Good day and welcome to the Full House Resorts Incorporated First 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 first 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. And lastly, we're also broadcasting this conference call at fullhouseresorts.com, where you can find today's earnings release as well as all of our SEC filings. And with that said, you ready, Dan?

Yes. First quarter, it seems like a long time ago now. I mean just addressing where we were in the first quarter, Silver Sipper was doing quite well. The Northern Nevada is doing okay, Rising Star and all of Colorado we're doing better than we had in the second half of last year and trending positively. And then everything shut down in the middle of March. So the quarter is obviously very distorted by all of that. And I think the question now is getting stuff reopen. It's almost like having a development company, where you've got a handful of employees and you're getting ready to open five casinos and put a lot of people back to work. I guess very important at the end of March, we had $24 million of cash and equivalents. Now a good chunk of that is normally used in operations and most of the rest came by stopping construction on the parking garage that we have underway in Colorado and that is being used as kind of a cushion. In the first month that we were closed, it should have been from mid-March to mid-April. We'd probably burn through about $5 million. A lot of that is severance, as we've reduced the payroll and our burn rate after that period is about $3 million a month, of which about $1 million is debt service on our debt. And most of the rest is actually stuff like real estate taxes and utility costs and so on. Payroll is about 20% of the $3 million. We've gotten payroll down pretty small at this point. We did just receive a $5.6 million loan under the CARES Act. It's a two-year loan and 1% interest, that has incentives in it for us to hire back employees and we'll…

The only other thing I was going to mention Dan was, we are very fortunate to have a good group of lenders, and so in April, we effectively amended our indenture to delete the debt-to-EBITDA requirement for the first quarter. But I mean that group is a good group -- back in mid-March within days of the closures, our lender group came to us with a plan for amending pretty much a full year's worth of covenants, and didn't make sense yet to figure out exactly how those should look, even we didn't know when we were going to reopen. But now that we have some potential dates and site, we'll inch a bit closer to getting those future covenants all worked out.

We should mention we do, anticipate that we will need covenant relief on the June quarter, which is why 10-Q we filed in mid August and we just decided to leave that to be dealt within August with the lenders kind of on a handshake, because by then we'll have stuff open, and we'll know more that the sports betting will be in a better position to figure out what the covenant should be going forward from there. But at the moment, we would covenant at the end of June that we think is pretty unlikely that we're going to make.

We haven't positive tested it exactly.

Yeah. Technically, we haven't tested. Then -- Waukegan is still out there, where we were one of three bidders to clear the cities process. The State Gaming Commission still intends to choose somebody. Before we shut down, we were in discussions with three different parties to partner with it, and we would anticipate financing that on a project financing basis. I think everybody is pretty distracted with getting their own casinos open at this point. But I think once we do get open and things get resolved, we'll resume those conversations. Waukegan's a good opportunity for whoever is chosen by the Gaming Commission. We think, we have a very good proposal for it, and we'll see where it goes. So it's kind of hard to imagine building something new when you can't even operate the ones you have. But, those opportunities don't come around everyday. So we had put in a proposal. We make the first hurdle, and we're still in the game. I guess that's it. I'm happy to take any questions. It's, we're -- I think we're doing fine under the circumstances, and eager to get stuff reopened.

Thank you. [Operator Instructions]

While we're waiting for -- go ahead.

Go ahead, sir.

I was just going to say while we're waiting for people to queue up for questions. I'd read kind of a detailed shareholder letter that went out with a proxy that kind of replaces the old class annual reports. And in there, I made the comment that in the regional gaming markets, they tended to recover faster than say Las Vegas or destination gaming markets and did so after 9/11 and did so in 2018 -- in 2008 with the recession. We actually went back and pull those numbers and that's absolutely true. We can happily show to anybody who wants them. But if you look at what happened after 9/11, when air service was disrupted and people were afraid to fly regional gaming bounced back pretty quickly and much faster than any destination that required people to fly to and very few people fly to our casino. So I think that the same phenomena will happen again. And then in the recession the regional gaming did better, because after all it's a less expensive entertainment. It's not very expensive to get your car and drive from Cincinnati to Rising Star or Colorado Springs to Cripple Creek. And -- so we think we're doing relatively well. That doesn't mean we're going to be up 20%. It just means we'll do better than say Las Vegas or Atlantic City. And I think we'll do fine. But we never had a situation quite like this before and so it's hard to say. Any questions?

We'll go to our first question from David Bain of ROTH Capital.

Great. Thank you.

Hey, David.

Hey, guys. Yeah, I was just going to ask first on the impact or the impact from COVID, has that caused you to relook and maybe analyze the entire cost structure in a way that you believe could impact or not impact longer term revenue generation and maybe allow for stronger flow through in the portfolio?

Yeah, we have looked at it pretty carefully and it's actually reminiscent that when I was at Pinnacle we had opened L'Auberge in Lake Charles. We have been opened about five months when Hurricane Rita hit us and we had to close for I would call it five or six weeks. And it had a lot of revenue and not a lot of income in the first five months of operation. And while we were closed, we reexamined everything pretty carefully. And once it reopened, it was quite profitable and has been ever since. And now it may have gotten there anyway just maturing, but the hurricane actually gave us a chance to do that, and the same thing here. And then we've been going through everything looking at what makes sense the -- for example, we will not operate table games 24 hours a day at several markets. We won't operate all the restaurants as we had before. Under some of the new rules on table games, we'll end up having higher table game minimums in order to keep them profitable, which means operating fewer over them. Even on the slot machines we're trying to be smarter. The frequent player program in Rising Sun was pretty antiquated and we've done a complete rethink of it. Now that we have better information coming from the Konami system, now we know with much better detail, which customers are most important to us. And we tailwind the program to reward those who are important to us and to reduce some of the giveaways to people who are less important to us. The old program I think there were people who we were not making money on. And so by having this opportunity to rethink it and reimagine it and reinvent it, and frankly now we've brought our casino hosts back to work out of their homes to call people up and explain the new system to them. And for our most important customers, it's actually a better system. And so we have the time to explain that and the resources. So yeah, correct I think and hope we can open smarter and better than we were before and we're rethinking really everything in the company right down from like the menu with the coffee shop in town. It has a much more simple menu now than it was before. And already down to -- if we want to operate that Mexican restaurant at Bronco Billy's until we get into deep demand periods and when it's really proven that it's needed. So across the board we're trying to figure out how to be smarter.

Okay, great. And I know it's kind of a hyper local market, which I agree definitely should recover faster than the other markets and location significant. But do you envision a more promotional environment when the lights turned back on? Is there -- it sounds like you've already done some pre-marketing strategies that you're implementing even during these times? Or is it more like you turn the lights back on everyone knows for the casino that are in town. And many are just looking to go back to gaming activities?

No. Look in Rising Star and actually in Bronco Billy's if anything, it might be a little less promotional because we figured out that to certain groups of customers, where we're probably giving them more comps than they really deserved. And then, we actually ran the math on one of the categories at Rising Star and -- I'm paraphrasing numbers, because I don't remember exactly what they were. But it was a customer who might be worth $5,000 a year in gaming win, based on their play. And if they took advantage of everything we gave them, it might cost just $5,000 a year. And that was like, that customer is not really profitable, and so we said, let's kind of changed that parameter. Hopefully we keep the customer, but make them a profitable customer. We had some customers who were clearly playing gaming the system, and you start looking at everything they were getting the free buffets, and the free hotels, and everything else. And they were almost carefully gauging their play, so that they could loot off us for free. And so, in some ways, we're going to be less promotional. On the other hand, with some of our most important customers, and by most important I mean, most profitable because we will try to make sure that, we do better. I'll give you a simple example. The -- it's a five tiered program at, Rising Sun now. And historically, you would have some sweep stake, like a hot seat product or something, and it might be $100. And so for a low-end customer that would be a great price for a high-end customer, that'd be a small price. Well, under the new program, it's as well if you're a two-star customer, its $200, if you're three-star customers,…

So net-net now I think we're going to be down in our markets for what it's worth Dave.

Right.

So it will -- marketing opening. Yes.

Okay. Perfect.

At least in the nutshell there's no -- let's see where the world is before we go to next stage right? And at least from the tribal casinos and there are just few reports of it now, people showed up and stood in lines to get in. There is one travel casino in Idaho been open 20 years. And when they open they only had half their slot machines turned on. They limited the number of people coming in and they still had the highest handle in their 20-year history on the day they reopened. And I'm not forecasting that we will be as fortuitous as they've been, but that was a pretty nice data point to look at.

Right on. And I'm just going to go over one question, if that's okay. I know you discussed sports wagering in the prepared remarks. And I was kind of hoping you could also touch on the iGaming opportunity. I mean obviously there's a few more political hurdles for approval. But seems to be a quicker way at least to us for state governments to build their coffers, quicker than building a new casino and some other things any thoughts on iGaming for Full House?

Yes. Nice to reminding me actually. And it's not just iGaming. I think there's also some states that have considered casino gaming and this make books actually to sign them places like Virginia and Georgia and so on that they will have fiscal issues that will encourage them to consider casino gaming because it does produce a lot of tax revenues. And then on the iGaming that's going to be a very big business in New Jersey, twice as big as mobile sports betting. iGaming is where somebody can play a slot machine on their iPad. And that could be somebody in a nursing home or somebody who just lives long ways away from Atlantic City or maybe they're just bored for a minute and they pull out their iPhone and play a casino game. And the interesting thing is in Atlantic City; in the state of New Jersey, you can only be in those businesses if you're tied in with a brick-and-mortar casino. And that's been the case elsewhere in the country as well. And the brick-and-mortar casinos in Atlantic City have had growing revenue the last four or five years. Not high growth but you have a very big base so $2.5 billion a year and they have been up. And while they have been growing iwagering is now a $0.5 billion a year business and mobile sports betting is $0.25 billion a year business. And so these businesses have come on and not hurt the brick-and-mortar -- well at least so far the iGaming looks to be a bigger business than mobile sports betting. iGaming is not yet legal in Indiana or Colorado or Mississippi where we operate, but I think there's a good chance it will be in the not-too-distant future. It's a pretty easy transition…

Yes. Our agreements with our three -- or I guess our six agreements for both states where the sports betting, does not prevent us from doing the online casino. We could always do an online casino with any of those partners for what it's worth. When we first start talking sports betting out of surprise they all wanted a casino too, but this is kind of card outside of that. And so if any of them wanted to do the online casino, you would see our guarantees go up.

Okay. Fair enough. Okay awesome. Thanks, Dan and Lewis. Excited for everything to be open before 3Q.

Yeah. So we'll divert there.

Thank you.

And we'll go to our next question from Chad Beynon from Macquarie.

Hi. Afternoon, Dan, Lewis. Thanks for taking my question.

Hey, Chad.

Some of your competitors have helped us with not only the cash burn, but some breakeven on EBITDA levels. I think across the board most of your competitors have talked about, if you got back to 25% to 40% of normalized revenues that would kind of get you to a breakeven EBITDA point. But understanding that your margins are starting from a lower point than theirs is that still kind of how you're thinking about a breakeven point, or I guess maybe just asking a question. I mean, have you done the work in terms of what you need to see from a demand standpoint to get to EBITDA breakeven across your portfolio? Thanks.

Well yes, we have done that math. And I think it might depend on how you consider EBITDA. Each of our properties has a significant in any casino has a significant fixed number like utilities which will run -- it's $40,000 in Colorado and $110,000 in Silver Slipper. Insurance, it's a pretty big number. It's property insurance. In some cases, you have fixed gaming taxes that are based on number of machines and so on. And if our revenues -- in order to have breakeven EBITDA after all of that stuff, we probably need to get revenues of maybe 50% or 60% of what they were in 2019. Now I don't think that's a margin issue compared to these other people. I think because you look at that and say well I'm paying all that stuff anyway, even when it's closed we're paying all that stuff. And so what sort of revenue levels do you need to be able to contribute towards paying those utility costs and so on that would be like 25%, okay? But you got a pretty big hurdle to get over it, like you're happy to be open even if you're only doing 35% of last year's revenues because at least it's helping to pay the utilities and real estate taxes. But that's still not going to get to the EBDIT before your debt service. And then you got to get to the point we are or indenture. So, no, I'd be astounded if we don't do at least 50% to 60% of what we did last year. There isn't any new competition. Most of our customers are either retired or still employed. And we think -- and frankly I get a little frustrated because I think our customers understand that our casinos can be a…

Okay. Thanks. No, that's perfect. Thanks.

And by the way I think that's true of virtually any regional casino. I'd be astounded if there was anybody at a breakeven point that was 25% of the revenues last year. I think they're probably saying...

The casino by itself is not--

Yes, if you're saying to be open and cover incremental employees would be 25%. But you got a lot of costs that you've got to play with whether the casino is open closed.

Yes.

Right. Yes that makes -- certainly makes sense. And then during your tenure at Full House you've been on the offensive. You've been on the defensive. You've talked about looking at other businesses you bought other properties. You've had other companies look at you. I think you've mentioned that on prior calls. So, I guess, just given what's happened in the past couple of months just from an equity impairment standpoint and kind of where your stock is, where other stocks are and kind of how you look out what is the best path for shareholders? Has anything really changed in your view in terms of the strategy the best path forward to create value? Or is this just something that you guys have talked about some of the steps that you've taken to improve shareholder value? But is there anything else that is now on the table given the current environment?

Well, I think the pandemic kind of changed everything and changed very fast. I mean our stock was $3.50 a share and we're trying to figure out how to build Waukegan and we were working on improving our operations. We had two properties that like we opened this little Christmas Casino in Colorado. It is pretty small. It rose -- our revenues grew 7% but that wasn't enough to offset the increased cost. And so we had moved to close that. If you back that out the Colorado results were almost flat. And in Rising Sun, we had a number of issues in the second half of last year and ended up with a pretty disciplining second half of last year, whereas the Silver Slipper had the best year in its history and that's our most important property last year. But we saw opportunities to improve our results just by not making the same mistakes at Rising Star and being more focused on getting it to better profitability and the same sort of thing in Cripple Creek. And so yes -- and we were starting to build this parking garage through the first phase of an expansion at Cripple Creek. So, all of a sudden, it was like wow you have to close and it was a boom, boom, boom, everything is closed. And you don't know how long. You don't know how you're going to be able to open. You don't know what the world will be likely to do reopen. And so immediately you start focusing on surviving, I mean, literally surviving. And because -- we knew immediately that we would be in default of our debt covenants, which allows your lenders to shove you in the bankruptcy if they chose to. Fortunately, we had with good relationships…

Yes. We're still pretty fortunate too Chad with -- I mean, if you think about the growth pipeline just with what we have 2021 should still be a very good year relative to any other year in recent history, because of those sports betting agreements and I kind of glossed over it sometimes and I don't mean to, but the nice thing about those sports betting agreements is you have minimum. It's a $7 million minimum with essentially no expenses attached, and so you effectively have $7 million a year of guaranteed EBITDA year in, year out. And so when you start thinking about going forward, you've kind of eliminated a big swath of downside variability. You still have the existing operations, which we think we can improve further from here. And so that all puts you on a very nice trajectory here going forward once those sports betting agreements launch. Now we had talked in the past about trying to go out and refinance our debt with -- under the guide of those sports betting agreements. And that's still certainly going to be an option, but we've got a little bit of a blip between here and there, because of the pandemic. And so sometime down the line, we can look back at all sorts of things, whether it be the growth we have or growth otherwise. So we're -- the bigger picture is still there.

Well, and frankly, we had EBDIT last year $15 million and change, which is just not kind of a disappointing number for us. But when we really backed into it the Christmas Casino was pretty good like $2 million -- a little over $2 million of that. And then the province we had at Rising Star was a pretty good chunk. If you back those out, it was probably $18 million or $19 million a year. And so the goal is to try to get our normal business back to about $20 million a year plus the sports betting stuff then they're $27 million. We have $108 million of debt then we're only levered four times. You can probably refinance the debt at a much lower interest rate than it is now. And that's our goal at the moment. We can be there in a year then we're in pretty good shape. And then that opens up the door to figure out okay now what do we do? Like what else to start our services, but we need to walk before we can run and we're focusing on walking.

Opening the door. Get those doors open really.

That's correct. Thanks guys. I really appreciate it. Best of luck.

Thanks Chad. We’ve probably have time for one last question here.

We'll go to a question from Steven Branstetter of ABL Investment.

Good afternoon gentlemen. Just to reiterate the online, I guess, casino games and online poker, are those are a bit -- would you be getting like skins for those? Or if the states approve it how do you think that would go forward if any of the states approved it?

Well, there's two states that I'm aware of that have -- New Jersey had it for a while Pennsylvania has just approved it. And it has to be related to a brick-and-mortar casino and/or in New Jersey racetracks. And so it would probably be similar to the sports betting, which is if you want to offer online sports betting in Indiana, it has to be done in affiliation with a brick-and-mortar casino. Now our casino is the smallest one in the state. We're in the southeast end of the state and yet you'll be able to be in a suburb of Chicago and make bets online, and if it's with one of our partners, we get a percentage of the revenue on that bet. Now if it's online wagering, that might be directly with the website that we run, but the legislation hasn't happened yet. So I don't know if it's -- do we get three skins per license like that with mobile sports betting or is it one skin per license like it is in Colorado with one skin per license, but we happen to have three licenses. And so that legislation is not out there. There is some discussion of it within the legislature that we're aware of. And I do think it's likely to happen, but it's not imminent. It's probably still a year or two away.

Okay. Great. And I hope you have a great opening at the casinos coming up and good luck in the future. Thank you guys.

Okay. Thanks Steve.

And I would now like to turn the call back to Dan Lee for any additional or closing remarks.

Okay. Now I think we're done. We're here working hard and those who are kind of used to rambling around this office on their own. But gradually, we're getting some of the other people back to work. Nevada is kind of gradually opening and hopefully this continues to go smoothly. So I hope everybody is staying healthy and hopefully there's better days ahead. Thanks.

And again that does concludes the call. We would like to thank everyone for your participation. You may now disconnect.