Full House Resorts, Inc. (FLL) Q3 2020 Earnings Report, Transcript and Summary

Greetings, and welcome to the Full House Resorts Third Quarter Earnings Call. During the presentation all participants will be in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, November 5, 2020. I’d now like to turn over to Mr. Lewis Fanger, CFO. Please go ahead sir.

Thank you, and good afternoon, everyone. Sorry for the busy earnings day, but welcome to our third quarter earnings call. We promise we’ll be upbeat here today. 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 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 issue. 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 all said, are you ready, Dan?

You’re just handing it to me like that.

That’s a good call, Dan, that I – go for it. I’ll let you have…

No, it’s a great call. It’s – I hate to put good spin on a pandemic, but it kind of happened at a good time for us. We had started to focus on operations pretty intensely early this year after having kind of not a great second half of last year. And part of that was we decided we needed to change the marketing approach at Rising Star and perhaps, also at Cripple Creek, and we installed the Konami system into both in the later part of last year. By the time we were forced to close in March, we had started to develop data from that. And then we took the pandemic period where we were closed for three months and sadly, we had to lay off most of our people, but the people we kept, we were very focused on kind of reinventing the way we operate and that led to a number of decisions. We closed the Christmas Casino, a satellite Casino we had in Cripple Creek. It was something we tried, it didn’t work. And so we recognized that it wasn’t working and closed it. It did seem to increase our revenues a little but not enough to offset the additional costs from it, and recognize it was kind of a gradual closure. We - just before the pandemic required everything to be closed in Colorado, we scaled it back to only operate a handful of hours a week. And when it reopened from the pandemic, we did the same thing. And the reason we did that was we wanted to retain the license because it’s tied to one of the mobile sports betting licenses. And so we went to the Gaming Commission and said, we want to fold this license back into Bronco Billy’s. Technically speaking, Bronco Billy’s has now three different licenses in the one building, which allows us to have three skins for mobile sports betting. And so through the third quarter, we were continuing to operate the Christmas Casino, but only a handful of hours a week without the burger bar in it or anything operating. So it was really at a minimal cost to retain the license. And then in September, we had gaming commission approval to close it completely, which we did, which gives us a benefit of reducing the gaming tax rate back into Bronco Billy’s for complex reasons. But – so that was one of the things we did. And then looking at the Konami system, we had gotten up to speed on it. We had good data for it. We had used it for years at the Silver Slipper, and that’s very, very good. There’s a number of different slot systems recognized. And at Rising Star and at Bronco Billy’s, we had 20- year-old systems, they were really out of date. And if you look at the different slot manufacturers, a number of those systems started out as kind of accounting systems or control systems. The Konami system kind of started out as a marketing system that also provides accounting and control, but it was marketing first, and that was why we opted to go with it. And we had a lot of data, and we said, okay, let’s reevaluate this. And so for example, at Rising Star, in particular, we found we had a lot of customers that when we added up everything we were doing for them with free buffets and free hotel rooms and everything else, we were upside down. We were not making money. So we fired a bunch of our customers, if you will, or we basically scaled back what we were doing for them. And then we focused more on the customers that really matter and did more and better stuff for them. So, while we were closed, we reinvented all that stuff, both – we introduced new loyalty programs in both Rising Star and in Cripple Creek, continued to fine-tune the one we have at the Silver Slipper. And then we also opened very cautiously. We weren’t sure. We knew we would only have half the slot machines roughly, and we knew that there were limitations on our table games and so on and limitations on the seating in our restaurants. We didn’t know whether customers would show up or not. So we were very careful in our staffing and in our hours of operations. And so as we reopened – little things like not operating table games at 5 o’clock in the morning. We could look at the new marketing systems we had and see that on a typical mid-week morning, we had more dealers than we had customers at 5 o’clock in the morning. So it just said don’t operate the table games in the wee hours of the morning. And so a lot of that stuff – and frankly, the pandemic allowed us to get rid of what I’d call some sacred cows. Bronco Billy’s is a good example. They had a $0.49 breakfast that was available for 12 years. And every morning, you’d see kind of the same handful of local people, and they’re having breakfast. And I always wondered, are they really gambling? And if you brought it up, everybody was like, that’s one of our touchstones. That’s one of the reasons we’re successful. Well, as we reopen from the pandemic, that small coffee shop only had half the number of seats. So we said, well, let’s not have the $0.49 breakfast because our seating is limited anyway. And guess what, we’re doing fine without a $0.49 breakfast, and of course, we lost money on that. We no longer offer the two for one buffet special at the Silver Slipper midweek. The buffet in Indiana lost money, for years and years lost money. Indiana did not allow us to open a buffet at all, and we’re doing fine, and so they actually did us a favor. So I mean, if you get into the details, the Silver Slipper in the quarter and two of the months in the quarter were the best months in its 15-year history. But if you look at the whole quarter, the revenues were up 10.5%. I think that’s good marketing. And remember, we refurbished that casino late last year so it’s in very good shape. But EBDIT [ph] more than doubled. It was up 116% because of some of the things I was talking about. Or put another way, our revenues were up about $2 million, and our EBDIT was up $3.5 million. So we had both revenue increase and expense savings. At Rising Star, our revenues fell about 15% because we weren’t comping as aggressively to lower-yielding players than we used to. That probably the principal reason in there and reduced hours of operation and not operating the buffet at all. But last year, it barely made money, and this year, it made $2.4 million. So I won’t even try to calculate the percentage increase, but it kind of was big. And – or another way of looking at it, Rising Star had EBDIT that was 24% of revenue, which is where it ought to be in a regional casino. And it’s the first time in many, many years that we achieved that there. By the way, the same measure at the Silver Slipper is 32% this year, and it was 17% last year. Norm in these markets is usually in the mid- to high-20s. Bronco Billy’s. We had the Christmas Casino. We had a new marketing plan. We had lower expenses a lot of things going on. Revenues were about flat, off 2.5%, but EBDIT, again, more than doubled from $1.06 million to $3.4 million and so a lot of things came into play there. The margin would be 43%, which would be abnormally high. Last year it was 19%. But there is also one other unusual thing that happened there in that when you have one of these loyalty programs, you go through some pretty complicated math required by GAAP to accrue a liability for the points that you’re giving out. And one of the assumptions is what portion of those points are going to be redeemed. A lot of them never get redeemed, so you have some math figuring that out. Well, we started that – when we acquired Bronco Billy’s four years ago, we started a system and you started that accrual. Now we changed the program to a new program. Well, part of doing that was we changed the points completely, and so we told people really as a marketing reason, we said your points are going to be worthless if you don’t come in and use them. And we first told them that early in the year as kind of an incentive to get people to make an extra trip. And then the pandemic hit, so then we gave them additional months because we didn’t want anybody to feel like they got screwed, and after we proudly told everybody, please come in and use your points, please come in and use your points. We finally said, okay, we have a new program now and your old points are worthless. Years ago, I lived in Brazil when they had cruzeiros and all of a sudden they went to cruzados and it was kind of the same thing. At one point you just say the cruzeiros are exchangeable for a while, and at some point, they’re not. My cruzados just went away. They had such hyperinflation, they had to do that once in a while. So nevertheless, because we had maybe guessed a little bit too conservatively on what portion of points would be redeemed, we ended up with about $400,000 of accrued liability related to points from the old program. And since they are no longer redeemable, that ends up with a credit in the quarter. That’s real income. It’s just a shifting of income from past quarters. So another way to put it is, in the past quarters we had perhaps slightly understated the income of Bronco Billy’s, and we caught up this quarter. So there was a $400,000 unusual thing in there. And if you back that out, the margin was still 36%, and the income was still up pretty nicely. And then in Northern Nevada, that’s our toughest spot. We’ve got two casinos up there. One is the Grand Lodge Casino in the Hyatt, Tahoe, which is a luxury hotel on the north shore of Lake Tahoe. And people do fly to Lake Tahoe to the vacation in the summer or ski in the winter. And in the pandemic, people are hesitant to fly, and that hotel also does a fair amount of meeting and convention business. And obviously, that’s off a lot with the crisis. And so the hotel’s occupancy is off and that affects us in the casino. And then in Fallon, it’s the home of the Top Gun Naval Air Station with – they do a lot of training of carrier pilots and so on. And the Navy has been restricting most – almost all of its personnel to the base for the same reason. They don’t want to spread – people in the Navy necessarily travel, they don’t want to spread COVID into the community nor do they want their pilots getting COVID from the community. So to reduce the transmission rates, they’ve restricted travel off the base, and that is not helpful to us. So our revenues in northern Nevada in the quarter were off 35%. We do have pretty tough cost controls up there. So while our revenues fell $2.2 million, our income only fell $1.1 million in northern Nevada. At corporate, our corporate expense was down about 18%. Part of that is – we have a few expenses that we used to carry at corporate that we’re now allocating to the properties because we found out that, that’s pretty much the norm amongst our competition. So there’s a little bit of an adjustment there. And in our corporate expenses, a little below last year, maybe not quite as much as this shows because we’ve got some allocation stuff going on there. When you add it all up, our EBDIT was up 115%. And frankly, a good chunk of that is sustainable. I don’t know if all of it is sustainable. I mean things are going pretty well. At first, back in July, which was one of the best months in our history, I thought, well, maybe it’s the very generous unemployment that ended at the end of July and business stayed good. And then I thought, well, maybe it’s because there’s no sporting events on television. And in September, there’s probably more sporting events on television than there has ever been in history because every league was playing, and our business remained good. I think there is an element of people who are hesitant to fly. Nobody flies to our places. They drive to them. So we are a local’s place. I know our senior citizen segment, like 65 and older, is off like 30%. And I’m hoping that, that’s people who are nervous, and they’re staying at home, saving up their money for the day they can come back and splurge with us, right? I think there is some pent-up demand in the senior citizen area that has been more than offset by people in their 30s, 40s and 20s, who are coming in and gambling more often and bigger amounts than we’ve seen before. And of course, we’re trying to do our best to make sure we have their names and keep them as regular customers going forward. And I guess one of my theories these days is that maybe some of those people who are " working at home" are not so much working at home maybe. And so we’ve been exploring, having Konami adjust our slot machines so you can sit there and do a Zoom call while you’re playing the slot machine, which is actually technologically something you could do, but we’re not actually doing that. I’m joking about it. But anyway, things are – we’re pretty good, and I think a good chunk of it is sustainable. I will tell you, if you take the $12.5 million of EBDIT and multiply it times four, you get $50 million. The third quarter is seasonally a little stronger than the other quarters. So you shouldn’t just multiply times four, multiply times 3.5 or something, right? But then I’ll also point out that we had two of our mobile sports skin agreements up and running. There are four yet to go. They all seem to be taking longer than those companies that told us originally, but they are getting there little by little. And when they’re all up and running, we get $7 million a year of minimum rent. And if any one of them does more than the minimums in the agreement, then it could be more than that. But it’s a percentage of their revenues, and each one is slightly differently defined. But when you add them all up, it’s $7 million a year. We had $2 million of the $7 million in this quarter – it was like $2.5 million. This year, it ends up because it’s not material enough yet. Our auditors have kept it as in the entities like the Indiana licenses in Rising Star and the Colorado license in Bronco Billy’s. That’s why we gave you the numbers both with it and without it. We anticipate in the first quarter that we’ll have most, if not all, of these up and running, and we’ll probably break it out as a separate segment because it really has very little to do with the casino. If somebody uses their cellphone to make a bet in Gary, Indiana, well, that’s 200 miles away from Rising Sun, and it has nothing to do with Rising Sun. So it’s a segment of our company that is already important. It’s going to be pretty material going forward, and will become even more material if one or more of these states approve internet gaming, which is legal in a few places, but not where we are yet. And Internet gaming is actually two times what mobile gaming is in any market where I’ve seen both so far. And so it’s an important segment and a point of growth going forward. The other pretty busy thing we’ve had is, we’ve – we are still in the contest for the Waukegan Casino license. There are three proposals. It was originally five. It’s been winnowed down to three. The consultant that the city had hired rated our proposal best on just about every criteria, except it noted that we were a small company trying to do a pretty ambitious deal. And so we thought we’d answer that. And knowing that if you have a good deal, it’s financeable. And we also thought it was perhaps an overhang on our stock a little bit because people wondered how the hell are you going to pay for that. And so we entered into a deal with a pretty significant private equity firm, multibillion dollars of money under management. They have experience where they’ve financed greenfield casinos before, and they’ve committed to provide most of the financing on a project financing basis. Subject to lots of things. They’ve got additional due diligence to do. We could actually use somebody else’s money if it was cheaper. We’d have to pay a little breakup fee and so on and so forth. But part of the reason to do it is to give comfort to Illinois that this is financeable and if they choose us, this will get built. And so I think that’s pretty important, and frankly, it’s a good relationship for us to have. It’s a good company, and it probably is the right way to finance it. And it also allows our investors in our company or our lenders not to get too concerned about us making a $300 million proposal in a company our size. At the end of the day, we’re expected to come up with $25 million that goes into a special purpose subsidiary as equity and – or a special purpose vehicle as equity. And the private equity firm makes a term loan to it, and there’s a convertible bond piece, and there’s an equity piece. When all the dust clears, we should own no less than 60%. We get management fees that are in part off the top and part off of income, and we should make a whopping return on our $25 million. But our worst case is you lose $25 million, and we’re sitting on $35 million.

$34 million.

$34 million. Yes. And about $10 million of that is used in operations. And of course, we’re generating cash at a pretty good clip at this point. So Illinois can be comfortable that we can come up with our commitment of $25 million, and this company is big enough that there is no question that they can come up with their share. So the whole reason for that commitment letter is to answer the question of how you’re going to pay for this, and I think we’ve provided a route that works that hopefully helps us get that license. It’s still a very competitive process. One of the other applicants is Neil Bluhm, who’s very well-known in Chicago, a very large developer. But he’s the illogical choice because he and Churchill Downs own the Casino near O’Hare Airport at Des Plaines, which is a very, very successful casino, and that’s the closest casino to Waukegan. And so he would be motivated to do something that cannibalizes as little as possible from his most successful casino. And that may not be, and I would argue, would not be in the best interest of Waukegan or the State of Illinois. And so he may be a political favorite, but he’s not the rational favorite. And then the third proponent has far less development experience than either Neil Bluhm or us. So a competitive process. The state law had said that they were supposed to reach a decision as to who would get it by the end of October. However, it also had a provision in there that they could give themselves more time if needed. And not surprisingly with the pandemic, they have given themselves more time. So they’ve indicated, they hope to reach a decision sometime in 2021, and the body language from their last meeting kind of suggests that it’s probably in the spring or summer. And at some point, I presume, like the process plays out in other states, they will ask each proponent to either through a Zoom call or in-person, make a presentation to the Illinois Gaming Board, and they are the ultimate arbiters of who gets to be the developer of the license. Let’s see. The other thing I noticed two days ago in Colorado, there was a referendum that passed. Actually, two aspects of it. The – statewide, they approved a change in the law so that the gaming communities that have casinos could vote to change the betting maximums and what games are offered. Now the main game that is not offered today, that most casinos would like to offer, is Baccarat or Mini-Baccarat. That just wasn’t one of the approved games before. Otherwise, we already have Roulette, Blackjack, slot machines, Craps and so on, but there is no Baccarat. Not that there’s a huge Asian population in Denver or Colorado Springs, but you are talking six million or seven million people. So in there somewhere, there is an Asian population, and the Asians often prefer to play Baccarat. And there are people who are non Asians, who like to play Baccarat. So that was – but the betting maximum is kind of a big deal. Originally, in the state, it was $5, which was a huge deal. I mean that restricted a lot of the play. That was changed to $100 maximum bet a few years ago, and now it goes away. By the way, on the same ballot, the community of Cripple Creek had – or Teller County had its citizens vote whether, in fact, to do this, and they approved it. So the state approved it subject to a local referendum and the local referendum happened at the same time, and they approved it. We think it will be implemented on May 1 or around May 1. And for Bronco Billy’s today, it’s certainly a plus. Is it a huge plus? I don’t know, but it’s certainly a plus. Bronco Billy’s is a pretty simple casino today, but we do look and have talked a lot and have acquired land and have plans to eventually build a high-end hotel in Cripple Creek and fix up Bronco Billy’s. And obviously, this is a very big plus for that. Now having said that, we are still in a pandemic. We’re not out of this pandemic. And you see the news, the case rates go up. Colorado has got this meter system that if you’re yellow, you’re supposed to be really careful; if you’re orange, you’ve got to do other things; and if you red, I think you go high underneath your bed, but there is a whole process of what it is. And each state has a different system. It all comes down to the same thing. If case rates go up, they try to get everybody to try to stay home. And sometimes that means closing bars at 10’o clock or something except North Dakota, who just thinks none of these rules apply to them, and they have the highest case rates in the country. But you have all these different rules. We’re going to be in this, frankly, until there is a vaccine that’s widely available and enough people have taken it that you don’t have to be as concerned. Until that point, we are at risk of having to close a casino, or more than one casino for some period of time. And so we’re still pretty cautious about maintaining liquidity, and – now this is far better than it was six months ago. Back in March, we had no idea. Nobody knew what this disease was all about, right? I didn’t even know if a vaccine would work on it. I malaria doesn’t have a vaccine, right? Now we’re – there’s a whole bunch of vaccines out there being tested, and it’s pretty clear that at least one and probably multiple ones are going to work, and we’re not that far away from starting to distribute them. And we know more about the disease and far more about the disease. So do you have to close or not close. Or do you just change the way you operate. So, I think it’s a lot more is known than was known in March, but caution is still called for because we’re not completely out of this. And from our point of view, we weathered the last closure fine and came out of it stronger, frankly, than we were before. And so I guess that’s it. Did I miss anything, Lewis?

I got one wrap-up item, Dan. We’ve been working behind the scenes with our lenders, who’ve been good lenders to us all along, and we’ve been going every quarter to really just do these one-off flavors and debt amendments to fix the covenants to represent – or to reflect the fact that we had that shutdown earlier in March. That amendment is essentially complete. So tomorrow morning, I expect to have the signature exchange, and we’ll wear out the funds, and then that amendment will be complete. From a cost point of view, it’s more of what you’ve seen in the past. Last quarter, it was 100 bps. This quarter, it’s 100 bps as well. The only difference being, it’s – last quarter, we had 25 bps of it punted on to the call premium. And this time, it’s all upfront in cash, but essentially the same cost. But yes, on the verge.

And I – one other thing I thought of is, there was some unusual trading on our stock about a week ago, and I’m sure some of you were probably wondering about that. Most gaming commissions give a waiver of licensure for bona fide institutions up to 10%, and Illinois normally does it, too. But in this case, the Illinois Gaming Board is being super sensitive that whoever they choose doesn’t embarrass them down the road. I don’t blame them. And so they actually came and wanted any institution that had over 5% to provide the social security numbers of its directors and officers so they could run background checks on them. And we had a couple of those institutions that fell in that category. Now recognize, we’re a small company. So, one of these institutions, even though they’re one of our bigger shareholders, we were two one hundreds of 1% of their assets under management. And I think the other one, we were two tenths of 1% of their assets under management. One of those institutions decided rather than accommodate it, I think – actually, what I was told was they had a handful, and it might have been as few as one outside Director, who was just refusing to give those security numbres to Illinois. And so rather than get into a battle with us or the Illinois Gaming Board or something, they sold out. And they sold their over one million shares of stock over a couple of days, so they were under 5%. And so Illinois could wash their hands of them and vice versa. And it was one of those cases where they didn’t tell us they were doing it until after they had done it, and we just saw a huge trading volume in our stock and the stock going down. And then we were told, okay, we’re under 5%, so stop asking us for social security numbers. And we were like, okay, kind of sorry you did, but now at least it resolved the problem on our Gaming Board. They were a good shareholder. I was sorry to see them sell down. I think going forward, after they do the initial licensing, I think it’s the intent of Illinois to go back and follow the normal 10% rule with everyone else. Although the sports betting law calls for 5%, and by the way, I don’t think there was anything in that institution that – it’s not like it was Meyer Lansky and company. I think it’s a perfectly fine institution. They probably could have applied for a license here and would have gotten it, but people are very sensitive about their social security numbers these days. And while it was a large shareholder of ours, it was a miniscule portion of their assets under management, and they just said, why should we bother with this and voted with their feet. So that was what was going on in our stock last week, we think. You never really know for sure where the trading is coming from. But we know, at one point, they were a bigger holder than they were a few days later. So that was our guess.

That’s everything, Dan. Let’s do some questions.

[Operator Instructions]

When we schedule these calls, we look carefully to make sure we’re not stomping on Wynn or Caesars.

We got stomped on, Dan.

They don’t look carefully to see whether they stomp on us.

Yes.

We do have some questions though. I know everyone’s hopping from call to call to try and ask something.

The first question is from the line of Chad Beynon from Macquarie. Please go ahead.

Hi, guys. Jordan Bender on for Chad. How are you doing?

Hey, Jordan. Good.

Good. You kind of talked about some of the components to your marketing and labor saves that you’ve taken basically since the casino is shut down and then the ramp back up. I mean, high level here, how much of that isn’t coming back into the business? Obviously, your margins were pretty impressive in the quarter. Just trying to gauge, where they might fall on a run rate basis?

I don’t know. I mean, I wonder if we get back to normal life, are we going to have to spend more on marketing to keep the same revenue? I think a lot of our operating savings, like a lot of the payroll savings is probably – we can stick to it. We’re being careful not to operate too many restaurants for too many hours and just operate what we need to satisfy the customer demand. So, a lot of this is just more careful stuff. And frankly, we always had lower margins than we really should have. And this kind of kicked us into figuring that out, and so the margin was 30% in the quarter. Is it going to be 30% forever? I don’t know, it might – maybe it ends up at 25%, but I don’t think it goes back to 15%. I think we’re – a lot of this is sustainable. Is it all sustainable? I don’t know. And I’ve seen other regional gaming companies have kind of said the same thing. I think Eldorado said the results in their regional markets had improved a lot, and they thought a lot of it was sustainable. Somebody else said that and it was very reminiscent, and I think I said this last earnings call. When I was at Pinnacle, we had opened L’Auberge just before Hurricane Rita hit. And L’Auberge has been open three or four months, had huge revenues. But it wasn’t producing as much income as it really should have. And when we were closed for about a month to rebuild from Rita, then we focused on, okay, let’s – when we reopen, let’s be really careful how we reopen. And L’Auberge has been very profitable for 10 years since then, and this was kind of the same thing. When you have to close everything and lay everybody off, then it’s an opportunity in an odd way. And almost – there’s almost a human part of this because you go into one of these regional casinos, and you say, we need to normalize the payroll. We’ve got to be careful and cut the payroll and so on. And it’s hard for people to really want to do that because they’re laying off their friends and neighbors and people they’ve with for a long time, and it’s just a hard conversation. And you do get pushback where people say, no, we really need this many people to operate, and if we close the buffet two hours early and tell everybody to go home, we’re going to lose business and so on. When you shut everything down and lay everybody off, and then you restart, it’s like, well, every phone call you make is going to be a good phone call. You’re asking somebody to come back to work, and the task is not to make more of those good phone calls than what you really need. And so it allows you to kind of go to zero-based building in an odd way. So it really – it’s a little harsh, but we are operating more efficiently than we were before, and I think we can keep that up. And frankly, reinventing these programs – we got lucky with the Konami system going in at the right time. And so when we reopened – and once you really had the marketing data, it was really striking to look at how much we were giving away at Rising Sun, and to people who just weren’t gambling enough to really pay for what we were giving them. And so it was kind of like, well, let’s give them less. If they still show up, great, they’ll be continuing customers. But if they don’t show up, well, we don’t have to feed the community for free. I mean, it’s – and so – look, we’re going to do our best to try to make money. That’s what we’re here for and so on. Can we maintain 30% margins? That would be pretty high for this company. We have some stuff that’s in here that makes it a little hard, like the land underneath the Silver Slipper is leased, and it costs us $1.5 million a year, and that comes out of EBDIT as rent. And so if you’re comparing us to other companies, there is a couple of things that might keep us from being 30% long term, whereas other companies that might not have a lease like that, maybe they can do 30% long term. But there is no reason we should be 15%. We should be in the mid- to high 20s.

And keep in mind, too, we’ve got some things on the margin side that are just – that are helping us out because they’re not in operation. So if you look at Stockman’s, the table games outfit is not operational currently, continues to not be operational. When that comes back, do table games bring down your margins? They do. But you would bring it back with the hopes that your absolute level of EBITDA goes up. And so Dan’s talked a little bit about margins generally. I will tell you, the conversations around here really tend to be more about absolute levels of EBITDA, making sure we’re doing profitable things on a daily basis and still looking at the margin. But look, we could shut down a lot of things and have a tremendous margin and we’d have no EBITDA.

But actually you bring up another point. We were kind of studying $5 blackjack tables anyway.

We were.

Because if you run the math, there’s 50 hands an hour. The house edge at blackjack, if it’s a normal player, not a card counter, but somebody who read a four-page article on how to bet at blackjack, the house edge is about 2%. So if somebody is betting $5 a hand, we’re making $0.10 a hand. And there’s 50 hands an hour, so we’re making $5 an hour on that person. So if you have a $5 blackjack table with three people sitting at it, you’re not making enough to pay for the dealer. The relief dealer who’s taking a break in the back, the shift supervisors overwatching the dealer and so on, let alone, the meal you’re going to comp for the person or whatever. And so $5 blackjack, even if the table is full, is pretty much a breakeven proposition. And so we were already trying to figure out how do we migrate these people over to a machine or to a higher table limit. And it’s a cautious thing because all your competition is also offering $5 blackjack. And I know Eldorado was moving very aggressively to put in Stadium gaming. I don’t – this was before Caesars. I imagine they’re probably doing it now at Caesars, too – putting in Stadium gaming and getting rid of $5 blackjack tables, right? And we were looking at that, wondering do we have the courage to do that and so on. Well, you’re closed. And then you reopen, and you’re limited as to how many people you can have at each blackjack table. It’d be crazy to have $5 blackjack, if you can only have three people sitting at the table in a plexiglass cubicle. And so in Colorado, where we make a little bit of money on table games, but not much, well, we haven’t been allowed to open table games. So that’s helping our margins. At the Silver Slipper, and at Rising Sun and at Grand Lodge, we have table games open. But generally, it’s a $15 minimum. And the customer comes in and says, well, I want a $5 game, and it’s like, look, I’m sorry, we only have three positions for a blackjack player. It’s a $15 medal. So, you can go play at a machine or you can – so in effect, the pandemic and the forced reduction means that we now make money at our blackjack tables, where before we had a bunch of $5 tables that we probably weren’t making money on. And if there’s anybody out there with plexiglass setup that only allows them to have three or four people sitting at blackjack tables, and they’re still offering $5 a hand blackjack, you should short the stock because that’s a very stupid move. And so anyway, so there is a lot of stuff like that we’re focused on. So...

Thanks for the color. And then following up on trends within your demographics in the casino, have you seen any of the older 65-plus start to trickle back in over the last couple of weeks? And then the younger demographic, do you expect to keep those people in the casino once things start to open up?

I haven’t seen any data that really shows them "trickling back". In fact, it’s pretty striking. I mean my mom is 91, and she’s pretty terrified and is very careful. And you just – you go to the grocery store and look at people. And if there is an older people in that grocery store and you catch their eyes, they’re scared as they should be, if you look at the casualty rates of much older people. And so I think older people are being cautious, and I think they’re probably right to be cautious. And it varies a little bit from person to person, but certainly, if you’re an older person who might also be diabetic or maybe you’re living on one lung or something, it’s not unusual for us to have people come into our casinos with an oxygen tank. Well, that would be kind of silly today. So, I think that, that older segment will continue to be cautious and should continue to be cautious until a vaccine is available. And now the younger people, I don’t know. I mean, we’re – we have our marketing meetings. We talk about how do we make sure we get them into the program, we get them to get points, we get them to – so it becomes a habitual part of their life. And hopefully, they’re having a good time, and it does become a new customer for us. So – but yes, there’s no question. We are probably benefiting from the fact that people are hesitant to get on an airplane. Nobody has to fly to get to our places. A lot of places, bars closed at 10 o’clock at night. People are hesitant to go to movie theaters. So, there are quite a few places now where movie theaters are open, and what they’re finding is nobody is going to them. And I think people understand that you can go into one of our casinos, and be reasonably safe. And in fact, I will tell you that in Colorado, we’ve enabled – the Konami system has a feature that we’ve enabled, and we may do it at our other properties. If you sit down and play for a while, when you get up and leave, you pull your card out, the machine disables itself until an employee comes and sanitizes the machine. It has little message on it that says, this machine is waiting to be sanitized. And so the employee goes around looking for those machines. When it finds one that needs to be sanitized, they sanitize it. They punch in a code and the machine comes alive again. And if you’re a customer, that really gives you confidence that those machines are being sanitized before you sit down and start playing it. And I think quite a few of our customers realize that relative to other forms of entertainment, we offer a – I don’t want to say pandemic friendly, but a safe and sanitary environment that if you want to do something that – it’s a lot safer than going to a bar, a nightclub or a sporting event or something, right? Political rally. So, yes.

And you actually saw it.

Yes.

Thanks, Dan. So we’ll probably have time for one last question.

The next question is from the line of Ryan Sigdahl from Craig-Hallum Capital. Please go ahead.

Great. Thanks, guys on the really strong results.

Yes. I should mention, you go back and look, our fourth quarter last year was pretty weak, and then first quarter was a little better, but still weak. And the second quarter was the pandemic. So, we got three easy quarters coming ahead of us.

That’s thinking from that perspective. Dan, just to clarify on – you mentioned EBITDA margin, a number of different ways, but it all kind of points to holding somewhere in the mid- to high 20%. Is that on an overall company basis? Or on a property level basis, excluding the corporate costs?

I was thinking of it as overall. Frankly, we’re pretty happy with a lot of this improvement went from Rising Star having basically no income to having a 24% margin. I mean, margins improved pretty much across the board, but can – and Lewis is right. I mean, I’m talking about margins because feels kind of good to talk about margins. So this is something you look at, but at the end of the day, you don’t eat margins, you eat income. So, if we’re allowed to reopen table games in Colorado, we will do so. Even though it might hurt our margins a little, it will probably add to our income, provided we don’t have $5 blackjack. And so I’m just trying to give some – if you kind of said, "Gee, you had $12.5 million times four, that’s $50 million as your EBDIT really $50 million a year. And I’d say, well, okay, first I’ll take the seasonality out of it. Maybe you’re in the low-40s. And then if you say some of it might not be sustainable, so maybe you’re in the low 30s. But then you’re going to have the sports betting stuff come on, which would add on to that, so the EBDIT of the company is, I don’t know, 30-ish maybe, 35-ish, it’s not 15, I guess, is the bottom line. And when you start at 50, and you start making adjustments to say, well, what is the ongoing number, we’re going to do the best job we can to get good sustainable income in this turbulent world, but I think our margins will not go back to where they were before the pandemic.

Good. Helpful. And then trends in October and then the first few days here in November, revenue, cost, margins, anything directionally changing here?

Actually, you’re just reminding me, things have been pretty good as well and easy comparisons to last year. But we did have a hurricane, which I failed to mention earlier, and it hit us – this was probably the biggest storm since Katrina to hit the Mississippi Gulf Coast. And we did have some damage. It’s covered by insurance, but we lost probably 80% of the shingles on the roof of our hotel. So, if you looked at it today, it’s got a big blue tarp on it and a few other things. Nothing insurmountable. We were closed for, I think, three days, if I remember correctly. We do have business interruption insurance. There’s deductibles and so on. The business was pretty good before the storm, and it was pretty good last Sunday after we reopened after the storm. So – but usually, business isn’t very good in the midst of a hurricane. So before and after the hurricane, it was pretty good, and that’s our most important property. And then the other two property – the other two key players – really the same thing that happened in the third quarter has been playing out. I mean, the results are good in Indiana, they’ve been good in Colorado, and weak in northern Nevada. Although – which one...

Nevada is just fine, too, actually...

Nevada actually had a decent October, right? And it’s – they’re the small properties, but they did better in October than they did in the third quarter. So...

Yes. It’s never helpful in a hurricane to close down on a Friday and Saturday. And so we did have that at Silver Slipper here a week or so ago, but outside of that, Dan is spot on.

Yes. We do have our – and we’re kind of going through our insurance policies, and it’s pretty clear, we have pretty good insurance. Not sure we get to the point where we collect on business interruption, but we might. So...

Good. Last one for me. On Waukegan, great to hear the financing partner. Any feedback that you received from the Illinois Gaming Board when you amended your proposal and informed them about a partner?

They keep a pretty good poker face, to be honest. They said, thank you for that additional information. We will take it into consideration. So, they were not budging on the social security number issue, although I will tell you the other institution we have, it’s a big institution, they kind of shifted the investment into an entity that has a smaller board and that smaller board provided their social security numbers, and we think that may satisfy Illinois. It’s not our call. We’ll see. But it was a creative idea, and we think it might work. I think it probably will work actually because it’s – I mean, it’s a catch 22. You have these regulators who really want to make sure they know who they’re dealing with, and so they throw a broad net. And then you have some institution that says for this tiny, tiny investment, you’re going to investigate all of our officers and directors, you’re kidding me, right? And we get caught in the middle saying, listen, this is the world we live in, we deal with this all the time. Let’s see if we can find a way to keep everyone happy because the institutions we’re talking about, it’s not the teamsters pension fund or something, anything questionable there, reputable financial institutions, and so you try to get everybody comfortable that, that is the case. And so we got there with the one institution, but they had a – the portfolio manager told me he didn’t want to sell, but his Chief Investment Officer forced it. So, anything else?

That’s it from me, guys. Nice job on the results. Good luck.

Okay. Thank you, everybody. Is that it?

Yes. That’s probably it.

All right, everybody. Have a good afternoon. Thanks.

That will conclude the conference call for today. We thank you for your participation, and you can now disconnect your lines.