Lewis Fanger - Senior Vice President, Chief Financial Officer and Treasurer Daniel Lee - President & Chief Executive Officer.

Good day, everyone, and welcome to the Full House Resorts’ First Quarter 2017 Earnings Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Mr. Lewis Fanger, Chief Financial Officer of Full House Resorts. You may begin..

Thank you. Good afternoon, everyone. Welcome to our first quarter earnings call. Before we begin, as always, we’ll 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 EBITDA and for a reconciliation of those measures, please see our website as well as the various press releases that we issue. 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, we’re ready to go, Dan..

Okay. Good morning, everybody. It’s kind of a fun quarter, because everything is a little torn up. We got stuff going on in every property that we are improving using the money we’ve raised in the rates offering plus what we generate internally.

And so we’ve got a lot going on, none of which benefited the quarter and some of which actually hurt the quarter, and despite that, we did great. So it’s kind of reassuring. I hate to blame weather, but it did snow heck of lot. And weather doesn’t usually affect quarter that much. I will tell you, it decimated January, but then we had a great March.

And so at the end of the day, we came out, but just fine. Silver Slipper, which is our most important property did great. Revenues were up nicely. EBDIT was up nicely. We are building a beach club there, which has the first swimming pool at the property.

We sit at the foot of a like eight-mile long white sand beach, beautiful beach, and yet we don’t really use it, because there’s a parking lot along the beach. So we’ve taken out part of the parking lot and we’re putting in a moderate-sized pool, I mean, it’s a pretty moderate-sized hotel with a big wooden deck around it.

And it’s a sort of place that you can sit out and enjoy the beach environment, swim in the pool. While the beach is beautiful, the water in front of the beach is quite muddy. So people don’t usually swim in it, you are pretty close to the Mississippi delta. So it’s not gin clear water like you have in the Caribbean.

It’s all along the Mississippi Gulf Coast, it’s kind of muddy water, but a pretty beach. And so we’ll have a beach club, where you can swim in the pool and enjoy the beach environment. And it puts us on a more competitive standing with some of our competitors.

The Hollywood has a big leisure river pool, and an onsite golf course and an onsite spa, we don’t have any of those. And Island View has two pools. And so – but both of those are – tend to have problems with kids and families, which get noisy and they’ve tried to control it different ways and so on.

But we simply designed something that’s really designed for adults, I mean, it’s got a bar. And if we get too many kids out there, we will play Sinatra or something. But it’s really designed for adults not for kids. And second, we’re adding an Oyster Bar at the property. Fishing boats come and go there all day long.

It turns out they’re fishing for oysters, there’s an oyster port right next to us. And Oyster Bar concept has been pretty successful in some casinos in Las Vegas. We had a part of the casino floor that wasn’t all that active. And we decided that it was time to add another little venue at the property.

Only seats about 20 people, it’s not very large, but it gives people an extra excuse to come to us. And then – and that should be done in the next couple of months. And then where there’s a large sign at a key intersection that was pretty beat up. We’re refurbishing the sign and adding two state-of-the-art reader boards on it.

So that we can tell people where to turn, because we don’t get them to turn, they end up at the Hollywood and we wouldn’t want them to do that. So we got some stuff going on with Silver Slipper. None of which benefited the first quarter and yet they did it great. And I think that’s a testament of John and his team, we had some promotions at the buffet.

We brought the Dungeness crab back and discounted mid-week promotions and so on and that worked pretty well. At Rising Star it was about flat with last year, which I think is fine. There we have an RV park that’s under construction.

We’re not quite going to make the Memorial Day, but we’re going to open just after Memorial Day that’s a 56-space RV park and I actually think as we got into it because this is a bigger thing than we thought it was.

There were lot of RVs in the Midwest and it’s fairly common here in Las Vegas or even in the South to have RV parks and casino especially have one of the Silver Slipper a small one. But none of the casinos in Indiana or Ohio or West Virginia or even Pennsylvania have RV parks. So we’re going to be the first to have one.

And I think there are people there who enjoy their RVs and basically from our perspective costs a lot less to build an RV park per space and the customers bring in their own hotel room 9% of households now on RVs and the average cost of an RV is over $40,000 and so this is an upper economic strata.

And so we’re going to have 50, 54 or 56 spaces 56 space will be open here shortly. And each space has four hookups cable TV water sewer 50 amps of power there’s a. shuffle, bathroom showers a little lounge about it, so full-on 5 Star RV park, if there is such a rating.

So second the hotel itself we’re refurbishing the lobby and the guest room corridors.

And there were, there was the prior management of the company had a refurbishment plan that was kind of working its way through the property, but they stopped it when company’s finances got tied a few years ago and last 70 rooms that had not been refurbished in quite sometime.

And so we’re going back and refurbishing those now and that’s just something that needed to be done and the the lobby is getting refreshed and the corridor carpet all of which is kind of part of what we view as maintenance CapEx budget.

But we’re also – have the plans that we haven’t started implementing it for rather significant changes in the pavilion, which is where you arrive putting in indoor trees and tangent flooring and so on and that’s going to spruce up quite a bit on a relatively modest budget.

And then we have designers now working on the VIP area in the casino, it doesn’t have one now. And so we’re going to create a nice, but we have one, but that’s pony wall that separates it from the rest of the casino we’re going to real VIP area that ‘s competitive in the market and that will probably be under construction on that later this year.

And then the ferryboat we now have that – the ferryboat is really two boats if you look at the Anderson ferry website you’ll see that’s the one we’ve kind of copied and it’s really kind of a barge, which is what the cars are on and a tugboat that pushes it back and forth across the river.

The tugboat is under contract, will be done in August, brand new tugboat too big it’s actually more powerful than the Anderson ferry, so we might be a little faster than they are, two engines and then the barge we have a request for proposals out to four shipyards. We should have answers back in about 10 days and then they will be on a contract.

Everything has been submitted to the core of engineers. So they’re working through their process. Going to give them probably another maybe two months and then it’s going to take us about three months to build the roads once they give us the approval.

And so hopefully later this year we’ll have the roads and the ramps and the ferryboat altogether and then it’ll be operating and that’s pretty important. There’s a lot of people in Northern Kentucky that this ferry will make it much more convenient for them to visit Rising Star than it is today.

Bronco Billy’s we’re just about to lap a year when we bought it. Almost to the day, I guess, May 13, right and it’s doing well when we bought. We said it would do about $5 million a year and that seems to be about where it is. It’s seasonal whether this summer is much more important. But it provided 846,000 of EBDIT.

You’ll notice that even without that if you back that out we still had a pretty good quarter, up nicely over the prior year, but Bronco Billy’s doing well and we’re working with the architects to design a hotel that we can build there and a land we control adjoining behind Bronco Billy’s and we’re thinking a hotel with 100 plus rooms four star and character and tied into the casino.

In Cripple Creek, and this is part of the reason we bought it. When they legalized casino gaming in Colorado initially the maximum bet was only $5, and it stayed like that from the early 90s until 2009, I believe it was. And then in 2009 the law changed, they added a couple of games, you could have the craps in the rack.

And then they increased the maximum bet to $100, which is 20 times what it used to be. Okay it was pretty significant change.

Now when you think about it if you’re going to comp a $100 room like our other properties have, and you’re going to need somebody is sitting at a $5 blackjack table, there’s about 50 hands an hour and if they are decent blackjack player there’s about 2% of edge.

So they end up losing about $5 an hour for them to – for us to justify them being comped a $100 room, they’d have to sit at that blackjack table about 40 hours a day, which obviously isn’t going to happen.

And as a result the product that was initially built in these communities wasn’t a very good product of the hotels that exist have tiny rooms and some cases they kind of stare at – and always I actually stayed in a room with one of our competitors stay the other day and the window was like a tape on it, so you couldn’t see through it.

But if you kind of poked and looked carefully the reason it was a smoked window was it eight feet from a wall and the room was about the size of which you would have in a crew ship. And I think it was because everybody was looking at that $5 number and saying well we’re not really going to be comped in these rooms.

So we want to room that’s cheap, because the type of person who is going to come up here and gamble at a place for the $5 maximum bet is a low end person. So, we need a room that we can sell for cash to a low end person.

So the most of the casino rooms that exist in the town are really pretty sub optimal, and the other category they have are Bed and Breakfasts where people said, we’re going to play it on the goldmine character of the town and there is museums about gold mining all the stuff.

And so people like the old high school has a very nice bed and breakfast, but only has a few rooms and I’ve actually stayed there too, it’s a little odd to be sleeping in a guest room.

And I guess some people might get kind of kinky and want to have their honeymoon in an elementary school classroom, which you can do in Cripple Creek, but then one of the other bed and breakfast I stayed at was the Sisters of Mercy built a hospital for Irish miners in 1890s and it was actually very clean and neat, but as I was falling asleep, I wondered how many people had died in that room and I’m sure it’s in hundreds.

So the character of the rooms in this town are either like small and designed for kind of a low end gambler or the kind of funky bed and breakfast type places. And the same used to be true of Blackhawk, which is this gaming jurisdiction for Denver.

But Craig Nielsen went and built a big hotel at Ameristar that’s a solid four star hotel something like 500 rooms. And it turned it from a money losing property into a very successful property, now owned by Pinnacle, and now Monarch Gaming is adding a nice hotel and other people stepped up their game and Blackhawk is doing real well as a destination.

And our thought is that Cripple Creek on a smaller scale because Colorado Springs is small in Denver, but we can do the same thing here size of a hotel doesn’t matter the question is the quality of the room you only sleep in one room.

So if we build a 100 room hotel and have a four star we think we get a not only the hotel feel so popularly, but we will get a better echelon gambler than those to Cripple Creek today. So we think we actually grow the market. So we’re pretty excited about that we’re to design one of these things that takes a lot of thought.

And I know this from working at Mirage and at Pinnacle. You work with the architecture, the way for two-weeks you meet with them again, they way he thinks about it and you have a Tiffany’s along the way that you can’t believe you didn’t think about before and the worst thing you could do is rush it, you want to get it done right.

And I think that design process and this is complicated, because it’s a historical district at 10,000 feet and it has its architecture review provisions that we have to do and so on. So it’s probably going to be about a year from now before we can start construction.

And that would open two and a half years from now, so it’s always down the road and we are designing it to be something like $25 million to $30 million, which we think is something that we can do with part debt and part internally generate cash flow. So that’s Colorado and we’re doing some interesting promotions there.

Capital One pays us so low in interest rate that we decided we would make more money by taking a million dollars and putting it behind glass in the casino floor.

So people get their picture taken with it, so we take a million dollars out of the bank and put it in the casino floor for awhile, and then it’ll be an interest in promotion to the summer and when we needed to build the hotel we’ll break the glass and put back in the bank.

And we’re doing some other things like the name of the town comes from Folklore where they were before they discovered gold there were cowboys up there with their cows and I guess one of them put a gun by mistaken and it startled the calf was trying to jump across a little creek and then stumbled and ended up with a broken leg and grew up crippled.

And so the creek became crippled creek. And so we had a little bar that was pretty nondescript and we’re changing the name we have a new logo we’re putting in a pizza and all this stuff and the new name is the Crippled Cow, and it has actually has a cool logo of a cow on crutches.

And we actually bought a big fiber glass cow that we’re going to paste up into the ceiling. And so we’re doing a little stuff like that doesn’t cost a lot of money just kind of fun and I think it will energize that corner of the casino. Anyway that’s Colorado.

In Northern Nevada, we’re in full scale renovation effect that will pay the casino at the higher Colorado about the ugliest one ton chandelier you ever saw and as we’re talking they’re cutting them up with the saws and push them out of the place which makes me feel really good.

The back part of the casino was closed for the last several weeks and all we done a new bar and everything. So, we’ve been operating at about half capacity now for awhile. And yet we’ve done fairly well in fact it was surprising to us and larger casino bar was pretty similar to last year with half the capacity.

Now March isn’t the busiest month, but it was still I was little worried that it would be worse than that and it did reasonably okay. And now the back half has just reopened this past weekend and looks awesome.

And the front half is all being torn up and everything that should all be done in June, totally new casino, which is important, because seasonally July and August are by far the strongest months of hotel.

So everything is going very well there and parts that are done, I mean hats off to Todd Lanahan who’s the designer who’s done this for us very talented guy does a lot of work for win and he really is a genius and the place looks great. And then over in Fallon.

We tore down that administrative building put in a parking lot we had some difficulty getting the particular shape built because parts of it are still nobody in Fallon knew how to work with steel. And so we’re getting that done and it should be done within about four weeks. And the landscaping is going in and we have a new sign up.

We didn’t change the flooring in the coffee shop from carpet that was pretty disgusting to a – there’s a relatively new vinyl product that you’d swear it would, you can get down on your hands and knees or back you think it would, but it holds up much better than wood look like wood and it’s cheaper than wood.

So we put that in the coffee shop and painted the walls and it looks much better. And then we took the system manager from Cripple Creek and moved him there as manager so he’s in place now. And Fallon’s doing quite a bit better.

And I think we’re going to have a good year there, but the but it’s been kind of torn up the last six months and it’s got a parking lot. But it was kind of walking through a construction zone to get into it and it’s done reasonably well despite that.

So you can see the one spot we were off was the Northern Nevada casinos, which fortunately is the small part of the company. And I think that’s attributable. Well in part to the weather it did snow a lot I think there were snowstorms and something like 11 of the weekends in the quarter.

And when I see snowstorms, roads were closed, and there were significant number of days we were operating on emergency power. So like the traffic signals weren’t even working and yet we were able to stay open. So they’ve had some challenges and yet it’s done reasonably okay.

Otherwise, when you go past all that the – we’re working on refinancing our debt. We hope to have that done in the next couple of weeks. It will be cheaper than the debt we have now, that is cheap, as I’d like, but cheaper. And I think, based on our ratios, we should be able to borrow money like 6% except for small.

And everybody says, you’re just too small, you need to be bigger and more diversity. And so, we’re not going to be at 6%, but currently half of our debts is at about 5%, half of it’s 13.5%. And I think we will be cheaper than what we have today. And in fact, I’m confident of it, and we’ll have a new maturity that’s going to be more than five years.

And so we fixed the maturity. We don’t have a lot of amortization now, but we’re going to have less under the new deal and save us an interest and that will allow us to use our cash flow frankly, to go build that hotel in Colorado. And there’s one out there, oh, yes, we also spent some money in the quarter on Terre Haute, not a lot of money, but some.

The town of Terre Haute is about 200,000 people. We have this issue in Indiana, where we’re permitted to have over 2,000 gaming positions, and we only need less than 1,000 gaming positions to do the revenue we have at Rising Sun, so that’s an asset from our point of view. We’ve been trying to figure out how to utilize that.

The state actually has a problem, where they legalized casino gaming. They put it different places around the borders. And because in those days you didn’t have casinos in Ohio, when there were a lot fewer casinos in Illinois and so on. And now Ohio and Illinois have their own casinos. And so the gaming capacity in the states in the wrong places.

And so the states revenues over the last few years have trended down and employments trended down. So we’ve now come back twice once on the west side of Indianapolis and then at Terre Haute with proposals to build a new casino, utilizing our underutilized capacity in Rising Sun, which is a complete win-win.

The state will get incremental tax revenues, incremental jobs, incremental investments, and we get an opportunity to build another small casino. And I do think, we will get there someday. I mean, last year, when we proposed Indianapolis, we kind of got left out of the state. This time we got it close. It was a 5-5 vote in the Public Policy Committee.

We have the strong backing of the entire Terre Haute community. And so we will be back next year in the legislature working on this again. And I think, we will eventually get there, whether it’s next year or two years from now, we’ll eventually get there.

But there was some spending there, which was in the quarter we expense all that stuff, as incurred. So that’s it.

Did I miss anything else?.

No, no. That’s it, Dan.

For those of you keeping track, if you look at active growth projects that out there that would be the Silver Slipper Pool, the Oyster Bar at Silver Slipper, the RV Park at Rising Star, the Grand Lodge renovation, and then the Stockman’s renovation, those all total about a little over $5 million, maybe $5.25 million of total investment and we’re about half spent on that through the start of May.

So that will help you out a little bit in your modeling.

But you got it all, Dan?.

And all told, there’s about $10 million of investment. But we haven’t started on the other half of the stuff, like the casino VIP room at Rising Star, we haven’t started on. And I don’t – did you count the ferry in or out of your number..

The ferry, we’ve spent about $125,000 on – a a deposit for the….

Deposit for the tugboat..

Yes..

But certainly, that’s it. All of that stuff, I think is going to grow our company pretty nicely. And with all these little projects add up should get us up into the low to mid-20s in EBDIT, roughly, and then the hotel in Colorado Springs may get us up to 30 with a little of organic growth.

So which given that when we came in two years ago, it was $10 million EBDIT. So, we’re a small company. Well, let’s see if Jim Murren can grow his companies. Anyway let’s – we’ll take some questions..

Sure..

[Operator Instructions] And we’ll take our first question from Chad Beynon with Macquarie..

Hi, Chad..

Hi, Dan, this is actually John on for Chad. Some of your regional operators have been noting some improving trends in April, shall we say, leading into May, I was wondering if you guys could comment on what you’re seeing in your properties regionally? Thank you..

We had a phenomenal March. As Silver Slipper, for example, set records in several categories as the best month we ever had. And actually, I should point out, we have – it’s hard to pick a month. I think in almost every market, we’re outperforming the competitors.

I mean, the Mississippi Gulf Coast has been relatively weak, or let’s say, the growth has been less than the revenues of the Scarlet Pearl. And so that means, if you took the Scarlet Pearl out, the market has actually been flat to down.

We’ve been consistently up, and you could say the same thing about the New Orleans casinos, and I think that’s just we’re kind of relentless at trying to figure out the next new little marketing thing.

And we noticed one of our competitors now has Dungeness crab and it’s like, okay, well, let’s have some lobsters, something else to really screw with them right? And so, we’re pretty relentless of trying to constantly figure out how to improve our market share.

And we’ve gained market in – we’re small, but we’ve gained market share in the Mississippi Gulf Coast. We’ve gained market share in the Indiana and Cincinnati market. And Bronco Billy’s is holding their own. And I think as we start to improve things there, we’ll gain some market share there also.

Actually the other thing which happened there is, there’s some additional consolidation in the market, which I think is actually ultimately good for us. And then Northern Nevada, we’re on a kind of a market to ourselves in Incline Village. So it’s hard to know what to compare it to. But we seem to be gaining share in Fallon as well.

And in general, the economy seems to be okay, and seeing. I think people are back and doing well, and I think that probably has benefited us, but we have gained share in just about every market we’re in, and we intend to continue doing that..

Yes, John, I think, April as a whole, what you saw in the – in really the first three weeks of April were signs of strength. The same strength that you saw on March. And that what we saw in a few of our markets, where some weather issues, you probably saw on the news there were some tornados in the Midwest and some flooding a little bit down South.

And so we did feel the effects of that late in the month, but absent that it March and April very strong..

And let me like Rising Star, we have the lowest win per slot machine in the state of Indiana. So when this team came in, I mean, that bar was so low. And so we keep trying to figure out how to get it better and we keep gaining market share. We’re still the most underutilized property in the region.

So we have our long ways to go before we start to have any capacity issues. So we keep gaining market share by just trying to figure out how to get better utilization of what we have. Silver Slipper isn’t quite as underutilized, but we still have upside there as well, and certainly, Northern Nevada, we have upside. So and even Bronco Billy’s.

I mean, Bronco Billy’s does very well in the market at the end. But if you look at the win per slot machine per day, it’s not a particularly high number and does really well on weekends. And so how do we hope fill in the midweek and the hotel will be important to that so..

Okay, great. That’s really helpful. Just one more for me. We know you you have a bunch of projects on your plate and you guys are executing pretty well. So just wondering, I mean, aside from that, can you guys kind of speak to what you’re seeing across the M&A landscape just generally? Thanks..

We look at a lot of deals, but it’s kind of like trying to marry the right girl, you have to look at about 50 of them before you find one worth marrying. And we’re pretty small, so lot of the deals that are out there are really too big for us. We’re not going to do anything that bets the company.

And if you model out, what I talked about is, if we can get this company to like $30 million of EBDIT with little hotel and you start working backwards on what the stock price might be in five years. We have a pretty good story, we’re not going to screw it up by doing something that is outrageous.

Now that said, there are some small deals and we look at them and in fact that’s a little bit of a reach for us, something like Bronco Billy’s we bought for 6.2 or 6.3 times cash flow and I think it’s kind of like, it’s a great asset for us.

It wouldn’t have been worth the time for the big guys, you know MGM or any of those guys that just not – and so there are small deals that actually worked very well for us that other people aren’t going to be interested in. And I joke sometimes about you know – Gee, that fits in our collective portfolio.

People come to us with some really oddball stuff sometimes, just about anything fits in our collective portfolio, because if you look at where we are around the country in what we operate and we have a little bit everything and that’s why that is kind of like a spot system. So I think we have everyone that’s made.

And so we kind of – so there isn’t, we’ll look at a lot of stuff and we do look at a lot of stuff, but you know we don’t have to do in a deal to make sense, the company is going to do just fine on its own, but that doesn’t mean we won’t do deals, but we don’t have any urgency to do it, so if we find something that makes sense we’ll do it and otherwise we’ll just keep looking..

I’ll take your question in a differently, John.

I had a moment of quiet last night driving home, crimping for earnings and we – you know what I always encourage people to do is to look at where casinos that are getting sold are treating at multiple wise, to look at where casino companies, regional casino companies trade at realizing – looking both at whether or not they own their assets and whether or not they sold their assets off to a REIT.

And I think we are going to see in all of those cases is, this company trades at a lower multiple.

And just before that, I’m not quite sure where you’re going as a question there, but we watched all that stuff very closely and you know where we get excited and why you see all of us here as a company continue to put our money to work and the stock is we’re – we’re just – we are excited by our valuation and we are extended by where those companies headed..

I mean, Chad, you have the numbers more than we do, but my impression is that Isle of Capri got sold for about eight times cash flow and I think Eldorado is happy they bought it and their stock went up, despite their acquisition of Capri. Our assets are very similar to Isle of Capri in terms of quality.

We’re in markets that generally have barriers to entry.

We have pretty clean ownership build of stuff and you know we’re not – we have nice regional properties, we’re not – we haven’t built like in Boston or something, but we have nice regional properties that are consistent moneymakers and so we saw this Isle of Capri [indiscernible] that’s interesting.

And we had interest rates being where they are, I don’t think Eldorado overpaid for Isle of Capri, but it certainly suggests a lot of upside in our stock..

Yes, John, you and Chad put out favorite chart which is, it’s one where you show valuations, all the regional companies or all the gaming companies side-by-side and we’re always at the far right of that chart with the lowest valuation by a decent margin..

Since the Korean [ph] used and I didn’t know the man well myself, but he has said to have phrased on multiplication occasions that the stock price only really matters to them when you are a buyer or seller, right.

And we’re not looking to sell stock at these prices obviously with the stock is cheap and our debt covenants will let us buy stock at these prices, so we can’t be a buyer, although I bought a bit of this stock personal in the past year, but we can’t be a buyer and we’re not a seller.

Honestly, I mean I do obviously pay attention to stock price, but I think my mom watches it closer than I do. She would call me home at night, wondering why the stock is down $0.04, she only owns about 300 shares, but anyway any other questions..

Thanks Daniel. I would hope back in the queue..

Thanks..

[Operator Instructions] And there are no questions at this time, I’ll turn the conference back over to your host..

You have any closing words, Dan?.

No, just thanks for your support. Don’t forget to vote, proxies have been rolled already, our shareholder meeting is next week and we appreciate your support..

May 22..

May 22 and quick meeting, curious if anybody wants to show up for the shareholder meeting, we’ll buy a cup of coffee..

Thank you guys..

Take care..

Ladies and gentlemen, that does conclude today’s presentation, thank you for your participation, you may now disconnect..