Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Golden Entertainment First Quarter 2020 Earnings Conference Call. Please note that this call is being recorded today, May 7, 2020. Now I'd like to turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead.

Thank you very much, Catherine, and good afternoon, everyone, and we apologize for any difficulties you may have had in connecting to the call. It seems like the call provider is having some issues. In any case, Golden Entertainment's Founder, Chairman and Chief Executive Officer, Blake Sartini; and the company's President and Chief Financial Officer, Charles Protell, are on today's call. 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 materially differ from these forward-looking statements is contained in today's press release and in our filings with the Securities and Exchange Commission. And except as required by law, we undertake no obligation to update these statements as a result of new information or otherwise. During the call, we will also discuss non-GAAP financial measures in talking about our performance. And you can find the reconciliation of GAAP measures in our press release, which is available on our website right now. With that, it's my pleasure to turn the call over to Blake Sartini. Blake, please go ahead.

Thanks, Joe. Good afternoon, everyone, and thank you for joining us today. To begin, I want to extend our sympathies to everyone that has been affected by the COVID-19 pandemic and express our appreciation for all of the healthcare providers, first responders, and other essential workers who are helping to protect our communities throughout this crisis. During this challenging time, our focus has been on supporting our team members, staying connected to our guests, and preparing the company to address the business environment as operations begin to resume. I've been part of the gaming industry for more than 30 years and have operated casinos through a number of challenging times, including the dot-com bust post 9/11, The Great Recession of 2008 and 2009, and the tragic events in our community here of October 1st. Each time, the gaming industry, including Las Vegas and Nevada, in particular, has recovered and over time come back even stronger. The current challenge is certainly significant. But given what we've seen in the past, I have great optimism that the gaming markets where we operate will return to normalcy. Over the last several years, we have built Golden Entertainment into a unique gaming company with operations across several diverse markets, including Las Vegas Strip, Las Vegas locals, regional destinations in Laughlin and Maryland, and our owned and third-party tavern and other distributed gaming locations across Nevada and Montana. The reopening of our properties and recovery of our businesses will come in phases, but they will recover. Our diversity, as outlined, will play a significant role in Golden's ability to recover as fast, if not faster, than others as we feel our local casinos, hyperlocal distributed gaming platform, and consolidated regional properties will outperform in the early stages of reopening. To emphasize this point, our Montana distributed operations, which span almost 300 locations and approximately 3,000 devices across the state, fully resumed operations this past Monday. Although it has only been a few days, we have seen pent-up demand and customer volumes comparable to pre-closure levels as patrons return to their local taverns, where social distancing and enhanced cleanliness standards have been implemented. Turning to Nevada and Maryland, we continue to wait on clear guidance on an opening date. However, we are prepared and planning to open by the end of this month. Our ability to ensure the health and safety of our team members and guests will be critical to a full recovery. As such, we continue to work with our various state and local officials to ensure we establish best practices as we open. Since the beginning of the COVID-19 outbreak, we have taken quick and prudent action to enhance our liquidity by preserving cash on our balance sheet and drawing down our revolver to create over $300 million of cash on hand at the end of March. As a result of the actions we've taken and many other difficult decisions, we have reduced our cash burn rate to approximately $7 million per month until our next bond interest payment in October. At this time, it's very significant to note that our financial flexibility is enhanced by owning 100% of the real estate under each of our casinos, except in Maryland, where we have a 50-plus year ground lease with the state. Taken together, our liquidity and balance sheet, which has no near-term maturities, our owned real estate, and the diverse mix of our operations, which primarily includes local and regional markets, positions us to recover quickly. Through February, our total revenue was up over 8%, and our EBITDA was up 10%. We were well on our way to capitalizing on investments we made in 2019, which included completing the renovations at the Strat, integrating two acquired properties in Laughlin, and introducing our TrueRewards one-card player loyalty program that links our casino resorts with our distributed gaming operations. The benefits from these initiatives were apparent early in Q1 and will be again as we reopen our properties and reestablish our growth and free cash flow generation in the months ahead. With that, operator, please open the call for questions.

Sure, sir. And your first question comes from David Katz from Jefferies. Sir, please go ahead.

Hi. Afternoon, everyone. Good to hear from you, and thank you for taking my question first. Look, I wanted to just focus on the Stratosphere, and I know it may not be – we may not know much, but can you just talk about the prospective contingency plans that you've gone through so far? And anything that you may be seeing or hearing with respect to the Strip, as we've really, I guess, just this earning season, started to get a little more insight from companies as to what their plan is and how they plan to roll back into the market as they can?

Yes. Okay, David, it's Charles. I mean, look, with respect to the Strat along the Strip, we intend to open when we're allowed to. The property has – relative to others, a fairly limited room base at 2,400 rooms. It has a smaller casino floor and public spaces. So we – again, we have no intent to not open that asset when we're allowed to do so. I'd point out that with the Stratosphere, before this happens, our level of group business was certainly non-existent. It's something we're working to develop. But we're not dependent on that to generate revenues. We're also not dependent on international travel, since less than 7% of our bookings are international. Our biggest theater market is really drive-in versus fly-in market from Southern California. So I think the Strat performance going forward will be highly dependent on the opening of neighboring states in California and how comfortable customers are in terms of driving here to Las Vegas. Lastly, what's the supply level of the Strip? Out of the 80,000 hotel rooms, how many of those are actually going to be opened? Our 2,400 will be a part of that. We think that we could see some benefit from being one of the first open on the Strip.

Yes. I would add to that, David. To give you some forward-looking metrics, if you will, we're seeing limited occupancy demand in June. But we're seeing that build pretty favorably into Labor Day. So we do see a ramp-up over the summer. Just specific to the Strat, as Charles mentioned, we will reopen when we're allowed. We're anticipating by the end of this month. But we are seeing people step back into the market tepidly, admittedly in June, but it's building pretty rapidly into Labor Day.

And excuse me. Presenters? David Katz: The call dropped? Hello?

Did the call drop?

No sir. We are on live.

I can't hear the call. Please put me back in the conference then.

We can hear you. Yes, Joe, we can hear you.

I guess if there are any other questions, David, can you hear us?

David, are you still on?

Hello, sir, you are on live. Can you hear me?

We can.

We can hear you.

Are there any other questions in the queue?

Yes, sir, we do have a question.

Then why don't you put them on and let's wait till we finish our question and hear what they have to say of the answer before dropping them.

Yes.

Sure, Charles. And your next question comes from the line of Dan Politzer from JP Morgan. Sir, please go ahead.

Hey, good afternoon, everyone. Thanks for taking my questions. So on the Strat, I guess, is there any additional color you can provide on how we should think about the breakeven levels in terms of maybe occupancy or EBITDA in terms of getting to – back to at least a cash flow positive number?

Yes, sure. So our whole portfolio, I mean, like, we think that the business to really be operating at 25% to 30% of its historical volume levels in aggregate. Distributed could be a little bit less. The Strat maybe needs to be a little bit more. I know there's a lot of focus on what's going on in the Strip. I do want to say 80% of our business comes from distributed and regional assets. I think we are, unless someone could correct me, the first public company with live gaming operations right now in Montana. If that's any indication in terms of how we view the rest of our distributed business and our local business here in Las Vegas, the outlook looks pretty good. Now only a few days, we're looking at customer counts and traffic. We'll have more to report as we get going. But again, from our perspective, the way that we view our business holistically is that locals in our distributed are going to ramp very quickly, and we have not missed a beat this week in Montana. That's just an example. It's one data point, small piece of our business, but that's out there. With respect to the Strip, I think everyone is making the assumptions, and we are as well, that group business is going to be much weaker, highly dependent on how you see raters and whether they're playing live games or not in the fall here in terms of picking back up. The other bigger guys on the Strip will have much more visibility into their convention bookings. And at least from what I've heard, those are all being rebooked in high frequency towards the fall and in the first half of 2021. The Strat will be open when we're allowed to, and it will have low volumes at the start, but we need to get started. We need to get people into the building and people getting comfortable with the new normal. We have a plan with a high degree of conviction that we could operate without a lot of the cost structure that exists not only at the Strat but in the rest of our operations as well.

Got it. That's really helpful. And then I guess just kind of piggybacking on that. As far as how you open up the Strat, can you maybe talk about how the casino floor gets reconfigured there versus maybe some of your regional properties as well as at the taverns? And I guess where is it going to be the most burdensome undertaking to kind of make them socially compliant?

Yes. I think if you – well, so a couple of things. I think if you – so just today, the Nevada Gaming Commission came out with approved regulations for both non-restricted casinos and restricted, which is distributed operations. We and others in the industry have been part of the input that formed those. We're very comfortable with what's out there. We think it's very reasonable and fair and a great roadmap to get everyone, when we're allowed, back to work and operating safely for both our team members and our guests. So we're very excited about that. In terms of social distancing requirements, a lot of that is going to be geared towards occupancy if you read through that. Again, very comfortable from that perspective and also limiting the positions that you're going to have on the tables as well as the ability to sit at slots, i.e., every other stool or otherwise. Going back historically, if you look at the Strat and look at other casinos that have been built 20 years ago plus on the Strip, at one point, the Stratosphere had over 2,000 partnerships. Now we have 750. So there's plenty of spacing within that casino floor already built into the structure. From our perspective, we have – on very rare weekends, had the slot occupancy north of 50% anyway. I don't think the question is about for most of us, meaning those that aren't reliant on group or international travel. I don't think the question is about what is the impact on revenue about social distancing and occupancy guidelines. I think the question is ultimately what's the consumer demand. That is obviously very tough to forecast right now. We do have one data point. So far, it's been very good and stronger than what we've expected in Montana. If that's a barometer for local and hyper-local gaming in a view that there's pent-up demand, at least in regional markets and local markets for this form of entertainment, then we think that's a good sign of things to come.

Got it. Thanks. I appreciate all the detail and best of luck.

Thanks, Dan.

Okay.

Thank you. And you have your next question, sir, from the line of Chad Beynon from Macquarie. Please ask your question. Your line is now open.

Hi, guys, good afternoon, and thanks for taking my question.

Hi, Chad.

Blake, I guess, because you mentioned January and February, maybe I'll ask a question on that. So I think you said revenues were up 8%; EBITDA, up 10%. Can you maybe talk about how the Strat performed during weekdays or weekends when there were some bigger conferences? I believe CES was in there. Anything else, maybe and just some nuggets from that would be helpful just as we think about the other side when everything is completely up and running? Thanks.

Yes. So Chad, on the Strat, the first two months, we showed significant improvement in revenues. In fact, we were at or above our budgeted numbers in January and February on the revenue side. That's inclusive of the CES that didn't pan out as it was originally scheduled. There was some degradation in demand in that. CON/AGG came later in that time period. Again, it was just at the beginning of the kind of the COVID situation as well as the kind of the trade talk that was going back and forth between China and the U.S. Given those challenges, along with kind of the sun was in our eyes and a table game hold PC, we didn't flow through a lot of that additional revenue. The positive signs were significant on that top line. We were seeing return on those investments from the top line. There is no question in our mind that we would manage on the expense side to bring that into line. The first couple of months were very bright for the Strat. To your point, as the Strip ramps up, we would continue to benefit from that additional business. The Strat standalone, January and February, given those challenges that I mentioned, performed on the top line at or above our expectations.

Thanks. And then on the hyper-local and the local businesses, how should we think about margin recovery if volumes are off a little bit? I'm assuming a lot of those costs once you're completely open are relatively fixed, just in terms of keeping the lights on, employing the people that are in there; do you have much flexibility just in terms of flexing down that cost structure a little bit? Just trying to get a sense of how those margins will ramp.

Yes. I mean, absolutely, Chad. So I mean you talked hyper-local. For us, that's a distributed business. Those margins are highly variable because we actually have revenue splits with our third-party customers. There's really – once we have an infrastructure, there's not a lot to it from that perspective. On the local casino side, we are not opening every restaurant at the same time, for example. Even though we're allowed to open, you're not going to have full amenities within those properties. We may not run in the table games shifts the same way that we did before. We're looking at all of that. The cost structure is highly variable from a labor perspective. We own all of our assets, as you know, on the casino side. We don't have a large rent component. Our breakeven cash flow to service this debt is around, call it, a 25% to 30% level from a revenue perspective. We don't think we'll be anywhere close to that on the local side. It will be much higher than that, given what we're seeing right now in Montana. To us, that is a very clear indication there is pent-up demand. As pointed out, most of the customer base in the local market here in Las Vegas are folks who were not in the workforce, or out of the workforce now. They will be out of the workforce in the future, also on fixed income. The goal for all of us as operators will be to make people feel comfortable in terms of coming back to the properties safely and to enjoy themselves. We've been working hard to do that, both within our operations and with the industry and with the gaming authorities.

Okay. Thanks, Charles. Let’s do more of that as well.

Thanks Chad.

And you have one question from John DeCree from Union. Sir, please ask your question. Your line is open.

Hi, Blake. Hey Charles. Wanted to ask a follow-up on a comment, I think, you just made, Charles. I think you kind of guided us to the answer, but maybe to ask directly. One of the things we've been thinking about is those small businesses, your third-party counterparts in the Route business. You've mentioned they were able to get some access to financing through the government programs. But in your dialogue so far, if you could share how many are kind of struggling, how many are going to make it through? It seems like it'll be better than maybe 15% to 20% that they wouldn't have otherwise made it across the river, but just wondering if you could provide any more color on the stability of your partners.

Yes. I mean, look, obviously, the longer this goes, the exponentially harder it is to recover financially based on liquidity and also just in terms of regenerating the revenue and establishing that point of contact with your customer. We've gone through a lot of efforts to keep up those relationships with our customers. We have virtual happy hours on Fridays with our tavern customers. Those are things we could do because of our size and scale and our player loyalty program. Others are trying to do similar things but may not have access to those resources, and they certainly don't have access to the capital markets like we have had in the past, the benefit of having a significant amount of cash on hand. We are aware of several of our third parties who have obtained that loan or are in the process of applying for it, and we think that it's great for the community that they get this funding. We kind of had an estimate when this started that if it were to go through June, July timeframe, there would be 15% to 20% of our third-party locations that would not make it. As Blake said earlier, we are planning for and prepared to open at the end of this month. TBD, if that is what the guidance that is given, but that's what we're planning for. We think it's kind of a two-pronged approach. The faster we can open up, obviously, that is going to be helpful to getting people on the road to recovery and that government assistance in the form of the SBA loans has certainly helped our third parties.

That's helpful color, Charles. One more on the distributed business. I know you had made some comments about Montana out of the gate early, but not sure if I caught any mention of number of positions or changes to the kind of unit counts that you've seen with social distancing. Were you able to largely keep the number of units the same? Or are they spaced out?

The rule there is the center of the games need to generally be six feet away from each other from the dead center of the game. It results in every other game being playable, I wouldn't say on or off but playable, the right way to describe it. We just have group stoppings on them. There are no mats required. There are certainly enhanced cleaning protocols at all the locations. That's the responsibility of the location. Just to remind, those are all third-party for us, right? There are games that we have with someone else's location up there, approximately 300 locations and almost over 3,000 games across the state, right? This is in almost 100 cities. The traffic we are seeing in these locations is on par from where it was before the shutdown. Now this is from Monday to now. So we're, call it, 3.5 days into that, so that it doesn't make a trend, but it could have been the other way. We think that's very encouraging. The customers feel comfortable coming. They want to get out of the house. They want to experience a form of entertainment. They want to get back into their routine, and they're thankful that we could provide that for them.

I would just add, just for clarity, every single game is on. Every single game is playable. None of them aren't dark but it's just within the distancing requirements within those facilities. I think it's important to note one more time, there are no games that are dark. All 3,000 games are playable.

Got it. Thanks Blake. Thanks Charles.

Yes. Thanks John.

And presenters that is all the questions on queue. So I'll turn the call over to you for closing remarks.

Thanks, operator, and thanks to everyone for joining us today. We look forward to updating everyone again when we report our second quarter results. Thank you.

And this concludes today's conference call. Thank you all for participating. You may now disconnect.