Good day ladies and gentlemen. Thank you for standing by. Welcome to the Full House Resorts Second Quarter Earnings Conference 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 now begin.

Thank you. Good afternoon, everyone. We are at the Silver Slipper today, surrounded by the management team. It is literally a full house, Dan, my one bad joke for the day. Anyways, as always, before we begin, we'll remind you that today’s conference call may contain forward-looking statements that we are making under the Safe Harbor provision of Federal Securities Laws. I'd 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 Web site as well as the press releases that we issue. And lastly, we are broadcasting this conference call at fullhouseresorts.com, where you can find today’s earnings as well as all of our SEC filings. With that said, do you want me to kick it off, Dan?

Yes, sure.

So, very pleased with the quarter. Companywide as you saw, EBITDA was up about 20%. Starting here at the Silver Slipper, where Dan and I are today, Silver Slipper had a great quarter. This is a 6% revenue increase. EBITDA was up 10%. And if you think back to a year-ago, we opened up a couple of new amenities. We have the Oyster Bar, which serves great food, gives you a faster alternative to the Blue Bayou, which is our fine dining restaurant, but we also opened the Beach Club, which, unfortunately for us, opened at the end of the summer season last year and then shut down for the winter. So we didn't get very much use of it last year. Now it's back open; it's in full force. It is a beautiful advertisement for the property. And when you see it, it does make you want to stay in the hotel the next time you come by, and with that beach complex, we’re seeing some of our best hotel occupancies here in recent months. June was one of our -- actually, I think, our best month on record at 95.2% for occupancy. So very, very pleased with the amenities that are now finally springing into results, and we are now on the verge as well with a brand-new amenity. William Hill is in the process of putting in a brand-new sports book for this place. Mississippi, as you probably know, legalized sports betting not too long ago. We did the training -- started the training yesterday, the equipment is going in, and we should be live with our first sports bets by the 1st of September. Looking over at Bronco Billy's, we’ve had some unique challenges there in the recent past with things like weather. We are working…

Okay. Okay. The -- they actually gave away some of my thunder. First, if you recall, the fourth quarter and first quarter results we had were weak, and a lot of that was driven -- issues at different times, and we cooked a lot of that from second quarter. So the second quarter was strong, offset some of the weakness from the first quarter. We do have pretty easy comparisons from the second half of the year and then the first quarter of next year. Three of the properties, including the one we are in, have all been fixed up recently and doing well. So it was kind of addressed, all that, although we are ordering new carpet for the casino here, which needs it and some wallpaper and sort of sprucing that up. And I don’t think you mentioned that we’ve been doing real well, even though Island View down the road added a $75 million expansion several weeks ago and we went over and looked at that. And we think they're doing okay, but they haven't had any impact on us at all that we can tell. And so I don’t know if they’ve grown the market or they’re just stealing some share, but if they’re stealing share, they’re not stealing from us. So we seem to be doing fine. The ferryboat is in place. We’ve had to take the little tug boat and make some modifications to it to make it more [indiscernible], working with the Coast Guard to get their approval, and recruiting the staff and everything. We should be up and running somewhere around the end of this month. The date keeps slipping, but of course, we want it to be safe as does the Coast Guard. So we don't completely control it. We started…

It's $220,000 a year, Dan.

$220,000 a year rent for a pretty good size casino. It will have 175 slot machines and a restroom at the back and a bar at the front. And it's on a key corner in Cripple Creek and it's not something we’ve talked about before. It was one of those little things we were working on in the back. And everybody was focused on the big casino, which obviously, we are working towards building. And we’ve a competitor who sued the city, trying to block construction of the bigger one, and it's kind of fun to come back and open a little one right in his face, right across the corner from him as we oppose his lawsuit. He wasn't focused on that. And his lawsuit, if -- and we are happy to provide their pleadings and the city's response and our response. And you can read it for yourself, and I hate to forecast lawsuits, but he basically said the city shouldn’t have approved this because he doesn’t want the competition. And the city -- who was a very good attorney, came back with a whole raft of kind of law that says, the fact that you don't like competition does not give you standing to oppose what the City Council did. So -- and our lawyers, who are also very good lawyers, filed a similar response. And so I -- judges don’t like to give like summary judgments and usually like to take it to a trial. We might actually get summary judgment on this case. So I don’t know, we will see. But it doesn't actually slow us down, because we will be opening the Imperial Casino quickly. We will be starting on the parking garage shortly, takes like 6 months to build the parking garage, we’ve…

And about many months, Dan, where that property now leads the state in gaming revenue.

Right. Yes. And so, but we kind of looked at it, and so that's the entrée to the new thing that we have. The State of New Mexico has a number of tribal casinos and a handful of race track casinos. The compacts that they have with the tribal casinos, allow six race track casinos, that are today five. The sixth one was supposed to go to a town called Raton, which I think, means rat in Spanish. And the developer in Raton was unable to get the financing and they took the license back. There was some litigation and so on, and -- but that's -- finally the state prevailed and took the license back, and has started a process to issue the license, and it's a competitive process. They have indicated that Letters of Intent were due on July 30. The actual proposals are due August 17, and they expect to move quickly and might even have someone selected by year-end, the target they've talked about. We’ve put in a proposal in a town called Clovis, New Mexico. If you’ve never been there, it's -- it has the world's largest cheese factory, which is not what you'd expect in New Mexico. Turns out there's a huge dairy industry around Clovis. If you Google Earth it, you see great big crop circles. But this isn't really about Clovis, New Mexico, just like Lake Charles wasn't really about Lake Charles, Louisiana. It was about Houston, Texas. Clovis is the closest location that we found where it would be viable to Amarillo, Texas, which is 90 miles away, and Lubbock, Texas, which is 90 miles away. And it's pretty much near the center of a physical thing called the Llano Estacado. That's a high mesa with short grass, so what that…

Got everything on my list, Dan.

I guess our -- let's say, our total debt is $100 million and our cash is like 20 …

$99.5 million and total cash is a little above $22 million.

$22 million. So we are in pretty good shape on our balance sheet, which is a whole lot better than it was three years ago when we came here. So with that, we are happy to take any questions.

Thank you. [Operator Instructions] We will take our first question from Chad Beynon with Macquarie.

Hi, afternoon, Dan and Lewis. Thanks for taking the question.

Hi, Chad.

Wanted to start with a lot of things going on this quarter, as you mentioned. Can we start with sports gaming, since that’s real. You talked about kind of your approach that you’re starting to install the equipment, and that’s going to be coming down the pike in the next couple of weeks here. Not to kind of show us your playbook or talk about what your projections are, but can you kind of help us think about, do you expect for this to be a driver of visitation, hotel revenues, food and beverage revenues, or in just kind of, since it's something new in the gaming industry, what do you think this really means to the market, to your property? Will it bring in new customer, just kind of a high-level in terms of what your expectations are? Thanks.

Yes, we are not sure ourselves. I mean, in Europe, especially England, sports gaming is a huge business. And so a company like William Hill has betting shops on every corner, and so on. They even bet on whether Hillary Clinton was going to be president. Some people made that bet. And so in this country, of course, it's been limited to Nevada and …

Delaware has it now and Jersey has it now, too.

Yes, but then there was a federal law that they didn't allow it. And that, the Supreme Court overturned that law recently. And so now it's subject to state approval. Mississippi moved [ph] quickly, so Mississippi is going to have it early. From our point of view, if we open our own -- and by the way, we’ve a race and sports book in the Grand Lodge at the Hyatt Tahoe. Now we lease this space to William Hill, we make some rent, and they have a small counter there. They get the profit and loss of that. Under the Mississippi rules, we’ve to be the entity taking the bets and play [indiscernible] customer, but we don't really have the expertise and hard for us to go hire. It doesn't really make sense to hire a bunch of people with the expertise. So we’ve a joint venture with William Hill. We are adding the William Hill sports book here and it will open soon. It's being built as we speak, and -- but we share in the profit and loss of that, so we get a pretty significant chunk. I don't think I'm supposed to say…

Don't say what it is, yes.

Right, but it's over half the revenue. And so -- but we don’t really know what the revenue will be, honestly. And I’m a little cautious about it, because on a day-to-day basis, it's probably okay. But for example, if the New Orleans Saints end up in the Super Bowl against the Patriots, we are going to have a hell of a lot of bets on the Saints. And so we’ve to be ready to block our risk at some point, because nobody is going to show up betting on the Patriots. If we had a casino in Rhode Island we could kind of hedge that, but given where we’re, we can't. And so we’ve to basically say, well, maybe only our best players can make bets on the Saints up to a certain number, or we’ve to move the line at which point we are not as competitive a bet as somebody else might be. So it's a little bit of a precarious situation. We don’t want to find out that we’ve lost $2 million on some sports game because we didn’t manage the risk. So we are trying to understand those risks. I think, on a day-to-day basis, it's like normal gambling, everything covers itself up, but it's the Super Bowl that you really worry about. And if the Saints get into the Super Bowl, I will be the guy who is most nervous about it, so we are trying to understand that. Now if you think of having sports betting on the casino floor, it will probably bring additional people to the property. And almost certainly initially, because Mississippi moved much faster than Louisiana and we are right at the border between Mississippi and Louisiana. And so there's at least probably a couple of years head start.…

That's great. Thank you. Okay, moving on. Just with respect to …

You're chuckling. You must still get those parlay cards, huh?

Tomorrow. It's Thursday, Dan, Tomorrow. They come through on Friday. And then, moving on to the Imperial Casino purchase. You mentioned that it's a kind of a small lease, but is there also a piece that you’re purchasing? And then with respect to the slot machine, and kind of the refurbishment, could you just kind of ballpark what this is from a cost standpoint? And then if you are able to share any type of win per day or how that property was performing before it closed down with those 100 or 200 machines, just any color just in terms of how we should think about what it costs and then what that opportunity could be?

Hey, I'm going to go off the top of my head, but I read the lease this morning as I signed it, so I still remember it pretty well. The rent is $19,000 a month for three years. Then we have the right to extend for two more years, and I think it's $23,000 a month for the two more years. We have a right to buy it for $2 point-something million, then it goes up a little bit each year, because the man who owns it really wanted to incentivize us to buy it and buy it sooner rather than later. And we kind of took the approach of, well, let us get it reopened with this unique theme and see how it does. So if -- I think it will work, otherwise we wouldn't be doing this, but if I'm wrong, we have limited downside. We are spending -- I don’t remember the exact number. We will call it $1 million on renovations to that building.

Yes, little more.

Little more. And so -- initially, there's a 107 machines. Most of those we are getting from the slot companies on kind of a participating basis, because once we've finished the parking garage, as I mentioned earlier, we will tear down part of our existing casino to be replaced as part of the new hotel and will have extra slot machines. And then when we will open the new hotel, we'll be buying new slot machines. So we're kind of moving some machines around here and using the slot companies to help fill in the filler. And obviously, 150 bought -- bought a 170 new slot machines at $25,000 a pop, it's a few million dollars. But in effect of other than bridging the gap, having the slot machine companies help us, we're kind of moving the 170 slot machines from our existing casino down to this. It also helps us with payroll issues and customer issues, because when we close roughly a fourth of our existing casino, those people move up and help with the Imperial, and then when we open the bigger project, we will growing the total payroll and total number of machines. I believe the Imperial was doing about $170 per machine, per day. I've never verified that, but I was told that by the landlord, which in Cripple Creek's a pretty decent number. And we were kind of surprised with that number actually, but it is a pretty important corner. I think it's maybe not completely relevant, because we are going to have a completely different theme and marketing approach. I think the biggest difference between us and the prior owner, under Colorado law, you’ve to have a 24-hour surveillance room. That’s pretty expensive. You’ve to have an accounting department, an HR department, all that stuff. And as a freestanding little casino, it's hard to make that work. And as an appendage of Bronco Billy's, it's actually not hard to make that work. And so we have to run fiber optic lines down to tie it into our slot system, tie it for surveillance system, but this is -- we can run that with much less overhead than it could be run as a standalone place. So we -- look, for a pretty modest investment, we think we get a pretty good return. Yes, [technical difficulty] …

Okay. Thanks.

I think we did a very good return on $1 million.

And then the Imperial Hotel itself, we paid $1.7 million for it, Chad, but that's already out of the June 30 cash balance. And that takes up about 12 rooms that have already furbished, which increases our room count by 50%, but -- and so those rooms come in at a good time when we need them. The summer is important.

And actually those are pretty nice rooms. This hotel used to have tiny rooms, and the guy we bought it from had it refurbished at combining two rooms into one room. So pretty decent rooms, arguably the best rooms in town actually.

Great. Thanks. And then just the last one. Just thinking about the margin improvement in the quarter, so your revenues grew portfolio wide, a little over $1 million. Your EBITDA grew $700,000. So nice flow through, it looks like. Obviously, your revenues grew the most and really most of the growth came from Silver Slipper, but your margins improved throughout the portfolio. Is this a companywide initiative that is just taking more attention now? Is this something that we should expect going forward or is this just kind of what happens in these quarters with better operating leverage? Just some kind of overall color in terms of what’s going on from the cost standpoint and flow through, particularly as you’ve some nice amenities that are starting to kick in and bear fruit.

Yes, if you go back and look at the fourth quarter, I wasn’t very happy with the quarter. And our revenues -- everybody around the table is laughing, because [indiscernible] in Mississippi and said, what the hell? I said that. And when the revenues go down, you’ve to make sure the payroll adjusts accordingly. And so we did start a process. It actually started here in Mississippi and expanded it through the company of just paying attention -- much more attention to staffing. And so we now have reports of what’s the payroll hours or [indiscernible] served in the food and beverage department and so on and so forth. And really examining each and every position and the staffing of each and every position. And usually when you’ve margin issues in the casino or the hotel industry, it comes back to staffing and being efficient with the staffing. And everybody is better off if you’re efficient with the staffing. If you’ve too many waiters, then the tips are getting split too much apart and same with the dealers. Too many dealers, nobody's making as much in tips. You have to have the right number to give the right service and you can waste a lot of money if you aren't paying attention to staffing, overtime issues and so on. So, yes, we’ve had an initiative and some of the people around this table have been pretty instrumental in that and they even went out to our other properties and showed them how they’re doing it. I think we can improve a bit in Colorado. You notice that, that was a little bit of an exception where the revenues have been kind of flattish, but the EBDIT [ph] has been soft. There was an increase in the minimum wage there, but that can't account for all of that. And so we’ve been talking to them that they’ve to be more cautious of this and aware of it. They’re very seasonal with the summer being strong. So it's really more of a focus of let's make sure we staff accordingly as the revenues get softer in the fall. So I don’t want to say, don’t forecast our margins are going to be 35% in 18 months. But yes, are we paying more attention to cost? Yes, we are paying more attention to cost and we will continue to do so.

Okay. Thanks for all the due diligence. Best of luck on the approvals and everything that you talked about in the outset. Appreciate it.

Okay. Thank you.

Thanks, Chad.

Thank you. [Operator Instructions] We will hear from Jim Marrone with Singular Research.

Hey, Jim.

Yes, good afternoon, gentlemen. Yes, I was just kind of following up on the gaming as well. Most of it was answered in the previous question. I was going to address kind of like other states legalizing gaming and how that would impact your operations, but -- and that was kind of addressed, but I was kind of thinking as well, more along the lines of the recent declines in ratings and if that’s a -- if that’s considered a particular headwind in sports gaming? Number one. And maybe just other than gaming, just kind of discussing a little bit about the capital expenditures. There seems to be a rise in wages and the like, and you’ve addressed as far as wages as far as your operations, but I’m just trying to get a sense of, what does it mean for your CapEx as well when you have trades people and other suppliers increasing their costs on to you? So that will be it and I will just listen to your answer. Thanks.

I’m not sure what you meant by declining ratings. Did you mean like ratings on our stock, or …?

No, just the recent decline in NFL ratings, just because of the whole situation and I know the NFL has been kind of hurt quite a bit over the past couple of seasons over it. And I’m just kind of getting a sense on how that -- how does that impact gaming revenue?

Well, okay. 85% of our gaming revenue are slot machines, and they wouldn’t know what an NFL player looks like, right? And so -- and even with the sports book going in, it will never be 5% of our income. If we had it in every one of our casinos, it would be small. I was -- as many of you know, I was the CFO of Mirage Resorts for many years. We’ve large race and sports books at the Mirage and at Bellagio. It wasn’t even 2% of our revenues, right? So it's a nice little side business, but I don’t think it will be a dominant business for us. If you -- there are companies like William Hill that specialize in this and post public, right?. It's a public company, so if you want to invest strictly in sports books, go invest in them. But they don’t invest in us because of a little sports book except that we think it will help drive some business to us. The -- look, we are in the entertainment business. You find and -- every now and then I will have somebody say, well, isn't all the growth gone in regional gaming and everything is kind of mature and it reminds me that this will date me, but when I went to the Cornell Hotel School, the interstate highway system was done and the professors would say, well, you guys missed all the big growth, that -- because Holiday Inns, Ramada Inns just followed the bulldozers and plunked one down every four exits and that was easy growth. And there was a guy with the name of Bill Marriott who was about 30 years old and had just become CEO of Marriott Hotels. And I remember him giving a talk, he…

Okay. That’s great. And again, in regards to perhaps CapEx and how should we kind of forecast that going forward? Could I get …?

Well, I think we’re in pretty good shape for all the stuff we are doing now and the parking garage in Colorado Springs. In other words, we’ve -- between the cash we’ve on hand and the cash we generate, clearly, for the bigger project, Colorado Springs, which is $100 million, we got to figure it out how to finance it. And that’s about 6 or 8 months and we will figure it out. And I think could be anything from -- there are certain strategic partners that would be interesting to have as a partner too we can probably borrow most of the money. We could do a deal with a REIT, that it's a way to borrow money in effect, so we are evaluating that. We are 1 of the 11 proposals in New Mexico. If we are lucky enough to get chosen, we will figure out how to pay for that at the appropriate time, but it's a long ways down the road. Card clubs in Washington at $5 million a pop, we can do that internally. So, you know it's -- we don’t pay a dividend, we probably won't pay a dividend for a long time. Our taxable income is sheltered. So we don’t have any -- there may be a provision for taxes once in a while, but we don’t actually pay taxes. And so we generate pretty good cash flow internally and we keep reinvesting it on behalf of shareholders. We try to get a 15% unlevered cash and cash return. Now you can actually lever probably two-thirds of that, which gets you a really nice return on equity, and that’s how we grow the company.

And in terms of all the growth projects in the past, those are basically pretty much done. So you’ve got some cleanup work for the ferryboat with the roads that are attached to it, but everything really is for Colorado going forward. The sports book that’s going in here with William Hill is marginal CapEx on us. So, yes, it's really Colorado Phase 1.

Okay, great. That gives me a better sense of the CapEx. Thank you.

Yes, I mean, I will tell you a couple of stories of projects I did in the past, I mean, I cited the one earlier where we got the last license in Louisiana, got all the entitlements lined up and then sold the project for 3x what we’ve invested. I’m not saying it's what we are going to do as a company, but it's always something you could do. I will tell you, at -- when I worked at Mirage Resorts with Steve Wynn and I was Chief Financial Officer and Head of Development, we had 43 acres -- we had bought the land to build Bellagio. We had 43 acres of land at the back that we didn’t need for Bellagio and it had some frontage on the Strip. And we had paid $400,000 an acre for the land and we sat down with Mike [indiscernible] and Bill Richardson [ph], good entrepreneurs in Las Vegas who had a couple of small casinos, pretty successful. And we said we will throw in 43 acres valued at $1 million an acre. Forget the fact we didn't pay that much, but we just bought it. We said we think it's worth $1 million an acre. And if you put in $43 million, then you can own half and I will arrange nonrecourse financing to build Monte Carlo, which MGM is just now renovating to call it MGM …

Park MGM Hill.

Park MGM, right. Monte Carlo was like a $250 million project that made $90 million, $95 million a year every year for 20 years now. It's one of the highest ROIs on the strip. And so all we did was parlayed [ph] the land and kind of the right to build it and had a partner put up cash and then we get nonrecourse financing for the rest. Did the same thing for the Borgata in Atlantic City. We had gotten the land in Atlantic City for free, provided we committed to build a 1,500 room hotel and then we got Boyd to do the joint venture to build the hotel and got the thing done. So there are lots of different ways to do this, putting just straight up raise the money and go build. But first you got to get the project, get all the entitlements and everything lined up, and then you figure out how to pay for it. The project makes sense, the financing is virtually always available.

At the end of the day, we guide all of our decisions based on the share price. Management and the Board owns, what, almost [indiscernible] of the stock outright, so we will figure it out.

We have an additional question from Andrew Boone with Quantum Capital.

Thanks. Hi, guys.

Hi, Andrew.

Thanks for taking my questions. Just within that line of thought, I just wanted to ask how you guys think about retaining the upside. Just given your earlier comments on kind of the growth in Denver and Colorado Springs and the potential of Cripple Creek, how do you guys think about retaining the upside? And then, secondly, just noting that recently Nevada Gold, in Washington is up for sale. Just within your commentary around poker rooms, any kind of thoughts there and whether M&A would be potential, or would that be too big of a bite?

We look at a lot of different deals in the industry. Nevada Gold recently announced that they’ve an exclusive agreement with somebody. It's not us, I can tell you that. In terms of retaining the upside in Colorado or any of these other projects, it's all a trade off. I mean, if we -- let say we are chosen in New Mexico and we go off and build a big project in New Mexico, I’ve got a fair amount of money invested in the company and so does the rest of the board. You don’t want to put everything at risk, and so it's a trade off to you -- if you bring in a partner, which reduces the upside, but reduces the risk and you try to figure that out. We are not a very big company. If somebody called up and offered us an incredibly good deal, look -- I will tell you, we looked at that deals, so I don’t want to talk about it. We actually looked at buying the Fontainebleau and finishing. Now that’s $2.3 billion that was invested in the Fontainebleau before it stopped construction and filed bankruptcy. And you could buy the carcass for like $600 million. We spent probably $100,000 analyzing it and there were more -- and had architects go through it and thought about if we didn’t finish the whole thing, what would it cost? It was going to cost about $1.2 billion to finish it. And then we turned to a major hotel company and said, well, if you guys run the hotel and put your name on it, we will run the casino and get fees for running the casino, you get fees for running the hotel. Let's go talk to some real estate companies and see if…

And Dan spent a lot of time talking about partners, but I will tell you, when we kicked off the process for this refi, I mean, really we’ve been talking about Colorado for, I feel like 1.5 years with our new lenders at PIMCO and Sagard, and it is -- they, I believe, strongly have bought into this concept of financing that. They’re amazingly huge, as you know. So we have -- we will have several options. It's not just the partner route, and as Dan said, we are going to -- once we’ve cemented our construction contracts, we’ve honed in on costs and everything else, we are just going to go down the list and pick the thing that’s right.

And the whole isn't $100 million, I guess is your point.

Yes. That’s right.

[Indiscernible] we will generate some of it from cash flow during construction, but the whole is like $20 million. If our stock is $4 a share then you look at to [indiscernible] stock. When the stock is $3 a share, it's like, well, maybe we should find a partner. And because that's a factor, there's a very big difference between a $3 stock price and a $4 stock price.

Great. Thanks, guys.

Thank you, Andrew.

And we have no additional questions in the queue. I will turn the floor back over to our speakers for any additional or closing remarks.

Good, because are out of time, Dan.

Okay.

Do you want to say anything?

No.

Thank you very much guys.

Thank you, ladies and gentlemen again. That does conclude today’s conference. Thank you all again for your participation. You may now disconnect.