Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Golden Entertainment, Inc. 2023 Fourth Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Please note that today's call is being recorded today, February 29, 2024. I would now like to turn the call over to Mr. Joe Jaffoni, Investor Relations. Please go ahead, sir.

Thank you very much, operator, 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 provision 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 the quarter 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. The fourth quarter concluded a transformative year for Golden Entertainment. During the year, we streamlined the portfolio by divesting noncore businesses at attractive multiples, reduced leverage to favorably refinance our credit facilities, and returned capital to shareholders through a special dividend and opportunistic share repurchases. To begin 2024, we completed the sale of our Nevada distributed business in January and established a quarterly dividend to initiate regular returns of capital to shareholders. In the fourth quarter, our operations generated revenue of $231 million and EBITDA of $48.8 million, bringing our total annual revenue to $1.1 billion and annual EBITDA to $222.5 million. Our fourth quarter excludes the operations of the Rocky Gap Casino Resort and the Montana distributed operations that we sold in the third quarter, which created the majority of our reported declines in consolidated revenue and EBITDA. Adjusting for these sales, revenue was down 1.6% and EBITDA was down 11% in the fourth quarter, with margins impacted by increases in labor and other costs over last year. Moving to the results of our continuing operations. For the quarter, revenue at our Nevada Casino Resorts was up slightly from last year, while EBITDA declined 8.8%. Unfortunately, we did not see any benefit from Formula 1's initial race in Las Vegas, with distressed November EBITDA down about $800,000 year-over-year. Despite the disappointing F1 experience for us, STRAT occupancy in Q4 was 79%, up 2% over last year, with the weekends full and midweek occupancy improving, but still lower compared to 2019. We are still missing 125,000 room nights at the STRAT when compared to 2019, which we see gradually returning as we complete renovations and add amenities to the property. In October, we completed the renovation of STRAT's original 118-room tower, the last of our major upgrades to the property, bringing our total renovated rooms to 1,300. Recently, we saw tremendous pickup during the Super Bowl, resulting in approximately $1 million in incremental room revenues over that weekend. After a few weeks of construction delays, Atomic Golf should be open in March, and we are excited to welcome this new amenity to the STRAT. In Laughlin, fourth quarter revenue was up slightly despite having one less major concert. While EBITDA declined 9%, primarily due to higher labor costs. In December, Laughlin's revenue and EBITDA showed positive growth over the prior year, and we continue to see signs of margin stabilization to start 2024. Entertainment is a big driver of performance for our Laughlin properties, and we are working to optimize our offerings to create more cost-effective traffic drivers to our venues over the coming year. In addition, our new bingo room, which caters to local residents, has been successful in growing midweek revenue at our Edgewater property. Q4 revenue was down 4%, and EBITDA was down 10% for Nevada Locals Casinos. The majority of the EBITDA decline was at our Arizona Charlie's Boulder property, where we experienced reduced room nights due to the loss of a meaningful group contract relative to last year. This led to lower margins in the fourth quarter compared to last year. However, sequentially, over the third quarter, the operating margin of our local casinos has improved. For Nevada Taverns, fourth quarter revenue was up 3% compared to last year and EBITDA was up 4% as we acquired four new taverns under a new brand and same-store performance remained stable. As of year-end, we had 69 tavern locations in Nevada with 66 of them in Las Vegas. We believe it could create a portfolio of 90 to 100 taverns without meaningful increases in corporate overhead and have targeted three to four additional locations to be added in 2024. The tavern model continues to generate attractive returns with the last eight taverns we have built or bought creating an average ROI of over 25%. In January of this year, we completed the sale of our Nevada Distributed Gaming business for approximately $240 million, including purchase cash. In Q4, our total distributed operations are down meaningfully, given that our divested Montana distributed gaming operations are included in last year's results. Between the sale of our Nevada distributed operations this January and the third quarter sales of our Rocky Gap property and Montana distributed operations, we received total proceeds of over $600 million, generating over $500 million of liquidity after taxes and transaction expenses. These proceeds have significantly improved our leverage profile and enhanced our strategic flexibility. We reduced our debt by over $60 million in Q4, bringing our total debt repayments to nearly $240 million for the year. Our outstanding debt at year-end consisted primarily of a $398 million floating rate term loan and $276 million of fixed rate bonds. We will repay the outstanding bonds in April, leaving us with a simplified capital structure of less than 2x net leverage and full availability under our $240 million revolver. Given our low leverage and liquidity profile, we are establishing a quarterly cash dividend of $0.25 per share, the first of which is payable on April 4. In addition, we have over $90 million remaining under our stock repurchase authorization that we will use opportunistically to further return capital to shareholders. Divesting our noncore businesses has concentrated our portfolio to wholly owned casinos and branded taverns in Southern Nevada, where we see some of the most favorable macro trends in the country. Going forward, our primary organic opportunities will come from improved performance at the STRAT and increased Tavern footprint and the entire portfolio benefiting from the continued strength of Nevada's economy. That concludes our prepared remarks. Blake and I are now available for questions.

Today's first question comes from Carlo Santarelli with Deutsche Bank. Please proceed.

Hey, Blake. Hey, Charles. So guys, you obviously have endured some of the labor costs through the back half of this year. As you look out to next year and all things considered speaking towards, specifically Nevada Casino, STRAT, etc., with the room refurbishments with Atomic Golf coming on in March, with kind of lapping some of the labor expenses, is there a scenario where margins could be flattish with some of the revenue uplifts coupled with some of the presumably at least lapping of expenses? Hello.

This is the operator. Can you speak the …

Can you repeat the question, Carlo?

Oh, sorry. Yes, everything went blank there. So I wasn't sure.

You are live.

We anticipate the margin trend to remain flat for the rest of 2024. As you mentioned, the renewal of the union contract at the STRAT towards the end of this year presents some unique challenges for that property. Overall, your comment is correct; we expect the margin trends to be flat moving forward.

Great. Thank you for that, Blake. And then if I could, obviously, putting in the dividend, a nice touch. Just in terms of your thought process around uses of the incremental capital with the leverage where it is, was there anything else that you guys perhaps considered? Or do you feel like you're sacrificing any flexibility with the dividend policy?

No. When we committed to the dividend, we did so with the expectation we could do the dividend as well as with our significant capacity remaining buyback stock. And ultimately, as we've repositioned the company with this deleveraging, we've repositioned for additional significant optionality. So from our perspective, we did this with a very cognizant understanding that we could do both and that the company is positioned with optionality for whatever may potentially come about in terms of M&A or other.

Got it. Thank you. Thank you very much.

Today's next question comes from Jordan Bender with Citizens JMP. Please proceed.

Good afternoon. Thank you for taking my question. In the slide deck, it mentions that you are comfortable increasing leverage to 3 or prefer to stay below that. Could you provide an update on your criteria for M&A? Are you primarily interested in single assets, or would you consider a small portfolio of assets? Thank you.

Yes, Jordan, it's Charles. Our target is to remain under 3. We won't increase our leverage just for the sake of it; we need capital opportunities that provide a better return than the alternatives of returning capital to shareholders. In that context, we do consider mergers and acquisitions and have looked at them. For us, targeting something with $50 million EBITDA or more makes the most sense. We won't focus on smaller deals due to the integration time, management effort, and their limited impact on the company at this stage. Therefore, our M&A focus will be quite narrow. We aim to find opportunities that are either single assets or portfolios located in the West, where the properties own underlying real estate. Overall, as Blake mentioned, we’ve structured our portfolio with the recent divestitures to prioritize returning capital to shareholders while still investing in our assets, positioning ourselves well for potentially accretive M&A opportunities that fit within those parameters.

Great. And then just on the back of the merger announced this morning from two of the suppliers, historically speaking, has there been any positive or negative impacts to your slot floor or you've been your purchasing budgets when M&A occurs in that space?

No. No, I think that's, from our standpoint, standalone on their end and no effect on our end.

Understood. Thank you.

Today's next question comes from Chad Beynon with Macquarie. Please proceed.

Good afternoon, Blake and Charles. Thanks for taking my question. Congrats on simplifying the story and everything here. I wanted to start with the STRAT midweek opportunities. I feel like that's something we've been talking about for a couple of years. In the prepared remarks, you mentioned that again. For '24, what's the convention calendar look like? Do you think that just overall visitation to the strip, which remains strong, we'll finally see kind of an inflection point for that midweek, which obviously leads to margin improvement. So any visibility into '24 midweek? Thanks.

Yes, I think you're correct. We have discussed this, and we are starting to notice some positive signs in the fourth quarter regarding midweek occupancy. As I've mentioned previously, 65% of our room occupancy is driven by online travel agencies, so we rely significantly on citywide events for midweek business. The calendar for citywide events appears strong. However, some of the larger hotel casinos have expanded their casino and convention spaces, especially new properties that have recently opened, which could create some competition for citywide events. Additionally, last year, we faced considerable disruptions in the spring and fall due to room renovations, which we estimate cost us around $5 million in hotel revenue. That disruption is now behind us, and we have the $75 million Atomic project. There are several factors we can control, including the upcoming Atomic Range Golf facility, which we believe will significantly boost our midweek traffic independently of the citywide events. We are optimistic about our midweek prospects. The weekends are fully booked, our rates are improving, and we expect midweek occupancy to increase through our initiatives, Atomic, and a strong calendar of citywide events.

And Chad, I would just add to that, we have seen improvement. If you look over the course of all of 2023, our midweek occupancy was around 66%. In our Q4 midweek occupancy, even despite F1, was at 72%. So we are seeing that improvement. That being said, in '19, our midweek occupancy was around 85%. And so that 125,000 missing room nights for the STRAT relative to '19, that's worth about $40 million in revenue to the property at just current spend levels that we are seeing. And so that's about $20 million in EBITDA. So that's where we really see the opportunity of the property. That's the reason we're making the investments we are and forming the partnerships we are with folks like Atomic and others. So we are excited now that we've got the bulk of construction behind us and Atomic opening to really see what the property does as we go through this year.

Thank you. And then with respect to eventually getting to a goal of 90 to 100 Taverns, we've heard of increased competition in the market. Charles, you talked about the returns. So it certainly sounds like a business. If you know how to do it well, it sounds like a good business to be in. But the new opportunities, the three to four in '24 and then beyond that, are these conversions from other operators that just don't have kind of the best practices that you have? Are you getting into new housing markets that are expanding in the Valley? Maybe just a little bit more color around the competition and kind of where these new opportunities can come from? Thanks.

Yes, Chad. As we divested from the third-party side of the business, we have continued to focus on our wholly owned Tavern business. This simplification has positioned us at the top of the market regarding new sites, particularly in what we refer to as AAA locations. We generally receive the first inquiry on these sites due to our size, scale, expertise, and successful tavern operations. We are very attuned to new Tavern sites throughout the Valley, especially greenfield sites that we excel at developing and constructing, which yield solid returns, as Charles mentioned. Occasionally, we see acquisition opportunities, and this year we have four locations coming on board from previous owners that align with our criteria and demographics. While there will always be such opportunities, our primary focus right now is on new sites, and we believe that the market will provide enough locations over the coming years to reach our goal of 90 to 100.

Thank you, both. Appreciate it.

Thanks, Chad.

Our next question is from John DeCree with CBRE Securities. Please proceed.

Good afternoon, Blake. Good afternoon, Charles. I wanted to revisit your comments about F1. I think it's fairly common. We've heard from a number of your peers, not on center strip, we are positioned to the ultra high-end. Curious your thoughts as to that event for next year and going forward, if there are some opportunities that you think could either change for the city overall or that you might be able to do differently to maybe maximize the contribution to the STRAT for next year and future periods?

Yes. I think it's a good question. We've had some discussions with other operators. We think there's, quite frankly, a lot of things that they could do to broaden the appeal in the audience for F1, not only to our customers but to locals here in Las Vegas. So things like selling individual day tickets instead of a package, potentially making the start times a little bit earlier allowing for dedicated casino areas, so it's easier access for our guests. So those are just a few things that we shared with the folks at F1, and we've talked about with other operators. But I think there is a general acknowledgment that the event needs to appeal to more than just high-end properties at the center strip that are connected to the event to make it a real success for all of Las Vegas.

Yes, there is a group of non mid-strip operators collaborating with F1 to enhance the city's engagement during the event. Although we did not see the benefits we anticipated, I believe it was a fantastic event for the city, especially in terms of its international visibility. Given what we know now, I would certainly choose to take one for the team again last year. Moving forward, we aim to be more involved in the activities surrounding that week or 10 days, not just the weekend. I believe this collaboration among the non mid-strip operators will be more successful in gaining traction compared to last year.

Great. That's good to hear. I think we've heard similar, Blake. I appreciate your thoughts on that as well. And then maybe as a follow-up question, bigger picture at the STRAT. So quite a bit of reinvestment lately, you've mentioned construction disruption last year. What's left in the near-term to do at the STRAT? And then perhaps I ask that in a bigger context of some of the land that you have around, obviously, Atomic Golf is activating some of that. But I think you've got quite a bit more that you could maybe utilize or monetize. You've talked in the past about maybe third-party partners. Curious if you've had any updated thoughts or further conversations on those opportunities since the last we kind of talked about it.

Yes, we have no major capital programs planned for the STRAT at this time. As Charles mentioned, we have 1,300 of our 2,400 rooms essentially brand new. The remaining 900 to 1,100 rooms are around 7 to 9 years old and are in good condition. The hotel is in a solid position. We are also undertaking an upgrade that we expect to complete by mid-March, which we believe will have a significant impact this year. Additionally, we're working on smaller projects like bar design to attract more traffic from the casino. In terms of disruptions, we are finished for this year. Regarding the adjacent property, we own about 6 acres across the street and have engaged in extensive discussions about various potential uses, aiming to enhance the STRAT, whether through a non-gaming hotel, apartment condos, or unique entertainment options. We are actively seeking ways to develop that property and similarly exploring opportunities with our other facilities and their surrounding areas.

Fantastic. That sounds great, Blake. Thank you very much.

And the next question comes from David Katz with Jefferies. Please proceed.

Hi. Afternoon. Thanks for taking my question. I wanted to go back to the M&A landscape and ask it a bit of a different way, which is the last time we talked about this 90 days ago, is just given how quickly the landscape has improved in a lot of areas for consumers, capital markets, etc. Is the market different today than it was 90 days ago and how so?

I think improving is definitely the word to be using, and I think you'll see it continue to improve as the financing market gets better. So I think that's all predicated, obviously, on interest rates. And so as we see the spend rate coming in people's anticipation of that. And plus, I think once folks settle into somewhat of the new margin environment, it's easier to predict cash flows of the businesses that we all have and where the consumer demand is. And so as long as that is stable and rates starting to come down, I think ultimately, you'll see more consolidation, not only in our industry but others.

Got it. So if I can follow-up a bit more specifically, are there more deals? Is the bid-ask different, narrower or the same? In what way would we note improvement?

So I think it's certainly narrowing. But again, it's about the expectations. So we've had situations in the past where people are trying to market assets off of 2021 numbers and people are buying assets on 2025 numbers. So that bid-ask is now narrowed in terms of the discussion. But so I think again, it comes down to where the financing markets are, and I think those ultimately only get better. I think the REITs play a large part also in M&A. And so the extent that their cost of capital improves as rates come down, I think that they will play a big part in advancing consolidation in the sector. And I'd anticipate that to happen over the course of this year.

Perfect. Thank you very much.

At this time, we are showing no further questioners in the queue, and this does conclude both our question-and-answer session as well as our conference. Thank you for attending today's presentation, and you may now disconnect.