Dan Lee - President and CEO Lewis Fanger - SVP and CFO

Good day and welcome to the Full House Resorts’ Fourth Quarter 2015 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Lewis Fanger, Chief Financial Officer of Full House Resorts. You may begin.

Thank you, good afternoon everyone. Welcome to our fourth quarter 2015 earnings call. Before we begin, I need to remind you that today's conference call contains forward-looking statements that we're making under the Safe Harbor provision of federal security laws. I would also like to caution you that the Company's actual results could different 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, and also we're broadcasting this conference call live on fullhouseresorts.com. We can also find the earnings release that we circulated earlier today. And with that all said, let's kick it off.

Hi, this is Dan Lee, I am the CEO and we had another good quarter, really good quarter, this case, ending now what turned out to be a pretty year. The -- led first by the Silver Slipper which had a hotel this year that it didn't have the last year, a hotel it opened in stages between May and September and was the main driver in the results being up but it recognized, the Silver Slipper was up from the first part of the year too, but the year-over-year increase accelerated when the hotel opened and so we ended up 43% in income or EBITDA I should say in the quarter. For the year, it was up 32% and as you can imagine the comparisons in the first half of this year are easy because we didn't have the hotel last year and so we probably will have pretty good quarters next couple of quarters and then we'll lap when the hotel opened and I think that property ended the year with almost $10 million of EBITDA up from 7.5, but the run rate is more closer to 11 or 12 with that hotel. And so that's our most important property and it did quite well. The Rising Star, I am happy to say had a strongly up quarter it is first time you could say that in many-many years that Rising Star as you know have been impacted from competition of new casinos in Ohio, and other casinos in Indiana that were closer to where people lived to where they had to cross the river. And finally got down to where EBITDA was only a couple of million dollars in 2014 and that bottomed out in 2015 and then we ended the year on a high note with…

No, no, no Dan we closed -- we haven’t separated it on a different line item, but the 14 last year did have 600,000 bucks for the stock equity offering right.

That's right, [Multiple Speakers] that is an uptake number okay with the prepared -- the prior management have prepared a prospectus to try to issue equity and it wasn't used and had been capitalized, we wrote that off, that's right, you are right the Board changes around the line further down. But our corporate expense for the year ended up at 3.8 and that's probably about where it runs the net ballpark and you can see the 900,000 in the fourth quarter is kind of commensurate with that. Guess that's it operationally, and now the main thing is I'm sure everybody's wondering about Cripple Creek. We have an agreement to acquire Bronco Billy's at Cripple Creek for $30 million, we have a license now in Colorado, we had intended to refinance all of our debt in the term loan B market which is kind of a subset of the high yield market, but between the time we signed that deal in September and when we were ready to try to issue the bonds once we are licensed, the high yield bond market has fallen apart and it really wasn't economical if it even could get done. And so we've gone back to our normal lenders and the most important two of which have stepped up and are willing to work with us and now we're working with some of the smaller banks to pull it together and get it done. So we're still confident that we can get this done, but it has taken us longer than we thought, and I think it'll end up being our existing lenders stepping up some of them in bigger size in order to refinance our existing debt and provide the $30 million to close that transaction and we're targeting the first part of…

Yes, I feel like a lot has happened since we talked to you last, just wanted to highlight really quickly we did execute that fixed amendment to our First Lien credit agreement and we did on large part because of the volatility that was going on at the start of the year and the capital markets and so that effectively pushes out the maturity date for our First Lien debt until April 2017 on...

And we did that because we didn’t want it to become a current liability in our 10-K.

That is true. We also on Friday announced at Rising Star that we amended the hotel lease that we have over there and so if you recall we have got two hotels on site one is connected to the fiscal plant and the other is slightly further away, it's called The Lodge at Rising Star and so what we did was we amended our hotel lease that goes out four extra years, the interest rate on that's about 4.5% and so effectively what we get over the next four years is a reduction in our lease payments $5 million and what we will do with that million dollars is reinvest that into some of the ideas that Dab mentioned already so we are looking at some new restaurant comps such as well as a ferry boat over into the Kentucky side.

And then frankly to give you the back story we had gone to the town and so that lease is from a charitable foundation it's kind of a -- it's a form of financing and we weren’t here when it was done I am guessing they were trying to make it off balance sheet financing and ultimately it ended up being capitalized, but it is a lease to our subsidiaries not guaranteed by the parent. And the money was used to build that hotel we leased that hotel at the end of the lease we have the right to buy that hotel for $1. If we don’t exercise that right the charitable foundation has the right to put it to us for $1. So it's pretty likely we are going to own this hotel at the end of the lease. So the right way to think of it is, it's really just kind of inexpensive financing and the interest rate peaks at 4.5% it is kind of retching up towards it gradually. And so we had gone to the town and said look that we are biggest employer in town we are the biggest tax payor in town, our futures are linked hand and glove if we're successful the town would be successful. The Christmas casino kind of showed that things can work, but could the town possibly help us out here if we're going to put some CapEx into this with the town delay some of the principal payments on the lease or the charitable foundation which was somewhat linked to town. And after much discussion, they agreed to do that, now we have to put that million dollars into the property but it's $1 million deferral of principal payments and so it's another way to think of it…

No you are still on last point Dan.

Okay.

We'll open up to questions but I'll just brag really quick because we don't do it very often, this was a really good quarter, a very good first year, we are up almost $4 million in EBITDA versus a year ago and we think there's more to give to you guys, so with that, let's do some Q&A.

Okay.

Thank you. [Operator Instructions]

There are a lot of you on the phone, you guys are cited. Okay, here comes a question, yes.

Okay.

And we'll take our first question from Jane Whorwood from Global.

A question for you, as you look to the refinancing and some of those EBITDA projections going forward, maybe you can give us some sense of some range of what you think the interest rate shakes out to be blended all in?

Honestly, I think it's going to be kind of expensive. Right now, we have two tiers of first lien and second lien, first lien is inexpensive, secondly lien is expensive. To get this done, we're going to be increased in the size of the second lien so the bad news is I think, it's expensive but at least we get the deal done, the good news is we're trying to structure it in a way that we can refinance it to lower interest rates maybe as soon as two years from now or something. with modest call premiums and penalties that -- let me put it in perspective, I think, if we invest our free cash flow or a really modest investments like we are taking about the ferry boat and so on, we can get to 25 million of EBITDA by 2018-2019 and without increasing the debt, if we're at 25 million of EBITDA and 100 million at debt when we levered four times and there is a world of difference in the -- there was a big difference in the debt markets between levered five times and four times, if were only levered four times, I think we'd be borrowing money much cheaper. Now the debt markets the windows open and close, we ended up to trying to close on this transaction at a time, when the high yield market is not healthy, it's strengthened a little bit the last few weeks, but still pretty week and so with -- so we're trying to set it up, we don't want to lose the $2.5 million deposit, we do want to close on the deal, we think that Bronco Billy’s is a great asset to add to the portfolio and we're just going to end up paying what we have to pay to get the deal done and it doesn’t mean we're not negotiating, there is all sorts of negotiating going on but I think you should anticipate, it being expensive and the financing and then the hope is that in maybe 2018, we can refinance to the much lower interest rate.

Yes, and keep in mind that first lien does bring that average cost down and Dan is right on the second lien, but if we could hit a number in the high single-digits for a blended cost we'd be happy.

The guys art Summit, it was our second lien vendor, they're expensive but they're good guys and they're smart they understand the business. So, they actually have been pretty helpful on this and -- but they're expensive.

Can you talk about the CapEx requirements at Bronco Billy’s perhaps there are other interesting projects that you could do with that property to get their EBITDA up as well?

Yes, they have historically spent around 700,000 or 800,000 a year mostly on slot machines they keep their slot product in pretty good shape, probably better than we have as a company at the other properties. And I think, maintenance CapEx including maintaining the quality of a smart product is something similar on that property, but they have quite a bit of land around them there and this was a small town, I know it's like 40 acres but there is enough land around them to add a hotel and if you were to look at Black Hawk Colorado which is an hour west of Denver, the Black Hawk has gone through a growth phase in the last five or six years, where people added hotel rooms, so that you can drive out from Denver and stay the night or stay the weekend and that has caused a pretty nice surge in the gaming revenues and profitability of the casinos in Black Hawk, well what Black Hawk is to Denver, Cripple Creek is to Colorado Springs now, Cripple Creek is smaller and Colorado Springs is smaller but it is very much the same relationship, we're in the mountains an hour west of Colorado Springs but Cripple Creek has not gone through that same phase of having a better hotel product, there are hotels in Cripple Creek but they are relatively limited in both number of guest rooms and the quality. And in fact a couple of trips ago, our hotel was filled and I ended up staying at -- and we only have 14 rooms, and they're on the roof of our casino, and they're okay but they're not the quality of say the Ameristar property in Blackhawk. And so I ended up staying at one of the larger and…

If you've time for one more, I was just curious for having been in the business a very long time you could comment on how the casino industry will attract or continue to attract younger millennial gamblers. How do you stay relevant in changing times, what do you do, is it an issue?

I don't really think it's an issue, quite honestly. The -- first off the slot machines evolve overtime and the table games also evolve overtime so you have all sorts of variations now of craps and blackjack and so on. John what was the game, we introduced a new type of craps game, oh the crap was craps, okay and it turns out to be popular because you can't crap out on your first roll up, the end of it, and that was at Rising Sun we had it out there, but it tweaked other rules and at the end of the day the house edge is about the same and it's about the where you have Caribbean stud blackjack, poker, Caribbean stud poker. You have many background now which is popular, if you're looking at slot machines, I mean now you get slot machines with all sorts of stuff, we have an Ellen Degeneres slot machine I saw it the other day that are coming out. So these things evolve, but I think the basic customers are always going to be older. You know we sell adrenalin, that's what we sell, we sell adrenalin and everybody's a little bit addicted to adrenalin, there's some gland in your, I think it's your pituitary gland that something pleases you and you get this little shot of adrenalin and you think that feels nice, and there's so many and that's what we're selling, that's the whole experience is people do that. And they'll sit there and play the slot machine, lose, lose, lose, lose, lose and then they get a jackpot and they get this little pleasure thing and they say that's nice, and to that extent it's very much like fishing. You know you go fishing you go buy a $10,000…

Great answer, thank you very much for that and congrats again on a very successful year the turnaround progresses very nicely.

[Operator Instructions] And as we have no additional questions at this time, I will turn the call back over to Dan for any additional or closing remarks.

Sure I would have promised to answer it faster than I answered the last question, anyway anything else Lewis?

I am good Danny you want to close it out?

Well. Thank you very much everybody and first quarter is looking good and we will just keep plugging away so. Thank you.

That does conclude today's conference. Thank you for your participation.