Full House Resorts Inc (FLL) 2009 Q1 法說會逐字稿

Welcome to the Full House Resorts first-quarter 2009 earnings conference call. During today's presentation all participants will be in a listen-only mode; following the presentation the conference will be open for questions. (Operator Instructions). This conference is being recorded May 12, 2009. I would now like to turn the conference over to Mr. Will Schmitt. Please go ahead, sir.

Thank you, Larissa, and good morning. By now everyone should have access to our earnings announcement and Form 10-Q which were filed earlier today. These may also be found on the website t FullHouseTesorts.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 prefer all of you to our recent filings with the SEC for a more detailed discussion of the risks that could impact the future operating results and financial condition of Full House Resorts. I would now like to introduce Andre Hilliou, CEO of Full House Resorts. Andre?

Thank you, Bill. Here with me today is Mark Miller, our CFO, who will discuss the financial results for the quarter and the year. But before that I want to talk briefly about our first quarter, give an update on the progress of the FireKeepers Casino in Battle Creek Michigan, as well as some words on Stockman's and our Delaware Management joint venture.

The first quarter of 2009 was very much like the first quarter of 2008. First-quarter earnings per share were $0.03 versus $0.05 in 2008. If you exclude the one-time unrealized gain in the first quarter of '08 from the repayment that we received on the FireKeepers tribal note, our earnings per share for the first quarter of '08 would have been $0.03, comparable to the first quarter of this year.

At Stockman Casino we saw revenue decline during the quarter, mostly in food and beverage revenues, consistent with the general economic uncertainty and also due to some increase in restaurant competition. The casino remains the market leader in Fallon, Nevada and our focus on cost control resulted in our operating expenses being down 7% on a year-over-year basis. Currently we have achieved a cost structure that is running equal to or less than what was at the same time in '07 and '08.

The amended contract we signed in 2007 with Harrington Raceway and Casino providing a 5% guaranteed increase in management fee over 2008 payments continued to prove to be an excellent decision. And so an 8% increase from prior year quarter in equity and net income. The contract has effectively shielded us from the increasing competitive environment, the economic downturn, increased cost and especially from the recently enacted increase in state gaming taxes.

On the acquisition front, we remain in a very strong financial position and we continue to review properties that could potentially feed the criteria for an acquisition. We are being patient and believe that there will be very favorable opportunities coming out of the current economic turmoil. We also realize that we will have greater financial resources available to us once FireKeepers open in only a few short months.

Turning to the FireKeepers Casino, we are happy to report that we remain on schedule and on budget for an opening this August. As we mentioned on the last call, the FireKeepers Development Authority approved a reconfiguration of the casino gaming floor, increasing the number of slot machines from 2,500 to 2,680 while reducing the table game count from 90 to 78 and the poker tables from 20 to 12. We all know that most of our profits do come from slot machines, the adjustment resulting in a net gain of around 60 gaming positions.

We invite you to go to our website at www.FullHouseResort.com where you can click on the link on the home page that will take you to a live WebCam of the casino construction. While construction is underway we are hard at work training dealers at the employment and training center and Marshall, Michigan. The dealer school commenced operation last week and the opening generated a substantial amount of paper coverage in the local media.

As we committed to at the beginning of this project, we have and will continue to hire local and tribal members to work at the casino. Marketing efforts are underway and development of our player club database is also well underway. General Manager, Bruce McKee and his team, are doing a tremendous job in building a top-flight organization. And we will be fully prepared for the opening in only a few short months.

Finally, we continue to strengthen our balance sheet and liquidity as we paid down another $2.3 million of debt in the quarter, leaving us with debt of $4.3 million and nearly $8 million of availability on our credit line. Of that $4.3 million in debt, $3.3 million is an obligation of GEM and will be satisfied by the GEM cash flows.

Our stock repurchase program expired at the end of April with the Company spending $1.7 million to repurchase 1.3 million shares during the program lifespan. We continue to evaluate all opportunities available to us to create long-term shareholder value including acquisition, debt repayment and further share purchase programs.

I will now turn the call over to Mark, our CFO, to go into more details about the financial results for the quarter and then I will close with a few additional comments. Mark?

Thank you, Andre. I'd like to review a few highlights of our financial performance and condition for this quarter and then we'll be happy to respond to questions you may have at the end of our prepared remarks.

For the first quarter ended March 31, 2009 earnings per share were $0.03 versus $0.05 in the prior year period. First-quarter 2009 results were based on weighted average common shares outstanding of 18.1 million shares, while first-quarter 2008 results were based on weighted average shares outstanding of 19.3 million.

During the first quarter of 2008 we benefited from a one-time unrealized gain of $1.4 million related to the $9.3 million repayment we received on our FireKeepers note receivable. If we exclude this gain, earnings per share for the first quarter of 2008 was $0.03, comparable with our first-quarter 2009 results.

Net income was approximately $500,000 compared to net income of approximately $1 million in the first quarter of 2008 which includes income from discontinued operations of approximately $38,000 from the Holiday Inn in Fallon that we sold in early 2008. Excluding the 2008 one-time gain mentioned previously, net income for the first quarter of 2008 was approximately $600,000.

Non-cash stock compensation expense for the first quarter of 2009 was approximately $127,000 versus $211,000 in the prior year quarter. Stockman's Casino contributed approximately $2.3 million in revenue for the three-month period ended March 31, '09. This was down approximately 10% from Stockman's prior-year period primarily as a result of declining food and beverage sales due to an overall weak Northern Nevada economy and increased food and beverage competition.

EBITDA for Stockman's was $800,000 for the first quarter of 2009 compared to approximately $1 million in the first quarter of last year. Cost containment efforts were more effective during the quarter throughout the Stockman's operations.

In addition, as Andre mentioned previously, we are seeing stabilizing trends in the past couple of months. Coupled with our cost structure now at or below 2008 and even 2007 levels in some cases, we expect our Q2 comparisons to be more favorable in Fallon.

SG&A expenses declined from $1.6 million last year to $1.5 million during the first quarter of this year. The decrease is primarily due to lower personnel costs at the corporate levels partially offset by increased payroll and travel-related expenses associated with 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 non-controlling interest and net income of consolidated joint venture line in our income statement.

Equity and net income from Harrington Raceway and Casino was up 8% from the prior year period in the first quarter. As we have noted in the past, we restructured our management agreement in Delaware to provide us with a guaranteed minimum 5% increase over 2008 cash flow of approximately $4.4 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 amounts due to timing of cash payments in the prior year. We expect this to even out somewhat during the coming quarters.

During first quarter 2009 we recognized unrealized gains on note receivables of approximately $250,000 compared with a gain of approximately $1.9 million last year. As I've mentioned before, the reason for the large discrepancy is because of the one-time gain of approximately $1.4 million related to the FireKeepers repayment we received in conjunction with their financing last year. This unusual gain amounted to approximately $0.02 per share. Please keep in mind that these adjustments to fair value are non-cash.

As we have stated in our previous conference call, the fair market valuation of our tribal receivables remain 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 disclosure we have in our 10-K and in our 10-Q for a better understanding of the nature of these items which are significant to our financial results.

Our interest expense in the first quarter of 2009 fell approximately $90,000 compared to the prior year quarter due to the reduction of debt throughout 2008. We had approximately $3.9 million in cash on hand as of March 31, 2009. Debt as of the end of the quarter, including current maturities, stood at approximately $4.3 million with only about $225,000 of required principle payments over the next 12 months. Of the $4.3 million in total debt approximately $3.3 million is an application of GEM and will be satisfied from GEM earnings and cash flow. Availability under our loan facility with Nevada State Bank stood at approximately $7.9 million at quarter end.

I'd like to remind everybody that when we purchased the Stockmans casino at the end of January 2007 we incurred a total of approximately $18 million and debt. As of today only about $1.1 million remains outstanding. On April 30, 2009 the Company's repurchase plan expired. In total the Company purchased 1,356,595 shares of common stock at a weighted average cost of approximately $1.22 (technical difficulty) for an approximate total cost of $1.6 million including transaction costs. We will continue to evaluate acquisitions, debt repayment and further share purchase programs to best use our cash resources going forward.

As is evident, our balance sheet is in excellent condition, we have very low leverage and no immediate refinancing or repayment issues. With FireKeepers Casino nearly ready to open and with the resulting management fee income we expect great things for Full House Resorts and its shareholders during the rest of the year. With that I'll turn it back over to Andre for a few final comments before we open it up for questions. Andre?

Thank you, Mark. Before turning it over to questions, just to sum up the first quarter in terms of operations, it continued to be challenging, consistent with the overall economic environment. But a more effective focus on cost control and our Delaware income stream maintain a profitability for the quarter.

FireKeepers Casino's construction continues on schedule and within budget. And we expect to be amply prepared for the facility opening in August. In addition, we are guaranteed equity income growth at Harrington Raceway and Casino to August 2011 at a time when its results are under enormous pressure from increased taxation, competition as well as the economy. We are generating free cash flow, our balance sheet and liquidity are strong and we have no major debt issues.

Once FireKeepers opens we will be an end even stronger position to take advantage of the opportunities we believe are emerging today. Meanwhile at the market leader Stockmans we continue to manage the business closely keeping an eye on our bottom line while making sure we maintain our market leading position.

Our long-term goal remains to own and develop market leading casinos and we believe the best is yet to come in the remainder of 2009. But as is our mantra, we will remain disciplined and patient until we find appropriate opportunity which will provide value for our shareholders. Thank you for your time today and I will now open the call for questions.

(Operator Instructions). Justin Sebastiano, Morgan Joseph.

You talked about Harrington; I think everybody pretty much understands the difference in the year over year growth rates is just due to the timing of the cash received from them. For second-quarter just for modeling purposes what kind of -- what rate should we use year-over-year? I don't know if you can really come up with that based on the timing.

Justin, our best guess right now is we ended up recognizing more than 8% last year. And eventually this has to even itself out to the guaranteed amounts. Really we expect that in the second and third and fourth quarters of this year we're going to have percentage increases that are going to be closer to the 2% to 3% range, which is then going to bring us back down to where we should be when we get to the end of the year.

When we get to the end of this year I expect that the percentage increase year-over-year is going to be somewhere in the 3% to 4% range. And when you add that with last year's exceeding the 8% it's going to even itself out. Do you follow me?

Yes, I do.

Eventually I'm hoping that we're going to get -- we'll get into where this will be a little bit more predictable. But anyway that's our expectation for the rest of the year.

Okay. And then on SG&A, if you back I guess stock-based comp, I'm looking at about $1.4 million in the quarter and I understand GEM's SG&A is in there as well.

Yes.

What exactly was the GEM SG&A in the first quarter?

The GEM SG&A on a quarterly basis that's embedded in that SG&A number is probably running probably close to a couple hundred thousand dollars a quarter.

Okay. And so that's Bruce's salary and what else?

There's travel in there and there's some accrual for bonus compensation that's related to the GM salary, how much of that will ultimately get paid depends on how we do but there is an accrual embedded in there. So it's mostly personnel cost and travel and travel-related stuff.

Okay. And so the travel is like you and Andre and Wes just going out to the property, making sure it's coming along through the --?

That's right. (multiple speakers) Andre is there today.

So we can take that number down then once it opens? You guys won't necessarily have to go out there as much because you won't need to crack the whip on the construction guys maybe?

I think that's probably true, but I wouldn't count on much of a reduction this year.

So you think the $1.4 million for total SG&A, is that a fair run rate for the rest of the year?

I think so.

Okay. And then the player database through the FireKeepers website, how is the -- how's registration been? What kind of numbers are you looking at as far as the number of people you have now?

You want to take that one, Andre?

Actually I don't have the data in front of me, but it's moving okay, it's moving okay. We are pleased with the way the player registration is coming about. I just don't have the numbers in front of me, so I wouldn't want to give you erroneous numbers. But we're actually advertising on the radio now and it seems like everything that we do brings more players in. And as you know, the last 45 days we're just going to be totally overwhelmed.

Right, okay. And then you said the dealers school opened last week and I assume other pre-opening expenses will ramp up a little bit, but that's all been funded by the financing that the development Authority got last year, right?

That is correct.

Okay, so that doesn't affect you guys right now?

Not from a cost structure perspective, that's right. But obviously from an effort perspective, yes, it does. But from a cost perspective, no.

Okay. And maybe this is for you, Andre. On the acquisition front, over the past, I guess, 12 to 18 months people are saying that so and so is going out of business, this one's going out of business and the multiples have came down a little bit, maybe not as much as they should have. But now that somewhat of a resurgence in the gaming space, at least from the stock side of things, maybe not certainly the health of specific companies, but are you seeing multiples creeping back up as far as what sellers are expecting or are they still humbled with the multiples that they're seeking?

Well, you know the so-called turnaround is two weeks old, so we haven't really seen any impact from that. So I think to answer your question, we really haven't been able to factor that in in our research yet, it's just too new.

Okay. Yes, I agree. I think it's more the stocks leading ahead of the financial health (multiple speakers).

I think it's going to take probably another two to three months. We went from complete negativity to less negativity in a matter of two weeks. Whether or not that will have an impact on the multiple, it's just too early to tell.

Okay. So you say you're being more patient, we're still looking at maybe 5, 5.5 times looking at maybe possibly $15 million?

(multiple speakers) it's between 4 and 6. It depends of the -- there are so many different factors involved in it. It's a great property with a great market going forward; it carries a much better multiple. If it's a property where you know the growth is very, very limited and the only way that we have to do well is on purchase and the multiple is lower. But the principle of buying a property hasn't change; the multiples have just came down to earth where they should be.

And I think the question, Justin, is going to be when the dust all settles and some of these assets are really on the market for sale, how many buyers are there going to be, how much capital is going to be available? And as the market improves capital availability made improve somewhat, but I doubt if it's going to go back to where you can get money to buy stuff at higher multiples.

We haven't seen -- and keep in mind it's a big market out there, but we haven't seen too many people coming in the market, Justin. And the people who are coming in the market are very careful. You won't to see the crazy multiple that you saw last year for sure.

Okay, thanks.

We were never in those multiples anyway, even when we purchased Stockmans.

Okay, I appreciate your time. Thanks, guys.

(Operator Instructions). At this time I would like to turn it back over to management; I show we have no further questions in the queue.

Well, we would like to thank everyone for their participation on the call today and for this report as we continue to pursue growth on behalf of our shareholders. With that we will end the call and wish all of you a great rest of the week and thank you again.

Ladies and gentlemen, this concludes the Full House Resorts first-quarter 2009 earnings call. If you would like to listen to a replay of today's conference, please dial 303-590-3030 or 1-800-406-7325, using the access code 406-7917. ACT would like to thank you for your participation. You may now disconnect.