UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20192020
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____ to _____
Commission File Number: 000-24993
GOLDEN ENTERTAINMENT, INC.
(Exact Namename of Registrantregistrant as Specifiedspecified in its Charter)charter)
Minnesota | 41-1913991 | |
(State or other jurisdiction | (I.R.S. Employer | |
of incorporation or organization) | Identification No.) | |
|
| |
6595 S Jones Boulevard |
| |
Las Vegas, Nevada | 89118 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (702) 893-7777
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value | GDEN | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| ☐ |
| Accelerated filer |
| ☒ |
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Non-accelerated filer |
| ☐ |
| Smaller reporting company |
| ☐ |
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Emerging growth company |
| ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 6, 2019,3, 2020, the registrant had 27,802,03328,124,174 shares of common stock, $0.01 par value per share, outstanding.
FORM 10-Q
INDEX
| Page | |
PART I. |
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|
ITEM 1. | 1 | |
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| Consolidated Balance Sheets as of June 30, | 1 |
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| 2 | |
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| 3 | |
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| Consolidated Statements of Cash Flows for the six months ended June 30, |
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| |
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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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ITEM 3. |
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ITEM 4. |
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PART II. |
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ITEM 1. |
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ITEM 1A. |
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ITEM 6. |
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Part I. FinancialFinancial Information
GOLDEN ENTERTAINMENT, INC.
(In thousands, except per share data)
|
| June 30, 2019 |
|
| December 31, 2018 |
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||
|
| (unaudited) |
|
|
|
|
|
| (unaudited) |
|
|
|
|
| ||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 116,689 |
|
| $ | 116,071 |
|
| $ | 86,159 |
|
| $ | 111,678 |
|
Accounts receivable, net of allowance of $670 and $503 |
|
| 15,348 |
|
|
| 12,779 |
| ||||||||
Accounts receivable, net of allowance of $1,068 and $599, respectively |
|
| 13,763 |
|
|
| 16,247 |
| ||||||||
Prepaid expenses |
|
| 21,309 |
|
|
| 17,722 |
|
|
| 15,238 |
|
|
| 19,879 |
|
Inventories |
|
| 8,557 |
|
|
| 6,759 |
|
|
| 6,649 |
|
|
| 8,237 |
|
Other |
|
| 3,580 |
|
|
| 3,428 |
|
|
| 5,435 |
|
|
| 4,388 |
|
Total current assets |
|
| 165,483 |
|
|
| 156,759 |
|
|
| 127,244 |
|
|
| 160,429 |
|
Property and equipment, net |
|
| 1,030,148 |
|
|
| 894,953 |
|
|
| 1,018,297 |
|
|
| 1,046,536 |
|
Operating lease right-of-use assets, net |
|
| 158,085 |
|
|
| — |
|
|
| 188,041 |
|
|
| 203,531 |
|
Goodwill |
|
| 182,870 |
|
|
| 158,134 |
|
|
| 159,053 |
|
|
| 184,325 |
|
Intangible assets, net |
|
| 146,806 |
|
|
| 141,128 |
|
|
| 121,260 |
|
|
| 135,151 |
|
Other assets |
|
| 11,278 |
|
|
| 15,595 |
|
|
| 10,041 |
|
|
| 10,945 |
|
Total assets |
| $ | 1,694,670 |
|
| $ | 1,366,569 |
|
| $ | 1,623,936 |
|
| $ | 1,740,917 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
| ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
| ||||||||
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt and finance leases |
| $ | 1,875 |
|
| $ | 10,480 |
|
| $ | 7,173 |
|
| $ | 8,497 |
|
Current portion of operating leases |
|
| 29,351 |
|
|
| — |
|
|
| 33,703 |
|
|
| 33,883 |
|
Accounts payable |
|
| 30,581 |
|
|
| 27,812 |
|
|
| 39,936 |
|
|
| 30,146 |
|
Accrued taxes, other than income taxes |
|
| 8,066 |
|
|
| 6,540 |
|
|
| 2,429 |
|
|
| 7,495 |
|
Accrued payroll and related |
|
| 24,545 |
|
|
| 19,780 |
|
|
| 19,718 |
|
|
| 27,221 |
|
Accrued liabilities |
|
| 28,360 |
|
|
| 18,848 |
|
|
| 25,465 |
|
|
| 25,522 |
|
Total current liabilities |
|
| 122,778 |
|
|
| 83,460 |
|
|
| 128,424 |
|
|
| 132,764 |
|
Long-term debt, net and finance leases |
|
| 1,123,439 |
|
|
| 960,563 |
|
|
| 1,140,086 |
|
|
| 1,130,374 |
|
Non-current operating leases |
|
| 143,426 |
|
|
| — |
|
|
| 169,246 |
|
|
| 184,301 |
|
Deferred income taxes |
|
| 598 |
|
|
| 2,593 |
|
|
| 1,717 |
|
|
| 1,088 |
|
Other long-term obligations |
|
| 1,340 |
|
|
| 4,801 |
|
|
| 2,423 |
|
|
| 2,646 |
|
Total liabilities |
|
| 1,391,581 |
|
|
| 1,051,417 |
|
|
| 1,441,896 |
|
|
| 1,451,173 |
|
Commitments and contingencies (Note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
|
|
| ||||||||
Common stock, $.01 par value; authorized 100,000 shares; 27,800 and 26,779 common shares issued and outstanding, respectively |
|
| 278 |
|
|
| 268 |
| ||||||||
Shareholders’ equity |
|
|
|
|
|
|
|
| ||||||||
Common stock, $.01 par value; authorized 100,000 shares; 28,124 and 27,879 common shares issued and outstanding, respectively |
|
| 281 |
|
|
| 279 |
| ||||||||
Additional paid-in capital |
|
| 457,870 |
|
|
| 435,245 |
|
|
| 465,123 |
|
|
| 461,643 |
|
Accumulated deficit |
|
| (155,059 | ) |
|
| (120,361 | ) |
|
| (283,364 | ) |
|
| (172,178 | ) |
Total shareholders' equity |
|
| 303,089 |
|
|
| 315,152 |
| ||||||||
Total liabilities and shareholders' equity |
| $ | 1,694,670 |
|
| $ | 1,366,569 |
| ||||||||
Total shareholders’ equity |
|
| 182,040 |
|
|
| 289,744 |
| ||||||||
Total liabilities and shareholders’ equity |
| $ | 1,623,936 |
|
| $ | 1,740,917 |
|
The accompanying condensed notes are an integral part of these consolidated financial statements.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Revenues |
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
| $ | 146,246 |
|
| $ | 132,546 |
|
| $ | 290,038 |
|
| $ | 266,409 |
|
| $ | 56,677 |
|
| $ | 146,246 |
|
| $ | 183,892 |
|
| $ | 290,038 |
|
Food and beverage |
|
| 52,104 |
|
|
| 43,422 |
|
|
| 101,862 |
|
|
| 86,025 |
|
|
| 10,168 |
|
|
| 52,104 |
|
|
| 51,715 |
|
|
| 101,862 |
|
Rooms |
|
| 35,514 |
|
|
| 27,660 |
|
|
| 66,801 |
|
|
| 53,787 |
|
|
| 5,987 |
|
|
| 35,514 |
|
|
| 31,592 |
|
|
| 66,801 |
|
Other |
|
| 14,206 |
|
|
| 12,915 |
|
|
| 29,261 |
|
|
| 25,111 |
|
|
| 3,142 |
|
|
| 14,206 |
|
|
| 15,932 |
|
|
| 29,261 |
|
Total revenues |
|
| 248,070 |
|
|
| 216,543 |
|
|
| 487,962 |
|
|
| 431,332 |
|
|
| 75,974 |
|
|
| 248,070 |
|
|
| 283,131 |
|
|
| 487,962 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
|
| 84,007 |
|
|
| 78,510 |
|
|
| 166,355 |
|
|
| 156,198 |
|
|
| 35,231 |
|
|
| 84,007 |
|
|
| 113,343 |
|
|
| 166,355 |
|
Food and beverage |
|
| 40,216 |
|
|
| 35,351 |
|
|
| 78,430 |
|
|
| 68,943 |
|
|
| 9,739 |
|
|
| 40,216 |
|
|
| 44,626 |
|
|
| 78,430 |
|
Rooms |
|
| 16,008 |
|
|
| 12,291 |
|
|
| 30,409 |
|
|
| 23,856 |
|
|
| 4,586 |
|
|
| 16,008 |
|
|
| 18,541 |
|
|
| 30,409 |
|
Other operating |
|
| 5,160 |
|
|
| 3,655 |
|
|
| 11,594 |
|
|
| 7,651 |
|
|
| 1,404 |
|
|
| 5,160 |
|
|
| 6,531 |
|
|
| 11,594 |
|
Selling, general and administrative |
|
| 56,235 |
|
|
| 43,615 |
|
|
| 113,182 |
|
|
| 87,821 |
|
|
| 32,548 |
|
|
| 56,235 |
|
|
| 80,158 |
|
|
| 113,182 |
|
Depreciation and amortization |
|
| 29,976 |
|
|
| 22,854 |
|
|
| 57,241 |
|
|
| 48,091 |
|
|
| 31,930 |
|
|
| 29,976 |
|
|
| 63,086 |
|
|
| 57,241 |
|
Impairment of goodwill and intangible assets |
|
| 21,411 |
|
|
| — |
|
|
| 27,872 |
|
|
| — |
| ||||||||||||||||
Acquisition and severance expenses |
|
| 1,123 |
|
|
| 565 |
|
|
| 2,667 |
|
|
| 1,864 |
|
|
| 367 |
|
|
| 1,123 |
|
|
| 3,343 |
|
|
| 2,667 |
|
Loss on disposal of assets |
|
| 702 |
|
|
| 585 |
|
|
| 1,291 |
|
|
| 832 |
| ||||||||||||||||
Preopening expenses |
|
| 738 |
|
|
| 389 |
|
|
| 1,516 |
|
|
| 837 |
|
|
| 9 |
|
|
| 738 |
|
|
| 114 |
|
|
| 1,516 |
|
Loss on disposal of assets |
|
| 585 |
|
|
| 218 |
|
|
| 832 |
|
|
| 295 |
| ||||||||||||||||
Total expenses |
|
| 234,048 |
|
|
| 197,448 |
|
|
| 462,226 |
|
|
| 395,556 |
|
|
| 137,927 |
|
|
| 234,048 |
|
|
| 358,905 |
|
|
| 462,226 |
|
Operating income |
|
| 14,022 |
|
|
| 19,095 |
|
|
| 25,736 |
|
|
| 35,776 |
| ||||||||||||||||
Non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Operating (loss) income |
|
| (61,953 | ) |
|
| 14,022 |
|
|
| (75,774 | ) |
|
| 25,736 |
| ||||||||||||||||
Non-operating expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Interest expense, net |
|
| (19,135 | ) |
|
| (16,066 | ) |
|
| (37,270 | ) |
|
| (30,809 | ) |
|
| (16,407 | ) |
|
| (19,135 | ) |
|
| (35,153 | ) |
|
| (37,270 | ) |
Loss on extinguishment and modification of debt |
|
| (9,150 | ) |
|
| — |
|
|
| (9,150 | ) |
|
| — |
|
|
| — |
|
|
| (9,150 | ) |
|
| — |
|
|
| (9,150 | ) |
Change in fair value of derivative |
|
| (1,489 | ) |
|
| 1,462 |
|
|
| (3,737 | ) |
|
| 4,673 |
|
|
| — |
|
|
| (1,489 | ) |
|
| (1 | ) |
|
| (3,737 | ) |
Total non-operating expense, net |
|
| (29,774 | ) |
|
| (14,604 | ) |
|
| (50,157 | ) |
|
| (26,136 | ) |
|
| (16,407 | ) |
|
| (29,774 | ) |
|
| (35,154 | ) |
|
| (50,157 | ) |
Income (loss) before income tax benefit |
|
| (15,752 | ) |
|
| 4,491 |
|
|
| (24,421 | ) |
|
| 9,640 |
| ||||||||||||||||
Income tax benefit (provision) |
|
| 1,344 |
|
|
| (897 | ) |
|
| 1,995 |
|
|
| (2,116 | ) | ||||||||||||||||
Net income (loss) |
| $ | (14,408 | ) |
| $ | 3,594 |
|
| $ | (22,426 | ) |
| $ | 7,524 |
| ||||||||||||||||
Loss before income tax (provision) benefit |
|
| (78,360 | ) |
|
| (15,752 | ) |
|
| (110,928 | ) |
|
| (24,421 | ) | ||||||||||||||||
Income tax (provision) benefit |
|
| (206 | ) |
|
| 1,344 |
|
|
| (258 | ) |
|
| 1,995 |
| ||||||||||||||||
Net loss |
| $ | (78,566 | ) |
| $ | (14,408 | ) |
| $ | (111,186 | ) |
| $ | (22,426 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 27,762 |
|
|
| 27,406 |
|
|
| 27,667 |
|
|
| 27,278 |
|
|
| 28,072 |
|
|
| 27,762 |
|
|
| 28,001 |
|
|
| 27,667 |
|
Dilutive impact of stock options and restricted stock units |
|
| — |
|
|
| 2,258 |
|
|
| — |
|
|
| 2,250 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Diluted |
|
| 27,762 |
|
|
| 29,664 |
|
|
| 27,667 |
|
|
| 29,528 |
|
|
| 28,072 |
|
|
| 27,762 |
|
|
| 28,001 |
|
|
| 27,667 |
|
Net income (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | (0.52 | ) |
| $ | 0.13 |
|
| $ | (0.81 | ) |
| $ | 0.28 |
|
| $ | (2.80 | ) |
| $ | (0.52 | ) |
| $ | (3.97 | ) |
| $ | (0.81 | ) |
Diluted |
| $ | (0.52 | ) |
| $ | 0.12 |
|
| $ | (0.81 | ) |
| $ | 0.25 |
|
| $ | (2.80 | ) |
| $ | (0.52 | ) |
| $ | (3.97 | ) |
| $ | (0.81 | ) |
The accompanying condensed notes are an integral part of these consolidated financial statements.
Consolidated Statements of Shareholders’ Equity
(In thousands)
(Unaudited)
|
|
|
| Additional |
|
|
|
|
|
| Total |
| |||||||
| Common stock |
|
| Paid-In |
|
| Accumulated |
|
| Shareholders' |
| ||||||||
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Equity |
| |||||
Balances, March 31, 2019 |
| 27,743 |
|
| $ | 277 |
|
| $ | 455,696 |
|
| $ | (140,651 | ) |
| $ | 315,322 |
|
Cumulative effect, change in accounting for leases, net of tax |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Issuance of common stock related to business combination |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Proceeds from issuance of stock on options exercised |
| 57 |
|
|
| 1 |
|
|
| 55 |
|
|
| — |
|
|
| 56 |
|
Share-based compensation |
| — |
|
|
| — |
|
|
| 2,122 |
|
|
| — |
|
|
| 2,122 |
|
Tax benefit from share-based compensation |
| — |
|
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| (3 | ) |
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| (14,408 | ) |
|
| (14,408 | ) |
Balances, June 30, 2019 |
| 27,800 |
|
| $ | 278 |
|
| $ | 457,870 |
|
| $ | (155,059 | ) |
| $ | 303,089 |
|
|
|
|
| Additional |
|
|
|
|
|
| Total |
| |||||||
| Common stock |
|
| Paid-In |
|
| Accumulated |
|
| Shareholders’ |
| ||||||||
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Equity |
| |||||
Balance, January 1, 2019 |
| 26,779 |
|
| $ | 268 |
|
| $ | 435,245 |
|
| $ | (120,361 | ) |
| $ | 315,152 |
|
Cumulative effect, change in accounting for leases, net of tax |
| — |
|
|
| — |
|
|
| — |
|
|
| (12,272 | ) |
|
| (12,272 | ) |
Issuance of stock on options exercised and restricted stock units vested |
| 53 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Share-based compensation |
| — |
|
|
| — |
|
|
| 4,140 |
|
|
| — |
|
|
| 4,140 |
|
Share issuance related to business combination |
| 911 |
|
|
| 9 |
|
|
| 16,599 |
|
|
| — |
|
|
| 16,608 |
|
Tax benefit from share-based compensation |
| — |
|
|
| — |
|
|
| (288 | ) |
|
| — |
|
|
| (288 | ) |
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| (8,018 | ) |
|
| (8,018 | ) |
Balance, March 31, 2019 |
| 27,743 |
|
| $ | 277 |
|
| $ | 455,696 |
|
| $ | (140,651 | ) |
| $ | 315,322 |
|
Issuance of stock on options exercised and restricted stock units vested |
| 57 |
|
|
| 1 |
|
|
| 55 |
|
|
| — |
|
|
| 56 |
|
Share-based compensation |
| — |
|
|
| — |
|
|
| 2,122 |
|
|
| — |
|
|
| 2,122 |
|
Tax benefit from share-based compensation |
| — |
|
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| (3 | ) |
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| (14,408 | ) |
|
| (14,408 | ) |
Balance, June 30, 2019 |
| 27,800 |
|
| $ | 278 |
|
| $ | 457,870 |
|
| $ | (155,059 | ) |
| $ | 303,089 |
|
|
|
|
| Additional |
|
|
|
|
|
| Total |
| |||||||
| Common stock |
|
| Paid-In |
|
| Accumulated |
|
| Shareholders' |
| ||||||||
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Equity |
| |||||
Balances, March 31, 2018 |
| 27,388 |
|
| $ | 274 |
|
| $ | 426,952 |
|
| $ | (75,931 | ) |
| $ | 351,295 |
|
Proceeds from issuance of stock on options exercised |
| 42 |
|
|
| — |
|
|
| 417 |
|
|
| — |
|
|
| 417 |
|
Share-based compensation |
| — |
|
|
| — |
|
|
| 2,718 |
|
|
| — |
|
|
| 2,718 |
|
Issuance of common stock, net of offering costs |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Tax benefit from share-based compensation |
| — |
|
|
| — |
|
|
| (1,237 | ) |
|
| — |
|
|
| (1,237 | ) |
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| 3,594 |
|
|
| 3,594 |
|
Balances, June 30, 2018 |
| 27,430 |
|
| $ | 274 |
|
| $ | 428,850 |
|
| $ | (72,337 | ) |
| $ | 356,787 |
|
|
|
|
| Additional |
|
|
|
|
|
| Total |
| |||||||
| Common stock |
|
| Paid-In |
|
| Accumulated |
|
| Shareholders' |
| ||||||||
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Equity |
| |||||
Balances, December 31, 2018 |
| 26,779 |
|
| $ | 268 |
|
| $ | 435,245 |
|
| $ | (120,361 | ) |
| $ | 315,152 |
|
Cumulative effect, change in accounting for leases, net of tax |
| — |
|
|
| — |
|
|
| — |
|
|
| (12,272 | ) |
|
| (12,272 | ) |
Issuance of common stock related to business combination |
| 911 |
|
|
| 9 |
|
|
| 16,599 |
|
|
| — |
|
|
| 16,608 |
|
Proceeds from issuance of stock on options exercised |
| 110 |
|
|
| 1 |
|
|
| 55 |
|
|
| — |
|
|
| 56 |
|
Share-based compensation |
| — |
|
|
| — |
|
|
| 6,262 |
|
|
| — |
|
|
| 6,262 |
|
Tax benefit from share-based compensation |
| — |
|
|
| — |
|
|
| (291 | ) |
|
| — |
|
|
| (291 | ) |
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| (22,426 | ) |
|
| (22,426 | ) |
Balances, June 30, 2019 |
| 27,800 |
|
| $ | 278 |
|
| $ | 457,870 |
|
| $ | (155,059 | ) |
| $ | 303,089 |
|
Consolidated Statements of Shareholders’ Equity – (Continued)
(In thousands)
(Unaudited)
|
|
|
| Additional |
|
|
|
|
|
| Total |
| |||||||
| Common stock |
|
| Paid-In |
|
| Accumulated |
|
| Shareholders' |
| ||||||||
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Equity |
| |||||
Balances, December 31, 2017 |
| 26,413 |
|
| $ | 264 |
|
| $ | 399,510 |
|
| $ | (79,861 | ) |
| $ | 319,913 |
|
Proceeds from issuance of stock on options exercised |
| 42 |
|
|
| — |
|
|
| 417 |
|
|
| — |
|
|
| 417 |
|
Share-based compensation |
| — |
|
|
| — |
|
|
| 4,562 |
|
|
| — |
|
|
| 4,562 |
|
Issuance of common stock, net of offering costs |
| 975 |
|
|
| 10 |
|
|
| 25,598 |
|
|
| — |
|
|
| 25,608 |
|
Tax benefit from share-based compensation |
| — |
|
|
| — |
|
|
| (1,237 | ) |
|
| — |
|
|
| (1,237 | ) |
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| 7,524 |
|
|
| 7,524 |
|
Balances, June 30, 2018 |
| 27,430 |
|
| $ | 274 |
|
| $ | 428,850 |
|
| $ | (72,337 | ) |
| $ | 356,787 |
|
|
|
|
| Additional |
|
|
|
|
|
| Total |
| |||||||
| Common stock |
|
| Paid-In |
|
| Accumulated |
|
| Shareholders’ |
| ||||||||
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Equity |
| |||||
Balance, January 1, 2020 |
| 27,879 |
|
| $ | 279 |
|
| $ | 461,643 |
|
| $ | (172,178 | ) |
| $ | 289,744 |
|
Issuance of stock on options exercised and restricted stock units vested |
| 172 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
Share-based compensation |
| — |
|
|
| — |
|
|
| 2,153 |
|
|
| — |
|
|
| 2,153 |
|
Tax benefit from share-based compensation |
| — |
|
|
| — |
|
|
| (428 | ) |
|
| — |
|
|
| (428 | ) |
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| (32,620 | ) |
|
| (32,620 | ) |
Balance, March 31, 2020 |
| 28,051 |
|
| $ | 281 |
|
| $ | 463,368 |
|
| $ | (204,798 | ) |
| $ | 258,851 |
|
Issuance of stock on options exercised and restricted stock units vested |
| 73 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Share-based compensation |
| — |
|
|
| — |
|
|
| 1,755 |
|
|
| — |
|
|
| 1,755 |
|
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| (78,566 | ) |
|
| (78,566 | ) |
Balance, June 30, 2020 |
| 28,124 |
|
| $ | 281 |
|
| $ | 465,123 |
|
| $ | (283,364 | ) |
| $ | 182,040 |
|
The accompanying notes are an integral part of these consolidated financial statements.
GOLDEN ENTERTAINMENT, INC.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
GOLDEN ENTERTAINMENT, INC. |
| |||||||||||||||
| ||||||||||||||||
(In thousands) |
| |||||||||||||||
(Unaudited) |
| |||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
|
| Six Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | (22,426 | ) |
| $ | 7,524 |
| ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
| ||||||||
Net loss |
| $ | (111,186 | ) |
| $ | (22,426 | ) | ||||||||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
| ||||||||
Depreciation and amortization |
|
| 57,241 |
|
|
| 48,091 |
|
|
| 63,086 |
|
|
| 57,241 |
|
Impairment of goodwill and intangible assets |
|
| 27,872 |
|
|
| — |
| ||||||||
Share-based compensation |
|
| 3,908 |
|
|
| 6,262 |
| ||||||||
Amortization of debt issuance costs and discounts on debt |
|
| 2,471 |
|
|
| 2,551 |
|
|
| 2,236 |
|
|
| 2,471 |
|
Share-based compensation |
|
| 6,262 |
|
|
| 4,562 |
| ||||||||
Loss on disposal of property and equipment |
|
| 832 |
|
|
| 295 |
| ||||||||
Loss on disposal of assets |
|
| 1,291 |
|
|
| 832 |
| ||||||||
Provision for bad debts |
|
| 461 |
|
|
| 431 |
| ||||||||
Loss on extinguishment of debt |
|
| 9,150 |
|
|
| — |
|
|
| — |
|
|
| 9,150 |
|
Change in fair value of derivative |
|
| 3,737 |
|
|
| (4,673 | ) |
|
| 1 |
|
|
| 3,737 |
|
Deferred income taxes |
|
| (1,995 | ) |
|
| 107 |
|
|
| 629 |
|
|
| (1,995 | ) |
Changes in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (953 | ) |
|
| 1,395 |
|
|
| 2,023 |
|
|
| (1,384 | ) |
Income taxes receivable |
|
| 193 |
|
|
| 2,008 |
|
|
| (370 | ) |
|
| 193 |
|
Prepaid expenses |
|
| (943 | ) |
|
| 2,547 |
|
|
| 4,614 |
|
|
| (943 | ) |
Inventories and other current assets |
|
| (1,203 | ) |
|
| (959 | ) |
|
| 911 |
|
|
| (1,203 | ) |
Other assets |
|
| 893 |
|
|
| 379 |
| ||||||||
Accounts payable and other accrued expenses |
|
| 8,715 |
|
|
| (6,165 | ) |
|
| (1,790 | ) |
|
| 8,715 |
|
Accrued taxes, other than income taxes |
|
| 755 |
|
|
| 41 |
|
|
| (5,066 | ) |
|
| 755 |
|
Other |
|
| (467 | ) |
|
| (133 | ) | ||||||||
Net cash provided by operating activities |
|
| 61,369 |
|
|
| 57,191 |
| ||||||||
Other liabilities |
|
| 32 |
|
|
| (846 | ) | ||||||||
Net cash (used in) provided by operating activities |
|
| (10,455 | ) |
|
| 61,369 |
| ||||||||
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment, net of change in construction payables |
|
| (53,221 | ) |
|
| (27,448 | ) |
|
| (22,224 | ) |
|
| (53,221 | ) |
Acquisition of business, net of cash acquired |
|
| (148,952 | ) |
|
| — |
|
|
| — |
|
|
| (148,952 | ) |
Proceeds from disposal of property and equipment |
|
| 93 |
|
|
| — |
|
|
| 353 |
|
|
| 93 |
|
Other investing activities |
|
| (295 | ) |
|
| — |
|
|
| — |
|
|
| (295 | ) |
Net cash used in investing activities |
|
| (202,375 | ) |
|
| (27,448 | ) |
|
| (21,871 | ) |
|
| (202,375 | ) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of revolving credit facility |
|
| (145,000 | ) |
|
| — |
|
|
| (190,000 | ) |
|
| (145,000 | ) |
Borrowings under revolving credit facility |
|
| 145,000 |
|
|
| — |
|
|
| 200,000 |
|
|
| 145,000 |
|
Repayments of term loans |
|
| (220,000 | ) |
|
| (4,000 | ) | ||||||||
Repayments of term loan |
|
| — |
|
|
| (220,000 | ) | ||||||||
Proceeds from issuance of senior notes |
|
| 375,000 |
|
|
| — |
|
|
| — |
|
|
| 375,000 |
|
Repayments of notes payable |
|
| (881 | ) |
|
| (217 | ) |
|
| (1,842 | ) |
|
| (881 | ) |
Principal payments under finance leases |
|
| (829 | ) |
|
| (468 | ) |
|
| (925 | ) |
|
| (829 | ) |
Payments for debt issuance costs |
|
| (6,668 | ) |
|
| (95 | ) |
|
| — |
|
|
| (6,668 | ) |
Debt extinguishment and modification costs |
|
| (4,763 | ) |
|
| — |
|
|
| — |
|
|
| (4,763 | ) |
Proceeds from issuance of common stock, net of issuance costs |
|
| 56 |
|
|
| 25,608 |
| ||||||||
Tax withholding on share-based payments |
|
| (291 | ) |
|
| (820 | ) |
|
| (428 | ) |
|
| (291 | ) |
Proceeds from exercise of common stock |
|
| 2 |
|
|
| 56 |
| ||||||||
Net cash provided by financing activities |
|
| 141,624 |
|
|
| 20,008 |
|
|
| 6,807 |
|
|
| 141,624 |
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
| 618 |
|
|
| 49,751 |
|
|
| (25,519 | ) |
|
| 618 |
|
Balance, beginning of period |
|
| 116,071 |
|
|
| 90,579 |
|
|
| 111,678 |
|
|
| 116,071 |
|
Balance, end of period |
| $ | 116,689 |
|
| $ | 140,330 |
|
| $ | 86,159 |
|
| $ | 116,689 |
|
Consolidated Statements of Cash Flows – (Continued)
(In thousands)
(Unaudited)
|
| Six Months Ended June 30, |
| |||||||||||||
|
| 2020 |
|
| 2019 |
| ||||||||||
Supplemental cash flow disclosures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 28,752 |
|
| $ | 29,455 |
|
| $ | 26,346 |
|
| $ | 28,752 |
|
Cash received for income taxes, net |
|
| (193 | ) |
|
| — |
|
|
| — |
|
|
| (193 | ) |
Non-cash investing and financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables incurred for capital expenditures |
| $ | 9,877 |
|
| $ | 3,636 |
|
| $ | 2,940 |
|
| $ | 9,877 |
|
Assets acquired under finance lease obligations |
|
| 3,352 |
|
|
| 62 |
|
|
| — |
|
|
| 3,352 |
|
Loss on extinguishment of debt |
|
| 4,388 |
|
|
| — |
|
|
| — |
|
|
| 4,388 |
|
Impairment of right-of-use asset |
|
| 12,272 |
|
|
| — |
|
|
| — |
|
|
| 12,272 |
|
Operating lease right-of-use assets obtained in exchange for lease obligations (1) |
|
| 3,491 |
|
|
| 36,117 |
| ||||||||
Common stock issued in connection with acquisition |
|
| 16,608 |
|
|
| — |
|
|
| — |
|
|
| 16,608 |
|
(1) | For 2019, the amount includes operating lease right-of-use assets obtained in exchange for existing lease obligations due to the adoption of ASC 842. |
The accompanying condensed notes are an integral part of these consolidated financial statements.
Condensed Notes to Consolidated Financial Statements (Unaudited)
Note 1 – Nature of Business and Basis of Presentation
Overview
Golden Entertainment, Inc. and its wholly-owned subsidiaries (collectively, the “Company”) own and operate a diversified entertainment platform, consisting of a portfolio of gaming assets that focus on resort casino operations and distributed gaming (including gaming in the Company’s branded taverns). Unless otherwise indicated, the terms “Golden” and the “Company,” refer to Golden Entertainment, Inc. together with its subsidiaries.
The Company conducts its business through two2 reportable operating segments: Casinos and Distributed Gaming. The Company’s Casinos segment involves the operation of ten10 resort casino properties in Nevada and Maryland, comprising:
The STRAT Hotel, Casino & SkyPod |
| Las Vegas, Nevada |
Arizona |
| Las Vegas, Nevada |
Arizona |
| Las Vegas, Nevada |
Aquarius Casino Resort |
| |
|
| Laughlin, Nevada |
Colorado Belle Hotel & Casino Resort |
| Laughlin, Nevada |
|
|
|
Gold Town Casino |
| Pahrump, Nevada |
Lakeside Casino & RV Park |
| Pahrump, Nevada |
Pahrump Nugget Hotel Casino (“Pahrump Nugget”) | Pahrump, Nevada | |
Rocky Gap Casino Resort |
| Flintstone, Maryland |
(1) | As a result of the impact of the 2019 novel coronavirus (“COVID-19”) pandemic, the operations of the Colorado Belle remained suspended as of June 30, 2020. |
The Company’s Distributed Gaming segment involves the installation, maintenance and operation of slots and amusement devices in non-casino locations such as restaurants, bars, taverns, convenience stores, liquor stores and grocery stores in Nevada and Montana, and the operation of branded taverns targeting local patrons located primarily in the greater Las Vegas, Nevada metropolitan area.
On January 14,
Impact of COVID-19
In December 2019, an outbreak of COVID-19 began in Wuhan, Hubei Province, China. The disease has since spread rapidly across the world, causing the World Health Organization to declare COVID-19 a pandemic on March 11, 2020. Since that time, people across the globe have been advised to avoid non-essential travel, and steps have been taken by governmental authorities, including in the States in which the Company completedoperates, to implement closures of non-essential operations to contain the acquisitionspread of Edgewaterthe virus. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. Following emergency executive orders issued by the Governors of Nevada, Maryland, and Montana, in the week of March 16, 2020, all of the Company’s properties were temporarily closed to the public and the Company’s Distributed Gaming LLCoperations at third-party locations were suspended. The Company’s Distributed Gaming operations in Montana and Nevada resumed on May 4, 2020 and June 4, 2020, respectively, and the Company’s Casino operations in Nevada and Maryland resumed on June 4, 2020 and June 19, 2020, respectively. However, as a result of the impact of the COVID-19 pandemic, the operations of the Colorado Belle Gaming, LLC, which ownremained suspended as of June 30, 2020. While all of the Edgewater andCompany’s properties except for Colorado Belle had been re-opened as of June 30, 2020, the Company’s implementation of protocols intended to protect patrons and guests from potential COVID-19 exposure continues to limit the Company’s operations. These measures include enhanced sanitization, public gathering limitations of less than 50% of casino and tavern capacity, patron social distancing requirements, limitations on casino operations, which include disabling electronic gaming machines, and face mask and temperature check requirements for patrons. Certain amenities at the Company’s casinos may remain closed or operate in Laughlin,a limited capacity, including restaurants, bars, and other food and beverage outlets, as well as table games, spas and pools. These measures limit the number of patrons that are able to attend these venues. Subsequent to fiscal quarter end, effective July 10, 2020, the Governor of the State of Nevada issued a new emergency executive order mandating the closure of all bars, pubs, taverns, breweries, distilleries and wineries in seven counties, including Clark County (the location of most of the Company’s branded taverns) (refer to “Note 13 — Subsequent Events”). The Company cannot predict when these restrictions on its operations will be changed or eliminated.
Temporary closures of the Company’s operations due to the COVID-19 pandemic resulted in lease concessions for certain of the Company’s taverns and route locations. Such concessions provided for deferral of rent payments with no substantive changes to the consideration due per the terms of the original contract and did not result in a substantial increase in the Company’s obligations under such leases. The Company elected to account for the deferred rent payments as further describedvariable lease payments, which resulted in Note 2, Acquisitions, below.an $8.8
million reduction in rent expense for the three and six months ended June 30, 2020. Such rent expense will be recorded in future periods as these deferred payments are paid to the Company’s lessors.
The disruptions arising from the COVID-19 pandemic had a significant adverse impact on the Company’s financial condition and results of operations for the three and six months ended June 30, 2020. The duration and intensity of this global health emergency and related disruptions is uncertain. The impact of COVID-19 on the Company’s consolidated results of operations, cash flows and financial condition in 2020 will be material, but cannot be reasonably estimated at this time, as it is unknown when the COVID-19 pandemic will end, when or how quickly the current travel restrictions and tavern closures will be modified or cease to be necessary, and how these uncertainties will impact the Company’s business and the willingness of customers to spend on travel and entertainment.
The impact of the COVID-19 pandemic on the Company’s operations qualified as a triggering event necessitating an evaluation of long-lived assets, goodwill, and indefinite-lived intangible assets for indicators of impairment as discussed in “Note 3 — Property and Equipment, Net” and “Note 4 — Goodwill and Intangible Assets, Net.”
On March 12, 2019, the Company’s Board of Directors authorized the repurchase of up to $25.0 million additional shares of common stock, which replaced the prior share repurchase program authorized in November 2018. Share repurchases may be made from time to time in open market transactions, block trades or in private transactions in accordance with applicable securities laws and regulations and other legal requirements, including compliance with the Company’s finance agreements. There is no minimum number of shares that16, 2020, the Company is requiredfully drew the available capacity of $200 million under its revolving credit facility (the “Revolving Credit Facility”) as a precautionary measure in order to repurchaseincrease its cash position and preserve financial flexibility in light of uncertainty in the repurchase program may be suspended or discontinued at any time without prior notice.
On April 25, 2019,global markets resulting from the COVID-19 pandemic. During the second quarter of 2020, the Company issued $375repaid $190 million in principal amount of 7.625% Senior Notes due 2026 inits borrowings under the Revolving Credit Facility, and as of June 30, 2020, $190 million remained available to the Company for reborrowing. In addition, the Company has implemented various mitigating actions to preserve liquidity, including delaying material capital expenditures, reducing cash operating expenses and implementing a non-essential cost reduction program. To further enhance its liquidity position or to finance any future acquisition or other business investment initiatives, the Company may obtain additional financing, which could consist of debt, convertible debt or equity financing from public or private placement to institutional buyers, as further described in Note 5, Long-Term Debt, below.credit and capital markets.
Basis of Presentation
The unaudited consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial information. Accordingly, certain information normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) has been condensed and/or omitted. For further information, please refer to the audited consolidated financial statements of the Company for the year ended December 31, 20182019 and the notes thereto included in the Company’s Annual Report on Form 10-K (the “Annual Report”) previously filed with the SEC. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, which includeincluded only normal recurring adjustments, necessary to present fairly the Company’s results for the periods presented. Results for interim periods should not be considered indicative of the results to be expected for the full year.year and should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report.
The accompanying unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Certain amounts
Significant Accounting Policies
There have been no changes to the significant accounting policies disclosed in the consolidated financial statements for the previous year period have been reclassified to be consistent with current year presentation. These reclassifications had no effect on previously reported net income.
Lessee Arrangements
The Company is the lessee under non-cancelable real estate leases, equipment leases and space lease agreements. Beginning on January 1, 2019 (the date of the Company's adoption of Topic 842, as defined and discussed further in “Accounting Standards Issued and Adopted”, below), operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date and initially measured based on the present value of lease payments over the defined lease term. The Company’s lease terms may include options to extend or terminate the lease. The Company assesses these options using a threshold of reasonably certain. For leases where the
Company is reasonably certain to renew, those option periods are included within the lease term and, therefore, the measurement of the right-of-use asset and lease liability. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company’s lease agreements do not contain any material residual value guarantees, restrictions or covenants.
The Company’s lease agreements for land, buildings and taverns with lease and non-lease components are accounted for separately. The lease and non-lease components of certain vehicle and equipment leases are accounted for as a single lease component. Additionally, for certain vehicle and equipment leases, a portfolio approach is utilized to effectively account for the operating lease ROU assets and liabilities.
As most of the Company’s leases do not provide an implicit rate, the incremental borrowing rate is estimated based on the information available at the commencement date in determining the present value of lease payments. The implicit rate will be used when readily determinable. The operating lease ROU assets also includes any lease payments made and excludes lease incentives. The Company does not record an asset or liability for operating leases with a term of less than one year. Prior to the adoption of Topic 842 on January 1, 2019, the Company did not record an asset or liability for any of its operating leases.
Lessor Arrangements
The Company is the lessor under non-cancelable operating leases for retail and food and beverage outlet space within its resort casino properties. The lease arrangements generally include minimum base rent and/or contingent rental clauses based on a percentage of net sales exceeding minimum base rent. Generally, the terms of the leases range between five and 10 years, with options to extend the leases. The Company records revenue on a straight-line basis over the term of the lease, and recognizes revenue for contingent rentals when the contingency has been resolved. The Company has elected to combine lease and non-lease components for the purpose of measuring lease revenue. Revenue is recorded in other operating revenue on the consolidated statements of operations.Annual Report.
Net IncomeLoss Per Share
For all periods, basic net incomeloss per share is calculated by dividing net incomeloss by the weighted-average common shares outstanding. Diluted net incomeloss per share in profitable periods reflects the effect of all potentially dilutive common shares outstanding by dividing net incomeloss by the weighted-average of all common and potentially dilutive shares outstanding. Due to the net losses for the three and six months ended June 30, 2020 and 2019, the effect of all potential common share equivalents was anti-dilutive, and therefore, all such shares were excluded from the computation of diluted weighted average shares outstanding for both periods. The amount of potential common share equivalents excluded were 345,655 and 758,984 for three and six months ended June 30, 2020, respectively, and 739,934 and 892,282 for the three and six months ended June 30, 2019, respectively.
Reclassification of Prior Year Balances
Reclassifications were made to the Company’s consolidated financial statements for the three and six months ended June 30, 2019 to conform to the current period presentation, where applicable.
Accounting Standards Issued and Adopted
The Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (“Topic 842”), as amended, as of January 1, 2019, and elected the option to apply the transition requirements in the new standard at the effective date of January 1, 2019 with the effects of initially applying Topic 842 recognized as a cumulative-effect adjustment to retained earnings on January 1, 2019. As a result, the balance sheet presentation is not comparable to the prior period in this first year of adoption.
The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allows the carry forward of the Company’s Leases – Topic 840 assessment regarding definition of a lease, lease classification, and initial direct costs. The Company also elected the short-term lease exception, which allows leases with a lease term of 12 months or less to be accounted for similar to existing operating leases. The Company elected not to separate non-lease components from lease components and, instead, to account for each separate lease component and the non-lease components associated with it as a single lease component, recognized on the balance sheet. The Company did not elect the use-of-hindsight, which requires an entity to use hindsight in determining the lease term and in assessing impairment of right-of-use assets, or the practical expedient pertaining to land easements, which is not applicable.
The standard did not materially impact the Company’s consolidated net earnings and had no impact on cash flows. The effect of adopting Topic 842 on the January 1, 2019 consolidated balance sheet is as follows:
(In thousands) |
| Prior to Adoption |
|
| Effect of Adoption(1) |
|
| Post Adoption |
| |||
Prepaid expenses |
| $ | 17,722 |
|
| $ | (194 | ) |
| $ | 17,528 |
|
Property and equipment, net |
|
| 894,953 |
|
|
| 2,503 |
|
|
| 897,456 |
|
Operating lease right-of-use assets, net |
|
| — |
|
|
| 140,715 |
|
|
| 140,715 |
|
Intangible assets, net |
|
| 141,128 |
|
|
| (2,503 | ) |
|
| 138,625 |
|
Operating lease liability |
|
| — |
|
|
| 155,878 |
|
|
| 155,878 |
|
Other long-term obligations |
|
| 4,801 |
|
|
| (3,085 | ) |
|
| 1,716 |
|
Accumulated deficit |
|
| (120,361 | ) |
|
| (12,272 | ) |
|
| (132,633 | ) |
|
|
In June 2018,2016, the Financial Accounting Standards Board (“FASB”) issued ASUAccounting Standards Update (“ASU”) No. 2018-07, Compensation – Stock Compensation,2016-13, Financial Instruments - Credit Losses (Topic 326) (“Topic 326”). The new guidance replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables, loans and other financial
instruments, the Company is required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which expands previous guidance to include all share-based payment arrangements related to the acquisition of goods and services from both non-employees and employees.reflects losses that are probable. The Company adopted the standard as of January 1, 2019,2020, and the adoption did not have a material impact on the Company’s financial statements and disclosures.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“Topic 820”). The new guidance amends the disclosure requirements for recurring and nonrecurring fair value measurements by removing, modifying, and adding certain disclosures on fair value measurements in Topic 820. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company adopted the standard as of January 1, 2020, and the adoption did not have a material impact on the Company’s financial statements and disclosures.
In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The ASU is intended to eliminate potential diversity in practice in accounting for costs incurred to implement cloud computing arrangements that are service contracts by requiring customers in such arrangements to follow internal-use software guidance with respect to such costs, with any resulting deferred implementation costs recognized over the term of the contract in the same income statement line item as the fees associated with the hosting element of the arrangement. The Company adopted the standard as of January 1, 2020, and the adoption did not have a material impact on the Company’s financial statements and disclosures.
Accounting Standards Issued but Not Yet Adopted
See Note 2, Summary
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU is intended to simplify the accounting for income taxes by removing certain exceptions for investments, intraperiod allocations, and interim calculations, and adds guidance to reduce the complexity of Significant Accounting Policies, toapplying Topic 740. The standard is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the Company’s audited consolidatedimpact of adopting this ASU on its financial statements forand disclosures; however, it does not expect the year ended December 31, 2018 for a discussion of accounting standards issued but not yet adopted. impact to be material.
No other recently issued accounting standards that are not yet effective have been identified that management believes are likely to have a material impact on the Company’s financial statements.
Note 2 – Acquisitions
The Company had 0 material acquisitions for the three and six months ended June 30, 2020.
Laughlin Acquisition
Overview
On January 14, 2019, the Company completed the acquisition of Edgewater Gaming, LLC and Colorado Belle Gaming, LLC (the “Acquired“Laughlin Entities”) from Marnell Gaming, LLC (“Marnell”) for $156.2 million in cash (after giving effect to the post-closing adjustment provisions in the purchase agreement) and the issuance of 911,002 shares of the Company’s common stock to certain assignees of Marnell (the “Acquisition”“Laughlin Acquisition”). The results of operations of the AcquiredLaughlin Entities are included in the Company’s results subsequent to the acquisition date.
In connection with the Acquisition, the Company borrowed $145.0 million under its revolving credit facility.
Purchase Price
The Acquisition has been accounted for using the acquisition methoddetermination of accounting in accordance with Accounting Standards Codification 805, Business Combinations (“ASC 805”), which, among other things, establishes that equity issued to effect the acquisition be measured at the closing date of the transaction at the then-current market price. Accordingly, the fair value of the Company's common stock issued was based on the closing price of the Company's common stock on January 14, 2019 of $18.23.
The following is a summary of the components of the purchase price paid by the Company to Marnell in the Acquisition (after taking into account the adjustment to the cash portion of the purchase price pursuant to the post-closing adjustment provisions of the purchase agreement, as described above):
(In thousands) |
| Amount |
| |
Cash |
| $ | 156,152 |
|
Fair value of common stock issued (911,002 shares) |
|
| 16,608 |
|
Total purchase price |
| $ | 172,760 |
|
Purchase Price Allocation
Under ASC 805, the purchase price of the acquisition is allocated to the identified tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date which are determined in accordance with the applicable accounting guidance for business combinations and with the services of third-party valuation consultants. The excess of the purchase price over the fair values is recorded as goodwill which is expected to be deductible for tax purposes.
During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with a corresponding offset to goodwill. Balances subject to adjustment primarily include current assets, property(and the related determination of estimated lives of depreciable tangible and equipment,identifiable intangible assets, liabilities, as well as tax-related matters, including tax basisassets) was completed in the fourth quarter of acquired assets and liabilities.2019.
The following table summarizes the preliminary allocation of the purchase price:
(In thousands) |
|
|
|
|
Current assets |
| $ | 12,615 |
|
Property and equipment |
|
| 126,198 |
|
Right-of-use assets |
|
| 2,620 |
|
Intangible assets |
|
| 19,234 |
|
Goodwill |
|
| 24,736 |
|
Liabilities |
|
| (10,023 | ) |
Lease liabilities |
|
| (2,620 | ) |
Total assets acquired, net of liabilities assumed |
| $ | 172,760 |
|
The following table summarizes the preliminary amounts assigned to property and equipment and estimated useful life by category:
(In thousands) |
| Useful Life (Years) |
|
|
|
|
Land |
| Not applicable |
| $ | 4,160 |
|
Building and site improvements |
| 10-30 |
|
| 102,450 |
|
Furniture and equipment |
| 2-13 |
|
| 18,185 |
|
Construction in process |
| Not applicable |
|
| 1,403 |
|
Total property and equipment |
|
|
| $ | 126,198 |
|
The following table summarizes the preliminary values assigned to acquired intangible assets and estimated useful lives by category:
(In thousands) |
| Useful Life (Years) |
|
|
|
|
Non-compete agreements |
| 5 |
| $ | 3,630 |
|
Trade names |
| Indefinite |
|
| 6,980 |
|
Player loyalty program |
| 2 |
|
| 8,600 |
|
Other |
| 4 |
|
| 24 |
|
Total intangible assets |
|
|
| $ | 19,234 |
|
Pro Forma Combined Financial Information
The following unaudited pro forma combined financial information has been prepared by management for illustrative purposes only and does not purport to represent what the results of operations, financial condition or other financial information of the Company would have been if the Acquisition had occurred on January 1, 2018, or what such results or financial condition will be for any future periods. The unaudited pro forma combined financial information is based on preliminary estimates and assumptions and on the information available at the time of the preparation thereof. These preliminary estimates and assumptions may change, be revised or prove to be materially different, and the estimates and assumptions may not be representative of facts existing at the time of the Acquisition. The unaudited pro forma combined financial information does not reflect non-recurring charges that were incurred in connection with the Acquisition, nor any cost savings and synergies expected to result from the Acquisition (and associated costs to achieve such savings or synergies), nor any costs associated with severance, restructuring or integration activities resulting from the Acquisition.
The following table summarizes certain unaudited pro forma combined financial information derived from a combination of the historical consolidated financial statements of the Company and of the Acquired Entities for the three and six months ended June 30, 2018, adjusted to give effect to the Acquisition, related transactions, and the adoption of ASC 606 for the Acquired Entities.
|
| Three Months Ended |
|
| Six Months Ended |
| ||
(In thousands, except per share data) |
| June 30, 2018 |
|
| June 30, 2018 |
| ||
Pro forma combined revenues |
| $ | 242,473 |
|
| $ | 480,705 |
|
Pro forma combined net income |
|
| 2,364 |
|
|
| 7,519 |
|
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
| 28,317 |
|
|
| 28,189 |
|
Diluted |
|
| 30,575 |
|
|
| 30,439 |
|
Pro forma combined net income per share: |
|
|
|
|
|
|
|
|
Basic |
| $ | 0.08 |
|
| $ | 0.27 |
|
Diluted |
|
| 0.08 |
|
|
| 0.25 |
|
In connection with the Acquisition, the Company incurred approximately $0.9 million and $1.3 million of acquisition costs during the three and six months ended June 30, 2019, respectively. For the three and six months ended June 30, 2019, the Acquired Entities contributed revenue of approximately $25.3 million and $46.8 million, respectively. For the three and six months ended June 30, 2019, operating expenses related to the Acquired Entities were approximately $13.6 million and $25.0 million, respectively.
Note 3 – Property and Equipment, Net
Property and equipment, net, consisted of the following:
(In thousands) |
| June 30, 2019 |
|
| December 31, 2018 |
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||
Land |
| $ | 125,240 |
|
| $ | 121,081 |
|
| $ | 125,240 |
|
| $ | 125,240 |
|
Building and site improvements |
|
| 858,855 |
|
|
| 723,354 |
|
|
| 922,625 |
|
|
| 880,662 |
|
Furniture and equipment |
|
| 197,067 |
|
|
| 154,663 |
|
|
| 243,452 |
|
|
| 222,938 |
|
Construction in process |
|
| 33,401 |
|
|
| 35,151 |
|
|
| 9,615 |
|
|
| 49,869 |
|
Property and equipment |
|
| 1,214,563 |
|
|
| 1,034,249 |
|
|
| 1,300,932 |
|
|
| 1,278,709 |
|
Less: Accumulated depreciation |
|
| (184,415 | ) |
|
| (139,296 | ) | ||||||||
Accumulated depreciation |
|
| (282,635 | ) |
|
| (232,173 | ) | ||||||||
Property and equipment, net |
| $ | 1,030,148 |
|
| $ | 894,953 |
|
| $ | 1,018,297 |
|
| $ | 1,046,536 |
|
Depreciation expense for property and equipment, including finance leases, was $26.3 million and $51.8 million for the three and six months ended June 30, 2020, and $24.3 million and $18.5$45.9 million for the three and six months ended June 30, 2019, respectively.
The Company concluded that the impact of the current COVID-19 pandemic on its operations and financial results is an indicator that impairment may exist related to its long-lived assets. As a result, the Company revised its cash flow projections to reflect the current economic environment, including the uncertainty around the nature, timing and extent of elimination or change of the restrictions on its operations, and utilized such projections in performing an interim qualitative assessment of its property and equipment for potential impairment. The Company completed an undiscounted cash flow analysis for each of its properties based on these revised cash flow projections, and the cash flows were sufficient to recover the Company’s assets such that there was 0 impairment of the Company’s long-lived assets as of June 30, 2020.
To the extent the Company becomes aware of new facts and circumstances arising from the COVID-19 pandemic that impact its operations, the Company will revise its cash flow projections accordingly, as its estimates of future cash flows are highly dependent upon certain assumptions, including, but not limited to, the nature, timing, and extent of elimination or change of the restrictions on the Company’s operations and the extent and timing of the economic recovery globally, nationally, and specifically within the gaming industry. If such assumptions are not accurate, the Company may be required to record impairment charges in future periods, whether in connection with its regular review procedures, or earlier, if an indicator of an impairment is present prior to such evaluation.
Note 4 – Goodwill and Intangible Assets, Net
The Company tests goodwill and indefinite-lived intangible assets for impairment annually in the last quarter of the year, unless events or changes in circumstances indicate that it is more likely than not that the carrying value of a reporting unit exceeds its fair value. Finite-lived intangible assets are evaluated for potential impairment whenever there is an indicator that the carrying value of an asset group may not be recoverable.
During the first quarter of 2020, the Company concluded that the COVID-19 pandemic had an adverse impact on its operations and financial results, particularly within the Company’s Casinos segment due to the mandatory property closures, which management considered an indicator of impairment, and necessitated a performance of interim qualitative and quantitative impairment tests. The Company’s interim assessment resulted in recognition of a non-cash impairment of its Casinos segment goodwill of $6.5 million.
Mandatory shut-down of the Company’s properties for a majority of the second quarter of 2020 resulted in deterioration of performance of the Company’s casino properties in particular, which required the Company to revise its cash flow projections to reflect the current economic environment, including the uncertainty surrounding the nature, timing, and extent of elimination or change of the restrictions on the Company’s operations. As a result of the impact of the COVID-19 pandemic, the operations of the Colorado Belle remained suspended as of June 30, 2020. The Company conducted an interim qualitative and quantitative assessment of its goodwill and intangible assets for potential impairment, which resulted in recognition of an additional non-cash impairment of the Company’s Casinos segment in the amount of $18.8 million for the three months ended June 30, 20192020. The assessment also indicated that the carrying value of an indefinite-lived trade name for certain of the Company’s properties within the Casinos segment exceeded its fair value and 2018,resulted in recognition of a non-cash impairment charge of $2.6 million.
The estimated fair value of goodwill and indefinite-lived intangible assets for the first and second quarter was determined using discounted cash flow models which utilized Level 3 inputs as follows: discount rate of 12.0%; long-term revenue growth rate of 2.0% to 3.0%.
There was 0 impairment of the remaining goodwill or other intangible assets for the three and six months ended June 30, 2020.
The following table summarizes goodwill activity by reportable segment:
(In thousands) |
| Casinos |
|
| Distributed Gaming |
|
| Total Goodwill |
| |||
Balance, December 31, 2019 |
| $ | 86,466 |
|
| $ | 97,859 |
|
| $ | 184,325 |
|
Goodwill impairment |
|
| (25,272 | ) |
|
| — |
|
|
| (25,272 | ) |
Balance, June 30, 2020 |
| $ | 61,194 |
|
| $ | 97,859 |
|
| $ | 159,053 |
|
Intangible assets, net, consisted of the following:
|
| June 30, 2020 |
| |||||||||||||||
|
|
|
| Gross |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Useful Life |
| Carrying |
|
| Cumulative |
|
|
|
|
|
| Intangible |
| |||
(In thousands) |
| (Years) |
| Value |
|
| Amortization |
|
| Impairment |
|
| Assets, Net |
| ||||
Indefinite-lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names |
| Indefinite |
| $ | 53,690 |
|
| $ | — |
|
| $ | (2,600 | ) |
| $ | 51,090 |
|
Gaming licenses |
| Indefinite |
|
| 960 |
|
|
| — |
|
|
| — |
|
|
| 960 |
|
Other |
| Indefinite |
|
| 185 |
|
|
| — |
|
|
| — |
|
|
| 185 |
|
|
|
|
|
| 54,835 |
|
|
| — |
|
|
| (2,600 | ) |
|
| 52,235 |
|
Amortizing intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
| 4-16 |
|
| 81,104 |
|
|
| (27,076 | ) |
|
| — |
|
|
| 54,028 |
|
Player relationships |
| 2-14 |
|
| 42,989 |
|
|
| (33,628 | ) |
|
| — |
|
|
| 9,361 |
|
Non-compete agreements |
| 2-5 |
|
| 9,840 |
|
|
| (6,426 | ) |
|
| — |
|
|
| 3,414 |
|
Gaming license (1) |
| 15 |
|
| 2,100 |
|
|
| (999 | ) |
|
| — |
|
|
| 1,101 |
|
In-place lease value |
| 4 |
|
| 1,171 |
|
|
| (784 | ) |
|
| — |
|
|
| 387 |
|
Leasehold interest |
| 4 |
|
| 570 |
|
|
| (424 | ) |
|
| — |
|
|
| 146 |
|
Other |
| 4-25 |
|
| 1,769 |
|
|
| (1,181 | ) |
|
| — |
|
|
| 588 |
|
|
|
|
|
| 139,543 |
|
|
| (70,518 | ) |
|
| — |
|
|
| 69,025 |
|
Balance, June 30, 2020 |
|
|
| $ | 194,378 |
|
| $ | (70,518 | ) |
| $ | (2,600 | ) |
| $ | 121,260 |
|
(1) | Relates to Rocky Gap. |
|
| December 31, 2019 |
| |||||||||||
|
|
|
| Gross |
|
|
|
|
|
|
|
|
| |
|
| Useful Life |
| Carrying |
|
| Cumulative |
|
| Intangible |
| |||
(In thousands) |
| (Years) |
| Value |
|
| Amortization |
|
| Assets, Net |
| |||
Indefinite-lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names |
| Indefinite |
| $ | 53,690 |
|
| $ | — |
|
| $ | 53,690 |
|
Gaming licenses |
| Indefinite |
|
| 960 |
|
|
| — |
|
|
| 960 |
|
Liquor Licenses |
| Indefinite |
|
| 185 |
|
|
| — |
|
|
| 185 |
|
|
|
|
|
| 54,835 |
|
|
| — |
|
|
| 54,835 |
|
Amortizing intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
| 4-16 |
|
| 81,105 |
|
|
| (24,140 | ) |
|
| 56,965 |
|
Player relationships |
| 2-14 |
|
| 42,990 |
|
|
| (26,649 | ) |
|
| 16,341 |
|
Non-compete agreements |
| 2-5 |
|
| 9,840 |
|
|
| (5,467 | ) |
|
| 4,373 |
|
Gaming license (1) |
| 15 |
|
| 2,100 |
|
|
| (929 | ) |
|
| 1,171 |
|
In-place lease value |
| 4 |
|
| 1,301 |
|
|
| (724 | ) |
|
| 577 |
|
Leasehold interest |
| 4 |
|
| 570 |
|
|
| (345 | ) |
|
| 225 |
|
Other |
| 4-25 |
|
| 1,814 |
|
|
| (1,150 | ) |
|
| 664 |
|
|
|
|
|
| 139,720 |
|
|
| (59,404 | ) |
|
| 80,316 |
|
Balance, December 31, 2019 |
|
|
| $ | 194,555 |
|
| $ | (59,404 | ) |
| $ | 135,151 |
|
(1) | Relates to Rocky Gap. |
Total amortization expense related to intangible assets was $5.6 million and $11.3 million for the three and six months ended June 30, 2020, respectively, and $45.9$5.7 million and $39.4$11.3 million for the three and six months ended June 30, 2019, respectively.
To the extent the Company becomes aware of new facts and 2018, respectively.circumstances arising from the COVID-19 pandemic that impact its operations, the Company will revise its cash flow projections accordingly, as its estimates of future cash flows are highly dependent upon certain assumptions, including, but not limited to, the nature, timing, and extent of elimination or change of the restrictions on the Company’s operations and the extent and timing of the economic recovery globally, nationally, and specifically within the gaming industry. If such assumptions are not accurate, the Company may be required to record impairment charges in future periods, whether in connection with its regular review procedures, or earlier, if an indicator of an impairment is present prior to such evaluation.
Note 45 – Accrued Liabilities
Accrued liabilities consisted of the following:
(In thousands) |
| June 30, 2019 |
|
| December 31, 2018 |
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||
Gaming liabilities |
| $ | 13,676 |
|
| $ | 12,473 |
|
| $ | 11,918 |
|
| $ | 12,353 |
|
Interest |
|
| 6,306 |
|
|
| 305 |
|
|
| 6,362 |
|
|
| 6,562 |
|
Other accrued liabilities |
|
| 4,156 |
|
|
| 3,873 |
| ||||||||
Deposits |
|
| 3,589 |
|
|
| 2,652 |
|
|
| 3,029 |
|
|
| 2,734 |
|
Other accrued liabilities |
|
| 4,789 |
|
|
| 3,418 |
| ||||||||
Total accrued and other current liabilities |
| $ | 28,360 |
|
| $ | 18,848 |
| ||||||||
Total current accrued liabilities |
| $ | 25,465 |
|
| $ | 25,522 |
|
Note 56 – Long-Term Debt
Long-term debt, net, consisted of the following:
(In thousands) |
| June 30, 2019 |
|
| December 31, 2018 |
| ||
Term loan |
| $ | 772,000 |
|
| $ | 992,000 |
|
Senior notes due 2026 |
|
| 375,000 |
|
|
| — |
|
Finance lease liabilities |
|
| 7,086 |
|
|
| 7,127 |
|
Notes payable |
|
| 231 |
|
|
| 1,111 |
|
Total long-term debt |
|
| 1,154,317 |
|
|
| 1,000,238 |
|
Less unamortized discount |
|
| (20,394 | ) |
|
| (25,658 | ) |
Less unamortized debt issuance costs |
|
| (8,609 | ) |
|
| (3,537 | ) |
|
|
| 1,125,314 |
|
|
| 971,043 |
|
Less current maturities |
|
| (1,875 | ) |
|
| (10,480 | ) |
Long-term debt, net |
| $ | 1,123,439 |
|
| $ | 960,563 |
|
(In thousands) |
| June 30, 2020 |
|
| December 31, 2019 |
| ||
Revolving Credit Facility |
| $ | 10,000 |
|
| $ | — |
|
Term Loan |
|
| 772,000 |
|
|
| 772,000 |
|
2026 Unsecured Notes |
|
| 375,000 |
|
|
| 375,000 |
|
Finance lease liabilities |
|
| 11,267 |
|
|
| 12,463 |
|
Notes payable |
|
| 3,717 |
|
|
| 6,369 |
|
Total long-term debt and finance leases |
|
| 1,171,984 |
|
|
| 1,165,832 |
|
Unamortized discount |
|
| (17,240 | ) |
|
| (18,885 | ) |
Unamortized debt issuance costs |
|
| (7,485 | ) |
|
| (8,076 | ) |
Total long-term debt and finance leases after debt issuance costs and discount |
|
| 1,147,259 |
|
|
| 1,138,871 |
|
Current portion of long-term debt and finance leases |
|
| (7,173 | ) |
|
| (8,497 | ) |
Long-term debt, net and finance leases |
| $ | 1,140,086 |
|
| $ | 1,130,374 |
|
Senior Secured Credit Facility
In October 2017, the Company entered into a senior secured credit facility consisting of a $900 million senior secured first lien credit facility (consisting of an $800 million term loan (the “Term Loan”) and a $100 million revolving credit facility)Revolving Credit Facility) with JPMorgan Chase Bank, N.A. (as administrative agent and collateral agent), the lenders party thereto and the other entities party thereto (the “Credit Facility”). The revolving credit facilityRevolving Credit Facility was subsequently increased from $100 million to $200 million in 2018.2018 increasing the total Credit Facility capacity to $1.0 billion.
As of June 30, 2019,2020, the Company had $772 million in principal amount of outstanding term loanTerm Loan borrowings under its Credit Facility, no letters of credit outstanding, and $10 million in principal amount of outstanding borrowings under the Revolving Credit Facility, and the Company’s revolving credit facility was undrawn, leaving borrowing availability under the revolving credit facilityRevolving Credit Facility as of June 30, 20192020 of $200 million.
As of June 30, 2019, the weighted-average effective interest rate on the Company’s outstanding borrowings under the Credit Facility was approximately 5.5%$190 million.
The revolving credit facilityRevolving Credit Facility matures on October 20, 2022, and the term loan under the Credit FacilityTerm Loan matures on October 20, 2024. The term loan under the Credit FacilityTerm Loan is repayable in 27 quarterly installments of $2 million each, which commenced in March 2018, followed by a final installment of $746 million at maturity.
The Company was in compliance with its financial covenants under the Credit Facility as of June 30, 2019.2020.
Senior Unsecured Notes due 2026
On April 15, 2019, the Company issued $375 million in principal amount of 7.625% Senior Notes due 2026 (“2026 Unsecured Notes”) in a private placement to institutional buyers at face value. The 2026 Unsecured Notes bear interest at 7.625%, payable semi-annually on April 15th and October 15th of each year.
In conjunction with the issuance of the 2026 Notes, the Company incurred approximately $6.7 million in debt financing costs and fees that have been deferred and are being amortized over the term of the 2026 Notes using theThe weighted-average effective interest method.
The net proceeds of the 2026 Notes were used to (i) repayrate on the Company’s $200 million second lien term loan (the “Second Lien Term Loan”), (ii) repay outstanding borrowings under the revolving credit facility, (iii) repay $18 million of the outstanding term loan indebtedness under the Credit Facility and (iv) pay accrued interest, feesthe 2026 Unsecured Notes was approximately 5.37% and expenses related5.74% for the three and six months ended June 30, 2020, respectively.
Note 7 – Stockholders’ Equity and Stock Incentive Plans
Share Repurchase Program
On March 12, 2019, the Company’s Board of Directors authorized the repurchase of up to each$25.0 million additional shares of the foregoing.
The 2026 Notescommon stock. Share repurchases may be redeemed,made from time to time in wholeopen market transactions, block trades or in part,private transactions in accordance with applicable securities laws and regulations and other legal requirements, including compliance with the Company’s finance agreements. There is no minimum number of shares that the Company is required to repurchase and the repurchase program
may be suspended or discontinued at any time during the 12 months beginning on April 15, 2022 at a redemption price of 103.813%, during the 12 months beginning on April 15, 2023 at a redemption price of 101.906%, and at any time on or after April 15, 2024 at a redemption price of 100%, in each case plus accrued and unpaid interest, if any, thereon to the redemption date. Prior to April 15, 2022, the Company may redeem up to 40% of the 2026 Notes at a redemption price of 107.625% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the redemption date, from the net cash proceeds of specified equity offerings. Prior to April 15, 2022, the Company may also redeem the 2026 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest and an Applicable Premium (as defined in the indenture governing the 2026 Notes (the “Indenture”)), if any, thereon to the redemption date.
Under the Indenture, the Company and its restricted subsidiaries are subject to certain limitations, including limitations on their respective ability to: incur additional debt. grant liens, sell assets, make certain investments, pay dividends and make certain other restricted payments. In addition, in the event of a change of control (as defined in the Indenture), each holder will have the right to require the Company to repurchase all or any part of such holder’s 2026 Notes at a purchase price in cash equal to 101% of the aggregate principal amount of the 2026 Notes repurchased, plus accrued and unpaid interest, if any, to the date of purchase.
Expenses Related to Extinguishment and Modification of Debt
In April 2019, the Company recognized a $5.5 million loss on extinguishment of debt and $3.7 million of expense related to modification of debt, related to the repayment of the Company’s Second Lien Term Loan and $18 million prepayment of the term loan under its Credit Facility.
Note 6 – Stock Incentive Plans and Share-Based Compensation
without prior notice. As of June 30, 2019, a total of 1,359,1292020, the Company had 0t repurchased any shares of the Company’s common stock remained available for grants of awards under the Golden Entertainment, Inc. 2015 Incentive Award Plan (the “2015 Plan”), which includes the annual increase in the number of shares available for grant on January 1,March 12, 2019 of 1,119,924 shares.authorization.
Stock Options
The following table summarizes the Company’s stock option activity:
|
| Stock Options |
|
| Stock Options |
| ||||||||||
|
|
|
|
|
| Weighted- |
|
|
|
|
|
| Weighted- |
| ||
|
|
|
|
|
| Average |
|
|
|
|
|
| Average |
| ||
|
| Shares |
|
| Exercise Price |
|
| Shares |
|
| Exercise Price |
| ||||
Outstanding at January 1, 2019 |
|
| 3,424,755 |
|
| $ | 11.49 |
| ||||||||
Outstanding at January 1, 2020 |
|
| 3,126,521 |
|
| $ | 11.61 |
| ||||||||
Granted |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
Exercised |
|
| (52,390 | ) |
| $ | 9.06 |
|
|
| (40,000 | ) |
| $ | 2.07 |
|
Cancelled |
|
| (21,875 | ) |
| $ | 11.41 |
|
|
| (7,604 | ) |
| $ | 13.07 |
|
Outstanding at June 30, 2019 |
|
| 3,350,490 |
|
| $ | 11.53 |
| ||||||||
Exercisable at June 30, 2019 |
|
| 2,668,865 |
|
| $ | 11.31 |
| ||||||||
Expired |
|
| (176,660 | ) |
| $ | 24.11 |
| ||||||||
Outstanding at June 30, 2020 |
|
| 2,902,257 |
|
| $ | 10.98 |
| ||||||||
Exercisable at June 30, 2020 |
|
| 2,724,687 |
|
| $ | 10.84 |
|
Share-based compensation expense, net related to stock options was $0.9$0.5 million and $1.4$1.1 million for the three and six months ended June 30, 20192020, respectively, and 2018, respectively,$0.9 million and $3.4 million and $2.9 million for the three and six months ended June 30, 2019, and 2018, respectively. The Company’s unrecognized share-based compensation expense related to stock options was approximately $3.6$1.0 million as of June 30, 2019,2020, which is expected to be recognized over a weighted-average period of 0.6 years. The unrecognized share-based compensation expense related to stock options was $3.6 million as of June 30, 2019, which was expected to be recognized over a weighted-average period of 1.4 years.
Restricted Stock Units
The following table summarizes the Company’s activity related to time-based restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”):
|
| RSUs |
|
| PSUs |
|
| RSUs |
|
| PSUs |
| ||||||||||||||||||||
|
|
|
|
|
| Weighted- |
|
|
|
|
|
| Weighted- |
|
|
|
|
|
| Weighted- |
|
|
|
|
|
| Weighted- |
| ||||
|
|
|
|
|
| Average Grant |
|
|
|
|
|
| Average Grant |
|
|
|
|
|
| Average Grant |
|
|
|
|
|
| Average Grant |
| ||||
|
| Shares |
|
| Date Fair Value |
|
| Shares(1) |
|
| Date Fair Value |
|
| Shares |
|
| Date Fair Value |
|
| Shares (1) |
|
| Date Fair Value |
| ||||||||
Outstanding at January 1, 2019 |
|
| 232,299 |
|
| $ | 29.10 |
|
|
| 171,748 |
|
| $ | 28.41 |
| ||||||||||||||||
Outstanding at January 1, 2020 |
|
| 661,258 |
|
| $ | 16.44 |
|
|
| 376,328 |
|
| $ | 20.65 |
| ||||||||||||||||
Granted |
|
| 461,606 |
|
| $ | 14.06 |
|
|
| 204,580 |
|
| $ | 14.13 |
|
|
| 624,415 |
|
| $ | 9.65 |
|
|
| 404,880 |
|
| $ | 8.86 |
|
Vested |
|
| (102,218 | ) |
| $ | 29.59 |
|
|
| — |
|
| $ | — |
|
|
| (252,268 | ) |
| $ | 17.06 |
|
|
| (5,254 | ) |
| $ | 28.72 |
|
Cancelled |
|
| (12,827 | ) |
| $ | 26.80 |
|
|
| — |
|
| $ | — |
|
|
| (27,557 | ) |
| $ | 17.37 |
|
|
| (32,235 | ) |
| $ | 28.72 |
|
Outstanding at June 30, 2019 |
|
| 578,860 |
|
| $ | 17.07 |
|
|
| 376,328 |
|
| $ | 20.65 |
| ||||||||||||||||
Outstanding at June 30, 2020 |
|
| 1,005,848 |
|
| $ | 12.04 |
|
|
| 743,719 |
|
| $ | 13.82 |
|
__________________
(1) | The number of shares for 62,791 of the PSUs |
Additionally, 108,957 of the PSUs included in the outstanding balance at January 1, 2020 represent PSUs granted in March 2018 (the “2018 PSU Awards”). During the first quarter of 2020, the Company’s financial results for the applicable performance goals were certified, with 70.4% of the “target” number of PSUs for the 2018 PSU Awards “earned” based on the Company’s performance, subject to one additional year of time-based vesting. Accordingly, the total number of PSUs granted in the 2018 PSU Awards that are eligible to vest was reduced by 32,235 shares from 108,957 shares to 76,722 shares.
Share-based compensation expense, net related to RSUs was $1.0$1.1 million and $1.0$2.1 million for the three months ended June 30, 2019 and 2018, respectively, and $2.1 million and $1.1 million for the six months ended June 30, 20192020, respectively, and 2018,$1.0 million and $2.1 million for the three and six months ended June 30, 2019, respectively. Share-based compensation expense related to PSUs was $0.2 million and $0.4$0.7 million for the three and six months ended June 30, 20192020, respectively, and 2018, respectively,$0.2 million and $0.6 million and $0.5 million for the three and six months ended June 30, 2019, and 2018, respectively.
As of June 30, 2019,2020, there was $7.4$9.8 million and $4.0$5.1 million of unamortized share-based compensation expense related to RSUs and PSUs, respectively, which is expected to be recognized over a weighted-average period of 2.3 years for both RSUs and PSUs. As of June 30, 2019, there was $7.4 million and $4.0 million of unamortized share-based compensation expense related to RSUs and PSUs, respectively, which was expected to be recognized over a weighted-average period of 2.3 years and 2.4 years for RSUs and PSUs, respectively.
As of June 30, 2020, a total of 1,529,029 sharesof the Company’s common stock remained available for grants of awards under the Golden Entertainment, Inc. 2015 Incentive Award Plan, which includes the annual increase in the number of shares available for grant on January 1, 2020 of 1,066,403 shares.
Note 78 – Income TaxesTax
The Company’s effective income tax rate was 8.2%0.3% and 22.0%0.2% for the three and six months ended June 30, 2020, respectively, and (8.5)% and (8.2)% for the three and six months ended June 30, 2019, and 2018, respectively.
Income tax benefitexpense of $2.0$0.2 million and $0.3 million for the three and six months ended June 30, 20192020, respectively, was primarily due to the change in valuation allowance against the Company’s deferred tax assets during the firstthree and six months of 2019.2020. Income tax expensebenefit of $2.1$1.3 million and $2.0 million for the three and six months ended June 30, 20182019, respectively, was primarily due to expenses that are not deductible forthe change in valuation allowance against the Company’s deferred tax purposesassets during the three and six months of 2019.
Deferred tax assets are evaluated by considering historical levels of income, estimates of future taxable income, and the impact of tax planning strategies. The Company continues to evaluate its deferred tax asset valuation allowance on a quarterly basis.
As of June 30, 2020, the Company’s 2017 and 2018 federal tax returns were under audit by the IRS.
Note 89 – Financial Instruments and Fair Value Measurements
Estimates of fair value for financial assets and liabilities are based on the framework established in the accounting guidance for fair value measurements. The framework defines fair value, provides guidance for measuring fair value and requires certain disclosures. The framework discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The framework utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
• | Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. |
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
• | Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. |
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
• | Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions. |
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Thus, assets and liabilities categorized as Level 3 may be measured at fair value using inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Management'sManagement’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy levels.
The carrying values of the Company’s cash and cash equivalents, accounts receivable, and accounts payable approximate fair value because of the short duration of these financial instruments.
The following table summarizes the fair value measurement information aboutof the Company’s long-term debt:
|
| June 30, 2019 |
| June 30, 2020 | ||||||||||||||||
|
| Carrying |
|
| Fair |
|
| Fair Value |
| Carrying |
|
| Fair |
|
| Fair Value | ||||
(In thousands) |
| Amount |
|
| Value |
|
| Hierarchy |
| Amount |
|
| Value |
|
| Hierarchy | ||||
Term loan |
| $ | 772,000 |
|
| $ | 770,070 |
|
| Level 2 | ||||||||||
Senior notes due 2026 |
|
| 375,000 |
|
|
| 383,438 |
|
| Level 2 | ||||||||||
Revolving Credit Facility |
| $ | 10,000 |
|
| $ | 9,100 |
|
| Level 2 | ||||||||||
Term Loan |
|
| 772,000 |
|
|
| 702,520 |
|
| Level 2 | ||||||||||
2026 Unsecured Notes |
|
| 375,000 |
|
|
| 347,100 |
|
| Level 2 | ||||||||||
Finance lease liabilities |
|
| 7,086 |
|
|
| 7,086 |
|
| Level 3 |
|
| 11,267 |
|
|
| 11,267 |
|
| Level 3 |
Notes payable |
|
| 231 |
|
|
| 231 |
|
| Level 3 |
|
| 3,717 |
|
|
| 3,717 |
|
| Level 3 |
Total debt |
| $ | 1,154,317 |
|
| $ | 1,160,825 |
|
|
|
| $ | 1,171,984 |
|
| $ | 1,073,704 |
|
|
|
|
| December 31, 2018 |
| December 31, 2019 | ||||||||||||||||
|
| Carrying |
|
| Fair |
|
| Fair Value |
| Carrying |
|
| Fair |
|
| Fair Value | ||||
(In thousands) |
| Amount |
|
| Value |
|
| Hierarchy |
| Amount |
|
| Value |
|
| Hierarchy | ||||
Term loan |
| $ | 992,000 |
|
| $ | 952,300 |
|
| Level 2 | ||||||||||
Term Loan |
| $ | 772,000 |
|
| $ | 776,806 |
|
| Level 2 | ||||||||||
2026 Unsecured Notes |
|
| 375,000 |
|
|
| 401,250 |
|
| Level 2 | ||||||||||
Finance lease liabilities |
|
| 7,127 |
|
|
| 7,127 |
|
| Level 3 |
|
| 12,463 |
|
|
| 12,463 |
|
| Level 3 |
Notes payable |
|
| 1,111 |
|
|
| 1,111 |
|
| Level 3 |
|
| 6,369 |
|
|
| 6,369 |
|
| Level 3 |
Total debt |
| $ | 1,000,238 |
|
| $ | 960,538 |
|
|
|
| $ | 1,165,832 |
|
| $ | 1,196,888 |
|
|
|
The estimated fair value of the Company’s term loan debtTerm Loan, Revolving Credit Facility and 2026 Unsecured Notes is based on a relative value analysis performed as of June 30, 20192020 and December 31, 2018.2019. The finance lease liabilities and notenotes payable debt are fixed-rate debt, are not traded and do not have observable market inputs, therefore, the fair value is estimated to be equal to the carrying value.
As of June 30, 2019,2020, the Company had an interest rate cap agreement that was outstanding with a notional amount of $650 million, which expires on December 31, 2020. Using Level 2 inputs, the Company adjusts the carrying value of the interest rate cap agreement to estimated fair value quarterly based upon observable market-based inputs that reflect the present values of the difference between estimated future fixed rate payments and future variable receipts. The fair value of the Company’s interest rate cap agreement was $0.5 million and $5.0 millionimmaterial as of June 30, 20192020 and December 31, 2018, respectively.2019. As the Company elected to not apply hedge accounting, the change in fair value of its interest rate cap agreement was recorded in the consolidated statement of operations.
Note 9 – Leases
Company as Lessee
The Company has operating and finance leases for offices, taverns, land, vehicles, slot machines, and equipment. In addition, slot placement contracts in the form of space lease agreements at chain stores are accounted for as operating leases. Under chain store space lease agreements, the Company pays fixed monthly rental fees for the right to install, maintain and operate its slots at business locations, which are recorded in gaming expenses. The leases, excluding land, have remaining lease terms of 1 year to 28 years, some of which include options to extend the leases for an additional 5 to 15 years. Some equipment leases and space lease agreements include options to terminate the lease with 60 days’ to 1 year’s notice. The Company leases slot machines from gaming equipment manufacturers under short-term agreements. Most of the slot machine leases have variable rent structures, with amounts determined based on the performance of those machines. Certain others are short-term in nature, with fixed payment amounts. The Company has an operating ground lease with the Maryland Department of Natural Resources for approximately 270 acres in the Rocky Gap State Park on which Rocky Gap is situated. The Company leases approximately 20 acres of land in Laughlin, Nevada for the Laughlin Event Center and four parcels of land in Pahrump, Nevada on which the Gold Town Casino is located.
The Company leases approximately 4.5 acres of undeveloped land in Carson City. Upon the adoption of Topic 842, the Company wrote off the associated ROU asset for this land lease of $9 million to its beginning balance of retained earnings as of January 1, 2019. The Company is also lessee for nine taverns and locations subject to space lease agreements that it does not plan to develop, operate, or sub-lease. The Company wrote off the associated ROU asset for these eleven leases of $3 million to its beginning balance of retained earnings as of January 1, 2019.
The Company leases one of its tavern locations and its office headquarters building from a related party. See Note 12, Related Party Transactions, for more detail.
The current and long-term obligations under finance leases are included in “current portion of long-term debt, net and finance leases” and “long-term debt, net and finance leases”, respectively. The majority of the finance leases relate to vehicles used within the Company’s Distributed Gaming business and equipment for the Company’s casinos.
The components of lease expense are follows:
|
|
Classification |
| June 30, 2019 |
|
| June 30, 2019 |
| |||
Operating lease cost |
|
|
|
|
|
|
|
|
|
Operating lease cost | Operating and SG&A expenses |
| $ | 11,416 |
|
| $ | 23,056 |
|
Variable lease cost | Operating and SG&A expenses |
|
| 4,468 |
|
|
| 8,654 |
|
Short-term lease cost | Operating and SG&A expenses |
|
| 1,112 |
|
|
| 2,161 |
|
Total operating lease cost |
|
| $ | 16,996 |
|
| $ | 33,871 |
|
|
|
|
|
|
|
|
|
|
|
Finance lease cost |
|
|
|
|
|
|
|
|
|
Amortization of lease assets | Depreciation and amortization |
| $ | 505 |
|
| $ | 999 |
|
Interest on lease liabilities | Interest expense, net |
|
| 100 |
|
|
| 198 |
|
Total finance lease cost |
|
| $ | 605 |
|
| $ | 1,197 |
|
Supplemental cash flow information related to leases is as follows:
|
| Six Months Ended |
| |
(In thousands) |
| June 30, 2019 |
| |
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
Operating cash flows from operating leases |
| $ | 23,255 |
|
Operating cash flows from finance leases |
|
| 198 |
|
Financing cash flows from finance leases |
|
| 829 |
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations: |
|
|
|
|
Operating leases |
| $ | 36,117 |
|
Finance leases |
|
| 849 |
|
Supplemental balance sheet information related to leases is as follows:
(In thousands, except lease term and discount rate) |
| June 30, 2019 |
| |
Operating leases |
|
|
|
|
Operating lease right-of-use assets, gross |
| $ | 175,898 |
|
Accumulated amortization |
|
| 17,813 |
|
Operating lease right-of-use assets, net |
| $ | 158,085 |
|
|
|
|
|
|
Current portion of operating leases |
| $ | 29,351 |
|
Noncurrent operating leases |
|
| 143,426 |
|
Total operating lease liabilities |
| $ | 172,777 |
|
|
|
|
|
|
Finance leases |
|
|
|
|
Property and equipment, gross |
| $ | 13,290 |
|
Accumulated depreciation |
|
| (2,785 | ) |
Property and equipment, net |
| $ | 10,505 |
|
|
|
|
|
|
Current portion of finance leases, net |
| $ | 1,763 |
|
Noncurrent finance leases, net |
|
| 5,323 |
|
Total finance lease liabilities |
| $ | 7,086 |
|
| ||||
|
| |||
|
| |||
| ||||
|
|
| ||
|
|
|
Maturity of Lease Liabilities
| Operating |
|
| Finance |
|
|
|
|
| |||
(In thousands) |
| Leases |
|
| Leases |
|
| Total |
| |||
Remaining 2019 |
| $ | 23,164 |
|
| $ | 1,146 |
|
| $ | 24,310 |
|
2020 |
|
| 30,778 |
|
|
| 1,954 |
|
|
| 32,732 |
|
2021 |
|
| 29,443 |
|
|
| 1,460 |
|
|
| 30,903 |
|
2022 |
|
| 22,906 |
|
|
| 589 |
|
|
| 23,495 |
|
2023 |
|
| 17,469 |
|
|
| 553 |
|
|
| 18,022 |
|
Thereafter |
|
| 117,243 |
|
|
| 7,339 |
|
|
| 124,582 |
|
Total lease payments |
|
| 241,003 |
|
|
| 13,041 |
|
|
| 254,044 |
|
Less: interest |
|
| (68,226 | ) |
|
| (5,955 | ) |
|
| (74,181 | ) |
Present value of lease liabilities |
| $ | 172,777 |
|
| $ | 7,086 |
|
| $ | 179,863 |
|
As of June 30, 2019, the Company does not have any leases that have not yet commenced but that create significant rights and obligations.
Company as Lessor
Minimum and contingent operating lease income is as follows:
|
| Three Months Ended |
|
| Six Months Ended |
| ||
(In thousands) |
| June 30, 2019 |
|
| June 30, 2019 |
| ||
Minimum rental income |
| $ | 1,973 |
|
| $ | 3,798 |
|
Contingent rental income |
|
| 384 |
|
|
| 585 |
|
Total rental income |
| $ | 2,357 |
|
| $ | 4,383 |
|
Future minimum rental payments to be received under operating leases:
(In thousands) |
| Operating Leases |
| |
Remaining 2019 |
| $ | 2,635 |
|
2020 |
|
| 4,211 |
|
2021 |
|
| 3,272 |
|
2022 |
|
| 2,433 |
|
2023 |
|
| 1,763 |
|
Thereafter |
|
| 2,546 |
|
Total future minimum rentals |
| $ | 16,860 |
|
Disclosures related to periods prior to adoption of Topic 842
For the three months ended June 30, 2018, operating lease rental expense, calculated on a straight-line basis, was $10.0 million, $0.4 million and $3.8 million for space lease agreements, related party leases and other operating leases, respectively. For the six months ended June 30, 2018, operating lease rental expense, calculated on a straight-line basis, was $19.4 million, $0.8 million, and $7.4 million for space lease agreements, related party leases and other operating leases, respectively. The Company recorded rental revenue of $1.9 million and $3.6 million for the three and six months ended June 30, 2018, respectively.
Note 10 – Commitments and Contingencies
Participation and Revenue Share Agreements
In addition to the space lease agreements described above in Note 9, Leases, theThe Company also enters into slot placement contracts in the form of participation and revenue share agreements. Under participation agreements, the business location holds the applicable gaming license and retains a percentage of the gaming revenue that it generates from the Company’s slots. Under revenue share agreements, the Company pays the business location a percentage of the gaming revenue generated from the Company’s slots placed at the location, rather than a fixed monthly rental fee. DuringThe aggregate contingent payments recognized by the Company as gaming expenses under revenue share and participation agreements were $14.0 million and $50.0 million for the three and six months ended June 30, 2019, the2020,respectively, including $0.1 million and $0.3 million, respectively,under revenue share and participation agreements with related parties, as described in “Note 12 — Related Party Transactions.”The aggregate contingent payments recognized by the Company as gaming expenses under revenue share and participation agreements were $39.4 million and $77.9 million for the three and six months ended June 30, 2019, respectively, including $0.3 million and $0.5 million, respectively, under revenue share and participation agreements with related parties, as described in Note 12, Related Party Transactions. During the three and six months ended June 30, 2018, the aggregate contingent payments recognized by the Company as gaming expenses under revenue share and participation agreements were $37.5 million and $74.6 million, respectively, including $0.2 million and $0.5 million, respectively, under revenue share and participation agreements with related parties.
The Company also enters into amusement device and ATM placement contracts in the form of participation agreements. Under these agreements, the Company pays the business location a percentage of the non-gaming revenue generated from the Company’s amusement devices and ATMs placed at the location. During the three months ended June 30, 2019 and 2018, the total contingent
payments recognized by the Company as other operating expenses for amusement devices and ATMs under such agreements were $0.4 million and $0.3 million, respectively. During the six months ended June 30, 2019 and 2018, the total contingent payments recognized by the Company as other operating expenses for amusement devices and ATMs under such agreements were $0.8 million and $0.7 million, respectively.
Legal Matters
From time to time, the Company is involved in a variety of lawsuits, claims, investigations and other legal proceedings arising in the ordinary course of business, including proceedings concerning labor and employment matters, personal injury claims, breach of contract claims, commercial disputes, business practices, intellectual property, tax and other matters for which the Company recorded reserves of $1.0 million for claims as of June 30, 2019.records reserves. Although lawsuits, claims, investigations and other legal proceedings are inherently uncertain and their results cannot be predicted with certainty, the Company believes that the resolution of its currently pending matters should not have a material adverse effect on its business, financial condition, results of operations or liquidity. Regardless of the outcome, legal proceedings can have an adverse impact on the Company because of defense costs, diversion of management resources and other factors. In addition, it is possible that an unfavorable resolution of one or more such proceedings could in the future materially and adversely affect the Company’s business, financial condition, results of operations or liquidity in a particular period.period.
In February and April 2017, several former employees filed two separate purported class action lawsuits against the Company in the District Court of Clark County, Nevada, on behalf of similarly situated individuals employed by the Company in the State of Nevada. The lawsuits allege that the Company violated certain Nevada labor laws including payment of an hourly wage below the statutory minimum wage without providing a qualified health insurance plan and an associated failure to pay proper overtime compensation. The complaints seek, on behalf of the plaintiffs and members of the putative class, an unspecified amount of damages (including punitive damages), injunctive and equitable relief, and an award of attorneys’ fees, interest and costs. The Company agreed to settle the first of these cases in the fourth quarter of 2017 and the second of these cases in the third quarter of 2018. In February 2019, the court approved the settlement for the first case for $0.5 million. In July 2019, the court approved the settlement for the second case for $1.1 million, which is included in the Company’s recorded reserves at June 30, 2019.
On August 31, 2018, prior guests of The Strat filed a purported class action complaint against the Company in the District Court, Clark County, Nevada, on behalf of similarly situated individuals and entities that paid the Clark County Combined Transient Lodging Tax (“Tax”) on the portion of a resort fee that constitutes charges for Internet access, during the period of February 6, 2014 through the date the alleged conduct ceases. The lawsuit alleged that the Tax was charged in violation of the federal Internet Tax Freedom Act, which imposed a national moratorium on the taxation of Internet access by states and their political subdivisions, and sought, on behalf of the plaintiff and the putative class, damages equal to the amount of the Tax collected on the Internet access component of the resort fee, injunctive relief, disgorgement, interest, fees and costs. All defendants to this matter, including Golden Entertainment, Inc., filed a joint motion to dismiss this matter for lack of merit. The District Court granted this joint motion to dismiss on February 21, 2019. The plaintiffs appealed the District Court decision on April 10, 2019filed an appeal to the Supreme Court of Nevada.Nevada on April 10, 2019. The Company, and other defendants, filed an appellate response brief on October 19, 2019. On July 29, 2020 the Supreme Court of the State of Nevada upheld the lower court’s 2019 dismissal of this case.
On August 5, 2015 a prior employee filed a Charge of Discrimination with the Equal Employment Opportunity Commission (“EEOC”) and subsequently filed an Amended Charge of Discrimination on January 2016 alleging that the Company engaged in disability discrimination under the Americans with Disabilities Act of 1990, as amended. The EEOC has requested financial recovery as well as that the Company update certain policies and procedures. In late 2019 the EEOC issued a Letter of Determination and invited the Company to participate in a mediation on behalf of the plaintiff and similarly situated parties to work toward a resolution of this matter. The Company has agreed to mediation in this matter. No mediation date has yet been set.
While legal proceedings are inherently unpredictable and no assurance can be given as to the ultimate outcome of any of the above matters, based on management’s current understanding of the relevant facts and circumstances, the Company believes that these proceedings should not have a material adverse effect on its financial position, results of operations or cash flows.
Note 11 – Segment Information
The Company conducts its business through two2 reportable operating segments: Casinos and Distributed Gaming. The Company’s Casinos segment involves the ownership and operation of resort casino properties in Nevada and Maryland. The Company’s Distributed Gaming segment involves the installation, maintenance and operation of slots and amusement devices in non-casino locations such as restaurants, bars, taverns, convenience stores, liquor stores and grocery stores in Nevada and Montana, and the operation of branded taverns targeting local patrons located primarily in the greater Las Vegas, Nevada metropolitan area. The Corporate and Other segment includes the Company’s cash and cash equivalents, miscellaneous receivables and corporate overhead. Costs recorded in the Corporate and Other segment have not been allocated to the Company’s reportable operating segments because these costs are not easily allocable and to do so would not be practical.
The Company evaluates each segment’s profitability based upon such segment’s Adjusted EBITDA, which represents each segment’s earnings before interest and other non-operating income (expense), income taxes, depreciation and amortization, impairment of goodwill and intangible assets, acquisition and severance expenses, preopening expense, acquisitionand related expenses, asset disposal and other writedowns, share-based compensation expenses, executive severance, rebranding, class action litigation expenses, gain/loss on disposal of property and equipment, gain on change in fair value of derivative, and other losses, calculated before corporate overhead (which is not allocated to each segment).
The following tables set forth, for the periods indicated, certain operating data for the Company’s segments, and reconciles net income (loss) to Adjusted EBITDA:
|
| Three Months Ended June 30, 2019 |
|
| Three Months Ended June 30, 2020 |
| ||||||||||||||||||||||||||
(In thousands) |
| Casinos |
|
| Distributed Gaming |
|
| Corporate and Other |
|
| Consolidated |
|
| Casinos |
|
| Distributed Gaming |
|
| Corporate and Other |
|
| Consolidated |
| ||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
| $ | 72,237 |
|
| $ | 74,009 |
|
| $ | — |
|
| $ | 146,246 |
|
| $ | 25,210 |
|
| $ | 31,467 |
|
| $ | — |
|
| $ | 56,677 |
|
Food and beverage |
|
| 39,049 |
|
|
| 13,055 |
|
|
| — |
|
|
| 52,104 |
|
|
| 6,016 |
|
|
| 4,152 |
|
|
| — |
|
|
| 10,168 |
|
Rooms |
|
| 35,514 |
|
|
| — |
|
|
| — |
|
|
| 35,514 |
|
|
| 5,987 |
|
|
| — |
|
|
| — |
|
|
| 5,987 |
|
Other |
|
| 11,916 |
|
|
| 2,089 |
|
|
| 201 |
|
|
| 14,206 |
|
|
| 2,219 |
|
|
| 720 |
|
|
| 203 |
|
|
| 3,142 |
|
Total revenues |
| $ | 158,716 |
|
| $ | 89,153 |
|
| $ | 201 |
|
| $ | 248,070 |
|
| $ | 39,432 |
|
| $ | 36,339 |
|
| $ | 203 |
|
| $ | 75,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 22,471 |
|
| $ | 7,347 |
|
| $ | (44,226 | ) |
| $ | (14,408 | ) | ||||||||||||||||
Net loss |
| $ | (45,979 | ) |
| $ | (5,194 | ) |
| $ | (27,393 | ) |
| $ | (78,566 | ) | ||||||||||||||||
Depreciation and amortization |
|
| 24,052 |
|
|
| 5,569 |
|
|
| 355 |
|
|
| 29,976 |
|
|
| 25,344 |
|
|
| 5,902 |
|
|
| 684 |
|
|
| 31,930 |
|
Impairment of goodwill and intangible assets |
|
| 21,411 |
|
|
| — |
|
|
| — |
|
|
| 21,411 |
| ||||||||||||||||
Acquisition and severance expenses |
|
| 189 |
|
|
| 134 |
|
|
| 44 |
|
|
| 367 |
| ||||||||||||||||
Preopening and related expenses(1) |
|
| 700 |
|
|
| 660 |
|
|
| 137 |
|
|
| 1,497 |
|
|
| — |
|
|
| (1 | ) |
|
| 10 |
|
|
| 9 |
|
Acquisition and severance expenses |
|
| 101 |
|
|
| 9 |
|
|
| 1,013 |
|
|
| 1,123 |
| ||||||||||||||||
Asset disposal and other writedowns |
|
| 511 |
|
|
| 74 |
|
|
| — |
|
|
| 585 |
|
|
| 683 |
|
|
| 24 |
|
|
| (5 | ) |
|
| 702 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 2,134 |
|
|
| 2,134 |
|
|
| — |
|
|
| — |
|
|
| 1,756 |
|
|
| 1,756 |
|
Other, net |
|
| 81 |
|
|
| — |
|
|
| 406 |
|
|
| 487 |
|
|
| 48 |
|
|
| 41 |
|
|
| 28 |
|
|
| 117 |
|
Interest expense, net |
|
| 64 |
|
|
| 23 |
|
|
| 19,048 |
|
|
| 19,135 |
|
|
| 91 |
|
|
| 10 |
|
|
| 16,306 |
|
|
| 16,407 |
|
Loss on extinguishment and modification of debt |
|
| — |
|
|
| — |
|
|
| 9,150 |
|
|
| 9,150 |
| ||||||||||||||||
Change in fair value of derivative |
|
| — |
|
|
| — |
|
|
| 1,489 |
|
|
| 1,489 |
| ||||||||||||||||
Income tax benefit |
|
| — |
|
|
| — |
|
|
| (1,344 | ) |
|
| (1,344 | ) | ||||||||||||||||
Income tax provision |
|
| — |
|
|
| — |
|
|
| 206 |
|
|
| 206 |
| ||||||||||||||||
Adjusted EBITDA |
| $ | 47,980 |
|
| $ | 13,682 |
|
| $ | (11,838 | ) |
| $ | 49,824 |
|
| $ | 1,787 |
|
| $ | 916 |
|
| $ | (8,364 | ) |
| $ | (5,661 | ) |
|
| Three Months Ended June 30, 2019 |
| |||||||||||||
(In thousands) |
| Casinos |
|
| Distributed Gaming |
|
| Corporate and Other |
|
| Consolidated |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
| $ | 72,237 |
|
| $ | 74,009 |
|
| $ | — |
|
| $ | 146,246 |
|
Food and beverage |
|
| 39,049 |
|
|
| 13,055 |
|
|
| — |
|
|
| 52,104 |
|
Rooms |
|
| 35,514 |
|
|
| — |
|
|
| — |
|
|
| 35,514 |
|
Other |
|
| 11,916 |
|
|
| 2,089 |
|
|
| 201 |
|
|
| 14,206 |
|
Total revenues |
| $ | 158,716 |
|
| $ | 89,153 |
|
| $ | 201 |
|
| $ | 248,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 22,471 |
|
| $ | 7,347 |
|
| $ | (44,226 | ) |
| $ | (14,408 | ) |
Depreciation and amortization |
|
| 24,052 |
|
|
| 5,569 |
|
|
| 355 |
|
|
| 29,976 |
|
Acquisition and severance expenses |
|
| 101 |
|
|
| 9 |
|
|
| 1,013 |
|
|
| 1,123 |
|
Preopening and related expenses (1) |
|
| 700 |
|
|
| 660 |
|
|
| 137 |
|
|
| 1,497 |
|
Asset disposal and other writedowns |
|
| 511 |
|
|
| 74 |
|
|
| — |
|
|
| 585 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 2,134 |
|
|
| 2,134 |
|
Other, net |
|
| 81 |
|
|
| — |
|
|
| 406 |
|
|
| 487 |
|
Interest expense, net |
|
| 64 |
|
|
| 23 |
|
|
| 19,048 |
|
|
| 19,135 |
|
Loss on extinguishment and modification of debt |
|
| — |
|
|
| — |
|
|
| 9,150 |
|
|
| 9,150 |
|
Change in fair value of derivative |
|
| — |
|
|
| — |
|
|
| 1,489 |
|
|
| 1,489 |
|
Income tax benefit |
|
| — |
|
|
| — |
|
|
| (1,344 | ) |
|
| (1,344 | ) |
Adjusted EBITDA |
| $ | 47,980 |
|
| $ | 13,682 |
|
| $ | (11,838 | ) |
| $ | 49,824 |
|
|
| Three Months Ended June 30, 2018 |
|
| Six Months Ended June 30, 2020 |
| ||||||||||||||||||||||||||
(In thousands) |
| Casinos |
|
| Distributed Gaming |
|
| Corporate and Other |
|
| Consolidated |
|
| Casinos |
|
| Distributed Gaming |
|
| Corporate and Other |
|
| Consolidated |
| ||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
| $ | 61,929 |
|
| $ | 70,617 |
|
| $ | — |
|
| $ | 132,546 |
|
| $ | 87,115 |
|
| $ | 96,777 |
|
| $ | — |
|
| $ | 183,892 |
|
Food and beverage |
|
| 30,743 |
|
|
| 12,679 |
|
|
| — |
|
|
| 43,422 |
|
|
| 35,821 |
|
|
| 15,894 |
|
|
| — |
|
|
| 51,715 |
|
Rooms |
|
| 27,660 |
|
|
| — |
|
|
| — |
|
|
| 27,660 |
|
|
| 31,592 |
|
|
| — |
|
|
| — |
|
|
| 31,592 |
|
Other |
|
| 10,594 |
|
|
| 2,101 |
|
|
| 220 |
|
|
| 12,915 |
|
|
| 12,874 |
|
|
| 2,652 |
|
|
| 406 |
|
|
| 15,932 |
|
Total revenues |
| $ | 130,926 |
|
| $ | 85,397 |
|
| $ | 220 |
|
| $ | 216,543 |
|
| $ | 167,402 |
|
| $ | 115,323 |
|
| $ | 406 |
|
| $ | 283,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 24,236 |
|
| $ | 7,552 |
|
| $ | (28,194 | ) |
| $ | 3,594 |
| ||||||||||||||||
Net loss |
| $ | (48,917 | ) |
| $ | (4,590 | ) |
| $ | (57,679 | ) |
| $ | (111,186 | ) | ||||||||||||||||
Depreciation and amortization |
|
| 17,412 |
|
|
| 4,979 |
|
|
| 463 |
|
|
| 22,854 |
|
|
| 50,057 |
|
|
| 11,767 |
|
|
| 1,262 |
|
|
| 63,086 |
|
Preopening expenses(1) |
|
| — |
|
|
| 88 |
|
|
| 301 |
|
|
| 389 |
| ||||||||||||||||
Impairment of goodwill and intangible assets |
|
| 27,872 |
|
|
| — |
|
|
| — |
|
|
| 27,872 |
| ||||||||||||||||
Acquisition and severance expenses |
|
| 168 |
|
|
| 2 |
|
|
| 395 |
|
|
| 565 |
|
|
| 2,606 |
|
|
| 612 |
|
|
| 125 |
|
|
| 3,343 |
|
Preopening and related expenses (1) |
|
| 225 |
|
|
| (1 | ) |
|
| 115 |
|
|
| 339 |
| ||||||||||||||||
Asset disposal and other writedowns |
|
| 218 |
|
|
| — |
|
|
| — |
|
|
| 218 |
|
|
| 1,310 |
|
|
| (14 | ) |
|
| (5 | ) |
|
| 1,291 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 2,758 |
|
|
| 2,758 |
|
|
| — |
|
|
| — |
|
|
| 4,002 |
|
|
| 4,002 |
|
Other, net |
|
| 123 |
|
|
| 195 |
|
|
| 99 |
|
|
| 417 |
|
|
| 95 |
|
|
| 238 |
|
|
| 141 |
|
|
| 474 |
|
Interest expense, net |
|
| 25 |
|
|
| 26 |
|
|
| 16,015 |
|
|
| 16,066 |
|
|
| 336 |
|
|
| 25 |
|
|
| 34,792 |
|
|
| 35,153 |
|
Change in fair value of derivative |
|
| — |
|
|
| — |
|
|
| (1,462 | ) |
|
| (1,462 | ) |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
|
Income tax provision |
|
| — |
|
|
| — |
|
|
| 897 |
|
|
| 897 |
|
|
| — |
|
|
| — |
|
|
| 258 |
|
|
| 258 |
|
Adjusted EBITDA |
| $ | 42,182 |
|
| $ | 12,842 |
|
| $ | (8,728 | ) |
| $ | 46,296 |
|
| $ | 33,584 |
|
| $ | 8,037 |
|
| $ | (16,988 | ) |
| $ | 24,633 |
|
| Six Months Ended June 30, 2019 |
| ||||||||||||||
(In thousands) |
| Casinos |
|
| Distributed Gaming |
|
| Corporate and Other |
|
| Consolidated |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
| $ | 143,122 |
|
| $ | 146,916 |
|
| $ | — |
|
| $ | 290,038 |
|
Food and beverage |
|
| 75,491 |
|
|
| 26,371 |
|
|
| — |
|
|
| 101,862 |
|
Rooms |
|
| 66,801 | �� |
|
| — |
|
|
| — |
|
|
| 66,801 |
|
Other |
|
| 24,676 |
|
|
| 4,223 |
|
|
| 362 |
|
|
| 29,261 |
|
Total revenues |
| $ | 310,090 |
|
| $ | 177,510 |
|
| $ | 362 |
|
| $ | 487,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 45,160 |
|
| $ | 14,953 |
|
| $ | (82,539 | ) |
| $ | (22,426 | ) |
Depreciation and amortization |
|
| 45,695 |
|
|
| 10,898 |
|
|
| 648 |
|
|
| 57,241 |
|
Preopening and related expenses(1) |
|
| 2,354 |
|
|
| 1,226 |
|
|
| 149 |
|
|
| 3,729 |
|
Acquisition and severance expenses |
|
| 387 |
|
|
| 35 |
|
|
| 2,245 |
|
|
| 2,667 |
|
Asset disposal and other writedowns |
|
| 767 |
|
|
| 65 |
|
|
| 390 |
|
|
| 1,222 |
|
Share-based compensation |
|
| 11 |
|
|
| 5 |
|
|
| 6,302 |
|
|
| 6,318 |
|
Other, net |
|
| 92 |
|
|
| — |
|
|
| 1,259 |
|
|
| 1,351 |
|
Interest expense, net |
|
| 116 |
|
|
| 39 |
|
|
| 37,115 |
|
|
| 37,270 |
|
Loss on extinguishment and modification of debt |
|
| — |
|
|
| — |
|
|
| 9,150 |
|
|
| 9,150 |
|
Change in fair value of derivative |
|
| — |
|
|
| — |
|
|
| 3,737 |
|
|
| 3,737 |
|
Income tax benefit |
|
| — |
|
|
| — |
|
|
| (1,995 | ) |
|
| (1,995 | ) |
Adjusted EBITDA |
| $ | 94,582 |
|
| $ | 27,221 |
|
| $ | (23,539 | ) |
| $ | 98,264 |
|
|
| Six Months Ended June 30, 2018 |
|
| Six Months Ended June 30, 2019 |
| ||||||||||||||||||||||||||
(In thousands) |
| Casinos |
|
| Distributed Gaming |
|
| Corporate and Other |
|
| Consolidated |
|
| Casinos |
|
| Distributed Gaming |
|
| Corporate and Other |
|
| Consolidated |
| ||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gaming |
| $ | 126,388 |
|
| $ | 140,021 |
|
| $ | — |
|
| $ | 266,409 |
|
| $ | 143,122 |
|
| $ | 146,916 |
|
| $ | — |
|
| $ | 290,038 |
|
Food and beverage |
|
| 60,739 |
|
|
| 25,286 |
|
|
| — |
|
|
| 86,025 |
|
|
| 75,491 |
|
|
| 26,371 |
|
|
| — |
|
|
| 101,862 |
|
Rooms |
|
| 53,787 |
|
|
| — |
|
|
| — |
|
|
| 53,787 |
|
|
| 66,801 |
|
|
| — |
|
|
| — |
|
|
| 66,801 |
|
Other |
|
| 20,499 |
|
|
| 4,251 |
|
|
| 361 |
|
|
| 25,111 |
|
|
| 24,676 |
|
|
| 4,223 |
|
|
| 362 |
|
|
| 29,261 |
|
Total revenues |
| $ | 261,413 |
|
| $ | 169,558 |
|
| $ | 361 |
|
| $ | 431,332 |
|
| $ | 310,090 |
|
| $ | 177,510 |
|
| $ | 362 |
|
| $ | 487,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 48,077 |
|
| $ | 15,000 |
|
| $ | (55,553 | ) |
| $ | 7,524 |
|
| $ | 45,160 |
|
| $ | 14,953 |
|
| $ | (82,539 | ) |
| $ | (22,426 | ) |
Depreciation and amortization |
|
| 37,047 |
|
|
| 10,127 |
|
|
| 917 |
|
|
| 48,091 |
|
|
| 45,695 |
|
|
| 10,898 |
|
|
| 648 |
|
|
| 57,241 |
|
Preopening expenses(1) |
|
| — |
|
|
| 236 |
|
|
| 601 |
|
|
| 837 |
| ||||||||||||||||
Acquisition and severance expenses |
|
| 219 |
|
|
| 37 |
|
|
| 1,608 |
|
|
| 1,864 |
|
|
| 387 |
|
|
| 35 |
|
|
| 2,245 |
|
|
| 2,667 |
|
Preopening and related expenses (1) |
|
| 2,354 |
|
|
| 1,226 |
|
|
| 149 |
|
|
| 3,729 |
| ||||||||||||||||
Asset disposal and other writedowns |
|
| 280 |
|
|
| 15 |
|
|
| — |
|
|
| 295 |
|
|
| 767 |
|
|
| 65 |
|
|
| 390 |
|
|
| 1,222 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 4,602 |
|
|
| 4,602 |
|
|
| 11 |
|
|
| 5 |
|
|
| 6,302 |
|
|
| 6,318 |
|
Other, net |
|
| 160 |
|
|
| 362 |
|
|
| 203 |
|
|
| 725 |
|
|
| 92 |
|
|
| — |
|
|
| 1,259 |
|
|
| 1,351 |
|
Interest expense, net |
|
| 49 |
|
|
| 72 |
|
|
| 30,688 |
|
|
| 30,809 |
|
|
| 116 |
|
|
| 39 |
|
|
| 37,115 |
|
|
| 37,270 |
|
Loss on extinguishment and modification of debt |
|
| — |
|
|
| — |
|
|
| 9,150 |
|
|
| 9,150 |
| ||||||||||||||||
Change in fair value of derivative |
|
| — |
|
|
| — |
|
|
| (4,673 | ) |
|
| (4,673 | ) |
|
| — |
|
|
| — |
|
|
| 3,737 |
|
|
| 3,737 |
|
Income tax provision |
|
| — |
|
|
| — |
|
|
| 2,116 |
|
|
| 2,116 |
| ||||||||||||||||
Income tax benefit |
|
| — |
|
|
| — |
|
|
| (1,995 | ) |
|
| (1,995 | ) | ||||||||||||||||
Adjusted EBITDA |
| $ | 85,832 |
|
| $ | 25,849 |
|
| $ | (19,491 | ) |
| $ | 92,190 |
|
| $ | 94,582 |
|
| $ | 27,221 |
|
| $ | (23,539 | ) |
| $ | 98,264 |
|
(1) | Preopening and related expenses include rent, organizational costs, non-capital costs associated with the opening of tavern and casino locations, and expenses related to The Strat rebranding and the launch of the TrueRewards loyalty program. |
Total Segment Assets
The Company’s assets by segment consisted of the following amounts:
(In thousands) |
| Casinos |
|
| Distributed Gaming |
|
| Corporate and Other |
|
| Consolidated |
| ||||
Balance at June 30, 2019 |
| $ | 1,213,701 |
|
| $ | 431,956 |
|
| $ | 49,013 |
|
| $ | 1,694,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018 |
| $ | 1,006,292 |
|
| $ | 299,697 |
|
| $ | 60,580 |
|
| $ | 1,366,569 |
|
(In thousands) |
| Casinos |
|
| Distributed Gaming |
|
| Corporate and Other |
|
| Consolidated |
| ||||
Balance at June 30, 2020 |
| $ | 1,131,272 |
|
| $ | 448,182 |
|
| $ | 44,482 |
|
| $ | 1,623,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019 |
| $ | 1,204,574 |
|
| $ | 482,294 |
|
| $ | 54,049 |
|
| $ | 1,740,917 |
|
Note 12 – Related Party Transactions
As of June 30, 2019,2020, the Company leased its office headquarters building from a company 33% beneficially owned by Blake L. Sartini, 5% owned by a trust for the benefit of Mr. Sartini’s immediate family members (including Blake L. Sartini, II) for which Mr. Sartini serves as trustee, and 3% beneficially owned by Stephen A. Arcana. The lease for the Company’s office headquarters building expires on December 31, 2030. The rent expense for the office headquarters building was $0.3 million for each of the three months ended June 30, 2019 and 2018, and $0.6 million for the three and $0.8 million during the six months ended June 30, 2020 and 2019, and 2018, respectively. There were no amountsNaN amount was owed byto the Company, and no amount$0.3 million was due and payable by the Company under this lease as of June 30, 20192020. NaN amount was owed to the Company, and no amount was due and payable by the Company as of December 31, 2018.2019. Additionally, a portion of the office headquarters building was sublet to a company owned or controlled by Mr. Sartini. There was less than $0.1 million of rentalRental income under such sublease forduring each of the three and six months ended June 30,20, 2020 and 2019 and 2018. Nofor the sublet portion of the office headquarters building was insignificant. An insignificant amount was owed to the Company under such sublease as of June 30, 20192020 and 0 amount was owed as of December 31, 2018.2019. Mr. Sartini serves as the Chairman of the Board President and Chief Executive Officer of the Company and is co-trustee of The Blake L. Sartini and Delise F. Sartini Family Trust, which is a significant shareholder of the Company. Mr. Arcana serves as the Executive Vice President and Chief Operating Officer of the Company.
In November 2018, the Company entered into a lease agreement for office space in a building to be constructed and owned by a company 33% beneficially owned by Mr. Sartini, 5% owned by a trust for the benefit of Mr. Sartini’s immediate family members (including Blake L. Sartini, II) for which Mr. Sartini serves as trustee, and 3% beneficially owned by Mr. Arcana. The lease is intended to commence in 20192020 and expires on December 31, 2030. The rent expense for the space is expected to be approximately $0.3 million per year. Additionally, the lease agreement includes a right of first refusal for additional space on the second floor of the building.
One tavern location that the Company had previously leased from a related party was sold in the second quarter of 2019 to an unrelated third party. A secondThe rent expense for the tavern location that the Company had previously leased from a related party was sold in 2018 to an unrelated third party. The rent expense for tavern locations leased from related parties (for the periodsperiod in which the leases werelease was with a related parties) party) was less than $0.1 million and $0.2 million for the three months ended June 30, 2019 and 2018, respectively, and $0.2 million and $0.3 million duringfor the six months ended June 30, 2019 and 2018, respectively. There were no amounts owed by the Company, and no amount was due and payable by the Company, under such leases as of December 31, 2018.2019. No tavern locations were leased from related parties as of June 30, 2019.
Duringfor the three and six months ended June 30, 20192020.
For the three and 2018,six months ended June 30, 2020, the Company paid $0.2$0.1 million and less than $0.1$0.3 million, respectively, under aircraft time-sharing, co-user and cost-sharing agreements between the Company and Sartini Enterprises, Inc., a company controlled by Mr. Sartini. DuringFor the three and six months ended June 30, 2019, and 2018, the Company paid $0.4$0.2 million and less than $0.1$0.4 million, respectively, under the aircraft time-sharing, co-user and cost-sharing agreements. The Company owed less than $0.1 million0 amount under the aircraft time-sharing, co-user and cost-sharing agreements and 0 amountwas owed to the Company under such agreements as of June 30, 20192020 and December 31, 20182019.
DuringThe Company recorded revenues of $0.1 million and $0.3 million for the three and six months ended June 30, 20192020, respectively, and 2018, the Company recorded revenues of $0.3 million in each period, and the Company recorded gaming expenses of $0.1 million and $0.3 million, and $0.2 million, respectively, related to the use of the Company’s slots at a distributed gaming location owned in part by Sean T. Higgins, who serves as the Company’s Executive Vice President of ComplianceGovernment Affairs. The Company recorded revenues of $0.3 million and Governmental Affairs$0.6 million for the three and Chief Legal Officer. During each of the six months ended June 30, 2019, respectively, and 2018, the Company recorded revenuesgaming expenses of $0.6$0.3 million and $0.5 million, respectively, and the Company recorded gaming expenses of $0.5 million in each period, related to the use of the Company’s slots at this distributed gaming location. De minimis amounts wereAn insignificant amount was owed to the Company and were due and payable by the Company related to this arrangement as of June 30, 20192020 and December 31, 2018.2019.
During the three months ended June 30, 2018, the Company recorded expenses of less than $0.1 million related to a three-year consulting agreement between the Company and Lyle A. Berman, who serves on the Board of Directors of the Company. During the six months ended June 30, 2018, the Company recorded $0.1 million of SG&A expenses related to Mr. Berman’s consulting agreement. No amount was due and payable by the Company as of December 31, 2018 related to this agreement. The consulting agreement expired on July 31, 2018.
Note 13 – Subsequent Events
The Company’s management evaluates subsequent events through
On July 10, 2020, the Governor of the State of Nevada issued a new emergency executive order mandating the closure of bars, pubs, taverns, breweries, distilleries, and wineries in 7 counties, including Clark County. As a result of the Governor’s executive order, the Company has closed most of its tavern locations. As of the date of issuance ofhereof, the consolidated financial statements. There have been no subsequent events that occurred during such periodCompany is not able to estimate when it will be able to re-open these tavern locations and is evaluating mitigating actions that would require adjustmentallow the Company to or disclosureresume its tavern operations in the consolidated financial statements as of and for the six months ended June 30, 2019.these locations.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As used in this Quarterly Report on Form 10-Q, unless the context suggests otherwise, the terms “Golden,” “we,” “us” and “our” and “us” refer to Golden Entertainment, Inc. andtogether with its subsidiaries.
The following information should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 20182019 (the “Annual Report”) previously filed with the Securities and Exchange Commission (“SEC”).
Forward-Looking Statements
This Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements can generally be identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “project,” “potential,” “seek,” “should,” “think,” “will,” “would” and similar expressions.expressions, or they may use future dates. In addition, forward-looking statements include statements regarding the impact of the 2019 novel coronavirus (“COVID-19”) pandemic on our business; cost savings, synergies, growth opportunities and other financial and operating benefits of our casino and other acquisitions; our strategies, objectives, business opportunities and plans for future expansion, developments or acquisitions; anticipated future growth and trends in our business or key markets; projections of future financial condition, operating results, income, capital expenditures, costs or other financial items; anticipated regulatory and legislative changes; and other characterizations of future events or circumstances as well as other statements that are not statements of historical fact. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. These forward-looking statements are subject to assumptions, risks and uncertainties that may change at any time, and readers are therefore cautioned that actual results could differ materially from those expressed in any forward-looking statements. Factors that could cause our actual results to differ materially include: the uncertainty of the extent, duration and effects of the COVID-19 pandemic and the response of governments, including government-mandated closures or travel restrictions; our ability to realize the anticipated cost savings, synergies and other benefits of our casino and other acquisitions, including the casinos we recently acquired in Las Vegas and Laughlin, Nevada, and integration risks relating to such transactions; changes in national, regional and local economic and market conditions; legislative and regulatory matters (including the cost of compliance or failure to comply with applicable laws and regulations); increases in gaming taxes and fees in the jurisdictions in which we operate; litigation; increased competition; our ability to renew our distributed gaming contracts; reliance on key personnel (including our Chief Executive Officer, President and Chief OperatingFinancial Officer, and Chief Strategy and FinancialOperating Officer); the level of our indebtedness and our ability to comply with covenants in our debt instruments; terrorist incidents; natural disasters; severe weather conditions (including weather or road conditions that limit access to our properties); the effects of environmental and structural building conditions; the effects of disruptions to our information technology and other systems and infrastructure; factors affecting the gaming, entertainment and hospitality industries generally,generally; and other factors identified under the heading “Risk Factors” in our Annual Report on Form 10-K and in Part II, Item 1A of this report, or appearing elsewhere in this report and in our other filings with the SEC. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the filing date of this report. We undertake no obligation to revise or update any forward-looking statements for any reason.
Overview
We own and operate a diversified entertainment platform, consisting of a portfolio of gaming assets that focus on resort casino operations and distributed gaming (including gaming in our branded taverns).
We conduct our business through two reportable operating segments: Casinos and Distributed Gaming. In our Casinos segment, we own and operate ten resort casino properties in Nevada and Maryland. Our Distributed Gaming segment involves the installation, maintenance and operation of slots and amusement devices in non-casino locations such as restaurants, bars, taverns, convenience stores, liquor stores and grocery stores in Nevada and Montana, and the operation of branded taverns targeting local patrons located primarily in the greater Las Vegas, Nevada metropolitan area.
CasinosImpact of COVID-19
On January 14,In December 2019, an outbreak of COVID-19 began in Wuhan, Hubei Province, China. The disease has since spread rapidly across the world, causing the World Health Organization to declare COVID-19 a pandemic on March 11, 2020. Since that time, people across the globe have been advised to avoid non-essential travel, and steps have been taken by governmental authorities, including in the States in which we completedoperate, to implement closures of non-essential operations to contain the acquisitionspread of Edgewater Gaming, LLCthe virus. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and Colorado Belle Gaming, LLC (the “Acquired Entities”) from Marnell Gaming, LLC (“Marnell”) for $156.2 millioncreated significant volatility and disruption of financial markets. Following emergency executive orders issued by the Governors of Nevada, Maryland, and Montana, in cash (after giving effectthe week of March 16, 2020, all of our properties were temporarily closed to the post-closing adjustment provisionspublic and our Distributed Gaming operations at third-party
locations were suspended. Our Distributed Gaming operations in Montana and Nevada resumed on May 4, 2020 and June 4, 2020, respectively, and our Casino operations in Nevada and Maryland resumed on June 4, 2020 and June 19, 2020, respectively. However, as a result of the purchase agreement) andimpact of the issuance by usCOVID-19 pandemic, the operations of 911,002 shares of our common stock to certain assignees of Marnell (the “Laughlin Acquisition”). The Laughlin Acquisition added two resort casino properties in Laughlin, Nevada to our casino portfolio: the Edgewater Hotel & Casino Resort (the “Edgewater”) and the Colorado Belle Hotel & Casino Resort (“Colorado Belle”) remained suspended as of June 30, 2020. While all of our properties except for the Colorado Belle had been re-opened as of June 30, 2020, our implementation of protocols intended to protect patrons and guests from potential COVID-19 exposure continues to limit our operations. These measures include enhanced sanitization, public gathering limitations of less than 50% of casino and tavern capacity, patron social distancing requirements, limitations on casino operations, which include disabling electronic gaming machines, and face mask and temperature check requirements for patrons. Certain amenities at our casinos may remain closed or operate in a limited capacity, including restaurants, bars, and other food and beverage outlets, as well as table games, spas and pools. These measures limit the number of patrons that are able to attend these venues. Subsequent to fiscal quarter end, effective July 10, 2020, the Governor of the State of Nevada issued a new emergency executive order mandating the closure of bars, pubs, taverns, breweries, distilleries, and wineries in seven counties, including Clark County (the “Colorado Belle”), which increaselocation of most of our scalebranded taverns) (see “Note 13 — Subsequent Events” in Part I, Item 1: Financial Statements.) We cannot predict when these restrictions on our operations will be changed or eliminated.
The disruptions arising from the COVID-19 pandemic had a significant adverse impact on our financial condition and presence in the Southern Nevada market. The results of operations for the three and six months ended June 30, 2020. The duration and intensity of this global health emergency and related disruptions is uncertain. The impact of COVID-19 on our consolidated results of operations, cash flows and financial condition in 2020 will be material, but cannot be reasonably estimated at this time, as it is unknown when the COVID-19 pandemic will end, when or how quickly the current travel restrictions will be modified or cease to be necessary, and how these uncertainties will impact our business and the willingness of customers to spend on travel and entertainment.
The impact of the Acquired Entities are includedCOVID-19 pandemic on our operations qualified as a triggering event necessitating an evaluation of long-lived assets, goodwill, and indefinite-lived intangible assets for indicators of impairment as discussed in “Note 3 — Property and Equipment, Net” and “Note 4 — Goodwill and Intangible Assets, Net” in Part I, Item 1: Financial Statements.
On March 16, 2020, we fully drew the available capacity of $200 million under our results subsequentrevolving credit facility (the “Revolving Credit Facility”) as a precautionary measure in order to the acquisition date. See Note 2, Acquisitions,increase our cash position and preserve financial flexibility in light of uncertainty in the accompanying unaudited consolidated financial statementsglobal markets resulting from the COVID-19 pandemic. During the second quarter of 2020, we repaid $190 million of our borrowings under the Revolving Credit Facility, and as of June 30, 2020, $190 million remained available to us for reborrowing. In addition, we have implemented various mitigating actions to preserve liquidity, including delaying all material capital expenditures, reducing cash operating expenses and implementing a non-essential cost reduction program. To further enhance our liquidity position or to finance any future acquisition or other business investment initiatives, we may obtain additional information.financing, which could consist of debt, convertible debt or equity financing from public or private credit and capital markets.
We own and operate ten resort casino properties in Nevada and Maryland, comprising:
Maryland. In light of COVID-19, certain amenities at our resort casino properties may remain closed or operate in a limited capacity, including restaurants, bars, and other food and beverage outlets, as well as table games, spas and pools.
The STRAT Hotel, Casino & SkyPod (“The Strat”): The Strat isfollowing table sets forth certain information regarding our premier casino property, located on Las Vegas Blvd on the north end of the Las Vegas Strip. The Strat comprises the iconic SkyPod, a casino, a hotel and a retail center. Asproperties as of June 30, 2019, The Strat featured an 80,000 sq. ft. casino, 2,429 hotel rooms, 644 slots, 44 table games, a race and sports book, 12 restaurants, two rooftop pools, a fitness center, retail shops and entertainment facilities.2020:
|
| Location |
| Slot Machines |
|
| Table Games |
|
| Hotel Rooms |
|
| Race and Sport Book |
|
| Bingo (seats) |
| |||||
Nevada Casinos |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The STRAT Hotel, Casino & SkyPod (“The Strat”) |
| Las Vegas, NV |
|
| 750 |
|
|
| 44 |
|
|
| 2,429 |
|
|
| 1 |
|
|
| — |
|
Arizona Charlie’s Boulder |
| Las Vegas, NV |
|
| 815 |
|
|
| — |
|
|
| 303 |
|
|
| 1 |
|
| approx. 400 |
| |
Arizona Charlie’s Decatur |
| Las Vegas, NV |
|
| 968 |
|
|
| 10 |
|
|
| 259 |
|
|
| 1 |
|
| approx. 400 |
| |
Aquarius Casino Resort (“Aquarius”) |
| Laughlin, NV |
|
| 1,142 |
|
|
| 33 |
|
|
| 1,906 |
|
|
| 1 |
|
|
| — |
|
Colorado Belle Hotel & Casino Resort (“Colorado Belle”) (1) |
| Laughlin, NV |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Edgewater Hotel & Casino Resort (“Edgewater”) |
| Laughlin, NV |
|
| 680 |
|
|
| 20 |
|
|
| 1,052 |
|
|
| 1 |
|
|
| — |
|
Gold Town Casino |
| Pahrump, NV |
|
| 211 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Lakeside Casino & RV Park |
| Pahrump, NV |
|
| 164 |
|
|
| — |
|
|
| — |
|
|
| — |
|
| approx. 100 |
| |
Pahrump Nugget Hotel Casino (“Pahrump Nugget”) |
| Pahrump, NV |
|
| 323 |
|
|
| 9 |
|
|
| 69 |
|
|
| 1 |
|
| approx. 200 |
| |
Maryland Casino |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rocky Gap Casino Resort (“Rocky Gap”) |
| Flintstone, MD |
|
| 655 |
|
|
| 16 |
|
|
| 198 |
|
|
| — |
|
|
| — |
|
Totals |
|
|
|
| 5,708 |
|
|
| 132 |
|
|
| 6,216 |
|
|
| 6 |
|
|
|
|
|
Arizona Charlie’s casinos: Our Arizona Charlie’s Decatur and Arizona Charlie’s Boulder casino properties primarily serve local Las Vegas patrons, and provide an alternative experience to the Las Vegas Strip. As of June 30, 2019, our Arizona Charlie’s Decatur casino offered 259 hotel rooms, 1,040 slots, ten table games, race and sports books, five restaurants and an approximately 400-seat bingo parlor, and our Arizona Charlie’s Boulder casino offered 303 hotel rooms, 835 slots, eight table games, race and sports books, four restaurants, and an approximately 450-seat bingo parlor, as well as an RV park with approximately 220 RV hook-up sites.
(1) | We have implemented various mitigating actions to preserve liquidity in light of the COVID-19 pandemic. As a result, the operations of the Colorado Belle remained suspended as of June 30, 2020. Refer to “Note 4 — Goodwill and Intangible Assets, Net” included in Part I, Item 1: Financial Statements for financial statement impact associated with this matter. |
Laughlin casinos: We own and operate three casinos in Laughlin, Nevada, which is located approximately 90 miles from Las Vegas on the western riverbank of the Colorado River: the Aquarius Casino Resort (the “Aquarius”), the Edgewater and the Colorado Belle. Our Laughlin casinos are situated along the heart of the Laughlin Riverwalk and cater primarily to patrons traveling from Arizona and Southern California, as well as customers from Nevada seeking an alternative to the Las Vegas experience. As of June 30, 2019, the Aquarius had 1,906 hotel rooms, 1,200 slots, 33 table games and eight restaurants. As of June 30, 2019 the Colorado Belle had 1,102 hotel rooms, 698 slots, 16 table games and three restaurants. As of June 30, 2019 the Edgewater had 1,052 hotel rooms, 714 slots, 20 table games and six restaurants and dedicated entertainment venues, including the Laughlin Event Center.
• | The Strat: The Strat is our premier casino property, located on Las Vegas Blvd on the north end of the Las Vegas Strip. The Strat comprises the iconic SkyPod, a casino, a hotel and a retail center. In addition to hotel rooms and gaming in an 80,000 square foot casino, The Strat offers nine restaurants, two rooftop pools, a fitness center, retail shops and entertainment facilities.* |
Pahrump casinos: We own and operate three casinos in Pahrump, Nevada, which is located approximately 60 miles from Las Vegas and is a gateway to Death Valley National Park: the Pahrump Nugget Hotel Casino (“Pahrump Nugget”), Gold Town Casino and Lakeside Casino & RV Park. As of June 30, 2019, Pahrump Nugget offered 69 hotel rooms, 406 slots, 10 table games, a race and sports book, an approximately 200-seat bingo facility and a bowling center. As of June 30, 2019, our Gold Town Casino offered 229 slots, and our Lakeside Casino & RV Park offered 171 slots, an approximately 100-seat bingo facility, and approximately 160 RV hook-up sites.
• | Arizona Charlie’s casinos: Our Arizona Charlie’s Decatur and Arizona Charlie’s Boulder casino properties primarily serve local Las Vegas patrons, and provide an alternative experience to the Las Vegas Strip. In addition to hotel rooms, gaming and bingo facilities, Arizona Charlie’s Boulder casino offers four restaurants and an RV park with approximately 220 RV hook-up sites and Arizona Charlie’s Decatur casino offers five restaurants.* |
Rocky Gap Casino Resort (“Rocky Gap”): Rocky Gap is situated on approximately 270 acres in the Rocky Gap State Park in Maryland, which we lease from the Maryland Department of Natural Resources under a 40-year ground lease expiring in 2052 (plus a 20-year option renewal). As of June 30, 2019, Rocky Gap offered 665 slots, 19 table games, two casino bars, three restaurants, a spa and the only Jack Nicklaus signature golf course in Maryland. Rocky Gap is a AAA Four Diamond Award® winning resort with 198 hotel rooms, as well as an event and conference center.
• | Laughlin casinos: We own and operate three casinos in Laughlin, Nevada, which is located approximately 90 miles from Las Vegas on the western riverbank of the Colorado River. In addition to hotel rooms and gaming, the Aquarius has eight restaurants, the Colorado Belle offered three restaurants, and the Edgewater offers six restaurants and dedicated entertainment venues, including the Laughlin Event Center. As noted above, as a result of the impact of the COVID-19 pandemic, the operations of the Colorado Belle remained suspended as of June 30, 2020.* |
• | Pahrump casinos: We own and operate three casinos in Pahrump, Nevada, which is located approximately 60 miles from Las Vegas and is a gateway to Death Valley National Park. In addition to hotel rooms, gaming and bingo facilities at our Pahrump casino properties, Pahrump Nugget offers a bowling center and our Lakeside Casino & RV Park offers 160 RV hook-up sites.* |
• | Rocky Gap Casino Resort: Rocky Gap is situated on approximately 270 acres in the Rocky Gap State Park in Maryland, which we lease from the Maryland DNR under a 40-year ground lease expiring in 2052 (plus a 20-year option renewal). In addition to hotel rooms and gaming, Rocky Gap offers three restaurants, a spa and the only Jack Nicklaus signature golf course in Maryland. Rocky Gap is a AAA Four Diamond Award® winning resort and includes an event and conference center.* |
* | As a result of the COVID-19 pandemic, we have reduced capacity or temporarily closed certain of our amenities at our resort casino properties. |
Distributed Gaming
Our Distributed Gaming segment involves the installation, maintenance and operation of slots and amusement devices in non-casino locations such as restaurants, bars, taverns, convenience stores, liquor stores and grocery stores in Nevada and Montana. We place our slots and amusement devices in locations where we believe they will receive maximum customer traffic, generally near a store’s entrance. In addition, we own and operate branded taverns with slots, which target local patrons, primarily in the greater Las Vegas, Nevada metropolitan area. As of June 30, 2019,2020, our distributed gaming operations comprised approximately 10,70011,000 slots in over 1,000 locations.
Our branded taverns offer a casual, upscale environment catering to local patrons offering superior food, craft beer and other alcoholic beverages, and typically include 15 onsite slots. As of June 30, 2019,2020, we owned and operated 6566 branded taverns, which offered a total of over 1,000 onsite slots. Most of our taverns are located in the greater Las Vegas, Nevada metropolitan area and cater to local patrons seeking more convenient entertainment establishments than traditional casino properties. Our tavern brands include PT’s Gold, PT’s Pub, Sierra Gold, Sean Patrick’s, PT’s Place, PT’s Ranch, PT’s Brewing Company, Sierra Junction and SG Bar. We also own
On July 10, 2020, the Governor of the State of Nevada issued a brewerynew emergency executive order mandating the closure of bars, pubs, taverns, breweries, distilleries, and wineries in Las Vegas, PT’s Brewing Company, which produces craft beer forseven counties, including Clark County. As a result of the Governor’s executive order, we have closed most of our tavernstavern locations. As of the date hereof, we are not able to estimate when we will be able to re-open these tavern locations and casinos.we are evaluating mitigating actions that would allow us to resume our tavern operations in these locations.
The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q for the three and six months ended June 30, 20192020 and 2018.2019.
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
(In thousands) | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Revenues by segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casinos | $ | 158,716 |
|
| $ | 130,926 |
|
| $ | 310,090 |
|
| $ | 261,413 |
| $ | 39,432 |
|
| $ | 158,716 |
|
| $ | 167,402 |
|
| $ | 310,090 |
|
Distributed Gaming |
| 89,153 |
|
|
| 85,397 |
|
|
| 177,510 |
|
|
| 169,558 |
|
| 36,339 |
|
|
| 89,153 |
|
|
| 115,323 |
|
|
| 177,510 |
|
Corporate and other |
| 201 |
|
|
| 220 |
|
|
| 362 |
|
|
| 361 |
|
| 203 |
|
|
| 201 |
|
|
| 406 |
|
|
| 362 |
|
Total revenues |
| 248,070 |
|
|
| 216,543 |
|
|
| 487,962 |
|
|
| 431,332 |
|
| 75,974 |
|
|
| 248,070 |
|
|
| 283,131 |
|
|
| 487,962 |
|
Operating expenses by segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casinos |
| 77,236 |
|
|
| 62,402 |
|
|
| 150,779 |
|
|
| 123,121 |
|
| 19,774 |
|
|
| 77,236 |
|
|
| 86,624 |
|
|
| 150,779 |
|
Distributed Gaming |
| 67,936 |
|
|
| 66,612 |
|
|
| 135,593 |
|
|
| 131,962 |
|
| 30,970 |
|
|
| 67,936 |
|
|
| 95,879 |
|
|
| 135,593 |
|
Corporate and other |
| 219 |
|
|
| 793 |
|
|
| 416 |
|
|
| 1,565 |
|
| 216 |
|
|
| 219 |
|
|
| 538 |
|
|
| 416 |
|
Total operating expenses |
| 145,391 |
|
|
| 129,807 |
|
|
| 286,788 |
|
|
| 256,648 |
|
| 50,960 |
|
|
| 145,391 |
|
|
| 183,041 |
|
|
| 286,788 |
|
Selling, general and administrative |
| 56,235 |
|
|
| 43,615 |
|
|
| 113,182 |
|
|
| 87,821 |
|
| 32,548 |
|
|
| 56,235 |
|
|
| 80,158 |
|
|
| 113,182 |
|
Depreciation and amortization |
| 29,976 |
|
|
| 22,854 |
|
|
| 57,241 |
|
|
| 48,091 |
|
| 31,930 |
|
|
| 29,976 |
|
|
| 63,086 |
|
|
| 57,241 |
|
Impairment of goodwill and intangible assets |
| 21,411 |
|
|
| — |
|
|
| 27,872 |
|
|
| — |
| |||||||||||||||
Acquisition and severance expenses |
| 1,123 |
|
|
| 565 |
|
|
| 2,667 |
|
|
| 1,864 |
|
| 367 |
|
|
| 1,123 |
|
|
| 3,343 |
|
|
| 2,667 |
|
Loss on disposal of assets |
| 702 |
|
|
| 585 |
|
|
| 1,291 |
|
|
| 832 |
| |||||||||||||||
Preopening expenses |
| 738 |
|
|
| 389 |
|
|
| 1,516 |
|
|
| 837 |
|
| 9 |
|
|
| 738 |
|
|
| 114 |
|
|
| 1,516 |
|
Loss on disposal of assets |
| 585 |
|
|
| 218 |
|
|
| 832 |
|
|
| 295 |
| |||||||||||||||
Total expenses |
| 234,048 |
|
|
| 197,448 |
|
|
| 462,226 |
|
|
| 395,556 |
|
| 137,927 |
|
|
| 234,048 |
|
|
| 358,905 |
|
|
| 462,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
| 14,022 |
|
|
| 19,095 |
|
|
| 25,736 |
|
|
| 35,776 |
| |||||||||||||||
Operating (loss) income |
| (61,953 | ) |
|
| 14,022 |
|
|
| (75,774 | ) |
|
| 25,736 |
| |||||||||||||||
Non-operating expense, net |
| (29,774 | ) |
|
| (14,604 | ) |
|
| (50,157 | ) |
|
| (26,136 | ) |
| (16,407 | ) |
|
| (29,774 | ) |
|
| (35,154 | ) |
|
| (50,157 | ) |
Income tax benefit (provision) |
| 1,344 |
|
|
| (897 | ) |
|
| 1,995 |
|
|
| (2,116 | ) | |||||||||||||||
Net income (loss) | $ | (14,408 | ) |
| $ | 3,594 |
|
| $ | (22,426 | ) |
| $ | 7,524 |
| |||||||||||||||
Income tax (provision) benefit |
| (206 | ) |
|
| 1,344 |
|
|
| (258 | ) |
|
| 1,995 |
| |||||||||||||||
Net loss | $ | (78,566 | ) |
| $ | (14,408 | ) |
| $ | (111,186 | ) |
| $ | (22,426 | ) |
Three and Six Months Ended June 30, 20192020 Compared to Three and Six Months Ended June 30, 20182019
Revenues
The $31.5$172.1 million, or 15%69%, increasedecrease in revenues for the three months ended June 30, 20192020 compared to the prior year period resulted from increasesdecreases of $13.7$89.6 million, $8.7$41.9 million, $7.9$29.5 million and $1.2$11.1 million in gaming, food and beverage, room and other revenues, respectively, primarily due primarily to the impact of the Acquired Entities.temporary closures of all of our properties and suspension of our Distributed Gaming operations as a result of the COVID-19 pandemic.
Casinos segment revenue increased $27.8The $119.3 million, or 21%75%, decrease in revenues related to our Casinos segment for the three months ended June 30, 2019 compared to the prior year period. Gaming revenues in the Casinos segment increased $10.3 million, which reflected the inclusion in the current year period of $9.1 million of gaming revenue from the Acquired Entities and a combined increase in slot revenue of $1.6 million at The Strat and Aquarius. The increase was offset by a decrease in the Nevada casinos’ race and sports book revenue of $0.4 million resulting from the outsourcing of our race and sports book management in the first quarter of 2019, the income from which is classified as other operating revenue. Casinos segment food and beverage revenue increased by $8.3 million due primarily to The Strat and the inclusion in the current year period of food and beverage revenues from the Acquired Entities, partially offset by decreases in food and beverage revenues at our other casino properties. Casinos segment room revenues increased by $7.9 million primarily due to The Strat and the inclusion in the current year period of room revenues from the Acquired Entities. Casinos segment other revenues increased by $1.2 million primarily due to the contribution of $1.5 million of other revenues from the Acquired Entities, and was partially offset by a decrease in other revenues at The Strat of $0.4 million.
Distributed Gaming segment revenue increased $3.8 million or 4% for the three months ended June 30, 2019 compared to the prior year period due to an increase of $3.4 million in gaming revenues (reflecting a $1.8 million increase from new sales at our additional locations and machines in Montana and a $1.6 million increase in Nevada from our six new taverns that opened since the prior year period and improved performance of our slot devices at non-casino locations) and of $0.4 million in branded tavern food and beverage revenues.
The $56.6 million, or 13%, increase in revenues for the six months ended June 30, 20192020 compared to the prior year period resulted primarily from increasesdecreases of $23.6$47.0 million, $15.8$33.0 million, $13.2$29.6 million, and $4.0$9.7 million in gaming, food and beverage, room and other revenues, respectively, primarily due primarily to the impacttemporary closures of our casino properties as a result of the Acquired Entities.COVID-19 pandemic.
Casinos segment revenue increased $48.7The $52.8 million, or 19%59%, decrease in revenues related to our Distributed Gaming segment for the three months ended June 30, 2020 compared to the prior year period resulted primarily from decreases of $42.5 million, $8.9 million, and $1.4 millionin gaming, food and beverage and other revenues, respectively, primarily due to the temporary suspension of our Distributed Gaming operations as a result of the COVID-19 pandemic.
The $204.8 million, or 42%, decrease in revenues for the six months ended June 30, 20192020 compared to the prior year period. Gaming revenuesperiod resulted from decreases of $106.1 million, $50.2 million, $35.2 million and $13.3 million in the Casinos segment increased $16.7 million, which reflected the inclusion in the current year period of $16.8 million of gaming, revenue from the Acquired Entities and an increase in slot revenue of $1.5 million at some of our Nevada casinos. The increase was offset by a decrease in the Nevada casinos’ race and sports book revenue of $0.9 million resulting from the outsourcing of our race and sports book management in the first quarter of 2019, the income from which is classified as other operating revenue, and a decrease in table game revenue of $0.7 million at The Strat. Casinos segment food and beverage, revenue
increased by $14.7 million due primarily to the inclusion in the current year period of $14.5 million in foodroom and beverage revenues from the Acquired Entities and an increase of $1.1 million in food and beverage revenue at The Strat, partially offset by decreases in food and beverage revenues at our other casino properties. Casinos segment room revenues increased by $13.2 million primarily due to increased room revenues from the Aquarius as well as the inclusion in the current year period of $10.7 million in room revenues from the Acquired Entities. Casinos segment other revenues, increased by $4.0 millionrespectively, primarily due to the contributionimpact of $4.8 millionthe temporary closures of other revenues from the Acquired Entities,all of our properties and was partially offset by a decrease in other revenues at The Stratsuspension of $1.0 million.
our Distributed Gaming segment revenue increased $8.0operations as a result of the COVID-19 pandemic.
The $142.7 million, or 5%46%, decreasein revenues related to our Casinos segment for the six months ended June 30, 20192020 compared to the prior year period due to an increaseresulted primarily from decreases of $6.9$56.0 million, $39.7 million, $35.2 million, and $11.8 million in gaming, food and beverage, room and other revenues, (reflectingrespectively, primarily due to the temporary closures of our casino properties as a $3.3result of the COVID-19 pandemic.
The $62.2 million, increase from new sales ator 35%, decreasein revenues related to our additional locations and machines in Montana and a $3.6 million increase in Nevada from ourDistributed Gaming segment for the six new taverns that opened sincemonths ended June 30, 2020 compared to the prior year period resulted primarily from decreases of $50.1 million, $10.5 million, and improved performance of our slot devices at non-casino locations) and of $1.1$1.6 million in branded taverngaming, food and beverage and other revenues, (primarilyrespectively, due primarily to the inclusion intemporary suspension of our Distributed Gaming operations as a result of the current year period of a full period of revenues from the three taverns opened in 2018).COVID-19 pandemic.
During the three and six months ended June 30, 2019,2020, Adjusted EBITDA in our Casinos segment as a percentage of segment revenues (or Adjusted EBITDA margin) was 30%5% and 31%20%, respectively, compared to Adjusted EBITDA margin in our Distributed Gaming segment of 15% in each period.3% and 7%, respectively. During the three and six months ended June 30, 2018,2019, Adjusted EBITDA margin in our Casinos segment was 32%30% and 33%31%, respectively, compared to Adjusted EBITDA margin in our Distributed Gaming segment of 15% in each period. The lower Adjusted EBITDA margin in our Distributed Gaming segment relative to our Casinos segment reflects the fixed and variable amounts paid to third parties under our space and revenue share agreements as expenses in the Distributed Gaming segment (which includes the percentage of gaming revenues paid to third parties under revenue share agreements). See Noteagreements. Refer to “Note 11 — Segment Information,Information” in the accompanying unaudited consolidated financial statementsPart I, Item 1: Financial Statements for additional information regarding segment Adjusted EBITDA and a reconciliation of segment Adjusted EBITDA to segment net income (loss).loss.
Operating Expenses
The $15.6$94.4 million, or 12%65%, increasedecrease in operating expenses for the three months ended June 30, 20192020 compared to the prior year period resulted primarily from the inclusion of operating expenses of the Acquired Entities. Gaming expenses increased $5.5$48.8 million, for the three months ended June 30, 2019 compared to the prior year period. Of this increase, $4.0$30.4 million, related to the inclusion of$11.4 million and $3.8 million decreases in gaming, expenses relating to the Acquired Entities in the current year period, and $1.1 million related to gaming expenses in our Distributed Gaming segment, which included an increase of $1.6 million relating to our Montana distributed gaming operations, offset by $0.5 million decrease from our Nevada distributed gaming operations. The increase of $4.9 million of food and beverage, room and other expenses, respectively. These operating expense compared todecreases primarily reflect the prior year period was due primarily to the inclusion in the current year periodtemporary closures of $4.7 million relating to the Acquired Entities, combined with increases of $0.7 million relating to The Strat (reflecting increased and improved offerings at The Strat), offset by a decrease in food and beverage revenues at our other casino properties,. The $3.7 million year-over-year increase in room expense was due primarily to branded taverns and distributed gaming routes as a result of the inclusion in the current year period of $3.3 million relating to the Acquired Entities, combined with an increase of $0.8 million related to The Strat. The $1.5 million year-over-year increase in other operating expenses was almost entirely due to the inclusion in the current year period of other operating expenses relating to the Acquired Entities.COVID-19 pandemic.
The $30.1$103.8 million, or 12%36%, increasedecrease in operating expenses for the six months ended June 30, 20192020 compared to the prior year period resulted primarily from the inclusion of operating expenses of the Acquired Entities. Gaming expenses increased $10.2$53.0 million, for the six months ended June 30, 2019 compared to the prior year period. Of this increase, $7.1$33.8 million, related to the inclusion of$11.9 million and $5.1 million decreases in gaming, expenses relating to the Acquired Entities in the current year period, and $2.7 million related to gaming expenses in our Distributed Gaming segment, which included an increase of $2.9 million relating to our Montana distributed gaming operations, offset by a slight decrease from our Nevada distributed gaming operations. The increase of $9.5 million of food and beverage, room and other expenses, respectively. These operating expense compared todecreases primarily reflect the prior year period was due primarily to the inclusion in the current year periodtemporary closures of $8.5 million relating to the Acquired Entities, combined with increases of $0.6 million relating to our Nevadacasino properties, branded taverns and distributed gaming operations and $1.2 million relating to The Strat (reflecting increased and improved offerings at The Strat), offset byroutes as a decrease in food and beverage revenues at our other casino properties. The $6.6 million year-over-year increase in room expense was due primarily toresult of the inclusion in the current year period of $5.7 million relating to the Acquired Entities, combined with an increase of $1.2 million related to The Strat. The $3.9 million year-over-year increase in other operating expenses was almost entirely due to the inclusion in the current year period of other operating expenses relating to the Acquired Entities.COVID-19 pandemic.
Selling, General and Administrative Expenses
The $12.2$23.7 million, or 28%42.1%, increasedecrease in selling, general and administrative (“SG&A”) expenses for the three months ended June 30, 20192020 compared to the prior year period resulted primarily from the inclusion in the current year period of $6.3 million in SG&A expenses relating to the Acquired Entities, an increase in corporate SG&A of $4.5 million and an increase in Distributed Gaming segment SG&A of $1.4 million.
Within our Casinos segment, the majority of the SG&A expenses are comprised of marketing and advertising, utilities, maintenance contracts, payroll expenses and payroll taxes. Casino segment SG&A expenses increased $7.6 million, or 29%, for the three months ended June 30, 2019, compared to the prior year period, resulting primarily from the inclusion $6.3 million in the current year period of SG&A related to the Acquired Entities. The remaining increase was primarily due to increases in expenses for laborthe temporary closures of our casino properties, branded taverns and advertising at The Strat.
Within our Distributed Gaming segment, the majoritydistributed gaming routes as a result of the COVID-19 pandemic, which resulted in a decrease in payroll and other expenses. SG&A expenses are comprised of marketing and advertising, utilities, building rent, payroll expenses and payroll taxes. Distributed gaming segment SG&A expenses increased $1.4 million, or 24%, for the three months ended June 30, 2019 compared to the prior year period, primarily due to an increase in salaries and bonuses.
Corporate SG&A expenses representmaintenance contracts, corporate office overhead, information technology, legal, accounting, third partythird-party service providers, executive compensation, share basedshare-based compensation and payroll expenses and payroll taxes.
The $4.5$33.2 million, or 46%29.2%, increase in corporate SG&A for the three months ended June 30, 2019 compared to the prior year period resulted primarily from increases in outside service expenses in finance, marketing and human resources as well as in salaries and wages.
The $24.8 million, or 28%, increasedecrease in SG&A expenses for the six months ended June 30, 20192020 compared to the prior year period resulted primarily from the inclusion in the current year period of $11.2 million in SG&A expenses relating to the Acquired Entities, an increase in corporate SG&A of $9.4 million and an increase in Distributed Gaming segment SG&A of $2.6 million.
Casino segment SG&A expenses increased $14.1 million, or 27%, for the six months ended June 30, 2019, compared to the prior year period, resulting primarily from the inclusion $11.2 million in the current year period of SG&A related to the Acquired Entities. The remaining increase was primarily due to increasesthe temporary closures of our casino properties, branded taverns and distributed gaming routes as a result of the COVID-19 pandemic, which resulted in expenses for labora decrease in payroll and advertising at The Stratother expenses.
Acquisition and labor, advertising and printing at the Aquarius.
Distributed Gaming segment SG&A expenses increased $2.6 million, or 22%, for the six months ended June 30, 2019 compared to the prior year period, primarily due to an increase in salaries, bonuses, building rent, and expenses for marketing and cleaning supplies.
Corporate SG&A expenses increases $9.4 million, or 43%, increase in corporate SG&A for the six months ended June 30, 2019 compared to the prior year period resulted primarily from increases in outside service expenses in finance, marketing and human resources as well as in salaries and wages.
AcquisitionSeverance Expenses
Acquisition expenses duringwere incurred primarily for the three and six months ended June 30, 2019 and related primarily to the Laughlin Acquisition,consulting services for our acquisition of Edgewater Gaming, LLC and Colorado Belle Gaming, LLC from Marnell Gaming, LLC, which closed on January 14, 2019 and(the “Laughlin Acquisition”). Severance expenses duringwere primarily incurred for the three and six months ended June 30, 20182020 and related to the American Acquisition.mitigating actions we took to preserve liquidity in light of COVID-19.
Preopening Expenses
Preopening expenses consist of labor, food, utilities, training, initial licensing, rent and organizational costs incurred. Non-capital costs associated with the opening of tavern and casino locations are also expensed as preopening expenses as incurred.
DuringPreopening expenses related primarily to corporate costs incurred for the three and six months ended June 30, 20192020 and 2018, preopening expenses related primarily to costs incurred in the opening of new taverns in the Las Vegas Valley.2019.
Depreciation and Amortization
The increase in depreciationDepreciation and amortization expenses for each of the three months ended June 30, 2019 2020 increased by $2.0 million, or 6.5%,compared to the prior year period, was primarily due to the depreciation of the assets related to the remodel of The Strat and the amortization of the intangibles acquired inrelated to the Laughlin Acquisition.
The increase in depreciationDepreciation and amortization expenses for each of the six months ended June 30, 20192020 increased $5.8 million, or 10.2%, compared to the prior year period, was primarily due to the depreciation of the assets related to the remodel of The Strat and the amortization of the intangibles acquired in the Laughlin Acquisition, the opening of new taverns in the first half of 2019, and the installation of new gaming systems at some of our Nevada casinos. The increase was offset by the decrease in depreciation and amortization expense at The Strat related to the disposal of several assets and the change in useful life of depreciation.Laughlin Acquisition.
Non-Operating Expense, Net
Non-operating expense, net increased $15.2decreased $13.4 million, or 44.9%, for the three months ended June 30, 20192020 compared to the prior year period, primarily due to a $3.1$1.5 million increasedecrease in interest expense from the substantially higher level of indebtedness following the Laughlin Acquisition, a loss on extinguishment and modification of debt of $9.2 million and a loss on change in fair value of derivative, a $9.2 million decrease in loss of $1.5extinguishment of debt, and a $2.7 million versus a gain on changedecrease in fair value of derivative of $1.5 million in theinterest expense compared to prior year period.year.
Non-operating expense, net increased $24.0decreased $15.0 million, or 29.9%, for the six months ended June 30, 20192020 compared to the prior year period, primarily due to a $6.5$3.7 million increasedecrease in interest expense from the substantially higher level of indebtedness following the Laughlin Acquisition, a loss on extinguishment and modification of debt of $9.2 million and a loss on change in fair value of derivative, a $9.2 million decrease in loss of $3.7extinguishment of debt, and a $2.1 million versus a gain on changedecrease in fair value of derivative of $4.7 million in theinterest expense compared to prior year period.year.
Income Taxes
Our effective income tax rate was 8.2%0.3% and 22.0%0.2% for the three and six months ended June 30, 2020, respectively, and (8.5)% and (8.2)% for the three and six months ended June 30, 2019, and 2018, respectively. For the six months ended June 30, 2019, theThe effective tax rate differed from the federal tax rate of 21% due primarily to the change in valuation allowance against our deferred tax assets during the first six months of 2019. For the six months ended June 30, 2018, the effectiveincome tax rate differed from the federal tax rate of 21% due primarily to expenditures that are not deductiblethe change in valuation allowance against our deferred tax assets both for tax purposes.three and six months ended June 30, 2020 and 2019.
To supplement our consolidated financial statements presented in accordance with United States generally accepted accounting principles (“GAAP”), we use Adjusted EBITDA, a measure we believe is appropriate to provide meaningful comparison with, and to enhance an overall understanding of, our past financial performance and prospects for the future. We believe Adjusted EBITDA provides useful information to both management and investors by excluding specific expenses and gains that we believe are not indicative of our core operating results. Further, Adjusted EBITDA is a measure of operating performance used by management, as well as industry analysts, to evaluate operations and operating performance and is widely used in the gaming industry. The presentation of this additional information is not meant to be considered in isolation or as a substitute for measures of financial performance prepared in accordance with GAAP. In addition, other companies in our industry may calculate Adjusted EBITDA differently than we do. A reconciliation of net income (loss)loss to Adjusted EBITDA is provided in the table below.
We define “Adjusted EBITDA” as earnings before interest and other non-operating income (expense), income taxes, depreciation and amortization, impairment of goodwill, acquisition and severance expenses, preopening and related expenses, gain/loss onasset disposal of property and equipment,other writedowns, share-based compensation expenses, executive severance, rebranding, class action litigation expenses, other gains and losses, and change in fair value of derivative.
The following table presents a reconciliation of Adjusted EBITDA to net income (loss):
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
(In thousands) |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Net income (loss) |
| $ | (14,408 | ) |
| $ | 3,594 |
|
| $ | (22,426 | ) |
| $ | 7,524 |
| ||||||||||||||||
Net loss |
| $ | (78,566 | ) |
| $ | (14,408 | ) |
| $ | (111,186 | ) |
| $ | (22,426 | ) | ||||||||||||||||
Depreciation and amortization |
|
| 29,976 |
|
|
| 22,854 |
|
|
| 57,241 |
|
|
| 48,091 |
|
|
| 31,930 |
|
|
| 29,976 |
|
|
| 63,086 |
|
|
| 57,241 |
|
Impairment of goodwill and intangible assets |
|
| 21,411 |
|
|
| — |
|
|
| 27,872 |
|
|
| — |
| ||||||||||||||||
Acquisition and severance expenses |
|
| 367 |
|
|
| 1,123 |
|
|
| 3,343 |
|
|
| 2,667 |
| ||||||||||||||||
Preopening and related expenses(1) |
|
| 2,134 |
|
|
| 389 |
|
|
| 3,729 |
|
|
| 837 |
|
|
| 9 |
|
|
| 1,497 |
|
|
| 339 |
|
|
| 3,729 |
|
Acquisition and severance expenses |
|
| 1,497 |
|
|
| 565 |
|
|
| 2,667 |
|
|
| 1,864 |
| ||||||||||||||||
Asset disposal and other writedowns |
|
| 1,123 |
|
|
| 218 |
|
|
| 1,222 |
|
|
| 295 |
|
|
| 702 |
|
|
| 585 |
|
|
| 1,291 |
|
|
| 1,222 |
|
Share-based compensation |
|
| 585 |
|
|
| 2,758 |
|
|
| 6,318 |
|
|
| 4,602 |
|
|
| 1,756 |
|
|
| 2,134 |
|
|
| 4,002 |
|
|
| 6,318 |
|
Other, net |
|
| 487 |
|
|
| 417 |
|
|
| 1,351 |
|
|
| 725 |
|
|
| 117 |
|
|
| 487 |
|
|
| 474 |
|
|
| 1,351 |
|
Interest expense, net |
|
| 19,135 |
|
|
| 16,066 |
|
|
| 37,270 |
|
|
| 30,809 |
|
|
| 16,407 |
|
|
| 19,135 |
|
|
| 35,153 |
|
|
| 37,270 |
|
Loss on extinguishment and modification of debt |
|
| 9,150 |
|
|
| — |
|
|
| 9,150 |
|
|
| — |
|
|
| — |
|
|
| 9,150 |
|
|
| — |
|
|
| 9,150 |
|
Change in fair value of derivative |
|
| 1,489 |
|
|
| (1,462 | ) |
|
| 3,737 |
|
|
| (4,673 | ) |
|
| — |
|
|
| 1,489 |
|
|
| 1 |
|
|
| 3,737 |
|
Income tax (benefit) provision |
|
| (1,344 | ) |
|
| 897 |
|
|
| (1,995 | ) |
|
| 2,116 |
| ||||||||||||||||
Income tax provision (benefit) |
|
| 206 |
|
|
| (1,344 | ) |
|
| 258 |
|
|
| (1,995 | ) | ||||||||||||||||
Adjusted EBITDA |
| $ | 49,824 |
|
| $ | 46,296 |
|
| $ | 98,264 |
|
| $ | 92,190 |
|
| $ | (5,661 | ) |
| $ | 49,824 |
|
| $ | 24,633 |
|
| $ | 98,264 |
|
(1) | Preopening and related expenses include rent, organizational costs, non-capital costs associated with the opening of tavern and casino locations, and expenses related to The Strat rebranding and the launch of the |
Liquidity and Capital Resources
As of June 30, 2019,2020, we had $116.7$86.2 million in cash and cash equivalents. We currently believe that our cash and cash equivalents, cash flows from operations and borrowing availability under our revolving credit facilityRevolving Credit Facility will be sufficient to meet our capital requirements during the next 12 months. As of June 30, 2020, we had borrowing availability of $190 million under our Revolving Credit Facility.
Our operating results and performance depend significantly on national, regional and local economic conditions and their effect on consumer spending. Declines in consumer spending would cause revenues generated in both our Casinos and Distributed Gaming segments to be adversely affected.
To further enhance our liquidity position or to finance any future acquisition or other business investment initiatives, we may obtain additional financing, which could consist of debt, convertible debt or equity financing from public and/or private credit and capital markets.
In January 2018, we completed an underwritten public offering pursuant to our universal shelf registration statement, in which certain of our shareholders resold an aggregate of 6.5 million shares of our common stock, and we sold 975,000 newly issued shares of our common stock. Our net proceeds from the offering were approximately $25.6 million after deducting underwriting discounts and offering expenses.
Cash Flows
Net cash provided byused in operating activities was $10.5 million for the six months ended June 30, 2019 remained overall consistent when2020, compared to net cash provided by operating activities of $61.4 million for the prior year periodperiod. The decrease was primarily due to the impact of the COVID-19 pandemic on our operations (as described above) and the timing of operating assets and liabilities.working capital spending.
Net cash used in investing activities was $202.4$21.9 million for the six months ended June 30, 2019,2020, compared to $27.4$202.4 million for the prior year period. The increasedecrease in net cash used in investing activities as compared to the prior year period was primarily due toreflects the closing of the Laughlin Acquisition and capital expenditures made in January 2019, and the additionaldeferral of all material capital expenditures in light of the current year period.COVID-19 pandemic in 2020.
Net cash provided by financing activities was $6.8 million for the six months ended June 30, 2020, primarily due to the borrowing of $200 million under our Revolving Credit Facility as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 pandemic, offset by the repayment of $190 million under our Revolving Credit Facility during the second quarter of 2020. Net cash provided by financing activities was $141.6 million for the six months ended June 30, 2019, primarily due primarily to our issuance of the 7.625% Senior Notes due 2026 (“2026 Notes”) in April 2019, partially offset by the repayment in full of our $200 million senior secured second lien term loan facility (“Second Lien Term Loan”).facility.
Long-Term Debt
Refer to “Note 6 — Long-Term Debt” in Part I, Item 1: Financial Statements and to “Liquidity and Capital Resources” in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report for discussion of our debt instruments.
Net cash provided by financing activities was $20.0 million forOther Items Affecting Liquidity
The outcome of the six months ended June 30, 2018,following specific matters, including our commitments and primarilycontingencies, may also affect our liquidity.
Commitments, Capital Spending and Development
We normally perform on-going refurbishment and maintenance at our facilities, of which certain maintenance costs are capitalized if such improvement or refurbishment extends the life of the related to net proceeds to us in the underwritten public offering completed in January 2018, partially offset by repayments under our Credit Facility.
Senior Secured Credit Facility
In October 2017, we entered into a senior secured credit facility consistingasset, while other maintenance costs that do not so qualify are expensed as incurred. The commitment of a $900 million senior secured first lien credit facility (consisting of a $800 million term loan and a $100 million revolving credit facility) with JPMorgan Chase Bank, N.A. (as administrative agent and collateral agent), the lenders party theretocapital and the related timing thereof are contingent upon, among other entities party thereto (the “Credit Facility”). The revolving credit facility was subsequently increasedthings, negotiation of final agreements and receipt of approvals from $100 million to $200 million in 2018.
As of June 30, 2019, we had $772 million in principal amount of outstanding term loan borrowings underthe appropriate regulatory bodies. We normally fund such capital expenditures through our Credit Facility, no letters of credit outstanding under theRevolving Credit Facility and our revolving credit facility was undrawn, leaving borrowing availability under the revolving credit facility as of June 30, 2019 of $200 million.
Borrowings under the Credit Facility bear interest, at our option, at either (1) a base rate equaloperating cash flows. However, due to the greatestimpact of the federal funds rate plus 0.50%, the applicable administrative agent’s prime rate as announced from time to time, or the LIBOR rate for a one-month interest period plus 1.00%, subject to a floor of 1.75% (with respect to the term loan) or 1.00% (with respect to borrowings under the revolving credit facility) or (2) the LIBOR rate for the applicable interest period, subject to a floor of 0.75% (with respect to the term loan only), plus in each case, an applicable margin. The applicable margin for the term loan under the Credit Facility is 2.00% for base rate loans and 3.00% for LIBOR rate loans. The applicable margin for borrowings under the revolving credit facility ranges from 1.50% to 2.00% for base rate loans and 2.50% to 3.00% for LIBOR rate loans, basedCOVID-19 pandemic on our net leverage ratio. The commitment fee for the revolving credit facility is payable quarterly at a rate of 0.375% or 0.50%, depending on our net leverage ratio, and is accrued based on the average daily unused amount of the available revolving commitment. As of June 30, 2019, the weighted-average effective interest rate on our outstanding borrowings under the Credit Facility was approximately 5.5%.
The revolving credit facility matures on October 20, 2022, and the term loan under the Credit Facility matures on October 20, 2024. The term loan under the Credit Facility is repayable in 27 quarterly installments of $2 million each, which commenced in March 2018, followed by a final installment of $746 million at maturity.
Borrowings under the Credit Facility are guaranteed by each of our existing and future wholly-owned domestic subsidiaries (other than certain insignificant or unrestricted subsidiaries), and are secured by substantiallyoperations, all of the present and future assets of Golden and our subsidiary guarantors (subject to certain exceptions).
Under the Credit Facility, we and our restricted subsidiaries are subject to certain limitations, including limitations on our respective ability to: incur additional debt, grant liens, sell assets, make certain investments, pay dividends and make certain other restricted payments. In addition, we will be required to pay down the term loan under the Credit Facility under certain circumstances if we or our restricted subsidiaries issue debt, sell assets, receive certain extraordinary receipts or generate excess cash flow (subject to exceptions). The revolving credit facility contains a financial covenant regarding a maximum net leverage ratio that applies when borrowings under the revolving credit facility exceed 30% of the total revolving commitment. The Credit Facility also prohibits the occurrence of a change of control, which includes the acquisition of beneficial ownership of 50% or more of ourmaterial capital stock (other than by certain permitted holders, which include, among others, Blake L. Sartini, Lyle A. Berman and certain affiliated entities). If we default under the Credit Facility due to a covenant breach or otherwise, the lenders may be entitled to, among other things, require the immediate repayment of all outstanding amounts and sell our assets to satisfy the obligations thereunder. We were in compliance with our financial covenants under the Credit Facility as of June 30, 2019.
Senior Notes due 2026
On April 15, 2019, we issued $375 million in principal amount of 2026 Notes in a private placement to institutional buyers face value. The 2026 Notes bear interest at 7.625%, payable semi-annually on April 15th and October 15th of each year.
In conjunction with the issuance of the 2026 Notes, we incurred approximately $6.7 million in debt financing costs and fees thatexpenditures have been deferreddeferred.
Refer to “Note 10 — Commitments and are being amortized over the term of the 2026 Notes using the effective interest method.
The net proceeds of the 2026 Notes were used to (i) repay our $200 million Second Lien Term Loan, (ii) repay outstanding borrowings under the revolving credit facility, (iii) repay $18 million of the outstanding term loan indebtedness under the Credit Facility,Contingencies” in Part I, Item 1: Financial Statements for additional information regarding commitments and (iv) pay accrued interest, fees and expenses related to each of the foregoing.
The 2026 Notes may be redeemed, in whole or in part, at any time during the 12 months beginning on April 15, 2022 at a redemption price of 103.813%, during the 12 months beginning on April 15, 2023 at a redemption price of 101.906%, and at any time on or after April 15, 2024 at a redemption price of 100%, in each case plus accrued and unpaid interest, if any, thereon to the redemption date. Prior to April 15, 2022, we may redeem up to 40% of the 2026 Notes at a redemption price of 107.625% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the redemption date, from the net cash proceeds of specified equity offerings. Prior to April 15, 2022, wecontingencies that may also redeem the 2026 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest and an Applicable Premium (as defined in the indenture governing the 2026 Notes (the “Indenture”)), if any, thereon to the redemption date.
The 2026 Notes are guaranteed on a senior unsecured basis by each ofaffect our existing and future wholly-owned domestic subsidiaries that guarantees the Credit Facility. The 2026 Notes are our and the subsidiary guarantors’ general senior unsecured obligations and rank equally in right of payment with all of our respective existing and future unsecured unsubordinated debt. The 2026 Notes are effectively junior in right of payment to our and the subsidiary guarantors’ existing and future secured debt, including under the Credit Facility (to the extent of the value of the assets securing such debt), are structurally subordinated to all existing and future liabilities (including trade payables) of any of our subsidiaries that do not guarantee the 2026 Notes, and are senior in right of payment to all of our and the subsidiary guarantors’ existing and future subordinated indebtedness.liquidity.
Under the Indenture, we and our restricted subsidiaries are subject to certain limitations, including limitations on our respective ability to: incur additional debt, grant liens, sell assets, make certain investments, pay dividends and make certain other restricted payments. In the event a change of control (which includes the acquisition of more than 50% of our capital stock, other than by certain permitted holders, which include, among others, Blake L. Sartini, Lyle A. Berman, Neil I. Sell and certain affiliated entities), each holder will have the right to require us to repurchase all or any part of such holder’s 2026 Notes at a purchase price in cash equal to 101% of the aggregate principal amount of the 2026 Notes repurchased, plus accrued and unpaid interest, if any, to the date of purchase.
Expenses Related to Extinguishment and Modification of Debt
In April 2019, we recognized a $5.5 million loss on extinguishment of debt and $3.7 million of expense related to modification of debt, related to the repayment of our Second Lien Term Loan and an $18 million prepayment of the term loan under our Credit Facility.
Share Repurchase Program
On March 12, 2019, our Board of Directors authorized the repurchase of up to $25.0 million additional shares of common stock, subject to available liquidity, general market and economic conditions, alternate uses for the capital and other factors, which replaced the prior share repurchase program authorized in November 2018.factors. Share repurchases may be made from time to time in open market transactions, block trades or in private transactions in accordance with applicable securities laws and regulations and other legal requirements, including compliance with our finance agreements. There is no minimum number of shares that we are required to repurchase and the repurchase program may be suspended or discontinued at any time without prior notice. During the three and six months ended June 30, 2019,2020, no shares of our common stock were repurchased under our share repurchase programs.
Other Items Affecting LiquidityOpportunities
The outcome of the following matters may also affect our liquidity.
Commitments, Capital Spending and Development
We perform on-going refurbishment and maintenance at our facilities, of which certain maintenance costs are capitalized if such improvement or refurbishment extends the life of the related asset, while other maintenance costs that do not so qualify are expensed as incurred. The commitment of capital and the related timing thereof are contingent upon, among other things, negotiation of final agreements and receipt of approvals from the appropriate regulatory bodies. We intend to fund such capital expenditures through our revolving credit facility and operating cash flows.
See Note 10, Commitments and Contingencies, in the accompanying unaudited consolidated financial statements for additional information regarding commitments and contingencies that may also affect our liquidity.
Contractual Obligations
The following table summarizes our contractual obligations as of June 30, 2019:
| Remaining 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| Thereafter |
|
| Total |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Term loan | $ | — |
|
| $ | — |
|
| $ | 4,000 |
|
| $ | 8,000 |
|
| $ | 8,000 |
|
| $ | 752,000 |
|
| $ | 772,000 |
|
Senior notes due 2026 |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 375,000 |
|
|
| 375,000 |
|
Interest on long-term debt (1) |
| 35,187 |
|
|
| 70,365 |
|
|
| 70,332 |
|
|
| 69,980 |
|
|
| 69,547 |
|
|
| 97,150 |
|
|
| 412,561 |
|
Operating leases |
| 23,164 |
|
|
| 30,778 |
|
|
| 29,443 |
|
|
| 22,906 |
|
|
| 17,469 |
|
|
| 117,243 |
|
|
| 241,003 |
|
Notes payable and finance lease obligations(2) |
| 1,200 |
|
|
| 2,074 |
|
|
| 1,481 |
|
|
| 612 |
|
|
| 565 |
|
|
| 7,339 |
|
|
| 13,271 |
|
| $ | 59,551 |
|
| $ | 103,217 |
|
| $ | 105,256 |
|
| $ | 101,498 |
|
| $ | 95,581 |
|
| $ | 1,348,732 |
|
| $ | 1,813,835 |
|
|
|
|
|
We may investigate and pursue expansion opportunities in our existing or new markets from time to time. Such expansions will be influenced and determined by a number of factors, which may include licensing availability and approval, suitable investment opportunities and availability of acceptable financing. Investigation and pursuit of such opportunities may require us to make substantial investments or incur substantial costs, which we may fund through cash flows from operations or borrowing availability under our revolving credit facility.Revolving Credit Facility. To the extent such sources of funds are not sufficient, we may also seek to raise such additional funds through public or private equity or debt financings or from other sources. No assurance can be given that additional financing will be available or that, if available, such financing will be obtainable on terms favorable to us. Moreover, we can provide no assurances that the investigation or pursuit of an opportunity will result in a completed transaction.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our results of operations and liquidity and capital resources are based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet date and reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we evaluate our estimates and judgments, including those related to the application of the acquisition method of accounting, long-lived assets, goodwill and indefinite-lived intangible assets, revenue recognition, income taxes and share-based compensation expenses. We base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates.
A description of our critical accounting estimates can be found under Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2018, previously filed with the SEC.Report. For a more extensive discussion of our accounting policies, see Noterefer to “Note 2 — Summary of Significant Accounting Policies, Policies” in the audited consolidated financial statementsPart II, Item 8: Financial Statements and Supplemental Data in our Annual Report on Form 10-K for the year ended December 31, 2018. As of January 1, 2019, we updated our lease accounting policies in conjunction with our adoption of the new lease accounting standard. A description of this change is included in Note 2 to the unaudited consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report on Form 10-Q.Report. There were no other material changes to our critical accounting policies and estimates during the three and six months ended June 30, 2019.2020.
Commitments and Contractual Obligations
On April 15, 2019, we issuedFor the 2026 Notesthree and six months ended June 30, 2020, there were no material changes in a private placementour commitments under contractual obligations as compared to institutional buyers, andthose disclosed in connection therewith we repaid and discharged the Second Lien Term Loan in full, repaid $18 million in principal amount of term loan borrowings under the Credit Facility, and repaid all of the outstanding indebtedness under the revolving credit facility under the Credit Facility. Otherwise, no significant changes occurred in the second quarter of 2019 to the contractual commitments discussed under Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Commitments andOther Items Affecting Liquidity – Contractual Obligations in our Annual Report on Form 10-K for the year ended December 31, 2018.Report.
Seasonality
We believe that our Casinos and Distributed Gaming segments are affected by seasonal factors, including holidays, weather and travel conditions. Our Las Vegas and Pahrump casinos as well as our Nevada distributed gaming businesses have historically experienced lower revenues during the summer as a result of fewer tourists due to higher temperatures in addition to increased vacation activity by local residents. Our casinos in Laughlin and Rocky Gap typically experience higher revenues during summer months with increased visitation and may be adversely impacted by inclement weather during winter months. Our Montana distributed gaming operations also typically experience higher revenues during the summer due to the inclement weather in other seasons. While other factors like the COVID-19 pandemic, unemployment levels, market competition and the diversification of our business may either offset or magnify seasonal effects, some seasonality is likely to continue, which could result in significant fluctuation in our quarterly operating results.
Recently Issued Accounting Pronouncements
See Note“Note 1 —Nature of Business and Basis of Presentation,Presentation” in the accompanying unaudited consolidated financial statements Part I, Item 1: Financial Statements for information regarding recently issued accounting pronouncements.
Regulation and Taxes
The casino and distributed gaming industries are subject to extensive regulation by state gaming authorities. Changes in applicable laws or regulations could have a material adverse effect on us.
The gaming industry represents a significant source of tax revenues to regulators. From time to time, various federal and state legislators and officials have proposed changes in tax law, or in the administration of such law, affecting the gaming industry. It is not
possible to determine the likelihood of possible changes in tax law or in the administration of such law. Such changes, if adopted, could have a material adverse effect on our future financial position, results of operations, cash flows and prospects.
Off Balance Sheet Arrangements
We have no off balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary exposure to market risk is interest rate risk associated with our variable rate long-term debt. As of June 30, 2019,2020, our variable rate long-term debt primarily comprised our indebtedness under the Credit Facility.Facility (defined in “Note 6 — Long-Term Debt” in Part I, Item 1: Financial Statements).
As of June 30, 2019,2020, we had $772 million in principal amount of outstanding borrowings under the Term Loan (defined in “Note 6 — Long-Term Debt” in Part I, Item 1: Financial Statements) and $10 million in principal amount of outstanding borrowings under our Revolving Credit Facility. Our primary interest rate under the Credit Facility is the Eurodollar rate plus an applicable margin. As of June 30, 2019, theThe weighted-average effective interest rate on our outstanding borrowings under the Credit Facility was approximately 5.5%.3.77% and 4.17% for the three and six months ended June 30, 2020, respectively. Assuming the outstanding balance under our Credit Facility remained constant over a year, a 50 basis point increase in the applicable interest rate would increase interest incurred, prior to effects of capitalized interest, by $3.9 million over a twelve-month period.
As of June 30, 2019,2020, our investment portfolio included $116.7$86.2 million in cash and cash equivalents. As of June 30, 2019,equivalents and we did not hold any short-term investments.
ITEM 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures designed to provide reasonable assurance of achieving the objective that information in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified and pursuant to the requirements of the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), we carried out an evaluation, with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of June 30, 2019,2020, the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2019.
On January 14, 2019, the Laughlin Acquisition was completed. Management has begun the evaluation of the internal control structures of the Acquired Entities. However, SEC guidance permits management to omit an assessment of an acquired business’ internal control over financial reporting from management’s assessments of internal control over financial reporting and disclosure controls and procedures for a period not to exceed one year from the date of the acquisition. Accordingly, we excluded the Acquired Entities from our evaluation of our disclosure controls and procedures as of June 30, 2019. We have reported the operating results of the Acquired Entities in our consolidated statements of operations and cash flows from the acquisition date through June 30, 2019. As of June 30, 2019, total assets related to the Acquired Entities represented approximately 11% of our total assets, recorded on a preliminary basis as the measurement period for the business combination remained open as of June 30, 2019. Revenues from the Acquired Entities comprised approximately 10% of our consolidated revenues for both the three and six months ended June 30, 2019.2020.
During the quarter ended June 30, 2019,2020, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As described above, on January 14, 2019, the Laughlin Acquisition was completed. Our integration of the Acquired Entities may lead us to modify certain internal controls in future periods.
From time to time, we are involved in a varietyA discussion of lawsuits, claims, investigations and otherour legal proceedings arisingis contained in the ordinary course of business, including proceedings concerning labor“Note 10 — Commitments and employment matters, personal injury claims, breach of contract claims, commercial disputes, business practices, intellectual property, tax and other matters for which we recorded reserves of $1.0 million for claims as of June 30, 2019. Although lawsuits, claims, investigations and other legal proceedings are inherently uncertain and their results cannot be predicted with certainty, we believe that the resolution of our currently pending matters should not have a material adverse effect on our business, financial condition, results of operations or liquidity. Regardless of the outcome, legal proceedings can have an adverse impact on us because of defense costs, diversion of management resources and other factors. In addition, it is possible that an unfavorable resolution of one or more such proceedings couldContingencies — Legal Matters” in the future materially and adversely affect our business, financial condition, results of operations or liquidity in a particular period.Part I, Item 1: Financial Statements.
In February and April 2017, several former employees filed two separate purported class action lawsuits against us in the District Court of Clark County, Nevada, on behalf of similarly situated individuals employed by us in the State of Nevada. The lawsuits allege that we violated certain Nevada labor laws including payment of an hourly wage below the statutory minimum wage without providing a qualified health insurance plan and an associated failure to pay proper overtime compensation. The complaints seek, on behalf of the plaintiffs and members of the putative class, an unspecified amount of damages (including punitive damages), injunctive and equitable relief, and an award of attorneys’ fees, interest and costs. We agreed to settle the first of these cases in the fourth quarter of 2017 and the second of these cases in the third quarter of 2018. In February 2019, the court approved the settlement for the first case for $0.5 million. In July 2019, the court approved the settlement for the second case for $1.1 million, which is included in our recorded reserves at June 30, 2019.
On August 31, 2018, prior guests of The Strat filed a purported class action complaint against us in the District Court, Clark County, Nevada, on behalf of similarly situated individuals and entities that paid the Clark County Combined Transient Lodging Tax (“Tax”) on the portion of a resort fee that constitutes charges for Internet access, during the period of February 6, 2014 through the date the alleged conduct ceases. The lawsuit alleged that the Tax was charged in violation of the federal Internet Tax Freedom Act, which imposed a national moratorium on the taxation of Internet access by states and their political subdivisions, and sought, on behalf of the plaintiff and the putative class, damages equal to the amount of the Tax collected on the Internet access component of the resort fee, injunctive relief, disgorgement, interest, fees and costs. All defendants to this matter, including Golden Entertainment, Inc., filed a joint motion to dismiss this matter for lack of merit. The District Court granted this joint motion to dismiss on February 21, 2019. The plaintiffs appealed the District Court decision on April 10, 2019 to the Supreme Court of Nevada.
While legal proceedings are inherently unpredictable and no assurance can be given as to the ultimate outcome of any of the above matters, based on management’s current understanding of the relevant facts and circumstances, we believe that these proceedings should not have a material adverse effect on our financial position, results of operations or cash flows.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report, as updated by our Quarterly Report on Form 10-K10-Q for the yearquarter ended DecemberMarch 31, 2018,2020, which factors could materially affect our business, financial condition, liquidity or future results. There have been no material changes to the risk factors described in the “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2018.Report. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, liquidity, results of operations, prospects or stock price.
Exhibits |
| Description |
|
|
|
| ||
| ||
31.1 |
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
31.2 |
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.1 |
| |
|
|
|
101.INS |
| Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document |
|
|
|
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
| Inline XBRL Taxonomy Extension Calculation Definition Document |
|
|
|
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
| GOLDEN ENTERTAINMENT, INC. |
| (Registrant) |
|
|
Dated: August | /s/ BLAKE L. SARTINI |
| Blake L. Sartini |
| Chairman of the Board |
| (Principal Executive Officer) |
|
|
| /s/ CHARLES H. PROTELL |
| Charles H. Protell |
|
and Chief Financial Officer |
| (Principal Financial Officer) |
|
|
| /s/ THOMAS E. HAAS |
| Thomas E. Haas |
| Senior Vice President of Accounting |
| (Principal Accounting Officer) |
3330