Good afternoon, and welcome to the Golden Entertainment Inc. 2022 Third Quarter Results Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Joe Jaffoni. Please go ahead.

Thank you very much operator, and good afternoon, everyone. On today's call 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 on 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 the 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 the 2022 third quarter 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. We had another strong quarter, the second highest Q3 revenue and EBITDA in our history, surpassed only by Q3 of 2021. For the quarter, we delivered revenue of $279 million and EBITDA of $61 million, below last year but still higher than the 2019 third quarter by 15% and 42% respectively. Our third quarter performance reflects the return of summer seasonality at our properties, as well as declines from last July, which was unusually strong given the continued stimulus and excess demand in the market. Our operating margins contracted compared to last year due to higher labor costs and other expenses, but we are pleased that our Nevada Casinos continued to operate at margins that are 800 basis points higher than 2019. To start the fourth quarter in October, we saw strong business trends across our portfolio, with EBITDA up over last year at every property other than in Laughlin, where we had one more concert last October than this October. Also in October, The STRAT posted its highest hotel revenue month in history, with occupancy above 80% on average, including being completely sold out on the weekends. We expect October to be the second highest EBITDA generating month in the property's history, other than last July. Getting into our segment results for Q3, revenues for Nevada Casino Resorts was $98.9 million, while EBITDA was $30.1 million, with both of those metrics down year-over-year, reflecting the elevated STRAT performance last July, as well as the impact from higher labor and utility costs in the quarter. Also, in Laughlin, we did not have any concerts in our outdoor compared to having two concerts in the same period last year. Last year was an unusual event calendar as we typically did not have large outdoor events in Q3 due to the summer heat in Laughlin. Reduced occupancy at The STRAT compared to last year was the primary driver of lower margins within our Resorts segment, but we expect margins to improve in the fourth quarter as occupancy continues to grow. In August, our development partner broke ground on a $75 million golf entertainment facility, with over 100 bays located on excess land adjacent to The STRAT. We are excited for the project to be completed by the end of 2023 and believe it will be a significant traffic driver to our property for locals and visitors alike. Our Nevada Locals Casinos reported revenue of $37.7 million and EBITDA of $16.8 million, reflecting the impact of higher August seasonality compared to last year in addition to the cost increases we've seen in other areas of our business. Our Nevada Locals margin was 44.6%, down a few percentage points from last year, but still up 1,650 basis points from 2019. To start Q4 in October, revenue and EBITDA tracked ahead of last year for all our local casinos. For distributed gaming operations, revenue of $117.6 million was flat compared to last year, while EBITDA declined to $18.8 million. In Nevada, our wholly owned branded Taverns, as well as our managed third-party locations, both saw decreased visitation in August and early September, similar to what we typically see at our properties when people tend to travel or get ready for back-to-school. This was offset by increased revenue in Montana, where we added new locations and benefited from increased summer tourism over last year. Margins were modestly impacted year-over-year by increased labor costs but were also affected by annual rent increases in our Nevada tavern and chain store locations. Our Nevada wholly owned taverns got off to a strong start for Q4, benefiting from the sports calendar, as well as the continued strong performance from our newest tavern opened in March. Turning to Maryland, revenue was $21.6 million and EBITDA was $7.4 million. In August, we announced definitive agreements to sell Rocky Gap for $260 million, reflecting a 10 times multiple. Rocky Gap is a great Casino Resort property, with a strong management team, but without any other East Coast properties, this sale will allow us to further focus on our core operations in Nevada. We expect the transaction to close in the second quarter next year. Moving to our balance sheet. In Q3, we repaid $25 million of our term loan, taking our total debt repayments to nearly $220 million over the last 18 months. Currently, our total debt outstanding is approximately $940 million. We ended the third quarter with $178 million of cash and no outstanding borrowings on our $240 million revolver. Our current net leverage is 2.8 times and we intend to maintain our net leverage at three times or less going forward. Given the strong free cash flow we generate, and the expected proceeds from the sale of Rocky Gap, our flexible capital structure positions us to maintain a healthy leverage profile, evaluate accretive opportunities and return capital to shareholders. We were unable to repurchase shares in Q3, given blackout restrictions related to the pending sale of Rocky Gap, although we repurchased nearly $50 million of our common stock since Q4 2021. This week our Board increased our share repurchase authorization to $75 million, and we anticipate being opportunistic while there is continued dislocation in our public valuation. We believe our portfolio is well-positioned for any economic environment. There are more visitation drivers and economic activity in Southern Nevada where our operations are focused than any other gaming market in the country. Our properties are stable, cash generating assets, with underlying real estate value, and we have not pursued uncertain development projects or unprofitable technology platforms. We have one of the lowest leverage ratios in the industry and plenty of liquidity. These factors make us excited about our future and confident in our ability to continue creating long-term value for our shareholders. That concludes our prepared remarks. Blake and I are now available for questions.

Thank you. We will now begin the question-and-answer session. The first question comes from Chad Beynon with Macquarie. Please go ahead sir.

Good afternoon, thanks for taking my question. Charles, I appreciate the October commentary; I think that's really helpful for everyone, just given the questions that everyone has had through the past couple of months with the consumer. I wanted to talk about occupancy, I think you said you're kind of back to peak levels and the performance of The STRAT is one of the best since you've acquired it. Wondering if you can talk a little bit more in terms of what you're seeing on the weekends some of these compression time periods. I think a lot of the other operators have reported really strong occupancies. Just wondering if you're starting to be able to drive ADRs as you originally intended when you acquired the property. Thanks.

Yeah, Chad, thanks. Yeah, I think that's accurate. We are seeing early in the fourth quarter a lot of compression on the weekends. We're sold out and it looks like we're going to be sold out going forward. Certainly, on the weekends, it does look like mid-weeks have picked up significantly as well. For the month of October, we ran over an 80% occupancy at the hotel, which was historically the highest occupancy rate for a month that we've had, along with the highest hotel revenue rate that we've ever had. So we are seeing compression in the broader market. We are benefiting from that not only on the weekends, but during the weekdays. And that has been a gradual build that we've been seeing from mid-September through October and now into our booking windows in the future. So we're very bullish on that property. We still expect to achieve EBITDA results that we're targeting and we're seeing, as you mentioned, we're seeing a lot of strength regarding the demand for the hotel going forward.

Thank you. With your balance sheet and the cash proceeds from the Rocky Gap asset sale, how are you planning to allocate that capital? I understand you've mentioned your ability to explore various opportunities, but haven't found something you're ready to invest in. Could you share your priorities for that capital and what opportunities you're currently observing in the market?

Yeah, hey, Chad. I think for us we're focused on maintaining a flexible balance sheet. So leverage being low we think is critical at this juncture. We like the fact that we can look at other opportunities. The hurdle rate is high for us to pursue those, as we've talked about in the past, but we think given where the balance sheet sits right now, we're fortunate that we can look at opportunities, invest in our own assets, and have the flexibility to return capital to shareholders.

Thanks guys. Appreciate it.

Thanks, Chad.

Thanks, Chad.

Thank you. The next question comes from Cassandra Lee with Jefferies.

Hi, good afternoon. Thank you for taking my question. Some of your competitors mentioned unusually high utility expense; I think they used the word extraordinary. I was wondering how much that impacted your operation?

We saw that as well, so our utilities costs were up about 25% compared to last year. I mean if you look at our quarter-over-quarter declines, half of that had to do with labor costs plus utilities and other maintenance types of fixed costs that we'd see going up in the business. So yes, we did see that. You would expect to see some of the utilities and energy price cost trend down as you get into the winter times versus where they are at peak summer season when you try to cool off big buildings in Las Vegas.

Great. Thank you. And if I may follow-up longer-term how should we think about margins and the Casino Resorts versus Locals Casinos?

Look, I think that the Local Casinos will always operate at a higher margin than the resorts given just the footprint and the amount of fixed costs that are there. That being said, as occupancy improves at The STRAT, you see wide swings in terms of the performance and the resulting margin associated with that. So we expect that this quarter will be a low point from a margin perspective and as we move through Q4, you'll see improvement in the margins that we're reporting right now.

Great. Thank you so much for taking my question.

Thanks, Cassandra.

Thank you. Your next question comes from Omer Sander with JPMorgan.

Hey, Blake and Charles. Thanks for taking the question, just one from me. So pro-forma for the asset sale for the Rocky Gap facility on $400 million or so of cash on the balance sheet looking at the 3Q ending cash balance, and obviously the balance sheet is strong like you said, how do you think about additional non-core asset sales, if there is anything else in your portfolio that somebody comes to you at the right price for?

Yeah, look I mean, we're selling assets at 10 times EBITDA, we're trading at seven right now. So there is clearly a misallocation of valuation between private and public markets at this stage. We're a public company, so in our mind everything has a price. We're not active in terms of marketing any of our assets at this point in time. But if someone were to make this an attractive offer that reflects what we feel is the valuation of an asset, then we would transact.

Awesome, thanks. And I guess maybe a follow-up I know I said one, but do you think the ability for somebody to do so given the change in the financing environment is maybe tougher today than it was six months to 12 months ago for an asset that maybe has a million impairment instead of billions?

I think it depends, to your last point it depends on the size of the asset. I think when you're talking about financings in the billions that require large commitments, there is much more difficulty to do in this environment. But when you're talking in the hundreds of millions, there are several companies like our own that have ample liquidity to do those of their own balance sheet. And so I think those transactions still happen, still get announced, and will still be at multiples that are in excess of where public companies are trading at right now.

Thanks, Charles.

Thank you. The next question comes from David Bain with B. Riley.

Great. Thanks so much. I guess, first, given all the upcoming new events in Las Vegas and the return of growth from 2019 with conventions, are there going to be additional investments or repositioning of The STRAT to capture that additional flow, or trying to take share using the adjacent land? Anything strategically with The STRAT? And then if we can get an update on Atomic Gulf, I see a lot in the news, but I'd love to hear your take?

Yes, Dave, the answer is yes. We are continuing to program The STRAT to take advantage of what we see as a pretty robust calendar going forward for the broader city. We just opened a brand new food outlet a couple of weeks ago, an Asian outlet that is getting off to a very strong start. We do anticipate next year, the first half of next year to invest in approximately 550 more hotel rooms to bring them up to competitive position in the market, which will then put that hotel well over half of the room inventory in a new configuration and probably 80% of it will be in a configuration that is competitive with other properties along the Strip, given prior investment before our ownership, right before we took ownership. We are revamping our entertainment program as we go along, which is seeing significant improvement in terms of driving people to those events. You mentioned Atomic Gulf; they're projecting a Q3 opening next year, as what they're trying to do in regards to getting in front of F1, that would be the target to open up prior to that. We are making investments in our pool product next year, which we think will be well received. All of this, I think to your point is, we're seeing more stickiness on the property, which was our thesis in the beginning and we plan to target smart capital going forward at that property, to continue to bring that into a highly competitive mode with those on the Strip. Awesome. As a follow-up, considering the recent movements in the capital markets, it seems there hasn't been any impact to date. Blake, with your background in the casino business, are there specific economic indicators you typically watch for early signs? And Charles, within the casino business segments, are there any changes you would implement now in response to such an environment, or have you already taken steps to prepare and mitigate risk?

Yes, in terms of making changes, we're as busy as we've ever been right now. From that perspective, we haven't seen any significant issues; we've noticed some of the typical summer seasonality returning, and visitation along with spending levels should rebound as well. Our portfolio is adequately staffed, although it's important to note that our headcount remains 20% lower than 2019 levels. While the labor market is competitive, we are finding people now. We believe we are operating at a level that allows us to reintroduce amenities we want, although certain services, such as valet at some properties, are not returning. Currently, we feel we are well-positioned to capitalize on visitation, which will largely depend on factors driving traffic to the city, like increased sporting events, and we have a busy schedule for the first quarter, including ConAg and the regional tournament for March Madness. We are optimistic about the outlook, the business, and the structure we have in place.

Yes, regarding your question about my career in the industry and whether there are any indicators of what might be coming in the broader macro environment, the short answer is no. My experience shows that these situations often reflect the state of the macro environment. Over time, factors like concerns about recession, high commodity prices, or high gas prices can affect consumers. I believe the wealth effect plays a significant role in consumer behavior. It often depends on whether they still have equity in their homes and disposable income after accounting for inflation. Throughout my career, I have always been impressed by the resilience of the gaming consumer, especially in the local market. Las Vegas is a dynamic and rapidly growing community, experiencing significant population growth and extensive commercial and residential development. It has been one of the most vibrant cities in the world for the past few decades, and this trend is only accelerating. In light of the current uncertainty and the inability to pinpoint specific indicators within the macroeconomy, our focus, as Charles mentioned earlier, is to maintain a strong balance sheet. This ensures we are well-prepared for any outcomes. As of now, we aren’t observing any decline in activity, despite what is being discussed at a macro level. But if it happens, we are well-positioned. Fantastic. Thank you both.

Thank you. Your next question comes from Jordan Bender with JMP Securities.

Great. Thanks for taking my question. So you've been talking about some of the supply chain issues over the last couple of quarters and you also talked about some of the occupancy caps last quarter as well. I was wondering if you could just talk about how that translated over into the third quarter and kind of what you're seeing now into the fourth quarter as well?

Hi, Jordan. We previously discussed the cost increases related to our supply chain, particularly for acquiring certain food items and supplies, but this issue has eased significantly. However, prices remain elevated, reflecting the inflation we've experienced. In terms of occupancy, when comparing this July to the previous one, last July was our highest on record, while this October is expected to be the second highest. This highlights the tough comparison our property has faced year-over-year in July. Currently, we are not experiencing any significant supply chain problems, and we do not anticipate issues in the future.

Great. And then, I guess, housekeeping item, your corporate and other on the revenue line was up pretty significantly in the quarter, just anything to call out on that?

We actually did a deal where we actually sold some royalty rights related to old IT that Lakes Entertainment had dating back several years ago to Galaxy, which is a smaller equipment manufacturer. So there is a little bit of gain on that is embedded into that number.

Great. Thank you.

Thank you. The next question comes from Edward Engel with ROTH Capital.

Hi. Thanks for taking my question. We've heard from a couple of your Las Vegas competitors that some of the tightness in labor market may be starting to ease. Have you seen any loosening either related to hiring or even the wage inflation?

Yeah. So it has loosened. I think we are finding it easier on a relative basis to find people to staff, for example, our new restaurant at The STRAT fill up some of the areas in which we needed some additional labor. However, I think you're pretty much seeing us run at a level right now that we anticipate running going forward from a standard consistent basis. We are seeing, however, in particular classifications seeing wage inflation in particular security; those positions are high-profile and high-level kind of a position now that everyone is seeking out. So we do have pockets of higher inflation with certain positions, that's the bad news. The good news is we are seeing it easier to find people that are willing to work and perform within our properties.

Perfect. Then I recall last year you talked about 35,000 room nights missing at The STRAT relative to pre-COVID. Is it safe to assume just given the strength in October that's something you're kind of right back at where pre-COVID level was in terms of STRAT bookings?

We're still experiencing some mid-week occupancy challenges. In 2019, our property had an average occupancy rate of about 89%, while in October we saw rates in the low 80s. There's still some room for improvement, which we view positively. As the city continues to attract events and more guests arrive, we anticipate that the situation will improve, especially with the upcoming citywide concerts expected to boost bookings, likely closing out in the first quarter of next year.

Perfect. Thank you.

Thank you. The next question comes from John DeCree with CBRE Securities.

Hi Blake. Hi Charles. Thanks for taking my questions.

Hi John.

Two maybe a follow-up on your last point Charles, in terms of regaining that last little bit of occupancy at The STRAT. We've heard from some of your peers that a little bit of international business is coming back into Las Vegas. Are you seeing that? And can you remind us if that's a meaningful piece of that additional occupancy gap that you look to recover next year?

Yeah. Meaningful, probably the wrong word, but it's something; if you look at 2019, international is about 7% of the occupancy at The STRAT. So that adds that will definitely be additive. I think a strong dollar obviously hurts that traveler coming over here. So we'll just have to see how that goes and of that 7%, about half was from Asia and the other half was from Europe, where we got a very strong bid for that during the summer season. We hope that that comes back. It's not big; it's not meaningful to us, but it is something that's additive to close that gap.

That's helpful. Maybe one on the balance sheet, I know we've talked a little bit about this already but to ask it a little differently, as we look out to when you close Rocky Gap and your net leverage and can your cash balance be a lot closer to two times or less. And I think you said you want to stand at three, just your views looking ahead. I mean would you potentially kind of stay closer to two for a while given the potential economic impacts that we all keep talking about? And then on the reverse side of that, would you go above three times for the right accretive opportunity? And so kind of what are the parameters you'd flex the balance sheet up or down, say over the next 12 months or 18 months?

Look, I think as you pointed out, pro forma for the sale of Rocky Gap will be two times or less from a leverage perspective. I think for a company that owns its own real estate being three times or less is very, very healthy. Would we stretch above that if we found the right acquisition? I mean, it would be very close to that level. Again, keep in mind, if you have a target, you'd be using the leverage capacity of that target. We have excess cash on the balance sheet as well. So I think that you're not going to see this company be at four times, five times levered again. That's not in our lexicon right now.

Yeah.

…not in our lexicon right now.

Yeah. I think, John, I mean, it's a good question to try to lead us into what we stand sub-two or would we go above three. One of the prerequisites, if you will when we look at the potential opportunity, because we like owning the real estate and in that case to Charles's point it's a high hurdle for us to find an M&A opportunity although we do think there are maybe those available. But I think that real estate portion of it would drive number one, our interest, and number two, where we end up in terms of the price for that asset in terms of the balance sheet leverage. I think if all that comes together, and we think is the right opportunity we do it. But to Charles's point, you're not going to see us lever at four or five times again.

That's helpful. You guys have done a great job getting the balance sheet in such a great place. It's good to see all the flexibility. Appreciate the additional color on how you're thinking about that. Thanks guys.

Thank you, John.

Thank you. There are no further questions at this time. I would like to turn the conference back over to Charles Protell for any closing remarks.

Okay. Thank you all for participating. And we'll talk to you on our next quarterly call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.