Joe Jaffoni - IR Blake Sartini - Founder, Chairman, President and CEO Charles Protell - Chief Strategy Officer and CFO.

David Katz - Jefferies Chad Beynon - Macquarie John Decree - Union Gaming.

Good day, ladies and gentlemen, and welcome to the Golden Entertainment Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today’s conference is being recorded.

I would now like to turn the call over to Mr. Joe Jaffoni, Investor Relations. Sir, you may begin..

Thank you very much, Chelsea, and good afternoon, everyone. By now, everyone should have access to our second quarter 2018 earnings release, which can be found on the Company website at www.goldenent.com, under the Investors section.

Before we begin our formal remarks, we need to remind everyone that today’s discussion 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 on them.

We refer 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 in our second quarter 2018 earnings release.

Golden also provided a supplementary information accompanying the earnings release, combined income statements for the second quarter and six months period ended June 30, 2018 for Golden and American Entertainment -- I’m sorry, on June 30, 2017 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 then outlook, after which we’ll open the call to your questions. With that it’s my pleasure to turn the call over to Blake Sartini.

Blake?.

Thank you, Joe. Good afternoon, everyone. Welcome to our second quarter 2018 conference call. During second quarter, we continued to execute on our strategic plan, resulting in record quarterly revenues, EBITDA and EBITDA margins.

In addition, we announced the acquisition of two casinos in Laughlin, Nevada that will be immediately accretive to our existing operations and further expands the scale of our wholly-owned casino segment in the southern Nevada market.

Charles will go over the quarterly numbers in more detail shortly, but I wanted to a few minutes discussing our current operations and update on our renovations at the Stratosphere and our thoughts on the recently announced Laughlin acquisition.

During the second quarter, we experienced revenue growth across both our casino and distributed business segments.

Importantly, all of our casino properties posted increases in second quarter adjusted EBITDA with particular strength from our Aquarius property in Laughlin, our two Arizona Charlie’s locals properties in Las Vegas and our Rocky Gap Resort in Maryland.

As we initiated the Stratosphere remodel project this quarter, our results there were up slightly year-over-year as we had limited room inventory, particularly highlighted on weekends towards the end of May and into the June timeframe.

On the distributed side, our Nevada tavern portfolio continues to grow with three additional locations open compared to second quarter last year and three more on the way for the balance of 2018, one of which will open next week.

As we have discussed on prior calls the chain store segment of our Nevada distributed business continues to be impacted by changing consumer shopping trends, and we continue to work toward more efficient ways to operate that segment of our business.

Our Montana distributed business is growing as the local economy continues to improve, and we are positioned well for the potential legalization of sports wagering in Montana, with our approximately 300 distributed locations across the state.

We strongly believe that distributed gaming should immerse as the preferred and practical retail outlet for sports wagering across the country.

Reflecting the strength of our casino segment, our total second quarter adjusted EBITDA rose 13.6% year-over-year and our EBITDA margin increased over 200 basis points as we realized our targeted synergies from the American acquisition and continued to identify new opportunities to improve performance and profitability across the portfolio.

Our Nevada casinos grew EBITDA over 8% and operated at over a 32%, EBITDA margin, despite the start of construction at the Stratosphere. We remain excited about our renovations at the Stratosphere, which remain on track and on budget.

In fact, given the current construction progress, we are a bit ahead of schedule and should have approximately 250 rooms in service during first part of September.

Our remaining projects for this year include the remodeling of an additional 63 rooms, upgraded exterior signage and lighting, the addition of the gastro brewer and new view casino lounge, both of which will be adjacent to a completely remodeled sports book.

Also, scheduled for the balance of the year are cosmetic and amenity upgrades for the observation deck and thrill ride levels of the tower. These will include a new AirBar experience, including specialty food and beverage offerings, new retail shopping space upgrades and overall upgrade that finishes on these two high-traffic levels.

Finally, our award-winning top of the world restaurant will receive an all new menu and esthetic upgrades to the overall experience.

When our Stratosphere renovations are complete in 2021, we will have remodeled 1,133 rooms, refreshed the interior and exterior of the property, and added new unique, food and beverage venues as well as attractive group meeting space to the property.

We believe this investment will allow the Stratosphere to establish reoccurring group revenues, increased midweek occupancy and room rate while also positioning the property to remain competitive into the foreseeable future. Over 85% of our total revenues and EBITDA come from Nevada, most of which is from southern Nevada.

As a Las Vegas native, I see the transformation and growing strength of this market every day. This includes the progress of major gaming and non-gaming construction projects, including Las Vegas Convention Center expansion, the new Raiders stadium as well as the proposed casino development projects along the north strip corridor.

In addition, the economy of southern Nevada is becoming increasingly diversified, supporting multiple industries and professional sports franchises including the Golden Knights on their historic run to the Stanley Cup this year.

We believe all these factors position our business to benefit over the long term from Las Vegas continued growth, increased visitation of southern Nevada, and expanding local economy.

This gives us the confidence to continue to execute high return on investment projects in our current portfolio and to continue to expand our business through strategic acquisitions. In July, we announced our acquisition of two additional properties from Marnell Gaming, the Edgewater and Colorado Belle Gaming resorts in Laughlin, Nevada.

We are acquiring this business at a 6.5 times pro forma EBITDA post synergies level, making it a highly accretive transaction for our shareholders. As important as the purchase multiple and metrics behind any acquisition is the strategy.

These assets when combined with our Aquarius property will provide us with 55 contiguous acres along Laughlin’s main riverwalk and within convenient and on a walking distance to the popular Laughlin Event Center, a key traffic driver to the market as it features premier concerts and events.

Gaming revenues in the Laughlin market totaled approximately 500 million and have experienced healthy growth in recent periods. However, the market remains far below peak revenues in 2007, which were in excess of $630 million.

The market’s core customers from southern California and Arizona will continue to view Laughlin as an attractive alternative to Las Vegas, while an increasing number of locals southern Nevada’s 2.2 million residents will visit Laughlin as a weekend getaway.

This acquisition expands our portfolio to nine wholly-owned casino resorts in southern Nevada, solidifying our network of casinos and what we believe is the most attractive casino jurisdiction in the country.

I’m also pleased we will have Anthony Marnell III as a shareholder, an individual who have known respected for many years and who shares my views and conviction on the long-term fundamental growth we can look forward to in Nevada. We are excited about the opportunities we see with all of our businesses.

We are committed to positioning our business for future growth and are confident in our ability to execute on our strategy for the remainder of 2018 and beyond. With that, I’ll turn the call over to Charles..

Thanks, Blake. As Blake mentioned, our strong financial performance continued into the second quarter with revenue of $216.5 million, up 1.5% over the prior year. Adjusted EBITDA for the quarter was $46.3 million, up 13.6% year-over-year on a same property basis as we achieved a 230 basis-point margin improvement.

This performance is in line with our expectations and we are reiterating our full-year guidance for adjusted EBITDA in the range of $184 million to $190 million. For our Nevada Casinos, second quarter revenue was $112.9 million, up slightly from the prior year period on the same property basis, while adjusted EBITDA of $36.5 million increased 8.4%.

This EBITDA growth reflects the operational changes we have been making with particular strength from our Las Vegas locals properties and our existing Laughlin resort. The Stratosphere EBITDA was up slightly over the prior year period, even with ongoing renovations at the property and rooms at a service.

We remain confident in our reinvestment strategy and the revenue growth opportunities for the Stratosphere, especially around increased midweek occupancy and revenue from potential group meeting and conference attendees. We expect to yield higher rates from our renovated rooms as they come into service.

Our Rocky Gap Resort in Maryland saw increases in revenue of 3.8% to $18 million for the quarter, even with continued weather disruption. To illustrate the impact of weather on visitation at Rocky Gap, golf rounds were down 40% in April and 25% for the quarter.

Despite that, Rocky Gap increased EBITDA 24.2% over last year, to $5.7 million which was in part due to property’s slot tax rate being reduced last July. In our Nevada distributed business, total revenue for the second quarter were $69.5 million, a year-over-year increase of 1.7%.

Adjusted EBITDA $10.6 million was down 5.7% compared to last year, as our EBITDA growth in our wholly-owned tavern portfolio continues to be offset by a weaker contribution from our chain store locations. As we have previously stated, we are evaluating ways to improve the profitability of our chain store locations in future periods.

Our Montana distributed business generated revenues of $15.9 million, an increase of 4.2% compared to last year. Adjusted EBITDA for the Montana distributed business was $2.2 million for the quarter. Corporate expense was $8.7 million in the second quarter, lower than $10.9 million in the prior year period.

This reflects continued recognition of cost synergies from the American acquisition. We expect our corporate expenses to increase over the back half of the year as we prepare to roll out new branding collateral, implement a single loyalty card program and prepare for the integration of our pending two properties in Laughlin.

Looking at the balance sheet, we had cash and cash equivalents at the end of the second totaling a $140 million, and total outstanding debt of approximately $1 billion. LTM net leverage was approximately 5.2 times at the end of the second quarter, down from 5.4 in first quarter.

We continue to be on track to achieve our target net leverage ratio to be below 4.75 by year end. Total capital expenditures for the quarter were in line with our expectations at approximately $17 million. We intend to fund the balance of our planned capital expenditures for the year from operating cash flow.

Our operations continue to generate significant free cash flow, which is allowing us to reinvest in our existing assets, reduce leverage, and position ourselves for accretive, strategic transactions. That concludes our prepared remarks. Operator, please open the line for questions..

[Operator Instructions] And our first question comes from the line of David Katz with Jefferies. Your line is now open. .

I wanted to just go back to the distributed gaming business, because -- I apologize if I missed it in your prepared remarks, but I’m going through the release and some of what I heard, it came in a bit lower than what we had.

Could you elaborate just a bit more on what happened there?.

Yes. I mean, as we’ve talked about in the past, the chain stores in that piece of our portfolio, if you look at that, those demographics have fundamentally shift. So, there is less traffic that’s coming through supermarkets; there is less transactions with cash.

And when you think about things like curbside delivery and ATMs coming out of these locations, that negatively impacts that business for us in a pretty dramatic way. Those locations are roughly 20% of the machine count here within Nevada. And that drags the portfolio.

On the other side, we got our wholly owned tavern business, which while we don’t break it out, from a topline basis and profitability that was in line with locals market. .

So, just to add to that David, in regards to expectations in terms of trends in that business, as I mentioned in my prepared remarks, we are working through ways to more efficiently operate that business, and some of those are going to require some potential regulatory changes.

But, in addition, obviously, there are ways going forward to mitigate rent through bands and things like that with the third parties that we deal with. So trend-wise, I would think that those things should mitigate over time as we become more efficient in how we operate..

So, thinking about that Nevada total business, it sounds like that 20% is very low, if it’s sort of dragging down the other 80, a good portion which is doing well.

Is that a fair way to sum it up?.

Yes. And I think that -- look, from our perspective, those accounts are a little different. We described this in our public filings. Those are based on rents within certain locations, and we are paying folks a fixed rate fee over a period of time.

As those contracts come up for renewal, you can imagine we are having discussions with the ultimate owners of those locations about rightsizing the profitability of those businesses for us.

But, the extent we are not able to come to the right conclusion, we are not going do to do deals that continue to be uneconomic for this Company and our shareholders..

Look, I think if I can go back to one matter that is a bit more industry-wide there’s been an awful lot of concern about the Strip and its underlying fundamentals in the moment, and whether -- quite frankly, whether it’s rolling over, at least from our side.

Can you talk about specific data points or things that you’re looking at that would give us some confidence that the Strip in Nevada in general is still doing well?.

Yes. I’m going to let Blake talk a bit about Nevada in general, which clearly from our perspective is doing -- still doing very well in terms of long-term fundamentals. As it relates to the Strip trends, for us, the Stratosphere is performing in line with our expectations.

We are doing construction, as Blake said that asset for us is up a little bit year-over-year from an EBITDA perspective. The trends that has been highlighted in calls last week, I don’t think we’ve shied away from in terms of expressing our views there.

I think that for us, what we see specifically as it relates to the Stratosphere, keep in mind, we are 2,400 rooms in the 150,000 across the city with no group meeting space. So, as we have discussed in the past that mean that that asset has weaker midweek business than others. The weekends are fine for us.

I think that the trends that we’ve seen recently just highlight and reaffirm our investment in the property and what we’re doing to create a premium product that allows us to drive more midweek business and attract and have more visibility in terms of looking forward in the future periods and the performance of that asset..

Yes. I think specifically, Charles mentioned the midweek occupancy and rate challenges that we frankly were expecting going into this asset, and have seen over the first and second quarters.

Those things are -- we don’t think going into the balance of the year -- that trend we see continuing for us in the context of our expectations all along until we get these amenities and upgrades and things in place which in my mind these midweek rate challenges and occupancy challenges justify in many ways what we are doing with that property.

Property is a full-service Strip property with 2,400 rooms, numerous food and beverage outlets, to pools, a showroom, one of a kind tower with thrill rides and entertainment options. It’s a very viable and competitive property as it sits.

But, but we think we are filling the gap, if you will, in particular this midweek area when we get through with our two or three-year plan and renovating the property. As far as Las Vegas in general. Look, everybody’s got crystal balls and sometimes it’s dangerous to look into them. But, everything I seen from a macro standpoint, remains very strong.

All the metrics we see from population growth here in Nevada and in the southwest, visitation rates, airport counts, the general macro environment continues to be very strong. And I don’t see anything in my mind that that would call, to use your word, a rollover in what’s happening.

I’m particularly very -- continue to be very positive on Las Vegas obviously and on in particular southern Nevada. And given the macro trends, we remain positive going forward..

Thank you. Our next question comes from the line of Chad Beynon with Macquarie. Your line is now open..

At the outset, you noted in your prepared remarks, strong results in Laughlin at Aquarius, and I think this is a property that doesn’t get as much attention from investors just because of its location. But, I believe it’s viewed as the prettiest house in the neighborhood.

And then, this quarter, you announced another acquisition that you mentioned here, two new properties in the market. You also noted a great partnership with a well-respected executive who is selling those properties.

Outside of that in the multiple, could you just kind of provide some thoughts on what you like about Laughlin? Is this a market that you think is really undervalued? And just kind of some high levels and how this will look when everything comes together in Laughlin for you guys? Thank you. .

From a market perspective, I think Blake mentioned where we’re in a peak. We basically have 30% to go to get back to those peak levels. I view this market as -- the competitive threats have already impacted this market a long time ago.

And particularly, when you look forward at what are those growth opportunities, think about if there are concerns about Las Vegas in the value proposition coming away from that market. This is the perfect market for that. So, you have room rates that are much cheaper, you do not have resort fee at the same level.

And you’re able to provide a gaming and entertainment experience for these folks that are going to be a little bit cost conscious and that are driving to this market for the most part obviously versus flying. So, we’re very excited about it. I think strategically, it’s contiguous with our other assets. So, there is clearly synergies there.

And importantly, and I think I’m not sure if this has come through, we will be controlling the Laughlin Event Center. It allows us to obviously control the ads, control the bookings and really control a traffic driver to the market for everyone but to our properties as well..

Chad, I will just add a couple of things. I would reiterate what Charles said in regards to -- as Lag Vegas continues to move towards a more fee and maybe pricier platform, Laughlin, I think, will continue to benefit as an alternative and a more value-oriented and casual experience that people enjoy.

With the acquisition, to give you a few specifics on how I’m thinking about it, we will end up approximately 40% of the room base in the market in the most desirable location along the river. It’s kind of main in main. And those three properties also represent three different tiers of the market.

It’s kind of unique segmentation in this location with kind of the high and mid and low end, if you will, which gives us a really unique approach to generating higher combined revenues as we control all three. And so, I think we’re very bullish on the location of those properties, as Charles mentioned.

They are adjacent to our existing property, which we would agree that Aquarius is the market leader down there.

And coupled with the Laughlin Event Center that Charles talked about that we now would control with this acquisition along with this 40% room share in this most desirable location, over time, I’m very excited about what we can achieve down there. And you mentioned Anthony and the Marnell family. I have known them a lot of years.

I have known them a long time. I have a lot of respect for what they do. They obviously bring a unique and deep perspective to the business. And we look forward to working with Anthony who potentially joined our Board and growing this Company, in particular focusing on that market..

And then, my follow-up, I guess just on the back of that, with these acquisitions, you’ve chosen to finance them with your own balance sheet and we’re -- kind of increasingly see your competitors use the balance sheets of REITs. And it has been an expensive source of capital for them.

So, how do you view potentially using REITs going forward to do more acquisitions as you continue to grow out the portfolio, or separately, how do you just view REITs in general? Do you need to own everything or down the road, would you potentially consider having some type of a split structure?.

Yes, Chad. So, look, we don’t need to own everything indefinitely. I think for each transaction, for each circumstance, you are looking at -- that’s cost of capital to get done what you need to get done and create accretive transaction. For us in this case, we are able to maintain our leverage point.

We issued some equity to someone that we want to have as a shareholders, Blake just mentioned. And we will ultimately end up owning all of the real estate and these assets at a multiple at 6.5 times, which is going to be accretive.

So, we will always have that optionality going forward to engage in the discussion, whether it’s OpCo, PropCo with a specific transaction or something more broadly. I think from my perspective, once you do that, you’ve kind of made your bet, and you’ve taken that path. You can’t exactly undo it.

So, for us, we do have real estate, quite frankly we have access real estate that sits along Las Vegas Boulevard that we feel probably isn’t very well reflected in our valuation, among other things that are reflected in our valuation.

But, for us, as we continue to grow, we are going to continue to evaluate the REITs as a financing alternative as we move through our growth phase of the business. We are very familiar with all of them and all of the players and think that they are great addition to the space.

Again, for us, it’s about just looking that as a source of financing, and what’s going to create a most accretive transaction in addition to looking at just pure accretion at day one, it’s what’s the optionality for the future; how you are going to create more value in the future for shareholder? So, we figured -- factored all of that into how we think about the OpCo, PropCo structures either with a single deal or something more broadly..

And our next question comes from the line of John Decree with Union Gaming. Your line is open..

I have a question about the Stratosphere perhaps. As it relates to an option for strip goers and with some of our work we’ve seen downtown Las Vegas, I’ve seen a considerable amount of visitation, and Stratosphere being kind of the gateway to that realm.

Have you -- could you talk to -- have you seen a preference for things a little further off the strip like the Stratosphere? As the strip gets pricier and pricier, are you seeing some customers migrate to the Stratosphere? And then the follow-up to that would be if a little further downtown in Las Vegas would kind of fit into your strategic priorities from an M&A perspective in the future?.

Yes, John. Look, I concur with your thoughts around the unique position or the unique location of the Stratosphere, and I’ve talked about that on prior calls and in prior public settings. As this north strip infrastructure continues to move towards us, all of that energy I think is going to benefit, continue to benefit Stratosphere.

We already have, as I mentioned, 1 million or so people transitioning through that property that don’t stay there, as result of that iconic tower situated on the north end of the strip and just the natural draw it has for people to come and access the views and thrill rides and things that we offer out there.

But in regards to this kind of this north strip development and in addition, this Downtown and Arts District connection that is what we’re really embracing as we go forward with our renovation and the plans we have there in terms of what we are introducing for amenities, and also in partnership and in close partnership and close relationship with the city of Las Vegas.

The city continues to develop its Arts District and renovation south towards us and towards Sahara, which is kind of the north end of the strip.

In fact, last night, they just unveiled along with our executive team a new kind of an iconic sign that welcomes people to downtown Las Vegas similar to what you see the welcome to Las Vegas sign out by the Airport on the south strip.

That, along with 60-foot iconic entranceway they are going to put right at our doorstep is an indication of how we and the city view bringing this kind of Charles to this Sahara corridor, for those of you who are familiar with Las Vegas, this last mile together in this development of this north strip connection, if you will.

So, I’m very, very excited about the location. I think it’s more relevant today than it was even 10 or 15 years ago because of all of this development, and the city’s push south. And very excited about our ability to generate more, not only just kind of foot traffic but retain more resort traffic within the facility as all of the area gets improved. .

Thanks. That’s good color, Blake. I appreciate that. Sounds like a great opportunity for you guys as that occurs. I wanted to switch gears and ask you perhaps a little bit more granular question, to the extent you can talk to guidance a little bit. I think, most investors are pretty familiar with the seasonality on the Las Vegas strip.

But, as we kind of think about 2Q, whether it’s in Laughlin or kind of the Las Vegas locals market, can you talk a little bit about how we should think about the kind of little bit of seasonality in the business from 2Q and then to the back half of the year?.

Yes. I mean, look, I think that we’ve obviously we reaffirmed our guidance for the full year based on the trends that we are seeing now and what we have experienced year-to-date and what we see going forward into the future. I think from a seasonality perspective, I know there is guys who have their models built a certain way.

But, as you’ve heard from others as they comment on the locals market, summer months tend to be the hotter months. It’s hot here and people get out of town, and that impacts the locals business. That said, our local business is still strong. As we pointed out, our Nevada casinos posted over an 8% EBITDA growth with Stratosphere up just slightly.

So, I think that from a modeling perspective, as you guys and others look at the seasonality of this business, it’s kind of think about the summer is being a tougher period with the rest of it being the better period. And I’m sure that’s not reflected in the models that I’ve kind of seen to date..

Thank you. And I’m showing no further questions at this time. I’d now like to turn the call back to Mr. Sartini for some closing remarks..

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

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone, have a great day..