Golden Entertainment(GDEN) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (Unaudited) This section presents Golden Entertainment, Inc.'s unaudited consolidated financial statements, including balance sheets, operations, equity, and cash flows, for Q1 2024 Consolidated Balance Sheets Consolidated Balance Sheet Highlights (March 31, 2024 vs. December 31, 2023): | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | Change (in thousands) | Percentage Change | | :-------------------------------- | :----------------------------- | :------------------------------ | :-------------------- | :------------------ | | Cash and cash equivalents | $404,338 | $157,550 | $246,788 | 156.6% | | Total current assets | $449,767 | $409,442 | $40,325 | 9.8% | | Total assets | $1,501,931 | $1,452,283 | $49,648 | 3.4% | | Total current liabilities | $190,219 | $174,376 | $15,843 | 9.1% | | Total liabilities | $932,309 | $914,550 | $17,759 | 1.9% | | Total shareholders' equity | $569,622 | $537,733 | $31,889 | 5.9% | Consolidated Statements of Operations Consolidated Statements of Operations Highlights (Three Months Ended March 31, 2024 vs. 2023): | Metric | 2024 (in thousands) | 2023 (in thousands) | Change (in thousands) | Percentage Change | | :-------------------------------- | :------------------ | :------------------ | :-------------------- | :------------------ | | Total revenues | $174,047 | $278,051 | $(104,004) | -37.4% | | Total expenses | $93,905 | $245,401 | $(151,496) | -61.7% | | Operating income | $80,142 | $32,650 | $47,492 | 145.5% | | Net income | $41,963 | $11,630 | $30,333 | 260.8% | | Basic Net income per share | $1.46 | $0.41 | $1.05 | 256.1% | | Diluted Net income per share | $1.37 | $0.38 | $0.99 | 260.5% | - The significant increase in net income and operating income was primarily driven by a $69.7 million gain on the sale of business in Q1 2024, coupled with a substantial decrease in total expenses, largely due to the divestiture of certain gaming operations[11][119] Consolidated Statements of Shareholders' Equity Consolidated Statements of Shareholders' Equity Highlights (Three Months Ended March 31, 2024 vs. 2023): | Metric | March 31, 2024 (in thousands) | March 31, 2023 (in thousands) | Change (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | | Total Shareholders' Equity | $569,622 | $352,473 | $217,149 | | Retained Earnings | $96,202 | $(115,792) | $211,994 | | Common Shares Outstanding | 28,949 | 28,837 | 112 | - Shareholders' equity significantly increased, primarily due to a substantial rise in retained earnings, reflecting the net income generated during the period, partially offset by a $7.2 million dividend payment[14][54] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31, 2024 vs. 2023): | Cash Flow Activity | 2024 (in thousands) | 2023 (in thousands) | Change (in thousands) | | :-------------------------------- | :------------------ | :------------------ | :-------------------- | | Net cash provided by operating activities | $25,795 | $54,546 | $(28,751) | | Net cash provided by (used in) investing activities | $188,599 | $(24,861) | $213,460 | | Net cash used in financing activities | $(7,656) | $(15,516) | $7,860 | | Change in cash and cash equivalents | $206,738 | $14,169 | $192,569 | | Balance, end of period | $404,338 | $156,203 | $248,135 | - Cash and cash equivalents at period-end significantly increased by $248.1 million, primarily driven by strong cash provided by investing activities, which included $204.9 million from the sale of distributed gaming operations in Nevada[17][139] - Net cash provided by operating activities decreased by 53% due to lower operating income from divestitures and timing of working capital spending[138] Condensed Notes to Consolidated Financial Statements Note 1 — Nature of Business and Basis of Presentation - Golden Entertainment, Inc. operates a diversified entertainment platform with eight casino properties and 71 branded taverns in Nevada, primarily targeting local patrons in the Las Vegas metropolitan area[21][95] - The company completed the sale of its distributed gaming operations in Nevada on January 10, 2024, for $213.5 million, following previous sales of Rocky Gap Casino Resort and Montana distributed gaming operations in 2023[23][96] - Subsequent to Q1 2024, the company acquired Great American Pub (GAP), adding two tavern locations to its Nevada Taverns segment for $7.3 million, expanding the portfolio to 71 locations[24][97] Note 2 — Divestitures - The company incurred $2.0 million in transaction costs related to the sale of Nevada distributed gaming operations in Q1 2024, recorded in selling, general and administrative expenses[35] Revenues and Pretax Income from Divested Operations (Three Months Ended March 31): | Segment | 2024 (in thousands) | 2023 (in thousands) | | :-------------------------------- | :------------------ | :------------------ | | Maryland Casino Resort | | | | Revenues | $— | $18,128 | | Pretax income | $— | $5,117 | | Distributed Gaming- Montana | | | | Revenues | $— | $28,553 | | Pretax income | $— | $2,459 | | Distributed Gaming- Nevada | | | | Revenues | $6,019 | $61,848 | | Pretax income | $476 | $5,084 | Note 3 — Property and Equipment Property and Equipment, Net (in thousands): | Category | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Property and equipment, net | $789,557 | $786,145 | | Construction in process | $14,223 | $10,561 | | Accumulated depreciation | $(515,516) | $(495,563) | - Depreciation expense for property and equipment decreased to $21.6 million for Q1 2024 from $22.2 million in Q1 2023[39] Note 4 — Goodwill and Intangible Assets Goodwill Balances by Segment (in thousands): | Segment | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Nevada Casino Resorts | $22,105 | $22,105 | | Nevada Locals Casinos | $38,187 | $38,187 | | Nevada Taverns | $24,033 | $24,033 | | Total Goodwill | $84,325 | $84,325 | Intangible Assets, Net (in thousands): | Category | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Indefinite-lived intangible assets (Trade names) | $47,900 | $47,900 | | Amortizing intangible assets (Player relationships, Non-compete agreements) | $5,569 | $6,035 | | Total Intangible Assets, Net | $53,469 | $53,935 | - Total amortization expense for intangible assets decreased to $0.5 million for Q1 2024 from $1.3 million in Q1 2023[45] Note 5 — Accrued Liabilities Accrued Liabilities (in thousands): | Category | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Gaming liabilities | $10,838 | $10,726 | | Interest | $9,931 | $4,572 | | Uncertain tax positions payable | $7,893 | $7,755 | | Dividend payable | $7,237 | $— | | Accrued taxes, other than income taxes | $5,780 | $5,193 | | Other accrued liabilities | $4,384 | $4,538 | | Deposits | $2,118 | $1,855 | | Total current accrued liabilities | $48,181 | $34,639 | - Total current accrued liabilities increased by $13.5 million, primarily due to a new dividend payable of $7.2 million and an increase in accrued interest[46] Note 6 — Long-Term Debt Long-Term Debt, Net (in thousands): | Category | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Term Loan B-1 | $397,000 | $398,000 | | 2026 Unsecured Notes | $276,453 | $276,453 | | Finance lease liabilities | $4,983 | $1,691 | | Notes payable | $222 | $438 | | Total long-term debt and finance leases | $678,658 | $676,582 | | Long-term debt, net and finance leases | $660,874 | $658,521 | - As of March 31, 2024, the company had $397 million outstanding under its Term Loan B-1 and $240 million available under its Revolving Credit Facility[48] - Subsequent to March 31, 2024, on April 15, 2024, the company redeemed and repaid in full all of its $276.5 million 2026 Unsecured Notes, eliminating the Springing Maturity Date provision for its Credit Facility[49][52][88] - The weighted-average effective interest rate on outstanding borrowings under the Credit Facility was 8.19% for the three months ended March 31, 2024[50] Note 7 — Shareholders' Equity and Stock Incentive Plans - The Board of Directors increased the share repurchase program to $100 million on July 27, 2023, with $90.9 million remaining availability as of March 31, 2024, and no shares were repurchased in Q1 2024 or Q1 2023[53] - A recurring quarterly cash dividend of $0.25 per share was declared on February 27, 2024, with the first payment of $7.2 million made on April 4, 2024[54] Share-based Compensation Expense (in thousands): | Type | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Restricted Stock Units (RSUs) | $1,800 | $1,800 | | Performance Stock Units (PSUs) | $1,200 | $1,500 | | Total Share-based Compensation | $3,000 | $3,300 | Note 8 — Income Tax Income Tax Information (Three Months Ended March 31): | Metric | 2024 | 2023 | | :-------------------------------- | :--- | :--- | | Effective income tax rate | 39.6% | 19.3% | | Income tax expense (in thousands) | $27,493 | $2,784 | - The effective income tax rate for Q1 2024 was 39.6%, significantly higher than 19.3% in Q1 2023, primarily due to the tax effect of the sale of distributed gaming operations in Nevada[61][122] - The company has a $7.9 million uncertain tax positions (UTP) payable as of March 31, 2024, related to an IRS audit of 2017 and 2018 federal tax returns, with a resolution anticipated by December 31, 2024[62][63] Note 9 — Financial Instruments and Fair Value Measurements Fair Value Measurement of Long-Term Debt (March 31, 2024, in thousands): | Debt Instrument | Carrying Amount | Fair Value | Fair Value Hierarchy | | :-------------------------------- | :-------------- | :--------- | :------------------- | | Term Loan B-1 | $397,000 | $397,993 | Level 2 | | 2026 Unsecured Notes | $276,453 | $275,762 | Level 2 | | Finance lease liabilities | $4,983 | $4,983 | Level 3 | | Notes payable | $222 | $222 | Level 3 | | Total debt | $678,658 | $678,960 | | Note 10 — Commitments and Contingencies - Contingent payments recognized as gaming expenses under participation agreements decreased significantly to $3.9 million for Q1 2024 from $53.3 million in Q1 2023, primarily due to the divestiture of distributed gaming operations[68] - The company is involved in various lawsuits and claims in the ordinary course of business, but management believes their resolution should not have a material adverse effect on its financial condition[69] Note 11 — Segment Information - As of March 31, 2024, the company operates through three reportable segments: Nevada Casino Resorts, Nevada Locals Casinos, and Nevada Taverns, following the divestiture of Maryland Casino Resort and Distributed Gaming segments[70][74] Revenues by Reportable Segment (Three Months Ended March 31, in thousands): | Segment | 2024 | 2023 | | :-------------------------------- | :--- | :--- | | Nevada Casino Resorts | $101,012 | $100,176 | | Nevada Locals Casinos | $38,991 | $41,238 | | Maryland Casino Resort (divested) | $— | $18,128 | | Nevada Taverns | $27,807 | $27,593 | | Distributed Gaming (divested) | $6,019 | $90,401 | | Corporate and other | $218 | $515 | | Total Revenues | $174,047 | $278,051 | Adjusted EBITDA by Reportable Segment (Three Months Ended March 31, in thousands): | Segment | 2024 | 2023 | | :-------------------------------- | :--- | :--- | | Nevada Casino Resorts | $26,891 | $31,711 | | Nevada Locals Casinos | $17,536 | $20,160 | | Maryland Casino Resort (divested) | $— | $5,128 | | Nevada Taverns | $7,561 | $8,538 | | Distributed Gaming (divested) | $484 | $9,784 | | Corporate and other | $(11,480) | $(13,154) | | Total Adjusted EBITDA | $40,992 | $62,167 | Note 12 — Related Party Transactions - The company leases office space from an entity 33% beneficially owned by CEO Blake L. Sartini, incurring $0.1 million in rent expense for both Q1 2024 and Q1 2023[82] - No costs were incurred for private aircraft use under cost-sharing agreements with Sartini Enterprises, Inc. in Q1 2024, compared to $0.1 million in Q1 2023[86] Note 13 — Subsequent Events - On April 15, 2024, the company redeemed and repaid in full its 2026 Unsecured Notes for $287.0 million, resulting in a $4.4 million loss on debt extinguishment[88] - On April 22, 2024, the company acquired Great American Pub (GAP), adding two tavern locations in Nevada for $7.3 million[89] - On May 2, 2024, the Board of Directors authorized a second recurring quarterly cash dividend of $0.25 per share, payable on July 2, 2024[90] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses the company's financial condition, operations, liquidity, and capital resources for Q1 2024, highlighting divestitures and acquisitions Overview - Golden Entertainment operates eight casino properties and 71 branded taverns in Nevada, focusing on a diversified entertainment platform[95] - The company completed the sale of its distributed gaming operations in Nevada on January 10, 2024, for $213.5 million, following prior divestitures in 2023[96] - Post-quarter, Golden acquired Great American Pub (GAP), adding two tavern locations in Nevada for $7.3 million, expanding its branded tavern portfolio to 71 locations[97] Operations - As of March 31, 2024, the company's business is conducted through three reportable segments: Nevada Casino Resorts, Nevada Locals Casinos, and Nevada Taverns[98] Operational Footprint by Segment (as of March 31, 2024): | Segment | Casino Space (Sq. ft.) | Slot Machines | Table Games | Hotel Rooms | | :-------------------------------- | :--------------------- | :------------ | :---------- | :---------- | | Nevada Casino Resorts | 207,207 | 2,554 | 80 | 5,372 | | Nevada Locals Casinos | 151,857 | 1,898 | 19 | 69 | | Nevada Taverns | — | 1,093 | — | — | | Totals | 360,073 | 5,645 | 99 | 6,003 | - Nevada Casino Resorts cater to regional drive-in customers, offering extensive amenities and a larger number of hotel rooms, while Nevada Locals Casinos target local customers with higher visit frequency and focus on slot machine play[100][104] - Nevada Taverns provide a casual, upscale environment with food, craft beer, and up to 15 slot machines, primarily serving local patrons in the greater Las Vegas area[109] Results of Operations Consolidated Results of Operations (Three Months Ended March 31, in thousands): | Metric | 2024 | 2023 | Change | % Change | | :-------------------------------- | :--- | :--- | :----- | :------- | | Total revenues | $174,047 | $278,051 | $(104,004) | -37.4% | | Total expenses | $93,905 | $245,401 | $(151,496) | -61.7% | | Operating income | $80,142 | $32,650 | $47,492 | 145.5% | | Net income | $41,963 | $11,630 | $30,333 | 260.8% | - Total revenues decreased by $104.0 million (37%) primarily due to the exclusion of divested operations (Rocky Gap and distributed gaming in Montana and Nevada)[114] - Operating income increased by 145.5% due to a $69.7 million gain on the sale of the Nevada distributed gaming business and a significant reduction in gaming operating expenses following divestitures[113][115][119] - Interest expense, net, decreased by $7.6 million (41%) due to reduced debt obligations and higher interest income[121] Revenues and Adjusted EBITDA by Reportable Segment Revenues by Reportable Segment (Three Months Ended March 31, in thousands): | Segment | 2024 | 2023 | Change | % Change | | :-------------------------------- | :--- | :--- | :----- | :------- | | Nevada Casino Resorts | $101,012 | $100,176 | $836 | 0.8% | | Nevada Locals Casinos | $38,991 | $41,238 | $(2,247) | -5.4% | | Nevada Taverns | $27,807 | $27,593 | $214 | 0.8% | | Distributed Gaming (divested) | $6,019 | $90,401 | $(84,382) | -93.3% | Adjusted EBITDA by Reportable Segment (Three Months Ended March 31, in thousands): | Segment | 2024 | 2023 | Change | % Change | | :-------------------------------- | :--- | :--- | :----- | :------- | | Nevada Casino Resorts | $26,891 | $31,711 | $(4,820) | -15.2% | | Nevada Locals Casinos | $17,536 | $20,160 | $(2,624) | -13.0% | | Nevada Taverns | $7,561 | $8,538 | $(977) | -11.4% | | Distributed Gaming (divested) | $484 | $9,784 | $(9,300) | -95.0% | | Corporate and other | $(11,480) | $(13,154) | $1,674 | -12.7% | | Total Adjusted EBITDA | $40,992 | $62,167 | $(21,175) | -34.1% | - Nevada Casino Resorts revenues increased slightly due to higher rooms and other revenues from events, despite a decrease in gaming revenues due to marketing program reevaluation and increased complimentary services[126][129] - Nevada Locals Casinos experienced a 5% revenue decrease and 13% Adjusted EBITDA decrease, attributed to softer gaming demand, increased complimentary services, and higher labor costs[130][131] - Adjusted EBITDA margins for Nevada Casino Resorts, Nevada Locals Casinos, and Nevada Taverns decreased in Q1 2024 compared to Q1 2023, primarily due to higher labor costs and cost of goods[134] Liquidity and Capital Resources - As of March 31, 2024, the company had $404.3 million in cash and cash equivalents and $240 million in borrowing availability under its Revolving Credit Facility, which are expected to be sufficient for capital requirements over the next 12 months[135][156] - Net cash provided by operating activities decreased by 53% to $25.8 million, primarily due to divestitures and timing of working capital spending[138] - Net cash provided by investing activities was $188.6 million, driven by $204.9 million from the sale of Nevada distributed gaming operations, offset by $16.3 million in capital expenditures[139] - Net cash used in financing activities decreased by 50% to $7.7 million, mainly due to a $9.5 million decrease in tax withholding on share-based payments[140] Critical Accounting Policies and Estimates - The company's financial statements require estimates and assumptions related to acquisition accounting, long-lived assets, goodwill, intangible assets, revenue recognition, income taxes, and share-based compensation[147] - There were no material changes to critical accounting policies and estimates during the three months ended March 31, 2024[148] Seasonality - The company's businesses are affected by seasonal factors, with lower revenues historically experienced during the summer due to higher temperatures and increased vacation activity, and higher revenues in branded taverns during the fall due to professional sports seasons[149] Regulation and Taxes - The gaming industry is subject to extensive state gaming authority regulation, and changes in laws or regulations could materially adversely affect the company[151] - Proposals for changes in tax law affecting the gaming industry could have a material adverse effect on the company's financial position, results of operations, cash flows, and prospects[152] Off Balance Sheet Arrangements - The company has no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on its financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources[153] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section details the company's primary market risk exposure, focusing on interest rate risk from variable rate long-term debt - The company's primary market risk exposure is interest rate risk from its variable rate long-term debt, mainly the Credit Facility[154] - As of March 31, 2024, $397 million in principal amount of term loan borrowings were outstanding under the Credit Facility, with a weighted-average effective interest rate of 8.19% for the quarter[155] - A hypothetical 50 basis point increase in the applicable interest rate would increase interest incurred by approximately $2.0 million over a twelve-month period, assuming a constant outstanding balance[155] ITEM 4. CONTROLS AND PROCEDURES This section confirms the effectiveness of disclosure controls and reports no material changes in internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2024[158] - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2024[159] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS This section refers to legal proceedings discussed in the financial statements, detailing ongoing lawsuits and claims - Information regarding legal proceedings is contained in Note 10 — Commitments and Contingencies of the financial statements[160] ITEM 1A. RISK FACTORS This section directs readers to the Annual Report on Form 10-K for risk factors, noting no material changes this quarter - Readers should consider the risk factors discussed in Part I, Item 1A of the Annual Report on Form 10-K[161] - There have been no material changes to the risk factors described in the Annual Report during the three months ended March 31, 2024[161] ITEM 5. OTHER INFORMATION This section confirms no Rule 10b5-1 or non-Rule 10b5-1 trading plans were adopted or terminated by directors and officers - Directors and officers did not adopt or terminate any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during the three months ended March 31, 2024[162] ITEM 6. EXHIBITS This section lists exhibits filed with Form 10-Q, including employment agreements, certifications, and XBRL documents - Exhibits include employment agreements for Blake L. Sartini II and Stephen Arcana, certifications from the CEO and CFO (Sarbanes-Oxley Act Sections 302 and 906), and various Inline XBRL documents[163] SIGNATURES This section contains required signatures of authorized officers, certifying the filing of the Quarterly Report on Form 10-Q - The report is signed by Blake L. Sartini (Chairman of the Board and CEO), Charles H. Protell (President and CFO), and Thomas E. Haas (Senior Vice President of Accounting) on May 9, 2024[164]