GOLDEN ENTERTAINMENT, INC. (Form: 10-Q, Received: 05/08/2020 16:33:51)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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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 March 31, 2020

☐	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 Name of Registrant as Specified in its 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.

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 May 5, 2020, the registrant had 28,050,707 shares of common stock, $0.01 par value per share, outstanding.

GOLDEN ENTERTAINMENT, INC.

FORM 10-Q

INDEX

		Page
PART I.	FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS (Unaudited)	1

	Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019	1

	Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019	2

	Consolidated Statement of Shareholders’ Equity for the three months ended March 31, 2020 and 2019	3

	Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019	4

	Condensed Notes to Consolidated Financial Statements	5

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	15

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	22

ITEM 4.	CONTROLS AND PROCEDURES	23

PART II.	OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	23

ITEM 1A.	RISK FACTORS	24

ITEM 6.	EXHIBITS	25

SIGNATURES		26

Part I. Financial Information

ITEM 1. FINANCIAL STATEMENTS

GOLDEN ENTERTAINMENT, INC.

Consolidated Balance Sheets

(In thousands, except per share data)

	March 31, 2020			December 31, 2019
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	301,768		$	111,678
Accounts receivable, net of allowance of $568 and $599, respectively		11,979			16,247
Prepaid expenses		20,620			19,879
Inventories		7,130			8,237
Other		5,038			4,388
Total current assets		346,535			160,429
Property and equipment, net		1,040,974			1,046,536
Operating lease right-of-use assets, net		196,434			203,531
Goodwill		177,864			184,325
Intangible assets, net		129,468			135,151
Other assets		10,993			10,945
Total assets	$	1,902,268		$	1,740,917
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt and finance leases	$	8,041		$	8,497
Current portion of operating leases		33,713			33,883
Accounts payable		29,938			30,146
Accrued taxes, other than income taxes		5,992			7,495
Accrued payroll and related		22,597			27,221
Accrued liabilities		32,089			25,522
Total current liabilities		132,370			132,764
Long-term debt, net and finance leases		1,329,555			1,130,374
Non-current operating leases		177,464			184,301
Deferred income taxes		1,511			1,088
Other long-term obligations		2,517			2,646
Total liabilities		1,643,417			1,451,173
Commitments and contingencies (Note 10)
Shareholders' equity
Common stock, $.01 par value; authorized 100,000 shares; 28,051 and 27,879 common shares issued and outstanding, respectively		281			279
Additional paid-in capital		463,368			461,643
Accumulated deficit		(204,798	)		(172,178	)
Total shareholders' equity		258,851			289,744
Total liabilities and shareholders' equity	$	1,902,268		$	1,740,917

The accompanying condensed notes are an integral part of these consolidated financial statements.

GOLDEN ENTERTAINMENT, INC.

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

	Three Months Ended March 31,
	2020			2019
Revenues
Gaming	$	127,215		$	143,792
Food and beverage		41,547			49,758
Rooms		25,605			31,287
Other		12,790			15,055
Total revenues		207,157			239,892
Expenses
Gaming		78,112			82,348
Food and beverage		34,887			38,214
Rooms		13,955			14,401
Other operating		5,127			6,434
Selling, general and administrative		47,610			56,947
Depreciation and amortization		31,156			27,265
Impairment of goodwill		6,461			—
Acquisition and severance expenses		2,976			1,544
Loss on disposal of assets		589			247
Preopening expenses		105			778
Total expenses		220,978			228,178
Operating (loss) income		(13,821	)		11,714
Non-operating expense
Interest expense, net		(18,746	)		(18,135	)
Change in fair value of derivative		(1	)		(2,248	)
Total non-operating expense, net		(18,747	)		(20,383	)
Loss before income tax (provision) benefit		(32,568	)		(8,669	)
Income tax (provision) benefit		(52	)		651
Net loss	$	(32,620	)	$	(8,018	)

Weighted-average common shares outstanding
Basic		27,930			27,570
Dilutive impact of stock options and restricted stock units		—			—
Diluted		27,930			27,570
Net loss per share
Basic	$	(1.17	)	$	(0.29	)
Diluted	$	(1.17	)	$	(0.29	)

The accompanying condensed notes are an integral part of these consolidated financial statements.

GOLDEN ENTERTAINMENT, INC.

Consolidated Statements of Shareholders’ Equity

(In thousands)

(Unaudited)

					Additional						Total
	Common stock				Paid-In			Accumulated			Shareholders'
	Shares		Amount		Capital			Deficit			Equity
Balances, December 31, 2019		27,879	$	279	$	461,643		$	(172,178	)	$	289,744
Proceeds from issuance of common stock, net of issuance costs		172		2		—			—			2
Share-based compensation		—		—		2,153			—			2,153
Tax benefit from share-based compensation		—		—		(428	)		—			(428	)
Net loss		—		—		—			(32,620	)		(32,620	)
Balances, March 31, 2020		28,051	$	281	$	463,368		$	(204,798	)	$	258,851

					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 of change in accounting for leases, net of tax		—		—		—			(12,272	)		(12,272	)
Proceeds from issuance of common stock, net of issuance costs		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	)
Balances, March 31, 2019		27,743	$	277	$	455,696		$	(140,651	)	$	315,322

The accompanying notes are an integral part of these consolidated financial statements.

GOLDEN ENTERTAINMENT, INC.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2020			2019
Cash flows from operating activities
Net loss	$	(32,620	)	$	(8,018	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		31,156			27,265
Impairment of goodwill		6,461			—
Share-based compensation		2,153			4,140
Amortization of debt issuance costs and discounts on debt		1,113			1,261
Loss on disposal of assets		589			247
Change in fair value of derivative		1			2,248
Deferred income taxes		423			(651	)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		4,268			(1,734	)
Income taxes receivable		(370	)		193
Prepaid expenses		(755	)		(980	)
Inventories and other current assets		827			527
Other assets		(55	)		411
Accounts payable and other accrued expenses		(492	)		277
Accrued taxes, other than income taxes		(1,503	)		1,523
Other liabilities		(39	)		54
Net cash provided by operating activities		11,157			26,763
Cash flows from investing activities
Purchase of property and equipment, net of change in construction payables		(18,541	)		(27,094	)
Acquisition of business, net of cash acquired		—			(148,952	)
Proceeds from disposal of property and equipment		353			26
Other investing activities		—			(45	)
Net cash used in investing activities		(18,188	)		(176,065	)
Cash flows from financing activities
Borrowings under revolving credit facility		200,000			145,000
Repayments of term loan		—			(2,000	)
Repayments of notes payable		(1,824	)		(855	)
Principal payments under finance leases		(629	)		(367	)
Tax withholding on share-based payments		(428	)		(288	)
Proceeds from exercise of common stock		2			—
Net cash provided by financing activities		197,121			141,490
Cash and cash equivalents
Change in cash and cash equivalents		190,090			(7,812	)
Balance, beginning of period		111,678			116,071
Balance, end of period	$	301,768		$	108,259
Supplemental cash flow disclosures
Cash paid for interest	$	2,952		$	16,579
Cash received for income taxes, net		—			(193	)
Non-cash investing and financing activities
Payables incurred for capital expenditures	$	2,292		$	4,064
Impairment of right-of-use asset		—			12,272
Common stock issued in connection with acquisition		—			16,608

The accompanying condensed notes are an integral part of these consolidated financial statements.

GOLDEN ENTERTAINMENT, INC.

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).

The Company conducts its business through two reportable operating segments: Casinos and Distributed Gaming. The Company’s Casinos segment involves the operation of ten resort casino properties in Nevada and Maryland, comprising:

The STRAT Hotel, Casino & SkyPod ("The Strat")		Las Vegas, Nevada
Arizona Charlie's Boulder		Las Vegas, Nevada
Arizona Charlie's Decatur		Las Vegas, Nevada
Aquarius Casino Resort ("Aquarius")		Laughlin, Nevada
Colorado Belle Hotel & Casino Resort ("Colorado Belle")		Laughlin, Nevada
Edgewater Hotel & Casino Resort ("Edgewater")		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 ("Rocky Gap")		Flintstone, 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.

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 12, 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 operates, to implement closures of non-essential operations to contain the spread of the 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 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 operations at third party locations were suspended. Although the Company’s Distributed Gaming operations in Montana resumed on May 4, 2020, the Company cannot predict when any of its closed properties will be able to reopen and on what conditions, nor when its Distributed Gaming operations in Nevada will be able to resume. The disruptions arising from the COVID-19 pandemic had a significant adverse impact on the Company's financial condition and results of operations during the three months ended March 31, 2020. The duration and intensity of this global health emergency and related disruptions is uncertain. Given the dynamic nature of these circumstances, the impact 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 will be modified or cease to be necessary and the resulting impact on the Company’s business and the willingness of customers to spend on travel and entertainment.

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, 2019 and the notes thereto included in the Company’s Annual Report on Form 10-K previously filed with the SEC. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, which include 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.

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.

Net Loss Per Share

For all periods, basic net loss per share is calculated by dividing net loss by the weighted-average common shares outstanding. Diluted net loss per share in profitable periods reflects the effect of all potentially dilutive common shares outstanding by dividing net loss by the weighted-average of all common and potentially dilutive shares outstanding. Due to the net losses for the three months ended March 31, 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 1,141,739 and 1,047,804 for three months ended March 31, 2020 and 2019, respectively.

Accounting Standards Issued and Adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 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 reflects losses that are probable. 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. 2018-13, 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

No 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

Laughlin Acquisition

On January 14, 2019, the Company completed the acquisition of Edgewater Gaming, LLC and Colorado Belle Gaming, LLC (the “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 “ Laughlin Acquisition”). The results of operations of the Laughlin Entities are included in the Company’s results subsequent to the acquisition date.

The Laughlin Acquisition has been accounted for using the acquisition method 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.

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 was recorded as goodwill and is expected to be deductible for tax purposes. The determination of the fair value of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) was completed in the fourth quarter of 2019.

Note 3 – Property and Equipment, Net

Property and equipment, net, consisted of the following:

(In thousands)	March 31, 2020			December 31, 2019
Land	$	125,240		$	125,240
Building and site improvements		922,258			880,662
Furniture and equipment		241,162			222,938
Construction in process		9,821			49,869
Property and equipment		1,298,481			1,278,709
Less: Accumulated depreciation		(257,507	)		(232,173	)
Property and equipment, net	$	1,040,974		$	1,046,536

Depreciation expense for property and equipment, including finance leases, was $25.5 million and $21.5 million for the three months ended March 31, 2020 and 2019, respectively.

The Company concluded that the impact of the current COVID-19 pandemic on operations and financial results is an indicator that impairment may exist related to its long-lived assets. As a result, the Company performed an impairment assessment and determined that there was no impairment on long-lived assets.

Note 4 – Goodwill and Intangible, Net

The Company concluded that the impact of the current COVID-19 pandemic on operations and financial results is an indicator that impairment may exist related to its goodwill and other intangible assets. As a result, the Company performed an impairment assessment on goodwill and intangibles. As a result of these impairment assessments, the Company determined that there was an impairment of the goodwill in its Casinos segment and recognized a non-cash impairment of goodwill of $6.5 million. There was no impairment of the remaining goodwill or other intangible assets.

The estimated fair value of goodwill 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 3.0%. The impairment charge is included in “Impairment of goodwill” on the consolidated statements of operations.

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		(6,461	)		—		(6,461	)
Balance, March 31, 2020	$	80,005		$	97,859	$	177,864

	March 31, 2020
	Weighted-	Gross
	Average Life	Carrying		Cumulative			Intangible
(In thousands)	Remaining	Value		Amortization			Assets, Net
Indefinite-lived intangible assets
Gaming licenses	Indefinite	$	53,690	$	—		$	53,690
Trade names	Indefinite		960		—			960
Other	Indefinite		185		—			185
			54,835		—			54,835
Amortizing intangible assets
Customer relationships	9.8 years		81,104		(25,608	)		55,496
Player relationships	1.7 years		42,989		(30,139	)		12,850
Non-compete agreements	2 years		9,840		(5,946	)		3,894
Gaming license	8.1 years		2,100		(963	)		1,137
In-place lease value	1.1 years		1,171		(717	)		454
Leasehold interest	1.4 years		570		(384	)		186
Other	6.1 years		1,814		(1,198	)		616
			139,588		(64,955	)		74,633
Balance, March 31, 2020		$	194,423	$	(64,955	)	$	129,468

Intangible assets, net, consisted of the following:

	December 31, 2019
	Weighted-	Gross
	Average Life	Carrying		Cumulative			Intangible
(In thousands)	Remaining	Value		Amortization			Assets, Net
Indefinite-lived intangible assets
Gaming licenses	Indefinite	$	53,690	$	—		$	53,690
Trade names	Indefinite		960		—			960
Liquor Licenses	Indefinite		185		—			185
			54,835		—			54,835
Amortizing intangible assets
Customer relationships	10.0 years		81,105		(24,140	)		56,965
Player relationships	2.0 years		42,990		(26,649	)		16,341
Non-compete agreements	2.2 years		9,840		(5,467	)		4,373
Gaming licenses	8.3 years		2,100		(929	)		1,171
In-place lease value	1.3 years		1,301		(724	)		577
Leasehold interest	1.6 years		570		(345	)		225
Other	6.3 years		1,814		(1,150	)		664
			139,720		(59,404	)		80,316
Balance, December 31, 2019		$	194,555	$	(59,404	)	$	135,151

The Rocky Gap gaming license is being amortized over its 15 year term.

Total amortization expense related to intangible assets was $5.6 million and $5.7 million for the three months ended March 31, 2020 and 2019, respectively. Estimated future amortization expense related to intangible assets, is as follows:

(In thousands)

Remainder

of 2020

2021

2022

2023

2024

Thereafter

Total

Estimated amortization expense

15,342

8,054

7,479

7,367

6,472

29,919

74,633

Note 5 – Accrued Liabilities

Accrued liabilities consisted of the following:

(In thousands)	March 31, 2020		December 31, 2019
Gaming liabilities	$	10,894	$	12,353
Interest		14,579		6,562
Deposits		2,329		2,734
Other accrued liabilities		4,287		3,873
Total accrued and other current liabilities	$	32,089	$	25,522

Note 6 – Long-Term Debt

Long-term debt, net, consisted of the following:

(In thousands)	March 31, 2020			December 31, 2019
Term loan	$	772,000		$	772,000
Revolving credit facility		200,000			—
Senior notes due 2026		375,000			375,000
Finance lease liabilities		11,510			12,463
Notes payable		4,935			6,369
Total long-term debt		1,363,445			1,165,832
Less unamortized discount		(18,068	)		(18,885	)
Less unamortized debt issuance costs		(7,781	)		(8,076	)
		1,337,596			1,138,871
Less current maturities		(8,041	)		(8,497	)
Long-term debt, net	$	1,329,555		$	1,130,374

Senior Secured Credit Facility

As of March 31, 2020, the Company’s senior secured credit facility consisted of a $1.0 billion senior secured first lien credit facility (consisting of an $800 million term loan and a $200 million 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”).

On March 16, 2020, the Company fully drew the available capacity of $200 million under its revolving credit facility as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 pandemic. In accordance with the terms of the revolving credit facility, the proceeds from these borrowings may be used for working capital, general corporate or other permitted purposes.

As of March 31, 2020, the Company had $772 million in principal amount of outstanding term loan borrowings under its Credit Facility, no letters of credit outstanding under the Credit Facility, and $200 million in principal amount of borrowings outstanding under its revolving credit facility.

As of March 31, 2020, the weighted-average effective interest rate on the Company’s outstanding borrowings under the Credit Facility was approximately 3.9%.

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.

The Company was in compliance with its financial covenants under the Credit Facility as of March 31, 2020.

Senior Notes due 2026

On April 15, 2019, the Company issued $375 million in principal amount of 7.625% Senior Notes due 2026 (“2026 Notes”) in a private placement to institutional buyers at face value. The 2026 Notes bear interest at 7.625%, payable semi-annually on April 15^th and October 15^th of each year.

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 $25.0 million additional shares of common stock. 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 that the Company is required to repurchase and the repurchase program may be suspended or discontinued at any time without prior notice. As of March 31, 2020, the Company had not repurchased any shares under the March 12, 2019 authorization.

Stock Options

The following table summarizes the Company’s stock option activity:

	Stock Options
				Weighted-
				Average
	Shares			Exercise Price
Outstanding at January 1, 2020		3,126,521		$	11.61
Granted		—		$	—
Exercised		(40,000	)	$	2.07
Cancelled		(5,312	)	$	12.88
Expired		(146,972	)	$	26.70
Outstanding at March 31, 2020		2,934,237		$	10.99
Exercisable at March 31, 2020		2,653,323		$	10.76

Share-based compensation expense, net related to stock options was $0.6 million and $2.5 million for the three months ended March 31, 2020 and 2019, respectively. The Company’s unrecognized share-based compensation expense related to stock options was approximately $1.5 million as of March 31, 2020, which is expected to be recognized over a weighted-average period of 0.8 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
				Weighted-					Weighted-
				Average Grant					Average Grant
	Shares			Date Fair Value		Shares⁽¹⁾			Date Fair Value
Outstanding at January 1, 2020		661,258		$	16.44		376,328		$	20.65
Granted		387,274		$	8.86		387,274		$	8.86
Vested		(178,801	)	$	18.72		(5,254	)	$	28.72
Cancelled		(7,561	)	$	19.41		(32,235	)	$	—
Outstanding at March 31, 2020		862,170		$	12.53		726,113		$	13.94

(1)

The number of shares for 62,791 of the PSUs listed as outstanding at January 1, 2020 represents the actual number of PSUs granted to each recipient eligible to vest if the Company meets its performance goals for the applicable period. The number of shares for the remainder of the PSUs listed as outstanding at January 1, 2020 and for all of the PSUs granted in 2020 represents the “target” number of PSUs granted to each recipient eligible to vest if the Company meets its “target” performance goals for the applicable period. The actual number of PSUs eligible to vest for those PSUs will vary depending on whether or not the Company meets or exceeds the applicable threshold, target or maximum performance goals for the PSUs, with 200% of the “target” number of PSUs eligible to vest at “maximum” performance levels.

Additionally, 108,957 of the PSUs listed as outstanding 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 million and $1.1 million for the three months ended March 31, 2020 and 2019, respectively. Share-based compensation expense related to PSUs was $0.5 million and $0.4 million for the three months ended March 31, 2020 and 2019, respectively.

As of March 31, 2020, there was $8.6 million and $5.8 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 2.6 years and 2.4 years for RSUs and PSUs, respectively.

As of March 31, 2020, a total of 1,731,800 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, 2020 of 1,066,403 shares.

Note 8 – Income Tax

The Company’s effective tax rate was (0.2)% and 7.9% for the three months ended March 31, 2020 and 2019, respectively.

Income tax expense of $0.1 million for the three months ended March 31, 2020 was primarily due to the change in valuation allowance against the Company’s deferred tax assets during the first three months of 2020. Income tax benefit of $0.7 million for the three months ended March 31, 2019 was primarily due to the change in valuation allowance against the Company’s deferred tax assets during the first three 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 March 31, 2020, the Company’s 2017 and 2018 federal tax returns were under audit by the IRS.

Note 9 – 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 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.

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'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 about the Company’s long-term debt:

	March 31, 2020
	Carrying		Fair		Fair Value
(In thousands)	Amount		Value		Hierarchy
Term loan	$	772,000	$	590,580	Level 2
Revolving credit facility		200,000		153,000	Level 2
Senior notes due 2026		375,000		247,500	Level 2
Finance lease liabilities		11,510		11,510	Level 3
Notes payable		4,935		4,935	Level 3
Total debt	$	1,363,445	$	1,007,525

	December 31, 2019
	Carrying		Fair		Fair Value
(In thousands)	Amount		Value		Hierarchy
Term loan	$	772,000	$	776,806	Level 2
Senior notes due 2026		375,000		401,250	Level 2
Finance lease liabilities		12,463		12,463	Level 3
Notes payable		6,369		6,369	Level 3
Total debt	$	1,165,832	$	1,196,888

The estimated fair value of the Company’s term loan, revolving credit facility and 2026 Notes is based on a relative value analysis performed as of March 31, 2020 and December 31, 2019. The finance lease liabilities and notes 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 March 31, 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 immaterial as of March 31, 2020 and December 31, 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 10 – Commitments and Contingencies

Participation and Revenue Share Agreements

The Company 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. During the three months ended March 31, 2020 and 2019, the aggregate contingent payments recognized by the Company as gaming expenses under revenue share and participation agreements were $36.0 million and $38.6 million, respectively, in each case including $0.2 million under revenue share and participation agreements with related parties, as described in Note 11, Related Party Transactions.

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 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.

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 filed an appeal to the Supreme Court of Nevada on April 10, 2019. The Company, and other defendants, filed an appellate response brief on October 19, 2019.

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. 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. This request to mediate has been extended through May 2020 and no mediation date has been set. The EEOC is requesting financial recovery as well as requesting the Company update policies and procedures and the Company is preparing for future mediation.

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 two 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, acquisition and severance expenses, preopening and related expenses, asset disposals and other writedowns, share-based compensation expenses, and change in fair value of derivative, 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 March 31, 2020
(In thousands)	Casinos			Distributed Gaming			Corporate and Other			Consolidated
Revenues
Gaming	$	61,905		$	65,310		$	—		$	127,215
Food and beverage		29,805			11,742			—			41,547
Rooms		25,605			—			—			25,605
Other		10,655			1,932			203			12,790
Total revenues	$	127,970		$	78,984		$	203		$	207,157

Net income (loss)	$	(2,938	)	$	604		$	(30,286	)	$	(32,620	)
Depreciation and amortization		24,713			5,865			578			31,156
Impairment of goodwill		6,461			—			—			6,461
Acquisition and severance expenses		2,417			478			81			2,976
Preopening and related expenses⁽¹⁾		225			—			105			330
Asset disposals and other writedowns		627			(38	)		—			589
Share-based compensation		—			—			2,246			2,246
Other, net		47			197			113			357
Interest expense, net		245			15			18,486			18,746
Change in fair value of derivative		—			—			1			1
Income tax provision		—			—			52			52
Adjusted EBITDA	$	31,797		$	7,121		$	(8,624	)	$	30,294

	Three Months Ended March 31, 2019
(In thousands)	Casinos		Distributed Gaming			Corporate and Other			Consolidated
Revenues
Gaming	$	70,885	$	72,907		$	—		$	143,792
Food and beverage		36,442		13,316			—			49,758
Rooms		31,287		—			—			31,287
Other		12,760		2,134			161			15,055
Total revenues	$	151,374	$	88,357		$	161		$	239,892

Net income (loss)	$	22,689	$	7,606		$	(38,313	)	$	(8,018	)
Depreciation and amortization		21,643		5,329			293			27,265
Acquisition and severance expenses		286		26			1,232			1,544
Preopening and related expenses⁽¹⁾		1,654		566			12			2,232
Asset disposals and other writedowns		256		(9	)		390			637
Share-based compensation		11		5			4,168			4,184
Other, net		11		—			853			864
Interest expense, net		52		16			18,067			18,135
Change in fair value of derivative		—		—			2,248			2,248
Income tax benefit		—		—			(651	)		(651	)
Adjusted EBITDA	$	46,602	$	13,539		$	(11,701	)	$	48,440

(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.

Assets

The Company’s assets by segment consisted of the following amounts:

(In thousands)	Casinos		Distributed Gaming		Corporate and Other		Consolidated
Balance at March 31, 2020	$	1,175,915	$	439,281	$	287,072	$	1,902,268

Balance at December 31, 2019	$	1,204,574	$	482,294	$	54,049	$	1,740,917

Note 12 – Related Party Transactions

As of March 31, 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 March 31, 2020 and 2019. No amount was owed to the Company, and no amount was due and payable by the Company, under this lease as of March 31, 2020 and December 31, 2019. Additionally, a portion of the office headquarters building was sublet to a company owned or controlled by Mr. Sartini. Rental income during each of the three months ended March 31, 2020 and 2019 for the sublet portion of the office headquarters building was less than $0.1 million. No amount was owed to the Company under such sublease as of March 31, 2020 and December 31, 2019. Mr. Sartini serves as the Chairman of the Board 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 2020 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. The rent expense for the tavern location leased from a related party (for the period in which the lease was with a related party) was $0.1 million for the three months ended March 31, 2019. No tavern locations were leased from related parties during the three months ended March 31, 2020.

During the three months ended March 31, 2020 and 2019, the Company paid $0.1 million and $0.2 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. The Company owed less than $0.1 million under the aircraft time-sharing, co-user and cost-sharing agreements as of March 31, 2020 and no amount was owed to the Company as of December 31, 2019.

During the three months ended March 31, 2020 and 2019, the Company recorded revenues of $0.3 million and $0.2 million, respectively, and the Company recorded gaming expenses of $0.2 million in each period, 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 Government Affairs. De minimis amounts were owed to the Company and were due and payable by the Company related to this arrangement as of March 31, 2020 and December 31, 2019.

Note 13 – Subsequent Events

The Company’s management evaluates subsequent events through the date of issuance of the consolidated financial statements. There have been no subsequent events that occurred during such period that would require adjustment to or disclosure in the consolidated financial statements as of and for the three months ended March 31, 2020. Subsequent to March 31, 2020, the global economy has continued to be severely impacted by the COVID-19 pandemic. While the Company is not able to estimate the impact of COVID-19 at this time, the pandemic could materially affect the Company’s financial and operating results.

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,” “our” and “us” refer to Golden Entertainment, Inc. and 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, 2019 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, or they may use future dates. In addition, forward-looking statements include statements regarding the impact of the 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 Financial Officer, and Chief Operating 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; , 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.

Casinos

We own and operate ten resort casino properties in Nevada and Maryland. The following table sets forth certain information regarding our properties as of March 31, 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		748		44		2,429		1		—
Arizona Charlie's Boulder	Las Vegas, NV		824		—		303		1	approx. 400
Arizona Charlie's Decatur	Las Vegas, NV		1,013		10		259		1	approx. 400
Aquarius Casino Resort ("Aquarius")	Laughlin, NV		1,166		33		1,906		1		—
Colorado Belle Hotel & Casino Resort ("Colorado Belle")	Laughlin, NV		663		16		1,102		1		—
Edgewater Hotel & Casino Resort ("Edgewater")	Laughlin, NV		703		20		1,052		1		—
Gold Town Casino	Pahrump, NV		226		—		—		—		—
Lakeside Casino & RV Park	Pahrump, NV		168		—		—		—	approx. 100
Pahrump Nugget Hotel Casino ("Pahrump Nugget")	Pahrump, NV		402		9		69		1	approx. 200
Maryland Casino
Rocky Gap Casino Resort ("Rocky Gap")	Flintstone, MD		665		16		198		—		—
Totals			6,578		148		7,318		7

•

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. As of March 31, 2020, in addition to hotel rooms and gaming in an 80,000 square foot casino, The Strat offered nine restaurants, two rooftop pools, a fitness center, retail shops and entertainment facilities.

•

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 March 31, 2020, in addition to hotel rooms, gaming and bingo facilities, Arizona Charlie’s Boulder casino offered four restaurants and an RV park with approximately 220 RV hook-up sites and Arizona Charlie’s Decatur casino offered five restaurants.

•

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. As of March 31, 2020, in addition to hotel rooms and gaming, the Aquarius had eight restaurants, the Colorado Belle offered three restaurants, and the Edgewater offered six restaurants and dedicated entertainment venues, including the Laughlin Event Center.

•

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. As of March 31, 2020, in addition to hotel rooms, gaming and bingo facilities at our Pahrump casino properties, Pahrump Nugget offered a bowling center and our Lakeside Casino & RV Park offered 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). As of March 31, 2020, in addition to hotel rooms and gaming, Rocky Gap offered 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.

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 March 31, 2020, our distributed gaming operations comprised approximately 11,000 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 March 31, 2020, we owned and operated 66 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, Sierra Junction and SG Bar.

COVID-19 Pandemic

The disruptions arising from the COVID-19 pandemic had a significant adverse impact on our financial condition and results of operations during the three months ended March 31, 2020. The duration of the global health emergency and the related disruptions is uncertain. In connection with the reopening of our casino properties, we anticipate that social distancing requirements will include reduced seating at table games and a decreased number of active slot machines on the casino floor. Additionally, there is uncertainty around the impact that the COVID-19 pandemic will have on our operations in the months that follow reopening. Given the dynamic nature of these circumstances, the impact on our results of operations, cash flows and financial condition in 2020 is expected to 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 our properties will be permitted to re-open and current travel restrictions will be modified or cease to be necessary, and the willingness of customers to spend on travel and entertainment. We will continue to monitor the developments of COVID-19 and intend to actively manage our business to respond to the potential impacts.

Results of Operations

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 months ended March 31, 2020 and 2019.

	Three Months Ended March 31,
(In thousands)	2020			2019
Revenues by segment
Casinos	$	127,970		$	151,374
Distributed Gaming		78,984			88,357
Corporate and other		203			161
Total revenues		207,157			239,892
Operating expenses by segment
Casinos		66,850			73,543
Distributed Gaming		64,909			67,657
Corporate and other		322			197
Total operating expenses		132,081			141,397
Selling, general and administrative		47,610			56,947
Depreciation and amortization		31,156			27,265
Impairment of goodwill		6,461			—
Acquisition and severance expenses		2,976			1,544
Loss on disposal of assets		589			247
Preopening expenses		105			778
Total expenses		220,978			228,178

Operating (loss) income		(13,821	)		11,714
Non-operating expense, net		(18,747	)		(20,383	)
Income tax (provision) benefit		(52	)		651
Net loss	$	(32,620	)	$	(8,018	)

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

Revenues

The $32.7 million, or 14%, decrease in revenues for the three months ended March 31, 2020 compared to the prior year period resulted from decreases of $16.6 million, $8.2 million, $5.7 million and $2.2 million in gaming, food and beverage, room and other revenues, respectively, due primarily to the impact of the temporary closures of all of our properties and suspension of our Distributed Gaming operations as a result of the COVID-19 pandemic.

The $23.4 million, or 15%, decrease in revenues related to our Casinos segment for the three months ended March 31, 2020 compared to the prior year period resulted primarily from decreases of $9.0 million, $6.6 million, $5.7 million, and $2.1 million in gaming, food and beverage, room and other revenues, respectively, due primarily to the temporary closures of our casino properties as a result of the COVID-19 pandemic.

The $9.4 million, or 11%, decrease in revenues related to our Distributed Gaming segment for the three months ended March 31, 2020 compared to the prior year period resulted primarily from decreases of $7.6 million, $1.6 million, and $0.2 million in gaming, food and beverage and other revenues, respectively, due primarily to the temporary suspension of our Distributed Gaming operations as a result of the COVID-19 pandemic.

During the three months ended March 31, 2020, Adjusted EBITDA in our Casinos segment as a percentage of segment revenues (or Adjusted EBITDA margin) was 25%, compared to Adjusted EBITDA margin in our Distributed Gaming segment of 9%. During the three months ended March 31, 2019, Adjusted EBITDA margin in our Casinos segment was 31%, compared to Adjusted EBITDA margin in our Distributed Gaming segment of 15%. 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 Note 11, Segment Information, in the accompanying unaudited consolidated financial statements for additional information regarding segment Adjusted EBITDA and a reconciliation of segment Adjusted EBITDA to segment net income (loss).

Operating Expenses

The $9.3 million, or 7%, decrease in operating expenses for the three months ended March 31, 2020 compared to the prior year resulted primarily from $4.2 million, $3.3 million, $0.5 million and $1.3 million decreases in gaming, food and beverage, room and other expenses, respectively. These operating expense decreases primarily reflect the temporary closures of our casino properties, branded taverns and distributed gaming routes as a result of the COVID-19 pandemic.

Selling, General and Administrative Expenses

The $8.2 million, or 15%, decrease in selling, general and administrative (“SG&A”) expenses for the three months ended March 31, 2020 compared to the prior year period was primarily due to the temporary closures of our casino properties, branded taverns and distributed gaming routes as a result of the COVID-19 pandemic, which resulted in a decrease in payroll expense. SG&A expenses were comprised of marketing and advertising, utilities, building rent, maintenance contracts, corporate office overhead, information technology, legal, accounting, third party service providers, executive compensation, share based compensation and payroll expenses and payroll taxes.

Acquisition Expenses

Acquisition expenses during the three months ended March 31, 2020 and 2019 related primarily to additional consulting services related to our acquisition of Edgewater Gaming, LLC and Colorado Belle Gaming, LLC from Marnell Gaming, LLC, which closed on January 14, 2019 (the “Laughlin Acquisition”).

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.

During the three months ended March 31, 2020 and 2019, preopening expenses related primarily to corporate costs incurred.

Depreciation and Amortization

Depreciation and amortization expenses increased $3.9 million, or 14%, compared to the prior year, primarily due to the depreciation of the assets -related to the remodel of The Strat and the amortization of the intangibles related to the Laughlin Acquisition.

Non-Operating Expense, Net

Non-operating expense, net decreased $1.6 million for the three months ended March 31, 2020 compared to the prior year period, primarily due to a $2.2 decrease in loss on change in fair value of derivative compared to prior year and offset by a $0.6 million increase in interest expense from the substantially higher level of indebtedness under our senior secured credit facilities following the Laughlin Acquisition in 2019.

Income Taxes

Our effective tax rate was (0.2)% and 7.9% for the three months ended March 31, 2020 and 2019, respectively. For each three month period the effective tax rate differed from the federal tax rate of 21% due primarily to the change in valuation allowance against our deferred tax assets.

Non-GAAP Measures

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) 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, asset disposals and other writedowns, share-based compensation expenses, and change in fair value of derivative.

The following table presents a reconciliation of Adjusted EBITDA to net income (loss):

	Three Months Ended March 31,
(In thousands)	2020			2019
Net loss	$	(32,620	)	$	(8,018	)
Depreciation and amortization		31,156			27,265
Impairment of goodwill		6,461			—
Acquisition and severance expenses		2,976			1,544
Preopening and related expenses⁽¹⁾		330			2,232
Asset disposals and other writedowns		589			637
Share-based compensation		2,246			4,184
Other, net		357			864
Interest expense, net		18,746			18,135
Change in fair value of derivative		1			2,248
Income tax (benefit) provision		52			(651	)
Adjusted EBITDA	$	30,294		$	48,440

(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 True Rewards loyalty program.

Liquidity and Capital Resources

As of March 31, 2020, we had $301.8 million in cash and cash equivalents. We currently believe that our cash and cash equivalents, and cash flows from operations will be sufficient to meet our capital requirements during the next 12 months.

In order to preserve our liquidity and position ourselves to withstand the ongoing interruption to our operations from the COVID-19 pandemic, we reduced our cash operating expenses, deferred all capital expenditures and, on March 16, 2020, we drew the available capacity of $200 million under our revolving credit facility as a precautionary measure. In accordance with the terms of the revolving credit facility, the proceeds from these borrowings may be used for working capital, general corporate or other permitted purposes.

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.

Cash Flows

Net cash provided by operating activities was $11.2 million for the three months ended March 31, 2020, compared to $26.8 million for the prior year. The decrease was primarily due to the impact of the COVID-19 pandemic on our operations (as described above) and the timing of working capital spending.

Net cash used in investing activities was $18.2 million for the three months ended March 31, 2020, compared to $176.1 million for the prior year period. The decrease in net cash used in investing activities was primarily due to the closing of the Laughlin Acquisition in January 2019 and the additional capital expenditures in the prior year period.

Net cash provided by financing activities was $197.1 million for the three months ended March 31, 2020, due primarily 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.

Net cash provided by financing activities was $141.5 million for the three months ended March 31, 2019, due primarily to borrowings under the revolving credit facility related to the closing of the Laughlin Acquisition.

Senior Secured Credit Facility

As of March 31, 2020, our senior secured credit facility consisted of a $1.0 billion senior secured first lien credit facility (consisting of an $800 million term loan and a $200 million 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”).

On March 16, 2020, we fully drew the available capacity 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. In accordance with the terms of the revolving credit facility, the proceeds from these borrowings may be used for working capital, general corporate or other permitted purposes.

As of March 31, 2020, we had $772 million in principal amount of outstanding term loan borrowings under our Credit Facility, no letters of credit outstanding under the Credit Facility, and $200 million in principal amount of borrowings outstanding under our revolving credit facility.

Borrowings under the Credit Facility bear interest, at our option, at either (1) a base rate equal to the greatest 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, based 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 March 31, 2020, the weighted-average effective interest rate on our outstanding borrowings under the Credit Facility was approximately 3.9%.

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 substantially 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 our 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 March 31, 2020.

Senior Notes due 2026

On April 15, 2019, we issued $375 million in principal amount of 7.625% Senior Notes due 2026 (the “2026 Notes”) in a private placement to institutional buyers at face value. The 2026 Notes bear interest at 7.625%, payable semi-annually on April 15^th and October 15^th of each year.

In conjunction with the issuance of the 2026 Notes, we 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 the effective interest method.

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, we 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 of 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.

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 of 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, 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.

Other Items Affecting Liquidity

The outcome of the following specific matters, including our commitments and contingencies, 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 9, Commitments and Contingencies, in the accompanying unaudited consolidated financial statements for additional information regarding commitments and contingencies that may also affect our liquidity.

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. 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 months ended March 31, 2020, no shares of our common stock were repurchased under our share repurchase programs.

Other Opportunities

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. 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, 2019, previously filed with the SEC. For a more extensive discussion of our accounting policies, see Note 2, Summary of Significant Accounting Policies, in the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2019. There were no material changes to our critical accounting policies and estimates during the three months ended March 31, 2020.

Commitments and Contractual Obligations

Other than the borrowing in March 2020 of $200 million under our revolving credit facility, which matures on October 20, 2022, no significant changes occurred in the first quarter of 2020 to the contractual commitments discussed under Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Other Items Affecting Liquidity – Contractual Obligations, in our Annual Report on Form 10-K for the year ended December 31, 2019.

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 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 1, Nature of Business and Basis of Presentation, in the accompanying unaudited consolidated 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 March 31, 2020, our variable rate long-term debt primarily comprised our indebtedness under the Credit Facility.

As of March 31, 2020, we had $772 million in principal amount of outstanding borrowings under the Credit Facility and $200 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 March 31, 2020, the weighted-average effective interest rate on our outstanding borrowings under the Credit Facility was approximately 3.9%. 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 $4.9 million over a twelve-month period.

As of March 31, 2020, our investment portfolio included $301.8 million in cash and cash equivalents. As of March 31, 2020, 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 March 31, 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 March 31, 2020.

During the quarter ended March 31, 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.

Part II. Other Information

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are 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 we record reserves. 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 could in the future materially and adversely affect our business, financial condition, results of operations or liquidity in a particular period.

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 filed an appeal to the Supreme Court of Nevada on April 10, 2019. Golden, and other defendants, filed an appellate response brief on October 19, 2019.

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 we engaged in disability discrimination under the Americans with Disabilities Act of 1990, as amended. In late 2019 the EEOC issued a Letter of Determination and invited us to participate in a mediation on behalf of the plaintiff and similarly situated parties to work toward a resolution of this matter. This request to mediate has been extended through May 2020 and no mediation date has been set. The EEOC is requesting financial recovery as well as requesting we update policies and procedures and we are preparing for future mediation.

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.

ITEM 1A. RISK FACTORS

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 on Form 10-K for the year ended December 31, 2019, which factors could materially affect our business, financial condition, liquidity or future results. Except as set forth below, 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, 2019. 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.

The COVID-19 pandemic has resulted in closures of our casino properties and branded taverns and disrupted our operations, resulting in lower revenues and cash flows. This adverse impact is anticipated to continue until the global COVID-19 pandemic is contained.

The impact of the COVID-19 pandemic and measures to prevent its spread are expected to continue to impact our results, operations, cash flows and liquidity. We expect the impact of these disruptions, including the extent of their adverse impact on our financial and operational results, will be dictated by the length of time that such disruptions continue. Although our Distributed Gaming operations in Montana resumed on May 4, 2020, we cannot predict when any of our closed properties will be able to reopen and on what conditions, nor when our Distributed Gaming operations in Nevada will be able to resume, nor the effects of any conditions that may be imposed upon our business upon reopening. Even once travel advisories and restrictions are modified or cease to be necessary, demand for gaming and hotels may remain weak for a significant length of time and we cannot predict if and when the gaming and non-gaming activities of our properties will return to pre-outbreak levels of volume or pricing. In particular, future demand may be negatively impacted by the adverse changes in the perceived or actual economic climate, including higher unemployment rates, declines in income levels and loss of personal wealth or reduced business spending for meetings, incentives, conventions and exhibitions resulting from the impact of the COVID-19 pandemic.

Our businesses would also be impacted should the disruptions from the COVID-19 pandemic lead to prolonged changes in consumer behavior. The COVID-19 pandemic also makes it more challenging for management to estimate the future performance of our businesses, particularly over the near to medium term. If the global response to contain the COVID-19 is unsuccessful, this would have a material adverse effect on our business, financial condition, results of operations and cash flows.

If we are required to raise additional capital in the future, our access to and cost of financing will depend on, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, our prospects and our credit ratings. If our credit ratings were to be downgraded, or general market conditions were to ascribe higher risk to our rating levels, our industry, or us, our access to capital and the cost of any debt financing would be further negatively impacted. In addition, the terms of future debt agreements could include more restrictive covenants, or require incremental collateral, which may further restrict our business operations or be unavailable due to our covenant restrictions then in effect. There is no guarantee that debt financings will be available in the future to fund our obligations, or that they will be available on terms consistent with our expectations. While we currently anticipate we will continue to be in compliance with the covenants under our Credit Facility, we cannot assure you that the impact of the COVID-19 pandemic will not cause a future failure to comply with our financial covenants, nor can we assure you that we would be able to obtain waivers from our lenders.

The COVID-19 pandemic has had and will continue to have an adverse effect on our results of operations. Given the uncertainty around the extent and timing of the potential future spread or mitigation of the COVID-19 pandemic and around the imposition or relaxation of protective measures, we cannot reasonably estimate the impact to our future results of operations, cash flows or financial condition.

ITEM 6. EXHIBITS

Exhibits		Description

3.1		Sixth Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to Golden Entertainment, Inc.’s Current Report on Form 8-K dated March 25, 2020, filed on March 25, 2020)

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		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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)

SIGNATURES

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: May 8, 2020	/s/ BLAKE L. SARTINI
	Blake L. Sartini
	Chairman of the Board and Chief Executive Officer
	(Principal Executive Officer)

	/s/ CHARLES H. PROTELL
	Charles H. Protell
	President and Chief Financial Officer
	(Principal Financial Officer)

	/s/ THOMAS E. HAAS
	Thomas E. Haas
	Senior Vice President of Accounting
	(Principal Accounting Officer)

Exhibit 31.1

CERTIFICATION OF

CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF

2002

I, Blake L. Sartini, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Golden Entertainment, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant, and have:

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

May 8, 2020		/s/ BLAKE L. SARTINI
		Blake L. Sartini
		Chairman of the Board and Chief Executive Officer

Exhibit 31.2

CERTIFICATION OF

CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF

2002

I, Charles H. Protell, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Golden Entertainment, Inc.;

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

May 8, 2020		/s/ CHARLES H. PROTELL
		Charles H. Protell
		President and Chief Financial Officer

Exhibit 32.1

CERTIFICATIONS OF

CHIEF EXECUTIVE OFFICER AND

CHIEF FINANCIAL OFFICER PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY

ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Golden Entertainment, Inc. (the “Company”) hereby certifies, to such officer’s knowledge, that:

The Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2020 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 8, 2020		/s/ BLAKE L. SARTINI
		Blake L. Sartini
		Chairman of the Board and Chief Executive Officer

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 8, 2020		/s/ CHARLES H. PROTELL
		Charles H. Protell
		President and Chief Financial Officer

The foregoing certifications are being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. The foregoing certifications are not to be incorporated by reference into any filing of Golden Entertainment, Inc., whether made before or after the date hereof, regardless of any general incorporation language in such filing.