Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the Golden Entertainment Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode, a question-and-answer session will follow the formal remarks. Please note, that this call is being recorded today March 14, 2019.

Now, I would like to turn the conference over to Joe Jaffoni, Investor Relations. Sir, please go ahead, sir..

Thank you very much, Kelsey, and good afternoon, everyone. By now, everyone should have access to the fourth 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 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 fourth quarter 2018 earnings release.

Golden also provided a supplementary information accompanying the earnings release, pro forma income statements for the fourth quarter and full-year period ended December 31, 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. Charles will review the quarterly results, Blake will review recent strategic and operating initiatives, and after that we’ll open the call to the questions.

With that, it’s my pleasure to turn the call over to Charles Protell.

Charles?.

Thanks, Joe. Fourth quarter, total revenues were $210.1 million, up 2.5% versus the prior year on a combined basis at American Casinos. Adjusted EBITDA for the quarter was up 1.9% to $34.4 million on a combined basis, compared with $33.8 million in the prior year.

As we review the segments I will provide comments around challenges in some of our businesses in Q4 and the steps we are taking to improve future results. For our Nevada Casinos, fourth quarter revenue is $107.9 million, up 0.9% from the prior year on a same-property basis, while adjusted EBITDA increased 1.1% to $31.1 million.

With the ongoing construction at the property, The Strat’s EBITDA was down roughly 2% for the quarter. We expect a minimal construction disruption and as we move through our renovations we intend to keep a phased approach of all aspects of the project to mitigate significant future disruption of our construction.

Blake will speak further on our capital investment plan at The Strat, which is focused on enhancing our ability to access casino players and midweek group business.

Conversely, in the fourth quarter, our s Arizona’s Charlie’s local properties generated a 6% increase in EBITDA, as we continued to manage the cost structure of these two properties, which allowed us to overcome the increasingly competitive environment.

Outside of Las Vegas, our Aquarius property has maintained EBITDA in Laughlin where the market experienced some decline in visitation towards the end of the year, as well as tight local employment.

With our two new casinos in the market we are focused on integrating these assets and realizing identified cost synergies across our three Laughlin properties. In Pahrump, our three casinos generated a 10% improvement in EBITDA for the quarter, and we are pleased with their performance in that market.

At our Rocky Gap in Maryland revenue increased 2.4% on a year-over-year basis while eb declined 6.8% to $3.9 million. Rocky Gap saw increased marketing costs with the property built some pressure from weekend visitation migrating to some of the sports books opening in West Virginia, which has subsided in the early part of 2019.

In our Nevada distributor gaming business total revenues during the fourth quarter was $69.6 million a 3.3% year-over-year increase. Adjusted EBITDA at $9.4 million was down 1.1% compared to last year as the tavern performance was offset by year-over-year declines in our third-party chain store locations.

We have approximately a 150 chain stores in Nevada where we pay monthly rent to the third-party, staff gaming areas with our employees and collect a 100% of the revenue from the gaming machines in these locations.

We established new rents structures at approximately 50% of our chain store locations, and expect to see improvement in Nevada distributed business as we move through 2019. Our Montana distributed business showed strong improvement in the fourth quarter, generating revenues of $16.7 million up 12.5% on a year-over-year basis.

Adjusted EBITDA for the Montana distributed business grew 32.4% year-over-year to $2.2 million. Our Montana operations benefited from our ongoing investments in new gaming product to help us drive revenue growth and market share gains as well as having milder Q4 weather compared to '17.

Corporate expense of $12.1 million in the fourth quarter was slightly lower than corporate expense of the $12.3 million in the prior year. Corporate expenses in Q4 include marketing and IT initiatives related to our rebranding and our True Rewards one card roll out, the Blake will touch on.

Moving on to the balance sheet, we had cash and cash equivalents at the end of the fourth quarter totaling a $116 million and total outstanding debt of approximately $1 billion. LTM net leverage was 5.4 times at the end of the fourth quarter.

In January, we borrowed $145 million against our $200 million revolving credit facility and used cash on hand to fund the cash consideration for the two properties we acquired in Laughlin. Net leverage remained at 5.4 times pro forma for the acquisition of these properties.

Total capital expenditure for the quarter was $19.2 million, with approximately $7.4 million spent on the Stratosphere renovations in the quarter.

As of December the company's total investment of The Strat was approximately $24 million and we have budgeted $53 million for 2019, which includes spending on the soon to be completed projects such as the sports book and lounge, as well as other new projects to be completed, which Blake will review in a moment.

Golden Entertainments total budget for the Stratosphere remained at approximately $140 million with the projects on scheduled to be completed in 2021. The company is currently evaluating the size and scope of the meeting space appropriate for the property and anticipates finalizing convention space design by year end.

In 2019, the company anticipates spending approximately $24 million in maintenance CapEx as well as $20 million on six new taverns in our new integrated Konami casino management system. We intend to fund all 2019 CapEx with cash flow from operations.

Our Board recently approved a new 25 million share repurchase program, which replaces the previous 25 million repurchase program authorized in November. Under the previous program, we spent $19.6 million to repurchase 1.2 million shares of our common stock at an average price of $16.06 per share.

In January, we issued 911,000 shares to entities related to Anthony Marnell, as part of the consideration for his two properties in Laughlin. Reflecting the Laughlin transaction and our repurchase activity to-date, we currently have 27.7 million shares outstanding.

If you add the pro forma EBITDA contribution from the two acquired Laughlin properties to our ‘18 EBITDA, our free cash flow is over $3.50 per share inclusive estimated cash interest expense and maintenance CapEx. We were not a cash tax payer in ‘18 and do not anticipate being so over the next several years.

Free cash flow per share is an important metric and in ‘19, we will continue to allocate capital to where we see accretive opportunities between reinvestment in our asset, leverage reduction or the opportunistic return of capital to shareholders. I'll now turn the call over to Blake to review progress on our recent strategic initiatives..

Thank you Charles. I’s like to now share with you the progress we are making towards positioning the company for future growth and our capital plan going forward with The Strat.

As we look at the economic environment in Nevada and Las Vegas in particular, population is at an all time high and continuing to grow rapidly as people from all over the country move to Nevada for better quality of life and lower cost of living.

Visitations at Las Vegas is near record levels and the appeal of Las Vegas as a place to visit only gets stronger in future. With over 85% of our total revenue coming from Nevada mostly from wholly owned Southern Nevada casino resorts these trends supporting future economic growth can only serve the benefit of Golden Entertainments future.

For our wholly owned casino portfolio, the biggest concentration of revenue and EBITDA comes from The Strat and our three Laughlin properties and market leading Aquarius and now the neighboring Edgewater and Colorado Belle. These assets will be our focus on making meaningful improvements to drive the company's performance.

Starting with The Strat we continue to believe that a thoughtful focus and disciplined reinvestment approach is necessary to realize the full value of its strong worldwide visitation, expensive footprint, iconic attractions and enhanced food and beverage, and other amenities.

The Strat’s room product, restaurants, Tower attractions and entertainment are all being touched in our renovations in order to be relevant as new city-wide traffic drivers open, including the expansion of the Las Vegas Convention Center, a few blocks a few blocks from the property.

From 2018 we renovated 311 elevated rooms, which are currently generating a $20 ADR premium over our base rate. We repressed our signature award-winning top of the world restaurant and the Tower as well as our observation deck level, which leads to several attractions we've added, including new food and beverage outlets.

We also completed renovations to the new The Strat Café on the casino floor, finished a new Starbucks and made significant upgrades to the property’s exterior lighting and landscaping.

We are now nearing the opening of the BLVD & MAIN Taphouse, our new sports book and lounge on the casino floor, which were initially targeted for opening earlier this year.

While our budget remains unchanged we plan to shift our 2019 investment towards remodeling the casino floor, while continuing to invest our room remodel program, which will include suites and upgrading entertainment offerings to deliver a more complete guest environment.

In addition, we plan to remodel and rebrand the Tower as the SkyPod with a goal of luxuring the over 1.2 million annual visitors to the top of The Strat into more opportunities to spend while in the Tower and at that property.

By the end of 2019, we will have invested approximately $77 million to renovate the interior and exterior of the casino and the new state-of-the-art sports book, create new food concepts and rebrand our owned food outlets, renovate rooms and suites, upgrade the Tower experience and add new entertainment to the property.

By the end of the year we will also finalize the group meeting space design and we will value with the timing of any future development at the property.

Group meeting space will ultimately allow this property to be competitive midweek, build longer lead time occupancy, reduce dependency on OTAs, and access convention visitors that comprise approximately 15% of the visitor volume to Las Vegas.

The Tower is a truly unique feature to the skyline of Las Vegas and its iconic nature will continue to drive visitors from around the world. Suite product and refresh casino and new dining and entertainment options are especially important to give these guests more opportunities to spend at The Strat.

The completed renovations of The Strat and those planned for 2019 will allow us to reposition the property for casino and retail guests alike. As we evaluate design and cost of group meeting space over 2019, we will also evaluate the impact of our renovations on our financial performance.

The Strat budget remains approximately $140 million, and we intend to complete the property’s renovations by the end of 2021. Now turning to Laughlin, we now own approximately 40% of the market’s room base, one-third of the gaming positions and the largest traffic driver to the market for Laughlin event center.

The Laughlin market is a very convenient drive from major Southern California and Arizona population centers. It is also increasingly becoming a destination for Las Vegas locals that are looking for value oriented weekend experience only 90 minutes away.

Annual gaming revenue for Laughlin market has shown consistent growth over the last five years, and is currently over $500 million, which is approximately 20% below peak levels. We believe our Laughlin operations have significant potential to grow profitability through synergies across the three properties.

We are also embarking on opportunities to grow our market share through targeted tier marketing. We completed the acquisition of the Edgewater and Colorado Belle in January, and I'm looking forward to updating you on our progress in Laughlin over the course of 2019.

While we are recently focused on growing our wholly owned casino operations, distributed gaming, including our successful tavern platform has been core to our Company's history and remains a critical piece of our go-forward strategy.

We view this business as an extension of regional gaming opportunities in established markets and a robust part of local gaming markets throughout Nevada, Montana and beyond. In 2018 we devoted a considerable time to renegotiating the economics of third-party leases in our Nevada chain store portfolio.

Over the course of 2019 and throughout future periods, we will improve the economics of approximately half of our 150 chain store locations in Nevada. We will also continue to open new taverns when and where we have an opportunity to generate strong returns and have six new locations planned to open within the first six months for 2019.

Our Montana distributed operations are showing strong year-over-year growth and there is potential for Montana to quickly lead the way and allowing sports wagering within distributed gaming locations across the state.

We continue to be active in pursuing new distributed gaming jurisdictions, as well as potential legislative changes in existing ones to improve the operating environment for this business.

Having built, owned and operated, all types of gaming establishments over my 30-year career, I'm confident that distributed gaming has the potential to be one of the biggest growth catalysts for the gaming industry and regional markets.

With the initiatives under way across our businesses combined with our new economic casino management system, including our new one-card player rewards program, we believe we can improve revenues from casino guests at The Strat and across our entire portfolio of gaming assets.

Our new True Rewards players club program will allow us to cross market targeted rewards to millions of players in our database in order to increase wallet share and time within our properties. We remain committed to creating value over the long term.

And I firmly believe that our planned initiatives for 2019 and beyond will best position Golden Entertainment for future success.

Operator, can you please open the call up for questions?.

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

Can you talk about the degree to which, I think when we went back a quarter or so, the dynamics on the Strip among the larger players were related or a driver to your ability to drive serve at The Strat.

If we were to just look at the property and its performance and a portion, some of the construction disruption, as well as just the overall dynamics in the Strip where other operators may or may not have a good stringer performance and how that impacts you, that would be helpful..

Well, if I understand the question, I think in specific to Q4, I think that dynamic is a proper comparison. Q4 to segue for just a minute, many of our assets performed significantly above Q4 of the prior year.

I think the story for us at The Strat specific to your question, was -- there was ongoing construction, but the demand for the property in terms of rooms in that fourth quarter was -- did not meet our expectations and therein I think lies the delta that you're talking about and I do believe that throughout the course of the year, the self strip properties were driving a lot of the occupancy trends at the Stratosphere.

I think, Q4 in particular, was specific to us year-over-year, in that we did not experience in the prior year the same downturn that the self strip properties experienced as a result of the event on October 1. So our comps were not the same, let's say, for the fourth quarter. I don't know if that answers your question.

And if not, you can let me know after I answer --.

No, I mean, it does. And just with respect to, Charles, if you could -- when I look at the capital allocation philosophy and just take a holistic view of it, there is a lot going on in there.

And if you could just give us an updated perspective on how you're linking those choices at this point between investing and M&A, investing in The Strat, delevering, returning to share repurchases, you can rank order those or just update us on your philosophy, that would be helpful..

Yes, I think maybe starting with the last, first. M&A is taking a back seat from us from a priority standpoint, certainly for the first half of this year, other than if we see opportunistic tuck-in acquisitions on the distributed side, which is really part of our business plan, certainly Nevada and Montana as we go forward.

If you think about the number one priority on capital, clearly as Blake outlined, it is investment in the Stratosphere, certainly for the front half of this year. In addition to that, we have six new taverns that are slated to open in the first six months of this year. So investing in our own portfolio is the priority for the next six months.

As we get into the back half of the year, I think that gives us a chance to take a look at where we are from a performance perspective, where we are in terms of achieving the goals we've set in terms of hitting the capital allocation within the Stratosphere and in other areas and then we could really evaluate how we think about the other two prongs of returning capital to our stakeholders in terms of leverage reduction and share buybacks.

That said, clearly I think in the fourth quarter, if you look at where -- we were acquiring shares in the market, we saw that as an opportunity versus the valuation presented to us and we are not wed to our priorities that I've just outlined based on the market conditions at the time..

Thank you. [Operator Instructions]. And our next question comes from the line of Chad Beynon with Macquarie. Your line is open..

Charles, you mentioned in your prepared remarks that if we take the simple math of 2018 EBITDA, add on the more now projected EBITDA or I guess TTM EBITDA, we derive at roughly $3.50 of free cash flow of 95 -- I think what we calculate to be roughly $95 million of free cash flow.

So, understanding that you're not giving guidance for 2019 outside of the six new taverns which would be a positive, slightly better terms on the chain stores, which I think should improve margins and be a positive, those will be offset by potentially some disruption from Strat renovations, is there anything else kind of in that algorithm that we should be aware of just when we think about 2019?.

Look, Chad, I mean, I think we obviously -- Blake outlined a lot of initiatives. You mentioned some of them, we've talked about the economics, one card system that we're putting into place. We obviously have our own expectations and plan. As you said, we're not giving guidance.

The purpose is that math, I was outlined, if you're ready to take the business as it sits right now today, that discretionary free cash yield per share relative to where we are trading at, it's probably the best in the space at this point. So, that was really the point to out. I think that there is puts and takes as we get through the year.

And you said the trade up for some of those, maybe some of the ongoing disruption at The Strat, but regardless of that we still feel that the cash flow generation coming out of this business, again, relative to our shares out and the yields is very attractive..

Okay, thank you. And we agree. On the Marnell gaming results, as you kind of take that under your wing here, were they wildly different than when you originally announced the acquisition.

I know some of the numbers had -- at the close of the books had to be finalized, but just as we think about revenues and EBITDA, did anything change dramatically from when you last reported them?.

For Marnell?.

Yes..

So, I'd say that, look, our expectation for the year for Marnell is still that we'd approximate roughly where we closed on an LTM basis, plus the $4 million in synergies that we've talked about in the past and earnings those synergies over the next two years..

Okay, great.

And then my final question, Blake, just as you think about the returns, some of the details have been tweaked on The Strat, but are you still targeting a 15% plus return on the overall project?.

I will say, Chad, I would say that's fair. I would say it's the gestation of all of these investments as I've outlined really culminates in 2021.

I think when we get the full slate of the amenities together in this property along with a concerted marketing campaign, which really we're not doing it all right now is I think we are very positive on achieving the results that we've outlined in the past regarding return on that investment..

And Chad, not to get into the details of it too much. But if you think about our room nights sold within that asset, it's roughly 800,000 on an annual basis. We have almost 1.3 million visitors that come to the Tower and those two experiences on the best we can tell are not linked.

So there is a very small percentage our casino guests that overlap that.

So you think about $2 million touch points a year, what we're trying to do with this investment is generate another $20 out each of those touch points with investment we're making and if you think about that as the margins that we're achieving, that is where we're getting to our returns.

So we've obviously looked at that there every investment we're making in the rooms, we're looking at that through every investment we are making the F&B outlets, but we've got to get to the end point of that project in order to get to that full return profile..

I think lastly, Chad, I think maybe helpful to summarize, the thesis of the investment overall is really -- not real complicated, right.

We want to invest in the rooms and amenities on a focused and targeted basis, while minimizing disruption and those investments are really meant to keep our guests in the resort longer spending more as a result of us providing more retail points, entertainment options and an overall experience, which competes effectively for out of town guests at Nevada.

And I will say just as a snippet here, of the venues that we have completed and are operating fully, we are realizing good returns from it.

So that's giving us whether that's the Top of the World restaurant or the 108 restaurant we just opened, meaning floor 108 or The Strat Cafe, we are realizing nice returns on those investments that have been completed.

That also is a bit -- it's a bit challenge with the continued construction going on, but there are -- there are highlights with those investments that have been completed and the second part of the thesis, as Charles said, is drawing more wallet share from the 1.2 million people currently visiting the Tower who are not saying at the property.

And I think, at the end of this, we're comfortable with realized returns that we've spoken about as Charles has just outlined..

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

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 2019 first quarter results..

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