Lewis Fanger - Senior Vice President, Chief Financial Officer and Treasurer Daniel Lee - President & Chief Executive Officer

Good day, everyone, and welcome to the Full House Resorts’ First Quarter 2017 Earnings Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Mr. Lewis Fanger, Chief Financial Officer of Full House Resorts. You may begin.

Thank you. Good afternoon, everyone. Welcome to our first quarter earnings call. Before we begin, as always, we’ll remind you that today’s conference call may contain forward-looking statements that we’re making under the Safe Harbor provision of federal security 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 EBITDA and 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 with that said, we’re ready to go, Dan.

Okay. Good morning, everybody. It’s kind of a fun quarter, because everything is a little torn up. We got stuff going on in every property that we are improving using the money we’ve raised in the rates offering plus what we generate internally. And so we’ve got a lot going on, none of which benefited the quarter and some of which actually hurt the quarter, and despite that, we did great. So it’s kind of reassuring. I hate to blame weather, but it did snow heck of lot. And weather doesn’t usually affect quarter that much. I will tell you, it decimated January, but then we had a great March. And so at the end of the day, we came out, but just fine. Silver Slipper, which is our most important property did great. Revenues were up nicely. EBDIT was up nicely. We are building a beach club there, which has the first swimming pool at the property. We sit at the foot of a like eight-mile long white sand beach, beautiful beach, and yet we don’t really use it, because there’s a parking lot along the beach. So we’ve taken out part of the parking lot and we’re putting in a moderate-sized pool, I mean, it’s a pretty moderate-sized hotel with a big wooden deck around it. And it’s a sort of place that you can sit out and enjoy the beach environment, swim in the pool. While the beach is beautiful, the water in front of the beach is quite muddy. So people don’t usually swim in it, you are pretty close to the Mississippi delta. So it’s not gin clear water like you have in the Caribbean. It’s all along the Mississippi Gulf Coast, it’s kind of muddy water, but a pretty beach. And so we’ll have…

No, no. That’s it, Dan. For those of you keeping track, if you look at active growth projects that out there that would be the Silver Slipper Pool, the Oyster Bar at Silver Slipper, the RV Park at Rising Star, the Grand Lodge renovation, and then the Stockman’s renovation, those all total about a little over $5 million, maybe $5.25 million of total investment and we’re about half spent on that through the start of May. So that will help you out a little bit in your modeling. But you got it all, Dan?

And all told, there’s about $10 million of investment. But we haven’t started on the other half of the stuff, like the casino VIP room at Rising Star, we haven’t started on. And I don’t – did you count the ferry in or out of your number.

The ferry, we’ve spent about $125,000 on – a a deposit for the…

Deposit for the tugboat.

Yes.

But certainly, that’s it. All of that stuff, I think is going to grow our company pretty nicely. And with all these little projects add up should get us up into the low to mid-20s in EBDIT, roughly, and then the hotel in Colorado Springs may get us up to 30 with a little of organic growth. So which given that when we came in two years ago, it was $10 million EBDIT. So, we’re a small company. Well, let’s see if Jim Murren can grow his companies. Anyway let’s – we’ll take some questions.

Sure.

[Operator Instructions] And we’ll take our first question from Chad Beynon with Macquarie.

Hi, Chad.

Hi, Dan, this is actually John on for Chad. Some of your regional operators have been noting some improving trends in April, shall we say, leading into May, I was wondering if you guys could comment on what you’re seeing in your properties regionally? Thank you.

We had a phenomenal March. As Silver Slipper, for example, set records in several categories as the best month we ever had. And actually, I should point out, we have – it’s hard to pick a month. I think in almost every market, we’re outperforming the competitors. I mean, the Mississippi Gulf Coast has been relatively weak, or let’s say, the growth has been less than the revenues of the Scarlet Pearl. And so that means, if you took the Scarlet Pearl out, the market has actually been flat to down. We’ve been consistently up, and you could say the same thing about the New Orleans casinos, and I think that’s just we’re kind of relentless at trying to figure out the next new little marketing thing. And we noticed one of our competitors now has Dungeness crab and it’s like, okay, well, let’s have some lobsters, something else to really screw with them right? And so, we’re pretty relentless of trying to constantly figure out how to improve our market share. And we’ve gained market in – we’re small, but we’ve gained market share in the Mississippi Gulf Coast. We’ve gained market share in the Indiana and Cincinnati market. And Bronco Billy’s is holding their own. And I think as we start to improve things there, we’ll gain some market share there also. Actually the other thing which happened there is, there’s some additional consolidation in the market, which I think is actually ultimately good for us. And then Northern Nevada, we’re on a kind of a market to ourselves in Incline Village. So it’s hard to know what to compare it to. But we seem to be gaining share in Fallon as well. And in general, the economy seems to be okay, and seeing. I think people are back and doing well, and I think that probably has benefited us, but we have gained share in just about every market we’re in, and we intend to continue doing that.

Yes, John, I think, April as a whole, what you saw in the – in really the first three weeks of April were signs of strength. The same strength that you saw on March. And that what we saw in a few of our markets, where some weather issues, you probably saw on the news there were some tornados in the Midwest and some flooding a little bit down South. And so we did feel the effects of that late in the month, but absent that it March and April very strong.

And let me like Rising Star, we have the lowest win per slot machine in the state of Indiana. So when this team came in, I mean, that bar was so low. And so we keep trying to figure out how to get it better and we keep gaining market share. We’re still the most underutilized property in the region. So we have our long ways to go before we start to have any capacity issues. So we keep gaining market share by just trying to figure out how to get better utilization of what we have. Silver Slipper isn’t quite as underutilized, but we still have upside there as well, and certainly, Northern Nevada, we have upside. So and even Bronco Billy’s. I mean, Bronco Billy’s does very well in the market at the end. But if you look at the win per slot machine per day, it’s not a particularly high number and does really well on weekends. And so how do we hope fill in the midweek and the hotel will be important to that so.

Okay, great. That’s really helpful. Just one more for me. We know you you have a bunch of projects on your plate and you guys are executing pretty well. So just wondering, I mean, aside from that, can you guys kind of speak to what you’re seeing across the M&A landscape just generally? Thanks.

We look at a lot of deals, but it’s kind of like trying to marry the right girl, you have to look at about 50 of them before you find one worth marrying. And we’re pretty small, so lot of the deals that are out there are really too big for us. We’re not going to do anything that bets the company. And if you model out, what I talked about is, if we can get this company to like $30 million of EBDIT with little hotel and you start working backwards on what the stock price might be in five years. We have a pretty good story, we’re not going to screw it up by doing something that is outrageous. Now that said, there are some small deals and we look at them and in fact that’s a little bit of a reach for us, something like Bronco Billy’s we bought for 6.2 or 6.3 times cash flow and I think it’s kind of like, it’s a great asset for us. It wouldn’t have been worth the time for the big guys, you know MGM or any of those guys that just not – and so there are small deals that actually worked very well for us that other people aren’t going to be interested in. And I joke sometimes about you know – Gee, that fits in our collective portfolio. People come to us with some really oddball stuff sometimes, just about anything fits in our collective portfolio, because if you look at where we are around the country in what we operate and we have a little bit everything and that’s why that is kind of like a spot system. So I think we have everyone that’s made. And so we kind of – so there isn’t, we’ll look at a lot of stuff and we do look at a lot of stuff, but you know we don’t have to do in a deal to make sense, the company is going to do just fine on its own, but that doesn’t mean we won’t do deals, but we don’t have any urgency to do it, so if we find something that makes sense we’ll do it and otherwise we’ll just keep looking.

I’ll take your question in a differently, John. I had a moment of quiet last night driving home, crimping for earnings and we – you know what I always encourage people to do is to look at where casinos that are getting sold are treating at multiple wise, to look at where casino companies, regional casino companies trade at realizing – looking both at whether or not they own their assets and whether or not they sold their assets off to a REIT. And I think we are going to see in all of those cases is, this company trades at a lower multiple. And just before that, I’m not quite sure where you’re going as a question there, but we watched all that stuff very closely and you know where we get excited and why you see all of us here as a company continue to put our money to work and the stock is we’re – we’re just – we are excited by our valuation and we are extended by where those companies headed.

I mean, Chad, you have the numbers more than we do, but my impression is that Isle of Capri got sold for about eight times cash flow and I think Eldorado is happy they bought it and their stock went up, despite their acquisition of Capri. Our assets are very similar to Isle of Capri in terms of quality. We’re in markets that generally have barriers to entry. We have pretty clean ownership build of stuff and you know we’re not – we have nice regional properties, we’re not – we haven’t built like in Boston or something, but we have nice regional properties that are consistent moneymakers and so we saw this Isle of Capri [indiscernible] that’s interesting. And we had interest rates being where they are, I don’t think Eldorado overpaid for Isle of Capri, but it certainly suggests a lot of upside in our stock.

Yes, John, you and Chad put out favorite chart which is, it’s one where you show valuations, all the regional companies or all the gaming companies side-by-side and we’re always at the far right of that chart with the lowest valuation by a decent margin.

Since the Korean [ph] used and I didn’t know the man well myself, but he has said to have phrased on multiplication occasions that the stock price only really matters to them when you are a buyer or seller, right. And we’re not looking to sell stock at these prices obviously with the stock is cheap and our debt covenants will let us buy stock at these prices, so we can’t be a buyer, although I bought a bit of this stock personal in the past year, but we can’t be a buyer and we’re not a seller. Honestly, I mean I do obviously pay attention to stock price, but I think my mom watches it closer than I do. She would call me home at night, wondering why the stock is down $0.04, she only owns about 300 shares, but anyway any other questions.

Thanks Daniel. I would hope back in the queue.

Thanks.

[Operator Instructions] And there are no questions at this time, I’ll turn the conference back over to your host.

You have any closing words, Dan?

No, just thanks for your support. Don’t forget to vote, proxies have been rolled already, our shareholder meeting is next week and we appreciate your support.

May 22.

May 22 and quick meeting, curious if anybody wants to show up for the shareholder meeting, we’ll buy a cup of coffee.

Thank you guys.

Take care.

Ladies and gentlemen, that does conclude today’s presentation, thank you for your participation, you may now disconnect.