Full House Resorts, Inc. (NASDAQ:FLL) Q1 2023 Earnings Call Transcript May 8, 2023

Operator: Greetings, and welcome to the Full House Resorts Inc. First Quarter Earnings Call. At this time, all participants are in a listen only mode. A brief question-and-answer session will follow the formal presentation . As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Lewis Fanger, CFO of Full House Resorts. Thank you, sir. You may begin.

Lewis Fanger: Thank you, and good afternoon, everyone. Welcome to our first quarter earnings call. As always, before we begin, we remind you that today’s conference call may contain forward-looking statements that we are making under the Safe Harbor provision of federal securities laws. I would also like to remind you that the company’s actual results could differ materially from the anticipated results in these forward-looking statements. Please see today’s press release under the caption forward-looking statements for the discussion of risks that may affect our results. Also, we may make reference to non-GAAP measures such as adjusted EBITDA. For a reconciliation of those measures, please see our website, as well as the various press releases that we issue.

And lastly, we’re broadcasting this conference call at fullhouseresorts.com, where you can find today’s earnings release, as well as all of our SEC filings. And with all that said, I kick it off here and then turn it over to Dan for some clean up. But the big change in the quarter you probably saw was we did change the segments. I think you guys are used to it by now. It’s pretty consistent with what you see at a lot of other gaming companies. But we essentially have grouped, regrouped our segments by geography, really a function of our growing scale and expansion. And we think that’s the appropriate way for you to look at it, because that’s the way we look at it behind the scenes. The Temporary opened quite strong. We had $3.6 million of EBITDA in the quarter, 34% margins.

That’s in its first one and a half months of opening. So not a full quarter of results there. Results, we think will continue to improve as we continue to expand the amenities and offerings at the property. On April 3, we were permitted to start to open tables at 10:00 a.m. Instead of 02:00 p.m. previously on that day, we were also permitted to increase the max table bets from $1,000 per hand to $2,000. On April 4, I’m sorry, April 5. We opened Asia-Azteca, our second restaurant for dinner service. Quite good food, by the way, being there many times and encourage you to do the same the next time you guys are up in the area. And then we managed to cross a few records here in April, obviously, the property continues to ramp up, but in April, as an example, we had our best gaming day so far.

It was the first time we crossed $0.5 million in daily gaming revenue. We had our best weekly table games revenue in the month of April. We had our second best weekly table games revenue in the month of April. About one and a half weeks ago, we had one of our best slot volume days since opening weekend. It was the first time we had a single hour where we crossed $400,000 in coin in. And all of that is as that property continues to ramp up behind the scenes and so here this upcoming weekend starting on May 12 what we’re expecting is to go 24 hours on weekends and then the removal of all table limits. So you can bet whatever we set the bets at or maximum bets at. So some more change to come here in the nearer term. Current team count is sitting at over 500 people and the database in real time is over 25,000 people and closing it on 30,000 people.

So doing quite well. Circa Sports, the sports book itself. Circa got approved by the Gaming Commission. They’re still waiting on their software to be approved and they actually can’t start operating until we receive our permanent operating license which we hope to receive here at their upcoming meeting in June. But once that’s all done then Sports can begin and we’re expecting that to start perhaps in August of this year. Looking at the other properties, Silver Slipper, just wanted to flag that last quarter we noted some overmarketing by a competitor. As we exited the first quarter that overmarketing went away and our market share returned to normal levels. We also were affected by some adverse hold both on the table games and on the slot side in the current year period, Rising Star had a $2.1 million free play sale.

We do that every year. It has fluctuated between quarters, for what it’s worth. So this year we did it in the first quarter. Last year we did it in the second quarter. And so just make sure for modeling purposes that you are adjusting your second quarters for that $2.1 million that’s already in the results. Now, outside of that, Rising Star had a pretty decent quarter, realizing that they’re still absorbing the impact of that new Churchill Downs facility nearby. The other properties, not a whole lot to tell you. I’m sure you saw the stories about record snow fall up in Northern California and by Lake Tahoe and Colorado as well. That all said, Dan, you want to do some cleanup or talk about Chamonix?

Daniel Lee: Yes, a few things. First, I would point out that we comfortably exceeded the expectations in the quarter with $10.1 million of adjusted EBITDA. I think the consensus was $7.5 million and I think the highest single estimate out there was about $8 million. Even if we take out the sale of Free Play, we met the highest estimate that’s out there. And of course, the star of the show was The Temporary in Illinois, which was open almost exactly half the quarter, like Lewis said, and had EBITDA of $3.6 million. If you just take that and multiply times two, that’s $7.2 million and multiply that times four, it’s $29.6 million, which is about what our whole company earned last year. So pretty significant to us. And it’s still only partially open.

It had about 25 table games open in the first quarter. I think today it’s about 28 at its maximum. The license permits 50. We have a request awaiting approval to expand to 38 games. We have the dealers to do so. So we’re waiting for the Gaming Commission on that. We opened originally with limited hours of operation set by the Gaming Commission. We were only open from eight in the morning until four in the morning. So we were closed four hours a day, and then we shrank that to two hours a day. Now, as of May 12, it’ll be at our discretion, and we’re going to be 24 hours day on weekends initially, and then probably go to 24 hours a day every day shortly thereafter. The betting limits started out at $1,000 a wager in the first quarter. It’s currently $2,000 as of May 12, it’s unlimited, it’s at our discretion.

And in the food and beverage area in the first quarter, we only had one restaurant open, and even then, only for dinner. In early April, we opened the second restaurant initially for dinner five nights a week. We’re gradually expanding the operating hours of the two restaurants as the customer demand builds and as we hire more people. The third restaurant we expect to open this summer, it’s a diner facility. That’s late getting to us, but that’s actually okay because we’re still building the business at the other two. And our mailing list started with near zero people on it. Today it’s over 25,000 people. A property of this size, I would expect it to be 40,000 to 50,000 of kind of active people on the mailing list eventually. So we’re about halfway there.

That’s important in making your, you can market much more efficiently once who gambles, you don’t have to mass market as much. And then just employees, we opened with about 400, we’re now over 500. We think will be 700 plus when fully operational. So we’re making good progress there. So then going forward, it’s going to be a full quarter, full operations, full hours of operation, marketing, efficiencies. So we think it will build from where it is, but it’s already a pretty good number. In a very big way, this quarter was a turning point for the company. We borrowed quite a bit of money a couple of years ago to go build all this stuff. And the interest expense on all of our debt adds up to about $9.5 million a quarter. Adjusted EBITDA was $10 million.

So we actually covered our interest expense of all $450 million of bonds and $27 million on the credit facility. And that’s despite only having The Temporary for half the quarter and getting less than zero from Colorado. And the cash we’re sitting on is enough to finish Colorado and have it contribute to it as well. And so when you look at it, we’re already producing modest amounts of free cash flow and that’s just going to get significantly bigger as the quarters go ahead. And so if you look at it and say, well, as we have full operation at The Temporary and as we get Chamonix open, we are going to shift very quickly from being one of the most levered casino companies to likely becoming one of the least levered casino companies over the period of about three quarters.

Now, in Chamonix, we had indicated before that we thought the earliest parts would be completed in Q3 and that we may open in stages and be all open by year end. We’ve now made the decision to open the entire property all at once and do it on December 26, the day after Christmas. A few things contributed to this. One is it makes for better opening if everything’s there. You get one shot at a first impression and we’ll be able to do that here. Second, there is a narrow historical building 25 foot wide, that as we got into construction, we found that the roof of it had some structural issues. It’s 25ft wide, thicket had 25 foot beams. But when they built it in the 1890s, they had two 15 foot beams that were nailed together, basically. And so we had to bring in structural engineers and figure out how to support it.

And so now the critical path runs through that building. And that’s important because if we tried to open earlier, we’d be opening with Chamonix separated from Bronco Billy’s because this is a building you have to go through to get from one to the other. And we think it’s better to open in its entirety. And then, frankly, October, November, early December is a very seasonally, slow period anyway. On new year’s eve on the other hand is not. It’s one of the biggest days of a year. And so we’ve decided to focus on getting everything open all at once on the day after Christmas. Importantly, there’s no regulatory issue here like we had in Illinois. We are already licensed in Colorado and we’re operating at Bronco Billy’s. We have a core base of employees which we didn’t have in Illinois, so we don’t think there will be any regulatory issue with us opening on December 26.

Importantly, we also entered into a partnership with Barry and Yassine of Barry’s Prime, which is the restaurant, very successful restaurant that’s in Circa in downtown Las Vegas. Barry and Yassine were for many years the management team at the N9NE Steakhouse at the Palms, which is one of the most successful parts of the Palms. Before that, Barry came from Aureole and he actually started with Charlie Palmer in Manhattan at Aureole’s and then was brought out to Las Vegas when Aureole opened at Mandalay Bay. And Aureole was very successful for about 25 years. It just recently closed, but these guys are kind of James Beard Michelin Star restaurant types. Barry’s Prime was just ranked one of the top 100 restaurants in the country by TripAdvisor, and it’s a fairly new restaurant, so got there pretty quickly.

Aureole had won James Beard Award, I think twice. And Michelin Star Award several times. So our goal is to have the best restaurant in the state of Colorado, and in partnership with them, we think we’ll get there. And so that’s very important to the place. And it’s part of our secret, the primary market for us is always going to be Colorado Springs, which is a million people close to us. Colorado Springs, Pueblo, and Kenyan City add up to be about a million people. But Denver is an important secondary market. It’s about two hours away. It’s closer to Black Hawk than a to Cripple Creek. Although the southern parts of Denver, especially considering Denver traffic, the southern parts of the Denver metropolitan area are probably about equal distance.

And if we can have better services and a more interesting casino than the ones in Black Hawk. We think we can get a significant secondary market from Denver. And not unlike people who live in San Francisco, are actually closer to Reno than they are to Las Vegas. But certainly many people from Northern California end up in Las Vegas. So that’s what’s going on there. Going ahead, Silver Slipper did not have its best quarter, but we’ve altered some of the marketing and I think it’s going to do better going forward. It wasn’t a disaster, but it was a little soft. In Colorado, we’re not making anything. We actually lost a little bit of money last year, and that’s just because it’s got no parking, it’s got no hotels, half places under renovation.

It’s amazing we’re not losing more money, to be honest. And that will turn around when we get Chamonix open, which is now on the horizon. And then the Circa Sports Book deal in Illinois, which is $5 million a year to us, which it alone covers a good chunk of our interest expense. And Circa, there’s a whole bunch of regulatory stuff that has to happen, but we think they’ll be up and operating by August. And we did get the entitlements through the core of engineer to add a tower at the Silver Slipper, but we’re a little busy these days, so it’s certainly not imminent. And we’re actively doing the designs for the permanent American Place, which we expect to open about three years. And guess that’s it.

Lewis Fanger: I think we got everything, Dan. So with that said, let’s go to Q&A.

Daniel Lee: Let me address for a moment. We did change the segment report.

Lewis Fanger: I got that at start, Dan.

Daniel Lee: Yes. Okay. Just as we’ve gotten to be a bigger company, it didn’t seem to make sense to spend a lot of time talking about Fallon separately or Star separately. It’s not possible to invest in only one of our casinos as you’re investing in the company. So it’s more appropriate to kind of show you what the company is doing and we break it out by geographic segments, as most casino companies do. So there we go. Any questions?

Q&A Session

Operator: Our first question comes from David Bain with B. Riley.

David Bain: Great, thank you. And congratulations on the Waukegan margin ramp. That’s certainly faster than we anticipated. I think on the last call, there was actually mentioned that Waukegan could hit 40% margins over the course of time. And just looking at what you accomplished in the first 40 days or so, there is that ramp to 40% one could that be conservative that 40% even as amenities come on, that may stabilize that ramp for a little bit, but after fine tuning, I mean, and in terms of sort of overall timing to get there, has that changed internally, in your view?

Daniel Lee: I think what you’re referring to is, I was referring to 40% of gaming revenue, it could be 40% of gaming revenue.

David Bain: Okay. So we’re pretty at the 35%, sorry.

Daniel Lee: More restaurants and get more food and beverage revenue. You don’t make much margin on the food and beverage. But on the other hand, in the casino, it’s predominant slot machines so far as it is at all of our properties. And then the tax rate in Illinois on table games is significantly less than it is on slot machines. So we’ll have pretty good margins on tables and everybody has good margins on slots. And then there’s no hotel here, there’s no golf course. Some of our other properties have these other things that are low margin businesses, this one doesn’t. So it should be a high margin business.

Lewis Fanger: Yes. Because if you think about it, Dave, that food and beverage really is break even, right. So it ends up bringing down your overall margin if you look at a consolidated basis. The only thing I should tack on there is as we ramp up these other amenities that are in the mix, whether it’s the additional restaurants or the additional table games hours, there’s probably a little bit of margin degradation there too. And apart from just having more lower margin stuff like more food and beverage in the revenue line with not as much on the EBITDA line. That will degrade margins a little bit and just the normal ramp up will degrade a little bit too. But I think in the longer run, it’s a property that should have margins in the 30%-ish.

And I think even our GM there would tell you, as he’s told me many times at his old property, he pulled 40% margins and he would love to get 40% margins, and we would love that as well. But it’s more of the stretch goal than it is the easy goal.

Daniel Lee: Well, the other thing I’d point out is in the expenses in the quarter we had a lot of mass advertising. We were running TV ads; we were running a lot of billboards. And as you build a mailing list, you can focus more specifically on people who are known to gamble. And so your advertising expenditures and marketing costs get much more directed and much more efficient. So that will happen over time. We even had trains that we wrapped on the commuter line with the stuff for the property, which is once you have a mailing list, you don’t have to do stuff like that. It’s kind of like I was explaining to advertising agency. It’s like going fishing in a lake you’ve never been to before and you have to go throw your line out in all sorts of different places and you start to learn where the fish are and then you just go back to those places.

And in this quarter, we were throwing our line all over the place trying to find out where the people are who gamble and who they are. And as we zero in on that, we’ll become more efficient.

Lewis Fanger: One last thing, if it helps you, Dave, for April, to put it on perspective, our margin, we haven’t closed the books yet there for April, but it’s probably going to be in the high 20%, not have a three on it. But that’s in part because we ramped up that new Asian restaurant. So a little more color there for you to help you out.

David Bain: Yes, no, that’s very helpful. Thank you. And then have you observed anything from running The Temporary, at least to date, that could be incorporated in the permanent build as either an amenity or maybe something you want to eliminate to further maximize sort of the long term potential in Waukegan? Or is the roadmap pretty set there?

Daniel Lee: Oh, no, we’re learning stuff every day. And I could write a book about the stuff we’ve learned in three months, but is it dramatically changing. Learn some stuff. You do learn stuff, and frankly, just thinking about it as you work on it and frankly, we hired as the architects, the same firm who did the Venetian and Palazzo and the Yaamava. Yes, I wasn’t sure how to pronounce it. Yaamava Casino and a bunch of other stuff. Very experienced architects by the name of WATG that specialize in hospitality. And frankly, they’ve come back with some significant improvements in our design, and some of them are improvements in quality and some of them are improvements in efficiency. So it’s a process. But yes, we are learning a lot obviously so.

Lewis Fanger: The table games demand has actually been pretty robust. When we were opening at 02:00 p.m., it was kind of nice to walk the floor at 1:45 and see a lineup of people waiting for those tables to open. And so then when you went to 10:00 a.m. openings, you kind of started going through that same bid all over again. That’s been a nice pleasant surprise to see, especially given that the gaming tax rate there is fixed at a flat 15%. On the slot side, we’re certainly learning our marketing day by day, and that’s why in April, you saw us hit some new records where we’re tailoring the marketing to what the locals are responding to. But the other thing that I forget sometimes, so you probably forget about it too, is that slot customer is one that is used to getting their free play in the mail every week and they’re used to their usual things.

And when you don’t have a database, it’s hard to offer that right. It’s not surprising. And so from February to March to April to May as you continue to build that database, you continue to build your slot player too. In the month of May, just at the start of this month, we had our first Kiosk games where you swipe your card and you get your bonus points or whatever it is. So this May is probably going to be the first full month where you’ve got your full breadth of normal slot marketing amenities there and live. And so as that database continues to expand, I think you’re going to see just continued change in that property too.

Daniel Lee: Actually, it’s funny. There are two things we’ve learned that one of which we couldn’t do anything about. The other one maybe we could have. And that was one we did go through the trouble to have these projectors project interesting visuals on the tented night. Otherwise it would have just been a deep hole. And that cost us close to a $1 million all in. But when you drive by at night, it really catches your eye. It’s pretty spectacular. During the day, it looks like department of Public Works parking garage. I mean, it’s very unimpressive during the day, and there’s not much we could do about that. I mean, it’s a temporary building, and so the permanent will catch your eye. But if you drove by this during the day, we’re trying to figure out how to market to say, you got to come inside, because when you step inside, it’s far nicer than it looks like it will be from the outside side.

And so that’s been one of our interesting challenges, that there wasn’t much we could do about it. I’m glad we went through the trouble to shine lights on at night because that helps a lot. The other thing was the choice of name, which was me choosing the name The Temporary. And I wanted to choose that name because I didn’t want people to think that this was American Place, because American Place will be much nicer. But marketing The Temporary is actually kind of an impediment because people are like, well, why do I want to go to this place? It’s only temporary. It’s not that nice. It’s just temporary. And it’s even been a little bit of a hurdle with employees, like, well, I have a permanent job now. Why do I want to go to work at a place called The Temporary?

And so it’s kind of like with the employees, you say, listen, we’re hiring you for American Place. It’s a permanent job. It’s just a temporary structure. So the use of The Temporary name, which is a little tongue in cheek, and it was to not confuse people on American Place being bigger and better, but in the meantime, it’s been a little bit of a challenge.

Lewis Fanger: Yes, the pleasant thing is people walk in the door and overwhelmingly, people walk in and their jaws drop and they’re just amazed by the place. It’s very, very different on the inside versus what you would expect when you see it on the outside. And look, I hear everything that Dan said, but at the end of the day, A brand new property anywhere is going to have its own marketing challenges as you brand the property. So this was a very, very good start to us. We’re extremely pleased with Q1. And nothing has phased our ability or our thinking as to what this property can do in the long term. It’s there in full.

Daniel Lee: In effect, we built the industry as big as speakeasy. If you go down to —

Lewis Fanger: Well, hidden secret, yes.

Daniel Lee: When cosmopolitan has all these speakeasies, and you go to the back of their food court and push an emergency exit door, and lo and behold, there’s a bar back there that’s always jammed called Ghost Donkey, right. And it’s like somehow, they had to get that word out. And our casino is kind of the same thing. You’re driving by what looks to be a place where the Department of Public Works is storing salt for the winter, and until you walk in the door, you don’t realize how special it is.

Lewis Fanger: Yes, okay. Sorry for talking ear out.

Operator: Our next question comes from Edward Engel with ROTH MKM.

Edward Engel: Hi. Thanks for taking my question. Two quick ones for me. The first one is on The Temporary. Any update on what the GGR was in the month of April and then the earliest directionally versus March, and then for the opening date of Chamonix. How set in stone is that December 26. And I guess at the same time, what point this year are we going to start to see less disruptions at the profitability property as well? Thanks.

Lewis Fanger: I don’t have it in front of me, Ed, but it’s going to be low seven, if I recall correctly. April is always a strange month for a lot of markets because you get Easter in there. We had some snow days there on the week end, and then you had what I’m told is a big deal Orthodox Easter as well. If I were in your shoes, I would look at the opening of additional tables as the next big move for gaming revenues there more than anything else in the near term.

Daniel Lee: And the changes on May 12.

Lewis Fanger: And the changes on May 12, absolutely, yes.

Daniel Lee: Pretty important and frankly I don’t understand the Orthodox Easter argument. So the property told this Orthodox Easter kind of hurt him. And I’m like, really? How many Orthodox Christians do we have gambling at our casino? But anyway but regular Easter definitely slow. But property is doing a couple million a week pretty consistently. and then Bronco Billy or the Chamonix, Bronco Billy’s because there’s hotel rooms above the parking where parking garage is actually completed. But the elevators lead down into the Chamonix casino which is not hooked up to Bronco Billy’s. So we don’t have a way to get parking for Bronco Billy’s until we open Chamonix. And that’s the major thing for it. Now when Chamonix opens, we not only have the garage but we now have large surface lots behind Chamonix and we will go from having the least parking in town to having the most parking in town.

But it all happens when Chamonix opens because the way it’s connected. So now the summer is seasonally more important than the winter, so we hope to make some money at Bronco Billy’s this summer. But I think the big turn won’t happen until we really get Chamonix open and that’s a pretty certain date. I mean, there’s no regulatory issue, we’ve thought long and heard about. We got all the construction people to sign off on it. They’re actually turning parts of the building over to us as much as two months before that. Now then we have to put the furniture in and all that, which takes a while. We’ve gotten approval of the fire authorities to be able to do that before we have a regular occupancy certificate. We have to run a fire watch and all this stuff and we will use Chamonix like the completed facilities in Chamonix to train people.

And no, it’s a pretty certain date at this point and like if you wanted to reserve a guest room for that last week in December, we would take the reservation at this point.

Edward Engel: Helpful. Thank you.

Daniel Lee: Having said that, I got to make sure they’ve opened up the website, but yes.

Lewis Fanger: I don’t think we have quite yet.

Daniel Lee: I’m sure Baxter is listening on the call, probably scrambling to do that. Any other questions?

Operator: Our next questions come from Chad Beynon with Macquarie.

Chad Beynon: Good afternoon, Dan and Lewis. Thanks for the color and nice quarter. In terms of the Silver Slipper, this is a property that generated exceptional results back in ‘21. And now we’ve had a couple of quarters of just really tough comps and the performance has come down a little bit. Dan, you talked about potentially doing some things when the focus is removed from some of the other projects right now, but can you shine a little bit of a light in terms of just generally what’s going on in the current macroenvironment? If trends have kind of leveled off there? Obviously, we all know that southern region generally in gaming probably outperformed. I think that was fairly uniform, but just trying to get a sense of where this settles out in the current macroenvironment. Thanks.

Daniel Lee: Well, I think Boyd mentioned they saw weakness in Mississippi and Louisiana in their quarter. I’ve actually been wondering you can pull the results by property from Louisiana and both boomtown on the West Bank of New Orleans and Treasure Chest, which is not far from there, were both down strongly and we’re not sure why. In their case, they’re down like 20% each. We’re not down that much. It’s a little soft and we’ve had better quarters. But I think the main thing we’ve been playing against is that Penn went and put some money into the Hollywood, which is down the street from us. So they opened a refurbished spa and a Bakara room and a noodle bar and they got more aggressive with their marketing. And so we’ve responded now with some new marketing programs and we seem to be holding our own into April.

So I think it’s, and actually, as the company shifts, I mean this is part of the benefit of growing the company. I mean we used to count an awful lot on the Silver Slipper. Now the Silver Slipper can have a soft quarter. And it can easily be made up for by The Temporary. And when Chamonix opens, the Silver Slipper is going to be probably our number three property, not number one. And we’re actually looking now like insurance rates continue to go up, the insurance companies taking such a hit on different hurricanes and so on. And we used to have the Silver Slipper super over insured because the whole company was relying on it. And we may cut back on that some now. We’ll still have it adequately insured, but if it got hurt by a hurricane, the company would be fine.

And so we may be able to do that going forward to reduce the growth that would otherwise continue in our insurance expenses. But anyway, it wasn’t a horrendous quarter of the Silver Slipper. It was just soft.

Lewis Fanger: Let me help you out a little bit there, too, Chad. Look, the property, when it did $30 million of EBITDA two years ago, we were out there telling people it’s not a $30 million a year asset for what it’s worth. If it’s doing between $15 million and $20 million, I’m disappointed at $15 million. I’m looking at Dan to make sure he agrees with that. But if you’re doing in the ballpark of $20 million, it’s probably the right spot to be. And is it a little more on the disappointing side? The answer is yes. We did have some slot and table hold issues that I briefly mentioned at the top of the call. But to put it into numbers, table games hold was 2.9 percentage points below last year’s first quarter. That equates to $230,000 of lost revenue if you would have kept the same flat hold percentage. And then on the slot side, we’re about 37 bps lower, which is about $800,000. So those aren’t insignificant numbers either, for what it’s worth.

Chad Beynon: Okay, great. Thanks.

Daniel Lee: I mean it’s interesting that people talk about the region being weak. And we’ve been okay. We’re a little weak, but we’ve been okay. But I do kind of wonder whether inflation has a bigger impact there than in other parts of the country, because the per capita income is lower in Mississippi and Louisiana than other parts of the country. And so if you add something to the cost of necessities, it might have a bigger impact on household income. But that’s just a guess. I don’t really know why that region would be weaker than any other region. And we are, and from what I’ve been able to see from Boyd and Penn, with the exception of Penn at Hollywood, I think we’re doing better than most in the region so.

Chad Beynon: Good color. Thank you. Wanted to touch on Table Games opportunity at The Temporary. So you talked about the bet max limits, the number of tables, the hours. Where do you expect tables versus slots to be? And then the second part of that is when Circa opens in August, should we expect for some nice demand to come in on the weekends during NFL season, September, October, et cetera, through the fourth quarter from people who are maybe going in to watch the games at this, what appears to be one of the bigger sports books in the county, and then maybe go over to the table games, given that’s kind of their customer demographic. Just trying to figure out what the opportunity could be there on table games later on in the year.

Daniel Lee: Well, on your first question, we opened with 25 table games — 28 well, eventually we’re allowed to have 50. But when you go from 28 to 50, you don’t double the revenues because you don’t need 50 games on a Tuesday morning, but you may use all 50 games on a Saturday night. And so as you double the number of table games, maybe the table game revenue goes up 50%. I’m just picking the number off the top of my head. When all is said and done, I still expect slot machines to be probably at least two thirds of the revenue of the property, but the table games will be more, whereas in our other properties, slot machines are 80% to 90% of the revenues of the property. And then, because it’s a lower tax rate, I think we can make better margins on table games in Illinois than we can in the other markets.

The sports book, it’s still kind of a new area. The fact that you can make a bet on a game on your iPhone from anywhere in the state reduces the need to come to our property to make a bet. Now nevertheless, the sports book, especially the way Circa does, it, creates an ambience that people like. I mean there’s probably no better place to be during March Madness than sitting at Circa’s sports book. And eventually American Place will have a sports book that’s very similar and so it becomes an amenity that people want to go to almost like a nightclub or something. And so that’s important. And of course, we participate in the online betting, so we will benefit from that. And there’s a minimum of $5 million a year. I’d be surprised if our half of the onsite sports book is $5 million a year.

I think the online is probably bigger. But is it a nice amenity to have in the casino? Yes, we’re anxious to have it open and I think it will draw some people, but it’s still kind of an unknown thing. But in general, where states have online betting and people like when Louisiana allowed online sports betting, it hurt our in house sports book quite a bit at the Silver Slipper because people were driving to the Silver Slipper to place a bet because we were the closest casino to Louisiana, we were the closest sports book to Louisiana. Now, the sports book was never more than something like 5% of our revenues there, but it went from 5% to 1% when suddenly people could make bets online.

Lewis Fanger: Another way to think about the tables, Chad, if it helps you, is if you look at Rivers, Rivers in the month of March, as an example, did roughly 40% of their total gaming revenue came from the table side. If you look at our other nearest competitor, Grand Vic, the percentage was closer to 21%. And I think we did something like 14% of our total revenues came from the tables themselves. And so the question is, are we going to be closer to 20% like most other casinos in the state, or are we going to be close to Rivers at 40%? I don’t know the answer. My gut says you’re probably somewhere between the two, but we’ll certainly have a lot more.

Daniel Lee: I think we’re between the two. The Asian communities in Chicago land, there’s a number of significant Asian communities that are pretty close to Rivers. And while there are Asians living in Lake County, it’s not as significant. So I don’t think we’ll be at 40%, but I think we’ll be higher than 20%. And actually, nobody’s asked the question. I guess we should have mentioned it. From what we can tell so far, although we’re already one of the higher grossing casinos in the state of Illinois, I don’t think we’ve had much, if any, effect on Rivers or any of the other local casinos. I think we’ve grown the market. And we know that the people who have signed up at our players club are predominantly from Lake County. We’ve had actually very few people sign up who are from downtown Chicago, and that’s what we expected.

But it also says that when Bally’s eventually opens downtown Chicago, we don’t think it’ll have much impact on us. Rivers sit squarely between us and downtown Chicago. So somebody from downtown Chicago is driving to our place. They’re driving 40 minutes past Rivers to get to us so.

Operator: Our next question comes from Ryan Sigdahl of Craig-Hallum Capital Group.

Ryan Sigdahl: Good afternoon, Dan, Lewis. Not to beat a dead horse here on The Temporary, but one there and then I do have one follow up elsewhere, but I get it margins will dip kind of as it ramps up, but I guess as you add the lower margin amenities, should we assume EBITDA dollars will grow from here? Kind of run rate, what you’ve done in the first 45 days?

Daniel Lee: Yes, I think you got it. By the way, as far as beating dead horses, they’re all over at Churchill Downs. We don’t have any dead horses around here. The 40% number is 40% of gaming revenue. And I think that’s totally doable. You got to be careful what you’re dealing with because a lot of people normally in this business, you look at total revenue and what are the margins against total revenue, and things like restaurants will bring that down. And so we’ll probably end up with margins somewhere around 30% plus or minus on total revenues and close to 40% on gaming revenues. So if that helps you. And yes, this will build from here. I mean, we said before that we thought even The Temporary could earn $50 million a year EBITDA. Well, we’re already at $30 million and we’re not even fully open, and so I think we can get there now. It’s not, it doesn’t happen overnight, but I think that might be a reasonable expectation for calendar 2024, for example.

Lewis Fanger: Yes. You obviously don’t add these amenities if you think they’re going to be detrimental to the dollar. We focus a lot less on the margin, a lot more on the dollar amount. So you’re not wrong. We want to see the total dollar number continue to go up.

Daniel Lee: Yes. If we wanted to get the margins significantly higher at Rising Sun, we could close the golf course and close the hotel, and we’d have much higher margins. We’d have less income.

Lewis Fanger: Yes, less income, people on the property. That’s right.

Ryan Sigdahl: Yes. Makes sense. And then down in Mississippi, so it seems like there’s a new one every year, but South Beach Casino trying to build a casino development right a mile away from Silver Slipper, I guess. Any thoughts there?

Daniel Lee: We have a right of first refusal on that piece of land, and it’s secure land, I’m pretty sure.

Lewis Fanger: I think it is, yes.

Daniel Lee: Yes. And I think he’s just trying to keep the entitlements on his land. It’s a pretty mature market. We’ve run the numbers repeatedly, and I don’t think the numbers work to build a new place. The Diamondhead is still around. There still a public company. It’s been talking about building a new place for 20 odd years. The last totally new place to get built was the Scarlet Pearl, and its return has been pretty anemic. Now you can make the math work on an expansion as Island View did a few years ago as we contemplate at the Silver Slipper. But to build something from scratch, I think it’s very hard to make the numbers work. The gaming per capita by people in southeast Louisiana and southern Mississippi so that’s everything from Biloxi to Baton Rouge and New Orleans, the gaming per capita in that region is second only to Las Vegas, as far as I know.

Gaming per capita in Las Vegas is odd because people retire here who like to gamble, so it gets distorted. But otherwise, this region is the most saturated gaming region in the country. And that’s despite having relatively modest household income. And so I think when somebody goes to build a new place becomes a market share game more than a market growth game. And that makes it very hard to make the numbers work. Whereas, like in Colorado, Colorado is still one of the least penetrated gaming markets. I mean, the gaming per capita in Denver and Colorado Springs is about half the US average. And yes, you have to drive an hour to get to those casinos. But that’s true in the state of Washington and that’s true in the state of California. I mean, there are 60 tribal casinos in California, but they’re not in Beverly Hills.

They’re like an hour drive from where the people live. And yet the gaming per capita in the state of Washington and the state of California is in the ballpark of $400 per capita. And in Denver, it’s still under $200. And that’s why Monarch got a great return on their investment. We think we’re going to get a great return on our investment, and the same thing is true in Lake County. So when we’re looking at where do you go? We look for markets where the gaming per capita is low, where the existing supply is perhaps not very good. And those are opportunities for us. If you look to go into the southern Mississippi, it draws people because there’s not a limit in the number of licenses, okay but if you, and you could be anywhere along this long coast.

But when you really start crunching the math, it’s like, well, it’s a mature market. It’s going to cost you just as much to build there as it costs to build someplace that’s not a mature market.

Lewis Fanger: Yes, I don’t know. In the current lending environment, I don’t know how a one off project gets funding in what is essentially a mature market, as us and Boyd and others talk about a market that’s a little bit on the softer side, to be quite frank. So it is one thing to have a site that could potentially have a casino and get gaming approval for that site, but it’s another entirely to actually then take that and turn it to a physical casino that’s up and running.

Daniel Lee: Yes, actually, Lewis and I have been around this for a long time, and it was 15 years ago when we were at Pinnacle, that the casino magic in Biloxi was destroyed by Hurricane Katrina, and it was making about $15 million a year. And at the end of the day, we got north of $200 million of insurance proceeds and we could have rebuilt it. And instead we used the money to build the stuff in St. Louis because you could get a higher return on it. We didn’t have to rebuild in Biloxi, and we sold that site to Harris. And then after they sharpened their pencil, they never built on it either. So I think it’s a mature market. Very hard to justify building a new place.

Lewis Fanger: We have eight minutes and four people in the queue. I don’t think we’re going to get to all of them, Dan, but let’s try.

Daniel Lee: I’ll try to be efficient. Okay, what’s next?

Operator: Our next question comes from Jordan Bender with JMP Securities.

Jordan Bender: Great. Thanks for taking my question, Dan. You kind of just touched on kind of the reach in your database. Will there be kind of an initiative to reach towards Rivers or Potawatomy more in the near term? Are you guys going to kind of wait to maybe try and take share from those once the final structure is built in a couple of years?

Daniel Lee: I think the permanent place, which will have hotel rooms and high end amenities and so on, might take a little more market share. But frankly, this is such an underserved market. I think there’s enough for everybody. But certainly like right now if you lived in downtown Chicago and drove out to Waukegan which would take you close to an hour, you’d be like, okay, it’s nice. But when you drive out to American Place, you’re going to say, holy shit, this is really nice. And so I think the permanent one will be more of a competitor, more market share, whereas The Temporary is pretty much Lake County. But by the way, they’re not going to be static either. I mean, Potawatomy make a lot of money in Milwaukee. I’m sure they’re scratching their heads thinking, how do they improve their place? River certainly makes a lot of money they just didn’t expense. They’re going to figure out how to improve their place and that’s how enterprise works.

Lewis Fanger: Yes. We certainly think the marketing radius is going to grow from here, Jordan, it’s extremely local at this point. If you live in Wilmette or Evanston or one of those towns where you’re essentially halfway, but drive time wise between us and Rivers, it’s going to be much easier to get that person to make the drive towards us once The Permanent opens. The nearer term rationale would be, why would you want to drive towards downtown Chicago? And so we think we have a quality facility on the inside. Quite frankly, I think our Temporary is nicer than a lot of the Permanent facilities that are in the area, but it’s certainly not nicer than Rivers. Rivers has a very nice facility, and so does the Potawatomy. But we kind of are hearing the same thing from people that are on the Wisconsin, Illinois border.

I don’t want to drive towards downtown Milwaukee. And so I think Dan’s right. I think in the longer term, this is a big market that everyone will be able to play in, but we’re hyper localized right now, and that’ll certainly expand out even in the near term.

Daniel Lee: It’s 80 miles from Rivers to Potawatomy, and so there’s an 80 miles gap with no casinos until The Temporary open. And The Temporary is near the midpoint of those 80 miles, and it’s surrounded by the 700,000 people who live in Lake County. That’s our core market. And Lewis mentioned Grand Vic, which, as the crow flies, is about the same distance from us as Rivers. But you can’t drive the way the crow flies, and if you Google it, if you leave Grand Vic headed for us, you have to drive past Rivers. So Grand Vic is actually a far more distant competitor than Rivers or Potawatomy.

Jordan Bender: Great. And then for the follow up, can you just kind or can you remind us of the resolution that happened with the gaming tax payment to the state of Illinois? If you had to pay that in full or that was a partial payment.

Lewis Fanger: We paid the fifty and full.

Daniel Lee: I mean, at the end of the day, we thought the law wasn’t particularly clear, and we had interpreted it one way and the Gaming Commission interpreted another way. We asked our lawyers to look into it. They talked to the Gaming Commission’s lawyers, and in the end, it kind of wasn’t worth fighting over, to be honest. It wasn’t the amount of money. It was the timing of it. And there are regulators, and you don’t want to pick a fight with the regulators. And the politicians left the law vague.

Lewis Fanger: And everyone’s doing their best to come up with an interpretation. But we did pay the 50 in full.

Daniel Lee: And we did it when our lawyers came back and said you could file a lawsuit. But by the time the lawsuit gets heard somewhere, you’re going to owe it anyway, so what’s the use? And then you run the risk of pissing off your regulators. Why would you want to do that, so?

Jordan Bender: All right, thanks. Nice quarter.

Daniel Lee: But to be honest, the fault of this wasn’t the regulators, it was the politicians. And some of you may know that my ex-wife is one. And they left a law that was like, crazy vague so.

Lewis Fanger: Oh, sorry. Yes, probably the last question here. Go for it.

Operator: Our next question comes from John DeCree with CBRE.

John DeCree: Hey, guys, thanks for taking my question. I’ll make it an easy one to round things out. Good follow on from the license payment. Could you, Lewis, give us a little bit of help? I haven’t seen the 10-Q out, on what was spent in CapEx in the quarter. And then with some additional amenities and tables expected in May at Waukegan, can you kind of give us your expectation for any kind of close out costs on the temporary in terms of CapEx?

Lewis Fanger: Yes, we spent roughly $58 million on The Temporary in the first quarter. That includes that $50 million license payment that I mentioned, and then $8 million of largely wrap up CapEx. And then over at Chamonix, we spent about $33 million roughly in that ballpark on through construction CapEx. That’s all in 1Q. You’ll get that Q, I think, late tomorrow night, for what it’s worth. And from here, well, in real time, I’ve got $93 million sitting in the Chamonix account. We’ll spend every bit of that in 2023. There may be some trailing stuff in 2024 for kind of retainage and whatnot, but by and large, it’s going to be spent in 2023. And over at The Temporary, it’s really stuff for the permanent, for what it’s worth. And we’ll spend single digit millions between here and year end on things like architects and some basic site work and whatnot.

Daniel Lee: We’re converting the steakhouse at Bronco Billy’s into an Italian restaurant. That’s like a $1 million. That’s not part of the restricted payment. And frankly, the Silver Slipper wants some new slot machines that will probably buy for them to help them be competitive in the market. But so the other CapEx is relatively modest stuff.

Lewis Fanger: Yes. The tables that are not on the floor yet at The Temporary, for what it’s worth, those have been bought. They’ve been bought for a while. They’ve just been sitting in a warehouse. It didn’t make sense for us to put them on the floor without dealers because we thought that would just make, I guess, angry that you didn’t have dealers at them on a busy Friday night. So we left them in the warehouse. The Asian restaurant was already complete at opening day. It was really relying on the employees to go and staff it. And then we’ve got that steakhouse that’s kind of offsite still being built. And look at, Adam, I know. I think it’s I know there’s a check —

Daniel Lee: For about $1 million to go.

Lewis Fanger: That’s what I was about to say. I think there’s a check that’s getting ready to go out the door for 584. And then we’ve got the balance. So it’s in the ballpark of a million bucks.

John DeCree: Got it. Great.

Daniel Lee: That was the turning point I mentioned, because we’ve been cash flow negative for a while now as we built all this stuff. And this was kind of the turning point. We’re pretty solidly cash flow positive going forward.

Lewis Fanger: That’s probably it, Dan, time wise. Yes.

Daniel Lee: Okay. Thank you very much, everybody.

Operator: That concludes our Q&A session. I would like to turn the floor back over to Lewis Fanger, CFO of Full House Resorts, for closing comments.

Lewis Fanger: Well, I’ll speak for Dan. We thank you guys, as always. Go out and see The Temporary. I know a lot of you haven’t yet. It’s pretty impressive to see in person. And we’ll, see you again next quarter.

Daniel Lee: Look at the webcam of Chamonix. It’s pretty impressive, too.

Lewis Fanger: Yes, sounds good. Thank you, guys. We’ll see you next quarter.

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