Dan Foley - ICR, Investor Relations Andre Hilliou - Chairman and CEO Mark Miller - Chief Operating Officer Deborah Pierce - Chief Financial Officer.

Justin Sebastiano - Brean Capital David Bain - Sterne Agee.

Good day, and welcome to the Full House Resorts Inc. first quarter 2014 earnings conference call. Today’s conference is being recorded. At this time, I would like to turn the call over to Dan Foley of ICR. You may begin..

Thank you, operator, and good morning. By now, everyone should have access to our earnings announcement and Form 10-K, which was filed with the SEC. These may also be found at our website, www.fullhouseresorts.com, under the Investor Relations section.

Before we begin our formal remarks, I would like to remind everyone that part of our discussion today may include forward-looking statements. These statements are not guarantees of future performance, and therefore undue reliance should not be placed upon them.

We refer all of you to our recent filings with the SEC for a more detailed discussion of the risks that could impact the future operating results and financial condition of Full House Resorts. I would now like to introduce Andre Hilliou, Chairman, Chairman and Chief Executive Officer of Full House Resorts..

Thank you, Dan. With me today on the call are Mark Miller, our chief operating officer, and Deborah Pierce, our chief financial officer, who will assist me in reviewing our first quarter results.

As we discussed on our last call, the first quarter was tracking to be a very tough quarter, specifically due to a very harsh region of weather in both the Midwest and the Gulf Coast.

As many of you are aware, regional gaming trends have been soft for some time, and coupled with one of the worst winters in the last several decades, we too felt the impact. Patrons did not visit the facilities in the usual numbers, and the typical snowbird traffic we see on the Gulf Coast never materialized.

The trends worsened in the heart of the first quarter, January and February. We are, of course, not the only company to have been affected by this very tough weather, and while we don’t traditionally look to blame the weather for our woes, we know that we had a harsh impact in the first quarter.

Indeed, we had expected to see some improvement in our operations as we enter a period of better weather. However, in Indiana, new competition has simply not grown the market and as a consequence, all existing operations in the market are suffering.

On the Gulf Coast, the weather started to improve just as the traditional busy season ended, around Easter. In fact, we believe that we have reached a critical saturation point with casino facilities in the Ohio/Indiana market, given the lack of growth.

In addition, our core casino customer, age 55 or older, continues to be very conservative with their spending, and we, along with many of our competitors, are feeling a dual pinch. As with all tough operating environments, this too shall pass.

We own fresh and exciting facilities and despite the headwinds, we remain encouraged that we will be able to stem the tide by operating more efficiently and providing great customers experiences long term. In addition, some relief is on the way.

In Indiana, substantial tax relief is just around the corner, as the tax rate in our Rising Star facility will roll back around $2.5 million per year starting in July, on top of the $1 million per year rollback in 2013. This should really improve our ability to operate the facility in a more profitable manner.

In addition, we continue to look for ways to contain costs at the facility in light of reduced volumes. We are also working to expand our marketing reach, now that we have an additional 104 rooms online.

We believe there is room for improvement, and we continue to look at ways to improve the bottom line while of course maintaining excellent service levels. The new hotel tower at Rising Star in the North Star Tower is performing well, and we continue to see solid weekend occupancies in a 90%-plus range.

And midweek, occupancy continued to improve to a level that we expect will generate better operating performance in the long run. Construction on the 142-room hotel tower at the Silver Slipper continues and we expect delivery in the first quarter of this year, or possibly early in the first quarter of next year.

We firmly believe the addition of the hotel will greatly enhance the property’s ability to attract and retain customers.

Importantly, we will capture additional play and nongaming amenity spend by increasing the length of our guests’ stay and capturing more wallet share, especially in the peak periods like New Year’s Eve, when the lack of hotel rooms limits our ability to fully capitalize on customer demand.

We also believe that there are significant opportunities to grow operations in existing and new regional markets throughout the United States, and our expansion effort has and remains principally focused on growing and diversifying our business in regional markets.

On March 21, we entered into a definitive agreement with the Majestic Star Casino LLC, to acquire all of the outstanding membership interest of the entity operating Fitzgerald’s Casino in Tunica, Mississippi.

On May 7, 2014, the company informed Majestic Star of the company financing effort, and it is believed that the company will not likely be successful in obtaining financial [results] for the purchase of Majestic Mississippi, LLC. As a result, we have requested Majestic Star consider termination of the agreement.

While we are disappointed by the outcome, we remain committed to creating shareholder value. We appreciate all the hard work put in by our internal staff, the [unintelligible] team, and our consultant and advisors. We will continue to focus on other exciting growth opportunities we have.

While it appears that we will be unable to move forward with the acquisition of the Fitz, there are still robust opportunities in the regional gaming market.

For example, in Kentucky, we continue to work with Keeneland Association pursuing gaming opportunities including the management of instant racing machines at Keeneland in Lexington and development of a property in Corbin, Kentucky catering to customers in the greater Knoxville, Tennessee area.

On February 20, 2014, the Kentucky Supreme Court issued a favorable ruling that the Kentucky Horse Racing Commission acted within the authority when they licensed the operation of pari-mutuel wagering on instant racing.

It has been remanded to the Circuit Court to determine if instant racing continues a pari-mutuel form of wagering, which is authorized by Kentucky law. During the quarter, we entered into an exclusivity agreement with Keeneland Association Inc.

to own, manage, and operate instant racing in Kentucky, subject to completion of definitive documents for each opportunity. In addition, the company and Keeneland Association Inc.

have entered into a letter of intent to provide us the exclusive option to purchase the horse racing permits related to the operation of the Thunder Ridge Raceway in Prestonburg, Kentucky.

The purchase will be subject to the completion of definitive documentation and to the approval of the Kentucky Horse Racing Commission, including the approval to transfer the racing license to a yet to be constructed quarter horse racetrack near Corbin, Kentucky, to be owned 75% by us and 25% by Keeneland Association Inc.

This proposed facility will be cater to the Knoxville, Tennessee market. We continue to work with our partners at Keeneland to identify and pursue the most prudent and profitable path to develop gaming facilities under the current legal framework.

I will now turn the call over to Mark to go into more detail about the financial results for the quarter and I will close later with a few additional comments.

Mark?.

Thank you, Andre. Deborah and I will briefly review our first quarter 2014 financial performance and financial condition. I will be discussing operations and financial results at our properties, and Deborah will follow up with our consolidated financial results and financial position.

The Silver Slipper Casino generated $2.1 million in EBITDA in the quarter, compared to $2.8 million last year. The weather during January and February 2014 was atrocious, and we had unusually icy conditions throughout the Gulf Coast during the quarter.

The extreme weather continued throughout the quarter and the usual balmy weather conditions, which attract snowbirds, did not materialize until very late in March.

As the weather has slowly improved, so have revenues, but unfortunately, most of the first quarter was negatively impacted, and local consumer spending has been depressed, as they have been recovering from the poor weather, government sequestration and shutdowns, and general weak economic conditions along the Gulf Coast.

With the weak revenue environment, we moved aggressively to control costs. Total operating costs at the Silver Slipper declined by $600,000 during the quarter, as the management team worked hard to mitigate the lower volumes we experienced. We estimate that the weather accounted for approximately $600,000 of the reduction in EBITDA during the quarter.

The Rising Star Casino Resort generated $600,000 in EBITDA in the quarter, compared to $2.7 million of EBITDA last year. Our property continued to feel the effects of the same extreme weather conditions as previously mentioned, as well as increased competition in our Ohio markets and zero market growth.

Market growth significantly underperformed expectations through the first quarter, and the severe weather in January and February resulted in effectively no market growth at all, despite having two new competitors in our competitive set. All of these factors negatively impacted our revenue, which declined 32% from the prior year period.

We have reduced our cost structure by $4.2 million over the same quarter a year ago, but not as rapidly as we would have liked, due to the unexpectedly low market growth and extreme weather. We estimate that weather accounted for approximately $1.4 million of the reduction EBITDA during the quarter.

As Andre previously mentioned, we are looking forward to a further $2.5 million reduction in our annual gaming tax expense, which will commence on July 1, and the management team at Rising Star has been aggressively pursuing additional cost reduction initiatives.

Our leased onsite 104-room North Star Hotel continues to ramp continues to ramp, and so far, weekend occupancy has been very strong at over 90%. Overall occupancy has steadily been improving, and we hit 77% in March and 78% in April, despite the difficult economic and competitive environment.

We expect that as we move into the stronger season and better weather, along with more aggressive hotel marketing programs, midweek occupancy will improve. In addition, we believe that we will be able to improve the gaming quality of our customer by attracting more well-heeled customers with our enhanced hotel offerings.

As stated, it has been a tough operating environment at Rising Star, and the horrendous weather in the first quarter has put us a little behind the curve.

Despite the increased competition, the property is well-positioned as an escape from the slots in box style offerings of urban casino locations, and will, we believe, continue to appeal to a large portion of our database looking for an escape from the hustle and bustle of the urban center.

Over time, we believe a portion of our customers trying the new product in Ohio will migrate back to us.

Suffice it to say we’re doing everything we can to mitigate the impacts of increased competition, and we firmly believe that the recent enhancements to the property, coupled with lower taxes and the adjustments we are making to our business model, will benefit us in the long run, and we look forward to making Rising Star a premiere day trip and destination resort in the greater Cincinnati market and the entire region.

Weather has improved in the market, but we are still feeling residual pressure, and the pent-up demand we would have expected to see post a tough winter has not yet materialized. But we do remain hopeful that it will at some point.

Revenue at our northern Nevada operations declined $900,000, primarily due to weak ski conditions in the Lake Tahoe region, which suffered one of its worst ski seasons in quite some time, and continued overall economic weakness in northern Nevada. EBITDA for the quarter declined $800,000 due to the aforementioned top line weakness.

Business trends and overall performance have improved and moved back to normal levels as we have entered the winter to summer transition season in Lake Tahoe. Recent trends have been encouraging in that market, and we are looking forward to a good summer season at the Grand Lodge when we traditionally generate most of our annual EBITDA.

Buffalo Thunder generated management fees in the quarter of $500,000, in line with our prior year. As previously announced, the Pueblo has decided to return to self-management following the completion of their financial restructuring this summer, and when our management contract expires on September 23.

With that, I will now turn the discussion over to Deb Pierce to discuss our quarterly results and liquidity.

Deborah?.

Thank you, Mark. For the first quarter 2014, the company recorded a net operating loss of $100,000, compared to an operating income of $3.1 million in the prior year quarter. This decline of $3.2 million is the result of the aforementioned tough operating environment at both Rising Star and Silver Slipper, as previously described by Mark.

For the three months ended March 31, 2014, total revenue was $30.4 million, a 22% decrease from the prior year period, primarily due, again, to the aforementioned economic, promotional, competitive, and weather-related issues.

Operating expenses of $30.5 million in the first quarter of 2014 were down 15% or $5.5 million from the prior year quarter, due to the decline in business volume, but also largely due to strong cost containment initiatives put in place to deal with the challenging operating environment.

For the first quarter, we believe that EBITDA was negatively affected by the previously discussed unusual weather conditions at our Indiana and Mississippi operations by an estimated $2 million. For the quarter, we incurred $1.5 million in interest expense compared to $1.9 million in the prior year quarter.

The decrease was primarily related to our reduction in overall debt to $59.5 million at March 31, 2014, from $68.8 million at the end of March 2013. Interest expense in the first quarter of 2014 consisted of cash interest expense of approximately $1.1 million and amortization of debt costs of approximately $400,000.

For the first quarter of 2014, we generated a tax benefit of $526,000. Our book income tax expense can vary substantially from the 35% federal statutory rate because of the state income taxes and also large permanent differences between book and tax. Our taxable loss for the first quarter was $1.6 million.

In March 2014, we received $2 million in a net operating loss carryback for the 2013 tax year. The company recorded a net loss for the first quarter 2014 of $1.1 million, or a loss of $0.06 per share, compared to income of $576,000 or $0.03 per share in the prior year period.

As of March 31, 2014, we had a cash balance of $14.5 million, of which approximately $12 million is needed to fund operations, and $59.5 million in long term debt on our balance sheet along with a $7.5 million capital lease obligation which is related to our 10-year lease for the new hotel tower at the Rising Star Casino.

In March 2014, we drew $2 million of our revolving credit line and used that cash to make the $1.75 million deposit for the Fitz Tunica purchase. As of March 31, 2014, we had voluntarily prepaid the $8.8 million in quarterly principal payments. The next required payment will not be due until October 2015.

This continues our long term policy of using excess cash to reduce debt ahead of schedule, reducing our interest costs and maintaining a conservative balance sheet.

Despite our voluntary prepayments on the first mortgage debt and because of the challenging operating environment in the first quarter, we were out of compliance with our leverage ratio covenants at March 31, 2014.

Our total leverage ratio and our senior debt leverage ratio on our first and second lien credit agreements both exceeded the maximum leverage allowed. We received waivers from both of our creditors for those covenants at March 31.

We could still be out of compliance at June 30, 2014, which could prevent us from drawing on the term loan to finance our Silver Slipper hotel construction unless we’re able to negotiate modifications to the covenants or obtain further waivers of the covenants from the first and second lienholders.

Our capital expenditures for the quarter were approximately $2 million, which included $1.3 million spent on our new Silver Slipper hotel project. We anticipate spending approximately $5 million on our 2014 maintenance capex programs and about $14.1 million over the next year in relation to construction of the Silver Slipper hotel.

About $4.1 million will be funded from cash with the remaining $10 million coming from our expanded first lien debt facility. With that, I will turn it back over to Andre for a few final comments before we open it up for questions..

Thank you, Deborah. There is no question we are facing some of the toughest headwinds we have ever faced. And while the operating environment remains challenging, we continue to be focused on providing the best service to our customers in this difficult operating environment.

I think it’s important to take a step back for a moment to understand what we have accomplished. We have successfully transformed Full House from a management company into a regional operator of high-quality assets. In addition, we have many exciting growth opportunities on the horizon.

A new hotel tower at Rising Star gives us an important tool fight in the increasingly competitive environment there. In addition, much-needed tax relief is helping us to improve our operating efficiency. We have great confidence that our soon to be completed hotel tower at Silver Slipper will be a very strong addition to the property.

And finally, we believe the opportunity in Kentucky is absolutely tremendous. Looking at the demographics and the lack of gaming options around our proposed sites, we believe Kentucky provides us with great future growth potential.

The operating environment is tough, but Full House is comprised of long-tenured professionals in the gaming industry, with significant experience. This is a challenge our team is ready to meet head on, and I can assure you that Full House will emerge a better company because of it. Thank you, and we’ll now open it up for questions..

[Operator instructions.] We’ll go to our first question, from Justin Sebastiano with Brean Capital. .

How much did the covenant waiver cost you guys?.

We did pay a waiver fee to our second lienholder of $50,000. We didn’t have to pay anything to our first lienholder..

Based on a big comeback in EBITDA, it looks like that’s probably going to happen again for the June quarter? Do you anticipate being able to get a waiver again?.

We’re currently in negotiations with our lenders, and we feel confident that we’re going to be able to work out a revision to the covenant..

You mentioned the consumer spending.

It hasn’t got really that much better at your properties, considering your core demographic is still kind of being conservative, but did the weakness come from that unrated or lower end of the player database, or is that affecting basically all of your players?.

I would say that it’s affecting us across the board, especially in Mississippi, where we saw a whole segment of the market just wasn’t there because of the bad weather.

I think the upper end of the market is performing better from a demographic perspective, but as you know, that’s not a huge part of our business, so I think it’s both on rated and on the lower end of the player database..

And I know it’s pretty early on, it’s only been about two weeks, but how does Belterra Park impact the results at Rising Star in May?.

It’s too early to tell, really, Justin. When a new property opens, it has an impact on us, but I think to understand the impact of a property takes more than two weeks to really be able to provide accurate information..

And we see April data out of Indiana, everybody, Hollywood, Belterra, and Rising Star all down 20% plus.

When do you think this sizable decline starts to get less?.

I think the issue for us, if you look at March and April’s results for the market as we measure it, which would be our part of Ohio and Indiana, there’s been no growth in the market for the last two months. And I think that is what really has everybody, including us, scratching our heads.

I think it’s going to continue to be a very tough row to hoe until we see some growth in the market. I think at this stage, we’ve anniversaried Hollywood in Cincinnati, and obviously Miami Valley, we’re just getting into it. But if the market continues to not grow, I think it’s going to be a tough row for a little while.

And at this point, we’re very, very focused on managing our cost structure and continuing to look for ways to market to the customers who have been loyal to this property, and have demonstrated a propensity to come here. .

And as far as Silver Slipper, I know you said the snowbirds are already coming back, but it was post the busy season.

Is it kind of getting back to normal there as far as what you would expect this time around?.

It is. I think we missed most of the snowbird season, which really kind of starts to end around Easter. But I think for this time of year, the property is performing close to prior year levels, close to expectations. It’s still weak.

When you look at market growth there, it’s certainly not improving very much, but we are seeing results improve to some degree. I talked about the Grand Lodge already, so….

And then Buffalo Thunder, you guys aren’t going to renew that.

How do you plan to replace the EBITDA that you generate from that property?.

We are looking at management contracts in Kentucky, and we are looking at growth in Kentucky, and I think that growth in Kentucky could come in sections, some in 2015 and with ownership, god willing, in 2015 or 2016 and beyond. And of course, that’s still speculation at this stage.

And at the end of the day, we are always looking at new management contracts, and people call us, and we are always on the market looking. If we think it’s a good fit for us, then we will pursue it. If we don’t think it’s a good fit for us, we don’t go forward.

So we are always looking at those management contracts all over the U.S., and you know we have a good reputation in that environment as well..

You mentioned Kentucky. I know we’re still waiting to hear from the judge there. When do you think we know something definitive there, where you guys and Keeneland actually move forward with building an instant racing facility at Keeneland grounds..

We can’t really speak on behalf of Keeneland, so that question, I will pass. Because we are going to be the managers, and they are going to be the owners, so I just don’t want to speak on behalf of our partner..

But we do know that the judge is obligated to make a ruling within 180 days, which we’re already well into that 180 days, so we expect that sometime this summer, at the latest, the judge will make his ruling on the last remaining issue..

And the case has been remanded to the judge, who has approved, in the past, instant racing. So it’s not like it’s a brand new judge..

And the 180 day clock started in late February?.

Accurate, yes..

And then just lastly, on the Fitz, the trailing 12 month EBITDA you guys stated at December was $10.1 million.

What is it through March 31?.

We really can’t speculate on what it is. We just can’t talk about it. We were provided that information in confidence..

When do you expect to hear, if at all, from the seller whether or not you’re going to get this thing terminated early?.

Soon, hopefully..

We’re currently in discussions with them. I think we’ll have it resolved in the relative near term..

And the 90-day period to obtain financing ends on what date? Is that June 20, somewhere around there?.

Yes, late June..

We’ll take our next question from David Bain with Sterne Agee. .

I have kind of a bigger picture question on the potential termination of the acquisition and how that changes your positioning to pursue future acquisitions. I guess I would assume a candidate would review this and potentially be more hesitant to get locked up into due diligence or a financing period.

Or should we just assume that this was very proactive on your end, given your share price and volume, and something you think forward candidates will understand? Is this something that we should look to in our forward outlook for acquisitions?.

I think this acquisition, we just ran into a period where there were just too many headwinds. I think the weakness in the regional gaming markets, the bad weather, and some other issues that we’re not at liberty to discuss, just caused there to be too many headwinds for us to be able to finance this transaction the way that we wanted to finance it.

And I think that we’re going to focus on Kentucky here for the next immediate term. We think it’s the biggest opportunity available to the company.

We’re going to continue to look for acquisitions, and I think that as the dust settles on this bad weather period, and hopefully we see some improvement in regional gaming markets and the related financial performance, not just Full House Resorts but the gaming industry in total, then I think we’ll be able to go back and look at financing markets again, freshly.

But I think that at least for the very immediate term, we’re going to focus on Kentucky, we’re going to focus on our existing operations and getting them squared away in this environment, and then we will look for opportunities to move forward. .

And then if Kentucky does happen in the near term, and you laid out the capex schedule, I understand the management agreement doesn’t require any capex, but the 75% purchase of Thunder Ridge and move to Corbin, that would likely require some new funding, and if so, is that just like project debt issuance and equity out of cash on hand? Or is there some strategy there?.

I think your analysis is exactly right. I think that we are going to have to put some capital to work in the predevelopment stage of the Corbin opportunity, Thunder Ridge opportunity. The exact amount of that has not yet been determined.

It’s something that Andre alluded to we were continuing to work with Keeneland to determine the best way to move forward there. But until we know exactly what the nut is, and what’s required, I think it’s premature for us to discuss exactly how we’re going to fund it at this point.

But we are going to need to allocate some capital, and that will obviously either have to come off of our balance sheet or we’ll have to raise it in one form or another..

There are no questions in the queue at this time. I would like to turn the call back to Andre Hilliou..

We’d like to thank everyone for being with us today. With that, we will end the call and wish all of you a great rest of the week..