Golden Entertainment, Inc. (GDEN) on Q1 2021 Results - Earnings Call Transcript

Operator: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Golden Entertainment First Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. Please note that this call is being recorded today, May 6, 2021. Now, I’d like to turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead, sir. Joe Jaffoni: Thank you, Adrian, and good afternoon, everyone. On the call today is Blake Sartini, Golden Entertainment’s Founder, Chairman and Chief Executive Officer, and Charles Protell, the company’s President and Chief Financial Officer. Charles Protell: Thanks, Joe. We are starting the year strong, as we generated nearly $240 million of revenue and quarterly adjusted EBITDA of $59.5 million. This is the highest quarterly EBITDA in the company’s history. Q1 of 2020 is not a relevant comparison to this quarter given property shutdown started last March. That said, it is worth noting that our record EBITDA for Q1 is 23% higher than our Q1 2019 EBITDA and 50% higher than our EBITDA we just reported for Q4, demonstrating the continued momentum across all our businesses. Q1 showed continued strength in our local and regional properties, even with the STRAT underperforming to Q1 2019, with only $1 million of EBITDA per month for January and February. As more people return to Las Vegas, our Strip asset is getting its fair share, and we are now seeing the flow-through to EBITDA. Occupancy improved throughout the quarter from 30% in January to over 60% in March, and we saw occupancy reach over 90% for March weekends, with sellout every weekend in April. Our two Las Vegas locals casinos are outperforming historical results, with Q1 EBITDA increasing almost 80% compared to Q1 of 2019 and up over 40% to Q4. In Laughlin, EBITDA improved by 9% to Q1 of 2019 and almost 60% to Q4. For our Pahrump casinos, EBITDA improved more than 50% compared to Q1 of 2019 and 25% to Q4. Looking at all our Nevada Casino operations, EBITDA was up 8% compared to Q1 of 2019 and over 58% from Q4 even without the STRAT operating their historical levels. Our Rocky Gap operations in Maryland generated nearly $5 million EBITDA for the quarter, up 29% Q1 of 2019 and 11% from Q4. When looking at our combined casino operations, even with the STRAT underperforming, casino property level EBITDA grew 10% compared to Q1 of 2019 and over 50% compared to Q4. Combined casino EBITDA margin was approximately 40%, up 870 basis points from Q1 of 2019 and up almost 1,000 basis points from Q4. Operator: And our first question comes from David Bain from B. Riley. Your line is open. David Bain: Thank you. Phenomenal results. I guess my first question would be, outside of potential high return, kind of lower CapEx opportunities, like the new route or route expansion, Charles, that you spoke to in prepared remarks, is there a focus on acquisitions or new projects? Or are we laser-focused on kind of cash flow harvesting, paying down debt, looking to return capital to shareholders over the next several quarters? Charles Protell: Definitely in the latter, David. So for this year, we are solely focused on deleveraging the balance sheet, generating cash on hand and looking at ways to return that capital to shareholders. I think that deleveraging gives us more flexibility for the future, and we can look at some of those opportunities as we get into 2022 and beyond. David Bain: Okay. Fantastic. And then we read a lot about the new demographic coming from California to Las Vegas on migrating. Have you identified the demographic in terms of like do they have higher spend, frequency of visitation versus the historical core? Is there an opportunity for even greater crossover promotion with the new demographic for either the STRAT or Laughlin visitation? So can we get any kind of color? Or is it a little early out of the gates to start bifurcating the California to Nevada? Blake Sartini: Yes, David, this is Blake. I mean frankly, it is a little bit early for us to have that kind of granular data. I can tell you that we are seeing, particularly in our hyper local businesses, our distributor business, a lot of new faces in our 66 locations around town and the third-parties in which we deal. There are a lot of brand new faces that have not been seen. The -- we believe a lot of those people are the new residents moving into Nevada. We are also seeing a lot of that in the local casinos. But in terms of that intrinsic data, I think it’s a little bit too early in terms of how we can benefit from your crossover standpoint in regards to marketing or attracting those customers on a long-term basis. David Bain: Okay. Great. Congratulations again. Blake Sartini: Thanks, David. Operator: And our next question comes from Carlo Santarelli from Deutsche Bank. Your line is open. Carlo Santarelli: Hey, guys, thank you. Charles or Blake, whoever kind of wants to take this one. I was just kind of curious, as you guys exit March. Obviously, March, Charles, just based on your comments, drove the bulk of the EBITDA in the quarter, something that, obviously, I think we’ve seen through the GGR results and clearly have heard from others. When you think about kind of the cost extracted from the business and think about your ability to leverage that as revenues heated up in March, is there a sustainable run rate of cost extraction perhaps relative to 2019 that you guys are kind of benchmarking right now across the Nevada casino business? Or is it just kind of the casino business in aggregate that you’d be comfortable sharing? Blake Sartini: Yes, Carlo, this is Blake. I mean the sustainability question is obviously the topic of the day. In regards to answering your question, I’ll give it to you maybe in two parts. Charles can give you some color here too as well. But regarding the current margin trajectory, is that sustainable? The short answer for us is yes. We -- I believe we will continue to run our business with higher margin expectations. And those margin expectations, going forward, are going to be significantly higher than our historical averages. Are they 1,000 basis points as we add necessary costs back as revenues grow that some of that cost may be dilutive to margin to some extent? I think that’s reasonable to assume. But our expectation internally is we fundamentally changed how we’re operating this business and our higher margin expectations are going to stick going forward over historical levels. And secondly, as far as revenue, is that sustainable? One of the things in our portfolio, I think, is a bit different because we were running -- even with the numbers we posted, we ran on 1/2 or 3/4 of a tank for the first quarter given the fact that the STRAT was significantly underperforming versus the rest of our portfolio. And Laughlin was diluted or the business was not as robust as it could have been, given the fact that we couldn’t have live events or concerts, which is a large driver to that market. So in terms of revenue, even with that, we have embedded growth within our current portfolio in those two areas. And also, going forward, there are conventions, concerts and sporting events coming along later this year that we are pretty confident will continue a strong revenue trajectory for our businesses. Charles Protell: Yes. And I just would add to that. The two biggest costs, as you know, in the business, are on the marketing side and the labor side. And we are not seeing an increase in the promotional environment, and we rightsized that spend across our entire portfolio at this point. And even we still see that going down. On the labor side, we probably expect a little uptick in labor at the STRAT, which would be a good thing because we’d have more GRAs, hopefully on board with the increased occupancy as we sell more rooms, and you’re presuming that you’re doing that on an accretive basis to the property. For our regional and local assets, that staffing is pretty much set. So we’ve been operating at the same levels we have for the last two quarters within those assets. So again, I just think if you see any uptick from a labor perspective, it would be at the STRAT. But again, that would be in the revenue-generating categories from room sales and restaurants, et cetera. Carlo Santarelli: Great. Thank you both. And if I could just ask one follow-up. And again, Charles, you spoke to this in your prepared remarks. But if we think about the first quarter run rate from an EBITDA perspective of close to $60 million credit size of $400 million annual rate. I’m not saying that’s what a maybe if you think about cash interest and maintenance capital, something along those lines, you’re probably looking at another $80 million to $85 million, which leaves you guys like $150 million of free cash flow or almost $5 a share on an annualized basis, certainly, very powerful and puts you in a pretty good position to do whatever you want. And acknowledging you did say, the rest of the show will focus on debt pay down, as we start thinking about ways to deploy that next year. With the flow kind of where it is, and relatively small from a trading flow perspective. How do you think about dividend? Special dividend? Buybacks? Kind of in those three buckets? How do you prioritize them? Or bigger picture, just how do you think about it conceptually? Charles Protell: Yes, I mean, look, conceptually, as we sit here, right now, I mean, there’s obviously, significant shareholders in this room. We like the concept of returning capital to all shareholders equally, which leads towards, the construct of special dividends. I would say we’d have to take a look at that at the time, depending on where we’re trading, where the prices and liquidity of the company. But if you had to pick a path now, that’s probably the more optimal one. As we sit here today and we look at the future. Carlo Santarelli: Great, thanks very much, guys. Blake Sartini: Thank you. Operator: And our next question comes from Chad Beynon from Macquarie. Your line is open. Chad Beynon: Hi, good afternoon. Thanks for taking my question. Blake Sartini: Hi, Chad. Chad Beynon: How are you doing? Just wanted to ask about STRAT again, kind of a two partner on that. One just wanted to focus on some of your non-gaming like top of the world? Are you starting to see covers come back? And I guess just broadly, what’s the rough split between locals and visitors? Will it really take conventions and events to kind of get back to those levels? And then the second part of that is on the room side? Charles, you mentioned that you’ve had some weekends, where you’re at 90%? Can you get compression EDR rates during that time period, or you and some of your competitors still being a little conservative, just in terms of pushing price? Thanks. Charles Protell: Hey Chad. On the first part of your question, specific to the property on top of the world. We are seeing significant business at that restaurant, we believe right now it’s the highest grossing restaurant in Las Vegas, we’re doing 600 to 700 covers a night in that restaurant. Our average checks are up 20%. It has become – we’ve retooled the room entirely from the menu to the look and feel of the entire venue. And it is, it’s producing significant results. I mean, we’re basically full up there every evening. As far as the local traffic, and there’s between 10% and 20%. We believe at this point, so the majority of that business is either staying or a significant amount of that business is making a trip from South Strip or elsewhere to go up to that venue. So we are very excited about the continuing growth of that venue. And we continue to improve the offerings up there. As far as the compression and the room rates on the weekends, I think the short answer is yes. As we go forward, we’re seeing more and more ability to drive those rates as the rest as the high watermark rises in the rest of the community. But the rest of the, Las Vegas Strip, if you will, but as I think it’s important, a couple of things. As you recall, we completed our approximate $100 million capital investment into the property around February of 2020, which was right before the lights went out, and we were forced to close. So the last year has been pretty choppy for that property as it has been for every other operator in town. So we had talked about the targeted return on the $100 million prior to the unforeseen event of COVID. And now beginning this past March, we’re hitting the high watermark in terms of EBITDA at that property. And that is while running only 60% to 70% occupancy at that property. We’re achieving these high water EBITDA marks. And the customer spend people are staying longer. They’re spending more. We’re seeing more direct bookings. We’re seeing more casino bookings through our casino marketing program. Both of those are displacing OTA reservations. Guests are staying longer and they’re spending more. So with all these metrics that we’re seeing right now we believe in material return on our $100 million investment is underway. And again, we were running anemic occupancies here in March and April while achieving these good EBITDA numbers. And lastly, just a reminder, the city is well underway with its roadways and pedestrian walkways, improvements to make that South to North Strip, a seamless experience for guests that the Resorts World opens June 24. The Drew was just sold to very strong investors, which we believe at some point will be built. And all of that inertia coming North will benefit that property. So it was a bit of a long winded answer to your question. But we are seeing compression rates. And we’re seeing that sequentially grow month-to-month, actually week-to-week, and month-to-month as we get into May and June. And the other elements of that property that I just described, we’re pretty bullish on what we think that property can do going forward. Chad Beynon: Thanks, Mike. Appreciate it. And then secondly, just on the tavern side in Nevada, can you just remind us on the restrictions that occurred during the quarter where that sits right now? And if that has been, a slight impediment to the results that you’ve put up? Thank you. Blake Sartini: Yes, it has probably more than any other type of gaming operations, certainly within our portfolio. So there are occupancy restrictions within, Clark County, which had been at 50%, and now as of May 1, have been moved up to 80%. So you could imagine with a smaller restaurant venue, that’s actually a lot more material than when you’re talking about a, large casino floor. So look, we’re pretty excited about that. And we’re hopeful that, Governor here has said that we’d be prepared to get to 100% June 1, which would be another, another lift for us. Chad Beynon: Thanks, Charles. Thanks, Blake. Nice quarter. Operator: And our next question comes from David Katz from Jefferies. Your line is open. David Katz: Good afternoon, everyone. Blake Sartini: Hi, David. David Katz: Hi, look, I wanted to go back to the stratosphere, which is sort of fairly prominent within the portfolio. At one time, there certainly wasn’t formal guidance about it. But, notionally, we were thinking about getting that property to call it the $60 million neighborhood of EBITDA. And I just wonder, the last time we discussed those kinds of numbers was pre-COVID. And, pre where we sit today, how do we think about where the neighborhood or where the ceiling on that? Could it ultimately, be either qualitatively or as much detail as you can offer? Charles Protell: Well, I would say, David, we’re at that run rate right now. So we’re not focused that there is a ceiling with that property. Given the dynamics that Blake mentioned, relative, the inertia that’s coming down to the North side of the Strip, and the things that we’re doing with the property. So look, we’re very bullish on it. We think that this trajectory continues certainly, for the balance of this year and into next year. So we’re excited to see how high we can push it without a ceiling. Blake Sartini: Yes, I think that, David, I think that’s, as I mentioned in my earlier comments. I think that ceiling gets raised as we continue to realize more of our people direct booking to the property, which means they’re choosing that property versus a particular rate on a website. We’re seeing more casino bookings, given a very robust casino program we’ve instituted at that property, which prior to our ownership didn’t exist, there really wasn’t any casino program. So, as Charles mentioned, we’re achieving those targeted results that we had talked about earlier right now, running 60% to 70% occupancy, at the property, given some of the fixed cost, fundamental changes we’ve made, that we believe will stick going forward and adding the necessary cost associated with more revenue coming to the property. We believe, we don’t want to put a ceiling on it. We think the property is well positioned, given the development coming North that we’ve already talked about the circa, downtown development and the city’s Art District improvement coming south towards us. The properties in a great area and a great zone right now to capitalize on not only our investment, but the growth that’s coming in the city, both North and South. David Katz: Understood, so the natural follow-up is since there’s so much discussion about capital allocation, what would it take for you to consider? Putting more into it? Right, because some of the, plans earlier on, I think did have a broader scope than what ultimately got done? Charles Protell: Yes, I think the piece that was broader was really about putting convention space. But, we’re fortunate that the convention center is very close to the property and they spent a billion for and that should be opening, shortly. So, we think we’ve got it right now. I mean, we’ll continue to do room renovations in ordinary course. I think you could see us looking at ways to use the excess real estate on the property in a capital-light type of fashion where we could partner with people to add on to amenities to the property where we’re not contributing capital, other than land. So we’ll talk about some of those things with, folks who approach us but in terms of doing more large scale CapEx, which $100 million for us is large. That’s not on the radar for us at this point. Blake Sartini: Yes, between our investment, I think we did some 600 and 650 rooms, we’ve renovated prior to our ownership, there was another 500 or 600, so roughly half the property, and the room product has been renovated, within a reasonable amount of time. Certainly ours is within the last year. And as Charles mentioned, I think the rooms are probably any focus that we would have going forward but the catalyst to answer your question on what would be the catalyst for us to invest more money, for me would be getting the balance sheet where we want it. David Katz: Sounds good to me. Thank you. Operator: And this concludes the question-and-answer session. I’ll now turn the call back over to Mr. Protell for final remarks. Charles Protell: Thanks, everyone for joining and we’ll talk to you on our next quarterly call. Operator: Thank you, ladies and gentlemen. This concludes today’s conference call. Thank you for participating and you may now disconnect.
GDEN Ratings Summary
GDEN Quant Ranking
Related Analysis

Golden Entertainment, Inc. (NASDAQ:GDEN) Q1 2024 Earnings Insights

Golden Entertainment, Inc. (NASDAQ:GDEN) recently held its Q1 2024 earnings conference call, drawing attention from investors and analysts alike. The call, detailed by Seeking Alpha, was a platform for the company's top executives, including Joe Jaffoni, Charles Protell, and Blake Sartini, to discuss the financial outcomes and strategic directions of GDEN during the initial quarter of the year. Analysts from prestigious firms like B. Riley, Truist, Deutsche Bank, and Macquarie participated, highlighting the significant interest in Golden Entertainment's performance and future prospects.

One of the key financial metrics discussed was GDEN's price-to-earnings (P/E) ratio, which stands at approximately 3.43. This figure indicates that the company's shares are trading at a relatively low price compared to its earnings, suggesting that the stock might be undervalued or that the company is performing well relative to its share price. This is a crucial piece of information for investors, as a low P/E ratio can often signal a good buying opportunity, assuming the company's fundamentals are strong.

Another important metric is the price-to-sales (P/S) ratio, which is about 0.83 for GDEN. This suggests that the stock is also reasonably valued based on its sales, providing another indicator that the company's stock might be a good investment. The enterprise value to sales (EV/Sales) ratio of roughly 1.40 further supports this, indicating that the company's valuation in relation to its sales is moderately priced, neither too high nor too low.

The enterprise value to operating cash flow (EV/OCF) ratio, at approximately 12.41, is particularly telling. It shows how the market values the company's operating cash flow, which is a critical measure of financial health and efficiency. A higher ratio could indicate that investors are willing to pay more for each dollar of cash flow generated by the company, suggesting optimism about its future growth prospects.

Lastly, Golden Entertainment's debt-to-equity (D/E) ratio of about 1.26 and a current ratio of approximately 2.35 provide insights into the company's financial stability. The D/E ratio shows a balanced approach between debt financing and equity in the company's capital structure, indicating a moderate level of risk. The current ratio, on the other hand, suggests that the company has a healthy ability to cover its short-term liabilities with its short-term assets, which is reassuring for investors concerned about liquidity and financial resilience.

Golden Entertainment Started With a Buy Rating at Truist Securities

Truist Securities analysts initiated coverage on Golden Entertainment (NASDAQ:GDEN) with a Buy rating and set a price target of $45 on the stock. The analysts outlined their investment thesis on the company, emphasizing a return to fundamental strengths in the Vegas market. They noted that following recent asset sales, Golden Entertainment has transformed into a Nevada-centric operation poised to benefit from the region's positive demographic trends and a favorable, low-tax regulatory landscape.

With the completion of recent construction and the easing of labor challenges, analysts anticipate robust growth in EBITDA and free cash flow. They also pointed out that the company's current market valuation does not fully account for the expected improvements in business performance, the significant reduction in financial leverage, or the security provided by real estate holdings. The analysts believe the management is strategically positioned to enhance shareholder value through both organic growth and potential acquisitions, along with increasing returns to shareholders.