Full House Resorts, Inc. (NASDAQ:FLL) Q2 2024 Earnings Call Transcript

Full House Resorts, Inc. (NASDAQ:FLL) Q2 2024 Earnings Call Transcript August 7, 2024

Operator: Ladies and gentlemen, greetings, and welcome to the Full House Resorts Second Quarter 2024 Earnings Conference 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. Please go ahead.

Lewis Fanger: Thank you, and good afternoon, everyone. Welcome to our second 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. And with that, I’ll kick it off and let Dan fill in the gaps here. We’ll start just with a quick comment. We do have some slides on the website. We recently had about 35 investors here at Chamonix in Colorado, where Dan and I are today to show off the place. It’s quite a beautiful property as we heard from not just the investors that saw but pretty much everyone that’s walked through the door. We continue the phased opening of the property during the second quarter, 980 Prime, which is our high end steakhouse opened in April. The rooftop pool and portions of the spa opened in May. The balance of the spa is imminent.

It should be in the next 2.5 weeks or so. And then we have a jewelry store that should open up before the end of the third quarter. And with all of that done, the core Chamonix project will be complete. There’s one other item that we do want to focus on, not quite yet, but there’s an old restaurant, an old steakhouse that was at the old Bronco Billy’s. We are eventually turning that into an Italian restaurant. But for the core project, we’ll be essentially done here in the next quarter. At the property, we did generate positive EBITDA. We certainly are looking for a lot more than what we made here in the most recent quarter. It was about $600,000 of positive EBITDA. But a lot of promising signs coming out of that opening. If you look back in January, we sold 2,100 rooms at Chamonix, that’s ramped up pretty massively as the months have gone by.

As you and we would expect, in June, we were around 5,900 rooms sold. And here in July, we closed out with a little over 6,500 rooms sold. Gaming revenues at Chamonix more than doubled versus a year ago. And maybe an interesting thing to look at is if you look at the city of Cripple Creek, revenues there grew by about $4.5 million. We grew by about $5.6 million. And so we made up all of the city’s growth and then some. If you look at the state’s revenue growth, they grew by $9.6 million. And so again, we made up a mass — a significant majority of the whole state’s revenue growth during the quarter. Our market share in Cripple Creek has climbed from about 21% in July — I’m sorry, in January to almost 26% in June. The database continues to expand.

A year ago, we were collecting about 1,000, sometimes 1,500 sign-ups every month in June, that number was up to 4,000. In July, it’s up to over 5,000 new sign-ups into the database. And that’s important as we continue to try to just get word out on the property. One of the more promising things that we’ve seen here so far is 21% of our sign-ups are coming from the Denver market. We’ve long talked about how Colorado Springs will be the bread and butter for our business here. And so because of that, we’ve always talked about the 1 million people that are in Colorado Springs, Canyon City, Pueblo, Woodland Park, all those cities that are right around us. What we haven’t really talked about is Denver, especially those southern suburbs of Denver, which with Denver traffic, a lot of those southern suburbs are closer to us than they are to Black Hawk.

And so that area is really gravy for us as we think about the longer-term potential for this property. The fact that they’re making up 21% of our new registrations into the database is a pretty promising sign. On the opportunity side, table games continues to be an area that we target for improvement. Year-to-date, gaming revenues, so far, the table games side have been about 5% to 6% of total gaming revenues that should be 20% or higher. And part of that, quite frankly, is we’ve been in a town that, for the past 25 or 30 years, has been seen as a casino destination with nothing inspiring. And what we are bringing for the first time is true luxury product, what we think is the nicest casino in the state, beautiful rooms, a phenomenal restaurant, but we still have to overcome 25 years of branding.

And so we’re still in the early innings of chasing that — changing that mentality. American Place, in the second quarter, we had some summer seasonality that if you look back several years, you’ll see it year in, year out. June, July, August, it is there. Revenues for us in the quarter were up about 34%. EBITDA was up 84%. And so we’ve got a relatively fixed expense line there. And so as revenues continue to climb, you should see an outsized bottom line impact. Sports skins, I’ll just highlight for you really quick. We had a little bit of activity there. We did lose one skin during the quarter here in Colorado. And so we did have the acceleration of some market access fees in the second quarter. We also had two skins that previously were post paying their annual minimums and had — we had not received payment for those annual minimums.

And so for the last several quarters, what we have been doing was effectively creating a credit reserve against the receivables balance there. We settled that here in the third quarter. As a part of that settlement, we will receive a $2.05 million payment during the third quarter. We also agreed to reduce the annual payment amount, but we also are now getting that amount prepaid versus postpaid. At Grand Lodge, we did extend our lease. That was due to expire at the end of this year. We’re pushing that out 10 years to December 31, 2034. And I think that’s really all that I had, Dan. So feel free to fill in some gaps there.

Daniel Lee: Yeah. I don’t want to be repetitive with what Lewis said, but I would characterize it a little differently. First up, I want to make clear, when Lewis says, we sold that many rooms, he means room nights. And if you do the math, we’re running, in July, like 65% occupancy, which is filled on weekends and not filled during the week. And we have a big push now to try to make sure we fill every night of the week, and we’ll eventually get there. And that’s typical of the new casino. But if you went back and looked a year ago, we were talking about American Place having opened in February, and we were gradually extending the hours of operations. It took us a while to get approval to run higher table minimums. We were finishing elements like the race and sports book opened later.

The steakhouse didn’t actually open until February of this year. We were building employee base and a customer list. And since we lapped February of last year, the revenues have been running up 30% to 40% above the prior year. Expenses don’t rise nearly as much, and so the income is up significantly. And that’s really the story of the second quarter. It was American Place made really good money in the second quarter. It’s now one of the more profitable casinos in Illinois. And we think that will just continue to be the case. And we have until August of 2027 that we can operate the temporary casino. We intend to have the permanent casino done before that, which means breaking ground roughly a year from now. And we have at least a year, probably more like 18 months, to put the financing in place, and we’re confident we’ll be able to do that.

But I think if you think of where we were a year ago at American Place, that’s kind of where we are now in Colorado. And so we are still opening things, like Lewis said, the spot. And you get the things open and like we now have four masseuses, they’re very busy when we have them. We need about eight or 10, so we’re trying to hire people. We are hiring casino host. We’ve hired some. We want to hire more sales and marketing reps. We have a new head of table games. We hired from Fontainebleau who had a long history with Harrah’s, and he’s terrific. We’re hiring salon people. So there’s all this stuff as we build and stabilize our employee base, but we’re also building the mailing list and all of that. And so a year from now, hopefully, we’re saying the same things that the revenues here are up 30% to 40%, and the expenses are not up as much, and we’re making pretty good money and that would be the normal maturation of a casino, and we’re doing well.

The Silver Slipper, by the way, had a rough first quarter, but a much better second quarter. We mentioned that John Ferrucci is retiring, who’s run it really since inception and has a well-earned retirement. And we’ve opted to promote Angie from Rising Sun to go back to the Silver Slipper where she started, but she’s now been running Rising Sun for quite some time, and that will be a nice smooth transition. There’s always some benefit of having a new set of eyes. So while she — John is her mentor, really, but bringing new energy and a new set of eyes, we think the Silver Slipper will continue to do well. It used to be — it was our dominant earnings contributor, and it will continue to be a significant earnings contributor. But at this point, it’s just one leg in a three-legged stool.

And so we will have Colorado, Mississippi and Illinois as being the bulk of the company. And then, of course, we make decent money at Grand Lodge with very little investment. And then we have Fallon and Rising Sun hanging in there and then the sports stuff. Liquidity wise, we’re in good shape. We’re gradually using up the restricted cash to complete the last things here in Colorado. We’re almost done. Lewis mentioned a few things. He — the parking lots are still temporary paved. We will finish that this fall. And otherwise, Lewis covered it all. And I guess that’s it. I think we’re in good shape. The earnings are good. We’re producing quite a bit of cash, and we’re watching for an opportunity, not immediately, but somewhere out there when the bonds — the bonds become callable at I think 102 in February.

They’re callable at a higher premium today and somewhere between February of 2025 and maybe February of 2026 is when we would look to perhaps issue a new bond to pay off the old bond and use some incremental money to go build the permanent American Place, which we anticipate to cost about $325 million. There’s other ways we can finance it, but it’s our guess that, that will be the least expensive way to do it. We can always turn to the REITs as some of our competition have. But ultimately, that’s very expensive capital that you can’t repay. And so we still own either all of our real estate or where we have leases. In every significant case, we have the right to buy out the lease. And so we have kind of a more traditional balance sheet than a lot of our competition does.

Anyway, that’s it. Happy to take questions.

Q&A Session

Operator: Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from the line of Ryan Sigdahl with Craig-Hallum Capital Group. Please go ahead.

Ryan Sigdahl: Hey, good afternoon, Dan, Lewis. Thanks for hosting us last month as well.

Daniel Lee: Yeah, you got it.

Ryan Sigdahl: I want to start with Chamonix. Good to see positive EBITDA, obviously, looking for more as it ramps. But can you walk through the monthly progression on EBITDA, specifically there throughout the quarter? And then if you’re willing to comment on July, that would be great.

Daniel Lee: We — in the quarter, it’s gotten better every month since it opened. July, it’s still preliminary, but we’d probably make $1 million in July roughly and — which is up from June, and that’s pretty preliminary. And that’s obviously not an acceptable number if you’re looking at the investment that would not be enough, but it’s trending the right way. And as we get the mid-week occupancy up, right now, we’re running a lot of promotions where we offer anybody who has a — we bought certain mailing lists of people who have demonstrated proclivity to gamble, and we’re offering them a free night stay on a Sunday through Thursday basis, which is helping our occupancy. Then we look at whether they actually play or not and based on whether they actually play or not, we invite them back.

And so there’s kind of a cycling through people to try to help build the mailing list of known gamblers. Lewis mentioned, we have fighting a little image, and we hear it all the time, Cripple Creek had become known as a downscale slot grind operation place. And people walk in here and I heard it this morning, I was joining the Board of Directors round and a woman from nowhere, said, holy cow, what a terrific place. We had no idea this was up here. The Board accused me of planting here, but I didn’t and we hear that all the time. And it’s a little frustrating because like how many ads do I have to run in Denver and Colorado Springs to say there’s a new place up here? But the fact is every new casino says that they are the best thing since sliced bread and most of them aren’t.

And ours really is. And so it takes time to kind of overcome those prejudices and for people to realize that this is really a sliver of Las Vegas, plunked down in a historic gold mining town in Colorado. You almost don’t even want to say the word Cripple Creek because we’re — there’s this negative connotation of Cripple Creek. And by the way, the Mirage had the same issue in 1989. No new casino had opened in Las Vegas in decades, and it was all about cheap buffets and sleezy entertainment. And Steve Wynn reinvented the town with the Mirage.

Lewis Fanger: By the way, so did Black Hawk, if you go back to the early 2000s.

Daniel Lee: Yes. Black Hawk had the same issue with — when Ameristar opened. And Ameristar overcame it and Monarch followed and the Mirage, of course, overcame it. And so we’ll wait. I mean we are reinventing this town, and it doesn’t happen overnight, but it does happen and it’s happening every day. Last Saturday, the place was jammed. We had one of the best revenue days since we opened, and you could not get a seat at the table. And it was the first time I’ve been here where I started to think, okay, maybe we do need to open. We have a second pit, the old pit in Bronco Billy’s. And I thought on some weekends, we’re going to have to open that second pit because you couldn’t get a seat at the table game pit. We have a little speakeasy bar that we just completed a couple of weeks ago.

And it’s like one of those hidden bars that you don’t tell anybody where it is. But if you’re wondering around, there’s a moose on a door. And if you see a moose on the door, that’s it. It’s the Lonely Moose Bar for lack of a better name. And I poked my head in to see if anybody was in there. The place was jammed, every single slot machine was being used at the bar. There were some seats if you weren’t in a slot machine. But I said — to the bartender, I said, no, you’re really checking to make sure these people are gambling, you’re not just giving away booze. He’s like, the guy two tables over just put in $1,200 in the slot machine, I said, okay, keep serving drinks. So you’re finding its gradually working and it will work. And — but people on Wall Street sometimes think you open the door and it’s immediately profitable.

It takes some time. But this will be a successful casino a year from now, five years from now, 10 years from now, 20 years from now, just as the Mirage and Bellagio and L’Auberge and so on are.

Lewis Fanger: And Monarch and a lot of other ones, yes. Look, a little more to add. What we’re going through in real time is we have a database of customers that are accustomed to going to a product that’s one star in quality, right? That’s what this town has historically been. And over the coming months, we continue to build that database to fill those rooms. A year from now, we’ll be kind of lifting that database tied up, if you will. And so better players will start to get into those rooms weekends. And then as time goes on from there, we’ll start getting better players in midweek. If you look at July, as an example, we hit a new revenue — gaming revenue record in July. I think we probably, as I look over at Baxter, I think we had a revenue record in June, right?

And so as every month goes by, the revenues get better and better. July was right around 15% plus better than what we did in June on the gaming front. And so look, everything that we see is everything that we wanted to see in this building. It is beautiful. It is unparalleled by anything else in this city. I would argue it’s unparalleled by anything else in this state. And the response — the number of times today and yesterday that people have said, this is my new place. I’ve lost count. It is — this casino is going to be doing everything that we expected to do.

Daniel Lee: I do want to point out, most of the costs of running it we’re already incurring. So we would like to hire more masseuses and we need to hire some more salon people and maybe some casino host, but 90% of our operating costs we’re already incurring. And our revenues are still building and have a long way to go to where we expect them to be, and we’re already profitable. So that’s where we are.

Lewis Fanger: I just want to make one more point to put things in perspective. But if you look at the full year last year at American Place, and I’m going off of memory, I think we did $17 million maybe $18 million of EBITDA for the full year. For the first six months of this year, I mean, I think we’re at $15 million. So we’ve almost surpassed what we did all of last year at American Place in just six months. You’re going to see the same thing all over again, to Dan’s point, with Chamonix here. It’s — we feel very good.

Daniel Lee: It’s the normal maturation of a successful casino. And we’ve done a lot of them. And I remember L’Auberge, the first four months, people were like, how come you’re not making any money? And that’s made $100 million a year for 20 years since. [Multiple Speakers]

Lewis Fanger: 30 now, yes.

Daniel Lee: Yes. Okay.

Lewis Fanger: So anyway.

Ryan Sigdahl: Very good. I’ll make the second one quicker here. Lewis, what is the new run rate for your sports skins absent the one-timer in Q2 and what will come in Q3, but what’s kind of the new contractual quarterly run rate…

Lewis Fanger: The annual is about $5.6 million, but it moves up over the coming years. So — but the current year is where it will bottom at, is at $5.6 million.

Daniel Lee: It used to be flat now, it’s one time it grows (ph). [Multiple Speakers] That’s assuming we don’t find any new partners.

Lewis Fanger: Yes. Very good point, Dan.

Operator: Thank you. Our next question is from the line of Jordan Bender with Citizens JMP. Please go ahead.

Jordan Bender: Great. Thanks for taking my question. Maybe to just follow on the prior conversation. Good to hear on the room nights on the weekend in Colorado. What are you seeing in terms of group and convention mix to get those midweek rooms filled as well?

Daniel Lee: Honestly, we’re a little behind on where we should be. We hired one woman 18 months ago, I guess, as a one-person sales force. We just hired a second, the woman who is in charge of doing corporate meetings in the resort community of Estes Park, just joined us a couple of weeks ago. We need four or five of these people. I mean The Broadmoor more has 900 rooms and does a very large meeting and convention business, and we understand they have 18 people in their sales and marketing office. We should have four or five. So we are in the hunt to find more, and that is one of the secrets of filling the midweek business. Now we do have some midweek business. We had the state VFW convention was here about a month ago, and it was really kind of nice to have the place very energized during the week.

We have a professional dart championship who was here a couple of months ago, and they’re coming back in a week or two, and they help fill midweek. It’s like 180 rooms for four nights during the week. But we have a ways to go on that. I mean and…

Lewis Fanger: VFW was 300, I think offhand. Yes. So…

Daniel Lee: This stuff gets booked in advance. And it’s hard to get somebody to book into a hotel that’s not yet opened because you can talk all day about how terrific it’s going to be and when it’s going to open, but the meeting planner is very hesitant to do that. And so we’re kind of in that window now where now we’re open. We’re actually sitting in one of the meeting rooms here, which is gorgeous. And so now we can show people the building and book those meetings, but there’s a long lead time on that. So it’s a business we have to build gradually. Something I pointed out to some people, it’s worth mentioning here again. It’s very key in Las Vegas. Las Vegas fills on weekends from people driving over from L.A. and always has.

And it fills the midweek with meetings and conventions. If it wasn’t for that strong meeting and convention business, Las Vegas would be far less successful. Well, the growth of Las Vegas has, to some extent, come at the expense of Scottsdale or San Diego or Hawaii. And let me explain that. If you — let’s say, you’re the person at Microsoft, who’s going to have your annual software planning convention and you’re trying to figure out where to go and you need 5,000 room nights or something. And if you call the Marriott in San Diego that’s on the waterfront, it’s a large hotel, does a lot of meeting room business, it’s quite a nice hotel, they’re going to quote you $400 a night for that room. And if you call the Venetian in Las Vegas, which is, say, an equivalent hotel, they’re going to say $200 a night.

Now the Venetian knows each of those software writers is going to dig into their own pocket for another $200. So they’re getting $400. They’re just getting $200 of it at the slot machine. But the guy at Microsoft, who’s making the decision of where to go, as long as the meeting — as long as his software engineers are indifferent. If the software engineers are saying, well, we’ll go to Las Vegas, we like Las Vegas. He’s going to pick Las Vegas over San Diego every single time because it hits his budget less. And so the growth of Las Vegas has come at the extent of the traditional hotel business in other markets. The same thing is true in the regional markets. And so people don’t quite recognize it. But if you’re like the Colorado Department of Courts, Colorado Association of Court Stenographers, who I ran into some time ago at Ameristar, they have an annual convention.

And if they’re thinking of having it at the Gaylord Hotel by the Denver Airport or up in Black Hawk or here in Cripple Creek, we’re going to undercut that Gaylord Hotel every day of the week because they don’t have slot machines. And so it takes us a while to get there, but we have a big competitive advantage against the traditional hotel business, and we will get there eventually.

Jordan Bender: Awesome. And then just my next question here. For American Place, it’s running high 20% margins really in the trailing 12 months in the quarter flow through of 50%. Are there still cost levers to pull at that property to get the margin over 30%?

Lewis Fanger: Focusing less on that and focusing more on the path to take it from $9 million of monthly revenue towards $10.5 million of monthly revenue. That is our more immediate goal right now.

Daniel Lee: The other answer is yes. I mean it’s more in the marketing. You get the marketing more focused. And as you build a better mailing list, you could be more focused on the marketing and spend it in ways that really drives the gaming. So there is some cost efficiencies on the marketing…

Lewis Fanger: There are.

Daniel Lee: We also want revenue growth. But can we get to a 30% plus margin? Yes, we can.

Lewis Fanger: Yes. I mean if you want to get into our heads a little bit there, we’re trying to strive towards $10.5 million of monthly gaming revenue consistently with north of 30% margins. And with that, you’re north of $40 million a year of EBITDA.

Jordan Bender: Awesome. Thank you very much.

Operator: Thank you. Our next question is from the line of Ricardo Chinchilla with Deutsche Bank. Please go ahead.

Ricardo Chinchilla: Hey, guys. Thanks so much for questions — for providing so much detail on how you guys are thinking about financing. I was hoping if you could give us a little bit more in terms of — currently, how much of those $325 million, do you guys anticipate financing through these new bonds that you take out the existing structure? And as you mentioned, one of your competitors just recently did a REIT transaction that is kind of creative versus to finance the property rather than doing sale leaseback transactions with their existing real estate. Is this something that you guys would consider at some point? Also, any color on these points would be very appreciated.

Daniel Lee: Well, I don’t want to cast dispersions on any particular competitor, but we’re trying to be very methodical about not biting off more than we can chew and finding ourselves in a position where we have to go for very expensive capital to get things done. So while we are ambitious and aggressive, we are thoughtful about doing it. So obviously, a good chunk of the cash flow — we expect to generate quite a bit of internal cash flow between now and August of 2027. I don’t want to quantify that, but you could run the math. It will be significant, and that can be applied towards the $325 million. So we don’t need $325 million of additional financing. It’s probably more like half to 75% of that or something like that. And if you start running the math on what our leverage is, as American Place matures, as this place matures, Chamonix, we will be one of the less levered casino companies.

And then it’s pretty easy for us to refinance our bonds, which mature in 2028 anyway. It’s not like they have a long time to go. And so you go refinance those bonds with enough extra money to fill in the gap. And I think we’ve done quite well for bondholders, both at this company and in our prior lives. And so I think we have a good reputation in the bondholder community, and I’m confident that we can do that in pretty good terms. I’ll also point out that even the new bonds probably aren’t outstanding all that long because the permanent American Place casino should make quite a bit more than the temporary. And so even the new bonds are probably only out there until we refinance those at their first possible call date. And bondholders love that.

They get called out of the one bond and they get a new bond at a little bit discount to pay. And we will negotiate over interest rate. Of course, we will. But whatever that interest rate is, we’re not — we don’t anticipate paying it for very long.

Lewis Fanger: We — I’m trying to think of what I can add there. In terms of structure, we aren’t trying to be — we’re not cemented to any sort of structure. I mean we tend to like good, simple structures generally. I like what we’ve done historically, where we have a large slug of bonds. I’d like to have a much bigger credit facility than we’ve had historically and have the ability to draw down on that revolver to pay for the permanent American Place casino as time goes on. That way, we’re not out of pocket for a whole ton of interest until it’s needed. And so look, we run through all sorts of variations. The reality is the whole world is going to change over the next six months or nine months or whatever it is, a year before we end up finally pulling the trigger on this, and that’s okay. And so whatever I tell you today is probably not going to be what actually happens when we rebuy.

Daniel Lee: Lewis is trying to keep our flexibility, but I will make one firm commitment. At $5 a share, there is zero chance we are issuing equity or equity-related entity for this financing. We don’t need to do so. It would be ridiculously expensive at these prices. So you can take any idea of equity or equity-related issues of the financing because that will not happen.

Lewis Fanger: And I don’t think we need to for what it’s worth. I mean, look, we have a whole slew of banks that have trotted through these doors. I’ve got one more coming in here tonight for dinner. I’ve got one more coming in on September 10. We have another group coming in at the end of September. The — there is — the financing want is there. There are people that are showing up by the germs (ph) that want to help us with this financing. So I don’t worry about it. Now for us, it’s starting to think about timing.

Ricardo Chinchilla: Perfect. For my follow-up, I just wanted to ask if you could give us some color or some numbers with regards to CapEx for American Place next year? And what is your maintenance CapEx going forward that you guys now have a new facility, but do you guys want to keep in great condition?

Daniel Lee: Yes. You’re a little broken up, but I think I heard you. The American Place, the commitment with the state is to invest an incremental $325 million above where we are today. Now the total commitment was $500 million, but quite a bit of that went into the temporary, including like the $50 million license fee and $25 million of slot machines, which are really part of the permanent. So right now, the CapEx is pretty small. It’s kind of designing the place. Since we originally started working on the design, Durango Station opened, and I actually think they did a very nice job in Durango Station. So we are kind of redesigning some parts of it based on what we can learn from Durango Station. They did some pretty creative stuff that was very thoughtful and the place is very successful already.

It’s only been open a few months. And so there’s like some of the design fees. There’s still a lawsuit from the Potawatomi tribe, who was not chosen for this license. So they sued the Gaming Commission in the city. The Supreme Court is expected to take that up in the fourth quarter, and we expect a decision in the first quarter. So the money we’re spending at this point is really just design fees and it’s pretty de minimis. When you start construction, initially, it’s really just the bulldozer moving dirt around, it’s not very expensive. So most of that $325 million ends up being back ended, meaning between — like if we break ground in August of 2025 and then we open in August of 2027, two-third of that $325 million would be spent in the second half of that two year construction phase.

So you can do a little spreadsheet to try to figure out how that falls in calendar quarters, but that’s approximately how it would fall.

Lewis Fanger: You’ll tend to spend 40% to 50% of that budget in the last six months. So it’s extremely back half weighted.

Daniel Lee: And some of it is post opening.

Lewis Fanger: Yes. Absolutely right.

Daniel Lee: Just like here, we’re still spending some money. We’ve been open six months.

Lewis Fanger: Yes.

Ricardo Chinchilla: Great. Thank you so much for taking my questions.

Lewis Fanger: Thank you.

Operator: Thank you. Our next question is from the line of John DeCree with CBRE Securities. Please go ahead.

Maxwell Marsh: Hi. This is Max Marsh on for John DeCree. Hi, Dan, Lewis. Thanks again for hosting us at Chamonix and American Place. Thanks for taking my questions. Looking over to your same-store performance. It looks like trends from 1Q have continued into Q2 despite your callout that Silver Slipper is showing improvement. It would be helpful to get your view on high-level causes there, if there’s any property or market specific conditions or maybe something more broad-based?

Daniel Lee: I don’t know. I kind of anticipated somebody would say, if we have a recession, how does that affect you? And it’s kind of like we’re a regional casino company. We — generally, regional casinos do pretty well in recessions. And the issues we’re dealing with, they’re more like how come we can’t get the tonal machines to work properly in the spot because customers are complaining, right? And so it’s hard to think about what a recession means. I don’t think a recession would affect us much, if that’s kind of what’s behind your question. I already mentioned that the Silver Slipper had kind of a rough first quarter. Some of that was weather. Some of it was maybe we didn’t market quite right, and it came back on in the second quarter to be much stronger.

It still was a little bit behind the strong results of the prior year second quarter, but it was close. And so I think the Silver Slipper makes in the high teens every year and has for quite a while, and I think that will continue to be the case. But the run rate at the first quarter was below that. And then…

Lewis Fanger: By the way, finished out the second quarter — second half of the second quarter was better than the first half. So trends coming out of the quarter were actually picking — were actually better.

Daniel Lee: Yeah. And up in Incline, it’s very summer seasonal. We didn’t have a great June, but it looked like we were going to have a great July. I haven’t seen the numbers close yet, but it looked pretty promising last I saw it. And August is also important up in that market. We’re very — recognize we have operated that place now for 10 years, I guess. And it was always on a short-term lease that would get extended and re-extended and re-extended. They’ve always had the right to buy us out on short notice by paying us certain fees. They never have. We’ve got a good relationship with them. And so it was nice to have this turn into a 10-year extension, although they still have the right to buy us out at a certain fee. So it’s still kind of essentially a short-term basis.

We have very little investment there and we make a few million dollars a year. So we’re happy to run it, although it’s not one of the main legs on our three-legged stool. Rising Sun is a pretty small earnings contributor to us, a pretty big footprint. We think it could be an interesting asset in other ways. It’s — Angie has done a good job in a very competitive market. So we’re hanging in there with it. And…

Lewis Fanger: American Place. I mean, look, American Place continues to hold its own. I will highlight for you just — since the numbers will come out any day now. July for us, we had hold that was 700 basis points lower than the prior year. It’s good — I mean, good and bad. We have a lot more table games volatility there, but we have that volatility because we are getting much better players in the door than we did a year ago. And so just know that when those July numbers come out, they’re still pretty solid numbers, but we had some pretty off-table games hold in July.

Maxwell Marsh: Great. Thanks for that guys. And as a quick follow-up. To the extent that some of those legacy portfolio has been made relatively less core with those new properties as you put it, the three legged stool. Are you looking at potentially monetizing any of those less core assets for financing of the permanent?

Daniel Lee: We are always looking at opportunities to improve our portfolio. But we have nothing to report at the moment.

Maxwell Marsh: Okay. Thanks, guys.

Daniel Lee: Yeah. Thank you, Max.

Operator: Thank you. Our next question is from the line of Chad Beynon with Macquarie. Please go ahead.

Aaron Lee: Good afternoon. This is Aaron on for Chad. And good to see you guys last month. So I wanted to start with Chamonix. Nice to hear that 21% of your sign-ups there are coming from the Denver market. Do you have any data on how many people are actually making it to the property and what their behavior is like in terms of night stay gaming spend? Any color there would be helpful.

Daniel Lee: See, you have to be here to sign up. You can’t sign up online. And so of the people signing up, 21% have found their way here from Denver. We know from their Denver addresses, but — and recognize — I mean, Denver is a very expensive media market. We’ve done some advertising in Denver, but not that much. We’ve focused more of our advertising in Colorado Springs. And — but just like at American Place, we kind of had an advertising push initially to try to tell the world we’re here. But now we’re trying to focus more carefully on people who are more likely to gamble. I mean there’s — if you just buy a billboard along the highway between Colorado Springs and Denver, one-third of the people driving by are not old enough to gamble and another one-third probably wouldn’t choose to gamble.

And so you’re paying for a lot of eyeballs that aren’t likely to be customers. So we’re trying to focus in on people who are likely customers, maybe based on what magazines they subscribe to, what places they use ATM, how many big the ATMs are. There’s a lot of sophistication these days on how you can target people and how you approach them. And if you turn your computer on in certain neighborhoods, suddenly, there might be an ad. If your last name is Lee, like mine, the ad might be in Chinese, which would be a mistake, but it’s something you do, right? And so you were trying to get more and more focused because — listen, we have three major expenses, payroll, right? And that’s a matter of hiring the right people and you want to pay them appropriately and treat them well and turnover is expensive, so you want to try to reduce turnover.

Second is gaming taxes, and that’s baked in, and it’s largely variable, but it’s baked in. And the third is marketing. And marketing broadly defined, like are you buying them dinner in the 980 steakhouse? Are you advertising on TV? Are you paying casino hosts? It’s a type of marketing and so on and so forth. And when you start looking at how do you get your operation to be more efficient and certainly in the new property, marketing is the richest soil to go for is try to get more efficient. You don’t just cut it because that’s not appropriate. You’re not going to build your revenue, but try to get more efficient to it. And a lot of times, you experiment. I remember trying to explain to people when we open in Waukegan, at least here we had a casino.

So we had something of a mailing list. In Waukegan, we had nothing. And I characterized it to some of our employees, it’s like pulling up to Lake Geneva and you want to go fishing and you have never been there before. And you have no idea how deep the lake is or what type of fish they are or where they are or what they eat or what sort of bait. And you have to go out there and spend days, just casting around and trying a worm and trying a minnow and trying a spinner and in different parts of lake and you gradually figure out that there are walleye pike over in this little bay. I don’t know why, but that’s where they are. And it’s kind of the same thing. We gradually figure out that the people who live in Zion, Illinois for some reason, like to gamble and they come to our place, and we need to fish there a little more.

And that’s what it’s like to open a new casino, so.

Lewis Fanger: I heard maybe a different question in there, too, Aaron. So just like we’re trying to change the mentality of what Cripple Creek is, it’s still — there’s a similar — I’m at a loss for words. Typically, when people come to this town, they don’t stay for more than one night. And so one of the challenges we found is people are coming in on a Friday and checking out on a Saturday and they’re not checking out on a Sunday. And so just as we’re looking to upgrade the database and get more people into it, there’s also an active push to turn what would typically be a one night stay into a two night day or a three night stay. This is all stuff that happens just as time goes by. So it’s just the normal gives and takes. But it’s — look, this market historically didn’t have a room for you to stay overnight at all. And that’s a big part of one of those branding things that we’re still trying to get over.

Aaron Lee: Understood. Thank you. Appreciate the color on that. As a quick follow-up. What does the competitive environment look like in Cripple Creek? And I know there really isn’t any competition on your level. So maybe the answer is that none of this really matters. But have you seen any competitors make any adjustments to their strategies in response to you? And how do you expect — do you expect any changes as we move through the summer? Thanks.

Daniel Lee: I will tell you, historically, our principal competitor, and I would characterize it almost as a friendly competitor because it’s professionally run, is a private company across the street called Triple Crown. And so with the two of us would kind of dictate the town of what should happen, we were the two most successful casinos in town. And Triple Crown is still quite successful. They’re directly across the street. They’re professionally run. And in fact, we’ve heard — we don’t — until we have that Italian restaurant open that Lewis referenced earlier, we often don’t have enough food and beverage capacity when our hotel is filled. And so we use one of our meeting room spaces as kind of a temporary buffet. But we’ve heard when our hotel is filled, they have long lines of their restaurants across the street, which they’re happy to have.

And that’s fine. And so they had — have had plans for a hotel that they talked about, but they don’t seem to be actually building it. We think they should, and we’d welcome it if they would, but there doesn’t seem to be anything happening on it. Also across the street from us is the original Century Casino, and I think Century is one of those companies that might have bit off a little more than they can chew. They had plans for a hotel at one point, too, and nothing seems to be happening at all. The other significant casino in town used to be called Wildwood and Tilman Fertitta bought it 1.5 years ago and changed it to the Golden Nugget. And it’s now one of the more successful ones in town. It was always like third or fourth. And today, it’s advised for second after us.

And Tilman is a good operator. And he hasn’t done much other than converted one of the restaurants into his Saltgrass Steak House. But I expect he will improve it, and I welcome that. And they’re a professional outfit, too, and will help grow the market. The real opportunity here is the gaming per capita out of Colorado Springs is about half of what it should be. And so I expect this market to grow significantly. We’re part of that. I think Tilman will be part of that and Triple Crown will probably be part of that. The other one in town, there’s a place called the Double Eagle. It’s old. It’s run down. The two owners — the second of the two owners has just died. So it’s in probate. And it’s like gaming capacity, but there’s nobody in there.

And then there’s two small places, which are now controlled by Michael [indiscernible] and some partners. And they freely admit that they want to be the place where our employees gamble. They’re quite small. And it will probably be a fine investment for them, but they’re very small. That’s the entire market. And it would not be easy to assemble a piece of land to build another big project in this town. It’s a bunch of small lots. It took us years to do it. And really, I think our principal competitor is really Monarch in Black Hawk, which is a very high-quality casino that does a very good job and they’re making, as I understand it, and they don’t break out Reno from — they only have two places, Reno and Black Hawk. The Reno one has been there forever.

So you can look back at what they used to make in Reno and look at what they’re making today and interpolate approximately what they’re making in Black Hawk, and it’s at least $100 million a year. And that’s phenomenal. And they have 500 rooms, we have 300 rooms, and we benchmark an awful lot of what we do against what they do because there’s no sense in benchmarking against the other places in Colorado Springs. That would be like four seasons saying we need to match what Hampton Inn does, right? So you look down the road at the Ritz-Carlton and say, we need to match the Ritz-Carlton. And so our steakhouse is at least as good as the one at Monarch. Our prices are about the same as Monarch. Our website, we look at what Monarch does, and we try to mirror Monarch.

And when I talk about hiring casino hosts, I keep telling people, go park yourself at Monarch and don’t come home until you hire two or three of their casino host. And I know Mr. Farahi is listening. And yes, I’m going to try to hire your casino hosts. And there we are.

Lewis Fanger: There you go, Aaron.

Aaron Lee: Thanks, Dan. Thanks, Lewis.

Lewis Fanger: You got it. We probably have time for one last question.

Daniel Lee: I say that jokingly. Mr. Farahi does a very, very good job. And the Denver market is also undercapitalized. And…

Lewis Fanger: But we do have the nicer casino, Dan.

Daniel Lee: Well, that’s a very nice one, too.

Lewis Fanger: Sorry, last question.

Operator: Our last question is from the line of David Hargreaves with Barclays. Please go ahead.

David Hargreaves: Hi. I want to echo what everybody said. Thank you for hosting, and Chamonix is absolutely fabulous. You guys have a coupon coming up on the 15. I’m just wondering, the escrowed cash, the $13.6 million, are you able to use that for the coupon? I’m just curious, is that a permitted use?

Lewis Fanger: No. That cash is really for the — for Chamonix’s purposes, but we feel fine making that August 15 payment will be made just fine.

David Hargreaves: Okay. Thank you very much. Great. Congratulations and good luck.

Operator: Thank you. Ladies and gentlemen, this concludes our question-and-session. I would now hand the conference over to Daniel Lee, President and CEO for his closing comments.

Daniel Lee: I just want to thank everybody for your support. And sorry if I picked on Mr. Farahi a little bit. But I mean it in a nice way. He does have a nice hotel, and his success has encouraged us. And even the fact that his company focuses very well on two key properties. And I take that as if all we do is focus on three key properties, it should not hurt our valuation. The portfolio managers can diversify on their own. We don’t have a need to be everywhere all the time, just make sure we do it right, and that’s — and he does it right. And we hope to do it somewhat as well as he does. So thank you very much, everybody.

Operator: Thank you. The conference of Full House Resorts has now concluded. Thank you for your participation. You may now disconnect your lines.