Full House Resorts, Inc. (NASDAQ:FLL) Q3 2023 Earnings Call Transcript

Full House Resorts, Inc. (NASDAQ:FLL) Q3 2023 Earnings Call Transcript November 8, 2023

Operator: Greetings, and welcome to the Full House Resorts Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lewis Fanger, Chief Financial Officer of Full House Resorts. Please go ahead.

Lewis Fanger: Thank you, and good afternoon, everyone. Welcome to our third 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.

We’re also broadcasting this conference call at fullhouseresorts.com, where you can find today’s earnings release as well as all of our SEC filings. And then lastly we do have some slides that we uploaded as well for you. If you go to investors.fullhouseresorts.com in the middle of the page you’ll see a banner with links. Click on company inflow and in presentations and you’ll see a link to the third quarter slides that we’ll reference here. So with all that said, we’ll get to your questions relatively quickly today, because I know MGM is on deck in about 30 minutes. But with all that said, we had a very strong third quarter. Revenues increased 73% to $71.5 million. That rise was helped out by The Temporary, which opened back in February of this year, and it continues to ramp up.

Compared to the second quarter of this year, The Temporary showed pretty meaningful sequential improvement. Revenues at The Temporary improved about 18% from $20 million in the second quarter of 2023 to almost $24 million in this third quarter. Adjusted property EBITDA rose 64% from $4.1 million to $6.8 million. Circa did open their on-site sportsbook at The Temporary in the third quarter, but really the meaningful addition that we’re waiting for is the high-end restaurant, which is on-site and going through its final paces. The hiring process has already begun, and we expect to have that open at the end of this year. Elsewhere at the company, we had $5.8 million of accelerated revenues from the termination of two of our sports skin agreements.

Even adjusting for that, though, we had a good quarter that exceeded consensus. Flipping forward in the slides to slide five, you can see our usual renderings of Chamonix. We’re very excited for this opening. If you know the history of gaming, then you know that the business model that has worked time and again has defined an underpenetrated gaming market without any differentiated product, and we think we found that in Cripple Creek. In our case, we have roughly 1 million people in the broader Colorado Springs area, and the gaming spend per capita is about $170 per person per year. For casinos that are within an hour of their feed-in markets, you tend to see a per capita number that is double or even higher than that versus what you see currently in Cripple Creek’s casinos.

The national average, which includes many states where casinos aren’t convenient, like Hawaii and Alaska and Utah, is two-thirds higher than what we already see out of Cripple Creek as well. And so that stat alone is what gets us very excited for our upcoming opening. But on top of all that, we’ve built a destination that really is unlike any other casino in the state, let alone in Cripple Creek. It is just beautiful on the inside. We think it will offer a compelling reason for Colorado residents to experience, and in many cases, Cripple Creek too, for the very first time, and then to continue to visit again and again. On slide six, just a quick reminder of what we’re building. It’s a quarter of a billion dollar project. It’s a beautiful new casino.

There’s a hotel with the first four-star product in the market. We’re going to have a great steakhouse called 980 Prime, which is being run by the people behind Barry’s Downtown, Prime at Circa, and 9 Steakhouse in Las Vegas. There will be a rooftop pool, a spa, an integrated parking garage. It will be pretty grand. Our opening date remains December 26th, which is just seven weeks away. We did create a fun ad campaign. It meant to generate excitement in the area while also getting a quick sneak peek into the building. And at the very bottom of that slide, you’ll see a YouTube link, which you can click on to get to the 60-second ad. On TV in Colorado, we’ll break it up into shorter 15-second spots, but we’ll also air the full thing digitally.

Slide seven, you can see the Valet arrival experience. In the middle is the Valet drop-off with the hotel rooms just above. On the left of that page is a jewelry store, and then in the front of the building and also to the right will be casino space. Slide eight is a sneak peek at our table games pit. By the way, these photos were taken about a week and a half ago, but they’re already pretty stale. But nonetheless, in this photo, you can see the chandeliers being installed. Slide nine is just me and us trying to show off the casino a little bit without ruining the surprise for you, but you can see some of the ceiling detail here. It really is very different than what you’ll see anywhere else in the market today. Slide 10 is a view from our ballroom.

The chandeliers are now installed. The carpet’s done, though we’ve got them covered for protection up until opening day. This is where we’ve been storing and testing all of our slot machines, all of which, by the way, have arrived on site. Slot bases are a few days away from being installed, and we’ll follow that very shortly by the slot machines themselves in their actual locations throughout the casino. Slides 11 and 12 are photos that we showed you last time, just giving you a sneak peek at some of the room product. Those are being shut off one by one as our furniture gets installed. And then slide 13 shows some of the beautiful nature views that you get from many of our guest rooms. Outside of that, a quick look at liquidity. Our liquidity remains in a good spot.

At the end of the quarter, we had $84 million of cash, including $58 million of cash that, by design, is reserved to complete Chamonix. Normal cage cash tends to hover around $10 million or a little bit more. Something that most people don’t think about is our sports skins and how those are prepaid. And so in this fourth quarter, we’re due to receive about $10 million in cash related to our skins. That includes $3.6 million already received in October from the terminated sports agreements, and then there’s another $5 million due from Circa in December, which is prepayment for their mobile operations in Illinois for all of 2024. We also have $13 million available under our credit facility, all of which is available for us to draw. And that provides us even more cushion as we prepare for what’s going to be a pretty big and momentous opening for this company at the end of December.

So with all that said, Dan, did I miss anything? Or do you want to do some Q&A?

Dan Lee: No, we’ll take some questions. And we’ll stay here as long as possible, but we are trying to make it easy for people to go to the MGM call because we know many of you will want to do that. But it was a great quarter. I’d be happy to talk about it for two hours. So we’re happy to take questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] First question comes from Ryan Sigdahl with Craig-Hallam Capital Group. Please go ahead.

Ryan Sigdahl: Hey, good afternoon guys, just if you could break down what you get a little bit more nice sequential revenue growth and margin uplift. But we’re really seeing the efficiencies flow through and then any directional help for Q4 relative to Q3 based on what you’ve seen thus far in the quarter?

Dan Lee: Let me take it. Just as we started this call, the numbers came out from Illinois for October, and we haven’t been open before. October is normally seasonally a little weaker than September, and in fact, I think it was down about 3 million from September to October. And of course, Bally’s open and did about 8. They did a little better than we did. They have a lot more people around them. And we were off a little bit from September to October, not very much. We were still 7.3 million. And I think part of that seasonality, part of it’s also we had a pretty big advertising campaign when we first opened. That had kind of petered out, and we have another one about to start, which kind of emphasizes the excitement of the inside of the tent.

So I think fourth quarter is not, this is not a highly seasonal market. We have some like Tahoe that is highly seasonal, but I think the fourth quarter might be a little weaker than the third quarter in terms of revenues. Now, we’ll see. Does the new advertising campaign build revenues? I hope it does. That’s part of the reason we’re doing it. We continue to build our mailing list, which helps our slot play. We’re trying to get our steakhouse open. It’s probably going to be late in the quarter, but we’re trying to get it open. We know that that’s pretty important, especially if you’re table game play and high rollers. And hopefully it’s open late in December and helps us drive New Year’s Eve. New Year’s Eve is really important in December, which then makes it important for the quarter.

But, the property continues to mature and it’s doing just fine.

Ryan Sigdahl: Good. Continuing on the trend of all performance, moving to the West segment, it has been revenue down each Q1, Q2. EBITDA has been roughly zero in each of those quarter. With the construction of Bronco Billy’s, and this quarter showed a nice improvement on revenue. And on the bottom line, I guess, can you comment on what’s specifically going on? Which properties within that segment are doing better?

Dan Lee: Well, part of what we had done at one point, we had renovated the middle part of the Bronco Billy’s casino. So a year ago, like the heart of it was actually closed. It’s been open now since early this year, if I recall correctly. So it wasn’t, it’s still heavily disrupted, but a lot less disrupted than it was a year ago at this time. But, the interim results out of Bronco Billy’s are minor compared to what Chamonix is likely to do for that segment. I mean, it’s not unlike what Monarch did in Blackhawk. They bought the old Riviera and added, well, renovated the casino and added the hotel tower and tore down a parking garage, built a new parking garage, etcetera, etcetera. They never actually closed their casino, but the old Riviera didn’t make much compared to what Monarch is making now.

And it’s kind of the same sort of thing we’re doing. And like them, we will open, but it’ll be kind of a soft opening. We’re not planning a grand opening party on December 26th or anything like that, because frankly, we’re scrambling to get open. And, and we’re hiring people now. We, of course, already have 150, 250 employees. We’re trying to pick up another 100. And we won’t have everything open on December 26th. Now, we will have 300 guest rooms, all the guest rooms. We’ll have the casino, all the casino. We’ll have the high-end restaurant. We’ll have the parking garage. We’ll have the surface customer lot. There’s an Italian restaurant that won’t be ready for several months after this. The spa will not be ready. There’s like a speakeasy bar that will not be ready.

But it’s a speakeasy, so nobody will know it’s there anyway. And, and you end up in a situation, like all the key drivers that will make this successful will be ready by December 26th. So you wouldn’t want me to wait two months until the spa’s done. I mean, we’ll go ahead and open. And so we’ll open on December 26th, and then as quickly as we can finish the other stuff. And that other stuff, it’s like the finishing work in the spa. So it’s not anything that would be disruptive to a customer’s experience. And so we’re excited about being open. And then we’ll have a grand opening party in the spring, which is very much the same as Monarch did. And I know Durango Station postponed their opening, but I think they figured they couldn’t get the publicity they wanted with Formula One in town.

And I think that may have been a factor of that as well. So we’re a little different. We’re much more similar to Monarch. We’re going to get the doors open, get some revenue coming in, and then build from there.

Lewis Fanger: And apologies if this isn’t what you’re asking, too, Ryan. But if you’re looking sequentially from 2Q to this third quarter, Grand Lodge actually benefited pretty nicely. What you had in the second quarter of this year was a lot of — well, you had a very bad winter, to be quite honest, and a lot of snow. And that snow lingered for the longest time. So usually what would happen in our second quarter around Memorial weekend is the locals would come back and start gambling again. And this year, because there was so much snow that was sitting around, they didn’t come back in the second quarter. They didn’t really come back until 4th of July weekend. And so sequentially, we got a pretty nice bump from Grand Lodge just having the locals back in town.

Ryan Sigdahl: Great. I’ll turn it over guys. Thanks, guys.

Operator: Next question, Chad Beynon with Macquarie. Please go ahead.

Chad Beynon: Afternoon, guys. Nice quarter.

Dan Lee: Thank you.

Chad Beynon: Wanted to start just kind of honing in on some of the OpEx items. It’s obviously been a topic on other operator calls this quarter, just in terms of labor, utilities, some different contracts. Understanding that probably most of your costs on the labor side are going to be coming temporary and then Chamonix. I guess you were kind enough to break out the Midwest and South. And it looks like margins were down a little bit, probably roughly in line with revenues. But can you just talk about kind of where we are on the inflation journey on the expense side, if you feel like things are under control, if you’re going to see additional creep in the back half of 2023 and beyond, or if things are kind of status quo there? Thanks.

Dan Lee: Well, obviously, at Chamonix, we have to hire people. And we’re in an isolated location up in the mountains. And so in some job categories, we have to pay up to attract people. On the other hand, the tip positions, if you visit the town, it’s pretty obvious we’re going to be the center of action. And if you’re a tipped employee, you’re going to make more money with us than you are anywhere else in town. So I think there will be okay. If you’re talking about normal inflationary pressure, six months ago, I was getting a lot of pushback. And it was kind of like the press would say inflation year over year was up 7%. And so it seemed like every employee wanted a 7% raise. And I’d point out that our revenues at most properties were not up 7%.