Full House Resorts, Inc.
Q4 2020 Earnings Call Transcript

Published: 8 Mar 2021

[Operator:]

Good day, and welcome to the Full House Resorts Fourth Quarter Earnings Call. Today's conference is being recorded. At this time, I’d like to turn the conference over to Adam Campbell, Corporate Controller. You may begin.

[Adam Campbell:]

Thank you, and good afternoon to everyone. Welcome to our fourth quarter earnings call. And 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.

[Lewis Fanger:]

All right. Good afternoon, everyone. Really briefly, we are down one man today, Dan was involved in a small accident and totally fine. He's been working from home over the last few days. He was actually supposed to come into the office for today's earnings call, but there was a last-minute opening with his doctor to get some fixes done to his shoulder, and so that's where he is right now. So, our apologies there, but he's doing fine, and it means we get to hear some new voices on the call like Adam is here. So with all that said, quite a bit to go over. The most important will be our fourth quarter results. We pre-announced our numbers, so I don't think the numbers will be a surprise to anybody. The important part is we were at the upper end of our expectations. Consolidated revenues were down about 2% to $38.3 million. Adjusted EBITDA, though increased in a very big way. For the fourth quarter of 2020, adjusted EBITDA increased nearly $10 million. That's more than four times what it was in the fourth quarter of 2019. We went through a lot of the reasons why on last quarter's conference call, so I won't go through all of them again here today, but they 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 the demand for those amenities. I do want to make two points on the cost structure though. The first is that a lot of the improvement that you've seen over the last two quarters aren't COVID changes. They were changes that were in the implementation process prior to the pandemic shutdown, things like the new slot marketing system at Rising Star and at Bronco Billy’s that we installed back at the end of 2019. That slot system is a good example of – at Rising Star. Before we put in that brand no Konami system, we had a 17-year-old system. If we wanted to give you $5 of free slot play before under the old system, we had to go through a lot of stuff. We had to send you a coupon in the mail, you had to then go to the players club, show them your coupon, they'd look you up, make sure it was a valid offer, void the coupon in the system, and then they give you a voucher to take to the cage. At the cage, they then give you $5 in cash, and then we would hope that you would put that cash into one of our slot machines.

[Adam Campbell:]

No, it covers almost everything.

[Lewis Fanger:]

All right. So with all that said, operator, let's take a few questions.

[Operator:]

Well, thank you. And our first question today will come from David Bayne, a private investor.

[David Bayne:]

Thank you so much. Hey, Lewis, congratulations on another great quarter. And definitely hope that Dan feels better very soon. My best wishes to him. And I know he's got a ton of energy. So, it's probably hard to hold him down even the doctors orders.

[Lewis Fanger:]

I'm sure he's fighting right now to get out of the doctor and get on this call, but I will let him know. He'll be fine. He's doing well.

[David Bayne:]

Okay, great. So you hammered this really well, but I just want to confirm, so if we average the seasonally weak 4Q and then 3Q, that's kind of a fair go forward from here just prior to pent up demand, maybe the new skin launches, the stimulus, and the tax relief. I just want to make sure I'm getting that sort of basic down.

[Lewis Fanger:]

Yes. No, that's a good question. And the short answer is, yes, I do think you're right. I mean, from our shoes, we've been scratching our head a few times where we thought that maybe when sports came back, things might settle down a little bit, and you had more sports on, I think, at anyone's history is all at one time and things are fine. And so we're kind of sitting here today and looking at things, and I will tell you that our best customers have been coming by about a third less than usual, that's kind of 50 plus. And their absence has been more than made up for by younger guys 30s, 40s that have been coming in and playing in our casinos and signing up for the players club for what it's worth. And so to the extent that you see some of the 30s and 40s play go away, not saying that we will, by the way, but to the extent that you may see it go away the good news is that our best customers should also start to slip back in the door as vaccine distribution rolls out in a big way. And then we've got a few -- I feel like we have more ways to grow than things that might go away for what it's worth. So even if some play does manage to go away, we still have three more sports skins that I think we will launch here very, very soon. That's not in the annualized number. We do have that gaming tax reduction at Rising Star, that's going to be something like $2 million, $2.5 million a year, that will save going forward once that kicks in on July 1. So there are little things yet still that will be additive. So, I don't think you're thinking about it in the wrong way, I think you're right. I think you're thinking well.

[David Bayne:]

Okay, fantastic. Yes, I’d think the best customers will be the first to be vaccinated. So, hopefully they will be back very soon. On Cripple Creek, it sounds like construction disruption at Bronco Billy’s to be mitigated just given the configuration. If I am thinking about that, I'm excited for the luxury offering, scratching the map on it. Just given the investment draw that you're creating, does Full House have any strategies overall for Cripple Creek in terms of land purchase options, or a strategy for the strip beyond the facility or is that a little premature to speak to at this point?

[Lewis Fanger:]

There's some stuff we're working on behind the scenes. So, it's not going to be a completely disruption-free construction process unfortunately. There’s parking, that's going to go by the wayside as we -- the new building will take over some of the existing surface lots. And so right now around town, we've signed up a few leases to just get some extra lots for parking, while the building is under construction. The hope, by the way, is that that garage may be done sooner versus later. And if so, we could actually let people start parking in that garage before that full facility is done. There is a building that does get torn down. It has some rooms in it. So, we're going to see some rooms that go by the wayside, but we've never had that many rooms to begin with, for what it's worth. We only had 36 total rooms, and so I think we'll be able to navigate that decently. That all said, if I had my druthers between minimizing disruption or getting it done quickly, we're going to err on the side of getting it done quickly for what it's worth. For the existing parcels that we have, we have quite a bit, actually, on both blocks, so not only on the main block of Bennett, but on the street behind on Carr, we've got quite a bit of room as well. And so down the line, we actually could go in and add more hotel rooms if we wanted to. But at this point, I think we’ve sized that project appropriately. And you heard me say it, we're excited to see that thing get built and get done, and we think it's going to be a big deal. So, we're moving on.

[David Bayne:]

Yes. And if I can just go one over, and then I'll yield, I promise. Just on iGaming in Indiana, do you think any license access fees would still potentially net more royalties to you? And just if you're granted multiple skins, would you look to be potentially active with one of them? Or is that just not the strategy?

[Lewis Fanger:]

Go ahead, Adam.

[Adam Campbell:]

Yes. No, I think it's a good question. There was legislation that was introduced this year in Indiana, that would have allowed three online casino skins. The legislation did not advance this year, but we expect to be reintroduced next year, and we've spent a pretty good shot we think. We would definitely look at possibly doing one of the skins on our own brand as an online casino. And then we definitely believe we could monetize at least two if not all three of those skins on the comparable way to what we do with the sports betting.

[Lewis Fanger:]

Yes. The important thing to keep in mind…

[David Bayne:]

Okay. Thank you very much. Go ahead.

[Lewis Fanger:]

Hey, Dave, really quickly. The important thing to keep in mind with our current sports games is they -- the contracts that we have in place for all of our sports games in Indiana, and in Colorado, they only include a sports piece, they don't include the rights to any true casino, so slots or tables or whatever it is online. And so, we do have the ability to continue to monetize it, however, we end up doing it.

[David Bayne:]

That's Great. Thanks, guys. Thanks again and best wishes to Dan. Thanks.

[Lewis Fanger:]

Thanks, Dave.

[Operator:]

And our next question will come from Ryan Sigdahl with Craig-Hallum Capital Group.

[Ryan Sigdahl:]

Good afternoon, guys. Thanks for taking my questions. And I'll send our best wishes to Dan as well. Just curious on what key games, what's the latest you've heard there. Our check syndicate board is still looking for an investment banker that was around a month ago. So I don’t know if there's been anything more recent in the process. And then kind of best case scenario, how early do you think we could get the termination there?

[Lewis Fanger:]

I'll let you go again, Adam.

[Adam Campbell:]

Sure. No, great question. The game board has the next meeting actually in two days on Wednesday. So, we'll see if there's any updates, but I guess they are still looking to retain an investment banker to help them analyze the two competitive license application that they have. One of them is Kapan and the other one's called the Southern Suburbs of Chicago. And the executive director of the Gaming Commission, the game board at rather, previously noted that he thinks it's probably about a six month process from the time they hire that investment banking from top analyzed applications. So, we're probably a good six months out we think, and then making the decision. And I don’t know there is a second part to question, I don't recall.

[Ryan Sigdahl:]

No, that pretty much covers it, wait and see six months. You know that outside of Cripple Creek and Waukegan, are there any other projects that you have on the table that you're considering? And then sounds like some nice upgrades feel good about everything else, but anything else to the properties you currently have that you'd like to make?

[Lewis Fanger:]

Yes. Well for what it's worth, we are laser focused on this Bronco project. All the other projects we've done in our history, is actually one of the smaller ones but nonetheless, are super focused on it. We want to make want to make sure that it gets done well and successfully, and launches the way we think it should. Behind the scenes, we we've long talked about at least internally, long talked about going and doing a modest room expansion over at Silver Slipper. The process there takes a little bit of time, because there's an existing peer at our property. And we will look at putting the new hotel tower out over that peer. And so it's a little bit of back and forth with government entities, as well as some mitigation of Marsh line that we have to do over there. So that's something we could do a little bit down the road, but now you kind of know it. And then otherwise we keep our eyes wide open on everything, but nothing to report to you right now.

[Ryan Sigdahl:]

Great. That’s it for me. I'll hop back in the queue. Thanks, guys. Good luck.

[Lewis Fanger:]

Thanks, Ryan.

[Operator:]

And our next question comes from Chad Beynon with Macquarie.

[Chad Beynon:]

Congrats. How are you doing?

[Lewis Fanger:]

Good.

[Chad Beynon:]

Congrats on the bond deal and the results here, and also Dan speedy recovery wishes. I wanted to just ask about margins. I know you guys have talked about picking no EBITDA to the bank and not margins. But just curious in terms of when some of these customers come back to the properties there's probably some additional cost creep, probably not much, but a little bit that comes back. You guys posted 28% margins in the back half for the year. Not that you're giving guidance. But can you kind of help us think about what a good margin profile could be? Can you continue to post something in the mid-20s? Or should this drop just as we get through a different period? Thanks.

[Lewis Fanger:]

Yes. No, that is a good question. I do think that a margin for us should be that we can have margins in the mid-20s for what it's worth. You are right, there is the potential person cost to come back into the system. And as a good example, as table games come back more and more. Tables tend to be a lower margin business, but you do it because it's additive to EBITDA. We haven't -- we just got back tables at Bronco Billy's a few weeks ago. We haven't been running the tables at Stockman's, even though we could. But it doesn't make sense currently. And so there are some tabs where the margins could creep down, I would tell you on the flip side, we have a lot of costs that that are elevated that that go away. So we've got a lot of extra costs, as people standing at the doors doing thermometer checks before you enter the casino. We've got extra costs as we have people running around doing sanitizing of all the equipment quite often. And so there are some expenses on the other side that that go away. I will tell you that -- well we listen, I know you guys listen too to everyone else's conference calls. And it's nice hearing our competitors also talk about how they think that we've all over marketed in the past. And I think they're right. And so that helps out, but the big point that I tried to make at the very beginning of this call was we just have a lot of changes that aren't COVID changes. They really are the things that were being put into place pre-pandemic and those don't change. And so, I feel good where we are, mid 20s is not a bad spot to be.

[Chad Beynon:]

Okay. Perfect. Thanks. And then you obviously talked about all the internal options of growth here. And we're still waiting on Waukegan and Cripple Creek, you'll certainly have your hands full with that. But now that the balance sheet is in a great shape, your stocks near an all time high. How are you thinking about some of the smaller potential tuck-ins that, were probably always marketed at maybe higher multiples than where you were trading? Or you just didn't have the cost of capital to maybe do those? Are those still important in terms of division have a Full House? And if so, is there a type of property that would make sense something with low CapEx, or maybe an opportunity to kind of do something like what you're doing at Cripple Creek? Just kind of curious how you're thinking about the next couple of years with regards to that.

[Lewis Fanger:]

Yes. There's not a big push for M&A on our side for what it's worth. I mean, a lot of the assets that end up getting shopped around are what we spent a lot of time doing is scratching our heads and saying, why are they trying to sell this asset. And so, sometimes you have assets who are getting shopped around and they're required to sell them. But then you have to worry, was this property starved of CapEx. Did they take all the good talent out of the property and kind of starved of the of the HR talent, if you will. And we go through a lot of those reasons in our heads, or heads, I should say. When we bought Bronco Billy's it was a little bit of a different scenario. It was a group of sellers that were I think, in their 80s, if I recall, right, Alex, but they were on the older side, and they were really thinking about estate planning more than. And so the reason for them to sell was a good and natural one and that's why it was exciting to us. So, I mean, we're fortunate we get every pitch book under the sun. We have bid on things. We try not to chase up bids, and we have our hands full. So we will continue to look. Don't hold your breath on us buying something anytime soon now.

[Chad Beynon:]

Okay. Thanks, Lewis. Thanks, Alex. Appreciate it, guys.

[Lewis Fanger:]

Yes, got it.

[Operator:]

Our next question comes from John Dupree with Union Gaming.

[Lewis Fanger:]

Hey, John. Before you ask your question, John, I just want to tap onto my last comment really quick. We've really been at this company, not for any reason other than to try to do good and smart things. And so there's no ego involved. We don't need to be out there trying to build the biggest casino company in town. That's not the mantra, the mantra that we have is just do smart things and try not to do anything dumb today is really what we say on a daily basis. So anyway, a little post script. Sorry, John. Hello.

[John Dupree:]

Hello. No worries. You picked question right out of my mouth. I'm kidding. But on the note, working on smart things, you've talked about some of the things you've implemented operationally that has started to pay some dividends like the new slot system. And I guess another way of asking the margin question, is everything today where you want it, in terms of things that you were working on pre-COVID operational? I mean is there any of your properties left where you can implement the best practices if you haven't gotten to or make some tweaks or changes? Or do you fell like the portfolio operationally, it's kind of all kind of operating the same playbook right now?

[Lewis Fanger:]

I think, there's always more that you can do. So Northern Nevada is our one group of properties that aren't on the Konami system. I feel like I'm a walking billboard for Konami these days. But we now have it everywhere but in Northern Nevada. We know how to use that system extremely well. And we do plan on installing that system in Northern Nevada, it's probably going to be not first or second quarter, but maybe third quarter this year, they will get that installed. They've got a pretty healthy backlog before they can get around to us. But I think that's going to help out in a meaningful way. We're always going to look for more and more ideas. So, stay tuned. But as of right now, we feel pretty good about where we are asking a few things like that.

[John Dupree:]

Understood. And I'll throw a line in order to do a little fishing here on the current quarter. I know you entered a property review. You have kind of made a little bit of discussion, but big picture as the quarter progress and we've talked or heard some closures and stuff in the 4Q had impacted demand a little bit or capacity restrictions. Coming out of fourth quarter, do you have any kind of high level comments on the way demand has trended kind of portfolio wide at a high level? Has it been similar to what you've seen in the 4Q? Has it gotten better or worse, anything that you could give us would be helpful?

[Lewis Fanger:]

Yes. Well, it's good news. So first quarter has been more of the same as 4Q. First quarter like the fourth quarter is a little seasonally slower. We did have a pocket in February, where you had some icy and snowy weather that took out a lot of people's properties, unfortunately. So down in New Orleans, they felt the cold snap. We added a lot of snow at Rising Star. We added at Bronco Billy’s. And so there was there was about a week where the properties really didn't have anyone in the building. But strip out that week, and I will tell you that January, February, we're pretty pleased even more than Nevada, by the way. And I say this cautiously, I'll knock on the wood on the table here. But even Northern Nevada in recent weeks feel like it may be starting to turn around and go the other way. And as you know that that was one of our one laggard, but it's starting to hopefully show some signs of going the other way here in the near-term.

[John Dupree:]

Got it. That's very helpful. Thanks for taking the questions and all the detail and give Dan our best for a quick recovery.

[Lewis Fanger:]

You got it. Thanks, John.

[Operator:]

And our next question comes from Stephen Branstetter with ABL Investments.

[Stephen Branstetter:]

Congratulations, gentlemen. Great quarter.

[Lewis Fanger:]

Thank you.

[Stephen Branstetter:]

Just one quick question. I think all my other questions were asked by the other gentleman. Are any of your competitors in Cripple Creek looking to kind of size up the hotel like you guys are doing? Are you guys going to be the big king in town?

[Lewis Fanger:]

We will be the big guy in town. There is a competitor that's building their own hotel right now. But it's being built -- to be a bit more 3-star in quality. Century has talked about in the past about expanding but they haven't broken ground. They ended up doing some acquisitions and expanding out in Canada, I believe. So there, they got a little preoccupied with other things. So you may see them expand out later with their Cripple Creek plans. And then a group of casinos across the street called Triple Crown have not yet launched either. But when you look at everyone, I think ours are the only really I want to say distinguished, but we do believe that we stand pretty decently apart from everything else in town, even with some of the new stuff that's being proposed or under construction. And the one that's being built Alex, correct me if I'm wrong. It's only 100 rooms I believe. Yes, so it's not a monster facility.

[Stephen Branstetter:]

Well, you do kind of want to build up the area. Now the more people that come, the more popular area become. So having a competitor go, is actually possibly a good thing.

[Alex Stolyar:]

Yes, we don’t see the competition at all. We welcome more wholesale product into the market for sure.

[Stephen Branstetter:]

And are the other roads set up to handle increased traffic?

[Lewis Fanger:]

They're actually pretty good roads. There are two ways that you can get there. If you're coming from Colorado Springs, you go through there's a road that you could take that goes along the shoulder of the mountain there or you go maybe 5 or 10 minutes past that. There's actually pretty easy road into town into Cripple Creek. So you got two actually pretty good options. The town has always gone out of its way to make sure that those roads are pretty well kept. They get a lot of tax revenue from the casinos. And so they're incentivized to make sure they're in good shape. And time flies by during this pandemic, but I think it was two years ago they went and repave that entire path along the mountainside there. So, it's in good shape. The other thing that they're working on behind the scenes is that last bid is in list. And so, there is been a proposal going around actually putting some lighting to make that path even easier. But it's actually a good road, it's in good shape and freshly paved.

[Stephen Branstetter:]

Great. Circling over to Indiana with the ferry. Are you now marketing over in Kentucky with the -- I guess the Konami system?

[Lewis Fanger:]

We are, yes. You know that, ferry actually doing pretty well for us now. If you look at the monthly cost of that ferry relative to the revenue, the same day revenue that we get from people that ride it, it's actually doing quite, quite well. We can still and need to market a little bit more. But it's in good shape. Right now, if you go and you want to take a ferry, we actually make you swipe your player's card so we can keep a pretty good record of who's going on that boat. We didn't do that for the first, I don't know, six months, nine months or so as we were just getting people accustomed to that variable being around. And we're still going through that process where a lot of people don't know that ferry boat is there. But these things change in time. And I think once you take it, it's actually a pretty nice and easy route. It's a good path.

[Stephen Branstetter:]

Great. And now with the Konami system, are you guys looking to upgrade to cashless wagering? Is that something in the future? Or how would you handle that?

[Lewis Fanger:]

We are actively -- yes. No, good question. We are very actively looking at it. We've been looking at cashless at the slots. And then also I think the better thing would be a cashless at the table games themselves where you could actually bet at a table game, you basically have a mini iPad in front of you that you use for your chip bets. When you cash out, you would have a tito ticket, then you could put into a slot machine or you could just cash it out like normal versus chips, where you only can take them to the cage and then maybe you'll gamble a little more on your way out maybe not. But, no, cashless is quite, quite interesting and not a lot to tell you quite yet. But we're pretty actively looking at it.

[Stephen Branstetter:]

What I'm thinking about cashless like right through your cell phone? I mean, is that something that, just to make it less people touching?

[Lewis Fanger:]

Yes. No, still looking at that too. That process is -- all these processes are a little more complicated, because you've got various state gaming commission to have to work through their approvals. But all of it is interesting. And we think we'd want to do any of that stuff as soon as we can. So we're paying close attention.

[Stephen Branstetter:]

And in the last three skins that haven't launched yet, are they close or they're still just in the process?

[Lewis Fanger:]

No, I think they are -- go ahead Alex, go ahead.

[Alex Stolyar:]

Yes. They're all very close. Churchill has I believe in their last earnings call, it expect to be live in Colorado before the Kentucky, Derby and the other two parks and we are in constant communication with them, they're both working on getting their Indian approvals and they're pretty close.

[Stephen Branstetter:]

Great job, gentlemen. Thank you and continued success.

[Lewis Fanger:]

Well, thank you, Steve.

[Operator:]

Thank you.

[Lewis Fanger:]

Maybe talk one last question here.

[Operator:]

Absolutely, sir. That question will come from Kenneth Pounds with Castlebury Advisory.

[Kenneth Pounds:]

Good job. Great to see the getting into the warrants. So it seems like that will save you guys, I guess to put a number on it, because it moved around with the stock. But what I guess at least $7 million or $8 million this year. Is that correct?

[Lewis Fanger:]

It would all depend on where the stock price goes. So, yes, it's a function of that. But I admire where you think the stock price goes. So, you are right, though, it makes the balance sheet pretty darn clean. It makes the income statement way easier as well, because we always had to make adjustments to diluted EPS for those warrants. And so it's going to be way, way cleaner from here. So we're excited to take them out.

[Kenneth Pounds:]

Another small thing, with the debt is there like an early redemption option on that at all?

[Lewis Fanger:]

On the new notes that we just did?

[Kenneth Pounds:]

Yes.

[Lewis Fanger:]

Yes, so those are the no call three period. And then we kind of go into a standard call after that where it's half the coupon in year four and it ticks down after that. So we'll have those notes for a little bit of time. But we're okay with that. They were honestly largely for the dole out of that Cripple Creek expansion, and as you know that won't open up until the end of 2022. Then we'll have a period where that project will ramp up. So we wouldn't normally have taken them out, well, inside of the three year period anyway.

[Kenneth Pounds:]

And then just lastly, I know you guys are based in Las Vegas where I am. Is there any idea of looking at Southern Nevada property?

[Lewis Fanger:]

No, probably not. The benefit that we getting here in Las Vegas is, we do enjoy being able to walk down to IDT or sci-games or whoever it is to look at the latest product, right in their factories. And when it comes to auditors, everyone in town there knows gaming quite well. So it's nice to be in the mix of it all here in Las Vegas and have real time access to what works and what doesn't. When it comes to Southern Nevada casinos, we feel the strip is a bit difficult to compete in, especially right now, as you've got people socially distanced for what it's worth. I personally don't think you're going to see much of the -- I don't think you're going to…

[Kenneth Pounds:]

I was thinking more on some of the local type things that are on south or southeast, southwest side of the city type of idea. I guess you're building the new thing the Red Rocks somebody told me?

[Lewis Fanger:]

Yes. No, good question, too. And even there it's on the lower end of interest for us, because as station Red Rock Resorts, I guess now it does a very good job with their local business. They would be hard to compete against. We're kind of happy with where we are. Look, we take a look at everything, but if you had to order markets, those two strip and Las Vegas locals, for us, it's going to be at the lower end of the strip, because the station is a monster. So they do a great job.

[Kenneth Pounds:]

Alright. That's a great answer. And thank you so much. Keep up the good work.

[Lewis Fanger:]

Thank you. Well, that all said, I guess, thanks, guys. We are a little unexpected with Dan gone today, but as I mentioned, he's going to be great. We’ll have him back here, knowing Dan will be back tomorrow. So our apologies. But thanks for everything. And we'll talk to you next quarter.

[Operator:]

Well, thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.