Full House Resorts Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 8, 2023

There are 7 speakers on the call.

Operator

Greetings, and welcome to the Full House Resorts, Inc. 1st Quarter Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.

Operator

It is now my pleasure to introduce your host, Louis Fanger, CFO of Full House Resorts. Thank you, sir. You may begin.

Speaker 1

Thank you, and good afternoon, everyone. Welcome to our Q1 earnings call. As always, before we begin, we remind you that today's conference call may contain forward looking statements that we're making under the Safe Harbor provision of federal security laws. I would also like to remind you that the company's actual results could differ materially from the anticipated results in these forward looking statements. Please see today's press release under the caption Forward Looking Statements for the discussion of risks that may affect our results.

Speaker 1

Also, we may make reference to non GAAP measures such as adjusted EBITDA. For a reconciliation of those measures, please see our website As well as the various press releases that we issue. And lastly, we're broadcasting this conference call at fullhouseresorts.com, where you can find today's earnings release As well as all of our SEC filings. And so with all that said, I'll kick it off here and then turn it over to Dan for some cleanup. But The big change in the quarter you probably saw was we did change the segments.

Speaker 1

I think you guys are used to it by now. It's pretty consistent with what you a lot of other gaming companies, but we essentially have grouped regrouped our segments by geography, Really a function of our growing scale and expansion and we think that's the appropriate way for you to look at it because that's the way we look at it behind the scenes. The temporary opened quite strong. We had $3,600,000 of EBITDA in the quarter, 34% margins. That's in its first one and a half months of opening.

Speaker 1

So not a full quarter of results there. Results we think will continue to improve as we continue to expand the amenities and offerings at the property. On April 3, we were permitted to start to open tables at 10 a. M. Instead of 2 p.

Speaker 1

M. Previously. On that day, we are also permitted to increase the MAX That's from $1,000 per hand to $2,000 on April 4 I'm sorry, April 5, we opened Asia as our 2nd restaurant for dinner service, quite good food by the way, been there many times and encourage you to do the same the next time you guys are up in the area. And then we managed to cross a few records here in April. Obviously, the property continues to ramp up.

Speaker 1

But in April, as an example, we had our best gaming day so far. It was the first time we crossed $500,000 in daily gaming revenue. We had our best weekly Table games revenue in the month of April. We had our 2nd best weekly table games revenue in the month of April. About one and a half weeks ago, we had one of our best slot volume days opening weekend.

Speaker 1

It was the first time we had a single hour where we crossed $400,000 in coin in. And all of that is As that property continues to ramp up behind the scenes and so here this upcoming weekend, starting on May 12, what we're I think it's to go 24 hours on weekends and then the removal of all table limits, so you can bet whatever we set the bets at or maximum bet sat. So more change to come here in the nearer term. Current team count is sitting at over 500 people and the database in real time Over 25,000 people and closing in on 30,000 people. So doing quite well.

Speaker 1

Circa Sports, the sports book itself, Circa got approved by the Gaming Commission. They're still waiting on their software to be approved. And they actually can't start operating until we receive our permanent operating which we hope to receive here in at their upcoming meeting in June. But once that's all done, then sports can begin And we're expecting that to start perhaps in August of this year. Looking at the other property, Silver Slipper, Just wanted to flag that last quarter, we noted some over marketing by a competitor.

Speaker 1

As we exited the Q1, That over marketing went away and our market share returned to normal levels. We also were affected by some adverse hold both on the table games and On the slot side, in the current year period, Rising Star had a $2,100,000 free play sale. We do that every year. It is fluctuated between quarters for what it's worth. So this year, we did it in the Q1.

Speaker 1

Last year, we did it in the Q2. And so just to make sure for modeling purposes that you are adjusting your second quarters for that $2,100,000 that's already in the results now. Outside of that, Rising Star had a pretty decent quarter, realizing that they're still absorbing the impact of that new Churchill Downs facility nearby. The other properties, not a whole lot to tell you. I'm sure you saw the stories about record snowfall up in Northern California and by Lake Tahoe And in Colorado as well.

Speaker 1

That all said, Dan, you want to do some cleanup or talk about Chamonix?

Speaker 2

Yes, a few things. First, I'd point out that we comfortably exceeded the expectations in the quarter. It was $10,100,000 of adjusted EBITDA This was 7.5%. And I think the highest single estimate out there was about 8%. Even if we take out the sale of replay, we met the highest estimate that's out there.

Speaker 2

And of course, the star of the show was the temporary in Illinois, which was open almost exactly half the quarter, Like Louis said, and had EBITDA of $3,600,000 Now if you just take that and multiply it times 2, that's 7.2 and multiply that times 4, it's 29.6, which is about what our whole company earned last year. So pretty significant to us. And it's still only partially open. It had about 25 table games open in the Q1. I think today it's about 28 at its maximum.

Speaker 2

The license permits 50. We have Request awaiting approval to expand to 38 games. We have the dealers to do so. So we're waiting for the gaming commission on that. We opened originally with limited hours of operation set by the Gaming Commission.

Speaker 2

We were only open from 8 in the morning until 4 in the morning. So we were closed 4 hours a day and then we shrink that to 2 hours a day. Now as of May 12, it Be at our discretion and we're going to be 24 hours a day on weekends initially and then probably go 24 hours a day every day Shortly thereafter. The betting limit started out at $1,000 a wager in the Q1. It's 2,000 as of May 12.

Speaker 2

It's unlimited. It's at our discretion. And in the food and beverage area, in the first Quarter, we only had one restaurant open and even then only for dinner. In early April, we opened the second restaurant Initially for dinner 5 nights a week, we're gradually expanding the operating hours of the 2 restaurants As the customer demand builds and as we hire more people. The 3rd restaurant we expect to open this summer.

Speaker 2

It's a diner facility that's late getting to us, but that's actually okay because we're still building the Business of the other 2. And our mailing list started with near 0 people on it. Today, it's over 25,000 people. Property of this size, I would expect it to be 40,000 to 50,000 of kind of active people on the mailing list Eventually, so we're about halfway there. That's important in making your you can market much more efficiently.

Speaker 2

Once you know who's gamble who gambles, you don't have to mass market as much. And then just Employees, we opened with about 400. We're now over 500. We think we'll be 700 plus when fully operational. So we're making good progress there.

Speaker 2

And Then so going forward, it's going to be a full quarter, full operations, full hours of operation, Marketing efficiencies, so we think it will build from where it is, but it's already a pretty good number. In a very big way, this quarter was a turning point for the company. We borrowed A bit of money a couple of years ago to go build all this stuff. And the interest expense on all of our debt adds up to about $9,500,000 a quarter. Adjusted EBITDA was $10,000,000 So, we actually covered our interest expense Of all $450,000,000 of bonds and $27,000,000 on the credit facility and that's despite only having The temporary for half the quarter and getting less than 0 from Colorado.

Speaker 2

And the cash we're sitting on There's enough to finish Colorado and have it contribute to it as well. And so when you look at it, we're already producing Modest amounts of free cash flow and that's just going to get significantly bigger as the quarters go ahead. And so if you look at it and say, well, as we have full operation at the temporary and as we get Chamonix open, We are going to shift very quickly from being one of the most levered casino companies to likely becoming one of the least levered casino companies over the period of about 3 quarters. Now in Chamonix, we had indicated before that we thought the earliest parts would be completed in Q3 And that we may open in stages and be all open by year end. We've now made the decision to open the entire property all at once It makes for better opening.

Speaker 2

If everything is there, you get one shot at a first impression and we'll be able to do that here. 2nd, There was a there is a narrow historical building, 25 foot wide that as we got into construction, We found that the roof of it had some structural issues. It's 25 feet wide. You think it'd have 25 foot beams, but that when they built it in the 1890s, they had 2 15 foot beams that were nailed together basically. And so we had to bring in structural engineers and figure out how to support it.

Speaker 2

And so now the critical path runs through that building. And that's important because if we tried to open Earlier, we'd be opening with Chamonix separated from bronchobiliacs business as a building you have to go through to get from 1 to the other. And we think it's better to open in its entirety. And then frankly, October, November, early December is a very seasonally slow period anyway. New Year's Eve on the other hand is not.

Speaker 2

It's one of the biggest days of the year. And so we've decided to focus on getting Open all at once on the day after Christmas. Importantly, there's no regulatory issue here like we had in Illinois. We are already licensed in Colorado and we're operating at Bronco Billy's. We have a core base of employees, which we didn't have in Illinois.

Speaker 2

So we don't think there will be any regulatory issue with us opening on December 26. Importantly, we also entered into a partnership With Barry and Yacine of Barry's Prime, which is the restaurant, very successful restaurant that's in Circa in Downtown Las Vegas. Barry and Yacine were For many years, the management team at the 9 Steakhouse at the Palms, which is one of the most successful parts of the Palms. Before that, Barry came from Ariel, and he actually started with Charlie Palmer in Manhattan At Ariel's and then was brought out to Las Vegas when Ariel's opened at Andale Bay. Ariel was very successful About 25 years, it just recently closed.

Speaker 2

But these guys are kind of James Beard Michelin Star restaurant Barry's Prime was just ranked 1 of the top 100 restaurants in the country by TripAdvisor And it's a fairly new restaurant,

Speaker 3

so I

Speaker 2

got there pretty quickly. Ariel had won James Beard Awards, I think twice and Michelin Star Award Several times. So our goal is to have the best restaurant in the state of Colorado. And in partnership with them, we think we'll get there. And so that's very important to the place.

Speaker 2

And as part of our secret, The primary market for us is always going to be Colorado Springs, which is a 1000000 people close to us. Colorado Springs, Pueblo and Canyon City had up to about a 1000000 people. But Denver is an important secondary market. It's about 2 hours away. It's closer to Blackhawk than to Cripple Creek, although the southern parts of Denver, Especially considering Denver traffic, the southern parts of the Denver metropolitan area are probably about equal distance.

Speaker 2

And if we can have Better services and a more interesting casino than the ones in Blackhawk. We think we can get a significant Secondary market from Denver. It's not unlike people who live in San Francisco or actually closer to Reno than they are Las Vegas, but certainly many people from Northern California end up in Las Vegas. So that's what's going on there. Going ahead, Silver Slippery did not have its best quarter, but we've altered some of the marketing and I think it's Going to do better going forward.

Speaker 2

It wasn't a disaster, but it was a little soft. In Colorado, we're not making anything. I lost a little bit of money last year and that's just because it's got no parking, it's got no hotels, half the place is under renovation. It's amazing. We're not losing more money to be honest.

Speaker 2

And that will turn around when we get Chamonix open, which is now on the horizon. And then the circa Sports book deal in Illinois, which is $5,000,000 a year to us, which it alone covers a good chunk of our interest expense. And CIRCA has to there's a whole bunch of regulatory stuff that has to happen, but we think they'll be up and operating by August. And we did get the entitlements through the Corps of Engineers to add a Tower at the Silver Slipper, but we're a little busy these days, so it's certainly not imminent. And we're actively doing the designs For the permanent American Place, which we expect to open about 3 years and I guess that's it.

Speaker 1

I think we got everything, Dan. Okay. So with that said, let's go to Q and A.

Speaker 2

Let me address for a moment. We did change the segment report. I got that start, Yes. Okay. And so just as we've gotten to be a bigger company, it didn't seem to make sense to spend a lot of time talking about Fallon separately or Star separately.

Speaker 2

So it's not possible to invest in only one of our casinos, you're investing in the company. So it's more appropriate to kind of show you what Any questions?

Operator

Thank you. We'll now be conducting a question and answer session. Our first question comes from David Byrne with B. Riley. Please go ahead.

Speaker 3

Great. Thank you and congratulations on the Waukegan margin ramp. That's certainly Faster than we anticipated. I think on the last call, there was actually mentioned that Waukegan could hit 40% margins over the Of course, the time and just looking at what you accomplished in the 1st 40 days or so there, is that ramp to 40%, one, could that be Conservative that 40%, even as amenities come on that may stabilize that ramp for a little bit, but after fine tuning, I mean. And in terms of sort of overall timing to get there, has that changed internally in your view?

Speaker 2

I think what you're referring to is I was referring to 40% of gaming revenue. EBITDAIT could be 40% of gaming revenue.

Speaker 3

Okay. So we're pretty at the 35%. Sorry.

Speaker 2

More restaurants and get more food and beverage revenue, you don't make Much margin on the food and beverage. Right. And but on the other hand, in the casino, it's predominantly slot machines so far as it is at all of our properties. And then the tax rate in Illinois on table games is significantly less than it is on slot machines. So we'll have pretty good margins on tables and everybody has good margins on slots.

Speaker 2

And then there's no hotel here. There's no golf Some of our other properties have these other things that are low margin businesses. This one doesn't. So it should be a high margin

Speaker 1

Yes, yes. Because if you think about it, Dave, the that food and beverage really is breakeven, right? So that's bringing down your overall margin, if you look at a consolidated basis. The only thing I should tack on there As we ramp up these other amenities that are in the mix, whether it's the additional restaurants or the Additional table games hours. There's probably a little bit of margin degradation there too, in part from just having more Lower margin stuff like more food and beverage as in the revenue line with not as much on the EBITDA line.

Speaker 1

That will degrade margins a little bit and then just the normal ramp up will degrade a little bit too. But I think in the longer It's a property that should have margins in the 30% -ish. And I think even our GM there would tell you, as he's told me many times, At his old property, he pulled 40% margins and he would love to get 40% margins and we would love that as well. So but it's more of the stretch goal than it is The easy goal.

Speaker 2

Well, the other thing I'd point out is in the expenses in the quarter, we had a lot of mass advertising. We were running TV ads. We were running A lot of billboards. And as you build a mailing list, you can focus more Specifically on people who are known to gamble, and so your advertising expenditures and marketing costs get much more directed and much more efficient. So that will happen over time.

Speaker 2

We even had trains that we wrapped On the commuter line with the stuff for the property, which is once you have a mailing list, you don't have to do stuff like that. It's kind of like I was explaining to our advertising agency, it's like going fishing in a lake you've never been to before. And you have to go throw your line out in all sorts of different places You start to learn where the fish are and then you just go back to those places. And in this quarter, we were throwing our line all over the place trying to find out where People are who gamble and who they are. And as we zero in on that, we'll become more efficient.

Speaker 3

Okay. Great. Okay.

Speaker 1

One last thing, if I'll help you, Dave. The for April, to put it on perspective, our margin, we haven't closed the books yet there for April, but it's probably going to be in the high 20 percent, not have a 3% on it, but that's in part because we ramped up that new Asian restaurant. So, a little more color there for you to help you out.

Speaker 3

Yes. No, that's very helpful. Thank you. And then have you observed anything from running the temporary At least to date, that could be incorporated in the permanent build as either an amenity or maybe something you want to eliminate to further maximize sort of The long term potential in Waukegan or is the roadmap pretty set there?

Speaker 2

Oh, no. We're learning stuff every day. I could write a book about the stuff we've learned in 3 months. But is it dramatically changing? Yes, learn some stuff.

Speaker 2

And so you do learn stuff. And frankly, just thinking about it as you work on it. And frankly, we hired as the architects the same firm Who did the Venetian and Palazzo and the Yamava? Yamava, yes, I was trying to pronounce it, Yamava Casino and a bunch of other stuff, very experienced architects by the name of WATG that specialize in hospitality. And frankly, they've come back with some significant improvements in our design.

Speaker 2

And some of them are improvements in quality and some of them are improvements in efficiency. So it's a process. Yes, we are learning a lot obviously.

Speaker 1

The table games demand has actually been pretty robust. When we were opening at 2 p. M. It was kind of nice to walk the floor at 1:45 and see a lineup of people waiting for those tables to open. So then when you went to 10 am openings, you kind of started going through that same bit all over again.

Speaker 1

That's been a nice pleasant surprise to See, especially given that the gaming tax rate there is fixed at a flat 15%. On the slot side, we're certainly learning our marketing day by day, and that's Why in April, you saw us hit some new records where we're tailoring the marketing to what the locals are responding to. But the other thing that I forget sometimes, so you probably forget about it too. Is that, that slot customer is one that is used Getting their free play in the mail every week and they get they're used to their usual things. And when you don't have a database, It's hard to offer that, right?

Speaker 1

It's not surprising. And so from February to March April to May, as you continue to build that database, you continue to build your slot player too. In the month of May, just at the start of this month, we had our first Kiosk games where you swipe your card and you get your bonus points or whatever it is. And This is May is probably going to be the 1st full month where you've got your full breadth of normal slot marketing amenities there and live. And so as that database continues to expand, I think you're going to see just continued change in that property too.

Speaker 1

Actually, it's fair.

Speaker 2

There are 2 things we've learned that one of which we couldn't do anything about, the other one maybe we could have. And that was one We did go through the trouble to have these projectors project interesting visuals on the tent at night. Otherwise, it would have just been a deep hole and that cost us close to $1,000,000 all in. But when you drive by at night, it really catches your eye. It's pretty spectacular.

Speaker 2

During the day, it looks like Department of Public Works parking garage. I mean, it's very unimpressive during the day. And there's not much we could do about that. I mean, it's It's a temporary building. And so the permanent will catch your eye.

Speaker 2

But if you drove by this during the day, We're trying to figure out how to market to say, you got to come inside because when you step inside, it's far nicer than it looks Like it will be from the outside. And so that's been one of our interesting challenges that there wasn't much we could do about it. We did I'm glad we went through Trouble to shine lights on at night because that helps a lot. The other thing was the choice of name, which Choose me, choosing the name, the temporary. And I wanted to choose that name because I didn't want people to think This was American Place because American Place will be much nicer.

Speaker 2

But marketing the temporary is actually kind of an impediment because people are like, well, Why do I want to go to this place? It's only temporary. It's like it's not that nice. It's just temporary. And it's even been a little bit of a hurdle with employees like, well, I have a permanent job Now why do I want to go to work at a place called the temporary?

Speaker 2

And so it's kind of like with the employees who say, listen, we're hiring you for American Place. You just it's a permanent job. It's just a temporary structure. And so the use of the temporary name, which is little tongue in cheek and it was to not confuse people on American Place Bigger and better. But in the meantime, it's been a little bit of a challenge.

Speaker 1

Yes. I mean, the pleasant thing is people walk in the door and overwhelmingly People walk in and their jaws drop and they're just amazed by the place. It's very, very different on the inside versus what you would expect when you see it on the outside. And look, I hear everything that Dan said, but at the end of the day, a brand new property anywhere is going to have its own challenges as you brand the property. So, this was a very, very good start to it.

Speaker 1

We're extremely pleased with Q1 and nothing has phased our ability or our thinking as to what this property can do in the long term. It's there in full.

Speaker 2

In effect, we built the Industry's biggest speakeasy. If you go down to Well,

Speaker 1

hidden secret, yes.

Speaker 2

But Cosmopolitan has all these speakeasies and you go to the back of their food court and push an emergency exit door And lo and behold, there's a bar back there that's always jammed called Ghost Donkey, right? And it's like somehow they had to get that word out. And our casino is kind of the same thing. You're driving by what looks to be a place for the Department of Public Works is storing salt for the winter. And until you walk in the door, you Realize how special it is.

Speaker 1

Yes. Okay. Sorry for talking all

Operator

the time.

Speaker 3

No, thank you. All right, guys. Thank you. Thanks, Dave.

Operator

Our next question comes from Edward Engel with Roth M. K. N. Please go ahead.

Speaker 4

Hi, thanks for taking my question. Two quick ones for me. The first one is on the temporary. Any update on what the GGR was in the month of April in the earliest directionally versus March? And then For the opening date of Chamonix, how set in stone is that December 26?

Speaker 4

And I guess, At the same time, what point this year are we going to start to see less disruptions at the profitability property as well? Thanks.

Speaker 1

I don't have it in front of me, Ed, but it's going to be low 7s, if I recall correctly. April is always a strange month for a lot of markets because you get Easter in there. We had some snow days there on the weekend and then you had What I'm told is a big deal, Orthodox Easter as well. So, it's If I were in your shoes, I would look at the opening of additional tables as the next big move for gaming revenues there, more than anything else in the near term.

Speaker 2

And the changes on May 12.

Speaker 1

And the changes on May 12, absolutely, yes.

Speaker 2

Are pretty important. And frankly, I don't understand the Orthodox Easter The property told us that Easter can't hurt them. And I'm like, really, how many Orthodox Christians do we have gambling at our casino? But anyway, So, but regular Easter, definitely slow. And but property is doing a couple of 1,000,000 a Pretty consistently.

Speaker 2

Yes. And then the Bronco Billy or the Xiaomi Bronco Billy's Well, because the there's hotel rooms above the parking, which parking garage is actually completed, but the elevators lead down The Chamonix Casino, which is not hooked up to Bronco Billy's. So we don't have a way to get parking for Bronco Billy's until we open Chamonix and that's A major thing for it. Now when Chamonix opens, we not only have the garage, but we now have large surface lots Behind Chamonix and we will go from having the least parking in town to having the most parking in town. But it all happens when Chamonix opens Because the way it's connected.

Speaker 2

So now the summer is seasonally more important than the winter. So we hope to make some money at Bronco Bill is this summer. But I think the big turn won't happen until we really get Chamonix open. And that's a pretty certain date. I mean, there's no regulatory issue.

Speaker 2

We've thought long and heard about it. We get all the construction people to sign off on it. They're actually turning parts of the building over to us as much as 2 months before that. Now then we have to put the And see a certificate, we have to run a fire watch and all this stuff. And we will use Chamonix like to complete your facilities in Chamonix to train people.

Speaker 2

And so No, it's a pretty certain date at this point. And like if you wanted to reserve a guest room for that last week in December, we would take the reservation at this point.

Speaker 4

Helpful. Thank you.

Speaker 1

Yes. Having

Speaker 2

said that, I got to make sure they've opened up the website, Yes. I don't

Speaker 1

think we have quite a bit.

Speaker 2

I'm sure Baxter is listening on the call, probably scrambling to do that. Any other questions?

Operator

Our next questions come from Chad Beynon with Macquarie.

Speaker 5

In terms of the Silver Slipper, this is a property that generated exceptional results back in 2021 and now we've had a couple of quarters Of just really tough comps and the performance has come down a little bit. Dan, you talked about potentially doing some things When the focus is removed from some of the other projects right now, but can you shine a little bit of a light in terms of just generally what's going on in Current macro environment, if trends have kind of leveled off there, obviously, we all know that the southern region generally in gaming probably Performed, I think that was fairly uniform, but just trying to get a sense of where this settles out in the current macro environment. Thanks.

Speaker 2

Well, I think Boyd mentioned they saw weakness in Mississippi and Louisiana in their quarter. I've actually been wondering, you can pull the results by property from Louisiana and both BoomTown on the West Bank of New Orleans and Treasure Chest, which is not far from there, were both down strongly. And we're not Sure. Why? In their case, they're down like 20% each.

Speaker 2

We're not down that much. We're it's a little soft. And We've had better quarters, but I think the main thing we've been playing against is that Penn went And put some money into the Hollywood, which is down the street from us. So they opened a refurbished spa and a baccarat room and a noodle bar, And they got more aggressive with their marketing. And so we've responded now with some new marketing programs, And we seem to be holding our own into April.

Speaker 2

So I think it's And actually as the company shifts, I mean, if this is part of the benefit of The company, I mean, we used to count an awful lot on the Silver Slipper. Now the Silver Slipper can have a soft quarter and it can easily be made up for by the temporary. And when Chamonix opens, the Silver Slipper is going to be our probably our number 3 property, not number 1. And we're actually looking now like insurance rates Continue to go up. The insurance companies take such a hit on different hurricanes and so on.

Speaker 2

And we used to have Like the Silver Slipper super over insured because the whole company was relying on it. And we may cut back on that some now. We Still have it adequately insured, but if it got hurt by a hurricane, the company would be fine. And so we may be able to do that going forward To reduce the growth that would otherwise continue in our insurance expenses. So that but anyway, don't it wasn't A horrendous quarter in the Silver Slipper.

Speaker 2

It was just soft. Yes. Let me help you

Speaker 1

out a little bit there too, Chad. Look, the property, When it did $30,000,000 of EBITDA 2 years ago, we were out there telling people it's not a $30,000,000 a year asset for what it's worth. If it's doing between 15 and 20, I'm disappointed at 15. I'm looking at Dan to make sure he agrees with that. Absolutely.

Speaker 1

But if you're doing in the ballpark of It's probably the right spot to be. And is it a little more on the disappointing side? The answer is yes. We did have some table hold issues that I briefly mentioned at the top of the call. But to put it into numbers, Table games hold was 2.9 percentage points below last year's Q1.

Speaker 1

That equates to $230,000 of lost Revenue, if you would have kept the same flat fold percentage. And then on the slot side, we're about 37 bps lower, which is about $800,000 So Those aren't insignificant numbers either for what it's worth.

Speaker 5

Okay, great. Thanks.

Speaker 1

Yes, I

Speaker 2

got it. It's interesting that people talk about the region being weak and we've been okay. We're a little weak, but we've Okay. But I do kind of wonder whether inflation has a bigger impact there In other parts of the country because it's the per capita income is lower in Mississippi Louisiana than other parts of the country. And so if you add something to the cost of necessities, it might have a bigger impact on household income.

Speaker 2

But that's just a guess. I don't really know why that region would be weaker than any other region. And we are From what I've been able to see from Boyd and Penn with the exception of Penn at Hollywood, I think we're doing better than most in the region.

Speaker 5

Good color. Thank you. Wanted to touch on table games opportunity at the temporary. So you talked about the bed max limits, the number of tables, the hours. Where do you expect tables versus slots to be?

Speaker 5

And then the second part of that is when circa opens in August, Should we expect for some nice demand to come in on the weekends during NFL season, September, October, etcetera, through the Q4 from people who are maybe going in to watch the games at this, what appears to be one of the bigger sports books In the county, and then maybe go over to the table games, given that's kind of their customer demographic. Just trying to figure out what the opportunity could be there on table games later on in the year.

Speaker 2

Well, on your first question, we open With 25 table games that were 28. 28. Well, eventually, we're allowed to have 50. But when you go from 28 When 28 to 50, you don't double the revenues because you don't need 50 games on a Tuesday morning. But you may use all 50 games on a Saturday night.

Speaker 2

And so as you double the number of table games, maybe the table game revenue machines to be probably at least 2 thirds of the revenue of the property, but the table games will be more whereas in our other properties, slot machines are 80% to 90% of the revenues of the property. And then because it's a lower tax rate, I think we can make better Margins on table games in Illinois than we can in the other markets. The Sportsbook, it's still kind of a new area. The fact that there are that you can make a bet On a game on your iPhone from anywhere in the state reduces the need to come to our property to make a bet. Now, nevertheless, the sports book, especially the way circa does it, creates an ambiance that people like.

Speaker 2

I mean, there's probably no better place to be During March Madness than sitting at Circus Sportsbook and eventually American Place will have a sportsbook that's very similar. And so it becomes an amenity that people want to go to almost like a nightclub or something. And so that's important. And of course, we participate in the online Betting. So we will benefit from that and there's a minimum of $5,000,000 a year.

Speaker 2

I'd be surprised if our half Of the on-site sports book is $5,000,000 a year. I think the online is probably bigger. But is it a nice amenity to have in the casino? Yes, we're anxious to have it open and I think it will draw some people. But it's still kind of an Unknown thing like but in general where states have online betting and people like in When Louisiana allowed online sports betting, it hurt our in house Sports book quite a bit at the Silver Slipper because people were driving to the Silver Slipper to place a bet because we were the closest Casino to Louisiana, we were the closest sports book to Louisiana.

Speaker 2

Now the sports book was never more than something like 5% of our revenues there, but it went from 5

Speaker 1

Another way to think about the tables, Chad, if it helps you is, If you look at Rivers, Rivers in the month of March as an example did Roughly 40% of their total gaming revenue came from the table side. If you look at our other nearest competitor, Grand Vic, The percentage was closer to 21%, and I think we did something like 14% of our total revenues came from the tables themselves. So the question is, are we going to be closer to 20% like most other casinos in the state? Or are we going to be close to Rivers at 40%? I don't know the answer.

Speaker 1

My gut says you're probably somewhere between the 2, but we'll certainly have a lot more.

Speaker 2

I think we're between the 2. The Asian communities in Chicagoland There's a number of significant Asian communities that are pretty close to rivers. And while there is an Asian there are Asians living in Lake County, It's not as significant. So I don't think we'll be at 40%, but I think we'll be higher than 20%. And actually, nobody's asked the question.

Speaker 2

I guess, we should have mentioned it. From what we can tell so far, Although we're already one of the higher grossing casinos in the state of Illinois, I don't think we've had much, if any, effect On Rivers or any of the other local casinos, I think we've grown the market. And we know that the people who have signed up at our Players Club Are predominantly from Lake County. We've had actually very few people sign up who are from downtown Chicago. And that's what we expected, but it also says that when Bally's eventually opens in downtown Chicago, we don't think it will have much impact on us.

Speaker 2

Rivers sits squarely between us and downtown Chicago. So if somebody from downtown Chicago is driving to our place, they're driving 40 minutes past rivers to get to us.

Speaker 5

Thank you, both. Appreciate it. Nice quarter.

Speaker 2

Thanks, Jeff. Thanks.

Operator

Our next question comes from Ryan Sigdahl with Craig Hallum Capital Group. Please go ahead.

Speaker 6

Good afternoon, Dan, Louis. Not to beat a dead horse here on the temporary, but one there and then I do have one follow-up elsewhere. But So I get it, margins will dip kind of as we as it ramps up. But I guess as you add the lower margin amenities, should we assume EBITDA dollars We'll grow from here kind of run rate what you've done in the 1st 45 days?

Speaker 4

Yes. I think you got it

Speaker 2

by the way, As far as beating dead horses, they're all over at Churchill Downs. We don't have any dead horses around here. But The 40% number is 40% of gaming revenue and I think that's totally doable. It's just you got to be careful what you're dealing with because a lot of people normally in this business, you look at total revenue and what are the margins against total revenue. And things like restaurants will bring that down.

Speaker 2

And so we'll probably end up with margins Somewhere around 30% plus or minus on total revenues and close to 40% on gaming revenues. So if that helps you. And yes, this will build from here. I mean, we said before that we thought even the temporary could earn $50,000,000 a year BBDIT. We're already at 30 and we're not even fully open.

Speaker 2

And so I think we can get there. Now it's not it doesn't happen overnight, but I think that might be a reasonable expectation for calendar 2024, for example. So Yes.

Speaker 1

You obviously don't add these amenities if you think they're going to be detrimental to the dollar. We focus a lot less on the margin, a lot more on the dollar amount. So you're not wrong. We want to see the total dollar number continue to go up.

Speaker 2

Yes. If you want if we wanted to get the margins significantly higher at Rising Sun, we could close the golf course and close the hotel and we'd have much higher margins. We'd have less income.

Speaker 1

Yes, less income. People are at the front.

Speaker 6

Yes, yes. Makes sense. And then Down in Mississippi, so it seems like there's a new one every year, but South Beach Casino trying to build a casino development Right, mile away from Silver Slipper, I guess. Any thoughts there?

Speaker 2

We have a right of first refusal on that piece And it's secure land, I'm pretty sure.

Speaker 1

I think it is, yes.

Speaker 2

Yes. And I think he's Trying to keep the entitlements on his land. And it's a pretty mature market. We've run the numbers repeatedly and I don't think the numbers work to build the new place. The Diamond Head is still around there, Still a public company, it's been talking about building new place for 20 odd years.

Speaker 2

The last totally new place to get built was the Scarlet Pearl and its return has been You can make the math work on an expansion as Island View did a few years ago as we contemplate at The Silver Slipper. But to build something from scratch, I think it's very hard to make the numbers work. The gaming per capita By people in Southeast Louisiana and Southern Mississippi. So that's everything from Biloxi to Baton Rouge And New Orleans, the gaming per capita in that region is second only to Las Vegas as far as I know. Gaming per capita in Las Vegas is odd because people retire here who like to gamble, so it gets distorted.

Speaker 2

But otherwise, This region is the most saturated gaming region in the country, and that's despite having relatively modest Household income. And so I think when somebody goes to build a new place, it becomes a market share gain more than A market growth game and that makes it very hard to make the numbers work. Whereas like in Colorado, Colorado is still one of the least penetrated gaming markets. I mean, the gaming per capita in Denver and Colorado Springs is about half the U. S.

Speaker 2

Average. And yes, you have to drive an hour to get to those casinos. But that's true in the state of Washington and that's true in the state of California. I mean, there are 60 tribal casinos in California, but they're not in Beverly Hills. They're like an hour drive from where the people live.

Speaker 2

And yet the gaming per capita in the state of Washington and the state of California is in the ballpark of $400 Per capita. And in Denver, it's still under $200,000,000 And that's why Monarch got a great return on their investment. We think we're going to get a great return on our investment. And the same thing is true in Lake County. So when we're looking at where do you go, we look for markets where the gaming per capita is low, where the existing supply is perhaps not very good and those are opportunities for us.

Speaker 2

If you look to go into the Southern Mississippi and it draws people because there's not a limit in the number of licenses. Okay. But if you and you could be anywhere along this long coast. But when you really start crunching the math, it's like, well, it's It's a mature market. It's going to cost you just as much to build there as it costs to build someplace that's not a mature market.

Speaker 1

Yes. I don't know in the current lending environment, I don't know how a one off project gets funding and what is essentially a mature market As us and Boyd and others talk about a market that's a little bit on the softer side to be quite frank. It is one thing to have a site that could potentially have a And get gaming approval for that site, but it's another entirely to actually then take that and turn

Speaker 3

it into a physical casino that's up and running.

Speaker 2

Yes. Actually, Louis and I have been around this for a long time. And it was 15 years ago when we were at Pinnacle That the Casino Magic in Biloxi was destroyed by Hurricane Katrina, and it was making about $15,000,000 a year. And at the end of the day, we got north of $200,000,000 of insurance proceeds and we could have rebuilt it. And instead, we used the money to build the stuff in St.

Speaker 2

Louis because you get a higher return

Speaker 1

on it.

Speaker 2

We didn't have to rebuild the Biloxi. And we sold that site to Harris. And then after they sharpened their pencil, they never built on it either. So I think it's a mature market, very hard to justify building a new place.

Speaker 1

We have 8 minutes and 4 people in the queue. I don't think we're going to get to all of them, Dan, but let's try.

Speaker 2

I'll try to be Okay. What's next?

Operator

Our next question comes from Jordan Bender with JMP

Speaker 4

Dan, you kind of just touched on it kind of the reach In your database, will there be kind of an initiative to reach towards Rivers or Potawatomi More in the near term, are you guys going to kind of wait to take maybe try and take share from those once the final structure is built in couple of years?

Speaker 2

I think the permanent place, which will have hotel rooms and high end amenities and so on, might take a little more market share. But frankly, this is such an underserved market. I think there's enough for everybody. But certainly, like right now, if you lived in downtown Chicago and drove out to Waukegan, which would take you Close to an hour. You'd be like, okay, it's nice.

Speaker 2

But when you drive out to American Place, you're going to say, holy shit, this It's really nice. And so I think the permanent one will be more of a competitor, more market share, whereas the temporary is pretty much Lake County. Yes. But by the way, they're not going to be static either. I mean, Potawatomi make a lot of money in Milwaukee.

Speaker 2

I'm sure they're scratching Their heads thinking how do they improve their place. Rivers certainly makes a lot of money that just didn't expense. They're going to figure it out, Prove their place and that's how enterprise works.

Speaker 1

We certainly think the marketing radius is going to grow from here, Jordan. It's extremely local at this point. And if you live in Wilmette or Evanston or one of those towns where you're Essentially halfway with drive time wise between us and Rivers, it's going to be much easier to get that person to make the drive Once the permit opens, the nearer term rationale would be why would you want to drive towards the downtown Chicago. And so, we think we have a quality facility on the inside. Quite frankly, I think our temporary is nicer than a lot of the permanent that are in the area, but it's certainly not nicer than Rivers.

Speaker 1

Rivers has a very nice facility and so does the Potawatomi. But we kind of are hearing the same thing from people that are on the Wisconsin, Illinois border. I don't want to drive towards downtown Milwaukee. And so I think Dan is right. I think event I think in the longer term, this is a big market that everyone will be able to play in.

Speaker 1

But we're hyper localized right now and that will certainly expand out even in the near term.

Speaker 2

It's 80 miles From Rivers to Potawatomi.

Speaker 3

And

Speaker 2

so there's an 80 mile gap with no casinos until the temporary open. And the temporary is near the midpoint of those 80 miles and it's surrounded by the 700,000 people who live in Lake County. That's our core market. And Louis mentioned Grand Vic, which as the crow flies is about the same distance from us As rivers, but you can't drive the way the crow flies. And if you Google it, if you leave Grand Vic headed for us, you have to drive Past Rivers.

Speaker 2

So Grand Vic is actually a far more distant competitor than Rivers or Potawatomi.

Speaker 4

Great. And then for the follow-up, can you just kind of can you remind us of the resolution that happened with Gaming tax payment to the State of Illinois, if you had to pay that in full or that was a partial payment?

Speaker 1

We paid the $50,000,000

Speaker 2

in full. I mean, at the end of the day, we thought the law wasn't particularly And we had interpreted it one way and the Gaming Commission interpreted it another way. We asked our lawyers to look into it. They talked to the Gaming Commission's lawyers. And in the end, It kind of wasn't worth fighting over to be honest.

Speaker 2

It wasn't the amount of money, it was the timing of it. And Yes, there are regulators and you don't want to pick a fight with the regulators. The politicians left the law vague and

Speaker 1

Everyone's doing their best to come up with an interpretation. But it yes, we but we did pay the 50 in full.

Speaker 2

And we did it when our lawyers came back and said, You can file a lawsuit, but by the time the lawsuit gets hurt somewhere, you're going to owe it anyway. So what's the use? And then you run the risk of If you're regulators, why would you want to do that?

Speaker 4

All righty. Thanks. Nice quarter.

Speaker 2

But to be honest, the fault This wasn't the regulators, it was the politicians. And some of you may know that my ex wife is 1 and they left a law that was like Crazy vague. Thanks, Jordan.

Operator

Our next question comes from John DeCree with CBRE. Please go ahead.

Speaker 4

Hey, guys. Thanks for taking my question. I'll make it an easy one to round things out. Good follow on from the license payment.

Speaker 1

Could you, Louis, give us

Speaker 4

a little bit of help? I haven't seen 10 Q out on what was spent in CapEx in the quarter and With some additional amenities and tables expected in May at Waukegan, can you kind of Give us your expectation for any kind of closeout cost on the temporary in terms of CapEx?

Speaker 1

Yes. Yes. We spent roughly $58,000,000 on the temporary in the Q1. That includes that 50 License payment that you mentioned and then $8,000,000 of just excuse me, largely wrap up CapEx. And then over at the at Shamani, we spent about $33,000,000 roughly in that ballpark on true Construction CapEx, so that's all in 1Q.

Speaker 1

You'll get that Q, I think, late, late tomorrow night what it's worth. And from here, well, in real time, I've got $93,000,000 Some trailing stuff in 2024 for kind of retainage and whatnot, but by and large, it's going to be spent in 2023. And over at the temporary, it's really stuff for the permanent for what it's worth. And we'll spend Single digit millions between here and year end on things like architects and some basic site work and whatnot?

Speaker 2

We're converting the steakhouse at Bronco Billy's into an Italian restaurant. That's like $1,000,000 That's not part of the restricted payment. And frankly, the Silver Slipper wants some new slot machines that we'll probably buy for them to help them be competitive in the market. But So the other CapEx is relatively modest stuff?

Speaker 1

Yes. The tables that are not on the floor yet at the temporary for what it's worth, those have been bought. They've been bought for a while. They've just been Sitting in a warehouse, it didn't make sense for us to put them on the floor without dealers because we thought that would just make guess angry that you didn't have dealers at them on a busy Friday night. So we left them in the warehouse.

Speaker 1

The Asian restaurant was already Complete at opening day. It was really relying on the employees to go and staff it. And then we've got that steakhouse that's kind of off-site still being built. And Okay. Adam, I know we've I think it's I know there's a check for We've

Speaker 2

got $1,000,000 to go.

Speaker 1

That's what I was about to say. I think there's a check that's getting ready to go out the door for 5.8 And then we've got the balance. So it's in the ballpark of $1,000,000 Got it, Craig.

Speaker 2

That was the turning point I mentioned because We've been cash flow negative for a while now as we built all this stuff and this was kind of the turning point. We're pretty solidly cash flow positive going forward.

Speaker 4

Thanks everybody. I appreciate it.

Speaker 1

That's probably it, Dan, time wise. Yes.

Operator

That concludes our Q and A session. I would like to turn the floor back over to Louis Fanger, CFO of Full House Resorts for closing comments.

Speaker 1

Well, I'll speak for Dan. We thank you guys as always. Go out and see the temporary. I know a lot of you haven't yet. It's pretty impressive to see in person.

Speaker 1

And We'll chat to you again next quarter.

Speaker 2

Actually look at the webcam of Chamonix, it's pretty impressive too.

Speaker 1

Yes. So thank you guys. We'll see you next quarter.

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Earnings Conference Call
Full House Resorts Q1 2023
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