Good day, everyone. Welcome to the Full House Resorts Fourth Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn things over to Mr. Lewis Fanger, Chief Financial Officer of Full House Resorts. Please go ahead, sir.

Thank you, and good afternoon, everyone. Welcome to our fourth 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 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, 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 issued. We're also broadcasting this conference call at fullhouseresorts.com where you can find today's earnings release as well as all our SEC filings. And as we've been doing, we have some slides as well that we've updated, or uploaded to the website, and you can find those as we put through them. And with that said, we're all ready.

Okay. Good morning, everybody. It's kind of a day we'll always remember, I'm sure. As I was just telling people, I remember the crash in 1987 when the company that was acquiring Caesars, it's funny [indiscernible] with Caesars. At that time, the guy [indiscernible] spent the afternoon wondering what anything is worth. And, well, it's a little bit reminiscent, recognized for a long time. We've had casinos in the south and it's reminiscent of the weather service telling us a hurricane is headed our way, and we sit there wondering like when if it's really going to hit us and what it's going to do. And all you can do is really get ready for it. And I will tell you, so far, through yesterday, we have no discernible impact from the virus or the stock market. Our volumes are about the same. The number of people in our places are about the same. I'm not saying that we don't expect an impact. But so far, we have had no impact. We know of no known cases within any of our properties. Of course, we're trying to do what we can to make sure our customers, our employees are safe. We have people cleaning the casino floor in all of our properties. We have, our machines are getting especially disinfected at least twice a day every machine. We yesterday took a very unique step. I think we may be the first company in the industry to do this, where as employees come to work, the security guard who's at the employee entrance has a temperature gun just similar to what they use in the airports in Asia now and it checks the employees' temperature. And if somebody is more than...

We can't...

You're not hearing?

No. I can't hear you. It's a little muffled.

Okay. I'll speak up. Is this better? Okay. Now I was just saying that we are disinfecting everything. So far, we've had no impact, but we are especially planning things and disinfecting every slot machine at least twice a day. And we are taking the unique step, I think we may be the first company, but I'm sure others will follow, of taking each employee's temperature as they come to work and we began that yesterday morning. And if anybody has a temperature exceeding 100 degrees, which is what how the medical school indicates as a fever, and one of the early signs of the coronavirus is a fever, that employee is sent home and told to contact their usual health care provider. Now I will tell you, a little bit surprisingly, we had not one employee show up yesterday with the fever and sent home. And I think it's kind of a deterrent because if somebody is feeling feverish, you wouldn't try to come to work. I think our customers are almost self-pleased because if you're not feeling, if you're feeling feverish, if you're not feeling well, you're not likely to get in your car and drive to a casino. But employees for a myriad of reasons might come to work when they're ill. And I actually expected us to find some employees, I thought they'd probably have the flu. This is a flu season. A lot of people have the flu and, but we had not one employee show up and, that had a fever and had to be sent home. I'll also point out, not surprisingly, a lot of meetings and conventions are being canceled. In fact, we were supposed to be at the wealth conference next Monday. It's a prominent investment conference in Southern California, and…

[Operator Instructions] We'll hear first today from Chad Beynon with Macquarie.

Wanted to continue on that. And it's great to hear everything is okay with your employees and the steps that you guys have taken. It's certainly a positive. Investors just continue to ask about any additional details in terms of daily customer volumes or cash burn. Is there anything, and understanding that it's so recent and every day has done incrementally worse with media news, presidential announcements, stock gyrations, can you help us think about just what you've seen at your properties in the past couple of days? And what you are expecting maybe through the rest of the month? And I know that's probably tough to answer, but people are asking.

Honestly, I honestly don't know what to expect. It is kind of like a hurricane bearing down, and you don't know whether it's going to be the storm surge or the winds or just lack of customers, what's your biggest challenge, right? And, at least so far, the customer count seem to be unchanged. Now it's logical that even just the decline in the stock market would cause a recession and we would see a falloff eventually. Now regional gaming is usually more resistant to recessions than the Las Vegas casinos because it costs a lot to go to Las Vegas and companies cut back on meetings and convention that they allow their customer, that they allow their employees to go to. It's kind of easy to cut the travel budget when you're going into a recession. We have very few people on expense accounts to those places. So I think, in terms of recession, I think we'll be fine. You may not, you may or may not be aware, there is a tribal casino in Northeast Oregon by the name of Wildhorse. They had one of their back-of-house employees test positively with the virus and they had to close their casino for 2 days while they disinfected it and reopened. And I'm guessing that their business has recovered, but slowly. And so that was, I looked at that and said, "Well, okay, we should try to make sure that our employees are coming to work healthy, if they have to." If they stay home, we'll be understanding that, even if we have to replace them with overtime pay, I would rather they stay home. And so that's why we started taking people's temperature if they come to work. It's a very simple procedure. You just have this kind of…

Yes. So [indiscernible] we ended the slides with the fact that we have $30 million of cash sitting on the balance sheet. So in these extreme scenarios, we still have the cash. 1/3 of our, almost 1/3, 28% of our debt is sitting in cash. We'll be okay.

Yes, I mean, honestly, I, you don't want to have to close because we don't have crowded environments here. People aren't coming and sitting [indiscernible] in our conference room or something. And I think if we end up closing, it's almost more of a political thing than a real health concern. But, and I'd be very concerned about our employees because we can't afford to pay our employees if we're closed. And that creates a tremendous hardship on the employees. And so it's the same thing like these airlines are parking their planes and Princess Cruise Lines is parking their whole fleet and the impact on the employees is a terrible thing. And there are ways to try to keep people safe in an environment like this. There's an article, I think, in yesterday's Wall Street Journal about a cappuccino bar in Italy where the police had made them put lines on the sidewalk, so the people standing in line would be six feet apart. And that actually works. If you got to line up for something and you're six feet apart, you won't, you're far enough apart. You have that social distancing. And if we had to say, "Please don't sit next to somebody at a slot machine, leave a vacant slot machine in between, it's even like we canceling all flights to Europe." Well, is that really necessary? If, what if you said, "We're not going to rent the middle seats anymore. We're going to leave the middle seats empty. And everyone has to wear a face mask. We're going to take everyone's temperature before you get on and off." It would be more thoughtful than just canceling everything. But we're in an environment where people are taking radical measures. And so I personally don't think we'd have to close just like some of these conferences. Why couldn't you, if you had a conference with 200 people, move it into a much bigger room, where everybody can sit 10 feet apart. But if people will be so concerned that they're not going to show up or if the health authorities or regulators ask us to close, of course, we'll close and deal with it. And we're prepared to do that if we have to, but I'm hoping we don't have to.

I'm going to end you on a positive note, Dan. At the end of the day, to go back to Dan's earlier point, we don't have customers that are flying on planes to get to us. They're in a car with 1 or 2 other people. They get to our property, where things are relatively spaced out. And to the extent that you are canceling trips to Vegas or canceling vacations, what we saw at least after 9/11 when that happened was people still wanted to go to have some sort of local escapement. And hopefully, we have the processes and the facilities to continue to entertain people.

And I'm going to bring up the sell-side analyst in me like, many of you know, I was a sell-side analyst before I turned to the operating side. And this is an epic buying opportunity, really, just like 9/11 was, just like 2008 was, 2007 was where all the stocks had been taken down. And the world will come back to normal at some point. Now it's difficult as catching a falling knife. You want the knife to fall on the floor and stop bouncing around before you reach for it because you could get killed in the meantime. And you want to make sure that if you're buying something that it's a survivor. You don't want to end up with the company that can't survive. And so we're very determined to be a survivor. And I would just point out this is probably an epic opportunity for people.

Thanks for the opening question, Chad.

Yes. No. That's very helpful on all fronts. And you're right, balance sheets are paramount. And hopefully, after this is done, your customers appreciate where the gas prices are. Because I know that was always a big correlation with regional gaming revenues.

That's good.

I wanted to move on to Colorado. I know there's some additional legislation that's being discussed that could potentially lift the $100 single bet limit, which, given what you guys are thinking for Phase 2, that could actually improve the returns that you've been penciling and probably help bridge to some of the spend per adult numbers that you've quoted in other markets, obviously, if the betting limit is higher. So a couple of questions on that. One, could you just talk about the likelihood of that happening? Secondly, what this would mean for your Phase 2 in Cripple Creek. And then third, just from a support or financing standpoint, are there a lot of costs that we should expect throughout the year if you're supporting this bill that you just might need to help write the check for?

Well, obviously, we're in favor of the bill. And I think they'll probably pass this as the people in Colorado are pretty accustomed to the industry now. And they've, I think they've passed every referendum related to the casino so far. The ones they've voted down were slots at the tracks, which would have taken business away from the gold mining towns that have casino. So the people of Colorado have generally supported continued expansion of gaming in the places where it is. Now our Bronco Billy's place, we only have a handful of hotel rooms and they're kind of 2-star rooms anyway. So that high roller you're talking about, it's just somebody who might otherwise be fine in Las Vegas doesn't go to Bronco Billy's. So Bronco Billy's as it exists is probably not that big a plus. But you're exactly right. When you build Phase 2, that would be a significant advantage because we're planning to have a luxury hotel. Now it seems almost odd to talk about that under today's circumstances, but that is kind of the long-term plan and this is definitely a plus. Now the principle that is driving that referendum of those companies out of BlackRock were much bigger than us and already have much bigger facilities than us and they lost first. And I said, honestly, we're in favor of it. If and when we pull together the money to build the second hotel, we're happy to be supportive. But I have not made a commitment of any note [indiscernible] $5,000 or $10,000. They want to be able to say that everybody is supporting it. So I think we gave them $10,000, no, $5,000. So we gave them $5,000. And as we kind of said, when we have the money to build Phase 2, we might be happy to be a better supporter, but we haven't given a firm commitment we'll do otherwise. So, but obviously, we're going to pay for it.

Okay. And then lastly for me, and Lewis, just out of the $30 million of cash at the end of the quarter, how much of the upfront sports betting payments are included in that number? And then for the $7 million of annual guarantees, how does that work mechanically? Does that start when the properties are up and running in May? Or just, when should that start to flow into the profit and loss statement?

The, so the onetime fees are all in the fourth quarter numbers. We collected about $2 million in the third quarter and the other $4 million we got in the fourth quarter. So that's all sitting in there. You may have noticed there's a small, very small restricted cash balance. It's only about $1 million. And for what it's worth, I'm expecting that restricted cash to be normal cash here in the next month. So that restriction will go away relatively quickly. The way that those guarantees work from your side is as our mobile operators kick off, that's when you should expect to see those guarantees go live. And so here in the fourth quarter, we had Churchill Downs go live on December 30. That's what kicked off their guarantee. As markets and as wins roll on in Indiana, you'll see each of those guarantees kick in separately. And then as Colorado goes live again and each of those mobile operations start in Colorado, you'll see each of those guarantees kick in one by one, too. Does that help you there?

Yes. That's perfect. Okay. And the $6 million of cash that we received is totally nonrefundable and there's actually income that the accountants in their wisdom had us capitalize it and amortize it over the life of the contract. So that doesn't add much to income currently [indiscernible].

It's part of the 10-year life of the contract. So the $6 million will come in as income, as revenue really and EBITDA over the 10 years as each of those contracts start. That's right.

Well's hear next from [indiscernible] with ABL Investments.

Bronco Billy's, when you first acquired it, started out with the EBITDA significantly higher than where it is today. Not, excluding the online revenue, what would it take to get it back to where it was?

Basically, closing the Christmas Casino and consolidating it back into Bronco Billy's, that's almost all of the decline is related to that Christmas Casino. And we didn't get the lift in revenue we were hoping to get. And we can actually trace it now with the Konami system. And we know that over 85% of the play at the Christmas Casino is customers who are regular customers at Bronco Billy's. We're now splitting the play between the 2. And so we have the additional operating costs of operating a facility that's not contiguous with what we have and that's a few hundred thousand dollars a year. And then there is the lease of the building, there's the lease of the slot machines because most of the machines entered a lease and then there's a tax inefficiency. We operate under 3 licenses. There's a highly progressive tax rate in Colorado. Ideally, we want your revenue split 1/3, 1/3, 1/3, and then you'll have a lower tax rate. The Christmas Casino was only 120 out of our 800-odd machines, and it only does about 12% or 13% of our revenues. And so it's taking us quite a bit away from the 1/3, 1/3, 1/3. And so our effective tax rate is significantly higher and that cost us a few hundred thousand dollars. I think when you add all of that cost together, it impacted us by about $1.7 million last year. And if you add $1.7 million to last year's results, you get very close to the $5 million per year of EBDIT that it was doing when we acquired it.

Very good. You had some, I guess, road construction issues in Indiana. Are those all behind us now?

Yes. Yes, I just drove that. Well, so, yes. And I think the issue here was the Konami system was a screw up. And frankly, we had hired a marketing guy who we felt was going to be terrific and he was hellbent to try to attract a younger clientele and he changed a lot of the marketing. He did some very expensive things and they did not work. And some of the stuff he did had commitments that extended forward, and we weren't fully aware of it, stuff like hiring musical groups to appear at the property, who weren't really appropriate to our clientele. And when we figured it out, we started to change things. And then when we figured out the forward commitments, we fired him. And we're trying to work our way out of that now. And that was part of the impetus to say, "Okay, you can't just split all stuff up against the wall." It's a very competitive market in a very mature place, and we have to be very full shot at our marketing. We didn't have the systems to do that. So we went to put in Konami. And as we said, the installation of Konami was also a screw up, not a screw up, it's just way more complicated than we expected. And we got through that. And so I think we're getting it back under control here. It's still probably not going to have a great first quarter, but I think it will have a pretty good 2020, so, absent the other hurricane that's on the horizon. So...

[indiscernible] Konami system is having data for the first time and really understanding what to do with that data. And I will say there have been some experiments here and there where we're really seeing the boost that we expected out of the system. So kind of, we're in the early steps of taking that newfound data and really putting it out there in a good way.

And for example, the ferryboat we operate, we just started charging, again, $5 a car unless you have a players card. I'd almost rather they have a players card because then I know the name and address of the person riding the ferry. We didn't know it before. And interestingly enough, the ridership is holding up, and we're actually collecting $5 a car and quite a few cars. So that ferry cost us like $700,000 a year to operate. And I don't think it's benefited the casino as much as it can. But part of that is marketing to people in Boone County for whom the ferry is convenient. Ironically, Kentucky has very tough sign laws. It's very hard for us to get billboards to say, "Take the ferry. It's this direction." And so the signage is awful. And so we have a whole digital campaign to try to reach people through e-mail, through banner ads and so on about the ferry, like here it is, here's how you do it. And, but it's $5 a car, unless you're a customer at the casino and then it's free. And so we're doing a lot more of that. The Konami system, a lot of casinos, I, we, as many regional operators, give free plays. So based on how much you gamble, we give you additional dollars that you can gamble that is free play. And, but it used to be, you had to go stand in line at the players desk to get your free play is a complicated system. With Konami, we're [indiscernible]. So you walk into [indiscernible] and the free play is there. It's on the machine already. That's a huge customer convenience and makes it much more likely that the person uses the free play because they can also get cash instead of the free play. Well, most people prefer to get free play. And we would prefer that it's free play because then we win most of it back. And so, and if we give somebody $5 of cash and they take it home, it's done. If we give them free play, we generally end up with $0.75 of it back, $0.75 on the dollar back in our pockets. So we would much rather have people use free play. Frankly, they'd rather get free play. And now we have a system that makes that much easier for them to do and much more data. I mean the very fact that we can look at it and say, "Okay, we know that most of the revenue in the Christmas Casino is coming from regular customers at Bronco Billy's." So closing the Christmas Casino and getting those people back into Bronco Billy's, we don't think we lose them to a competitor. We didn't have systems that would help us figure that out before, and we do now. So...

How is it going with getting people from Kentucky into the casino?

Not as well as it should. That was my point. And I think that's a function of informing them, frankly, that the ferry exists. It's a very convenient way to cross the river. But we're actually the closest casino to their house and tracking that. Now, yes, if we ultimately determine that running the ferry doesn't make any sense and it's not paying for itself, we have a boat we can sell. We built some roads and ramps down into the river and so on. Now it's very hard for us to know with the old systems whether the ferry is paying for itself or not. I know our revenue didn't increase. We built this ferry. We made ourselves much more convenient to a lot of people and the revenues did not go up. But you also wonder we had some new competition, would our revenues have been down much more if the ferry did not exist. We really had no way of knowing that. But now we can start tracking whether if people who ride the ferry because we're, when we say it's still free for gamblers, we actually tried through a card. So we have a database of who's riding the ferry. This just started March 1. And so we'll be able to track whether the people driving the ferry are gambling in the casino. And so then we can make an informed decision of whether it makes sense to continue to run the ferry indefinitely. But frankly, firstly, you need to market it better and get people to know and try to use the ferry and the data system to use it. Yes, the next logical step is to go back and say, "Well, you not only have to have a card, but you actually have to use it." And so we might at some point tell you, if you want to ride, the ferry is pretty busy on weekend. If you want to ride the ferry on the weekend, you have to be at least a tier 2 customer because we're not a charity, we're actually trying to make money here. So...

Assuming this coronavirus burns off here probably by June, so are there any opportunities to refinance the debt?

Absolutely. We were going down that road before [indiscernible]. You couldn't do it today, for sure.

Yes. I would tell you that there are always opportunities to refinance the debt. And one thing to keep in mind is the pro forma results for this company for sports betting, it's a lot easier to pro forma that in as the sports betting deals all actually kick in the gear and the guaranteed start. And it feels like it was a long time ago that we signed them. But the good news is we're, I think we're within a month of having everything for sports betting actually up and running.

And in the meantime, well, the operating results should look better from both Bronco Billy's and here. And I think the Silver Slipper and Northern Nevada will be stable. So...

And just one last question. I guess with all the sports betting starting sometime in May, the second quarter should have a substantial bump from the year before. Is that the plan?

Well, yes and no. Look, the sports betting started in Indiana in the fourth quarter, but it was 2 days from the end of the quarter. So I think our income was up about $9,000. So exactly when it starts in the second quarter is when the bump would be. But let's say, from first quarter and third quarter, yes, it should be a significant bump. We don't actually control when it starts. And in some cases, markets [indiscernible] and Churchill don't actually control it either. It's the regulators. And the regulators have to license each of those companies and then they review their apps and they test their apps and make sure everything is working. And that could be a pretty complicated process. And it has taken longer than we expected in Indiana, anyone expected in Indiana. But it's kind of our impression that Colorado is moving faster. I think they have the benefit of the experience in Indiana, and it's quite possible that markets in the end are up and running in Colorado faster than they are in Indiana. So...

And our next question will be from Gary Ribe with Accretive Wealth.

If I heard you correctly, you do not expect to have any type of issues with covenants in the first quarter?

Say it again.

If I heard you guys correctly...

It's the one we worry about. Frankly, the first quarter because we don't have a lot of sports betting income yet. And it all depends on March. We're not partly in the March, and March is an important month seasonally. But we've been talking with our lenders. i think if we needed a little bit of it, even then I think there'd be no problem. But I'm hoping that we don't need it. We may seek it even though we don't need it just to make sure we're okay.

Yes. I will tell you, we talk to our lenders all the time. In a good market, we much less spoke than what we've experienced very recently. And so as an example, I was on with our lenders yesterday, three days ago, two weeks ago. So the dialogue between us and them is always happening and the relationship that we have with our lenders is extremely good.

And by the way, it's three lenders and the large one was PIMCO. The most active one we pulled together is Sagard, who's a large Canadian company. And they're funds, not traditional banks. And frankly, under these circumstances, I'm very glad to be there because when the world flows a product like this, traditional banks have regulators breathing down their necks. And if all of a sudden, they have a nonperforming loan, they get all nervous and hellbent. And at least it's been our experience that PIMCO and Sagard are great lenders, very good to work with. And I'm sure if we went to them and said, "Hey, we're going to be [indiscernible] in this first quarter, you guys willing to work with us. And they've always said, absolutely, no problem. In fact, they called us before we call them. And I think for them, [indiscernible] from us that we think we're going to be okay. We're watching it carefully. Might have been the best discussions we had all day with a casino company because I think some of the other casino companies are in probably better shape than we are. And, so I think we'll be fine.

And we have no other questions at this time.

Okay. Thanks very much, everybody.

And that will conclude today's conference. Again, thank you all for joining us.