Full House Resorts, Inc. (FLL) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day, and welcome to the Full House Resorts First Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Lewis Fanger, Chief Financial Officer of Full House Resorts. You may begin.
Lewis Fanger: Thank you, and good afternoon, everyone. Welcome to our first quarter earnings call. As always, before we begin, we remind you that today's conference call may contain forward-looking statements that we're making under the safe harbor provision of federal securities laws. I would also like to remind you that the company's actual results could differ materially from the anticipated results in these forward-looking statements. Please see today's press release under the caption Forward-Looking Statements for the discussion of risks that may affect our results.
Daniel Lee: Yes. You did a lot of things. notes in a little pre willing here, but I'll add a little color to what he said, he covered almost everything. But the -- in Mississippi, part of why we're doing so well as we refurbished the casino in 2019, upgrading the casino in the buffet quite a bit. I mean it was always nice. We made it nicer. And then there was no Mardi Gras, this year in New Orleans. And normally, that's a strong period for us because people in New Orleans get out of town because it's such mayhem and some of them come to us. So that -- the fact that there was no Mardi Gras might have actually worked against us. And despite that, we did well. Third, I'll mention that the -- back in October, we had some damage from a hurricane, that's been repaired for the most part. But as a result of those repairs, we're repainting the building. And for the most part, that's being paid for by the insurance coverage. And the painting -- the building will have a different look. We picked up a completely different color scheme we thought as long as we're painting it. If we change the color scheme to actually -- we picked the colors of the shutters in Santa Monica Hotel, it will effectively refurbish the outside, if you will, and that's underway, as we speak. So we've been working on this expansion. And the property was not designed really to be expanded, and it's a little bit land locked. So it's a little complicated. We figured out the best way to expand it was on a peer out over the water. So you built a pier like the Santa Monica pier and you put a hotel tower on it. It's actually not that hard. Everything down there is muddy. So everything has to be built on pilings anyway. So the pile driver can be on a barge just as easily as it can be on a truck. And the Gulf of Mexico is quite shallow. So it doesn't really matter. Yes, obviously, have to design fire exiting in certain ways and so on. But we've done that.
Lewis Fanger: $220 million roughly.
Daniel Lee: $280 million of cash today. So we're in pretty good shape. So I guess that's it. Am I missing anything? I guess, we'll take questions. And maybe that will point out other things I might have missed.
Operator: . And we'll take our first question from Ryan Sigdahl with Craig-Hallum Capital.
Ryan Sigdahl: Nice quarter. And Dan glad to have you back on here and here you're doing better.
Daniel Lee: Yes. For those who might not know, I crashed on a bike getting some exercise and broke my collar bone, so I missed the last earnings call. But I'm back, I no longer have my arm in a sling and have not yet getting on a bicycle, but I'm getting there.
Ryan Sigdahl: Good to hear. And I always appreciate the color. Curious how trends have been in April and thus far in May on gaming revenue and then margins as well. I know you said structural margin improvement, you expect that to hold. But can you comment a little bit what you've seen thus far post quarter?
Daniel Lee: Yes, it's been strong. I will tell you the -- when we did that equity offering with you guys, if you recall, we very carefully told people that we were comfortable with estimates that had us at $10 million of EBITDA in the first quarter. And we did that deal maybe 2 weeks before the end of the quarter. So you still don't know. But then the stimulus checks came out, we ended the quarter with a flourish, and you can see that in the results because if 10 weeks into the quarter, you think you're going to do 10, and you end the quarter with 10.8, something happened, right? And that continued into April. We're hoping the government will send out stimulus checks every month forever. That would be , right? Of course, that won't happen. But we did have a -- it has continued in April. And we've stayed strong. We haven't seen a slack yet. So -- and so I would not expect the results of April to be continued through the year, though, because we don't have stimulus checks all the time. I think we get back to a more normal pace of -- like if this quarter had been $10 million, that would have been on track for like something in the low 40s for the year. And I think that would be -- if you were to take like the last week of March and the first week of April and extrapolate it, you'd have us at $60 million or $70 million a year, and that's just not likely to happen. So -- and it varies a little bit from property to property. But in general, businesses stayed strong, and we're sticking to the new model. I mean even though governments have loosened up on some of the rules. And in some places, we're allowed now to have more slot machines, and we no longer have to require face coverings in certain markets and so on. But the basic thing of being very careful on what we spend on payroll and on marketing costs, that's not changing. And so we've been able to hold similar revenues to the past with much less cost, and that's why you see the improvement you see, and that's continuing.
Lewis Fanger: If it's helpful, Ryan, generally, Mississippi, Indiana continue to do well. Colorado is dealing with the parking issues that Dan mentioned, although has been dealing with those issues pretty well. Now part of that is having people, valet cars versus no valet at all before. Part of that's running shuttle buses from a distant parking lot to the property. So there are some incremental costs there and a little bit of construction disruption that will -- that we're trying to manage through. And in Nevada, Stockman's, knock on wood, but the county that Stockman's is in has been -- it feels like it's largely out of the woods with the pandemic. And so it feels like the restrictions on that base are probably going to start easing sooner versus later. And what we hear from the Hyatt over at Grand Lodge is that could very well be a very robust summer season for them. So while Nevada has lagged, knock on wood, there are hopefully some signs that we'll start to see that go the other way in the next month or two.
Daniel Lee: By the way, if you look at the website in Colorado and see the building that were the out there is clearing out today. That was actually part of the Bronco Billy's casino. It was probably 15% of it. We have now torn down. And so now that we have plenty of slot machines to do the revenues we're doing. And it's not -- what a casino revenues are based on the number of people in the place, not based on the square footage. So I don't think that will have an impact on us, but we didn't tear down part of the casino. So that's a function.
Ryan Sigdahl: So good. Helpful. You mentioned, Dan, that certain properties, thinking Mississippi restrictions have lifted, no more face masks, et cetera. Have you seen a change at the silver slipper traffic kind of pre and post those restrictions lifting?
Daniel Lee: The biggest change we're seeing, which is heartening actually, is our oldest clientele, like 60 and over, which has always been our most important segment and really at every one of our properties. We were off about 30% in those -- in the number of visits and what they were spending per visit was off pretty sharply at the height of the pandemic, and it now seems to be coming back. And so with -- our task is to try to hold on to the younger clientele, who were new to us and during the pandemic offset the absence of seniors and then try to hold on to them and get the seniors back and so far, we seem to be doing that reasonably well. It's a little hard to figure out when the government suddenly shoves a lot of money out and all that stuff. But the most -- the biggest thing we see is as people have vaccinated older people are willing to come back. They were the ones who were most at risk and most frightened about going out. So our most careful. So I think we're doing better.
Ryan Sigdahl: And then on Colorado with amendment 77 passing. Have you added new games to Bronco Billy's? And then secondly, on Bronco Billy, it sounds like construction, et cetera, should we expect probably Q1 to be the high watermark there just given those challenges? Or do you think it can grow right through that sequentially?
Daniel Lee: No. This is -- it's a seasonal property. So the third quarter is seasonally the most important. And so I expect our third quarter to be well above that. I mean that property will probably make something like $8 million this year and did $1.7 million in the first quarter. So -- and frankly, the surface lots we're getting are very large surface lots, right as you're coming into town. And we'll have signers there saying, Park here, South Park for Bronco Billy's, and we bought 2 shuttle buses. And so we think we can offset this. But these were surface lots that were used once before for odd technical reasons, you had to get City Council approval to use them again. No question, we'll get that approval. But it's a process. And technically, what the process is, is there's zoning in town and casinos are not supposed to have surface lots outside of the casino zone unless it's been approved by City Council. So even though this was used once before, it's outside of the casino zone. And so we need City Council's approval, which means you get a post at the newspapers, sometimes advance, et cetera, et cetera. So that process is ongoing. And I believe we have access to those lots within the next week or so, and that will help quite a bit. And then people actually, frankly, get excited about the new place. And the fact that they can accumulate points of Bronco Billy's and redeem them at Chamonix when it opens is a big plus. So I think Bronco Billy's will do fine. The disruption is probably was worse in this quarter than it will be in the future quarters. And so I'm not overly -- I mean from this, I'm not really concerned, but I am attentive. In other words, we're the ones looking at it. I was the one who months ago said, we need to figure out how to do valet parking. We need to find surface lots. We need to do this, do that, do this, do that. I went out and bought Carr Manor, so they have a place for guests. So we are being attentive to do things to offset the disruption. And if we didn't do those things, we'd be hurt. And most of those things cost us some money, but not big numbers. I mean you can do the math. If you have 2 valet parkers, three valet parkers and a couple of shuttle bus drivers, a bunch of hours a week, it's low hundreds of thousands of dollars a year, not for a placemaking $8 million a year. It's not that big a deal.
Operator: We'll take our next question from Chad Beynon with Macquarie.
Chad Beynon: Congrats on the quarter. Wanted to start with construction cost on Chamonix, just given the inflation and the cost of materials. Can you just remind us, I believe, most of the project is prefunded. But can you just kind of frame out this $180 million, what is static versus dynamic and how we should think about that?
Daniel Lee: Well, it is all pre funded. It's about $180 million from here to completion. And in there, there's a contingency, which was $12 million, $10 million? We will size contingency in now. Okay. And now we're early in the process, and we are -- we had assumed that there would be challenges in material costs and challenges in labor. Unemployment rate in Colorado is quite low, and we're an hour up into the mountains. And so when I see different states talk about scaling back on the surplus unemployment benefits, that might actually help us find labor. But those are challenges, and we're dealing with some of those. And we're early enough in the process that you're finding -- trying to find changes that you can make to offset that. So for example, our engineers discovered, we could use micro piles instead of spread footings that saved us some money to offset some of those other things, but it's quite early in the process. And now as a practical matter, let's suppose we blow through the contingency and go 10% over. So it ends up being a $200 million project instead of $180 million project. We will generate $20 million of free cash flow while it's being built. And we're sitting on a bunch of extra cash from the other equity offering. So it's not -- and I'm not saying we're going to have an overrun. We're fighting those battles now. But it's kind of nice to know that if we can't find solutions, and we did have a small overrun, we have liquidity to fund it. But we are fighting our way through that now with issues like, well, what sort of furniture do we have in this place? Do we have expensive woven carpets or maybe a less expensive carbon and so on. So that's just part of the process, and we've gone through it with every project they've ever done from a place in Argentina to Bellagio. There are places in Bellagio that we're going to have like marble mosaics and it ended up being carpeted. And the customer doesn't really know. But that's where we are. And so I'm pretty sure we're going to be at that number, and we're working to get to that number.
Lewis Fanger: So $19 million for contingency, Dan, which is about 15% of the hard construction costs.
Daniel Lee: That's what it was. There are some challenges. I mean, for example, when you find the person, what is up a lot. And so in some places, we're going to use like gauge steel instead of wood. So you go to look for those things. You may have been assuming that you're going to use some wood in certain areas. And we explored for a while using modular construction where you could build some of the hotel rooms in a factory in another city and truck them in and stack them into place. That's a new development that I know Marriott, in particular, is trying to use more and more for their budget hotels. And we spent a fair amount of time looking at that and concluded that with the transportation cost to get it up to Cripple Creek, at the end of the day, we didn't think we saved enough money to go through the trouble. And so we're kind of back to not doing modular. But we explored that pretty hard thinking it might save us money and concluded that it probably doesn't.
Chad Beynon: So. Great. And then in the camp of something that could come in on the right side of expectations. Lewis, thanks for breaking out the annual online gaming in your income statement. That certainly helps us. Just want to talk without getting into the economics of the deals that you have with your skins partners, certainly, the expectations for sports betting and iGaming, I think have increased recently by most analysts, particularly on the iGaming side. Is there a chance if that rate continues to rise, that you could actually be generating more than the $7 million of guaranteed revenues based on what you're seeing with your partners and what you're seeing with analyst estimates increasing within ?
Daniel Lee: Yes. You have two questions within there, really. Each of our deals are slightly different. We get a slightly different percentages on each and then subject to a minimum guarantee. So I will tell you, one of them has a higher percentage of revenues that we would get, and another one is lower. So for us to exceed the minimum guarantee, you kind of root for the guy with a high percentage to get a significant market share and exceed the minimum guarantee. Now our skins were all introduced a little late, FanDuel and DraftKings have the dominant market share. So at this point, our guys have lower market shares. But we know that each of our three partners have different marketing plans that they haven't really ramped up yet. And so wind, for example, is a great brand right there. And we think when they take the gloves off and start competing, they'll start getting some market share. Smarkets has a very unique way of operating in Europe. They know how to do this. They haven't taken the gloves off yet, right? And so we'll see. But I wouldn't anticipate us exceeding the minimum guarantee for the next year, maybe not even the year after that, we may down the road, but I don't think it's in the next few quarters. Now on the flip side, as we negotiated these deals, every one of them wanted to have lock up iGaming, and we said, no, we said we can negotiate that when the time comes, that's actually a bigger market in New Jersey, where they've had both iGaming is 2x what mobile sports betting is. And that's something we could actually do on our own because you're not -- in mobile sports betting, there's an awful lot of bet on individual games. So if you had the Denver Broncos against the cowboys and the Super Bowl, we'd have a lot of bets on the Broncos and not on the cowboys, and we could get screwed. And so we chose not to do that on its own. When you have iGaming, that's just playing a slot machine online. And that's the business we're already in. It's a large number of independent statistical events. Now if it happens, as it did with sports betting, and we think that's possible, you'd have 3 skins in each of Indiana and Colorado. And maybe we do 2 of those with some of our existing partners, and one of them we keep for ourselves. And -- but that would be over and above the $7 million a year, and it could be substantially more than $7 million a year if that happens. And the other thing is in Illinois, if we were chosen, well, Illinois has a much bigger population than either Indiana or Colorado. So if we're chosen there, we would -- Illinois is also going to have mobile sports betting and probably iGaming somewhere in the not-too-distant future. And so that would be a pretty big positive on that contracted wagering line that's apart from the project in Waukegan itself. Now Mississippi will probably eventually also have mobile sports betting. Population of Mississippi is only a couple of million people. There's a lot of casinos there. So -- and the same thing with Nevada. We could do it today in Nevada. We haven't. We're a pretty small companies, a lot of big companies in Nevada, and the population of Nevada is only 2.7 million people. And so the big opportunities are the -- Colorado is 5.5 million people and growing fast; Indiana is 5 million people; and Illinois is 15 million -- 12 million people. Alex, what's the population of Illinois?
Chad Beynon: .
Daniel Lee: Yes. And it's a much bigger deal.
Chad Beynon: So great. Congrats on the work in the quarter.
Lewis Fanger: Thanks, Chad.
Operator: . We'll hear our next question from John DeCree from Union Gaming.
John DeCree: Dan, good to hear you again on the call. Just one for me. I think you covered quite a bit of ground. But Dan, I was hoping you could maybe elaborate a little bit more on the puts and takes and on-demand that you've seen in March and April. I know you've talked about stimulus checks, that's an obvious one. But I was wondering if you could characterize familiar faces in that older demographic that you've seen. I think a lot of your peers have said that, that customer is starting to come back, but there's still an opportunity. You're still seeing an opportunity in maybe converting unrated play at a rate of play. So as you think ahead in stimulus checks wane, where do you see some of the other demand drivers coming as it relates to pent-up demand?
Daniel Lee: Well, I think the biggest thing is the seniors coming back, and I would characterize that, as you just did, that it's starting to come back. It still has a ways to go, but it is starting to come back. And it's starting to come back pretty solidly. And we do that just by -- we have it in the data base. 85% of our play is tracked. And so it's pretty easy to look at what are the people who are 60 and over. Are we seeing them more often than we were last quarter than we were in the third quarter? And how does that compare to 2019, we're not yet back to the 2019 levels, but we're doing better than we were at the low part of the pandemic, low in terms of those -- that segment. And then we have had a focus for a while now of making sure that younger people who show up we get them to sign up on our databases. And so we've installed marketing kiosks in Indiana. They're not yet up in Colorado, but they're coming. Looking at them for Northern Nevada, and we've had them for a while at the silver slipper. Similar to what stations casinos has out here that incentivize you to sign up, you can literally walk up to the machine, put in your driver license, get a card in some states, not in Indiana yet, but in some states, they make it very easy to get a card, allows us to have less payroll at the player club because the kiosk handle it. And so that's all kind of part of trying to do that. And some of this other study, I mean, we're doing well, and we're not marketing as much as we did -- we're not spending as much on marketing. Now it's much more targeted. And I think that's helped us a lot. And -- but I also think there's other things like the working from home, the studying from home like in Las Vegas, the weekends are busy, but midweek is still empty because there's no meetings and conventions. It was interesting doing these roadshows for the debt deal and the equity deal because historically, you would have chartered some airplane, you would have been all over the country. Limos buying you guys the crummy chicken lunch is it's an expensive hotel. And it's a really grueling that you would do. And in the new world, we sat here and did 12 Zoom calls a day. And it was far more efficient for us and far more efficient, I think, for the portfolio managers than the shenanigans we used to go through. And now that everybody is getting vaccinated, I don't think you'll go back to the traditional road shows, right? Because everybody saved money and was more efficient with their time and you got the job done, right? Well, that makes you wonder I think some of these conventions, the employees looked at them as boondoggles, and they justified it to their management that, hey, we need to send out a team to operate this booth in Las Vegas because it will help our sales. And what they're really thinking is we want to go get drunk. And so now as the pandemic is over and you're the person at Microsoft in charge of that travel budget, you might be a lot more hesitant to loosen up and let people go. And so I think that's going to be the most difficult segment to come back here, and it may take years for it to come back. And yet that person who might want to go to a convention because they want to gamble once in a while, they can't go to that convention, and they say, well, they can go up to Cripple Creek and gamble or they can go to the Silver Slipper and gamble. And it's the same slot machines, the same table games, the same experience. Also, I think people working at home. And I joke about the person on the Zoom meeting sitting in a slot machine, but it is entirely possible, and you can put a false -- well, I'll tell you, if you've been on a Zoom meeting with me, you see a backdrop that looks like my office with a very clean desk. I cleaned my desk up and took a picture of that, and that's my background. Okay. And so you wonder how many people have a backdrop like that, and they're actually sitting in a slot machine in Rising Sun. But you don't know. But you also do know that if they're not commuting, they have a new found 1.5 hours in their day on average. And yet at the end of the day, you want to get out of the house at some point. And so having these regional casinos that are convenient to people, it's like, I've been in this household. I need to get out. I need to go somewhere. Where can you go that's open 24 hours a day, 7 days a week, well, go to our casino. And so I think that has been a function. So I don't know what else to say. I mean our business has been good. Frankly, recently, our business has been really, really good, but I'm hesitant to like project that because I don't think stimulus checks are going to come out every month. So we may offer some stimulus cocktails and hope that it catches on, but I don't know.
Operator: At this time, that does appear to be the conclusion of our question-and-answer session. I'd like to turn the conference back over to Dan for any additional or closing remarks.
Daniel Lee: No, that's all. We're going to keep plugging away. I think this is one of those things I've learned in my life, if you go to work every day and you try to make more good decisions and bad. You eventually built a pretty good company. And I think we're well on our way there. So we're just going to keep doing what we're doing. So thank you, everybody.
Operator: Thank you. That does conclude today's conference. We thank you for your participation. You may now disconnect.
