Q3 2022 Golden Entertainment Inc Earnings Call
Okay.
Good afternoon, and welcome to the Golden Entertainment.
Turning to your third quarter results call all participants will be in listen only mode.
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I would like to turn the conference over to Joe just Tony. Please go ahead.
Thank you very much operator, and good afternoon, everyone.
On today's call as 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 in these statements additional information.
Formation concerning factors that could cause actual results to materially differ from these forward looking statements is contained in today's press release and in 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 the 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 details into 2022 third 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 portals. Charles Please go ahead.
Thanks, Joe we had another strong quarter, the second highest Q3 revenue and EBITDA in our history surpassed only by Q3 of 2021 for.
For the quarter, we delivered revenue of 279 million and EBITDA of $61 million below.
Below last year, but still higher than the 2019 third quarter by 15% and 42% respectively.
Our third quarter performance reflects the return of summer seasonality at our properties as well as declines from last July which was unusually strong and given the continued stimulus and excess demand in the market.
Our operating margins contracted compared to last year due to higher labor costs and other expenses, but we are pleased that our Nevada casinos continue to operate at margins that are 800 basis points higher than 2019.
To start the fourth quarter in October we saw a strong business trends across our portfolio with EBITDA up over last year at every property other than in Laughlin, where we had one more concert last October then this October .
So in October at the Strat posted its highest hotel revenue month in history with occupancy above 80% on average, including being completely sold out on the weekends. We expect October to be the second highest EBITDA generating months, the property's history other than last July .
Getting into our segment results for Q3 revenues for Nevada Casino resorts was $98 9 million, while EBITDA was $30 1 million with both of those metrics down year over year, reflecting the elevated strapped performance last July as well as the impact from higher labor and utility costs in the quarter.
Also in Laughlin, we did not have any concerts in our outdoor arena compared to having two concerts in the same period last year.
Last year was an unusual event calendar as we typically do not have large outdoor events in Q3 due to the summer heat in Laughlin.
Reduced occupancy at the strat compared to last year was the primary driver of lower margins within our resorts segment, but we expect margins to improve in the fourth quarter as occupancy continues to grow.
In August our development partner broke ground on a $75 million golf Entertainment facility with over 100 base located on excess land adjacent to the strat.
We are excited for the project to be completed by the end of 2023 and believe it will be a significant traffic driver to our property for locals and visitors alike.
Our Nevada local casinos reported revenue of $37 7 million and EBITDA of $16 8 million, reflecting the impact of higher August seasonality compared to last year. In addition to the cost increases we've seen in other areas of our business.
Our Nevada locals margin was 44, 6% down a few percentage points from last year, but still up 650 basis points from 2019.
To start Q4 in October revenue and EBITDA tracked ahead of last year for all our local casinos.
For our distributed gaming operations revenue of $117 6 million was flat compared to last year, while EBITDA declined to $18 8 million.
That our wholly owned branded taverns as well as our managed third party locations. Both saw decreased visitation in August and early September similar to what we typically see at our properties when people tend to travel or get ready for back to school.
This was offset by increased revenue in Montana, where we added new locations and benefited from increased summer tourism over last year.
Margins were modestly impacted year over year by increased labor costs, but were also affected by annual rent increases in our Nevada tavern and chain store locations.
Our Nevada wholly owned taverns got off to a strong start for Q4 benefiting from the sports calendar as well as the continued strong performance from our newest tavern opened in March.
Turning to Maryland revenue was $21 6 million and EBITDA was $7 4 million in August we announced definitive agreements to sell rocky gap for $260 million, reflecting a 10 times multiple.
Rocky gap is a great casino resort property with a strong management team, but without any other east coast properties. This sale will allow us to further focus on our core operations in Nevada, We expect the transaction to close in the second quarter next year.
Moving to our balance sheet in Q3, we repaid $25 million of our term loan taking our total debt repayments to nearly $220 million over the last 18 months currently our total debt outstanding of approximately $940 million. We ended the third quarter with a $178 million of cash and no outstanding borrowings on our two <unk>.
$40 million revolver.
Our current net leverage is two eight times and we intend to maintain our net leverage at three times or less going forward.
Given the strong free cash flow, we generate and the expected proceeds from the sale of Rocky gap, our flexible capital structure positions us to maintain a healthy leverage profile evaluate accretive opportunities and return capital to shareholders.
We were unable to repurchase shares in Q3, given blackout restrictions related to the pending sale of Rocky gap, although we repurchased nearly $50 million of our common stock since Q4 2021.
This week, our board increased our share repurchase authorization of $75 million and we anticipate being opportunistic while there is continued dislocation in our public valuation.
We believe our portfolio is well positioned for any economic environment. There are more visitation drivers and economic activity in southern Nevada, where our operations are focused than any other gaming market in the country are.
Our properties are stable cash generating assets with underlying real estate value and we have not pursued uncertain development projects or unprofitable technology platforms. We have one of the lowest leverage ratios in the industry and plenty of liquidity.
These factors make us excited about our future and confident in our ability to continue creating long term value for our shareholders that concludes our prepared remarks, Blake and I are now available for questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press star two at this time, we will pause momentarily to assemble our roster.
Yeah.
The first question comes from Chad Beynon with Macquarie. Please go ahead Sir.
Good afternoon, Thanks for taking my question.
Charles Blake I appreciate the the.
October commentary I think Thats really helpful for everyone. Just given the questions that everyone's had through the past couple of months with the consumer wanted to talk about occupancy I think you said you are kind of back to peak levels in the performance at the strat.
As one of the best since you've acquired it wondering if you can talk a little bit more in terms of what youre seeing.
On the weekend and some of these compression time periods I think a lot of the other operators have reported really strong occupancies and just wondering if you're starting to be able to drive ADR.
As you originally intended when you acquired the property.
Yes, sure. Thanks, Yes, I think thats accurate.
We are seeing early in the fourth quarter.
A lot of compression on the weekends, we're sold out and it looks like we're sold out going forward.
On the weekend. It does look like midweek have picked up significantly as well for the month of October .
We ran.
Over an 80% occupancy at the hotel, which was historically the highest occupancy rate.
For a month that we've had at the highest hotel revenue rate that we have.
<unk> ever had.
So we are seeing compression in the broader market, we are benefiting from that not only on the weekends, but during the weekdays and that has been kind of a slow build that we've been seeing from call. It kind of mid September through October and now into our into our booking windows in the future. So.
We're very bullish on that property.
Still expect to achieve.
EBITDA results.
We're targeting.
<unk>.
We're seeing as you mentioned, we're seeing a lot of strength.
Regarding the demand for the hotel going forward.
Thanks, and then.
Given your balance sheet and the cash proceeds after the Rocky gap.
Asset sale is completed how are you thinking about.
What to do with the capital I know in the past you've talked about.
Our ability to look at a lot of things and you just haven't found something that youre willing to.
To buy down on but can you just kind of remind us your priorities with that capital and kind of what youre seeing out there in the market.
Yeah, Hey, Chad I think for US we're focused on maintaining a flexible balance sheet to leverage being low we think is critical at this juncture.
We like the fact that we can look at look at other opportunities. The hurdle rate is high for us to pursue those as we've talked about in the past.
But we think given where the balance sheet sits right now we're fortunate where we can look at opportunities invest in our own assets and have the flexibility to return capital to shareholders.
Thanks, guys I appreciate it.
Thanks, Chad.
Thank you. The next question comes from Cassandra Lee with Jefferies.
Hi, Good afternoon. Thank you for taking my question.
Yes.
<unk> mentioned unusually high utility expense.
They used the word extraordinary.
I was wondering how much did it impact your operation.
We saw that as well to our utilities costs were up about 25% compared to last year. I mean, if you look at our quarter over quarter decline, yeah half of that had to do with labor costs, plus utilities and other maintenance types of fixed costs that you'd see going up.
Going up into business. So yes, we did see that you would expect to see some of the utilities and energy price cost trend down as you get into the winter winter time.
Versus where they are at peak summer season, when you're trying to cool off big building.
In Las Vegas.
Great. Thank you and.
If I may follow up longer term, how should we think about margins and the casino resort versus locals casinos.
Look I think that the.
The local casino will always operate at a higher margin than the resorts given just that footprint. The amount of fixed cost that are that are there that being said as occupancy improves. It distract you see wide swings in terms of the performance and the resulting <unk>.
Margin associated with that so we expect that this quarter will be the low point from a margin perspective, and as we move through Q4 Youll see.
The improvement in the margins that we're reporting right now.
Great. Thank you so much for taking my question.
Thanks, Andrew.
Thank you. Your next question comes from Omer Sander with Jpmorgan.
Hey, Blake and Charles Thanks for taking the question just one from me so pro forma for the asset sale or for the Rocky gap sale, you'll have $400 million or so of cash on the balance sheet looking at the three Q end and cash balance and obviously the balance sheet strong like you said, how do you think about additional noncore asset sales. If there is anything else in Europe .
Folio that.
Somebody comes to you with the right price for.
Yes look I mean, we're selling assets at 10 times EBITDA, we're trading a seven right now.
So theres clearly a misallocation evaluation between private and public markets at this stage.
We're a public company.
In our mind everything everything has a price we're not active in terms of marketing any of our assets at this point in time.
But.
If someone were to make us an attractive offer that reflects what we feel is the evaluation of an asset and then we would transact.
Awesome, Thanks, and I guess, maybe a follow up I know I said, one but do you think the ability for somebody to do so given the change in the financing environment is maybe tougher today.
Then maybe it was six to 12 months ago for an asset that maybe has a $1 million in front of it instead of $1 billion.
I think it depends.
Last point it depends on the size of the asset I think when you talk about <unk>.
Financing in the billions that require large commitments. It is you are much more difficult to do in this environment, but when you were talking in the hundreds of millions.
Several companies like our own that have ample liquidity to do those off their own balance sheet and so I think those transactions still happen still get announced still be at multiples that are in excess.
Companies are trading at right now.
Yeah.
Thanks Carl.
Thank you. The next question comes from David <unk> with B Riley.
Great. Thanks, so much.
I guess first given all the upcoming new event in Las Vegas.
Total growth from 2019 with convention.
Are there going to be additional investments or repositioning of the strat to capture that additional flow or try and take share.
Hey, Jason land.
Strategically what the Strat and then if we can get an update on autonomy golf.
I'd love to hear your take.
Yes, David.
The answer is yes, we are.
We are continuing to program the strat.
To to take advantage of what we see is a pretty.
Pretty robust calendar going forward for the broader city, we just opened a brand new food outlet a couple of weeks ago.
In Asia outlet.
That is getting out of the gate very strong.
We do anticipate next year, the first half of next year.
To invest in approximately 550 more hotel rooms to bring them up to a competitive position.
Position in the market, which will then put the hotel.
Well over half of the room inventory will be in a new configuration, and probably 80% of it will be in a configuration that is competitive with other properties along the strip given prior investment before our ownership before we took ownership.
We are revamping our entertainment program as we go along which is seeing.
<unk> improvement in terms of.
Driving people to those events.
You mentioned atomic golf, they're projecting a Q3 opening next year is what they are trying to.
To do in regards to getting in front of F. One that would be the target to open up prior to that.
We are making investments in our pool product next year, which which we think will be well received all of this I think to your point is we're seeing more stickiness on the property, which was our thesis in the beginning.
And we plan to target Smart capital.
Going forward at the property to continue to bring that into a highly competitive mode with those on the south strip.
Awesome.
As a follow up just because of the moves in the capital markets. The last couple of days back to kind of macro I mean, clearly youre not seeing any impact to date.
Hey, Blake.
In your history in the casino business are there any economic indicators you would generally look for.
For something.
Hip you off and then maybe Charles.
Or even within the casino or business segments Charles.
If there are any changes that you would make today.
That type of environment or is that something that you guys have already sort.
Plans for and staged.
Does it hedge.
Yes in terms of making changes.
Yes.
We said were busy as we've ever been right now from that perspective, we haven't seen.
We saw some of that summer seasonality come back.
Three are there any tells if you will or do we get tipped off as to what may be coming in the broader.
Macro environment.
You know my answer short answer to that is no. My experience has been these things kind of take on the personality. If you will of what's going on in the macro environment and overtime that either wears and tears on the consumer and and the term of Drumbeats about recession or high commodity prices were high gas prices or whatever they may be.
That just you know the wealth effect I think is more of an effect on our consumer than anything or that you know they'd.
They still have equity in their homes.
Do they still have spendable income in their pocket after inflation I will end with you know.
In my career.
Ever cease to be amazed at the resiliency of the gaming consumer, particularly in the local market.
Las Vegas is it isn't dynamic community.
It's growing very rapidly with with significant population growth massive amounts of commercial and residential construction.
It's one of the most vibrant cities and continues to be over the last two or three decades in the world and that that is only accelerating from what from what we see driving around town here. So.
You know I think I think our answer to all of that uncertainty and not being able to really pick a particular tell out of the macro economy is Charles mentioned in his comments to have a strong balance sheet right. Now is really what our focus is to be prepared for either way that this thing goes.
And right now to your point, we're not seeing it.
Opted to to any extent that they are talking about on a macro level. However, if it does we are in a good position.
Fantastic. Thank you though.
Thank you. Your next question comes from Jordan Bender with JMP Securities.
Alright, Thanks for taking my question, so you've been talking about sending the supply chain issues over the last couple of quarters and he also you're talking about some of the occupancy cats last quarter as well I was wondering if you could just talk about how that translated over into the third quarter and kind of what you're seeing now into the fourth quarter as well.
Yeah How'd you into obviously, we talked about cost increase is it from a supply chain perspective for us in terms of getting.
Certain food items getting serious supplied that has abated to a large extent now the pricing is still high so we've seen that price inflation that happened there.
From an occupancy standpoint, he noted disruption that strategy is really that we compare it to lash July which was for us the highest really on record and the second highest is actually going to be it is October .
Say that again goes to share we just got a really really tough carpet that property. We look July year over year, but again I don't think we're having any.
Meaningful supply chain issues right now, we don't see that going forward.
Right and then I guess housekeeping item on your corporate and other on the revenue lying with the pretty significantly in the quarter or just anything Nicole out on that.
We actually we did a deal where we.
We actually sold some royalty rights related to an old Lake.
IP that Lake Entertainment had dating back several years ago too.
Alex fee.
Which is a.
Smaller equipment manufacturer.
To this a little bit.
Gain on that issue and then it into that number.
Great. Thank you.
Thank you. The next question comes from Edward angle with capital.
Hi, Thanks for taking my question, we've heard from a couple of your Las Vegas competitors that tightness in the labor market at least maybe starting to <unk> have you seen any loosing, either uhm related to hiring or or even wait inflation.
Yes, it as solutions I think we are finding it easier.
On a relative basis to find people to staff for example, a new restaurant at the Strat.
Fill out some of the areas.
Areas in which we needed.
Some additional flavor.
However, I think you pretty much seeing us run at a level right now that that we anticipate running going forward from a from a kind of a standard consistent basis.
We are though however in particular classifications seeing wage inflation, a particular security there's one securities.
You know a high profile on a high level of kind of a <unk>.
Position of that everyone is seeking out so we do have pockets of of higher inflation was certain positions. That's the bad news. The good news is we are seeing it easier to find people.
People that are willing to work and.
Perform within our properties.
Perfect then I recall last year, you talked about about 35000 roommates missing at the strat related to pre Covid.
Is it safe to assume that given the strengthening October that sounds like you're kind of right back at square pre COVID-19 level wise in terms of Scrapbooking.
Yeah, where miss I think we're still missing a little mid week.
If you look at where the property in 2019 and operated on average roughly 89% occupancy when we're talking October we're low 80%.
We still have a little bit of ways to go from that perspective, So we see that is upside.
It again as as the city continues to book.
Events.
Raiders continue to fill up.
As a nice continue to drop people as we stood continues citywide concerts, we think that that will that gap will close in Q1 of next year.
Perfect. Thank you.
Thank you. The next question comes from John Decree with CBRE Securities.
Hi, Blake Hi, Charles Thanks for taking my questions.
Two maybe a follow up on your last point Charles in terms of regaining that last little bit of occupancy at the strat Yeah. We've heard from some of your peers that little bit of international business is coming back until Osby I guess.
Are you seeing that and can you remind us if that's.
Meaningful piece of that additional occupant take out that you'll look to recover next year.
Yeah.
Meaningful probably the wrong word, but it's something if you look at 2019 international is about 7% of the occupancy at the strat. So that Ah that will definitely be added is I think a strong dollar obviously hurts that traveler coming over here.
So we'll just have to see how that goes and I've that 7% of that half was for in Asia and the other half was from Europe , where we got a very strong bid for that during the during the summer season, and we hope that that that comes back to you. It's not big it's not meaningful to us, but it is something that is additive close that gap.
That's helpful.
Maybe one of the balance sheet I know, we've talked a little bit about this already but to ask it a little differently.
Look out too when you close Rocky gap in your net leverage can you cash balance.
A lot closer to two times or last and I think you said you know you want to stay under three.
Just to get your views looking ahead of me would you potentially kind of stay closer to two for awhile.
Given the potential economic impact that we all keep talking about and then on that <unk>.
<unk> side of that would you go above three times for the right accretive opportunity and so kind of what what are the parameters you'd flex the balance sheet up or down say.
Say over the next 12 or 18 months.
Like I think as you pointed out pro forma for the sale of Rocky gap will be two times or less last from leverage perspective.
Think for a company that owned it's Unreal estate B three times or less is very very healthy.
Would we stretch above that if we found the right acquisition I mean, it would be very close to that level again and keep in mind. If you have a target you'd be using the leverage capacity that target.
Have access cash on the balance sheet as well so.
I think that you're not going to see this company be at four or five times whenever it again.
Not in our lexicon right, Yeah, I think John .
That's a good question to try to weed assume do.
<unk> stands up to Oregon, We would we go about three one of the.
One of the.
Prerequisites, if you will when we looked at a potential opportunity because we liked owning the real estate.
And in that case to Charles point.
It's a high hurdle for us to find it M&A opportunities. Although we do think there is or maybe those available, but I think that real estate portion of it would drive.
Number one our interest and number two where does that where do we end up in terms of the price for that asset on about in terms of the balance sheet leverage.
I think of all that comes together and we think it's the right opportunity, we do it but to Charles point, you're not going to see this level of four or five times again.
That's helpful. You guys have done a great job getting the balance sheet and such a great place I get to see all the flexibility have I appreciate the the shock collar on how you're thinking about that thanks guys.
Thank you Dan.
Thank you and there are no further questions at this time I would like to turn the conference back over to Charles Hotel for any closing remarks.
Okay. Thank you all for participating and we'll talk to you in our next quarterly call.
Nick offerings has now concluded. Thank you for attending today's presentation you may now disconnect.
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