Yahoo Finance

Question and Answer Session

Operator

Thank you.
(Operator Instructions)
[Barry Jonas with Truist Securities].

Hey guys, it's [Patrick Keough] on for Barry. Thank you for taking my question. First one for me. Has your thinking or the general environment around M&A changed since the last time we spoke?

Blake Sartini

No, Patrick, this is Blake, as we outlined on our last call. We continue to be proactive in pursuing op all options really to grow shareholder value, as Charles I think mentioned in his prepared remarks, we continue to believe we're well positioned for various strategic alternatives and between potential share repurchases with value dislocation and other strategic alternatives, we have plenty of capacity going forward to do both. So our situation is exactly the same as it was last quarter, and we are continuing to be proactive in pursuing opportunities.

Okay, that's great. Thank you for the color. As my follow up, you'd previously stated that you ramped promos for F1 this time around. Could you give any color on how that weekend trended for you in year two? And either way, do you have any conviction you could benefit further as the event carries on in years to come? Thank you.

Charles Protell

Yeah, Patrick, hey, it's Charles. So, I don't think anyone expected the dramatic falloff in F1. So, where we saved and it was, I would say less bad for us was around our investment in tickets and direct expenses related to the event where we did suffer a little bit was just that we weren't able to compress our rate at all given the low occupancy in the town relative to the prior year.

Okay appreciate the call guys thank you again.

Charles Protell

Thanks.

Operator

Thank you.
Jordan Bender, Citizens.

Jordan Bender

Good afternoon, everyone. A strip operator noted, the expectation that an uplift in you'll see an uplift in in group and convention business in '25 and '26. So, can you just remind us where you stand in terms of the recovery or your position at the Strat and what that means for the property as citywide continues to come back?

Charles Protell

Yeah, hey Jordan, it's Charles. So, if you look at 2019, we ran that property at almost 92% occupancy, and we just noted for Q4 we're at [75%]. So, all of that is really midweek that we that for us, we are the overflow of others' convention business. So, when the town is more full with that an urges disproportionately to our benefit.
And when you look particularly into 2026, you will have the convention center finished off with the third phase of their expansion, which is about $600 million that they should finish off in Q4 of this year. So once the convention center gets more use and more full with their new amenities, we're very close to that and we see the strap benefiting from that increased traffic.

Jordan Bender

Thanks for that. And on my follow up switching the taverns that, expense growth in '24 was fairly elevated. Without getting into any guidance, are you able to just help us with, [OpEx] growth in that segment in '25 and then maybe just more broadly the major buckets or swing factors that we should be thinking about, for the total company.
Thank you.

Charles Protell

Yeah, I would just say specifically without getting too much into it, you'll see sequential growth in the taverns as we move forward through 2025 other than Q3, which is seasonally lower. So, you know as we highlight the call, we've basically had to revamp the entire operation to six taverns that we took over for. Various reasons and so you know those operations now have trended positive from an EBITDA perspective and we expect them to continue to grow.
But we've completely revamped how they've traditionally those locations are traditionally reinvesting in customers as well as the employee base. I think we've had to turn over every single employee. So that created some disruption, but now we're thinking we're back on a cadence that we expect those to be ramped in line with the rest of the portfolio into at the end of 2025.
For the balance of the company, I think it continues to be labor as a headwind. So, if you look at, what we've been doing, we've been managing through a new culinary union contract. At the Strat, which this is the first year of that, or this will be the anniversary of the first year of that where most of the cost increases occurred, so we expect those to moderate, but there will still be, mid-single digit labor inflation within the portfolio that we will be, we'll be working to mitigate as we go through the year.

Blake Sartini

Yeah, let me just add to that. I think that's exactly right. Our major initiatives, just to put it another way. Going into 2025 for all of our ops, are focused around our cost control efforts and as Charles just mentioned, we're making significant progress already. In those efforts and you know our revenues were up, or excuse me, down modestly quarter over quarter plus or minus 3%. So, we are laser focused on our cost opportunities with our broader portfolio with the most of our upside being there this year, particularly Strat. In regard to, being tangible and us being able to manage that, so we're off to a great start in that regard.

Jordan Bender

Thank you very much.

Operator

Thank you.
Zachary Silverberg, Wells Fargo.

Zachary Silverberg

Good evening. Thanks for taking my question. You touched upon it a bit in the prepared remarks, but you mentioned how you see the consumer stabilizing or improving post-selection. Can you maybe just double click on those trends and you know what you guys are kind of seeing on the ground that gives you confidence to make the statement.

Charles Protell

Yeah, I think we've seen more health in the database, so particularly within the locals market. So, as we look at the database, the top tier of our database continues to be strong in both in terms of visitation and spend. But the trend in Q3 that we really saw was the lower end of the database seemed to be continuously declining, almost to double digit rates.
That has moderated and we tried to give some cadence of Within the quarter, within the fourth quarter, how we've seen again those overall database declines that was mostly driven in October by the lower in the database, a little less in November again in the low end of the database to, stable year over year to growing in January. So, absent the Super Bowl [comp], we're very confident in, growth and the health of within the database as we look into 2025.

Blake Sartini

An additional micro example to that, I think it's important to point out that the Strat, given the cost challenges that we've had and are currently making great efforts to mitigate and having success with that. We're having the Strat slots, for example, continue to show sequential year over year improvement.
Even with the midweek challenges, our gaming situation, the Strat is improving, particularly in the slots, we are approaching, I think, around 55% carded play at the Strat which when we took that property over was nonexistent. That's a huge upside for us to be able to target and market to our gaming customers which we're seeing benefits from, and the direct bookings of the property continue to improve.
So, all of that, I think, is maybe a bit in the wheeze, but in particular for that property, we are seeing green shoots, and we are making progress in the gaming side of that property, even given the occupy challenges which we believe is very positive going forward.

Zachary Silverberg

Thanks for the color and just for a follow up, no tax on tips and overtime seem to have some real momentum. Can you give any color on how this would benefit your assets or maybe not just your assets but the Las Vegas in general?

Charles Protell

It would obviously be huge for Las Vegas, given the workforce. I think as it directly relates to us, that's about our matching that is about $2 million from a tax perspective around those tips, so maybe not as meaningful, but certainly for our workforce it would be meaningful, and we see those as just direct discretionary spending dollars that end up back in the pool for allocation to gaming as their entertainment.

Zachary Silverberg

Thank You.

Operator

Thank you.
Chad Beynon with Macquarie.

Chad Beynon

Hi, good afternoon, Blake and Charles, thanks for taking my question. In the last couple of calls, I know you guys have addressed some of the promotional activity, particularly in the Las Vegas, locals, market. Has that seemed to abate at this point and Charles, given your comments around the, rated play improving, are you willing to kind of let go more of some of that lower tier unrated play, maybe some that's more interested in in the promos in the market.
Thanks

Charles Protell

Yeah, I think, Chad, we've seen stability. I think it was a little bit promotional over the summer months, and now we've seen that level off and we view it as stable in the markets where we're competing here in the locals segment. I do think there is a reevaluation of how people look at reinvestment at the lower in the database that should obviously be, a constant.
I think for us it's a balance of how much you're investing in the existing players that go into the database as well as reactivation of players that we maybe haven't seen back. So a lot of our campaigns are focused on both of that. The reactivation of players and evaluation of what we have so that we're not overinvesting in this in any one segment.

Blake Sartini

Yeah, promotional activity I think remains in the category or is now in the category of rational. I think what we're seeing if there is anything that we're seeing in the market, it's rational, it's food and beverage oriented, it's reasonable. We aren't seeing at least from the major local operators, including ourselves, a leap to anything that we think could be inflationary.

Chad Beynon

Okay, thank you. And then on the back on the strategic questions that you addressed earlier in the call, is there a particular size of a portfolio or maybe a leverage target if you do proceed down the M&A route, how should we think about maybe the regions of the country that you'd be interested in and then maybe more importantly the financial implications and kind of a target. A leverage goal that would obviously come down over time. Thanks.

Charles Protell

Yeah, Chad, I think it's easier to outline what we would not be doing. We would not be looking at any greenfield developments, and I don't think we'd be looking at any single acquisition asset acquisitions that are sub $40 million to $50 million of EBITDA. I'd say outside of that we are open to all types of avenues of M&A, and so, I don't have to walk you through what those would be.
But I think that when we look at how we think about leveraging a pro forma entity, we said our target long term is 3 times or less, which is obviously where we are now. I think we'd be comfortable going higher than that, but I Want to give you a number around that right now, but we want to have a quick deleveraging path either if we're in a combination with another company or we're an actual acquirer of another company.

Blake Sartini

Chad, in the past I've mentioned on these calls and other conversations that if we do, if and when we do something and something as Charles put to, we want to move the needle, we don't want to. Go regionally into small operations that are capital deferred or disperse our management to a point that doesn't make sense, given where we sit with our capital structure, with our current organic growth opportunities.
We can continue to be pretty patient. What we're not patient with is our share price continuing to lag in these ranges. So that's motivation for us to, as I said, to be proactive, but it's going to be, I think, a transformational type of a of an activity that we would pursue. It's not going to be kind of a piecemeal approach.

Chad Beynon

Yeah, thank you both I appreciate all the extra details.

Blake Sartini

Thank you.

Operator

Max Marsh, CBRE Securities.

Max Marsh

Hey guys, thanks for taking my question. We're at 72 taverns now. I know some of those are still ramping, but do you have any idea of what the cadence of new acquisitions might look like in Las Vegas Valley and whether or not you guys have thought about expanding that business geographically outside of Las Vegas?

Charles Protell

Yeah, we definitely have thought about expanding it outside of Las Vegas. We obviously we have a few that are up in Reno right now. I think that the gaming component of those taverns, as long as there's opportunities to continue to grow in Nevada, which we think that there are, that that will be, the focus, given that aspect of it.
And within the context of acquisitions versus Greenfield, we're much more focused on greenfield developments right now. We have two sites signed up for this year and we'll look for others, but I don't think you'll see us in the acquisition mode for the near future. We're going to be much more focused on adding A plus sites or our existing portfolio in Las Vegas.

Max Marsh

Great, thanks for that. And just quickly as a follow up here, if you guys have any update of the ramping of the atomic golf facility at the Strat whether that might be helping drive midweek demand, and I believe you also have some additional excess land there if you could just update us on your thoughts or plans for that.

Blake Sartini

Yeah, so Atomic, I think Atomic continues to move forward in terms of continuing to attract additional business. I was at the property yesterday and we are seeing some bookings that that is a package between our room product and atomic. They are improving from what I understand greatly in their group business. We do see some crossover from that. We continue to believe that as they improve, we will refine our ability to drive cross traffic from that facility, which I mentioned before is a world class $80 million dollar facility. So we are continue to be bullish on that on that particular activity.
Moving business into our property as they continue to grow the excess property, things are approximately [one] acre adjacent to that, but more importantly, there's 5.5 to 6 acres directly across the street on Las Vegas Boulevard. We continue to be very active. And have in-depth conversations with a lot of different uses for that particular piece. We see that as a great opportunity for the Strat going forward with a blank canvas. We want to make the right decision, but there is a lot of optionality that we are discussing on that additional acreage.

Max Marsh

Great thank you guys.

Operator

Thank you.
David Katz, Jefferies.

David Katz

Hi, good evening. Thank you for working me in. Look, it sounds like the geography of, where your potential consideration markets may be expanding, and I want to be clear that that's, is that something outside the state of Nevada or should we still be thinking within it? And if we're going outside, to talk about sort of what kinds of markets. Would be, I guess nonstarters or inbounds or out of bounds. Anything would help. Thanks.

Charles Protell

Yeah, thanks, David. I think if we're looking out of state, it would be in the context of multiple properties and as Blake was alluding to a more transformative type of deal for us. I think we would only look really for single assets within the state. So I don't really want to go into it much more beyond that, but we won't go buy a one-off river boat in Iowa that's doing, $15 million to $20 million of EBITDA, but, things that are part of a larger portfolio, we certainly look at that, and again I think we'd be not interested in pure greenfield development projects, but certainly if there's an aspect of future growth and development with existing cash flowing operations, we would look at those opportunities.

David Katz

Understood and should we be thinking as broadly as historical racing markets or, other kinds of gaming machine facility markets that may be classified as [adjacencies] to the traditional, commercial casino markets.

Charles Protell

We would, except for the distributed gaming business. So, as part of our divestiture of that business, we do have a non-compete, to reenter into that business, so we would not look at that, but to the extent that there's A growing cash flow with any adjacencies we would look at that. Obviously, we don't have an online presence, so we would not be looking on the digital landscape. We'd be purely focused on brick-and-mortar opportunities where we could use our expertise and corporate infrastructure to help grow and improve those businesses.

David Katz

Very helpful. Thank you.

Charles Protell

Thanks David.

Operator

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