Q4 2021 Golden Entertainment Inc Earnings Call
Good day and thank you for standing by welcome to the Golden Entertainment's fourth quarter 2021 earnings conference call at.
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Now I hand, the conference over to Speaker today, Joe <unk> Investor Relations. Please go ahead.
Thank you very much Victor and good afternoon, everyone.
On the call today is Blake <unk>, the company's founder Chairman and Chief Executive Officer, and Charles <unk>, 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 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 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 our website.
We will start the call with Charles reviewing the details of the 2021 fourth quarter and full year results and a business update and following that Blake control, who will take your questions with that it's my pleasure to turn the call over to your host Charles portals. Charles Please go ahead.
Thanks, Joe a record performance continued in the fourth quarter with revenue of $282 million and adjusted EBITDA of $68 million, which was over 70% higher than Q4 of 2020, and almost 60% higher than Q4 of 2019.
All of our properties experienced increased visitation and customer spend particularly at the strat EBITDA margins continued to expand as they increased approximately 500 basis points from Q4 of 2020, reflecting the measures we've taken to maintain a streamlined cost structure over the last six quarters since reopening.
The fourth quarter completed a year in which we generated more than $1 billion in revenues for the first time in our history and we also achieved record annual EBITDA of $292 million.
Despite our record performance it could have been even better as our operations and customers were impacted by Covid restrictions supply and labor shortages and reduced visitation that our team successfully navigated during 2021.
Before getting into more specifics in our press release. This afternoon, we detailed new segment reporting that we believe provides investors with a better visibility to the different types of properties in our portfolio.
We now break out the results for Nevada Casino resorts, which are comprised of the strat and our Laughlin properties, Nevada locals casinos, which represents our five local casinos in Las Vegas in Pahrump, our Rocky gap Casino resort in Maryland, and our consolidated distributed gaming operations, which combines Nevada and Montana.
Revenue for our Nevada casino resorts in the quarter rose, 62% year over year to $105 million and EBITDA improved 145% to $37 million EBITDA margin also improved nearly 200 basis points from Q4 of 2020.
We saw a dramatic improvement in performance from our strip property with distract revenue up 90% and EBITDA up more than five times from Q4 of 2020.
Scratch occupancy improved to 77% for the quarter up from 43% in Q4 last year.
<unk> impacted property visitation late November December so our occupancy performance could have been higher in.
In 2019, the strat averaged about 90% occupancy for the year in 2021, we only averaged 67% occupancy this translates into over 180000 missing room nights, which is 30% more room nights than what we sold in all of 2021.
Even missing these room nights, we still achieved record revenue and EBITDA at the strat.
Despite the lower visitation I just mentioned, we continue to set record numbers at many of the stretch venues, particularly at our top of the World restaurant and our casino marketing program is having huge success, attracting new players, which helped drive a 62% increase in gaming revenue at the property.
We continue to make modest incremental investments in the property such as refurbishing the theater lobby to support a revamped entertainment and new resident fee refreshing pool areas and renovating some of the older suite room product to attract higher worth players we.
We believe the return of citywide conventions, plus entertainment and sporting events will translate to a further recovery of room nights at the property as we move through 2022, and 2023 and drive EBITDA at the strat much higher than it is today.
For our Laughlin properties revenue was up almost 40% and EBITDA improved over 54% compared to Q4 of 2020.
We resumed concerts in Q4 with six shows in the quarter that drove 42000 guests to our concert venues and increased occupancy and spend at our properties.
We anticipate returning to a full conscious schedule in the spring with six contracts already booked in the market for March through June while we have seen some of our older players start to return to Loughlin, we're still missing a meaningful portion of this demographic in the market, which we view as an opportunity going forward.
We're in a battle local casinos revenue increased 20% to $40 million and EBITDA rose, 32% to $19 million for the quarter EBITDA margin improved by over 400 basis points to 47% and we are not concerned with the current competitive environment impacting margins in any meaningful way as we move through 2022.
Our Las Vegas, Arizona, Charlie's properties are growing revenue and EBITDA, while sustaining margins in excess of 49%.
The promotional environment in the Las Vegas locals market remains rational and while labor is tight we have been able to maintain our high standards of guest experience.
For our Pahrump casino revenue and EBITDA also improved meaningfully over Q4 2020 with sustained EBITDA margins in excess of 40%.
Turning to Maryland, our Rocky gap Casino revenue was up 28% to $19 million and EBITDA was up 34% to $6 million for the quarter with stable margins at 31%.
We've recently renovated all 200 rooms at the property as well as revamped the food offerings and added a sports lounge, where we're seeing good traffic flow and increased food and beverage revenues from our guests.
For a distributed gaming operations revenue was up 27% to $118 million and EBITDA rose, 45% to $20 million for the quarter. The rapid recovery of Las Vegas has fueled revenue growth for our third party and wholly owned tavern operations in Nevada, While Montana has benefited from adding new third party locations.
The portfolio and relatively mild weather for the fourth quarter.
We are seeing increased demand from the continued migration of Californians and others to Nevada, even to a greater degree than what we see in our Nevada locals casinos.
Fact, several of our newer wholly owned taverns, we're purposely located in areas, where we anticipate a new residential development and now those taverns are generally our best performing locations in the portfolio.
We haven't spent a lot of time thinking about new Catherine development recently, but we are likely to target two to three new taverns a year going forward provided we can establish a plus locations like our most recent openings.
Moving to our balance sheet in Q4, we continued to repay debt, reducing our term loan borrowings by $25 million. In addition to buying back over $10 million of stock.
In the last year, we have paid down $132 million of our outstanding debt, including $122 million of our term loan.
We ended 2021 with plenty of liquidity with $221 million of cash and no outstanding borrowings on our $240 million revolver that we upsized in Q4 from 200 million.
Currently our total debt outstanding consists primarily of a $650 million term loan and $375 million of unsecured notes.
Our net leverage is approximately two eight times positioning us well to refinance our bonds, which we expect to do in the coming weeks with leverage below three times, we will also be able to accelerate returning capital to shareholders and we intend to use the remaining $40 million of our current buyback authorization opportunistically over the course of this year.
We continue to have a very straightforward investment thesis of growing cash flow primarily from wholly owned gaming assets in Nevada, which we view as the most attractive gaming market in the world today with significant upside in the future.
We are not pursuing greenfield development or unproven lines of business. We are solely focused on maximizing the performance from our current portfolio and generating free cash flow that could be returned to shareholders.
That concludes our prepared remarks, Blake and I are available for questions.
As a reminder to ask a question you think price fall one telephone.
To withdraw your question press the pound key.
And while we compile the Q&A roster.
Our first question comes from the line of David.
David <unk> from B Riley you may begin.
Great. Thank you and thanks for the increased transparency, what the segments and nice results.
If I could I know that you mentioned.
Kind of.
Positives on Nevada, and some growth opportunities with the taverns, there, but if we.
We look forward and see that Golden captures a lot of the near term and long term positives.
Portfolio already on the strip in the Super hyper local.
Could future growth opportunities.
<unk> in Nevada.
Are there pockets.
Apps and other areas in Nevada, just given the balance sheet strength.
Overall opportunity to leverage assets.
Yeah, David This is Blake.
Hi, I think I think the answer to that is yes, we have.
Some white space up in northern Nevada, particularly on a route.
Could possibly be.
A growth opportunity for us.
As Charles mentioned, we're staying focus.
We will focus on our current.
Business, our current portfolio to do anything outside of that would have to be pretty meaningful transaction.
It could also occur in Nevada.
<unk>.
Given that we designed or we put this portfolio together, if you will which is Nevada centric.
I think you can I think you can infer that we would.
We would we would see growth in the future.
Within this jurisdiction.
Again, if it was meaningful and a meaningful format.
Okay, great and sorry for the background noise I just have one more.
Looking at the.
Increasingly higher valuations for real estate.
Arguably your land is worth.
And your market cap I mean, how do you weigh corporate action.
Just given recent valuations there.
And elsewhere.
Yes look.
Been top of mind right for.
Everyone in the business recently as recent transactions have.
We have provided some pretty solid.
Valuation metrics.
As I've said in prior calls our view, our current real estate holdings as as Optionality for us.
As well as tangible and significant underlying value for our shareholders.
And as you know that underlying value continues to grow.
With that I'll say at this time, we're not we're not considering anything other than maintaining our current real estate portfolio as it is but that underlying value I think is significant.
And I think it is getting more valuable as time goes on yes.
Yes, I would just add to that.
Okay.
That class, becoming more accepted.
For REIT investors in the last regional trade was at 17 times and the one before that was at 15 or 10 months earlier and now youre seeing new entrants rather than the traditional gaming REIT. So over time youre going to find that I think that the gaming reach trade up more in line with their with their peers, which means their cost of capital is lower and they can pay more for our real estate.
<unk>.
So our thesis of owning real estate has so far paid out I'd say never say never but right now we're going to be patient around the value and the backstop that provide.
For us relative to our current valuation in the market.
Awesome all right. Thank you guys.
Thanks, David.
Our next question comes from the line of Carnival Central Randy Brown.
Which bank you may begin.
Hey, guys, thanks, and good evening.
I heard a little bit Charles Charles in your prepared remarks, you talked a little bit about some of the impact.
The variance in November and December .
Obviously, some peers have talked about.
So strip peers have talked about the impact of the.
The variance in the first quarter and things like that anything that you guys would flag as it pertains to your Las Vegas business or the strat specifically in the first quarter.
Yes, we definitely saw that the first two weeks in January and so that's where we saw a little bit of softness relative to where we've been in the past similar to others on the strip, we did see a pretty packed.
Super Bowl weekend, and beyond and Presidents' day weekend looks to be the same so.
We're encouraged about the balance of the year, but there is no doubt there is an impact in the beginning of January .
Okay, great. Thanks, Charles and then just as it pertains to Laughlin and kind of the event calendar. There as you look out over the rest of the year do.
Do you believe at some point this year, maybe it's second half, we'll get back to kind of the normal cadence of.
That asset or at that asset base I should say.
Yeah Carlo I think I think we're.
We are beginning to see that now the answer to your short answer to your question is yes, we're putting our first major concert I think comes the first week in March.
And so we're establishing already a pretty significant.
Entertainment rotation down there that youll see increased.
The fall of this year, so that's already occurring and we anticipate that will bring positive results earlier than earlier.
Earlier than the fall of next year.
As I said I think it will begin in March of this year and we're excited about the first six acts that we have that are coming up in the spring and then it's too early for the bookings for the fall, but obviously, we're working on those and we expect to have a full slate heading into the fall as well.
Great. Thank you guys.
Thanks Scott.
Our next question will come flying Omer Sander from Jpmorgan you may begin.
Hey, Blake and Charles Thanks for taking the question.
First when you look across your portfolio and here Youre encouraging commentary on the strat are there any customer segments or additional amenities that you are missing today that you would look to bring online.
Yes, so as we as we stated early on in our capital investment in that property.
We wanted to provide an environment.
That.
Enabled our guests to stay longer and spend more versus the prior property, which was essentially transitory in terms of people coming and saying.
In visiting other parts of the city, so as we built out let's call. It this phase one.
100 $110 million in.
And investments so far.
That stickiness is showing results, we're seeing higher spend we're seeing higher time on property and as we move forward I think youll see us target very efficient capital that will allow more of that stickiness, which may mean, we are seeing right now more food outlets are something that we need on that property, which is a good.
Thing keeps people around you are seeing more entertainment and new entertainment that we're providing at that property. We just did a modest upgrade to the kind of the public area outside of our showroom to enable a better experience we.
We will continue to improve top of the world and over time, you'll see us continue to invest in our room product, including suites, which we believe we can attract a little bit of a higher end customer now.
With the positive that we've seen with our early results out of our initial investment. So I would say food facilities Entertainment you are aware of our.
<unk> range.
Gulf program that we intend to put north of the property.
We anticipate that coming or beginning in the second quarter of this year.
Yes, we will continue to add on as we see that demand and the good news is we're beginning to see that demand for these types of.
Additions to the property one thing that we're not going to change because we're not going to change building a big Convention center adjacent to the property. So we feel that we're perfectly located next to the existing Convention center, we feel that these properties around us that can provide that we're looking for more towards the niche for the spillovers from that.
And that's what we've seen and that's where we've had a lot of success. So we're going to stick with that.
That totally makes sense. Thank you and one follow up maybe on free cash flow you generated $200 million of free cash flow for the year, but $6 50 per share and you started buying back some stock.
And it doesn't look like there's any major capex as evidenced by your your convention commentary there how do you think about potential interest savings from this refi and then more broadly about capital return priorities going forward.
Yes, I mean look we think we could target roughly $15 million of cash interest savings you could put whatever cap rate, we'd want on that relative to that.
It is $6 50, a share and it ends up being is substantial for us.
Yes, I think that in terms of how we think about cap allocation of that free cash flow going forward, we view it as a balance for investing in our own properties, we're going to be focused on like we said getting 3% to $40 million that we have in the buyback authorization and we will also delever.
So I think that now we're in the fortunate position, where we get to make those choices opportunistically based on where we think we have the best returns.
Thanks, so much.
Our next question on the line of David Katz from Jefferies.
Again.
Hi afternoon.
Candidly I was going to.
I would like to pursue.
Further some of the prior questions.
One of which is how would you have us think about.
Putting in some capex as a bogie.
It sounds like there may be some more projects, whereas we may have been thinking about pretty much of a baseline maintenance number.
Before you mentioned.
You mentioned some yes.
We finished up the year at about $30 million of Capex, which was pretty much maintenance and quite frankly, probably a little bit light.
Coming out of Covid, not quite sure where we're going to be so I think going forward it will be somewhere between $40 to $45 million on a capex perspective and that will include that concept is two to three taverns that we've talked about it will include some new slot capital as you look out over the course of this year, but it's not going to.
Include any major development projects.
We're pursuing yes, David to give a little more clarity on that.
It's important I think important to be clear and understand we are committed to disciplined and efficient approach to our capital. So in regards to for example to stress what I was talking about food facilities are modest upgrades to entertainment areas. Those are 231 $5 million type products projects that are in.
That number that Charles.
Just outlined the atomic range for example, as you are aware.
Capital light to us and that we are putting any capital into it were simply using our real estate.
As collateral there. So we are continuing a disciplined approach to our capital and there are outside of of rooms, which are coming this year right.
We are doing some design and maybe some modest remodel but.
A full room remodel project would take on a bit more in terms of capital, but just to reiterate those things that I mentioned previously are not outside of this framework of capital that Charles talked about.
So the 40% to 45 is that's not.
Not a maintenance number that's an all in including some new taverns et cetera, et cetera are maintenance or maintenance is 30% to 35, depending on what's going on in the year.
Got it so okay.
If I just.
Whatever I might reasonably have in our model based on that I mean, the cash really starts to pile up.
Pretty quickly throughout this year and certainly into next year.
I mean.
40 million seems like.
And Eyedropper fall.
At the end of the day.
Yes.
Okay.
Yes.
Looking at the same thing and so then the options become what.
What what to do with it.
Or when to do it.
Yep, Thats right and Theres lots of ways to return capital to shareholders, primarily through buybacks or dividends and so look and we do not.
Yes, there is no science to maybe you could go back to the board for a buyback authorization.
Something that we need to do or wait until the end of the year that do but we have authorization now we have a refi that we intend to pursue and we want to maximize the execution of that refi and then again, we're going to pursue a balanced approach.
Vesting in our existing properties, returning capital to shareholders and maintaining a low leverage position.
And we think Thats the best path forward to create value.
Agreed one last one if I may alright.
We'd never be talk about these things in absolute terms, but the prospect of some meaningful acquisition that might redirect what we just talked about.
My impression has always been that those probabilities are relatively low would you.
Is that still true.
Yes, I mean look we I mean, the path we outlined is really the highest risk adjusted return we can create for shareholders.
Theres a lot of execution risk and the other patch.
And.
So the bar has to be very high almost a no brainer level for us to pursue those types of things.
Perfect. Thank you very much.
Thanks, David.
Our next question comes the line of Chad Beynon.
Terry you may begin.
Hi, good afternoon, Thanks for taking my question.
Charles you gave us some statistics on occupancy at the Strat.
Just wanted to dig into that a little bit more is that still a mid week versus weekend bifurcation and we've heard some positive commentary from some of the other strip property operators just in terms of win.
Convention business and some international could pick up but I just wanted some clarification clarification on that and then.
When you think you can really start to get some good compression room nights mid week. Thanks, Yes. It is predominantly the lack mid week business that is creating that efficiency, we're still seeing the visitation. It's on the weekend and at the same or roughly the same rates.
I think that we are looking forward to as we get into March and into April .
The first major citywide convention thats coming to town, what that does for us in terms of being able to compress rates not only during the week and sell more rooms at office people stay oversee the weekend. So I think it will get pretty visible here as we get into Q2, what the attendees are for those conventions and what the impact is of the city can buy.
And with what we're seeing is continued very strong retail demand, particularly when there are events that are happening in the city.
Got you thanks.
And then on margins.
It sounds like Youre pretty crystal clear in terms of the stability of that but just wanted to ask about.
Inflation, mainly from the labor side.
Full time employees.
Is that under control kind of within your portfolio understanding that it's a dynamic situation given where the service industry has been over the past three to six months.
Yes, Chad.
I think that is that is.
Static going forward.
There is there will be as.
As volume picks up as Occupancies pickup and things like that we will add cost to the business, but at the same time, we'll add revenue to the business. So.
We are we are pretty confident very confident as a matter of fact.
We can maintain what would be outsized margins, if you will versus historical 2019 and prior.
Going forward and.
I'll still align from someone I forgot who said it but we're not on a diet here, we made a lifestyle change. So this lifestyle change will continue.
Through.
Full visitation as Charles talked about.
And we're confident we can maintain.
These outsized margins.
Compared to historical.
We experienced big labor cost increases in June July we saw that through and that's really been reflected fully in Q3 and Q4 numbers.
Got it.
I think you've got to keep in mind that pre pandemic. We had 8000 employees and now we have 6300, so were down over 20% in the labor force doing more revenue and more EBITDA.
Those increases had been there our overall labor costs in aggregate are down.
Thanks, Charles Thanks, Blake I appreciate it.
Okay.
Okay.
Our next question will come from the line of.
Edward Engel from Roth Capital you may begin.
Hi, Thank you for taking my question.
When you look at spending.
As Gary when you look at spending from your older demographics in the fourth quarter call it aged 60 plus.
Is there any way to quantify how much room is left for that segment to recover versus 2019.
Yes, I'd say it varies by property, where we see that the most noticeably isn't our laughlin assets.
We're probably down I would call it a 10% to 15% of rated gaming revenue.
For the asset and most of that being attributed to that older demographic. So we that's why we see it as a huge opportunity for us going forward as they get more comfortable and begin to come back I mean, most of the other properties. We look at the locals you look at our taverns distributed business.
Generally back I think there is pockets in time to point out too, but theres, a real missing piece of real worth customers and business to us at a loughlin.
That that is starting to trickle back in and we just see that accelerating through the year.
Great. Thank you that's helpful. And then if I kind of shift here you are refinancing and.
Focus on the term loan you currently have.
What's the cost the cost sensitivity for that on the rise in interest rates.
Yes, with any upcoming refinancing would you kind of use that maybe as an opportunity to lock in some some longer fixed rates.
Right.
Most term loans, including ours, they have a LIBOR floor, even though they are floating rate debt instrument. They have a floor in it and our floor is 75 basis points. So it's in excess of where LIBOR is trading at right now by.
At least a 25 basis point margin take when you do a refi you moved to a new indicative rate and that rate is actually lower from what we're getting from those.
Indicative perspective, and a four perspective, so again net net that's why I'm comfortable talking about targeting that $15 million of cash interest savings.
The bank market and the leveraged loan market right now is actually fairly strong in a rising rate environment versus the bond market.
Look we're working on that we're working to get out as soon as we can and there'll be more to report on that when we're done.
Terrific, Thanks, and congrats on a good quarter.
I appreciate it.
And I mentioned the unit further questions in the queue I'd like to turn the call back over to Mr. <unk> for any closing comments.
Thanks to everyone for joining us and we look forward to updating you next quarter.
And this concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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