Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Golden Entertainment Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal remarks. Please note that this call is being recorded today August 5, 2021. Now I'd like to turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead.

Thank you very much Joelle, and good afternoon everyone. On the call today is Blake Sartini, the company's Founder, Chairman and Chief Executive Officer; and Charles Protell, 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. 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 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 our performance. You can find the reconciliation of GAAP financial measures in our press release, which is available on our website. We'll start the call with Charles reviewing details of recent results and a business update. Following that, Blake and Charles will take your questions. Thank you for your patience. And with that, it's my pleasure to turn the call over to Charles Protell. Charles, please go ahead.

Thanks Joe. Our strong performance continued in the second quarter with record revenue of $292 million and record EBITDA of $91 million. Second quarter EBITDA was over 50% higher than our previous record EBITDA achieved in the first quarter, and over 80% higher than Q1 of 2019. These results were driven by significant growth across the entire portfolio from our Las Vegas Strip asset to our local taverns, and we still see room for improvement. Given the shutdowns during last April and May, performance comparisons to the second quarter of 2020 are not really relevant. So I will provide comparisons to our second quarter 2019 results as indicators of the momentum in our business. In Q2, the STRAT generated its highest ever quarterly EBITDA over double what we did in Q1 and up 45% in Q2 of 2019. The STRAT improved by 1,100 basis points over Q2 of 2019. This was achieved at occupancy levels of just 70% for the quarter compared to the property's historical occupancy of about 90%. Weekend occupancy and rates are equal in comparable periods in 2019 and midweek business is improving. Our $110 million investment completed in January of 2020 is helping us capture more of our guest wallet and we are earning a significantly higher ROI than we expected. We also anticipate the property's performance will improve as midweek business increases with the return of citywide conventions and international visitors. Our two Las Vegas locals casinos also continued to outperform historical results with Q2 EBITDA increasing 124% compared to Q2 of 2019. Our locals EBITDA margin improved to over 2,300 basis points to 55% for the quarter continuing our margin expansion since reopening. Even with the strength of our two locals properties, we are still missing some of our rated players who we expect to return this year. We are also seeing continued increases in out-of-state enrollments for our players club, which reinforces long-term Las Vegas population growth as an ongoing driver of the locals market. In Laughlin, EBITDA improved by 47% compared to Q2 of 2019 with margins over 50%. Our 12,000-feet outdoor Laughlin Event Center is a major driver of visitation, but it wasn't even open in Q2 given the restrictions on March events. However, we have six concerts currently scheduled in the fall that are expected to drive additional traffic to our Laughlin properties. For our Pahrump casinos, EBITDA improved more than 100% compared to Q2 of 2019, while margin expanded by 1,900 basis points. Overall, we operate with an EBITDA margin over 50% in Pahrump. And in Maryland, our Rocky Gap casino improved EBITDA by 55% from Q2 of 2019, while expanding margin by over 1,000 basis points to 39%. Looking at our casinos in total, EBITDA was up 64% compared to Q2 of 2019 and EBITDA margin improved by almost 1,600 basis points to 46%. Given that we have yet to see full occupancy return to the STRAT or Laughlin, and we are still missing some of our rated players we see sustainable and potential improved performance to our casino operations in the future. Turning to our distributed gaming operations. In Nevada, EBITDA improved over 86% from Q2 of 2019 and margins were up 650 basis points. All of our distributed locations from gas stations to supermarkets demonstrated strong performance in line with our casino operations, but our 66 wholly-owned taverns really outperformed, reflecting the benefit of our streamlined cost structure combined with meaningful revenue increases. Nevada only went to 100% capacity on June 1, so we haven't yet seen the full potential for our taverns. In addition, we are currently seeing out-of-town enrollment for our players card in some taverns up 10 times over historical levels. Our Montana distributed operations showed the same strength as the rest of our businesses growing EBITDA by 61% from Q2 2019. So this was really a quarter with absolutely no weakness in any of our operations and that strength continued in July. Moving to our balance sheet. In Q2, we repaid over $50 million of debt including $47 million of our outstanding term loan borrowings. We ended the quarter with plenty of liquidity with $153 million of cash on hand and no outstandings on our $200 million revolver. In July our liquidity improved further after receiving a $60 million cash payment from Caesars Entertainment related to their purchase of our sports wagering partner William Hill. We appreciate our long-standing relationship with William Hill and look forward to their continuing operation of the sports book in our Nevada casinos. Currently our total debt outstanding consists primarily of $725 million of term loans and $375 million of unsecured notes. Including the cash received from Caesars, our pro forma cash balance is $213 million, which puts our LTM net leverage at approximately 3.8 times. So our balance sheet is in a very good place to start evaluating options to return capital to our shareholders.

Thank you. Our first question comes from David Bain with B. Riley. Your line is open.

Great. Thank you. Phenomenal quarter obviously. So I guess my first question would be you mentioned that very strong data point about migration visitation to the Las Vegas distributed gaming as sort of a long-term driver on top of the other trends. At this point, have you identified the migrant demographic or whatever you want to encapsulate them as versus the core visitor in terms of spend frequency? And is there more of an opportunity perhaps to do cross-promotion with either the STRAT or Laughlin or what have you? I'm just trying to get a better understanding of that new base that's coming in.

So, hi David thanks. So I mean most of the sign-ups we're seeing are obviously coming out of California. I mean that is a driver to Vegas. And if you think about the 30-plus million adult population that sits in California you don't need a lot of them to move here to make a difference. In terms of cross-promotion and what are we seeing, we do see a lot of that with Laughlin in particular, as we have our concert scheduled that's lined up for the fall. So we're pretty excited about that. We've seen that in the past. And we even see that our local players do use the Top of the World restaurant at the STRAT. So we're pretty excited about seeing that new migration of players that are moving here. And I think it's further accentuated. If you look at our 66 taverns that are here in town the ones that we built recently, we purposely built over into the southwest part of Vegas. And that's been the fastest site of home growth, new home growth here in the city.

Okay, great. We discussed the STRAT's performance during the last conference call. Before the pandemic, our EBITDA was $50 million or less. You mentioned potential improvements from weekday traffic normalizing, convention spillover, and various catalysts for the northern end of the Strip and the Strip overall. Can you provide insight into our earnings potential for this asset? Is it possible we could reach earnings of $80 million, $90 million, or even $100 million in the coming years? I'm trying to grasp the earnings capacity following the new base established for the STRAT.

Yes, David. We are very optimistic about the future outlook for that property as we continue to enhance EBITDA there. To provide some perspective without getting too specific, in Q2 this year, as Charles mentioned, we saw record performance at the STRAT. We expect this trend to continue through July. In Q2 of this year, our occupancy at the STRAT was around 74%, compared to about 90% in Q2 of 2019, which indicates a shortfall of roughly 38,000 room nights when comparing it to the same period in 2019. Additionally, we are observing about 30% more spending from customers at the property than in the past. This combination of fewer room nights and increased spending suggests substantial growth potential for that property. Furthermore, I want to highlight that our direct bookings have increased to about 30% of our hotel rooms, up from 6% or 7% when we acquired the property. Our casino marketing initiatives, targeted resort marketing, new entertainment options, and enhancements in food and beverage offerings have all contributed to this direct booking trend, which has allowed us to achieve that additional 30% spend, as we anticipated while providing a comprehensive resort experience at the property. You mentioned the developments on the north part of the Strip with Resorts World now open, and Fontainebleau expected to launch in 2023, along with the additional capacity at the Convention Center. All these factors are in close proximity to our property and bode well for future revenue growth. The figures you discussed are targets we believe we can reach over time. We are currently seeing excellent results, and given the lack of convention and entertainment activities, as well as no full sports stadiums in Las Vegas, we think this will ultimately benefit the STRAT, making the numbers you mentioned achievable.

Awesome. Thank you, both.

Thank you. Our next question comes from Carlo Santarelli with Deutsche Bank. Your line is open.

Hey, guys. Thank you. Charles, obviously in your remarks you went through kind of the performance across each of the regions properties, and clearly, very impressive in terms of the margin growth. As you think about just on a whole, how much of the margin upside that you guys are seeing relates to kind of flow through from customers spending at levels that are perhaps higher than they were before versus just cost eliminations that have come out of the business? And out of those cost eliminations, how much do you think ultimately will come back, if any? Thanks.

Yeah. Thanks, Carlo. I mean, look we've been asking this question since the reopening over 12 months ago. And we have seen no deceleration in spend or margin expansion quite frankly across all of our businesses, even on the local side, which has been out in the front from the get-go. So if you look at us kind of year-to-date versus 2019, our casino assets are at about a 1,300 basis point margin expansion year-to-date. So how much of that is going to stay? Much more than we previously thought, I think at this point, obviously, as we add a couple more restaurant venues we add shows and those types of things it will dilute the margin a bit, but it should hopefully add overall aggregate revenues and EBITDA keeping to the portfolio.

Carlo, I would add to that that we are – as I mentioned in the STRAT demographic, we are seeing additional spend. I would say, we are seeing that in our other properties as well. And we do expect labor costs to increase as revenue increases on a pure – from a pure dollar standpoint. But we built into our forward expectations those direct labor costs, but those costs are and will be suppressed through overall lower FTEs, as we refine how we run the business, as well as decreased marketing spend and meaningful reductions in the food and beverage side of the business. So we do believe it's sustainable even with anticipated higher labor costs as occupancy grows and more people traffic through the property. As I said, we have built those into our forward expectations, and mitigated those through the areas that I talked about.

Great. Thanks, Blake and Charles. And if I could just one follow-up. Give or take obviously the – how the back half of the year shapes up and given obviously the free cash flow you guys have already generated in the first half of this year, a $5 free cash flow per share number for the year certainly looks perhaps achievable and reasonable. The balance sheet as you guys talked about is in great shape and will continue to delever as we move through the end of the year. As you think about that capital return and perhaps, a special dividend, what are some of the parameters around leverage that maybe help kind of shape sizing of whatever that capital return objective might be?

Yeah. I think we'll be higher than $5 a share in free cash flow for this year much higher than that. And so as we think – as we go forward, we look towards the end of the year as we get to the fourth quarter and into the first quarter, if our leverage point again the expectation is we'll be below 3.5 times. To me that's really when you start thinking about, okay, now we're in the right spot to think about those ways to return capital to shareholders.

Okay. Great. Thank you guys.

Thank you. Our next question comes from Chad Beynon with Macquarie. Your line is open.

Hi. Good afternoon. Impressive results guys. Thanks for taking the question. I wanted to piggyback on the back of that Charles you said, returning capital to shareholders. Obviously, the other option would be growth opportunities. Can you talk broadly about bricks-and-mortar opportunities that are out there? And then on the distributed gaming side kind of, what you're seeing legislatively if there would be more opportunities to deploy some capital in that segment? Thanks.

Yeah. I mean, I think from an M&A perspective on the casino side, and we see the opportunity more squarely within our own operations at this point in time. So Blake mentioned the momentum that we're seeing at the STRAT and some little things that we could do there that quite frankly would add more to our portfolio than buying a riverboat in the Midwest that does $15 million to $20 million EBITDA at this point, where we may not get the synergies we otherwise would have with what we could do here. And Blake, do you want to talk about the distributed?

Yes. Yes. So Chad, the common theme from us is our consistent involvement in jurisdictions, where there is activity or legislation being talked about proposed. We are very active in several jurisdictions. As you well know, we're deeply involved in Pennsylvania and have been for some time. My belief is that distributed gaming will emerge in some of these new jurisdictions. Sometimes it takes some time. But it's an efficient form of tax revenue for these states that are considering it, and we believe it will happen here. So our involvement continues in terms of opening up these new jurisdictions and we are heavily involved where we think that may occur.

And Chad, I'd just say from our perspective right now that's more time than dollars that we spend on those opportunities. And the greenfield opportunity on the distributed side, it may take a little bit of time but the return on investment there is very, very high. So it's worth it for us to spend time on that front. And again on the M&A, I mean look we see that the value of deploying our cash is through our own balance sheet right now. Getting the leverage to where it needs to be and being able to efficiently increase shareholder value with what we have on the table right now.

Great. Thank you. My follow-up is regarding weekday occupancies. You noted that that's kind of one of the areas that's still well off of 2019 levels at the STRAT. I guess we're all looking at the same data in terms of conventions events shows and it looks like 2022 will be a much better year than what we've seen since the pandemic began. But do you have a sense of what rate occupancies could be just based on the trends that we're seeing and based on some of the commentary you hear from some of the other largest Las Vegas operators? Could we get back to those levels maybe by the back half of 2022?

Yes Chad, absolutely. I think absolutely. Our expectation would be back to our historical occupancy levels at STRAT, which were in the mid- to low 90s on a calendar 12-month basis. And so yes, definitely we're seeing – you are right the midweek occupancy has been challenging due to the factors that you mentioned. Weekends are strong. I would add again in terms of our ability to generate additional shareholder value and revenue capacity within our own portfolio in Laughlin, during the quarter we ran about 90,000 fewer room nights than we did in Q2 of 2019. Charles mentioned the LEC, which we have six outdoor shows booked for this fall, which will drive between 8,000 and 12,000 people to those events each of those events towards increasing the occupancy to historical levels at our Laughlin properties where we have 3000 rooms and the Strip where we have 2400 rooms. So we do anticipate occupancy coming back to those levels in both of those markets.

Thank you, both. Congrats on a great quarter.

Thank you, Chad.

Thank you, Chad.

Thank you. Our next question comes from David Katz with Jefferies. Your line is open.

Hi, good afternoon, everyone. Congrats on the quarter. I wanted to just ask about resorts that we've been watching those cranes go off for quite some time. Are there any measurable benefits or impacts that you can sort of talk about so far at the STRAT since that has opened?

David, that's a great question. The honest answer right now is no. One of the factors that is allowing us not to maybe have more information at this point is the Las Vegas Strip between Resorts World and the STRAT has literally been torn up with construction, which is really impeding foot traffic along that corridor which normally is pretty robust. So that has been a major impact to put traffic along that walkway there. That will clear up. It has cleared up in front of the STRAT now and it will also as we understand clear up towards the end of the year. I am highly confident that Resorts World Fontainebleau, when it comes online and the capacities and the foot traffic within those hotels walking north of the STRAT will absolutely help us, particularly in the Tower operation, Top of the World restaurant, the thrill rides, the view deck and those kinds of things in the future will be greatly helped by those resorts once that corridor gets cleaned up.

Got it. Perfect. And Charles, I know you talked about this in – from a number of different perspectives but finding yourself between three and four times, presents a range of opportunities some of which you've discussed. Is acquiring properties or companies inside or outside the boundary? Is Las Vegas Strip property a possibility? I just want to know how far is too far? And how we should think about that?

Yes. I would say, in the totem pole of priorities, M&A is low on the totem pole, probably the lowest. I'd say, deleveraging a little bit further is top evaluating returning capital to shareholders through special dividends or buyback, is second. Looking at our greenfield opportunities, we have distributed markets that we've been involved with for a long time, is third. And I'd say if there was something that was so unique where we had synergies that we couldn't pass up from an M&A perspective, sure we'd have to look at that. But it has to be a very strong, strategic fit or be meaningful to operations in terms of size and scale in order to re-rate how we're looked at today.

Sounds like, it's just barely on the pole at all. Okay. appreciate it.

For now. For now.

For now. Appreciate it. Thank you.

Thank you. Our next question comes from John DeCree with CBRE. Your line is open.

Hi Blake and Charles. Thank you for taking my question. I wanted to revisit some comments regarding the STRAT's performance and the ROI on your investment. Blake, you mentioned a 30% increase in spending, and Charles, you talked about capturing more guest wallet shares. Could you provide more details? I know you worked on the rooms and did a great job with the casino floor. Where is that 30% increase in customer spending coming from? Has the casino floor been activated more? I realize we're not back to historical occupancy levels, but are you experiencing some pricing power on weekends due to the room renovations? I'm curious about where you're seeing the ROI.

Yes, we are noticing some of that in the rates, particularly on weekends, but a significant part is coming from the casino. When we acquired the property, our casino marketing programs were lacking. However, we have developed a strong casino marketing program. Currently, we are directly booking 30% of our occupancy, which represents a substantial increase. This direct booking enables us to place customers in rooms who spend more compared to those who book through online travel agencies looking for lower rates. We are also experiencing positive results in our food and beverage operations. Our Top of the World restaurant is generating much higher revenue and profitability than ever before. We are fully booked every night, and it is considered one of the top dining experiences in Las Vegas. We are observing significant growth in our food and beverage outlets as well as in the casino. Essentially, we are seeing increased spending in areas you might expect.

And John, I would just add. I mean if you recall our thesis was to touch up the common areas primarily with the spend. We did do a significant number of rooms, but we did all of the casino floor, touched all the F&B, all the common spaces within the floor to let people feel more comfortable in terms of a place where they could stay and play, spend their money versus using the property, really as a dormitory to go see other attractions in Las Vegas. And that's what happened. So from our perspective, we think that thesis now is clearly working and we are at a return profile on our investment that is in well excess of our expectations.

Thanks, guys. And maybe one more, Charles. We talked a little bit earlier in the call about free cash flow and I think we're looking at something above $5 this year and then it looks like a snowball from here. Can you help us frame the cash generation? Maybe remind us, what normalized maintenance CapEx might look like and where you might expect cash taxes to be? And then, I think your 7.625 bond is trading very strongly could be an opportunity perhaps for some meaningful interest savings as well. Just kind of help give us a picture of what the trajectory of free cash flow could look like from here.

Yes. And that bond is on the radar screen, which is another reason to be focused on deleveraging in the near term. It's callable and first call date is in April of next year. As far as the cash flow components, right now, we're a little under $60 million in cash interest expense, which will be coming down quickly, as we delever the business and our maintenance, we expect to be between $30 million to $35 million annually going forward. We'll be a little bit lighter this year like everyone else, but that's where we intended to be in the future. We've got about $120 million NOLs on the balance sheet as of Q2. So, we're in a good position to not be a taxpayer for a few years. We may see a little bit of tax payment as we get into the back half of next year, given the levels of performance that we think are sustainable, but it's not going to be a meaningful number.

Perfect. Thanks so much that, helps, Charles. Thanks, Blake.

Thanks, John.

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to management for closing remarks.

Okay. Thank you all for joining us, and we look forward to updating you at our next quarterly call.

This concludes today's conference call. Thank you for participating. You may now disconnect.