Full House Resorts, Inc.

Good day and welcome to the Full House Resorts First Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Louis Fengers, Chief Financial Officer of Full House Resorts. You may begin.

Thank you and good afternoon, everyone. Welcome to our first quarter earnings call. 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 federal security laws. 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 discussion of risks that may affect our results. Also, we may make reference to non-GAAP measures, such as adjusted EBITDA. For a reconciliation of those measures, please see our website, as well as the various press releases that we issue. And lastly, we're also broadcasting this conference call at fullhouseresorts.com, where you can find today's earnings release, as well as all of our SEC filings. And with all that, I want to start today. Dan's back with us this quarter, so that's the good news. We had a relatively busy quarter, mostly on the balance sheet side. Operations continued, as you've seen, over the last two quarters. That gives us 10 months now of reset operations. And as we stated pretty strongly last quarter, we expect those changes to be sustainable. Looking at the income statement, consolidated revenues for the first quarter were up pretty strongly, about 37% to $42 million. We were closed for the last two weeks of the quarter last year, so that's part of the reason for the strong gain. However, even if you compare our recent first quarter to a more normal quarter, like the first quarter of 2019, revenues still climbed about 4%. that was due to strength in Mississippi, as well as the continuing launch of our sports skins, which we'll talk about in just a second. Adjusted EBITDA improved to $10.8 million. That's an increase of more than $12 million versus the first quarter of 2019. And again, we went through a lot of the reasons why last quarter, so I won't go through all of them again here today. But they do 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 demand. And again, I will continue to reinforce we think all of that is sustainable. I don't know of any first quarter over the last many years where EBITDA has been stronger than where it was in this current first quarter. On a trailing nine-month basis, our adjusted EBITDA is sitting at more than $33 million. That's a great spot to be sitting at as we step out of our seasonally weaker fourth and first quarters. and into our stronger or typically stronger second and third quarters. For all of you astute press release readers out there, you'll see we switched up the operating segments on you. We broke out our six sports contracts in Colorado and Indiana into their own segment, which is named Contracted Sports Wagering. That includes the on-site sports books at Bronco Billy's and Rising Star, the three online sports skins in Colorado, and the three online sports skins in Indiana. We felt it was wise to break out that segment for a few reasons. One is that investors seem to be valuing sports betting generally in a much different fashion than traditional brick-and-mortar casinos. Very specifically, it feels like companies in that business are being rewarded with much higher EBITDA multiples. And secondly, the cash flow that we get from that segment is real cash flow. There's no maintenance capex attached to it. We don't have to pay for a leaking roof. We don't have to pay to replace slot machines. There really aren't many cash needs on that segment at all, and that's probably part of the reason why we put a richer multiple on it. Regardless, we have given you all that increased transparency by breaking out the contracted sports wagering segment. That segment did increase from about $400,000 in last year's first quarter to nearly $1 million in the current period. That's due to more skins being live. We had three of our six skins live in the first quarter of 2021. and added more very recently in the second quarter. About five weeks ago, our fourth skin launched. That was Wynn launching in Indiana. And then about two weeks ago, our fifth skin launched, and that was Churchill Downs launching with their twin Spires skin in Colorado. We have one skin left to go, which is Smarkets in Indiana, and we hope to see them go live in the next few months. Regarding the balance sheet, we were very active in the first quarter. We issued $310 million of new senior secure notes Those are seven-year notes due in 2028. They're our debut issue with the high-yield markets. By the way, they're trading quite well. The proceeds were used for several purposes. The first was to refinance $7 million of our senior secure notes due 2024, including a modest call premium. The old notes were floating rate notes at Libro plus 700 with a 4 of 1%. So they were effectively 8% floating rate notes that were likely to go higher in the future. Our current floating, they're fixed with an interest rate of 8.25%. As I did mention last quarter, is that our new notes don't have a quarterly leverage test that we have to meet, which is a pretty big advantage versus what we used to have. We did use $4 million of our bond proceeds to take out all of our outstanding warrants. Those warrants gave the holders the ability to purchase about a million shares of our stock at an exercise price of $1.67 per share. With those gone, it's a pretty clean and straightforward balance sheet now. The most important use of our proceeds was to fund our Chamonix growth project in Cripple Creek, Colorado. We have $180 million, about $180 million of remaining costs to complete that project. There was only about $100,000 to spend by the end of the first quarter for what it's worth. And through May 1st, we've invested about $2.1 million of the $180 million into the project. And if you take a look at the webcam, actually, if you look a few hours ago, you would have seen the demolition of one of the existing buildings live. It was kind of fun to watch. But I'll let Dan give you a fuller update on that project very shortly. And then the balance of the proceeds for that bond offering was to pay for deal expenses, and we put about $8 million of cash under the balance sheet. While we have been pretty laser-focused on our Chamonix project, we do have two potential future projects on the horizon, both in Waukegan, Illinois, and at our existing Silver Slipper property. And so because of that, in late March, we issued $46 million in new equity. This equity issuance strengthens our balance sheet even further, especially as we prepare for the day when we can formally present our project to the Illinois Gaming Board, which If you recall last October, we did sign a commitment letter with a multibillion-dollar private equity firm to fund our Waukegan project, but it would have required us to contribute $25 million of cash as equity. This equity deal that we just did was our way of showing that there should be no doubt as to our ability to build what we think is the most exciting vision of the three projects that remain in that process and is something that we think the locals of Waukegan will be amazingly proud of. A nice side benefit of that equity offering, too, is it should result in much more liquidity in the stock now. And then on the last day of the quarter, we entered into a $15 million revolving credit facility. There are two quarterly covenants in that facility to note, but they're both relatively minor. One is a minimum liquidity covenant. We need to have at least $20 million of unrestricted cash for just two quarters, the first quarter that we just finished, as well as the second quarter of 2021. I think we should be able to handle that pretty handily for what it's worth. The other is what is effectively a minimum EBITDA covenant. We need to have EBITDA on a trillion 12-month basis that exceeds the utilized portion of our credit facility. And so to dumb that down a little bit, we currently don't have anything drawn on the credit facility So we need to have at least zero EBITDA. If we drew down the full $15 million of the revolver, we would need to have at least $15 million of EBITDA on a trailing 12-month basis. I don't really envision us using very much of that credit facility for what it's worth. It's really there to provide us with additional liquidity should we ever need it and to help facilitate things like ordinary letters of credit that we might need to post. And so all of that leads to our overall liquidity position. In addition to that undrawn revolver, we have $278 million of cash at the end of the quarter. That includes almost $180 million in that restricted account for Chamonix. And I feel like I said this last quarter, but it is true all over again. That's more cash than we've ever had in our histories at this company. I rattled off a few things, Dan. I'm sure you have some things to add in there, so feel free.

Yeah, I did a lot of things. Louis did it off notes, and a little freewheeling here, but I'll add a little color to what he said. He covered almost everything. In Mississippi, part of why we're doing so well is we refurbished the casino in 2019, upgrading the casino and the buffet quite a bit. It was always nice. We made it nicer. And then there was no Mardi Gras this year in New Orleans. And Normally, that's a strong period for us because people in New Orleans get out of town because it's such mayhem, and some of them come to us. So the fact that there was no Mardi Gras might have actually worked against us, and despite that, we did well. Third, I'll mention that back in October, we had some damage from a hurricane. That's been repaired for the most part, but as a result of those repairs, we're repainting the building. And for the most part, that's being paid for by the insurance coverage. And the painting, the building will have a different look. We picked up a completely different color scheme. We thought as long as we're painting it, if we change the color scheme to actually we pick the colors off the shutters in Santa Monica Hotel, it will effectively refurbish the outside, if you will. And that's underway as we speak. So we've been working on this expansion And the property was not designed really to be expanded and it's a little bit landlocked. So it's a little complicated. We figured out the best way to expand it was on a pier out over the water. So you build a pier like the Santa Monica Pier and you put a hotel tower on it. It's actually not that hard. Everything down there is muddy so everything has to be built on pilings anyway. So the pile driver can be on a barge just as easily as it can be on a truck. And the Gulf of Mexico is quite shallow, so it doesn't really matter. You obviously have to design fire exiting in certain ways and so on, but we've done that. So going out over the Gulf of Mexico, and then we will need more parking. And under our lease, we have a lot of wetlands that we would like to be able to fill in and create more surface parking. And so those things require some approvals. So the bottom of the Gulf of Mexico out to some miles offshore is actually controlled by the state of Mississippi. So we have been working with them, and we think we have a draft agreement that we think everybody's in agreement with, but they're jumping through hoops at the State House to execute it, that would give us a 35-year lease at about $100,000 a year to lease a small swath of the bottom of the Gulf of Mexico, allowing us to build a pier. And then to fill in wetlands is also kind of a process, and we've done it many times in Lake Charles and other places. But basically, if you're going to fill in a place where two ducks might get friendly, you have to go find another spot where ducks might be even happier to get friendly and put it into trust forever as a great duck habitat or whatever habitat. And so we've identified land that we think works for that swap. We've negotiated a deal for that. And so we're trying to execute all of this, which would put us in a position to build that expansion. It would have about 150 guest rooms, one new restaurant, and then meeting room space and a small spa. This property doesn't have any meeting room space at all. So it's very awkward when it's like New Year's Eve. You don't really have a place to have a party or anything. And that also makes it a little more challenging to fill the hotel Even the hotel we have midweek is a little more challenging because normally you use the meeting room space to help fill things midweek. All of this has to be elevated 30 feet. So we think we can do this for approximately $75 million, and we're kind of getting things ready to be able to do that. And the numbers work pretty well because you're not building a new casino. You're just adding more people to the casino you have now. And so the returns on that end up being pretty good. In Indiana, we also did pretty well with the million one of income. Historically, this property doesn't make a lot in the first quarter. It's seasonal. And last year, it lost money in the first quarter. And so we're pretty happy with how it's going. And that was despite some pretty bad weather there in February. I hate to cite weather, because there's weather every year, usually. But we're pretty pleased with that. Our general manager there has decided to move on with Indian Tribe in the Midwest. And so we're promoting Angie, who's been our director of finance there and EVP. And she'll become the general manager. And then Jim McCracken, who's been our casino manager, will become the assistant GM. Both are internal promotions. Both are competent people who've been with us for a while. Angie worked at the Silver Slipper for many years before going up to Indiana. Pleased that she'll be our first female GM. It's past time for that to happen. And she's very competent and very hardworking, and we're excited about that. So kind of the news in Indiana is basically some management changes, and we're happy with that. And frankly, Angie and Jim and the team there have been a big part of why this property is making more money now than it has in a long time, and we want to keep that up. It's kind of a new style of operating where we focus more on casino customers that matter and less on people who just want to eat cheap at the buffet. So in Colorado, similar. Now there we had a good first quarter, best first quarter the property's had in a very long time, maybe forever. And that's despite the fact that the parking has been pretty much ripped up as we're building Chamonix in the early stages. And so they've had to scramble and offer valet parking at the front of the property. We bought a couple of shuttle buses. We've leased a surface lot as you come into town, and we're waiting for city council approval to allow us to use that. We'll get that approval, but there's a process that it takes. And so at the moment, we have very limited parking other than what we can do through valet, where we can park you kind of remotely. And yet the property continues to do well. We did buy Carr Manor, which is a B&B with about 15 rooms. It's actually pretty nice. It was a school at one time, and the couple that bought it and fixed it up did a good job. And so that's been popular with our customers, and it's helping us upset the fact that we've torn down quite a bit. If you do... go to either the Bronco Billy's website or the Chamonix, Colorado website. They both lead to two webcams that we have up that show them. If you look carefully on the one, you'll see a backhoe working its way down a street. That's relocating utilities along the street because right now a lot of utilities cross the property, and you obviously don't want utilities underneath the building because if you have some problem, you can't get to them. And then... There's three buildings we have to demolish. One we did a few weeks ago. The second we did this morning, and that's actually the westernmost piece of the Bronco Billy's Casino. It was a building that was not actually historical. It was built back 30 years ago, which in local terms is a modern, recent building. So we were permitted to tear that down, and we chose to, to allow us to build a new building without posts and so on as part of Chamonix. And so that came down this morning. There's one other one, which is an old apartment building that will come down shortly. And so we're underway. In about two weeks, you're going to see a lot of foundation work out there. The work you see now is very important and has to be done first. It's not very impressive to see a guy out there with a backhoe relocating a storm sewer, but unless you do that, you can't do the other stuff. And so that's all coming along. And then... In Nevada, we actually had a pretty good quarter despite everything. That's been kind of the most COVID-challenging place because the ski areas this winter all had restricted capacity because of COVID. The Hyatt has very little meeting and convention business because of COVID. And then the Navy pilots and their crews have been locked down on the Naval Air Station. Despite that, we made some good money in northern Nevada. I think as people get vaccinated and people start traveling again, the Hyatt numbers will get better. Hopefully the local business that is the other half of our business there will stay strong, and eventually the Navy will allow their people to leave base, and that will be good for us. So I'm pretty optimistic about northern Nevada coming out of it. Contracted sports wagering, you know, our guaranteed minimums are about $7 million. a year, which would be a little less than $2 million a quarter. So you can see we had $1 million in the first quarter. And there were $6 million of market access fees that were paid up front. That gets capitalized and amortized over the life of the contract. So we really should have about $2 million of contracted sports wagering income per quarter. And we're almost there at the end of the second quarter. and we only have one more license to open, so it's coming along. And the big jump in corporate I'll mention is with the poor earnings last year and the good earnings this year, we accrued for bonuses, not just for me, mine's in my contract, but throughout the company there's some bonus accruals, and that's a big chunk of that increase there, which as long as we're showing results that's good, I think that's only fair. The Waukegan is exciting. I spent this morning working with it. The Illinois Gaming Board put out a request for proposals for an investment bank to help give them advice as to whether the different proposals can be financed and what they might do and so on. They had done this once before and nobody responded. I'm not sure why. I guess I could guess that maybe They defined something that only Goldman Sachs would satisfy, and they had a fee that Goldman Sachs wasn't interested in or something. But they got no responses. So they came back with a new RFP, and they've said that they did have responses. And the gaming board, director of the gaming board, had indicated that he thought that they would reach a decision six months from when they hire an investment bank. So they haven't hired one yet, but we think it's close, at least that we know of. And so if you extrapolate that, that would be fourth quarter where they would be making a decision. So we continue to kind of work on the details of what this would look like and how it would work and how it could be exciting. And so over time, our project, frankly, gets a little better. It's essentially the same project, but we've found little improvements we can make. And then... If we were chosen, then you have to negotiate a development agreement with the state, which doesn't happen overnight. But from the moment that's done, we would be open with a temporary facility in six to nine months and then get going with a permanent facility that would take a couple years to build. So it's late next year at the earliest that we would be up with a temporary casino. So we're watching this process pretty closely. It's taken much longer than they had originally forecast it would. And I mention all that because this expansion of Mississippi is coming along pretty quickly, and I don't want to have that on hold indefinitely for Chicago. We've been kind of hesitant to have three things under construction at the same time, just because we're not that big a company. But, you know, Colorado's going pretty quickly. That'll be open in two years, and it wouldn't bother me a lot if we were just doing the groundwork on, like building the pier in Mississippi before Colorado was open. If they overlapped some, it wouldn't be the worst thing in the world. So we're kind of going along multiple paths here, willing to go as quickly as possible in Illinois if we were chosen, but also looking at Mississippi and saying, we don't want to leave this on hold forever. We could go quickly there, too. And financially, we really could do all of these things. Yeah. The balance sheet's in pretty good shape, and we're sitting on how much cash today?