10-Q 1 gden-10q_20190331.htm 10-Q

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, 2019

OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 000-24993

GOLDEN ENTERTAINMENT, INC.

(Exact 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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer |  | ☐ |  | Accelerated filer |  | ☒
Non-accelerated filer |  | ☐ |  | Smaller reporting company |  | ☐
Emerging growth company |  | ☐ |  |  |  |

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 ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐

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

As of May 7, 2019, the registrant had 27,750,608 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, 2019 and December 31, 2018 | 1
| Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018 | 2
| Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 | 4
| Condensed Notes to Consolidated Financial Statements | 5
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 18
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 26
ITEM 4. | CONTROLS AND PROCEDURES | 27
PART II. | OTHER INFORMATION |
ITEM 1. | LEGAL PROCEEDINGS | 27
ITEM 1A. | RISK FACTORS | 28
ITEM 6. | EXHIBITS | 29
SIGNATURES | 30

Part I. Financi al Information

ITEM 1. FINANCIAL STATEMENTS

GOLDEN ENTERTAINMENT, INC.

Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

|  | March 31, 2019 |  |  | December 31, 2018 |
ASSETS |  |  |  |  |  |  |  |
Current assets |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 108,259 |  |  | $ | 116,071 |
Accounts receivable, net of allowance of $624 and $503 |  |  | 16,129 |  |  |  | 12,779 |
Prepaid expenses |  |  | 21,358 |  |  |  | 17,722 |
Inventories |  |  | 7,080 |  |  |  | 6,759 |
Other |  |  | 3,327 |  |  |  | 3,428 |
Total current assets |  |  | 156,153 |  |  |  | 156,759 |
Property and equipment, net |  |  | 1,023,182 |  |  |  | 894,953 |
Operating lease right-of-use assets, net |  |  | 163,044 |  |  |  | — |
Goodwill |  |  | 182,870 |  |  |  | 158,134 |
Intangible assets, net |  |  | 151,998 |  |  |  | 141,128 |
Other assets |  |  | 12,936 |  |  |  | 15,595 |
Total assets |  | $ | 1,690,183 |  |  | $ | 1,366,569 |
LIABILITIES AND SHAREHOLDERS' EQUITY |  |  |  |  |  |  |  |
Current liabilities |  |  |  |  |  |  |  |
Current portion of long-term debt and finance leases |  | $ | 9,907 |  |  | $ | 10,480 |
Current portion of operating leases |  |  | 36,050 |  |  |  | — |
Accounts payable |  |  | 24,189 |  |  |  | 27,812 |
Accrued taxes, other than income taxes |  |  | 8,835 |  |  |  | 6,540 |
Accrued payroll and related |  |  | 22,589 |  |  |  | 19,780 |
Accrued liabilities |  |  | 22,462 |  |  |  | 18,848 |
Total current liabilities |  |  | 124,032 |  |  |  | 83,460 |
Long-term debt, net and finance leases |  |  | 1,104,961 |  |  |  | 960,563 |
Non-current operating leases |  |  | 142,444 |  |  |  | — |
Deferred income taxes |  |  | 1,942 |  |  |  | 2,593 |
Other long-term obligations |  |  | 1,482 |  |  |  | 4,801 |
Total liabilities |  |  | 1,374,861 |  |  |  | 1,051,417 |
Commitments and contingencies (Note 10) |  |  |  |  |  |  |  |
Shareholders' equity |  |  |  |  |  |  |  |
Common stock, $.01 par value; authorized 100,000 shares; 27,743 and 26,779 common shares issued and outstanding, respectively |  |  | 277 |  |  |  | 268 |
Additional paid-in capital |  |  | 455,696 |  |  |  | 435,245 |
Accumulated deficit |  |  | (140,651 | ) |  |  | (120,361 | )
Total shareholders' equity |  |  | 315,322 |  |  |  | 315,152 |
Total liabilities and shareholders' equity |  | $ | 1,690,183 |  |  | $ | 1,366,569 |

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

1

GOLDEN ENTERTAINMENT, INC.

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

|  | Three Months Ended March 31, |
|  | 2019 |  |  | 2018 |
Revenues |  |  |  |  |  |  |  |
Gaming |  | $ | 143,792 |  |  | $ | 133,863 |
Food and beverage |  |  | 49,758 |  |  |  | 42,603 |
Rooms |  |  | 31,287 |  |  |  | 26,127 |
Other |  |  | 15,055 |  |  |  | 12,196 |
Total revenues |  |  | 239,892 |  |  |  | 214,789 |
Expenses |  |  |  |  |  |  |  |
Gaming |  |  | 82,348 |  |  |  | 77,688 |
Food and beverage |  |  | 38,214 |  |  |  | 33,592 |
Rooms |  |  | 14,401 |  |  |  | 11,565 |
Other operating |  |  | 6,434 |  |  |  | 3,996 |
Selling, general and administrative |  |  | 56,947 |  |  |  | 44,206 |
Depreciation and amortization |  |  | 27,265 |  |  |  | 25,237 |
Acquisition and severance expenses |  |  | 1,544 |  |  |  | 1,299 |
Preopening expenses |  |  | 778 |  |  |  | 448 |
Loss on disposal of assets |  |  | 247 |  |  |  | 77 |
Total expenses |  |  | 228,178 |  |  |  | 198,108 |
Operating income |  |  | 11,714 |  |  |  | 16,681 |
Non-operating income (expense) |  |  |  |  |  |  |  |
Interest expense, net |  |  | (18,135 | ) |  |  | (14,743 | )
Change in fair value of derivative |  |  | (2,248 | ) |  |  | 3,211 |
Total non-operating expense, net |  |  | (20,383 | ) |  |  | (11,532 | )
Income (loss) before income tax benefit |  |  | (8,669 | ) |  |  | 5,149 |
Income tax benefit (provision) |  |  | 651 |  |  |  | (1,219 | )
Net income (loss) |  | $ | (8,018 | ) |  | $ | 3,930 |
Weighted-average common shares outstanding |  |  |  |  |  |  |  |
Basic |  |  | 27,570 |  |  |  | 27,149 |
Dilutive impact of stock options and restricted stock units |  |  | — |  |  |  | 2,379 |
Diluted |  |  | 27,570 |  |  |  | 29,528 |
Net income (loss) per share |  |  |  |  |  |  |  |
Basic |  | $ | (0.29 | ) |  | $ | 0.14 |
Diluted |  | $ | (0.29 | ) |  | $ | 0.13 |

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

2

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, 2018 |  | 26,779 |  |  | $ | 268 |  |  | $ | 435,245 |  |  | $ | (120,361 | ) |  | $ | 315,152 |
Cumulative effect, change in accounting for leases, net of tax |  | — |  |  |  | — |  |  |  | — |  |  |  | (12,272 | ) |  |  | (12,272 | )
Issuance of common stock related to business combination |  | 911 |  |  |  | 9 |  |  |  | 16,599 |  |  |  | — |  |  |  | 16,608 |
Proceeds from issuance of stock on options exercised |  | 53 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Share-based compensation |  | — |  |  |  | — |  |  |  | 4,140 |  |  |  | — |  |  |  | 4,140 |
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 |

|  |  |  | Additional |  |  |  |  |  |  | Total |
| Common stock |  |  | Paid-In |  |  | Accumulated |  |  | Shareholders' |
| Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | Equity |
Balances, December 31, 2017 |  | 26,413 |  |  | $ | 264 |  |  | $ | 399,510 |  |  | $ | (79,861 | ) |  | $ | 319,913 |
Share-based compensation |  | — |  |  |  | — |  |  |  | 1,844 |  |  |  | — |  |  |  | 1,844 |
Issuance of common stock, net of offering costs |  | 975 |  |  |  | 10 |  |  |  | 25,598 |  |  |  | — |  |  |  | 25,608 |
Net income |  | — |  |  |  | — |  |  |  | — |  |  |  | 3,930 |  |  |  | 3,930 |
Balances, March 31, 2018 |  | 27,388 |  |  |  | 274 |  |  |  | 426,952 |  |  |  | (75,931 | ) |  |  | 351,295 |

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

3

GOLDEN ENTERTAINMENT, INC.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

|  | Three Months Ended March 31, |
|  | 2019 |  |  | 2018 |
Cash flows from operating activities |  |  |  |  |  |  |  |
Net income |  | $ | (8,018 | ) |  | $ | 3,930 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 27,265 |  |  |  | 25,237 |
Amortization of debt issuance costs and discounts on debt |  |  | 1,261 |  |  |  | 1,267 |
Share-based compensation |  |  | 4,140 |  |  |  | 1,844 |
Loss on disposal of property and equipment |  |  | 247 |  |  |  | 77 |
Change in fair value of derivative |  |  | 2,248 |  |  |  | (3,211 | )
Deferred income taxes |  |  | (651 | ) |  |  | 373 |
Changes in operating assets and liabilities, net of acquisitions: |  |  |  |  |  |  |  |
Accounts receivable |  |  | (1,734 | ) |  |  | 646 |
Income taxes receivable |  |  | 193 |  |  |  | 846 |
Prepaid expenses |  |  | (980 | ) |  |  | 2,542 |
Inventories and other current assets |  |  | 527 |  |  |  | 797 |
Accounts payable and other accrued expenses |  |  | 277 |  |  |  | (5,359 | )
Accrued taxes, other than income taxes |  |  | 1,523 |  |  |  | 807 |
Other |  |  | 465 |  |  |  | 263 |
Net cash provided by operating activities |  |  | 26,763 |  |  |  | 30,059 |
Cash flows from investing activities |  |  |  |  |  |  |  |
Purchase of property and equipment, net of change in construction payables |  |  | (27,094 | ) |  |  | (10,242 | )
Acquisition of business, net of cash acquired |  |  | (148,952 | ) |  |  | — |
Proceeds from disposal of property and equipment |  |  | 26 |  |  |  | — |
Other investing activities |  |  | (45 | ) |  |  | 28 |
Net cash used in investing activities |  |  | (176,065 | ) |  |  | (10,214 | )
Cash flows from financing activities |  |  |  |  |  |  |  |
Repayments of term loans |  |  | (2,000 | ) |  |  | (2,000 | )
Borrowings under revolving credit facility |  |  | 145,000 |  |  |  | — |
Repayments of notes payable |  |  | (855 | ) |  |  | (109 | )
Principal payments under finance leases |  |  | (367 | ) |  |  | (229 | )
Proceeds from issuance of common stock, net of issuance costs |  |  | — |  |  |  | 25,608 |
Tax withholding on share-based payments |  |  | (288 | ) |  |  | — |
Net cash provided by financing activities |  |  | 141,490 |  |  |  | 23,270 |
Cash and cash equivalents |  |  |  |  |  |  |  |
Change in cash and cash equivalents |  |  | (7,812 | ) |  |  | 43,115 |
Balance, beginning of period |  |  | 116,071 |  |  |  | 90,579 |
Balance, end of period |  | $ | 108,259 |  |  | $ | 133,694 |
Supplemental cash flow disclosures |  |  |  |  |  |  |  |
Cash paid for interest |  | $ | 16,579 |  |  | $ | 14,615 |
Cash received for income taxes, net |  |  | (193 | ) |  |  | — |
Non-cash investing and financing activities |  |  |  |  |  |  |  |
Payables incurred for capital expenditures |  | $ | 4,064 |  |  | $ | 1,652 |
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.

4

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 Decatur |  | Las Vegas, Nevada
Arizona Charlie's Boulder |  | Las Vegas, Nevada
Aquarius Casino Resort ("Aquarius") |  | Laughlin, Nevada
Edgewater Hotel & Casino Resort ("Edgewater") |  | Laughlin, Nevada
Colorado Belle Hotel & Casino Resort ("Colorado Belle") |  | Laughlin, Nevada
Pahrump Nugget Hotel Casino ("Pahrump Nugget") |  | Pahrump, Nevada
Gold Town Casino |  | Pahrump, Nevada
Lakeside Casino & RV Park |  | 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.

On January 14, 2019, the Company completed the acquisition of Edgewater Gaming, LLC and Colorado Belle Gaming, LLC, which own the Edgewater and Colorado Belle in Laughlin, Nevada, as further described in Note 2, Acquisitions, below.

On March 12, 2019, the Company’s Board of Directors authorized the repurchase of up to $25.0 million additional shares of common stock, which replaced the prior share repurchase program authorized in November 2018. Share repurchases may be made from time to time in open market transactions, block trades or in private transactions in accordance with applicable securities laws and regulations and other legal requirements, including compliance with the Company’s finance agreements. There is no minimum number of shares that the Company is required to repurchase and the repurchase program may be suspended or discontinued at any time without prior notice.

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, 2018 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. Certain amounts in the consolidated financial statements for the previous year period have been reclassified to be consistent with current year presentation. These reclassifications had no effect on previously reported net income.

Lessee Arrangements

The Company is the lessee under non-cancelable real estate and, equipment leases and space lease agreements. Beginning on January 1, 2019 (the date of the Company's adoption of Topic 842, as defined and discussed further in "Accounting Standards Issued and Adopted", below), operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date and initially measured based on the present value of lease payments over the defined lease term. The Company’s lease terms may include options to extend or terminate the lease. The Company assesses these options using a threshold of reasonably certain. For leases where the Company is reasonably certain to renew, those option periods are included within the lease term and, therefore, the measurement of

5

the right-of-use asset and lease liability. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company’s lease agreements do not contain any material residual value guaran tees, restrictions or covenants.

The Company’s lease agreements for land, buildings and taverns with lease and non-lease components are accounted for separately. The lease and non-lease components of certain vehicle and equipment leases are accounted for as a single lease component. Additionally, for certain vehicle and equipment leases, a portfolio approach is utilized to effectively account for the operating lease ROU assets and liabilities.

As most of the Company’s leases do not provide an implicit rate, the incremental borrowing rate is estimated based on the information available at the commencement date in determining the present value of lease payments. The implicit rate will be used when readily determinable. The operating lease ROU assets also includes any lease payments made and excludes lease incentives. The Company does not record an asset or liability for operating leases with a term of less than one year. Prior to the adoption of Topic 842 on January 1, 2019, the Company did not record an asset or liability for any of its operating leases.

Lessor Arrangements

The Company is the lessor under non-cancelable operating leases for retail and food and beverage outlet space within its resort casino properties. The lease arrangements generally include minimum base rent and/or contingent rental clauses based on a percentage of net sales exceeding minimum base rent. Generally, the terms of the leases range between five and 10 years, with options to extend the leases. The Company records revenue on a straight-line basis over the term of the lease, and recognizes revenue for contingent rentals when the contingency has been resolved. The Company has elected to combine lease and non-lease components for the purpose of measuring lease revenue. Revenue is recorded in other operating revenue on the consolidated statements of operations.

Net Income Per Share

For all periods, basic net income per share is calculated by dividing net income by the weighted-average common shares outstanding. Diluted net income per share in profitable periods reflects the effect of all potentially dilutive common shares outstanding by dividing net income by the weighted-average of all common and potentially dilutive shares outstanding. Due to the net loss for the quarter ended March 31, 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 this period. The amount of potential common share equivalents were 1,047,804 for quarter ended March 31, 2019.

Accounting Standards Issued and Adopted

The Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (“Topic 842”), as amended, as of January 1, 2019, and elected the option to apply the transition requirements in the new standard at the effective date of January 1, 2019 with the effects of initially applying Topic 842 recognized as a cumulative-effect adjustment to retained earnings on January 1, 2019. As a result, the balance sheet presentation is not comparable to the prior period in this first year of adoption.

The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allows the carry forward of the Company’s Leases – Topic 840 assessment regarding definition of a lease, lease classification, and initial direct costs. The Company also elected the short-term lease exception, which allows leases with a lease term of 12 months or less to be accounted for similar to existing operating leases. The Company elected not to separate non-lease components from lease components and, instead, to account for each separate lease component and the non-lease components associated with it as a single lease component, recognized on the balance sheet. The Company did not elect the use-of-hindsight, which requires an entity to use hindsight in determining the lease term and in assessing impairment of right-of-use assets, or the practical expedient pertaining to land easements, which is not applicable.

The standard did not materially impact the Company’s consolidated net earnings and had no impact on cash flows. The effect of adopting Topic 842 on the January 1, 2019 consolidated balance sheet is as follows:

(In thousands) |  | Prior to Adoption |  |  | Effect of Adoption(1) |  |  | Post Adoption |
Prepaid expenses |  | $ | 17,722 |  |  | $ | (194 | ) |  | $ | 17,528 |
Property and equipment, net |  |  | 894,953 |  |  |  | 2,503 |  |  |  | 897,456 |
Operating lease right-of-use assets, net |  |  | - |  |  |  | 140,715 |  |  |  | 140,715 |
Intangible assets, net |  |  | 141,128 |  |  |  | (2,503 | ) |  |  | 138,625 |
Operating lease liability |  |  | - |  |  |  | 155,878 |  |  |  | 155,878 |
Other long-term obligations |  |  | 4,801 |  |  |  | (3,085 | ) |  |  | 1,716 |
Accumulated deficit |  |  | (120,361 | ) |  |  | (12,272 | ) |  |  | (132,633 | )

| (1) | Prepaid expenses, favorable lease intangible and deferred lease expense included in other long-term obligations were reclassed to the related right-of-use asset upon adoption of Topic 842.

6

In June 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-07, Compensation – Stock Compensation, which expands previous guidance to include all share-based payment arrangements related to the acquisition of goods and services from both non-employees and employees. The Company adopted the standard as of January 1, 2019, and the adoption did not have a material impact on the Company’s financial statements and disclosures.

Accounting Standards Issued but Not Yet Adopted

See Note 2, Summary of Significant Accounting Policies, to the Company’s audited consolidated financial statements for the year ended December 31, 2018 for a discussion of accounting standards issued but not yet adopted. No other recently issued accounting standards that are not yet effective have been identified that management believes are likely to have a material impact on the Company’s financial statements.

Note 2 – Acquisitions

Laughlin Acquisition

Overview

On January 14, 2019, the Company completed the acquisition of Edgewater Gaming, LLC and Colorado Belle Gaming, LLC (the “Acquired Entities”) from Marnell Gaming, LLC (“Marnell”) for $156.2 million in cash (after giving effect to the post-closing adjustment provisions in the purchase agreement) and the issuance of 911,002 shares of the Company’s common stock to certain assignees of Marnell (the “Acquisition”). The results of operations of the Acquired Entities are included in the Company’s results subsequent to the acquisition date.

In connection with the Acquisition, the Company borrowed $145.0 million under its revolving credit facility.

Purchase Price

The Acquisition has been accounted for using the acquisition 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. Accordingly, the fair value of the Company's common stock issued was based on the closing price of the Company's common stock on January 14, 2019 of $18.23.

The following is a summary of the components of the purchase price paid by the Company to Marnell in the Acquisition (after taking into account the adjustment to the cash portion of the purchase price pursuant to the post-closing adjustment provisions of the purchase agreement, as described above):

(In thousands) |  |  |  | Amount |
Cash |  |  |  | $ | 156,152 |
Fair value of common stock issued (911,002 shares) |  |  |  |  | 16,608 |
Total purchase price |  |  |  | $ | 172,760 |

Purchase Price Allocation

Under ASC 805, the purchase price of the acquisition is allocated to the identified tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date which are determined in accordance with the applicable accounting guidance for business combinations and with the services of third-party valuation consultants. The excess of the purchase price over the fair values is recorded as goodwill which is expected to be deductible for tax purposes.

During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with a corresponding offset to goodwill. Balances subject to adjustment primarily include current assets, property and equipment, intangible assets, liabilities, as well as tax-related matters, including tax basis of acquired assets and liabilities.

The following table summarizes the preliminary allocation of the purchase price:

7

(In thousands) |  |  |  |  |  |
Current assets |  |  |  | $ | 12,615 |
Property and equipment |  |  |  |  | 126,198 |
Right-of-use assets |  |  |  |  | 2,620 |
Intangible assets |  |  |  |  | 19,234 |
Goodwill |  |  |  |  | 24,736 |
Liabilities |  |  |  |  | (10,023 | )
Lease liabilities |  |  |  |  | (2,620 | )
Total assets acquired, net of liabilities assumed |  |  |  | $ | 172,760 |

The following table summarizes the preliminary amounts assigned to property and equipment and estimated useful life by category:

(In thousands) |  | Useful Life (Years) |  |  |  |
Land |  | Not applicable |  | $ | 4,160 |
Building and site improvements |  | 10-30 |  |  | 102,450 |
Furniture and equipment |  | 2-13 |  |  | 18,185 |
Construction in process |  | Not applicable |  |  | 1,403 |
Total property and equipment |  |  |  | $ | 126,198 |

The following table summarizes the preliminary values assigned to acquired intangible assets and estimated useful lives by category:

(In thousands) |  | Useful Life (Years) |  |  |  |
Non-compete agreements |  | 5 |  | $ | 3,630 |
Trade names |  | Indefinite |  |  | 6,980 |
Player loyalty program |  | 2 |  |  | 8,600 |
Other |  | 4 |  |  | 24 |
Total intangible assets |  |  |  | $ | 19,234 |

Pro Forma Combined Financial Information

The following unaudited pro forma combined financial information has been prepared by management for illustrative purposes only and does not purport to represent what the results of operations, financial condition or other financial information of the Company would have been if the Acquisition had occurred on January 1, 2018, or what such results or financial condition will be for any future periods. The unaudited pro forma combined financial information is based on preliminary estimates and assumptions and on the information available at the time of the preparation thereof. These preliminary estimates and assumptions may change, be revised or prove to be materially different, and the estimates and assumptions may not be representative of facts existing at the time of the Acquisition. The unaudited pro forma combined financial information does not reflect non-recurring charges that will be incurred in connection with the Acquisition, nor any cost savings and synergies expected to result from the Acquisition (and associated costs to achieve such savings or synergies), nor any costs associated with severance, restructuring or integration activities resulting from the Acquisition.

The following table summarizes certain unaudited pro forma combined financial information derived from a combination of the historical consolidated financial statements of the Company and of the Acquired Entities for the three months ended March 31, 2018, adjusted to give effect to the Acquisition, related transactions, and the adoption of ASC 606 for the Acquired Entities.

|  | Three Months Ended |
(In thousands, except per share data) |  | March 31, 2018 |
Pro forma combined revenues |  | $ | 238,232 |
Pro forma combined net income |  |  | 5,155 |
Weighted-average common shares outstanding: |  |  |  |
Basic |  |  | 28,060 |
Diluted |  |  | 2,379 |
Pro forma combined net income per share: |  |  |  |
Basic |  | $ | 0.18 |
Diluted |  |  | 0.17 |

8

In connection with the Acquisition, the Company incurred approximately $0.4 million of acquisition costs during the three month ended March 31, 2019. For the three months ended March 31, 2019, the Acquired Entities contributed revenue of approximately $21.5 million. For the three months ended Ma rch 31, 2019, operating expenses related to the Acquired Entities were approximately $11.9 million.

Note 3 – Property and Equipment, Net

Property and equipment, net, consisted of the following:

(In thousands) |  | March 31, 2019 |  |  | December 31, 2018 |
Land |  | $ | 125,240 |  |  | $ | 121,081 |
Building and site improvements |  |  | 846,116 |  |  |  | 723,354 |
Furniture and equipment |  |  | 183,150 |  |  |  | 154,663 |
Construction in process |  |  | 29,369 |  |  |  | 35,151 |
Property and equipment |  |  | 1,183,875 |  |  |  | 1,034,249 |
Less: Accumulated depreciation |  |  | (160,693 | ) |  |  | (139,296 | )
Property and equipment, net |  | $ | 1,023,182 |  |  | $ | 894,953 |

Depreciation expense for property and equipment, including finance leases, was $21.5 million and $20.8 million for the three months ended March 31, 2019 and 2018, respectively.

Note 4 – Accrued Liabilities

Accrued liabilities consisted of the following:

(In thousands) |  | March 31, 2019 |  |  | December 31, 2018 |
Gaming liabilities |  | $ | 13,843 |  |  | $ | 12,473 |
Deposits |  |  | 3,981 |  |  |  | 2,652 |
Other accrued liabilities |  |  | 4,638 |  |  |  | 3,723 |
Total accrued and other current liabilities |  | $ | 22,462 |  |  | $ | 18,848 |

Note 5 – Long-Term Debt

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

(In thousands) |  | March 31, 2019 |  |  | December 31, 2018 |
Term loans |  | $ | 990,000 |  |  | $ | 992,000 |
Revolving credit facility |  |  | 145,000 |  |  |  | — |
Finance lease liabilities |  |  | 7,548 |  |  |  | 7,127 |
Notes payable |  |  | 257 |  |  |  | 1,111 |
Total long-term debt |  |  | 1,142,805 |  |  |  | 1,000,238 |
Less unamortized discount |  |  | (24,547 | ) |  |  | (25,658 | )
Less unamortized debt issuance costs |  |  | (3,390 | ) |  |  | (3,537 | )
|  |  | 1,114,868 |  |  |  | 971,043 |
Less current maturities |  |  | (9,907 | ) |  |  | (10,480 | )
Long-term debt, net |  | $ | 1,104,961 |  |  | $ | 960,563 |

Senior Secured Credit Facilities

As of March 31, 2019, the Company’s senior secured credit facilities consisted of a $1 billion senior secured first lien credit facility (consisting of $800 million in term loans 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 “First Lien Facility”), and a $200 million senior secured second lien term loan facility with Credit Suisse AG, Cayman Islands Branch (as administrative agent and collateral agent), the lenders party thereto and the other entities party thereto (the “Second Lien Term Loan” and, together with the First Lien Facility, the “Credit Facilities”).

As of March 31, 2019, the Company had $790 million and $200 million in principal amount of outstanding term loan borrowings under its First Lien Facility and Second Lien Term Loan, respectively, no letters of credit outstanding under the First Lien Facility, and $145 million in principal amount of borrowings outstanding under its revolving credit facility.

9

As of March 31, 2019, the weighted-average effective interest rate on the Company’s outstanding borrowings under the Credit Facilities wa s approximately 6.1%.

The revolving credit facility under the First Lien Facility matures on October 20, 2022, and the term loans under the First Lien Facility mature on October 20, 2024. The term loans under the First Lien Facility are 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 term loans under the Second Lien Term Loan were repayable in full at maturity on October 20, 2025.

The Company was in compliance with its financial covenants under the Credit Facilities as of March 31, 2019.

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. The 2026 Notes were issued at face value and will be recorded as long-term debt, net of debt issuance costs, in the Company’s consolidated financial statements. The 2026 Notes bear interest at the rate of 7.625%, payable semi-annually in cash in arrears, which interest payments will commence in October 2019. Debt issuance costs associated with the issuance of the 2026 Notes will be amortized to interest expense on a straight-line basis over the term of the 2026 Notes.

The net proceeds of the 2026 Notes were used to (i) repay the Second Lien Term Loan, (ii) repay outstanding borrowings under the revolving credit facility under the First Lien Facility, (iii) repay $18 million of the outstanding term loan indebtedness under the First Lien Facility, and (iv) pay accrued interest, fees and expenses related to each of the foregoing.

Prior to April 15, 2022, the Company may redeem up to 40% of the 2026 Notes at a redemption price of 107.625% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the redemption date, from the net cash proceeds of specified equity offerings. The Company may also redeem the 2026 Notes prior to April 15, 2022, in whole or in part, at a redemption price equal to 100% of the principal amount thereof plus the applicable premium and any accrued and unpaid interest, if any, thereon to the redemption date. The applicable premium is calculated as the greater of: (i) 1.0% of the principal amount of such 2026 Notes and (ii) the excess, if any, of (a) the present value at such date of redemption of (1) the redemption price of such 2026 Notes on April 15, 2022 plus (2) all required interest payments due on such 2026 Notes through April 15, 2022 (excluding accrued but unpaid interest to the date of redemption), computed using a discount rate equal to the treasury rate (as defined under the indenture governing the 2026 Notes) plus 50 basis points, over (b) the then-outstanding principal amount of such 2026 Notes. 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.

Note 6 – Stock Incentive Plans and Share-Based Compensation

As of March 31, 2019, a total of 1,399,820 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, 2019 of 1,119,924 shares.

Stock Options

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

|  | Stock Options |
|  |  |  |  |  | Weighted- |
|  |  |  |  |  | Average |
|  | Shares |  |  | Exercise Price |
Outstanding at January 1, 2019 |  |  | 3,424,755 |  |  | $ | 11.49 |
Granted |  |  | — |  |  | $ | — |
Exercised |  |  | (2,500 | ) |  | $ | 7.34 |
Cancelled |  |  | (21,875 | ) |  | $ | 11.41 |
Outstanding at March 31, 2019 |  |  | 3,400,380 |  |  | $ | 11.50 |
Exercisable at March 31, 2019 |  |  | 2,533,382 |  |  | $ | 11.32 |

Share-based compensation expense related to stock options was $2.5 million and $1.5 million for the three months ended March 31, 2019 and 2018, respectively. The Company’s unrecognized share-based compensation expense related to stock options was approximately $4.5 million as of March 31, 2019, which is expected to be recognized over a weighted-average period of 1.6 years.

Restricted Stock Units

On March 14, 2018, the Compensation Committee of the Board of Directors of the Company approved a new long-term incentive structure for equity awards to be granted to the executive officers of the Company under the 2015 Plan. Under this new structure,

10

comm encing in the first quarter of 2018, the executive officers of the Company receive long-term equity awards in a combination of time-based restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”). The number of PSUs that will be eligible to vest will be determined based on the Company’s attainment of performance goals set by the Compensation Committee. Following the two-year performance period, the number of “vesting eligible” PSUs will then be subject to one additional year of t ime-based vesting. Share-based compensation costs related to RSU and PSU awards are calculated based on the market price on the date of the grant. The Company periodically reviews the estimates of performance against the defined criteria to assess the expe cted payout of each outstanding PSU grant and adjusts the stock compensation expense accordingly.

The following table summarizes the Company’s RSU and PSU activity:

|  | RSUs |  |  | PSUs |
|  |  |  |  |  | Weighted- |  |  |  |  |  |  | Weighted- |
|  |  |  |  |  | Average Grant |  |  |  |  |  |  | Average Grant |
|  | Shares |  |  | Date Fair Value |  |  | Shares(1) |  |  | Date Fair Value |
Outstanding at January 1, 2019 |  |  | 232,299 |  |  | $ | 29.10 |  |  |  | 171,748 |  |  | $ | 28.41 |
Granted |  |  | 414,951 |  |  | $ | 14.13 |  |  |  | 204,580 |  |  | $ | 14.13 |
Vested |  |  | (68,874 | ) |  | $ | 28.72 |  |  |  | — |  |  | $ | — |
Cancelled |  |  | (6,863 | ) |  | $ | 28.56 |  |  |  | — |  |  | $ | — |
Outstanding at March 31, 2019 |  |  | 571,513 |  |  | $ | 18.28 |  |  |  | 376,328 |  |  | $ | 20.65 |

__________________

(1) | The number of shares for 62,791 of the PSUs listed as outstanding at January 1, 2019 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, 2019 and for all of the PSUs granted in 2019 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 will be eligible to vest at “maximum” performance levels.

Share-based compensation expense related to RSUs was $1.1 million and $0.2 million for the three months ended March 31, 2019 and 2018, respectively. Share-based compensation expense related to PSUs was $0.4 million and $0.2 million for the three months ended March 31, 2019 and 2018, respectively.

As of March 31, 2019, there was $8.0 million and $5.4 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 2.7 years for both RSUs and PSUs.

Note 7 – Income Taxes

The Company’s effective tax rate was 7.9% and 23.7% for the three months ended March 31, 2019 and 2018, respectively.

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 quarter of 2019. Income tax expense of $1.2 million for the three months ended March 31, 2018 was primarily due to expenses that are not deductible for tax purposes.

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.

Note 8 – 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

11

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 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, 2019
|  | Carrying |  |  | Fair |  |  | Fair Value
(In thousands) |  | Amount |  |  | Value |  |  | Hierarchy
Term loans |  | $ | 990,000 |  |  | $ | 981,600 |  |  | Level 2
Revolving credit facility |  |  | 145,000 |  |  |  | 143,900 |  |  | Level 2
Finance lease liabilities |  |  | 7,548 |  |  |  | 7,548 |  |  | Level 3
Notes payable |  |  | 257 |  |  |  | 257 |  |  | Level 3
Total debt |  | $ | 1,142,805 |  |  | $ | 1,133,305 |  |  |

|  | December 31, 2018
|  | Carrying |  |  | Fair |  |  | Fair Value
(In thousands) |  | Amount |  |  | Value |  |  | Hierarchy
Term loans |  | $ | 992,000 |  |  | $ | 952,300 |  |  | Level 2
Finance lease liabilities |  |  | 7,127 |  |  |  | 7,127 |  |  | Level 3
Notes payable |  |  | 1,111 |  |  |  | 1,111 |  |  | Level 3
Total debt |  | $ | 1,000,238 |  |  | $ | 960,538 |  |  |

The estimated fair value of the Company’s term loan debt is based on a relative value analysis performed as of March 31, 2019 and December 31, 2018. The finance lease liabilities and note 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, 2019, 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 $2.4 million and $5.0 million as of March 31, 2019 and December 31, 2018, respectively. As the Company elected to not apply hedge accounting, the change in fair value of its interest rate cap agreement was recorded in the consolidated statement of operations.

Note 9 – Leases

Company as Lessee

The Company has operating and finance leases for offices, taverns, land, vehicles, slot machines, and equipment. In addition, slot placement contracts in the form of space lease agreements at chain stores are accounted for as operating leases. Under chain store space lease agreements, the Company pays fixed monthly rental fees for the right to install, maintain and operate its slots at business locations, which are recorded in gaming expenses. The leases, excluding land, have remaining lease terms of 1 year to 28 years, some of which include options to extend the leases for an additional 5 to 15 years. Some equipment leases and space lease agreements include options to terminate the lease with 60 days’ to 1 year’s notice. The Company leases slot machines from gaming equipment manufacturers under short-term agreements. Most of the slot machine leases have variable rent structures, with amounts determined based on the performance of those machines. Certain others are short-term in nature, with fixed payment amounts. The Company has an operating ground lease with the Maryland Department of Natural Resources for approximately 270 acres in the Rocky Gap State Park on which Rocky Gap is situated. The Company leases approximately 20 acres of land in Laughlin, Nevada for the Laughlin Event Center and four parcels of land in Pahrump, Nevada on which the Gold Town Casino is located.

The Company leases approximately 4.5 acres of undeveloped land in Carson City. Upon the adoption of Topic 842, the Company wrote off the associated ROU asset for this land lease of $9 million to its beginning balance of retained earnings as of January 1, 2019. The Company is also lessee for nine taverns and locations subject to space lease agreements that it does not plan to develop, operate, or sub-lease. The Company wrote off the associated ROU asset for these eleven leases of $3 million to its beginning balance of retained earnings as of January 1, 2019.

The Company leases one of its tavern locations and its office headquarters building from a related party. See Note 12, Related Party Transactions, for more detail.

The current and long-term obligations under finance leases are included in “current portion of long-term debt, net and finance leases” and “long-term debt, net and finance leases”, respectively. The majority of the finance leases related to vehicles with minimum lease payment terms of four years or less, and external and internal lighting and renovations at The Strat.

12

The components of lease expense are follows:

|  |  | Three Months Ended |
(In thousands) | Classification |  | March 31, 2019 |
Operating lease cost |  |  |  |  |
Operating lease cost | Operating and SG&A expenses |  | $ | 11,640 |
Variable lease cost | Operating and SG&A expenses |  |  | 4,186 |
Short-term lease cost | Operating and SG&A expenses |  |  | 1,049 |
Total operating lease cost |  |  | $ | 16,875 |
Finance lease cost |  |  |  |  |
Amortization of lease assets | Depreciation and amortization |  | $ | 494 |
Interest on lease liabilities | Interest expense, net |  |  | 98 |
Total finance lease cost |  |  | $ | 592 |

Supplemental cash flow information related to leases is as follows:

|  | Three Months Ended |
(In thousands) |  | March 31, 2019 |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |
Operating cash flows from operating leases |  | $ | 11,471 |
Operating cash flows from finance leases |  |  | 98 |
Financing cash flows from finance leases |  |  | 367 |
Right-of-use assets obtained in exchange for lease obligations: |  |  |  |
Operating leases |  | $ | 31,685 |
Finance leases |  |  | 849 |

Supplemental balance sheet information related to leases is as follows:

(In thousands, except lease term and discount rate) |  | March 31, 2019 |
Operating leases |  |  |  |
Operating lease right-of-use assets, gross |  | $ | 172,394 |
Accumulated amortization |  |  | (9,350 | )
Operating lease right-of-use assets, net |  | $ | 163,044 |
Current portion of operating leases |  | $ | 36,050 |
Noncurrent operating leases |  |  | 142,444 |
Total operating lease liabilities |  | $ | 178,494 |
Finance leases |  |  |  |
Property and equipment, gross |  | $ | 7,966 |
Accumulated depreciation |  |  | (2,117 | )
Property and equipment, net |  | $ | 5,849 |
Current portion of finance leases, net |  | $ | 1,798 |
Noncurrent finance leases, net |  |  | 5,750 |
Total finance lease liabilities |  | $ | 7,548 |

Weighted Average Remaining Lease Term |  |  |  |
Operating leases |  | 10.0 years |
Finance leases |  | 19.9 years |
Weighted Average Discount Rate |  |  |  |
Operating leases |  |  | 6.3 | %
Finance leases |  |  | 6.1 | %

13

Maturity of Lease Liabilities

|  | Operating |  |  | Finance |  |  |  |  |
(In thousands) |  | Leases |  |  | Leases |  |  | Total |
Remaining 2019 |  | $ | 34,456 |  |  | $ | 1,721 |  |  | $ | 36,177 |
2020 |  |  | 30,099 |  |  |  | 1,791 |  |  |  | 31,890 |
2021 |  |  | 28,779 |  |  |  | 1,203 |  |  |  | 29,982 |
2022 |  |  | 22,304 |  |  |  | 581 |  |  |  | 22,885 |
2023 |  |  | 16,924 |  |  |  | 491 |  |  |  | 17,415 |
Thereafter |  |  | 114,285 |  |  |  | 7,248 |  |  |  | 121,533 |
Total lease payments |  |  | 246,847 |  |  |  | 13,035 |  |  |  | 259,882 |
Less: interest |  |  | (68,353 | ) |  |  | (5,487 | ) |  |  | (73,840 | )
Present value of lease liabilities |  | $ | 178,494 |  |  | $ | 7,548 |  |  | $ | 186,042 |

As of March 31, 2019, the Company does not have any leases that have not yet commenced but that create significant rights and obligations.

Company as Lessor

Minimum and contingent operating lease income is as follows:

|  | Three Months Ended |
(In thousands) |  | March 31, 2019 |
Minimum rental income |  | $ | 1,825 |
Contingent rental income |  |  | 201 |
Total rental income |  | $ | 2,026 |

Future minimum rental payments to be received under operating leases:

(In thousands) |  | Operating Leases |
Remaining 2019 |  | $ | 3,963 |
2020 |  |  | 3,995 |
2021 |  |  | 3,272 |
2022 |  |  | 2,433 |
2023 |  |  | 1,763 |
Thereafter |  |  | 2,546 |
Total future minimum rentals |  | $ | 17,972 |

Disclosures related to periods prior to adoption of Topic 842

For the three months ended March 31, 2018, operating lease rental expense, calculated on a straight-line basis, was $9.4 million, $0.4 million and $3.6 million for space lease agreements, related party leases and other operating leases, respectively. The Company recorded rental revenue of $1.7 million for the three months ended March 31, 2018.

Note 10 – Commitments and Contingencies

Participation and Revenue Share Agreements

In addition to the space lease agreements described above in Note 9, Leases, the Company also enters into slot placement contracts in the form of participation and revenue share agreements. Under participation agreements, the business location holds the applicable gaming license and retains a percentage of the gaming revenue that it generates from the Company’s slots. Under revenue share agreements, the Company pays the business location a percentage of the gaming revenue generated from the Company’s slots placed at the location, rather than a fixed monthly rental fee. During the three months ended March 31, 2019 and 2018, the aggregate contingent payments recognized by the Company (recorded in gaming expenses) under revenue share and participation agreements were $38.6 million and $37.1 million, respectively, including $0.2 million and $0.2 million, respectively, under revenue share and participation agreements with related parties, as described in Note 12, Related Party Transactions.

The Company also enters into amusement device and ATM placement contracts in the form of participation agreements. Under these agreements, the Company pays the business location a percentage of the non-gaming revenue generated from the Company’s amusement devices and ATMs placed at the location. During the three months ended March 31, 2019 and 2018, the total contingent

14

payments recognized by the Company (recorded in other operating expenses) for amusement devices and ATMs under such agreements were both $0.4 million.

Legal Matters

From time to time, the Company is involved in a variety of lawsuits, claims, investigations and other legal proceedings arising in the ordinary course of business, including proceedings concerning labor and employment matters, personal injury claims, breach of contract claims, commercial disputes, business practices, intellectual property, tax and other matters for which the Company recorded reserves of $1.0 million for claims as of March 31, 2019. 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.

In February and April 2017, several former employees filed two separate purported class action lawsuits against the Company in the District Court of Clark County, Nevada, on behalf of similarly situated individuals employed by the Company in the State of Nevada. The lawsuits allege that the Company violated certain Nevada labor laws including payment of an hourly wage below the statutory minimum wage without providing a qualified health insurance plan and an associated failure to pay proper overtime compensation. The complaints seek, on behalf of the plaintiffs and members of the putative class, an unspecified amount of damages (including punitive damages), injunctive and equitable relief, and an award of attorneys’ fees, interest and costs. The Company agreed to settle the first of these cases in the fourth quarter of 2017 and the second of these cases in the third quarter of 2018. In February 2019, the court approved the settlement for the first case for $0.5 million. The remaining case remains subject to final court approval, with the final fairness hearing scheduled for June 2019, and is included in the Company’s recorded reserves of $1.0 million at March 31, 2019.

On August 31, 2018, prior guests of The Strat filed a purported class action complaint against the Company in the District Court, Clark County, Nevada, on behalf of similarly situated individuals and entities that paid the Clark County Combined Transient Lodging Tax (“Tax”) on the portion of a resort fee that constitutes charges for Internet access, during the period of February 6, 2014 through the date the alleged conduct ceases. The lawsuit alleged that the Tax was charged in violation of the federal Internet Tax Freedom Act, which imposed a national moratorium on the taxation of Internet access by states and their political subdivisions, and sought, on behalf of the plaintiff and the putative class, damages equal to the amount of the Tax collected on the Internet access component of the resort fee, injunctive relief, disgorgement, interest, fees and costs. All defendants to this matter, including Golden Entertainment, Inc., filed a joint motion to dismiss this matter for lack of merit. The District Court granted this joint motion to dismiss on February 21, 2019. The plaintiffs appealed the District Court decision, on April 10, 2019, to the Supreme Court of Nevada.

While legal proceedings are inherently unpredictable and no assurance can be given as to the ultimate outcome of any of the above matters, based on management’s current understanding of the relevant facts and circumstances, 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, preopening expense, acquisition expenses, share-based compensation expenses, executive severance, rebranding, class action litigation expenses, gain/loss on disposal of property and equipment, gain on change in fair value of derivative and other losses, calculated before corporate overhead (which is not allocated to each segment).

15

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, 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 |
Preopening and related expenses(1) |  |  | 1,654 |  |  |  | 566 |  |  |  | 12 |  |  |  | 2,232 |
Acquisition and severance expenses |  |  | 286 |  |  |  | 26 |  |  |  | 1,232 |  |  |  | 1,544 |
Asset disposal 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 |

|  | Three Months Ended March 31, 2018 |
(In thousands) |  | Casinos |  |  | Distributed Gaming |  |  | Corporate and Other |  |  | Consolidated |
Revenues |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gaming |  | $ | 64,459 |  |  | $ | 69,404 |  |  | $ | — |  |  | $ | 133,863 |
Food and beverage |  |  | 29,996 |  |  |  | 12,607 |  |  |  | — |  |  |  | 42,603 |
Rooms |  |  | 26,127 |  |  |  | — |  |  |  | — |  |  |  | 26,127 |
Other |  |  | 9,905 |  |  |  | 2,150 |  |  |  | 141 |  |  |  | 12,196 |
Total revenues |  | $ | 130,487 |  |  | $ | 84,161 |  |  | $ | 141 |  |  | $ | 214,789 |
Net income (loss) |  | $ | 23,841 |  |  | $ | 7,448 |  |  | $ | (27,359 | ) |  | $ | 3,930 |
Depreciation and amortization |  |  | 19,635 |  |  |  | 5,148 |  |  |  | 454 |  |  |  | 25,237 |
Preopening expenses(1) |  |  | — |  |  |  | 148 |  |  |  | 300 |  |  |  | 448 |
Acquisition and severance expenses |  |  | 51 |  |  |  | 35 |  |  |  | 1,213 |  |  |  | 1,299 |
Asset disposal and other writedowns |  |  | 62 |  |  |  | 15 |  |  |  | — |  |  |  | 77 |
Share-based compensation |  |  | — |  |  |  | — |  |  |  | 1,844 |  |  |  | 1,844 |
Other, net |  |  | 37 |  |  |  | 167 |  |  |  | 104 |  |  |  | 308 |
Interest expense, net |  |  | 24 |  |  |  | 46 |  |  |  | 14,673 |  |  |  | 14,743 |
Change in fair value of derivative |  |  | — |  |  |  | — |  |  |  | (3,211 | ) |  |  | (3,211 | )
Income tax provision |  |  | — |  |  |  | — |  |  |  | 1,219 |  |  |  | 1,219 |
Adjusted EBITDA |  | $ | 43,650 |  |  | $ | 13,007 |  |  | $ | (10,763 | ) |  | $ | 45,894 |

| (1) | Preopening 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 players club.

16

Total Segment Assets

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

(In thousands) |  | Casinos |  |  | Distributed Gaming |  |  | Corporate and Other |  |  | Consolidated |
Balance at March 31, 2019 |  | $ | 1,207,197 |  |  | $ | 437,018 |  |  | $ | 45,968 |  |  | $ | 1,690,183 |
Balance at December 31, 2018 |  | $ | 1,006,292 |  |  | $ | 299,697 |  |  | $ | 60,580 |  |  | $ | 1,366,569 |

Note 12 – Related Party Transactions

As of March 31, 2019, 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 rent expense for the office headquarters building was $0.3 million for each of the three months ended March 31, 2019 and 2018, respectively. There were no amounts owed by the Company, and no amount was due and payable by the Company, under this lease as of March 31, 2019 and December 31, 2018. Additionally, a portion of the office headquarters building was sublet to a company owned or controlled by Mr. Sartini. There was less than $0.1 million of rental income under such sublease for each of the three months ended March 31, 2019 and 2018. No amount was owed to the Company under such sublease as of March 31, 2019 and December 31, 2018. Mr. Sartini serves as the Chairman of the Board, President and Chief Executive Officer of the Company and is co-trustee of The Blake L. Sartini and Delise F. Sartini Family Trust, which is a significant shareholder of the Company. Mr. Arcana serves as the Executive Vice President and Chief Operating Officer of the Company.

In November 2018, the Company entered into a lease agreement for office space in a building to be constructed and owned by a company 33% beneficially owned by Mr. Sartini, 5% owned by a trust for the benefit of Mr. Sartini’s immediate family members (including Blake L. Sartini, II) for which Mr. Sartini serves as trustee, and 3% beneficially owned by Stephen A. Arcana. The lease is intended to commence in 2019 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.

As of March 31, 2019, the Company leased one tavern location from a trust controlled by Mr. Sartini through a trust for the benefit of Mr. Sartini’s immediate family members (including Blake L. Sartini, II) for which Mr. Sartini serves as trustee. One tavern location that the Company had previously leased from a related party was sold in 2018 to an unrelated third party. The rent expense for tavern locations leased from related parties (including the sold tavern location for the period in which the lease was with a related party) was $0.1 million for the three months ended March 31, 2019 and 2018, respectively. There were no amounts owed by the Company, and no amount was due and payable by the Company, under such leases as of March 31, 2019 and December 31, 2018.

During each of the three months ended March 31, 2019 and 2018, the Company paid $0.2 million 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, 2019 and December 31, 2018.

During the three months ended March 31, 2019 and 2018, the Company recorded revenues of $0.2 million and $0.3 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 Compliance and Governmental Affairs and Chief Legal Officer. De minimis amounts were owed to the Company and were due and payable by the Company related to this arrangement as of March 31, 2019 and December 31, 2018.

During the three months ended March 31, 2018, the Company recorded expenses of less than $0.1 million related to a three-year consulting agreement between the Company and Lyle A. Berman, who serves on the Board of Directors of the Company. No amount was due and payable by the Company as of December 31, 2018 related to this agreement. The consulting agreement expired on July 31, 2018.

Note 13 – Subsequent Events

The Company’s management evaluates subsequent events through the date of issuance of the consolidated financial statements. Other than the issuance of the 2026 Notes and associated repayments of borrowings under the Credit Facilities (see Note 5, Long-Term Debt, above), 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 March 31, 2019.

17

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, 2018 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,” “plan,” “project,” “seek,” “should,” “think,” “will,” “would” and similar expressions. In addition, forward-looking statements include statements regarding 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: 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, Chief Operating Officer, and Chief Strategy and Financial 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

On January 14, 2019, we completed the acquisition of Edgewater Gaming, LLC and Colorado Belle Gaming, LLC (the “Acquired 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 by us of 911,002 shares of our common stock to certain assignees of Marnell (the “Laughlin Acquisition”). The Laughlin Acquisition added two resort casino properties in Laughlin, Nevada to our casino portfolio: the Edgewater Hotel & Casino Resort (the “Edgewater”) and the Colorado Belle Hotel & Casino Resort (the “Colorado Belle”), which increase our scale and presence in the Southern Nevada market. The results of operations of the Acquired Entities are included in our results subsequent to the acquisition date. See Note 2, Acquisitions, in the accompanying unaudited consolidated financial statements for additional information.

18

We own and operate ten resort casino properties in Nevada and Maryland, comprising:

| • | The STRAT Hotel, Casino & SkyPod (“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, 2019, The Strat featured an 80,000 sq. ft. casino, 2,429 hotel rooms, 715 slots, 48 table games, a race and sports book, 13 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, 2019, our Arizona Charlie’s Decatur casino offered 259 hotel rooms, 1,032 slots, seven table games, race and sports books, five restaurants and an approximately 400-seat bingo parlor, and our Arizona Charlie’s Boulder casino offered 303 hotel rooms, 827 slots, eight table games, race and sports books, four restaurants, and an approximately 450-seat bingo parlor, as well as an RV park with approximately 220 RV hook-up sites.

| • | Laughlin casinos: We own and operate three casinos in Laughlin, Nevada, which is located approximately 90 miles from Las Vegas on the western riverbank of the Colorado River: the Aquarius Casino Resort (the “Aquarius”), the Edgewater and the Colorado Belle. Our Laughlin casinos are situated along the heart of the Laughlin Riverwalk and cater primarily to patrons traveling from Arizona and Southern California, as well as customers from Nevada seeking an alternative to the Las Vegas experience. As of March 31, 2019, the Aquarius had 1,906 hotel rooms, 1,202 slots, 33 table games and eight restaurants. As of March 31, 2019 the Colorado Belle had 1,102 hotel rooms, 696 slots, 20 table games and three restaurants. As of March 31, 2019 the Edgewater had 1,052 hotel rooms, 710 slots, 20 table games and 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: the Pahrump Nugget Hotel Casino (“Pahrump Nugget”), Gold Town Casino and Lakeside Casino & RV Park. As of March 31, 2019, Pahrump Nugget offered 69 hotel rooms, 403 slots, 10 table games, a race and sports book, an approximately 200-seat bingo facility and a bowling center. As of March 31, 2019, our Gold Town Casino offered 222 slots, and our Lakeside Casino & RV Park offered 172 slots, an approximately 100-seat bingo facility, and approximately 160 RV hook-up sites.

| • | Rocky Gap Casino Resort (“Rocky Gap”): Rocky Gap is situated on approximately 270 acres in the Rocky Gap State Park in Maryland, which we lease from the Maryland Department of Natural Resources under a 40-year ground lease expiring in 2052 (plus a 20-year option renewal). As of March 31, 2019, Rocky Gap offered 665 slots, 17 table games, two casino bars, three restaurants, a spa and the only Jack Nicklaus signature golf course in Maryland. Rocky Gap is a AAA Four Diamond Award® winning resort with 198 hotel rooms, as well as an event and conference center.

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, 2019, our distributed gaming operations comprised approximately 10,700 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, 2019, we owned and operated 63 branded taverns, which offered a total of over 1,000 onsite slots. Most of our taverns are located in the greater Las Vegas, Nevada metropolitan area and cater to local patrons seeking more convenient entertainment establishments than traditional casino properties. Our tavern brands include PT’s Gold, PT’s Pub, Sierra Gold, Sean Patrick’s, PT’s Place, PT’s Ranch, PT’s Brewing Company, Sierra Junction and SG Bar. We also own a brewery in Las Vegas, PT’s Brewing Company, which produces craft beer for our taverns and casinos.

19

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, 2019 and 2018.

| Three Months Ended March 31, |
(In thousands) | 2019 |  |  | 2018 |
Revenues by segment |  |  |  |  |  |  |
Casinos | $ | 151,374 |  |  | $ | 130,487 |
Distributed Gaming |  | 88,357 |  |  |  | 84,161 |
Corporate and other |  | 161 |  |  |  | 141 |
Total revenues |  | 239,892 |  |  |  | 214,789 |
Operating expenses by segment |  |  |  |  |  |  |
Casinos |  | 73,543 |  |  |  | 60,719 |
Distributed Gaming |  | 67,657 |  |  |  | 65,350 |
Corporate and other |  | 197 |  |  |  | 772 |
Total operating expenses |  | 141,397 |  |  |  | 126,841 |
Selling, general and administrative |  | 56,947 |  |  |  | 44,206 |
Depreciation and amortization |  | 27,265 |  |  |  | 25,237 |
Acquisition and severance expenses |  | 1,544 |  |  |  | 1,299 |
Preopening expenses |  | 778 |  |  |  | 448 |
Loss on disposal of assets |  | 247 |  |  |  | 77 |
Total expenses |  | 228,178 |  |  |  | 198,108 |
Operating income |  | 11,714 |  |  |  | 16,681 |
Non-operating expense, net |  | (20,383 | ) |  |  | (11,532 | )
Income tax benefit (provision) |  | 651 |  |  |  | (1,219 | )
Net income (loss) | $ | (8,018 | ) |  | $ | 3,930 |

Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018

Revenues

The $25.1 million, or 12%, increase in revenues for the three months ended March 31, 2019 compared to the prior year period resulted from increases of $9.9 million, $7.2 million, $5.2 million and $2.8 million in gaming, food and beverage, room and other revenues, respectively, due primarily to the impact of the Acquired Entities, which we acquired in January 2019.

Casinos segment revenue increased $20.9 million, or 16%, for the three months ended March 31, 2019 compared to the prior year period. Gaming revenues in the Casinos segment increased $6.4 million, which reflected the inclusion in the current year period of $7.7 million of gaming revenue from the Acquired Entities. The increase was offset by a decrease in Nevada casinos’ race and sports book revenue. In the first quarter of 2019, we began outsourcing race and sports book management to William Hill and the resulting revenue stream is classified as other operating revenue. Casinos segment food and beverage revenue increased by $6.4 million due primarily to the inclusion in the current year period of food and beverage revenues from the Acquired Entities, partially offset by decreases in food and beverage revenues at our other casino properties. Casinos segment room revenues increased by $5.2 million primarily due to increased room revenues from the Aquarius as well as the inclusion in the current year period of room revenues from the Acquired Entities. Casinos segment other revenues increased by $2.8 million primarily due to the contribution of $3.3 million of other revenues from the Acquired Entities, and was partially offset by a decrease in other revenues at The Strat of $0.6 million.

Distributed Gaming segment revenue increased $4.2 million or 5% for the three months ended March 31, 2019 compared to the prior year period due to an increase of $3.5 million in gaming revenues (reflecting a $1.5 million increase from additional locations and new technology in Montana) and of $0.7 million in branded tavern food and beverage revenues (primarily due to the inclusion in the current year period of a full period of revenues from the three taverns opened in 2018).

During the three months ended March 31, 2019, Adjusted EBITDA in our Casinos segment as a percentage of segment revenues (or Adjusted EBITDA margin) was 31%, compared to Adjusted EBITDA margin in our Distributed Gaming segment of 15%. During the three months ended March 31, 2018, Adjusted EBITDA margin in our Casinos segment was 33%, 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).

20

Operating Expenses

The $14.6 million, or 11%, increase in operating expenses for the three months ended March 31, 2019 compared to the prior year period resulted primarily from the inclusion of operating expenses of the Acquired Entities. Gaming expenses increased $4.7 million for the three months ended March 31, 2019 compared to the prior year period. Of this increase, $3.2 million related to the inclusion of gaming expenses relating to the Acquired Entities in the current year period, and $1.6 million related to gaming expenses in our Distributed Gaming segment, which included an increase of $1.3 million relating to our Montana distributed gaming operations. The increase of $4.6 million of food and beverage expense compared to the prior year period was due primarily to the inclusion in the current year period of $3.7 million relating to the Acquired Entities, combined with increases of $0.6 million relating to our Nevada distributed gaming operations and $0.5 million relating to The Strat (reflecting increased and improved offerings at The Strat). The $2.8 million year-over-year increase in room expense was due primarily to the inclusion in the current year period of $2.4 million relating to the Acquired Entities, combined with an increase of $0.4 million related to The Strat. The $2.4 million year-over-year increase in other operating expenses was almost entirely due to the inclusion in the current year period of other operating expenses relating to the Acquired Entities.

Selling, General and Administrative Expenses

The $12.7 million, or 29%, increase in selling, general and administrative (“SG&A”) expenses for the three months ended March 31, 2019 compared to the prior year period resulted primarily from the inclusion in the current year period of $4.9 million in SG&A expenses relating to the Acquired Entities, an increase in corporate SG&A of $4.9 million and an increase in Nevada distributed gaming SG&A of $1.2 million.

Within our Casinos segment, the majority of the SG&A expenses are comprised of marketing and advertising, utilities, maintenance contracts, payroll expenses and payroll taxes. Casino segment SG&A expenses increased $6.5 million, or 25%, for the three months ended March 31, 2019, compared to the prior year period, resulting primarily from the inclusion $4.9 million in the current year period of SG&A related to the Acquired Entities. The remaining increase was primarily due to increases in advertising and production at The Strat and Aquarius.

Within our Distributed Gaming segment, the majority of the SG&A expenses are comprised of marketing and advertising, utilities, building rent, payroll expenses and payroll taxes. Distributed gaming segment SG&A expenses increased $1.2 million, or 20%, for the three months ended March 31, 2019 compared to the prior year period, primarily due to a $0.9 million increase in rent and marketing costs.

Corporate SG&A expenses represent corporate office overhead, information technology, legal, accounting, third party service providers, executive compensation, share based compensation, payroll expenses and payroll taxes. The $4.9 million, or 40%, increase in corporate SG&A for the three months ended March 31, 2019 compared to the prior year period resulted primarily from increases of $2.3 million in share-based compensation, $1.0 million in marketing expense, $0.3 million in audit fees and $0.2 million in aircraft time-sharing, co-user and cost-sharing agreements.

Acquisition Expenses

Acquisition expenses during the three months ended March 31, 2019 and 2018 related primarily to the Laughlin Acquisition, which closed on January 14, 2019, and the American Acquisition, respectively.

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, 2019 and 2018, preopening expenses related primarily to costs incurred in the opening of new taverns in the Las Vegas Valley.

Depreciation and Amortization

The increase in depreciation and amortization expenses for each of the three months ended March 31, 2019 compared to the prior year period, was primarily due to the depreciation of the assets and the amortization of the intangibles acquired in the Laughlin Acquisition, offset by the decrease in depreciation and amortization expense at The Strat related to the disposal of several assets and the change in useful life of depreciation.

Non-Operating Expense, Net

Non-operating expense, net increased $8.9 million for the three months ended March 31, 2019 compared to the prior year period, primarily due to a $3.4 million increase in interest expense from the substantially higher level of indebtedness under our senior secured credit facilities following the Laughlin Acquisition, and a loss on change in fair value of derivative of $5.5 million.

21

Income Taxes

Our effective tax rate was 7.9% and 23.7% for the three months ended March 31, 2019 and 2018, respectively. For the three months ended March 31, 2019, 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 during the first quarter of 2019. For the three months ended March 31, 2018, the effective tax rate differed from the federal tax rate of 21% due primarily to expenditures that are not deductible for tax purposes.

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, acquisition expenses, preopening expenses, gain/loss on disposal of property and equipment, share-based compensation expenses, executive severance, rebranding, class action litigation expenses, other gains and losses, and change in fair value of derivative.

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

|  | Three Months Ended March 31, |
(In thousands) |  | 2019 |  |  | 2018 |
Net income (loss) |  | $ | (8,018 | ) |  | $ | 3,930 |
Depreciation and amortization |  |  | 27,265 |  |  |  | 25,237 |
Preopening expenses and related expenses(1) |  |  | 2,232 |  |  |  | 448 |
Acquisition and severance expenses |  |  | 1,544 |  |  |  | 1,299 |
Asset disposal and other writedowns |  |  | 637 |  |  |  | 77 |
Share-based compensation |  |  | 4,184 |  |  |  | 1,844 |
Other, net |  |  | 864 |  |  |  | 308 |
Interest expense, net |  |  | 18,135 |  |  |  | 14,743 |
Change in fair value of derivative |  |  | 2,248 |  |  |  | (3,211 | )
Income tax (benefit) provision |  |  | (651 | ) |  |  | 1,219 |
Adjusted EBITDA |  | $ | 48,440 |  |  | $ | 45,894 |

| (1) | Preopening 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 players club.

Liquidity and Capital Resources

As of March 31, 2019, we had $108.3 million in cash and cash equivalents. We currently believe that our cash and cash equivalents, cash flows from operations and borrowing availability under our revolving credit facility will be sufficient to meet our capital requirements during the next 12 months.

Our operating results and performance depend significantly on national, regional and local economic conditions and their effect on consumer spending. Declines in consumer spending would cause revenues generated in both our Casinos and Distributed Gaming segments to be adversely affected.

To further enhance our liquidity position or to finance any future acquisition or other business investment initiatives, we may obtain additional financing, which could consist of debt, convertible debt or equity financing from public and/or private credit and capital markets.

In January 2018, we completed an underwritten public offering pursuant to our universal shelf registration statement, in which certain of our shareholders resold an aggregate of 6.5 million shares of our common stock, and we sold 975,000 newly issued shares of our common stock. Our net proceeds from the offering were approximately $25.6 million after deducting underwriting discounts and offering expenses.

Cash Flows

Net cash provided by operating activities for the three months ended March 31, 2019 decreased $3.3 million compared to the prior year period due primarily to the timing of operating assets and liabilities.

22

Net cash used in investing activities was $176.1 million fo r the three months ended March 31, 2019, compared to $10.2 million for the prior year period. The increase in net cash used in investing activities as compared to the prior year period was primarily due to the closing of the Laughlin Acquisition in January 2019.

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.

Net cash provided by financing activities was $23.3 million for the three months ended March 31, 2018, and primarily related to net proceeds to us in the underwritten public offering completed in January 2018, partially offset by repayments under our first lien senior secured credit facility.

Senior Secured Credit Facilities

As of March 31, 2019, our senior secured credit facilities consisted of a $1 billion senior secured first lien credit facility (consisting of $800 million in term loans 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 “First Lien Facility”), and a $200 million senior secured second lien term loan facility with Credit Suisse AG, Cayman Islands Branch (as administrative agent and collateral agent), the lenders party thereto and the other entities party thereto (the “Second Lien Term Loan” and, together with the First Lien Facility, the “Credit Facilities”).

As of March 31, 2019, we had $790 million and $200 million in principal amount of outstanding term loan borrowings under our First Lien Facility and Second Lien Term Loan, respectively, no letters of credit outstanding under the First Lien Facility and $145 million in principal amount of borrowings outstanding under our revolving credit facility.

Borrowings under each of the Credit Facilities 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 loans) 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 loans only), plus in each case, an applicable margin. The applicable margin for the term loans under the First Lien 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 under the First Lien 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 applicable margin for the Second Lien Term Loan was 6.00% for base rate loans and 7.00% for LIBOR rate loans. 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, 2019, the weighted-average effective interest rate on our outstanding borrowings under the Credit Facilities was approximately 6.1%.

The revolving credit facility under the First Lien Facility matures on October 20, 2022, and the term loans under the First Lien Facility mature on October 20, 2024. The term loans under the First Lien Facility are 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 term loans under the Second Lien Term Loan were repayable in full at maturity on October 20, 2025.

Borrowings under each of the Credit Facilities 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 Facilities, 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 loans under the Credit Facilities 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 under the First Lien 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 Facilities also prohibit 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, Neil I. Sell and certain affiliated entities). If we default under the Credit Facilities 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 Facilities as of March 31, 2019.

Senior Notes due 2026

On April 15, 2019, we issued $375 million in principal amount of 7.625% Senior Notes due 2026 (“2026 Notes”) in a private placement to institutional buyers. The 2026 Notes were issued at face value and will be recorded as long-term debt, net of debt issuance costs, in our consolidated financial statements. The 2026 Notes bear interest at the rate of 7.625%, payable semi-annually in cash in arrears, which interest payments will commence in October 2019. Debt issuance costs associated with the issuance of the 2026 Notes will be amortized to interest expense on a straight-line basis over the term of the 2026 Notes.

The net proceeds of the 2026 Notes were used to (i) repay the Second Lien Term Loan, (ii) repay outstanding borrowings under the revolving credit facility under the First Lien Facility, (iii) repay $18 million of the outstanding term loan indebtedness under the First Lien Facility, and (iv) pay accrued interest, fees and expenses related to each of the foregoing.

23

Prior to April 15, 2022, we may redeem up to 40% of the 2026 Notes at a redemption price of 107.625% of the prin cipal amount thereof, plus accrued and unpaid interest, if any, thereon to the redemption date, from the net cash proceeds of specified equity offerings. We may also redeem the 2026 Notes prior to April 15, 2022, in whole or in part, at a redemption price equal to 100% of the principal amount thereof plus the applicable premium and any accrued and unpaid interest, if any, thereon to the redemption date. The applicable premium is calculated as the greater of: (i) 1.0% of the principal amount of such 2026 Not es and (ii) the excess, if any, of (a) the present value at such date of redemption of (1) the redemption price of such 2026 Notes on April 15, 2022 plus (2) all required interest payments due on such 2026 Notes through April 15, 2022 (excluding accrued bu t unpaid interest to the date of redemption), computed using a discount rate equal to the treasury rate (as defined under the indenture governing the 2026 Notes) plus 50 basis points, over (b) the then-outstanding principal amount of such 2026 Notes. The 2 026 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.

The 2026 Notes are guaranteed on a senior unsecured basis by each of our existing and future wholly-owned domestic subsidiaries that guarantees the First Lien 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 First Lien 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 governing the 2026 Notes, we and our restricted subsidiaries are subject to certain limitations, including limitations on our respective ability to: incur additional debt, grant liens, sell assets, make certain investments, pay dividends and make certain other restricted payments. In the event a change of control (which includes the acquisition of more than 50% of our capital stock, other than by certain permitted holders, which include, among others, Blake L. Sartini, Lyle A. Berman, Neil I. Sell and certain affiliated entities), each holder will have the right to require us to repurchase all or any part of such holder’s 2026 Notes at a purchase price in cash equal to 101% of the aggregate principal amount of the 2026 Notes repurchased, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

Share Repurchase Program

On March 12, 2019, our Board of Directors authorized the repurchase of up to $25.0 million additional shares of common stock, subject to available liquidity, general market and economic conditions, alternate uses for the capital and other factors, which replaced the prior share repurchase program authorized in November 2018. 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, 2019, no shares of our common stock were repurchased under our share repurchase programs.

Other Items Affecting Liquidity

The outcome of the following matters may also affect our liquidity.

Commitments, Capital Spending and Development

We perform on-going refurbishment and maintenance at our facilities, of which certain maintenance costs are capitalized if such improvement or refurbishment extends the life of the related asset, while other maintenance costs that do not so qualify are expensed as incurred. The commitment of capital and the related timing thereof are contingent upon, among other things, negotiation of final agreements and receipt of approvals from the appropriate regulatory bodies. We intend to fund such capital expenditures through our revolving credit facility and operating cash flows.

See Note 10, Commitments and Contingencies, in the accompanying unaudited consolidated financial statements for additional information regarding commitments and contingencies that may also affect our liquidity.

24

Contractual Obligations

The following table summarizes our contractual obligations as of March 31, 2019:

| Remaining 2019 |  |  | 2020 |  |  | 2021 |  |  | 2022 |  |  | 2023 |  |  | Thereafter |  |  | Total |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
First Lien Facility (term loans)(1) | $ | 6,000 |  |  | $ | 8,000 |  |  | $ | 8,000 |  |  | $ | 8,000 |  |  | $ | 8,000 |  |  | $ | 752,000 |  |  | $ | 790,000 |
Second Lien Term Loan(1) |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 200,000 |  |  |  | 200,000 |
Revolving credit facility(1) |  | — |  |  |  | — |  |  |  | — |  |  |  | 145,000 |  |  |  | — |  |  |  | — |  |  |  | 145,000 |
Interest on long-term debt (1)(2) |  | 52,748 |  |  |  | 69,936 |  |  |  | 69,490 |  |  |  | 67,056 |  |  |  | 60,635 |  |  |  | 65,771 |  |  |  | 385,636 |
Operating leases |  | 34,456 |  |  |  | 30,099 |  |  |  | 28,779 |  |  |  | 22,304 |  |  |  | 16,924 |  |  |  | 114,285 |  |  |  | 246,847 |
Notes payable and finance lease obligations(3) |  | 1,801 |  |  |  | 1,911 |  |  |  | 1,224 |  |  |  | 604 |  |  |  | 503 |  |  |  | 7,248 |  |  |  | 13,291 |
| $ | 95,005 |  |  | $ | 109,946 |  |  | $ | 107,493 |  |  | $ | 242,964 |  |  | $ | 86,062 |  |  | $ | 1,139,304 |  |  | $ | 1,780,774 |

(1) | Subsequent to quarter end, we issued $375 million in principal amount of 2026 Notes in a private placement to institutional buyers, and in connection therewith we repaid and discharged the Second Lien Term Loan in full, repaid $18 million in principal amount of term loan borrowings under the First Lien Facility, and repaid all of the outstanding indebtedness under the revolving credit facility under the First Lien Facility. See Note 5, Long-Term Debt, in the accompanying unaudited consolidated financial statements.

(2) | Represents estimated interest payments on our outstanding balances based on interest rates as of March 31, 2019 until maturity. Includes interest on notes payable.

(3) | Relates to notes payable on equipment purchases and previous tavern acquisitions and our finance lease obligations, including total finance lease interest obligations of $5.5 million.

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, 2018, 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, 2018. There have been no significant changes in our critical accounting policies and estimates since year end.

Commitments and Contractual Obligations

No significant changes occurred in the first quarter of 2019 to the contractual commitments discussed under Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Commitments and Contractual Obligations, in our Annual Report on Form 10-K for the year ended December 31, 2018. Subsequent to quarter end, we issued $375 million in principal amount of 2026 Notes in a private placement to institutional buyers, and in connection therewith we repaid and

25

discharged the Second Lien Term Loan in full, repaid $18 million in principal amount of term loan borrowings under the First Lien Facility, and repaid all of the outstanding indebtedness under the revolving credit facility under the First Lien Facility.

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, 2019, our variable rate long-term debt primarily comprised our indebtedness under the Credit Facilities.

As of March 31, 2019, we had $790 million in principal amount of outstanding borrowings under the First Lien Facility, $200 million in principal amount of outstanding borrowings under the Second Lien Term Loan and $145 million in principal amount of outstanding borrowings under our revolving credit facility. Our primary interest rate under the Credit Facilities is the Eurodollar rate plus an applicable margin. As of March 31, 2019, the weighted-average effective interest rate on our outstanding borrowings under the Credit Facilities was approximately 6.1%. Assuming the outstanding balance under our Credit Facilities 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 $5.7 million over a twelve-month period.

As of March 31, 2019, our investment portfolio included $108.3 million in cash and cash equivalents. As of March 31, 2019, we did not hold any short-term investments.

26

ITEM 4. CONTROL S 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, 2019, 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, 2019.

On January 14, 2019, the Laughlin Acquisition was completed. Management has begun the evaluation of the internal control structures of the Acquired Entities. However, SEC guidance permits management to omit an assessment of an acquired business’ internal control over financial reporting from management’s assessments of internal control over financial reporting and disclosure controls and procedures for a period not to exceed one year from the date of the acquisition. Accordingly, we excluded the Acquired Entities from our evaluation of our disclosure controls and procedures as of March 31, 2019. We have reported the operating results of the Acquired Entities in our consolidated statements of operations and cash flows from the acquisition date through March 31, 2019. As of March 31, 2019, total assets related to the Acquired Entities represented approximately 11% of our total assets, recorded on a preliminary basis as the measurement period for the business combination remained open as of March 31, 2019. Revenues from the Acquired Entities comprised approximately 9% of our consolidated revenues for the three months ended March 31, 2019. We will include the Acquired Entities in our evaluation of internal control over financial reporting as of December 31, 2019.

During the quarter ended March 31, 2019, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As described above, on January 14, 2019, the Laughlin Acquisition was completed. Our integration of the Acquired Entities may lead us to modify certain internal controls in future periods.

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 recorded reserves of $1.0 million for claims as of March 31, 2019. Although lawsuits, claims, investigations and other legal proceedings are inherently uncertain and their results cannot be predicted with certainty, we believe that the resolution of our currently pending matters should not have a material adverse effect on our business, financial condition, results of operations or liquidity. Regardless of the outcome, legal proceedings can have an adverse impact on us because of defense costs, diversion of management resources and other factors. In addition, it is possible that an unfavorable resolution of one or more such proceedings could in the future materially and adversely affect our business, financial condition, results of operations or liquidity in a particular period.

In February and April 2017, several former employees filed two separate purported class action lawsuits against us in the District Court of Clark County, Nevada, on behalf of similarly situated individuals employed by us in the State of Nevada. The lawsuits allege that we violated certain Nevada labor laws including payment of an hourly wage below the statutory minimum wage without providing a qualified health insurance plan and an associated failure to pay proper overtime compensation. The complaints seek, on behalf of the plaintiffs and members of the putative class, an unspecified amount of damages (including punitive damages), injunctive and equitable relief, and an award of attorneys’ fees, interest and costs. We agreed to settle the first of these cases in the fourth quarter of 2017 and the second of these cases in the third quarter of 2018. In February 2019, the court approved the settlement for the first case for $0.5 million. The remaining case remains subject to final court approval, with the final fairness hearing scheduled for June 2019, and is included in our recorded reserves of $1.0 million at March 31, 2019.

On August 31, 2018, prior guests of The Strat filed a purported class action complaint against us in the District Court, Clark County, Nevada, on behalf of similarly situated individuals and entities that paid the Clark County Combined Transient Lodging Tax (“Tax”) on the portion of a resort fee that constitutes charges for Internet access, during the period of February 6, 2014 through the date the alleged conduct ceases. The lawsuit alleged that the Tax was charged in violation of the federal Internet Tax Freedom Act, which imposed a national moratorium on the taxation of Internet access by states and their political subdivisions, and sought, on behalf of the plaintiff and the putative class, damages equal to the amount of the Tax collected on the Internet access component of the resort fee, injunctive relief, disgorgement, interest, fees and costs. All defendants to this matter, including Golden Entertainment, Inc., filed a

27

joint motion to dismiss this matter for lack of merit. The District Court granted th is joint motion to dismiss on February 21, 2019. The plaintiffs appealed the District Court decision on April 10, 2019 to the Supreme Court of Nevada.

While legal proceedings are inherently unpredictable and no assurance can be given as to the ultimate outcome of any of the above matters, based on management’s current understanding of the relevant facts and circumstances, we believe that these proceedings should not have a material adverse effect on our financial position, results of operations or cash flows.

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, 2018, which factors could materially affect our business, financial condition, liquidity or future results. There have been no material changes to the risk factors described in the “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2018. 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.

28

ITEM 6. EXHIBITS

Exhibits |  | Description
4.1 |  | Indenture, dated as of April 15, 2019, between Golden Entertainment, Inc., the Guarantors party thereto and Wilmington Trust, National Association, as trustee.
4.2 |  | Form of 7.625% Senior Note due 2026 of Golden Entertainment, Inc. (attached as Exhibit A to the Indenture filed as Exhibit 4.1 hereto).
10.1 |  | Stockholders Agreement, dated as of January 14, 2019, by and between Golden Entertainment, Inc. and the stockholders party thereto (incorporated by reference to Exhibit 10.1 to Golden Entertainment, Inc.’s Current Report on Form 8-K dated January 14, 2019, filed on January 15, 2019).
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 |  | XBRL Instance Document
101.SCH |  | XBRL Taxonomy Extension Schema Document
101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF |  | XBRL Taxonomy Extension Calculation Definition Document
101.LAB |  | XBRL Taxonomy Extension Label Linkbase Document
101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase Document

29

SIGNAT URES

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 10, 2019 | /s/ BLAKE L. SARTINI
| Blake L. Sartini
| Chairman of the Board, President and Chief Executive Officer
| (Principal Executive Officer)
| /s/ CHARLES H. PROTELL
| Charles H. Protell
| Executive Vice President, Chief Strategy Officer and Chief Financial Officer
| (Principal Financial Officer)
| /s/ THOMAS E. HAAS
| Thomas E. Haas
| Senior Vice President of Accounting
| (Principal Accounting Officer)

30