Full House Resorts, Inc. (NASDAQ:FLL) Q1 2024 Earnings Call Transcript

Full House Resorts, Inc. (NASDAQ:FLL) Q1 2024 Earnings Call Transcript May 8, 2024

Full House Resorts, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings and welcome to the Full House Resorts 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. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Mr. Lewis Fanger, CFO of Full House Resorts. Thank you. Please go ahead.

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’re 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. With that said, there’s a lot of good stuff to talk about in the quarter. The biggest involves American Place in Waukegan. We had a really good first quarter there. We’ve been setting record after record for monthly property gaming revenues recently. We had our property record in December. We beat it in February and we beat it again in March, and we don’t think we’re done growing yet. April gaming revenues were put out yesterday by the State of Illinois and we rose 39% versus April 2023. From an EBITDA point of view, we are now consistently generating about $3 million of EBITDA per month.

We did roughly that in each of February, March and again in April that puts us on a current run rate of $36 million per year of EBITDA, which is about double, the $18 million of EBITDA that we generated at American Place during 2023. That’s a good prologue for what we expect to happen over at Chamonix since its opening parallels, the opening of American Place in many ways. The most obvious is that much like the early days of American Place, Chamonix isn’t fully opened yet. That’s being opened in phases. And during the first quarter, our full 300 guestroom hotel gradually came online and is fully open today. Couple of weeks ago on April 19th, we opened our high-end steakhouse, 980 Prime. Our goal was to create a restaurant that could draw people from all over Colorado and early reviews have been very good.

It’s a very good experience. The service is very on-point. The food is delicious and just like the new steakhouse at American Place was important for our best guests. The same will be very true over at Chamonix. The next amenity to open will be the pool and spa, which we’re expecting in the next few weeks. Now we did have some weather complications in the quarter, the rough winter weather that you’ve heard about on everyone else’s earnings call, certainly applies to us here, the weekends our most important part of the week. Unfortunately the winter snow kept falling on weekends. In Colorado, we had three snow effected weekends in January, three more in February, and two in March. There was a snowstorm in March that cut off electricity to the entire town of Cripple Creek for three days.

And so with all of those affected weekends, it certainly was not a normal quarter but it did allow us time to fix some of the opening kinks that we needed to work through. In terms of profitability at Chamonix we’re on the right track. We lost money in the early days when we carried a lot of excess costs that improved as the first quarter progressed. For the first quarter, our adjusted property EBITDA was a loss of about $400,000. We have not closed the books yet for April, but it looks like that should be a breakeven month. As we go into the summer, our amenities should be largely complete. We should have much better weather and our targeted marketing plan should start to kick in, all of that should continue to propel Chamonix forward and result in a pretty meaningful positive EBITDA contribution.

Elsewhere in the portfolio that same winter weather affected us. I’ll keep it short on the rest. But if you look at our core customer outside of those weather events, it feels like there’s been stability in terms of their spend with us, and perhaps a bright spot elsewhere, I know in the past we specifically called out some costs like property insurance, at Silver Slipper that over the last few years has just grown outrageously. Some good news there, we just wrapped up our property insurance renewal and those costs will actually go down by 19% starting on May 15. That’s about $900,000 in savings over the coming 12 months. That’s my part. Dan, anything you want to add?

Dan Lee: I’ll address American Place first, obviously, it’s — everything is going the right direction. I don’t know that we can keep the pace going for the rest of the year, up 40% of revenues but we had two months in a row now of 40%. And I think we will be up strongly as the year goes on. Obviously the comparisons get more difficult as the year goes on. But I think we’ll be up strongly and we’re also running margins above 30%, which is obviously a good thing. And just to put it in perspective, we’re doing almost the same revenues as the downtown Chicago property. It opened in September, didn’t have any impact on us at all. And that’s still the case. And our gaming tax rate is a full 10 points lower than theirs. And so we’re in pretty good shape.

And the requirement to build the permanent, we have until — we can operate the temporary until August of 2027 which is a special build the legislature approved for us. I assume, Valley’s would probably have to seek something similar, because they have a pretty short timeline. Anyway and our commitment going forward it is about $325 million to build the permanent. And we’re designing the permanent to fit that number. A lot of what we invested in the temporary will be used for the permanent like the construction of the parking lots and structures and so on. Anyway, we’re very happy with the American Place. We always knew we were the closest casino to a million people and that eventually they would find their way into our tent. It’s not very impressive from the outside.

But once you win, it’s arguably one of the nicest casinos in the state. So I think we’re in good shape there. Lewis mentioned that in Chamonix, we’re opening in stages. And they said they knew the hotel gradually came online during the first quarter? Well, that’s just that’s part of it. We now have all the guest rooms done. And on any given night there might be a handful that are out of service trying to fix something, but in effect we have all 300 rooms. But the occupancy also builds gradually. And so it’s been running pretty decent occupancy on weekends, but it drops off during the week, well absent blizzards and stuff. So like most regional casinos, we’re now preparing to roll out programs designed to help build the midweek midweek business unlike, if you’re staying with us tonight and a weekend you can get a stay one more night on a Thursday or Friday at a much improved rate or even free.

And that sort of thing to build occupancy midweek that will take some time. But the seasonality helps. I mean we opened this and the debt as part of the year. We’re now coming up on summer, summers a beautiful up in the mountains of Colorado. And so I think we will be able to fill our hotels just every night, July and August. And so we should be quite profitable during the summer. And we’re focused on getting meeting groups in the fall. So that when the normal vacationers start to go away, we have a lot of very good meeting space to help fill the hotel during the slower season. I’m the Silver Slipper and Rising Star, were off a little bit. Some of that was weather. And fortunately there they’re not as important. I mean American Place earns more than everything else in the Company combined these days and eventually Chamonix probably will as well.

But the fact that we’re overlooking it, we’re also looking at programs to get them back to where we want them to be. Northern Nevada. We have a lease and the Grand Lodge Casino that expires at year end. We’ve had some indications from clients that they would like to expand it yet. Again, it’s been extended several times. So we’re trying to get that linked. And then we still have a small casino in town which is there. So that’s kind of where we are. We’re still finishing. So we’ve got a jewelry store. We get one more kind of unique Speakeasy bar to get done. The spa will be opened, just before Memorial Day. We won’t have all the treatment rooms, but we’ll have enough treatment rooms that we can offer massages and the pool and the wet room and the locker rooms, all that’s done.

The salon is being put together as we speak. So people get a haircut and stuff. So and I just suggest, I mean, we’re at the point where as a company will start we are already producing positive cash flow. And I think that will build significantly as we go ahead. I mean, if you take our interest expense about $35 million to $36 million a year, American Place. A lounge should earn that. And everything else does in the mid-20s plus Chamonix everything else excluding Chamonix as something in the mid-20s. And then now Chamonix will command. And I will point out that it’s not unusual, it’s a lot of time to find investors. Thank you open the doors of the casino and it’s an instant Slam Dunk our profit generator and that’s really never the case, even last year the first quarter two was far less than what we expected and then it kicked in and it’s been making $500 million a year for 20 odd years now, and the same with low-fares and lower values and all these other regional casinos.

And so the good news is Chamonix is beautiful. It’s getting all sorts of great accolades even we hosted the Hotel Association of Colorado which had the GMs and presidents of all the different top hotels from Vail and Aspen and Denver and Colorado Springs all were at our place and had dinner at our new restaurant and without saying names of the President of several the prominent and hotels in the state came and told us that we thought we had that we had the best restaurant in the state even better than their own. And so we’re very proud of our team for that, and now we just need to fill it with people, and we will. Anyway, that’s it. We’re just trying to finish those things out. Very early stages on, not very early, but we’re really in the designs of the permanent in Waukegan.

Frankly, we’ve been pretty focused on Chamonix. We have until August of 2027, as I mentioned. And that’s not even a requirement to open the permanent. That’s just the outside data which we can operate the temporary. And you really don’t want there to be a gap. You want to be able to move customers and employees seamlessly to the new place. So that means we really have to start construction about two years ahead of that, so August of 2025, which means we have 15 to 18 months to raise the money before we start construction. But even that is not a requirement, because the early stages of construction aren’t a whole lot of money. And so there’s probably six months of construction we could do just out of free cash flow. And so we have a couple of years to figure out the financing.

And our bonds have come back. They’re not quite back to par, but they’re well off their bottom. And so our guess is at the right time we go to the high-yield market and refinance our debt. But it’s not imminent, and let’s get Colorado making good money and then people will see that we’re actually less levered than most casino companies and at that point we should be able to refinance the debt on favorable terms with the extra money to build American Place, so that’s the strategy, that’s the plan. On that, happy to take any questions.

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Q&A Session

Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Your first question comes from Ryan Sigdahl from Craig Hallum. Please go ahead.

Unidentified Analyst: Okay. Good afternoon. This is Will on for Ryan. Thanks for taking our questions First question here, how do you think you’ve shifted share in the overall Cripple Creek market? Obviously, it’s a pretty slow start to the season, given a lot of that snow on the weekends. But curious where you think it’s at right now and where it could ideally be long-term?

Dan Lee : Well, I think long-term we grow the market. And we get this a lot like, clearly, we account for more than 100% of the increase and Cripple Creek has been showing increases. But that’s not the whole picture. You have to almost look at all of Colorado. And when I look at where our pricing should be or our promotion should be, we look at what Ameristar and Monarch are doing up in Black Hawk, because they’re comparable to us in scale and quality. I think we’re nicer, maybe not quite as big. We have 300 guest rooms. They each have about 500. But we are nice, and frankly, it’s a more romantic environment. I mean, Black Hawk is, I think, legally a historical mining town, but if you go there, you see very few vestiges of it.

And Cripple Creek feels a little bit like Colonial Williamsburg out of brick. And so I think we’re a better environment. Now, distance-wise, the southern parts of the Denver MSA are about equal distance. So Centennial, Castle Rock, and so on, they can go to us as easily as they can go to Black Hawk. And so, obviously, we’re doing double the revenue. Well, last year’s revenues weren’t very high. We’re doing double, and that’s not even close to what we should be doing and will be doing. But I think it comes from growing the market. I mean, the gaming per capita in Colorado Springs is one of the lowest places I know of in the country, and there’s no inherent reason for that. So I think we grow the market. We have a few good competitors in Cripple Creek.

I mean, Golden Nugget, having bought Wildwood and re-branded it, it’s very professionally run now, and that’s positive for them, of course, and for us as well. They have 100 rooms, and their rooms are about the quality of a Fairfield Inn. But they do fine. And then Triple Crown is our other major competitor right across the street from us. And also across the street from us is the original Century Casino. And they’re right next to us. So the people staying at our hotel will end up going over there sometimes. There is a weak competitor in town called the Double Eagle. And the owner, I think the second of two owners has now passed away. And so it’s a little bit tied up in probate and so on. It’s a pretty big facility, but not close to us, and it’s probably the weak sister in town.

If somebody gets hit, it’s probably them. But they’ve been the weak sister for an awfully long time. So that’s the Cripple Creek market, is pretty simple. Then there’s two tiny, tiny little places that are just being bought by Michael Gaughan that, I think their strategy is to have a place for our employees to go after work. And that’s a perfectly fine strategy for small casino. And that’s pretty much it, but you can. You almost have to look at Colorado as a whole, because it — and to a very large extent we view and particularly Monarch as our competitor. I don’t think we’re going to take — I don’t think we’re going to hurt them either. Even the Denver market is underserved and if you start looking at what people in say Seattle, Campo and people in Seattle have to drive up into the mountains to because gaming is all on Indian reservations, but the quality of the stuff that the tribes have built in Washington is quite good.

And that’s one of the few states. You can actually get the tribal casino gaming revenues and when you look at it the people in the state of Washington are gambling about three — I think it’s $375 per capita now, which is over double what the people of Colorado gambling. And there’s no inherent differences in religion or education or something that would explain that. I would think people in Colorado will eventually gamble as much as people in Washington and there’s other markets too. You can look at like in California, there’s — they gamble about $350 per capita to and most of the people do not live near a casino, they have to drive an hour to get to a tribal casino or four hours to get to Las Vegas. And so when you start looking at it the danger and which is somewhere around $200 per capita gambling and Colorado Springs was even lower than that.

I think as people understand the quality of what we built we grow the market.

Lewis Fanger: Yes. I think there’s not a lot to glean from the first quarter for what it’s worth that when that winter weather on weekends is just — was just pretty ratchet. I think maybe the more important takeaway is we have a market that isn’t trained yet to go to Cripple Creek when it snows, because they’re used to there not being any rooms in town. And I think conversely, when you look at Black Hawk, I’ve been the Black Hawk during a snowstorm before, and I’ve been a Monarch specifically to hearing a snowstorm on accidents. But what I can tell you was it was a casino that was still pretty bustling, because people know that they’re — they know that they have their rooms. People don’t yet know that in Colorado Springs for us.

They assume that if there’s a snowstorm and they drive our way, they might get stuck there without a place to sleep for the night. And so this is all stuff that will change in time. But look it’s up. I’ll tell you where I find comfort is we always worry heading into these openings. Did we build the right thing? Do we build something that’s approachable? That’s nice that people will feel comfortable. And I will tell you overwhelmingly, I think the answer to that is yes.

Dan Lee: I mean the number of customers say it’s a miniature version of Villaggio. Chris, we don’t have the talents and so on. But the point being that the quality of the finishes or what you would have it at Wynn or one of the high end the MGM places? Not surprisingly, we used to have a lot of the same designers and whenever they were only 300 rooms. So we’re a 10th of the number of guestrooms are the typical Las Vegas casino, and our casino itself is a few hundred slot machines instead of a few thousand. So a smaller but you only stay in one guestroom at a time you only play one slot machine at a time. When guestrooms do you really need. And so where we will eventually educate people the quality of it and a little bit more of a problem here.

It actually is pretty similar to Lake Charles when we dealt there. There were really crappy casinos in Lake Charles before L’Auberge, and almost had to reeducate people in Houston that there was something notion like Charles they thought of it as a chemical dump. And here people have been to Cripple Creek before the product was very good. It had a $5 maximum bet et cetera. And now to say no you really got to come and take a look at it again it’s different. And there’s a — I had an acquaintance there who is owns a liquor distributorship and he came up to Cripple Creek for the opening of our restaurants. And it is everybody tells you how great their facility is. He was blown away when you walked in a city had, no idea. And this is a guy whose family had been in the casino business years ago and a city had no idea that somebody built something that nice in Cripple Creek.

And so, now he’s coming back up with the sales force from his Liquor Distribution business having a meeting at our plate software to eventually get so.

Unidentified Analyst: Okay. Thanks for that guys. Sorry Dan go ahead.

Dan Lee: Yes, as Lewis said the win per slot machine per day and I recognize but half our slot machines or Colorado or in Germany and about half are in Bronco Billy’s is actually up. And the win per slot machine per day in Chamonix is by far the highest in the market. And the interesting thing is the win per slot machine per day in Bronco Billy’s is actually up because the spillover from Chamonix going into Bronco Billy’s.

Lewis Fanger: So yes, we’re still we’re still not – we lead the city. We do not yet come close to Black Hawk. But again as we fill the rooms that will all change in time.

Dan Lee: Let’s look at another question.

Unidentified Analyst: Fair enough. Thanks for the color there guys. Maybe – just curious maybe on labor at the new properties. I know there’s a few struggles maybe in past years and just kind of industry-wide now that you’ve got you know a few months and a year in the case of Waukegan under your belt. How do you feel about that?

Dan Lee: Well, there were different challenges in Waukegan. The challenge is that every single employee must be licensed by the Gaming Commission and that’s a pretty ominous form that they have to fill out. And it’s only provided in English when we’re in a community that’s about half Hispanic. And so that the hiring process was complicated by not the regulators because the regulations are set in place by the state legislature and it just is what it is. That’s what the lows we had to adhere to it. And so it took time to build a stable workforce. I think we’re there now. We have a good stable workforce and a good management team on top of that. We always have some people quit since we always have to train new people but it is it has stabilized and the first nine months it was struck.

And now on Chamonix dishwashers don’t have to be licensed. So it’s an easier process. And but you’re at 10000 feet on the backside of Pikes Peak. And so the population of the talent is 1200 in total and probably 40% of those are either retirement age or kids. And so there’s not enough people in Chamonix too to staff our place a low level on all the casinos but there’s places like fluorescent which is nearby and Woodland Park and a number of our employees actually commute from Colorado Springs, which if you live on the west side of Colorado Springs was placed for Manitou space. So that’s a doable commute. And that’s not unlike our offices in Las Vegas are here in Summerlin and Lewis commutes from Anthem or greenbelt hill side of town and so not much different than going from Colorado Springs to Cripple Creek.

And so we are – I mean it is a challenge but we are everyday able to hire some people and build the team. And then we also used some outsourcing of labor which has helped. So for example, the cleaning of the guestrooms has been done by a cleaning company who does it for normal hotels as well as other casinos. And that’s worked out pretty well. They do all the hospitals in Colorado Springs. So they had a big pool of people drawn.

Lewis Fanger: So yes, it will be a non-issue in a year. We’re not too worried about it. It is – if you’re an employee or any other casino in town you see the very big difference between our quality and others and the pure, especially if you’re an attempt to position it becomes the easy move into our building.

Dan Lee: And you find some surprise like for example, we have a pastry chef who’s world-class, who’s written books about it. He’s done a terrific job. And every time I’m there. I have to remind myself not to eat too many of his pastries or won’t eat my sweets anymore and he used to be in Denver and he wanted to live in the mountains with this big dogs. So he kind of sought us out and he’s enjoying the mountain life. So sometimes it does work in here benefits.

Unidentified Analyst: Good to hear. Thanks guys.

Operator: Thank you. Your next question comes from Ricardo Chinchilla from Deutsche Bank. Please go ahead.

Ricardo Chinchilla: Hey, guys. Thank you so much for taking the question and for all the great color. I was doing in a different direction, just potentially some assets of the rightsize that might come to the market, let’s say six to nine months, someone – somebody like Keith has talked about it. Are you guys committed to give that to deleveraging or to build cash for the facility? Are you know the right opportunity for acquisition is something that could be too tempting for you guys with regards to your strategy and capital allocation priorities?

Dan Lee: Well, this is as good as we’re willing to sell Caesars Palace for four times cash flow we’ll figure it out. But we look at a lot of things. You almost always learn something from it. We did get into the Colorado market through acquisition. We acquired Bronco Billy’s at six times cash flow at the time and had a bunch of our surplus land. And then we added to the surplus land, which allowed us to build Chamonix. But it’s not. We don’t have to I mean and frankly, if all you – if you run the math and just say, okay just get this stuff mature and you get Chamonix up to I mean Monarch is making over $100 million a year. We have two-thirds as many guestrooms is that. Can we make 50? We should be able to. It’s not going to happen tomorrow but we should be able to get to that sort of number.

And it might take us a couple of years to get there but and then in Waukegan, and we were going to 35 to 40 this year and probably better than that next year. And then the permanent casino is probably a big notch up from there. And if you start playing, with the numbers and say well, they have to spend $325 million to build the permanent, but about half of that has probably generated from free cash flow. And so the debt today is $450 million. The permanent opens, we might be something like $600 million and then you say well if they’re making $100 million in Illinois and $50 million in Colorado and $40 million and all the other properties, you work backwards, our stock will be three times or four times, five times where it is today. And Lewis and I and the rest of the management team, it’s a big part of our net worth is tied up in the company.