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%.

And that in the inflation index there are things like cost of houses or cost of a new car. And that if you didn’t buy a new car, if you didn’t buy a new house, your cost of living didn’t change. And you push back. I think now that you’ve had lower, or at least press articles of lesser inflation and things like that, a little bit of that pressure has gone away. The last employment statistic actually showed unemployment up a little bit. Now, Colorado Springs is still a very tight labor market. But, one of the things we’re doing in Colorado Springs that takes a lot of pressure off us is we’ve taken a page from the Hyatt Tahoe. Hyatt Tahoe outsources their housekeeping to a third party. A number of hotels are doing that these days. And so we’ve chosen to do the same thing.

Well, the company that is going to do our housekeeping does the housekeeping for the hospital in Woodland Park, which is the second largest employer in the county. And they also do the housekeeping for the five hospitals down in Colorado Springs. And so Woodland Park is 18 miles from us. And then it in turn is about 20 miles from Colorado Springs. So it’s easy for them to transfer housekeepers from Woodland Park to us, to our property, and then replace them with people from Colorado Springs. And so they can move people around. They’ve already got a workforce and so on. And when we, after negotiating with them, we looked at what we would pay them by the hour and what it was going to cost us by the hour, it was kind of a wash. And they have more resources than we do to move people around and supervise people and so on.

So that’s about a third of the employees we need to hire were resolved with that contract. And so that helps us a lot. Then about a third of the other employees are tipped employees, and that’s going to be relatively easy. And then the last part we’re working on. So I think we’ll be okay up in Waukegan. We continue to hire people. It’s a little more of a challenge there because every employee down at the dishwasher has to go through gaming licensing. And somebody who might be applying for a dishwashing job, that’s a pretty big hurdle when they can go to the Amazon warehouse next door and not have to fill out a 30-page form. We’ve been working through that and we have a pretty stable employee base now, but it’s been a little bit of a struggle.

Anyway, that’s the bottom line. We get asked all the time, do you see signs of a recession? Sometimes I think there might be, but particularly in Mississippi, which is where the economy seems to be a little weak. And then all of a sudden we’ll have a good weekend. And then it’s like, well, no, maybe there isn’t a recession. And then people ask, are you feeling inflation? It’s like, well, on the revenue side, no, I wish our revenues are growing 7% at the older properties. And I think, yes, it’s one of those things when the press is filled with talk about inflation, then everybody starts looking for a raise. And if the press would just shut up about it, maybe we wouldn’t have as much inflation. Some of you may not, in an earlier life, I lived in Brazil and the Brazilian government at one point had to admit that they lie.

And that was because the Sao Paulo newspaper did an analysis of a bunch of prices from one year to the next. And they concluded that inflation was 100% when the government was saying it was 70%. I mean, the inflation rates were nuts. And the minister of finance of Brazil said, well, actually as a tool of combating inflation, we understate what inflation is. Sorry, a little aside.

Lewis Fanger: Thanks, Chad, for opening up that can of worms.

Chad Beynon: Always a good story, thank you for that. And then, Dan, a lot of times when we’re talking to investors, it’s always the what’s next after Chamonix. Lewis, you kind of laid out the spend per head in the market and the opportunity there. And I think everyone’s on board with the returns that could come out of this. But after that’s open, you’ll have two new properties, one property down in the South that’s a good cash cow, the sports businesses, and then a few other smaller properties. But just in terms of kind of the three-year portfolio or how you’re thinking about what to do with the cash, whether it’s pay down the debt, buy back stock at these levels, or look to grow the business, can you kind of give us a little peek into 24, 25, kind of the what’s next after you open up Chamonix right after Christmas?

Lewis Fanger: Well, we get Chamonix open and it’ll take a while to mature, just like it’s taken American Place a little while. And just as it did Bellagio and Boreas and so on, I mean, these things, the second year is almost always better than the first, the third year is better than the second. Usually about that time it’s kind of mature. And now at some point, the city of Waukegan and the State Gaming Commission will probably get that lawsuit resolved from the Potawatomi tribe. And when they do, then it’s hard for us to go arrange financing for the permanent casino when you have a lawsuit out there arguing that you should restart the licensing process. It’s kind of an absurd lawsuit, but it’s out there. And when that’s resolved, I would expect, and it might be a year to 18 months.

And when that happens by then, frankly, we’re going to be one of the least leveraged casino companies out there. And hopefully the bond market’s in better shape and we will go raise money to build the permanent casino in Waukegan. Our obligation is to invest, I think the number’s about $325 million going forward. It was 500 million less what we’ve invested to date. And a lot of what we’ve invested to date is parking lots and land acquisition. So that’s really for the permanent and the license fee itself. And the permanent will be much more obvious and nicer casino than the tent we’re operating in now. So we still have that ahead of us. It’s a pretty big task. It’s not immediate because the lawsuit has it kind of on hold for now. We hope they resolve the lawsuit pretty quickly, but the courts are pretty backed up these days.

So in the meantime, we’ll continue to grow the business and improve the balance sheet. Somewhere down the road, we do have the entitlements to build a hotel tower at the Silver Slipper and it would make sense to do it. We’ve just been a little busy with other stuff that we think has a higher ROI than that. But at some point, if we’re generating excess cash and looking for something to do, that’s a growth opportunity that exists for us. And in a three-year timeframe, that’s kind of what we have in mind. I mean, we don’t see any other markets to go into. I think the markets we’re in are pretty good. Even Chamonix is designed to be able to be expanded at some point and we own a piece of land to do that on, but let’s get it open first.

Chad Beynon: Thanks, guys. Appreciate it.

Lewis Fanger: Thank you, Chad.

Operator: Next question, Jordan Bender with JMP Securities. Please go ahead.

Jordan Bender: Great. Thanks for taking my question. It looks like reservations in Chamonix, the hotel did open the other day. I was wondering if you could just share maybe what you’re seeing in terms of bookings, whether you want to talk about ADR. And just given some of that demand, could that be kind of a forward-leading indicator into some of the demand for that project?

Dan Lee: Well, we haven’t publicized yet that it’s in a big way that the reservations are open. And in fact, I was a little chagrined when I saw it because for the first several days, it really should be held for our casino customers. And so we’re fixing that. And we have a mailing list there of over 100,000 names. Now, some of those people are probably dead because it’s been built over 25 years that Bronco Billy’s has operated. But there’s 20,000 regular people who we see all the time. And of course, we want to make sure we accommodate them early on. And so the bookings we have are, it’s only been a few days. I wouldn’t expect it to be at all material. But people will want to see it. The ad campaign is just starting. It’s a really cute series of ads.

And they’ll be pretty prominent in Colorado Springs and in Denver. And that will build. And, it’s not only, it’s, 300 guest rooms on any given night is around 500 people in the property. We only have 800 slot machines. And we will continue to get a lot of day trip customers as well. And so the revenue will be there. Will it be there on December 26th? I don’t know. It’s the day after Christmas. Probably be pretty busy. I actually, there’s a side of me that hopes we’re not completely slammed because our employees will still be learning the building and learning their jobs. And you gradually build up. I mean, and so, so like Stations is actually concerned, Stations Casinos, and they’re good operators. They’re going to open Durango Station. It’s the first new locals casino that’s opened here in a while.

And there’s 2 million people live in this town. We all drive past Durango Station and they will be swamped with people. And they will be on the day they open. So they said, we want to make sure they have all their employees trained and everything else. We’re 45 minutes up in the mountains. And I think people will find us. I remember when we opened LaBears, which was two hours from Houston, I wondered whether people would show up. We had so many people show up on the first day that they threatened to close down the freeway interchange, which was a mile from the property because the traffic was backing up onto the freeway. And so, sometimes it builds slowly. Sometimes it builds more quickly. I expect this to build somewhat slowly just because of where it is.

And because, most people in Colorado Springs have been to Cripple Creek at some point in the past. And if you went there before, it looked kind of like if you’ve ever been to Virginia City, Nevada. It’s, like a little historic town with little itty-bitty casinos. And you go there and you look at it. And our task is to tell them that, no, this isn’t the Colorado, this isn’t the Cripple Creek you knew. This is a different Cripple Creek. This is kind of like when the Mirage opened in Las Vegas in 1989, all the marketing in Las Vegas up until that was cheap buffets and cheap hotel rooms and lounge singers. And the Mirage introduced a whole different type of casino and it changed the market. And that’s a little bit of what we’re doing in Colorado Springs on a smaller scale.

Lewis Fanger: Yeah, our TV ads haven’t yet started airing. That’s literally happening this week, Jordan. So it’s a good question, but ask me again in a week or two is probably the better thing to tell you. I will tell you this, though. It is beautiful. And I know I keep saying that whenever I meet with people, but when you walk into that building for the first time, it is, your jaw will drop because it is truly a special place that is unlike anything else in that state.

Dan Lee: It’s quite honest, it’s wind quality. And that’s not surprising because the designers are people who worked on the wind product.

Lewis Fanger: Yes, that’s right.

Dan Lee: And so, and the hotel itself is Four Seasons quality. It’s, and it’s the designers, the design firm we used for the hotel is the same design firm that we used at the Four Seasons in St. Louis, who did the Four Seasons in Jackson Hole, who did a number of montage properties. And that’s the quality of what it is. And to do that in Cripple Creek is a little stunning. There’s some local people in town who think I’m nuts, but I think it’ll work because I’ve seen it work before.

Jordan Bender: Great. And then just, kind of led into my follow-up question here. I think the original benchmark for Colorado was about $50 million at the EBITDA. Is that still kind of the right way to think about the project return with, where you guys sit now, about a month and a half out?

Dan Lee: Yes, I think so. But don’t expect us to do, you know, $6 million in January. I mean, it takes a while to get there. I mean, Monarch is doing north of 100 million. In fact, I heard somebody talk – somebody — I said that to somebody who was a big shareholder there who said, no, no, they’re doing like 120 now. And I said, well, that’s great news. They are 500 rooms worth 300 rooms. And the casinos aren’t much different in size. So, if we could do 50, I’d be pretty happy. And that’s less than half of what they’re doing. And, they’re the principal competitor. Our ads quite clearly say we’re the best casino in the state. They’re pretty good too. I mean, I think we’re better because we have a better footprint. Their footprint, they had to be very long and narrow. But the actual quality of the experience is pretty similar between the two of us and everyone else pales in the state.

Jordan Bender: And by the way, no comparison in Cripple Creek. Zero.

Dan Lee: Oh, yeah, zero comparison in Cripple Creek. Yeah. Ameristar is very successful. It’s gotten old. They need to refurbish it. It’s not a bad property. And the next best property is a Isle of Capri. It’s got the Caesar’s name on it, but it was built by Isla Capri, who we used to jokingly refer to it as a pile of debris.

Lewis Fanger: And if you think about when we first bought that property, that was, my gosh, Dan, 2015, I think when we bought Bronco Billy’s. And that’s when we first started looking at the expansion. But since that time, and certainly since we put a shovel in the ground there, the town of Colorado Springs has continued to grow pretty massively. We always talk about there being a million people in our broader feeder market. That’s really Colorado Springs, Devi, what am I missing, Dan? Woodland Park.

Dan Lee: Pueblo.

Lewis Fanger: Pueblo. But what it doesn’t include is all of the suburbs to the south of Denver. So kind of Castle Rock and going to the south. And if you were to try and drive from Castle Rock to Black Hawk on a Friday or Saturday, the traffic is so bad that it will be quicker for you to make it to us instead. And so that whole area is above and beyond the million people that we talk about. And we will market to those people. So I think there’s room for…

Dan Lee: And we will grow the market. I mean, we talk about Colorado Springs being an underserved market. Denver itself is also an underserved market. And so I don’t think we’ll have a negative impact on Monarch or Black Hawk at all. I think we will grow the market. But it’ll happen over time. And 50 million is not an aggressive number on this property. Just don’t expect it to get there overnight.

Lewis Fanger: Yes, and sorry, my point was only that the feeder market is a lot bigger than what it was four years ago when we started this whole process. We also eliminated table game limits. You did, that’s right. It’s like a betting limits. There were betting limits.

Dan Lee: Are we up to half hour?

Lewis Fanger: We are, but we have a few more people in the queue. All right, I’ll try to be succinct. Go ahead.

Operator: Next question, John DeCree with CBRE. Please go ahead.

Unidentified Analyst: Hi, this is Max Marsh [Ph] on for John DeCree. Congrats on the great quarter guys. Looking at the strong results out of Waukegan, I’m curious if you have any updated view on elevated marketing in that environment, whether you’re still sticking to that elevated marketing or maybe you’re seeing the ROI here and giving you an opportunity to back off.

Dan Lee: Well, I mean, we’re still being pretty aggressive with the free play. We were a little quiet with the advertising in October. We’re about to go back up. And it’s a little bit of the experimentation is like does advertising drive business at this location? Every market’s a little different. And so we’ll see. We’re still learning. And we are still spending quite a — between the free play and the reboot of the advertising. I mean, if you were to look at it on a quarterly basis, you wouldn’t see it. But on behind the scenes, we watch it week to week. And it’s like, well, what did we spend advertising this week? What were our revenues this week? And you try to figure out, do you target it differently? The new ads have a little different look and feel to them. And we’ll see. That was just part of fine tuning. Yes, you should expect more of that, though, throughout the fourth quarter, Max.

Unidentified Analyst: Okay, understood. Thank you. And then just one quick follow up on the opening of the Circa sportsbook. Any commentary on that? And if you’re maybe seeing some elevated play on heavy sports days or any additional color there would be great. Thanks.

Dan Lee: It’s clearly a positive. It’s not a big positive, but it does bring people into the property. Of course, from Circa’s point of view, most of their revenue comes from the app, which is because they can access everybody in the state of Illinois. You can be down in East St. Louis and play some bat with Circa. And so the 5 million a year, well, the percentage of revenue with a floor of 5 million a year is based on the statewide ability to operate sports betting. And does it bring people into our property? Yes, it does, but it’s not a huge number. And by the way, that’s true in Las Vegas as well. I mean, the sportsbooks have always been relatively modest amenity to the casino, except at Circa itself who made a big deal out of it. And in our permanent casino at American Place, we have a bigger sportsbook similar to what they have at Circa downtown.

Unidentified Analyst: Great. Appreciate it, guys. Congrats on a good quarter.

Dan Lee: Thank you. By the way, the steakhouse will probably have a bigger impact because right now we don’t have a fine dining amenity and most of our, all of our competition does.

Operator: Next question comes from Ricardo Chinchilla with Deutsche Bank. Please go ahead.

Ricardo Chinchilla: Hey guys, thank you so much for taking my question. I was wondering if you could comment a little bit on deleveraging expectation for the business. What’s like, let’s say, the 2-year target for you guys where you would feel comfortable with the balance sheet before moving to some of the other opportunities that you have talked to about in the call and that could provide strong returns on investment?

Dan Lee: Well, it’s actually hard to look at our leverage because as kind of the way we’ve been developing this, we borrowed all the money up in advance to build both American Place and Chamonix. And so now we’re about to open all that. And so if you were to look at trailing 12-month earnings compared to debt, it looks like we’re over levered. And if you look ahead and say, well, what are earnings likely to be in, say, 2025 versus our leverage, we’re probably under levered. And I think as we grow in our scale here, you won’t see as big a swings on that. Our obligation to build the permanent American Place will not be as big a jump because the company is bigger as we did last time, I mean, when we went, let’s say, we built what to be about the $500 million worth of stuff on the backs of casinos that we’re doing $40 million of EBDIT.

Now we’re going to be doing and taking the American Place in Chamonix and comparing it to the traditional casinos. And if you look at now with Chamonix and The Temporary and the other places and the sports books and you look at building the permanent American Place would be less levered. And by the way, Lewis and I have been doing this a long time. And at Mirage Resorts, when I got there was pretty heavily levered. We had the Mirage, and we levered, we borrowed more money built Treasury. It was successful. Then we borrowed more money, built Bellagio and Boreas, and they were successful. And along the way, we became investment grade. It was the industry’s first investment-grade company. But we grew our way into it. And at Pinnacle, we did the same thing.

I mean the properties we inherited at Pinnacle, we were able to double their results just by big better managers. And then we built LaBears and then we’ve built the 2 properties in St. Louis. And each time we borrow the money, build something, get good returns on investment and that would reduce the leverage. And so when we get to this company eight, nine years ago, I mean, it was pretty levered, and we’ve already reduced the leverage. And when this stuff when Chamonix gets open and so on, if you do it right, it’s a win-win. In other words, shareholders are getting good returns, employees are getting good growth opportunities. But bondholders also do well because you end up getting upgraded, you end up calling the bonds before the maturity and nobody loses.

And I can plan it that way. Legally, I guess, management and the Board is only obligated to shareholders. But in my mind, we have all these constituencies and the lenders are certainly a big part of that, and we’ve always taken care on every aspect.

Lewis Fanger: Yes. I think what a lot of people forget sometimes is we borrowed a big chunk of this debt to build two properties, one that’s already opened in The Temporary and one that’s about to open in seven weeks in Colorado. And when you pro forma in run rate for those properties, depending on your estimates, you’re probably between 3 and 3.5 times gross levered. So to Dan’s point, it’s actually a pretty manageable balance sheet. And then we’ll have cash flows that all that generates that we can use to contribute towards funding the permanent casino in Waukegan, there will likely be some sort of incremental slug of debt there. But between now and then, we’ve got a split rating between S&P and Moody’s. I would expect the lower part of that equation to get upgraded just on the sheer fact that you’ve got an interest expense that’s around $35 million a year and a company with pro forma for those two openings, that’s making 3, 4 times that amount.

So it’s doing all the things that we intended.

Dan Lee: Actually, it’s interesting to look at the 9-month numbers, our EBDIT for nine months exceeds our annual interest expense. And our debt during those nine months included all the money needed to finish M&E. So without Chamonix earning anything and with American Place just ramping up after opening in February, we still earned enough in the nine months to cover our annual interest expense. So obviously, we have leverage. But in some ways, you look at it, how lever it are we really. We’re not all that levered.

Lewis Fanger: It’s essentially take leverage since it’s for something that isn’t yet in those trailing numbers, yes.

Ricardo Chinchilla: Got it. Thank you so much for taking my question.

Lewis Fanger: Thank you, I think we have time for one last question, Dan.

Dan Lee: Yes.

Operator: We have a follow-up from Ryan Sigdahl with Craig-Hallum. Please go ahead.

Ryan Sigdahl: Hi guys, just quickly, which sports books do you still have licenses for in your skin? And then what should we expect for Q4 from a licensing line of revenue with the Circa [indiscernible] termination?

Lewis Fanger: Yes. So on a go-forward basis, we have on skin in Illinois, 1 skin that’s live in Indiana and 2 skins that are live in Colorado, and that some total of that is $8 million per year. What we have idle is we’ve got 2 skins idle in Indiana, one skin idle in Colorado.

Ryan Sigdahl: Any onetime impacts in Q4, Lewis?

Lewis Fanger: No.

Ryan Sigdahl: Thank you.

Lewis Fanger: I know it gets a little confusing with all that movement there.

Operator: I would like to turn the floor over to management for closing comments.

Dan Lee: I was going to say the Illinois one is far more important than the others and Circa knows that business better than anyone else. So we’re pretty happy with what they are doing so. So we don’t know what the results are, but we know that they are very good at promoting a sports book and good at operating it. And it’s fun to watch. And on that, I like to thank everybody for your support, and we’ll get Chamonix open. And next time, we’ll be talking about how it’s been doing. So thank you very much.

Lewis Fanger: Thank you guys.

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