Full House Resorts Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2023

There are 7 speakers on the call.

Operator

Greetings, and welcome to the Full House Resorts Inc. 2nd Quarter 2023 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 Fenger, CFO of Full House Resorts. Please go ahead.

Speaker 1

Thank you and good afternoon everyone. Welcome to our 2nd quarter earnings call. Before we begin, we did poke some slides on the website. So if you go to investors. Fullhouseresorts .com, you'll see that bronze banner.

Speaker 1

And if you hover over company info, you can go to the presentation section and find some of the slides We'll discuss today, including

Speaker 2

a bunch of

Speaker 1

current photos of the work going on at Chamonix. 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 securities laws. I'd also like to remind you that the company's actual results could differ materially from the anticipated results in these forward looking statements. Please see today's press release under the caption Forward Looking Statements for the discussion of risks that may affect our results. Also, we may make reference to non GAAP measures such as adjusted EBITDA.

Speaker 1

For a reconciliation of those measures, please see our Web 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 with that said, ready to go, Dan.

Speaker 2

All right. Well, it's kind of a complicated quarter, so I kind of figure out where to start. But we're busy these days and the busyness Kind of falls into 4 categories. 1 is still ramping up the temporary. This was its 1st full quarter of operations And it did well and is getting better.

Speaker 2

The table games is starting to be a bigger factor and we're still hiring more dealers. We now rank 3rd in the state and table games as of the July numbers that came out yesterday. Our steakhouse should arrive in late September. It's disappointingly late. It's basically a large diner.

Speaker 2

It's coming in 7 trucks and they're trying to line up the permits to bring these oversized trucks So from Florida to Illinois, and it's got to be assembled and opened. So it probably doesn't get open until Sometime in the Q4. The sports book should be up and running in September. So we're still pulling it together and still hiring people, but the trends are pretty good and it's profitable. So It's going very much the way most successful new casinos go.

Speaker 2

2nd big task is completing construction of Chamonix in Colorado. It's pretty unusual for a company our size to undertake Two things at the same time, but we didn't pick the timing in Illinois and that's how it ended up. And So we're preparing for it to open on December 26. So it's not only completing the construction, which is Job and a half, but also preparing for the opening. Along those lines, we made some pretty good progress With the staff, the high end restaurant, which we intend to be one of the best, if not the best restaurants in the entire state of Colorado.

Speaker 2

We've done a deal with Barry Dekaik and Yacine from Barry's Prime down at Circa. They used to run the 9 Steakhouse at the Palms. And Before that, Barry was with Ariel, which is Charlie Palmer's company and was in Manhattan and he moved to Las Vegas to open the one at Mandalay Bay Quite a few years ago, but this is a guy who's had Michelin Stars before, knows how to run high end restaurants and high end restaurants In a casino setting, so we're excited to have them as part of the team. It's an outside chef deal very much like Most of the restaurants at Bellagio, they could have percentage of revenues and percentage of profit for running it. But It's our restaurant, but they're motivated to make it their restaurant as well.

Speaker 2

We have a pretty It's a small part of the overall business, but less pretty important, we have a prominent jewelry store on the property. We have a consultant from Santa Fe who's got a successful business there called Rock and Feather and she's helped them pull together how to make our jewelry store Special. And in terms of new hires, we just hired Brett Modell, who I think started work actually today. And that's a pretty important hire. He is Director of Non Gaming Operations.

Speaker 2

Recognize that this is a High end hotel that we're building here and our team there has not operated a lot of this high end stuff before. And so we needed somebody with that experience. And Brett grew up in New York City, but He's actually fluent in Mandarin. He's fully American as his wife's from China, but He trained at Wynn Macau in Macau and then he helped open casinos in Vietnam and Nepal. He worked for Amman Resorts for a while in Bhutan.

Speaker 2

Amman is probably the highest end hotel chain that's out there. And after working in China, He was running a hotel in Crested Butte, which is where we found him. And he and his family are relocating to our part of Colorado, and we're excited to have him on board. And he can make sure that the hotel, the spa, the meeting room space, the food and beverage all lives up to the expectations that The high end customers expect. So he's an important hire and he starts today.

Speaker 2

So then third thing, of course, We have an existing company with existing properties and that's had some challenges. And in particular in this quarter, the Silver Slipper had some cost issues. The Payroll went up quite a bit and the revenues didn't and that had an impact on the bottom line and we're getting Back under control. We've got a freeze on any raises. We're looking at staffing numbers and we'll get it under control.

Speaker 2

In Tahoe, there was a huge winter in Tahoe and the snow has been gradual going away That caused people to delay their returns for the summer and the summer is pretty important up there. And now we're in the heart of it and it's doing better. But in the Quarter that affected it. It's an off season quarter for the Tahoe property and so it was down. In Colorado, the construction of Chamonix has been affecting Bronco Billy's for quite some time.

Speaker 2

That continues to be the case. Bronco Billy's Because of Chamonix doesn't have any parking, we try to operate valet parking as best we can, and we shuttle from an outside lot, but all of our Dishon is on-site parking and we don't. We also don't have an on-site hotel. We have a bed and breakfast 2 blocks away. All of that will change when Chamonix opens, but at the moment, Bronco Billy's is making money in the summer, but wasn't in the second quarter.

Speaker 2

And then Rising Star in Indiana is doing okay, Especially considering that there is a competitor that didn't exist a year ago and that's the Churchill Casino at Sherfoy Park in Kentucky. So it's a mature market. So when somebody adds a casino in a mature market like that, it becomes a market share game And I think we're holding our own. Then the 4th task that we're busy with is frankly designing The permanent American Place, we're incorporating a lot of what we've learned from the temporary. We've learned quite a few things.

Speaker 2

We haven't started construction yet. There's now but we are actively designing it, which costs some money, but it's Now there's a lawsuit out there from the Potawatomi tribe, who's a competitor of ours to our north And they filed a whole bunch of lawsuits, not against us, but against the city and the state. That may end up delaying our start of construction and financing. I think ultimately The suits will end up being resolved and everything go forward. But at the moment, it's something it just happened last week.

Speaker 2

We thought this suit was pretty much gone and they had appealed something and the appellate court Send it back to a lower court, so that puts it back into flux a little bit. And so that's on the permanent. There's a bunch of unusual stuff because we have a lower tax rate in Indiana than most of the other casinos because we're the smallest one and there's a progressive tax rate in Indiana. There is an amount of free play that you're allowed to deduct every year. We have found it makes sense for us To sell our free play to guys in a higher tax bracket and we've done that every year for about 5 years now.

Speaker 2

And we did that this year in the Q1 for $2,100,000 We did it last year as well for $2,100,000 but it was in the Q2 last year. So Looking at the year over year results that kind of affects it, generally, we'll do it early in the year as possible Because you never quite know, during the pandemic year, for example, when we were closed for 3 months, fortunately, we had sold the free play before that period Because with everybody being closed for 3 months, we might not have sold it for as much as we were able to sell it for. And so then on the sportsbooks, Churchill got out of the online sportsbook business in the Q2 of last year. And when they did that, they had paid us an upfront fee plus a percentage of the revenues. The upfront fees of these deals go into deferred revenue.

Speaker 2

When they pulled out of the deal, it accelerated The unamortized deferred revenues, there was about $1,000,000 of revenue and income in last year's Q2. Now one of those sportsbooks that they backed out of, now have a deal with a new company who paid us a new upfront fee and is paying us on a regular basis. But the big number there Is the sports book operation in Chicago where we were paid $5,000,000 upfront, which again is And we will receive a minimum of $5,000,000 a year from that and that starts in the middle of August Whether the sports book is actually up and running or not, but we do expect them to be up and running pretty soon. And if They're very successful. We will get more than $5,000,000 a year, but the minimum of $5,000,000 starts in mid August and that's by far the biggest of these.

Speaker 2

See, Illinois, Indiana and Colorado, in Indiana, Each casino is allowed 3 websites. In Colorado, each casino is allowed with 1 website, but we actually have 3 licenses. So we end up with 3 there as well and there's quite a few small casinos in the state, each of which gets a license. In Illinois, there's I think Total casinos, if I remember correctly. And each gets one website.

Speaker 2

And of course, the population of Illinois is much bigger than either Colorado or Indiana, actually bigger than Colorado and Indiana combined. So each website is worth much more. So that's why Our agreement in Illinois would be very important and coming on stream in a month and a week, I guess. A week, yes, next week. Then there was Some accounting issues and not unusual in a new casino, you find you start up and then you'll find some little things.

Speaker 2

And so for example, our progressive our slot machines, a number of them have a Progressive type jackpot on them, you don't start those at 0, you got to start them at something else because it's not very exciting to look at a Progressive jackpot at 0. And that amount, when you open would be a charge to preopening costs And it's a liability. I forget whether it's a debit or a credit on the old T accounts, but it's there was about $300,000 that we missed. So we took that charge in the Q2. We have a new finance person who helped us discover that.

Speaker 2

And we moved him from Rising Sun and we think we have everything straightened out now, but that was a little bit of a surprise for us. We do continue to have training costs in Illinois because we are trying to hire more dealers and we We're on our own dealer school and we pay dealers their wage in order to go to the dealer school. We will also pay relocation costs to get dealers. And we're gradually getting there. We have enough dealers now to operate 30 games on Saturday night.

Speaker 2

We're allowed to have 50. And as people get more experience, we can also increase the table limits Right now, we go to $5,000 a hand. 1 of our key competitors will go to $20,000 a hand. We don't want to do that until we have more experienced dealers. And so that's going on.

Speaker 2

And then I guess that's the main unusual stuff. All of this stuff is going to get cleared up in the next few quarters. And a year from now, We should be pretty mature at both of the new properties and generating a lot of free cash flow. So if we go to the Presentation we put online that Louis mentioned, everything I just said, I meant to be kind of a summary, but I guess I went into a little more detail than a summary. But On the presentation that's online, it notes that our revenues increased 34%.

Speaker 2

That's really the temporary, Which is most of that, in fact, more than all of it. Adjusted EBITDIT declined, But a good chunk of that is the timing of the free play, the $1,000,000 that I mentioned from the deferred revenue And the temporary actually made $4,100,000 despite that accounting charge I mentioned. There's a couple of other small accounting charges. It was Closer to 4.5% to 5% if you back out the accounting charges, which is it's not where we expect it to mature at, but For the 1st full quarter of operations, that's respectable. And then we start getting the Illinois Sports Council here shortly.

Speaker 2

And part of the reason for my comfort with the results in Illinois is the next few slides. If you look at admissions, They've been trending up very nicely since April. Now when we first opened, you get a lot of tourists Coming into town what Mike Edson used to refer to as looky loos, people come in and look at the casino, but they don't gamble a lot. And over time, you build a mailing list And you start replacing tourists with gamblers. And so since April, we've had a steady trend of admissions going up.

Speaker 2

And you can see as a result on the next slide, you can see our slot coin in likewise is steadily going up And our table games dropped steadily going up. Now on table games, it's also affected by the fact that we are offering More tables at any given time and we're operating them more hours of the week than we had before and we are also allowing Larger bets over time. And so if you had these charts on the same Gale, you'd see that table games drop is actually growing faster than the slot coin end and that's a result of adding more tables over time. And so a lot of our growth is coming from tables at the moment, but we're continuing to show growth in slots. Slots will always be The preponderance of the business here, but tables are going to be meaningful whereas in some of the markets they're not very meaningful.

Speaker 2

So going way back when we opened, we had this on Slide 8, we had 28 table games. By middle of May, we were at 36. By now, we have 48. But we don't have enough dealers to operate all 48. So we have about 30 open on weekends.

Speaker 2

But of course, we pull people from potential shifts during the week in order to have more tables open on weekends. So we hire more dealers, it helps how many tables we have open on a weekend, but it also helps how many tables we can open During the week. Generally, we our table games are $15 minimum bet. We might have During some times of the week, dollars 1.10 table is kind of a loss leader out there, but generally we're $15 Manu, I'm tabling up. And as mentioned in July, we were 3rd in the state, which is pretty good for It's only been open a few months.

Speaker 2

And then we expect to extend our weekend table games hours to 4 am. Currently, it's close at 2 and so we're picking that up. The guest database, you can see it's been building. We're now at about 40,000 people in our database. That's pretty important.

Speaker 2

We started at 0. And this allows us eventually to be more efficient on our marketing costs. We are still spending quite a bit of money on Marketing and advertising, getting our brand out, letting people know we exist and so on. But over time, Grant, we are already being more targeted and that will continue to be more targeted as we have Yes, a more a bigger topic. It's almost like we've talked with the advertising agency.

Speaker 2

It's like showing up at a lake In Wisconsin, to go fishing, you've never been there before and you don't really know where the fish are. And so you end up going out in different places and Dropping your bait and over time you start to realize that certain base, certain depth, certain areas have more fish and you start going back Those areas more and more and that's effectively what happens when you open a casino in a market where you haven't been before. You gradually Figure out who gambles and who doesn't gamble and how to incentivize the people who actually gamble. So that's American Place. On Chamonix, on page 10, we show the original renderings of the project.

Speaker 2

It's very large by Cripple Creek standards. I remind myself sometimes that it's about 10% of the size of the We built in Las Vegas 20 years ago, but we're also a small company, so this has a pretty big impact on us. And it's $250,000,000 It's a very high end casino, 300 guestrooms. I remember Steve when he opened the Golden Nugget in Atlantic City, it had 500 guestrooms and it was doing $100,000,000 a year of income 25 years ago. 35 years ago, right.

Speaker 2

So, if you get the right people in the guest rooms, you can make a lot of money. I mentioned the steakhouse. We've got a rooftop pool and spa, nice parking garage and opens December 26. We'll be having Play Nights at construction will get turned over to us early in December and our employees will be practicing and doing play nights and then we'll send the employees home for With their families and open the day afterwards. So like most families, I find you get together with your family you all celebrate Christmas and the day after Christmas like what the hell do we do now?

Speaker 2

And you end up doing something else. Well, hopefully, we're there something else. So we hope that we can have a lot of people there and then we're planning a significant Party on December 31, which is both kind of an opening party and obviously New Year's Eve celebration. Page 12 shows the front of the facade and all that fancy brickwork is actual brick. Some of our competition, one in particular used like a brick veneer, Which is now peeling off.

Speaker 2

So it doesn't look ours looks really nice. We did spend the money to have some pretty fancy brickwork, Which fits very well with the old buildings in town. And then the hotel a lot of the hotel rooms are in that glass thing up on top, Which is designed to kind of meld in and reflect the clouds and the mountains and kind of mask the size of what the building really is. That one square rectangular building you see in front, the 1 story building has got a ladder leaning against it, that's a jewelry store. And when we get the city's permission to close Second Street because this building squats right across Second Street, One of the commissioners had said they didn't want a big gap in the facades along the street.

Speaker 2

They thought that would take away from it. And there was some suggestion that we could take an old street car and put it there. There's an old street car at the street that uses tourist information We didn't want to do that, but we said we'd build a jewelry store there that's the size of a street car. So that's what that is. Jewelry stores go very well with casinos.

Speaker 2

People will win money and then they have to bring home involuntary jewelry as Someone once called it. And so we think the jewelry store will be a nice amenity and it fits very well. And it was important to the city in order to get permission to close Second Street. So we addressed it in a good way. The high end restaurant is those windows to the left.

Speaker 2

You can see a chimney there. That's because where there's valet pickup, we have an Outdoor fireplace that can keep you warm while you're waiting for your car. This is a cold climate and the main valet entrance is behind the jewelry store. The parking garage is on the back of the building. The next page shows the main part of the casino, the table games part.

Speaker 2

Those tall windows will be shaded and they have curtains on the inside because you don't want a lot of daylight into the casino, but we wanted The outside to look regal. So we put these windows on the outside, but on the inside, they will not Bring in a lot of light, but it looks right on the outside.

Speaker 1

The next page shows Hey Dan, really quick. And then on Slide 13 as well, Important thing is just to see those blue awnings there. That's existing Bronco Billy's. And so some of you that have never been to town Often ask us how just how tightly are they integrated. The answer is, very tightly.

Speaker 1

You won't have to leave Bronco Casino is going to the Chamonix Casino. As you can see there, they're essentially attached.

Speaker 2

Yes. It's a lot like going from Tomorrowland To Fantasyland at Disneyland, I mean, it's a different theme. You go through an arch in one direction, it says welcome to Bronco Billy's. The other direction, it says welcome to Chamonix. Your points are good from one to the other, but it has a different theme.

Speaker 2

Chamonix is more modern European sophisticated. The tagline is European elegance with Colorado comfort and Bronco Billy's is more Wild West historic Cripple Creek Like a lot of the casinos there are. On Page 14, this is the back of the property. This is our parking garage and you can look down the back. Going in this garage and it drops you right down to the back of the casino.

Speaker 2

There's Some decorative stuff that goes up on this bare concrete that's not up yet, but otherwise, it's pretty far along. And as you can see, the Hudson Garage is there. We could use it if we could get occupancy permits and so on except that the elevators from the parking garage go into the back Of the Chamonix Casino. And so I can't use the garage to help Bronco Billy's in the next few months because there's not an easy way to get from those Elevators into prop of Billy's. Page 16 shows the table games pit.

Speaker 2

This is When I mentioned earlier the big window on the outside, well, that's one of those on the right in Tennessee and that will get curtains. But the table games pit are quite elegant, very intricate molding going in here. To the left, you can see that steel door that's closed that would normally be open. That's a fire door that goes from The new building, which is Chamonix to a historic building and the very first historic building will also be part of Chamonix, but we have to have a firewall in between. And if you go through that and keep going, you end up in Bronco Billy's.

Speaker 2

I'm not sure why Lewis included a public restroom other than that. Just so you

Speaker 1

can see that they look quite nice. They're

Speaker 2

better when they actually have toilets in it. But that's the public the finishes are quite nice. Page 18, the escalators which are in, they're covered to protect them during construction, but there's a Set of escalators that goes up to the meeting space on the 2nd floor and we have significant surface parking space that you access off the And so that's going to be pretty important. Moldings are going up on the meeting room space. We have a nice skylight there as well.

Speaker 2

You can see that on slide 19. Slide 20 is the main ballroom, which is large by Colorado standards. And this is an important difference between us and Monarch, for example. We have pretty significant meeting space. Monarch really doesn't.

Speaker 2

Ameristar does. And I think it's important to helping Ameristar film the midweek and it's going to be important for us midweek as well. And so we have a very nice meeting space that our site, I mean Monarch did a nice job and they have a nice But they're in a very narrow lot. We're not. We sprawl out better.

Speaker 2

And that allowed us to have Meeting room space that's not wedged into a hotel tower. And that's important for when you're even if you have entertainment or you have some function. And so that's important. You see the meeting courtyard. This courtyard actually It serves several purposes.

Speaker 2

One is those are meeting rooms off the left and obviously we could have a cocktail party outside and so on if It's a nice day, which it often is there. And but that's also a corridor from the surface parking lot. Those doors at the back and you're right at the top of the escalators that feed you down to the casino. And so it works very well. Next page is one of our guest rooms.

Speaker 2

Not all of our guest rooms have both a shower and a bathtub, but quite a few do. That's the shower behind the glass door in the back and a nice freestanding bathtub in the front and toilets or in every case in a water closet And then nice stonework and so on. Page 24 shows we have quite a few rooms like this where there You can see the headboard for where the bed is eventually going to go. That sofa there is actually a Murphy bed and that thing pulls down from The wall and that sofa kind of folds out of the way and supports the bed. And so it's pretty cool Murphy bed arrangement.

Speaker 2

So this room can be rented To a couple that wants the extra space of kind of a sitting area or if you rented it to couples traveling together, you'd have 2 queen-size beds. So Great. Nice room. And then Page 25 is a picture of part of 1 of the suites. 26, we have 2 of these 2 story suites, whether it's an upstairs, downstairs element, which is Pretty cool and a lot of glass, a lot of views of the mountains and the gold mine and the historic town.

Speaker 2

Every room in our place or almost every room in our place has a nice view. The handful that don't, we've actually put nice patios on them, So you can at least sit outside and that will be popular with people who might want to be able to smoke because you can't smoke in the building in Colorado, but you could have a patio where you could. And then you can see on 27 when I said we closed and bridged across Second Street. Well, This is looking down Second Street and this is the view from one of our suites. And then our pool deck, It's a rooftop pool deck.

Speaker 2

Now the pool will be heated and open year round as is Not uncommon at ski areas in places like Colorado. We have a pretty high-tech insulated cover that goes over it at night to Try to reduce the heat loss, but the pool is as much an advertisement because From the competing casinos that you see in the background, that's the Century Casino with yellow honors there and to the left of that is Triple Crown. They'll be looking at the steam rising off our pool. It'll be kind of visible throughout town. And it's one of those, hey, look, they have a pool up there.

Speaker 2

How cool is that? And one wall of the pool, that's kind of in the foreground is actually plexiglass. So you could actually from certain angles see people actually swimming in the pool. And it's not a huge pool, but it's enough Give it a pool deck and the pool deck would be a great place for events and parties and could even be And if you have a warm summer day, you could turn it into kind of a almost a nightclub out there. So the pool is pretty important.

Speaker 2

We opted to let it be outside and let the steam go off it. It's pretty common at ski areas, whereas both Monarch And Ameristar have indoor pools on their highest deck, which is when the weather is nice, I'd much rather be outside. And frankly, if you want to have a polar plunge, we have a sauna, couple of saunas not far from the pool and you can get warm and go jump in the pool in February. That's all always fine. So then Page 29 is just segment results.

Speaker 3

You don't need to go over the rest

Speaker 2

of these? We've already talked through it, I guess. And on that, I think I'm ready to take any questions. Right. Have I missed anything?

Speaker 1

No, no. We are ready for questions, operator. Okay.

Operator

Thank you. One moment please while we pull for questions. Our first question comes from Jordan Bender with JMP Securities. Please go ahead.

Speaker 4

Good afternoon. Thanks for taking my question. I want to start on the funding for the permanent casino in Illinois. So guess looking at my model at least, it looks like you'll need to raise the permanent funding sometime in the middle of next I was just trying to get an update on when you guys are thinking about that timing as well as kind of the optionality behind the

Speaker 2

Well, we've always said that, that would be Roughly the timing we've looked at, our existing bonds become callable in February. And so refinancing the bonds gets a lot cheaper from February on. That's still 7 months away. The bond market has its ins and outs. It's not a great bond market today.

Speaker 2

It's not a horrible one. We now have this lawsuit that came back again and that will be something that factors into it. The fact is on our license, there's no deadline of when we have to be open. And there are some limitations on how long we can operate the temporary. It's possible that could be revisited.

Speaker 2

We would like to move forward as quickly as possible. We think the permanent makes quite a bit more than the temporary. We are continuing to refine the design as I mentioned. But you're not wrong in saying We'd like to finance it in the middle of next year, but if somebody says, well, it's going to cost you 20% interest or something, then You'd say, well, maybe that's not the best way to do it. We do still have a standby facility with a large private equity firm That's there.

Speaker 2

It's kind of expensive. We hope we can do it cheaper than that, some other way. We think our stock at these prices is extremely cheap. And so that would probably be the most expensive way to do it. And so I can pretty much assure you there's no issuance of equity being contemplated.

Speaker 2

And not pretty much, I can assure you that there's no Issuance of equity being contemplated. We could do a REIT deal as they have for the downtown project Where REIT provides most relative financing. And of course, Once we get Chamonix open, we should be generating quite a bit of free cash flow. And so the longer it takes us, The easier the financing is. Now, we would still like to move sooner rather than later, but Delays aren't all bad because it does make the financing easier.

Speaker 2

And so that's where it is. I don't have an answer, But we have probably a year to figure it out.

Speaker 4

Okay, great. Thank you. And then just turning to Colorado, the property historically has done about 10% to 20%. Margins just given the year, As that property ramps up, is it fair to assume that it should exceed that 20% margin? I guess, how should we think about What the ultimate margin profile of that property looks like, it wouldn't fully ramped?

Speaker 4

Thank you.

Speaker 2

Yes. I think we can have pretty high margins there as Monarch does. The gaming tax rate in Colorado is a progressive rate, but caps out at 20%. So for regional gaming properties, it's actually a pretty acceptable tax rate. Also, in general, if you're the leading property in a market, if you're The best property in the market, you usually have better margins.

Speaker 2

You don't have to market quite as much. And I remember one time a long time ago, the CFO of MGM called me up when I was at Mirage Resorts and wanted to know what we spent on Advertising. And I went and looked up the number and it was like $5,000,000 And he said that's not possible. MGM spends 30 And I said, well, does that include all the billboards for Siegfried and Roy? And I said, well, it's a good question.

Speaker 2

Let me go check. I went back to it, I said, yes, the preponderance of that is actually the billboards for Siegfried and Roy. He said, that's still not possible. I said, you know what, We had a volcano that was a really big attraction and a ton of palm trees and they had a fucking Plastic lion on their front door that nobody wanted to walk through. So of course, you have to spend money on marketing and we did.

Speaker 2

And so we will have by far the best in Cripple Creek and I think the best property in Colorado, one of the best properties in the Midwest. And I think that not right away, it takes a while to get there. But long term, that will play into good margins and a great return.

Speaker 1

A little more color For you too, another way to think about it is over in Mississippi with Silver Slipper, before we had that hotel, what you would see is A casino that would largely die out at 7 pm, 8 pm, really Earlier than that midweek, maybe a little bit later than that weekend, but largely because you had people that didn't want to drive home An hour on the roads and be too tired or drunk or all the things that we don't want them doing either. And so when you have all of a sudden 300 rooms attached, you end up getting much better utilization out of a lot of your existing assets, whether they be the slot machines, The restaurants and all that other jazz. And so the margins, you should see a pretty meaningful move just from that alone.

Speaker 4

Great. I appreciate it. Thank you.

Speaker 2

Monarch does not break out Reno from Blackhawk, But you can look back to when before they got Black Hawk open and it's and at what they were earning in Reno and so on. They only have the 2 properties. It's pretty clear they're making at least $100,000,000 a year there and they have 500 hotel rooms. Now they are An hour west of Denver. We're an hour west of Colorado Springs, but they have significant competition as well, including Ameristar.

Speaker 2

And we kind of don't really. I mean Golden Nugget has bought the Wildwood and is doing some minor fixing up. And it has 100 rooms in kind of a Hampton Inn type hotel. They're a good operator. I expect they'll fix it up Better and so down the road we'll have better competition, but that's Yes, 5 years away.

Speaker 2

We're going to have a big lead on anyone else. And it's not easy to assemble Land in Cripple Creek took us years. So for somebody else to try to assemble something that would compete with us will not be easy. I think we'll be the leading casino there for quite some time.

Speaker 3

Thanks, Dan. Thanks, Louis.

Operator

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

Speaker 5

Good afternoon, guys. You've covered a lot. So I'm going to ask 2 more specific questions here, Both related to the temporary, but curious how much the cost burden is related to the dealer school in totality. I get it's necessary, but curious about cost. And then second, A lot on the revenue side, but curious how the margins have trended over the past couple of months and then into July with the ramp up in revenue?

Speaker 2

Yes. The dealer school is not huge. It's probably including the people we're paying to actually be trained and their instructors, it's like 30 $50,000 a month. But there's other training of other job titles as well. But the dealer school It's something.

Speaker 2

It is a drain. It's not huge. The margins We'll get better. One of the main things driving it is we still got a pretty robust advertising and marketing campaign. And as we get a bigger database and get more focused, we'll be more efficient with the marketing.

Speaker 2

And so Yes. I mean, listen, we're comfortably profitable in our first full quarter of operations and A lot of casinos are not. I mean, I can tell you back when La Verage first opened in Lake Charles, the first full quarter of operations, It didn't make much money at all. And then it's made $100,000,000 a year ever since. Bellagio, the Q1 of operations was So, so and everybody's like the same questions you're asking me now.

Speaker 2

And Bellagio has done $400,000,000 a year of income for 25 years now. And so we're off to a good start. Now the revenues aren't where we expect them to be. The Profits aren't where we expect them to be. The margins aren't where we expect them to be, but they're okay and trending in the right direction.

Speaker 2

I should also mention, you'll notice I realize investors primarily look at EBDIT, which is appropriate in this industry. But sometimes newspaper reporters get caught up with the net income and operating income that accountants and their delusional craziness make us prominent Be more prominent because the temporary is operating for 3 years, there's a whole bunch of stuff we're depreciating over 3 years. Now some of that will probably have ongoing value like the parking lots and so on. But that's why you see such a large depreciation charge Over the 3 years. Now for tax purposes, it's not yet clear how fast we can depreciate it.

Speaker 2

But when we close it in 3 years, we'll get an abandonment charge. So if you notice a very big jump in depreciation, that's because accountants take a very conservative assumption that the stuff like, For example, the restaurant stuff, the restaurant equipment and all this stuff, they just assume after 3 years Worthless and it probably is not worthless. We have 2 Airstream trailers that are mounted in the middle of Florida that are like food trucks and it turns out they're pretty popular. And so one of the things we've done is said, hey, let's keep using those trailers. They're not going away.

Speaker 2

So they're going to be in the permanent and yet we're I believe depreciating them over 3 years currently, Which is a very conservative approach.

Speaker 1

Maybe helpful to give you a little bit more there. So right now, the EBITDA margins are running in the high teens. One of the things that Dan hinted at is we are Quite a bit more on marketing. One of the things that any casino should do, but one of the things that we had We've been hearing from players that had not gone into our facility is that they would see pictures of the And think why would I want to go to that. I'll wait until you have the real thing.

Speaker 1

Now the I think what anyone would tell you once they go inside the doors, it is unbelievably beautiful on the inside, not what you would expect, from looking at it on the outside. And so we're spending a little bit more to try and drive Players into the building itself trying to build up that database and that's going to be extended here for a little bit of time. There's a new ad campaign that's getting ready to roll out. So you'll at least see that for another quarter. But the maybe the right takeaway for you guys is that the trends are all there, they're upward.

Speaker 1

If you look at the month of July, we did $7,800,000 or $7,900,000 of gaming revenue in the month. That was up about $1,000,000 from the prior month. And so the trends are there and we're feeling pretty good.

Speaker 2

You recognize most of the casinos in the state have operated for 20 years. Rivers has operated for, I think, 12 years. And the only other recent one is the one in Rockville that's been open a year longer than us, Rockford. And For us already after only a few months to be number 3 in table games and number 6 or 7 overall It's pretty remarkable, given that everybody else has like a 20 year head start on us.

Speaker 1

I'll give you one more data point and Paul, shut up. If you take the 1st full month of Rivers Casino Annualized that 1st full month of gaming revenue, you would have gotten to a number that was around $409,000,000 or so. If you were So look a year later and look at the actual trailing 12 month of revenues, it was like 406 or something. But once you cross that point, you start to see some pretty big increases in that overall Revenue line today, as you probably know, it's doing close to $600,000,000 a year in gaming revenue. Now they've gotten more positions since as well.

Speaker 1

But even in those early years, you saw a pretty meaningful upward move in overall gaming revenue. That's no different than what we'll have here. It's been a pleasant surprise to see how well, how quickly we've gone to number 3 for the table games revenue line. And the slot business Always takes a little bit longer because you need that database, you need the free play to go out. And so that's why we're so focused on marketing and making sure that database builds up.

Speaker 5

Great. Thanks, Dan, Louis. Good luck, guys.

Speaker 1

Thank you.

Operator

Next question comes from Chad Beynon with Macquarie. Please go ahead.

Speaker 6

Hi, guys. This is Sam on for Chad. Thanks for taking our questions. I was hoping you guys could speak to any consumer trends Or change in the promotional environment that you saw during the quarter and into August?

Speaker 2

Yes. We've got so many big things going on that that almost seems less important. But certainly Yes. On the Silver Slipper, the property complains about the competitive impact they're getting from a competitor down the road. But when we really got into the numbers, it was more of our own costs being up.

Speaker 2

And so we're trying to get that More under control. Now I'm not saying that it isn't a competitive environment. I believe it is. But does that mean there's a recession in Mississippi that That's hard for us to know. And then like in Indiana, the revenues are a little soft.

Speaker 2

Is that a recession? Well, you got a new casino across the river in Boone County. That's probably more important. And so I don't see anything that I can point out and say that that's a recession. I will tell you on the flip side, Our contractor in Illinois is telling us that construction costs have not come down.

Speaker 2

And so there's a side of me that's been hoping for Session because maybe construction costs would get lower. You could argue that we would benefit more from a recession Because of what it would save us in construction costs going forward. And but the short answer is We're probably the wrong people to ask. We got so many things going on, it's hard for us to tell. Somebody like Penn National has got 25 casinos all over the country and doesn't build much.

Speaker 2

It's probably a better company to ask that question too.

Speaker 6

Yes. Fair enough. Yes. I was going to

Speaker 1

say like if you look at Silver Slipper in particular, we and to Dan's point, we do have a little bit going on. Our admissions are down, but we also have a 21 and over policy today that we didn't have a year ago. You have to enter the casino to go to the buffet as an example. So you would expect admissions to be down. Win per admission is up, but again, the denominator is down.

Speaker 1

So you'd expect That number to go up as well. Rated play seems to be pretty solid. We are seeing more rated players these days versus unrated players. So maybe some of the froth of that unrated play is going away, but it feels like the rated customer is still hanging in there for what it's worth.

Speaker 6

Okay. Good to hear. I guess for a follow-up, any updates on the strategy for your remaining sports betting skins And potentially any future iGaming ones that you might acquire in the states that you operate?

Speaker 2

We have One still outstanding, which is in color? Indiana. Indiana. 1 of the Churchill ones in Indiana. And we have been looking for Somebody to take it on.

Speaker 2

We haven't found anybody yet on terms that make sense to us. If iGaming comes The states we're in and I think it will eventually. We will look at whether we do a similar thing with outside parties kind of writing on our license Or do we take it up ourselves? And it's quite possible we'll do both. In other words, if iGaming is legal in a state and we have 3 Skins, we might keep one for ourselves and licensed others.

Speaker 2

Most of you know this, we didn't get into the sports Betting business ourselves because as a small company, you can end up upside down on that If one of the teams in the Super Bowl is from a market we're in, but the other team is not, we would be out of balance. And We could move the line, but then we would not be providing as good a terms to our customers as our competition. And so we decided early on to leave it People have more experience in that field and just take a percentage of revenue. And that's a reflection that there are Certain games and notably the Super Bowl and Basketball, March Madness That are a very large part of the sports betting business. So you tend to have a lot of concentration on those events.

Speaker 2

In iGaming where you're allowed to play a slot machine online, that's a large number of independent statistical events. That's the normal business we're in. We're comfortable with that. And you can lease or buy the software that allows you to run that website. The games themselves are owned by the slot companies and they'll license those pretty readily.

Speaker 2

We would have to hire people who specialize in Marketing websites, but there's a lot of those people available. So it is a business we could do on our own, but it's not yet legal in any market that we're in. So But if it becomes legal, it's a business we'd look at pretty seriously. And we don't it's also not something you don't have to be Giant. Like you don't have to be DraftKings or FanDuel to make money in it.

Speaker 2

I mean, we do have mailing list in each of these markets. So you go to people and say, well, if you can't come in, if you're one of the 40,000 people in our database in Illinois And you can't come in or you ended up in the hospital or you ended up in a nursing home or you're on vacation, but you still want to play your game, we have a way for you to do it. And so Having that database of a physical casino gives you a market to advertise to and you can go the other way around too and say, look, When you gamble online, you're accumulating points that allows you to come and get a stay at our hotel. So we would we don't have to be a giant market share For it to be a profitable business for us. And so if it does become legal in the markets we're in, we would probably try to do it in a Financially responsible way.

Speaker 6

Okay, great. Thanks for the color, Dan and Louis.

Operator

Next question comes from Edward Engel with ROTH MKM. Please go ahead.

Speaker 3

Hey, thanks for taking my question. On the dealers in Waukegan, just curious if you Any timeline when you could be closer to being able to operate 40 to 50 tables on the weekends? Could that happen by the end of the year? Or is that kind of just

Speaker 1

a stay as she goes

Speaker 2

We're probably a month away to be able to have 40 to 50 tables on a weekend. We're getting there. So recognize that where we are, the people who had dealer experience were already well employed at Rivers and the Potawatomi. And so we've had to reach out and be creative. So we are paying relocation costs for dealers who are It might live in the middle of Wisconsin or something.

Speaker 2

And we're training dealers from scratch and we are getting there. And by the way, we've learned from that in Colorado. So we're trying to get ahead of the game in Colorado. But in Colorado, The existing dealers at existing casinos are looking at our building, which kind of is pretty impressive in the town and drooling over the Tips that did make at our casino. So it's probably an easier task, but even there we are reaching out to dealers who might work at tribal casinos in Oklahoma, New Mexico and so on.

Speaker 2

And so we're trying to be ahead of the game. So we make sure we have enough dealers to operate the full table game pit When we open in December.

Speaker 3

Helpful. Thanks. And then for when the Cirque Sportsman opened in September. Just curious if there's kind of any marketing events planned and I would assume that would be on their

Speaker 2

Well, the online the in house Circa Place, we share the income from it and we haven't really worked out the details, but we would Certainly publicized and have some sort of event, but I don't think it'd be particularly expensive.

Speaker 3

Helpful. Thank you.

Speaker 2

Yes. I mean, we'd be silly to open it and not publicize it, but It's not $1,000,000 marketing cost.

Operator

And it comes from John DeCree with CBRE. Please go ahead, sir.

Speaker 3

Hi, Dan. Hi, Louis. Thanks for squeezing me in here. Maybe two questions and Just to circle back to the topic today, which is the margin at Waukegan. Wonder if you could speak to where you think You can get the margin to at the temporary.

Speaker 3

And in that outlook, what's the what's kind of the order of operations? Is it more Costs normalizing on labor preopening and marketing and some of the things that you've talked about, or is the bigger driver of getting that margin up, Really the additional revenue that you'd expect as the facility continues to ramp?

Speaker 2

A little bit of both. I mean, as the revenues You can see from the numbers, the number of admissions are going up. The revenue per admission is going up. That affects our gaming tax, of course, higher revenues, higher gaming tax, But it doesn't really affect the payroll very much. You have the same number of security guys.

Speaker 2

The slot machines are as The revenues on the slot machines could go up 50% and our payroll probably wouldn't go up 10%. And then On the marketing side, you gradually get more efficient. I mean, marketing never goes to 0. But right now, we're trying to tell people in this new campaign that you can't judge a book by the cover. If you looked at the outside of the tent, you've got to come inside and look at it.

Speaker 2

So there's that. And actually in my last question, I want to point out that one of the challenges in Illinois is the way the regulatory system Works is they go through lots of different checks and balances and so on. And then all of a sudden, they're likely to say, okay, you can open the sports book. And so I didn't want to give the impression that we would have a great big party on the opening of the sports book. It's like literally you open the sports book and then you Figure out how to advertise to people that you have it open.

Speaker 2

And so there will be some cost involved. I think the person who asked the question Ken said, is there going to be a marketing event? There'll be some marketing dollars. I don't know if there's necessarily an event. But it this all takes time.

Speaker 2

You also the other thing that happens in any new casino is you tend to have Quite a bit of turnover. And you'll open I can't remember when we opened Bellagio, we had 10,000 employees. And within months, you lost a third of them. And it's because they find that they didn't really want to Wear high heels all evening and serve cocktails or they didn't really want to be a dealer or they didn't really want to be a waiter or whatever it is. And so Those people leave and you have the recruiting and training costs to replace those.

Speaker 2

And then Some portion of those leave and you have recruiting and training costs to replace those. And so it takes a few iterations Before you kind of normalize into a stable workforce. And so even at the Silver Slipper, we have about Out of about 500 employees, it's about 300 who are with us year in, year out who have lots of tenure with us and They're happy and we're happy and they're the core. And there's like 200 that turns over every year or 2. And so we're trying to figure out that core.

Speaker 2

And in the meantime, you do incur additional costs with Recruiting and training and so on and so over. It's all part of the maturation. I think if you had Total access to all the data in the entire industry, I think you'd be hard pressed to find a casino whose margins reach their highest point And their 1st full quarter of operations. It's just never the case. Your margins, in fact, it's sometimes you have no margin in your Q1 of operation.

Speaker 2

And 2 years later, you get to kind of a normalized margin. And in this case, normalized margins, probably 30% in Illinois. And that's it's not higher than that because of very high tax rate there. And with the gaming tax in Colorado, it could be higher than that.

Speaker 3

Yes. That's a good point, Dan, on a time to get to Stable margins. I appreciate that color. Maybe a more detailed question just to sneak one in to the extent you guys can comment as you Spoke to the database a little bit as that ramps up. Curious if you give us any insight into kind of your rated play Mix at the property now and at least maybe some parameters, how has that ramped over the last, call it, quarter?

Speaker 3

And maybe where is it relative to what you'd expect at Stabil or some of your other operations? Just kind of give us some insight as How much more runway you have to really get that database working for you?

Speaker 2

Well, we're already in the high 60s In Illinois, some other markets were in the 80s

Speaker 4

for rated play.

Speaker 2

Rated play versus total play. But that doesn't what am I trying to say? As you attract more people, you get more rated players as well. And Recognize that the 40,000 people, that's the total names we have. Eventually, you start to figure out some of those names don't come back, Right.

Speaker 2

And other ones come in all the time. And so even within the 40,000 people, you start to figure out, Well, there's 10,000 of these people that are pretty important. It's like any other business. 80% of the revenues come from 20% of the customers. And so you keep getting smarter and smarter at figuring it out.

Speaker 2

And we have customers at some of our properties who are with us More than 100 days a year, they're in our casino. And you gradually learn who they are and what they like And what appeals to them and what's important to them. And a lot of times, they're either independently wealthy or retired, and it's just What they do for their entertainment. And but until you know who those people are, you're flailing around a little bit. And But that's part of the normal maturation of a new casino.

Speaker 2

So just like any other new business, I suppose. I mean, if you open a clothing store, Just because somebody came in and bought a tie doesn't mean you're going to see them every month. Does anybody buy ties anymore? But anyway, you get the idea.

Speaker 3

Thanks, Matt. Appreciate it. Thanks, Louis. You got it.

Speaker 2

Okay. I think we're done. Okay. Thank you, everybody. We're Very busy and over the next 6 months, this will all normalize out and We're very excited to get the Chamonix open and then eventually to get going on the permanent, but We'll get going when the time is right.

Speaker 2

So thank you.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation

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Earnings Conference Call
Full House Resorts Q2 2023
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