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Operator: Good day, and welcome to the Golden Entertainment Incorporated 2022 Fourth Quarter Results Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Mr. Joe Jaffoni of Investor Relations. Please go ahead, sir.

Joe Jaffoni: Thank you very much, 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 this 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 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 2022 fourth quarter results and a business update. Following that, Blake and Charles will take your question. With that, it’s my pleasure to turn the call over to Charles Protell. Charles, please go ahead.

Charles Protell: Thanks, Joe. We had another solid quarter, the second highest Q4 revenue and EBITDA in our history, surpassed only by Q4 of 2021. For the quarter, we delivered revenue of $280 million and EBITDA of $64 million, lower than last year but still significantly higher than the fourth quarter of 2019, with revenue up 16% and EBITDA up 48% compared to that period. For the full year 2022, we generated record revenue of over $1.1 billion, up 2% to the prior year, highlighting strong customer spend at our properties since the pandemic. We generated full year EBITDA of $267 million, our second highest annual EBITDA on record other than 2021. Relative to 2021, margins were largely pressured by higher payroll expense and other inflationary costs.

However, relative to 2019, our operating margins maintained a 500-basis-point improvement, and our full year EBITDA is up 45%. Before getting into more specifics on our operations, in our press release, we detailed new segment reporting that now breaks out the results of our Nevada-branded tavern operations. The results of our third-party distributed gaming operations for both Montana and Nevada will continue to be reported within our Distributed Gaming segment. This breakout provides further detail on the largest branded tavern portfolio in Las Vegas and highlights that the vast majority of our total revenue and EBITDA is derived from our owned casinos and taverns. Within our segment results for Q4, we saw mostly flat revenue comparisons to last year with $3.5 million of additional property level labor costs being incurred across the portfolio.

These increases were mostly in the Nevada Resorts segment, where we had to make the largest adjustments to keep up with the labor market at The STRAT and our 2 Laughlin assets. Further contributing to the lower EBITDA in our Nevada Casino Resorts for the fourth quarter Laughlin had 1 less concert, resulting in approximately 10,000 less visitors to our 2 properties compared to Q4 2021. For the first half of 2023, we have already booked 11 events, which should drive more visitation to our Laughlin properties than in 2022. At The STRAT, revenue increased 3% for the quarter, while occupancy remained comparable to Q4 of 2021 at 77%. In addition to increased labor costs, margins were negatively impacted by decreased gaming revenue, which was driven by our decision to move away from volatile local .

We have since focused on building out a more diverse player database and attracting higher spend levels from retail guests. We have seen some recent success in these efforts with new card sign-ups up 47% in January. We still see a lot of potential for improvement at The STRAT. For the full year of 2022, we’re still missing 144,000 midweek room nights relative to 2019 when the property maintained occupancy close to 90%. This implies potentially over $30 million of additional revenue and almost $20 million of EBITDA based on our current midweek room rates, guest spend and margin flow through. We expect to get closer to 2019 occupancy levels in the back half of 2023 with the continued recovery of conventions and international travel as well as the anticipated benefit from Formula One.

Our Nevada local casino saw continued strong year-over-year performance, increasing revenue and EBITDA over last year’s record Q4 numbers. Margins remained at 48% for the quarter, which is up slightly from last year and still up 1,400 basis points over 2019. Our improved local performance is a testament to the continued resilience of the economy and a stable promotional environment in Las Vegas. For our Nevada tavern operations, fourth quarter revenue and EBITDA was down from last year, reflecting 64 operating in Q4 compared to 66 last year as we pruned some underperforming locations from the portfolio. In addition, we saw some extended seasonal trends as our top tavern players resume travel in the fall for the holidays that we hadn’t seen coming out of COVID and in 2021.

We intend to continue to grow the tavern portfolio and believe we can get 90 to 100 locations without adding additional infrastructure costs. We will target at least 4 to 6 new taverns per year. And to that end, we have agreed to acquire 4 taverns, have 1 additional tavern under construction, all 5 of which will be added to the portfolio this year. Total third-party distributed revenue was flat compared to last year, while EBITDA increased slightly. Our third-party distributed operations spanned over 1,000 locations across all of Nevada and Montana, and our results reflect our market leadership in the states where we operate and the stability of the distributed model even in an inflationary environment. Turning to Maryland. Revenue and EBITDA were both down to prior year, primarily due to weather impacting visitation in December.

We have seen visitation rebound in January with more moderate weather and with the implementation of our new hotel revenue management system for the property. Last August, we announced the sale of Rocky Gap for $260 million and expect the transaction to close by the end of the second quarter. Moving to our balance sheet. In Q4, we repaid $25 million of our term loan and retired $2 million of our unsecured notes, taking our total debt repayments to $116 million in 2022 and nearly $250 million over the last 2 years. Currently, our total debt outstanding is approximately $910 million, and we ended the fourth quarter with $142 million in cash and no outstanding borrowings on our $240 million revolver. We repurchased 329,000 shares of common stock in the fourth quarter and 1.1 million shares during the full year.

As of December, we had $61 million remaining under our current share repurchase authorization. Our current net leverage is 2.9x, and we intend to maintain our net leverage below 3x going forward. To support that target, we anticipate using the majority of the proceeds from the sale of Rocky Gap to reduce debt. We believe maintaining low leverage and owning our own real estate provides maximum flexibility to invest in our assets, explore strategic alternatives and return capital to shareholders. In 2021, our CapEx totaled approximately $30 million as we were cautious on spending coming out of the pandemic. For 2022, we finished the year at about $50 million of CapEx, which included about $10 million spent at The STRAT for renovated suites, a new Asian restaurant and some prepurchases for anticipated CapEx in 2023.

So our normalized CapEx for the portfolio is about $40 million per year. In 2023, we intend to renovate more rooms at The STRAT to provide a more competitive product in order to capture demand from group business and citywide events like F1 and the Super Bowl. We are currently renovating additional 537 rooms, hallway corridors in our pool areas, which should be completed in the first half of the year at expected cost of approximately $30 million in 2023. This will bring the total rooms and suites that we have renovated to 1,200 out of 2,400 rooms at the property, with most of the others having been updated prior to our acquisition of The STRAT in 2017. In addition, Atomic Golf, a new $75 million 100-bay golf entertainment facility is under construction on our excess land behind The STRAT that we are targeting to opening in Q4.

For Atomic Golf, we are not contributing cash capital to project. We are only contributing a land lease in exchange for revenue participation in the project. We expect our 2023 STRAT projects to add approximately $10 million of annualized EBITDA to the property when complete. Additionally, we are actively pursuing new tavern opportunities in Las Vegas. Taverns are uniquely positioned to benefit from the growth of Las Vegas since we can target adding locations to areas with upcoming residential development with a modest investment. For 2023, we anticipate spending approximately $20 million on identified tavern acquisitions and development sites with $11 million already allocated to the 5 locations previously mentioned, which we acquired and are building in 2023.

We anticipate a 20% to 25% return on our new tavern investment. We expect to spend a total of $90 million to $100 million in CapEx for 2023, including the growth projects at The STRAT and our targeted additional new taverns. We will be able to reduce CapEx as we did post COVID should we see a material slowdown in the business environment. Given the significant and sustained margin improvement we have achieved in our operations, the strong outlook for visitation in Las Vegas and the healthy economic conditions of Southern Nevada, our company is well positioned for future success. That concludes our prepared remarks. Blake and I are now available for questions.

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Operator: And the first question will come from David Bain with B. Riley.

David Bain: Great. I guess, firstly, on the labor increases in 4Q that you noted, just to be clear, the kind of higher profile union issues that some of The Strip chains will be negotiating later this year, that doesn’t directly impact you, correct? You’ve already seen that impact?

Charles Protell: There will be a derivative of that from one of our assets. That’s The STRAT. We do have Culinary Union within that one property but not the others. So it is an important but smaller part of our labor workforce and some of those other companies you mentioned.

Blake Sartini: Yes. And just maybe for further clarification, David. I think Charles has mentioned our contract with the union labor force at The STRAT is a hybrid between a strip contract and a downtown contract. So in the past, our terms have not mimicked what they do on the South Strip.

David Bain: Okay. Great. And kind to choose one here. I guess it seems like some of the new potential markets for distributed expansion have stalled a little bit. Maybe North Carolina is still on. Maybe I’m wrong there. If you could help with that. But beyond jurisdictional growth, after the Rocky Gap sale, you’re almost all in Nevada Casino and the Nevada tavern focused. You reviewed growth initiatives and taverns. How do you view that segment, the distributed segment strategically at this point? I mean there’s M&A appetite out there. Resiliency valuations are reflected maybe in other companies, but I’m not sure it’s reflected here or appreciated. So do we look to grow this business? Are there alternatives? Just kind of a big picture question on that division if I could.

Blake Sartini: Yes, it’s a great question. And we share your observation obviously that the growth in these new jurisdictions has not met the pace at which we had originally anticipated. And so if you look at our portfolio of distributed assets, we actually operate in 2 distinct kind of rails if you will. One is the third-party distributor in which we support non-owned or separately owned locations with our route operations. The other side is our wholly owned tavern operations here in Nevada, which, frankly, could be transported to other states, which are currently involved in Distributed Gaming, whether it be Illinois, Pennsylvania or others that we’re aware of. That side of the model can certainly be transported. Specifically, to answer your question, we are pursuing, we do believe, the growth in the tavern side of the portfolio, where we actually outperformed in terms of machine work per units and so on, is an area that we are extremely focused on, particularly obviously here in Nevada with the leading franchise.

And as well, should Distributed open up — the pace continues to open up or the pace begin to quicken in terms of new jurisdictions opening, we would see us potentially looking at that side of the business to pursue some — the growth in that Distributed business. So good question. We are focused on it. We’re committed to it, and we like where we’re at in our wholly owned side of the distributed portfolio.

Charles Protell: Yes. And I would just add quickly to that. Like if you look at the third-party results in the fourth quarter, they’re very stable to up. So I mean that really highlights the resiliency of that model, and we agree with you. It’s been underappreciated in the public markets.

David Bain: Yes, I agree.

Operator: Next question will come from Carlo Santarelli with Deutsche Bank.

Carlo Santarelli: So I’m kind of going to just go along the same lines as David’s prior question, but can’t help but notice, obviously, you guys decided to kind of split out the Nevada taverns from Distributed Gaming. Obviously, more disclosure is more helpful. But strategically, is there anything to the rationale of splitting it out right now? And when you think about the tavern business as a feeder for you guys throughout Nevada, is that maybe a little bit more strategically sensitive than we give a credit for?

Charles Protell: Yes, I think so. Look, I mean, the taverns, I mean, obviously, the portfolio is predominantly in Las Vegas. And if you look at the size and scale of that business, it’s effectively a local — good-sized local casinos that’s complementary to the rest of our portfolio. I mean, we treat them as such. We market to our players as such. We have them integrated with our casino rewards programs. So again, I think from our perspective, I think there’s certainly a difference between the businesses that we control and the businesses that we service for others. We try to do both very, very well. But ultimately, the third-party Distributed business, if you look at a property EBITDA perspective, it’s less than 15% of the overall operations.

It’s important it is, quite frankly, the start of this public company that we have here today. But when you look at the rest of the portfolio, where we see the growth opportunities versus the maintained opportunities, it’s more in the other business units than in — for us — than within our third-party distributed business that sits within the states we’re operating in.

Carlo Santarelli: Great. And then just to rehash the color you provided, it was $30 million on The STRAT project. It was $20 million on the taverns and then that incremental $40 million to $50 million circles back to the kind of regular way maintenance that you’ll spend. Is that accurate to get to that $90 million to $100 million?

Charles Protell: Yes. Yes, that’s right.

Operator: Your next question will come from Cassandra Lee with Jefferies.

Cassandra Lee: Charles, you just said that owning your real estate gives you maximum flexibility. But given the misallocation of valuation between kind of private market, public marketing and kind of the OpCo, PropCo how are you thinking about potentially pursuing sale leaseback?

Charles Protell: Well, right now, we think about it as optionality. I mean I think if you look at us as well as some of our peers, owning your own real estate provides you with the cash flow to actually execute on investing in your own assets, reducing leverage as well as returning capital to shareholders. I think that if we were potentially a larger scale portfolio or we were looking at strategic M&A, where synergies far outstripped the incremental rent increases that you’d see on an annualized basis, that it’d be something that we would be pursuing more earnestly. That being said, I think there’s an ultimate backstop to the value of the company that’s embedded in the underlying real estate. And I think that over time to the extent that we are not able to see the appreciation of the value in our shares from a multiple expansion perspective, it’s something that we will consider more strongly.

Blake Sartini: Yes. And I’d like to just add to those last few comments to Charles, as I have said in my previous comments on previous calls and reiterate what Charles said in his prepared remarks, I believe owning our real estate offers us the ultimate flexibility. And by targeting a balance sheet that’s less than 3x levered, gives us plenty of opportunity to drive value within this company in other ways while maintaining that flexibility of owning our own real estate. So I think Charles outlined that very well. Obviously, there — as Charles said, we look at it as kind of optionality or a backstop if you will. But at this point in time, we believe where our balance sheet sits, there’s significant ways for us to drive value with this company without monetizing the real estate at this point.

Cassandra Lee: Great. And if I may just have a very quick follow-up since you mentioned strategic M&A, can you tell us what — how do you observe — has there been any change in kind of the industry’s M&A dynamic? Has valuation come down at all or went up since we last spoke?

Charles Protell: I think that the private valuations are still disconnected from the public valuations. I think you see private transactions, i.e., the private marketplace taking a longer-term view around value that we’re seeing in the public markets right now given where multiples are in the sector. . And that is still continuing. I think you’ll still see transactions that are accretive or at premiums to where the current sector trades. I think there will still be consolidation in the sector despite higher rates as strategics and private partners take a longer-term view on the strength of this business.

Operator: The next question will come from Ricardo Chinchilla with Deutsche Bank.

Ricardo Chinchilla: You guys mentioned that some of the proceeds from the sales will be used to take out debt. Have you guys decided how the capital structure moves towards the end of the year? Do — you guys are planning on taking out the bonds and changing the fixed versus variable debt mix? Or how are you guys thinking about any potential debt repayment?

Charles Protell: Yes. I mean, look, I think it’s a little early for that. We’ve certainly been thinking about it quite a bit. I think we’ll have more color around that when we have more visibility on the specific timing on the closing of Rocky Gap. I would say that having a less-than-3x-levered company doesn’t make it a discussion about can we do a refinancing in any way, shape or form we want to, it’s a question about what is the optimal refinancing for the company at the right time.

Operator: The next question will come from John DeCree with CBRE Securities.

John DeCree: I wanted to circle back to The STRAT. Charles, I think you gave a little bit of color in your prepared remarks. But if you wouldn’t mind rehashing where occupancy was in 4Q, I think you maybe said high 70s and where ’19 was and your kind of view on getting back to there. This year, we obviously have a pretty busy convention calendar in 1Q. So just kind of how you’re looking at the bridge and occupancy recovery and maybe some forward-looking commentary on your bookings for what looks like a pretty busy convention season in 1Q.

Charles Protell: Yes. I’ll give you an overview of that, and Blake will add to that, I’m sure. So I think when we — what the comments I mentioned were that we ended up at about 77% occupancy for the quarter, very comparable to last year. But where you really see the difference is weekend versus midweek. So we were basically full on the weekends and running less than 70% occupancy during the week. I think from a rate perspective, we feel pretty comfortable about where we are and we like where we’re heading. And this leads into why we feel that we should be renovating more rooms. We’re getting a $15 to $20 premium on those rooms that were renovated. We saw that through the first batch. And so again, we think in order to prepare for these big traffic drivers that everyone is well aware of from F1 to Super Bowl to more conventions to March Madness coming into town that we need to have a competitive product to benefit from that.

The specifics around what are missing are 144,000 midweek room nights relative to 2019. And so if you just take the midweek rate, which is roughly around $110, including resort fee, average spend per visitor, assuming double occupancy and run that type of flow-through through the various components, whether it’s gaming revenue or F&B, that is where we see $30 million in revenue and $20 million EBITDA opportunity just to get those folks back. So does all of that matriculate in this year with the convention calendar and those drivers? We certainly hope so. But even if we get half of that back, it’s meaningful of the property in addition to those growth initiatives that we just noted.

Blake Sartini: Yes, I think, obviously, what Charles is saying is we’ve been focused on what’s going on citywide to produce more of our room bookings going forward this year but also a key component to what we’re doing. And I think you have to look at The STRAT, what we’re doing at The STRAT kind of in components as we build on each component. But the capital investment as you recall, when we first took ownership of that property, there was little or no bookings — direct bookings happening through the property. It was all OTA and online in addition to what to the city of Las Vegas and what’s happening here. We are — we have instituted a very robust casino marketing program, a very robust direct communication program with our guests that we’re now generating through these investments.

And I think that component, over time, will continue to build, in particular, help us midweek. In terms of a time frame, that’s hard to say. I mean, we know what the special events are coming and the activities that are coming in Las Vegas. Those are pretty easy to predict. But the midweek is obviously where we’re focused and we believe internally a large part of our success lies within ourselves and how we marketed that property as we begin to build out amenities that attract people for longer stays and longer time on the property.

John DeCree: That’s helpful. I think you guys both covered most of my thoughts — questions there. But maybe one. When you’re full on the weekends, are you seeing the ability to push rate comparable to what we see in the LVCVA monthly data? Or do you need kind of mid-week occupancy to come back to kind of help raise rates across the whole property on all days?

Charles Protell: No, we are pushing rates on the weekend. I mean, so that is comparable to what we see in the LVCVA. This property will potentially hurt more than others on the south side of The Strip when that midweek and convention group business isn’t filling up the convention center, isn’t filling up the entire town. So we will probably hurt more in the midweek than they will, but we could actually flex just as much or more on weekends with the room base.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Charles Protell for any closing remarks. Please go ahead, sir.

Charles Protell: Thank you all for joining the call. We’ll speak with you for our Q1 results.

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