Good afternoon, and welcome to the Golden Entertainment Inc. 2022 Third Quarter Results Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] 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 before – 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, Laughlin, we did not have any concerts in our outdoor compared to having two concerts in the same period last year. Last year was unusual event calendar as we typically did not have large outdoor events in Q3 due to…

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

Good afternoon, thanks for taking my question. Charles like -- 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. 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 weekend 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 looks like we're 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 at 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 kind of a slow build that we've been seeing from call it kind of 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.

Thanks. And then given your balance sheet and the cash proceeds after the Rocky Gap asset sale is completed, how are you thinking about what to do with the capital? I know in the past you've talked about your ability to look at a lot of things and you just haven't found something that you're willing to buy down on -- but can you just kind of remind us your priorities with that capital and kind of what you're seeing out there 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 where 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 did it impact 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 and you'd see going up in the business. So yes, we did see that. You'd expect to see some of the utilities in 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 the amount of fixed costs that are there. That being said, as occupancy improve its 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. You 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 maybe it was six months to 12 months ago for an asset that maybe has a million impairment instead of billions?

I think it depends that 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 difficult to do in this environment. But when you're talking in the hundreds of millions there is 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 no 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 [ph], 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 couple of weeks ago, an Asian outlet that is getting out of the gate very strong. We do anticipate next year, the first half of next year to invest in approximately 550 more hotel rooms to bring them up to a competitive position in the market, which will then put that hotel, well over half of the room inventory will be 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, is 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 self Strip.

Awesome. And I guess as a follow-up, just because of the moves in the capital markets the last couple of days back to kind of macro. I mean, clearly you're not seeing any impact to date. Hey, Blake, given your history in the casino business, are there any economic indicators you would generally look for something to tip you off? And then maybe, Charles -- or even within the Casino or business segments? Charles, if there are any changes that you would make today in case of that type of environment, or is that something that you guys have already sort of planned for and staged as a hedge?

Yes, I mean, in terms of making changes, like we said, we're busy as we've ever been right now. So from that perspective, we haven't seen -- we saw some of that summer seasonality come back and pick and then the visitation and business and level of spend will pick right back up. So from our perspective, the portfolio is appropriately staffed. I mean, keep in mind our headcount is still down 20% from 2019 levels. Labor we can -- it's competitive, we can find bodies now, but it's still a competitive labor market. I think we are operating at the level where we've added back the amenities that we'd like to, things like the phase for us are not coming back, valet at certain properties that's not coming back. So right now we feel like we're on the right track in order to harvest visitation, that is really going to be predicated on those drivers to the city, whether it's increased sporting events the citywide and as you get into next year, we have a very stacked calendar for Q1 when you think about, see as ConAg, what's happening in terms of March Madness and hosting the regional tournament here, so on and so forth. We're pretty excited about the outlook, the businesses and the structure that we have in place.

Yes, and in regards to your question about -- over my - the course of my career in the industry, is there any tells, if you will, or do we get tipped off as to what may be coming in the broader macro environment? My answer is -- the short answer to that is, no. My experience has been, these things kind of take on the personality, if you will, of what's going on in the macro environment. And over time that either wears and tears on the consumer in the term of drumbeats about recession or high commodity prices or high gas prices or whatever they may be, that just the wealth effect, I think, is more of an effect on our consumer than anything. Do they still have equity in their homes. Do they still have spendable income in their pocket after inflation? I will end with -- in my career, I've never seized to be amazed at the resiliency of the gaming consumer particularly in the local market. Las Vegas is a dynamic community, it's growing very rapidly with significant population growth, massive amounts of commercial and residential construction. It's one of the most vibrant cities and continues to be over the last two or three decades in the world. And that is only accelerating from what we see driving around talent here. So, I think, our answer to all of that uncertainty and not being able to really pick a particular tell out of the macroeconomy is, as Charles mentioned in his comments, to have a strong balance sheet right now is really what our focus is to be prepared for either way that this thing goes and right now to your point we're not seeing it tail-off to any extent that they're talking about on a macro level. However, if it does, we're in a good position.

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?

Yeah, so -- hi, Jordan. So, obviously, we talked about cost increases, from a supply chain perspective for us, in terms is getting certain food items, getting certain supplies, that has abated to a large extent, now the pricing is still high. So we've seen that price inflation that's happened there. From an occupancy standpoint, the disruption of the strategy is really about when you compare it to last July, which was for us the highest really on record and the second highest is actually going to be this October. So that just, again, goes to show we just said it really tough comp at that property, when you look July year-over-year, but again I don't think we're having any meaningful supply chain issues right now and we don't see that going forward.

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 -- we did a deal where we actually sold some royalty rights related to an old I mean, Lakes -- some 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 maybe 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 kind of a standard consistent basis. We are though however, in particular classifications seeing wage inflation in particular security is, one, securities are high-profile and a 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?

Yeah. We're -- I think we're still missing a little mid-week. If you look at where the property in 2019 and operated on average, roughly 89% occupancy, so when we're talking October were low 80%. We still have little bit of ways to go from that perspective, so we see that as upside. And again, as the city continues to book events, as radars continue to fill up, as nice continue to draw people, as we still continue to add citywide concerts we think that will that capital close in Q1 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 little bit of international business is coming back in to 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 addictive. 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 to its 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 two times or less. And I think you said, you want to stand at three, just to get 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 it four times, five times levered again. That's …

Yeah.

… not in our lexicon right now.

Yeah. I think, John, I mean, it's a good question to try to lead us into, 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 point it's a high hurdle for us to find an M&A opportunity although, we do think there is or maybe those available. But I think that real estate portion of it would drive number one, our interest and number two, where does that where do 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 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.