Full House Resorts Inc (FLL) 2008 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Full House Resorts fourth quarter year-end 2008 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) This conference is being recorded, today, Monday, March 30, 2009.

I will now turn the conference over to our host, Mr. Bill Schmitt. Please go ahead, sir.

Thank you, Chardeney, and good morning or afternoon, depending on where you are located. By now everyone should have access to our earnings announcements and Form 10-K, which were filed earlier today. These may include -- these may be also be found on our website at FullHouseResorts.com under the investor relations section. Before we begin our formal remarks I need to remind everyone that part of our discussion today may include forward-looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them. We refer all of you to our recent filings with the SEC for more detailed discussion of the risks that could impact the future operating results and financial condition of Full House Resorts. I would now like to introduce Andre Hilliou, CEO of Full House Resorts.

Thank you, Bill. Here with me today is Mark Miller, our CFO, who will discuss our financial result for the quarter and the year. But before that, I want to talk briefly about 2008, give an update on the progress at FireKeepers Casino in Battle Creek, Michigan, as well as some words on Stockman's and our Delaware Management joint venture. 2008 was a successful and profitable year at Full House, which is even more remarkable when you consider the economic environment during the second half of the year. Our full year earnings per share was $0.08 versus $0.05 in 2007. If you exclude our onetime litigation settlement in 2008, as well as impairment charges and the Hard Rock settlement income in 2008 and 2007, adjusted earnings per share for 2008 was $0.10 versus $0.05 in '07.

Stockman Casino continues to be the market leader in fun in Nevada and, while revenue improved by 4% due primarily to 12 months of result versus 11 in 2007, we did see economic weakness consistent with the general difficult economy, resulting in some margin pressure impacting our EBITDA, which was $3 million in 2008. The amended contract we sign in '07 with Harrington Raceway and Casino providing for an 8% guarantee increase in management fee over '07 cash payment, turned out to be an excellent decision. That has and is expected to continue insulating Full House from the economic downturn, higher gaming taxes and continue increases in competitive pressures. We continue to explore opportunities to grow our business through acquisition and we are very strongly positioned to effect a transaction which is appropriately valued.

We believe that the current market condition will reward patience and that in 2009, several properties, including some that we have looked at in the past, may become available as favorable multiples. Once FireKeepers open later this year, our financial position should be significantly enhanced. However, we remain disciplined and patient until we find an opportunity that could be purchased within our guidelines. Now, turning to the FireKeepers Casino. As we mentioned at the last conference call, the building structure for the casino was enclosed in November, ahead of schedule, which enable winter construction to proceed at the site. Since that time interior work has been progressing and the erection of the garage superstructure has just been completed right on schedule. We invite you to go to our website, www.fullhouseresort.com, where you can click on the link on the home page that will take you to a live webcam on the FireKeepers Casino's construction.

In addition, the FireKeepers Development Authority recently approved a reconfiguration of the Casino content to increase the number of slot from 2500 to 2680, while reducing the table count from 90 to 78 and the poker table count from 20 to 12. That will result in a net gain of around 60 gaming positions. The new configuration would have no impact on the budget, as we have managed to carve out significant savings in other area. We are very pleased with the strong management team that is being built under the leadership of our GM, Bruce McKee. We currently have attracted over 30 strong, seasoned and gaming experienced managers who are busy, not only effectively managing the construction and budget processes, but also preparing for the opening. In addition, general recruiting is proceeding nicely, as we receive over 20,000 application for 1500 position in the first full -- in the first months of our recruiting effort.

As we committed to at the beginning of the project, we also -- we have and will continue to hire locals and tribal members to work at the casino. The talent pool in Michigan is deep and hardworking, which is clearly evident by the progress on the Casino to date. With construction and the management -- and management team building well underway, we are now shifting some of our attention to our preopening marketing efforts. Specifically, with our marquee sign up and running, driving down the interstate 94, you really can't miss it. In addition, we will start development of our player club database soon. We remain on schedule and on budget and we are still projecting a grand opening of FireKeepers Casino in the third quarter of 2009. As we have mentioned before, Full House owns 50% of the joint venture. GEM, which oversees and manages on behalf of FDA the construction and operation of the facility. GEM will receive a management fee of 26% of the pre-management fee net income for seven years commencing at opening.

To sum up, we are very pleased with the progress of the FireKeepers project and we are looking forward to this summer grand opening with great anticipation. Our primary focus is to make sure the grand opening remains on time and opens as successfully as possible. Moving on to our current operation. Stockman Casino revenues were down a little bit during the quarter, but our food and beverage revenues were up considerably due to having both restaurant open during the full quarter. While revenue continued to be somewhat weak, we are seeking -- we are seeing some stabilization and are making considerable progress in reducing our cost structure. At our Delaware joint venture we expect to remain insulated from the economic pressure and potential [loot] competition from Maryland. To the contract we signed in 2007 with Harrington Raceway, which guarantees an annual fee increase untill August, 2011.

Finally, as you all know, in October we announced that our Board of Director extended the initial $1 million share repurchase program and authorized another $1 million for share repurchases. Since then, we have seen opportunities to buy a total of 560,000 shares at what we consider to be extraordinarily favorable prices, bringing the total number of share repurchase since July, 2008 to 1.360 million shares. We believe the purchases will be attractive to EPS over the long-term and especially when the FireKeepers Casino open later this year. We are continuing to evaluate all opportunities available to us to create long-term shareholder value, including acquisition, debt repayment, and share repurchases. I will now turn the call over to Mark, our CFO, to go into more detail about the financial result for the quarter and then I will close with a few additional comments. Mark?

Thank you, Andre. I would like to review a few highlights of our financial performance and condition for this quarter and then we will be happy to respond to questions you may have at the end of our prepared remarks. During the fourth quarter, 2008, we incurred a onetime charge of $500,000, of which $225,000 was paid in the quarter, related to the settlement of litigation filed by RAM Entertainment and Robert A. Mathewson related to the distribution of an award previously obtained by Gaming Entertainment California. And in the fourth quarter of 2007, the Company incurred a onetime impairment charge of $407,000 related to discontinued projects in New Mexico. Net income was approximately $6,000 compared to net income of approximately $9,000 in the fourth quarter of 2007, which included income from discontinued operations of approximately $72,000, from the Holiday Inn in Fallon, which you'll recall we sold in early 2008.

Excluding both the 2008 and 2007 onetime charges mentioned previously, net income for the fourth quarter of 2008 was approximately $340,000 compared to approximately $278,000 in the prior year period. For the fourth quarter ended December 31, 2008, earnings per share were flat, the same as in the prior year period. Fourth quarter 2008 results were based on weighted average common shares outstanding of 18.4 million, while fourth quarter 2007 results were based on weighted average common shares outstanding of 19.3 million shares. Excluding both the 2008 and 2007 onetime charges, earnings per share for the fourth quarter of 2008 was $0.02 compared to $0.01 in the prior year period. Noncash stock compensation expense for the fourth quarter was $140,000 versus $210,000 in the prior year quarter. For the full year 2008, noncash stock compensation expense was $784,000, versus $1.6 million in 2007.

Stockman's Casino contributed approximately $2.3 million in revenue for the three months ended December 31, 2008. This was down 5% from Stockman's prior year period, primarily due to an overall weak northern Nevada economy and partially offset by large increases in food and beverage revenue due to having both of our restaurants fully open during the fourth quarter of 2008 versus the prior year quarter when the cafe was under renovation. EBITDA for Stockman's was approximately $600,000 for the quarter, the fourth quarter of 2008 compared to $900,000 in the fourth quarter of 2007. Cost containment at our casino and G&A segments were offset by increased food and beverage and marketing costs. SG&A expenses declined from $1.6 million last year to $1.4 million during the fourth quarter of 2008.

The decrease is primarily due to lower personnel costs at both the corporate and Stockman's level, partially offset by increased payroll and travel related expenses related to our management agreement obligations at FireKeepers. It should be noted that our cash expenses for GEM are being shared on a 50/50 basis between us and our partner, RAM. The full GEM costs are included in SG&A and the credit for RAM's share of these expenses flows through the noncontrolling interest in net income, net loss of consolidated joint venture line, the line we used to refer to as minority interests. Equity and net income from Harrington Raceway and Casino was up 3% from the prior year period in the fourth quarter. As noted in previous calls, we restructured our management agreement in Delaware to provide us with a guaranteed minimum 8% increase over 2007's cash flow of approximately $4.1 million.

The restructuring has provided us with insulation from competitive pressures affecting Delaware, the weak economy and from the impact of recently enacted gaming tax increases. Quarterly results differ from the guaranteed amount due to the timing of cash payments in the prior year. For the full year of 2008, these management fees were up approximately 11.8%, well ahead of our guaranteed 8% increase. However, we expect this to even out somewhat during the 2009 year. During fourth quarter 2008, we recognized unrealized gains on our notes receivable of approximately $130,000 compared with a gain of approximately $121,000 last year. Please keep in mind that these adjustments to fair value are noncash. As we have stated in our previous conference calls, the fair market value -- valuation of our tribal receivables remains subject to some volatility as timing estimates change.

However, as long as FireKeepers remains on schedule and on budget, we expect lower volatility going forward. I would refer you to the somewhat extensive disclosures we have in our just filed 10-K to better understand the nature of these items, which are significant to our financial results. Our interest expense in the fourth quarter of 2008 fell approximately $200,000 compared to the prior year quarter, due to our reduction of debt during this year, which included approximately $7 million from the sale of the Holiday Inn Express in the first quarter of 2008. We had approximately $5.3 million in cash on hand at the end of 2008. Debt as of December 31st, including current maturities, stood at approximately $6.4 million, with only about $225,000 of required principle payments over the next 12 months. Of the $6.4 million in debt, approximately $3.1 million is an obligation of GEM and will be satisfied from GEM earnings and cash flow.

Availability under our loan facility with Nevada State Bank stood at $6.0 million, $6 million at the end of the year. Since the end of December we made additional voluntary payments on our revolving credit line of $2.3 million. As of March 25, 2009, we had approximately $3.7 million in cash and our revolving credit line availability has increased to $7.9 million. I would like to remind everyone that when we purchased the Stockman's Casino at the end of January, 2007, we incurred a total of approximately $18 million in debt. As of today only about $1.1 million remains outstanding. In addition, in July we announced that the Board of Directors had authorized a share repurchase program whereby the Company can repurchase up to $1 million worth of shares. On October 14th, the Company's Board of Directors authorized the repurchase of an additional $1 million of the Company's common stock and extended the expiration of the repurchase plan to April 30, 2009.

Through March 25, 2009, the Company had purchased 1,356,595 shares of common stock at a weighted average cost of $1.19, for a total cost, including transaction costs, of $1,654,000. We have just under $385 million remaining in the program and the current number of shares outstanding is 17,993,000 shares. Management continues to evaluate acquisitions, debt repayment, and share repurchases to best use our cash resources. As you can see our balance sheet is in good shape. We have very low leverage and no immediate refinancing or repayment issues. With the rapidly approaching opening date for the FireKeepers Casino and the resulting fee income, we expect 2009 to be a tremendous year for Full House Resorts Inc. and its shareholders. With that I will turn it back over to Andre for a few final comments before we open it up for questions.

Thank you, Mark. Before turning it over to question, just to sum up, we were pleased with our 2008 performance, which was accomplished in an economic environment not seen in the country in a very long time. FireKeepers Casino construction continues on schedule and within budget and we expect to be amply prepared for the facility opening this summer. In addition, we are guaranteed a (inaudible) income gross at Harrington Raceway and Casino through August, 2011, at a time when result are coming under pressure from increased taxation and competition, as well as a difficult economy. At the market leading Stockman's we continue to manage the business with our eye on the bottom-line, while implementing more effective marketing program, improving the quality of our product and implementing cost containment measure to improve profitability at the casino, while maintaining of course our market leadership positions.

Long-term, our goal remains to own and develop market leading local casinos. Our balance sheet is robust and our debt repayment requirement are minimal, leaving us extremely well positioned for any future opportunities. And we expect our financial resources to increase substantially following the opening of FireKeepers expected only in a few short months. As a result of all of those positive development, we expect 2009 to be a watershed year for us. But as we have said before and will continue to say, we will remain disciplined and patient until we find the right opportunity that will provide value for our shareholders. Thank you for your time today and we will now open the call for questions.

(Operator Instructions). Our first question comes from the Justin Sebastiano from Morgan Joseph, please go ahead.

Thanks. Hi, guys.

Hi, Justin, how are you this morning.

Good, how are you doing?

Hey, Justin.

Good. Could just just give us an update on Gun Lake, what you guys are hearing out there in the market as far as where they are in getting maybe financing and possibly opening, sort of a time line there?

Justin, we don't hear a lot more than anybody else hears about Gun Lake. Our understanding is they have overcome their legal challenges related to the land. We understand that they're now currently working with their management company. There may be some issues there that slow them down a little bit, but their big challenge is to finish getting the remainder of their federal approval. There are still some federal approvals that have to be finalized and then they have got to on the road and get their financing, which we would anticipate will be difficult but at some point there -- we think that they will be able to obtain financing and they will get their project under construction. We still think it may take a little while for that to happen, but we anticipate that it will happen some time in the relative near future. Relative near future being some time in the next year or so.

Okay.

Timing is very hard to predict, Justin, when you are dealing with the federal government, the state and of course now with banking.

Right. From what I've heard they don't even have a final GNP. They don't have -- and a lot of the things that kind of held you guys back and hold really any casino project from moving forward.

Justin, we know that in today's financing market, Justin, you have to have every I dotted and every T crossed. You can't go to the financing markets today with any issues hanging over your project. So, they have got to still have to get their management contract approved by the NIGC. They do have to get a GMP and clamp all of those things so that when they go to market they'll have the best possible story. How soon they'll be prepared to do that, we don't really know.

Okay. So sounds -- . They have got a lot ahead of them. All right. As far as acquisition targets, the size of the deal or what areas you are looking at, is it still kind of that $15 million range in northern Nevada?

Well, I think, Justin we are really looking at any market. We, we are not restricting ourself to any market. But it is within that, within that range for the time being, yes.

Okay. And your debt paydown, that's clearly a good use of fund concerning, you are paying, I guess, interest of over 7% and if you are going to put that cash into a riskless asset you are probably not going to get near that. I think that's a good use. Is that something that you are going to continue here or -- I mean there's really not much left to go -- ?

We don't really have much left, Justin. We've got under $300,000 outstanding on the Nevada State Bank facility and we've got about $700,000 or $800,000 on the note that the seller took when we sold the Stockman's Casino. We are not in anxious to pay that off because we can't draw it back once we pay it off. We thought it was the right thing to do at this point in time. The spread on money is pretty wide and so we think it didn't hurt us from a flexibility perspective and it will reduce our costs going forward.

Okay. And then just on the FireKeepers, what is -- I don't know if you have an internal goal or some sort of number that you are looking at in your -- to have the number of players in your database at opening, is there a number that you are kind of shooting for?

Well, we are shooting at, we are shooting at between 50,000 and 100,000 players.

Okay. Is that -- have you -- I know you said you are starting to think about preopening in your marketing program. Is that -- how are you going to get -- are you going to buy a database or how are you -- is it mailings or how are you getting that.

I think we are going to use, we are going to use different medium. And I, I don't want, I can't go into details now because that hasn't been finalized.

Okay.

But we will use every medium available to us and I think we can achieve that number.

Okay.

We are going to use, I think it is -- I was mentioning to our guys in Michigan the other day, it is kind of hard to use the press now, the recent press but, we are going to use -- we probably will buy some, some -- we are probably going to buy some lists, but at the end of the day I think we are going to try to do it locally.

Okay. And lastly, just the -- what percentage of the floor at FireKeepers is going to be participation games?

I think it is going to be around --

It is going to be in the low teens. Low teens.

Low teens, Justin, somewhere between 10%, 12%, somewhere in there.

Okay. Then just what percentage is video poker, the whole floor?

We haven't finalized that, but it is probably going to be single digits as well.

Okay.

High single digits.

Got you. Thanks a lot, guys.

(Operator Instructions). I'm showing no further questions in the queue. I will turn it back to management for any closing remarks.

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

Ladies and gentlemen, this concludes the Full House Resorts fourth quarter year-end 2008 earnings conference call. If you would like to listen to today's replay, please dial 303-590-3000 or 1-800-405-2236 and access code 11128330. ACT would like to thank you for your participation. You may now disconnect.