Q4 2021 Full House Resorts Earnings Call
Good day, ladies and gentlemen, and welcome to the full house resorts fourth quarter earnings call. Today's conference is being regarded recorded at this time I'd like turn the conference over to Lewis Fanger, Chief Financial Officer of full house resorts.
To begin.
Thank you and good afternoon, everyone welcome to our fourth quarter earnings call as always before we begin we remind you that todays 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 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 are also we may make reference to non-GAAP measures such as adjusted EBITDA for a reconciliation.
Asian of these measures please see our website as well as the various press releases that we issue and lastly, we're broadcasting this conference call of full house resorts Dot Com, where you can find today's earnings release as well as all of our SEC filings.
With all of that said it was a strong fourth quarter, we did pre announce our results. So I don't think earnings will be a surprise to anyone our actual results were within the range that we gave about a month and a half ago I'll walk through those results in just a second and then Dan will walk through our broader strategy with his thoughts on Germany and while key.
Again.
Including by the way our plans for a temporary casino that will open in waukegan.
This year this upcoming summer.
Let's start first with the fourth quarter. It was a great fourth quarter with revenues up 13, 1% from the fourth quarter of 2020.
Adjusted EBITDA isn't a clean comparison between quarters. The fourth quarter of 2021 had $1 7 million of additional expenses related to corporate initiatives that werent present in 2020 and that we don't expect to recur in 2022, and so adjusted EBITDA could have been even higher for the 2021 period and then the last year.
Sorry, the 2024th quarter also had the benefit of a $2 1 million free play sell in Indiana, we sell that free play every year, but during the 2021 period it didn't occur until the fourth quarter.
Hold on we sold our free to play every year, but during 2021 it did not occur in the fourth quarter. It occurred in the third quarter of 2021, and so that led to some timing differences on the income statement. If youre looking only at the fourth quarter, you will notice there, but if youre looking at the full year period, it's obviously not an issue.
For the full year adjusted EBITDA is hovering right around $50 million. The actual EBITDA figure was $47 2 million keep.
Keep in mind. It does include that corporate initiatives that I mentioned for the full year that that corporate initiative was about $2 $1 million and so if you add that back. It gets you above $49 million and then keep in mind that our sports skins works up and running for the full 2021 period and so that would take you over the top for the <unk>.
Million dollar Mark looking specifically at the properties in Mississippi, The silver Slipper continued with its recent strength. It had its best year in its 15 plus year history revenues, there rose 45% for the year to about 91 million Bucks adjusted segment EBITDA in 2021 more than doubled from what it did in 2020.
Increasing to nearly $30 million, that's a very strong performance out of the silver slipper, which has been led since its opening day by our new C O O John Ferrucci.
One other thing that happened during the quarter was the overwhelming defeat of a ballot initiative to allow a casino to move from Bossier City in the northwestern part of Louisiana to Slidell, a city near Lake Pontchartrain on the other side of the state and about 30 or 40 minutes from the silver slipper for those of you that don't know there is a cap on the number of licenses in Louisiana and as.
License was the only idle license in the state as its owners close their Bossier City casino.
To the Covid shutdown and they never reopened yet.
Casino site in Louisiana require local voter approval and so this past December it appeared on the ballot in St Tammany parish.
Voter turnout for that off cycle ballot initiative was strong and just like they did some 20 years ago voters overwhelmingly said no to a casino in St. Tammany parish, defeating the proposal by nearly 26 percentage points because of that we don't think we need to worry about that competitive threat again for a long long time.
For the year in Indiana revenues were up more than 40% adjusted segment EBITDA in 2021 was more than three five times. What was earned in 2020 and it was a great performance out of the rising star, which has continued to improve in part due to the continued ramp of our ramp up of our economic slot system and the efforts of our team there to manage cost.
And Colorado construction is full swing on Chamonix. It really is an impressive sight to behold, it's extremely large in footprint and is really starting to come up out of the ground now if you get really bored pull up the website there salmon ACO dot com and you can see two different cameras, but it's it's looking quite.
Impressive. Unfortunately that construction has left us with no onsite hotel rooms, and no parking and so we're at a disadvantage versus a year ago. We've also lost portions of the existing Bronco Billy's casino to construction and despite that we still have managed to have one of our best years in recent memory, there with revenues of $23 7 million.
And adjusted segment EBITDA of $5 $5 million.
There will continue to be some short term disruptions until construction of Chamonix is completed in the second quarter of 2023.
However, we're more confident than ever in a bright outlook for Colorado when Chamonix opened.
All of the major metrics that we look at suggest chamonix should be a homerun.
Casino.
The casino that monarch Bill in Black Hawk is doing quite well.
Our estimates peg that new monarch casino doing about $100 million per year in EBITDA gaming spend per capita out of Colorado is still extremely low and.
What have you I think know, but the April 2021 removal of betting maximums.
Did help gaming revenue in the state, especially in Blackhawk, where there is actually quality gaming product. Unlike in Cripple Creek, but over in Blackhawk gaming revenues have been up strongly up in the mid 40% range.
And I think that is going to speak to more of all of that in a second in Nevada or that segment showed great strength during the year. It really was the segment that was most affected by COVID-19 because capacity capacity constraints at the ski areas and a lack of destination travel affected the Grand Lodge.
Then a lack of visitation to the naval Air station near Stockman's affected them as well all in the 2020 period that all changed as restrictions eased in 2021 revenues for the year were up 58% adjusted EBITDA was up more than 10 times.
Right now in northern Nevada were in the process of installing the economic slot system that system is what has helped us tremendously improve our marketing analytics at rising star and at Bronco Billy's. We did just complete the installation of Konami a few weeks ago at Stockman's and we've got Grand Lodge scheduled for their own install at the end of April .
<unk> done our whole company will be on that same slot marketing system.
And then our last segment as our contracted sports Wagering segment on December one 2021, our sixth skin went live that compares to three skins that were in operation during the fourth quarter of 2020.
We will get one skin back in Indiana, and one skin back in Colorado, beginning on May 15th of this year, that's because the operator of those two <unk> recently announced that they are exiting the online sports and I gaming business entirely.
<unk> already begun negotiations with other companies regarding those skins more importantly, we will also have one more skin in Illinois.
Due to us winning the work keeping gaming license.
There really hasnt been a shortage of interest for that scan.
<unk> gotten a ton of phone calls about it that should be expected largely because there are a limited number of casinos in Illinois, each casino only gets one skin and Illinois as the sixth most populous state in the country and so that's created a decent amount of interest from others and that available sportscast.
Regarding the balance sheet about a month ago, we funded construction of our temporary Waukegan casino named the temporary we did that by attacking on a $100 million to our existing senior secured notes and so that gives us a total of $410 million of.
Of those notes outstanding as of today, we issued those notes above par at 102, and so the implied yield to worst for those was about seven 7% on issue date.
We also used to have $5 $6 million of cares Act loans that we took out during the height of the pandemic when all of our properties were closed.
<unk> loans were fully forgiven during the fourth quarter further loan terms and so from a liquidity point of view.
Like I said this a year ago at this time by the way we have more cash than we've ever had in my history of this company here in real time, we have roughly $340 million of cash with $216 million of that reserve for the build out of Chamonix. We also have a $40 million undrawn revolving credit facility, which has a floating rate below 4% currently and so on.
Total current liquidity is about $380 million, we will spend some of that cash as we build chamonix and the temporary keep in mind, though that our existing business already more than covers interest expense and thats before any financial contributions from the temporary which should be open at about half a year and Chamonix, which will open up in the second quarter of 2023.
I talked a lot with that said, Dan do you want to chat about some strategy.
Yeah, let me.
Let me address kind of the five year strategy.
So the company is as we see it these days.
As Louis meant.
Mentioned E B D O T of our existing business is about $50 million.
Before turn of debt and all of our debt at this point is the one big bond issue.
That's at 8%, so that's about $33 million a year of interest expense.
Maintenance capex at our existing properties is pretty small about $5 million a year, we have nols.
That will still continue to shelter taxes for awhile and then we're going to have accelerated depreciation on the new stuff. We're building so and a top five year timeframe, we don't expect to be paying any income taxes.
No the as Louis mentioned $340 million in cash only takes but tend to run existing operations. So and then we have a $40 million undrawn revolver.
Yeah.
It takes about 215 million from this point to two complete Chamonix, we've spent a fair amount.
And recognize them.
Like as we're talking there is a foundry somewhere pouring steel beams to our specifications, we don't have to pay for them until they arrive at the property.
So more than more has been committed then than would appear.
$250 million project.
But there's 215 to go to complete it.
The temporary.
I'll, let let me stick to Chamonix for a moment. This is a four star.
Hotel <unk> casino the first of its kind in Cripple Creek, Colorado as a whole was an underserved market.
Inver is 4 million people, Colorado Springs, There's 1 million people. That's most of the population of Colorado and the gambling per capita is significantly below that of the other markets are well the U S average and significantly below any place for those casinos are part of the reason for that is for years. They had a five dollar betting limit so even though they've had.
Casino gaming for 25 years for over half that time, you really couldn't justify building a nice place because they're betting limits were so low.
Then they were increased to $100 in some places we're built pretty successfully in Black Hawk and then last April betting limits went away completely which allows.
The investment to build a better product, which will result in higher gambling per capita and that's.
Part of why it's such a good market.
Complicated to get into because it's only legal and a handful of places and and assembling the land or a site in either of them is a little complicated but.
But we did so it took us a couple of years in Chamonix. When it opens we'll have 300 Guestrooms now let me compare this with the monarch casino.
Which opened in the fourth quarter of 'twenty 'twenty. So it's been open a little more than a year now they have 500 drops.
Both Germany and monarch have parking garages theirs is bigger than ours, but we also have pretty significant surface parking lots, which they don't have.
We have far more convention and meeting space, a convention and meeting room space than they have.
We could actually see a thousand people for a show in our ballroom.
Don't have anything close to that of the casinos are very similar in size. They both have about 900 slot machines 20 table games.
Okay.
We have less competition will be the only four star hotel or frankly, the only casino until the size in Cripple Creek, they have competition from them Aerostar and.
Jacob Jacobs place and the Isle.
I like Capri, and a few others.
Of course, they're close to Denver, which is the bigger city, where close to Colorado Springs. Those two cities are one hour apart. So somebody from Denver is one hour from black Hawk into ours must.
And Saudi from Colorado Springs is two hours Black Hawk in one hour from us. So are our most important market will always be Colorado springs, but a strong secondary market will be Denver, because people will sometimes travel further to check out a different place.
Anyway, if you look at monarch their public company. They only have two casinos one in Reno and then the one in Black Hawk and they played hide the waiting a little bit they don't break it out.
But you can go back and look historically at what they earned in Reno, and it's been pretty consistently about $30 million to $40 million a year for many many years and.
And then they acquired the Riviera and Black Hawk, which made about $15 million those numbers were broken out by Revere, which is a public company and then.
But if you take monarch's results for the for 2020 one.
Their operating income plus depreciation is about $135 million 137, I think it was and so whether it be D. O T is about $137 million.
And probably 37 of that is from Reno and $100 million roughly is from Blackhawk.
And so.
There were three fifth their size and number of Guestrooms are similar in size in terms of casino capacity, a much greater convention space and everything else not unreasonable to expect us to make $50 million a year.
Once we're open and mature.
So and that will be open in the second quarter of 'twenty 'twenty three like Louis meant I mentioned you can see the details on the website.
Now, let's talk about Waukegan for a moment, we were chosen them through a competitive process to develop this.
And December .
And our whole proposal as a $500 million project.
About 100 of that is for the temporary.
And the temporary is it going to go on the same 40 acres that the permanent goes on but at the opposite end of it. So it will use the same parking lot and people be accustomed to go into that location to go to a casino and to get opened quickly. We have purchased a sprung structure, which is a.
Company makes these you'll see them around the country. Tesla for example is an assembly line inside of one at the moment.
And its an aluminum structure and then your stretch kibler over it puts installation on the inside and so ours, which is a little more than $4 million and of course a million to put it up ours covers and then closes one and a half football fields.
So it's a very large sprung structure and in that one and a half football fields there'll be oh.
Casino with a thousand slot machines 50 table games.
Two large restaurants, we've also bought a diner.
Which would be attached to it. So we have a third restaurant, it's hard to have a high end restaurant and a tent with the 47 foot ceiling like our spring structure has so we decided to to buy a diner. They come like a double wide trailer and you will come up and and it'll be a diner like the fog city diner in San Francisco, which is.
The very high end restaurant that happens to be on an old diner and so it doesn't mean you can't have a good menu and a diner.
So we will have a full on casino three restaurants, a big surface parking lot.
And we'll be in at about $100 million. So a lot of that 100 million is really money that's being spent towards the permanent. So for example about a third of it is the gaming tax that we have to pay upfront.
When we opened our $25 million is slot machines that will end up in the permanent as well.
The preopening costs, well, good chunk of that or the bulk of it is hiring and training employees well the when we opened the permanent the employees from the temporary will shift over and so even even the preopening cost a good chunk of that is actually applied to the permanent. So we're spending 100 million now and we'll have to see.
<unk> 400 million to get the permanent open.
But there's three years in between we will operate this temporary for the better part of three years and.
And let's assume just hold this number for a second let's assume it makes $50 million a year, so it will generate $150 million.
During the construction period of the permanent.
Bear in mind, we already have or interest expense covered by existing casinos. So if you take $400 million is the additional expenditure that we have to put out to get to the permanent.
But we're going to generate 50, a year for three years, then we need to 50 incremental cash to get to the permanent.
Now what do we expect the permanent and temporary to make well the closest casino to US is the rivers casino, which is about 32 or 33 miles away and they're doing about five and 500 million in gaming revenues and the place that was limited to 1200 slot machines or expanding it now.
That's a candidate with typical margins you have in regional gaming, that's probably $200 million a year in <unk>.
We don't expect to make that much there in the more densely populated area.
And be great. If we could do to once you might but we don't expect that.
Now we're in the town of Waukegan, which about 80000, it's kind of an old Rustbelt town pleasant town, but but.
But typical of a lot of towns in the Midwest.
But it is the county seat of Lake County Lake County, Illinois is 700000 people and it's the 27th wealthiest County in America.
And we will have the only casino there.
Now if I just take the population of Lea County.
And assume they gamble $300 per person that would be $200 million in revenue.
And on that we would have E. B D O T of close to $100 million in the regional gaming type of margin. That's ignoring the other 11 million people, who live within 90 minutes of our site.
So it's not unreasonable to think that the permanent could do 100 million of V. B D O T M.
And you know the questions how how many of those people will come to a facility that is.
I'm not a splashy as the permanent and temporary it will not be it's after all in the Splunk structure now we are spending some money to do some interesting things to it so that it will give you a good experience and it'll be an interesting place and so on so.
That's where I get back to my 50, you know maybe we do.
Half of what the permanent can do so maybe the temporary does 50 on the permanent does 100 and those are all just guesses.
But it leads to.
The following analysis, let's let's look at the timeline.
We opened a temporary casino in the third quarter of 2022, and we're scrambling, but that big tent arrives in a couple of weeks I'm, we're trying to get the permits pulled so we can put in a ring foundation. So we can throw up the tent when it arrives arrives at I think 28 trucks.
Big trucks, and that's a big deal.
We've already got the slot chairs and route we're picking up the slot machines, you know all of the things Oh, we have a job fair in a in about a week.
It's starting to tick up.
<unk> people to hire and department heads and so on.
So there's a lot of work to do but we do expect to open in the third quarter of 2022 .
Then in the second quarter of 2023, we expect to open Chamonix.
We will start construction on the permanent place in Waukegan and late 2020 two.
No the construction.
Through 'twenty two 'twenty three will be funded from internal cash flow in the early stages of construction.
Our big dollar months that the the.
The amount you spend per month goes up kind of exponentially.
For the first.
Year, and a half really the construction on the permanent.
Can be pretty easily funded from the profits of the temporary then in February of 'twenty 'twenty four our bonds become callable.
And at that time, our E. P. D O T should be in the ballpark of $150 million.
50 on today's casinos 50 from Chamonix and 50 from the temporary.
It won't be exactly that but portfolio theory suggests some will do better than we expect some of the worse and maybe we end up in that ballpark.
150 versus our existing debt of 410.
Is kind of under Levered compared to most casino companies, but.
But we should be able to replace that for 10 of that with call. It 650 of debt issued new bonds.
Or maybe it's bonds in our bank agreement, we'll see what the market conditions are at the time.
But 650 on $1 50, a V. P. D O T is acceptable leverage, especially since the incremental $2 50 is used to build the permanent.
And so that's how we get the remaining money to build the permanent and then the permanent would open in 2020 five.
Three and a half years from now.
This is where we think it will shakeout.
So at that point.
Hum.
Actually 20.
Three three years, three and a half years from now so you start adding it together.
That point you've got.
Yeah.
50 from today 50 from Chamonix, and now 100 from the permanent so the company's got about maybe $200 million V D. I T.
I don't know, whether we'd want to sell it at that point or continued to run at the other the things come along that might be good, but but let's so let's assume it was worth 10 times E. B D I T at that point.
And if you look at what you know the Mirage is getting sold four or peninsula is getting sold four or even the price at which our bally's is either a go private it gets sold for you know 10 times is pretty reasonable these days, especially since we haven't done the apical practical thing we own.
All of our real estate or we lease it with an option to buy it and.
And so would we'd get a pretty good multiple if we did try to sell the company well at $200 million at 10 times, that's 2 billion.
Subtract the debt that we would anticipate to have won the permanent opens of 650, that's 1 billion $3 50, we have 37 million shares outstanding.
And if that's that's something north of $30, a share which is a quadruple of our stock price from where it is today.
Even though we had the best performing stock in the industry last year.
And we think we still have a very bright future ahead of us. So it will go to work every day thinking don't screw this up and the weather.
Whether we do anything else or not is irrelevant, we don't want to screw this up with just one execute on what we have.
And I guess, that's it Lewis did I Miss anything.
No you're good Dan you want to take some questions yeah that'd be great.
Ladies and gentlemen, if you'd like to ask a question you may do so by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to like your signal to reach our equipment.
Again, Please press star one to ask a question, we'll pause just a moment to give everyone an opportunity.
Oh for questions.
We'll take our first question from Ryan signal with Craig Hallum Capital Group. Please go ahead.
Good afternoon, Dan Lewis.
On all of the recent success in awards in licenses and everything else I appreciate the comments as well.
Great.
<unk>.
Yeah, maybe switching back to the base business you answered most of my questions on the temporary.
Germany and everything else, but.
Can you comment on the core business. The casinos you have today performance in December versus January versus February .
Impact omicron potentially add there.
Well.
But our business has stayed strong I mean, the omicron lead we had.
Issues like a lot of businesses with a lot of our employees getting them a crown and we had to scramble to fill in but I think that's mostly past us.
You know our business is stayed pretty steady.
The the biggest operating struggled we have is really in Colorado, where we've got no surface parking.
And Oh, we've managed to kind of continue to make some money despite that but it's pretty torn up and.
And.
You know of course, it's it's kind of weird to be sitting here talking about you know putting slot machines in waukegan and stuff when.
There's work going on in Europe .
You know, obviously, the whereas no direct impact on us price of gasoline going up and it was a distraction and so on but at least historically when the price of gas went up it was good for regional gaming.
When you get on an airplane and fly to Las Vegas.
You're actually burning more oil sitting in that airplane. Then you are getting in your car and driving to a regional casino. So the price of gas goes up the relative cost are coming to us versus other vacation says it's cheaper we don't want to go up as much.
So.
Not that I want the price of gas to go up the but when it does I don't think it affects us very much a matter of fact might even be a.
Ironic positive I guess I'd, rather the price of guests not go up but.
Cause I back guests to an end.
All of the things in the economy and the reasons, it's going up but but business wise I don't think it's a negative for us.
And overcrowded I think is kind of behind us and.
You know hopefully the pandemic is somewhat behind us I mean people are wearing masks anymore.
And I view it as.
Anybody who hasn't gotten vaccinated. It's now at this point almost like somebody who was a heavy smoker, they're taking a personal health risk.
And.
And similar to <unk>.
I don't want to be.
On an airplane with people smoking well, it's not allowed to smoke because of the secondhand smoke and so on but so it's kind of similar it's going to become part of just aren't normal lives and.
And we'll just deal with it and.
Uh huh.
So anyway, I think things are pretty normal in pretty normal is.
Pretty much same results as last year so.
Good Dan you mentioned.
The surface parking issue in Colorado construction, all around have you noticed an improvement since.
You added the valet parking and shuttle services, there or is it just kind of this is the run rate given all the construction or out.
We we put that in just as we were closing off our surface parking to further construction so.
It always had kind of an offset and I think if we hadn't done it we'd be really struggling and it does cost us some money to do that.
But we've held their own but I'll tell you what the differences when you look at Colorado as a whole.
Since loss limits went away market's up like 40% and blackhawk's the biggest piece of that but even.
Cripple Creek is up pretty strongly.
Not and so we had one competitor at 100 room hotel, we understand they're doing very well with that it's.
It's kind of a.
Fairfield Inn type of hotel, it's pretty a simple hotel, but the market was starving for room. So they added 100 acceptable rooms, and and I think they're doing well with that and and even those when we back out what we think they're doing and look at us. It's like we thank everybody and Cripple Creek is up except us.
And the only reason we're not up is we don't have perfect.
And otherwise we'd be up nicely so, but that's just that's something we'll do work for another year and one Chamonix is open now recognize bronco Billy's, we're talking about Bronco, Billy's, but even bronco Billy's.
It has no parking it's got construction all over it and part of its casino was closed.
Because it's related to the construction and tying it in there.
So I joke with the general manager, it's almost like the guy that money based on when they cut his arm up and he's bleeding and he says I am still here.
Other arm are you still there that's bronco Billy's today, either they're making money despite all the stuff around them. So.
Right.
Good stuff.
One last one for me then I'll turn it over to the others. Just I think you mentioned it a bit but can you talk to the timeline on waukegan temporary up this summer, but it sounds like youre going to run that for three years with the permanent.
2025, I guess, what are you planning to really break or all in the permanent and then accelerate because the bonds being callable in February 2024 have has to do with that or is it just kind of nature of timeline.
No. It doesn't have the the the call date of the bonds are kind of irrelevant accept that that was when we were trying to figure out how to finance that made a logical way to finance the cost of the temporary was to do an add on to the bond deal, which is really kind of two year money because it is callable in two years.
The.
You know, we're moving as quickly as we can we don't control everything. So for example, we have to get certain permits from the city and there are certain meeting set up in the next few weeks two to allow that to happen certain things you have to be approved by the gaming Commission and they've been working very well with us so far and you know we need their permission.
And just about everything we do and assuming that everything continues to go smoothly, we could be open in the summer we actually have a timeline that has this opened for fourth of July but everything has to happen just perfectly for that and that never happened. So don't expect the fourth of July I think if were opened by labor.
Today, it's a hell of a successful successfully quick remember we were just chosen in December .
But oh, that's what we're doing we're moving as quickly as possible in fact, it's kind of exciting I remember like somebody asked me what color or do they want to slot chairs and I said whatever is in stock.
Whatever's in stock and our and you know we've we've rented office is now we've got the we bought an extra piece of land that was pretty important and that.
It hasn't closed yet, but we have it under contract so it will close.
You know, where we're moving so fast and.
And it's actually kind of fun you don't have to time like the more permanent casinos, you really stop and think about things. This is going to run for three years now the state law allows you to operate at a temporary casino for two years.
And then if you're under construction on the permanent the gaming Commission can give you a third year.
And you know our permanent casinos pretty intricate its pretty complicated building I don't think it's possible to get it done in two years. So I think we will probably seek some of that permission.
Otherwise we'd have to figure out some way to partially opened the permanent because it's not a it's not a simple building to build them. So I think it will take the better part of three years, but recognize there is an outside timeline because to go longer than three years and the temporary you'd have to change the state law, which isn't going to happen. So you have to have the permanent open.
And within three years of opening the temporary you really don't want a gap that would be cataclysmic right and because you're going to move the employees over you can move the customers over and so and so if we open in a July or August of this year, we will make sure that we have the permanent opened in July or August three.
Three years out and.
And that happens to dovetail pretty well with the.
The call date on the bonds, that's a coincidence.
Yeah.
Thanks, Dan.
Even though even though it's gonna be a temporary we are working on some things that give it a little more splash I won't ruin the surprise, yet, but it will it will still be a very very special temporary too.
Yeah.
We'll take our next question from Chad Beynon with Macquarie. Please go ahead.
Hi, good afternoon, Thanks for taking my question.
Dan Lewis you'd laid out division for the next five years and I think a lot of the questions that we're going to get from investors going forward will be around waukegan and in Chamonix.
I'm wondering kind of how you're thinking about the current portfolio. There's certainly bids out there for assets. You know you have a few that have put up some good results is there a scenario, where you would look to potentially divest at the right price to help you know maybe some of these future funding needs given that.
A lot of the future and your stock price is going to be determined by the returns at Waukegan and Germany. Thanks.
Yeah.
Well you know, we're a public company I guess anything is always for sale, but.
We don't have a need for the money I kind of outlined how we expect to to do it.
Listing bonds or.
Eight in a quarter and we issued them at one O to source about 8% money in or we could borrow money under our credit facility at 4% so to sell a property in order to get cash.
You, you're comparing that against borrowing costs are 4% floating at 8% fixed so it'd have to be a pretty good multiple to make that oh.
Attractive and frankly, I like the gathering diversity I mean, you know today.
We have for income comes from the one property at the silver slipper in Mississippi, which is a great property.
<unk>.
But we're gonna be far more diverse and a couple of years. So I guess waukegan will still be the giant, but but it's kind of nice to have some diversity.
In our northern Nevada, we have the two small properties, but the same management team runs both up which allows us to afford a better management team than either one could probably afford on its own and so.
So even there it's like if we get offers all the time for stockman's, because I think a lot of individuals' or like Hey, that's something I can afford to buy myself, but you know.
It makes a million a year and by sharing the administrative costs with the casino at the Hyatt Tahoe. It works if you.
Sold one of those too you'd have a management team that's kind of expensive to be carried by the other <unk>.
With.
You know in Bronco Billy's part of Chamonix, So I guess I I guess rising Sun. If you were offered a big price, but frankly property is doing real well now and.
It's pretty big property, and we're pretty happy with it so.
Great.
The answer is yeah look I'm never going to say no. If somebody offers us $100 million from rising Sun I will beat them to the bank that'd be great, but I I think that the prices were likely to get for any of our assets were better off holding them.
Uh huh.
Okay, and then I wanted to ask I believe you talked about this during the process of seeking the license in Waukegan.
Is it still your view that.
You know one of the the casino the the Chicago Casino licenses I believe there's three who who are bidding for that now.
That if and when that's finally constructed in operating that that'll have very little impact I think you've noted that you're primarily compete against rivers and then maybe some of the properties over the over the Stateline and closer to Milwaukee, but is that still your view that you know there are new competitions, so to speak and in the state won't.
[noise] affect you in downtown Chicago.
Well, we we've always assumed that there would be a casino in downtown Chicago, because that was talked about for years. It's been talked about so if you're building a 500 money that was placed with a long term view you would naturally assume that's going to happen.
We would also assume that there'd be a slots at early park that was in our original projections.
Now the Chicago Bears a move in there and there's not going waste Watson Island Park, So sometimes you get a pleasant surprise.
If you look at the geography.
Any buddy go into those downtown casinos would have to drive past rivers to get to us.
And so I I think because of that.
That's it you know you were quite a bit further from downtown Chicago than rivers is so I don't think it has much impact on us.
And and it'll be a little different experience to it may be if you look at the quality of the competition. That's the other thing that kind of drew us to the market was other than rivers all the other casinos in Illinois near Chicago Earl River boats, there 25 years old they got low ceiling.
The smoke kind of hangs in them the multiple deck boats, they don't have to sell anymore.
But they had to be on a river well the rivers aren't near freeways.
And so you have to get off the freeway and drive and you know often kind of circuitous two lane roads to get to.
Almost all of the casinos in the state. The only exception is our rivers now you can go that's part of why you you go over to Indiana now, Indiana has the hard rock casino, which is right off the freeway.
And the the giant Caesars place in Hammond is pretty close to the freeway.
But those are on the far side of Chicago from Us, but if you look at Elgin Joliet Aurora, they're all old riverboats, and so downtown Chicago I'm sure will be a nice place because they're all talking about big expenditures ours is gonna be nice place and and between the two of US will have the nice.
As casinos in the Midwest.
But a lot of people that's right, yeah and that that drive from downtown to us is a little bit of a hike with traffic and everything else. So the nice thing about our location is where kind of talked up in that northern suburb really all by ourselves.
I won't go over everything that Dan just said, but.
When you get bored and look at that map and look at the nearby casinos youll realize pretty quickly where the closest casino to 1.2 million people that is.
That is that in itself is a tremendous <unk>.
Tremendous benefit and we probably will be the closest casino to one 2 million people, both before and after the Chicago Casino opens it doesn't doesn't affect that math at all.
Okay. Thanks, and then just one last housekeeping, what's the I guess what percentage of the the Chamonix construction Bill has been finalized at this point.
It's better than 70% I believe has been subcontracted to the subcontractors might be higher than that but I haven't checked with a construction guy lately.
Okay, but it's it's it's.
And that means it's either work, we've already done or it's already been subcontracted too so.
Great. Thanks, Dan I appreciate it guys.
Yep Yep, Thanks, Chad.
We'll take our next question from Edward Engel with Roth Capital. Please go ahead.
Hi, Thank you for taking my question and congrats again on chicken and I. Appreciate all the color on this call I'm, just kind of getting back to that Capex budget. It looks like you lifted it a couple of dozen million on shop knee versus the the last time, you kind of check in.
Was that all just things like cost inflation and supply chain issues or is there anything incremental that you're kind of doing there.
No. It was sadly it was oh, but what you said supply chain issues, and frankly unemployment being so low in Colorado getting people to work on the backside of Pikes peak at 10000 feet.
We we had to pay up our subcontractors had to pay up I mean, our original budget of 180 was based on the design, we had and the experience of our contractor who is the largest contract with the state or the people who build to meritor in Black Hawk and and we were all kind of shocked when we.
To put things out to bid how much higher it was and then I think there's a lot of things that feed into that you know like some of these tariffs that were put on by a former president of steel from China and places like that they havent gone away and as you know for whatever reason the following administration kept the tariffs in place.
Which allows the U S steel companies to charge more than they ever had and Oh I don't know that so we were we've.
We've been fighting for that for quite a while and in fact.
When we made that change and.
And the budget for Cripple Creek.
I had Alex or development Guy I'd go back to our contractor and say, let's rethink what is this thing really gonna clusters in Waukegan, because we had presented the whole building and everything.
And the state came back and said are you willing to.
Pay us more in taxes upfront and our answer was you know what.
We have figured out that this building this beautiful sexy building. We showed you with all these restaurants and everything isn't going to cost 400 million, it's gonna cost 500 million and that's our increased bid we will build what we promised you, but it's 500 billion that 400 and that increase in that budget was dictated by what we learned in Cripple Creek.
Rick.
So.
So hopefully we have that.
Sort of issue taken care of in this expanded budget in Waukegan.
Time will tell but but we went to the fat side of what we thought we could build it for.
Perfect. Thanks for the color and then I'm just kind of on the quarter and I guess the last couple of weeks.
Have you seen any change in behavior since the mask mandates were witnessed in Colorado, Nevada.
Would it be fair to say hopefully things have kind of picked up above where they were probably the first quarter and then some that the fourth quarter as well.
No it is.
It's been stable I haven't seen an increase because of it.
I see people smiling, but basically we're smiling they had their masks I don't know.
I think everybody's kind of happy to have the mass gone.
But I don't I haven't seen a lift in our business because of it I think.
Frankly, some of our markets people you know we were required.
They were required to wear masks they were barely wearing masks.
Okay.
And so it was they were wearing masks, but half the time they were down around their chin.
[laughter].
Terrific.
Yeah, I don't know.
Nowhere is that yeah no no.
No complaints for what it's worth no complaints about where our business sits today.
If that helps you.
Actually I I for whatever reason that maybe it was a pleasant surprise, but historically I found.
Olympics were bad for our business people stayed home and watch television.
And so I kind of expected we'd have a soft period during the Winter Olympics and we didn't I don't know whether that meant that not as many people were watching or.
Maybe it was kind of like Hey, I don't have to wear masks come in and go out I don't want to watch the Olympics I dunno.
Our business been fun, nothing nothing unusually up or unusually down so.
Yeah.
Okay.
We'll take our next question Evan Levine with Midocean. Please go ahead.
Hey, David Hey, Thanks, Hey, how are you guys. Thanks for taking my questions. First question just around the current operating environment with respect to gas and food prices I thought your color was interesting can you guys talk about some of the moving pieces around kind of keeping the guidance.
<unk> or the base business. The same do you think perhaps like older customers, who haven't gambled because of Covid, maybe have more income will come in that will offset some of the potentially weakness from the higher gas and food or do you just not expect there to be really much of a drop off and then can you kind of speak also.
On the margin side do you think you'll be able to keep up that kind of a robust margins just kind of like a jumbled question, there, but just a little bit more color around just the inflationary environment are would be helpful. Thanks.
And in there you had a lot of questions, but but I I am the oldest segment back when before there were vaccines and stuff, we saw definite falloff of gambling by older people.
Fortunately was offset by younger people.
We've been able to maintain the younger people and the old people came back that happened really a couple of quarters ago and at this point, we're kind of back to a normal eight spread.
We're doing the same revenues with a lot less marketing dollars, which is part of why our margins have improved and that's a function of putting the konami system and at the right time and frankly.
Saying, Hey, you know being smarter about our business, but when we went to the pandemic closures, we kind of went to zero based budgeting and examined everything and as we reopened we and frankly I think a number of the other casino companies looked at it and said what $5 blackjack tables don't make money and let's stop offering it we don't have to have a two for one.
[noise] buffet special midweek et cetera, et cetera, and and that's helped our merchants.
On.
Yeah cost of food is obviously going to affect our cost of food as well and we will seek to pass that through so it'll again cost more now a lot of our customers are comped anyway, but they'll end up burning through their points faster when they get comped.
They probably don't perceive that as much so.
And then on the cost of gas I mean I just.
You know step in and think about our customers come.
Almost predominantly by car.
Very few we get a few people flying for Tahoe, but it's almost everybody is driving.
And you know when you have two or three people in a car typically.
And you're driving you know.
Myles.
You know that's that's 50 miles was two gallons of gas and you're dividing it amongst three people and so whether the gas as you know $3, a gallon or $5, a gallon or $8 a gallon doesn't really change the cost of that trip very much because you're really not using that much gas and.
Now if you're if you're living in in Cleveland, and you're in Cincinnati, and you're thinking of going to Las Vegas, Yeah. It takes a lot of gas even in a 737 for you to physically move from Cincinnati to Las Vegas.
And that's why I think in the past when the price of gas went up or.
Or down it doesn't seem to affect us very much because we're we're kind of the easy alternative.
No.
Interesting.
Okay. That's helpful and then on the skin point.
My sense was that that before kind of this announcement the way to think about the skin revenue, which is almost 100% pass through was kind of in the $7 million to $9 million range and correct me if I'm wrong.
That maybe eight to 10.
Do these additional scans, how how do you kind of frame how much more more revenue that that might add to the business well.
We had a couple of things one is they paid a market access fee upfront.
And so Churchill, which was one of our partners in both Indiana, and Colorado announced they're exiting the business, which was disappointing and when when a when we did the deal with Churchill.
They they had the opportunity to be the draft kings of this.
The online betting had been legal for peer mutuals for years and they had a website for years and they even had an office in mountain view, California.
And then they kind of dropped the ball they didn't they didn't step up the way. Some of these other guys did they ended up with a minuscule market share and they were losing money out so they're exiting the business which is.
And so there are other people who are still embracing the business, who will step in and now the market access fee they paid.
Which was from church or with $3 million Alex.
No no 2 million totaling million each 2 million total great. We've only amortized because you have to amortize that over the life of the contract. So we've only taken you know a small piece of that into income.
And so we will it's not refundable, we'll get it back in income and will find replacement players and there are other players we wanna be into it and there'll be another market access fee and there'll be a commitment with somebody else, but then the Illinois license for sports betting, which is new is significantly more.
Able than any of the others.
And so we were at guaranteed minimum.
Louis was $7 million a year from the suite.
Yes, that's 7 million without the market access fee and seven six if you include the annual cameras.
Yeah, that's right yeah, the amortization or is that with Churchill, leaving.
No that shrink some we've theres confidentiality clauses in each of those contracts. So we can't tell you exactly which one you choose but if you said well you just lost two out of six because churchills pulling out that's true, but we hope to replace them.
And so there could be a gap because the replacement entity will have to get licensed and and so on.
So you know that the $7 million a year could shrink a little bit as we find a replacement and get them licensed but then when you add on Illinois I'd be surprised if we're not north of 10 in that segment.
Illinois, Okay, So, Illinois, plus the replacement, which gets you north of 10.
Yeah.
Yeah, there's no guarantee that the replacement will be on the same terms as churchill might be better might be worse, but there are companies out there.
You know you say you go from seven as of March 15th or guaranteed minimum would be something less than seven if you set a third less than seven you'd probably be in the right ballpark.
I'd be happy to tell you the number but I can't because of confidentiality clause at Churchill was insistent that but if it was the third you'd go from seven to what 4.7, then you find replacements you're back to something close to seven and then the add Chicago and you're probably north of 10.
And then my last question just when I think about the temporary this year. If you talk about August opening something around there.
Hum for for EBITDA, there for the year, obviously, you're kind of exiting the high season. So you wouldn't exactly do.
Like a third.
50.
But would it be something like I'm, just thinking for EBITDA for for the.
The cap rate for this purchase this year would it be like a quarter. Sometimes 50 is that a fair estimate or am I not thinking about but even even even with her board. We said you know assume that our existing business does X and it's so uncertain. When we can open. It. We said you know assume that the first month where AUM.
And we earn zero because the first full month. So let's say you opened July 15th.
When you first open any casino, whether it's temporary or permanent you have much higher costs. You ended up hiring additional employees because employees don't really know their dropped yet and you know some are gonna quit they find out that you know serving cocktails and a casino isn't what they really want to do in life and so you have a lot of turnover a lot of training.
So you really don't make a lot of money even belong Geo did not make a lot of money in its first month or two.
And then you start getting it under control. So if you open you know.
July 15th assume you wouldn't make any money in July probably not much in August maybe nothing.
In September you start, making money and by the time you get to October maybe you're making for a million a month you know something like that so how much ends up in this year will depend very much on exactly when we can get open it's not completely in our control.
Okay excellent.
Ron you're not wrong, David an end and that you can get some harsher winter weather over there in that Chicago, but knock on wood hopefully the sheer volume of people that we have right around us will help offset much of that seasonality.
And also you got to look at loose you get people, who will want to see the new place where the first new casino opening.
Chicago land in 10 years, probably.
I don't know how long I forget how long rivers has been open, but it's pretty close to 10 years now.
Yeah, and then making half a billion a year in revenue by the way [laughter].
Well go to the best of luck, Yeah. So I mean in terms of you know having in earnest, but I'll try to put a number on this year.
Job I used to do as well as I guess picking opening date. Your guess is within that third quarters, but as good as mine. So if you say assuming it opens August 1st then they wouldn't make much money in August they make some money in September and then $4 million a month thereafter and use that number but you're.
In a world, where we're moving as quickly as we can to get this open.
And exactly when it is something that a lot of things are not in our control. So.
With that Dan we've we've run out of time so.
Frida close it out.
No. That's it I mean, we're working hard it's pretty exciting.
We've got a great future and.
We've got a great team of people and everybody has a best in shops on this and.
Everything you know Waukegan is a game changer for us and it and it and it came at the right time, its the right size it fits in perfectly and and you can see once you put that together with Chamonix.
The five year.
Strategy is as good as it gets and no I would just need to execute on it. So thank you everybody.
Take care. Thank you everyone.
Ladies and gentlemen. This concludes today's conference. We appreciate your participation you may now disconnect.
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