Distributed gaming operator Golden Entertainment reported record net revenue for the fourth quarter of 2016 on Monday, capping a strong year which saw the company expand its presence in Las Vegas while becoming the second-largest player in Montana.
The company, which is the largest slot route operator in Nevada and owns more than 50 taverns in Las Vegas under the PT’s Pub, Sean Patrick’s and Sierra Gold brands, grew net revenues 22 percent to $105 million from the prior year quarter, while adjusted EBITDA jumped 29 percent to $12 million. Net income was down from the prior year to $10 million for the quarter.
Golden’s story continues to be one of organic growth in the southern Nevada mixed with accretive acquisitions in the state and elsewhere.
“Today, Golden Entertainment is a distributed gaming leader, with more than 10,000 devices at nearly 1,000 locations, including the largest footprint in Nevada and the second largest in Montana,” said Blake L. Sartini, chairman and chief executive, noting that additions of 2,900 gaming machines in Montana in 2016 and the opening of five new wholly-owned in Las Vegas have bolstered the company’s presence.
“Last year’s Montana acquisitions extend our long-term record of success in building our distributed gaming business, and we are well positioned for organic and transaction-related growth in this market in 201,” he continued. “In Nevada, we continue to transition our recurring-revenue, distributed gaming portfolio towards a greater percentage of higher margin, wholly-owned taverns.”
For the full year 2016, Golden reported $403 million in revenues, also a record figure and up nearly 17 percent from 2015. Adjusted EBITDA grew 20 percent to $45 million, while net income ticked down 15 percent to $16 million year-over-year.
Sartini indicated that the company holds a strong competitive position in its chain store distributed gaming business as well as its wholly-owned tavern line.
“As with our third party distributed gaming segment, our dominant position in our wholly-owned tavern division offers a significant barrier to entry within the Nevada restricted gaming market,” he said.
Sartini also said that the strategy moving ahead would be to transition away from third party operations and devoting additional resources to the higher margin tavern business. “We have been able to generate excellent returns and see no reason to slow our pace of investment in new, wholly-owned locations.”
Golden’s casino segment also posted growth for the quarter, with properties in Rocky Gap, Maryland and Pahrump, Nevada benefitting from cost controls and improved marketing. Sartini emphasized that Rocky Gap has been largely insulated from new competition at MGM National Harbor, as demonstrated by 11.8 percent and 13.9 percent year-over-year growth in gross gaming revenue in January and February.
The company reported $47 million in cash on its balance sheet to go with $186 million in outstanding debt and a 2.8x net debt to EBITDA ratio.
Shares of Golden surged 11 percent at the end of trading on Monday before the company reported its earnings, leaving some analysts scratching their heads.
“GDEN was +11% vs. a flat S&P 500 on no real new news. (134k shares traded vs. a 46k share 30 day average.) We continue to like the roll-up story, but we would not be surprised if the stock gave back some of these gains near-term,” said Patrick Schultz, an analyst with SunTrust, in a note.
“The company continues to execute in line with our expectations, and we have no reason to believe 2017 will be any different,” said John Decree of Union Gaming, who ticked up his EBITDA projections slightly for the year.
“In 2017, we are modeling 7% organic EBITDA growth in the distributed gaming segment and 5% growth in 2018,” he said. “We see upside to this forecast should the company be able to accelerate its new tavern pipeline or source other deals in the market.”
