Full House Resorts Inc (FLL) 2017 Q1 法說會逐字稿

Good day, everyone, and welcome to the Full House Resorts First Quarter's 2017 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Lewis Fanger, Chief Financial Officer of Full House Resorts. You may begin.

Thank you. Good afternoon, everyone. Welcome to our first quarter earnings call. Before we begin, as always, we will remind you that today's conference call may contain forward-looking statements that we're making under the safe harbor provision of federal security laws. I'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 EBITDA. And for a reconciliation of those measures, please see our website as well as the various press releases that we issue. We're also broadcasting this conference call at fullhouseresorts.com, where you can find today's earnings release as well as all of our SEC filings. With that said, we're ready to go, Dan.

Okay. Good morning, everybody. It's kind of a fun quarter, because everything is a little torn up. We got stuff going on in every property that we're improving using the money we raised in our rights offering plus what we generate internally. And so we got a lot going on, none of which benefited the quarter and some of which actually hurt the quarter. And despite that, we did great. So it's kind of reassuring. I hate to blame weather. But it did snow a heck of a lot. And weather doesn't usually affect a quarter that much. I will tell you, it decimated January, but then we had a great March. And so at the end of the day, we came out of it just fine.

Silver Slipper, which is our most important property, did great. Revenues were up nicely. EBDIT was up nicely. We're building a beach club there, which has the first swimming pool at the property. We sit at the foot of a 8 mile-long white sand beach, beautiful beach, and yet we don't really use it. In fact, there's a parking lot along the beach. So we've taken out part of the parking lot and we're putting in a modest-sized pool. I mean, it's a pretty modest-sized hotel with a big wooden deck around it. And it's the sort of place that you can sit out and enjoy the beach environment, swim in the pool. While the beach is beautiful, the water in front of the beach is quite muddy. So people don't usually swim in it. You are pretty close to the Mississippi Delta. So it's not gin clear water like you have in the Caribbean. It's -- all along the Mississippi Gulf Coast, it's kind of muddy water but a pretty beach. And so we'll have a beach club where you can swim in the pool and enjoy the beach environment. And it puts us on a more competitive standing with some of our competitors. The Hollywood has a big lazy river pool and an on-site golf course and an on-site spa. We don't have any of those. And Island View has 2 pools. And so -- but both of those are -- tend to have problems with kids and families, which get noisy and they've tried to control it different ways and so on. We simply designed something that's really designed for adults. I mean, it's got a bar. And if we get too many kids out there, we'll play Sinatra or something. But it's really designed for adults, not for kids.

And second, we're adding an oyster bar to the property. Fishing boats come and go there all day long. In turns out they're fishing for oysters. There's an oyster port right next to us. And an oyster bar concept has been pretty successful in some casinos in Las Vegas. We had a part of the casino floor that wasn't all that active. We decided that it was time to add another little venue at the property. It only seats about 20 people. It's not very large. But it gives people an extra excuse to come to us.

And then -- and that should be done in the next couple of months. And then there is a large sign at a key intersection that was pretty beat up. We're refurbishing the sign and adding 2 state-of-the-art reader boards on it so that we can tell people where to turn, because if we don't get them to turn, they end up at the Hollywood and we wouldn't want them to do that. So we got some stuff going on at the Silver Slipper, none of which benefited the first quarter, and yet they did great. And I think that's a testament to John and his team. We had some promotions at the buffet. We brought the Dungeness crab back and discounted midweek promotions and so on, and that all worked pretty well.

At Rising Star, it was about flat with last year, which I think is fine. There we have an RV park that's under construction. We're not quite going to make Memorial Day, but we're going to open just after Memorial Day. It's a 56-space RV Park. And I actually think, as we've gotten into it, I think this is a bigger thing than we thought it was. There are a lot of RVs in the Midwest. And it's fairly common here in Las Vegas or even in the South to have RV parks at casinos. In fact we have one at the Silver Slipper, a small one. But none of the casinos in Indiana or Ohio or West Virginia or even Pennsylvania have RV parks. So we're going to be the first to have one. And I think there are people there who enjoy their RVs. And basically, from our perspective, it costs a lot less to built an RV park for space, and the customers bring in their own hotel room. 9% of households now own RVs. And the average cost of an RV is over $40,000. So this is an upper economic strata. And so we're going to have 54 -- 56 spaces -- 56 spaces will be opened here shortly. And each space has full hookups, cable TV, water, sewer, 50 amps of power. There is a shuffleboard, bathroom showers, little laundromat. So full-on 5-star RV park, if there is such a rating.

So second, the hotel itself, we're refurbishing the lobby and the guest room quarters, and there were -- there was the prior management of the company had a refurbishment plan that was kind of working its way through the property. But they stopped it when the company's finances got tight a few years ago and left 70 rooms that had not been refurbished in quite some time. And so we're going back and refurbishing those now. And it's just something that needed to be done. And the lobby's getting refreshed and the corridors are carpet, all of which is kind of part of what we view as maintenance CapEx budget.

But we're also -- have the plans now we haven't started implementing it for rather significant changes in the pavilion, which is where you arrive. Putting in indoor trees and changing the flooring and so on. And that's going to spruce it up quite a bit on a relatively modest budget. And then we have designers now working on the VIP area in the casino. It doesn't have one now. And so we're going to create a nice -- we have one, but it's a pony wall that separates it from the rest of the casino. We're going to have a real VIP area that's competitive in the market. And we will probably be under construction on that later this year.

And so that's -- and then the ferry boat, we now have the -- the ferry boat is really 2 boats. If you look at the Anderson Ferry website, you'll see that's the one we've kind of copied. And it's really kind of a barge, which is what the cars are on, and a tugboat that pushes it back and forth across the river. The tugboat is under contract. It will be done in August. Brand new tugboat. Two big -- it's actually more powerful than the Anderson Ferry, so we might be a little faster than they are. Two engines and then the barge. We have a request for proposals out to 4 shipyards and we should have answers back in about 10 days. And then that will be under contract. Everything has been submitted to the Corps of Engineers. So they are working through their process. Give them probably another maybe 2 months, then it's going to take us about 3 months to build the roads once they give us the approval. And so, hopefully, later this year, we'll have the roads and the ramps and the ferry boat altogether, and that will be operating. And that's pretty important. There's a lot of people in Northern Kentucky that this ferry will make it much more convenient for them to visit Rising Star than it is today.

Bronco Billy's, we're just about to lap a year from when we bought it. Almost to the day, I guess. May 13, right? And it's doing well. When we bought it, we said it would do about $5 million a year. And that seems to be where it is. It's seasonal. The summer is much more important. But it provided $846,000 of EBDIT. You will notice though, even without that, if you back that out, we still had a pretty good quarter, up nicely over the prior year. But Bronco Billy's is doing well. And we're working with the architects to design a hotel that we can build there, on land we control adjoining and behind Bronco Billy's, and we're thinking a hotel with 100-plus rooms, 4-star in character and tied into the casino.

In Cripple Creek, and this is part of the reason we bought it, when they legalized casino gaming in Colorado, initially the maximum bet was only $5. And it stayed like that from the early '90s until 2009, I believe it was. And then in 2009, the law changed. They added a couple of games. You could have craps and roulette. And then they increased the maximum bet to $100, which is 20x what it used to be. It was a pretty significant change. Now when you think about it, if you're going comp a $100 room, like our other properties have, and you're going to need somebody -- if somebody sitting at a $5 blackjack table, there's about 50 hands an hour. And if they're a decent blackjack player, there's about a 2% house edge. So they end up losing about $5 an hour for them to -- for us to justify them being comped a $100 room, they would have to sit at that blackjack table about 40 hours a day, which obviously isn't going to happen. And as a result, the product that was initially built in these communities wasn't a very good product. The hotels that exist have tiny rooms. In some cases, they kind of stare at alleys. I actually stayed in a room at one of our competitors the other day. And the window had like a tape on it, so you couldn't see through it. But if you kind of poked and looked carefully, the reason it was smoked window, it was 8 feet from a wall. And the room was about the size of what you would have on a cruise ship. And I think it was because everybody was looking at that $5 number, and saying, "Well, we're not really going to be comping these rooms so we want a room that's cheap, because the type of person is going to come up here and gamble at a place with a $5 maximum bet is a low-end person. So we need a room that we can sell for cash to a low-end person." So most of the casino rooms that exist in the town are really pretty suboptimal. And the other category they have are bed-and-breakfast, where people said, we're going to play on the gold mine character of the town. And there's museums about gold mining and all this stuff. And so people have -- like the old high school is a very nice bed-and-breakfast but only has a few rooms. And I've actually stayed there too. It's a little odd to be sleeping in a guest room. And I guess some people might get kind of kinky and want to have their honeymoon in an elementary school classroom, which you can do in Cripple Creek.

But then one of the other bed-and-breakfasts I stayed at was the Sisters of Mercy built a hospital for Irish miners in the 1890s. And it was actually very clean and neat. But as I was falling asleep, I wondered how many people had died in that room. And I'm sure it's in the hundreds. So the character of the rooms in this town are either they're small and designed for kind of a low-end gambler or they're kind of funky bed-and-breakfast type places. And the same used to be true of Black Hawk, which is this -- the gaming jurisdiction for Denver. But Craig Neilsen went and built a big hotel at Ameristar. It's a solid 4-star hotel, something like 500 rooms. And it turned it from a money-losing property into a very successful property now owned by Pinnacle. And now Monarch Gaming is adding a nice hotel, and then other people have stepped up their game. And Black Hawk is doing real well as a destination. And our thought is that Cripple Creek, on a smaller scale, because Colorado Springs is smaller than Denver, but we can do the same thing here. The size of the hotel doesn't matter, the question is the quality of the room. They only sleep in one room. So we've build a 100-room hotel and have it be 4-star, we think we get a -- not only will the hotel fill, fill popularly, but we will get a better echelon gambler than goes to Cripple Creek today. So we think we actually grow the market.

So we're pretty excited about that. To design one of these things takes a lot of thought. And I know this from working at Mirage and at Pinnacle. You work with the architects; you go away for 2 weeks; you meet with them again. Everybody thinks about it and you have epiphanies along the way that you can't believe you didn't think about before. And the worst thing you can do is rush it. You want to get it done right. And I think that design process, and this is complicated because it's a historical district at 10,000 feet, and it has it's architectural review provisions that we have to do and so on. So it's probably going to be about 1 year from now before we can start construction. And then it would open 2.5 years from now. So it's a ways down the road. And we're designing it to be something like $25 million to $30 million, which we think is something that we can do with part debt and part internally-generated cash flow.

So that's Colorado. And we are doing some interesting promotions there. Capital One pays us so low an interest rate that we decided we would make more money by taking $1 million and putting it behind glass on the casino floor, so people can get their picture taken with it. So we took $1 million out of the bank and put it on the casino floor for a while. And it will be an interesting promotion through the summer. And when we need it to build the hotel, we will break the glass and put it back in the bank. And we're doing some other things, like the name of the town comes from folklore, where there was -- before they discovered gold, they were cowboys up there with their cows. And I guess, one of them set off a gun by mistake and it startled the calf. And the calf was trying to jump across the little creek. And it stumbled and ended up with a broken leg and grew up crippled. And so the creek became Crippled Creek. And so we had a little bar that was pretty nondescript and we're changing the name. We have a new logo. We're putting in a pizza oven and all this stuff. And the new name is the Crippled Cow. And it has -- actually has a cool logo of a cow on crutches. And we actually bought a big fiberglass cow that we're going to hoist up into the ceiling. So we're doing little stuff like that. It doesn't cost a lot of money. But it's kind of fun, and I think it will energize that corner of the casino. Anyway, that's Colorado.

And in Northern Nevada, we are in full-scale renovation. In fact, I'll tell you that the casino at the Hyatt Tahoe had about the ugliest 1-ton chandeliers you ever saw. And as we're talking, they are cutting them up with saws and hoisting them out of the place, which makes me feel really good.

The back part of the casino was closed for the last several weeks. And all redone, new bar and everything. So we've been operating at about half capacity now for a while. And yet we've done fairly well. In fact, a little surprising to us. In March, our casino volumes were pretty similar to last year with half the capacity. Now March isn't the busiest month, but it was still -- I was a little worried that it would be worse than that. And we did reasonably okay. And now, the back half has just reopened this past weekend and it looks awesome. And the front half is all being torn up with everything. That should all be done in June. We will have a totally new casino, which is important, because seasonally July and August are by far the strongest months in Tahoe. So everything is going very well there in parts that are done. I mean, hats off to Todd Lenahan who is the designer who has done this for us. A very talented guy. He does a lot of work for Wynn. And he really is a genius and the place looks great.

And then over in Fallon. We tore down that administrative building, put in a parking lot. We've had some difficulty getting the porte-cochère built because parts of it are steel and nobody in Fallon knew how to work with steel. And so we're getting that done. And that should be done within about 4 weeks. And the landscaping is going in and we have a new sign up. We did change the flooring in the coffee shop from carpet that was pretty disgusting to a -- there's a relatively new vinyl product that you would swear it's wood. You can get down on your hands and knees and rap on it; you think it's wood. But it holds up much better than wood and it won't warp like wood. And it's cheaper than wood. So we put that in the coffee shop and painted the walls, and it looks much better. And then we took the Assistant Manager from Cripple Creek and moved him there as the Manager. So he is in place now. And Fallon is doing quite a bit better. And I think we're going to have a good year there. But it's been kind of torn up for the last 6 months. I mean, it's got a parking lot, but it was kind of walking through a construction zone to get into it. And it's done reasonably well despite that. So you can see the one spot we were off was the Northern Nevada casinos, which fortunately is the small part of the company. And I think that's attributable, well, in part to the weather. It did snow a lot. I think there were snowstorms on something like 11 of the weekends in the quarter. And when I say snowstorms, roads were closed, and there were significant number of days we were operating on emergency power. So like the traffic signals weren't even working, and yet we were able to stay open. So they've had some challenges. And yet it's done reasonably okay.

Otherwise, when you go past all that, we are working on refinancing our debt. We hope to have that done in the next couple of weeks. It'll be cheaper than the debt we have now. Not as cheap as I'd like, but cheaper. And I think with a -- based on our ratios, we should be able to borrow money at like 6%, except we're small. And everybody says, you're just too small. You need to be bigger and more diversity. And so we're not going to be at 6%, but currently half our debt is at about 5%, half of it's at 13.5%. And I think we will be cheaper than what we have today. In fact, I'm confident of it. And we'll have a new maturity that's going to be more than 5 years. And so we fixed the maturity. We don't have a lot of amortization now, but we're going to have less under the new deal. And save us on interest, and that will allow us to use our cash flow, frankly, to go build that hotel in Colorado.

And there was one other -- yes, we also spent some money in the quarter on Terre Haute. Not a lot of money, but some. The town of Terre Haute is about 200,000 people. We have this issue in Indiana, where we're permitted to have over 2,000 gaming positions. And we only need less than 1,000 gaming positions to do the revenues we have at Rising Sun. So that's an asset from our point of view. We've been trying to figure out how to utilize that. The state actually has a problem where they legalized casino gaming. They put it different places around the borders. And because in those days, you didn't have casinos in Ohio, and there were a lot fewer casinos in Illinois and so on. And now, Ohio and Illinois have their own casinos. And so the gaming capacity in the state's in the wrong places. And so the state's revenues over the last few years have trended down. And employment's trended down. So we've now come back twice, once on the west side of Indianapolis and then at Terre Haute with proposals to build a new casino utilizing our underutilized capacity at Rising Sun, which is a complete win-win. The state will get incremental tax revenues, incremental jobs, incremental investment. And we get an opportunity to go build another small casino. And I do think we will get there someday. I mean, last year when we proposed at Indianapolis, we kind of got laughed out of the state. This time we got it close. It was a 5-5 vote in the Public Policy Committee. We had the strong backing of the entire Terre Haute community. And so we will be back next year in legislature working on this again. And I think we'll eventually get there, whether it's next year or 2 years from now, we'll eventually get there.

But there was some spending there, which was in the quarter. We expensed all that stuff as incurred. So that's it. Did I miss anything, Lewis?

No. No. That's it, Dan. For those of you keeping track, if you look at the active growth projects that are out there, that would be the Silver Slipper pool, the oyster bar at Silver Slipper, the RV Park at Rising Star, the Grand Lodge renovation, and then the Stockman's renovation. Those all total about a little over $5 million, maybe $5.25 million of total investment. And we're about half spent on that through the start of May. So that will help you out a little bit in your modeling. But you got it all, Dan.

And all told, there is about $10 million of investment. But we haven't started into the other half of the stuff. So like the casino VIP room at Rising Star, we haven't started on. And I don't -- did you count the ferry in or out of your number?

The ferry, we spent about $125,000 on, the deposit for the...

Deposit for the tugboat.

Yes.

But -- so anyway, that's it. All of that stuff I think is going to grow our company pretty nicely. And with all these little projects added up, should get us up into the low to mid-20s in EBDIT roughly. And then the hotel in Colorado Springs may get us up to $30 million, with a little bit of organic growth. So -- which given that when we came in 2 years ago, it was $10 million.

That's EBDIT. So...

So we're a small company. Well, let's see if [Jim Mura] can grow his company (inaudible)

Anyway, let's -- we'll take some questions.

Sure.

(Operator Instructions) And we'll take our first question from Chad Beynon with Macquarie.

This is actually John on for Chad. Some of the other regional operators have been noting some improving trends in April, shall we say, leading into May. I was wondering if you guys could comment on what you're seeing at your properties regionally?

We had a phenomenal March. Silver Slipper, for example, set records in several categories as the best month they'd ever had. And actually, I should point out, we've -- it's hard to pick. I think in almost every market, we're outperforming the competitors. I mean, the Mississippi Gulf Coast has been relatively weak, or let's say, the growth has been less than the revenues of the Scarlet Pearl. And so that means if you took the Scarlet Pearl out, the market has actually been flat to down. We've been consistently up. And you could say the same thing about the New Orleans casinos. And I think that's just we're kind of relentless at trying to figure out the next new little marketing thing. We noticed one of our competitors now has Dungeness crab, and it's like okay, well, let's have some lobster or something else to really screw with them, right. And so we're pretty relentless at trying to constantly figure out how to improve our market share. And we've gained market -- we're small, but we've gained market share in the Mississippi Gulf Coast. We've gained market share in the Indiana and Cincinnati market. And Bronco Billy's is holding their own. I think as we start to improve things there, we'll gain some market share there also. Actually, the other thing that's happened there is there is some additional consolidation in the market, which I think is actually ultimately good for us. And then Northern Nevada, we're on a kind of a market to ourselves in Incline Village. So it's hard to know what to compare it to. But we seem to be gaining share in Fallon as well. And in general, yes, the economy seems to be okay. And I think people are back and doing well. And I think that probably has benefited us. But we have gained share in just about every market we're in. And we intend to continue doing that.

John, I think April as a whole, what you saw in really the first 3 weeks of April were signs of strength, the same strength that you saw on March. And then what we saw in a few of our markets were some weather issues. You probably saw in the news, there were some tornadoes in the Midwest and some flooding a little bit down south. And so we did feel the effects of that late in the month. But absent that, March and April are very strong.

And let me elaborate, like Rising Star, we have the lowest win per slot machine in the State of Indiana. So when this team came in, I mean, the bar was so low. And so we keep trying to figure out how to get it better. We keep gaining market share. We're still the most underutilized property in the region. So we have a long ways to go before we start to have any capacity issues. So we keep gaining market share by just trying to figure out how to get better utilization of what we have. Silver Slipper isn't quite as underutilized, but we still have upside there as well. And certainly Northern Nevada, we have upside. So -- and even Bronco Billy's -- I mean, Bronco Billy's does very well in the market it's in, but if you look at the win per slot machine per day, it's not a particularly high number. And it does really well on weekends. And so, how do we help fill in the midweek, and the hotel will be important to that.

Okay, great. That's really helpful. Just one more for me. We know you have a bunch of projects on your plate and that you guys are executing pretty well. So I was wondering, I mean aside from that, can you guys kind of speak to what you're seeing across the M&A landscape just generally?

We look at a lot of deals. But it's kind of like trying to marry the right girl. You have to look at about 50 of them before you find one worth marrying. And we're pretty small. So a lot of the deals that are out there are really too big for us. We're not going to do anything that bets the company. And if you model out what I talked about, if we can get this company to like $30 million of EBDIT with a little hotel and you start working backwards on what the stock price might be in 5 years, we have a pretty good story. We're not going to screw it up by doing something that is outrageous. Now that said, there are some small deals and we look at them. And in fact, that's a little bit of a reach for us, something like Bronco Billy's we bought for 6.2x or 6.3x cash flow. And I think it's kind of like, it's a great asset for us. It wouldn't have been worth the time for the big guys, MGM or any of those guys. It would just not. And so there are small deals that actually work very well for us that other people aren't going to be interested in. And I joke sometimes about, gee, that fits in our eclectic portfolio. People come to us with some really oddball stuff sometimes. Just about anything fits in our eclectic portfolio, consistent with look at where we are around the country, what we operate, we have a little bit of everything. And that's fine. In fact, it's kind of like slot systems. I think we have every one that's made. And so we're kind of -- so there isn't -- we will look at a lot of stuff, and we do look at a lot of stuff. But we don't have to do a deal to make sense. The company is going to do just fine on its own. But that doesn't mean we won't do a deal. But we don't have any urgency to do it. So if we find something that makes sense, we will do it. And otherwise, we will just keep looking.

I'll attack your question in a different way, John. I had a moment of quiet last night driving home prepping for earnings. And we -- you know what I always encourage people to do is to look at where casinos that are getting sold are trading at multiple-wise, to look at where casino companies, regional casino companies trade at, realizing -- looking both at whether or not they own their assets or whether or not they sold their assets off to a REIT. And I think what you're going to see in all those cases is that this company trades at a lower multiple. And just food for thought, I'm not quite sure where you were going with your question there, but we watch all that stuff very closely. And you know where we get excited and why you see all of us here at the company continue to put our money to work in the stock is we're just -- we're excited by our valuation and we're excited by where this company is heading.

I mean, Chad (sic) [John], you have the numbers more than we do, but my impression is that Isle of Capri got sold for about 8x cash flow. And I think Eldorado is happy they bought it. And their stock went up despite that acquisition at that price. Our assets are very similar to Isle of Capri in terms of quality. We are in markets that generally have barriers to entry. We have pretty clean ownership of stuff. And we're not -- we are nice regional properties. We're not -- we haven't built like in Boston or something. But we have nice regional properties that are consistent moneymakers. And so we saw that Isle of Capri deal and said "Huh, that's interesting." And yet, interest rates being where they are, I don't think Eldorado overpaid for Isle of Capri. But it's certainly suggests a lot of upside in our stock.

John, you and Chad put out our favorite chart, which is -- it's one where you show valuation of all the regional companies -- or all the gaming companies side by side. And we're always at the far right of that chart with the lowest valuation by a decent margin.

(inaudible) and I didn't know the man well myself. But he has said to have phrased on multiple occasions that the stock price only really matters when you are a buyer or a seller. And we're not looking to sell stock at these prices, obviously. We think the stock is cheap. And our debt covenants won't let us buy stock at these prices. So we can't be a buyer, although I bought quite a bit of stock personally in the past year. But we can't be a buyer. And we're not a seller. So -- honestly, I mean, I do obviously pay attention to the stock price. But I think my mom watches it closer than I do. She'll call me at home at night wondering why the stock was down $0.04. She only owns about 300 shares. So anyway, any other questions?

(Operator Instructions) And there are no questions at this time. I'll turn the conference back over to your host.

You have any closing words, Dan?

No. And just thanks for your support. Don't forget to vote. Proxies, if you haven't voted already, our shareholder meeting is next week. And we appreciate your support.

May 22.

May 22 is the quick meeting. If anybody wants to show up for the shareholder meeting, we will buy you a cup of coffee.

Thank you, guys.

Take care.

Ladies and gentlemen, that does conclude today's presentation. Thank you for your participation. You may now disconnect.