Golden Entertainment - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 revenue was $160.8M with net income of $2.5M and diluted EPS of $0.09; Adjusted EBITDA was $37.6M. Year-over-year comps were affected by the $69.7M gain on sale booked in Q1 2024, masking underlying operational resilience.
• Versus S&P Global consensus, revenue modestly missed ($160.8M actual vs $163.6M estimate), but normalized “Primary EPS” beat ($0.17* actual vs $0.12* estimate); EBITDA missed on an unadjusted basis ($33.5M* actual vs $37.2M* estimate). Adjusted EBITDA reported by GDEN was $37.6M, close to consensus but not the same measure.
• Management highlighted improving near-term trends (April hotel revenue up; May pacing up 6 points in occupancy; June strong) and reiterated priority for buybacks and dividends given valuation dislocation and low net leverage (~2.4x).
• Capital return remained active: $7.6M repurchases in Q1 (273,945 shares at $27.79) and quarterly dividend of $0.25 declared, with $91.8M authorization remaining and $225.0M revolver availability to stay opportunistic.

What Went Well and What Went Wrong

What Went Well

• Locals casinos delivered margin discipline: EBITDA margins held at 46% for the second straight quarter, helped by payroll efficiencies, streamlined menus, and lower utilities, and April showed increasing strength.
• STRAT near-term trends improved: April hotel revenue up on higher occupancy and rate; May occupancy pacing up 6 points; June strong. OTA mix is ~65% and trending down toward a 50% target, aided by more direct bookings and better casino marketing integration.
• Capital allocation conviction: “There is no better use for our capital than repurchasing our own equity at these levels,” with buybacks and dividends supported by low net leverage and ample liquidity.

What Went Wrong

• Consolidated revenue declined year-over-year to $160.8M (from $174.0M), and Adjusted EBITDA fell to $37.6M (from $41.0M), reflecting a tougher comp and the absence of last year’s Super Bowl uplift at STRAT and prior-year divested distributed gaming.
• STRAT headwinds: occupancy down 5% for the quarter and 13% in February; management quantified a ~$3M EBITDA headwind versus last year’s Super Bowl period.
• Taverns faced heightened competitive promotions from smaller private operators, pressuring performance near-term, though management views this as unsustainable and maintained a disciplined reinvestment strategy.

Transcript

Operator (participant)

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Golden Entertainment's First Quarter 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal remarks. Please note that this call is being recorded today. Now, I'd like to turn the conference over to James Adams, the company's Vice President of Corporate Finance and Treasurer. Please go ahead, sir.

James Adams (VP of Corporate Finance and Treasurer)

Thank you very much, Operator, 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. Except as required by law, we undertake no obligation to update these statements as a result of new information or otherwise. During the call, we will also discuss non-GAAP financial measures and talking about our performance. You can find the reconciliation of GAAP financial measures in our press release, which is available on our website. We will start the call with Charles reviewing the details of the first quarter results and a business update. Following that, Blake and Charles will take your questions.

With that, I will turn the call over to Charles.

Charles Protell (President and CFO)

Thanks, James. Our first quarter year-over-year results were in line with our expectations and primarily impacted by not having last year's Super Bowl in Las Vegas, which was mainly felt at The STRAT. Outside of the Super Bowl impact on STRAT, our business in Q1 was healthy, with EBITDA from our other casinos up year-over-year and EBITDA from our taverns stabilizing. As we look forward, April continues to demonstrate stable operating trends, and May is off to a strong start. Currently, we are not seeing the dislocation in our business that seems to be reflected in our public valuation. Now for some context on our property performance in the first quarter. The STRAT experienced declining occupancy and spend, primarily in February, resulting in a $3 million EBITDA headwind from last year's Super Bowl.

Occupancy was down 5% for the quarter, but down 13% in February, which obviously led to lower gaming, F&B, and other revenues for the property. However, in April, our hotel revenue is up on both higher occupancy and rate, which is driving improved EBITDA heading into Q2. Looking forward through May, STRAT occupancy is pacing up 6% over last year at attractive rates, and June is showing strength as well. Currently, Q2 is looking better than last year for the property, but without direct convention bookings at The STRAT, we have limited visibility beyond the next few months. In Laughlin, we increased EBITDA by reducing expenses and focusing on more profitable concerts at our smaller entertainment venue. We also targeted weekend promotional activities for driving customers, as well as continued to promote our midweek bingo for local guests, which allowed us to maintain our leading market share in Laughlin.

For Nevada Locals Casinos, our revenue was flat the prior year, with EBITDA up 2%, largely driven by operational efficiencies across payroll and other expenses. We see consistent performance out of our Locals Casinos, with EBITDA margins at 46% for the second straight quarter. We actually see increasing strength in our Locals business in April, so this segment is off to a strong start in Q2. In our taverns, revenue and EBITDA were down slightly year-over-year, but on a sequential basis, EBITDA continued to increase over Q4 as we achieved improved performance from our newest taverns and lowered operating expenses. We have seen an uptick in promotional activity in the tavern market from smaller private operators, which we do not view as sustainable, but it may have some impact on Q2 performance for our taverns as we maintain a more disciplined reinvestment strategy.

Moving on to our capital structure, we ended the quarter with just over $400 million of debt outstanding, $50 million of cash, and $225 million of remaining availability under a revolving credit facility. Our low net leverage at 2.4x EBITDA and liquidity profile will enable us to withstand any potential impact to our business from the macro environment and allow us to continue to reinvest in our own assets, pay dividends, and opportunistically acquire more of our own stock. In Q1, we had a short open window to buy stock, but still used $7.6 million of our buyback authorization to repurchase 274,000 shares. Since the start of 2024, we have repurchased 3.2 million shares, totaling almost $100 million, and paid out $35 million in dividends. We have $92 million remaining on our current buyback authorization, which we will use opportunistically throughout the year.

We have evaluated the limited M&A opportunities currently in the market, and given the dislocation in our share price, there is no better use for our capital than repurchasing our own equity at these levels. Our business has remained resilient and is improving despite an uncertain macroeconomic environment. Having a focused portfolio of branded taverns, casinos with owned real estate, and low leverage positions us well to withstand any potential short-term fluctuations in consumer demand and to benefit from the favorable long-term economic trends in Nevada. That concludes our prepared remarks. Blake and I are now available for questions.

Operator (participant)

We will now begin the question-and-answer session. If you would like to ask a question, press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Your first question comes from the line of Barry Jonas with Truist Securities. Barry, please go ahead.

Barry Jonas (Managing Director and Senior Equity Analyst)

Hey, guys. I wanted to start with—hey. I want to start with The STRAT. I appreciate some of the comments in the opening remarks. Can you maybe just give a little color now about what the booking window is, how it's been trending as of late, and also maybe talk about what your OTA mix is now and how you're sort of moving towards that targeted 50% mix? Thanks.

Blake Sartini (Founder, Chairman and CEO)

Yeah. As Charles mentioned in his prepared comments, we do not have much—without our traditional banquet space, our window is probably much shorter than others. For April, May, it looks very, very good. It looks very strong, pacing on a trending basis better than Q1. It is hard for us to predict really outside of June. I think Charles mentioned June was looking strong also. We are seeing—I think an addition I think is important to point out—we are seeing casino revenues and operational margins also trend in the right direction at The STRAT. Overall, the property is trending well. Outside of the next 90 days, it is hard for us really to provide any solid guidance.

Charles Protell (President and CFO)

Yeah. I'd also just add to that, I mean, different than others, because, as Blake said, we don't have that group space, our booking window has always been relatively short compared to some of our peers. We typically see 25%-30% of the occupancy materialize within a seven-day period. That's been fairly consistent for us. We haven't seen a lot of change in terms of the shortening booking window from our perspective. Again, we've always been shorter than others.

Blake Sartini (Founder, Chairman and CEO)

On the OTA—on your second part of the question on the OTA percentage, I think we're running approximately 65% now, and it's trending downward as well. We are doing a much better job through our casino marketing programs on direct bookings and producing a lot more personal information for people checking in, putting systems in place that allow us to speak with them directly, which had been a bit spotty in the past. We are trending at 65%, give or take, right now, trending in the right direction. We're very bullish on us being able to get to that 50% level.

Barry Jonas (Managing Director and Senior Equity Analyst)

Got it. If I could sneak one more in, I think as well, the comments about share purchases taking priority in the current environment makes a lot of sense. Can you maybe expand more on the M&A environment, both on the buy side as well as sell side, of which you've discussed before? Just curious how much the macro is impacting those discussions or opportunities. Thanks.

Charles Protell (President and CFO)

I think, yeah, I think the short answer is quite a bit. I mean, when you have this much value dislocation in a short period of time, you're resetting expectations, and you're uncertain about what the future looks like. That obviously puts a damper on just strategic M&A discussions. From a financing perspective, I think certainly us and others headed into this year anticipating interest rates to be lower than where they are at this point in time. We'll see how that plays out over the course of the year. That obviously has a direct impact on the ability to pay and ability to finance transactions.

Barry Jonas (Managing Director and Senior Equity Analyst)

Makes sense. All right. Thank you so much.

Blake Sartini (Founder, Chairman and CEO)

Thanks.

Operator (participant)

Your next question comes from the line of David Katz with Jefferies. David, please go ahead.

David Katz (Managing Director)

Thank you. Good evening, everybody. Charles, I wanted to go back to your commentary about the tavern business and smaller operators. By definition, a smaller operator or two should not make that much of a difference. There must be, I am guessing, more of a trend among the smaller guys. Is it true then that other larger operators are not participating in the competition? A little more meat on that would be helpful.

Charles Protell (President and CFO)

Yeah. I mean, keep it—we're the largest operator of taverns in Nevada. Most of that is in Southern Nevada and Las Vegas. If you think about restricted licenses that we operate, there's probably around 400 or so in Southern Nevada. Again, we're the largest, but we're a smaller portion of that. What we see—and we've lost some visibility on this once we divested the route that serviced these locations—and we've seen increased promotional activity, not so much necessarily at chain-store locations, but on competing bar-type locations from private operators. What we've seen in the past over many years is in that mode, you are really just chasing more dollars over the same customer wallet. I think that we haven't seen that behavior in the casinos and in the local casinos.

I think there's probably a little bit more sophistication there and a little bit more experience. I think the turnover in ownership with smaller private tavern operators is a lot more frequent than what you see in casinos. It is a lot less institutionalized in terms of ownership and sophistication. Those are people chasing business. We've seen it before in the past. We think we're going to stick with our strategy. We've already, by the way, seen that mitigate a bit as we get into April and May. There is really no way for us to govern what other people are not doing in the market, as we were somewhat able to at least provide some guidance when we owned the route to others on best practices for tavern marketing.

Blake Sartini (Founder, Chairman and CEO)

Yeah. I might just add, it's a good question. You're right. Typically, these smaller operators, one or two, would not impact our 72 or 73 chain franchise. In the past, I have seen that these marketing trends are typically not sustainable, even for these smaller guys. To Charles' point, they short-term chase dollars. Back to Charles' prepared comments, with our discipline approach, we're now three quarters in a row of EBITDA trend upward. We've gotten our arms around, and I think we can get a little more detail, if you're interested, on our newer taverns that are now performing significantly better than our prior call. We are confident our size and our discipline approach will overcome these short-term trends that some of these independent operators may be trying, but we know are not sustainable.

David Katz (Managing Director)

Understood. If I can just go a little further from your unique purview, given that you have that tavern business, is there anything we can point to or discuss with respect to how consumers are behaving across the valley over the last, call it, 65 days or so?

Blake Sartini (Founder, Chairman and CEO)

Yeah. I think as we define our taverns as hyper-local, if you will, other than 401(k) exposure, our demographic in the taverns really is not invested in the market, so to speak, from a broader perspective. They are more in tune with commodity prices, mortgage rates, wealth effect of equity in their homes. It has been, as I mentioned in the past, the most resilient part of our business. In the last 65 days, and particularly since Liberation Day or when the turmoil began in the market, for the most part, our customers have seen right through that as they are not really exposed to the broader market. We are seeing trends, as we mentioned in our prior calls, of similar amounts of gaming days, but less gaming investment, so to speak.

There has been a pullback a little bit in terms of people coming in as frequently, but maybe not spending as much. Generally speaking, to your question, I don't believe the broader market has a long-term impact on our tavern customer.

David Katz (Managing Director)

Perfect. Thank you very much.

Operator (participant)

Your next question comes from the line of Chad Beynon with Macquarie Group. Chad, please go ahead.

Chad Beynon (Managing Director and Analyst)

Good afternoon, Blake, Charles. Thanks for taking my question. I wanted to revisit the point, Charles, you were making about the M&A search and the decision to buy back stock. Just on that, I know you talked a lot about this last quarter and maybe even the quarter prior. Since you did a comprehensive search, is this something that you would maybe revisit throughout the year, or are you just kind of keeping the lines open? What do you think would bring more portfolios or assets to the market? Do you think it's fairly static right now, or is this something that could change as we progress through the year? Thank you.

Charles Protell (President and CFO)

Yeah. Yeah. Thanks, Chad. Look, I think we're in a wait-and-see type of moment for the market, particularly around M&A. I think if you look at assets that have been marketed recently, single assets, opcos, or subscale single assets, or larger type of opcos, those have been the opportunities that have been presented in one way, shape, or form. I think those, and with relatively high price expectations in relation to the quality of those assets and the opportunities that they present. When you put that as a backdrop against buying EBITDA for wholly-owned gaming assets that we know in markets that we like at seven times EBITDA or less, that obviously leads to we should just be buying our own business with excess capital. Does that change over time? Maybe, but I don't see that in the near term. I think there's still going to be potential dislocation.

We are a—we've been a big buyer of our stock at prices that are higher than we're trading at right now. We're going to be a buyer of our stock at these levels. For more larger-scale M&A, I mean, again, I think you're going to have to wait and see how things play out on the macro side. Within the sector, I still believe the sector should be consolidating. I think that opportunities may present themselves in the future that are attractive to us and good fits for us. There is nothing out there that's worth, in our mind, changing strategy from repurchasing our own stock as the focus, investing in our own assets, showing off the operations, and distributing capital to shareholders in the form of dividends.

Chad Beynon (Managing Director and Analyst)

Okay. Thank you. That makes a lot of sense. Then back on The STRAT, I guess a two-parter here. One, can you talk about exposure to Canada or any other market where we're seeing weakness in terms of inbound employments? Then secondly, any update just in terms of how citywides and events at the Sphere, Allegiant, etc., look beyond the period that you talked about in your near-term window? Thank you.

Blake Sartini (Founder, Chairman and CEO)

Yeah. Chad, in regards to Canada, we—STRAT is really not exposed to a material amount of international business, primarily flying and driving, Southern California, Arizona, and so on. I would say it is immaterial to discuss what we would maybe be feeling at The STRAT from that perspective. Citywides, citywides seem to be booking pretty well. Obviously, as you know, when the city fills up, we do better. Charles, do you have?

Charles Protell (President and CFO)

Yeah. No, it just goes back, Chad, to the same visibility question. So anything that's coming in, if you look at things like EDC in May, that is big for us given our location relative to where that is held. Those things, we're looking great. We just don't have that visibility to get past June. We'll have less than maybe 10% on the books for the property as you get into July. Again, tougher for us to tell. If you look in the near term, and we're looking at May, and we're looking at June, like I said, we're up six points in occupancy in May year-over-year. June looks strong for us as well on a relative basis to last year. We'll see. I mean, obviously, things are changing pretty quickly in the market.

For right now, our business feels very solid to improving as we head into Q2.

Blake Sartini (Founder, Chairman and CEO)

A couple of other quick data points, Chad. This may not be a great segue, but at The STRAT, we just signed a nationally recognized food and beverage concept that should open in The STRAT sometime during the fourth quarter or first of next year, which is a positive given in the context of controlling our own destiny there. We are beginning to receive rev share from Atomic Golf that continues to ramp next to us. We have begun receiving quarterly checks on our rev share, which is pretty significant this year. The property, in the context of what we can control, we feel very good about going forward.

Chad Beynon (Managing Director and Analyst)

That's great. Thank you both. Appreciate it.

Charles Protell (President and CFO)

Thanks, Chad.

Operator (participant)

Your next question comes from the line of Zachary Silverberg with Wells Fargo. Zachary, please go ahead.

Zachary Silverberg (VP of Equity Research, Gaming, Lodging and Leisure)

Hey, good evening. Thanks for taking my questions. Just one on the local segment. You guys saw some strong margins, 46% for the second straight quarter, increasing strength in April. Can you talk about the operational efficiencies there? Are there any other levers to pull moving forward where we could potentially see margins stable or potentially growing moving forward?

Charles Protell (President and CFO)

Yeah. I think from a local perspective, we really did a great job right-sizing labor within those properties, particularly on the food and beverage outlets, streamlining menus, and getting some efficiencies in the hotel. Quite frankly, we've made some capital investments there. I'd say also we've experienced declining costs on the utility side that have been contributing to margins. We feel pretty good about where that is. The spend from our guests has remained strong. Our assets, our local assets, we only have two local casinos, but they're fairly significant within the portfolio. They have a very loyal local following that plays there frequently. We've seen very little impact from the macro conditions on that customer.

Zachary Silverberg (VP of Equity Research, Gaming, Lodging and Leisure)

Gotcha. Maybe back to capital allocation, how are you guys thinking about CapEx spend, maybe either maintenance or potentially more growthy spend given the uncertain economic outlook and/or a potential increase in input costs?

Charles Protell (President and CFO)

Yeah. I'd say for us, we're pretty well insulated from any type of tariff exposure. From a procurement perspective, if you look at linens and those types of things, we've already kind of sourced that away from Asia and into India and Pakistan in terms of that sourcing. So we don't have a lot of exposure from a tariff perspective. On the CapEx side of things, maintenance CapEx for portfolio runs around $30 million-$35 million as it sits right now today. We do have two taverns that we intend to open this year that have previously been signed. We obviously intend to do that. We think they're in great locations. They'll be added into the portfolio. Those are about $3 million each. Beyond that, we have no major investments that are planned.

Again, that goes back to we think the best capital allocation at this point is in buying our own stock.

Blake Sartini (Founder, Chairman and CEO)

Yeah. I would just add in terms of growth, I mentioned the nationally recognized food and beverage concept. We are negotiating a lot of third-party investment in our facilities, which allows us for growth-type amenities without using our capital, as well as we have, as you know, a lot of excess real estate surrounding all of our casinos. We continue to dial in on potential synergistic uses with third parties for those parcels as well.

Zachary Silverberg (VP of Equity Research, Gaming, Lodging and Leisure)

Thank you.

Operator (participant)

Your next question comes from the line of Jordan Bender with Citizens JMB. Jordan, please go ahead.

Jordan Bender (Senior Equity Analyst)

Hey, everyone. Good afternoon. I know we're talking about some pretty short-term impacts, but in recent weeks, have you seen the drive-in traffic into Laughlin or STRAT improve just given the gas prices have moved lower? Or historically, does that potentially point to a forward-looking tailwind?

Charles Protell (President and CFO)

Yeah, I think it does. I mean, what it does, it really helps discretionary spending, right? It's offsetting some of those other inflationary pressures, particularly in the local market. It's a big driver when you see gas prices come down a little bit. You'd see a little bit of that spend in the taverns as well. From a Laughlin perspective, what's driving business there more is the events that we put on on the weekends. Us being able to have more frequent, smaller events has been a more profitable exercise for us than having a lot of large-scale concerts in the Laughlin event center. We're leading market share down there right now. It's viewed as a more cost-effective entertainment destination than Vegas for a lot of people driving in from the Inland Empire.

Whether that tank of gas for them was $35 or $45, they're still going to come and see Jason Aldean or Alabama or whatever's going on down there in the market at that time.

Jordan Bender (Senior Equity Analyst)

Great. Following up on the M&A discussion, it's been a few years of you guys just being a smaller-sized company after the divestitures of distributed gaming in Maryland. Now that you've settled in and run that business, do you feel that if you continue as an independent company, you would look to add more scale back to the business?

Charles Protell (President and CFO)

I think it all depends, right? It depends on value, quite frankly, in either direction of the M&A discussion. I think for us, we feel like we definitely have built a platform here over a long period of time that we could add assets to accretively from an operational perspective. We just need to find assets in the right value zone that you could add accretively to do that. Like I said, we've done a lot of work. We've talked a few quarters about looking at opportunities. I think at this point in time, those are not out there that are attractive to us. We are no longer looking at that. We are looking at buying our own stock and investing in the business as we move throughout this year.

Jordan Bender (Senior Equity Analyst)

Great. Thank you very much.

Charles Protell (President and CFO)

Thanks.

Operator (participant)

Your next question comes from the line of John DeCree with CBRE. John, please go ahead.

John DeCree (Head of Institutional Investor Research)

Hey, Charles, Blake. Maybe to ask the capital allocation question a little differently. Given where your stock is, how cheap it is, and your commitment to buying back stock, and where the balance sheet is, have you considered perhaps leaning into the repurchase a little bit more given your balance sheet capacity, I guess, i.e., use a little bit of leverage that you probably use for M&A anyway, but given how attractive your stock is? Your thoughts on maybe being more aggressive there, a tender, something to that effect, and then a follow-up on the STRAT operations.

Charles Protell (President and CFO)

Yeah. I mean, look, I think we will be aggressive in buying the stock. We'll use liquidity to do that. We obviously have a lot of capacity on a revolver. You can see there's over $200 million of availability. I do think tenders, and this is anecdotal and a bit personal opinion, I have not seen those work so well within the gaming space. I think that you get a better sustained not only support for the stock, but value for shareholders to the extent that you are buying back the shares over time. Now, those could be meaningful buybacks per quarter. I mean, you could see we bought back, if we look over last year, we were buying at the clip of 1 million shares a quarter, which would make us effectively the largest shareholder of our own stock, right, as a company within those nine months.

I think that institutional, of course, Blake. I think that's not it. I think that is how I see that rolling out. I would not expect immediacy of some tender. Now, that said, that's given kind of where we're sitting right now. If there's some massive market dislocation, our business remains quite stable. Again, in our mind, the trends in our business are not reflective of our valuation and the recent gyrations in our stock. I can't see how it happens, but if we're moving lower, maybe we change our tune on that.

John DeCree (Head of Institutional Investor Research)

Fair enough, Charles. Appreciate that. I'd agree with the valuation as well. Fundamentally, I wanted to ask about The STRAT and your ability to yield up hotel room rate there. I guess pretty good occupancy in the one Q outside of February, which was a tough comp. I think you said up in April at attractive rates. When you look forward, what's the key to driving higher room rate at The STRAT? Is that just getting occupancy back, or do you need to price-off of the Strip? Continue to see your peers further south on the Strip drive rate. What are your levers to pull to kind of get room rate back up?

Blake Sartini (Founder, Chairman and CEO)

I think it's a combination of a couple of things. I think obviously we have to have some tailwinds from the city as the city, as Charles mentioned, EDC and citywide promotions that we do tremendously helps significantly. As I mentioned in my earlier comments, we are internally doing a much better job of being able to gather information from our guests that allow us a more direct line for direct bookings and things like that. We see our OTA trends going down. That in two ways is going to increase revenue. One, potentially in rate. Two, certainly in casino revenue. That benefits the property either way. It really boils down to compression midweek. I mean, midweek is really where weekends we are solid. We're great. We yield rate significantly effectively on the weekends.

Midweek, without a lot of citywide-driven traffic, to your point, we take our lead off of kind of the South Strip guys and where they're going with their rate. With our newer casino, newer rooms, newer F&B, Atomic Golf, all the things we're building there, service-wise, I think we're surpassing a lot of our peers on the service floor side. The midweek is where we focus and we need a little help from the city on that side.

Zachary Silverberg (VP of Equity Research, Gaming, Lodging and Leisure)

Understood. Thanks, Blake.

Operator (participant)

Ladies and gentlemen, as there are no further questions, that concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.