Q4 2022 Golden Entertainment Inc Earnings Call

Speaker 1: The.

Speaker 2: Good day and welcome to the Golden Entertainment Incorporated 2022 Fourth Quarter Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.

Speaker 2: Please note this event is being recorded. I would now like to turn the conference over to Mr. Joe Jafoni of Investor Relations. Please go ahead, sir.

Speaker 3: Thank you very much and good afternoon everyone.

Speaker 3: On the call today is Blake Sartini, the company's founder, chairman, and chief executive officer, and Charles Pertel, the company's president and chief financial officer.

Speaker 3: On this 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 maturely differ from these forward-looking statements is contained in today's press release and our filings with the SEC.

Speaker 3: Except as required by law, we undertake no obligation to update these statements as a result of new information or otherwise.

Speaker 3: During today's call, we will also discuss non- GAAP financial measures in talking about our performance.

Speaker 3: You can find the reconciliation of GAAP financial measures in our press release, which is available on our website.

Speaker 3: We'll start the call with Charles reviewing details of the 2022 fourth quarter results and a business update. Following that, Blake and Charles will take your question.

Speaker 3: With that it's my pleasure to turn the call over to Charles Protell. Charles, please go ahead.

Speaker 4: Thanks, Joe. We had another solid quarter, the second highest Q4 revenue in EBITDA in our history, surpassed only by Q4 of 2021.

Speaker 4: For the quarter, we delivered revenue of $280 million and EBITDA of $64 million. Lower than last year, but still significantly higher than the fourth quarter of 2019, with revenue up 16% and EBITDA up 48% compared to that period. For the full year 2022, we delivered revenue of $2.5 million.

Speaker 4: We generated record revenue of over $1.1 billion, up 2% of the prior year, highlighting strong customer spend at our properties since the pandemic.

Speaker 4: We generated full year EBITDA of $267 million, our second highest annual EBITDA on record other than 2021.

Speaker 4: Relative to 2021, margins were largely pressured by higher payroll expense and other inflationary costs. However, relative to 2019, our operating margins maintained a 500 basis point improvement and our full year EBITDA is up 45%.

Speaker 4: Before getting into more specifics on our operations, in our press release we detailed new segment reporting that now breaks out the results of our Nevada-branded tavern operations.

Speaker 4: The results of our third-party distributed gaming operations for both Montana and Nevada will continue to be reported within our distributed gaming segment.

Speaker 4: This breakout provides further detail on the largest branded tavern portfolio in Las Vegas and highlights that the vast majority of our total revenue in Ibadah is derived from our owned casinos and taverns.

Speaker 4: Within our segment results for Q4, we saw mostly flat revenue comparisons to last year, with 3.5 million of additional property level labor costs being incurred across the portfolio.

Speaker 4: These increases were mostly in the Nevada resort segment where we had to make the largest adjustments to keep up with the labor market at the Strat and our two Laughlin assets.

Speaker 4: Further contributing to the Lower EBITDA and our Nevada Casino Resorts for the fourth quarter, Laughlin had one less concert, resulting in approximately 10,000 less visitors to our two properties compared to Q4 2021.

Speaker 4: For the first half of 2023, we have already booked 11 events which drive more visitation to our law firm properties than in 2022.

Speaker 4: At the STRAT revenue increased 3% for the quarter while occupancy remained comparable to Q4 of 2021 at 77%.

Speaker 4: In addition to increased labor costs, margins were negatively impacted by decreased gaming revenue, which was driven by our decision to move away from volatile local boxplay.

Speaker 4: We have since focused on building out a more diverse player database and attracting higher spend levels from retail guests. We have seen some recent success in these efforts with new card signups of 47% in January .

Speaker 4: We still see a lot of potential for improvement at the Strat. For the full year of 2022, we're still missing 144,000 midweek room nights relative to 2019 when the property maintained occupancy close to 90%.

Speaker 4: This implies potentially over $30 million of additional revenue and almost $20 million in the EBITDA based on our current midweek room rate, guest spend, and margin flow-through.

Speaker 4: We expect to get closer to 2019 occupancy levels in the back half of 2023 with the continued recovery of conventions and international travel as well as anticipated benefits from Formula

Speaker 4: Our Nevada local casinos saw continued strong year-over-year performance, increasing revenue on EBITDA over last year's record Q4 numbers.

Speaker 4: Margins remained at 48% for the quarter, which is up slightly from last year and still up 1,400 basis points over 2019.

Speaker 4: Our approved local performance is a testament to the continued resilience of the economy and a stable promotional environment in Las Vegas.

Speaker 4: For our Nevada Tavern operations, 4th Quarter revenue and EBITDA was down from last year, reflecting 64 operating in Q4 compared to 66 last year as we pruned some underperforming locations from the portfolio.

Speaker 4: In addition, we saw some extended seasonal trends as our top tavern players resumed travel in the fall for the holidays that we hadn't seen coming out of COVID and in 2021. We intend to continue to grow the tavern portfolio and believe we can get 90 to 100 locations without adding additional infrastructure costs.

Speaker 4: We will target at least four to six new taverns per year, and to that end we have agreed to acquire four taverns. At one additional tavern under construction, all five of which will be added to the portfolio this year.

Speaker 4: Total third party distributed revenue was flat compared to last year, while EBITDA increased slightly.

Speaker 4: Our third-party distributed operations spanned over a thousand locations across all of Nevada and Montana, and our results reflect our market leadership in the states where we operate and the stability of the distributed model even in an inflationary environment.

Speaker 4: Turning to Maryland, Revenue Bedok were both down to prior year, primarily due to weather impacting visitation December . We have seen visitation rebounded January with more moderate weather and with the implementation of our new hotel revenue management system for the property.

Speaker 4: Last August , we announced the sale of Rocky Gap for 260 million and expected transaction to close by the end of the second quarter.

Speaker 4: Moving to our balance sheet in Q4, we repay 25 million of our term loan and retired 2 million of our unsecured notes, taking our total debt repayments to 116 million in 2022 and nearly 250 million over the last two years. Currently our total debt outstanding is approximately 910 million.

Speaker 4: and we ended the fourth quarter with $142 million in cash and now outstanding borrowings on our $240 million revolver.

Speaker 4: We repurchase 329,000 shares of common stock in the fourth quarter and 1.1 million shares during the full year. As of December , we have 61 million remaining under our current share repurchase authorization.

Speaker 4: Our current net leverage is 2.9 times and we intend to maintain our net leverage below three times going forward.

Speaker 4: To support that target, we anticipate using the majority of the proceeds from the sailor rocky gap to reduce debt.

Speaker 4: We believe maintaining low leverage and owning our own real estate provides maximum flexibility to invest in our assets, explore strategic alternatives and return capital to shareholders.

In 2021, our CAPEX sold approximately 30 million as we were cautious on spending coming out of the pandemic.

For 2022, we finished the year about 50 million at CAPEX, which included about 10 million spent at the Strat for renovated suites, a new Asian restaurant, and some pre-purchases for anticipated CAPEX in 2023. So our normalized CAPEX for the portfolio is about 40 million per year.

In 2023, we intend to renovate more rooms of the Strat to provide a more competitive product in order to capture demand from proof business and citywide events like F1 and the Super Bowl. We are currently renovating additional 537 rooms, hallway corridors in our pool areas, which should be completed in the first half of the year and expected costs of approximately 30 million in 2020.

construction on our excess land behind the strat that we are targeting it opening Q4.

For atomic golf, we are not contributing cash capital to project. We are only contributing a land lease in exchange for revenue participation in the project.

We expect our 2023 Strat projects to add approximately 10 million of annualized EBITDA to the property one complete.

Additionally, we are actively pursuing new tavern opportunities in Las Vegas. Taverns are uniquely positioned to benefit from the growth of Las Vegas since we can target adding locations to areas with upcoming residential development with a modest investment.

sites with 11 million already allocated to the five locations previously mentioned.

which we're requiring our building in 2023. We anticipate a 20 to 25% return on our new Tavern investment.

We expect to spend a total of 90 to 100 million in CAPEX for 2023, including the growth projects at the Strat and our targeted additional new taverns.

We will be able to reduce catbacks as we did post COVID. Should we see a material slow down in the business environment?

Given the significant and sustained margin improvement we have achieved in our operations, the strong outlook for visitation in Las Vegas and the healthy economic conditions of Southern Nevada are companies well positioned for future success.

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

We will now begin the question and answer session. To ask a question, you may press star than one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. And to ask your question, please press star than two. And at this time, we'll pause momentarily to assemble our roster. We will now begin the question and answer session.

And the first question will come from David Bane with B. Riley.

Great, thank you. I guess firstly on the labor increases in 4Q that you know, to just be clear, the kind of higher profile union issues that some of the strip chains will be negotiating later this year, that doesn't directly impact you, correct? You've already seen.

I guess firstly on the labor increases in 4Q that you know, to just be clear, the kind of higher profile union issues that some of the strip chains will be negotiating later this year, that doesn't directly impact you, correct? You've already seen that impact.

We'll be a derivative of that for one of our assets. That's the strat. We do have culinary union within that one property, but not the others. So it is important, but smaller part of our labor workforce than some of those other companies.

The end just made for further clarification David. I think Charles has mentioned.

Our contract with the Union labor force at the Strat is a hybrid between a strip contract and a downtown contract. So in the past, our terms have not mimicked what they do on the South Strat.

Okay, great. And, um, kind of choose one here. I guess, you know, it seems like some of the new potential markets for distributed expansion have installed a little bit, maybe Nerf ProLina still on. Maybe I'm wrong there if you could help with that. But beyond jurisdictional growth, you know, after the Rocky Gap sale.

You know, you're almost all in Nevada, Casino, Nevada, Cameron Focus, you reviewed growth initiatives in taverns. How do you view that segment, the distributed segment, strategically at this point? I mean, there's M&A appetite out there. Resiliency valuations are reflected, maybe in other companies, but I'm not sure it's reflected here or appreciated. So, do we look to grow this business? Are there alternatives?

I'm just kind of a big picture question on that division if I could.

Yeah, it's a great question and we share your observation obviously that the growth in these new jurisdictions has not met the pace at which we had originally anticipated.

And so if you look at our portfolio of distributed assets, we actually operate in two distinct kind of rails, if you will. One is the third party distributed in which we support non-owned or separately-owned locations with our route operations. The other side is our Holy-owned tavern operations.

here in Nevada, which frankly could be transported to other states, which are currently involved in distributing gaming for the BL and OIP, Pennsylvania or others that were aware of. That part, that side of the model can certainly be transported.

Specifically, to answer your question, we are pursuing, we do believe, the growth in the tavern side of the portfolio. Where we actually outperform in terms of machine wiper units and so on is an area that we are extremely focused on, particularly, obviously, here in Nevada with the leading franchise.

and as well should distributed open up, the pace continued to open up or work.

The pace begin to quicken in terms of the jurisdictions opening. We would see us potentially looking at that side of the business to pursue some growth in that distributive business. So, good question. We are focused on it. We're committed to it.

and we'd like where we're at in our holy on-side of the distributed.

Okay, got it. Thank you very much Blake. Thanks, Charles. Yeah, and I would just add quickly to that like if you look at the third party results in the fourth quarter, they're very stable to opt. So I mean that really highlights the resiliency of that model and we agree with you. It's been underappreciated.

in the public markets. Yep, I agree. All right, thank you guys. Thanks. The next question will come from Carlos Santarelli. With Deutsche Bank. Please go ahead.

Hey, thanks guys. So I'm kind of going to just go along the same lines as David's prior question. But you know, it can't help but notice obviously you guys, you know, decided to kind of split out the Nevada taverns from distributed gaming, obviously more disclosures, more helpful. But you know strategically.

Is there anything to the rationale of splitting it out right now and when you think about the the tavern business

as a feeder for you guys throughout Nevada. Is that maybe a little bit more strategically sensitive than we give the credit for?

Yeah, I think so. Look, I mean the taverns, I mean obviously the portfolio is predominantly in Las Vegas. And if you look at the size and scale of that business, it's effectively a local, a good size local casinos that's complimentary to the rest of our portfolio. I mean we treat them as such. We market to our players as such.

We have them integrated with our Tassina Rewards programs. So again, I think from our perspective, I think there's certainly a difference between the businesses that we control and the businesses that we serve as for others. We try to do both very, very well. But ultimately, the third party distributed business. If you look at a property, Iba Dodd.

perspective, it's less than 15% of the overall operations. It's important, it is quite frankly the start of this public company that we have here today. But when you look at the rest of the portfolio where we see the growth opportunities versus the maintain opportunities.

It's more in the other business units than in, for us, than within our third-party distributed business that sits within the states we're operating in.

Thanks for that Charles. Just to rehash the color you provided, it was 30 million on the STRAT project, it was 20 million on the taverns, and then that incremental 40 to 50 circles back to the kind of regular way maintenance that you'll spend. Is that accurate, for that 90 to 100?

Charles, you just said that owning your real estate gives you maximum flexibility, but given the misallocation of valuation between kind of private market, public market, and kind of the op-code procre. How are you thinking about potentially pursuing sell lease back? Thank you. Well, right now we think about it as optionality.

I mean, I think if you look at us as well as some of our peers, owning your own real estate provides you the cash flow to actually execute on investing in your own assets, reducing leverage as well as returning capital to shareholders.

I think that if we were potentially a larger scale portfolio or we were looking at strategic M&A where synergies far outstripped the incremental rent creases that you'd see on an annualized basis, that it'd be something that we would be –

pursuing more earnestly. That being said, I think there's an ultimate backstop to the value of the company that's embedded in the underlying real estate. And I think that over time, to the extent that we are not able to see the appreciation and the value.

You're in our shares from a multiple expansion perspective. It's something that we will consider more strongly. Yeah, and I'd like to just add to those last few comments to Charles's Ives.

As I have said in my previous comments on previous calls

and reiterate what Charles said in his prepared remarks. I believe owning our real estate offers us the ultimate flexibility.

And by targeting a balance sheet that's less than three times levered Gives us plenty of opportunity to drive value within this company in other ways while maintaining that flexibility of owning you Our own real estate. So I think Charles outlined that very well. Obviously You know there is Charles said you know, we look at it as kind of optionality or backstop if you will but

At this point in time, we believe we're a balance. It sits there's the significant ways for us to drive value with this company without monetizing the real estate.

At this point in time, we believe where our balance sheet sits, there's significant ways for us to drive value with this company without monetizing the real estate at this point.

Great, thank you. And if I may just have a little quick follow up. Since you mentioned strategic MNA. Can you tell us, I want to have you observed? Has there been any change in the industry's MNA dynamic? Has valuation come down at all or went up since we last spoke?

I think that the private valuations are still disconnected from the public valuations. I think you see private transactions, IE, in a private marketplace, taking a longer term view around value that we're seeing in the public markets right now.

given where multiples are in the sector. And that is still continuing. I think you'll still see transactions that are accreted or at premiums to where the current sector trades. I think there will still be consolidation in the sector despite higher rates as strategic and private partners take a lower term view.

on the strength of this business.

the strength of this business. Great. Thank you so much for taking my questions.

The next question will come from Ricardo with Deutsche Bank. Please go ahead. Hey guys, thank you so much for taking my question. You guys mentioned that some of the proceeds from the sale will be used to take out debt. Have you guys decided you know how the capital structure works?

Yeah, I mean, look, I think it's a little early for that. We've certainly been thinking about it quite a bit. I think we'll have more color around that when we have more visibility on the specific timing on the closing of Rocky Gap. I would say that having a less than three times levered company doesn't make it a discussion about modulation of the

Can we do a refinancing in any way, shape, or form we want to? It's a question about what is the optimal refinancing you have for the company at the right time?

Perfect. Thank you so much. The next question will come from John DeCream with CBRE Securities. Please go ahead.

Hey guys, thanks for taking my questions. Wanted to circle back to the strat. Charles, I think you gave a little bit of color in your prepared remarks. But, you know, if you went to mine, rehashing where occupancy was in 4K, I think you maybe said high 70s.

And where 2019 was and you're kind of you on getting back to there, this year we obviously have a pretty busy convention calendar in one queue. So just kind of how you're looking at the bridge and occupancy recovery and maybe some forward looking commentary on your bookings for what looks like a pretty busy.

is weekend versus midweek. So we were basically full.

full on the weekends and running less than 70% occupancy during the week.

I think from a rate perspective, we feel pretty comfortable about where we are and we like where we're heading and this leads into why we feel that we should be renovating more We're getting a $15 to $20 premium on those rooms as we're renovated. We saw that through the first batch and so again, we think in order prepare for a little bigger front door.

These big traffic drivers that everyone is well aware of from F1 to Super Bowl, to more conventions, to more works madness coming into town that we need to have a competitive product to benefit from that.

The specifics around what are missing are a hundred and forty four thousand midweek room nights Relative to 2019 and so if you just take the midweek rate, which is roughly around $110 including resort fee average spend for visitor assuming double occupancy

and run that type of flow through, through the various components, whether it's gaming revenue or F&B, that is where we see 30 million in revenue and 20 million EBITDA opportunity just to get those folks back. So there's all of that matriculate in this year with the...

You can mention Calender and those drivers, we certainly hope so, but even if we get half of that back meaningful to the property, in addition to those growths and issues that we just don't want.

Yeah, I think obviously what Charles is saying is we've been focused on what's going on citywide.

to produce more of our room bookings going forward this year, but also a key component to what we're doing, and I think...

I think you have to look at the stratum, what we're doing at the stratum kind of in components as we build on each component, but the capital investment, as you recall, when first the ownership of that property, there was little or no bookings, direct bookings happening through the property. It was all OTA and online.

In addition to what to the city of Las Vegas and what's happening here, we are we have instituted a very robust casino marketing program, a very robust direct communication program with our guests that we're now generating through these investments. And I think that component over time will continue to build.

in particular help us midweek. In terms of a timeframe, that's hard to say. We know that the special events are coming and the activities that are coming in Las Vegas are pretty easy to predict. But the midweek is obviously where we're focused and we believe internally a large part of our success lies within ourselves and how we market at that property.

as we begin to build out amenities that attract people for longer stays and longer time on the property.

That's helpful. I think you guys both cover most of my particular follow up questions there, but maybe one, when you're full in the weekends, are you seeing the ability to push rate comparable to what we see in the LVCVA monthly data, or do you need?

kind of midweek occupancy to come back to kind of help raise rates across the whole property on all days. No, we aren't pushing rates on the weekend. So that is, you know, comparable to what we see in the LECBI. Yes. This property will potentially hurt more than others on the south side of the strip.

When that midweek in convention group business isn't filling up the convention center It isn't filling up the entire town So we will probably hurt more in the midweek and they will but we could actually flex just as much or more on the weekends with the room base

Great. Next, guys, I really appreciate the color. Yes, thanks. Again, if you have a question, please press store, then one.

This concludes our question and answer session. I would like to turn the conference back over to Mr. Charles Proteil for any closing remarks. Please go ahead sir.

Thank you all for joining the call. We will speak with you for our Q1 results. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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