Greetings, and welcome to the Full House Resorts Inc. Second Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lewis Fanger, CFO of Full House Resorts. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to our second quarter earnings call. Before we begin, we did post some slides on the website. So if you go to investors.fullhouseresorts.com you'll see that bronze banner. And if you hover over company info, you can go to the presentation section and find some of the slides that we'll discuss today, including a bunch of current photos of some work going on at Chamonix. 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'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're 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, ready to go, Dan.

All right. It's kind of a complicated quarter, so I'm going to figure out where to start. But we're busy these days and the business kind of falls into four categories. One is still ramping up the temporary. This was its first full quarter of operations, and it did well and it is getting better. The table games is starting to be a bigger factor, and we're still hiring more dealers. We now rank third in the state and table games as of the July numbers that came out yesterday. Our steakhouse should arrive in late September. It's disappointingly late. It's basically a large diner. It's coming in seven trucks, and they're trying to line up the permits to bring these oversized trucks from Florida to Illinois. And it's got to be assembled and opened. So it probably doesn't get open until sometime in the fourth quarter. The sports book should be up and running in September. So we're still pulling it together and still hiring people, but the trends are pretty good and it's profitable. So it's going very much the way most successful new casinos go. Second big task is completing construction of Chamonix in Colorado. It's pretty unusual for a company our size to undertake two things at the same time, but we didn't pick the timing in Illinois, and that's how it ended up. And so we're preparing for it to open on December 26. So it's not only completing the construction, which is a job in half, but also preparing for the opening. Along those lines, we made some pretty good progress with the staff, the high-end restaurant, which we intend to be one of the best, if not the best restaurants in the entire State of Colorado. We've done a deal with Barry Decadence…

Dan, really quick. And then on Slide number 13 as well, important thing is just to see those blue warnings there. That's existing probabilities. And so some of you that have never been to town often ask us how -- just how tightly are they integrated. The answer is very tightly. You won't have to leave the Bronco casino to go into the Chamonix casino. As you can see there, they're essentially attached.

Yes. It's a lot like going from Tomorrowland to fantasy land at Disneyland. I mean -- it's a different theme. You have to go through an arch in one direction and says, welcome to Bronco Billy's, the other direction is as well from Chamonix. Your points are good from one to the other, but it has a different theme. Chamonix has more modern European sophisticated effect the tagline is European elegance with Colorado Comfort. And Bronco Billy's is more WildWest historic Cripple Creek, like a lot of the casinos there are. On Page number 14, this is the back of the property. This is our parking garage, you can look down the back Quentin's garage and it drops right down on the back of the casino. There's some decorative stuff that goes up on this bare concrete that's not up yet. But otherwise, it's pretty far along. And as you can see, the sola there. we could use it if we could get occupancy permits and so on, except that the elevators from the parking garage go into the back of the Chamonix casino. And so I can't use the garage to help Bronco Billy's in the next few months because there's not an easy way to get from those elevators into Bronco Billy's. Page number 16 shows the table games pit. This is what I mentioned earlier, the big window on the outside, well, that's one of those on the right in Tennessee, and that will get curtains. But the table games pit are quite elegant, very intricate molding going in here. To the left, you can see that steel door that's closed, that would normally be open. That's a fire door that goes from the new building, which is Chamonix to a historic building. And the very first historic building will also be partial, we have to have a firewall in between. And if you go through that and keep going, you end up in Bronco Billy's. I'm not sure why Lewis included a public restroom other than.

Just, you can see that they look quite nice. That's... It's quite nice. Yes.

They're better when they actually have toilet, but the finishes are quite nice. Page number 18, the escalators, which are in, they're covered to protect them during construction, but there's a set of escalators that goes up to the meeting space on the second floor. And we have significant surface parking space that you access of the second floor. And -- and so that's going to be pretty important. Moldings are going up on the meeting room space. We have a nice skylight there as well. And we've got on Slide number 19. Slide number 20 is the main ballroom, which is large by Colorado standards. And this is an important difference between us and Monarch, for example, we have pretty significant meeting space, Monarch really doesn't. Ameristar does. And I think it's important to helping Ameristar fill in the midweek and it's going to be important for us midweek as well. And so we have a very nice meeting space that. Our site -- I mean, Monarch did a nice job and they have a nice casino, but they're in a very narrow lot. We're not. We sprawl out better. And that allowed us to have a meeting room space that's not wedged into a hotel tower. And that's important for [indiscernible], even if you have entertainment or you have some function. And so that's important. You see the meeting courtyard. This court courtyard actually serve several purposes. One is those are meeting rooms of the left. And obviously, we could have a high to party outside and so on, if it's a nice day, which it often is there. And -- but that's also a quarter from the surface parking lot going those doors at the back and you're right at the top of the escalators that feeds…

You don't need to go over the rest of the...

And we've already talked through it, I guess, and on that, I think I'm ready to take any questions. Right, if I missed anything?

No. We're ready for questions, operator.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] One moment please, I will poll for questions. Our first question comes from Jordan Bender with JMP Securities, please go ahead.

Good afternoon, thank for taking my question. I want to start on the funding for the permanent casino in Illinois. So I guess looking at my model at least, it looks like you'll need to raise the permanent funding sometime in the middle of next year. I was just trying to get an update on when you guys are thinking about that timing as well as kind of the optionality behind the sources of where that money could come from. Thank you.

Well, we've always said that, that would be roughly the timing we've looked at our existing bonds become callable in February. And so refinancing the bonds gets a lot cheaper from February on, that's still seven months away. The bond market has its ins and outs. It's not a great bond market today. It's not a horrible one. And we now have this lawsuit that came back again, and that will be something that factors into it. The fact is on our license, there's no deadline of when we have to be open. And there are some limitations on how long we can operate the temporary. It's possible that could be revisited. We would like to move forward as quickly as possible. We think the permanent makes quite a bit more than a temporary. We are continuing to refine the design, as I mentioned. But you're not wrong in saying you'd like to finance it in the middle of next year, but if somebody says, "Well, it's going to cost you 20% interest or something, then you'd say, well, maybe that's not the best way to do it. We do still have a standby facility with a large private equity firm that's there. It's kind of expensive. We hope we can do it cheaper than that some other way. We think our stock at these prices is extremely cheap. And so that would probably be the most expensive way to do it. And so I can pretty much assure you there's no issuance of equity being contemplated. And not pretty much, I can assure you that there's no issuance of equity being contemplated. We could do a REIT deal as they have for the downtown project where a REIT provides most or all of the financing. And of course, the -- once we get Chamonix open, we should be generating quite a bit of free cash flow. And so the longer it takes us, the easier the financing is. Now we would still like to move sooner rather than later. But delays aren't all bad because it does make the financing easier. And so that's where it is. I mean I don't have an answer, but we have really a year to figure it out. So...

Okay. Great. And then just turning to Colorado, the property historically has done about 10% to 20% margins just given the year, is that property ramps up, is it fair to assume that it should exceed that 20% margin? I guess how should we think about what the ultimate margin profile of that property looks like in fully ramped? Thank you.

Yes. I think we can have pretty high margins there as Monarch does. The gaming tax rate in Colorado is a progressive rate, but it caps out at 20%. And -- so for regional gaming properties, it's actually a pretty acceptable tax rate. Also, in general, if you're the leading property in a market, if you're the best property in a market, you usually have better margins. You don't have to market quite as much. And I remember one time a long time ago, the CFO of MGM called me up when I was at Mirage Resorts and wanted to know what we spent on advertising. And I went and looked up the number and it was like $5 million. And he said, that's not possible. MGM spends $30 million. And I said, well, does that include all the billboards for Sage Roy? I said, well, it's a good question. Let me go check. And I went back to us, I said, yes, the preponderance of that is actually the billboards for Sage Roy. That's still not possible. I said, "You know what, we had a volcano that was a really big attraction in a ton of palm trees, and they had a second plastic lion on their front door that nobody wanted to walk through. So of course, you have to spend money on marketing, and we didn't. And so we will have, by far, the best property in Cripple Creek, and I think the best property in Colorado, one of the best properties in the Midwest. And I think that I'm not right away. It takes a while to get there. But long term, that will play into good margins and a great return.

A little more color for you, too. Another way to think about it is over in in Mississippi with Silver Slipper. Before we had that hotel, what you would see is a casino that would largely die out at 7:00 p.m., 8.00 p.m. really earlier than that midweek, maybe a little bit later than that weekend. But largely because you had people that didn't want to drive home an hour on the roads and be too tired or drunk or all the things that we don't want them doing either. And so when you have all of a sudden 300 rooms attached, you end up getting much better utilization out of a lot of your existing assets, whether they be the slot machines, the restaurants and all that other jazz. And so the margins, you should see a pretty meaningful move just from that alone.

Great. Appreciate it. Thank you.

Yes. Monarch does not break out Reno from Black Hawk, but you can look back to when before they got Black Hawk opened, and it's -- and at what they were earning in Reno and so on, they only have the two properties. And it's pretty clear they're making at least $100 million a year there, and they have 500 [indiscernible]. Now they are an hour west of Denver, we're in our west of Colorado Springs, but they have significant competition as well, including Ameristar. And we kind of don't really -- I mean the Golden Nugget has bought the Wildwood and is doing some minor fixing up, and it has 100 rooms in kind of a Hampton n-type hotel. They're a good operator. I expect they'll fix it up better. And so down the road, we'll have better competition. But that's five years away. We're going to have a big lead on anyone else. And it's not easy to assemble land in Cripple Creek. It took us years. So for somebody else to try to assemble something that would compete with us will not be easy. So I think we'll be the leading casino there for quite some time.

Thanks, Dan. Thanks, Lewis.

Next question comes from Ryan Sigdahl with Craig-Hallum Capital Group, please go ahead.

Good afternoon, guys. You've covered a lot. So I'm going to ask two more specific questions here, both related to the temporary, but curious how much the cost burden is related to the dealer school in totality. I get it's necessary, but curious of that cost. And then second, a lot on the revenue side, but curious how the margins have trended over the past couple of months and then into July with the ramp-up in revenue.

Yes. The dealer school is not huge. It's probably including the people we're paying to actually be trained and their instructors. It's like $30,000 to $50,000 a month. But there's other training of other job titles as well. But the dealer school is something. It is a drain, it's not huge. The margins will get better. One of the main things driving it is we've still got a pretty robust advertising and marketing campaign. And as we get a bigger database and get more focused, we'll be more efficient with the marketing. And so -- I mean, listen, we're comfortably profitable in our first full quarter of operations. And a lot of casinos are not. I mean I can tell you back when Liveris open in Lake Charles, the first full quarter of operations, it didn't make much money at all, and then it's made $100 million a year ever since. Bellagio, the first quarter of operations was so-so, and everybody is like the same question you're asking me now, and Bellagio has done $400 million a year of income for 25 years now. And so we're off to a good start No, the revenues aren't where we expect them to be. The profits aren't where we expect them to be. The margins where we expect them to be, but they're okay and trending in the right direction. I should also mention, you'll notice -- I realize investors primarily look at EBDIT, which is appropriate in this industry. But sometimes newspaper reporters get caught up with the net income and operating income that accountants and their delusional craziness make us point be more prominent because the temporary is operating for three years, there's a whole bunch of stuff we're depreciating over three years. Now some of that will probably have ongoing value like the parking lots and so on. But that's why you see such a large depreciation charge over the three years. Now for tax purposes, it's not yet clear how fast we can depreciate it. But when we close it in three years, we'll get an abandonment charge. So if you noticed a very big jump in depreciation, that's because accountants take a very conservative assumption that the stuff like, for example, the restaurant stuff restaurant equipment and all this stuff, they just assume after three years, it's worthless. And it probably is not worth us. And we have two air stream trailers that are mounted in the middle of the casino floor that are like food trucks. And it turns out they're pretty popular. And so one of the things we've done is said, "Hey, let's keep using those trailers, they're not going away. So they're going to be in the permanent and yet we're, I believe, depreciating them over three years currently, which is a very conservative approach.

Maybe helpful to give you a little bit more there. So right now, the EBITDA margins are running in the high teens. One of the things that Dan hinted out is we are spending quite a bit more on marketing. One of the things that one casino should do, but one of the things that we had been hearing from players that had not gone into our facility is that they would see pictures of the tent and think why would I want to go to that, I'll wait until you have the real thing. Now I think what anyone would tell you once they go inside the doors is it is unbelievably beautiful on the inside, not what you would expect from looking at on the outside. And so we're spending a little bit more to try and drive more players into the building itself, trying to build up that database. And that's going to be extended here for a little bit of time. There's a new ad campaign that's getting ready to roll out. So you at least see that for another quarter. But the -- maybe the right takeaway for you guys is that the trends are all there. They're upward. If you look at the month of July, we did $7.8 million or $7.9 million of gaming revenue in the month, that was up about $1 million from the prior month. And so the trends are there, and we're feeling pretty good.

We recognize most of the casinos in the state have operated for 20 years. Rivers has operated for, I think, 12 years. And the only other recent one is the one in Rockville that's been open a year longer than us, Rexford. And for us, all already after only a few months, we're number three in table games and number six or number seven overall is pretty remarkable, given that everybody else is like a 20-year head start on this.

I'll give you one more data point, and I'll shut up. The -- if you take the first full month of Rivers Casino is annualized the first full month of gaming revenue, you would have gotten to a number that was around $409 million or so. If you were to look a year later and look at the actual trailing 12 month of revenues, it was like $406 million or something. But once you cross that point, you start to see some pretty big increases in that overall revenue line today, as you probably know, it's doing close to $600 million a year in gaming revenue. Now they've gotten more positions since then as well. But even in those early years, you saw a pretty meaningful upward move in overall gaming revenue. That's no different than what we'll have here. It's been a pleasant surprise to see how well, how quickly we've gotten to number three for the table games revenue line. And the slot business always takes a little bit longer because you need that database, you need the free play to go out. And so that's why we're so focused on marketing and making sure that database builds up.

Great. Thanks, Dan, Lewis. Good luck, guys.

Thank you.

Next question comes from Chad Beynon with Macquarie, please go ahead.

This is Sam on for Chad. Thanks for taking the questions. I was hoping you guys could speak to any consumer trends or change in the promotional environment that you saw during the quarter and into August?

Yes, we've got so many big things going on that, that almost seems less important. But certainly, on the Silver Slipper, the property complains about the competitive impact they're getting from a competitor down the road. But when we really got into the numbers, it was more of our own costs being up. And so we're trying to get that more under control. Now I'm not saying that it is in a competitive environment, I believe it is. But does that mean there's a recession in Mississippi, but it's hard for us to know. And then like in Indiana, the revenues are a little soft. Is that a recession? Well, you get a new casino across the river in Boone County, that's probably more important. And so I don't see anything that I can point out and say that's a recession. I would call on the clip side, our contractor in Illinois is telling us that construction costs have not come down. And so there's a cytome that's been hoping for a recession because maybe construction costs would get lower. You could argue that we would benefit more from a recession because of what it would save us in construction costs going forward. And -- but the short answer is we're probably the wrong people to ask. We've got so many things going on. It's hard for us to tell. Somebody like Penn National has got 25 casinos all over the country and doesn't build much. It's probably a better company to ask that question, too.

Fair enough.

Yes. I was going to say, like, if you look at Silver Slipper in particular, and to Dan's point, we do have a little bit going on. Our admissions are down, but we also have a '21 and over policy today that we didn't have a year ago. You have to enter the casino to go to the buffet as an example. So you would expect admissions to be down. Wind per admission is up. But again, the denominator is down, so you'd expect that number to go up as well. Rated play seems to be pretty solid. We are seeing more rated players these days versus unrated players. So maybe some of the froth of the unrated play is going away, but it feels like the rated customer is still hanging in there for what it's worth.

Okay. Good to hear. I guess for a follow-up, any updates on the strategy for your remaining sports betting skins and potentially any future iGaming ones that you might acquire in the states that you operate?

We have one still outstanding, which is in color. Indiana, one of the Churches ones in Indiana, and we have been looking for somebody to take it on. We haven't found anybody yet in terms that make sense to us. If iGaming comes to the states we're in, and I think it will eventually, we will look at whether we do a similar thing with outside parties kind of writing on our license or do we take it up ourselves. And it's quite possible we'll do both. In other words, if gaming is legal in a state and we have three skins, we might keep one for ourselves and licensed others. Most of you know this. We didn't get into the sports betting business ourselves because as a small company, you can end up upside down on that if one of the teams in the Super Bowl is from a market we're in, but the other team is not, we would be out of balance. And we could move the line, but then we would not be providing as good a terms to our customers as our competition. And so we decided early on to leave it to people that have more experience in that field and just take a percentage of revenue. And that's a reflection that there are certain games and notably the Super Bowl and basketball merged madness that are a very large part of the sports betting business. So you tend to have a lot of concentration on those events. In iGaming, where you're allowed to play a slot machine online, that's a large number of independent statistical events that's the normal business we're in. We're comfortable with that. And you can lease or buy the software that allows you to run that website, the games…

Okay. Great. Thanks for the color, Dan and Lewis.

Next question comes from Edward Engel with ROTH MKM. Please go ahead.

Hey, thanks for taking the question. On the dealers in Bocian, just curious if you have any time line when you could be closer to being able to operate 40 to 50 tables on the weekends. Could that happen by the end of the year? Or is that kind of just an issue goes on progression?

We're probably a month away to be able to have 40 to 50 tables in a week. We're getting there. So recognize that the -- where we are, the people who had dealer experience were already well embodied at rivers in the [indiscernible]. And so we've had to reach out and be creative. So we are paying relocation costs for dealers who are experienced and might live in the middle of Wisconsin or something, and we're training dealers from scratch, and we are getting there. And by the way, we've learned from that in Colorado. So we're trying to get ahead of the game in Colorado. But in Colorado, the existing dealers at existing casinos are looking at our building, which kind of is pretty impressive in the town and drilling over the tips that they make at our casino. So it's probably an easier task. But even there, we are reaching out to dealers who might work at tribal casinos in Oklahoma and New Mexico, and so on. And so we're trying to be ahead of the game, so we make sure we have enough dealers to operate the full table game pit when we open in December.

Helpful, thanks. And then for winter sport, the Serta Sportsbet opened in September, just curious if there's kind of any marketing events planned and I would assume that would be on their expense some rain yours?

Well, the online -- the in-house circuit place, we share the income from it. And we haven't really worked out the details, but we would certainly publicize it and have some sort of event, but I don't think it would be particularly expensive. So...

Helpful, thank you.

Yes. I mean we'd be silly to open it and not publicize it, but it's not $1 million marketing cost. So Probably have time for one last question.

Time for all the questions, and it comes from John DeCree with CBRE. Please go ahead.

Hi, Dan. Hi, Lewis, thanks to squeeze in me here. Maybe two questions. And just to circle back to the topic today, which is the margin at Lachegan. I wonder if you could speak to where you think you can get the margin to at the temporary. And in that outlook, what's kind of the order of operations? Is it more cost normalizing on labor, preopening and marketing and some of the things that you've talked about? Or is the bigger driver of getting that margin up really the additional revenue that you'd expect as the facility continues to ramp?

A little bit of both. I mean, as the revenues continue to go up, and you can see from the numbers, the number of admissions are going up, the revenue per admission is going up. That affects our gaming tax, of course, higher revenues, the higher gaming tax, but it doesn't really affect the payroll very much. You have the same number of security goes. The slot machines are -- the revenues on the slot machines could go up 50%, and our payroll probably wouldn't go up 10%. And then on the marketing side, you gradually get more efficient. I mean marketing never goes to zero. But right now, we're trying to tell people in this new campaign that you can't judge a book by the cover. If you looked at the outside of the tent, you got to come inside and look at it. So there's that. And actually, in my last question, I want to point out that one of the challenges in Illinois is the way the regulatory system works is they go through lots of different checks and balances and so on. And all of a sudden, they're likely to say, okay, you can open the sport book. And so I didn't want to give the impression that we would have a great big party on the operated sportsbook. It's like literally you open the sportsbook and then you figure out how to advertise to people that you have it open. And so there will be some cost involved. I think the person who asked the question kind of says is they're going to be a marketing event. There'll be some marketing dollars. I don't know if there's necessarily an event. But it -- this all takes time. You also -- the other thing that happens…

That's a good point, Dan, on the time to get to stable margins. I appreciate that color. Maybe a more detailed question, just to sneak one in to the extent you guys can comment as you spoke to the database a little bit as that ramps up. Curious if you could give us any insight into kind of your rated play mix at the property now and at least maybe some primers, how has that ramped over the last, call it, quarter and maybe where is it relative to what you'd expect at stable or some of your other operations to kind of give us some insight as to how much more runway you have to really get that database working for you?

Well, we're already in the high 60s in Illinois. Some other markets were in the 80s.

For rated play?

Rated play versus total play. But that doesn't -- what am I trying to say, as you attract more people, you get more rated players as well and recognize that the 40,000 people, that's the total names we have. Eventually, you start to figure out some of those names don't come back, right? And other ones come in all the time. And so you -- even within the 40,000 people, you start to figure out, well, there's 10,000 of these people that are pretty important. It's like any other business, 80% of the revenues come from 20% of the customers. And so you keep getting smarter and smarter at figuring it out. And we have customers at some of our properties who are with us more than 100 days a year, they're in our casino. And you gradually learn who they are and what they like and what appeals to them and what's important to them. And a lot of times, they're either independently wealthy are retired, and it's just what they do for their entertainment. And -- but until you know who those people are, you're flailing around a little bit. And -- but that's part of the normal maturation of a new casino. So just like any other new business, I suppose, I mean, if you open a clothing store just because somebody came in and bought a tie, it doesn't mean you're going to see them every month. I don't know if does anybody buy ties anymore. But any way, you get the deal.

Thanks, Dan. Appreciated. Thanks, Lewis.

I think we're done.

Okay. Thank you, John. Thank you, everybody. We're very busy. And over the next six months, this will all normalize out. And we're very excited to get Chamonix open and then eventually to get going on permanent, but we'll get going when the time is right. So thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.