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

Thank you, and good afternoon, everyone. Welcome to our third quarter earnings call. As always, before we begin and we remind you that today’s conference call may contain forward-looking statements that we’re making under the Safe Harbor provision of Federal Securities Laws. I would also like to remind you that the company’s actual results could differ materially from the anticipated results in these forward-looking statements. Please see today’s press release under the caption forward-looking statements for the discussion of risks that may affect our results. Also, you may, or we may, make reference to non-GAAP measures such as adjusted EBITDA. For a reconciliation of those measures, please see our Website as well as the various press releases that we issue. And lastly, we’re 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 all said, we’ll start digging into the quarter. And so just really quick, if you go back a year ago and listen to our earnings call from the third quarter of 2017, or read the press release, we called out $675,000 benefit related to the settlement of some outstanding parking garage litigation. That benefit was included in 2017 EBITDA and it created a challenge and comparison for us here in the third quarter of 2018. Despite that, we still grew adjusted EBITDA over last year up to $6.5 million for the company as a whole. And so digging into each of the properties beginning with Mississippi, Silver Slipper had two unique aspects going on this year, one was that parking garage settlement that I just mentioned, which was a $675,000 benefit. We also had a competitor that underwent a pretty significant $75 million expansion that opened up in June of this year. Despite…

Yes a few things. I’ll point out that when we came in, a lot of these properties were pretty neglected three years ago. And so over time, we’ve improved each property. So I think, our kind of deferred maintenance is pretty minimal at this point and that puts a pretty good floor towards future growth. The – if you look at the fourth quarter and the firs quarter last year were – there were some weather issues going on. And frankly, the costs got a little – like the revenues went down, we didn’t react fast enough for the costs. And so we ended up below the prior year periods and we have pretty easy comparisons going forward now. And frankly, we should be able to be what we did two years ago in the fourth quarter and the first quarter and we’re off to a good start. So on kind of more growth orientation, our ferry is up and running. It was a very complicated thing to do with the ferry running between two states on a river controlled by the federal government. So a lot of regulatory hurdles there, but we got it done. And we started intentionally somewhat slow, it didn’t operate 14 hours a day at first, because we wanted the crew to get experienced. We also part way into it. We had operated it about ten days and there was a very windy day. And this ferry is a barge with a tugboat that’s tied up alongside it, that’s the way virtually all of the ferries along the Ohio River function. And that way the – because the Ohio River is a pretty shallow river at the shoreline, and so the propeller on the tugboat is at the deep part. And anyway, it was a…

GoPro.

GoPro that’s on the jockey helmet and actually ride the race without risking life and limb. And then probably the most exciting part of this is, what we’ve termed the moving grandstand, which is really a modern electric streetcar which are quite and which accelerate quickly. And the seats on it would be all facing the side and set up in tiers and we could put approximately 200 people on it. And you can follow the race right up and close all of the way around the track and horseracing has always been exciting. It’s most exciting if you’re a jockey. If you’re actually sitting in the grandstand, it’s kind of hard to see a lot of the action, so we developed a way to actually see the action. So about a month ago, the racing commission had each proponent make a presentation. They had site visits for each of them. Three weeks from now in Albuquerque, they’re having each proponent appear to answer any questions they may have. Most observers seem to expect the Racing Commission to make a decision in the next couple of months. Look, we think our proposal is the best by a pretty wide mark, but there are five proposals. So I give us 30% to 50% chance of being chosen. I think, it’s better than 20% chance. And if we are chosen, it’s a big opportunity for our company. And obviously, we often look at acquisitions and other things we can do to build shareholder value and we have a number of things in the works, but nothing yet to announce. Lewis just slipped me a note to point out that if you were to back out that game last year, it always gives the accountants hives when you do that. But if you…

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

Hey, good afternoon. It’s Jordan [indiscernible] on for Chad today. You sort of touched on it a little bit with the ferry boat service. Have you guys seen any new business coming through that, or any incremental new royalty signups?

Well, the first question is, yes. The comparisons are a little complicated, because last year we had a marketing program that was very expensive and it drove our revenues, but not our income. And so we’re comparing against a period where we had kind of exaggerated revenues. But we think if we adjust for that factor, the ferry is definitely contributing to our business, which is kind of hard to quantify. Your second point is actually a good point, I’ll go find out. I don’t know the answer. But I would be surprised if it’s not driving more signups, because we do reimburse the ferry fare if you are a member of the Slot Club and you go into the casino and you sign up. And so I don’t know the number, but I would expect that it is increasing our sign ups.

Yes. And part of it too is, we had a date that kept shifting for the opening of the ferry boat service. And so we were hesitant to go out and launch a big marketing program not knowing exactly when that ferry service would start. But what we did do very recently was go and send out some very targeted mailers to the Boone County, Kentucky side that included not a surprise a free ferry trip, as well as a free buffet. And so those people are starting to come in now.

There were – we went into this, it was kind of a – went out on a limb a little bit. I mean, I don’t think a casino has ever, to my knowledge, never started a ferry service. I mean, it’s a car ferry service. And you think, well, we ran the numbers multiple times, multiple ways. And I guess, the first fear was what if nobody shows up? It hasn’t been a problem. I mean, on some Saturday’s and Sunday’s we’ve had – we filled the queuing lines and had it back up on the road. And so that – people are showing up, they are using it. A pretty healthy chunk of those people are ending up in the casino. Now is this just like, let’s try it once, is it – it does seem to be pretty – weather influences it, but weather influences our business anyway. But there was one day where it rained all day and the number of cars carried was a lot less than it is on days when it’s nice, and that was kind of an interesting data point. But if you start running the math and you say like, we know we average between $60 and $65 per each admission into the casino. And so if 20% of those 10,000 people now recognize it was only two-thirds of the days in the month it was running and it wasn’t even running the full schedule on all of those days. But if you get an extra 1,000 people or 2,000 people or 3,000 people a month in the casino at $60 a head, it moves the needle and our tax rate there is fairly low. And for the $2 million, we spent getting this ferry up and running. It’s pretty clear the returns going to be good. I don’t think it takes the property to $20 million a year of EBDIT. But do we get a real nice return on what we spent? Yes. And frankly, we’re pretty good at that stuff, at finding the small investments that can get us a high return like this little Christmas casino. It’s based on winter weeks operations, it’s pretty clear. We’re going to get a pretty high return on that. And there’s other stuff like we built the RV park and it has a nice return. This is at Rising Sun that opened a year ago. And it’s building every month now. But I will tell you, the return there was a little disappointing. But there is a return and it’s probably been more like 10% than 20%, but there’s a return. And so I think the – it’s still early on some of this stuff, still early on the ferry, but the early numbers are pretty promising.

Got it, thanks for that. And then turning over to Mississippi, how have you fared against the recent competition? And do you expect any loss of business, especially with new property openings down the road in Biloxi in 2019?

Well, the big expansion is in Gulfport at Island View. They spent like $75 million. Island View is privately owned by two individuals and they make a lot of money. And I think, every year they seem to reinvest like half of that into something new at the property and so they’ve grown to be pretty impressive. I don’t think, they’re getting a huge return on this new casino they did, but they probably are getting a return. In our cases, we’ve done fine anyway. Now it helped, because we had the Beach Club this summer. We had the oyster bar this year, but we also had a bunch of new marketing programs. We looked at it and said, “Okay, we’ve got this expansion by competitor. We better ramp up and market and it worked.” And so we had the best quarter it’s had since the first year it opened despite the competition throughout that quarter of that expansion. So the – I think Island View either grew the market a little. If you look at the Baton Rouge numbers in Louisiana, they’ve been pretty bad in part, because Baton Rouge restricts smoking now, which it didn’t use to, as a city, so the casinos there have become non-smoking. But the irony is the expansion at Island View is a non-smoking casino. So – but you start looking, where are the – if they grew the market, and they may have grown the market some. If they took share, it wasn’t from us. It might have been from Baton Rouge, it might have been from the Hollywood Casino that’s between us and Island View and we’ve held their own. Now Biloxi is quite a ways away from us actually. It’s like an hour East of us. And the customers to…

Appreciate it. Thanks, guys.

Just – are you aware of something opening in 2019 in Biloxi, because I’m not? And there’s almost always somebody running around trying to get something financed, but I’m not aware of one actually under construction.

Sorry -- I just [indiscernible] seeing the increased competition in the market.

Okay.

Yes. No, no it’s – I mean, you’re – we’re pleased with how we’re performing right now. I do have to post-script Dan really quick, because the accounting team will kick me if I don’t. Adjusted EBITDA is the best running third quarter since opening year, but every others that we drew out was true for any quarter. So – but our net revenue, as I said, is the best that we’ve had in history in any quarter.

The Biloxi customers come mostly from the East, from like the Florida Panhandle and Mobile and so on, because if you’re coming from Louisiana, you’ve got to drive by a whole bunch of us to get to Biloxi. And we get – we don’t get a lot of people from Tallahassee, and so it’s really kind of different markets. Next question?

And next we’ll move to David Bain with ROTH Capital.

Great, thank you. I think, we covered a lot of ground. But I guess on Cripple Creek, one of your competitors released earnings today and showed margins in the high 30’s. And I’m wondering what Bronco Billy’s – does it have, in your view, 30%-plus margin potential? Do you have any intermediate term target margins, maybe you could share with us?

Yes, we saw that earnings and they are impressive margins, to be honest. I think, we probably have room for margin improvement. I don’t know if we can quite get to those numbers, but 38% is impressive in any market anywhere. Yes, part of Bronco Billy’s has always been giving away food like we have a $0.49 breakfast, that’s a real breakfast and it’s $0.49. And people queue up on a Saturday, it’s a fairly small outlet that gives the $0.49 breakfast. So we give beepers and they spend two hours in the casino waiting to get their $0.49 breakfast. So it’s really about $20.00 breakfast. But in terms of the accounting, we lose money on that $0.49 breakfast, it’s kind of part of what the property does. And Century, I mean, we have 16 hotel rooms above our casino now. Ten in a place called the American, which I recently found out was actually built as a bordello in the 1800’s. That’s kind of half a block away from us. And then we have the Imperial Hotel that’s now part of the Christmas casino with 12 rooms. But Century has probably the best hotel rooms in town, I think, I’ve stayed at virtually everybody. And once you’re in their rooms, they’re okay. That – they’re the best rooms in town, that doesn’t mean they’re great rooms, but they’re probably the best in town. And what I remember was most unique about it was to get to my room, I had to go through a banquet room, which was a bit odd. And so I – look, kudos to them for that margin. I’m not sure that we can get to that sort of margin, but I think we probably have rooms for some margin improvement over time, so…

Okay. And…

For what it’s worth Dave, too, we were going into the opening of this Christmas casino using our team to really construct nearly everything in it. But there was an active and continues to be a discussion around here about what now right? And so we hesitated with pushing too much on the margin front going into that opening, but trust me when I say everything is being looked at pretty diligently.

Okay, understood. And then if you were awarded the – or if you are awarded the six gaming license in New Mexico in the next few months, can you describe the process from there and give any sort of timing milestones?

Well, we don’t know what they will do, because they’re kind of writing their own playbook and every state does it a little differently. But the process that we have seen in other jurisdictions, and so this may portend what they’ll do is, they’ll pick somebody and then sit down and negotiate a development agreement with them, like we have a development agreement now with the city of Cripple Creek. And that development agreement would allow a certain amount of time to come up with working drawings and financing and then a timeline to actually start construction and be opened by a certain date. And so this license was granted years ago to a place called Raton, which I guess means mouse in Spanish. So I don’t – I think they should change the name of their town. But it was going to be in Raton, which is up by the Colorado border, not very many people live there and the guy who got it ran around trying to get his financing and never pulled it together. So then the state went to pull it back and they got involved in litigation and it went on for years. I think this time they’ll probably be pretty careful to have a development agreement with tighter timelines. And if you don’t live to it, they can take the license back, because they want the jobs, they want the tax revenues and all of that stuff and that’s a process we’re familiar with. I think this will be my 12th casino, 13th casino, and there’s almost always some sort of an agreement with the regulators with timelines in it and you negotiate that and you live to the timelines and you have a successful project. I mean, those agreements aren’t there to hurt or benefit the company. They’re there, because everybody wants it to happen, it’s a win/win. We make money on it, the state gets tax revenues and jobs. And so you’re negotiating something that is a route to success. No, exactly what their process will be, I don’t know, but that would be the normal process.

Okay, great. And then I don’t know if this is the best conference call question. But anything politically that could be helpful or that we should – that could be of interest to Full House from yesterday either in [indiscernible] or New Mexico or really anywhere?

In New Mexico, I guess, it’s just a note. The Racing Commission is five members and they’re all appointed by the governor. The sitting governor is a republican and she was term limited out, so she did not run for reelection. The person who won is a democrat. So you will have a change in the executive office in New Mexico. Now talking to our advisors in New Mexico, they have a pretty high opinion of the new governor, she won quite handedly by the way, she was pretty well known in the state. And she – they think she’s going to be kind of a pro business, wants the jobs, wants the tax revenues, type of governor. Now how does that interplay with a group of members of a Racing Commission who are appointed by a republican? I don’t know.

Okay.

But I think that’s – time will tell, we don’t know. That may cause them to speed up to try to get it done by year-end or the new – it’s not a big state. It’s a little bit like Nevada, where it’s large geographically, but most of the people live in Albuquerque, Santa Fe area. So they all kind of know each other. So it wouldn’t surprise me at all if the new governor knows some of the people on the Racing Commission and there aren’t some discussions behind the scenes how to make it a smooth process, but I’m guessing. So in Indiana, I think, the big thing is that the Centaur Racetracks were sold to Caesars and Rod Ratcliff had been kind of our nemesis in blocking us from getting permission to develop something new in Indiana. Lots of discussions of what might happen, could happen, will happen there, don’t know. Caesars didn’t start off on a good footing there. They apparently threatened. They overlooked something. Those racetracks had a thing where if they changed hands, there would be a $50 million transfer tax. Unless they changed hands subsequent to a bankruptcy, then the transfer tax was waived; the lenders back 12, 15 years ago required that. Apparently, Caesars bought them thinking they had both gone through bankruptcy when only one of them had, the other one had done a consensual restructuring, but never actually filed bankruptcy. And so when the – so they agreed to pay a very big price for those two racetracks, a couple of billion dollars. And then were kind of rudely surprised that there was a $50 million transfer tax that somebody had overlooked. We even heard that they might be suing their law firm and all of this stuff. But they…

Great. Thanks, guys.

Thanks, Bain.

[Operator Instructions] Go ahead.

Oh, I’m sorry. I was going to say, it’s probably time for just one last question.

Okay. And we’ll take that from Gary Ribe with MACRO Consulting.

Hey, guys. Actually my questions have been answered. So I don’t have anything, but good job on everything.

Okay. Thank you very much.

Well, hold on, there’s one last person. Thanks, Gary, thanks for doing that. We’ve got one last person in the queue then, let’s take that last one.

All right. And we’ll move to Jim Marrone with Singular Research.

Yes, great. Hello, gentlemen. And I was just kind of inquiring about maybe wage pressures. There seems to be creeping up for a lot of industries out there. And I’m just wondering if you see that as a real potential headwind going forward? I kind of noticed just looking at the operating cost in the last quarter that the food and beverage and hotel costs were considerably higher than that. I don’t know how much of that was attributed to wages. But can you maybe comment on what you foresee finishing in 2018 and going into 2019?

Okay. Well, I think, you have to be careful looking at our financials, because GAAP changed. And so it’s not – if you’re looking at the normal financials, it’s not apples-to-apples and that’s true of any casino company. We do provide a supplemental table, where you can kind of look at it. Our food and beverage operations are bigger now because of the oyster bar in the Silver Slipper and, of course, now we’ve – the Christmas casino has that restaurant I mentioned. But otherwise not a lot changed. We get affected in – at the Silver Slipper by the price of Dungeness crab, believe it or not. We go through, I lost track now, 20 truckloads of Dungeness crab a year. And I mean, semitrailer truckloads that come from Puget Sound. It’s a – we may be the biggest purveyor of Dungeness crab in the country and it’s a very popular thing in our buffet. And if the price of crab goes up or down, our food cost goes up or down. But the – now in the minimum wage, it’s actually a household topic at my home, because my wife just won her congressional race to be the democrat congresswomen for the Third District of Nevada in the upcoming congress and, of course, the democratic party always talk about an increase in minimum wage. And I always tell her that please, change the tenor of the conversation; let’s have minimum three week vacations. It took the federal law to say 40-hour workweeks. And as a developed country, we’re one of the very few that do not have a mandated minimum vacation period. And I think if you’re trying to figure out what would be better for quality of life, a minimum vacation period would be much more important…

And people prefer it.

People prefer it, right, and you’ll notice at airports now the newly renovated airports and I know everybody on this call travels quite a bit, you’ll see these tables and counters with iPads on them. And if you’ve used them, they work pretty well. You sit down, you put in your flight number and then you order your food and somewhere in the bowels of the terminal somebody cooks it and deliver – and they deliver it to you. Well, it actually is better than the normal restaurant experience, where you’re waiting for the waitress to notice that you’re there and she brings you menu and then she has to go back and take your order and all of this. No, you have one transaction with the waiter or waitress that when they bring your food and leave it, you’ve already paid for it, you’ve already swiped your credit card, then you leave and somebody clears your dishes and we’ve been looking at that. I’m not sure we have a food and beverage outlet that fits that. But as we develop new places, we will certainly look to implement stuff like that, because that saves you a lot of payroll. And you’ll notice Starbucks, McDonalds are going that way. You can order it on your app before you even get there. And in the front desk, the Monte Carlo Casino, which I was actually instrumental in developing 25 years ago, MGM has renovated it, it’s now called the Park MGM. They actually did a really good job with it. They took out their buffet completely and replaced it with meeting room space, which has me scratching my head thinking we lose money on these buffets, can we do something smarter? But they also have almost no front desk. You go in and there’s like 25 kiosks to check in and you give it your drivers license, you give it your credit card and it spits out your room key and you go to your room. And I stood there looking at it, it’s a 3,000-room hotel and it’s almost like the self checkout at Lowe’s or Home Depot or something. And now and right next door to it, of course, is Bellagio, which is a 3,000-room hotel or a little more than 3,000 rooms. And I thought, I think, I would rather check in on a Friday night at Monte Carlo, because Bellagio might have ten desk clerks servicing people and Monte Carlo has 25 kiosks. So there are ways to use technology to actually provide better customer service with fewer employees. And I think ultimately the wage pressure is going to move our whole economy that direction and I think that’s a good thing. And in our business, we’re trying to figure out how to do some of that stuff as well.

Hey, Jim, I just want to point you to the – if you go to the tables at the back, it’s going to be the second financial table. And Dan is right, it’s the new accounting standard 606 is really what is responsible for the entire change that you’re speaking of. If you look at the food and beverage expense line, it looks like it went up by a factor of three times. But if you actually do a true apples-to-apples without 606, our food and beverage costs actually went down. Hotel costs actually – they did go up a little bit, but they only went up by about $15,000. But look at that second table at the end of the earnings release.

Thank you very much, everyone. I was really more addressing the wage pressure, but that’s also been very well explained as well.

Yes, I will point out also that in some of our markets, some of our customers earn minimum wage. So there is a little bit of an offset there sometimes.

All right. Thank you, guys. We’ll see you next quarter, everybody.

Everyone, that concludes our conference call for today. Thank you all for your participation. You may now disconnect.