Q3 2023 Golden Entertainment Inc Earnings Call
Good afternoon, ladies and gentlemen, thank you for standing by welcome to the Golden Entertainment third quarter 2023 earnings Conference call. At this time, all participants are in a listen only mode.
Now I'd like to turn the conference over to Joe <unk> Investor Relations. Please go ahead Sir.
Okay.
Thank you very much operator, and good afternoon, everyone on the call today is Blake's our community the company standard Chairman and Chief Executive Officer and cost per ton, all 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.
Information concerning factors that could cause actual results to differ materially from those 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 outperformance 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 of the third quarter results and a business update following that Blake and Charles will take your questions with that I will turn the call over to Charles for tell Charles Please go ahead.
Thanks, Joe.
The third quarter, we generated revenue of 258 million and EBITDA of $53 2 million when compared to last year. This quarter as Michigan, almost 6 million EBITDA from our Maryland property that we sold on July 25th and its also missing approximately 800000 in EBITDA from our Montana distributed.
The ratios that we sold on September 13th.
In the quarter, we received $260 million from the sale of our Rocky gap Casino resort in Maryland, and $109 million from the sale of our Montana distributed gaming business. The net proceeds from these transactions increased our liquidity by nearly 300 million, which allowed us to repay $175 million of our term loan that remained outstanding.
After our may refinancing pay.
A special cash dividend of $2 per share in August and five 9 million of stock buybacks in September.
Our previously announced sale of our Nevada distributed gaming business for 214 million plus cash remains on track to close around year end subject to regulatory approvals and will provide additional proceeds to enhance our capital structure and strategic flexibility.
The sale of our Maryland Casino in distributed business is accomplishing our goals of divesting noncore businesses at attractive valuations, increasing our financial and strategic flexibility and leaving us with a portfolio of phone casino assets and our largest gaming tavern footprint in Nevada.
Moving to the results of our continuing operations revenue at our Nevada Casino resorts increased 7%, while EBITDA improved 2%.
Revenue for the Strat was up 8% with EBITDA up 16%, reflecting improved occupancy, which led to higher F&B spend and gaming revenue at the property.
Occupancy increased to 75% for the quarter compared to 68% last year.
We also completed the renovation of 537 rooms during the quarter and started on an additional 119 rooms that we finished in October these.
These room renovations created some disruption, which we estimate to be about 1 million of EBITDA for Q3.
With our 1300 room Casino pool Entertainment and restaurant renovations, we feel that the property is now well positioned to capitalize on the high traffic events like F. One and Super Bowl coming to Vegas over the coming quarters and beyond and.
In addition, atomic off a new 75 million golf Entertainment complex behind the strategy is on track to open in January which will further drive visitation and spend at the property.
In Laughlin revenue was up 6% supported by more robust event calendar, while EBITDA declined 4%, reflecting higher labor and other operating costs, which we expect to moderate going forward.
During this quarter, we had more entertainment event that drove more revenue versus last year, and our new bingo room at the Edgewater continues to have success at targeting local visitation from Arizona that has helped increase midweek business.
Additionally, we are using third parties to bring new branded food outlet store Laughlin properties, which will provide enhanced dining options for our guests while preserving capital for us to redeploy in our core operations.
Q3 revenue and EBITDA for Nevada locals casinos were in line with last year, continuing their stable performance year to date.
Growth at our Las Vegas properties, offset lower revenue in EBITDA at our Pahrump properties, which were largely impacted by summer months and they closed a major highway connecting into California through death Valley.
The promotional environment for our locals properties remains stable and the strength of the Las Vegas economy continues to support a healthy and growing database of core customers.
For our Nevada Tavern operations third quarter revenue was flat to last year, while EBITDA was down 9% as our tavern margins were more impacted by Nevada is July minimum wage increase that our casinos.
Fight increased cost the tavern model continues to generate attractive rois for new builds and you did acquisitions.
For the last eight caverns, we have built or bought the average ROI is over 25%.
We expect the growth of Las Vegas to support the expansion of our tavern portfolio and we anticipate closing on the purchase of four locations by the end of the year and two locations. In Q1. In addition, we have two signed development sites and a robust pipeline of potential future locations.
Nevada third party distributor revenue was down 9% compared to last year, while EBITDA decreased 23%.
The Nevada third party distributed operations has a strong pipeline of new locations, which will begin to replace the volume loss from certain chain store contracts, we did not renew based on the future economics of these locations.
Moving to our balance sheet after using 175 million to repay our old term loan our outstanding debt at the end of the quarter consisted primarily of a new $400 million first lien term loan and a $335 million of senior unsecured notes.
At the end of the quarter. We also had full availability on our $240 million revolver and 296 million of cash on the balance sheet, which includes cash reserves of approximately 74 million for taxes and fees related to our recent divestitures.
After the quarter, we repurchased $49 million of our unsecured notes in the open market at par or less reducing the outstanding balance of $286 million at the end of October.
Given the strength of our balance sheet and our confidence in our future cash generation, we accelerated our return of capital initiatives in the quarter.
We distribute $58 million to shareholders in the form of a $2 per share special dividend in August and we repurchased approximately 252000 shares for 9 million during our brief open window after closing our Montana distributed sale in September.
We intend to be opportunistic with future buybacks and have $91 million remaining under our repurchase authorization.
Our pro forma net leverage at the end of the quarter was two five times after adjusting for the sale of Rocky gap and the Montana distributed business, which we anticipate being reduced to less than two times. After the close the sale of our Nevada distributed business.
Our pro forma leverage obviously gives us a lot of flexibility to invest in our own assets return capital to shareholders and take advantage of potential opportunities to grow our existing portfolio.
With operations that range from local gaming caverns to a strip property our company remains uniquely positioned to capture growth from the increasing visitor volume and population of Las Vegas.
Our core portfolio remains stable and our rated customers are healthy as we look forward into Q4 and next year.
Further we believe our investment in this drag will support improved results through higher occupancy and spend at the property with new amenities like atomic golf and the absence of construction disruption going forward.
That concludes our prepared remarks like that are now available for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys. If you would like to withdraw your question. Please press Star then two.
The first question comes from Jordan Bender with J M. P. Please go ahead.
Great. Thanks for taking my question just looking at some of the market data driving data has been weak. The last couple of quarters that might just be coming off the volatile buys and this might pertain more of the laughlin, but are you guys seeing any weakness coming from California customer they might be driving into the strat.
No I would say, we haven't I would say that you know maybe a bit of an untold story is there is significant disruption on I 15, right now just south of the strip probably all the way through the state line.
Which I'm sure is supporting some people, but in terms of material impact at our property drive and we have not we have not seen that.
Okay.
And then just for my follow up did you guys benefit any from the cyber house in the quarter, just picking up business at the strat.
Yeah, I mean, I think we got a little spillover from that but I mean, obviously, it's not something that you want to say to anybody in the industry, but it was a little bit not material, maybe for a weekend or so.
Thank you.
The next question comes from Carlo <unk>.
Centrella with Deutsche Bank. Please go ahead.
Hey, guys.
Just in terms of trials I know you talked a little bit about what you're seeing kind of in the in the tavern business. I was wondering just in general what you're seeing from the Las Vegas locals consumer I know some of the you know some of it is location driven and whatnot, but just in general the temperature of the locals gaming patron at this stage.
Yeah, I mean for us although our local market is strong like our properties are actually performing better than they did last Q3, we talked about a little bit if we combine that with our pahrump assets, So theres a little bit of weakness in pahrump.
That was offset by the strength of our Vegas properties to our database. There is very healthy and then you know look I think it's the continued story of Theres still population migration to Vegas from California that is not slowing down at the local employment rates are relatively high.
Unemployment is low so you folks have more money in their pockets and that is translating into a healthy local economy and we're seeing it in our properties.
Great. Thank you and then Charles you also talked about obviously, you know leverage and in addition, you'll be in pro forma.
For the sale execution.
As it pertains to kind of the M&A environment I. You know you you you obviously, there there's clearly things happening it's not the easiest market I would imagine to get deals done on the buy side or the sell side, but can you maybe educate us a little bit on your thoughts around M&A at this stage.
Yeah, I mean, I think if you look at our transactions we got.
Some good deals executed at attractive prices from a valuation standpoint to us I think given where interest rates are that makes the environment, a little more challenging between buyers and sellers and I think for public companies.
Our clearest path to acquiring value if we're trading below seven times on a forward basis is our own stock and so we will look to do that at the same time. If there are things that may be strategic that come up we will take a look at it our focus will be narrow it'll be in opportunities, where we can own the real estate.
Properties that are that are in the west and where we see strategic value with your existing footprint.
I appreciate it thank you.
Thanks Sterling.
The next question comes from David Katz with Jefferies. Please go ahead.
Hi, everyone nice quarter. Thank you for taking my questions I just wanted to.
Pick up right, where you left off.
Which of those are we're thinking the western half of the United States are we thinking Nevada are we exclusively to Las Vegas.
Where are you.
Seeing opportunities where would you consider them.
Yeah, David I think I think youre spot on from our perspective.
<unk> spent the last couple of years.
Setting ourselves up with a wholly owned portfolio here in Nevada, and particularly southern Nevada. So obviously, Nevada, certainly is a primary target for us.
Left meaning you know.
West of Colorado, Let's say, probably is a primary target, but mostly we're focused on on Nevada, and whereas Charles described we're looking for things that that.
That would move the needle within our portfolio.
And where we can drive potentially.
Some synergies from taking.
Taking on assets that would be in that.
Proximity to where we're at.
So we've proven ourselves in southern Nevada, I think it's the best gaming market in the country.
We now have an established portfolio here.
As I said I think thats our primary targets.
And if I go back far enough I do recall there were some strategies to enhance the it's one of the alternatives that potentially go back and look at some of those in and expand what you have there, particularly given the fact that there's another major property no opening not too far away.
And whether that north end of the strip he's just starts to come to life with that.
Yeah I'll answer it this way.
Our major.
Renovations and disruptions at this point are finished at the strat.
As Charles mentioned Casino hotel rooms, the restaurants bars pool.
Put us in a good position to compete.
Given the growth north on the strip, which we've talked about since we've owned the property bet that that inertia going north on the strip is going to benefit the strat all within close walking distance to a property, we certainly believe over time.
So the major we although we do have major kind of shelf ready projects.
We're going to sit on the property at this point.
A bit of a data point.
Just in September with continued minor disruption in October with no disruption.
Property performed very healthy October for example was the highest hotel revenue month that we've had and the highest EBITDA month, we've ever had since we've owned the property. So we're going to continue to mind that property now that we've made that prudent investment and any investment going forward and we do have some short term investments would be more on the what we call the drive by side, which would be.
Maybe north casino in a slot and restaurant and bar renovation to take advantage of but just of that traffic that will be generated through two atomic golf. Those are in the $2 million to $4 million kind of range as theyre not major type of Oh.
Investments in terms of capital and you'll see some of those over the course of the next year, but major disruption of major capital at this point he is not on the radar.
Perfect. Thanks very much.
The next question comes from Chad Beynon with Macquarie. Please go ahead.
Afternoon, Charles and Blake, Thanks for taking my question I.
Wanted to ask about that lowest and tiers of the database or the unrated customer that we've been focusing on here did you see any degradation I guess in your Nevada Casino operations are in the tavern business any any change versus kind of what you've been seeing for the past couple of quarters. Thanks no.
No not for us. So if you look at our database for Q3 compared to last year, we've actually increased distinct players increase distinct gaming days and increased actual slot.
Slot and table revenue out of those players.
We view the database is very very healthy.
Yeah, I think that as.
There's normally as expected theres, probably some atrophy of the retail revenue and non carded play.
But that we and others have been expecting that for a long time now and that's just continuing the same trend that we've been seeing throughout the year, but the database itself for us is very healthy.
Okay. So it didn't there there was no move that we would say it was kind of driven by you know the economy housing macro this is just kind of getting.
Getting back to the normal normally right.
I mean look at look at our look at our local properties. I mean, those are you know flat on a year over year basis, we just talked about the Las Vegas assets being up that's where most of our rated play is between them are locals market for us the database again very healthy and we don't see this trend slowing down.
Okay.
Outside of the Strat, because I think that's kind of a one off a situation that we can model Charles you talked about laughlin the locals market the tavern slightly lower margins.
You know given some higher expenses has that kind of plateaued in terms of expense creep and if we're kind of thinking about let's just assume you know a flat revenue environment, what does that do to margins or asked a different way what do we need to see from a revenue growth standpoint to hold margins from a same store basis going forward.
Thanks.
Yeah. So I think if you look Oh look I think we have to break ours out by segments from so from a local perspective, we think we're pretty flat in that regard. We think we've gotten to that point I think on the on the tavern side, Yeah. The tavern this quarter. It was faced with a 7% increase in labor laws.
Actually due to minimum wage there is one more increase in minimum wage here in Nevada.
Next year that'll be at a lower rate because it's at a higher base and so there'll be a little bit of pressure there, but we're adding six caverns into the portfolio that we're acquiring at a at the end of this year beginning of next plus two development. So we expect growth from an overall EBITDA basis within that.
Within that segment and then if you look at the Strat.
Say in general it's been fairly stable there yeah. If you think about the potential pressures around Union labor. There. We had 1800 total employees out of that only 850 or so our union and you know, it's not a big piece of our portfolio.
Palio, having union labor, but it is some piece of our portfolio, we feel like we have good union relationships.
Relationships. So we expect that to go fairly smoothly for us once.
Once that contract gets ironed out with the bigger guys in terms of impact or Chad.
Point, we've been accruing for the potential added union expense.
Since you have since June so.
We're pretty confident that we will.
We have mitigated that to this point, obviously and then.
Once we have the conversations of Charles So we've got good relationship with them. So we anticipate that going forward.
Great I appreciate it thank you both.
Yes. The next question comes from John Decree with C. B R. E Securities. Please go ahead.
Good afternoon Lake Charles Thanks for taking my questions.
Maybe just to kind of follow ups to prior conversations.
The first on occupancy recovery at the Strat continues to.
March forward.
When you look at the opportunity and kind of what you've seen in October Blake you. Your comments were helpful.
Is it still very much the weekends are full and the occupancy recovery as is needed amid weak and then is there you know if that is the case is there an opportunity to continue to drive price and customer mix on the weekends just given.
How much entertainment and weekend demand the strip is still seen.
Yeah. So I think that's a pretty good way to look look at the property, we still have a pretty significant deficit.
Midweek occupancy versus prior periods.
And that is a that is white space that when that fills in.
A significant bump to the property's performance.
So.
The.
Do you know the property not having significant amounts of banquet space is going to ebb and flow with kind of city wides more than than other properties, but in terms of what we're seeing you referenced October I referenced October with with no disruption with still significant amenities being added.
E a $70 million.
Atomic golf facility that we think will drive significant amounts of traffic through the property.
Other.
Mall.
Renovations.
Talk about.
We see the trajectory starting in September to be very positive. It has been but again, it's going to ebb and flow with citywide, but that trend line is going to be on an upward trajectory, we're pretty confident without disruption.
One other metric I think it's important that John is when we first took over the property we were dependent upon otas.
Hotel booking about 80% of our occupancy the property when we bought it that number is down to approximately 65%. So we're dependent about we've improved our dependent if you will on the Otas bye bye pretty significant amount and we want it we want to see that continue which gives us more opportunity to control our own destiny.
The rate and the type of customer we would drive to the property. So with all of those things moving in the right direction. We're very bullish on what we think that property can produce in the future.
Thanks, Blake I think you took my follow up there on an O T. A MX soup. So maybe I'll look into November a couple weeks away from F. One there's been that much discussion.
This quarter with your peers, but you know as we kind of look at that as being a you know a major event for the city or you still feel good about that and given your.
And your positioning on that on the strip and even locals is that still a net positive impact or you know as we get closer can you give us a little bit of extra color as to how you're thinking about that event for you.
Yes, clearly clearly it's going to be additive for the city and waterfall to us is going to be additive as well, we're seeing it migrate to a very much of a high end event and in the South strip event in terms of where the magnitude of the effect will be but that tail effect that waterfall effect.
We will raise all ships certainly during that timeframe and beyond that you have new years and beyond that you have Super Bowl, which by the way is a much more robust sell for US right now in terms of rate and demand than F. One is currently so.
That's even better news for for the next couple of months, but certainly up one is going to provide them with.
That's helpful. Thanks, Thanks, Charles congratulations on the quarter.
Thanks, Jim Thank you.
This concludes our question and answer session I would like to turn the conference over to Charles <unk> for any closing remarks.
Thanks, all for joining we'll talk to you at the next quarterly call.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yes.