Full House Resorts, Inc. (FLL) Q1 2016 Earnings Report, Transcript and Summary

Good day and welcome to the Full House Resorts’ First Quarter 2016 Earnings Call. Today’s conference is being recorded. And at this time, I'd like to turn the conference over to Mr. Lewis Fanger, Chief Financial Officer of Full House Resorts. Please go ahead, sir.

Thank you, good afternoon. Welcome everyone at the first quarter 2016 call. Thanks for joining. Before we begin, I need to remind you that today's conference call may contain forward-looking statements that we are 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, also we may make reference to non-GAAP measures such as EBITDA and for reconciliation of those please see our website in the various press releases. We're broadcasting this conference call live on our website at fullhouseresorts.com where you can also find today's earnings release. And with that all said, you're ready Dan?

Yes, I am ready.

Here we go.

Okay. We'll have a new website here shortly which is being updated. But the quarter was good quarter, so this management team spent here five fold quarters now and we've had five good quarters, and so we're pretty proud of that. In the quarter, overall revenue was up 10%. Silver Slipper was up 8%, it would have been up more, but there was a lot of rain in the Southeast, so much so that it caused flooding on some of the roads that people face to get around, not quite as bad as it was over in Lake Charles, but it was pretty bad in Southern Mississippi. So we were up 8%, despite that flooding. That’s about the number we need to be up to offset the cost of operating the hotel that we opened last year and so we had left with about flat EBITDA, I think it wasn’t for the plan we probably would have been thought at to Silver Slipper. But with the rain we were about flat. Rising Star, had a good quarter, its kind of playing its way back from the biz if you will. We've got a bunch of new marketing programs. We got a little spillover benefit from the Christmas Casino we had in the fourth quarter and we are able to keep the cost down. So we had 10% increase in revenues there and virtually of that fell to the bottom line. One of the - I guess, one of the good things of being the smallest revenue casino in Indiana is we are in the low taxed years, in the progressive tax tier structure they have there, so each dollar of incremental revenue and it gets taxed pretty lightly and falls to the bottom line. And there is much more for us to at Rising Star and going forward and things we can do to improve it even further. But in the quarter, we've done it up with a $1.3 of income of EBITDA in the quarter, best first quarter to have in quite a few years and that’s up from 200,000 last year. And really nothing unusual, it’s not like we had some big roller or something, it was pretty normal. In Northern Nevada, we are up 16% in revenue and income was about double what it was last year, and I would tell you that within that segment we have two casinos that we operate, the Grand Lodge casino with Hyatt Tahoe and we also have the Stockman's Casino in Fallon. And both were up for different reasons. The Grand Lodge, it’s most important season for summer, but the second most important season is the ski season and last year was a terrible ski season at Lake Tahoe, with very low snow, the skiers all had to close early and this year was one of the best ski seasons its had in a while. So we had more gamblers, more skiers and they stayed longer, in fact, I think all valley just closed, and so the number of skiers just closed, there not be even still be one open. So, they got an extended ski season and that was great for Grand Lodge and we have an agreement with Hyatt to refurbish that over the next year. So - and we're starting that design work. In Fallon, we did a lot of little cosmetics stuff to the property over the past year, literally by painting it and putting a new carpet in the casino and we actually moved some of the slots machines to make it pure, more spacious when you go in and were pleasant. And then we had loosened up the slot machines a little bit, which hurt us a little bit at first, but I think eventually the customers figured out we are offering them a better deal. And so at this time both revenues and income is balancing up nicely as well. Corporate expense is about flat and so when you can grow property EBITDA and corporate expense is flat, we ended up with about 67% increase in overall EBITDA with really nothing unusual in that. We also are very close to closing the deal in Colorado which also involves refinancing our existing debt. This is been very arduous to try to get to, we had first tried to do the term loan B and we just couldn’t there, the high yield market ran away from us, so many went back and we worked for a while with a different bank and ultimately it was traditional vendors who are stepping up to allow us to do it and we hope to close on this late next week and of course nothing is ever certain until all the signature exchanged here. But at this point it looks pretty certain. And let me ask Lewis, to kind of go through a summary of what that – our balance sheet will look like with that.

Sure. So, post-acquisition we're expecting to have a $100 million total of debt, the split will be about $45 million on the first lien, $55 million on the second lien side. We'll have the same lenders that we have today and we're fortunate to our lending group for that. For the first lien, the interest rate we're expecting to be the same as what it is today, which is LIBOR plus 375 with a 1% to 4, so effectively a 4.75%. Interest rate on closing day, we'll have a couple of million dollar revolver as well. We're expecting to have a three year maturity at least initially on that first lien. For the second lien $55 million in size, we're expecting to see a drop in the interest rate there. So currently we're at 14.25%, we're expecting to see that drop down to 13.5%. The term of that will be the shorter of either six years or six months after the first lien matures and we created that way because what we do expect is to extend back out that first lien as time goes on. And then there is a piece of the second lien as well which has warrants at market rate, those warrants will be for 5% of the company. But we did go out of our way to make sure that this deal also was more expensive than what it would have been under the term loan that Dan described. What we did want to make sure, was that we have the ability to refi out of it if we want versus later. And so, one, we can take out that second lien at 103, it drops down to 102 in year two and then 101 and then at par. So we do have the ability to refi as we continue to improve our overall financial structure.

Yes, and just to put in perspective, I think that the run rate based on the recent quarters of our existing operations is EBITDA of about 14, and Bronco Billy's is about 5 and with the full year of the hotel in Mississippi we end up at about 20. And so $100 million of debt on $20 million of EBITDA is about five times levered. There is quite a few casino companies that are more highly levered than that and have lower interest rate and we're looking at because that 13 is a real choker and even if you take the blended average you end up at about nine, which is still high in today's interest rate environment. And – but we're small, we're not as diverse as some of those other companies. But I think as we continue to show improved results and make progress and gradually delever, we'll be able to refinance in much better terms in let say a two or three year timeframe. It may actually began with two stage, some of our banks were willing to do a five year deal, couple of them wanted it to be three years because they wanted to – they just would like sell the position. I think under normal circumstances we can find replacement banks and get that done. So we kind of looked towards over the next several months to converting the three year deal into a five year deal and I think we can do that with a very modest fees at similar pricing and that’s why we have the second lien set up to be six year, if we succeed in redoing the first lien extension. And then that all sets us up to about two years from now, refinance everything hopefully on better terms. And when we came into the company year ago it was already in default in its bank debt and facing looming maturities and so this at least fixes the maturity issue and we're well clear of any covenant issues at this point. And we still have to fix pricing, we frankly have to improve our ratios a little bit better to get there. And Lewis did mention the warrants, it is not pending warrants, it is warrants to buy the stock at today's price. It’s the average price over a period of time around today. And part of the logic there is that the company providing that money is getting high interest rate, but they know its not for very long, so they kind of said well, we think you guys are doing a great job when the company does better, you will buy us out quickly, but at least will benefit from the warrant. And so we were grateful that they were there when we needed them to get this deal closed, acknowledge its expenses and kind of happy to have them as a partner.

The only thing I would add too Dan is, the magic number that we continue to hear from our banking partners is this four times is the magic leverage number to effectively be entirely in bank debt. And so when we think about – when we sit around and strategize that the path for us is always how do we either grow this company up to something like $25 million of EBITDA or how do we get that leverage ratio just down to four from a total company perspective, once we cross that line and then what you're effectively looking at is all first lien debt at a prices that you know well which will be kind of low to mid single digit.

And frankly, we've got a number of things we're working on that are kind smallest CapEx projects that could be done quickly, that should get us a nice boost or EBITDA and get our leverage down to four times. And for example, tomorrow evening we're going front of City Council at the Rising Sun for approval of an RV park that would go in of our parking lots, that parking lot is not been used in many, many years and the cost of building that RV park is about $1 million and probably pays for itself in about three years. And we have a - in June we go in front of the Boone County board of adjustments in Kentucky, hopefully we will be seeking approval to operate a fairy boat at Rising Sun connecting us to a larger population base in Northern Kentucky. And up in Northern Nevada, we're getting quotes now on doing the flip at Fallon where we'll move to parking to the west side of the property. And so all of this stuff is kind of moving and active that are all disclosed in the kind of shareholder letter we had with our proxy that were now a couple weeks ago. I guess that’s it. I mean, Indiana, the airport pulled their RFP, summer stacker deposit, but they still own their piece of land, they are still look at for what to do with it and we are still sitting there with the right to operate twice as many slots machines as we need. And so we're evaluating all sorts of ways we can try to put that excess gaming capacity to work with State of Indiana, and so we're evaluating that. I guess, that’s it, and why its kind of continuing to plug or operate in the business, the business of locking and tackling we've been doing a lot of locking and tackling. So, yes, that’s it.

That was a great quarter as Dan said, EBITDA at 67%, so…

And April looks pretty good too, first quarter, now we are over today to get to the end of the quarter, but it’s the start, the second quarter looks pretty good as well.

Yes, with that, let's take some question.

[Operator Instructions] We do have a question from Chad Beynon with Macquarie.

Hi, guys. Good afternoon. Thanks for taking my question.

Hey, Chad.

Just wanted to start with Silver Slipper down, I know that you were a big believer a few quarters ago in terms of changing out the specialty hotel and adding some high end suites. I am wondering if you could provide some color on some data points there or just overall color on those suites have been received? And then secondly, I know, you had talked about – I am trying to figure out ways to improve the midweek business, down at the Silver Slipper as well, anything new there, I know that was something in your shareholder letter. So that’s that the first Silver Slipper. And then I have a follow up. Thanks.

Okay. The Silver Slipper, it’s a tough one to know exactly how to gauge it, but I think the suites were definitely the right thing to do. They obviously feel first, but that’s in part, because we'll upgrade somebody if we have a chance. The occupancy at the property is basically full every weekend and we struggle to fill it midweek and we go down in our data base quite a bit to keep it filled midweek. Now we ran 91% occupancy in March, but at some point you're putting somebody in the room who really doesn’t gamble anymore than they would have otherwise. And so midweek is a struggle. We are looking at putting a swimming pool front of the property, along the beach. I've had three different designs now and different costs, frankly, we want to get this refinancing done before we throw money into that swimming pool. It’s probably a $300 million to $400 million item and at this point I don’t think we can have a swimming pool done by the 4 of July. And we're trying to figure out how much more – when we could get it done by, if we're going to miss the summer anyway, it would role into next year. No reason for us to get the swimming pool in October, but I think we have a shot at having a pool open for at least a good chunk of the summer and that will help midweek. By the way, every casinos struggles to sell their rooms midweek and part of that is that we're just new and we're 10 miles off the freeway, so we're dealing with that. But you can see from the numbers we were up 8% of revenues, but that approximately offset the increase cost in about building a hotel. So need to be up a little more than 8% and we were in the third and fourth quarters and we ended up in here and I think the second quarter the hotel will be a net positive. And in the summer, we're on the – we're right at the foot of a six or seven mile long white sand beach, that’s the closest beach to the city's of New Islands and Baton Rouge. There were roughly 2 million people that they want to go to the beach, we're the closest stop. And in July and August in New Islands and especially Baton Rouge it is hot and muggy. And so I think the hotel does better in the summer months than perhaps in the winter month. So that’s the Silver Slipper, I mean, we have looked at all sorts of other things we can do there. The property is in good shape and of course the hotel is new and longer term there is bigger projects you can do at plateau we have not planned to do other stuff. But I think for the most parts is just get that swimming pool done and help us fill the hotel midweek.

Okay. Great. That’s great color. And then on the Bronco Billy's transaction, you said you expect for that to close in the next 10 days or so. Could you give us any details around how that property and that market has trended year-to-date anything that you're seeing, either on a revenue or EBITDA side that your allowed to disclose?

Yes, I got to be careful because I am not sure what I am allowed to disclose, they are private company. I know the trailing 12 month EBITDA is in the ballpark of $5 million and the – there was an expansion done there in May of last year and that expansion helps them more in the summer than it does in the winter. So during the winter months they had kind of the additional expenses of that expansion and part of that is leased, so there is actual rent expense. And they were able to have enough of a increase in their business to approximately offset the additional cost of that expansion, but it’s a pretty good positive in the summer. There is an amphitheatre out behind that was not used last summer. The management is evaluating whether try to put it some use this summer, and – or at least just kind experimentally use to use what might work and get a feel for how to use it. And I guess, that’s fair. I mean, it’s a very stable property. I think the market there has done well and our share of the market has stayed about the same. I know Century Casinos announced they are adding a small hotel, its kind of kitty cornered to Bronco Billy's. Century is probably the number three player in the market. The number one player in the market we think is a private company goes with a name of Midnight Rose, but there is actually called the Midnight Rose, Brass Ass and some Irish name. And I love the fact there is a casino called the Brass Ass. And then ours is also technically three casinos, but you wouldn’t really know, it’s a Bronco Billy's and Buffalo Billy's and just Billy's and the reason you do that is there is a tiered gaming tax rate in Colorado and these were separate casinos at one time and as the Bronco Billy's brought two on the sides of it, it continues to operate a separate cage and so legally there are three separate casinos which keeps the tax rate lower and we will continue that. The only downside to it is you are limited to three casinos in Colorado, so we can't go acquire a fourth unless we combine two of these and just one for higher tax rate. And then Century Casinos is the third player in the market and they are adding smallish hotel, I don’t remember I don’t remember how many rooms they said it was, but they announced that we're going to add a hotel, there are another public casino companies that’s been operating in Colorado for a long time. And where they are putting a small hotel is across the main street from the piece of land that we will own where we were looking at and our looking at putting a hotel some day. Their hotel is going to be ahead of ours. We are just right not stretching the balance sheet to do the acquisition. We're couple of years away from figuring out how to add that hotel. And - but I think that’s the way it move. It’s following the same trends that happened Blackhawk where it used to be very much a day trip market and then people started building real hotels kind of underscored by Craig Neilsen building the big Ameristar hotel there that took that market to whole different level. So now people from Denver go up there for a weekend and they use the spa and they nice hotel and so on and Colorado Springs is roughly a third of the population of Denver, so Cripple Creek is never going to be equal to Blackhawk, but I think it can go through the same set of growth sprit that Blackhawk in the last several years and…

The only other thing I'll point out for you Chad is Cripple Creek market as a whole in March had a down market, I think if was off 9% city wide in gaming revenues versus prior year and just that you know it was purely snow related. The same good snow that we're having up in Tahoe resulted in snow closing off some of the – it just became difficult to get to Cripple Creek. And so the market as a whole was off and we were off as well in relatively similar proportions. But its – I don’t want you to be alarmed when you look at the March city wide number.

Okay. Great.

And of course the diversity is pretty important to us too, so that will be our second most important property.

Thank you very much and congrats on the quarter. I'll back into the queue with an additional follow up. Thanks.

Okay. Thanks, Chad.

[Operator Instructions] We'll go next to Joshua Horowitz with Palm Global.

Thanks, everybody. And congratulations on a terrific quarter and not only that but just on an outstanding string of quarters in progress and taking the home of the company.

Thank you.

I have a couple of question, one is more housekeeping item, I am curious if you were able to tell us inclusive of the acquisition what your capital expenditure budget for the full year looks like? And another unrelated question, just curious Dan given your experience in the industry of the recent Red Rock IPO, is any indications that the market again has an appetite for the casinos. It’s worth noting that, to your comments on the leverage level side, I think they come out at five times debt to EBITDA obviously to much larger company. But it just makes my gears turn a little bit with respect to cost of capital and it really illustrate the embedded value in your company to other players that have a very low cost of capital that clearly could have build over the property level of EBITDA and really pay almost nothing for it as far as their own borrowing? That’s more of a comment then a question, but please opine on both if you will.

I will, yes, its frustrating to me because I feel like we should be borrowing money cheaper and god knows we tried. We've chased every rock we could find and we're still borrowing money at 13%. So – but it would be worse if we didn’t borrow the money, 13%. So I think it’s – remember when resorts went public, Steve Wynn was really arrayed at the cost of the debt he had to pay and he went ahead and took it down and built the hotel and two years later refinanced out of it. And I remember I actually bought some of those bonds, take away if he doesn’t break it - make it I can cheers creditors committee and that will be interesting. And about two years later the place was successful and that was - went on to be a huge success if we hadn’t borrowed that money at that time, he never would have created the success he did. So sometimes you just to have to do it even when it’s expensive. The – in terms of the regional – it’s hard to put out a brush across the whole gaming industry. I actually like the regional stuff because we have barriers to entry. And so when you look at our company our market cap is like $35 million and our debt will be about 100 and we have $13 million of cash, but its pretty much all tied up in the slot machines and the cages. So roughly speaking, the enterprise of value of the company is about $135 million and that’s with the acquisition and cash flow is about 20, so we're trading at 6.5 or 7 times. And then I watch all the empty stations get sold at like twice that multiple. I don’t know the math on the stations deal, but I am guessing its significantly higher multiple and I know the other dealers are recently…

Cannery.

Yes, the Cannery stuff is being sold at higher multiples and what's in common with all those is they are in Las Vegas, but otherwise it’s the same dam slot machines and the same type of business and to me Las Vegas has fewer barriers to entry and its frankly a tougher market. And frankly some of the stuff we've done this past year where we looked like genius because we have new marketing programs and Rising Sun the revenues were up and its like John Sheldon sitting here, he and I are like watching a ad on TV in Las Vegas, say that’s a good ad, we'll go use that ad, right and then its like and when you get into the regional market the sophistication of the operations just isn’t at the level that it is in Las Vegas. And so that’s something we kind of take advantage of and use. And so it’s odd to me that Las Vega assets traded higher multiples than the regional gaming assets, but they do and they have for quite some time. And so that’s a little frustrating because it just doesn’t make sense to me. And the markets we're in for the most part have very significant barriers to entry even like Tahoe where the environmental restrictions make it - really nobody is going to build a big casino on the North Turn, like Tahoe that would come anywhere close to competing with a higher Tahoe, you'd never the get the permits to do it. So that’s one is almost perfect. In Taiwan it’s a tiny market, we have a leading casino there, economically it doesn’t make sense for anybody else to go into that market. Down in Mississippi where the western most casinos on the Mississippi Gulf Coast, our customers are actually coming from Louisiana for the most part and Louisiana has a capital number of licenses. They've all been granted, they are all in operations, nobody can get a new one. So we sit there on the edge of Louisiana paying a lower tax rate, they have a smoking ban in New Orleans, we quietly started giving away free cigarettes to our customers and that’s pretty nice place to be, nobody else can get between us in Louisiana, its just not happening and the same thing at Cripple Creek you are up there and now we're outside of Colorado Springs, we're in the dead center of Colorado. So it doesn’t matter what happens in Oklahoma or Kansas or Utah or any other state that might do something. There is no Indian drive anywhere near by that could be factor. And then when you go to Cripple Creek you find that worth, we're like two thirds of one side of the street on the main block where all the activity is, that’s like kind of MGMs position in Las Vegas. They are in all these places in the center of the scrip, nice amount of scale, but with the MGM of Cripple Creek and so its kind of nice position. So, now I don’t have any questions to answer.

Partially yes you did, I appreciate the color and all of that is really great comments. Just a quick housekeeping item was, if you had a CapEx budget, maybe you don’t, for the full year including the new acquisition and the improvements that you might need to do there?

Well, its – thank you for asking that actually. Our maintenance CapEx what we normally model is about $3 million a year and if you look at it we have 2800 slots machines, if I recall correctly?

No, there are approximately 3300

3300, including Cripple Creek, right and we've been trying to figure out like last year we bought very few new slot machine the question is what's the right turnover, you have to replenish it once in a while. You have to have some new games once in a while. And I think the US average is somewhere around 4% and Las Vegas is a little lower than that probably 1% or 2%. And when you play with numbers it’s probably appropriate for us to spend like a $1.5 million a year replenishing our slot product. I think you kind of have to do that or the business will start to fall off. And then the hotel rooms, we have 400 hotels rooms, 200 of those are pretty much brand new, the other 200 are in the over building at Rising Sun and about half of those were refurbished couple of years ago, half of those are little bit older. But if you just say 400 guest rooms refurbishing every seven years, which is kind of the hotel industry really looked on at $10,000 or $12,0000 to go an do change the carpeting and the mattress and stuff, wallpaper, that’s maybe $0.5 million a year. And even know though its not - we may not have to spend this year, over the long-term that is kind of what you have to spend and actually I've been trying to figure out all the other stuff, like our parking lot at Rising Sun has not been had a layer of vessel put in many, many years, got lot of cracks on it, at some points it starts turning to grabble on its own, at some point we're going to have to do, its not huge number, but that’s an example of maintenance CapEx that you run into. So I think at the end of the day it’s in the ballpark of 3 million. Now there is a bunch of this stuff that we think we can get a very high ROI on and it’s not maintenance. For example, we're working with Hyatt to really take the Grand Lodge Casino to a new level and the new parking lot in Fallon moving into the west side and improving the curve of deal. We're doing those things because we think we get a really high return on it, but some of those as I was explaining with the numbers this morning, I think the return on that stuff that travels like 40 plus percent, and there is number of those things. But they are all smallish projects, million here, million half there and we can do them as the resources are available and as we refinance this and something that Lewis forgot to mention, our current bank deal were amortizing at $1.5 per quarter under the revised bank deal its half?

Half of that, yes.

Half that, which freeze up some important capital for us to be able to build the fairy boat at Rising Sun and so on. We also did a deal with the - that second hotel at Rising Sun, it’s leased from a non profit entity that’s basically a division of Tahoe and the leases are pretty attractive terms to us. It’s not guaranteed by the payer, so leased to the subsidiary. And we went back to that entity and said would you guys help us out, we want to put a few million dollars in Rising Star, would you defer a $1 million of principal payments under that lease and they agreed too. We got that done in the quarter. And so that funds a $1 million of improvements at Rising Star and I think at the end of the day we'll probably spend a million dollars at Rising Star and hopefully that gets the property up to $6 million, $7 million, $8 million a year of EBITDA over few years. And I think it’s doable, as I mentioned earlier because revenues are only about $40 million a year, it’s taxed at a pre low tax tier. So if we get incremental revenue that we put at the bottom line and the Christmas Casino showed that we can get incremental revenue if we do create a funky things with people to drive past the computing casino to come to us. And so that’s kind of open the doors to all sorts of thoughts of what we can do there. In some ways that’s been our biggest challenge, but it’s also our biggest opportunity, big footprint, lots of things we can do. So $3 million a year and we have other projects with high ROI that we’re happy to spend money on when we find the money. Okay, that’s your answer.

Thank you. I really appreciate it. It’s a very entrepreneurial and forward thinking team that solve problems that sort of been imperative to sub-optimal capital structure but it seems like we’re on our way to addressing going out of it becoming bigger and it’s been a great job. So thank you.

Okay, thanks yes. I actually think if we can spend $5 million to $7 million on some of these other projects then we’ll get to $25 million of EBDIT in a two year timeframe and then we could refinance all this debt at much lower interest rates and at that point you’ll be producing a lot more free cash flow. That’s it.

Thanks Josh.

And we’ll take our next question is actually a follow-up from Chad Beynon with Macquarie.

Hi guys. Thanks. Two more quick ones, can you talk a little bit about getting to that $25 million magic number that Lewis referenced and you obviously don’t have the capacity to do any M&A but once you get to that point, could you talk about your view on the VLP market, I mean we’ve seen some in slot in places like Montana, obviously Nevada, Illinois go off at lower multiples than where we’re seeing some of the multiples of the casino deals that you quoted earlier. Could you give us your view on that market, if you think long-term buying some of these routes would help kind of diversify your portfolio and maybe come at a lower multiple and where some of the bigger regional guys are trading? Thanks.

Yes I mean never say – never an acquisitions after all we’re doing one in Colorado right but this kind of takes our capacity, debt capacity away for a while but there is otherwise two acquisitions not but there is anything imminent but in fact I think this is the first material acquisition I’ve done in my 20 years in the industry. So usually get better returns kind of growing more organically but in terms of business look we’re in the gaming business and I think that’s fairly broadly defined a slot approved is just another way to operate slot machines and get into what’s the tax rate, where you’re putting them, what’s the conditions, what’s the certainty of it, how do you do with it, frankly some of these card club operation in Washington and look this is really just, it’s not really a card club but the card clubs at Washington are really table only casinos that are in parts and they’re small and if you found one that you thought wasn’t well managed and you could somehow improve it, make it better that would be appealing to us. If it’s a slot rate that we think we can make money on and it’s a good investment, why would we not look at it, you know and so we’re again for anything but we have a sharp pencil too and even in [indiscernible] okay except they’re limited to five year terms and so you’re kind of you put a sharp pencil to it and say what is that really work to you and but it take from where we sit now almost where growth is going to be organic. I mean getting to $25 million of EBDIT by acquiring something probably doesn’t really help you because you now have to raise the capital to acquire it, I think if we can get there by reinvesting our cash flow into our existing business and get to $25 million then you’re doing it without increasing the debt to amortize some of the debt. So at that point you are like $95 million and you have $25 million of EBDIT and on that ratio, I think banks are lot eager, lot more eager to come in at normal interest rates.

That’s okay and then the last one I had just on the ferry boat, you mentioned an important meeting in Kentucky, I believe you said in the next – in the next couple of months, what’s the path actually operate that boat should you receive permission, how long would it take and how would we think about the next six to 18 months with that operate?

This is we bought a piece of land in Kentucky kind of directly across that, happens to be zoned properly to have a ferry landing on it but within that zoning classification it says, it’s permitted for a ferry boat landing and bunch of other things, we could put amusement park there and it actually specifically says we put a gaming out there, if Kentucky would have legalized but counting it already the zone of the place to have a river boat just Kentucky notably and all. But that conditional approval has to be approved by a board called the Board of Adjustments which is high people all appointed by the accounting executive and they meet once a month and we’re planning to go in front of them in the I think it’s the first week of June and it’s important hearing if they were to say no, we’re kind of stuck and they want to know what will be the traffic issues on the other roads where heavily traffic study being done and what would be the impact on the community and so and so we get a big effort to try to answer all those questions. For example the piece of land they said we might need to build a fence along the north edge of our piece of land. Okay we can do that, they want to make sure we have enough queuing area that we can either build the fence or we can ask for waiver because the fence separates our ferry boat landing from a corn field, so not really sure what the fence does for anybody. They want to make sure we have enough queuing so that the backs up it doesn’t back up into the counties road and so we’ve designed that. Once we have their approval, we will also like as we end up building two roads with two ramps and off the sides of the river, that will require approval of the core of engineers, the core is not there to see no, they will tell you how to do it, so you do not impede the flow of the river and so it’s a bureaucratic process but I there is no reason to believe we would not get approval of the core of engineers question is just how long this will take, yes they want to make sure you’re not going to worsen some flooding issues just kind of they’re concerned, the same thing with the coast guard, you need their approval at some point and that means they want to know that your board meets their requirements, that you have a licensed Captain to drive it which of course we would. And so there are other approvals that would be needed but the only one that is kind of could just say no is the Board of Adjustments and but we think we bring the strong case the way it evolved over the years, there was a ferry boat here in starting nearly 1800s and until 1946 and then the ferry boat hit ice in the river and sank, the owner of the boat didn’t replace it because there is a bigger ferry boat 10 miles upstream and by the 1940s people weren’t driving versus wagons anymore, they drove trucks. So they could just drive the truck little further north and the boat carried to back one of their farm goods from Kentucky over the Indiana side because the big river boats tied up in the Indiana side where the water is deeper and so the farm trucks could go 10 miles north cross of the town called Arora [ph] and get on the big boat there, well when the Interstate highways system was built where the bridge is up by Lawrenceburg, that’s even 10 miles further north and it puts that ferry boat out of business, the same thing happened with the south, so there is now a stretch of river 40 miles, 40 river miles long that has no crossing. And so from a transportation infrastructure point of view, that’s not a good thing, you want crossings that people don’t have to go out of the way like we’re 2000 feet away from the town across the river and it takes an hour to drive there which is crazy and we found that 1800 customers from Bell County, Kentucky that find their way to place driving casinos and I think we would have to love more customers, if we have a boat. But we have to make that case and frankly they don’t care about the success of our business, they want to know what they’re going to do to their roads, to their people wanted to fill in and so elsewhere have kind of a grassroots campaign showing people that if you live in Rabbit Hash and you want to buy groceries, you can just get on the ferry boat on our side of the river, whereas in their side of the river they have to drive 40 minutes to get to a grocery store. And there is jobs in Rising Sun, maybe people in Kentucky want to have and there is jobs in Kentucky maybe people of Rising Sun want to have. So the ferry boat is really a community improvement and I think we’ll demonstrate that, there was also a terrible thing happened, the town directly crossed the name of its Rabbit Hash very historic town and it has a general store in it or had a general store and it operated since 1820s and the general store was actually, it was linked to it at merchandised and kind of full tied to it and it’s a popular destination for people on weekends especially motorcyclists, they ride their bikes up in Cincinnati, go their drive back and part of our thought was it there is a ferry boat those people might go out to Rabbit Hash to ferryboat across visit our casino. And then go back in the Indiana side and then there is lot of people come to our casino might take boat across go to the general store and go back on their side, which when you think about it, that doubles the number of customers without increasing the traffic on either side because people two places and sadly about a month ago, the general store burned down had a fired and it just go to Rabbit Hash general store, you will see this terrible photos of this thing burning down and they were able to save the floor in part of one blow which is kind of important because they’re allowed to rebuild, if you try to build the new building that is close to the river, the core of engineers wouldn’t allow you to. The thing when the river floods that general store floods, they actually the whole plan forgetting their merchandize out of it first thing floods and so they intend to rebuild and they’ve been trying to figure out how to get money to rebuild and we’ve offered, we said look if we get this ferry boat going it’s combining the two communities of Rising Sun and Rabbit Hash and we would be willing to contribute $100,000 to reconstruction that general store, if we get permission to get this ferry boat in because we wanted to reopen it, we wanted to be successful. So we’re very involved in getting improvement as we need for the ferry boat, we think it’s good for the community and we think it ultimately would be good for our business.

Okay interesting, thanks again and congrats on the quarter.

Okay, thanks.

And we will take our next question from [Gary Wright [ph] with Marco Consulting. Q – Unidentified Analyst: Hi Dan and Lewis.

Hi Gary, how are you? Q – Unidentified Analyst: Yes, thanks for taking my questions and, just wanted to ask a couple different ones if you don’t mind once really pretty simple, do you guys anticipate that you will be meeting for tax payer on the federal level over the next year or two or you trying to build EBITDA and cash flow to kind of get the cost for the data?

You will – Gary first say yes to that, there is about 10 tax accounts we’ll just away did absolute connections okay. The and actually I think it’s a few years out here. We have pretty big depreciation charges that help us on this. Q – Unidentified Analyst: Yes, that would [indiscernible] to me.

Yes, tax depreciation is bigger than book depreciation but I will tell you, if you can figure out a provision for taxes it’s in unguardedly complicated because that if we fall into that category of where the accounts go through this math of, okay they created, they had a loss that creates a tax loss so, you will take a negative provision for taxes except that it is deemed more likely than not and that’s based on our projections whether we would get the credit before it expires from creating that tax loss. And because at the momentum the position is it’s less likely to happen, we create a reserve account against the tax credit that’s been created. All of which is just – really doesn’t mean anything right but as a result of when we have a tax plus now we do not get the offsetting tax credit and so it all falls at the bottom line except that we pay some state taxes. So we get a provision for taxes that ends up being odd percentages of our pre-tax income. The real bottom-line is we’re not paying taxes currently or at least a few years away from having to pay them and if we continue to show the progress we’re showing. At some point they can’t going to –we have to reverse all the stuff and create a deferred tax credit account because we now think it’s more likely than not that you may be getting taxes someday which is really kind of front a little sad because it ends up costing us a bunch of money for them to sit around to debate this but at the end of the day that’s where it is. So the provision for tax is meaningless. The real number is we’re not paying taxes currently and we’re at least a couple years away. Yes. Q – Unidentified Analyst: Okay, that’s about what I thought so, it looks like kind of before growth CapEx you guys are going to do may be like eight or so and cash to equity and to get EBITDA for little bit may be you get there little bit before two years is the intention is soon as you get there to try to do the whole thing.

To refinance all the debt? Q – Unidentified Analyst: Yes, as soon as you get that magic of 4X number?

Right, right well it’s somebody else kind of hinted earlier, I mean if we went to sell the company the fact that our debts are 13% doesn’t matter. I mean the buyers likely to be borrowing money at 3% or 4%. Now I will tell you, when we came in, we did kind of marketing picks and stuff like that and you’ll see the results; Kind of the next wave of growth, I think comes from making small physical changes like putting an RV Park and National parking lot. We will get high ROI and that’s probably over the next two or three years and, then you that point you’re substantially stronger company and everything else now, do we continue to grow it from there, quite possibly and do you sell at that point quite possibly or both grown companies themselves that all depends on the circumstances but the interest rate we are paying on our debt doesn’t really affect what the value of the company would be to a third party. Other than, I kind of played with it, if you think the steps out there the $100 million of debt, nine in change and it ought to be six in change or something like that. So you’re paying 300 basis points more on a $100 million of debt that’s $3 million a year and may be you’re doing it for two years. Those $6 million out of an enterprise value of 140 or $6 million versus equity value of 35, I guess. That’s, that’s the way to think about it I think it’s not we don’t tend to be 13% long term. Q – Unidentified Analyst: Got it and have you guys looked at, I know that like gaming leisure doing a retransaction or anything like that may be or you feel like that might hurt the ability for you to potentially sell the company at some point?

I’m not, we have, I’ve watched these retransactions and we have thought about it because we could certainly servers look from it work well and every transaction but at the end of the day you are selling the senior half of your cash flow at about 10 times. The junior half of your cash flow is then not worth 10 times that’s probably worth five or six and may be your blended multiple ends up being the same. And the other thing that, and I guess if we were a significant tax payer, it might make more sense but given that we’re not paying taxes currently, I don’t see a tax advantage of doing it. The other thing that people tend to overlook, if you think of I mean I think you alluded to it if we had $20 million of EBDIT, $3 million of maintenance CapEx. $10 million of interest expense, $3 million of debt amortization, you get back to we’re generating $6 million, $7 million a year that we can use on these other projects or something like that. And if you, what was gone, if you do a REIT and so now instead of paying $10 million of interest expense, you’re paying $10 million in rent or something like that but the CapEx that the REIT doesn’t contribute to the CapEx usually. So, the CapEx all stays on the operating company. And I think on some of these cases, if you run that math, the actual free cash flow available to shareholders, I think people overlook that maintenance CapEx it’s kind of a real number, you really have to spend it. So I watch the retransactions, I think for the circumstances of some companies that make sense given that we’re not currently a tax payer and still pretty small and actually make sense for us now. And I mean honestly we’ve looked at some deals where a REIT would have provided the financing for the deals and then those circumstances it makes sense. Q – Unidentified Analyst: Okay, yes that was actually that was getting at working with the REIT rather than doing a conversion yourselves. Okay, I just had one last one and I’ll go. On the Indiana gaming capacity, could you just characterize, how those conversations are going with people in the state there actually many all kinds of approvals to move the slots and get them some place outs are they open to that, is it how would you characterize that?

It’s a wild state if you will and then we have the fact that they have a cap on the number of gaming machines you can have and at our revenue levels our cap is double what we really need. And that can increase corporate asset so then you try to figure it use this and you do with that. Then you go to the state as a whole as the similar problem because when the originally legalized casinos they put them all around the parameters trying to bring revenue in from Ohio and Illinois and Michigan and so on. And overtime casino, that those states all have their own casinos. And so now, the states gaming capacity is in the wrong places and the biggest city in the state is Indianapolis which has the third of the state’s population and it has no casino. Now the race tracks and their bolt on by the same company called Centar who probably an employee more lobbies in the state than anyone else. They have like 15 registered lobbies so, they are very politically connected. The race tracks are 30 miles from the Northeast of 30 miles to the southeast of Indianapolis and they view Indianapolis is their little employee and nobody else should be able to operate at casino and Indianapolis. So, we were sticking in the – little bit to proposed for a casino at the airport but we were in fact just responding to the [indiscernible] but are by the airport authorities like developing – in so we said, we put a big development there with a casino on it and of course Centar just about correct and advance and was interesting. I heard from first one of the senior executives at Centar that we didn’t have a thinker’s chance and have of getting this with legislature. The next, I had meeting with legislators and I must had 6 or 7 of them, tell me we did have thinkers chance and how of getting this to legislature and I finally turned to a lobbies as soon as then by like an Indiana term it’s like what you mean is that, thinkers chance and held I mean I don’t know even know where it comes from but it breaks it choose an exactly the same term. And this is now its not a, it’s not a domestic user term if you well and just tells me that their lobbies were meeting with all the state legislators before we met with them and telling them to tell me that we didn’t have a thinkers chance and held and but some of those same state legislators with them turn around say well, how about over here in my town here or how about over here in my town. Because there is a lots of towns and cities in Indiana other than Indianapolis that are significant towns and cities where you can make it casino work, I mean we make money and plan with 250 slot machines in the time of 25,000 people now many towns are in Indiana with 25,000 people so it’s – trying to figure out first of the states revenues from gaming have declined pretty significantly and its good size chunk of their budget. So the states trying to figure what to do about it and that was how the race tracks payment and argue that they should be able to get table payments which they are committed to have four years from now and they argue but they were going to help the state fixes budget so, I just came in on the – of that and said okay, I helped the state’s budget too. I’ll move our surplus slot machines to a place where they are more productive for us and for the state and it are not an expansion of gaming. The same way tables of the tracks were not an expansion of gaming because the tracks agreed to remove one slot machine for every blackjack table they put in and so that’s not an expansion of gaming. And relocating a slot machine from Rising Star Indianapolis or and even the other places in the state is not an expansion of gaming either but the same number of slot machines of the state is just being relocated to a place where it’s more productive and so that’s a long term conversation and the state legislature meets next January for four months, it’s one of these legislatures that meets for a long session every other year and then a short session on the other years. And it’s hard to do anything like this in a short session so, we always knew that this would probably be a discussion for the 2017 legislature and we are trying to figure out exactly what to go to their legislature with now and now it’s the time to think about and going and say but just let us relocate these and may be propose a few places we could be locate. Thanks And take the temperature, and at end of the day it helps solve the state’s problem was out of really being an expansion of gaming and I think it could create an opportunity for us. The long way is from that part actually having an opportunity for us. But I want to rest easy that we look at every opportunity we can find, and I think that's one of the more interesting ones. Q – Unidentified Analyst: Perfect, thank you. I appreciate that. Good job.

Thanks Gary.

And we do have a follow-up question from Joshua Horowitz with Palm Global.

Hey Joshua, we’re going to make it keep it short for that no one else does for gone long.

These are very, very short. The first question I had just curious if you've ever looked representing merits to looking at fairly cashless or low cost partnerships with any of the online gaming providers simply as a way to drop people into your casinos. That’s number one because you guys been at the forefront of, some pretty interesting marketing program.

No, we really haven't, doesn't mean we wouldn't, but we haven't. But we've been too busy trying to figure out television ahead, but it's an interesting thought, I think in general, released in the U.S. where they've done online gaming it's been kind of disappointing what it's generated then may just be the fact that it's kind of a patched quilt of regulations and or if you mean the online non-gambling gaming, we haven't done that, I guess we could look at it, and I guess that the answer is no.

Got it.

That doesn't mean, it doesn't mean, it doesn't make sense, but we have not looked at it we probably should. Your other question?

Yeah just, curious if that the presidential cycle here if one candidate is better than the other for gambling and I know it's sort of a funny question given one of the candidate's experience than the casino business hasn’t been all that positive. But over the course of your career I mean is there anything to look how far should one party or another take the wide out?

I don't think it really matters very much to be honest. When the desk - there's some people look back on it, we kind of have two people who are kind of towards the middle, I mean Hillary is not as left as Bernie and Donald is not as right as Cruze and so you end up with two kind of centrist candidates. I mean not that there are alike they're quite different. But Donald certainly knows the business, knows the pros and cons I'm sure, so there that's kind of a plus, but on the other hand Bill Clinton was pretty good with the business too when he was President that doesn't mean his wife would follow suit but she seems to be pretty friendly to the industry, so I don't think it matters much.

Good, thank you. And the warrant holders will not be active shareholders meaning that doesn't include any borders overwrite or anything like that and they'll be passed that is my sense from your comment.

Yes, there's no, they get no board, rights or anything like that. But frankly they're good partners, so we talk to them pretty regularly, but they have no approval rights.

Great. Thank you very much.

Thanks Joshua. Hey we’ll turn you guys loose, I just want to mention two last things really quick the grand large numbers actually would have been about $100,000 higher on the EBITDA line except for a weird [indiscernible] where we ended up extending that lease out until 2023 and what GAAP requires a flat lining of rent expense. And so because the rent goes up in subsequent years, we had a kind of re-flat line out what the rent should be with the extension. And so we did that and the net effect was about $100,000 hit to EBITDA in this first quarter with that new lease agreement. The only other thing I want to mention to Dan’s point is we do have a new website that's going to launch this week, and it's going to be good and a real website for you guys where you can finally sign up for news releases and SEC filing or and all that good stuff. So proud for you guys to see it and that's it. So thank you guys again, it was a great quarter and I’ll let hand to Dan.

There's a bottom line actually $100,000 better than a book. But that’s it. Thanks to everybody. Take care.

Thank you guys.

Ladies and gentlemen, this does conclude today's conference. We appreciate your participation.