotion with.
The strat or rosslyn or what have you and I'm just trying to get a better understanding of that new base that's coming on.
Hey, David Thanks, So I mean, most of the sign ups were seeing are obviously coming out of California, I mean that is a driver to Vegas and if you think about that 30 plus million adult population that sits in California, you don't need a lot of them to move here to make a difference.
In terms of cross promotion and what are we seeing we do see a lot of that with Laughlin and particular as we have our concert schedule Thats lineup for the fall. So we're pretty excited about that we've seen that and the pack and we even see that our local our local players do use the top of the world restaurant.
And at the strength.
And so.
And we're probably.
Pretty excited about getting that new migration of players that are moving here and I think it's further accentuated. If you look at our 66 caverns that are hearing town the ones that we built recently, we purposely built over into the southwest part of Vegas, and that's been the fastest site home growth new home growth.
Here and the city.
Okay, great and.
I know, we had spoken about sort of where the strat was.
On the last conference call and I think pre pandemic, we were $50 million or below in terms of EBITDA and you mentioned improvements potentially from here.
Traffic normalizing on weekdays from convention spillover and.
A whole bunch of cash.
Catalysts, I think from the north and to the strip and the strip and general.
Where could you give us an idea of kind of where we are and.
In terms of earnings power for the assets.
Could we exceed something like 80 $90.100 million.
And the next few years I'm, just trying to understand that debt earnings power after the kind of the big.
New base that we have for the strength.
Yes, David.
Needless to say, we're very bullish on on the outlook for future outlook at that property.
As we continue to accelerate EBIT.
EBITDA there to give you some perspective without without being specific because we have not been in the past.
In Q2 this year as Charles mentioned.
We had a significant performance out of the Strat and Q2 record performance and.
And as Charles mentioned, we see that continuing through July.
But in context in Q2 of this year, our occupancy the strength was about 74% versus approximately 90% during Q2 of 2019.
Presents a deficit of call it about 38000 room nights.
Compared to the same period and 19 on top of that we are seeing approximately 30% more spend from customers at the property than we did in the past so between the depths and room nights and the additional spend we see continued upside at that property.
From a pretty.
Pretty significantly actually in addition to that I think it's important as we program. The property. We're now direct booking approximately 30% of our hotel rooms versus when we bought the property. It was about 6 or 7% so through our casino marketing programs our targeted resort.
And marketing new entertainment offerings, food and beverage upgrades and so on and those are driving this direct booking trend, which has enabled us to generate that additional 30% spend which is what we had anticipated.
Abiding a full resort experience at that property as we as we as we talked.
<unk> talked about and in the past you mentioned the catalysts on the north part of the strip.
We're resort World is now open fountains, and <unk> will be online as we understand and 2023 the convention center additional capacity is coming online.
All of those are on proximity close proximity to our property. So all of those things bode well for driving future revenue and the numbers that you do.
You talked about are numbers that we believe we can achieve and that property over time.
So we are seeing great results at the moment and.
And.
And along with what I just described.
Las Vegas, and General has had no convention activity no entertainment activity and there is no full sports stadiums. So again all of this leads I think to the benefit of the strep and and we think some of the numbers you discussed are achievable.
Awesome. Thank you Bob.
Thank you and our next question comes from Carlo Santarelli from Deutsche Bank. Your line is open.
Hey, guys. Thank you.
Charles obviously and your remarks, you went through kind of the performance across across each of the regions properties and clearly very impressive in terms of the margin growth.
And as you think about just on a whole.
And the margin upside that you guys are seeing.
<unk> to kind of flow through from from customers spending at levels that are perhaps higher than they were before versus just cost eliminations that have come on and come out of the business and.
All of those cost eliminations, how much do you think ultimately will come back if any thanks.
Yes.
Thanks, Carlo I mean look we've been asking this question since the reopening.
12 months ago, and we have seen no deceleration in spend or margin expansion and quite frankly across all of our businesses even on the local side, which has been you out and front from the get go. So if you look at it kind of year to date.
<unk> versus.
First is 19 and our casino assets are.
At about 3500 basis point margin expansion.
Year to day.
How much of that is going to stay much more than we previously thought I think at this point, obviously as we add a couple more restaurant venues. We had shows and those types of things it will dilute the margin a bit but should hopefully add overall aggregate revenues and EBITDA to the to the portfolio Karl I would add to that.
And that we are as I mentioned and the strep a demographic we are seeing additional spend I would say, we are seeing that and our other.
Their properties as well and.
And we do expect labor costs to increase as revenue increases on a purely from a pure dollar standpoint.
But we built into our forward expectations.
And those direct labor costs, but those costs are and will be suppressed through overall lower ftes as we refine how we run the business.
And as well as decreased marketing spend and meaningful reductions in our food and beverage side of the business. So we.
We do believe it's sustainable.
Even with anticipated.
Higher labor costs as rooms, as occupancy grows and more people traffic through the property book.
Third we have built those into our forward expectations and mitigated those through the through the areas that I talked about.
Great, Thanks, Blake and Charles and if I could just 1 follow up.
Give or take obviously.
And how the back half of the year shapes up and <unk>.
Given obviously the free cash flow you guys have already generated in the first half of this year.
A $5 of free cash flow per share number for the year, certainly looks perhaps achievable and reasonable.
On the balance sheet as you guys talked about is in great shape, and we will continue to delever as we move through the end of the year.
And as you think about that capital return and perhaps.
<unk> dividend what are some of the parameters around leverage that maybe help kind of shape sizing of whatever that debt capital return objective might be.
Yes.
It will be higher than $5, a share and free cash flow for this year much higher than that and.
And so as we think that as we go forward, we look towards the end of the year as we get to the fourth quarter and into the first quarter. If our leverage point again. The expectation is we'll be below 3.5 times to me that's really when you start thinking about okay. Now we are and the right spot to thing.
Think about those ways to return capital to shareholders.
Okay great.
And.
Thank you and next question comes from Chad Beynon with Macquarie. Your line is open.
Hi, good afternoon.
Results guys and thanks for taking my question.
I wanted to piggyback on the back of that Charles you said.
Returning capital to shareholders, obviously, the other option would be growth opportunities can you talk broadly about Bruce.
Bricks and mortar opportunities that are out there and then on the distributed gaming side kind of what Youre seeing legislatively, if there would be more opportunities to.
Deploy some capital and and that segment. Thanks.
Yes, I mean, I think from an M&A perspective on the casino side, and we see the opportunity more squarely within our own operations at this point and time.
Blake mentioned the momentum that we're seeing at the strat and some little things that we can do there that quite frankly would add more to our portfolio then.
Buying and river boat and the Midwest.
And $15 million to $20 million EBITDA at this point.
And where we may not get the synergies, we otherwise would have with what we can do here and.
Blake and that you want to talk about the distributed.
Chad.
The common theme.
From us.
As our consistent involvement and jurisdictions, where there is activity or legislation being talked about proposed we are very active and several jurisdictions as you well know we're deeply involved in Pennsylvania and have been for some time my belief.
Is that.
Distributed gaming.
We will emerge and some of these new jurisdictions and sometimes it takes some time.
It's an efficient form of tax revenue for the state.
And that are considering it and and we believe.
And it will happen here. So our involvement continues in terms of.
Opening up these new jurisdictions.
And and we are heavily involved where we think that may occur.
And Ken I would just say from our perspective, right now and Thats more time than dollars that we spend on those opportunities and the greenfield opportunity on the distributed side.
Take a little bit of time, but the return on investment there is very very high so it's worth it for us to spend time on that front and again on the on the M&A I mean look we see that that value on deploying our cash is through our own balance sheet right now.
And the leverage to where it needs to be and being able to and fish efficiently increase shareholder value with what we have on the table right now.
Great. Thank you.
My follow up is regarding.
Okay. Occupancies you noted that that is kind of 1 of the areas that still well off of 2019 levels at the strat.
I guess, we're all looking at the same data in terms of conventions events shows and.
It looks like 2022 will be a much better year than what we've seen.
Since since the pandemic began but do you have a sense of what.
Occupancies could be.
Just based on the trends that we're seeing and based on some other commentary you hear from some of the other largest Las Vegas Las Vegas operators can we get back to those levels, maybe by the back half of 2022.
Yes, absolutely I think absolutely our expectation would be back to.
Our historical occupancy levels of stress, which were in the mid to low <unk> 90 on a.
Calendar 12 month basis.
And so yes, definitely we're seeing youre right. The midweek occupancy has been challenging due to the factors that you mentioned weekends are strong I would add again in terms of our ability to generate additional.
Value shareholder value and revenue capacity within our own portfolio and Laughlin during the quarter. We ran about 90000 fewer room nights than we did in Q2 of 2019, Charles mentioned and the left which we have 6 outdoor shows booked for this fall, which will drive between 8 and 12000.
People to those events each of those events.
Towards increasing the occupancy to historical levels.
And our Laughlin properties, where we have 3000 rooms, and the script, where we have 2400 rooms. So.
We do anticipate occupancy coming back to those levels and both of those markets.
Thank you both and congrats on a great quarter.
Thank you Scott.
Thank you and our next question comes from David Katz with Jefferies. Your line is open.
Hi afternoon, everyone.
Congrats on the quarter.
Wanted to.
Just ask about resorts that we have been watching those claims go up.
Right on time.
Are there any measurable benefits or impacts that you can sort of talk about so far at the strat since that has opened.
David Thats a good.
Question.
Honest answer right now is no 1 of the factors that that debt is allowing us not to maybe have more information at this point.
Is the Las Vegas strip between resorts World and the stress has literally been torn up with construction, which is really impeding foot traffic along that corridor, which normally is pretty robust.
So that.
And that has been a major impact to foot traffic along that that walkaway, there that will clear up it is cleared up in front of us now and it will also.
And we understand clear up towards the end of the year I am highly confident that debt debt resort World Fountain Bleu, when it comes online and the capacities.
And the foot traffic within those hotels walking north to the Strat will absolutely help us, particularly in the tower operations top of the World restaurant the thrill rides.
Debt and those kinds of things.
And the future will be greatly helped by those resorts once that corridor it gets cleaned up.
Got it perfect and <unk>.
Charles.
And I know you've talked about this on a number from.
A number of different perspectives.
But finding yourself between 3 and 4 times.
Presents a range of opportunities and some of what you discussed.
And is acquiring <unk>.
Properties or companies inside or outside.
The boundary.
And so on Las Vegas strip property, a possibility I just wanted to know how far it's too far.
And how we should think about that.
Yes, I would say in the totem pole of priorities M&A is low on the total Paul probably the lowest I'd say deleveraging a little bit further is top evaluating returning capital to shareholders through special dividends or buyback and second looking at our Greenfield.
<unk> distributed markets that we've been involved with for a long time is third and I'd say if there was something that was so unique where we had synergies that we couldnt pass on that from an M&A perspective sure we'd have to look at that but it has to be a very strong strategic fit will be meaningful too.
Operations and terms is size and scale in order to.
Re rate how we're how we looked at today.
Sounds like it's just barely on the call at all.
[laughter] appreciate now thank you Brian for now right.
Appreciate it thank you.
Thank you. Our next question comes from John Decree with CB I E. Your line is open.
Hi, Blake Hi, Charles Thanks for taking my question.
I wanted to revisit some of the comments you had made about the strat performance and the ROI that you are seeing on your investment I think Blake you talked to a 30% increase and spend and <unk>.
Charles capturing more guest wallet share was wondering if you could elaborate a little bit I know you did rooms, you, obviously did a great job with the casino floor.
Seeing that 30% increase in spend from customers and the casino floor, just been activate it more and I know, we still have we're not we're not back to historical occupancy, but are you seeing some pricing power on the weekends given the room renovation, just curious where youre, where youre seeing and ROI.
Yeah, So we're seeing a bit of that and rate obviously weekend right.
But we're seeing we're seeing a significant portion of debt.
Casino, where our casino marketing programs, which when we bought the property John were.
And they were.
Were anemic I would I would say.
We've established a robust and strong casino marketing program.
I've mentioned, we are now direct bookings, 30% of our occupancy there, which is an enormous increase that direct booking allows us to put the customers and the rooms that would spend more money than just and OTI customers looking for cheaper rate.
And we're seeing it and our F&B operations are top of the World restaurant is running at.
<unk> higher revenue and profitability than it ever has and the past we're full literally every night and it's 1 of the greatest experiences.
And <unk> experiences in Las Vegas, we're seeing great uptick there, we're seeing great upticks in our food and beverage outlets and and.
The casino so primarily it's within the theories that you would you would think in terms of where we're seeing this increased spend.
And John and I would just add I mean, if you recall our thesis was to touch up the common areas primarily with this spend we did do a significant number of rooms, but we did all of the casino floor touched all the F&B all of the common spaces within the floor to let people go.
Feel more comfortable in terms of a place where they could stay in play.
Spend their money versus using the property really as a dormitory to go see other attractions and Las Vegas and Thats.
And what happened.
And from our perspective, we think that.
Thesis now is is clearly clearly working and we are.
We are on our return profile and our investment that is and well ex assets on 1.
Spectation.
Thanks, guys and maybe 1 more Charles.
Talked a little bit earlier on the call about free cash flow and I think we're looking at something above 5 bucks. This year and then it looks like a snowball from here can you help us frame the cash generation and maybe remind us what what normalized maintenance capex might look like and and where you might expect.
Cash taxes to be and then and I think your 7 and 5 eights bond is trading very strongly could be and opportunity perhaps for some meaningful interest savings as well.
Kind of help give us a picture of what the trajectory of free cash flow could look like from here.
Yes, and net bond is on the radar screen, which is another reason to be focused on deleveraging and the near term and it's callable and first call date is and.
April.
And next year as far as the cash flow components.
Right now, we're a little under $60 million and cash interest expense, which will be coming down quickly as we delever the business and our maintenance, we expect to be between $30 million to $35 million.
Annually going forward and be a little bit lighter this year like and like everyone else, but that.
And that's where it tended to be in the future. We've got about 120 million Nols on the balance sheet as of Q2. So we're in a good position to not be a taxpayer for a few years.
And we may see a little bit of tax payment as we get into the back half of next year given the levels of performance that we think are sustainable and.
But it's not going to be a meaningful number.
And.
Perfect. Thanks, so much for that to help Charles Thanks Blake.
Thanks, Rob.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to management for closing remarks.
Okay. Thank you all for joining us and we look forward to updating you at our next quarterly call.
Okay.
And this concludes today's conference call. Thank you for participating you may now disconnect.
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