Ladies and gentlemen, good day, and welcome to the Full House Resorts Second Quarter Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Lewis Fanger, Chief Financial Officer of Full House Resorts. You may begin.

Thank you, and good afternoon, everyone. Welcome to our second quarter earnings call. As always, before we begin, we remind you that today's conference call may contain forward-looking statements that we're making under the safe harbor provision of federal securities laws. I would also like to remind you that the company's actual results could differ materially from the anticipated results in these forward-looking statements. Please see today's press release under the caption Forward-Looking Statements for the discussion of risks that may affect our results. Also, we may make reference to non-GAAP measures, such as adjusted EBITDA. For a reconciliation of those measures, please see our website as well as the various press releases that we issue. And lastly, we're also broadcasting this conference call at fullhouseresorts.com where you can find today's earnings release as well as all of our SEC filings. And with that said, I'll be really brief and then turn it over to Dan. But this was another very strong quarter and a great first half of the year. Adjusted EBITDA for the second quarter was $14.9 million. This is now our fourth straight quarter of very strong results. The reasons behind it you've heard over the last several calls and they haven't changed. But the short story is we've revamped our cost structure in part by investing in new slot marketing systems and other technology, and we continue to think that these changes are sustainable in the long run. And so when you look at adjusted EBITDA for the first half of 2021, that number sits a little north of $25 million. And if you look at the last four quarters, we're just shy of $48 million of annualized adjusted EBITDA. The one segment that is a little slower in rebounding from the COVID shutdown last year was our Nevada segment. It feels like we crossed that bridge in the second quarter with guests returning to the Hyatt Complex that houses our Grand Lodge Casino and visitation to Fallon’s Naval Air Station also starting to return. With regards to our sports skins, we have two more launch during the second quarter, that brings us up to five skins that are now live out of a total of six. Those five skins represent $6 million of annualized contractual revenue. The last remaining sports skin is Smarkets, and it feels like they should be launching very soon in Indiana. The Gaming Commission, of course, has said that any company can launch in the state, but it does feel like we're on the home stretch there. When that last skin launches, it will add another $1 million of annualized contractual revenue, giving us a total of $7 million per year from our sports skins. And then the last point I just wanted to make was on our cash position. That continues to be in very good shape. Sitting here in real time, we have about $283 million of cash and restricted cash. A little more than $176 million of that is reserved for the construction of Chamonix. Of course, we'll start to use some of that cash balance as construction on Chamonix continues to ramp up. But do remember also that outside of that project CapEx, our business generates some pretty meaningful cash flow. I know Dan can have a lot more important points for you, so I'll turn it over to you, Dan.

This quarter has presented some challenges in terms of comparing our results to prior years, particularly with the second quarter of 2021 against 2020, when we were mostly closed. This leads to complicated comparisons, which is why we have included the 2019 figures in our supplemental information, as they offer a more relevant benchmark given that operations were fully open during that period. In Mississippi, for example, our adjusted EBITDA reached nearly $9 million, which marks the best second quarter in the property's history. This is a significant increase from the $3.6 million in 2019. In Indiana, we achieved $2.7 million in adjusted EBITDA this quarter compared to $600,000 in 2019, showcasing strong growth. Colorado saw an impressive $1.8 million against $876,000 in 2019, potentially marking the best second quarter in Bracco Billy's history. Northern Nevada also performed well with adjusted EBITDA of $1.4 million compared to $400,000 in 2019. We also added $1.5 million from contracted sports wagering income, which we did not have in 2019, resulting in an adjusted segment EBITDA of $16.4 million, up from $5.5 million in 2019. Corporate expenses rose to $1.5 million, influenced by an income-based bonus plan that assumes year-end bonuses will be paid out, reflecting a solid quarter overall—essentially matching our total earnings from the entire year of 2019. We are committed to maintaining this momentum, with part of our strategy including the slot system that has already been implemented in Colorado and Rising Sun, which we will extend to Northern Nevada in the fourth quarter. This system enhances customer experience and provides us with valuable marketing data to improve our efficiency. Construction on Chamonix is progressing; we've erected a large tower crane and are laying foundations. While we face challenges typical of construction, including fluctuating lumber prices and tariffs, we have a $180 million budget and aim to open by the end of 2022, though it may slip to early 2023 if necessary. As we evaluate our costs further, the projected expenses could rise to around $200 million based on initial bids. We’re also considering adding 70 rooms to the project, contingent on city approvals, as we believe the market can support this expansion. At the Silver Slipper, we are pursuing a unique opportunity to build a hotel tower over the Gulf of Mexico, which would require leasing land from the state of Mississippi for up to 60 years. This project would ideally enhance our hotel offerings adjacent to our casino and is supported by the state due to the anticipated increase in jobs and revenue. In Slidell, we are monitoring a proposed casino that we believe will not impact us significantly, supported by local opposition and a conservative voter base. Our current competitors include several established casinos, and while we are prepared for competition, we feel confident in our position. In Waukegan, we're waiting for a decision from the Gaming Board, which has delayed due to COVID-19. With a consultant now involved, we anticipate presentations to take place later this year. Lastly, we are looking into a potential development opportunity in Terre Haute, where a previous developer has failed to meet milestones, opening the door for new proposals. We are paying close attention as we prepare to submit a proposal.

I think we're good, Dan.

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

Let's take some questions.

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

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

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

No, that's good.

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

Absolutely true.

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

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

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

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

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

I'm supporting them. I've visited Resorts World and seen some of their offerings. It takes time for consumers to really embrace it. I recall when MGM opened in the 1990s, they had a part of their casino where the slot machines didn't accept coins. It was a paperless system, and it didn't work out. Then, a few years later, IGT introduced the ticket-in, ticket-out system, which is essentially the same concept or a variation of it. Now, no one uses coins anymore; customers are used to that. I believe it will eventually become entirely cashless. Resorts World is essentially testing some of this. It would be great if we could eliminate chips altogether. Counting chips is a costly process, and when you're finished gambling at a table, we could give you a TITO ticket that you can take to any regular redemption machine or use in a slot machine. If you leave today with chips from a gaming table and head to the cage, you can’t use those in the slot machines. Much of this is on the horizon, and we'll adapt to it quite swiftly once the technology is proven.

Dan and I frequently discuss the advantages and disadvantages of these systems. Focusing on the Resorts World system, I find the table game aspect particularly intriguing. While evaluating the slot machines, it's clear that there are advantages to not having to manage the frequent drop of slot machines and minimizing the cash that remains idle on the floor. However, if you were to visit Resorts World now and wanted to play a slot machine, it is unfortunately still easier to insert cash directly into the machine than to load e-credits and think of your phone as a slot machine and deal with all that process. We are closely monitoring all aspects of this situation. Table games are certainly appealing. We'd love to implement the full casino experience, but it's still early in that entire process.

We're not quite there. At Resorts World, you need to open an account and transfer money to it for cashless transactions. However, soon you'll be able to walk up to a machine and Venmo money from your phone directly into it. When you're finished, the money can be credited back to your bank account. This is not a technological issue but a regulatory one that requires approval from the regulators. Additionally, the fees associated with services like Venmo can be problematic due to the high volume of money in and out of a casino; significant fees are not feasible. In the past, stores had minimum transaction amounts for credit card use, but today you can charge a small coffee on a card. This situation is evolving and it's a positive development. Furthermore, online gaming is on the horizon, with states like Colorado and Indiana likely to implement it soon, and we're involved in both markets. From our experience in New Jersey and others, we believe the online gaming market is larger than online sports betting. We're keeping a close eye on this, and we anticipate it will come to Illinois swiftly as well.

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

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

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

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

Let me take the first.

Yes, the last one first.

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

We're seeing bids coming in about 10% to 15% higher than our initial estimate of $180 million. This estimate includes a $19 million contingency, which is meant to cover some uncertainties, but it's still early in the process to rely on that. We've only put a small part of the project out to bid so far, and we're making efforts to bid more of it out and secure those contracts. While it's still uncertain, I would estimate that the final cost will be closer to $200 million instead of $180 million. If we decide to include additional rooms, that could increase the total to around $225 million to $230 million. On the bright side, we've always been cautious in our earnings estimates. We expect Ameristar to generate approximately $85 million to $90 million in annual EBITDA with their 534 rooms.

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

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

We've worked on many of these projects, with Dan particularly involved in several. I'm curious about the exact number we've completed, is it 10 or 11? Of all the projects, this one has consistently been the one where we examine the figures closely and still see a good return. We have always believed that the potential for upside in this project greatly outweighs the downside risks. We feel very optimistic about it, especially given the strong performances from Monarch, Black Hawk, and Wildwood with their new hotel. Many people overlook that Black Hawk today is similar to what Cripple Creek used to be; there is no four or five-star product in that area. The opportunity for us to introduce a high-quality offering to the solid customer base in Colorado Springs is significant, and we believe it will set us apart in a meaningful way.

We earned $1.8 million in EBITDA at Bronco Billy's in the second quarter despite construction taking up the parking space. We're currently using valet parking along Bennett Avenue and parking cars three blocks away. There’s also a self-park lot as you enter town, and we're providing a shuttle bus for customers. Despite the parking challenges, customers are still coming. While Bronco Billy's is a comfortable place, it doesn’t compare to the luxury of places like Bellagio or the larger Chamonix, which we plan to renovate as well. It's impressive how much business we're able to generate in Cripple Creek, especially considering the lack of quality options available.

At Rising Star, you posted record quarterly revenue and record quarterly EBITDA with margins at 25%. It seems the team is performing well there. Can you confirm if the tax change has not yet gone into effect? Once it does, how will that impact margins in the second half of the year?

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

It began on July 1, but due to the complexities of accounting, it's important to consider what you anticipate your overall blended tax rate will be for the entire year. You have already seen that average tax rate reflected in the first and second quarters.

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

It appears we have no further questions. Please go ahead, speakers.

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

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