Full House Resorts Inc (FLL) 2017 Q2 法說會逐字稿

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

Thank you. Good afternoon, everyone. Welcome to our second quarter earnings call. Before we begin, as always, we'll 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 EBITDA. For a reconciliation of those measures, please see our website as well as the various press releases, including the one today that we issued. 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.

And then lastly, really, quickly, we've been working on and completing, by the way, several growth projects at our properties. We know it's not easy for you to go and visit all of our places. And to help you more easily stay on track of those projects as well as keep up with the company in general, we did create a Facebook page. You can find it directly at facebook.com/FHResorts. Our goal isn't to overload you with info, so you can expect to post maybe once a week or so.

With that all said, are you ready, Dan?

Yes, I'll tell you that I think if you go to that website, and frankly, I tested it this morning, it wasn't working, so we had somebody running around to make sure it works right. So if you have any troubles, give it a couple of hours, and we'll have it working. But I think, if you like the site, you just click on like, and then anytime something is added to the site, you'll get a notification through Facebook. But there's also a way you can get a notification through email, if you want.

And so -- and we did this partially because as we travel around at look at the stuff , sometimes, frankly, I'll take a picture with my own phone of something that's coming together, and we decided it'd be kind of fun to actually share that with people in a casual way. So we don't have to file an 8-K every time we have a picture of a palm tree going in or something. But we thought we'd find a way to share it with people, and we decided to use Facebook for that. So that's that.

Looking at the quarter, it's a good quarter, really good quarter actually, but it's still very much a transitional quarter. We've got stuff going on in every property, different improvements being made, all funded by cash flows and the small rights offering we did last fall. And those improvements are really just starting to be completed and are going to continue to come in online over the next 12 to 18 months. And then meanwhile, we're working on things that will extend our growth beyond the next 12 to 18 months.

So in the quarter, the weak spot was also ironically a strong spot, and that was the Grand Lodge Casino at the Hyatt Tahoe. It was completely refurbished. We spent about $5 million, of which we were $1.5 million and our landlord was $3.5 million. Our rent went up by $500,000 a year, which is how the landlord gets a return on their $3.5 million. But as part of that whole deal, they give us an extension on the lease. The lease is going to expire September of 2018. They added 5 years to it. They do have a right to buy us out, but they'd have to repay for the investments we've made if they did. And I don't expect them to ever exercise that right. But -- and they also have to give us one year as EBDIT, and there's bunch of other stuff in there. Probably most importantly, they'd have to go get licensed in Nevada for the small casino. It's probably not worth it for them.

But from February through June, it was pretty torn up and especially March through June. In fact, there are periods of time where literally about 70% of the casino was under construction and closed. So not surprisingly, the earnings were off at the property. All of that was done on June 30 not because we wanted neatness in our financial statements, but because that was the days before the 4th of July weekend, and we were really scrambling to be done before the 4th of July weekend. And it was done, and frankly, the place looks great. There's a new contemporary bar; all new gaming tables, the other ones were probably 30 years old; all new gaming chairs; all new slot chairs that are height-adjustable, which is kind of what people expect these days, and yet the majority of casinos probably don't have it. Everybody's bodies are different sizes, so for the -- for it to be comfortable to push the button on the slot machine for a long period of time, it's important to have a chair that's comfortable. The lighting is different, much better than it used to be. We have VIP check-in area that's truly VIP now. We've removed the poker room and replaced it with a new slot area. We have quite a few new slot machines. There's no reason to replace all the machines, but we have quite a few new ones. And quite honestly, the volumes in revenue in July were up very nicely. And if the trend continues, we'll have a really nice return under $1.5 million investment. Of course, one month doesn't make a trend, but it's a good start. So we're pretty happy there, and the extension on the lease is also very important.

Our small property in Fallon has also been under construction, but that construction is a lot less disruptive. We're not working in the casino itself. We're just working outside of it, creating a new arrival and parking lot on the west side. It's actually been a real challenge to get that thing done in Fallon. Basically, Northern Nevada is booming. The unemployment rate is very low. And people are coming out to Reno, and to get us, they have to drive by the Tesla factory, which is like a $6 billion construction project. So we are getting it done, almost done, but it's late.

In construction, there's kind of 3 things: Are you on time? Is the quality good? And are you on budget? And it's pretty hard to hit all three. And in all of these projects, we're doing well on the quality, we're doing well on the budget and we're disappointingly late on a few of them.

But in Fallon, it's now almost done. We literally just heard the worst. The guy who was supposed to build the new doors under the porte-cochère backed out, and said he's got too much work, he can't do it. So we are trying to find someone to replace the glass doors, but otherwise, porte-cochère is done, the parking lot is done, the landscaping is in, and it looks great and the new sign is up. It did well in the quarter. You'll see Northern Nevada was down a lot. Income was a small loss of $53,000 versus $624,000 last year. Virtually, all of that is out of Grand Lodge, and Fallon was pretty good in the quarter.

So now at the Silver Slipper, it's still our most important property. It had a really good quarter. Back -- earlier in the year, we put up 2 big readerboard signs at a key intersection, where you turn off. And that was, quite honestly, a little bit of a challenge because we found out the sign that existed was already larger than the code permitted. And so if we altered the signs, we were going to have a problem. So we created a welcome center, which made it an on-site sign, which allowed us to put up readerboards. I'm not sure if anybody ever stops at our little office there to say welcome, but it allowed us to revamp the sign. We have 2 large readerboards that tell you where to go and what's going on at the property. And I think that's helped, and that helped lead to the quarter. But -- and then John and his team had some pretty creative promotions going on that have worked, and so that property was up 13%. It also had a pretty good first quarter, if you go back and look, and the income was up 23%.

Now the actual new stuff beyond readerboards wasn't open in the quarter, but we opened a new Oyster Bar for the July 4 weekend, which is an 18-seat restaurant on the casino floor, very similar to the ones that are at the Stations' properties out here. And we've been on a Saturday 2 weeks ago, where it had 20 turns on a Saturday. That's only 18 seats, so it's pretty popular and it's kind of quick, but high-quality food, jambalaya and stuff like that. And so -- and it's the first new food and beverage outlet at the property since we opened about 10 or 12 years ago. And so it's a way for people to get good food quickly on the casino floor. It didn't take a lot of square footage, not a very big place and seems to be doing very well.

And then the beach club, we finally got it opened last week. I mentioned the frustration in getting stuff opened. Top and south, you would think we would have a beach club opened in May or June, not in August, but it rained virtually every day in June. And frankly, we're a little late getting this thing organized. And so it is done now. There's still one big awning yet to come that covers the bar, but we have some temporary umbrellas up, and it's open. And frankly, it's spectacular. It's the nicest pool, if you will, or pool-type amenity along the entire Mississippi Gulf Coast, because we're right on the white sand beach with a bar, a nice decking and nice chairs, and it's not huge, but our hotel's not huge. We only have 170-odd rooms, and -- but this is a very nice setting, almost like you would be at a fancy hotel in St. Barts or the Bahamas or something and very adult-oriented. It's got the bar. It's got infinity edges. It's got chaise lounges. You can go there for the day, but I told John charge what you think you can charge for day people, and I think the number he threw out was $50, which is -- seems like a steep price to me. But if people are willing to pay $50 to sit on our pool, god love them. And it might be cheaper for them to rent a room. But if you stay at the hotel, obviously, you don't have to do the charge. And so it's a very important amenity at the property. All of our competition has pools and, in many cases, spas and golf courses, and so on. And this is an amenity that we think helps us in the summer, especially midweek, to fill the hotel and fill it with people who gamble. Because one of the things we found is customers of ours who are high rollers, when you hit the summer, their wives would -- their spouses would dictate that they go to one of our competitors where they'd have a pool that you can sit by in the heat of the summer. So now we have not only a pool, but really, the best pool in the whole region.

At Rising Star, the income was up 48%, so even more than Silver Slipper. But of course, that's in part because it operates closer to breakeven. So a 5% swing in revenue caused a really big swing at the bottom line. But obviously, that's the trend we like. And there, there really was nothing new in the quarter, but the RV Park is about done. They're trying to literally finish up some bathrooms and get the sanitary permits from the state. And again, I wish it were done a month ago, but it is a great RV Park. It looks great. It's very convenient to the casino. We get people stopping by every day asking when it's going to open because they want to use it, and I think it's going to be pretty successful. We have been going through the -- a room refurbishment program there. About 4 years ago, they had refurbished most of the rooms at the property, but there were 70 rooms that had not been refurbished in many, many years. And we've been refurbishing those, and that it's mostly done. We now have the design for the Pavilion. We're ordering the stuff to go ahead and renovate the Pavilion, and give it a much better sense of arrival. We have designers working on the VIP room on the boat, but they probably won't get done until next year.

The ferry boat, we -- the ferry boat is actually 2 things: it's really a tugboat and a barge. We own the tugboat, passed the sea trials. It's brand-new, and it's moored temporarily down in the south. And the barge is being built. That'll be delivered in the next few months up to Rising Sun, so we can start the ferry boat service over to Kentucky. We finally got the comments back from the Corps of Engineers last week, and we're addressing those comments. There's nothing insurmountable in them. It's minor things like the one we're snaking this road down to the ramps between wetlands and where there could be Indian bones or pottery shards or something, so they want to make sure that we're not violating either of those 2 things. And we own quite a big piece of land, so we get lots of flexibility in where the road can go. And we think we have an alignment now that addresses all of that. State of Indiana had the same issues, so we're already starting to address this when we got the comment back from the Corps. And the State of Kentucky has already given us approval now for the road and landing that goes in on the Kentucky side.

So we're getting close. The Corps is probably still 3 or 4 months from having the final approval, and then we go build it. That's going to put us up against the winter, and those issues on construction, if it's too cold. But hopefully, we could get most of that done before it gets too cold, and Indiana is not like Cripple Creek at 9,000 feet. Indiana has relatively mild winter. And so that's coming along.

Up at Cripple Creek, now that property earned $1.5 million in the quarter. We're really happy with that number. The prior year number was only a partial quarter and also benefited from oddity in Colorado State gaming taxes, where they -- it's progressive tax rate and your first dollars of revenue are taxed lower than your last dollars of revenue. And their fiscal year is July 1 to July 1. And when we became the owner in the middle of the quarter, it started the clock again. So we had an abnormally low gaming tax rate in the prior year. But I think if you had it apples-to-apples, it was a good quarter even despite the swing in tax rate. So $1.5 million in the second quarter. Their strongest quarter is the third quarter there. It's usually the strongest. And we opened in early July.

The Crippled Cow. We had a bar on the furthest part of our casino, furthest from kind of the center of activity, that was pretty underutilized. The name Cripple Creek comes from a story that may be folklore, but it's taken as fact locally. Some cowboy accidentally discharged his rifle. It startled some calf. The calf tried to jump this creek. It stumbled and broke its leg and became a crippled cow, and the creek became crippled creek. And the town became known as Cripple Creek. So we took a fiber glass cow and stuck a cast on its leg and placed it up in the rafter, renamed the bar the Crippled Cow.

But we also brought in Peet's Coffee, which is a great coffee that -- and then we have local micro-brewed beers. So coffee is popular in the morning, beer is popular at the evening, then coffee gets popular again late at night. And we put in a wood-burning oven, and we have wood-fired pizza, not unlike California Pizza Kitchen, and different recipes. They have a trademark on their recipes, but they don't have a trademark on a wood-fired pizza. So we have a wood-fired pizza oven with great pizzas. It's only been opened 10 days -- two weeks, right? And like the first week that it opened, they were slammed. They did serve 200 pizzas on the first day, which is really cooking in this little place. It's not a very big place. So that's a small project. It wasn't a lot of money, and so on. But it's kind of important to kind of add something new once in a while that people come and see and go look at.

The other thing we added there was, several months ago, we put $1 million on display. We had it sitting in the bank earning nothing. So we decided to take $1 million out, put it behind glass and get your picture taken with it. Something Jack Binion has done for years in his properties. And when we need the money, we'll break the glass and take it out. But -- so we got a couple little things going on there.

Beyond 12 to 18 months, I mentioned, we're trying to figure out growth, and we're pretty deep into designing a hotel to go with Cripple Creek. I spent some time up at Blackhawk a few weeks ago, and it's interesting. And Blackhawk is a very booming gaming jurisdiction.

Now Blackhawk is 45 minutes up in the mountains outside of Denver. Cripple Creek is 45 minutes up in the mountains outside of Colorado Springs, so very comparable, old gold mining towns that are convenient to these cities. Denver's 3 million people, Colorado Springs is 700,000. They actually have pretty similar per capita incomes and so on. I mean, there are some very wealthy neighborhoods in Colorado Springs around The Broadmoor and around the Garden of the Gods. And those people who live there do not come to Cripple Creek today. And part of the reason for that is that the maximum bet in Colorado was $5 for almost 20 years, and about 5 years ago, that changed to $100.

Let me put that in perspective. At $5 a hand, you'd have to sit at the gaming table like 30 hours a day before we'd comp a guest room for you. I mean, it's not going to happen. And so -- but it also flips around the other way that a wealthy person is not going to be very attracted to such low stakes gambling. So it ends up being kind of a lowbrow activity, where you have really budget-oriented people who go there, and then the hotel product that was built tended to be very small hotel rooms that you could rent for very little per night for people who paid cash, so they could go play a slot machine. And that was kind of the history of Colorado gaming. It was all those kind of very lowbrow, and it took -- gaming is a regressive taxation anyway, meaning that people who are less educated and earn less tend to gamble a higher proportion of their income than people who are more educated and wealthier, okay? I guess, it shouldn't be a surprised if you think about it. And when you have a maximum bet of $5, you make it even more regressive. And so Colorado changed direction, made it $100. Well, that's a twentyfold change. And now it's a whole different thing. If somebody is betting $100 a hand or even $25 a hand, if they're sitting there not very long, we'll comp a room for them, we'll comp a nice meal for them, and so on. And that's, after all, that's the bread-and-butter of Las Vegas. And people always hear about the guys who are betting $1,000 always a hand in Las Vegas, but that's actually a pretty small part of the business. The $50, $25, $100 a hand is the bigger part of the business. And then in the other markets we're in, like the hotel at the Silver Slipper, a majority of the occupancy is comped to people who are gambling enough and same in Rising Sun.

So -- well, when you look at Blackhawk, what's happened in recent years was Craig Neilsen saw this change coming. He passed away a few years ago, but he was the founder of Ameristar. And he went and built the Ameristar hotel there, which is now owned by Pinnacle. And it's a wonderful property with lots of meeting rooms, nice hotel rooms and nice design feeds into the casino. And Pinnacle stopped breaking it out, but I think they make $60 million or $70 million a year there. And then the Lodge has a very nice casino, and Monarch has a nice casino. They're now adding a $35 million hotel. And you look around, and it's like, wow, they've caught on to it, and Cripple Creek really hasn't. We haven't had that transition. And we're the #2 party in town, and I think #1 is not much ahead of us, but we have the land to actually cause that transition in Cripple Creek. we're trying to design something that will do that, that will allow Cripple Creek to reach out for a higher economic strata. And that's also better for the town because it becomes less seasonal. You can have meetings and conventions that come in mid-week, year round, more stable employment, more stable tax revenues, and so on. So -- and we think we can get a really good return there by taking our place that makes only $5 million a year. And that's one of the bigger places in town. We think we can make an investment that pretty dramatically improves that number and gets a good return on investment.

Just to put in perspective, I think Denver's population is roughly 4x that of Colorado Springs, but the revenues of those places are like 8x to 10x what Cripple Creek is. So there's lots of opportunity there.

And then we continue to look at Indiana as a growth opportunity for us, mostly because we're legally permitted to have a lot more slot machines than we need at Rising Sun, and we've made a couple of proposals where we relocate those in a new gaming jurisdiction. And the legislature will meet again in January, and we'll be back in January. We'll be back every year until eventually we find the jurisdiction, and I think it will eventually happen. I don't if it's this year or 2 years or 3 years from now, but it makes sense for us, and it makes sense for the state when the state originally legalized that they put the slot machines all around the perimeters. And they didn't have casinos in places like Ohio, and they didn't have as many in Illinois. And so to some extent, the state's gaming capacity is in the wrong places. And so if they would let us relocate some of our capacity, the state picks up gaming revenues and taxes and employment and investment. And it's a matter of finding the right location where we can make good money, where we also think we improve a local economy and provide local employment. And at the moment, we think that's Terre Haute. We're pretty close on that in last year's legislature, and we expect to be back this year. So no guarantees that ever happens, but it's logical that it should happen, and we'll keep working on it.

And then, of course, there's other growth opportunities, really, every week. We had somebody trying to get us to look at one acquisition or another, or one development opportunity for another. And you have to kiss a lot of girls before you find one worth dating. So we'll keep kissing, and we'll see.

So on the refinancing, if you look at the numbers, we're right around 5x. In other words, our total indebtedness is right around, probably on a trailing 12-month basis, we might be a little above 5x EBDIT. But we just had a good quarter. I think we're likely to have a good third quarter. And as our ratios get a little better, we're going able to refinance quite a bit cheaper. And we've been working on it for a while and people -- none of our stuff is imminently due, so we don't have our backs to the wall. And -- but we do intend to refinance when we can do so and save us money. Because our numbers get better, we're going to get closer to that opportunity.

Lewis, did I hit everything?

Yes, you did, Dan. Let's take some Q&A.

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

I wanted to start with operational questions. So Silver Slipper, it's the second quarter in a row where we've seen really nice revenue growth. You've kind of touched on some of the things, and I guess, more importantly, touched on some of the things that are going to provide for higher growth going forward. So what are you seeing right now at that property? Is it really your players are staying longer because they're just enjoying the property or you're growing the database? There was some competition that opened up a little while ago in Biloxi. It doesn't seem like you guys were phased given your location. But just trying to get a better sense of exactly what's really driving that growth and how sustainable that is?

Well, Biloxi is an hour east of us, and their customers principally come from the east. And frankly, the other casinos in Biloxi were not much phased by that new competition. And the market didn't grow, and that -- and I think the return on that new place is pretty suboptimal. And I went and saw that a little while ago, and they did an okay job building it, but I think their concept was that people would stop at their place before driving the last mile to Beau Rivage. And yet to get to their place, you get off the freeway, you go under the freeway. There are about 3 stop signals, and you then you park behind their swimming pool and next to their miniature golf course. Quite honestly, I don't think that really saves you any time. You could be up at Beau Rivage in the same time because you can go from Tallahassee, Florida to Beau Rivage, and I don't think there's one traffic signal between your home and their parking garage. I was part of the team that helped build that, and it was $670 million in 1998, if I remember correctly. It's when we were building it. So 20 years of inflation, the replacement cost, even if inflation is low, the replacement cost of Beau Rivage today is probably $1.3 billion or $1.5 billion. And you build a $300 million place, I don't care if you are 15 seconds faster to get to, it's probably not going to work. And then the Hard Rock has evolved over the years into a pretty competitive property right next to Beau Rivage. And then Boyd has Imperial Palace, which is a pretty big property. And so I actually think one of the strengths of the market, from our perspective, because there's an unlimited number of licenses available in Mississippi, so it's virtually always somebody running around trying to figure out how to build a casino, I don't know how you make numbers work to build a completely new one. And the Scarlet Pearl went and proved it. They spent 300-something million dollars. I hear $325 million or something. And something like $200 million of that was equity, but I don't think they have positive EBDIT. Or if they do, it is very small. And so I think the next guy who comes along and says, he wants to build a $300 million place, I don't know where the hell you get the money. Now on the other hand, if you have an existing place, and you want to add a guestroom tower or a meeting room space or something, well, if you can add a guestroom tower, and you don't have to add a front desk or add casino capacity or add restaurant capacity or so on, the return on that guestroom tower can be pretty good if you do it right. And so that is something where we're considering the first guestroom tower seems to have worked pretty well, and now it was built by the -- my predecessor, frankly, I had to finish it, but he had it designed and under construction. And it has no meeting room space, and that's one of our hurdles. We've got no meeting space at the property. And John Ferrucci and his team have done a terrific job at cobbling stuff together, so we have like -- we have a meeting room in our parking garage. That literally is like carpets rolled out and food brought in from the kitchen. On the fourth floor of our parking garage, you can have a pretty good meeting there, a wedding or a party. But you're in a parking garage, and it's fairly obvious you're in a parking garage. And then he turned the -- there's a space -- everything there is elevated because of the occasional hurricane that creates a storm surge. So the building code requires you to elevate everything. And so you get out of your car, you go up an escalator to get to the casino. And even our guestroom tower is 20-some-odd feet up in the air. The lowest floor is more than 20 feet above sea level, and we're at sea level right on the beach. And John and his team have taken that opening under the hotel and put in a beach bar that's all just temporary. And even our beach club, we had to be kind of creative. The swimming pool is okay under the code, but ironically, bathrooms would not be. But if you're going to have a swimming pool, you got to have bathrooms. And then you get in this weird thing of -- where you're going to have bathrooms 30 feet up in the air or 25 feet up in the air, so you're going to put bathrooms up in the fire tower thing, and then the ADA requires you to have an elevator. Imagine how strange that is. So what we did was found a company that makes high-end bathrooms for weddings that if somebody gets married out in the field somewhere, they have to bring in portable bathrooms on wheels. And we bought one of those, and we kind of built it into the deck, so it looks and feels like a permanent bathroom. It actually turned out to be a very nice bathroom. But under the county code, if there's a storm coming, we're supposed to unhook that thing, hook a truck up, yank it up and get it in land. So it's a temporary structure, and it's actually, this time, we may run over a bush or something, but it is designed to get out of there if there's a storm coming. So we've had to be pretty creative. And underneath the hotel, John has a little beach bar that's been popular. Well, we got no meeting room space at all. And so I'm kind of pondering, if we could build another hotel tower and add the meeting room space it should have and would that get a good return? And I think it would. And the irony is that would probably get a good return whereas building a new casino probably wouldn't. And our customers principally come from the west. And largely, in the Northshore of Lake Pontchartrain, which does not have casinos and turn down casinos when Louisiana approved years ago. And the people that lived there kind of have a choice of driving those long causeway across the lake and trying to find a parking place in downtown New Orleans or drive east to our place, and we're approximately at the same distance. And now if we had -- because of the hotel we have, we get people to come and stay the night. The gambling in the casinos goes later than it used to. It used to be pretty quiet by midnight because everybody went home. Now it's not so quiet.

And we get incremental trips because we can say to somebody, hey, it's your birthday, why don't you come over for the weekend, and so that gets us some incremental trips. And we also reach a little further away. There's places like Hattiesburg, which is inland and hot. We're the closest beach to Baton Rouge and Baton Rouge is 800,000 people. We're like 1.5 hours from Baton Rouge. Well, this time of the year, Baton Rouge is pretty hot and muggy, so you'd get somebody to come down to the beach. We didn't used to have a hotel at all, so now with the 120-room hotel that we opened 2 years ago, we do get some of that trade. We're running 90% occupancy in the hotel. And so in the early stages of pondering whether it would make sense for us to add another hotel tower at some point, and that would be something else that would be in the category of where would you grow after the next 18 months. But the irony is, I think it might actually make sense for us to do something like that, but I don't think it makes sense for somebody to build a new casino on that same market. I don't think the economics work. Now look, it's also good economy. If you look up the economic health of parishes in Louisiana, you'll find 3 of the 4 wealthiest parishes are those along on the North Shore of Lake Pontchatrain. I think 3 out 3 of fastest-growing parishes are on the north shore of Lake Pontchartrain. So it is -- our customer base is a growing area. It's kind of the, I don't know, the wealthy suburbs of New Orleans. New Orleans is very space constrained, and so people have moved across the lake and now jobs and offices and so on, they're moved across the lake. So it's, like I'm a very familiar with St. Louis and there is a suburb of St. Louis called Clayton, which at this point vibes with downtown St. Louis as the economic heart of the St. Louis metropolitan area, and I think you have the same sort of thing evolving with north shore of Lake Pontchartrain, and so, and we benefit from that.

Yes, I think the only other thing to add to that, Chad is, at the property a year ago, where we were really ramping up the hotels and trying to figure out who are our best guests were, who to comp the rooms to, who is actually going to spend more money in our casinos if they were staying overnight, that sort of analysis was going on behind the scenes and fast forward to today, we have a property that's really firing on all cylinders, and now is even more impressive. I don't want to understate how awesome this new swimming pool is, that's surrounded by this glorious palm grove. It's night and day different than what you would have seen 6 months ago. It's -- I -- we're excited for what the next year is going to bring.

Yes it's a whole sense of arrival is way better. But I'll also mention, John Sheldon just passed me a note here that we have a tiered players club that we implemented just about 1 year ago, so that's the starting to take hold. Didn't used to have a tiered players club, and that's pretty state-of-the-art that you should have one. Our food offerings, we have Dungeness crabs back in the buffet. That's popular. But I have to laugh actually, one of our competitors has put Dungeness crab on their buffet, and they have all these signs up that says, the ad campaign is, who's got the best legs in town. We do, we have Dungeness crabs. It's like, "Idiot, you don't eat the legs, it's a claw, you eat the claw. " And anybody who lives down there knows that, you're eating the claw, not the legs. So maybe you got the best legs, we get the best claws. But anyway. So that's fine. And then we are getting better at leveraging the hotel rooms and improving the win per occupied room, so.

We won't say that much more than that, because they're on our call right now, too.

But the guys over at Pan, just so you know, Dungeness crabs, you do not eat the legs, too much work.

Lewis, and -- could you provide CapEx for the quarter, and just maybe how we should think about the cadence of this as we get through the rest of 2017?

Sure. In the Q, we literally just put out, but at least for the 6 months is about $6.3 million of CapEx, if that helps you there.

Okay. And then any guidance or help for the year? I know you're -- there's some projects that are finishing and some others that are kind of underway. Should we still think about $10-or-so million, from a project standpoint as of all the announcements that you've given us so far?

Yes. I think for the balance of the year, it's going to be somewhere in the ballpark of $1.5 million, maybe $2 million. Some of the spend that's left, you're going to see a lot of that trickle into 2018, so the ferry boat is an example. We spent about $260,000 on that already. The platform that we're building, we give the greenlight for, and that's about $500,000, $550,000-or-so, but a lot of the roads, right, that will start work on that later this year, and that actual cash out the door will trickle into 2018. If you think about something like Stockman's, we're about $1.1 million to that, through the 6-month period, so there's some spend left. The landscaping is [Dan Mitch] and literarily, they're putting their touches -- final touches on it, as we speak in the porte-cochère, we're trying to wrap up some of that, some of the labor issues there. So you'll see that spend hopefully be done before year-end, and then we've got an office building that we want to build as a part of that. That probably, spend-wise, trickles into 2018 even though the construction will start before year-end.

I mentioned that the hotel room renovations, that forecast and we talked about them that the rights offering, there's also $3 million a year of maintenance CapEx. And like the room refurbishment of Rising Sun was never part of the $10 million, that's part of maintenance CapEx.

That's right, that's right.

And the Crippled Cow was not part of the $10 million. I think we spent $60,000 on it, maybe?

A little above that.

A little above that. And then, and the Oyster Bar was not part of it, because frankly we didn't think about the Oyster Bar until March of this year. And then I came up with the idea and went down to eat at one of the Oyster Bars in Las Vegas, and had to stand in line for 2 hours to get a seat at 1:00 in the afternoon on a weekday. And I thought, hmm, this seems pretty popular. And ran it by John Ferrucci, and he jumped on it, and thought it would work. And so we moved as quickly as possible on that, and it was -- tell me a number, $200,000?

Yes, a little north of $200,000.

Yes, and that was not part of the $10 million. So there is -- some money, we're spending outside of the $10 million. The $10 million really pertained to really, 6 projects

About yes, 6 or 7, that's right.

That was detailed in the prospectus, and as a group, those are what, they're little late. I think as a group, they're very much on budget and the quality of it is really good. But that doesn't stop us from rushing out and hanging a fiberglass cow over a bar if we think it makes sense, and it doesn't cost too much money.

So you've got a couple million bucks of stuff that's at all -- it's not a huge number, but it's not a small number either, and we feel fine with all that's realized, and we've got $22 million of cash sitting on the balance sheet, and only about $12 million needed in normal day-to-day operations. (inaudible)?

Yes, no, that's perfect. Dan, you mentioned growth opportunities and every regional gaming operator, this quarter has probably has talked about those. The difference with you guys is, you're looking at assets that are probably generating under $15 million, and they're passing on those resumes and they're also putting their assets that are generating under that for sale. So how should we think about -- you talked about, you're seeing a lot of opportunities here. How should we think about the returns that you're looking for, the markets that you're looking for, what you would need to see at one of these properties to move forward on that instead of some internal CapEx, like you talked about Bronco Billy's or anything else. Just kind of framing that out would be helpful.

Just to be clear, we don't have to acquire anything to have the stock be -- work out well. I mean, if all we do is execute the stuff we're doing, I think we have a shot at getting us up to like $25 million EBITDA a year. No promises, but I think we have a shot at that, the next few years, just with what we've got. And if we can get to that, and the company's then worth 8x cash flow, like Isle of Capri was recently sold for, it by then, our debt would probably be down to $70 million or $80 million, and the stock doubles or triples. So I mean that's, that's like don't screw that up, okay? I'm the biggest shareholder here, and I don't want to screw that up. So then you start looking at deals people bring to you, and you start off with the basis of, we do not want to screw up what we have. But sometimes you find something like Cripple Creek, where I think it was a great acquisition, and it's not only earning what we believed it would when we acquired it, but we've now figured out that it's actually got a big growth opportunity side of it that was even bigger than I think we thought it was when we bought it. And so sometimes you find it. I will tell you there's another one, and you're right, there's a lot of, kind of small deals that would move the needle for us, but they don't move the needle for others, so it's kind of nice, because we don't have the competition. But there was a small casino, stable business that we looked at, that we could have bought for about 6x cash flow, made a little bit of north of $1 million a year, and we went a long ways down the road at looking at it. And one of the things we stumbled into in the due diligence was that they're under the 50-employee limit, it's owned by a family. And they do not provide health care to their employees. And under the American -- the Affordable Care Act, if you have more than 50 employees, you must provide a health plan, and that's not cheap. And so if we acquire them, those employees who are going to get a health plan, which, I guess, is all fine and good, but that meant the earnings weren't where we thought it was. We head to the seller and said, we need an adjustment on price, because there's additional cost that we weren't aware of. And they refused to make an adjustment on price, so we backed out of the deal and walked away, and that's where it stands. So I mean, we're careful and we're very disciplined, and we don't have to do anything, but we look at a lot of stuff and if we find something where we think we can make a good return on investment that's not putting the company at risk, not putting our basic story at risk, then we'll do it.

Yes. We are extremely diligent, Chad, when it comes to kicking the tires. And Dan's right, we've gone out of our way to make sure that we are not overpaying for anything. We -- I can think of 2 things in recent memory where we were politely excused from the project for refusing to budge on our price. And that's quite all right, I'll tell you that. We, if you think about the percentage as a company that this management team and this Board of Directors owns, it's in the mid-teens. And Dan's right, we go in to work every single day with the mantra of, don't mess it up, and let's just drive the stock price higher. So that's goal #1.

Yes, having said that, I will say if there's something I think our team has -- is pretty good at is, finding the opportunities to improve properties. When I came in, I felt we were going to end up closing Rising Sun. The cash flow of that, it just plummeted over the years and got down to almost zero. And over 2 years, we've turned it around and now, especially with this ferry boat and some of the other things we're doing, it's actually a pretty good growth vehicle for us. And so some of these other wins, the -- these big companies are trying to sell some small asset, and we go into it, look at it, and say, what can we do with this? And it's actually a little surprising to me how often -- maybe it's a function of the casino business, how often big companies kind of ignore the small things because they think it's not worth chasing. And, whereas in the hotel business, which I also used to follow as an analyst, a company like Marriott, they create teams of people so that somebody finds an opportunity to build a Fairfield Inn somewhere. They jump on it, and they don't think of it as being too small, they know if they built 500 Fairfield Inns, it moves the needle for them. And the casino business never developed that sophistication, and I think that's actually good for us, so.

We'll take our next question from Jim Devlin with Henley and Company.

I had a couple of questions. As far as Cripple Creek, just for clarification, the (inaudible) family at Monarch, the Hotel Casino Tower they're building there is, I think almost $250 million? And...

Oh, am sorry.

It's okay, but ...

I'm confused -- I'm confusing what I think they might be earning.

Right, yes, that's about correct. And Ameristar's doing about $70 million EBITDA. So -- but if you look at Cripple Creek, right, comping it kind of Monarch, one of the slides in the Monarch deck is, by far, Black Hawk as a comp to Cripple Creek. I think they do approximately the same adjusted gross gaming revenue as Reno does. Reno's got like almost 30,000 hotel rooms and Black Hawk only has, I think at this point, about 1,100 hotel rooms. So if you divide that by the room key, they're coming up with like almost $660,000 per available hotel room key. So my question is, how many hotels are in Cripple Creek right now? How many rooms? And what's the adjusted gross revenue, the total spend, say in Cripple Creek as a comp?

I don't have my paperwork in front of me, but my recollection is, that there's more like 500 or 600 rooms in Cripple Creek. And frankly, a 1/4 of those are in one place, and I visited those rooms and they're really small and pretty beat up. Most of the others are in small places -- and like, we have 14 rooms that are literally on the roof of our casino, and they're okay, and they're some of the nicer rooms in town. But if you went to AAA, I'm not sure -- I know you wouldn't 4 diamond, and I'm not sure you'd get 3. And then we have 10 other rooms in a building a block away, which counts in the guest room count and I look at those rooms, they're so small. It's a historical building. I am convinced it was a bordello earlier in its life. I'm almost embarrassed to be putting anybody there. And the former high school was converted into a bed and breakfast, which everybody say is like the best hotel in town. Well, I stayed there. It's okay. It's a bit like staying in your elementary school classroom, it's a little weird, right, it's -- literally chalkboards on the wall. And I guess, that's my point, is there -- like if I lived in Colorado Springs, there is not a hotel at Cripple Creek where I would take my wife for her birthday.

Anecdotally, the people from Cripple Creek would love to come and gamble there, but they can't stay overnight. So I mean to your point, I mean, clearly you're barking up the right tree. My question is, I think you were stating the plan for 100 rooms. Is that because you're saturated at that amount? Is it zoning or if you wanted to, do you have enough property to even build more than 100 rooms, if you wanted to?

We have enough property to build more than 100 rooms, and we're kind of dealing with the issues of, maybe it should have meeting room space, which wasn't part of the original plan. Maybe we should add more parking, which wasn't part of the original plan. And part of the reason I was up at Blackhawk was looking at the same numbers you're talking about, I kept looking at it and saying, wow, that's -- just on paper, you look at the size of Denver and the size of Colorado Springs, and you look at what's going on in Blackhawk. I mean, Monarch, if we're right, that $35 million is about the EBDIT. I think the total EBDIT of Blackhawk is $20 million. All the casinos combined, and we're 5 of the $20 million. I think -- probably not even $20 million, right?

So Cripple Creek's got some room to grow if you can add room capacity, right? I mean, you're talking about hundreds of rooms (inaudible) .

Well, we're the guys with enough land to do it. With that deal, we've quite a bit of land. That was, we've kind of detailed what we own, and we already own quite a bit of land. We don't have to acquire more land. We lease, with the right to buy. So we have the room to do it. What is trickier though is Cripple Creek -- and rightly so, is very sensitive about its historical status. It has much more of a historic downtown than does Blackhawk. And it's careful, you can't, like -- if we went in and proposed a 30-story tall tower like the Ameristar in the middle Cripple Creek, I think we'd get turned down, and we'd be right to be turned down, because it would change the whole character of the town.

So you need something that -- so you would need to build an amenity that kind of maintains the historic integrity of the town?

We want to design something that is -- provides all modern services, that feels like a 4-star hotel that maybe has really good restaurants in it and ties into our existing casino really well, but isn't jarring when you go into town. We don't want to -- we want to complement the historic nature of the town, not try to make it Las Vegas on the mountaintop. And so that takes a lot of thought and frankly, a lot of renderings and in fact, just the other day, our architect sent me a rendering of our hotel that was black. And I said, there's no chance we're building a black hotel in the middle of this town. And actually it is just butt ugly, change the color, and they argued a little bit and I said listen, I won't build a black hotel in this town, but we won't get approval to build a black hotel in this town. It looks like Darth Vader's hotel. I want a hotel that blends into the town and matches the color of the town, which is predominantly brick. And so we want something that like, you come to Las Vegas, and you see Bellagio. And yes, it's a little starring -- stunning, because there's all these fountains and a lake in front of it in the middle of the desert. But it's kind of a pleasant surprise. You look at it and say, that's a pleasant building, that looks nice here, and in this is kind of a cool thing, and I want the same thing. I want you to find a building in Cripple Creek that blends in, it feels right in the place, but you look at it and say, that's where I want to stay. That looks really nice. And so that's what we're getting to, and good design isn't done quickly. I got -- we must have had 10 meetings, now? And you'll have a meeting and people go in and they think about it, they think about it, and you come back together, and you discover different things, and you say, what if we did this, what if we did that? And so we're still pretty early in the process of that, and then of course, I have to get lots of government approvals, going to have to go get financing, so this is a little ways off. But I do think there is a good opportunity there, and we will get around to it at the right time, when we have the design done.

Okay. And then, I just had 2 more quick questions. As far as the debt is concerned, you've got 2 patches of that debt, Mr. Fanger, right? One's very high yield and then the one's more moderately priced? Can you, instead of having to dig it out, the higher patched debt, what's the implied interest rate on that?

So we're at 13.5% on our second lien and then our first lien is at LIBOR plus 4.25, and it's $55 million of -- on the second lien, and there's about ...

$45 million, there's $43 left.

$40, $43 left, yes.

Okay. So I mean, so rate -- go ahead.

The blended is...

Blended rate is what about?

About 9.5.

9.5, okay. So I mean rates -- I mean you guys are under kind of that lending cap or at or about that 5x level that would avail you to the capital markets on a refi. It wouldn't be the biggest bond offering by any stretch. Do you guys have any sense or any feel if you talk to any lenders about, kind of what a more amenable rate might look like?

There's probably not a whole lot I can tell you right now, Jim. What I can tell you is, looking at -- right now, if you look at the trailing leverage, we're a tad above that 5x, kind of looking out, I will tell you, we are extremely pleased with the results we've seen out of our properties in July and the first half of August. If you could see -- just step back a second, all those properties were under construction for the past several months. At Grand Lodge, we only had a 1/3 of the casino open for us. And so it's nice to now be free of cranes and jackhammers and all that stuff, and really have fresh properties, impressive new additions and all of that moving forward. So I'll tell you, looking from our seats here, we feel better about this company than we ever have, quite frankly. It's -- I don't mind where we're sitting right now. It's probably the best thing to tell you.

So I mean just kind of thinking forward, I mean, are you guys better off as far as a rate kind of stacking and racking EBITDA as the quarter strip forward? There's no gun to your head, right? Should you -- the more you pound under 5x, could that be that, there were obviously, or -- I don't want to put words in your mouth, but that would be advantageous to you, as far as hitting the debt markets?

These are discussions we have with lenders virtually every day. The second lien debt has 4 years to go to maturity?

Into November.

It's 6 years from 2016, so 2022, technically although --

2022, but it accelerates to be 6 months after the first lien debt, and the first lien debt is May of '19.

May of 2019, that's right.

Right. And so if we can move back the maturity on the first lien debt, the second lien debt automatically moves back.

That's right, good.

And so, one discussion, in terms of maturities, I think we're fine. Obviously, with an improving credit, I think our existing banks would probably move that maturity back pretty readily. But you do start looking at it and saying, well, are we better off waiting or not? I will share one of my frustrations is, when you look at our ratios and then you go and look at the borrowing cost of other companies with the same ratios or worse ratios, they borrow money a lot cheaper than we do. And we keep getting told that well, part of your problem's you're so small. And it's actually not a diversity issue, we're more diverse than most of those guys or a lot of those guys. But the fact that it would be $100 million in size instead of $200 million or $300 million of size. And then, I've had bankers say, you need to go acquire something so you can borrow money cheaper. But then they show me some crappy acquisition and say, well, I'm not going to do a bad acquisition just to save a point on the interest expense, so -- but that's -- and it's a little frustrating because it seems to me that the price of debt should relate to the risk the lender is taking, which relates to the ratio and the diversity of the business. But if (inaudible)

Right. I mean, what's going on in gaming is more of a financial alchemy-type of -- creative cost-cutting and synergies with much larger debt deals, obviously. So you guys are kind of...

I think some guy out there managing money, he's got a $1 billion to invest, and he wants to spend his time on analyzing companies where he can make bigger investments, because it's a more efficient use of this time. And I'm looking at it and thinking, it's almost like when Mike Milken wrote his thesis at Wharton Business School, where he said a well diversified portfolio of junk bonds would get a higher return than investment-grade bonds. It seems like a well-diversified portfolio of small obligations, of small debts, would get you a much better return than investing in bigger names. But I think the number of people willing to do the smaller deals is still pretty small.

Okay. And then the last question, obviously pertains to the Northern Nevada assets. I mean, the news coming out of Reno these days is just gangbusters, and I think El Dorado just reported they announced their July was the best that they've had in 10 years, and name a Silicon Valley company, they all seem to be moving into that area, in the Washoe County. As far as Fallon and Lake Tahoe go, I mean, the economy in Northern Nevada is growing like a weed. I mean, how do you -- I mean, you guys are kind of outside of kind of, kind of the core of Reno, and the trick the Tower Reno Industrial Center. And then, I think also in Fallon, there's some movement around closing airbases and making that base larger, as far as the U.S. Defense Department is concerned. Can you talk about kind of the northern Nevada as the population grows? I mean, some of the metropolitan population growth numbers looking out 5 and 10 years for Reno, are amongst the highest growth rates in the country. Should that hit you guys?

Well, and it's really 2 very different properties, but in -- at Reno, we benefit directly from the success of Silicon Valley, because a lot of those people have come up and vacation at the Hyatt, or they'll buy multimillion dollar homes in Incline Village. And so, when they do well in the Silicon Valley in general, it's good for us. But then we do have an important secondary market for people in Reno who drive up to the lake, because it's a pretty place for them to go. And so we do get some of that spillover. So yes, on that property, it's a pretty sound, yes. That everything that's happening in Northern Nevada is good for us. In Fallon, a little less clear, because we're about an hour from Reno and the Tesla plant is 0.5 hours from Reno in our direction, and a lot of those other projects you're talking about are in that same industrial Park. So we -- and I think that is good for Fallon, but so far, we've seen kind of the competitive impact in terms of trying to get construction done. It's been a bit of a challenge. I think eventually, you're going to find people choosing to live in Fallon or Fernley, rather than Reno because it's an easier commute to work at the Tesla plant and so on. That hasn't really happened yet, but I think it will eventually. Fallon is an agricultural community, which does quite well. They grow alfalfa, and there's stuff there. It's also, believe it or not, a retirement community. Guys from the Navy go back to retire there because they like the weather of the high desert. And then the Navy base is a pretty big business. And the Navy never tells you exactly what their plan is, but they seem to be building something really big out of that Navy base. And I don't think they'd do that if they were going to close that particular base. And it's a, and some of you may notice, I'm a pilot by hobby, and if I fly from Las Vegas to Fallon, I have to go way out and around central Nevada, which is where the nuclear test site was, and Yucca Mountain, and, I mean they set off 500 bombs in the air over Central Nevada, so it's not place anybody lives. And part of the reason the Navy moved the Topgun school from Miramar, which is where it was in the movie, down near San Diego, was they couldn't fly at supersonic speeds over California, and even off the coast, it was a bit of a problem. And if they did, like one of the things they do, they throw chaff out -- if you got somebody chasing you, and they're locked on, you throw chaff out the back out the jet. Well, chaff is basically shredded aluminum foil. And in California, if you throw chaff out of the back of your jet over the ocean, some seal might eat it and choke on it and die, and they you'll have the California Coastal Commission up your butt. And Central Nevada, you throw chaff out the back of your jet, nobody cares, nobody's there. And you can be going 1,500 miles an hour, sonic booms, nobody's going to hear it. And so I think this is a very unique place to train. It's probably the only place in the 48 states where you can fly at supersonic speeds and nobody cares. And so at the south end, you have the big Nellis Air Force Base here that uses kind of the south part of Central Nevada, and that's it's very important to the Air Force. There is a place called Indian Springs, that's about 20 miles outside of Las Vegas. That's where they practice the drones, and when you see movies of a guy in a trailer flying drones, those guys live in Las Vegas. They drive out to Indian Springs and fly drones over Afghanistan from here. But when they're practicing, they fly them over Central Nevada, because there's nobody else flying out there, so if they screw up a drone, they're not going to hit me or something. And then the Navy has the north end, it kind of comes south from Fallon. And then, right in the middle of that place is the same famous Area 51 where Lewis' dad used to work, and couldn't even tell Lewis what he actually did for a living.

Now everyone knows Dan.

I don't know what your dad did for a living out there, but it's a super-secret Air Force Base that the government would not admit existed until the last couple of years. And so I think we're pretty safe from base closing and in fact, if anything, I think it's getting bigger, and I think that's a positive. But I don't have a way of proving that.

Jim, we've got to shut it down. We're over our allotted time. So apologies there but, apologies to everyone for going a little long, but that's really our enthusiasm for everything that's going on around here. Do you have any closing words, Dan?

No. Just thank everybody for their support, and we are excited about it. Sorry I get telling stories a little bit, but I hope we answered everyone's questions, so.

Thank you, guys. See you next quarter.

That concludes today's call. Thank you for your participation. You may now disconnect.