Q2 2019 Earnings Call

Now I'd like to turn the call over to Mr., George Phony Investor Relations Mr. Giovanni you may begin.

Thank you very much Josh and good afternoon, everyone.

By now everyone should have access to our second quarter 2019 earnings release, which can be found on the company's website at www dot Golden at <unk> Dot com under the Investor section.

Before we begin our formal remarks, we need to remind everyone that today's discussion will include forward looking statements within the meaning of the federal securities laws.

These forward looking statements, which are usually identified by the use of words, such as will expect believe anticipate should or other similar phrases are not guarantees of future performance.

These statements are subject to numerous risks and uncertainties that could cause actual results could differ materially from our corporate working statements and therefore, you should exercise caution in interpreting and relying on them.

We refer you to the risk factors in our recent FCC filings, including our most recent Form 10-K as updated by our subsequent quarterly reports on Form 10-Q for a more detailed discussion of the restaurants that could impact our future operating results and financial condition and other forward looking statements.

During today's call, we will discuss non-GAAP financial measures, which management uses and believes are useful in evaluating the company's operating performance.

These measures should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP.

A reconciliation of these measures to our most directly comparable GAAP measure is available in our second quarter 2019 earnings release.

On the call today is Blake Sartini, the Companys founder Chairman, President and Chief Executive Officer, and Charles for tell the company's Chief strategy Officer, and Chief Financial Officer.

Charles will start the call with a review of the quarterly results what Blake will review recent strategic and operating initiatives after which we'll open the call to your questions.

Thank you for your patience with that and with that with that it's now my pleasure to turn the call over Charles Patel Charles.

Thanks, Jim.

Golden Limited second straight quarter of record revenue and adjusted EBITDA as we generate growth in both our casino and distributed gaming operations. We also made further progress across several initiatives that will discuss after reviewing the numbers for the second quarter net revenue grew 14.6% to 248.1 million and adjusted EBITDA Rose, 7.6% to 49.8 million, which includes a full quarter of operations from the two locks on properties acquired in January .

For Nevada casinos second quarter revenue was 140.3 million up 24.2% from the prior year, while adjusted EBITDA grew 16.7%.

42.6 million.

Growth in the quarter for Nevada casinos, primarily reflects a full quarterly contribution from the Edgewater and Colorado ballot Loughlin.

Partially offset by ongoing construction disruption at the strategy.

For our two new Austin properties, we're on track to realize roughly half our targeted 4 million cost synergies by year end and we'll capture the balance in the first half of 2020.

We also completed the rollout of our new True Awards, one card player loyalty program and related Casino management system at all of our casino properties, we expect to see benefits from increased cross play and targeted marketing towards the end of the year.

At the strike in the second quarter, we continued to see evidence of improved performance in areas. We have renovated such as our new taproom and lounge connected to our renovated sportsbook as well as from upgrades, we have completed to the sky pod from several SMB outlets. In addition, we continued to see approximately a 20 dollar 80 or premium over the standard room rate and our renovated rooms.

At the end of May we began renovations on the casino floor, which will continue throughout the balance of the year, we their push to complete the remaining casino floor renovations by year end, we expect to see increased disruption to the property's operations over the second half of the year.

In addition, we started remodeling approximately 250 rooms with about half expected to be finished in Q3 and the other half completed in Q4.

At the end of this year, almost 900 out of 2400 strapped hotel rooms, well been renovated within the last three years. This includes about 300 rooms renovated immediately prior to our acquisition of the property in 2017.

At Rocky gap and airline revenue increased 2.5% on a year over year basis, while EBITDA declined 5.4% to 5.4 million.

Competitive pressure has increased from legal sports wagering in neighboring jurisdictions, which is resulting in higher marketing and promotional expenses at Rocky gap.

Turning to our Nevada distributed business total revenues during the second quarter were 71.4 million a 2.8% year over year increase adjusted EBITDA of $11.3 million was up 6.7% over the prior year, reflecting improved performance from our chain store locations as a result of renegotiated brands across roughly 50% of those types of locations as well as the opening of six new taverns since the end of 2018 second quarter.

We also opened our 66 tavern in July and as the largest operator in the state we believe their current infrastructure can support meaningful future expansion.

In Montana, our distributed operations generated revenues of 17.7 million up 11.4% year over year.

Adjusted EBITDA for the Montana distributed business grew 5.9% year over year to 2.3 million our growth in Montana reflects the addition of new locations as well as our proprietary games, which generating higher location revenues.

Corporate expense of OLED at $11.8 million in the second quarter was in line with our previously communicated expectation of approximately 12 million per quarter.

Moving to the balance sheet in April we completed a 375 million or seven year senior unsecured notes offering priced at 75 days proceeds from the offering were used to repay $145 million of revolver borrowings $18 million, our first lien term loan and to retire our 200 million second lien term loan, which had an interest costs of 9.5%.

Currently we have no outstanding borrowings under our $200 million revolver and have a 772 million outstanding a first lien term loans.

We ended the second quarter with cash and cash equivalents totaling 117 million and total outstanding debt of approximately 1.15 billion.

As of June Thirtyth, our LTM net leverage was approximately 5.6 times.

Total capital expenditures for the quarter were 26 million with approximately 15 million spent on our ongoing renovations strategy other than maintenance Capex. Our capex for the quarter also includes costs related to new tavern built and install of our new management system.

We expect to spend approximately $45 million of additional capex. This year of which approximately 30 million is related to the strap renovations all of our capital expenditures will be funded with cash flow from operations.

By the end of this year, we will have spent approximately 84 million on the straps and starting work last year and we will have remodeled almost 600 rooms completed the renovation that tire casino floor built a new state of the art Sportsbook added new SMB concepts and refreshed existing venues remodeled the sky Bod Sky jump experience created a new entertainment venue on excess land and updated the lighting and exterior features of the property.

As we look to future phase renovation projects for the Stat. We continued to consider group meeting space design and other uses for the mezzanine level the property.

We don't anticipate any spending on the mezzanine level until mid 2020 at the earliest and feel that distract can operate cohesively with the investments we have made by the end of this year.

Well, we don't provide formal guidance, we remain comfortable with the full year consensus estimates for 2019, which factors in our current view on pure future disruption at the strategy.

As we move to the back half of the year, we are evaluating discretionary free cash flow allocation between the reinvestment in our portfolio of wholly owned casino assets debt reduction returning capital to shareholders and acquisition opportunities that continue to present themselves to us.

Based on this year's consensus estimates, we generate over $3.40 per share in discretionary free cash flow, which positions us well when considering future opportunities to create long term value for our shareholders I'll now turn the call over to Blake to provide additional color on our initiatives.

Thanks Charles.

I'd like to share with everyone. My perspectives on the continued progress we are making across several key strategic growth and operating initiatives.

Starting first with our ongoing renovations at the strategy.

Despite the construction disruption the feedback we've received from guests and team members has been extremely positive.

Early results from our completed renovation projects continue to reinforce our expectations that the capital spent at the strategy will drive improved financial performance and meet our return expectations.

Renovated rooms continue to generate a premium over standard room rate newly opened or refresh food and beverage food and beverage revenues are producing more revenue and our sportsbook can be lounge have become popular gathering spot for our guests.

Our investment thesis remains simple approximately 2 million guest visit the strap each year are there to stay at a hotel or experience our restaurants in Reits and the Skype.

We want to give every one of these people a reason to stay in our property a little longer by offering experiences that give them a chance to spend a little more the flow through on just a small level of incremental spend will significantly improve the stress operating results.

And the second half of the year, we will focus on updating the casino floor and the remodel of additional hotel rooms.

We started the casino renovations at the end of May and are now working on the central part of the floor. This will be a bit more disruptive than other property construction given the need to temporarily remove a number of table games through August as we complete this section.

That said, we have staged the casino remodeled two complete no more than 20% of the casino floor at any one time.

Which should mitigate disruption.

However, this extends the time needed to complete the casino renovation through the end of this year.

We will continue to be disciplined in balancing cash flow with construction as we progress through these renovations by the end of the year, we intend to finalize group meeting space design, and we'll evaluate the appropriate timing if and when to add this amenity to the strep.

Even ahead of this potential project I believe the targeted upgrades to the property. We will complete by year end will allow us to compete more effectively with other strip assets.

Based on our current investment strategy will be well positioned to take advantage of citywide traffic drivers and 2020, such as Conexpo, The NFL draft and the Raiders kick off season in Las Vegas.

Turning to our efforts in Washington, We have completed the integration of both the Edgewater in Colorado that we acquired in January .

As Charles noted, we expect to begin to benefit from the realization of about 50% of our targeted synergies for these properties in the second half of this year. We are pleased with our initial progress with these assets and remain very confident that we can improve operations and drive margin expansion.

Our Nevada casinos currently operate over a 30% EBITDA margin, while our Aquarius property losses operates at close to a 40% EBITDA margin.

Yes, its water on the Colorado Belk operate at margins below 25%, highlighting our confidence and the upside of the acquisition.

In regards to the rollout of our new true rewards player loyalty program. It has been very well received by our players, particularly in our Arizona Charlie's Las Vegas locals properties.

Pending regulatory approval, we intend to integrate our loyalty program with our taverns and certain distributed gaming locations to create a network of 130 total locations, including casinos taverns and grocery stores, which would represent the largest location network. So many players club in the industry.

Moving onto distributed gaming, we are encouraged by improved profitability and about a business and the continued growth of our Montana operations, we have a dominant position in Nevada and growing market share in Montana as the largest distributed location operator across multiple jurisdictions Goldman is well positioned to expand our business into existing or new markets.

By design, our portfolio gaming assets as Nevada centric.

The regulatory environment is still the population is growing and the future gaming supply is limited we have deliberately pursued an acquisition strategy of wholly owned casino properties in southern Nevada, and our reinvesting where we see the highest return on capital over the long term I have no doubt the favorable economic trends supporting Las Vegas, and Nevada will support the growth of our business position Goldman for future success and increase value for our shareholders.

With that operator, please open up the call for questions.

Thank you.

Ladies and gentlemen, if you have a question at this time. Please press. The Star then the number one kuni Touchtone telephone. If your question has been answered or you should remove yourself from the queue. Please press the pound key.

To prevent any background noise you guys. Steve. Please. Please your line on mute once your question has been stated.

Our first question comes from Chad Beynon with Macquarie. You May proceed with your question.

Hi, good afternoon, thanks for taking my questions.

Lake Charles regarding the Stratton room renovations that you talked about for the back half of the year.

Well the design and product be similar to what you've already renovated and should we expect a similar type of 80, our lift on these rooms once they're they're fully open and then secondly on that.

Were you able to do anything with the resort fees or is this something that you want to be a little bit more cautious on until you have more of the updated rooms. Thanks.

Yes to answer your first question. The short answer is yes, the rooms will be consistent with the current product. We're producing we are going to initiate some suite product, obviously, which would be differentiated a bit from a design and finfet type of a product.

And yes, we anticipate to continue to receive the premium that we're currently is currently receiving on the new room product. So.

I would say I would say the answer is yes that that part of the question scars resort fees.

We've always said and I continue to to.

To be true to the fact that the strategy as a mid market property.

That presents a solid.

Solid value.

With a five star experience is how were approaching approaching this this property, we're being I think its a pragmatic and disciplined spend of capital on a property that really has been touched significantly for.

2019, 20 ish years.

And and.

And given this the overall positioning of the property and our approach to the renovation we are going to be we're going to be cautious and stay the course at this point with our resort fees, we have free parking, which we will continue with as well and I think I think that positioning of that property along with the renovations.

If our early results.

In the new renovated product is any indication are going to be very well received.

Thank you.

And then on Illinois, I guess, a two parter firstly.

We all saw the gaming Bill expansion, which makes the route operations in Illinois.

Actually more attractive so attractive and then secondly, there was a large acquisition that what some of you at a pretty full multiple.

Does this change your outlook on potentially acquiring some more in the route operations or does it just kind of justify the business that that you that you've built over the years. Thanks.

Look I think it's.

I think it's a little bit of both I think probably a little bit more the latter than the former in terms of justified we believe that that piece of our business is significantly undervalued.

I'd say in terms of for US, yes, we have an ability through our two business units whether its casinos are distributed we're looking at what's the best place to deploy capital. So we can look at acquisitions at Illinois, It pretty full multiples or we can look at wholly owned casino assets.

Got it right next door to assets that we operate where we have synergy opportunities at a better blend in multiple and that was the decision that we made at that at that time.

So we are watching and seeing what happens there I'd say it that Illinois gaming expansion Bill.

It's probably better for some than for others within that market and so you have to really see how that plays out as more supply gets developed to really use is more machines and if there's any potential for future tax increases in the future.

Thanks, Charles Nice results guys.

Thanks, Jeff.

Thank you and our next question comes from David Katz with Jefferies. You May proceed with your question.

Yeah, there David.

If your line is on mute please UN mute.

Maybe we circle back to Mr. Katz No problem. Our next question comes from John Decree with Union Gaming you May proceed with your question.

Good afternoon, Blake good afternoon Charles.

Hi, John .

Hey, guys. Just a question I guess at a high level on Las Vegas market overall, it sounds like from what we're hearing from from somebody had larger operators on the strip that.

Things are looking better in Threeq. You. Then then maybe they did last time, we were on the phone for these earnings calls and realizing you have some disruption at the stride and don't have as much of a booking window, but wanted to get your thoughts on how Las Vegas looks for you or broadly speaking for the market in the back half of the year.

Yes, sure John So from our perspective as you know Strats got limited visibility into forward bookings given its high reliance on no T.H. and also you're going to have you know for us a significant amount of bookings coming within a 30 day window, yeah that said the strategy that performs well when the rest of the strip performs well and so we've seen that.

From a room occupancy and room rate perspective within that property, you know that being said, that's offset with disruption that's going on with the renovations that were that were making I think generally speaking John to answer your question.

Oh in the short term window things feel.

You know pretty consistent I mean, if you look at the Hbr in Revpar on strip.

In Q2, 80 are up a little over 3% Revpar up almost 5%.

Oh, Yeah. The Strat was may have been.

Pretty close to that or even a little bit better in the second quarter in terms of the rooms.

I think I think Las Vegas is feeling is feeling good we've always said that there are going to be some ups and downs.

But as far as the booking window I think Charles has addressed our limited visibility into that but my general feeling and what I am hearing from talking to people around town is is this kind of second quarter consistency they feel like its continuing into the third quarter and were feeling that somewhat as well.

That's helpful. I appreciate the additional color it into kind of stay on that the strategy I think Blake in some of your prepared remarks, you talked about the disruption at stratosphere as you kind of move some table games around.

Being pretty impactful through August .

I was wondering if you guys could give us a sense. If you know back half more in packet than first half, but you know that split between Threeq and Fourq here will will that disruption start to abate as we get into Fourq, you, a little bit or pretty steady for the rest of the year.

So I think that there is.

I'd say that said, we mentioned, we're still comfortable with consensus estimates for full year EBITDA.

We are starting on the renovation of the casino floor in the media that we're doing it in phases, so we'd expect that to be.

Fairly linear in terms of this of the disruption.

Over the balance of the year to give a sense of context. If you look at it first half of the year versus last year first half disruption is about 5% to 6% of EBITDA.

For the strat so far so that's within the realm of our expectations, maybe even a little bit better. So we're doing a good job of managing that and again, we expect to see that similar type of cadence to the back half of the year.

Got it really helpful. Thanks for the questions guys.

Hi, John .

Thank you and as a reminder, ladies and gentleman. That's star then one to ask a question. Our next question comes from David Katz with Jefferies. You May proceed with your question.

Hi afternoon, gentlemen, sorry.

We're jumping around quite a bit this afternoon.

And Laura.

[laughter].

Well, what I wanted to try and get out and and.

Got you is the degree to which you can sort of affect some change or improvement or impact on the O.J. levels within the property as the renovations are ongoing right. You know are there any sort of infrastructures are strategies that you have put in place are put in place now.

I guess the last part of my question is to the degree that you I Hope you haven't addressed this already but when we get to 2020.

Can you.

Paint us a qualitative picture of what the strat looks like that.

Yeah, So David on the on the OTI.

Litigation I guess to your first question.

While we're under construction.

We have and are continuing to attack that part of our.

Of our business and have begun through adding a more robust casino marketing program.

ER, adding some high level casino team members and hosts we have implemented the one card program I think we're signing up about 6000 people a month now if the strategy for the one card for our casino cart, so through that program and through more connectivity to our guest between the front desk and the sky pod in terms of a bit of their information.

We are initiating and beginning of that program.

So that will only ramp up as our casino program gets close to be finished.

At that point in time with them for the with the larger new room inventory of 600 of our hotel rooms, and our remodel and about 900 of the rooms that have been remodeled prior to our ownership.

We you know we anticipate a continued improvement in displacing auteurs worth fighting and other more retail oriented room customers. So that is that is ongoing and it was happening as we are under.

Under construction.

As far as 2020, I think thats, such a pivotal year for the stratosphere our anticipation.

As our construction disruption and our remodel program.

And what is visible to the consumer from the time they enter the property pretty much through the entire first floor will be.

And I feel a lot differently and as a result, our expectations for that property, assuming the macro environment continues to be to be consistent.

At the properties going to point I think the 2020 is going to result in a change and look to change and feel and from my perspective, a change and performance of the property.

Got it thank you very much.

Thank you.

Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Mr. Sartini for any further remarks.

Thank you operator, and thank you everyone for joining US today, we look forward to updating everyone. When we report our 2019 third quarter results.

Thank you ladies and gentlemen, thank you for participating in today's conference. This does conclude todays program and you may all disconnect everyone have a wonderful day.

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