Full House Resorts, Inc.

Good afternoon and welcome to the Full House Resorts third quarter earnings call. At this time all participants are in listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference please press star then zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Louis Fanger, Chief Financial Officer of Full House Resorts. Please go ahead, Phil.

Thank you. Good afternoon, everyone. Welcome to our third 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 we also have a presentation today on the website. If you go to investors.fullhouseresorts.com, click on the lower banner, click Company Info and then Presentations, and it'll take you to that presentation. Maybe the most fun piece of that is on page four. There are two video links for an ad that we're about to start running this week for Chamonix as well as a drone fly-through of the property. And then 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, you ready to go, Dan?

Yeah, I'm ready. Okay. All right, everybody, look at – there's kind of no way around it. It was not a good quarter, and I'm not happy about it. Colorado in particular was disappointing. Just reminding everybody, it was partly open in the first quarter. It opened just before New Year's and was only part of the hotel. And then it was more open in the second quarter. But in the third quarter, it was mostly open. I mean, most of the spa opened early in the quarter. The only thing left from a customer perspective today is some fancy lights and curbing in the parking lots. Everything else that a customer would see is open. Now, the expenses are up, not surprisingly. You know, back in 2023, for example, the total expenses in the four quarters were 4.3, 4.2, 4.8, and 5.0. That was really just bronco billies with a little bit of chamonix right at the end. And then as we opened The new property jumped in the first quarter to 9.1 and then 10.3 in Q2 and then 13.7 in Q3. The bad news is that while revenues have been growing, they've been growing only as fast as the expenses. So the revenues back in 2023, Q1 was 3.7, 4.1, 4.7, 4.5. And we weren't making a lot of money in 2023 because we had a lot of construction disruptions, so it was understandable. And then in 2024, the revenue has been 8.7, 10.8, and 13.0, which is good growth, but only as fast as the expenses have grown. And this results in little income and, in fact, a small loss in the quarter. The good news is that when you look at the magnitude of the markets, and particularly the results of comparable casinos in Blackhawk, our revenues have considerable room to grow, while the growth of our daily operating expenses is largely behind us. I mean, there's some things like gaming taxes that grow with revenues, but things like payroll should not grow going forward, and our revenues should be able to grow. And that should bode well for profits in 2025. And we also made some marketing expenses that didn't help the corner. You know, when we opened, we had an active kind of traditional advertising program around that opening. There was kind of a cute ad that was filmed in the midst of construction. And then we essentially went dark in the spring and summer as we were focused on getting the rest of the building open and building occupancy. And occupancy has built significantly. And in the third quarter, it reached over 80% in September. when it was back at 50% in the spring. And when it was at 50%, we were like, OK, let's get the occupancy up and let's be targeted about it. And part of what we did is we started offering a program where we purchased mailing lists and provided free rooms on midweek days and rooms that would otherwise be sitting empty. And that did help build the occupancy. Well, it turns out that all mailing lists are not created equal. So there's one mailing list that we bought that was reasonably successful. It was a well-defined list, 15,000 people on it. And recognize the way this happens, you pay somebody to mail the people on their list. They don't give you the names generally. And then you find out who responds to that, and then you find out the names. Well, somebody had a well-defined list, 15,000 people with a propensity to visit Colorado casinos. It cost us about $1. per person to mail it to them. And we offered a free night, midweek stay, which is when we would otherwise have generally had empty rooms. That particular mailing list, about 3% took us up on the offer. So 462 people out of 15,000. And that's not unusual. 3% took us up on the offer. So since you're mailing out 30 offers at $1 each, to get one person, you have like $30 customer acquisition cost. And of those 462 people, 380 actually played. So you have an even higher customer acquisition cost if you get down to people who are actually playing. Now, there may be some people who we make them have a card to get the free roam. Maybe some people played without having their card. So maybe the actual play was a little better than that. But in general, I think People do use their cards. And then on that particular mailing list, the average win per person was $180. Now, that more than covers the customer acquisition costs and the gaming taxes and the cost to clean a room that would otherwise sit empty. So it's not hugely profitable, and after all, it's only 300 or 400 names. But it added 380 people to our mailing list who we didn't otherwise know, and now we don't have the customer acquisition cost to go back to them. And that's frankly how one builds a business. Now, we had another larger mailing list that we bought that was less successful. It had 176,000 people on it. And it was kind of a black box. Somebody said, you know, these are people who have a proclivity to gamble, but they won't tell us how they know that. And you guys have all experienced this where you Maybe you subscribe to a newspaper or something, and then it's got a little questionnaire of what things interest you, and people click, you know, casinos. And therefore, somebody comes to us and says, hey, here's a list of people who are interested in casinos. We don't know exactly what it is. They didn't charge us much for the mailing list, and they wouldn't tell us the criteria. Now, honestly, we should have tested it with a small subgroup, but we didn't. We were eager to try to get the hotel filled. So we sent out 176,000 offers at about $1 mailing, so $176,000, again offering a free midweek stay. We only got 0.8% took us up on the offer. So it cost us over $100 to get a person to come to our casino, customer acquisition cost. Then, frankly, of those, only half gambled. And so the customer acquisition cost was like $200. And those that gambled, they only lost $48, which barely pays for cleaning the room. So that particular mailing list was a bust. And it counted for a few hundred thousand dollars. It was 1,382 room nights, which is over several weeks. It wasn't all one month, which is somewhere 5 or 10 points of our occupancy. Maybe most of those rooms would have otherwise been empty because it was midweek. But in some cases, they may have displaced more profitable customers. So that particular promotion was a bust. Now, going forward, we will continue to do some mailing lists, but we're going to be a lot more careful about how we do it. And we're also resuming an advertising program. And Lewis mentioned there's an ad that starts up today. We didn't want to compete with the high ad rates of the political season, so we started with it today. And we also had a very successful grand opening weekend this past weekend for our VIP players with Jay Leno and all sorts of things going on, and it went very well. And you can see the ad. We also have a link, I think it's in there as well, to a Drone video and this is something we did an American place where you hire somebody to fly a drone through the property It's too long a video to put on television or something But you put it on the website and it's interesting to watch and that goes viral It's not all that expensive to make And and yet we can get well we had tens of thousands of views at the American place so that we get something here and we also just hired a a new VP of advertising for the entire company, somebody who's got over 20 years of experience in the industry. And she starts next week, and she will help us make sure we're targeting the advertising correctly and not wasting dollars. We're also seeking to hire more casino hosts and more sales and marketing people. Now, a casino host is almost like a stockbroker. They bring with them customers they know and knowledge how to expand that list. And then sales and marketing people reach out to book meetings and conventions, which is very important to filling midweek periods profitably. We have had some conventions, like we had the Veterans of Foreign Wars from Colorado. We had Funeral Home Directors Convention, which, believe it or not, when they're not conducting funerals, they like to gamble. And we've had a couple of DART championships, which have done okay. We will have much more over time. We have great meeting room space. But honestly, it's hard to get people to book meetings and conventions before you're open because nobody's quite sure if you're really going to be as nice as you say you will be. And over time, we will book those, and that's part of also building the business. And then you'll notice on the stuff that Lewis Post, we're adding about 5,000 people a month to our mailing list, and that's important over the long term. Like most casino companies, we tend to group our casinos into regions. I guess it's just become the norm. It makes it a little more complicated for our competition to figure out what we're doing. But this quarter, however, for transparency, I want to provide some additional numbers so that you guys all understand. And we don't tend to do this every quarter, but I'll do it this quarter. In Colorado, for example, our EBITDA, depending on where you went to business school, is how you say it, in the quarter was a loss of $0.7 million versus a profit of $0.1 million last year, which reflects everything I just explained. Now, in that segment, we also have the Grand Lodge Casino within the Hyatt and Incline Village at Lake Tahoe. Larry Ellison purchased that hotel a couple of years ago. and it is still run by Hyatt, with us leasing the casino and renting the casino. Ellison's indicated he intends to refurbish the hotel, apparently extensively, and the first phase is to demolish most of the property's banquet and meeting room space, which is in a separate building from where we are, down along the beach. And so, as a result, the hotel canceled and put off a lot of its meeting and group business this summer, and did a lot less of that business than it normally did. Ironically, the owners pushed off their construction plans. I don't know whether they redesigned them or didn't get the permits. But it was too late to recoup that segment of the business. And so the hotel itself had weaker occupancy than normal over the summer. And some of those groups are people who tend to gamble. And so principally due to that, our EBITDA was $1.8 million versus $2.2 in the third quarter at that property. It's now having a very nice October. But that's what went on there. And I think it's a temporary thing that both the Hyatt and our casino there have been very consistent over the years, absent a snowstorm here or there in the winter. And I think they will eventually refurbish the hotel and make it even nicer than it is today. And hopefully we're still running the casino and it will do well. But that was what went on in the quarter. The other major segment we have has the Silver Slipper, Rising Star, and American Place. Now, the Silver Slipper did not have a great quarter, largely due to an active hurricane season. I mean, this time of year, I feel like you watch those storms come across the Gulf of Mexico, and they always seem to curve, and it feels like God's bowling, and I'm the 10-pin every time. But we weren't actually hit by a hurricane, fortunately, but the several storms went to each side of us. And when it does, it affects our customers' ability and willingness to come to us. And so the EBITDA in the quarter was 2.6 versus 3.6. So we were off a million dollars there. Now, this property has been capably run for many years since it opened by John Ferrucci, who's an industry veteran. He's retiring. And just this week, we relocated Angie Truber. Trubner Webner, if I say it right.