Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the Golden Entertainment Third Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal remarks. Please note that this call is being recorded today, November 3, 2021. Now I'd like to turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead, sir.

Thanks, Kevin, 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 are contained in today's press release and in our filings with 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 certain 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 the 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. 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 third quarter with revenue of $282 million and adjusted EBITDA of $73 million, both of which are third quarter records. Third quarter EBITDA was over 60% higher than Q3 of 2020 and 70% higher than Q3 of 2019. These results were driven by continued strong performance across our entire portfolio, from our Las Vegas Strip asset to our Laughlin and locals properties, as well as our Montana and Nevada distributed operations. Even with this strong performance, we still have opportunities for further improvement that I'll touch on in a moment. Last year's third quarter saw the full reopening of most of our operations other than our taverns, which were not allowed to operate games on the bar until the end of September. This year, our bars were fully open for Q3, so you'll notice a significant increase in the contribution from our Nevada distributed business over last year. At the STRAT, revenue was up over 50% and EBITDA was up over 150% compared to Q3 of 2020, as we saw occupancy improve and continued strong spend per guest. Occupancy for the quarter was about 73% without meaningful midweek business and up from around 50% in Q3 of 2020, well below historical occupancy levels of 90%. Our investment in the properties, casino floor, restaurants, room base is undoubtedly playing a role in our ability to capture more of our guest spend. We are seeing record numbers out of our restaurants, particularly top of the world and our casino marketing program is having great success attracting new players. The property is still missing midweek room nights, over 35,000 in Q3 alone when compared to 2019, so we anticipate meaningful improvement in the STRAT's performance as citywide conventions and other traffic drivers continue to return to Las Vegas. Our largest contributor to EBITDA for the quarter came out of Laughlin, with revenue up almost 20% and EBITDA up almost 24% compared to Q3 of 2020. We saw the return of many of our core gaming customers in Laughlin, but we are still missing some key players in our database, so we see more upside from our rated play at these properties going forward. Notably, we just restarted concerts at our Laughlin Event Center with four shows scheduled this quarter. We already had 28,000 guests at 10 concerts at the Laughlin Event Center in October, and we know concerts will drive improved performance in Laughlin for us in Q4 and next year, as we are allowed to have a full schedule. Our two Las Vegas locals' casinos also continued to maintain their high level of performance, with sustained EBITDA margins of about 50% on slightly lower revenues than last year. We saw some impact on our local business in the latter part of Q3 compared to last year, as people were finally able to travel for vacations, schools restarted in-person and the delta variant became more prevalent in Clark County. That said, EBITDA for these properties is still over 100% higher than it was in Q3 of 2019. Additionally, we have not seen any increased promotional spending in the locals market over the last five quarters, and we don't see that dynamic changing in the future. So we expect to maintain the current margins from these assets. For our promo casinos, EBITDA improved 20% compared to Q3 of 2020, while maintaining margins of over 40%. And in Maryland, our Rocky Gap Casino's EBITDA was meaningfully up from 2019 but down slightly to 2020. Looking at our casinos in total, EBITDA was up 28% compared to Q3 of 2020, while EBITDA margin improved by 210 basis points to nearly 40%. Compared to 2019, our casino EBITDA is up 54%, with a margin expansion of 1,250 basis points. We expect continued strong performance from our casino operations, given that the STRAT and our Laughlin property generate almost 50% of total property EBITDA, where we have yet to see full occupancy return, and we are sustaining the performance of our local and other regional properties. For our distributed gaming operations in Nevada, EBITDA was up exponentially from Q3 of 2020, due to the taverns not being allowed to have patrons at the bar for most of the third quarter last year. Q3 EBITDA was double 2019 levels, with meaningful revenue growth and margin expansion. All of our distributed locations demonstrated strong performance, but our 66 wholly-owned taverns significantly outperformed, reflecting their appeal to Las Vegas locals and the benefits of our streamlined cost structure. We are fortunate to have several of our newer taverns in areas of Las Vegas that have seen recent residential development as more people move here from other states, particularly California. Our Montana distributed operations saw similar strength as the rest of our business, growing revenue by 15% and EBITDA by 27% from Q3 of 2020. Clearly, this was another quarter with tremendous strength across all of our operations. As we finalize October, we anticipate favorable comps for the rest of 2021 and into 2022. Moving to our balance sheet in Q3, we continue to aggressively repay debt, reducing our term loan borrowings by $50 million. Combined with last quarter, that's a $100 million of debt reduction in the last six months. We ended the quarter with plenty of liquidity with $290 million of cash and no outstanding borrowings on our revolver. Last month, our liquidity improved further as we expanded the revolver to $240 million, while extending the maturity date by 18 months to April 2024. Our total debt outstanding currently consists primarily of a $675 million term loan and $375 million of unsecured notes. Our LTM net leverage is approximately 3.2 times. We expect to drop to less than three times by year-end. This positions us well to refinance our bonds when they are callable next April and to begin returning capital to shareholders. Our current valuation relative to our Nevada-centric peers does not reflect the sustainability of our margin improvement, the continued upside in our portfolio of owned casino assets, particularly on the Strip and in Laughlin or our market-leading distributed operations. We are a Nevada-based gaming company that owns its own real estate and continues to generate meaningful cash flow. Our investment thesis remains uncomplicated. Given the valuation disconnect to our peers, we believe that using our buyback program is the most prudent way to return capital to shareholders in the near term. As we look into next year, we anticipate using both buybacks, as well as special dividends to return capital and further increase value for our shareholders.

That concludes our prepared remarks, Blake and I are now available for questions. Our first question comes from Carlo Santarelli with Deutsche Bank.

Thanks, guys. Charles, Blake, whoever kind of wants to take this one. Charles, you kind of spoke there at the end of your remarks to where you intend to exit the year and obviously, with the opportunity at the bond refinancing next April and credit rating and whatnot. Does that shape at all the cadence or thought process around the timing of kind of getting underway with the buyback program? And obviously, it sounds like potentially the special dividend is more of a 2022 event than it would be between now and April?

I think that's right, Carlo, regarding the special dividend. Quite frankly, we see the value disconnect now. We have $50 million that's authorized under our current share buyback. We have about $220 million of cash on the balance sheet and growing. From my perspective, using a little bit of that over the course of the balance of the year and certainly into next year as we can, I think the cadence relative to the bond deals, plus plenty of liquidity and our leverage point. Given the improved comps relative to the EBITDA that we anticipate in the fourth quarter and also going into Q1, we're going to be positioned well, and we'll still be at three times or less as we think about a refi.

Great Charles, thank you. And then just as it pertains to the 3Q, your cash was up, give or take $70 million sequentially, your debt was down $50 million, so about $120 million of net debt reduction. My sense is that you've got the payment from the Caesars deal in the quarter, is that correct?

We did. As we talked about on our second quarter call, we received that $60 million in July.

And there's a little bit more perhaps coming on that potentially when they get on with the rest of the transaction, is that accurate?

It depends on ultimately when and what price that deal closes at. But if it closes at the announced price, it's unlikely that we will receive anything.

Understood, okay, thank you guys.

Thanks, Carlo.

Your next question comes from David Bain with B. Riley.

Great thanks so much, and congratulations on the nice quarter again?

Thanks, Bain.

So a question on color around occupancy trends now and visibility on getting back to normalcy, I guess 90% at the STRAT and at Laughlin. I think you had mentioned back half 2022 on the previous call, but correct me if I'm wrong, and I'm wondering if you could kind of opine as to what you think the EBITDA differential would be between those levels and the levels we saw in the third quarter?

So I mentioned on the prepared remarks, we're missing over 35,000 room nights for the quarter, that's similar to what we saw in Q2. If you just look at the six months, those 70,000 room nights equate to about $5 million of hotel revenue, which is pretty much right to the bottom line for us. That doesn't include any additional spend from the guests that stay in the room. From our perspective, it's at least $10 million a year in roughly EBITDA out of the hotel side, plus what we get in terms of that would come from our guests that are staying at the STRAT. So again, that's why Blake and I feel very strongly that property, which is running about $6 million a month in EBITDA, could be a $100 million EBITDA property once the count comes back and once we again see those citywide and midweek group business come back to where it was in 2019.

Okay, perfect. And then on the Flite Golf deal, how do you think we should look at the return, given your land contribution? There is $70 million of CapEx by Flite Golf, and I believe you get a lease payment. I'm just trying to understand if we could see a potential 15% lift off that $70 million from the casino, off that investment from them or combined with the lease payments. How do you think we should look at the return from that?

Yes, quite frankly, the pure return in the property, we would get 5% of the revenue that's coming out of that facility and that's probably to add somewhere in the neighborhood of $3.5 million to $5 million as we think about what's the range of potential outcomes for that. But at the same time, we're not as focused on that. We're more focused on driving the bodies to the property. We think somewhere in the neighborhood of 700,000 to 800,000 bodies will be additional visitation to the property. If you think about where that attraction is positioned on the Strip, it's close to the convention center, it caters to downtown. It's obviously at the north end of the Strip and it's very easy for locals to get to off of Sahara. We have a 4,000 space parking garage that could host them. I think from all of those drivers, we view it as just adding another amenity that's meaningful to our side of the Strip, and they could feed more visitation to the STRAT.

Yes David, I would add to that. I think Charles mentioned 600,000 or 700,000 bodies we think will be driven to that facility. The way it's designed and the way we put that together is we've got a 4,000 space parking garage, which most of the time has some pretty large capacity even given weekends and so on when we're full on the hotel. So that parking garage will feed through our casino and through our amenities between the South and North end of that property right directly into that top golf, so the ability for us to generate additional spend off of that traffic along with some potentially targeted food and beverage outlets, we're switching up our entertainment outlet in the showroom, all of those things will combine to keep people on that property, which is the thesis for our original investment in the first place was to make that property, if you will, more sticky to those that are staying and those that are coming to visit. I think that design is providing us confidence that we can generate some significant spend from the visitation to the Atomic Range.

Okay, fantastic. I know I'm going one over, but I haven't asked in a while, just given the multiples we've seen for the Strip properties out there in terms of M&A, does that cause you to reevaluate the opco structure at all for either the STRAT or even the land values? We've seen across the board recently for your other properties, just given you have mentioned the disconnect in your valuation or are there other long-term positioning factors to consider when you're looking at that? I'm just kind of wondering your recent views?

Yes, I'll take the bottom line for that, David. These valuations are significantly enhancing the valuations of those that own their own real estate, which we fall into that category. I look at that real estate as the third leg of our asset portfolio, along with our brick and mortar and our unique distributed gaming platform. Owning our real estate, in my mind, has significant embedded value in this overall asset portfolio. From what we're seeing, that would continue to grow. To answer your question specifically, no, I don't see any change to the current landscape in terms of how we're viewing our real estate. I think we're going to stay the course, continue to own it, and I think that embedded value continues to grow.

Just to add to that a little, I don't think I've seen transactions where the value to real estate has gone down from the previous transaction. When you look at cap rates that are 5% at this point in time, I would think that as the reach continues to grow and have access to lower cost of capital, that enhances their ability to pay for what we view as the increasingly scarce assets in terms of Las Vegas real estate supported by casino cash flow.

All right, great thanks guys.

Thank you.

Our next question comes from David Katz with Jefferies.

Hi, this is Cassandra asking on behalf of David. Thank you for taking my question. I'm wondering in 3Q, we saw the casinos' margin down a little bit versus 2Q. Is it more of a function of amenities opening more food and beverage offerings, or does it have anything to do with labor shortage or wage pressure?

Yes Cassandra, I think there is a little bit of wage pressure that we all the whole industry has been experiencing as we've reopened and started to get going with some of our other amenities on our properties that we really dealt with in June and July in terms of seeing the full brunt of wage pressure increases. So there is certainly some of that. I think some of it is also the normalization again at the volumes that we've seen on our local casinos versus the increase in the volume that we've seen at The STRAT, which operates because of its cost structure at a lower margin than our other businesses.

Yes, a bit more color to that is July we were right-sized, if you will, in terms of our labor and fixed cost ratio. August and September showed some on the top line pressure from COVID expanding other things, where we didn't make those adjustments knowing that that would come back. So I think it was really kind of a function of the volume going from July, August, September, more so than being a permanent kind of a drag on margins.

Got it, thank you. And if I may, another one in loss. I know you've talked about newer demographics, younger people going to the casinos. Do you have any observations on perhaps longer-term stickiness or sustainability of the volume from younger players?

I think for us, it's more in terms of new players that we saw during the pandemic and coming out of the pandemic, where we had notable levels of unrated play that came through our local casinos, converting those players into rated play. We have seen increased levels within our player clubs sign up. Part of that we think is due to the net migration into Las Vegas from out-of-state folks who are experiencing local casinos and our taverns, quite frankly, more so as a form of entertainment that may not have been available to them from where they moved from. We are seeing some stickiness of that. If you had 10 new pubs and kept three of them, that's still three more than you had before. We are encouraged by our players' club program and what we're seeing in terms of sign-ups. We commented on The STRAT, where we spent a lot of focus on the casino marketing program, and we've seen that pay off in terms of the performance of that property. Obviously talked about the restaurants we've added and a high limit room. All of that is starting to pay off. The tangible effect of that is, for us, when you look at some of our direct bookings at the property, we're now at a point where we're running over 30% of our bookings at The STRAT being direct, whereas when we bought the property, it was around 10%.

Yes Cassandra, I would just add, in Laughlin in particular, I think that was the original part of your question. I wouldn't be aggressive to callLaughlin a young person's market. Although, to Charles' point, coming out of the pandemic with people receiving funds from the federal government and so on, I'm sure there was a lot of experimentation into that market. However, we do have the opportunity through our entertainment offerings down in that market to continue to expand that market through younger people by virtue of the acts that we have coming into that facility which holds 12,000 people, and we are focused on that. So just a little bit of added color for that particular market. Got it. Thank you very much.

Our next question comes from Omer Sander with JPMorgan.

Blake, Charles, thanks for taking the question. Just one for us, just a little bit more on kind of demand, your hear commentary across the locals market, regarding the delta variant, return to school, and vacations, using some of that pick up post Labor Day and into October. I guess, asked another way, was there any meaningful shift in visitation or spend per visit, where you exited the 3Q versus the June, July levels?

Yes we have, October has picked up pretty significantly. Keep in mind that going through the remainder of this year, we do have seasonality in our business. However, it's specific to your question, October did show significant improvement both in visitation and spend, and we saw that throughout the majority of our local and resort properties, STRAT and Laughlin.

Okay. And then just maybe one on the bottom line there as you kind of see fluctuations in the pick up in visitation and spend. How do you think about adjusting the OpEx in the labor environment to accommodate that?

Yes, so we've already made those adjustments, they're pretty much fully reflected in the Q3 numbers. Like you said we were doing those adjustments in June and into early July. For a company of our size, we measure this in the single millions of dollars in terms of adjustments on the labor side for the entire portfolio versus the tens of millions of dollars. Again, what you're seeing right now in the margins are those adjustments.

Yes, and as I think part of your question, as Charles mentioned in his comments, as we pick up more room occupancy mid-week, we're going to need more guest room attendance. We're going to add more labor. But I think those costs will be mitigated, and our margin discipline will continue through more revenue opportunities, more pricing opportunities, and we've anticipated that. So we are committed to our margin discipline, and as we add those positions, I believe we can mitigate that through additional revenues and other ways to drive more profitability.

Awesome it's really helpful. Appreciate it, guys.

Our next question comes from Chad Beynon with Macquarie.

Hi, this is Aaron on for Chad. Thanks for taking my question.

Hi Aaron.

Hey. Can you give an update on any impact or benefit from Resorts World?

Yes Aaron, I think from our perspective, it's a little too early to tell. We really haven't seen much of an impact at all. I think without meaningful citywide convention business or international travel, we haven't really seen the full potential of that property either way, so really not much impact to be honest with you.

No, there has been no negative impact. However, I will tell you, Aaron, going forward. As we mentioned, I think on our last call, there is pretty significant construction going on that boulevard and it's impacting foot traffic, as well as vehicle traffic going both north and south. As that begins to dissipate, that construction goes away, conventions come back, and Resorts World. I think capitalizes on their residencies and conventions. All of that inertia will ultimately benefit The STRAT, and that's been one of our theses along on that property. We anticipate no negative impact going forward and I foresee positive impact as the construction and citywide conventions return to which I think Resorts World will capitalize on.

Great. As a quick follow-up, just wanted to go back to the Flite Golf for a little bit, as you're contributing about 7 acres of land, I believe this news 10 acres of excess land outside The STRAT that you own, how are you thinking about uses for the remaining land?

When we get approached with concepts all the time, and quite frankly, we feel the more valuable piece of land sits outside of this is about to takers directly across from the property along Las Vegas Boulevard. I think that, and if you see us do anything with it, it will be in the same type of capital-light model. We're trying to look for ways to drive additional traffic volume through attractions and amenities for The STRAT versus deploying our own capital in the site for opportunities at this point. It's a little early to chat about anything over there, but we certainly have several concepts that are in the works.

We get all the time, we're going to be disciplined. Making sure that we have time to create a campus is essential. We want to do it right. As we are being disciplined and receiving various inquiries on what they could do on that property, there is significant amounts of development occurring both South and North of us between Downtown and The STRAT and between South Strip and The STRAT, Sahara and The STRAT. There is a piece of property directly across the street from us that's seven acres for sale for $70 million. Various trades within that neighborhood for the acreage are happening at high dollar amounts, as developers are building anything from boutique hotels to food and beverage facilities and other things. That whole area is poised for growth, and I think The STRAT will benefit from continued development. As that occurs, we'll be disciplined and aim for the highest use of that property to enhance our property.

That's helpful. Thank you. I appreciate the color.

Yes.

And I'm not showing any further questions at this time. I'd like to turn the call back to management for any closing remarks.

Okay. Thank you all for participating, and we look forward to chatting with you next quarter.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.