Golden Entertainment reports Q3 2018 results

Golden Entertainment, Inc. today reported financial results for the third quarter ended September 30, 2018. The Company also announced that its Board of Directors has authorized the repurchase of up to $25 million of its common stock.

Blake L. Sartini, Chairman and Chief Executive Officer of Golden Entertainment, commented, “Despite strong performance from our Laughlin and Las Vegas Locals properties, we experienced a challenging third quarter primarily due to weaker than expected results at the Stratosphere and at chain store locations in our Nevada distributed gaming business. We remain confident in the Company’s long-term prospects given the overall health of the Las Vegas economy, the expected benefits from our investments in the Stratosphere, anticipated near-term improvements with our Nevada distributed business and our pending acquisition of two additional casino resorts in Laughlin.”

Mr. Sartini continued, “We are seeing improving trends early in the fourth quarter and expect stronger performance in 2019, particularly at the Stratosphere following the renovation of over 750 rooms and the opening of our new sports book, lounge, and tap room concept. We also expect the closing of the acquisition of the Edgewater and Colorado Belle Resorts to solidify our market-leading position in Laughlin and be immediately accretive to our free cash flow. Golden Entertainment remains well-positioned for future growth from these opportunities, as well as the expected addition of six new wholly-owned taverns over the next twelve months and the integration of our player database with a one-card solution across both our casino and distributed gaming businesses.

“Based on the belief that our prospects to create long-term shareholder value are not reflected in our current valuation, our Board has authorized an initial $25 million share repurchase program.”

The Company reported third quarter revenues of $210.3 million, up from $107.7 million in the third quarter of 2017. Net loss for the third quarter of 2018 was $3.1 million or a loss of ($0.11) per diluted share, compared to net income of $8.6 million or earnings of $0.36 per diluted share in the third quarter of 2017. Adjusted EBITDA was $38.1 million for the third quarter compared to $15.1 million for the third quarter of 2017. Adjusted EBITDA was down 7.1%, when compared to Pro Forma Combined Adjusted EBITDA of $41.0 million for the third quarter of 2017, which includes the results of American Casino & Entertainment Properties, LLC (“American”). American was acquired in October 2017.

Casinos

Casino segment revenues grew to $128.8 million in the third quarter of 2018 compared to $27.4 million in the third quarter of 2017. Including the results of American, Pro Forma Combined Revenues would have been $134.3 million in the third quarter of 2017. Casino segment Adjusted EBITDA grew to $37.7 million compared to $8.9 million in the same quarter of 2017. Adjusted EBITDA declined 7.7% when compared to the segment Pro Forma Combined Adjusted EBITDA of $40.8 million for the third quarter of 2017, which includes the results of American.

For our Nevada Casinos, third quarter revenues were $110.1 million, down from $115.6 million compared to Pro Forma Combined Revenues in the prior year period, which includes the results of American, while Adjusted EBITDA of $31.5 million was down 8.8% from Pro Forma Combined Adjusted EBITDA of $34.5 million for the segment in the prior year period. The decline was primarily due to weaker than expected performance at Stratosphere partially offset by strength in both our Laughlin and Las Vegas Locals properties.

Our Rocky Gap Resort in Maryland generated revenue of $18.8 million in the quarter, while Adjusted EBITDA declined 1.6% to $6.2 million, compared to the prior year period.

Distributed Gaming

Distributed Gaming segment revenues increased to $81.2 million, up 1.3% from $80.1 million in the third quarter of 2017. Adjusted EBITDA declined 6.8% to $10.4 million from $11.2 million in the same period of 2017.

In our Nevada distributed gaming business, total revenues during the third quarter were $65.5 million, a year-over-year increase of 0.4%. Adjusted EBITDA of $8.4 million was down 8.2% compared to the same period last year as EBITDA growth in our wholly-owned tavern portfolio continued to be offset by weaker performance from our chain store locations.

Our Montana distributed gaming business generated revenues of $15.7 million in the third quarter, an increase of 5.4% compared to last year. Adjusted EBITDA for the Montana distributed gaming business was $2.0 million for the third quarter, flat to the prior year.

Stratosphere Renovations Update

Stratosphere renovations began in May 2018, including room renovations, the installation of state-of-the-art exterior signage and lighting, as well as the addition of a unique tap room concept connected to a newly renovated sports book and lounge that will be completed in the first quarter of 2019. By the end of 2018, the renovation of 317 rooms will be completed. The Company plans on renovating over 450 additional rooms in 2019 as well as additional food and beverage outlets and a portion of the casino.

Golden Entertainment’s total budget for the Stratosphere renovations continues to be $140 million, with the full project expected to be completed in 2021. When complete, the Stratosphere will have remodeled 1,133 of 2,429 rooms, refreshed the interior and exterior of the property, provided guests with new premium food and beverage outlets and added attractive group meeting space. As of September 30, 2018 the Company had spent approximately $17 million on Stratosphere renovations.

Balance Sheet & Liquidity

As of September 30, 2018, the Company had cash and cash equivalents of approximately $132.4 million and total outstanding debt of approximately $999.7 million, and the Company’s net leverage ratio (total debt less cash to Adjusted EBITDA for the 12 months ended September 30, 2018) was 5.3x. There continues to be no outstanding borrowings under the Company’s revolving credit facility which, today, was upsized to $200 million.

Share Repurchase Authorization

The Board of Directors has authorized the Company to repurchase up to $25 million shares of common stock, subject to available liquidity, general market and economic conditions, alternate uses for the capital and other factors. Share repurchases may be made from time to time in open market transactions, block trades or in private transactions in accordance with applicable securities laws and regulations and other legal requirements, including compliance with the Company’s finance agreements. There is no minimum number of shares that the Company is required to repurchase and the repurchase program may be suspended or discontinued at any time without prior notice.