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

Thank you and good afternoon everyone. Welcome to our third quarter earnings call. As always, before we begin, we remind you that today’s conference call may contain forward-looking statements that we are making under the Safe Harbor provision of federal securities laws. I’d 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 are 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, you are ready to go, Dan?

I guess, okay. Let’s go. Hi, it’s Dan Lee, I am the CEO. Like the headline said revenues were up 12.6% over the prior year’s third quarter. Now last year, we had just reopened from the closure periods and so there were some things that weren’t fully opened yet, like table games in some markets and so on. And so now being fully open is the main thing that’s caused the revenues to be up. Operating income was up some from last year’s third quarter and last year’s third quarter was very strong. Last year, we also didn’t have – we had not yet ramped up all of our expenses. And so the fact that our operating income was up over the third quarter of last year is a good sign. And it’s up, I don’t have it calculated that, but I guess 7% or 8%. Our net income was down a little and that’s the interest on the funding for Chamonix, which is in the way of under construction in Cripple Creek. We borrowed that money in February. And it’s basically sitting in a restricted account for construction. We are still early in the construction process. We are spending about $1 million a week at this point. And so the amount of interest expense that’s capitalized is still quite small. As we move ahead each quarter, that will get to be a bigger number until we open. And so the impact that interest expense will have on the year-over-year comparisons will go down in the next few quarters as we put more into the project to capitalize more interest. Our adjusted EBITDA, which makes adjustments for all that stuff, was up to $13.6 million from $12.5 million, so again, a good quarter. The construction of Chamonix continues. I was…

And just to be very clear, we will not have that in this year’s fourth quarter, because it’s all been sold.

So, it’s all been sold. So – and so it just fell in this quarter versus the fourth quarter. There were also a couple of accounting true-ups that fell in the quarter that were – added up to $100,000 to $200,000, so not very material, but that kind of depressed this year’s number compared to last year’s number. And – but all-in-all, I think Rising Sun actually had a very good quarter, even if you would back out the free play and the true-ups and everything else and it’s $7.6 million for the 9 months. Again, it’s headed for the best year that it’s had in many, many years. Angie and her team are really doing a terrific job there. And we just converted it this weekend to the Christmas theme that we do every year. This year – every year, we add a few little twists to it. And so, it’s called the Christmas Casino between now and year end. And that usually allows us to do better in the fourth quarter than we had done historically before we came up with that Christmas concept. And so that’s – although because free play was in last year’s fourth quarter that will still be down in the fourth quarter, but we will end up the year at somewhere around $9 million of EBDIT, which is pretty terrific for that property. In Colorado, I mentioned that the – it’s operating without any self-parking, which is an issue. In last year’s $3.1 million, as we disclosed last year, there was a $400,000 gain from the discontinuation. We revamped the frequent player program and expired the old points. There were old points on our books that were no longer redeemable and that gave us $400,000 of credit. But frankly, we flogged everybody to…

No. No, that’s consistent with the last few quarters, Dan.

Okay. Yes. Okay. And – so that’s there. Now on the development, of course, that’s something we have been working on for years literally in Illinois and several months now in Indiana. In Illinois, the legislature about 3 years ago legalized a number of new casino opportunities. We studied it and decided the one we liked the best was in Waukegan. They also have legalized a casino in Downtown Chicago, that’s a really big opportunity for somebody, and probably too big for our company. But Waukegan is a great market, A lot of people there that are not convenient to any other casino. It’s midway between Chicago and Milwaukee. It’s on a piece of land. It’s about 30 acres that’s owned by the city. And so we put together a proposal and it’s a very complex thing, the way the taxes work is complex and so on. But the city narrowed it down to three proposals that went to the state. One of the three backed out in order to focus on the Chicago opportunity. So it was us versus another proposal. Our proposal is quite a bit larger in scope and quite a bit fancier than the other one. Both we and the other proposal made presentations to the Illinois Gaming Board about 2 weeks ago. I’m biased, but I think our proposal is much better for the state and for the city. And we have far more development expertise than the other proposal. And we’re fully capable of building it. We indicated that if chosen, we would be open with a temporary casino within 7 months. Now the Gaming Commission hired a consultant who is going through all of that stuff and has reached out to us a few times for different – either he or the Gaming…

Wednesday.

Next Wednesday. And the Gaming Commission has indicated that they expect to meet an executive session after hearing the four proposals and to pick one that day as their preferred developer. And so they are moving quite quickly, whereas Illinois has been moving kind of slowly. And – but all of this is coming to a head pretty quickly. We are capable of doing both, we’d be scrambling a bit. Both have temporary casinos. And we have different ideas on how to do the temporary in Indiana. And but it can be done. I mean we built two casinos at the same time at Pinnacle, when we built two of them in St. Louis. We built them back when I was at Mirage. We built [indiscernible], which was $1.6 billion. And at the same time, we were building Monte Carlo, which became Park MGM today, in the joint venture with somebody else. And we were building Beau Rivage down in Mississippi, which is $670 million. And so we were pretty damn busy in those days, but we got it done. And do the same thing here. We would hire people, and we’d hire – in each of these markets, we have very confident general contractors. Hensel Phelps in Colorado, who’s they are headquartered in Denver and the largest construction firm in Colorado and one of the largest ones in the country in Chicago. We’re planning to use a joint venture between Turner and a local company, which is an NBE. And the Turner is a huge construction company, they may be the largest one in the U.S., but they have a large Chicago office. And then in Indiana, we expect to use Wilhelm. If we’ve chosen Wilhelm, I think, the second largest construction company in Indiana, but they have probably…

No.

And on that, I guess we’re ready to take any questions.

[Operator Instructions] We will take our first question from Ryan Sigdahl with Craig-Hallum Capital Group. Please go ahead.

Great. Good afternoon, Lewis, Dan. Thanks for all the detailed intro there. Curious if you’re able to quantify how much of an impact to EBITDA the wildfire smoke in Nevada and the hurricane Ida was for the Silver Slipper?

The smoke was – actually, both of them are probably a few hundred thousand dollars. We normally would make at least a couple of hundred thousand dollars on Labor Day weekend in Tahoe, and we’ve made nothing. And it wasn’t just that weekend, that really affected Tahoe visitation for a couple of weeks. It was all over the national news. And the fires were down near South Lake, Tahoe. And in fact, the – what do you call it? They evacuated the city of South Lake, Tahoe. We’re 30, 40 miles away from that. So the fires weren’t near us but the smoke settled into the Tahoe Valley. So we had a horrendous smoke. But frankly, if you just watch the news, you would think the fires were within sight of our casino and they were not – they weren’t anywhere close. But it affected us for a couple of weeks, really. And in Mississippi, a little more complicated because we actually were closed for a few days. We never lost power. A lot of our customers did lose power. And so when we reopened, we held the rooms in the hotel for our best customers. So we actually had a couple of pretty good days because people did the power at home, so they came over to us and then helped to offset it. So not a – all in all, it was still probably a negative, but not a huge negative. And I should mention, looking forward, the passing of this infrastructure bill is interesting, and then there is this other that better build. People talk about the last year, we have the different stimulus packages. And each time those checks went out, we did see a lift in our casinos. People would get a check in the…

I’m going to throw a couple of numbers at you, and they might be helpful. So if you’re looking over at Northern Nevada, guest counts in the quarter were down about 30% for what it’s worth. So we absolutely got impacted for a lot of that quarter from the wildfires. The other thing that we had was just low table hold. So table hold was about 8.5 percentage points lower than not only the long-term average, but also the prior year. That cost us about $600,000 in gaming revenues, about $0.5 million in EBITDA. Over at Silver Slipper, a good weekend normally can be in the ballpark of $0.5 million of EBITDA, maybe a little bit less than that. So I don’t know if those numbers help you, but a little more color for you there.

Yes, helpful, thanks, Lewis. And Dan, curious segue on the infrastructure bill, do you have any historical correlation or thoughts on government giving away money and people having a lot of time and nothing to do versus them having to work hard and earn that money but stimulus in that regard of which ones flow more to the casino?

It’s hard to know. But I mean, you can look back – probably the best correlation I can think of is in the New Orleans region, there were two major things that resulted in government money going into the economy. One was Katrina and what was the other Ida, which caused so much damage back in 2005 and resulted in billions of dollars being spent on levies and infrastructure to protect the city of New Orleans. And the City of New Orleans and the casinos in New Orleans had a pretty robust period of time because the people building those well-paid people who were looking for something to do in the evening. And so it would certainly help the New Orleans economy as all that billions of dollars was being spent to on infrastructure. So maybe that’s the best comparison. And then when you had the British Petroleum oil rig blow up off the coast and people talked about it was going to hurt the fishing industry and all that stuff. Well, the amount of money that went into the coast to remediate the effects of that oil rig. And that was, again, the same thing. We’d have people be out there all day trying to get the oil off ground pelicans, and then in the evening they show up at our place. So it’s – generally, when you spend money on that, it’s – somebody making $50,000 a year building roads, and they are happy to have that job and they are making good money, they also throw all of that in the bank. Some of it gets thrown into our bank. And so that’s – and look, I don’t really want to get political on whether this is paid for any of that stuff. But the fact that the government is cutting these checks is probably good for our business, so…

Good. One more and then I will…

[indiscernible], Ryan.

Opened the can of worms with Dan there. Curious on Bronco Billy’s, I think, Dan, you mentioned that it was flat year-over-year in September. If I look at the quarter, it’s down 17%. So it implies a pretty notable sequential change kind of within the month – or within the quarter excuse me. So can you talk through kind of July to August to September this year versus last year and why September period so much better?

I was talking about the...

Yes. Dan was talking more to the gaming revenues that we see I get published with the state relative to what we report versus net revenue that’s showing up on the income statement, Dan, which I think is like we are going to be – yes.

He is right. I know our casino win in September was flat. So we were down more than that in June, July. Eric, do you want to add?

Yes, don’t read too much into it, Ryan. If you are looking at net revenue, so – again, Dan is looking more at the published gaming revenue. If you are looking at net revenue in the month of September, net revenue was down about 22%, so, down a little bit more than what you saw there for the rest of the quarter. That much is certainly true, but it’s not off by the mantra or not – sorry, by the quantum, I should say that that’s being implied from gaming revenues to net. Like, we…

The difference is – and it varies a little bit from place-to-place. But the – in the State of Colorado, the revenue numbers you see include free play. And the numbers that we show on our income statement are net of free play, okay. We don’t know what Triple Crown’s revenues are net of free play, for example. And so I am just looking at the growth – like when we compare how did we do compared to the market, we have to look at it before the issuance of free play, because we don’t know what the market is net of free play. And that’s why you end up with slightly different numbers. But we were – we have been using more free play this year than we were last year. And – so that explains the difference. But I know on a gross revenue basis, we were flat when the market was up 16%.

That is true. And for the quarter, using that same apples-to-apples, we were down about 5.5% for the full quarter, if that helps. The market was plus 23%.

Plus 23%, so.

Got it. Helpful. Thanks guys. Good luck on the casino proposals here, and we are here to hear what happens. Thanks.

8 days – 9 days away – 8 days away. I can’t – 9 days away, anyway.

Honestly, it wouldn’t surprise me if Indiana it takes a little longer. But at least at this point, they are saying they are going to make the decision one day.

Thank you. We will hear next from Chad Beynon with Macquarie.

Yes. It’s Jordan Bender on for Chad today. So, you obviously went through your financing for Colorado earlier in the year. And you talked about your private equity backer in Illinois. Can you just talk about how you are thinking about the financing for a potential win in Indiana?

Well, we will know a lot better in the next three months, because what you might do if you get no licensing, then there is no financing to do, right. And we are in good shape. We have enough cash to finish Colorado on our own. We are generating cash flow and so on. If we just get one, well, the first hurdle is to build the temporary. And the temporary like that sprung structure is less than $5 million. You got to pay for parking lot, you got to hire employees, and then there is like $20 million of slot machines that you buy. And in Illinois, there is a big upfront tax payment that’s $15 million plus a tax per machine, which can be up to 35.9%. And Indiana, you don’t have that. So, let’s assume – to make it simple, let’s assume we get Indiana, but not Illinois. And that’s not forecasting one way or another, it’s just to make the math simple because it’s a simpler tax regime. I think the upfront fee is $5 million in Indiana. The slot machines $20 million. And everything else, you are going to be in at maybe $40 million or $50 million to get that temporary open. And we have got extra cash on our balance sheet and undrawn credit facility, we could just go do a temporary casino pretty much without – if we need outside financing, it would be minor. And you get that open. Well, then these temporaries would probably produce pretty good income right off the bat and very high ROI. And that income is then equity going into the permanent. And so – and you don’t really need the money for the permanent until a year or 2 years down the road. And at…

Awesome. And then in the – in your prepared remarks, you mentioned just the expense is starting to ramp throughout the year. Can you kind of talk about how much more you have to ramp in terms of expenses and maybe what margins should look like as we look out into ‘22?

They are actually not ramping sequentially. It’s like our expenses in the third quarter weren’t much different than they were in the second quarter. But last year, as we reopened, we had not yet brought all of our employees back and we still had some employees who are deferring income, not getting paid their full amount currently. We had negotiated deals where we were paying reduced rent in some cases. And so by the time we got to the end of the third quarter last year, we were back to kind of a normal process. We have been accruing for some bonuses this year because the company has been doing really well, and I think our employees deserve it. And not only management, but we have now paid bonuses on two consecutive quarters to every employee in the company, modest bonuses, but there has been pressure to increase wages because of the shortage of labor and people have been trying to – a similar competition has been offering starting bonuses and all of this. And we have kind of gone the other way and said, look, we are doing well and we are willing to share that with people. And so here is a quarterly bonus. No guarantee that this will happen every quarter, but if the results continue to be good, they could happen every quarter. And so we haven’t seen a lot of turnover. And I think we have been able to keep our costs sequentially the same. But on a year-over-year third quarter versus third quarter, there was some increase in expenses that – but not like in first, second and third quarters haven’t grown much.

Yes. If it’s helpful, Jordan, we have long now for probably the past year, talked about how we thought existing operations consolidated should be in the high-40s or maybe $50 million of EBITDA. And there has been nothing recently for us to change those slots, if that helps you.

That is helpful. Thank you. I am going to pass it off.

Perfect. Thanks Jordan.

Thank you. We will take our next question from Larry Haverty with LJH Investment Advisors.

Hi Dan. Hi Lewis.

Hi Larry.

Hi. Long time no hear. But anyway, looking at this sports betting opportunity, the amount of money in Florida and New York at this point, and the amount of money that’s being paid for advertising by purveyors in your industry is, I think can only be described as staggering. And clearly, someone thinks that this is going to be a very, very big thing or they wouldn’t be doing this advertising. It’s more than one firm. So, as you look at the sports betting, and have been able to observe it in places where you are either operating or familiar, do you think the opportunity is as big is the advertising would suspect or would suggest, or do you think perhaps that the real opportunity is that it brings people into the casinos for many, many more hours than they would normally be in and you get the feedback from them putting bets in using mobile devices and otherwise patronizing your facilities? How do you look at this, or is it all just the pipe dream?

No, Larry, there is New Jersey, which I know, you know New Jersey well as well. But they have had online sports gaming and online gaming now for several years. And online sports betting is going to be a big business. Interestingly, online gaming is an even bigger business, like twice as big, which is the ability to play a slot machine on an iPad. And yet, Atlantic City has not had a down year. It’s grown some, not much, but it’s growing some. And so – obviously, people are spending more on gambling and the growth has been online. Now sports betting as – it’s not a new thing, I still remember when I worked on Wall Street every Thursday, a guy would come through with a sport sheet when people place their bets and he would take their money and come back the next week and pay them off and so on. And I remember looking at this guy, thinking that’s the mob, mob is right here in our offices collecting bets. It was a booking, and it was totally illegal. And so the illegal gaming activity has been estimated to be billions of dollars. And I think the legalization of online sports betting has probably cut into that business pretty significantly, because it’s just easier to place a bet on sports bet. And I think what – when you see all the staggering advertising and promotions that these guys are doing, is they are all trying to get market share. They are trying to get people’s accounts. And it’s reminiscent to me of 20 years ago when Amazon was trying to get big quick and they were spending money to diversify and everything else, and they were losing money hand over fist, but trying to grow the…

And what – if things stood still – last question, if things stood still, what’s your best estimate next 2 years if nothing got approved of your CapEx in both of the years?

Well, we completed Chamonix. Monarch recently – well, let me go back. The Ameristar in Black Hawk, we used to be able to get the numbers out of the Ameristar financials, and then Ameristar was acquired by Pinnacle, and you could still get a pretty good idea out of the Pinnacle financials. And then Pinnacle is acquired by Penn National, and now it’s grouped together with a bunch of other casinos. But they were headed towards like $90 million a year of EBDIT. And we think they are probably still in that ballpark…

No, your CapEx, you are spending, not how much you expect to make. How much you are firmly committed to spend?

Well, maintenance CapEx is like $5 million a year. And the project in Colorado has got, let’s call it, $200 million to go, roughly. And we are sitting on $270 million of cash. We only need about $10 million in operations. And then – and most of that spending will happen in 2022, and we will generate free cash flow in the meantime.

Money is pretty close to free right now, though. May prove to be smart to be a buyer.

The other side, I was saying is Monarch, on their earnings call recently, said that they think they are now the most profitable casino.

Not yet, but – that they will be.

That they will be, right. So, they have a 500-room hotel, and they did a nice job. It’s a nice place. And so I think they are going to be, if not $100 million, they are going to be up there and so the Chamonix project, we are not 500 rooms or 300 rooms, but it has the capability of doubling the size of the company. And then Waukegan could double us again. So, there is a lot on our plate here.

Okay. Good luck with it.

Thanks Larry, nice to hear from you.

That’s probably all we have time for, Dan, so we will close it up.

Okay. Thank you very much, everybody, and it’s going to be an exciting quarter. Thanks.

Thanks, everyone.

Thank you. That does conclude today’s conference. We do thank you all for your participation. You may now disconnect.