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

Thank you. And good afternoon, everyone. Welcome to our third quarter earnings call. As always, before we begin, we 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 a 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 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 our SEC filings as well as some slides that we posted in the presentation section that's labeled 3Q19 Earnings Call Slides. So with all that said, ready to go, Dan?

Yes, I'm ready. Let me [Technical Difficulty]. So by far, the most important thing in the quarter was the sports wagering agreements we signed. To some extent, we got lucky on this. The Supreme Court, about a year ago, a little over a year ago, approved sports wagering in states other than Nevada. And I think it was Delaware before. And now two of the states have opted to pass enabling legislation, who were Indiana and Colorado. And we happen to have casinos in those two places. So we're a small company, levered, but the legislation in both places ties mobile sports betting to brick and mortar. It's different than Mississippi. In Mississippi, they approved sports books, and in fact we have one at the Silver Slipper that's been open about a year. And we do it in partnership with William Hill there; and we'll probably make something like $600,000, $700,000, $800,000 there this year on our share of it. In Indiana and Colorado, they actually permitted sports betting that you can do from your phone or from your home or from the office. You don't have to be in a casino. And so it's opening a whole new industry. And at least the data so far, where this has happened, it shows it doesn't have any impact on the casino gaming itself. If anything, it might be a slight positive. Now there have been people betting on sports for centuries really, and -- but I think in the U.S. it's been largely controlled by bookies and the underworld. And so this kind of new industry kind of cuts into that. And everyone is guessing how big it is, but it's in billions of dollars. It's a very big industry. We have not done this on our own. Some casino…

We should -- big enough. We should talk about it again, Dan...

Yes. Well, I should mention what's on the slide that I failed to mention is the revenue from these will come on as the mobile gaming starts and as the sports book starts.

Yes.

And the sports book in Rising Sun, and there's a couple pictures of it, is about ready to start. You can see it's ready for the slot machines and kiosks to go into place. We can't do that until we have gaming commission approval, which we expect imminently. The kiosk -- and I think Churchill Downs has the best kiosks out there at the moment. I think everybody is working on them, but they have a very good kiosk that -- they buy them from somebody, but they're quite popular, yes. I've gone -- I go through casinos every day. And every time you see the Churchill Downs BetAmerica sports book, they have lines at it that the other places don't have. So we're happy to be partnering with them. And their kiosks are on site, ready to go as soon as the gaming commission approves us. And we'll have a real sports book at Rising Star, I think, within a couple weeks. We're ready to go. It's really Churchill Downs who has to get regulatory approval at this point, and we think they're close. And Bronco Billy's. We've made quite a few marketing changes there. We have a new GM. And the old GM was fine too. He's retired, and the new guy has a lot of new ideas and they seem to be working. It was also the summer which is seasonally important. And so the Christmas Casino was added capacity, and in the peak period, that helps. And so this property had had several lackluster quarters, and we're happy to see a good quarter here. And I -- and it portends some of the trends strengthened during the quarter and have continued in the fourth quarter, so we're hopeful that this property will trend upward going forward.…

No, Dan. I have some notes, but you covered them all. And I think the only thing I would postscript is we started with sports betting, so I'll end with sports betting as well. I do want to highlight that it really was transformational for this company. And if you think about that $7 million of annual guarantees as a lender, assuming we can lend -- or leverage 4x to 5x that $7 million, it's effectively like we issued anywhere from $28 million to $35 million of equity from a lender point of view. And so I don't want to underscore the transformation that, that sports betting did for us, but that all said, I'll point you all back to the slides again, in case you missed my point about the beginning. If you go to the fullhouseresorts.com website, click on Investors and find the presentation section. That's where these slides are. With all that, let's open up for Q&A.

[Operator Instructions] We will now take our first question from Chad Beynon of Macquarie.

It's Jordan Bender on for Chad today. You've mentioned a few projects over the last year up until now, whether it's the second phase of Bronco Billy or Waukegan or possibly in New Mexico down the line. I guess, looking out a year from now, once the parking garage opens and free cash flow begins to start ramping up again, can you give us an update on your capital allocation plans and maybe the highest-priority projects for you guys?

Well, we're sitting on $27 million of cash. About $10 million of that is used in operations, maybe $12 million even. The parking garage is in -- is about $15 million, Phase 1. And that's the big capital over the next 12 months. Things like the steakhouse that was like $300,000, that's all in that maintenance CapEx which is like $3 million to $3.5 million a year. Once in a while, you've got to spruce up a restaurant. The deal we did with Konami is we are leasing the system from them for two years and then we have the right to buy it at the end of two years...

3.5, Dan.

3.5 years. And if you present value that, it's like $4 million, but we basically have Konami finance it. And we think we get a pretty good return on that in terms of the effectiveness of our marketing and what it does for our customers. There's little things. You can sit at a slot machine and participate in a tournament without having to go to a special group of slot machines. You can also come in -- if we've sent you a free play, you can load the free play on that slot machine, play part of it. Then if you want to change machines, you can change machines and it goes with you. The systems we have today, that's not the case. Whatever machine you download line, you got to play it all there. So that's just a couple of simple examples. There's a lot of different things it does. Now the -- we get quite -- and a lot of the stuff, like New Mexico -- or we had a proposal in Indianapolis once with regards to Terre Haute. We go out -- and Waukegan. I mean Waukegan had a public process, put out a request for proposals. We responded to it. You end up getting publicity of that in Waukegan, of course, and then the Chicago Tribune. And that gets picked up online, and all of a sudden everybody sees it and recognize it's a long shot; even today, we're one of three. And I think we have the best proposal, but I'm sure Neil Bluhm thinks he has the best proposal. So -- and in New Mexico we were one of five. We were deemed to be the best and then they hit pause on the whole project, right? And so I mean you got to…

Yes. I think the thing to remember on Bronco Billy's, Jordan, is it's there. It's designed, right. And quite frankly, of all the projects that Dan and I have done in our careers -- and you know a lot of them were [indiscernible] Bellagio. Go through the list, but we feel better about this project than any other project that we've worked on. And it is ready to go. When you look at everything else, whether it's Waukegan or New Mexico, those are as simple as drawing these on paper. Those -- that's not a stack of blueprints that we have on our table for that profitabilities expansion. So Bronco's is there and is certainly a priority.

Another thing. I should mention, timing-wise, no. Waukegan, we will do a temporary casino because, I think, it works in that market. I used to not like temporary casinos. And then The Cordish Companies, who were the original operators of the casino in Shelbyville outside of Indiana, they drew up a temporary casino and they did a really good job. And I remember walking in and thinking you can do a casino on a tent that looks pretty nice and that works, all right? And ever since, I thought, if I were in the right spot, the right market with strong demographics, I could do something like they did. And that helped them roll into the permanent one. Now they spent too much money to get the license upfront and they eventually went bankrupt, but the temporary casino they did was a good job, and it can be done right. And so in Waukegan, with the number of people living around there and the city's interest in getting the jobs and tax revenues quickly, we agreed to do a temporary casino, but the permanent one will be -- a couple years up, we would be open with Phase 2 in Colorado before you probably can put a shovel in the ground for the permanent casino in Waukegan. And a temporary casino is a strong structure that gets done up very easily.

I applaud you, Jordan, for thinking we have those projects, though. We don't have them yet. Stay tuned.

[Operator Instructions] We will now take our next question from Gary Ribe of Accretive Wealth.

Dan, Lewis, great job on everything.

Gary, thank you.

Yes, I have a question. And this -- if I recall, you guys bought a second casino in Colorado, right across the street from Bronco Billy. Is that right?

Not completely. There's a -- at the corner of the block where Bronco Billy's sits -- we had acquired most of the block, and there was a piece of land behind Bronco Billy's that we really kind of needed for the parking garage. And the owner of that piece of land also had the corner uphill from Bronco Billy's. And he wanted us to take a lot of everything, so we struck a deal with him where we leased that building with the right to buy it. And so we are leasing that building now. And it is a casino that had failed before. And then we thought, well, as long as we're leasing this, why don't we try to reopen it. Now it was also kind of an important building for us because that's the corner at which you need to turn right to get to our parking garage. And so it allows us to have a way to have a sign that says turn right here and go to the parking garage. It's not actually a very large building in a grand sense. And we did reopen it with a Christmas theme and called it Christmas Casino. And year-to-date, I don't think it's made enough money to cover its lease, but we're probably better off operating it than not operating it. And controlling it was important for the kind of the bigger scheme of the whole block of what we're doing. And so a good chunk of the reason why we were off in the first half of this year was operating that additional casino capacity in a leased building largely with leased slot machines. And we did it knowing that we probably weren't going to make a lot of money out of it. We thought we'd make some money. And we, I think, did in the third quarter but not in the first half. And -- but it's kind of important for the overall strategy.

Got it. So you guys don't have a second gaming license in Colorado then.

We actually have three. In Colorado, it's a highly graduated tax rate. The first $2 million of revenue is only taxed at 0.25%, then it ratchets up to -- I think at $15 million it becomes 20%, if I remember correctly. And initially, Bronco Billy's was a smallish casino in the middle of the block. And Marc Murphy, who was running it, did a better job than his neighbors. And at one point, one of his neighbors came up for sale. And when he was looking at it, the issue was, "If I buy it and combine it, our revenues jump and we'll be in a higher tax tier," and so that made it complicated. And so they talked with the gaming commission and said, "If we buy the casino next door, knock a hole in the wall so the customers can walk from one to the other, can we keep it as two licenses?" And they said, "Yes, you can, as long as you operate a separate cage in each one." And the TITO tickets from one can't be accepted in the other, which is a little confusing for the customers, but our customers are pretty regular customers so they're used to it. And so then at another point, Marc did the same thing on the other side. So within Bronco Billy's, there were three different licenses. When we reopened the Christmas Casino, we kind of reduced some of those lines and took 1 license down to the Christmas Casino, so now within Bronco Billy's there's two licenses. And then we have the Christmas Casino. So in terms of sports betting, we have three licenses, we get three skins. Now Indiana has better barriers to entry because there's only 11 casinos permitted in Indiana. Each casino got three licenses. In Colorado, casinos are limited to three little towns, but there's not a limit on the number of casinos. So theoretically, somebody could open a tiny little casino somewhere in Cripple Creek or Black Hawk in order to get the sports book license that would be affiliated with it.

Okay, I understand. I see, that's very helpful. And I guess you understand this question, sort of being in the gaming industry. The refinancing of your debt, are lenders going to do that sort of on the come?

Well, we're -- yes. There's a few things. We're pretty sure we could refinance our debt at significantly lower interest rates, or we can refinance it to get a larger sum and roll right into Phase 2. And we're trying to figure out whether the strategy should be go to low interest rates and then come back and do Phase 2. The interest rates would be enough lower that the cost of refinancing would probably pay for itself in a couple of months. And so we're trying to evaluate all that. We -- obviously, getting the referendum passed in Colorado is pretty important. And we'll see that next week. And then we can in earnest look towards doing the financing in the first part of next year.

Gary, it's probably coming sooner than you think. The mobile gaming in Indiana is literally on the verge. So knock on wood. I think and hope that we'll have at least 1 of our partners operating with their mobile sometime before the end of this current quarter. And then I think -- as you go into the first quarter of next year, knock on wood, I think we'll have all three of our Indiana partners up and running. So you're going to see that -- those revenues and that EBITDA hit pretty darn soon for Indiana. Colorado is going to take a little bit longer because they have to get it approved then set up the -- all the rules and everything. So Colorado is more likely the middle of next year, but the nice thing about having the guarantees with companies that no gaming -- or have done sports betting for a while is it lets us get credit for that when we go out and talk to the debt markets.

Smarkets issued a press release when they signed the deal with us. And in their press release, they indicated that they hope to be up and operating before the national football league playoffs, okay? And when you think about how much betting happens on the Super Bowl, I think it'd be a fair guess that all of these companies are trying to get opened in time to take bets on the Super Bowl.

Yes.

And you would think -- or at least March Madness or something, right? I guess...

You do, yes. And it's fairly easy for them; they're not building a casino. And they have the software already operating somewhere else, so they have to get gaming commission approval and then they flip a digital switch and they're up and operating. It's almost like the eBay model [indiscernible] the easy thing.

Yes, that makes sense. Okay. And maybe I missed this. I was listening -- I listened to the prepared remarks to the extent they're prepared and -- but do you have a sense of -- you said there's significant interest savings. Is that 2%, 3%? Or is it better? Or what do you guys have a sense of in terms of magnitude...

So we have some term sheets that are confidential but substantially below the 10% where we are. I mean, if you look at other companies like us of -- if you committed to not build Phase 2 and just use the cash to be swept to pay down, you could probably be as low as 5%. So you could reduce the interest rate in half, but then you couldn't build Phase 2. So we're trying to balance this to figure out what's the best way to go. I mean, at the end of the day, it's all about what's best for our shareholders. So we're playing with all those permutations.

Got it, got it. Well, the shareholder and I trust you'll do the right things.

Yes.

We will now take our next question from Brian Gustavson of 1060 Capital.

Just on Waukegan, can you kind of talk about why you would or wouldn't partner with one of the other two parties just to kind of make the odds better for you guys?

Well, I think in the process we're actually forbidden to talk to the other bidders, but I -- but obviously the thought has come to us that, if we get this project and it's $300 million, it would be a whole lot easier to finance it if we had a partner. So we have given some thought as to who might be a good partner for it. We don't necessarily have to have a partner. And we're actually prohibited from talking to the other bidders during the bidding process, but I've done both. I mean, the Borgata in Atlantic City, we had invested quite a bit of money and actually time and effort, not a lot of money, in getting that tunnel built in Atlantic City. People don't realize this. I negotiated that tunnel with the Atlantic City Expressway authority. And then ultimately we decided to partner with Boyd. It was kind of a complicated history, but Borgata ended up being a joint venture between Mirage Resorts and Boyd Gaming and is very successful for both companies. Monte Carlo in Las Vegas was a very successful joint venture between what became Mandalay Bay group and Mirage Resorts. And so sometimes that makes sense, especially if the partners bring different expertise to the table, but this was a very expedited process in Illinois. The law was just passed a few months ago and they're moving very quickly. And so we didn't have time to go find a partner in advance and apply. We just applied upfront. We're -- if we end up getting the license, we'll look at doing it on our own and we'll look at having appropriate partners. Once if we were chosen, well, then we would be free to talk to Bluhm or anybody else. I don't know that he'd be the best partner, though. There is a lot of people who might partner in. And we'd probably talk to a lot of people, plus consider doing it ourselves, but we're actually prohibited from talking to other bidders because -- which makes sense in a bidding process.

Got you. Can you take a partner now who's not involved at all?

Well, the license is on us. I mean we posted that -- we put up the $300,000 nonrefundable deposit that Illinois required, which I will tell you I did with some angst because that deposit was much larger than is the norm in processes like this. And we swallowed hard and did it because we think the economics of project are so strong that, even if we only have a 25% or 30% probability of getting it, we should still do it. And so we could talk to other partners, but we're not -- they would not be added to the gaming license. It's a complicated process to license somebody. You -- but they're -- we think they're going to address markets where there is only one proposal. And there were a few of those. They'll address those first because that will be easier. And so it's probably 4, 6, 8 months before they get around to looking at Waukegan, and so we have some time and to think about the possibilities. So...

Looks like you've got a lot on your plate.

Well, I can tell you, when Lewis and I had our own little company, Creative Casinos, we had the last license in Louisiana. And we were getting ready to build the property in Lake Charles that is today the Golden Nugget. I actually designed that. And we had all the entitlements and everything. We had brought in MGM as a partner. MGM was a significant investor and partner in that. And then as we were about to put two bricks together, Ameristar offered us a really nice profit and we sold it. So we know how to bring in partners when it's appropriate. I had that license completely to itself. And we brought in MGM both for their expertise and their assistance in financing it. So it's the thing we promise Waukegan and the State of Illinois is, if they choose us, we will get it done one way or another. And it might be us on our own or it might be us with a partner, but it will get done. And it was the same thing in Louisiana. When Ameristar offered to buy us out, I told Ameristar's CEO the only way I would sell, the only way I could sell was they would have to step into all the promises I had made to Louisiana, including the time schedule that it would be built and what it would -- what would be built and everything else. And we went and met with the gaming commission, and provided they stepped into all those promises, we were approved to sell it and we did. So, I -- not that we're going to try to get Waukegan and sell it. Our intent is to develop it, but at some point, you have to sit, look and say this is a $300 million project. Do we want to lever it and do it through leverage, or are we better off having a partner and not have that stiff leverage? And so like Neil Bluhm is partnered with Churchill Downs. So that makes a very strong balance sheet between the two of them. And so it's possible we'd figure out something like that as well.

That concludes today's question-and-answer session. Mr. Lee, at this time, I will turn the conference back to you for any additional or closing remarks.

Well, I wish I could find 6 new sports agreements to sign in the fourth quarter, but we're out of sports agreements opportunities. But we'll keep looking and keep running the company as best we can, and hopefully, our stock price will reflect that overtime. So, thank you.

Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.