Full House Resorts, Inc.

Ladies and gentlemen, good day and welcome to the Full House Resorts Second Quarter Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Luis Fanger, Chief Financial Officer of Full House Resorts. You may begin.

Thank you and good afternoon, everyone. Welcome to our second 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 that said, I'll be really brief and then turn it over to Dan, but this was another very strong quarter and a great first half of the year. Adjusted EBITDA for the second quarter was $14.9 million. This is now our fourth straight quarter of very strong results. The reasons behind it, you've heard over the last several calls and they haven't changed. But the short story is we've revamped our cost structure in part by investing in new slot marketing systems and other technology. And we continue to think that these changes are sustainable in the long run. And so when you look at adjusted EBITDA for the first half of 2021, that number sits a little north of $25 million. And if you look at the last four quarters, we're just shy of $48 million of annual or annualized, I should say, adjusted EBITDA. The one segment that is a little slower and rebounding from the COVID shutdowns last year was our Nevada segment. It feels like we crossed that bridge in the second quarter with guests returning to the Hyatt complex that houses our Grand Lodge Casino and visitation to Fallon's Naval Air Station also starting to return. With regards to our sports skins, we had two more launched during the second quarter. That brings us up to five skins that are now live out of a total of six. Those five skins represent $6 million of annualized contractual revenue. The last remaining sports skin is with Smarkets, and it feels like they should be launching very soon in Indiana. The Gaming Commission, of course, has to thoroughly vet any company before it can launch in the state, but it does feel like we're on the homestretch there. When that last skin launches, it will add another $1 million of annualized contractual revenue, giving us a total of $7 million per year from our sports skins. And then the last point I just wanted to make was on our cash position. That continues to be in very good shape. Sitting here in real time, we have about $283 million of cash and restricted cash. A little more than $176 million of that is reserved for the construction of Chamonix. Of course, we'll start to use some of that cash balance as construction on Chamonix continues to ramp up. But do remember also that outside of that project capex, our business generates some pretty meaningful cash flow. I know Dan's going to have a lot more bigger points for you, so I'll turn it over to you, Dan.

Well, this is one of those quarters where the accounting professional likes to confuse things because they kind of force us to do all these comparisons of the second quarter of 2021 and the second quarter of 2020. And of course, we were closed for most of 2020, so it's a completely bullshit comparison, which is why we earned their ire by including the 2019 numbers in the supplemental information, which is kind of halfway through the press release, because we think that's a far more interesting comparison, because everything was open for the full quarter in 2019. And if you look at that, in Mississippi, we had adjusted EBITDA of almost $9 million. That's the best second quarter, I think, in the property's history. 2019, it was $3.6 million, so it was twice what we did before COVID came around. I'm going to put you closer to the mic. Okay. In Indiana, we did $2.7 million of adjusted EBITDA before the pandemic. The second quarter in 2019 was $600 million. That $2.7 million is the best second quarter there for quite some time. In Colorado, we did $1.8 million versus $876,000 in 2019. Again, a very strong quarter. May have been the strongest second quarter in the 20-year history of Bronco Billy, 25-year history. And then in northern Nevada, which had kind of lagged in prior quarters, but we had a really good Second quarter there was $1.4 million of adjusted EBITDA versus $400,000. And, of course, we had the contracted sports wagering income of $1.5 million, which we didn't have any of that back in 2019. And so the adjusted segment EBITDA is $16.4 million. Corporate's $1.5 million, and that left us with $14.9 million. And back in 2019, it was $5.5 million, and corporate was $1.2 million. Much of the increase in corporate is we have a bonus plan and different compensation plans that are based on income. And so when the income improves this much, we have to take accruals on the assumption that there will be nice bonuses at year end. And so that's the story of the quarter. It was great. And we earned about as much in the quarter as we did in the full year of 2019. we intend to keep this going. Part of that is the slot system, which Louis mentioned, the Konami system we had put into Colorado and Rising Sun two years ago now almost. We're going to be putting that into northern Nevada in the fourth quarter. At that point, we'll have the state-of-the-art slot system throughout the company. That allows us to do things that are a better experience for the customer, but we also get much greater marketing data that allows us to be more efficient on our marketing. And that's been part of the reason for our success. In Colorado, Chamonix is starting to take shape. The webcams are available at chamonixco.com, chamonixcolorado.com. And we're rocking and rolling. Put up a big tower crane that's 230 feet tall with a 200-foot arm on it so it can reach everywhere at this kind of extended property we're doing. and the foundations are going in, pilings are in, where the elevators go is where the shear walls around the elevators are all going in. It's still very early in it. It's a topsy-turvy world to try to build something, as you can imagine, like price of lumber shut way up, and then it crashed way down, and it's unclear what the tariffs are going to be with the stuff from China and so on. You know, our budget's 180 million. We're planning to be open in the fourth quarter of 2022. Make sure I get it right. You know, there are some challenges in that. We think we're pushing a little bit on that fourth quarter. We'll know better in the months ahead. But it could slip into the first quarter of 2023, but we're striving for the fourth quarter of 2022. The 180, if I were to guess at this point, because we put out to bid a pretty small part of the project at this point, but the bids have come back a little higher than we thought, so there's some pressure there. We'll know again better as we put more of it out to bid, but it's probably pushing 200 or somewhere in there. We are evaluating... not only trying to get a better number because we're putting out bid packages so we get smarter just about every week, but it looks like one of our competitors opened a 100-room hotel. It seems to be pretty booked up. It's a pretty kind of a Motel 5 hotel, but nevertheless it's doing pretty well. And the bigger new hotel up in Black Hawk that Monarch built seems to be doing pretty well. I went and visited it, and they did a nice job. They're constrained by their footprint, which is long and narrow. Nevertheless, they seem to be doing well. But I think there are a number of ways where we will have the best casino in the state because we don't have some of the constraints that the places have in Black Hawk. And so we are evaluating whether to add another 70 rooms and suites to it. We had always had this idea that we could add another leg at some future date, and we're evaluating whether to do it now. Part of that is to get a firmer grasp on where we are versus that $180 million. I don't want to increase the scope of it if we're not having the costs contained. But we also would need approval of the city's historical preservation committee and city council in order to increase the project to 370 rooms. Now, Monarch, I think, is 500 rooms. And Ameristar and Black Hawk is 534 rooms, if I remember correctly. So as we go up in size, we can't go tall, because we're in a historical area. So we're kind of sprawling out. Fortunately, we have quite a few acres, so we can sprawl out. Not too long ago, just checking out other nice hotels in the state, I stayed at the St. Regis in Aspen, which is a very nice hotel in Aspen. It gets a really high room rate and everything else. It's balls. You can't go tall in Aspen either, and yet it feels very nice. And frankly, that's roughly comparable to the size of what we're building. So if you want to feel what it feels like... St. Regis and Aspen is similar to what we're kind of building in terms of guest room wings that stretch out that are four, five, and six floors tall. And so we'll make a decision in the next couple months on whether to go to city council and get those approvals and get our board approval and so on. But pretty good chance we'll try to upsize the scope of this because the market seems to be there for it, and we have the money. Frankly, we have more than enough money even for the expanded project. Down at the Silver Slipper, we also achieved something pretty remarkable. Silver Slipper is on a pretty constrained little piece of land, and we've been trying to figure out how do we add another hotel tower someday. finally concluded the best way to do it was to build out over the water out over the Gulf of Mexico. Everything is built on pilings down there anyway because it's muddy Mississippi. If you don't put it on pilings, it's going to sink. So if you build that over the water, the pilot driver is on a barge instead of on a truck. That's conceptually the same thing. You still have to have the livable space, something like 25 feet above sea level for storm surges from hurricanes and all that sort of thing. The Bottom of the Gulf of Mexico belongs to the state of Mississippi for the first X miles going offshore. And so to build that over the water, we needed to reach an agreement to lease land from the state of Mississippi. They won't sell it, so you end up leasing it. And so we have an option to lease. If we exercise that option, we can lease it for up to 60 years. Once it's open, the rent's about $100,000 a year. The option payments before that are pretty minor. Obviously, the state of Mississippi would like to see us do this. They get gaming tax revenue in our casino. If we have more rooms, we'll have more casino revenue, more jobs, more development, and all that. And so the governor signed that within the last month, and so we now have a firm option to lease a half acre of the bottom of the Gulf of Mexico, as oddly as that sounds, to allow us to build a hotel tower that would be ideally located vis-a-vis our casino. We still require some environmental approvals. We do have an option on some land that we think is environmentally sensitive, so we can do a swap so that we can fill in some of the marshland that's next to us to create parking that would be needed by having more hotel rooms. And so we still have to work that out. And meanwhile, we're looking over our shoulders at the casino being proposed in Slidell, which I think has gotten perhaps too much visibility versus our company. We were a little surprised that they got through the legislature. They just barely got through the legislature. And they did it with, there was one committee where a guy was gonna abstain, and he changed his vote to vote for it. Well, his wife was one of the 19 lobbyists that the casino proponent had hired, so that's pretty questionable. But they go to a local referendum on November 13th. We've been doing polls. The polling that we've done, and it's not push polling, it's an honest poll, shows it loses. by a pretty wide margin. This is a very conservative region, heavily Republican. People move there from New Orleans to get away from urban issues, and so they don't want things like casinos. But even if, and by the way, the sheriff, the head of police, and the mayor's the two biggest towns have all come out against it. Even if it wins, What is being proposed is relatively minor compared to all the casinos that are around. And casinos like us in Mississippi have a tax rate that's half of what it is in Louisiana. And so it's reminiscent of when Peninsula built a casino in Rochester, New York, kind of ignoring the existing competition that had a lower tax rate, and that property ran into trouble immediately. or the other one I'd point out is the M Resort that was built on the south side of Las Vegas. They go, oh, we're going to catch people before they get to the Strip. But it wasn't big enough and important enough to get people to stop before they got to the Strip. And so people continued to drive further to better places. And, of course, the M Resort failed shortly after it opened. You know, we compete already with a number of casinos. Probably our... most vibrant competitors, a place called Island View. It's a private company out of Gulfport. And they've got over 1,000 guest rooms and a lazy river swimming pool and a couple of casinos. And frankly, it's a nice place. And you have to drive past us to get to it. And they do quite well, and we manage to do well as well. The Hollywood casino is quite close to us. They have three times the guest rooms that we have. And they do well. We do well. We compete with the places in Biloxi, and there are a whole 10 of them over there. We compete with the fairgrounds, which if you leave Slidell and head to us, you do not go by the new proposed casino site. But if you're going from Slidell to New Orleans, the closest casino to Slidell is actually Fairgrounds, which is owned by Churchill Downs, and you do pass that casino site going to New Orleans. And so we compete with fairgrounds. We compete with New Orleans. The Harris property in New Orleans cost $900 million when it was built 20 years ago. They're in the process of putting another $500 million into it. That's the 700-pound gorilla in the region. And they're not going away. And then we compete with the casinos in Baton Rouge, including LaBear's, which in an earlier life I designed and And it's a good property on the south side of Baton Rouge. And there's two other properties in Baton Rouge, plus a tribal casino on the northwest side of Baton Rouge. So, you know, adding one more casino to that mix is, you know, is it a plus? No, it's not a plus, but it's not a very big negative to us. And I think we'll do just fine. And, of course, we'll know pretty certainly here in a couple of months whether whether it's going to happen at all. Meanwhile, in Waukegan, the Gaming Commission, who, you know, the law actually said they were supposed to choose somebody by late last year, but they had an out because of COVID, and so they didn't. Now they've hired a consultant to help them, an experienced consultant in the casino industry on this stuff, and... and the head of the Illinois Gaming Board had indicated that once they had a consultant, they thought they would be six months from a decision. And so that would imply that somewhere perhaps in the fourth quarter, we and the other two proposals for Waukegan get to make a presentation to the Illinois Gaming Commission and Illinois Gaming Board, I guess it is, and hopefully they come to a decision thereafter. And the way this normally works is you then negotiate a development agreement with the gaming board and you have certain timelines that you have to meet and certain milestones and then you're off to the races and you build it as quickly as possible. We were deemed by the city's consultant as having the best proposal. We simply had the smallest balance sheet relative to what we were proposing I think we fixed that over the past year, and we're now sitting in pretty good shape for what we've proposed. Obviously, we'd have to arrange financing, but I don't think there's any question that we could. We also have a private equity firm that has signed up to step in, although, frankly, with where bonds are trading, it might be cheaper to do it directly. And we've been working on our proposal in terms of the details of it. The city process was very quick, and you had to put something together very fast, which we did. And now we're kind of enhancing that more to put a little more meat on those bones so that when we show it to the Illinois Gaming Board, it'll be the most thought-out, most thoughtful proposal they've seen, I believe. Meanwhile, in Indiana... About three or four years ago, we had proposed building a casino in Terre Haute. That's an area with about 150,000 people. It is about an hour from Indianapolis on the west side of Indianapolis, which is a city of two million people. There are two casinos that cater to Indianapolis. They're both east of Indianapolis, and they're outside of town a little bit. It's a pretty good market, we think. Terre Haute itself, plus you could probably draw some from Indianapolis. And there's a whole bunch of towns in that region that are 100,000 to 200,000 people, you know, Champaign-Urbana, Lafayette, Indiana, and so on, that don't have casinos and might also be attracted to a place in Terre Haute. The Indiana Gaming Commission had selected... a partnership to develop in Terre Haute. It wasn't us. But as I mentioned before, you end up with milestones and timelines, and that developer did not meet those milestones. And so they didn't renew his approval, and instead they've now put out a request for proposals for other people to potentially develop in Terre Haute And we're looking very carefully at that. Deadline is middle of September, and we'll see where that goes. I think that's it, Lewis. Did I miss anything? I think we're good, Dan. Yeah. Want to do some questions? I didn't tell them about our proposal to acquire Winn, but we'll leave that for another day. And that's a joke. Winn is 20 times our size. Let's take some questions. Maybe 50 times our size.