Q2 2020 Full House Resorts Inc Earnings Call
Ladies and gentlemen, please continue to stand by your conference call will begin momentarily. We thank you for your patience and asset you. Please stay on the line.
[music].
Greetings.
Welcome to the full house resorts second quarter earnings call.
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As a reminder, this conference is being recorded today Thursday August six 2020.
I would now like to turn the conference over to Mr. Lewis Fanger CFO full house resorts.
Please go ahead. Thank you and thank you and good afternoon, everyone welcome to our second quarter earnings call.
I apologize for doing it during the trading day, we usually go aftermarket actually know, but it is up pack day today with a couple of our peers going after market, but 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 security laws I would also like to run.
Mind, you that the company's actual results could differ materially from the anticipated results. In these forward looking statements. Please see todays press release under the caption forward looking statements for 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 full house resorts Dot Com, where you can find todays earnings release, the 8-K as well as all of our FCC filings.
And with that said, we're ready to go down.
Okay.
[laughter], it's hard to say this is actually an extremely good quarter I'd say that because we were closed true over half of it.
And we took the unusual step three leasing our June numbers, because frankly, the quarter numbers are not very relevant.
And last year Courseware open every property was open for the full quarter and this year.
All of our properties were closed for at least half the quarter.
And even the June numbers, you have to bear in mind that Bronco, Billy's and rising star roaming open for half.
The month of June.
And.
Phrase. So unusual this is I mean, we have five casinos in different parts of the country in their each different and yeah. We were were small, but we're pretty diverse I'm sure. You'll have your challenges like you could ever hurricane in the in the Gulf Coast and it could knock that casino out for a week or if there was.
Damage might be a month or two or if there's a calamity it might be or too, but it's one place we've had the Ohio River flood and and shut down the road going into rising Sun for a week or two at a time, we've had forest fires in Colorado that have a shut down the road that leads to Cripple Creek a there are snow.
I'll start and sometimes in Colorado their snow storm, sometimes it so.
But you never have something that shut everything down at once for three months and so this was really an unprecedented situation and I I'm sure that much of the economy could say that and and <unk> and I hope and think that the worst is behind us, though as we went as we were closed.
Three months when only kept a handful of employees.
Put a lot of work into thinking about how we should reopened and how we couldn't be more efficient and how we could be a a better with their marketing. That's what really took a page out a bit earlier time in <unk>. Louis in my career, when we were at Pinnacle and Katrina and Rita shut down low barriers and a the properties in the Mississippian.
Louisiana, and we got focused on how do we opened more efficient and.
And when we did reopen after a couple of months, we were significantly more efficient than we were when we closed so it's kind of but a good opportunity to take a fresh start get rid of the sacred cows, and ER and re examined everything and we did that so.
Just to put this in perspective now the silver Slipper a was open opened in May. So it was open for the full month of June.
But it only has happened slot machines.
And ER.
And when you go to every other slot machine or worse than that it was you had to be six feet. Apart sometimes that met every third slot machine was open and ER and the table games were not operating as many as we used to a table minimums are higher than the number of people at each table or limited and so on and yet it did almost.
The same casino revenues, it's it didnt <unk> prior year. It was up 3% in the month of June the payroll was 22% lower.
The marketing expenses for 13% lower and as a result, the E. B D. O T was 28% higher millions seven new which is.
So at the best month in its history, certainly one of the investment that was the best My best month in its 14 your history.
And despite having half what slot machines close.
Bronco Billy's was only opened for half the month.
Again.
It was only using half at slot machines, none of its table games, Colorado has not approved table games out of concern that the chips might transmit disease.
Table games, a pretty small part of our business.
Despite being open only half the month or casino revenues were 75% of what they were in the Prairie prior year June.
Which means that our win per day was up quite a bit or payroll for the period. We were opened it was down about 11% or marketing expenses were down 52% a part of that was we weren't exactly sure when we'd open so you weren't.
It was hard to advertise and all this and this okay. You can open the open.
But the E. B D. I T was a almost double what it was last year.
For the month and that's despite only being opened two weeks this year.
Rising star Similarly, it was only open half the month.
It's operating with only about 40% a bit slot machines about half of its table games.
So its revenues were down 39%, but remember it was close to half them. Okay. So its revenues per day were actually up and its revenues per slot machine per day were up a lot.
The payroll at rising star for the period of time. It was open is about half of what it was last year marketing expenses are off over 80% from what they were last year and so.
The video T was up 33% displayed on the being opened help them up.
Little more challenged in northern Nevada for a issues I talk about <unk>, but they were opened 90% of the month.
And and it's got most of the slot machines, but still off from last year or less than half its table games open casino revenues fell 31% and since it was open most of the month casino revenues are down on a revenue per day basis, the payroll is down 40% marketing expenses down 50%.
So we made 80% of what we've made last year, despite pretty soft revenues.
Overall or operating properties that EBITDA margin in June.
It was up 9.2 over the prior year and that's despite carrying an entire month of utility costs, a real estate taxes and rent and so on.
With only half a month.
Operations at Bronco Billy's from rising star, So and I will tell you those trends have continued through July and into early August.
Yes, roughly speaking I mean, it the July was a very strong month as well.
Why is this.
Couple of things one is we opened conservatively we talked about.
Second is proved and adage that I've always said Dorji UBS never forget that people gamble not slot machines.
And.
And so you know if you if you add 10% more slot machines, you will not add 10% to your revenues, but if you had 10% more people to place you will and so you know how can you do the same revenues with half the slot machines well walk in any casino, you're very rarely will you see every slot machine occupied and so all we're doing is.
Kind of forcing people as to which slot machines. They go to but casinos generally don't run more than 50%.
Hi occupancy at their slot machines, even even on I think well look there's which runs very high volumes in lake Charles on like New year's Eve at peak time might get the 70 or 75%, but a normal operations nobody is about 50%.
Hi occupancy at the slot machines. So the fact that you had to shut down a bunch of slot machines.
Doesn't doesn't really hurt you as much as you might think.
In fact, a little bit of a wake up call we don't.
We don't actually need as many slot machines, but haven't slot machines are expensive and so oh, the casino actually looks better and feels better if you remove some slot machine. So we're doing that in some cases just to not have dead machine sitting on the floor, but maintain that social distancing.
Then.
Yeah, why are people coming out gambling well few things.
Certainly people are hesitant to fly air travel in the countries down sharply yeah that it just doesn't feel safe getting in a crowded plane. Even if people are wearing masks and there's almost always somebody who doesn't want to wear masks and and so people are hesitant to fly and.
And certainly that's one of the challenges Las Vegas salespeople are hesitant to fly here.
And so I think to some extent our customers are yeah. The like people in Colorado do come to Las Vegas, It's right third or fourth of states in terms of visitation to Las Vegas, and you know at the moment. They don't want to fly so they get closer to home and I think that's helping us in a few places.
And I think that hesitation to fly is going to be there until a vaccine is out proven effective widely distributed that maybe a year before we get back to the type of air travel we used to have and maybe to some extent, we never get back to where we used to have because you find out to the casino close to home has the same slot machines in the same.
Yes.
And second.
A lot of the competing entertainment isn't there and there's no movie theaters you can't go to movie theaters in some states you can't go to bars or their limitation on bars.
There havent been and aren't likely to be for awhile live sporting events can't go to hockey games and football games and so it.
You couldn't even watchman TV until recently now you can watch them on TV. So I guess, we have some competition coming there concerts you can't go concerts can't go to let theatrical events.
You can't go to a crowded restaurant to the extent that that was kind of fun. So.
And I think people realize that we can take or casinos and socially distance the slot machines and it's a safe environment, we're pretty careful about that.
Bronco Billy's for example is very creative set up and when we take a temperature when you come in we have a big posted we put right on the slot machine on the face, but that says it's been cleaned up you really can't play it with that thank sitting in front of you see remove it you play the machine and if you change machines, our employees notice hey, here's an empty machine that doesn't have that card on it so.
It needs to be disinfect suite disinfectant in the next pursuits down and and so it is a type of entertainment that you can be reasonably comfortable that's or socially distant from other people.
Obviously, there's a lot of stuff that we normally do that we can't do we're not sponsored concerts were not sponsoring.
Giveaways, where everybody has to be in a crowd, we're not a sponsoring VIP events for everybody is in the same room.
Oh, we're not as we have tournaments that use like Konami system can be played at machines that are space throughout the building, we but to the extent if you don't have the can Ami system and it was your practice to try to put everybody at one bank of machines for tournament, you're not allowed to do that today.
And so I think we're benefiting from a lack of competition and I think we're going to benefit from that for awhile.
I will tell you.
Within our database.
Older clientele in each casino measures it a little differently, but if you say 16 over 65 and over the revenue that we're seeing from that group is off and off like 20% to 35%.
But that has more than offset by younger people, who are new to us that weve never seen before or coming more often or gambling more we're staying longer and so there's a whole new segment. There that we're trying to get to know and get to know us.
And I think when there's a vaccine the older people will come back.
And.
And so.
So I think thats the main thing.
Certainly the stimulus money is probably better help.
But it's also a hindrance because it's been a little more challenging for us to get employees back sometimes.
And people site about how you know generous unemployment is but if you remember when you're on unemployment here you don't have health insurance, you're going to pay for your own health insurance and health insurance pretty expensive I don't think people realize how much how much companies actually pay for their health insurance and so a few net that out even that extra.
$600. It wasn't like you were getting rich on unemployment.
And.
Certainly our customers were better off with it and now it's kind of up from the year, what's going to happen. My guess is they'll figure out something there'll be some compromise.
And but nobody was really getting rich on the stimulus money I think it was a help for us.
But I think if it goes away, we will still be fine and I think it's not likely to just go way up one fell swoop.
The.
These.
No we're going to remain cautious on expenses.
You know remain cautious on the payroll on the number of employees the hours of operations you know.
That's sort of thing because who knows that the things could turn around and I think it's important to be cautious.
Marketing, we're we're smarter it's more targeted.
And using the economic system, which we just installed at two of our five properties. So.
Already had it at one of US so it's only our two smallest properties that don't have the economic system, yet which is pretty helpful.
And operating hours and we're really examining it pretty carefully so that we're not operating restaurants that are empty. We're not running for example that we used to run the ferry at rising star.
15 hours a day seven days a week now we don't operated at all on Monday, and Tuesday, we only operate at one shift on the other days.
And we charge if you're not in our program, which helps offset some of the operating costs.
Yes, we're looking at every single thing.
Helped us get rid of some sacred cows for example.
There was a buffet at rising star that cost us over $2 million year to operate and everybody said, that's the key to the place nobody would be either except for the buffet well at the moment, Indiana doesn't tell you. It operated buffet. So we do not have a buffet and guess what we still have gamblers on the casino so that sacred cow has been killed.
49 cents breakfast that we had in Colorado spend their 25 years and I'd walk into this little coffee shop and see the same local people. There every time I was there having breakfast for 49 cents and none of them look like gamblers, but if you talked about getting rid of the fortinets at breakfast everybody was afraid to do it because it was kind of been there for 25 years live as part of the reason.
Success, we don't have it at the moment you can only have half the seats. We said you know what small coffee shop to begin with forget about the putting us at breakfast and you know what we're doing fine. So I think the putting us at breakfast is history.
We used to allow people to redeem their points for cash taken that away you can redeem your points for free play and the number of employees I mean, how many times you'd be go into the property in the two wells that restaurant needs. This many employees we need this many people indication. So and this has caused us to re examine that and we found out that some.
Of those.
Concepts are just not true to that you can operate that restaurant with fewer people and so on.
Liquidity, we're still sitting on about 30 million a cash about 10 million of that is used in operations on a daily basis.
We're still being cautious it's possible with the spikes around the country. We can end up closing again.
Think it's very possible, we'd end up closing one place I think it's unlikely would end up closing all of them, but that's going to depend on what happens with the with the number of people getting sick and so on.
You know as last time, it cost US 5 million in the first month, we were closed with the severance we paid to people and then thereafter cost us about 3 million a month, which includes our interest expense to our lenders and so and so forth and so.
Yeah, we want to be careful to preserve our liquidity because it's still a very uncertain world.
On the mobile sports betting.
The second one opened we as you know we have six agreements we get a percentage of the revenues under each of those agreements to at the six are now open which is Churchill downs in.
Indiana and smart kids in Colorado.
We think the other for will probably all opened in the third quarter.
Honestly, they have not opened as fast as we hoped but.
But we know they're all trying to be open for football season, which is very large part of the bidding activity and and so we think there are likely to open.
In the quarter, we're now win at which point, we gets a minimum of 7 million a year.
Of our participation in their revenues.
Yes, and yes, we're very small company below I'd be lovely, if we could spend that off into some sort of entity and taken public at at the valuations that tilman fertitta has gotten them that.
The Rush Street gaming is getting in the Draftkings has.
But it should nevertheless show up in evaluation of our company because we're in that business and and if they allow.
Internet gaming in the states, we operate we intend to participate in that and I think they probably will and we will participate in so.
We have those aspects in our company, it's actually pretty significant chunk of our company.
We are just too small to spend it off into a separate entity and and realize that valuation.
Debt covenants.
The Oh, we have two issues with their existing debt.
One is we were limited to $5 million of additional indebtedness, we took up $5.6 million PPP loans.
No those loans are only at 1% interest.
And normally under GAAP, if you have a deeply discounted loan you would do this kind of present value valuation. So maybe it should go on the books for under $5 million broken the covenant.
We also believed that we are spending that money in the way that would entitle us to forgiveness.
Course until we actually see can receive forgiveness it still debt.
But if we are have any portion of it forgiven than its probably under 5 million in total indebtedness just to make it very clear, we're asking or lenders to allow that basket to to exclude the PPP loan.
And the other thing is there is a.
Test that's down at the end of each quarter, where your total indebtedness cannot be more than X times year trailing 12 month.
Well, we were close for three months so.
We flipped that quarter at the end of March.
Reflect that test at the end of June.
We will probably flunk at at the end of September.
A shot at meeting it at the end of the year.
That means we're in constant discussion with our lenders.
They are.
Obviously want to be paid for waving their covenant and we're negotiating on what that payment should be.
Last quarter was half million dollars and I think it'd be a little more this time, but but probably something acceptable.
And we're not alone I think every casino companies go into that same process.
And we're confident we're going to get there soon and in fact, we have some draft documents going back and forth but.
Just be aware that we obviously have to deal with their lenders on a daily basis in a situation like this.
Because we had.
The kind of a fresh start thinking about the company.
We chose to take to write offs that ended up in the quarter.
One was in Fallon, we originally had plan to add office space to the outside of the building popped in the building out building offices there.
Years ago, There's big office building out in front of the building will we get rid of so the improve the visibility and improve the parking.
We took the mads containment stuck come in a construction trailer it's back to the property and then we kept putting off building the new offices, because we had other capital needs that that really affected the customer experience and this really wouldn't affect the cup customer experience well you can't have offices and temporary trailers forever the selling.
Required among others, but wouldn't allow it among other things, but we got looking at and saying well, we really had too much management at this property for what it is a very small property and why do we have all these people in these offices as analysts trailer anyway. So when we went to reopen we kind of rightsize the management team, which meant we didnt need that many offices and we also real.
Close at the win per slot machine per day on the property is pretty low maybe we didn't need that many slot machines. So we.
Go into the very far back to the casino, where the slot machines or or at least.
Productive and just putting up some malls and creating a small office area, which would be enough to accommodate the reduced executive staff, we have it'll be pretty similar to the small losses, we have oh.
And so we didnt have a need to build that new office building well, we had capitalize the rent on the trailer and the design costs on the office and so we wrote that off in the quarter and then.
And the cost of building out those offices is something like $25000. So because we're not adding to the building. So it's pretty expensive and then in new Mexico, you'll recall that the new Mexico Racing Commission at but at a request for proposals couple of years ago of for the last license for a race track in new Mexico and that would that race track.
They have a casino we had taken out options on land and put in a proposal the consultant for the racing Commission at deemed ours. The best on just about every measure.
But there was a change of administration to change the racing Commission and they seem to have abandoned the process. It hasn't come up in the last several meetings and it doesn't look like they're they're going to do anything. So we did not renew our options on the land that we had outside of Clovis to Mexico and there was a couple hundred thousand dollars of previous deposits that we wrote.
It off and so.
So that kind of cleans house I don't think there's we kind of a told everybody. If there's anything else. We should write up this quarter to do it nobody came up than anything so I think we've got a pretty clean at this point.
And.
And what Keegan.
We are still in the race they are planning to what the license.
The legislation actually says by the end of October.
But there is a pretty easy process for them to give themselves more time, if they want to so they may given the circumstances.
But.
We think we have a shot at that.
And if so we'll probably do it in a project finance way with the partner.
Pretty big project relative to the size of our company and.
So we've been talking with some potential partners would be good partners for that.
And that's where we stand with Waukegan I mean, it was it's a very good opportunity. We think you can make a lot of money there.
We put together proposal that we think is the best of the three proposals.
Obviously, when the gaming Commission starts looking carefully at it they're going to ask us how we can pay for it and so we want to have a partner who can say this is how they're going to pay for it and the side, we're going to do it and I think if we can answer that question. Then we clearly have the best proposal and Waukegan and hopefully we can do something there that's a win for the state.
A win for the city and profitable for our shareholders. So.
Thats what keegan.
We also have expansions in various stages of planning and entitlement in Colorado for hotel and and meeting space and so.
Yeah, which was we had started construction on the parking garage and stopped it as part of how we have the cash we have and in Mississippi, where we have sought for for a couple of years now the entitlements to build a another hotel tower that would go out over the Gulf of Mexico, which is pretty complex because while the environmental stuff and state approvals that are.
Needed.
We've made pretty good progress on that.
And so when we started the process is that this will take years and here. We are a couple of years later and it's not too far down the road that we could build that.
But nevertheless at the moment both of those are on hold.
We want to see how the economy develops.
See how if our business continues to be a strong as it is currently.
What are the financial markets do.
Due to financial markets.
Differentiate between regional casino companies like ours that are doing well and those that have.
A lot of casinos their bread and butter is based on meetings and conventions nightclubs shows all flying there those are all things that don't work in a pandemic economy and so I think it's.
There should be a distinction between regional gaming and kind of destination gaming.
In terms of the risks and the vitality of the business at least near term no. Some companies have some of both from they're going to do really well in the regional markets and and suffer in that destination markets, but.
But it's unclear yet whether the financial market is going to make that distinction and so.
In the meantime, given the uncertainties out there were still conserving liquidity.
But we do have quite a bit growth opportunities that we could undertake if we get to a better world.
Good everything Lewis.
Let me I've, a couple couple small things to add to Dan.
With regards to the sports betting.
We often get the question from a lot of you guys. How do I have value sports betting and I just want to make one very important point to all of you.
Traditional gaming companies trade at eight times EBITDA, but you have to remember that when we go out and we run our physical casino. We have capex you have to fix the leaking rough we have to buy slot machines and so when we look at our sports contracts were effectively getting 7 million of revenue marginal expense, so effectively 7 million of EBITDA.
7 million EBITDA doesn't have any of that capex attached there are no slots to buy there's no leaking rough and so what is it is it's certainly not the same eight multiple is it 10 is at 12, you can pick whatever multiple you want but that's a very very important point that we want to make sure you guys know.
I mean, we're very pleased to see that one of our partners Wynn resorts.
Just launched in Jersey, we have nothing to do in Jersey, just to be very clear, but but but we are linking up with them in Colorado in Indiana, and so it's nice to see them go live and knock on wood as Dan said, we think well they'll be live.
Shortly and our two states.
One other point I wanted to make and it's so yeah.
I had to look at it a few times because.
I didn't realize just how much had gone down but if you look at the first quarter of 2019, our debt out LIBOR rate was locked in at 2.8%. If you look here the third quarter of 2020, we reset at 0.31%, that's two and a half percentage points of difference.
Now we have a LIBOR floor, so effectively it's 1% for us, but the the annualized interest savings between those two different data points is almost $2 million a year, that's half a million dollars a quarter now some of that's going to be.
Eaten up by by by the waiver fees, but but at just just a point that I wanted to make their four yeah.
And that was really again okay.
And on that so we're happy to take questions.
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Three.
One moment please for the first question.
Our first question comes from the line, David Bain with Roth Capital. Please go ahead.
Hi, David.
Mr. Ben your line is open.
You have to anew that David.
Oh, there we go [laughter].
[laughter].
Well I was saying by the way we agree with you on the bifurcation in the fourth multiple but.
Yeah. Thanks again.
So you know looks like in June 20 versus June 19th you did about our June 19, you did about 50% of property EBITDA.
For the month relative to the quarter about 60% of adjusted EBITDA again for the month.
Versus the quarter last year I mean.
Can we get it now.
I'm not sure that mountains rate, yet and when I add up the four segments EBIT.
Adjusted EBITDA in 2020 was 2.7 million versus 2.0 last year, that's entire month versus entire month and despite the fact that in 2020.
Two of our key properties were on the open for half that month now that is before corporate corporate is also down from last year. So.
We had about a 10 point swing and margins.
Okay.
I think thats different than what you were saying, but.
Yeah I was looking at the one month ended June number a adjusted property EBITDA of 2.7, and then I like that last year adjusted property EBITDA of five point.
Five.
Oh, but probably ended away on a 5.5 0.5 to full quarter.
Versus.
The June, but what I'm, saying is no.
Yeah, I think were yeah.
What I, what I was trying to get out as you know.
Sustainability.
If we look at July and trends in August.
Have you seen any sort of.
Was part of that pent up demand stimulus other.
Entertainment venues opening up now anything any kind of trend differential.
Okay and the the if it was pent up demand you would've seen a significant lessening in July and we Didnt now the impeding entertainment venue and the only one that I can think of that's material is you now have some sports on television. So you can stay home and watch hockey game for example, and that really Didnt.
Come to play in July that's really end of July early August phenomena, and our business is still strong.
And then we haven't closed the books for July yet, it's still early in August, but but based on what I've seen I'm pretty sure. It was the best month in the company's history.
And.
And that's with half or slot machines still closed I mean, weve and so July was strong.
First few days of August looked pretty good.
And I've been trying to figure out what that is because like the extra unemployment benefits.
People knew that that was coming and it's kind of funny, it's almost a.
Uh huh.
Some people running around so yeah everybody's getting all this generous stimulus stuff.
Look at Essex really it's yes, there are probably some people who were making minimum wage and then they became unemployed maybe they are better off.
On unemployment, but you know in Mississippi for example, the normal unemployment is only $200 a week.
And so you could have been making 800, a week and if you back out what it would cost to buy a health plan for your family.
It's not like Super generous that you feel like going out Gamble. So I don't think it was I think the stimulus money, we're certainly hopeful but I don't think that was the major factor.
Because you can find individual cases, where people might have been better, but I think most people in unemployment would rather be working.
And I think economically they would be better off to be working.
Just there in some business slicker airliner restaurant or something where they can't work today and when they go back to work I think it's more of a plus for us than a negative but yeah. It's a hard when setting but the lack of competing entertainment is a clear plus and I think it's going to we're going to have that for a while because a lot.
The other activities you can do is.
I don't know how you do it like.
Like it.
I look going to Cirque show or Broadway show, but I, probably won't do it until I've been index I didn't I'm comfortable other people move vaccinated and so and in the meantime, those shows are all going to just bad I mean, nobody can afford to pay the acrobats or the actors or something for year to sit around and go back to work. So when it's time.
To start Broadway again, the producers are going to have to start new show somebody is going to have to fund a whole new.
Ursula and training and so it's not going to come back right away and.
And so we have a period of time that I think is.
Six months to a year to two years were competing entertainment may not be there.
No that comes and goes you know and I think that's probably the single biggest thing that's driving us.
And then.
In Colorado in particular.
People might be choosing to go to the local casinos instead of Las Vegas.
Mississippi, and Cincinnati, a little further away, but it could be a bit of a phenomena. There too we used to be quite a few nonstop flights between Cincinnati and Las Vegas Theres not now so.
That's fair thing speaks well of course.
That's great and can can you give a sense of how competition maybe is trending in l. I assume it seems like.
You may be inching ahead, there according to some checks and any kind of political happenings you've always been helpful based keeping us keeping things in mind you know during.
The whole process that that could delay things and finally I know you mentioned the financing partner.
Should that go forward can you give us a broad stroke of what that could potentially look like in terms of splits or overall structure.
Well, it's kind of a moving target we've talked with different people different formulas, but but we need something where we can come up with some money.
For our share and somebody else comes up with their money and the most of its debt financed.
You know I did the deal for the Borgata that was how it was done I did the deal for what is today PERC MGM that was a joint venture that was structured that way and.
And so you know something like that because it's too big a project. If we if we did it on our balance sheet, we'd be better than the whole company and we don't want to do that Nevertheless, we think it's a it's a very good project and.
And so if we can structure some from that make sense, it's good for our shareholders and and good for somebody else our partner or make good money too and so.
We're trying to work that.
I neglected to talk much about northern Nevada, I think it's worth talking about because there were not doing as well and there's some unique reasons, we operate the casino within the Hyatt Tahoe [noise].
And [noise].
And the occupancy is that hotel is as down quite a bit from last year.
And Thats a hotel that people fly to they come to the normally have a good meeting in convention business and so on and that hotel was not full in July when it normally would be full and that's affecting our casino now are we do have a local clientele as well who come but you know we're not operating the table games 24 hours a day seven.
In days a week because it just isn't the demand for it and so that property is weak and then in Fallon, there's a local business and then there are people at the Naval Air station, where carrier wings go to get trained well. The Navy is not letting those carrier wings off the base that restricted the base because there.
Don't want to either spread the virus within the community or have the communities better to the base, so that restricting travel and that's affected us there and there is another thing its effect, where one of about five casinos and felon well, where the blogs you have fallon now that's not not flashy, but with the bill as you found.
But weve adhere to the rules. So we have a security guard who takes your temperature when you come in we have ever other machine turned off we make you wear masks those are the rules or competition is completely ignore the rules and.
You didn't have to our mask there was no security guard at the entrance there like were fully open.
And this is one of those rural communities, where they think this is all fake news or something right and so that put us at a competitive disadvantage.
But.
We notified the gaming Commission and it's now warn the other parties and I think if they don't.
Follow the rules, they're going to final.
And so but in the meantime, we operated for several weeks, where we would the only casino in town that was requiring masks and the other casinos were not and.
And so.
Yes, the irony is you're allowed to smoking casinos in Nevada, So we offered to like punch little holes and People's massively could smoke when they were wearing them, but but it was.
But there was a unique issue there were.
You know that because people were restricted to base that affected the business and Fallon and because people were hesitant to travel to resort Hotel Lake Tahoe that affected business, there and United step back and look at it in a broader context, I'm really glad that that normally I would like to have a strong meeting a convention business and and.
And so on but under these circumstances.
We're kind of lucky to be the type of business. We are in most of the country. So im sorry, David you had some other questions night, but I don't think I answered.
Great color I was just wondering just Illinois.
Yeah again.
Oh, you know any political happening as we should keep in mind any any thoughts on competition. If you just have something.
Well I think I think.
The one thing that happened is they had.
The legislature altered the rules to make it.
More feasible Dover casino in downtown Chicago.
And.
Which is great and that didnt affect our projections very much because we think the gambling in what keegan will be principally from that area between Chicago and Milwaukee.
But that may take some of the other guys focus to say hey, let's see if we get to one in downtown Chicago, which like we were not big enough to do Waukegan, We're certainly not big enough to do downtown Chicago.
But on our own day on our own right.
But that one major project size bigger than that but yet.
So.
I think that's the only thing thats changed in Chicago.
Of course, the backlog because everything is kind of slowed down because people are learning how to have gaming commission meetings, and zoom calls and stuff like that but but.
We still think they will get around to it near year end. There's still you had to submit by a certain date. There were three proposals that made by the city were one of the three cities consultant rated us the bye bye virtually every measure as the best of the three proposals the only spot we were weak was that were small relative.
The size of the project.
Now the other thing that I think has happened is is you see.
The spread of Internet gaming, both sports betting and actual gaming and so it's now.
Starting up in Pennsylvania.
The Internet gaming the numbers out of New Jersey, which is the only state that's had it now for a couple of years had been very impressive.
And I think you there's clearly pressure on state budgets cross country, you can't shut the economy for three months and not have an effect sales tax revenues and income tax revenues and so so I think every state in the country has has fiscal issues at this point.
Thats why they're all trying to get the federal government to send them some money, whether it will or not as yet to be seen but but there are pressures on state budgets like never before and yet Internet gaming is more socially acceptable.
It was like what went up we already have regular casinos, we already have sports betting that you can do online why wouldn't we allow you to play a slot machine online and so it's a good source of revenues two states I think you're going to see it I think it'll probably come up in Indiana and the legislative session in the first quarter and.
And it may come up in Colorado pretty quickly.
There's also move in Colorado to increase or eliminate completely the maximum bet and maybe at the game of Bachera.
Which would be a good for us.
And that's why you see the huge valuations and Fanduel, which did which went public through a spec and also on a.
I think sandoz trading like seven or eight times revenue.
And similar valuation on the taking public of Tillman interactive gaming or whatever it's called that also went public through a spec and then the most recent one is rush Street interactive is going public through a merger with the spec.
At very big valuations, which here.
There are only big relative to what they are today with the market is saying in assigning that valuation as we think this is a growth business. If you extrapolate New Jersey. So all the other states in the country. This will be a very big business someday I mean casino gaming between tribal and non travel is $63 billion your revenue.
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It's completely possible based on new Jersey numbers that the interactive stuff could be 10 or $20 billion.
Yeah. If you just look at it at New Jersey, and New Jersey has has developed that business without having a negative impact on Atlantic City. So this is this is like.
It's incremental gaming and seems to be the case. So far. So this is not like Amazon, destroying Barnes and noble.
It's more like.
DVD players came along and it provided an additional distribution avenue for the theatrical companies without really affecting movie theaters now movie theater has been affected by the pandemic, but prior to that they were doing the whole holding on to their own and so.
And so people are looking at and say Wow. This could be a really big business someday the cash flow characteristics of business are great Theres no.
Yes at brick and mortar you don't after maintenance Capex and so and so forth.
No.
And so far our stock doesn't seem to reflect the fact that.
A third of our E. B D tea is from Internet gaming, but.
But it's also it's us as something that.
It's been slow to ramp up, but it's coming and.
I think you're going to have expansion of it and in almost every case, it's tied to brick and mortar you on the exception I'm aware of is in Tennessee, where you can have multiple sports betting as not tied to brick and mortar because they don't have any brick and mortar there are no casinos in Tennessee and so.
Elsewhere when it comes up.
Yes, the existing casinos, often bring it up and argue that it should be tied to exists licensees.
Because the state's already regulating nobody knows them.
Attack rate within the regulatory structure and that was frankly, how we got involved in mobile sports betting in Indiana in Colorado and.
And I think I think Mississippi will probably allow multiple sports betting in the not too distant future that I think at all three states online wagering will not be far behind I think the only thing to add to that Dave It is.
Our existing sports wagering agreements with smart cuts in church on when.
Those only encompass sports wagering if.
If we were to go down if we were to have online slots and whatnot get approved.
Yes, certainly we could we could look to use those guys for an online casino business as well, but but that's all additive.
So so keep that in mind the only other point I wanted to add ways was what strongly appears is that sports wagering as the small piece of the pie. It's the online casino at South where you see significantly more revenue being generated.
Right Yeah, Congrats on all the retooling to take advantage of the trends that good stuff. Thank you.
Hi, Thanks, Dave.
As a reminder, ladies and gentlemen to register a question. Please press the one followed by the four on your telephone.
Our next question comes from line of Chad Beynon with Macquarie. Please go ahead.
Hi, Dan High Louis Thanks for taking my question.
Hi, Chuck sorry, we're talking today, a lot yes, no not a problem no very helpful.
Wanted to I guess boil down some of your comments, Dan you give us a lot of.
Yes, good revenue driver.
Good revenue driver perspective, and kind of a good understanding of what could could move this up or down and then also on the payroll and marketing side, but as we put all that together I know historically consolidated you generated margins between 10, and 12% I think silver slipper got as high close to 20%.
A lot of the companies in the space have been talking about maybe a new normalized margin goals. So if we get back to.
2018, or 2019 revenues can you help us think about what margins could look like or inversely is there a revenue number on a percentage basis that gets you back to historical margins given all the payroll and marketing reductions that you've talked about earlier.
Well.
If the month of June our operating margins were up about 10 points.
The prior year.
And it would have been more than that if we had been open for the full month Joe because.
You got certain things like utility cost for the full month and only after months of operations. So.
Two of the five properties so.
I don't know that I want to predict that we're going to have 10 points higher going long term forward because.
The marketing costs were very low in June because as I mentioned suddenly you're you're opening and maybe you didnt have time to do the normal marketing you would have done.
And we are cautiously we don't know if people are really going to show up so let's make sure. We don't have too many employees and then people didn't show up and that was okay.
But I don't think we'll go back to the margins. We had I think will have significant improvement and it may be 5.6 0.7 points.
And we were headed that way anyway that was part of the recently put in the can Ami system was to make our marketing more efficient and to be examine things.
There was another little phenomena that that happens it recognize when you operate these casinos in the small towns and casino has been around some are placed has been opened 25 years and Louis or I will go into town, we'll talk to the management team will so you've got to be efficient with the payroll you've got to be careful we want you try to reduce the.
Carol.
And that's often a difficult conversation because nobody wants to lay off their neighbors their friend the person that worked with three years right and and you are trying to say you know you've got to get more efficient and and there's kind of it's like water aerobics you pick the people moving quite as best as you want and.
And this pandemic you know we laid everybody off right and we didn't have a choice.
Because if we didnt know how long would be closed we didn't know how would reopened it was like we need to.
Try to salvage the company.
So that when we you know if you don't move quickly and get your costs down your staring at bankruptcy and then the difficulty of reopening is way more complicated right. So we laid everybody off I think we kept 30 people in a handful of security guards out of 1600.
Now when you're reopening.
Every phone calls a positive call, you're calling people in inviting them to come back to work.
And the message the management team was okay, we need to make some positive from closer and get people back to work, but don't make too many of those calls, let's really exam and who we really need to operate and just bring those people back what we really neat and and.
Who we know where effective and help us get there and so.
Yes, I don't know how quite how to quantify that but there was certainly an element of that in this in reexamining.
What you really need and.
So I do think it helped us get to margins that are better and even on the marketing we used to give way hotel rooms, all the time at rising Sun and now we're not.
I mean, we still compromise of course, not nearly as readily as we did before and instead, we're focused on free play more than anything else and trying to reward people for moving up in the tiers and so and we found out sales don't fight hotel occupancy is out down quite a bit.
Okay, because who knows don't fight and and if we give somebody if let's say it buffet. It was costing us like $15 a cover to give somebody a free buffet and we give it away as if it wasn't costing us anything.
And now we give them free play and it augments what they spend in the casino.
And and ultimately that comes back to us.
And and we don't have to buy as many tomatoes, and prime ribs, and so there's been a a chance to reexamine everything and.
And and I guess last thing is.
We have some new clients and we're trying to figure out who they are men that literally the percentage of people who are not in our slot system, but are in our casino playing slots.
Is probably double what it was last year.
And.
So were scrambling to try to figure out who they are.
Indiana actually helped us I don't know quite ways, sometimes sometimes regulators do these things that you really wonder about.
They require masks in the casino in India and as they do in several states and but apparently the regulators are really afraid that then if somebody like stole the person the casino or something the wearing a mask we couldn't figure out who they are so as you come into the casino they require us to take a photo of the person.
And there are driver's license. So we know who the person is and so that's kind of intrusive and actually thought it was kind of funny because even before somebody could go into our casino with the mask in their pocket. So one of the men's and put the mask out come out and steel somebody's person run out of the building and we wouldn't know who they are so I don't know why this is any.
Different but that was the rule they had to every casino in Indiana is taking pictures of everybody well that means that if we have somebody who's not in our player system and their gambling quite a bit we can go back to the surveillance tapes figure out who they are call them up and try to get them into the system. So.
So.
I'm not sure why Indiana, do it's worked out well for marketing and.
And and so.
And I think that's something that might stick.
Somebody who used to go to the movies once a week now.
That younger coupled this I'd say, we kind of enjoy going out and gambling once a week and.
And so I think we will find some new customers and and hopefully our older customers will come back when it's safer so interesting. Thanks.
Separately, despite current market market conditions than I think a lot of these deals were announced red ahead of the pandemic, but there has been a pretty active market for regional gaming properties I'd say.
Under 20 million of EBITDAR. So I took a lot of the bigger players are divesting bees and there's been a number of press releases from some of the smaller players how do you think about the consolidation environment.
In this in this space kind of on the back of what's going on.
Appetite to potentially grow with another.
Smaller needle mover or vice versa. If there was an asset in your portfolio that you think is no longer kind of core to the thesis.
We're here to try to make money for shareholders and.
If somebody comes to us with the casino that's for sale and it's at a good price. We think we can make money for shareholders. We obviously look at it but but today, we're really conserving liquidity because we're still not out of the whats yet I mean, you could you have spikes in different markets you could end up.
Have having another period of closure right. So so we're being very cautious frankly, nobody is offered us one for sale and a while.
And I think that might be because this is a tough tightened acella casino, you're not going to get a very good price here for awhile.
And.
And we don't feel need to sell anything now somebody offered US 15 times cash flow for any of our properties, we'd go I'm lunch right, but.
So.
We were in this to make money, we don't need to get bigger just for the sake getting bigger.
We look at a lot of deals I mean, we did acquire Bronco Billy's.
Which has been to become a very important part of the company now and if something else came along that we could buy at a reasonable price that we thought hit good upside, we'd obviously look at it but it's not a priority. These days our priority is to.
Good to get we're on our feet now we want to stay on our feet, we want to stay lean.
Get to the point where where.
Right now we're all looking one month, we had one month. It was great I think we're going to be able to give you a quarter that's great.
And maybe by year end, we can show you six months, that's great right and at some point people start to say Hey, This company really is doing MPD IP in the high Twentys and and because that's the run rate that June would suggest.
And.
And then at that point, you look at it and said you that 108 million a debt 20 of over $30 million VB deity, they're under Levered.
Then you're not going to be paying LIBOR plus seven on the debt anymore, and then that opens up all sorts of opportunities for us, but yes, we need those we need a solid six months of good stuff and maybe a little longer than that.
Because I actually think were.
Under Levered today, but but.
If you just look and trailing 12 months you wouldn't believe that and so we need we need a period of time to prove it to people and so thats where were focused on sure and then my last one just around.
The Colorado initiative.
To increase the the maximum bats, do you have a sense of how that's trending and then secondarily if that passes.
I guess, what does that mean for for your current business or does it maybe just.
Improve the medium term return if you if you go back to building the parking garage in a more expanded structure.
If I mean, the hotel, we designed as a four star hotel and so obviously if you could like today you know if if somebody showed up and.
Wanted to Gamble, a thousand dollars a hand, even if the state I mean, it's just not like could happen right and the state wouldn't wouldn't allow.
But if.
And so I don't think it would change much for Bronco Billy's itself as it exists today. It would certainly make the numbers even better if we built a hotel and upgraded the property.
And so and we're all for it and the history of Colorado has been that voters generally have a proof these measures and and so I think it's likely to pass.
And that would be a positive now clearly, it's a like ameristar and what monarch is building and so it's pretty big plus for them.
And it could be a plus for us when they go and build the hotel, but bronco Billy's as it exists today is not going to be very appealing to that person is willing to gamble thousand dollars a hand.
Okay. Thanks, guys best of luck.
Thanks, Chad.
And I think we've gone over time, Dan so well, probably just wrap it up.
Well or Keith where keep plugging along here and try to keep the momentum going that we came out of June and July with and thank you for your support and we.
We told you last call we were going to be a survivor and I think at this point, where not only surviving were thriving and we're just trying to keep that going so thank you.
That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.
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