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Golden Entertainment, Inc. (NASDAQ:GDEN) First Quarter 2023 Earnings Conference Call Transcript May 10, 2023
Golden Entertainment, Inc. missed earnings estimates. Reported EPS of $0.38 beat expectations for $0.54.
operator: Good afternoon, ladies and gentlemen. Thanks for your support. Welcome to Golden Entertainment’s First Quarter 2023 Earnings Conference Call. All participants are in listen-only mode at this point, and the question-and-answer session will follow the formal presentations. Please note this call is being recorded today. I would now like to turn the conference over to Joe Jaffoni from Investor Relations. Please go ahead, sir.
Joe Gaffney: Thank you very much, operator, and good afternoon, everyone. Answering the call today are Blake Sartini Blake, Company Founder, Chairman and Chief Executive Officer; and Charles Protell, Company President and Chief Financial Officer. On today’s conference call, we will be making forward-looking statements under the safe harbor provisions of the federal securities laws. Actual results may differ materially from those anticipated in these statements. Additional information regarding factors that could cause actual results to differ materially from these forward-looking statements is included in today’s press release and our filings with the Securities and Exchange Commission. We undertake no obligation to update these statements, whether as a result of new information or otherwise, unless required by law.
During the call, we will also discuss non-GAAP financial measures when discussing our results. You can find reconciliations to GAAP financial measures in the press release on our website. We will kick off the call with Charles to review the details of the first quarter results and business update. Afterwards, Blake and Charles will take your questions. With that, I’m happy to turn the call over to Charles Protell. Charles, please go ahead.
Charles Protel: Thanks, Joe. We generated $278 million in revenue and $62 million in EBITDA in the first quarter, revenue was up from last year but EBITDA was impacted by cost pressures as well as STRAT as our ongoing room renovations are gearing up for strong growth Get ready for your Las Vegas calendar later this year. Before we start our operations, we have some updates on our previously announced M&A activity. In late April, the Maryland Lottery Commission improved Century Casinos and acquired the Rocky Gap resort. We have one more step in Maryland, approval of VICI’s lease with the state, and then we’ll be able to close, which we still expect by the end of June. In March, we announced the sale of our distribution business in Nevada and Montana to J&J Gaming, the largest distribution operator in Illinois, which will become the largest distribution operator in the country after the transaction is completed.
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We continue to believe both transactions will close before the end of the year, and we look forward to J&J as our gaming partner for Nevada Tavern. Importantly, both transactions achieve our goal of divesting non-core businesses at attractive valuations, giving us Nevada’s owned casino portfolio and the state’s largest gaming saloon. Collectively, these transactions will generate net proceeds of more than $500 million, which will allow us to reposition our balance sheet to more effectively invest in our core assets, return capital to shareholders and evaluate strategic opportunities. In our segment results, Nevada Casino Resort revenue increased 4%, while EBITDA decreased 5.5%. STRAT’s revenue rose 9% and EBITDA rose 6%, despite a roughly 15% reduction in available rooms due to ongoing renovations.
Disruption due to offline guest rooms cost us approximately $2 million in lost EBITDA during the quarter, and we expect similar disruption in the second quarter prior to the completion of renovations. We originally planned to renovate the rooms throughout the year, but we were able to expedite construction and are willing to take a small hiatus now to complete the 537 rooms and pull renovations ahead of July 4th and the citywide event calendar in the fall. Atomic Golf construction is also progressing Going well, we expect our development partners to open this new facility by the end of the year. We had a challenging competition in Laughlin this year and we missed one Laughlin Events Center concert, resulting in 4,000 fewer event attendees for the quarter. Laughlin’s revenue was down 1% and EBITDA was down 13% as labor and utilities grew more than 10% from last year.
For the second quarter, we have a stronger events calendar in Laughlin, which we expect to drive increased visitation in the coming months. Our local Nevada casinos maintained strong year-over-year performance in the quarter with increases in both revenue and EBITDA. In our locals segment, Las Vegas surpassed our Pahrump hotel, which also has some highly rated guests. Our overall Nevada casino margins were down compared to the first quarter of last year, but up from the third and fourth quarters. As we said on our recent conference call, cost growth started to moderate in the third quarter of last year. So going forward, we expect our casino margins to be roughly in the range for the quarter. In Rocky Gap, revenue increased, but higher wage costs impacted EBITDA in the quarter compared to last year.
Rocky Gap will see higher traffic as summer begins and we expect the property to do very well for Century Casinos after closing. For the Nevada tavern business, first quarter revenue and EBITDA were down from last year, reflecting fewer taverns in the portfolio and lower same store revenue. Gross tavern revenue was down 3%, with margins significantly impacted by labor and other operating expenses, which increased 10% from last year. This is in part a result of rising wages for our back office staff, primarily due to increased demand for Strip labor. Despite current revenue and margin pressures, we expect long-term demographic trends in Las Vegas to support our tavern growth strategy. With the sale of our third-party distribution business, we shifted our focus to growing our leading tavern market share.
To that end, we now have six sites under contract to acquire and two agreements for future development sites. In addition, our newest bistro, which opened in April, is performing well and growing in line with our expectations. We expect the signed Tavern acquisitions to close by the end of this year or early 2024, depending on regulatory approvals, and expect them to add approximately $4 million in annualized EBITDA to our results. Our acquired development pipeline represents approximately 14% unit growth, and we continue to add key locations in the Las Vegas Valley. Total third-party distribution revenue was flat year-over-year, while EBITDA was down 13%. We identified some weaknesses in our third-party tavern partners in Nevada that were similar to our own Nevada tavern performance during the quarter.
We saw improved performance in April and May as the Golden Knights playoffs helped tavern traffic and spending. In Montana, we increased revenue and EBITDA by adding new customers, and our business remains a market leader. Go to our balance sheet. Our total debt outstanding was approximately $910 million and we ended the quarter with $161 million in cash and cash equivalents. Our net leverage ratio is maintained at 2.9 times, and we intend to maintain the net leverage ratio below 3 times in the future. We will use $175 million of the proceeds from the sale of Rocky Gap to reduce the first lien term loan that we plan to refinance in the second quarter. On a pro forma basis, our leverage ratio after the sale of Rocky Gap was approximately 2.4x.
Going forward, our pro forma net leverage ratio decreased to 1.4 times following the closing of the sale of our distributed business. With a targeted net leverage ratio of less than 3x, our capital structure will have significant scope to execute value creation initiatives, whether investing in our own assets, making acquisitions or more aggressively returning capital to shareholders. That said, in the near term, we will focus primarily on closing our previously announced transactions, modestly reinvesting in our core business and maintaining our low leverage. Following the sale of Rocky Gap in our distributed business, we will transition the company to be 100% Nevada focused, with our own strip and local casino and leading Las Vegas gaming saloon platform.
These assets will continue to benefit from long-term visitor and population growth in Las Vegas, which also maintains the most stable regulatory and competitive environment in the country. Regardless of the future economic outlook, we will have one of the strongest balance sheets in the industry, allowing us to capitalize on potential acquisition opportunities in our core markets and build more regular capital returns to our shareholders. This concludes our prepared remarks. Blake and I can now answer questions.
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