Full House Resorts, Inc. (FLL) on Q3 2021 Results - Earnings Call Transcript
Operator: 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.
Lewis Fanger: 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?
Dan Lee: 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 there last week. It’s getting pretty exciting. The foundations are largely in and the steel is supposed to arrive in the next 3 weeks and we will start going vertical. The first tower will top out in April and the third tower will top out in August and second tower is in between. So in the next few months – like all this construction, it usually seems like nothing is going on at first when in fact, you are moving utilities, which is kind of a big deal in some cases. In this case, we closed a street and an ally and there were storm sewers and things underneath those streets where you need to relocate those, because you don’t want to something like a storm sewer to be underneath your building because if something happens to it, you can’t get to it. And so all they have got relocated and putting in the foundations, lot of work. And then very quickly, it will go up. And then it feels like nothing is happening again, when in fact, there is lots of stuff happening inside, because you have electricians and plumbers putting in the all the stuff inside the building and then the drywall. And then at the last few months, it all comes together with the carpeting and the wallpaper. And at this point and there is some language in here that we are pretty careful about that we are seeking from City Council that permission to move back the opening date. We are not sure we are going to make December of 2022, which is what’s in the development agreement. We probably could, but then we would be incurring some over time and then that creates budget issues on the other side. So we are pretty comfortable that we will get that permission. And frankly, whether we open in December or April, it doesn’t make a whole lot of difference that’s the slow period of the year in Cripple Creek. And so we think we are going to be a little bit later than we had originally envisioned. I don’t think it changes much on the income side. We are also, at this point, the hard dollar construction costs are more than we anticipated, a lot of things moving around. I think if you talk to anybody involved with construction, they are facing the same challenges. The material costs are all over the place with the supply chain issues that are out there and the tariffs. We had tariffs on steel, for example. So you would have to get steel within the U.S. The steel companies charged a premium for their steel, because they didn’t have to compete. Now, the tariffs are off with Europe, but we have already ordered our steel, so that doesn’t help us. And lumber has been all over the place. And then the unemployment rate is low, so the subcontractors have had difficulty finding people. At this point though, we are getting quite a bit of the risk is out of it. About a third of our hard dollar construction is bids we have received that we have accepted from subcontractors. About another third are bids that we have received that we think we can negotiate and value engineer some down. So, it kind of is a cap on what we think on that schedule of work and about a third of the work has not yet been put out to bid. Based on where we are today, we are probably higher than our original estimates, but we don’t want to quantify that until we have a little more of the risk out. I don’t want to swing at this twice we want to make one adjustment. We are very comfortable that we have more than enough money to finish this. So, it’s not a financing issue. But at some point, when we have greater certainty, we will indicate what that is and make adjustments to the restricted payment account accordingly. Now on the flipside, the recent numbers in Colorado are very encouraging. In the month of September, for example, our income was flat. Our revenue was flat. And that’s actually, I think good given that we have no parking. The – all the surface parking lots at Bronco Billy’s has been using for 25 years and now taken up with our construction. And so we are trying to do valet parking from our front door. Most – all of our competition is convenient self-parking and we don’t at the moment. And yet we had flat revenues. The market – and we are probably the second highest revenue casino in the market. The market was up 16%. So, some of our competition is up more than 16%. Now, what changed – this is September this year versus September last year, what changed year-over-year? Two things, one is loss limits went away several months ago and one of our competitors opened a 100-room hotel. That’s kind of a Hampton Inn quality hotel. And so, the basis by which we are building Chamonix was that the elimination of loss limits and creation of hotel rooms would bring more people to town and boost revenues and that certainly seems to have been the case in September. But if you look over at Black Hawk and Central City, they were up 38% in the month of September. And the thing that changed there is again, loss limits. They tended to have a higher end clientele, because the Ameristar hotel is pretty high end amongst others. And then Monarch opened their 500-room hotel 6 months ago, at opening stages several months ago. But it was not open a year ago in September, it was opened this year in September. And so again, that showed that building a quality hotel can drive visitation. So in the overall picture, we are very confident in this. We did not want to go through and kind of eviscerate the quality of the hotel when we realized this was going to cost us somewhat more than we had originally envisioned. Instead, we are focused on building the quality hotel that we have always said it would be. And if it costs a little bit more, we are pretty confident we are still going to get a very good return on investment. So, I think that addresses Chamonix. And then there are two other development opportunities out there. Let me first address the quarter and then I will get back to those. The details in the quarter, in Mississippi, we had $6.5 million of EBDIT, essentially flat with last year. That’s despite Hurricane Ida, which closed us for several key days this year as it came through. We didn’t have any significant damage from Ida, but it did force us to close for a few days and a lot of our customers from the West did have damage. So, it was difficult to get to us in some cases. Nevertheless, we achieved flat with last year. And on a 9-month basis, we are $23 million which would be the best – ahead of – for the best year the property has ever had. In Indiana, we were $3.8 million versus $2.1 million, but $2.1 million of that was the sale of free play. The state has a progressive tax rate and you are allowed to sell – you are allowed to exclude from your gaming taxes, a said amount of free play each year. Since we are in the lowest tax tier, it makes sense for us to transfer that to parties that are in the highest tax tier. So every year for several years, we have sold our free play to competitors that are in the higher tax tier and that’s permitted under the state law and that was $2.1 million in the quarter. Now, we had exactly the same $2.1 million last year from the sale of free play, but it fell in the fourth quarter, not in the third quarter. And so we had one of those companies show up willing to pay it to us in the third quarter. We didn’t see any reason to wait until the fourth quarter. So, we took their money.
Lewis Fanger: And just to be very clear, we will not have that in this year’s fourth quarter, because it’s all been sold.
Dan Lee: 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 please come in and redeem your points. And when it was all done, we still had $400,000 of accounting accruals for points that had not been redeemed. And so we got a credit for that in last year’s number, but obviously, it was still down from last year and that’s the parking and the construction disruption and everything. And it’s going to be a challenged property for the next few quarters as we complete Chamonix. And for example, at this point, the hotel rooms that we had with 24 hotel rooms that were onsite, we don’t have any of those at the moment. I am sorry there were 36 hotels on that site. We don’t have any of those. Some of those are being used for the construction people. Some of them are being repurposed into the massage rooms and the new spa and some of them are being repurposed into other things in the property. And so the fact that we are continuing to do decent business there is a good thing. We don’t – the construction people would rather we just close it and let them do their stuff around it. We don’t want to do that. We want to keep our loyal employees and we want to keep our loyal customers. And – but frankly, they are putting up with a lot at the moment. We have actually torn down part of the building. We are about to close off another part of the building, moving things back and forth and up and down and – so we are operating a casino really in the midst of a big construction site. There is – on the Bronco Billy’s website, there is two webcams you can look at and you will see it’s the construction project is a lot bigger than Bronco Billy’s. In fact, it’s the biggest thing that’s happened in this town since they have discovered gold in 1890. So, in Northern Nevada, last year, that was the weak spot. It was doing better this year. We earned $1.5 million in EBDIT versus $1 million. The summer is the important season that is despite the wildfires, which were not near us, we weren’t in any danger of the fire reaching Incline Village. But the smoke blew our way and the smoke was as thick as fog in San Francisco on a June day. And so normally, the Labor Day weekend is pretty important. And with the hotel full and the casino full – and this year, the hotel was almost empty and the smoke was so thick, it was hard to breathe. And nevertheless, we made some decent money in Northern Nevada. And I will say the hotel in the quarter was sold to an entity controlled and I think wholly owned by Larry Ellison, the founder of Oracle. It is still operated by Hyatt under a long-term management contract. That’s a good thing. We have a long relationship with Hyatt and a good one. We have 2 years to go on our lease. We hope to renew it. And had they sold it to another casino company, we would have been out. The fact that they have sold it to Larry Ellison, I don’t think Hyatt or Mr. Ellison, are going to want to go through licensing. And as long as we operate it well in keeping with the quality that they expect then I think we are in good shape. And Mr. Ellison actually has a history of buying hotels and putting a lot of money into improving them. And it was in the newspaper that he paid $345 million for this hotel. He has a compound around the corner from the hotel that a newspaper article says his investment in that compound is about $100 million. So, this is a guy who is going to, I think improve the hotel and the fact that we operate the casino in it. Hopefully, that’s a win-win for everybody. It’s a phenomenal piece of real estate that he has purchased. And after he purchased it, I gave it some more thought. If I were in his shoes, I’d probably just retire. But if I were in his shoes and wanted to keep working, because he is worth something like $120 billion and god love him, but there are ways to build more stuff on that site. You got to satisfy the Tahoe Regional Planning Commission and stuff. But as I studied it a little bit – and if you just Google Earth it, you will see what I mean. For example, there is great Lakefront real estate as part of the Hyatt and a good chunk of that is used for surface parking lot. And so if you could figure out how to make better use of the land, it becomes a pretty interesting development opportunity. Now, you got to deal with the environmental rules that are there, but they are not there to say you can’t build they are to say how you can build. And so I am kind of encouraged about that. Then the contracted sports wagering, we now have 5 of the 6 sportsbook agreements up and running. We keep hearing this market is about to start in Indiana next week, but it always seems to be next week, we don’t get there. We don’t control it. So I think they are getting close. They are up and running in Colorado and then we will have all fixed up and running. And – we had something unusual in the quarter, did we not?
Lewis Fanger: No. No, that’s consistent with the last few quarters, Dan.
Dan Lee: 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 Board has reached out for answers to different questions that I had. And the Gaming Board has indicated that they hope to have a decision in early January. So if they choose us in early January, we will be scrambling to get a temporary casino open within 7 months. We said we’d have a plan within a month and we’d be open in 6 months. We’ve since been trying to figure out how to do that. We think we can actually do it even faster. And we would use a sprung structure actually, we were all a little surprised. We’ve seen other casinos that use sprung structures, and they are basically a type of tent. Turns out there is a company called Sprung Structures owned by a family whose last name is Sprung, who knew? But they started as a tech company 100 years ago, and they have done 12,000 of these. And they can erect a 40,000 square foot sprung structure, 50,000 square foot sprung structure in about a month. So you go in and you put done asphalt and you put down the platform floor and you throw up a sprung structure and you rang the slot machines to deliver 1,000 slot machines and bunch of table games. And for food service, we bring in half a dozen food trucks, hopefully run by local entrepreneurs, but if we can’t find local entrepreneurs willing to do that, which I think is – I think we can find local entrepreneurs, but we will do it ourselves if necessary. And we’re not going to bother to build a kitchen or anything like that for a temporary building. And in fact, we have a name and logo for the temporary because we want people to know that it’s related to the permanent facility, which is called American Place. So the name of our temporary will be is on temporary by American Place. We actually have kind of a fun logo with it. And then you can actually get everything thrown up and put together in like 3 to 4 months, then they got to hire a whole bunch of employees and train them and get the doors open. And so we think we can do that very quickly. And a year from now, we would be up and operating in a temporary structure and then working on the permanent one, which should take 2 to 3 years to go. So that’s Illinois. Meanwhile, in Indiana, the Gaming Commission or the state legislature actually had approved a casino in Terre Haute a few years ago. And only one party bid for that. We didn’t bid because there was a fellow that was very well connected politically. And we thought, well, we were busy with other things, and I’m not sure we could get it. And sure enough, he got it. But then his lawyer has been indited for making illegal campaign contributions and there are a number of issues. And so he was a lost – the key guy lost his gaming license in the state, has been kind of forced out of the industry. His partner was from Terre Haute and he was supposed to show how he was going to put together a management team and financing by a certain date. He didn’t make those dates. And so a few months ago, the Gaming Commission revoked his license, and he’s suing the Gaming Commission. But they started a request for proposals for a new operator to come in and build in Terre Haute, and they have four proposals. One of which is under the Hard Rock brand and includes the guy apparently whose license was revoked, I guess. And then Churchill Downs has a proposal, and then there is an individual, as casino in Mississippi, has a proposal. We set out to do something very creative with the unique design of the hotel based on buildings we’ve seen elsewhere in the world, we know of at least a couple that are shaped that way, and it’s kind of a unique curve to it based on interesting hotel and then a large greenhouse along the freeway with restaurants in it, which is emblematic a little bit of the new headquarters that Amazon has up in Seattle. They call it the Amazon Spheres. These greenhouses, kind of a thing these days. And there is also a TV show on Amazon – no, on Apple TV Plus, I guess, and the TV show is called Home. And the very first episode is about some due in the suburbs of Stockholm, who wanted to live in a Mediterranean climate. So he built himself a log cabin inside of a greenhouse. And it’s really a fun show to watch, and it’s got a very cool house. And I watched that show and thought, boy, if we did this on steroids, build a 25,000 square foot greenhouse and put a building in it that’s really a kitchen and we can have two restaurants inside this greenhouse, so you can sit in Terre Haute, Indiana in February in a Mediterranean climate and have lunch and that – the market isn’t just about Terre Haute, which is a – Terre Haute metropolitan area is about 150,000 people. But there is 2 million people in Indianapolis, which is about 50 minutes away. There are casinos that cater to Indianapolis, but they are on the east side, this is on the west side. And then there is also about 0.5 million people in other places like and Lafayette, Indiana that are significant small cities that don’t have casino. So it’s a pretty good market there, 100-room hotel, and it’s very unique architecture. We are the – our proposal has the biggest investment, probably the most job is most tax revenues, etcetera. There are four proposals. And we are scheduled to make all four are scheduled to make a presentation next Thursday?
Lewis Fanger: Wednesday.
Dan Lee: 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 , 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 built more casinos in Indiana than anyone else. They had built Belterra. And when I got to Pinnacle, Belterra had just opened and we added a 300-room addition which Wilhelm did the construction of. And then frankly, it was one of the smoothest construction projects I’ve ever been involved with. So we reached out for them to see if they’d be interested, and they are excited. And we’re excited at being able to work with them. Again, they are based in Indianapolis. And no, just – let’s make things simple. We’re in a statistical business. We’re one of two proposals in Waukegan, so maybe we have a 50-50 shot there. And we’re one in four in Indiana, but we’re, frankly, the biggest proposal. So maybe we got a 50-50 shot there, too. And if you have a 50-50 shot on two independent statistical events, we will test you all, but we’re in a statistical business so this is the second nature to us, then you have a 25% chance of getting both. You also have a 25% chance of getting neither. And so have a 50% chance of getting one or the other. So we have a 75% chance of getting one or both, and a 25% chance of getting neither. In which case, we’re still pretty busy building out Colorado, and we will figure out something else to do with the reinvestment of cash flow down the road. And so that’s where we stand. Do I miss anything?
Lewis Fanger: No.
Dan Lee: And on that, I guess we’re ready to take any questions.
Operator: We will take our first question from Ryan Sigdahl with Craig-Hallum Capital Group. Please go ahead.
Ryan Sigdahl: 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?
Dan Lee: 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 mail and some of that money ended up in our slot machines. And no, it wasn’t a huge part of our earnings, but you definitely saw it that week. And it’s going to be interesting as all this money is spent on infrastructure. Well, we have some high rollers who are in the business of building roads and bridges and so on, right? So I mean the sthat money is not being spent blowing up things in Afghanistan. The fact that the government is now focused on building stuff within the U.S. ultimately, could be good for us. And the next deal that – and look, whatever your apologies, when the government starts cutting whatever it is, $3 trillion worth of checks over the next 10 years, now do they find a way to pay for it? I don’t know. If they tax the heck out of Jeff Bezos and Elon Musk, well, they are not customers of ours. And if they use that money to go build a freeway near us, that might benefit us. I mean – And if they spend the money without raising the money, we end up with inflation. So I don’t know. But at least looking forward, I think the economy is likely to continue to be robust because you have so much of spending going on, and it’s not really being called stimulus funds, but at the end of the day, it is a stimulus for the economy. So I’m feeling pretty good about life, at least looking forward in our business.
Lewis Fanger: 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.
Ryan Sigdahl: 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?
Dan Lee: 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…
Ryan Sigdahl: Good. One more and then I will…
Lewis Fanger: , Ryan.
Ryan Sigdahl: 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?
Dan Lee: I was talking about the...
Lewis Fanger: 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.
Dan Lee: 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?
Eric Green: 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…
Dan Lee: 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%.
Lewis Fanger: 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%.
Dan Lee: Plus 23%, so.
Ryan Sigdahl: Got it. Helpful. Thanks guys. Good luck on the casino proposals here, and we are here to hear what happens. Thanks.
Lewis Fanger: 8 days – 9 days away – 8 days away. I can’t – 9 days away, anyway.
Dan Lee: 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.
Operator: Thank you. We will hear next from Chad Beynon with Macquarie.
Jordan Bender: 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?
Dan Lee: 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 that point, the bonds that we issued last March start to become callable. They are not callable today. They could be redeemed, but on very expensive terms. And so we are kind of we sit and ruminate about all the different things we could do to get it financed if we get one or both of these licenses. And so for example, if we got Illinois and only Illinois, we do have a kind of back step deal with a large private equity firm who would come in as a partner on it. But we can probably finance it cheaper on our balance sheet. We would have to pay them a breakup fee. And frankly – automotive breakup fee. And they are actually a friendly firm of ours, and they said well, they would be fine with that, but they would then like to buy a big chunk of the bonds, which is okay, we can probably make better work. So, when we know if and when we are chosen for either of these, then we can figure out what we need to do with our balance sheet. I am pretty comfortable that we could figure out how to do both. Yes, just look, early in my career, we were just completing Treasure Island when I went and bought the land for Bellagio. And when we proposed Bellagio, it was $1.5 billion. And we didn’t have the money, but we were comfortable we could get it. And ultimately, we got it, that’s made $500 million a year ever since. And it’s kind of the same thing here. Both of these projects make really good sense. Just to give you – if you go to the Illinois Gaming Board and look at the numbers coming from the Rivers Casino in Des Plains, they have not yet finished their expansion, so they are still sitting on somewhere – they probably added some slot machines, but I think they are in the ballpark of 1,500 slot machines. And they are doing $50 million a month. And the Hard Rock casino over in Gary, which has been open several months now is doing $25 million a month in revenue. And both of these proposals were making – are last year more innovative casinos than either of those. Now the Des Plains casino has incredible demographics. Well, Waukegan are good. They are not as good as that. But we think both of these are really good opportunities. And if we are chosen, we will get a finance and get it built, so.
Jordan Bender: 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?
Dan Lee: 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.
Lewis Fanger: 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.
Jordan Bender: That is helpful. Thank you. I am going to pass it off.
Dan Lee: Perfect. Thanks Jordan.
Operator: Thank you. We will take our next question from Larry Haverty with LJH Investment Advisors.
Larry Haverty: Hi Dan. Hi Lewis.
Dan Lee: Hi Larry.
Larry Haverty: 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?
Dan Lee: 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 revenues as best as they could. And you kind of knew at some point, they could they could turn that fast as that expense cost at off and they would be pretty profitable. And the same thing is true of the sports betting operators if they can get stabilized and get people signed up and they will equalize. At some point, they will stop that advertising, and it will be a highly profitable business. But at the moment, they are all scrambling to try to build our share. We are not in that directly. We get a percentage of revenues in each of our agreements. We are kind of allowing people to kind of park on our licenses under these 10-year deals. And the minimums in our contracts are high enough that nobody has exceeded the minimums as of yet. Now one of our – two of our agreements are with Wynn, and Wynn is starting to advertise pretty heavily. And of course, they have a great brand name. And so I think they will gain some market share. Churchill Downs is another one of the people we deal with has been more conservative in their marketing. And then Chamonix is only up in Colorado, not yet up in Indiana. And they are a private company that’s pretty significant out of the UK. And I think they are kind of sitting on the sidelines to see they will get tooled up and be in there. You don’t have to have a big market share in this to be profitable. And so even if you have a 2% market share, if you run the business right, they can be profitable even after paying us our fee. Now when you go to online gaming, it’s not yet legal in the states we are in, but we expect it to be. It is up in a few other places, not just New Jersey anymore. And every place is up and running. It’s doing well. And that’s a business that we could do ourselves. – and we could do it with others, and it might end up being a hybrid where we license some of our skins and we keep our skin ourselves and export it. We chose not to do sports betting on our own because we are not diverse enough geographically to have an even playing field. In other words, if the Denver Broncos ended up and the Super Bowl with the Dallas Cowboys, if I have this right, then we would have a lot of bets on the Broncos and we wouldn’t have anybody betting on the Cowboys, and we could try to move the line, but then we wouldn’t be giving our customers in Colorado as good a bet as they could get from our competitors. And so it was a difficult thing for us to do. Don’t have that issue in online gaming. Now we don’t have the expertise in the company for how do you market online. You can you can hire people to do that. You can buy the software at least the software to have the website. The slot games themselves, they are owned by the slot companies. They license those pretty readily. So, it’s – we don’t have a division here yet. It’s not yet legal in any state we are in. But it is something that we would consider doing on our own if it’s legalized in one or more states that we are in. And we think it will be like literally Indiana and Colorado might only be a year away and Illinois is not very far off that either, so.
Larry Haverty: 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?
Dan Lee: 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…
Larry Haverty: No, your CapEx, you are spending, not how much you expect to make. How much you are firmly committed to spend?
Dan Lee: 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.
Larry Haverty: Money is pretty close to free right now, though. May prove to be smart to be a buyer.
Dan Lee: The other side, I was saying is Monarch, on their earnings call recently, said that they think they are now the most profitable casino.
Lewis Fanger: Not yet, but – that they will be.
Dan Lee: 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.
Larry Haverty: Okay. Good luck with it.
Dan Lee: Thanks Larry, nice to hear from you.
Lewis Fanger: That’s probably all we have time for, Dan, so we will close it up.
Dan Lee: Okay. Thank you very much, everybody, and it’s going to be an exciting quarter. Thanks.
Lewis Fanger: Thanks, everyone.
Operator: Thank you. That does conclude today’s conference. We do thank you all for your participation. You may now disconnect.
