Ladies and gentlemen, good day, and welcome to the Full House Resorts Second 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 second 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 Web site 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 said, I'll be really brief and then turn it over to Dan. But this was another very strong quarter and a great first half of the year. Adjusted EBITDA for the second quarter was $14.9 million. This is now our fourth straight quarter of very strong results. The reasons behind it you've heard over the last several calls and they haven't changed. But the short story is we've revamped our cost structure in-part by investing in new slot marketing systems and other technology, and we continue to think that these changes are sustainable in the long run. And so when you look at adjusted EBITDA for the first half of 2021 that number sits a little north of $25 million. And if you look at the last four quarters, we're just shy of $48 million of annual -- annualized, I should say, adjusted EBITDA. The one segment that is a little slower and rebounding from…

Well, this is one of those quarters where the accounting professional likes to confuse things, because they kind of force us to do all these comparisons of the second quarter of 2021 and the second quarter of 2020. And of course, we were closed for most of 2020. So it's a completely bullshit comparison, which is why we earn their ire by including the 2019 numbers in the supplemental information, which is kind of halfway through the press release, because we think that's a far more interesting comparison because everything was open for the full quarter in 2019. And if you look at that, in Mississippi, we had adjusted EBITDA of almost $9 million, that's the best second quarter, I think in the property's history. 2019, it was $3.6 million. So it was twice what we did before COVID came around. In Indiana, we did $2.7 million of adjusted EBITDA before the pandemic second quarter in 2019 was $600,000. That $2.7 million is the best second quarter there for quite some time. In Colorado, we did $1.8 billion versus $876,000 in 2019. Again, very strong quarter, may have been the strongest second quarter in the 20-year history of Bracco Billy's 25 year history. And then in Northern Nevada, which had kind of lagged in prior quarters, but we had a really good second quarter there with $1.4 million of adjusted EBITDA versus $400,000. And of course, we have the contracted sports wagering income of $1.5 million, which we didn't had any of that back in 2019. And so the adjusted segment EBITDA is $16.4 million. Corporate is $1.5 million, and that left us with $14.9 million. And back in 2019, it was $5.5 million and corporate was $1.2 million. Much of the increase in corporate is we have a bonus…

I think we're good, Dan.

Yes, turn to some questions. I didn't tell them about our proposal to acquire [Win], but we'll leave that conversation. And that's a joke. Win is 20x our size. Okay.

Let's take some questions.

Maybe 50x or so.

[Operator Instructions] We'll take our first question from Ryan Sigdahl from Craig-Hallum Capital Group.

Congrats on the record results. Curious trends into July, both revenue as well as margins and just kind of visibility and expectations, I guess, on what you're seeing on the casino side?

I'll tell you, generally, we continue to be pretty pleased with the business. So I'll let you read into that, however you will. Last year was obviously a very, very strong year as we reopened. Look, it continues to be good as maybe the best thing to tell you. That's a very short way of answering you but…

No, that's good.

Just be aware that we were fully open in the third quarter last year. So the percentage increases will not be nearly as big as they were second quarter to second quarter.

Absolutely true.

Curious on the tech side, you mentioned rolling out the slot system in Nevada. Any opportunity or thoughts around rolling that across the whole portfolio of properties?

No, we've actually done that. We've had it in Mississippi for years, so we're pretty familiar with it. Although Konami, every year or two has an upgrade and makes it better and better. They even have down the road, the ability for that machine, almost like your iPhone to recognize your face. And so you won't need a card anyway you could just sit at a machine and play. And then if you go somewhere else, your points and credits will go to the other machine. So that's not rolled out yet, but it's pretty interesting, some of the stuff they're working on. So we had it in Mississippi. It was a pretty big investment for us to install it in Indiana and Colorado, which we did year and half ago. And that we had just put it in when COVID forced us to close everything. Well, that actually gave us an opportunity to really get up to speed on what the system was and how to use it. And that's been part of the uptick in those 2 properties. So now the only part of the company that doesn't have it is Northern Nevada, we're going to put that in the fourth quarter.

I knew the Indiana and Colorado. I wasn't aware of the same system was also in Mississippi cashless…

It's kind of a big -- it's a big deal. You've got to open every single slot machine and change your circuit board inside of it, tie it into a server of some sort. It sounds easy to say, well, we're going to put it this slot system. And it's not -- it's a big process.

What about cashless technology rolling out, there's some casinos, Resorts World, et cetera, that are kind of taking an accelerated approach to it. Any thoughts there?

I'm rooting for them. I've been down to Resorts World and some of the stuff they have. It takes a while for consumers to really link onto it. I remember when MGM opened back in the 1990s, they had a section of their casino where the slot machines did not take coins. It was paperless, and it failed. And then a few years later, IGT came out with the ticket in, ticket out, which is basically the same system or another variation in the same system. And now nobody has coins. So customers are all accustomed to that. And so I think it eventually will be cashless. And Resorts World is kind of the beta site for some of that. And how wonderful would it be if we could get rid of chips because this is a very expensive process of counting the chips and doing all that stuff. And if you could -- when you're done gambling at a table, if we can give you a TITO ticket and you go away from the table with the TITO ticket, well, you can redeem it at any of the normal redemption machines or sticking in a slot machine. Whereas if you walk away today with chips from a gaming table headed to the cage, you can't put those in the slot machines. So a lot of this stuff is coming down the road eventually, and we'll adapt it pretty quickly once it's kind of a proven technology.

Dan and I go over the pros and cons of these systems all the time. And looking at the Resorts World one in particular, the table game side, I think, is the more interesting side. When you start looking at the slot side, there are certainly benefits that you get from not having to drop all those slot machines on a twice a week or whatever it is that you do and reducing the amount of cash that you have just kind of sitting idle on the floor, there's certainly a benefit in that. But if you were to go to that Resorts World kind of now, it's actually -- and want to play a slot machine, it's unfortunately still easier to put your cash in the slot machine then to load up your e-credits and then think your phone as a slot machine and go through all that jazz. So we're kind of watching all sides of it and watching it very, very closely. Table games are certainly very interesting. Would love to get the full casino on board, but it's still early in that whole process.

We're not quite there. I mean at Resorts World, you have to open an account and transfer money to it, and then it's cashless, right? But I think pretty soon, you'll be able to walk up to a machine and just Venmo the money from your phone into the machine. And when you're done, it can credit back into your bank account. Now that's not a technological hurdle, it is a regulatory hurdle that the regulator has to be on board with that. And then some of the fees that are -- not to pick on Venmo, but that sort of thing have fees that with the amount of money that moves in and out in a casino, you can't have a significant fee. But they used to have the same thing. I remember when you used to go to stores and they'd say, well, no credit card transaction is less than $10 or something, right? And today, you buy a cup of coffee at Starbucks for $2 and you've charged on your credit card. So I think it's evolving, and it's a plus. Look, the bigger thing that's out there is you are going to have online gaming. And I think Colorado and Indiana will take it up pretty soon, and we're in both of those markets. And the experience in New Jersey and other markets is that, that's a very big market, bigger than online sports betting. And so we're watching that. And we also think it will probably come to Illinois and pretty quickly. So we're watching that.

One more for me. Dan, certainly, an acquisition of Win, it'd be fantastic. But any other M&A opportunities out there, you guys have a lot of growth across just with Chamonix, Terre Haute, Waukegan. But anything on the M&A side where you can bolt-on 1 or 2 other regions?

We look at a lot of stuff. And unfortunately, a lot of times when somebody is trying to sell something, it's got hair on it, right? But we did a couple of years ago, bought Bronco Billy's, which is now pretty important part of the company. So we look at all sorts of stuff, but there's nothing to report today. So -- and frankly, from our point of view, if we just execute on what we have, even if it's just Chamonix, forget about Waukegan, forget about Terre Haute, if we just execute on Chamonix, the stock will be a home run. And you've run the numbers and shared them with your customers. And so we, first and foremost, don't want to screw it up. And a lot of times, when you're looking at acquisitions, you're like, well, if you buy that at that price and then it turns out to be a dog, you kind of screwed it up. So we're pretty cautious about that stuff.

We'll take our next question from Chad Beynon from Macquarie.

Wanted to ask about just broad returns on Chamonix. Given the recent strength in the gaming industry and the overall improvement in business models across the country. Have you changed your view in terms of what returns you think you can generate at the project? And then also related to that, with the CapEx, how should we think about the cadence of when that's actually flowing through the balance sheet over the next six to eight quarters?

Let me take the first.

Yes, the last one first.

Yes, roughly speaking, so for this year, it's going to be somewhere in the ballpark of $50 million of spend. It's probably a little -- slightly on the lighter side of that. And then you're going to get another $100 million of -- $130 million of spend in the year beyond that in 2022. Depending on the timing, of course, you could see some of that spend slip into 2023. And then you always get a weird game with the payables as we have holdbacks for -- waiting for work to be finished and with the GCs. That time, we can also push some of those payments into 2023.

Well, and then, look, based on the -- you have all these different bid packages you go out when you compare with where they came in and they end up negotiating on each 1 and so on. And we're coming in like 10% to 15% above where we thought we'd be in that $180 million number. Now the $180 million number includes a $19 million contingency, which is there in part for this, but it's pretty early in the game to be drawing on contingency. And we've also only bid out a small portion of the project. But we're working seriously to kind of bid more of it out and get more of it signed up. If I were to guess at this point, and it's a guess because at the point where we are more definitive, we would have to put more money into the restricted account and so on. But my guess is it's not $180 million is more closer to $200 million. And then if we decide to add the other rooms, we probably end up at something like $230 million -- $225 million, $230 million. Now on the positive side, we've always been very conservative on what we think we can earn there. We believe Ameristar is making something like $85 million, $90 million a year of EBDIT with their 534 rooms.

By the way, maybe north of that in the post COVID world Dan.

Yes, maybe. If you look at the maximum bet limits just went away in the last few months, and the table game play in Black Hawk grows like 50%, right? And Cripple Creek has less decent hotel rooms and so on. But even in Cripple Creek, it was up like 35%. We have very little table game business at Bronco Billy's. We don't have many hotel rooms or almost none. And our focus has always been saw machines. But Chamonix will do table games. And so it's entirely possible that this place can make $50 million, $60 million a year on an investment of $230 million. And that's what's driving us to think, well, the most efficient way to add the extra wing is to do it right now. When you have the contractor there and everything, and it's kind of easier to say to your electrical subcontractor, you know what, you're already driving up on the hill, putting in wiring for this hotel, we're going to add this other wing. So let's figure out what it would cost now. And so it's something we're studying pretty carefully. And I wanted to mention it because if we decide to go ahead and if our Board approves it, we would be in front of the historical preservation committee and in front of City Council, I think they would look at it favorably, but of course, there's never certainty on that. So I wanted to make sure we kind of broadly said, hey, we're looking at this, so that we don't end up in a situation where it ends up in a local newspaper, and then our phones start ringing off the hook and what the hell is this. So you know.

We've worked on -- or I guess, Dan, specifically, has worked on a lot of these products more than me, but what is this number 10, 11, Dan, how many have we done like that. And I will tell you, of the list of projects, this has always been the one where we look at it and beat down the numbers and still get a good return. And when we look at this project, we have long said to ourselves internally, we like the upside from our numbers a lot. We've always thought there was way more upside potential than downside risk on the -- for the return profile for this project. So we feel quite, quite good. That's only been made better by watching what appears to be a very, very good showing out of Monarch and Black Hawk, a very good showing out of Wildwood with their expansion hotel. And I think what a lot of people forget sometimes is Black Hawk is what Cripple Creek -- like Cripple Creek today is what Black Hawk was pre Ameristar opening, right? We don't have any 4 or 5 Star product. And so when you run around that town, the potential for us to open with a very, very nice product for what is a very good customer base in Colorado springs, it's almost outsized. We will stand apart in a very big way, is maybe the right thing to say.

Actually, the other data point to be aware of is that $1.8 million of EBDIT that we earned in the second quarter at Bronco Billy's. We did that without any parking. The construction has taken up the parking. So we're running valet parking at the curve on Bennett Avenue in front of us and parking the cars, 3 blocks away. We have a self park lot as you're coming into town. We're running a shuttle bus from it. And the customers are still coming. And Bronco Billy's is not exactly Bellagio. I mean it's a nice comfortable little place, but it's -- Chamonix will be far nicer and significantly bigger. And we will renovate Bronco Billy's as well. But it's pretty amazing the amount of business that gets done in Cripple Creek when you consider the poor quality of what's there.

And then at Rising Star, you guys posted record -- I believe, record quarterly revenue and -- or I'm sorry, record quarterly EBITDA and probably record margins at 25%. So it looks like the team is doing a good job there. I believe the tax change still hadn't gone into effect. Can you just confirm that? And then when that does go into effect, how should that flow through to margins in the back half of the year?

We always have to be careful when we address record numbers at Rising Star because when it first opened back in the mid-1990s or early 1990s, it was the only casino in the region, and it made huge numbers. But this was certainly the best quarter in many years at the property or several years anyway. And the lower tax rate just started, right?

Well, it started on July 1, but because accounting is always fun, what you have to do is you look at what you expect your blended rate will be for the full year. And so you've already effectively seen that tax -- that average tax rate in the first and second quarters.

So on a cash basis, it just started. But on an accounting basis, we started

On January.

First quarter.

That's right.

[Operator Instructions] It appears we have no further questions. Please go ahead, speakers.

It was a great quarter. Yes. I was just going to say, it was a great quarter, and our whole team deserves credit for it. Everybody has been working hard. And it's kind of a new attitude that this is the new normal and trying to maintain this sort of trend while we build out Chamonix and look at these other opportunities to grow the company further. So I'd like to thank everybody for your support, and we'll continue to work hard on your behalf. Thank you.

That concludes today's conference call. Thank you, everyone, for your participation. You may now disconnect.