Full House Resorts, Inc.

and welcome to the Full House Resorts Fourth Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Adam Campbell, Corporate Controller. You may begin.

Thank you, and good afternoon to everyone. Welcome to our Fourth Quarter Earnings Call, and as always, before we begin, we remind you that today's conference call may contain forward-looking statements that we're making under the safe harbor provision of the Federal Securities Law. I would also like to remind you that the company's actual results could differ materially from the anticipated results in these forward-looking statements. Please see today's press release under the caption forward-looking statements for the discussions of risks that may affect our results. Also, we may reference to non-GAAP measures such as adjusted EBITDA. For reconciliation of those measures, please see our website as well as the various press releases that we issue. Lastly, we are also broadcasting this conference call at fullhouseresorts.com. where you can find today's earnings release as well as our SEC filings. And with that, I'll turn it over to Lewis, our Chief Financial Officer.

All right. Good afternoon, everyone. Really briefly, we are down one man today. Dan was involved in a small accident and he'll be fine. He's been working from home over the last few days. He was actually supposed to come into the office for today's earnings call. But there was a last-minute opening with his doctor to get some fixes done to his shoulder, and so that's where he is right now. So our apologies there, but he's doing fine, and it means we get to hear some new voices on the call like Adam's here. So with all that said, I have quite a bit to go over. The most important would be our fourth quarter results. We preannounced our numbers, so I don't think the numbers will be a surprise to anybody. The important part is we were at the upper end of our expectations. Consolidated revenues were down about 2% to $38.3 million. Adjusted EBITDA, though, increased in a very big way. For the fourth quarter of 2020, adjusted EBITDA increased nearly $10 million. That's more than four times what it was in the fourth quarter of 2019. We went through a lot of the reasons why on last quarter's conference call, so I won't go through all of them again here today. but they largely come down to labor efficiencies, marketing efficiencies, and more refined operating hours for our amenities, where we're making sure that our hours match the demand for those amenities. I do want to make two points on the cost structure, though. The first is that a lot of the improvements that you've seen over the last two quarters aren't COVID changes. They're changes that were in the implementation process prior to the pandemic shutdown, Things like the new slot marketing system at Rising Star and at Bronco Billy's that we installed back at the end of 2019. That slot system is a good example. At Rising Star, before we put in that brand-new Konami system, we had a 17-year-old system. If we wanted to give you $5 of free slot play before under the old system, we had to go through a lot of steps. We had to send you a coupon in the mail. You had to then go to the Players Club website. show them your coupon, they'd look you up, make sure it was a valid offer, void the coupon in the system, and then they'd give you a voucher to take to the cage. At the cage, they'd then give you $5 in cash, and we would hope that you would put that cash into one of our thought machines. That was a lot of extra labor. It wasn't a very good guest experience because you spent a lot of time standing in line. Today, under the new Konami system, you get the mailer. You don't have to bring anything in. All you need to do is put your player's card in, into the machine, your $5 of free play downloads to the machine automatically. That's it. It's a big change, and again, it's not a COVID change. It's one of those things that we won't go back to the old way because we don't need to go back to the old way, and the new way is a lot better. Similarly, under the old marketing system, it was beyond difficult for us to pull any useful analytics out of the old system. We could not easily tell you what was a good marketing campaign and what was a bad one. And so under this new system, not only can we tell you, but we can tell you in real time if a marketing campaign is profitable or not. It's meaningfully easier to pull out all of our unprofitable campaigns than we're doing it now in real time. And so all of that leads to the second point that I want to reiterate, that these changes are sustainable. We've already logged more than eight months with what we call our reset operations, and we think they're here for the long term. If you put all of that into perspective really quick, for the last six months of 2020, we did $22.3 million of adjusted EBITDA. In those six months alone, we did 40% more adjusted EBITDA than we did for the full year in 2019. The third quarter tends to be a little seasonally stronger. The fourth quarter tends to be seasonally weaker. But between the two, they should average out somewhere near a normal run rate. which is meaningfully above what you saw in any recent year for this company. Going through the properties really quick, at Silver Slipper, we had an amazing fourth quarter and full year. We set a lot of new records there at the property. A year ago, we were thrilled when that property hit $13 million of adjusted property EBITDA for 2019. But here in 2020, it climbed even higher. to $14.7 million of adjusted property EBITDA. That's despite 66 days of closure due to the pandemic. Those two months of closure led to a 15% decline in revenue, but we were diligent on the cost side. And again, the biggest benefit was from the marketing side and from labor efficiencies that we rolled out at all the properties, not the ones we've already mentioned. Silver Slipper continues to benefit from the physical investments that we made at the property, like the renovated casino, the renovated buffet, the oyster bar, the beach club. We took a small amount of damage last year during the hurricane system, but we do keep good insurance. And so in real time, it's getting some more improvements thanks to some insurance proceeds. We replaced our shingles on the roof, some of which blew off during the last hurricane season. Those are getting replaced with a much more durable standing seam metal roof. As part of our insurance claim, we also asked for a fresh coat of paint, and so we've updated the browns and the tans on the building to a more modern gray and white color scheme. If any of you have been to Shutters on the Beach in Santa Monica, you'll know exactly the color scheme we have in mind. There was damage to our neon sign on the front of the building, so that's being updated to a new LED sign that's not only much more durable but also much more energy efficient. And so when all of that work is done between these changes and the ones we've done in the recent past, it's going to look like a brand-new property. This past Saturday, the Mississippi Gaming Commission gave casinos the green light to move back to normal operations, and we're happy to see the world slowly moving back to normal. But we also continue with many of our safety measures. At the buffet, for example, we continue to have our employees serve guests rather than have our guests serve themselves. Rising Star, adjusted property EBITDA, grew by $3.3 million. A big part of that increase was due to the Konami slot system that I already mentioned. And then there are other things, too, like we continue to not be able to operate the buffet at Rising Star. Can't run it at all right now, but quite honestly, it wasn't generating enough volume in recent years anyway to make all the extra labor and the food preparation work. Now, that's why pre-pandemic, we built a new sit-down restaurant named Ben's Bistro and Prior to the shutdown, we had already paired the buffet's hours to weekends. That said, I don't think you'll ever see the buffet at Rising Star again. It cost us something like $2 million per year to run. So we're saving a lot of money by no longer running it. And our guests are getting a much better experience with fresh food that's made to order. We benefited also from a full quarter of one of our three sports skins. That's the Bet America skin from Churchill Downs, which they're currently rebranding to Twin Spires Skin. More recently, we had an easing of some of our operating restrictions at Rising Star. You can now eat again and smoke again as you sit and play at a slot machine. And then on July 1st, in a couple months, our gaming tax rate will essentially get cut in half. So we also have that looked forward to in the near term. Our northern Nevada segment continues to be the segment that is most impacted by the pandemic. It's also our smaller segment for what it's worth. At Grand Lodge, the convention and meeting business is understandably down as people socially distance, so there are fewer people in the hotel that make their way to our casino. There are also fewer people up in nearby ski areas, which are operating at limited capacity. In the near term, we're looking forward to Memorial Day, which is when the locals start to come back into town for the summer. Once that happens, we should be a bit less reliant on the hotel. At Stockman's, There really aren't groups visiting the nearby naval base for training, and a lot of those guests stay at the hotel that's right at the edge of our parking lot without people visiting the Navy base. Our business at Stockman's is also doing it. So those two factors led to the results that you saw. Revenue was down $1.1 million. We controlled costs wherever we could, so adjusted property EBITDA was down less than that, down only about $270,000. And then at Bronco Billy's, we had a strong performance despite no table games. In Cripple Creek, no one's been allowed to reopen table games since the pandemic up until a few weeks ago. And so we went nearly a full year without tables from March 2020 until nearly the end of February of 2021. That did affect our revenue by a little bit in 2020 with fourth quarter revenue declining by about 6%. Offsetting that was a full quarter of one of our three sports games. in about one week for a second skin that launched just prior to Christmas of 2020. On the cost side, we implemented that same Konami slot system that went into Rising Star. Between that and labor savings, adjusted property EBITDA went from a modest loss last year to a positive $1.7 million this year. Elsewhere in Cripple Creek, I'm sure you're well aware we're building what we are currently calling the Cripple Creek Luxury Hotel and Casino Project. That's obviously a placeholder name, and I don't want to ruin Dan's thunder by giving you the name for the new place without him, but that new facility will be located next door to the existing Bronco Billy's Casino. It will physically connect, so you can walk down the hall and be in the new building as a guest. You can earn loyalty points and comps in both places as if they are one, but that all said, the new facility will have its own identity. It will be beautiful and, quite honestly, will be transformational for that Cripple Creek market and for Colorado Springs. We can't wait to tell you about all the finer details on that project, but it won't be today, unfortunately. It's a bigger project than when we last spoke to you. Because voters eliminated betting limits and approved new table games, we increased the size of our hotel by 67% to about 300 hotel rooms. The team behind the scenes, we've worked on a lot of projects in our histories. Dan, going back to his days at Mirage Resorts, Dan, Alex, and I collectively at Pinnacle Entertainment, we work on projects like LaBerge and Lake Charles. And of all those projects, I can tell you that this is the most excited that we've been for any project that we've ever worked on. The excitement really comes down to two statistics. The first is the number of hotel rooms in Cripple Creek. There just aren't very many. The whole town only has about 300 hotel rooms to serve the one million people in the Colorado Springs, Canyon City, and Pueblo theater markets. By the way, none of those rooms are high quality. It's a collection of mostly two-star and a small handful of three-star rooms. The other number that we look at closely is gaining spend per capita. It is extremely low for our market. For gaming markets that are roughly an hour or so away from their feeder markets, you tend to see a gaming spend per capita figure of around $300. You'll see that in places like Washington. In places like Kansas City and St. Louis, the number is even higher. For Cripple Creek, we're sitting at half of that. It's $146 per person per year. And not only is it half of where it probably should be, but it's also $50 below where the national average is. which includes states without any casinos at all. It's that low, quite frankly, because no one offers anything nice in town. If we can get that gaming spend per capita number up to $300, sorry, go back a second. If we can get that gaming spend per capita figure not up to $300, but just up to the national average, we will have earned a very, very healthy return on our project without affecting anyone's business at all in Cripple Creek. Helping this out will be the fact that the population in that state and in Colorado Springs continues to grow pretty healthily, and then things like median household income are also quite strong. Regarding the construction, we are back at work. The storm sewers are underway. The related utility work is also being handled right now. That will take a few more weeks to get done. We are on the verge of going out and starting work on some test micropiles very shortly, and then we'll start with the real piling, micropiles right after that. In the near term, the cash spent on that project isn't very big. So for all of 2021, you might see something like $40 million of cash invested into the project. But because we've pre-funded the cost of the project with our recent bond deal and we're already paying interest, we are anxious to get it done as quickly and as efficiently as possible and should see that place open up by the end of next year. The firm building it, Hensel Phelps, is one of the largest general contractors in the U.S. They're actually in Colorado. They're headquartered just outside of Denver. They know how to build in mountain towns. They actually built the Ameristar facility in Black Hawk, Colorado, and so we're excited to be working with them. And looking over at Helena in real time here, we usually have a construction cam up on the website. We're in the process right now of updating that construction cam and likely adding a second one. But you wouldn't see very much right now anyway with the alley work that's going on. But very shortly you'll see not just one but two good views of that project. A lot of stuff. Sports skins. Sports skins continue to roll out. Just before Christmas, as I mentioned, Wynn launched their mobile sports betting app in Colorado. That puts us at three live sports skins currently, with the other two being Smarkets live in Colorado and BetAmerica live in Indiana. If you were to take those three skins and annualize the revenue, it's $3.5 million per year of contractual revenue with no meaningful expenses attached, so it's essentially $3.5 million of EBITDA. That leaves us with three skins left to launch, Lynn in Indiana, Smarkets in Indiana, and then the online skin for FedAmerica in Colorado. When all six of those skins are live, The analogs revenue will be $7 million per year and still with no meaningful expenses attached. We continue to think, by the way, that those approvals will be soon. It is quite a process to get things approved, as it should be. You've got to go through the testing labs. The people and the entities involved all have to get approved by the game commissions. And then things got slowed down by the pandemic as well. But it does feel like our partners are on the homestretch to get their Alaskans launched and And the good news is everyone is moving as quickly as they can behind the scenes. Regarding the balance sheet, a little more than three weeks ago, we issued $310 million of new senior secured notes. Those are seven-year notes due in 2028. They were our, not our, but I guess Full House's debut issue with the high-yield markets. The proceeds will be used for a few reasons. The first was to refinance all of our existing senior secure notes. We had $106.8 million existing under the old notes. We had to pay a modest 90 basis point call premium from accrued interest as well up to the redemption date. Those old notes were floating rate notes. They were at LIBOR plus 700 with a LIBOR floor of 1%. So they were effectively 8% floating rate notes that were likely to go higher in future years. The new notes that we have aren't floating. They are fixed with an interest rate of 8.25%. And then we have a big positive for these new notes. They don't have a quarterly leverage test that we have to meet like under the old notes. Under the old ones, if you recall, because of the three months of pandemic shutdowns, we ended up having to pay for waiver fees in each of the first three quarters of 2020. We won't have that anymore without that quarterly leverage test. We used $4 million of our bond proceeds to take out all of our warrants. Those warrants were out there. They could have given the holders the chance to purchase 1,006,568 shares of our common stock at an exercise price of $1.67 per share. If you use the closing price of our stock on February 12th, which was the day we completed the warrant redemption, the net repurchase price for all of those warrants would have been more than $6 million. They could have been outstanding until their expiration in 2026, and if so, I strongly suspect that the repurchase price would have been meaningfully higher. We didn't buy them for $6 million or higher. We purchased them for $4 million. And so we're happy with the meaningful discount that we got on that repurchase relative to where the stock trades today. And we're happy, too, because getting rid of those warrants really cleaned up the balance sheet. The most important use of proceeds was to fund our Cripple Creek growth project. There's $180 million of remaining project costs to complete it, and so we put $180 million of our bond proceeds into a construction reserve account dedicated to its construction. And we paid for expenses related to the deal. And after all of that, we had about $8 million of cash left on the balance sheet. From a liquidity point of view, we have more cash than we've ever had in my history at this company. At the end of the fourth quarter, we had $38 million of cash. That compares to $34 million at the end of the third quarter. And then sitting here in real time, we have about $232 million of cash left. That consists of the $180 million that I mentioned that's reserved for the build-out of the Cripple Creek project, and then another $52 million of normal cash and equivalents. To give us additional liquidity, we've also been working behind the scenes on a $15 million revolving credit facility. I was hoping it would be done before this call, and it won't be that much longer. I think it's only another week or so. There are some last small documentation issues that we're getting through, but it shouldn't be very much longer. When we do close on that revolver, it will be undrawn. And it's really there to provide us with any additional liquidity should we need it and to help facilitate things like ordinary letters of credit that we might need to post. I feel like I went through a lot. I'm going to look over at Adam. Anything I forgot? No, your cover is pretty much everything. All right. So with all that said, Operator, let's take a few questions.