Full House Resorts, Inc.
Q2 2008 Earnings Call Transcript

Published: 14 Aug 2008

[Operator:]

Welcome to the Full House Resorts second quarter 2008 earnings conference call. (Operator Instructions) Now I would like to turn the conference over to Will Schmitt.

[Will Schmitt:]

By now everyone should have access to our earnings announcement and Form 10-Q which were filed last night. These may also be found on our website at fullhousereorts.com under the Investor Relation Section. Before we begin our formal remarks, I need to remind everyone that part of our discussion today may include forward-looking statements. These statements are not guarantees of future performance and therefore undo 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, CEO of Full House.

[Andre Hilliou:]

Here with me today is Mark Miller, our CFO who will discuss the financial results for the quarter. But I first wanted to go over a few of the key highlights from the second quarter and update you on the progress at the FireKeepers Casino. Let’s start with Michigan, so we announced during the second quarter the FireKeepers Development Authority closed on a $340 million Senior Note financing, and a $35 million F&E facility to fund the FireKeepers Casino project in Battle Creek, Michigan. One day after the close of financing, site work commenced and soon after we brought ground at the site. Currently speed construction is underway and is schedule to be substantially completed by late September. Further, we are targeting towards the building and to close by thanksgiving. In order to expedite winter construction at the site, we invite you to go our website fullhouseresorts.com where you can click on the link on the front page that would take you to a live webcam of the FireKeepers Casino construction. Thus far we are on schedule and on budget and we currently project a grand opening of FireKeepers Casino in the summer of 2009. Full House owns 50% of the joint venture GEM, which oversees and manage on behalf of Authority the constriction and opening of the facility. GEM will receive the management fee of 26% of the profit for seven year commencing at opening. In addition GEM has made three great early additions to the FireKeepers team after successful run at Harrington Raceway and Casino, Bruce McKee was hired a few months ago as FireKeepers’ General Manager, and just recently Ann Kennedy officially joined FireKeepers as its Chief Financial Officer. Ms. Kennedy has extensive knowledge of gaming finance and pre-opening experience, having previously served as Chief Financial Officer of Downstream Casino in Oklahoma and Director of Operational Finance for the Seneca Gaming Corporation in Niagara, New York. Both are now hard at work assembling a strong team. Overall we are very excited about the FireKeeper project and its recent progress, and we are looking forward to next years grand opening with great anticipation. As mentioned in our previous call obtaining the FireKeeper’s financing had helped us to reduce our outstanding debt. We retired a $9.5 million obligation to Green Acres during the second quarter and as of June 30, Full House has debt outstanding on our balance sheet including current maturities of $6.9 million, of the $6.9 million, $2.5 million is debt under GEM level and therefore we will not all dissatisfied from Full House resources. In the first half of ’08 including the Green Acres obligation we have paid down debts of $17.6 million. Our prudent and aggressive efforts to reduce our debt have substantially cut our interest cost, helping to insulate from those uncertain economy times and position Full House with a strong balance sheet to take advantage of attractive acquisition opportunities. Further our debt payment requirements are now very limited which leave us flexible if we decide to access a debt market. Now let’s move to our current operation, for the quarter Stockman’s Casino generated revenues of $2.4 million and perform a little below our expectation as weakens in Northern Nevada market continue from the previous quarter similar to what we believe the rest of the country is seeing. In addition our second quarter results were affected by lower military activity during April and May at the Fallon Naval Air Station compared to the prior year. While Stockman’s market share decline somewhat during the quarter we continued to enjoy a market leading position which benefit us in good times and bad. We did see an improvement in result during June and July as military activity return to normal levels. We continue to work on growing our business to acquisition and believe the current market environment coupled with our strengthened balance sheet position us well in what we consider to be a buyers market. As I mentioned in our last call we are seeking casinos that could be purchased at prudent and accretive multiples, either market leaders or have the potential to be a market leader and have a good management willing to remain with the property. We had been and continue to be patients and disciplined buyers focus on creating long term shareholder value both to acquisition and of course to the successful development and operation of the FireKeepers casino. I would now the turn the call over to Mark, our CFO to go into more details about the financial results for the quarter and then I would close with the few additional comments.

[Mark Miller:]

I would like to review a few highlights of our financial performance and conditions for this quarter and then we will be happy to respond to the questions you may have at the end of our prepared remarks. For the three months ended June 30, 2008 we had income from continuing operations of approximately $33,000 compared to income from continuing operations of approximately a $158,000 in the prior year period. Included in that number is an impairment charge of approximately $85,000 related to the Manuelito project land we have put up for sale. Net income was approximately $33,000 compared to net income of approximately $236,000 in the second quarter of 2007. For the second quarter ended June 30, earnings per share were effectively zero compared to earnings per share of a penny in the prior year period, both periods based on fully diluted common shares outstanding of approximately 19.3 million. Stockman’s Casino contributed approximately $2.4 million in revenue for the three month period, this was down 7% from Stockman’s prior year period primarily due to an overall weak Northern Nevada economy and lower than normal military activity in April and May, compared with the prior year. During the quarter the Churchill County slot market was basically flat and our market share was a little lower we believe as a result of the weak military and transient activity. Despite the weakness during the quarter we continue to enjoy a market share premium of nearly 12%. EBITDA for Stockman’s was approximately $600,000 for the second quarter compared to $900,000 in the second quarter of 2007. We did see some improvement in our revenue performance of Stockman’s during June and July as military activity return to normal. In addition we have recently instituted some modest cost containment measures at Stockman’s and expect to see more effective cost control in the third quarter to counteract the continued economic weakness. SG&A expenses fell from $2.1 million last year to $1.7 million during the second quarter this year. The decrease is primarily due to a year-over-year decrease in stock compensation of approximately $600,000, mostly related to accelerated investing of grants last year to a former employee partially offset this year by increased cost related to our management agreement at FireKeepers and some modest increase in cost at Stockman’s. Stock base non-cash compensation in the quarter was just under $250,000 and we expect that this will be a reasonable run rate for the remainder of the year. Equity and net income from Harrington Raceway and Casino was up slightly from the prior year period in the second quarter. As noted in previous calls, we restructured our management agreement in Delaware to provide us with a guaranteed minimum 8% increase over 2007 cash flow of approximately $4.1 million. This restructuring provides us with installation from competitive pressures affecting Delaware and also protects us from the impact of the recently enacted gaming tax increase. Quarterly results differ from the guaranteed amount due to timing of cash payments in the prior year. However, we do expect 2008 annual results to be approximately 8% greater than 2007. For the six months period ended June 30, these management fees are up approximately 5.8%. We are also guaranteed a minimum 5% increase each year for the 2009 through 2011 years. During the second quarter of 2008 we recognized unrealized losses on notes receivable, tribal notes receivable of approximately $62,000 compared with a gain of approximately $542,000 last year. The tribal receivable was negatively impacted because we moved our expected opening date at FireKeepers from June to August 2009 to reflect the builders contractual delivery date. We continue to carry a significant fair market value evaluation of approximately $1.2 million, against the remaining $5 million Michigan receivable. We expect the value will accrete back up to its face value as we approach the repayment timeframe. In addition, we moved the expected opening date of the Northern Cheyenne project back another quarter due to continued delays in getting required federal and sate approvals. The effect of these two changes on our evaluation assumptions was approximately $200,000. Please keep in mind that these adjustments to fair value are non-cash and as we have stated in our previous conference calls, the fair market evaluation of our tribal receivables remained subject to some volatility as timing estimates change. However, given that we have closed the financing and commenced construction on the FireKeepers project we expect the volatility to diminish as we move forward. I would refer you to the somewhat extensive disclosures we have in our 10-Q we just filed to better understand the nature of these items, which are significant to our financial results. In addition, during the quarter we took an $85,000 impairment charge related to the land previously held for the Manuelito in the Mexico. The company has listed the land for sale and in such the land has been reclassified to current assets held for sale and adjusted to its estimated net realizable value. The remaining carrying value of the land on our books is $45,000. Our interest expense in second quarter of 2008 fell approximately $250,000 compared to the prior year quarter due to our reduction of debt during this year driven primarily by the sale of the Holiday Inn Express in Fallon in the first quarter of 2008. Earnings per share for the quarter were zero versus earnings per share of a penny for the same period last year, both quarters results based on approximately $19.3 million shares outstanding. Earnings per share exclusive of the unrealized losses and gains, net of their impact on the non controlling RAM interest and the $85,000 land impairment charge would have been approximately a penny for this quarter versus zero the last year. We had approximately $6 million in cash on hand at the end of the second quarter of 2008. Debt as of June 30, including current maturity stood at approximately $6.9 million with only about $236,000 of required principal payments over the next 12 months. Of the $6.9 million in debt approximately $2.5 million of that is an obligation of GEM and we’ll only partially be satisfied from Full House Resorts share of future GEM earnings and cash flow. Availability under our loan facility with Nevada State Bank stands at $5.3 million. In addition, last month we announced that the Board of Directs had authorized a share repurchase program, whereby the company can repurchase up to $1 million worth of shares, to-date we have not purchased any shares and we continue to evaluate our options. With that I’ll turn it back over to Andre, who will make a few final comments and then we’ll open it up for questions.

[Andre Hilliou:]

Before turning it over to question just to sum-up, we are very happy with the progress we have made so far in 2008. The construction and pre-opening activities for the FireKeepers Casinos continues on time and budget and we expect to have the facility fully enclosed in the fall and ready to open next summer. In addition we are guaranteed equity income gross at Harrington Raceway and Casino, at a time when we were sort of coming under pressure from increase taxation and competition. At Stockman's we are keeping a close eye on the economy weakness in Nevada, the timing of military activity and have been secured modest cost containment measures to maximize profitability of the Casino. Despite the weakness in Nevada, we continue to believe that the Casino is supposed to maintain our market dealership position. Long-term, our goal is to own and develop market leading local casinos similar to Stockman’s, but we will only act on the opportunities that are prudent and accretive multiples and can provide long-term value for Full House and our shareholders. Thank you for your time today, and we’ll now open up the call for questions.

[Operator:]

(Operator Instructions) Our first question comes from Justin Sebastiano - Morgan Joseph.

[Justin Sebastiano:]

As far as the delay from June to August, I know that’s the contractual obligation, how often does that actually come to provision where they actually go up until that contractual obligation date or…

[Mark Miller:]

Justin that’s a good question, I mean we have characterized this as a delay in our disclosures, because for purposes of the valuation of our receivable, we have to make some rather specific assumptions with regard to when the Casino will open, because that will then trigger the repayment period of our $5 million receivable. Our working assumption has been, for quite sometime now that the Casino will open sometime in the summer of 2009. Whether that’s July or August, sometime in that timeframe, it’s a little too early at this point for us to call, and its not really necessary from a planning stage as we move closer obviously our pre-opening staffing plan and those kinds of things will have to become more specific, but for purposes of our financial report in our disclosures, we do not have any evidence right now that we will beat the companies or the contractors contractual delivery time. I think that as we move a little closer, that will become clear. I think your question is, how often do they go right up to the contractual delivery time? And I think that that’s very dependent on the project and the circumstances. In our particular case, if you go to our website and you look at the webcam, the project is moving extremely rapidly, we are very happy with the progress that’s been made. We think that we are going to have this building enclosed by thanksgiving which is going to give us an opportunity to just go full speed through the winter. So, we are very optimistic with regard to how the project is going today, but we’ve only been at it since May 7, so I think we will be able to give more clarity on that as we move through the remainder of this year, but for right now we needed to make that adjustment in our valuation assumptions. Unfortunately it had a little bit of a negative impact on our results for this quarter, but again it’s not a cash issue and ultimately that $5 million receivables going to accrete back up to its value.

[Justin Sebastiano:]

Thanks, and since we are closed to thanksgiving, how confident are you guys that it will be enclosed by that?

[Mark Miller:]

Justin right now the contractor believe that the steel is going to substantially up by the late part of September and that’s right on schedule maybe a little bit ahead of schedule. So we are feeling really good about that right now and as long as we get a relatively normal Michigan winner, then I think we all are feeling pretty good about that, so at this point that’s where we are.

[Justin Sebastiano:]

And you guys had mentioned that you have this though the cost control of Stockman’s, could you be a little bit more specific as to what exactly that is, I mean is it headcount reduction, is it going back on marketing or…

[Mark Miller:]

Well, Stockman’s it’s a pretty simple organization and a pretty simple operation. There are only a few places where the cost structure is really variable in nature. Food and beverage right now is bit of a challenge. I think it’s a bit of challenge across the industry and our revenues in food and beverage have held up pretty well. We renovated the stack house, we renovated the coffee shop and we held our own on food and beverage revenues. We were able to institute at the beginning of the year some modest price improvements, but cost of food is under significant pressure right now. So, we are focused in that area in particular, we are looking at ways to make our menu more efficient and try to maintain our food and beverage operation as close to breakeven as we can and so, I think that’s the key focus area for us. We need to be on top of our payroll when the military isn’t there and when they are there we need to be able to adjust up and down and be flexible in that regard and then I think we are taken a good hard look at our marketing and making sure that everything we are doing from marketing perspective is effective given sort of the change in the economic environment. In terms of headcount we have not made any substantial changes there. We have made a few modest changes, but it’s primarily the food and beverage operation, and marketing where we are taken a good hard look to make sure that everything we are doing still make sense.

[Justin Sebastiano:]

Andre you had mentioned about you acquisition strategy, pretty much seems like it stayed the same, but I mean has your ideas though of the size of deal changed or as far as the competition out there with bidders for Casino assets given …

[Andre Hilliou:]

I think Justin; we are still looking at Casino’s in Northern Nevada. We are looking as hard as ever, and we think the market is little easier for us now since the go-go days of the 12 multiples, so we are comfort in looking at Casino’s and we understand by being number one operator in that particular market and a buyer in that particular market, we are able to predict, I think a little bit better than most were the markets going to go next year. So, we are prudent but slightly biased, but we are looking proactively as we speak.

[Justin Sebastiano:]

So, you’re still looking something under $20 million probably…

[Andre Hilliou:]

Yes, absolutely.

[Operator:]

Your next question comes from Stuart Quan - Zander Capital.

[Stuart Quan:]

Mark, you mentioned that you’re exploring what your options were for stock buyback, can you expand upon that, please?

[Mark Miller:]

Well I think Stuart we have two primary uses of our excess, well maybe three primary uses of our excess cash. Our debt reduction, which we’ve pretty aggressively reduced our debt. So that’s not real high on our priority list right this minute. The second use is an acquisition and the third use is now that the Board has approved a stock buyback plan, the third tool that we kind of have in our tool boxes is the stock buyback, so we are on a regular basis sort of weighing our acquisition opportunities, and prospects against where the stock is trading and what the opportunities are from the stock perspective. At this point in time, we haven’t acted on the stock buyback plan, but the Board has approved it, it is available to us now, and if we feel that that’s the best place for us to deploy our cash then that’s what we’ll do.

[Stuart Quan:]

And would that just be open market purchases or would you contemplated any type of tender offer?

[Mark Miller:]

Right now Stuart, the discussions that we have had with the Board have been primarily around open market purchases. Our plan does provide for us to do some block sales, but the Board has been primarily focused on open market purchase type transactions.

[Stuart Quan:]

Okay, and then just finally, when you look at the accretion of an acquisition that you said that you’re looking at Northern Nevada for potential acquisition targets versus buying back your own stock, it appears to me that the market is valuing Stockman’s at a zero multiple right now. So, it would be hard to see how you’d be able to acquire something any cheaper than zero?

[Mark Miller:]

That’s a good point and we have considered that. We are trying to be long-term in our view with regard to shareholder value creation. I think we recognize that today the market for our stock as well as a lot of others small companies are being valued very conservatively, I guess this a good way to put it and that we have assets that we don’t think are fully valued or accurately valued in our stock right now. So we are definitely aware of that, we are definitely considering it and I think that’s the one of the reasons why the Board and we were willing to put the stock buyback planed in place in the first place. The fact that we haven’t moved on it yet, I think is just part of our conservative nature.

[Stuart Quan:]

I mean the capacity for you, your bank line allow you to move that stock authorization buyback number up significantly, I mean can you use the cash on your balance sheet today as well as the credit facility to buyback stock? Is there any covenants including that?

[Mark Miller:]

Because we have so aggressively reduced the Nevada State Bank loan, right now we don’t face any restrictions of any significance on the cash that is currently on our balance sheet. Drawing the line back up and using that for stock buyback is not something that we have considered doing, it’s not something that we have discussed with the Board and whether or not at some point we would be restricted from doing that, but that’s not something we’ve considered at this point.

[Stuart Quan:]

When you mentioned that the long-term value that the market is valuing your assets conservatively as it’s arguably as likely other gaming assets as well however, under any reasonable scenarios for Michigan the price at which the market is implying for Stockman’s is literally zero, buying back your stock today is very positive for long-term value much more so than an acquisition would be under any reasonable acquisition scenario, even you acquire Casino for less than three time EBITDA. I am not quite sure I understand why buying back stock today is not only good for short-term, medium-term and the long-term. You’re retiring stock in your company, which is effectively buying Stockman's for zero?

[Mark Miller:]

I don’t want to spend a lot of time debating this with you on the phone. We have discuss that at great length and we understand your argument and we are fully aware of it and I think that’s why we put the stock, the arguments you have made are exactly the reason that why we put the stock buyback in the first place and we are very cognizant of those issues and when we feel like, that’s the right thing for us to do then we will move on it. Now that we have that authorization from the Board, we can discuss this further if you would like offline, but we’ve heard what you said and you haven’t said anything that we have not discussed at length here internally.

[Operator:]

Your next question comes from Nick Danna - Sterne Agee.

[Nick Danna:]

A couple of questions, when you look at Stockman’s are that Casino more dependent on the naval business than maybe your competitors. I mean does that sort of explain the market share loss almost entirely?

[Mark Miller:]

I think it is probably a little bit of it Nick, I think that we are seeing some economic weakness in Northern Nevada that hasn’t been experienced for a while and I think that whole County, that whole region is pretty dependent on the naval activity, which comes and goes without a lot of warning, but I think that because we are the biggest casino in town, because we have the only real live table game operation in town then I think we have some advantages in terms of attracting that market when it’s there, but it’s been clear here in the last couple of months that when the military is not present, by that I mean when they are not running a major training exercise that the local market just like the rest of Northern Nevada is experiencing some weakness.

[Nick Danna:]

I was just sort of trying to reconcile a flat market relative to the slight and gaming revenue decline that you saw?

[Mark Miller:]

Our hypothesis right now, our belief is that both naval activity and transient activity, which we believe is also down, the traffic sort of crossed Northern Nevada; we’re talking about RV traffic and just transient travelers coming into town that that traffic is down substantially as well and that both of those market segments or segments that we disproportionately share in. In other words we have a stronger market share than our average market share.

[Nick Danna:]

Okay and then in terms of the cost side at Stockman’s; I mean its looks like the SG&A at the property level was up relative to the first quarter this year and then obviously the gross margins on the Casino side were down. I’m assuming the gross margins more related to lower revenue. Was there anything going on in the SG&A line in terms of marketing or promotional spending that we should be aware off?

[Mark Miller:]

A little bit more marketing and promotional spending and I think, those are programs that we had expanded, maybe a couple of quarters ago and we are now in the process of taking a good hard look at to see whether or not they need to be paired back; in fact we’ve actually started pairing some of them back, but we are doing a full marketing review to make sure that in light of the current economic weakness whether all of those marketing programs are still effective.

[Nick Danna:]

Okay, so I mean your broad expectations for Stockman’s I think post the hotel you would suggest $4 million in EBITDA for the second quarters as below that. With the current environment, I guess how much lowered you think that expectation is?

[Mark Miller:]

Modestly lower. I think we are going to do better in the third and fourth quarter than we did in the second quarter, but it’s a little early to call that. I think we will have a little bit more effective cost control. Like I said there’s limits to what we can do there in terms of cost containment and so I would say modestly lower in the third and fourth quarter.

[Andre Hilliou:]

If you look at the revenue across Northern Nevada in pretty much gaming there was like this sticker shock effect in April and May. When the price of gas reached $4, customers towards America said “God where is it going to go?” so those two months, whether it was in Northern Nevada or in New Jersey or Mississippi, people stayed home and just wanted to know exactly where that was going to go. Probably that effects one to keep on coming toward the end of the year and next year, but those two months were just a little different months than the rest of the year.

[Mark Miller:]

Our challenge in Fallon is with the local market being a little bit weaker than you would normally expect it to be we need to be more flexible in adjusting when the military is there and when the military is not there and so we’re working the management team there to sort of refine those adjustment processes and we don’t get a lot of advanced warning; the military doesn’t really tell us when they’re coming and when they’re leaving. So, we have to really make those adjustments on the fly and it’s more important to make those adjustments today than maybe it has been in the past and so that’s the process that we’re working on with the local management team.

[Andre Hilliou:]

And also Nick, in relocating our marketing dollars where we get the biggest bang for our buck, we have the management to do it, we have know how to do it and looking if the market moves from one area to another then we are going to relocate our marketing dollars but we get the gain when we do the best that we can for ourselves.

[Nick Danna:]

And then I guess the final on Stockman’s would be; can you give us any sense for June and July; you said they were better, is that down mid single-digits, down low single-digits flat any direction?

[Mark Miller:]

I would say closer to last year. Very close to last year.

[Nick Danna:]

And then just in terms of modeling, the gain on the notes going forward, you said there’s about $1.2 million that’s left. Would that be recognized between I guess the third quarter this year and opening or how does that…?

[Mark Miller:]

Because the $5 million that GEM has still owed from FireKeepers’ is schedule to be repaid to us, a 180 days after opening out of the remaining funds in a construction disbursement account and that’s our working assumption, that’s when it will be repaid. So it will accrete up between now and six months after opening.

[Nick Danna:]

Okay and that pretty much straight line at this point, now that everything is more or less set.

[Mark Miller:]

Pretty much straight line; if we were to make changes in valuation assumptions in either of the two remaining projects then our gain on tribal receivables would be somewhere between a $140,000 and a $150,000 a quarter.

[Nick Danna:]

Now that you have sort of the GMT in place, the financing is done, when we think about the management fee for FireKeepers do you have a sense of annual interest expense and annual depreciation that you could help for us?

[Mark Miller:]

I don’t have those numbers right here in front of me Nick. I can get back to you on that, I don’t have the depreciation number. The annual interest expense number is in the high 40’s, but I can get back to you on that.

[Nick Danna:]

Okay, but the hard cost for the building is in the 225 to 250 range?

[Mark Miller:]

The hard cost for the building is in the 225 range right. When you say hard cost you’re including FF&E, you’re just not including financing cost, your not including pre-opening that kind of stuff.

[Nick Danna:]

Right, basically the amount that will ultimately get depreciated, over 20 plus years, okay; and then the last one relates to the $2.1 million of financing cost that was funded by GEM?

[Mark Miller:]

Yes.

[Nick Danna:]

I guess it’s on your books as debt and then it went on your balance sheet as an asset, did you front that cost and then you get paid back for it or is that now a debt obligation that you’ll ultimately fund to them?

[Mark Miller:]

No, we’ve already funded, we funded it at financing. GEM funded it, so Full House funded half of it, approximately $2.1 million that was our share of the financing costs under the management agreement. That was booked as additional contract rights on our balance sheet. That will be amortized over the life of the management agreement. So, it will be an expense, a non-cash expense going forward on GEM’s books. So, basically half of that will end up as amortization expense hitting Full House Resorts.

[Nick Danna:]

So that is not an advance of the tribal ultimate we repay, that was part of the agreement for you to fund the portion of the financing costs?

[Mark Miller:]

That’s correct, that’s correct and it will not be reimbursed.

[Operator:]

Your next question comes from Alex Silverman - Special Situations Funds.

[Alex Silverman:]

Can you discuss the volume of properties for sale in Northern Nevada? What you’re seeing in terms of competition to buy those properties and pricing in general?

[Andre Hilliou:]

The pricing; we were very careful in buying Stockman’s, we were probably two or three multiple lower than the completion of the time. It seems like the folks are in that neighborhood now, the buyers we haven’t seen many buyers out there to be very honest with you and there are several properties for sale in Northern Nevada. At the end of the day it takes time for those owners to realize that there will not be similar planning and usually those owners are looking at a reviver that they have seen several times in the past. So I think that the reality is sinking in very slowly, but there are properties for sale at multiples that we probably will consider acceptable and at the end of the date. We know what we are willing to pay and we’ll not go above those multiples, but there are properties for sales in Northern Nevada. We are looking at them currently as we speak, but we have been doing so for two years as well.

[Mark Miller:]

I think we are staring to see an adjustment in expectations. I don’t think that as Andre said is not fully sunk-in yet, but I think owners are figuring out that; one, the buyer pool has shrunk and secondly, that for those buyers who remain in the market that their ability to obtain financing is more restricted and that they’re not going to have great summers. Lot of these small properties have sort of lived on their summer and then during the winter they’ve depended on those summer results and it’s not going to be a strong summer for a lot of properties. So, I think that that is starting to sink-in to some of these potential sellers. Having said all of that, I think our challenge is to find a property that is a good fit for us at the right price and that we can leverage and do something with going forward. As was discussed earlier we have to weigh that against other potential uses of our financials.

[Andre Hilliou:]

And you know Alex, all markets I know that we are doing here, some segment and items of the market are doing okay.

[Mark Miller:]

Northern Nevada, there are parts of Northern Nevada that are very depended on the mining industry and the mining industry right now is doing very well, so as Andre said, there is some segments of the market in Northern Nevada that are doing well and there are others that are being more dependent on or more affected by the price of gasoline and those kinds of things.

[Alex Silverman:]

Are you focusing on single properties or would you consider a seller who has multiple smaller properties or sort of all of the above?

[Mark Miller:]

All of the above. We’ve looked at some deals where there are multiple properties and we’ve looked at some deals where they are single properties.

[Alex Silverman:]

Not to pile on the rest of the crowd, but we feel pretty strong as well that buying your stock back here at $1.66 would be a very good use of your capital?

[Mark Miller:]

Yes, we are…

[Alex Silverman:]

Just to pile on.

[Mark Miller:]

Understood.

[Operator:]

Your next question comes from [Rob Wildermuth] - Insight Investments

[Rob Wildermuth:]

I apologies if any of these questions are repeats; I’ve been listening to about 95% of the call, but had to jump off a couple of times real quick. Number one, I just wondered in light of the current economy and just your projections what kind of yearly run rate do you see for EBITDA, for the FireKeepers Casino?

[Mark Miller:]

Well, we have not given any guidance on FireKeepers specifically and we don’t want to do that. There are three analysts out there who have put out numbers that we have access to, we’d be happy to share those with you. Justin who is on the call has a model out there, Nick Dano has a model out there; we’ve reviewed those, we believe that they’re conservative, but reasonable expectations. John Maxwell from Merrill Lynch has a model out there, which is a little bit more conservative than Nick and Justin’s and…

[Rob Wildermuth:]

Can you give me some idea; I mean are they double-digit like are we talking $10 million, are we talking 15, are we talking...

[Mark Miller:]

You’re talking about the management feature, Jim. When you say 10 or 15 what number you’re referring to there?

[Rob Wildermuth:]

$10 million or $15 million …

[Mark Miller:]

Of management fees to Jim?

[Rob Wildermuth:]

To Full House

[Mark Miller:]

I think that if you looked at Justin or Nick or John Maxwell’s models, the management fee that would ultimately accrued to Full House would probably be a little bit under $10 million in the first year.

[Rob Wildermuth:]

Okay, I met with management back in February of ’07 and they shared some projections then, but you guys are sort of not at this point giving any guidance is that?

[Mark Miller:]

That is correct..

[Rob Wildermuth:]

I was just looking through my notes here though to see what they were, but I believe they were more in the $12 million to $14 million range back then.

[Mark Miller:]

They are very sensitive to slot win per unit assumptions and if you look at John Maxwell’s model or if you look at Justin and Nick, like I said I think that we would consider their slot win per unit numbers to be reasonable, but on the conservative end.

[Rob Wildermuth:]

Okay moving on and you might have said this earlier; did you say maybe just under $7 million is the current run rate at Stockman’s on a 12 month basis or less than that?

[Mark Miller:]

No, no; Stockman’s EBITDA is probably -- if you look at the segment chart in 10-Q and you kind of just do the numbers, post the sale of the hotel, probably somewhere in the mid threes to it could approach four, but I’d say in the current economic environment getting to four is going to be a tough knot for this year.

[Rob Wildermuth:]

Okay and then finally the Delaware flats, what’s your run rate on that?

[Mark Miller:]

We’re guaranteed an 8% growth over last year’s cash payments, and last year’s cash payments were $4.1 million. So, by the end of this year we are going to be up roughly 8% on the 4.1.

[Rob Wildermuth:]

So 4.1 times 8%, okay. Next question, I just got a few quick questions. This kind of goes back to the whole share buyback, like the options you have with your cash, share buyback versus acquisition. Andre, do you feel like we have seen sort of the trough evaluations in local casinos or is there more air left to come out of that level, if you will?

[Andre Hilliou:]

That’s a good question. The market seems to have stabilized, at least from what we have been looking towards Northern Nevada. Kind of hard to tell where the price of gas is going to go, I think it kind of has an impact on the, but the multiples have come down steady fairly decently over the last two to three months and we think that what we are looking for would be eventually achievable.

[Mark Miller:]

I don’t think all buyers have adjusted their expectations.

[Andre Hilliou:]

They are getting, though

[Mark Miller:]

They are getting there, and so I think that some sellers have become much more realistic. I think some are still on the process of making that adjustment and I think some are still in the process of deciding whether they want to sell or whether they want to write it out and hope for a better day.

[Andre Hilliou:]

But we have a threshold in buying and we will not go above the threshold.

[Mark Miller:]

Right.

[Rob Wildermuth:]

Did you guys, look at what your run rate is going to be on, EBITDA or even just a net income type run rate starting the middle of next year once the FireKeepers opens, and then you look at where your stock is right now, I mean you’re looking at the multiples like two or three on your net income and that’s being quite conservative. I just can’t see any reason why as a company you wouldn’t be just completely thrilled to buyback stock at these levels?

[Mark Miller:]

We definitely have heard that argument and like I said before it is very much on our radar screen as the use of cash. I mean we’ve only have the stock buyback plan in place for about 30 days and the fact that we have not used it yet should not be viewed as an indication that we won’t.

[Operator:]

Your next question comes from Stuart Quan - Zander Capital.

[Stuart Quan:]

And Mark just to confirm the $5 million receivable is the 100% going to Full House?

[Mark Miller:]

No, that’s not correct. That $5 million receivable is due into GEM and then there are receivables at the payable at the GEM level to its two members, but those will be satisfied out of cash flow in the GEM, which will be made up both of the $5 million coming in and future management fees that are paid into GEM, but that’s $5 million is a payable, from the tribe to GEM.

[Stuart Quan:]

Okay and the $2.5 million obligation is for GEM so, basically net $2.5 net receivables.

[Mark Miller:]

If you took the receivable and the debt there are not both related to the tribe, but they would net out to an assets of roughly $2.5 million.

[Stuart Quan:]

And, just my one final comment on the buyback, which sounds like its being echoed by others, I don’t want to speak for them, but I think people are thinking above a $1 million. I don’t think we are questioning why you haven’t done it yet, it’s really why you won’t be wanting to buyback 2, 3, 4, 5, 6 pick a number of million dollars of stock, but we can talk about that later. Thank you.

[Operator:]

Thank you and I’m showing that we have no further questions.

[Andre Hilliou:]

Well we’d like to thank everyone for the participation on the call today and for their support as we continue pursuing growth on behalf of our shareholders, with that we will end the call and will wish all of you a great rest of day. Thank you.