Full House Resorts, Inc. (NASDAQ:FLL) Q2 2023 Earnings Call Transcript

Full House Resorts, Inc. (NASDAQ:FLL) Q2 2023 Earnings Call Transcript August 9, 2023

Operator: Greetings, and welcome to the Full House Resorts Inc. Second Quarter 2023 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, Lewis Fanger, CFO of Full House Resorts. Please go ahead.

Lewis Fanger: Thank you, and good afternoon, everyone. Welcome to our second quarter earnings call. Before we begin, we did post some slides on the website. So if you go to investors.fullhouseresorts.com you’ll see that bronze banner. And if you hover over company info, you can go to the presentation section and find some of the slides that we’ll discuss today, including a bunch of current photos of some work going on at Chamonix. 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’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 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 that said, ready to go, Dan.

Dan Lee: All right. It’s kind of a complicated quarter, so I’m going to figure out where to start. But we’re busy these days and the business kind of falls into four categories. One is still ramping up the temporary. This was its first full quarter of operations, and it did well and it is getting better. The table games is starting to be a bigger factor, and we’re still hiring more dealers. We now rank third in the state and table games as of the July numbers that came out yesterday. Our steakhouse should arrive in late September. It’s disappointingly late. It’s basically a large diner. It’s coming in seven trucks, and they’re trying to line up the permits to bring these oversized trucks from Florida to Illinois. And it’s got to be assembled and opened.

So it probably doesn’t get open until sometime in the fourth quarter. The sports book should be up and running in September. So we’re still pulling it together and still hiring people, but the trends are pretty good and it’s profitable. So it’s going very much the way most successful new casinos go. Second big task is completing construction of Chamonix in Colorado. It’s pretty unusual for a company our size to undertake two things at the same time, but we didn’t pick the timing in Illinois, and that’s how it ended up. And so we’re preparing for it to open on December 26. So it’s not only completing the construction, which is a job in half, but also preparing for the opening. Along those lines, we made some pretty good progress with the staff, the high-end restaurant, which we intend to be one of the best, if not the best restaurants in the entire State of Colorado.

We’ve done a deal with Barry Decadence from Barry’s Prime Down at Circa. They used to run the 9steakhouse at the Palms. And before that, Barry was with REO, which is Charlie Palmers Company and was Manhattan and he moved to Las Bases, opened the one at Mandate quite a few years ago. But this is a guy who’s had Michelin Stars before. He knows how to run high-end restaurants and high-end restaurants in casino setting. So we’re excited to have them as part of the team. It’s an outside chef deal, very much like most of the restaurants at Bellagio, where they get a percentage of revenues and percentage of profit for running it, but it’s our restaurant, but they’re motivated to make it their restaurant as well. We have pretty — a small part of the overall business, but [indiscernible] pretty important, we have a prominent jewelry store on the property.

We have a consultant from Santa Fe, who’s got a successful business there called Rock & Feather, and she’s helped them pull together how to make our jewelry store special. And in terms of new hires, we just hired Brett Modell, who I think, started work actually today. And that’s a pretty important hire. He’s Director of non-gaming operations. Recognize that this is a high-end hotel that we’re building here. And our team there has not operated a lot of this high-end stuff before. And so we needed somebody with that experience and Brett grew up in New York City, but he’s actually fluent Mandarin. He’s fully American his wife is from China, but he trained at Wynn Macau in Macau and then he helped open casinos in Vietnam and Nepal. He worked for Aman Resorts for a while in Bhutan.

Aman is probably the highest end hotel chain that’s out there. And after working in China, he was running a hotel in crested view, which is where we found him. And he and his family were relocating to our part of Colorado, and we’re excited to have him on board and he can make sure that the hotel, the spa, the meeting and space, the food and beverage, all lives up to the expectations that the high-end customers expect. So he’s an important hire, and he starts today. So then the third thing, of course, is we have an existing company with existing properties, and that’s had some challenges. And in particular, in this quarter, the Silver Slipper had some cost issues. The payroll went up quite a bit and the revenues didn’t and that had an impact on the bottom line, and we’re getting that back under control.

We’ve got a freeze on any was we’re looking at staffing numbers and we’ll get it under control. At in Tahoe, there was a huge winter in Tahoe and the snow has been gradual going away that caused the people to delay their return for the summer and the summer is pretty important up there. And now we’re in the heart of it, and it’s doing better, but in the second quarter that affected it. It’s an off-season quarter for the Tahoe property, and so it was down. In Colorado, the construction of Chamonix has been affecting Branco Billy’s for quite some time. That continues to be the case. [indiscernible] banalities because of Chamonix doesn’t have any parking. We try to operate Valley parking as best we can, and we shuttle from an outside lot, but all of our competition is on-site parking.

And we don’t — we also don’t have an on-site hotel. We have a Battenberg two blocks away. All of that will change when Chamonix opens. But at the moment, Bronco Billy’s is making money in the summer, but it wasn’t in the second quarter. And then Rising Star and Indiana is doing okay, especially considering that there is a competitor that didn’t exist a year ago. And that’s the Churchill Casino at Sharp Park and I think Deco it’s a mature market. So when somebody adds a casino in a mature market like that, it becomes a market share game, and I think we’re holding our own. Then the fourth task that we’re busy with is, frankly, designing the permanent American Place. We’re incorporating a lot of what we’ve learned from the temporary. We’ve learned quite a few things.

We haven’t started construction yet. There’s no — but we are actively designing it, which cost some money, but it’s — now there’s a lawsuit out there from the Potawatomi tribe, who is a competitor of ours to our north, and they filed a whole bunch of lawsuits not against us, but against the city and the state, that may end up delaying our start of construction and financing. I think ultimately, the suits will end up being resolved and everything go forward. But at the moment, it’s something — it just happened last week. We thought this soup was pretty much gone, and they had appealed something and the appellate court sent it back to a lower court. And so that puts it back into flux a little bit. And so that’s on the permanent. There’s a bunch of unusual stuff because we have a lower tax rate in Indiana than most of the other casinos because we’re the smallest one, and there’s — there’s a progressive tax rate in Indiana.

There is an amount of free play that you’re allowed to deduct every year. We have found it makes sense for us to sell our free play to guys in a higher tax bracket, and we’ve done that every year for about five years now. And we did that this year in the first quarter for $2.1 million. We did it last year as well for $2.1 million, but it was in the second quarter last year. So looking at the year-over-year high results that kind of affects it. Generally, we’ll do it early in the year as possible because you never quite know during the pandemic year, for example, when we were closed for three months, fortunately, we had sold the free play before that period because with everybody being closed for three months, we might not have sold it for as much as we were able to sell it for.

And so then on the sports books, Churchill got out of the online sportsbook business in the second quarter of last year. And when they did that, they had paid us an upfront fee plus a percentage of the revenues. The upfront fees of these deals go into deferred revenue when they pulled out of the deal that accelerated the unamortized deferred revenues, there was about $1 million of revenue and income in last year’s second quarter. Now one of those sports books that they backed out of, we now have a deal with a new company who paid us a new upfront fee and is paying us on a regular basis. But the big number there is the sports book operation in Chicago, where we repaid $5 million upfront, which again is deferred revenue. And we will receive a minimum of $5 million a year from that.

And that starts in the middle of August, whether the sports book is actually up and running or not. But we do expect them to be up and running pretty soon. And if they’re very successful, we will get more than $5 million a year. But the minimum of $5 million starts in mid-August, and that’s by far the biggest of these. So Illinois, Indiana and Colorado, in Indiana, each casino has allowed three websites. In Colorado, each casino is out of one website, but we actually have three licenses. So we end up with three there as well. And there’s quite a few small casinos in the state, each of which gets a license. In Illinois, there’s, I think, 13 total casinos, if I remember correctly. And each gets one website. And of course, the population of Illinois is much bigger than either Colorado or India, actually bigger than Colorado and Indiana combined.

So each website is worth much more. So that’s why our agreement in Illinois at the very important and coming on stream in a month and a week, I guess next week. Then there was some accounting issues and not unusual in a new casino, you find, you start up and then you’ll find some little things. And so for example, our progressive our slot machines, a number of them have a progressive type jackpot on them. You don’t start those at zero, you could have started them at something else because it’s not very exciting to look at a progressive jackpot at 0. And that amount, when you open, would be a charge to preopening costs and it’s a liability. And so I forget whether it’s a debit or a credit on the old T accounts. But it’s — there was about $300,000 that we missed.

So we took that charge in the second quarter. We have a new finance person who helped us discover that. And we moved him from rising sun, and we think we have everything straight down now, but that was a little bit of a surprise for us. We do continue to have training costs in Illinois because we are trying to hire more dealers, and we we’re on our own dealer school, and we pay dealers their wage in order to go to the dealer school, we will also pay relocation costs to get dealers. And we’re gradually getting there. We have enough dealers now to operate 30 games on Saturday night, we’re allowed to have 50. And as people get more experience, we can also increase the table limits right now, we go to $5,000 a hand. One of our key competitors have got to $20,000 a hand.

We don’t want to do that until we have our experienced dealers. And so that’s going on. And then I guess that’s the main unusual stuff. All of this stuff is going to get cleared up in the next few quarters. And a year from now, now we should be pretty mature at both of the new properties and generating a lot of free cash flow. So if we go to the presentation we put online that Lewis mentioned everything I just said, I meant to be kind of a summary, but I guess I went into a little more detail than a summary. But on the presentation that’s online, it notes that our revenues increased 34%. That’s really the temporary, which is most of that, in fact, more than all of it. Adjusted EBITDA declined, but a good chunk of that is the timing of the free play, the $1 million that I mentioned from the deferred revenue and the temporary actually made $4.1 million despite that accounting charge I mentioned.

There’s a couple of other small accounting charges, it was closer to 4.5% to 5% if you back out the accounting charges. Which is — it’s not where we expect it to mature at, but for the first full quarter of operations, that’s respectable. And then we start getting sports guns here shortly. And part of the reason for my comfort with the results in Illinois is the next few slides. If you look at admissions, they’ve been trending up very nicely since April. Now when we first opened, you get a lot of tourists coming into town, what Mike Edson used to refer to as Lucky loose. People come in and look at the casino, but they don’t gamble a lot. And over time, you build a mailing list and you start replacing tourists with gamblers. And so since April, we’ve had a steady trend of admissions going up — and you can see, as a result, on the next slide, you can see our slot coin-in.

Likewise, is steadily going up. And our table games drop steadily going up. Now on table games, it’s also affected by the fact that we are offering more tables at any given time, and we’re operating them more hours of the week than we had before, and we are also allowing larger bets over time. And so if you if you had these charts on the same scale, you’d see that table games drop is actually growing faster than the slot coin in, and that’s a result of adding more tables over time. And so a lot of our growth is coming from tables at the moment, but we’re continuing to show growth in slots. Slots will always be the preponderance of the business here, but tables are going to be meaningful in some of the markets, they’re not very meaningful. So going way back when we opened this is on Slide number 8, we had 28 table games by middle of May, we were at 36%.

By now, we have 48, but we don’t have enough dealers to operate all 48. So we have about 30 open on weekends. But of course, we pull people from potential ships during the week in order to have more tables open on weekends. So as we hire more dealers, it helps how many tables we have open on a weekend, but it also helps some new tables we can open during the week. Generally, we — our table games or $15 minimum bet we might have during some times of the week $110 table as kind of a loss leader out there. But generally, we’re a $15 minimum table and up. And as mentioned in July, we were third in the state, which is pretty good for a place that’s only been open a few months. And then we expect to extend our week and table games hours to 4 a.m. Currently, it’s closed at two, and so we’re picking that up.

The guest database, you can see, has been building. We’re now at about 40,000 people in our database. That’s pretty important. We started at zero. And this allows us eventually to be more efficient on our marketing costs. We are still spending quite a bit of money on marketing and advertising, getting our brand out, letting people know we exist and so on. But over time, we gradually are already being more targeted and that will continue to be more targeted as we have a more — a bigger debt base. It’s almost like — we were talking about the advertising agency. It’s like showing up at a lake in Wisconsin to go fishing, you’ve never been there before, and you don’t really know where the fish are. And so you end up going out in different places and dropping your bait.

And over time, you start to realize that certain bays, certain death, certain areas have more fish and you start going back to those areas more and more. And that’s effectively what happens when you open a casino in a market where you haven’t been before. You gradually figure out who gambles and who doesn’t gamble and how to incentivize the people who actually gamble. So that’s Marketplace. On Chamonix on Page number 10, we show the original renderings of the project. It’s very large by Cripple Creek standards. I remind myself sometimes that it’s about 10% of the size of the casinos we built in Las Vegas 20 years ago, but is — we’re also a small company. So this has a pretty big impact on us. And — it’s $250 million. It’s a very high-end casino, 300 guestrooms.

I remember Steve Wynn, when he opened the Golden Nugget in Atlantic City, it had 500 guestrooms. And it was doing $100 million a year of income 25 years ago, 35 years ago, right? So if you get the right people and the guestrooms, you can make a lot of money. I mentioned the steakhouse. We’ve got a rooftop pool on spot, a nice parking garage and opens December 26. We’ll be having playnits that construction will get turned over to us early in December, and our employees will be practicing and doing playnits. And then we’ll send the employees home for Christmas with their families and open the day afterwards. So — like most families, I find you get together with your family and you all see a great Christmas and the day after Christmas was like, what the do we do now and you end up doing something else.

Well, hopefully, we’re there something else. So we hope that we can have a lot of people there. And then we’re planning a significant party on December 31, which is both kind of an opening party and obviously, New Year’s Eve celebration. Page number 12 shows the front of the facade and all that fancy brick work is actual brick. Some of our competition one in particular use like a brick veneer, which is now peeling off. So ours looks really nice. We did spend the money that has some pretty fancy brick work which fits very well with the old buildings in town and then the hotel — a lot of the hotel rooms are in that glass thing up on top, which is designed to kind of meld in and reflect the clouds in the mountains and kind of masked the size of what the building really is.

That one square rectangular building you see in front, the one story building has got a ladder leaning against it. That’s a jewelry store. And when we get the cities permission, it closed Second Street because this building squat right across Second Street. One of the commissioners said they didn’t want a big gap in the facade along the street. They thought that would take a wave, and there was some suggestion that we could take an old street car and put it there. There’s an old car at the street that uses tourist information both. We didn’t want to do that, but we said we’d build a jewelry store there that’s the size of a street car. So that’s what that is. Jewelry scores go very well with casinos. People will win money and then they have to bring home and voluntary jewelries someone wants called it.

And so we think the jewelry store will be a nice amenity and it fits very well. And it was important to the city in order to get permission to close Second Street. So we addressed it in a good way. The high-end restaurant is those windows to the left. You can see a chimney there. That’s because where there’s valet pickup, where you have an outdoor fireplace that keep you warm while you’re waiting for your car. This is a cold climate and the main Valley entrances behind the jewelry store. The parking garage is on the back of the building. The next page shows the main part of the casino, the table games part. The other those tall windows will be shaded and they have curtains on the inside because you don’t want a lot of daylight into the casino, but we wanted the outside to look Regal.

So we put these windows on the outside, but on the inside, they will not bring in a lot of light, but it looks right on the outside. The next page shows…

Lewis Fanger: Dan, really quick. And then on Slide number 13 as well, important thing is just to see those blue warnings there. That’s existing probabilities. And so some of you that have never been to town often ask us how — just how tightly are they integrated. The answer is very tightly. You won’t have to leave the Bronco casino to go into the Chamonix casino. As you can see there, they’re essentially attached.

Dan Lee: Yes. It’s a lot like going from Tomorrowland to fantasy land at Disneyland. I mean — it’s a different theme. You have to go through an arch in one direction and says, welcome to Bronco Billy’s, the other direction is as well from Chamonix. Your points are good from one to the other, but it has a different theme. Chamonix has more modern European sophisticated effect the tagline is European elegance with Colorado Comfort. And Bronco Billy’s is more WildWest historic Cripple Creek, like a lot of the casinos there are. On Page number 14, this is the back of the property. This is our parking garage, you can look down the back Quentin’s garage and it drops right down on the back of the casino. There’s some decorative stuff that goes up on this bare concrete that’s not up yet.

But otherwise, it’s pretty far along. And as you can see, the sola there. we could use it if we could get occupancy permits and so on, except that the elevators from the parking garage go into the back of the Chamonix casino. And so I can’t use the garage to help Bronco Billy’s in the next few months because there’s not an easy way to get from those elevators into Bronco Billy’s. Page number 16 shows the table games pit. This is what I mentioned earlier, the big window on the outside, well, that’s one of those on the right in Tennessee, and that will get curtains. But the table games pit are quite elegant, very intricate molding going in here. To the left, you can see that steel door that’s closed, that would normally be open. That’s a fire door that goes from the new building, which is Chamonix to a historic building.

And the very first historic building will also be partial, we have to have a firewall in between. And if you go through that and keep going, you end up in Bronco Billy’s. I’m not sure why Lewis included a public restroom other than.

Lewis Fanger: Just, you can see that they look quite nice. That’s… It’s quite nice. Yes.

Dan Lee: They’re better when they actually have toilet, but the finishes are quite nice. Page number 18, the escalators, which are in, they’re covered to protect them during construction, but there’s a set of escalators that goes up to the meeting space on the second floor. And we have significant surface parking space that you access of the second floor. And — and so that’s going to be pretty important. Moldings are going up on the meeting room space. We have a nice skylight there as well. And we’ve got on Slide number 19. Slide number 20 is the main ballroom, which is large by Colorado standards. And this is an important difference between us and Monarch, for example, we have pretty significant meeting space, Monarch really doesn’t.

Ameristar does. And I think it’s important to helping Ameristar fill in the midweek and it’s going to be important for us midweek as well. And so we have a very nice meeting space that. Our site — I mean, Monarch did a nice job and they have a nice casino, but they’re in a very narrow lot. We’re not. We sprawl out better. And that allowed us to have a meeting room space that’s not wedged into a hotel tower. And that’s important for [indiscernible], even if you have entertainment or you have some function. And so that’s important. You see the meeting courtyard. This court courtyard actually serve several purposes. One is those are meeting rooms of the left. And obviously, we could have a high to party outside and so on, if it’s a nice day, which it often is there.

And — but that’s also a quarter from the surface parking lot going those doors at the back and you’re right at the top of the escalators that feeds you down to the casino. And so it works very well. Next page is one of our guest rooms. Not all of our guest rooms have both the shower and bathtub, but quite a few do. That’s the shower behind the glass door in the back and a nice freestanding bathtub in the front, and toilets are in every case, in a water closet and nice stonework and so. Page number 24 shows we have quite a few rooms like this where there — you can see the headboard or where the bed is eventually going to go that sofa there is actually a Murphy bed. And that thing pulls down from the wall and that sofa kind of holds out of the way and supports the bed.

And so it’s a pretty cool Murphy bed arrangement. So this room can be rented to a couple that went the extra space is kind of a sitting area or if you rented it to 2L couples traveling together, they have two coin-sized beds. So pretty nice room. And then Page number 25 is a picture of part of one of the suites. And number 26. We have two of these two story suites, there’s an upstairs, downstairs element, which is pretty cool and a lot of glass, a lot of views of the mountains and the gold mine and historic town, every room in our place or almost every room in our place has a nice view the handful that don’t, we’ve actually put nice patios on them, so you can at least sit outside, and that will be popular with people who might want to be able to smoke because you can’t smoke in the building in Colorado, but you could have a patio where you could.

And then you can see on number 27, when I said we closed and bridged across Second Street, well, this is looking down second street. And this is the view from one of our suites. And then our pool deck, it’s a rooftop pool deck. Now the pool will be heated and open year-round, as is not uncommon at ski areas in places like Colorado. We have a pretty high-tech insulated cover that goes over it at night to try to reduce the heat loss, but the pool is as much an advertisement because from the competing casinos that you see in the background, that’s the Century Casino with the yellow ones there. And to the left of that is Triple Crown. They’ll be looking at the steam rising off our pool. It will be kind of visible throughout the town. And it’s one of those hey, look, they have a pool up there.

There’s a pool that. And one wall of the pool that’s kind of in the foreground is actually plexiglass. So you could actually, from certain angles, see people actually swimming in the pool. And it’s not a huge pool, but it’s enough to give it a pull deck and the pull deck be a great place for events and parties and could even be — and if you have a warm summer day, you could turn it into a kind of almost a night club out there. So the pool is pretty important. We opted to let it be outside, let this team go off it. Pretty common at ski areas, whereas both Monarch and Ameristar have indoor pools on their highest deck, which is when the weather is nice, I’d much rather be outside. And frankly, if you want to have a polar plunge, we have a son, a couple of Sonos, not far from the pool and you can get warm a go jump in the pool in February — that’s always right.

So then Page number 29 is just segment results.

Lewis Fanger: You don’t need to go over the rest of the…

Dan Lee: And we’ve already talked through it, I guess, and on that, I think I’m ready to take any questions. Right, if I missed anything?

A – Lewis Fanger: No. We’re ready for questions, operator.

Q&A Session

Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] One moment please, I will poll for questions. Our first question comes from Jordan Bender with JMP Securities, please go ahead.

Jordan Bender: Good afternoon, thank for taking my question. I want to start on the funding for the permanent casino in Illinois. So I guess looking at my model at least, it looks like you’ll need to raise the permanent funding sometime in the middle of next year. I was just trying to get an update on when you guys are thinking about that timing as well as kind of the optionality behind the sources of where that money could come from. Thank you.

Dan Lee: Well, we’ve always said that, that would be roughly the timing we’ve looked at our existing bonds become callable in February. And so refinancing the bonds gets a lot cheaper from February on, that’s still seven months away. The bond market has its ins and outs. It’s not a great bond market today. It’s not a horrible one. And we now have this lawsuit that came back again, and that will be something that factors into it. The fact is on our license, there’s no deadline of when we have to be open. And there are some limitations on how long we can operate the temporary. It’s possible that could be revisited. We would like to move forward as quickly as possible. We think the permanent makes quite a bit more than a temporary.

We are continuing to refine the design, as I mentioned. But you’re not wrong in saying you’d like to finance it in the middle of next year, but if somebody says, “Well, it’s going to cost you 20% interest or something, then you’d say, well, maybe that’s not the best way to do it. We do still have a standby facility with a large private equity firm that’s there. It’s kind of expensive. We hope we can do it cheaper than that some other way. We think our stock at these prices is extremely cheap. And so that would probably be the most expensive way to do it. And so I can pretty much assure you there’s no issuance of equity being contemplated. And not pretty much, I can assure you that there’s no issuance of equity being contemplated. We could do a REIT deal as they have for the downtown project where a REIT provides most or all of the financing.

And of course, the — once we get Chamonix open, we should be generating quite a bit of free cash flow. And so the longer it takes us, the easier the financing is. Now we would still like to move sooner rather than later. But delays aren’t all bad because it does make the financing easier. And so that’s where it is. I mean I don’t have an answer, but we have really a year to figure it out. So…

Jordan Bender: Okay. Great. And then just turning to Colorado, the property historically has done about 10% to 20% margins just given the year, is that property ramps up, is it fair to assume that it should exceed that 20% margin? I guess how should we think about what the ultimate margin profile of that property looks like in fully ramped? Thank you.

Dan Lee: Yes. I think we can have pretty high margins there as Monarch does. The gaming tax rate in Colorado is a progressive rate, but it caps out at 20%. And — so for regional gaming properties, it’s actually a pretty acceptable tax rate. Also, in general, if you’re the leading property in a market, if you’re the best property in a market, you usually have better margins. You don’t have to market quite as much. And I remember one time a long time ago, the CFO of MGM called me up when I was at Mirage Resorts and wanted to know what we spent on advertising. And I went and looked up the number and it was like $5 million. And he said, that’s not possible. MGM spends $30 million. And I said, well, does that include all the billboards for Sage Roy?

I said, well, it’s a good question. Let me go check. And I went back to us, I said, yes, the preponderance of that is actually the billboards for Sage Roy. That’s still not possible. I said, “You know what, we had a volcano that was a really big attraction in a ton of palm trees, and they had a second plastic lion on their front door that nobody wanted to walk through. So of course, you have to spend money on marketing, and we didn’t. And so we will have, by far, the best property in Cripple Creek, and I think the best property in Colorado, one of the best properties in the Midwest. And I think that I’m not right away. It takes a while to get there. But long term, that will play into good margins and a great return.

Lewis Fanger: A little more color for you, too. Another way to think about it is over in in Mississippi with Silver Slipper. Before we had that hotel, what you would see is a casino that would largely die out at 7:00 p.m., 8.00 p.m. really earlier than that midweek, maybe a little bit later than that weekend. But largely because you had people that didn’t want to drive home an hour on the roads and be too tired or drunk or all the things that we don’t want them doing either. And so when you have all of a sudden 300 rooms attached, you end up getting much better utilization out of a lot of your existing assets, whether they be the slot machines, the restaurants and all that other jazz. And so the margins, you should see a pretty meaningful move just from that alone.

Jordan Bender: Great. Appreciate it. Thank you.

Dan Lee: Yes. Monarch does not break out Reno from Black Hawk, but you can look back to when before they got Black Hawk opened, and it’s — and at what they were earning in Reno and so on, they only have the two properties. And it’s pretty clear they’re making at least $100 million a year there, and they have 500 [indiscernible]. Now they are an hour west of Denver, we’re in our west of Colorado Springs, but they have significant competition as well, including Ameristar. And we kind of don’t really — I mean the Golden Nugget has bought the Wildwood and is doing some minor fixing up, and it has 100 rooms in kind of a Hampton n-type hotel. They’re a good operator. I expect they’ll fix it up better. And so down the road, we’ll have better competition.

But that’s five years away. We’re going to have a big lead on anyone else. And it’s not easy to assemble land in Cripple Creek. It took us years. So for somebody else to try to assemble something that would compete with us will not be easy. So I think we’ll be the leading casino there for quite some time.

Jordan Bender: Thanks, Dan. Thanks, Lewis.

Operator: Next question comes from Ryan Sigdahl with Craig-Hallum Capital Group, please go ahead.

Ryan Sigdahl: Good afternoon, guys. You’ve covered a lot. So I’m going to ask two more specific questions here, both related to the temporary, but curious how much the cost burden is related to the dealer school in totality. I get it’s necessary, but curious of that cost. And then second, a lot on the revenue side, but curious how the margins have trended over the past couple of months and then into July with the ramp-up in revenue.

Dan Lee: Yes. The dealer school is not huge. It’s probably including the people we’re paying to actually be trained and their instructors. It’s like $30,000 to $50,000 a month. But there’s other training of other job titles as well. But the dealer school is something. It is a drain, it’s not huge. The margins will get better. One of the main things driving it is we’ve still got a pretty robust advertising and marketing campaign. And as we get a bigger database and get more focused, we’ll be more efficient with the marketing. And so — I mean, listen, we’re comfortably profitable in our first full quarter of operations. And a lot of casinos are not. I mean I can tell you back when Liveris open in Lake Charles, the first full quarter of operations, it didn’t make much money at all, and then it’s made $100 million a year ever since.

Bellagio, the first quarter of operations was so-so, and everybody is like the same question you’re asking me now, and Bellagio has done $400 million a year of income for 25 years now. And so we’re off to a good start No, the revenues aren’t where we expect them to be. The profits aren’t where we expect them to be. The margins where we expect them to be, but they’re okay and trending in the right direction. I should also mention, you’ll notice — I realize investors primarily look at EBDIT, which is appropriate in this industry. But sometimes newspaper reporters get caught up with the net income and operating income that accountants and their delusional craziness make us point be more prominent because the temporary is operating for three years, there’s a whole bunch of stuff we’re depreciating over three years.

Now some of that will probably have ongoing value like the parking lots and so on. But that’s why you see such a large depreciation charge over the three years. Now for tax purposes, it’s not yet clear how fast we can depreciate it. But when we close it in three years, we’ll get an abandonment charge. So if you noticed a very big jump in depreciation, that’s because accountants take a very conservative assumption that the stuff like, for example, the restaurant stuff restaurant equipment and all this stuff, they just assume after three years, it’s worthless. And it probably is not worth us. And we have two air stream trailers that are mounted in the middle of the casino floor that are like food trucks. And it turns out they’re pretty popular.

And so one of the things we’ve done is said, “Hey, let’s keep using those trailers, they’re not going away. So they’re going to be in the permanent and yet we’re, I believe, depreciating them over three years currently, which is a very conservative approach.

Lewis Fanger: Maybe helpful to give you a little bit more there. So right now, the EBITDA margins are running in the high teens. One of the things that Dan hinted out is we are spending quite a bit more on marketing. One of the things that one casino should do, but one of the things that we had been hearing from players that had not gone into our facility is that they would see pictures of the tent and think why would I want to go to that, I’ll wait until you have the real thing. Now I think what anyone would tell you once they go inside the doors is it is unbelievably beautiful on the inside, not what you would expect from looking at on the outside. And so we’re spending a little bit more to try and drive more players into the building itself, trying to build up that database.

And that’s going to be extended here for a little bit of time. There’s a new ad campaign that’s getting ready to roll out. So you at least see that for another quarter. But the — maybe the right takeaway for you guys is that the trends are all there. They’re upward. If you look at the month of July, we did $7.8 million or $7.9 million of gaming revenue in the month, that was up about $1 million from the prior month. And so the trends are there, and we’re feeling pretty good.

Dan Lee: We recognize most of the casinos in the state have operated for 20 years. Rivers has operated for, I think, 12 years. And the only other recent one is the one in Rockville that’s been open a year longer than us, Rexford. And for us, all already after only a few months, we’re number three in table games and number six or number seven overall is pretty remarkable, given that everybody else is like a 20-year head start on this.

Lewis Fanger: I’ll give you one more data point, and I’ll shut up. The — if you take the first full month of Rivers Casino is annualized the first full month of gaming revenue, you would have gotten to a number that was around $409 million or so. If you were to look a year later and look at the actual trailing 12 month of revenues, it was like $406 million or something. But once you cross that point, you start to see some pretty big increases in that overall revenue line today, as you probably know, it’s doing close to $600 million a year in gaming revenue. Now they’ve gotten more positions since then as well. But even in those early years, you saw a pretty meaningful upward move in overall gaming revenue. That’s no different than what we’ll have here.

It’s been a pleasant surprise to see how well, how quickly we’ve gotten to number three for the table games revenue line. And the slot business always takes a little bit longer because you need that database, you need the free play to go out. And so that’s why we’re so focused on marketing and making sure that database builds up.

Ryan Sigdahl: Great. Thanks, Dan, Lewis. Good luck, guys.

Lewis Fanger: Thank you.

Operator: Next question comes from Chad Beynon with Macquarie, please go ahead.

Chad Beynon: This is Sam on for Chad. Thanks for taking the questions. I was hoping you guys could speak to any consumer trends or change in the promotional environment that you saw during the quarter and into August?

Dan Lee: Yes, we’ve got so many big things going on that, that almost seems less important. But certainly, on the Silver Slipper, the property complains about the competitive impact they’re getting from a competitor down the road. But when we really got into the numbers, it was more of our own costs being up. And so we’re trying to get that more under control. Now I’m not saying that it is in a competitive environment, I believe it is. But does that mean there’s a recession in Mississippi, but it’s hard for us to know. And then like in Indiana, the revenues are a little soft. Is that a recession? Well, you get a new casino across the river in Boone County, that’s probably more important. And so I don’t see anything that I can point out and say that’s a recession.

I would call on the clip side, our contractor in Illinois is telling us that construction costs have not come down. And so there’s a cytome that’s been hoping for a recession because maybe construction costs would get lower. You could argue that we would benefit more from a recession because of what it would save us in construction costs going forward. And — but the short answer is we’re probably the wrong people to ask. We’ve got so many things going on. It’s hard for us to tell. Somebody like Penn National has got 25 casinos all over the country and doesn’t build much. It’s probably a better company to ask that question, too.

Chad Beynon: Fair enough.

Lewis Fanger: Yes. I was going to say, like, if you look at Silver Slipper in particular, and to Dan’s point, we do have a little bit going on. Our admissions are down, but we also have a ’21 and over policy today that we didn’t have a year ago. You have to enter the casino to go to the buffet as an example. So you would expect admissions to be down. Wind per admission is up. But again, the denominator is down, so you’d expect that number to go up as well. Rated play seems to be pretty solid. We are seeing more rated players these days versus unrated players. So maybe some of the froth of the unrated play is going away, but it feels like the rated customer is still hanging in there for what it’s worth.

Chad Beynon: Okay. Good to hear. I guess for a follow-up, any updates on the strategy for your remaining sports betting skins and potentially any future iGaming ones that you might acquire in the states that you operate?

Dan Lee: We have one still outstanding, which is in color. Indiana, one of the Churches ones in Indiana, and we have been looking for somebody to take it on. We haven’t found anybody yet in terms that make sense to us. If iGaming comes to the states we’re in, and I think it will eventually, we will look at whether we do a similar thing with outside parties kind of writing on our license or do we take it up ourselves. And it’s quite possible we’ll do both. In other words, if gaming is legal in a state and we have three skins, we might keep one for ourselves and licensed others. Most of you know this. We didn’t get into the sports betting business ourselves because as a small company, you can end up upside down on that if one of the teams in the Super Bowl is from a market we’re in, but the other team is not, we would be out of balance.

And we could move the line, but then we would not be providing as good a terms to our customers as our competition. And so we decided early on to leave it to people that have more experience in that field and just take a percentage of revenue. And that’s a reflection that there are certain games and notably the Super Bowl and basketball merged madness that are a very large part of the sports betting business. So you tend to have a lot of concentration on those events. In iGaming, where you’re allowed to play a slot machine online, that’s a large number of independent statistical events that’s the normal business we’re in. We’re comfortable with that. And you can lease or buy the software that allows you to run that website, the games themselves are owned by the slot companies, and they’ll license those pretty readily.

We would have to hire people who specialize in marketing websites, but there’s a lot of those people available. So it is a business we could do on our own, but it’s not yet legal in any market that we’re in. So if it becomes legal, it’s a business we’d look at pretty seriously. And we don’t — it’s also not something you don’t have to be giant like you don’t have to be a draft Kings or find to make money in it. I mean we do have mailing list in each of these markets. And so you go to people and say, “Well, if you can’t come in, if you’re one of the 40,000 people in our database in Illinois and you can’t come in or you ended up in the hospital or you ended up in a nursing home or you’re on vacation, but you still want to play your slot game we have a way for you to do it.

And so having that database of a physical casino gives you a market to advertise to. And you can go the other way around two and say, look, when you gamble online, you’re accumulating points that allows you to come and get a stay at our hotel. So we would — we don’t have to be a giant market share for it to be a profitable business for us. And so if it does become legal in the markets we’re in, we would probably try to do it in a financially responsible way.

Chad Beynon: Okay. Great. Thanks for the color, Dan and Lewis.

Operator: Next question comes from Edward Engel with ROTH MKM. Please go ahead.

Edward Engel: Hey, thanks for taking the question. On the dealers in Bocian, just curious if you have any time line when you could be closer to being able to operate 40 to 50 tables on the weekends. Could that happen by the end of the year? Or is that kind of just an issue goes on progression?

Dan Lee: We’re probably a month away to be able to have 40 to 50 tables in a week. We’re getting there. So recognize that the — where we are, the people who had dealer experience were already well embodied at rivers in the [indiscernible]. And so we’ve had to reach out and be creative. So we are paying relocation costs for dealers who are experienced and might live in the middle of Wisconsin or something, and we’re training dealers from scratch, and we are getting there. And by the way, we’ve learned from that in Colorado. So we’re trying to get ahead of the game in Colorado. But in Colorado, the existing dealers at existing casinos are looking at our building, which kind of is pretty impressive in the town and drilling over the tips that they make at our casino.

So it’s probably an easier task. But even there, we are reaching out to dealers who might work at tribal casinos in Oklahoma and New Mexico, and so on. And so we’re trying to be ahead of the game, so we make sure we have enough dealers to operate the full table game pit when we open in December.

Edward Engel: Helpful, thanks. And then for winter sport, the Serta Sportsbet opened in September, just curious if there’s kind of any marketing events planned and I would assume that would be on their expense some rain yours?

Dan Lee: Well, the online — the in-house circuit place, we share the income from it. And we haven’t really worked out the details, but we would certainly publicize it and have some sort of event, but I don’t think it would be particularly expensive. So…

Edward Engel: Helpful, thank you.

Dan Lee: Yes. I mean we’d be silly to open it and not publicize it, but it’s not $1 million marketing cost. So Probably have time for one last question.

Operator: Time for all the questions, and it comes from John DeCree with CBRE. Please go ahead.

John DeCree: Hi, Dan. Hi, Lewis, thanks to squeeze in me here. Maybe two questions. And just to circle back to the topic today, which is the margin at Lachegan. I wonder if you could speak to where you think you can get the margin to at the temporary. And in that outlook, what’s kind of the order of operations? Is it more cost normalizing on labor, preopening and marketing and some of the things that you’ve talked about? Or is the bigger driver of getting that margin up really the additional revenue that you’d expect as the facility continues to ramp?

Dan Lee: A little bit of both. I mean, as the revenues continue to go up, and you can see from the numbers, the number of admissions are going up, the revenue per admission is going up. That affects our gaming tax, of course, higher revenues, the higher gaming tax, but it doesn’t really affect the payroll very much. You have the same number of security goes. The slot machines are — the revenues on the slot machines could go up 50%, and our payroll probably wouldn’t go up 10%. And then on the marketing side, you gradually get more efficient. I mean marketing never goes to zero. But right now, we’re trying to tell people in this new campaign that you can’t judge a book by the cover. If you looked at the outside of the tent, you got to come inside and look at it.

So there’s that. And actually, in my last question, I want to point out that one of the challenges in Illinois is the way the regulatory system works is they go through lots of different checks and balances and so on. And all of a sudden, they’re likely to say, okay, you can open the sport book. And so I didn’t want to give the impression that we would have a great big party on the operated sportsbook. It’s like literally you open the sportsbook and then you figure out how to advertise to people that you have it open. And so there will be some cost involved. I think the person who asked the question kind of says is they’re going to be a marketing event. There’ll be some marketing dollars. I don’t know if there’s necessarily an event. But it — this all takes time.

You also — the other thing that happens in any new casino is you tend to have quite a bit of turnover. And you’ll open — I can’t remember when we opened Bellagio, we had 10,000 employees. And within months, you lost 1/3 of them, and it’s because they find that they didn’t really want to wear high heels all evening and serve cocktails or they didn’t really want to be a dealer or they didn’t really want to be a wait or whatever it is. And so those people leave and you have the recruiting and training costs to replace those. And then some portion of those leave and you have recruiting and training costs to replace those. And so it takes a few iterations before you kind of normalize into a stable workforce. And so even at the Silver Slipper, we have about — out of about 500 employees.

It’s about 300 who are with us year in, year out, who have lots of tenure with us and they’re happy and we’re happy and they’re the core and there’s like 200 that turns over every year or two. And so we’re trying to figure out that core. And in the meantime, you do incur additional costs with recruiting and training and so on. And so over — it’s all part of the maturation. I think if you had total access to all the data in the entire industry, I think you’d be hard-pressed to find a casino whose margins reached their highest point in their first full quarter of operations. Just it’s never the case. Your margins, in fact, sometimes you have no margin in your first quarter operation. And two years later, you get to kind of a normalized margin.

And in this case, normalized margin is probably 30% in Illinois. And that’s — it’s not higher than that because of a very high tax rate there. And with the gaming tax in Colorado, it could be higher than that.

John DeCree: That’s a good point, Dan, on the time to get to stable margins. I appreciate that color. Maybe a more detailed question, just to sneak one in to the extent you guys can comment as you spoke to the database a little bit as that ramps up. Curious if you could give us any insight into kind of your rated play mix at the property now and at least maybe some primers, how has that ramped over the last, call it, quarter and maybe where is it relative to what you’d expect at stable or some of your other operations to kind of give us some insight as to how much more runway you have to really get that database working for you?

Dan Lee: Well, we’re already in the high 60s in Illinois. Some other markets were in the 80s.

John DeCree: For rated play?

Dan Lee: Rated play versus total play. But that doesn’t — what am I trying to say, as you attract more people, you get more rated players as well and recognize that the 40,000 people, that’s the total names we have. Eventually, you start to figure out some of those names don’t come back, right? And other ones come in all the time. And so you — even within the 40,000 people, you start to figure out, well, there’s 10,000 of these people that are pretty important. It’s like any other business, 80% of the revenues come from 20% of the customers. And so you keep getting smarter and smarter at figuring it out. And we have customers at some of our properties who are with us more than 100 days a year, they’re in our casino. And you gradually learn who they are and what they like and what appeals to them and what’s important to them.

And a lot of times, they’re either independently wealthy are retired, and it’s just what they do for their entertainment. And — but until you know who those people are, you’re flailing around a little bit. And — but that’s part of the normal maturation of a new casino. So just like any other new business, I suppose, I mean, if you open a clothing store just because somebody came in and bought a tie, it doesn’t mean you’re going to see them every month. I don’t know if does anybody buy ties anymore. But any way, you get the deal.

John DeCree: Thanks, Dan. Appreciated. Thanks, Lewis.

Lewis Fanger: I think we’re done.

Dan Lee: Okay. Thank you, John. Thank you, everybody. We’re very busy. And over the next six months, this will all normalize out. And we’re very excited to get Chamonix open and then eventually to get going on permanent, but we’ll get going when the time is right. So thank you.

Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.