Joe Jaffoni - Investor Relations Blake Sartini - Chairman, President and Chief Executive Officer Charles Protell - Chief Strategy Officer and Chief Financial Officer.

David Katz - Jefferies John DeCree - Union Gaming Edward Engel - Macquarie.

Good day, ladies and gentlemen, and welcome to the Q1 2018 Golden Entertainment Inc. Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. It is now my pleasure to hand the conference over to Joe Jaffoni, Investor Relations. Sir, you may begin..

Thank you, Brian, and good afternoon, everyone. By now everyone should have access to our first quarter 2018 earnings release, which can be found on the company's website at www.goldenent.com, under the Investors section.

Before we begin our formal remarks, we need to remind everyone that the discussion today will include forward-looking statements within the meaning of the federal securities laws.

These forward-looking statements, which are usually identified by the use of words such as will, expect, believe, anticipate, should or other similar phrases, are not guarantees of future performance.

These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from our corporate working statements, and therefore, you should exercise caution in interpreting and relying upon them.

We refer all of you to the risk factors in our recent SEC filings, including our most recent Form 10-K as updated by our subsequent quarterly reports on Form 10-Q for a more detailed discussion of the risks that could impact our future operating results and financial condition and other forward-looking statements.

During today's call, we will discuss non-GAAP financial measures, which management uses and believes are useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.

A reconciliation of these measures to the most directly comparable GAAP measure is available on our first quarter 2018 earnings release. And as highlighted in today's earnings release, Golden Entertainment's first quarter results reflect adoption of new revenue recognition standard that became effective as of January 1 of this year.

Golden's prior year first quarter results were also presented in accordance with the new accounting standard. And today's discussion of Golden's first quarter results will reflect this new accounting standard.

Golden also provided a supplementary information accompanying the earnings release, combined income statements for the first quarter of 2017 for Golden and American Entertainment.

On the call today is Blake Sartini, the company's Founder, Chairman, President and Chief Executive Officer; and Charles Protell, the company's Chief Strategy Officer and Chief Financial Officer. Blake and Charles will review the quarterly results, recent strategic initiatives and their outlook, after which we'll open the call to questions.

Thank you for your patience. And with that, I'll turn the call over to Blake Sartini.

Blake?.

Thank you, Joe, and good afternoon, everyone. Welcome to our first quarter 2018 conference call.

Our strong first quarter results clearly illustrate the success our team is achieving in integrating and operating the American Casino & Entertainment portfolio, as well as the power of adding these diverse Nevada assets to our Southern Nevada-centric platform.

Throughout the first quarter, we made progress against all of our 2018 strategic priorities as outlined on our last call.

Golden Entertainment delivered record first quarter results, as the Nevada casinos we acquired in the American transaction generated strong year-over-year EBITDA growth, while our Rocky Gap casino in Maryland also grew EBITDA despite a very challenging winter in the northeast.

In addition, during the quarter, we continued the expansion of our branded tavern platform in Las Vegas Valley with the opening of two new locations. In total, Golden Entertainment will open 6 new locations this year, bringing the total tavern portfolio to 63.

And our results to date are demonstrating that our newest locations are delivering the attractive returns and EBITDA contributions we come to expect from these new locations. Turning back to Rocky Gap.

We invested approximately $2 million in the first quarter to renovate over half of the resort's room base, ahead of what is typically a very strong summer season. This property has been an attractive asset in our portfolio since we began operating it in 2015. And we have consistently enhanced the resort in a return-focused manner.

Our elevated amenities and gaming offerings have allowed Rocky Gap to deliver consistent EBITDA growth even in the face of the very challenging winter weather early this year. Moving on to the ACEP integration, we have now realized $15 million of the initial $18 million in targeted operating synergies related to the acquisition.

Having operated the assets now for 6 months, we are beginning to benefit from our expanded operational and financial scale and see additional opportunities to build on the success of these asset throughout the remainder of 2018.

Importantly, we have identified an additional $4 million of actionable synergies within our property operations to be realized in 2019, which will bring total synergies related to the transaction to approximately $22 million.

While these properties are performing well and our integration has been successful to date, we believe there is considerable upside in the Stratosphere. Through the first part of the year, we have continued work on our return-focused phased redevelopment of the property, with construction plan to begin in June.

By the end of 2018, we will have completed the renovation of approximately 317 rooms, which when added to the planned renovation of 452 rooms and suites in 2019, and another 364 rooms and suites in 2020, will represent almost 50% of the total room inventory.

We will also refresh and upgrade the building's exterior, including the installation of the state-of-the-art digital signage and lighting package. Furthermore, we'll add a unique gastro-brew concept featuring Golden Entertainment's signature branded craft beer.

The stratosphere's new gastro-brew concept will be connected to a state-of-the-art sports and race book, creating a one-of-a-kind experience for our guests.

Other projects will include a unique new view lounge adjacent to the casino, a remodeled and upgraded experience on the observation deck and thrill ride levels at the top of the tower, as well as a new player award center on the main casino floor.

In addition to our property-specific efforts, we've begun working with the City of Las Vegas to coordinate a redevelopment of the pedestrian arteries and adjacent areas north of Sahara Avenue, which will provide a convenient transition for potential guests coming from properties to our south.

These refinements should begin towards the end of our second phase redevelopment at the property.

These investments and enhancements will further establish Stratosphere as the unique destination for visitors to the north end of the Las Vegas Strip, and we remain confident that our master plan development will generate a return on invested capital of approximately 15% to 20% with the staged time line for the capital investments allowing us to modify future investment to ensure we generate our targeted return thresholds.

In addition, we have approximately 17 acres of developable real estate adjacent to the Stratosphere and on Las Vegas Boulevard that we feel will provide us with even more optionality and intrinsic value in the future for this asset.

We remain on target with the Stratosphere project and look forward to updating you on our progress as construction moves ahead of the summer and into the fall. Now turning to our one-card player reward solution. We intend to introduce this across all of our operations through an agreement with Konami Gaming.

By linking the reward systems across our casinos, we will leverage Golden Entertainment's newly launched logo and branding to introduce a single player card, which will allow our customers to take full advantage of all of our gaming and entertainment offerings.

We already work with Konami's casino management system at our existing properties and the features of their system will allow Golden Entertainment to provide our 700,000 active customers a highly compelling loyalty program when it launches later this year.

We expect this one-card loyalty program to build on the increased cross play and visitation we've seen across all of our operations. Finally, the company continues to benefit from the tailwinds related to the overall health of the Las Vegas economy.

According to Nevada government figures, March unemployment in Las Vegas was up 5.1% with less than 56,000 members of the overall work approval of nearly 1.1 million looking for work. At the same time, median home sale prices have now more than doubled, since hitting bottom, and up about 16% over last year.

In addition, builders closed on roughly 9,400 home sales in Clark County in 2017, representing the highest annual number of new home sales in almost a decade. On the strip development is migrating north towards the Stratosphere, which will extend foot traffic and make it even more convenient for guests to visit our property.

Genting Resorts World construction continues, the former Fontainebleau is, once again, on the road to completion. And the Las Vegas Convention and Visitors Bureau is now in early stages of deploying $1.4 billion to expand the Las Vegas convention center to ensure the facility remains at the forefront of the convention industry in the years ahead.

Looking across the balance of 2018. We remain highly confident that we can deliver on all of our goals to further drive shareholder value. We continue to manage ongoing return-focused investments in our facilities aimed at enhancing the player experience and further elevating the attractiveness of these market-leading properties.

We are laser focused on managing our capital spending, generating cash and paying down debt.

At the same time, we are effectively managing our capital structure to provide Golden Entertainment with the capacity and financial flexibility to take advantage of additional strategic M&A opportunities that will allow us to grow our business in a mindful or aggressive manner.

We are excited by the road ahead of us in 2018 and remain committed to building on our growing momentum across the business. I will now turn the call over to Charles..

Thanks, Blake. As Blake mentioned, we are off to a strong start with our first full quarter contribution from the four American properties we acquired in October '17. And the performance of these properties helped drive solid first quarter results. We generated first quarter revenues of 214.8 million, up 1.9% on a same-property basis.

Adjusted EBITDA for the quarter was 45.9 million, up 9.2% year-over-year on a same-property basis, despite the weather impact at Rocky Gap. This performance is in line with our expectations. And as such, we're reiterating our full year outlook for EBITDA of 184 million to 190 million.

This guidance implies EBITDA of 46 million to 48 million per quarter for the balance of the year. For Nevada casinos, first quarter revenue was 115.7 million, up 1.5% from the prior year period on a same-property basis, while adjusted EBITDA of 39.9 million was up 5.8%.

This growth reflects the strong margins of our Nevada casinos and operating changes we've been making at the newly acquired properties.

In aggregate, our Nevada casinos operated at a 34.5% EBITDA margin for the quarter, despite continued weakness and midweek room demand at the Stratosphere, and we continue to find opportunities for further margin improvement.

Our Rocky Gap properties in Maryland was impacted by weather on the East Coast, with revenues down 2.5% to $14.8 million for the quarter. Despite that, EBITDA grew 9.3% year-over-year to $3.7 million due to the property's continued focus on cost efficiencies as well as the slight tax rate reduction we've discussed in previous quarters.

Given the drive to high weekend frequency of this property, we estimate the severe weather in the quarter impacted Rocky Gap's EBITDA by approximately $500,000.

During this quarter, we took the opportunity during what is the slowest time of the year for Rocky Gap to renovate 110 rooms at the property, which, we believe, will help drive improved performance over the balance of the year.

In our Nevada distributed gaming business, total revenues during the first quarter were $68.7 million, a year-over-year increase of 3.1%. Adjusted EBITDA of $11 million was flat compared to last year, as double-digit EBITDA growth in our wholly-owned tavern portfolio was offset by weaker contribution from our chain store locations.

Changing consumer trends such as online ordering, curbside deliveries and fewer cash transactions have negatively impacted our retail supermarket locations.

We are working to address cost structure within this segment of our distributed business, and we'll allow unprofitable location contracts to expire if they are unable to be renegotiated at terms that reflect current consumer trends. Our Montana distributed business generated improved revenue growth for the quarter, up 4% to revenues of $15.4 million.

Adjusted EBITDA for the Montana distributed business was $2 million for the quarter, in line with our expectations and up over Q4, lower than Q1 of last year due to higher costs associated with the startup of new locations. We expect Montana's adjusted EBITDA to be approximately $2 million per quarter going forward absent any tuck-in acquisitions.

Corporate expense was $10.8 million for the first quarter, slightly lower than our guidance of $11 million to $12 million per quarter for 2018. We expect our corporate expenses to run at approximately $11 million per quarter for the balance of the year.

In terms of synergies, we are confident we'll realize the full $18 million of targeted synergies this year. And as Blake noted, we identified additional $4 million of synergies we can execute on in future periods. Moving to the balance sheet.

At the end of Q1, we'd cash and cash equivalents of $134 million and total outstanding debt of approximately $1 billion. Our cash balance includes approximately $25 million raised with our follow-on equity offering in January, which we intend to use for potential future strategic opportunities.

LTM net leverage is approximately 5.4x and 4.9x when including to be realized synergies in 2018. We remain confident, we will achieve our targeted net leverage ratio of 4.5x to 4.75x by year-end.

Highlighting the strong cash flow profile of our business, our operations generated approximately $25 million of cash in Q1 after maintenance CapEx of approximately $5 million for the quarter. Total capital expenditures for the quarter were in line with our expectations at approximately $10 million.

We will continue to use our operating cash flow to fund the balance of our planned capital expenditures for '18, including the first phase of our Stratosphere redevelopment plan that started in Q2.

We remain confident, our strong cash flow profile will allow us to fund reinvestments in our existing properties, reduce net leverage and pursue strategic acquisition targets in both our casino and distributed gaming segments. That concludes our prepared remarks. Operator, please open the call for questions..

Yes, sir, thank you very much. [Operator Instructions] And our first question will come from the line of David Katz of Jefferies. Your line is now open. .

So, regarding the $25 million free cash flow in the first quarter, if we -- can we look at that as some approximation of a quarterly run rate running through the remainder of the year on an after-maintenance basis?.

Yes..

And so, we should be thinking about $100 million of free cash flow this year as an approximate neighborhood? And is it fair of us to think that, that should accelerate going into next year?.

It should, particularly given the investments they were making in the portfolio..

Got it.

And did you give us, and I apologize, if I missed it, did you give us a total CapEx for the year guidance?.

Yes, we did at year-end, and we're still on target for that. So, we have approximately $70 million of CapEx left to spend for the year. $15 million of that being maintenance and the rest being growth opportunities between Strat and the tavern and the Konami system that we recently announced..

$70 million left, and I think you said $10 million in the first quarter?.

Correct. so, the $80 million total for the year, $20 million of that is maintenance CapEx..

Got it. Now with respect to the incremental for synergies that you believe you've uncovered.

Can you just talk a bit about where those are? Or where those are coming from? Or how we'd think about allocating those in the business?.

Yes. I mean, as we thought, once we got into operating these assets for a while, there is certainly more opportunities that we underwrote. These typically involve third-party service providers. We're not going to get into any more details than that about that. There are termination provisions that take a little bit of time to work through.

But we intend to do with that and those will be meaningful in terms of the margin improvements as you could see from the number that we've put out there..

And then lastly, for the moment, just doubling back on the notion of construction disruption, I think, the characterization from you all has been that you expect it to be minimal, particularly, at the Stratosphere this year.

Is that still the case? And this does minimal mean none? How can we -- how should we really think about the notion of disruption as you're sort of undertaking a lot of what you're doing?.

So, David, I think, it would be impossible to say none, as we look at what we're doing outside, if you will, and at the property. But I think minimal is the appropriate designation for what our expectation is and again, I think, you've been through the property.

Again, the way the property is situated much of what we are going to be doing through the first phase between June and the end of the year occurs in areas where we can work behind areas that are not really utilized at the moment. There are spaces where there's a few slot machines and some activity. We have moved the race and sports book.

We have moved the reward center as a precursor to this activity. So, we don't foresee any disruptions to those activities as we go on. I think I'm comfortable in saying minimal disruption is something that we're expecting. And as we get into it, we'll update, but that -- I don't think that will change..

Got it. And just -- I lied, one last one, which is, you've been in there for a quarter-and-change or a couple of quarters so far.

In terms of the traffic and in terms of the attention that the property is seeing, are there any measurable elements of progress that you can share with us that this is what we expected to happen once we got our hands on the building that you can talk about today?.

We're seeing things that are positive in regards to continuing high occupancy levels, continuing traffic through the facility, to access the tower and the specialty and things that are attractions of their, including the Top of the World restaurant as well as the thrill rides.

We, frankly, are finding ways to improve margins overtime on the cost side. But generally, I'd say it's what we expected. And I think the property is really well situated in regards to being a relevant competitive property on the Strip given the amount of visitation we're seeing, trial we're seeing.

And this -- I think this, for myself, brings a lot of confidence that what we're doing and what we're investing in the property is going to provide solid returns as we've outlined..

And our next question will come from the line of John DeCree with Union Gaming..

Just wanted to touch on the wholly-owned tavern segment in Las Vegas. Charles, I think, I heard in your prepared remarks you mentioned double-digit growth in the quarter.

I was wondering if you could remind us if that's kind of the pace you've been seeing in that segment? Or if that's a bit of an acceleration in the first quarter?.

It is the pace in general that we've been seeing, which is why we like investing in those assets now. The Golden Knights has helped us quite a bit, so we're very excited about that, and then we hope that, that continues. But again, it's our -- that's our branded concept. We own it, and we control the environment.

So clearly, it's something that we should be investing and as part of this segment going forward..

I think, if I recall 5 to 6 kind of new openings per year was kind of in the ideal target.

Is that the right pace for this year? And is that something you think you can maintain or target for the next 2 to 3 years as well?.

That's the current plan. That's the current plan for now. We've opened 2 already this year. We've got 4 slated for the balance of the year to total 6. So currently, that's our pace we're anticipating in the future..

John, just to add more color -- I think, Charles, covered most of it. We really hit on and reclined our new prototypes going forward from a cost standpoint -- fixed cost standpoint in really, I think, after all these years of learning what works and the size and complication in operating these locations.

These new prototypes are generating significant returns and each of them that we've opened in all parts of the Valley to this point..

That's helpful. Just two quick modeling questions. Corp ex for the year, I think, you mentioned, about 11 million a quarter run rate for the year.

Is that the same pace to expect going forward? Or does that step down in '19 if some of the synergies kind of flow-through?.

Yes. We're not giving guidance on '19. I've modeled that for '18. Obviously, we're looking to manage that number, but we'll start providing more guidance towards '19 as it gets closer to the end of the year..

[Operator Instructions] And our next question will come from the line of Edward Engel with Macquarie. Your line is now open..

This is Ed on for Chad. So last week, one of your competitors announced a pretty sizeable acquisition in the Illinois distributed gaming market.

Is there anything specifically holding you back from maybe acquiring that market, whether it's your current leverage or the Stratosphere focus or price tags is not offering an opportunity to drive meaningful synergies or ROIs?.

No. There's nothing holding us back. I think we're taking a disciplined approach to what we're seeing out there in terms of opportunities, whether it be Illinois or elsewhere, as you may be aware, we are planning roots or plan to in the State of Pennsylvania that has legalized a form of this distributed gaming market.

Look, we think the announcement, it's certainly well received from our standpoint, as I think it continues to support recent comments we've made about the valuations for large scale distributed gaming operations. We continue to see opportunities not only in existing jurisdictions, but potential new jurisdictions for this business.

And frankly, I think it validates the gaming platform that we in fact introduces a new public company in 2015. So, from our standpoint the announcement itself was a positive. And I think you will see us continue to be involved and committed to distributed gaming business as we find areas to invest..

Great.

And then in the Las Vegas locals market, have you seen any signs of promotional activity, maybe, beginning to taper off, maybe even at all? And at your recently acquired properties, is there any opportunity to, maybe, cut some marketing spend there?.

Sorry, what type of activity? Did you say promotional activity?.

Yes, promotional activity, yes..

I mean, look, the local's markets are highly competitive. That's always been the case, I think our assets compete very well with the segments that they serve, and the population they serve in their neighborhoods, we tend to continue to do that..

Just as an aside, I think, look at the margins we're running in the casinos. We're margin operators, we're prudent operators. And, obviously, that marketing expense is something we focus on, on a regular basis..

Thank you. Ladies and gentlemen, this concludes our question-and-answer session for today. I would now hand the call back over to Mr. Sartini for some closing comments or remarks. Please proceed, sir..

Thank you, operator, and thanks to everyone for joining us today. We look forward to updating everyone on our continued progress when we report our second quarter results. Thank you..

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program, and we can all disconnect. Everybody, have a wonderful day..