Q2 2022 Golden Entertainment Inc Earnings Call

August 4, 2022

Good afternoon, ladies and gentlemen.

He was standing by.

I'll come to the Golden Entertainment second quarter 2022 earnings Conference call.

At this time, all participants are in listen only mode.

A question and answer session, followed almost no mark please.

Please note that this call is being recorded today August four 2022.

Now I'd like to turn the conference over to Jos you're funny.

Please go ahead Sir.

Thank you very much operator, and good afternoon, everyone on the call today is Blake <unk>, the company's standard Chairman and Chief Executive Officer, and Charles portal, 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.

We will start the call with Charles reviewing details of the 2022 second quarter results and a business update.

Following that Blake and Charles will take your questions with.

With that it's my pleasure to turn the call over to Charles per child. Charles. Please go ahead.

Thanks, Joe we had another strong quarter, the second highest quarterly revenue and adjusted EBITDA in our history surpassed only by Q2 of 2021.

During the quarter, we delivered revenue of $289 million and adjusted EBITDA of $75 million and a 26% margin.

Our adjusted EBITDA margins have remained constant over the last four quarters, which speaks to our continued operating discipline and our confidence in the sustainability of our margins going forward.

We always expected Q2 of 2021 to be a challenging comp due to the pent up demand and stimulus impacting last year, we achieved sequential revenue and adjusted EBITDA growth of 6% and 11% respectively over Q1, demonstrating the positive trends of our business.

Revenues for our Nevada Casino resorts rose slightly year over year to $108 million, while adjusted EBITDA of $38 9 million declined from $46 6 million.

Sequentially resorts grew revenue and adjusted EBITDA, 11% and 16% respectively over Q1.

Our resorts margin decline versus prior year, primarily as a result of labor cost increase which were largely implemented in June and July of 2021, as well as the increased cost of goods and utilities.

June supply chain issues with our win in provider forced us to hold back significant room night inventory limiting occupancy primarily at the Strat. We estimate this cost us over 15000 room nights in $2 million to $3 million of EBITDA at the strat during the second quarter, we have since transitioned to alternative lending suppliers and did not.

I'd anticipate similar issues going forward.

Given our occupancy limits during Q2 at the Strat, we were unable to capitalize on increasing citywide midweek group business as much as we would have anticipated we're still missing 20 points of occupancy at the strat relative to our 2019 levels, which offers material upside to the business as this segment continues to grow.

To cover it.

And lastly, we continued to see improved attendance at our live entertainment with nearly 33000 concert tickets sold for various events in the quarter, which has been driving visitation to our laughlin casinos.

For our Nevada local casinos revenues.

Were $39 8 million compared to $43 5 million a year ago, and adjusted EBITDA was $19 8 million for the quarter compared to $23 6 million in Q2 of 2021.

Our decline reflects the challenging comparison to the second quarter last year. However, both revenue and adjusted EBITDA were flat sequentially from Q1, and we anticipate continued stability over the second half of the year.

We continue to see a rational promotional environment in the locals market, which has contributed to our ability to maintain margins around 50% despite increases in labor and other costs.

Turning to Maryland revenue was $20 5 million compared to $21 2 million a year ago, and adjusted EBITDA was $7 2 million for the quarter compared to $8 3 million in Q2 of 2021.

Sequentially Rocky gap grew revenue, 15% and adjusted EBITDA up 30% over Q1 at Rocky gap labor cost increases over last year, primarily contributed to declining margins and adjacent to transitioning our hotel revenue management software in May.

This caused some disruption, but we are already seeing more effective rate and occupancy management going forward.

For our distributed gaming operations revenue was flat to prior year at 121 million, while adjusted EBITDA declined to $22 2 million from $24 $9 million last year sequentially distributed revenue was up 2% over prior quarter and adjusted EBITDA grew 1%.

Margins were modestly impacted year over year from increased labor costs, but more effected from increased rents within our chain store portfolio in Nevada that were established in June of last year.

Our Nevada wholly owned taverns continue to perform well with our locations continuing to benefit from an influx of new Las Vegas restaurants, our Montana distributed gaming operations also continued to perform in line with our expectations as we have added new locations since last year, which should continue to benefit us throughout the year.

Moving to our balance sheet in Q2, we used $60 million of capital to repurchase $37 $5 million of our senior unsecured notes and repurchased 515000 shares of our common stock for $22 5 million.

For the past four quarters, we have paid down $140 million of our debt and repurchased nearly $50 million of our common stock.

We ended the second quarter with $179 million in cash and no outstanding borrowings on our $240 million revolver. Currently our total debt outstanding is approximately $965 million.

Given our low net leverage of two eight times the strong level of free cash flow, we generate and the continued margin strength across our operations. We expect to remain focused on improving our balance sheet and opportunistically returning capital to shareholders over the remainder of this year.

Despite the macro environment, our business remains stable and July has reflected the same trends in Q2.

Our longer term thesis remains the same.

Strong free cash flow is driven primarily from wholly owned gaming assets in southern Nevada, which has many long term favorable demand drivers for golden in the gaming industry in general.

With a portfolio comprised exclusively of cash generating businesses zero Greenfield development projects low leverage and over $400 million of liquidity, we are well positioned for the future and remain confident in our ability to create long term value for our shareholders.

That concludes our prepared remarks Lake and I are now available for questions.

Thank you Sir.

This time, we'll be conducting a question and answer session.

He would like to ask a question. Please press Star then one.

A confirmation tone will indicate your line is in the question queue.

Let me start on Q, if you would like to remove your question from the queue.

All participants using speaker equipment, it may be necessary to pick up your handset before.

Focusing the stocky.

The first question is from David <unk> from Baird.

Oh, great. Thank you so much.

Congratulations on another execution quarter.

I guess my first question would be obviously I mean, the stock market has been more volatile than casino EBITDA generation that we've seen out there.

Half almost half of your $50 million share repurchase authorization is that.

That the board can re up intra quarter, if needed or is that sort of indicative because we didn't see that happen now more of a focus on continued debt pay down.

Or another form of capital return or perhaps even being opportunistic in Nevada or other.

Areas, just given lower valuations on potential acquisitions.

Hey, David It's Charles So have you seen it.

And the last.

Say in terms of things that we're looking at right now certainly buying back shares at these levels is a very attractive investment for us, but we are keeping our eyes out for other things and we think that there could be opportunities that come up in the future for us those are going to be very selective.

We obviously have a relatively low leverage point that we'd like to keep.

We like our flexible balance sheet and so we'll put that on the hopper and.

When those opportunities arise to make the right decision.

Okay great.

Let's take one more here.

Go with Colorado, Belle because that hasn't been brought up very often.

Is that an asset that you ultimately look to monetize or how do you view it in the portfolio at this point.

Paul.

We are obviously, we're maintaining our gaming license from ability to operate there.

As we consider different alternatives for that property. The web view that down there is I think that market at some point could use.

A significant traffic driver I think the capacity that we currently have with the rooms and the casino inventory.

Efficient for what we see going forward down there that is a one of a kind piece of property on riverfront that offers superior ingress and egress visibility.

It has a multitude of potential uses I won't get into that we've explored a lot of those but going forward I see that as a valuable a valuable asset in close proximity to our two assets, which are the best located in the market that can be utilized I think to drive additional traffic and we're exploring.

A to Z opportunities for that piece of property.

Okay awesome. Thanks, Blake Thanks, Rob.

Thank you.

Thank you. The next question is from Carlos <unk> from Deutsche Bank.

Hey, Blake Hey, Charles.

Just wanted to.

Charles I just wanted to ask you as you kind of talked about other avenues when you think about.

Outside of that buyback and debt reduction with the cash flow that you are throwing off when you referenced other avenues.

Is that more from an M&A perspective, where you think you could fit something in nicely as it more from a potential opportunity that might arise and distributed I know theres been some noise in a couple of states, but I don't know if thats anything outside of the normal or is that taking advantage of existing assets, where you think you could add on and do something.

From a capex.

Perspective.

Yes, I think Carlo it's a bit at all of the above I mean, we obviously get M&A any M&A process.

Get a look at when that comes across our desk like I said earlier, we have a pretty high hurdle rate for that given where our leverage point is and where we see value now in terms of in our own equity that we've been mining and you can see that in the quarter that said, we do have an infrastructure that is more geared towards Nevada casino.

<unk>, we think we could use that in order to potentially grow the portfolio in an accretive way now is there is some.

That's there on the horizon in.

In the near term no, but is it things that we're going to start entertaining yes.

I would just add that carload.

In regards to the I think the last part of your question, we may invest in existing property with upside obviously, we have.

Disciplined capital budget.

Pro forma going forward, but we do continue to see.

Significant upside potentially at the Strat, where we believe that some targeted and within budget investment will be continued to be productive, but as Charles said in his prepared comments. Our goal has been to put this balance sheet and the ultimate <unk>.

<unk> to be flexible with low leverage.

Obviously, our free cash generation with our Undrawn revolver, we're in a good position.

To repeat what Charles said to really take advantage of something that is meaningful strategic to me in the meantime, I think we've done a good job with our existing assets our balance sheet and there is significant value to continue to be had I think.

Continuing on our course, but we are we are open minded to something.

Come along that we think fits nicely with our current portfolio.

Thanks for that.

It all makes sense and then if I could just one follow up.

I believe if you kind of depending on how you calculate it for the first time earlier this year.

Particularly inflation and household cost kind of increased more than <unk> growth and obviously with you guys, having both the distributed tavern business as well as locals casinos.

<unk> positioned to.

Who identify if anything has changed kind of at that paradigm has shifted is there anything that really caught your eye. It doesn't appear there is anything significant in the numbers, obviously and we've seen from some of your peers in Las Vegas. It doesn't appear there to be anything significant but if anything you've seen around habits of patterns.

Short answer Carlos No I mean, I think I think we're similar to some of the other.

Folks that have that are announced prior to us.

But we are seeing a little bit of degradation in the lower end of our of our database within our player rewards program and our retail business, which is.

Normally untargeted play we think those people benefited mostly from the stimulus. However, having said that we've done a good job of replacing those people and actually overcome that and then some with better players within that floater reward program at the higher end of the tiers.

I would say that's kind of a common theme that we're seeing but in terms of the commodity prices inflation and just.

General kind of headwinds for the consumer I think Las Vegas, and Nevada in particular, this pretty strong place to be right now.

Travel is forever people are going to continue traveling Las Vegas continues to provide us there.

Everyone knows one of the kind of unique entertainment sports.

Opportunities as well as we have significant local population growth so.

As Charles said, we like where our portfolio sits and we're not seeing any material or major disruptions to our customer patterns.

Really appreciate it. Thank you thank you and take care.

Thank you.

Thank you. The next question is from David Katz from Jefferies.

Hi, This is Cassandra Lee asking on behalf of David. Thank you for taking my question.

Robert could you.

Could you discuss the mix of maybe rated versus unrated players today or different age group.

Compared to the pre pandemic.

Yes, I'd say I mean, it varies a little bit property to property, but overall the portfolio is about 65% carded play and Thats, obviously hired a regional and local assets versus the strat, which is materially lower than that.

I would say relative to pre pandemic.

About the same on the portfolio basis, so theres been some commentary about folks who are missing certain age group customers that we've heard from other operators within our portfolio and keep in mind, We're Nevada centric company, we have local and regional assets, but again all of that is centric we feel like we've gotten those customers back at this <unk>.

Within our portfolio that said, we do feel like we have more ways to go within those customers in terms of their visitation trends and quite.

Quite frankly, some of their spending levels, but in terms of the actual customers that we're seeing we're seeing the same bodies fax machine players right now we're dealing with trying to get back to the same level of frequency in some cases, the same level of spend out of those players.

Got it thank you very much and.

If I may follow up with one more.

So with leverage at $2 eight already amongst the lowest.

And the industry is there a target you have.

<unk> out there that after a certain point you will focus more on the buyback.

Debt pay down.

So we've always said we wanted to be at three times or lower so we're trying to maintain these levels in a rising rate environment. We do have some floating rate debt that's in the cap structure.

That to me necessitate a balanced approach between investing in our assets, which we're doing.

Reducing debt, particularly the floating rate component and then also.

Buying back stock at this point is the base case.

Got it thank you very much.

Thank you. The next question is from Omar Saad from J P. Morgan.

Hey, Blake Charles Thanks for taking my question.

The demand picture today still looks healthy and obviously there are some macro headwinds that you've talked about can you talk about labor across your portfolio. We've seen the unemployment data we've heard some commentary from your peers is this eased and are there still revenue generating roles that need to be filled.

From a labor cost perspective, our labor hourly wages are up year over year, 11%, 12%. So that still puts pressure on it again like we said in our comments most of those large wage increases went into effect in June and July of last year, which is why you see relatively.

<unk> consistent operating margins that we've been running over the last four quarters.

In terms of finding bodies I'd say for the most part we're okay.

Scrambling like we were at this point last year I specialized positions at higher levels are getting tougher to find I think there's a bidding war on talent in those areas, but for the most part.

We feel pretty comfortable and were not really short in terms of finding revenue people, who can enhance revenue generating positions for us that would be about getting the occupancy back at the strat and actually it and hiring the <unk> and the and the staff it cleans the rins and assist with the guests.

In that case, so in our mind, bringing those people on but if we entirely be revenue generating.

There's people are out there.

Awesome, Thanks, and that kind of bridges into my next question about the strat and you've talked about how it punching a little bit below its weight and youre missing 20 points of occupancy can you talk about the path to get that occupancy back and get it back to a full run rate.

Yes.

For us it's simple I mean, we draft off of the city being full.

And we will really test that and see how that is in the fall. When you have raiders without Nash you have full night's schedules you have the larger citywide conventions that are coming back.

And so from our perspective, when we get to the end into the end of the third quarter and into the fourth quarter, that's really going to test the thesis for us in the meantime, we're doing.

<unk> touch up work within the Strat all part of our capital budget plan at this point in terms of adding some suites. Some other amenities freshening up the theater and those types of things that make the product more attractive potentially some of those conventioneers the citywide as well as higher end players that we are actively targeting.

For our players club.

And then maybe if I could just sneak one more in on that last one could you just remind the mix of the strat for leisure versus group and maybe with all the development activity on the convention front on the strip how that changes going forward if it does.

Yes, I would say the mix I mean keep in mind, we don't have any group direct group meeting space in any meaningful way. So it's always been relatively low when we took over the property. The OTA mix was 75% or north we've now whittled that down to about.

60% to 65% from an LTA mix and the rest is our direct bookings either through through directly on our website, our outreach to previous gas or through our casino marketing program I would add to that Thats material Avenue for us to answer your question to generate more of our occupancy through our own.

Resources right versus the Otas, so our casino marketing programs.

I'll just mentioned we've made significant improvements.

And so over time that that.

The room night deficit.

That we're speaking about we believe helps get filled significantly through a continued growth in that program.

Great. Thank you both.

Thanks.

Okay.

The next question is from Chad Beynon from Macquarie.

Blake Charles Thanks for taking my question.

We continue to reference and remind investors how stable the broader gaming industry was during prior downturns I think.

Lot of people and companies are focusing on that right now, but could you kind of hell.

Help us think about how you saw the business Blake, particularly the distributed business during the last downturn or maybe how you would see it if revenue start to tick down.

Which segments do you think would be hit harder between kind of locals destination or the distributed thank you.

Yes, Chad so as you know I've been a part of the industry now for.

Since 1983.

And I've been through.

Various challenges macro challenges whatever you want to call them over the course of that time.

As you know also Las Vegas is extremely resilient to those downturn, which is one of the reasons that our our portfolio was put together with that focus in mind being in Nevada, and primarily southern Nevada.

The local business.

The local casino business and in particular, a hyper local business, which is our route and Tegra business is consistent and I would anticipate it being consistent through any macro downturns as we lived through in the early nineties <unk> through <unk> through <unk>.

Notwithstanding being closed or forced to being close.

I think thats, the Las Vegas locals market in the hyper local market is the most resilient part of our portfolio I think if we were going to see.

Any any any significant impact it would be at the strat, but I would only put that into context with the rest of the city, we're seeing a downturn in traffic because you've seen our airport had record visitation in the month of June higher than it's ever had.

You see the guys on the script talking about their group business coming back. So I think we're well positioned across the board with our portfolio with a significant portion of our business being local or regionally locally generated in the terms of <unk> and so I think I think based upon my history that consistency.

Anticipate continuing.

In a downturn that is not a closure right. So.

Like I like where our assets within the portfolio, primarily being in southern Nevada.

And the consistency I think.

He is going to be there.

Perfect. Thanks, and then.

Lastly, just another follow up on the Strat Charles you touched on this and it was asked a couple of different ways, but.

Could you kind of frame out maybe the difference in terms of what youre seeing weekday versus weekend roughly in terms of room rate.

Because as you said when the room rates are compressing in the city, particularly as International group comes back we would imagine that its really that weekday business, that's a little bit softer that's going to see some nice compression.

Yes, I mean for us it's definitely that's where a lot of the softness is coming from for us.

Our mid or weekend is two and a half X are our mid week rates.

And occupancy absent Atlanta and issues that we talked about a little bit yeah. That's typically we're sold out on the weekends and.

And so for mid week.

We're lagging when we're in the 50% range from an occupancy perspective that is the piece that's missing for the most part from from what we would rely on to drive the property to the levels, where we think it could get to.

Great. Thank you very much appreciate it.

Yes, Thanks, Ken.

The next question, we have is from Jordan Bender from JMP Securities.

Good afternoon, Thanks for taking my question.

There is a new operator in Nevada, and Montana distributed gaming market I was wondering if you guys have seen any impact from the new operator since they've taken over.

No in Nevada, I would say pretty emphatically no in Montana seems was probably a little more focus from that company in Montana.

We are active but we continue to grow our portfolio up there and in Nevada, we havent run across them.

Okay.

You think about the opportunity in Nevada distributed gaming.

Is there any more untapped potential to continue to expand their licenses that might come available or is it pretty.

Sure.

Tapped out at this point.

No I think with the growth in population and the city continuing to spread.

All throughout the valley, we continue to see opportunity in what we think is the is the.

The peak of the hyper local business, which is the tavern business. So we are seeing opportunities for.

What we consider to be locations worthy of our brand and our our investment.

And we anticipate going forward that we will be taking advantage of those as they come along we're not taking every location frankly some locations we passed.

Whether it's often a wholly owned scenario with our <unk> brand or with our third party route which we have 40% of the distributed gaming business in the state.

If either offshore one of our partners, primarily taking use locations on.

Yeah.

Awesome. Thank you.

Okay.

Thank you.

Question is from Andrew.

And with Ngos.

Sure.

Hi, Thank you for taking my question you mentioned some supply chain issues impacting the strat and the QQ have these constraints been eased yet or are they still impacting the current quarter.

There is so we dealt with this in July is probably a little bit of spillover in the beginning but otherwise it has been dealt with.

Great. Thank you and then just overall when the bigger questions that we're getting is just if there were to be some sort of economic downturn.

How much room, there is to actually reduce costs just given how tight you are already been managing expenses as the pandemic.

Are some of the buckets that you think you could maybe.

To lever on encase spend per trip does does decline.

Yes. The answer is yes, I mean, we learned a lot during the pandemic, obviously, which levers to pull I think there is some there is some labor that we can pull through.

Some of our operations that would need to be opened as often as they are open now certainly we can we can control capital right, we can control that spend.

Pretty easily our marketing continues to be disciplined but there are probably a few levers there we can pull so we're we're pretty confident that if we see we see headwinds that are that necessitate us.

Changing the way our current business model that we have those levers to pull.

Perfect. Thank you.

Thank you.

And gentlemen, we have.

Since the end of our question and answer session.

I'd like to turn the call back to Charles <unk> for closing remarks.

Okay. Thanks, everyone for joining and we look forward to speaking with you next quarter.

Thank you ladies and gentlemen, Thank concludes today's conference. Thank you for joining US you may now disconnect your lines.

[music].

Good afternoon, ladies and gentlemen.

Thank you for standing by.

Welcome to the Golden Entertainment second quarter 2022 earnings Conference call.

At this time, all participants are in listen only mode.

Question and answer session will follow the formal remark.

Please note that this call is being recorded today August four 2022.

Now I'd like to turn the conference over to Jos you're Funny Investor Relations. Please go ahead Sir.

Thank you very much operator, and good afternoon, everyone on the call today is Blake <unk>, the company's founder Chairman and Chief Executive Officer, and Charles portal, 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.

We will start the call with Charles reviewing details of the 2022 second quarter results and 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 fertile Charles Please go ahead.

Thanks, Joe we had another strong quarter, the second highest quarterly revenue and adjusted EBITDA in our history surpassed only by Q2 of 2021.

During the quarter, we delivered revenue of $289 million and adjusted EBITDA of $75 million and a 26% margin.

We always expected Q2, 2021 to be a challenging comp due to the pent up demand and stimulus impacting last year, we achieved sequential revenue and adjusted EBITDA growth of 6% and 11% respectively over Q1, demonstrating the positive trends of our business.

Revenues for our Nevada Casino resorts rose slightly year over year to 108 million, while adjusted EBITDA of $38 9 million declined from $46 6 million.

Sequentially resorts grew revenue and adjusted EBITDA, 11% and 16% respectively over Q1.

Our resorts margins declined versus prior year, primarily as a result of labor cost increase which were largely implemented in June and July of 2021, as well as the increased cost of goods and utilities and.

June supply chain issues with our men and provider forced us to hold back significant room night inventory limiting occupancy primarily at the Strat. We estimate this cost us over 15000 room nights in $2 million to $3 million of EBITDA at the strat during the second quarter, we have since transitioned to alternative lending suppliers and did not.

I'd anticipate similar issues going forward.

Recover.

For our Nevada local casinos revenues.

Were $39 8 million compared to $43 5 million a year ago, and adjusted EBITDA was $19 8 million for the quarter compared to $23 6 million in Q2 2021.

We continue to see a rational promotional environment in the locals market, which has contributed to our ability to maintain margins around 50% despite increases in labor and other costs.

Turning to Maryland revenue was $20 5 million compared to $21 2 million a year ago, and adjusted EBITDA was $7 2 million for the quarter compared to $8 3 million in Q2 of 2021.

<unk> Rocky gap grew revenue, 15% and adjusted EBITDA up 30% over Q1 at Rocky gap labor cost increases over last year, primarily contributed to declining margins and adjacent to transitioning our hotel revenue management software in May.

This caused some disruption, but we have already seen more effective rate and occupancy management going forward.

Margins were modestly impacted year over year from increased labor costs, but more effected from increased rents within our chain store portfolio in Nevada that were established in June of last year.

Moving to our balance sheet in Q2, we used $60 million of capital to repurchase $37 $5 million of our senior unsecured notes and repurchased 515000 shares of our common stock for $22 $5 million.

Over the past four quarters, we have paid down a $140 million of our debt and repurchased nearly $50 million of our common stock.

We ended the second quarter with $179 million in cash and no outstanding borrowings on our $240 million revolver.

Currently our total debt outstanding is approximately $965 million.

Despite the macro environment, our business remains stable and July has reflected the same trends in Q2.

Our longer term thesis remains the same our strong free cash flow is driven primarily from wholly owned gaming assets in southern Nevada, which has many long term favorable demand drivers for Goldman and the gaming industry in general with.

That concludes our prepared remarks, Blake and I are now available for questions.

Thank you Sir.

This time, we will be conducting a question and answer session.

If he would like to ask a question. Please press Star then one.

A confirmation tone will indicate your line is in the question queue.

Let me start on Q, if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your target for.

And for Christine the stocky.

The first question is from David Bain from B Riley.

Oh, great. Thank you so much.

Congratulations on another execution quarter.

I guess my first question would be obviously I mean, the stock market has been more volatile than casino EBITDA generation that we've seen out there.

Lives have are almost half of your $50 million share repurchase authorization is that.

That the board can re up intra quarter, if needed or is that sort of indicative because we didn't see that happen now more of a focus on continued debt pay down.

Or another form of capital return or perhaps even being opportunistic in Nevada or other.

Areas, just given lower valuations.

Acquisitions.

Hey, David It's Charles So have you seen in the last.

And the last.

Last two buyback authorizations that you were actually done before we exhausted the previous authorization. So it's very easy for us to go back to the board inter quarter or whenever we feel like it's needed when we get when we get through that I would say in terms of things that we're looking at right now I mean, certainly buying back shares at these levels.

Is a very attractive investment for us but.

But we are keeping our eyes out for other things and we think that there could be opportunities that come up in the future for us those are going to be very selective.

Obviously, you have a relatively low leverage point that we'd like to keep.

We like our flexible balance sheet and so we'll put that on the hopper and.

When those opportunities arise to make the right decision.

Okay great.

To pick one more here.

I'm going to go with the Colorado belt, because that hasn't been brought up very often.

Is that an asset that you ultimately look to monetize or how do you view it in the portfolio at this point.

Paul.

We are obviously, we are maintaining our gaming license for our ability to operate there.

As we considered different alternatives for that property.

I view that down there is I think that market at some point could use a significant traffic driver I think the capacity that we currently have with the rooms and the casino inventory is sufficient for what we see going forward down there that is a one of a kind of piece of property on riverfront that offers superior ingress and egress visibility.

<unk>.

Has a multitude of potential uses I won't get into that we've explored a lot of those but going forward I see that as a valuable at a valuable asset in close proximity to our two assets, which are the best located in the market that can be utilized I think to drive additional traffic and we're exploring.

It is really opportunities for that piece of property.

Okay awesome, Thanks, Blake and thanks, Rob.

Thank you.

Thank you. The next question we have is from Carlo attention Andy from Deutsche Bank.

Hey, Blake Hey, Charles.

Just wanted to.

Charles I just wanted to ask you as you kind of talked about other avenues when you think about.

Outside of that buyback and debt reduction with the cash flow that youre throwing off when you referenced other avenues.

Is that more from an M&A perspective, where you think you could fit something in nicely as it more from a potential opportunity that might arise and distributed I know theres been some noise in a couple of states, but I don't know if thats anything outside of a normal or is that taking advantage of existing assets, where you think you could add on and do something.

From a capex perspective.

Yes, I think Carlo its a bit all of the above I mean, we obviously get M&A any M&A process we.

Get a look at when that comes across our desk and like I said earlier, we have a pretty high hurdle rate for that given where our leverage point is and where we see value now in terms of in our own equity that we've been mining and you can see that in the quarter.

That said, we do have an infrastructure that's more geared towards.

<unk> Casino operations, we think we could use that in order to potentially grow the portfolio in an accretive way now is there something that's there on the horizon in.

In the near term no, but is it things that we're going to start entertaining yes.

Yes, I would just add that carload.

<unk> to the I think the last part of your question, we may invest in existing property with upside obviously, we have.

Very disciplined capital budget.

Pro forma going forward, but we do continue to see.

Significant upside potentially to scrap where we believe that some targeted and within budget investment will be continued to be productive, but as Charles said in his prepared comments. Our goal has been to put this balance sheet and the ultimate position to be flexible with low leverage.

Obviously, our free cash generation with our Undrawn revolver, we're in a good position.

Continuing on our course, but we are we are open minded should something.

Come along that we think fits nicely with our current portfolio.

That all makes sense and then if I could just one follow up I I I believe if you kind of depending on how you calculate it for the first time earlier this year.

Particularly.

Inflation and household cost kind of increased more than <unk> growth and obviously with you guys, having both the distributed hybrid business as well as locals casinos.

Positioned to identify if anything has changed kind of is that paradigm has shifted is there anything thats really caught your eye. It doesn't appear there is anything significant in the numbers, obviously and we see from some of your peers in Las Vegas. It doesn't appear there to be anything significant but if anything you've seen around habits are patterns.

The short answer Carlos No I mean, I think I think we're similar to some of the other.

Folks that have that are announced prior to us.

But we are seeing a little bit of degradation in the lower end of our of our database within our player rewards program and our retail business, which has a lot on normally untargeted play we think those people benefited mostly from the stimulus. However, having said that we've done a good job of replacing those people and actually overcome.

That and then some with better players within that floater reward program at the higher end of the tiers. So I would say that's kind of a common theme that we're seeing but in terms of the commodity prices inflation and just.

General kind of headwinds for the consumer I think Las Vegas, and Nevada in particular was pretty strong place to be right now.

Travel is forever people are going to continue traveling Las Vegas continues to provide us there.

Everyone knows one of the common unique entertainment and sports.

Opportunities as well as we have significant local population growth so.

As Charles said, we like where our portfolio sits and we're not seeing any material or major disruptions.

Disruptions to our for our customer patterns.

Really appreciate it. Thank you thank you and take care.

Thank you.

Yeah.

Thank you. The next question is from David Katz from Jefferies.

Yeah.

Hi, This is Cassandra Lee asking on behalf of David. Thank you for taking my question.

Robert could you.

Thank you and could you discuss the mix.

Maybe rated versus unrated players today or different age group compared to pre pandemic.

Yes, I'd say it varies a little bit property to property EBIT overall, the portfolio is about 65% carded play and Thats, obviously higher than our regional and local assets versus the strat, which is materially lower than that.

I would say relative to pre pandemic.

About the same on the portfolio basis say theres been some commentary about folks who are missing certain age group customers that we've heard from other operators within our portfolio and keep in mind, We're Nevada centric company, we have local and regional assets, but again all the netcentric, we feel like we've gotten those customers back at this.

Point within our portfolio.

That said, we do feel like we have more ways to go within those customers in terms of their visitation trends.

And quite frankly, some of their spending levels, but in terms of the actual customers that we're seeing we're seeing the same bodies fax machine players right now we're dealing with trying to get back to the same level of frequency in some cases, the same level of spend out of those players.

Got it thank you very much and.

If I may follow up with one more.

So with leverage at $2 eight already among the lowest.

And the industry is there a target you have out there that after a certain point you will focus more on the buyback.

Debt Paydown.

So we've always said we wanted to be at three times or lower Sui trying to maintain these levels in a rising rate environment. We do have some floating rate debt that's in the cap structure.

That to me necessitate a balanced approach between investing in our assets, which we're doing.

Reducing debt, particularly the floating rate component and then also.

Buying back stock at this point is the base case.

Got it thank you very much.

Thank you. The next question is from Omar <unk> from J P. Morgan.

Hey, Blake Charles Thanks for taking my question.

First the demand for sure today still looks healthy and obviously there are some macro headwinds that you've talked about can you talk about labor across your portfolio. We've seen the unemployment data we've heard some commentary from your peers is this eased and are there still revenue generating roles that need to be filled.

<unk> consistent operating margins that we've been running over the last four quarters.

In terms of finding bodies I'd say for the most part we're okay or not.

Scrambling like we were at this point last year I specialized positions at higher levels are getting tougher to find I think there's a bidding war on talent in those areas, but for the most part.

We feel pretty comfortable and were not really short in terms of finding revenue people, who can enhance revenue generating positions for us that would be about getting the occupancy back at the strat and actually it and hiring of the <unk> and the and the SaaS It cleans the rins and assist with the guests and.

That case, so in our mind, bringing those people on it we entirely be revenue generating.

Those people are out there.

Awesome, Thanks, and that kind of bridges in to my next question about the strat and you've talked about how it punching a little bit below its weight and youre missing 20 points of occupancy can you talk about the path to get that occupancy back and get it back to a full run rate.

Yes.

For us it's simple I mean, we draft off of the city being full.

And we will really test that and see how that is in the fall when you have.

Orders without Nash you have full night's schedules you have the larger citywide conventions that are coming back.

And so from our perspective, when we get to the end into the end of the third quarter and into the fourth quarter, that's really going to test the thesis for us in the meantime, we're doing.

Some touch up work within the Strat all part of our capital budget plan at this point in terms of adding some suites. Some other amenities freshening up the theater and those types of things that make the product more attractive potentially some of those conventioneers to the citywide as well as higher end players that we are active.

<unk> targeting.

For our players club.

At 60% to 65% from an OTA mix and the rest is our direct bookings either through through directly on our website, our outreach to previous gas or through our casino marketing program I would add to that Thats material Avenue for us to answer your question to generate more of our occupancy through our own.

Resources right versus the Otas, so our casino marketing programs.

Charles just mentioned we've made significant improvements.

And so over time that room night deficit.

We're speaking about we believe.

It helps get filled significantly through a continued growth in that program.

Great. Thank you both.

Thanks.

Okay.

The next question is from Chad Beynon from Macquarie.

Blake Charles Thanks for taking my question.

We continue to reference and remind investors how stable the broader gaming industry was during prior downturns I think.

Lot of people and companies are focusing on that right now, but could you kind of.

Help us think about how you saw the business Blake, particularly the distributed business during the last downturn or maybe how you would see it if revenue start to tick down.

Which segments do you think would be hit harder between kind of locals destination or the distributed thank you.

Yes, Chad so as you know I've been a part of the industry now for.

Since 1983.

<unk> been through.

Various challenges macro challenges whatever you want to call them over the course of that time as you know also Las Vegas is extremely resilient to those downturn, which is one of the reasons that our our portfolio was put together with that focus in mind being in Nevada, primarily southern Nevada.

The local business.

Notwithstanding being closed right are forced to being closed.

I think thats a.

The Las Vegas locals market in the hyper local market is the most resilient part of our portfolio I think if we were going to see.

Any any significant impact it would be at the strat, but I would only put that into context with the rest of the city, we're seeing a downturn in traffic because you've seen our airport had record visitation in the month of June higher than it's ever had.

Anticipate continuing.

In a downturn that is not a closure right. So.

I like where our assets fit within the portfolio, primarily being in southern Nevada.

<unk>.

And the consistency I think.

It is going to be there.

Perfect. Thanks, and then lastly.

Lastly, just another follow up on the strategy Charles you touched on this and it was asked a couple of different ways, but.

Could you kind of frame out maybe the difference in terms of what youre seeing weekday versus weekend roughly in terms of room rate.

Because as you said when the room rates are compressing in the city, particularly as international group comes back.

We would imagine that its really that weekday business, that's a little bit softer that's going to see some nice compression.

Yes, I mean for us it's definitely that's where a lot of the softness is coming from for us.

Our mid or weekend is two and a half X are our mid week rates.

And occupancy absent the linen issues that we talked about a little bit yeah. That's typically we're sold out on the weekends and.

And so for mid week when were lagging where were in the 50% range from an occupancy perspective.

That is the piece that's missing for the most part from.

From what we would rely on to drive the property to the levels, where we think it could get to.

That's great. Thank you very much I appreciate it.

Yes, Thanks, Ken.

The next question, we have is from Jordan Bender from JMP Securities.

Good afternoon, Thanks for taking my question.

Theres, a new operator in Nevada, and Montana distributed gaming market I was wondering if you guys have seen any impact.

From the new operator since they've taken over.

No in Nevada, I would say pretty emphatically no in Montana seems was probably a little more focus from that company in Montana.

Our active but we.

We need to grow our portfolio up there and in Nevada, we havent run across them.

Yeah.

Okay.

You think about the opportunity in Nevada distributed gaming.

Is there any more untapped potential to continue to expand their licenses that might come available or is it pretty.

Mature and tapped out at this point.

No I think with the growth in population and the city continuing to spread.

All throughout the valley, we continue to see opportunity in what we think is the.

The peak of the hyper local business, which is the tavern business. So we are seeing opportunities for.

What we consider to be locations worthy of our brand and our our investment.

And we anticipate going forward.

We'll be taking advantage of of those as they come along we're not taking every location frankly some locations we passed.

Whether it's often a wholly owned scenario with our <unk> brand or with our third party route which we have 40% of the distributed gaming business in the state, it's either us or one of our partners primarily taking these locations on.

Awesome. Thank you.

Thank you and last question, John and with Ngos from Roth Capital Partners.

Hi, Thank you for taking my question you mentioned some supply chain issues impacting the strat and the QQ have these constraints have been eased yet or are they still impacting the current quarter.

There is so we dealt with this in July is probably a little bit of spillover at the beginning but otherwise it has been dealt with.

Great. Thank you and then just overall when the bigger questions that we're getting is just if there were to be some sort of economic downturn, how much room. There is to actually reduce costs just given how tight you are already been managing expenses.

Mick.

Are some of the buckets that you think you could maybe.

The lever on NK spend per trip does does decline.

Yes. The answer is yes, I mean, we learned a lot during the pandemic, obviously, which levers to pull I think there is some there is some labor that we can pull through.

Some of our operations that would need to be opened as often as they are open now certainly we can we can control capital right, we can control that spend.

Pretty easily our marketing continues to be disciplined but there are probably a few levers there we can pull so we're pretty confident that if we see we see headwinds that are that necessitate us.

Changing the way.

Our current business model that we have those levers to pull.

Perfect. Thank you.

Thank you.

And gentlemen, we have reached.

At the end of our question and answer session and I would now.

Coupon the call back to Charles <unk> for closing remarks.

Okay. Thanks, everyone for joining and we look forward to speaking with you next quarter.

Thank you ladies and gentlemen, thank complete today's conference. Thank you for joining US you may now disconnect your lines.

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