0:02 Good day and thank you for standing by. Welcome to the Golden Entertainment Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised today’s conference is being recorded. [Operator Instructions]. 0:28 I'd like to hand the conference over to speaker today, Joe Jaffoni, Investor Relations. Please go ahead.

0:36 Thank you very much Victor 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 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. 1:13 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 the website. We'll start the call with Charles, reviewing details of the 2021 fourth quarter and full-year results and a business update and following that, Blake and Charles will take your questions. 1:32 With that, it's my pleasure to turn the call over to your host Charles Protell. Charles, please go ahead.

1:38 Thanks, Joe. Our record performance continued in the fourth quarter with revenue of $282 million and adjusted EBITDA of $68 million, which was over 70% higher than Q4 2020 and almost 60% higher than Q4 of 2019. All of our properties experienced increased visitation and customer spend, particularly at The STRAT. EBITDA margins continue to expand as they increased approximately 500 basis points from Q4 of 2020, reflecting the measures we have taken to maintain a streamlined cost structure over the last 6 quarters since reopening. 2:16 The fourth quarter completed a year in which we generated more than $1 billion in revenues for the first time in our history, and we also achieved record annual EBITDA of $292 million. Despite our record performance, it could have been even better as our operations and customers were impacted by COVID restrictions, supply and labor shortages and reduced visitation that our team successfully navigated during 2021. 2:42 Before getting into more specifics in our press release this afternoon, we detailed new segment reporting that we believe provides investors with a better visibility to the different types of properties in our portfolio. We now break out the results for Nevada casino resorts, which are comprised of The STRAT and our Laughlin properties; Nevada locals casinos, which represents our 5 local casinos in Las Vegas and Pahrump; our Rocky Gap Casino Resort in Maryland and our consolidated distributed gaming operations, which combines Nevada and Montana. 3:15 Revenue for our Nevada Casino Resorts in the quarter rose 62% year-over-year to $105 million and EBITDA improved 145% to $37 million. EBITDA margin also improved nearly 1,200 basis points from Q4 of 2020. We saw a dramatic improvement in performance from our strip property with The STRAT revenue up 90% and EBITDA up more than 5x…

9:30 [Operator Instructions] Our first question from the line of David Bain from B. Riley. You may begin?

9:48 Great, thank you and thanks for the increased transparency with the segments and nice results. I guess if I could. I know that you mentioned several kind of positives on Nevada and some growth opportunities with the taverns there. But if we look forward and see that Golden captures a lot of the near-term and long-term positives with the portfolio already on the strip and the super hyper local, could future growth opportunities increase in Nevada with other pockets, perhaps in other areas in Nevada, just given the balance sheet strength and overall opportunities to leverage assets?

10:34 Yes, David, this is Blake. I think the answer to that is, yes. We have some white space up in Northern Nevada that particularly in a route could possibly be a growth opportunity for us. And as Charles mentioned, we're staying focused -- real focused on our current business. Our current portfolio to do anything outside of that would have to be a pretty meaningful transaction, and that could also occur in Nevada. So given that we designed or we put this portfolio together, if you will, which is Nevada-centric. I think you can infer that we would -- we would see growth in the future within this jurisdiction. Again, if it was in a meaningful format.

11:29 Okay. Great. Sorry for the background noise. I just have one more. Looking at the increasingly higher valuations for real estate, arguably, your land is worth around your market cap. I mean how do you weigh corporate action just given recent valuations there in Nevada and elsewhere?

11:52 Yes. Look, that's been top of mind, right, for everyone in the business recently as recent transactions have provided some pretty solid valuation metrics. As I've said in prior calls, I view our current real estate holdings as optionality for us as well as tangible and significant underlying value for our shareholders. And as you know, that underlying value continues to grow. With that, I'll say at this time, we're not considering anything other than maintaining our current real estate portfolio as it is. But that underlying value, I think, is significant, and I think it's getting more valuable as time goes on.

12:35 Yes, I would just add to that, I mean…

12:37 Okay. Go ahead.

12:38 You sorry, that asset class is becoming more accepted for REIT investors. And the last regional trade was at 17x and the one before that was at 15 a few months earlier. And now you're seeing new entrants rather than the traditional gaming REIT. So over time, you're going to find that I think that the gaming REITs trade up more in line with their peers, which means their cost of capital is lower and they can pay more for our real estate. So our thesis of owning real estate has so far paid out. I'd say never say never. But right now, we're going to be patient around the value and the backstop that provides for us relative to our current valuation in the market.

13:20 Awesome. Thank you, guys.

13:25 Thanks, David.

13:25 Our next question comes from line of Carlo Santarelli from Deutsche Bank, you may begin.

13:32 Hey, guys, thanks. And good evening. I heard a little bit Charles, in your prepared remarks, you talked a little bit about some of the impact of the variant in November and December. Obviously, some peers have talked about more so Strip peers have talked about the impact of the variance on the first quarter and things like that. Anything that you guys would flag as it pertains to your Las Vegas business or The STRAT, specifically in the first quarter?

14:00 Yes. We definitely saw that the first two weeks in January. And so that's where we saw a little bit of softness relative to where we've been in the past, similar to others on the Strip, we did see a pretty packed Super Bowl weekend and beyond and President's Day weekend looks to be the same. So we're encouraged about the balance of the year, but there is no doubt there is an impact in the beginning of January.

14:25 Okay. Great. And then just as it pertains to Laughlin and kind of the event calendar there as you look out over the rest of the year, do you believe at some point this year, maybe it second half will get back to kind of the normal cadence of events at that asset or that asset base, I should say?

14:45 Yes, Carlo, I think we're beginning to see that now. The answer to the third answer to your question is yes. We're putting -- our first major concept, I think, comes the first week in March. And so we're establishing already a pretty significant entertainment rotation down there that you'll see increase into the fall of this year. So that's already occurring, and we anticipate that will bring positive results earlier than the fall of next year, as I said, I think it will begin in March of this year.

15:17 Yes. And we're excited about the first tick back that we have that are coming up in the spring. And then it's too early for the bookings for the fall, but obviously, we're working on those, and we expect to have a full slate heading into the fall as well.

15:32 Great, thank you, guys.

15:34 Thanks, Carlo.

15:38 Our next question comes from the line of Omer Sander from JPMorgan. You may begin.

15:42 Hey, Blake and Charles, thanks for taking the question. First, when you look across your portfolio, and here, you're encouraging commentary on the STRAT, if any customer segments or additional amenities that you're missing today, that you're looking in online?

15:57 Yes. So as we stated early on in our capital investment in that property, we wanted to provide an environment that enabled our guests to stay longer and spend more versus the prior property, which was essentially transitory in terms of people coming and staying and visiting other parts of the city. So as we built out, let's call it, this Phase 1 of, I think, $100 million to $110 million in investments so far, that stickiness is showing results. We're seeing higher spend. We're seeing higher time on property. And as we move forward, I think you'll see us target very efficient capital that will allow more of that stickiness, which may mean we're seeing right now more food outlets are something that we need on that property, which is a good thing. It keeps people around. You're seeing more entertainment and new entertainment that we're providing at that property where we just did a modest upgrade to the kind of the public area outside of our showroom to enable a better experience. 17:05 We will continue to improve Top of the World. And over time, you'll see us continue to invest in a room product, including sleep, which we believe we can attract a little bit of a higher end customer now with the positives that we've seen with our early results out of our initial investments. So I would say food facilities, entertainment, you're aware of our atomic range golf program that we intend to put north of the property. We anticipate that coming or beginning in the second quarter of this year. So yes, we will continue to add on as we see that demand. And the good news is we're beginning to see that demand for these types of additions to the property.

17:50 And one thing that we're not going to chase is we're not going to chase building a big convention center adjacent to the property. So we feel that we're perfectly located next to the existing convention center. We feel that there's properties around us that could provide that. We're looking for more for the niche for the spillovers from that. And that's what we've seen, and that's where we've had a lot of success. So we're going to stick with that.

18:15 That totally makes sense. And one follow-up maybe on free cash flow. You generated $200 million of free cash flow for the year, about $6.50 per share, and you started buying back some of the stock and it doesn't look like there's any major CapEx as evidenced by your convention commentary there. How do you think about potential interest savings from this refi and then more broadly about capital return priorities going forward?

18:39 Yes. I mean, look, we think we could target roughly $15 million of cash interest savings. So you could put whatever cap rate you'd want on that relative to that $6.50 a share, and it ends up being substantial for us. I think that in terms of how we think about capital allocation, that free cash flow going forward, we view it as a balance. We're investing in our own properties, we're going to be focused on, like we said, getting through the $40 million that we have in the buyback authorization, and we'll also delever. So I think that now we're in the fortunate position where we get to make those choices opportunistically based on where we think we have the best return.

19:24 Thanks so much.

19:29 Our next question comes from the line of David Katz from Jefferies, you may begin.

19:32 Hi, afternoon, candidly, I was going – I would like to pursue, a little farther, some of the prior questions, one of which is, how would you have us think about, putting in some cap acts as a bogey, right, it sounds like there may be some more projects, whereas, we may have been thinking about pretty much of baseline maintenance number. before you mentioned something, right?

20:06 Yes. We finished up the year at about $30 million of CapEx, which was pretty much maintenance and quite frankly, probably a little bit light coming out of COVID, not quite sure where we were going to be. So I think going forward, we'll be somewhere between $40 million to $45 million on a CapEx perspective. And that will include that concept of two to three taverns that we talked about, it will include some new slot capital as we look out over the course of this year. But it's not going to include any major development projects. Those are -- that's not what we're pursuing.

20:38 Yes, David, to give a little more clarity on that. It's important -- I think important to be clear and understand we are committed to a disciplined and efficient approach to our capital. So in regards to, for example, The STRAT, when I was talking about food facilities or modest upgrades to entertainment areas. Those are $2 million, $3 million, $1.5 million type projects that are in that number that Charles just outlined. The atomic range, for example, as you're aware, is capital light to us in that we aren't putting any capital into we're simply using our real estate as collateral there. 21:17 So we are continuing a disciplined approach to our capital and there are no -- outside of rooms, which aren't coming this year, right? We are doing some design and maybe some modest remodel, but a full room kind of remodel project would take on a bit more in terms of capital. But just to reiterate, those things that I mentioned previously are not outside of this framework of capital that Charles talked about. So the $40 million to $45 million is, that's not a maintenance number. That's an all-in including some new taverns, etc, etc.

21:51 Yeah, our maintenance, our maintenance is $30 million to $35 million depending on what's going on in the year.

21:58 Got it. So, look, if I, just what whatever I might reasonably have in a model based on that. I mean, the cash really starts to pile up, pretty quickly throughout this year and certainly into next year. I mean, $40 million seems like an eyedropper fall at the end of the day.

22:24 Yes.

22:27 Okay. I think we're both looking at the same thing and so then the options become what, what, what to do with it and or when to do it?

22:36 Yes, that's right. And there's lots of ways to return capital to shareholders, primarily right through buybacks or dividends. And so look, and we do not. There's no -- there's no science to when you could go back to the Board for a buyback authorization, right? So it's not something that we need to do or wait until the end of the year to do. But we have authorization now we have a refi that we intend to pursue, and we want to maximize the execution of that refi. And in then again, we're going to pursue a balanced approach of investing in our existing properties, returning capital to shareholders, and maintaining a low leverage position. And we think that's the best path forward to create value.

23:18 Agreed one last one, if I may, I mean, we'd never be talked about these things in absolute terms. But, the prospect of some meaningful acquisition, that my redirect what we just talked about, my impression has always been that those probabilities are relatively low. Would you – is that still true?

23:42 Yes. I mean, look, we feel – I mean, the path we outlined is really the highest risk adjusted return we could create for shareholders. There's a lot of execution risk in those other paths. And quite, so the bar has to be very high, almost to the no brainer level for us to pursue those types of things.

24:03 Perfect. Thank you very much.

24:06 Thank you.

24:07 Our next question, offline is Chad Beynon from Macquarie. You may begin.

24:13 Good afternoon. Thanks for taking my question. Charles, you gave us some statistics on occupancy at The STRAT, just wanted to dig into that a little bit more. Is that still a mid-week versus weekend bifurcation? And we've heard some positive commentary from some of the other Strip property operators just in terms of when the convention business and some international could pick up. But I just wanted some clarification on that. And then when you think you can really start to get some good compression room nights midweek? Thanks.

24:52 Yes. It is predominantly the lack of midweek business that is creating that deficiency. We're still seeing the visitation that's on the weekend at the same or roughly the same rates. So I think that what we're looking forward to as we get into March and into April, NAV being the first major citywide convention that's coming to town. What that does for us in terms of being able to compress rates, not only during the week and sell more rooms and also as people stay over through the weekend. So I think it'll get this pretty visible here, as we get into Q2, what the attendees are for those conventions and what the impact is on the city, combined with what we're seeing is continued very strong retail demand, particularly when there are events that are happening in the city.

25:40 Gotcha. Thanks. And then on margins, sounds like you're pretty crystal clear in terms of the stability of that, but just wanted to ask about inflation, mainly from the labor side, full time employees, is that under control, kind of within your portfolio, understanding that it's, dynamic situation, given where the service industry has been over the past 3 to 6 months.

26:09 Yes, Chad, I think that is a static going forward. There is -- there will be, as volume picks up, as occupancies pick up and things like that, we will add cost to the business. But at the same time, we'll add revenue to the business. So we are pretty confident, very confident as a matter of fact, that we can maintain what would be outsized margins, if you will, versus historical 2019 and prior going forward. And I'll steal a line from someone I forgot who said it, but we're not on a diet here. We made a lifestyle change. So this lifestyle change will continue through full visitation, as Charles talked about, and we're confident we can maintain these outsized margins compared to historical.

27:07 Yes. We experienced big labor cost increases in June, July, we saw that through, and that's really been reflected fully in Q3 and Q4 numbers. I think you got to keep in mind that pre-pandemic, we had 8,000 employees, and now we have 6,300. So we're down over 20% in the labor force, doing more revenue and more EBITDA. So while those increases have been there, our overall labor costs in aggregate are down.

27:43 Thanks, Charles. Thanks, Blake. Appreciate it.

27:48 Our next question comes from the line of Edward Engle from Roth Capital, you may begin.

27:55 Hi, thank you for taking my question. We look at spending from how's it going? When you look at spending from your older demographics in the fourth quarter, call it ages 60 plus, is there any way to quantify how much room is left for that segment to recover versus 2019?

28:13 Yes. I'd say it varies by property. It's where we see that the most noticeably is in our Laughlin assets. So we're probably down, I'd call it, in a 10% to 15% of rated gaming revenue for the asset and most of that being attributed to that older demographic. So that's why we see it just as a huge opportunity for us going forward as they get more comfortable and begin to come back. I mean most of the other properties, we look at the local, you look at our taverns, distributed business, those are generally back. I think there's pockets and times you could point out to. But there's a real missing piece of real worth customers and business to us out of Laughlin that is starting to trickle back in. And we just see that accelerating through the year.

29:06 Great, thank you. That's helpful. And then if I kind of shift to your refinancing, and I guess, I know focus on the term loan you currently have, what's the cost, the cost sensitivity for that on rising interest rates and that gets with any upcoming refinancing? Would you kind of use that to maybe as an opportunity to lock in some longer fixed rates?

29:28 Like most term loans, including ours, they have a LIBOR flow. Even though they're a floating rate debt instrument, they have a floor in it, and our floor is 75 basis points. So it's in excess of where LIBOR is trading at right now by at least a 25 basis point margin. I think when you do a refi, you move to a new indicative rate and that rate is actually lower from what we're getting from those indicative perspective and a floor perspective. So again, net-net, that's why I'm comfortable talking about targeting that $15 million of cash interest savings. 30:03 And the bank market and the leveraged loan market right now is actually fairly strong in a rising rate environment versus the bond market. But look, we're working on that. We're working to get out as soon as we can, and there'll be more to report on that when we're done.

30:22 Terrific. Thanks and congrats on good quarter.

30:25 Appreciate it.

30:28 And I'm not showing any further questions in the queue. I’d like to turn the call back over to Mr. Protell for any closing comments.

30:36 Okay. Thanks, everyone, for joining us, and we look forward to updating you next quarter.

30:44 And this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.