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Edited Transcript of FLL earnings conference call or presentation 7-Nov-18 9:30pm GMT

Q3 2018 Full House Resorts Inc Earnings Call

Las Vegas Jan 21, 2019 (Thomson StreetEvents) -- Edited Transcript of Full House Resorts Inc earnings conference call or presentation Wednesday, November 7, 2018 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Daniel R. Lee

Full House Resorts, Inc. - President, CEO & Director

* Lewis A. Fanger

Full House Resorts, Inc. - Senior VP, CFO & Treasurer

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Conference Call Participants

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* David Brian Bain

Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst

* Gary Ribe

* Jim Marrone

Singular Research, LLC - Equity Research Analyst

* Jordan Maxwell Bender

Macquarie Research - Analyst

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Presentation

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Operator [1]

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Good day, everyone, and welcome to the Full House Resorts third quarter earnings call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Lewis Fanger, Chief Financial Officer of Full House Resorts. You may begin.

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Lewis A. Fanger, Full House Resorts, Inc. - Senior VP, CFO & Treasurer [2]

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Thank you, and good afternoon, everyone. Welcome to our third quarter earnings call. As always, before we begin, we remind you that today's conference call may contain forward-looking statements that we're making under the safe harbor provision of federal securities laws. I would also like to remind you that the company's actual results could differ materially from the anticipated results in these forward-looking statements. Please see today's press release under the caption forward-looking statements for the discussion of risks that may affect our results. Also, you may -- or 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 various press releases that we issue. And lastly, we're broadcasting this conference call at fullhouseresorts.com where you can find today's earnings release as well as all of our SEC filings. And with that all said, we'll start digging into the quarter.

And so just really quick, if you go back a year ago and listen to our earnings call from the third quarter of 2017 or read the press release, we called out a $675,000 benefit related to the settlement of some outstanding parking garage litigation. That benefit was included in 2017 EBITDA, and it created a challenging comparison for us here in the third quarter of 2018. Despite that, we still grew adjusted EBITDA over last year up to $6.5 million for the company as a whole.

And so digging into each of the properties beginning with Mississippi. Silver Slipper had 2 unique aspects going on this year. One was that parking garage settlement that I just mentioned, which was a $675,000 benefit. We also had a competitor that underwent a pretty significant $75 million expansion that opened up in June of this year. Despite both of those items, Silver Slippers results grew. Net revenue this year was $17.9 million. That's the best net revenue that we've ever had in the property's entire history. Gross gaming revenue was its best quarterly figure since its first year of operations back in 2007, and it missed the record by only about $200,000.

Guest counts were the highest for any quarter since the first year of operation, and adjusted EBITDA was our best quarter for any third quarter again since opening year. So pretty proud and excited at the work that, that team has done, and nice growth there.

Looking over at Rising Star, we did show some signs of strength as well. Despite our revenue decline, their EBITDA increased. Part of that is we have a great new general manager there, Ben Douglas. He transferred over from our Stockman casino. He's really gone in and reinvigorated every bit of the processes over there from our labor levels to how people are performing to ax marketing inefficiencies just going down the line.

Bronco Billy's. We had flat revenues for the quarter, and we continued to be impacted on the labor side from the minimum wage increase. We also purposely left our labor counts a little bit high. Part of that was really in preparation for the Christmas casino that we just opened up. Dan will give you quite a bit more detail on that shortly, but we really -- we worked on that almost completely in-house. Everything from designing the Christmas casino, the decorations, the actual outfitting of every bit of that casino was done in-house and done by that Bronco team down there. So kudos to that group. It is a beautiful place, and I'll let Dan give you a little more detail on that.

And then over in Northern Nevada we had another pretty strong quarter. Northern Nevada, as you know, has 2 pieces to it. There's Stockman's Casino and Grand Lodge. Stockman's had a stable quarter versus the prior year. We continued to be excited by that market because of the growth that's happening over at the nearby naval base. And then Grand Lodge, if you recall in the middle of last year, we opened up a renovated casino, a pretty significant renovation, and we're seeing the tremendous effects of that renovation now.

Thinking a little more into the current quarter that we're in, we -- we're pretty excited by what we think is to come in the fourth quarter and upcoming first quarter. A year ago, we had bad weather issues. And if you were to look at the fourth quarter of 2017 and the first quarter of 2018 and compare those numbers with the year prior, the weather issues cost us about $3.4 million in EBITDA. And so here we are sitting a year later. We feel very, very good about the easy comps that we have upcoming. We just finished October. I will tell you that October, we -- the best way to describe it is extremely significant increases in EBITDA versus prior year. So that's all that. You want to give some highlights on some other stuff, Dan?

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Daniel R. Lee, Full House Resorts, Inc. - President, CEO & Director [3]

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Yes, a few things. We'll point out that when we came in, a lot of these properties were pretty neglected 3 years ago and so over time we've improved each property. So I think our kind of deferred maintenance is pretty minimal at this point. And that puts a pretty good floor towards future growth. The -- if you look at the fourth quarter and the first quarter last year were -- there were some weather issues going on and frankly the costs got a little -- like the revenues went down, we didn't react fast enough for the costs and so we ended up below the prior year periods and we have pretty easy comparisons going forward now and frankly we should be able to be what we did 2 years ago in the fourth quarter and the first quarter and we're off to a good start.

So on kind of more growth orientation, our ferry is up and running, it was a very complicated thing to do with the ferry running between 2 states on a river controlled by the federal government, so a lot of regulatory hurdles there but we got it done and we started intentionally somewhat slow, it didn't operate 14 hours a day at first because we wanted the crew to get experienced. We also part way into it, we had operated it about ten days and there was a very windy day and this ferry is a barge with a tugboat that's tied up alongside it, that's the way virtually all of the ferries along the Ohio River function. And that way the -- because the Ohio River is a pretty shallow river at the shoreline and so the propeller on the tugboat is at the deep part. And anyway, it was a windy day and it broke a cable between the tug and the barge and so the -- we halted it for a couple of days to strengthen the cables and the hardware to make sure that it doesn't happen again and that's why it only operated 22 out of 31 days in the month.

Nevertheless, it carried 10,000 passengers over that period, we're averaging over 200 cars a day. We'll do 350 to 400 cars on a weekend day just the fares are covering our cost of running the ferry and, of course, it's bringing more people into the casino. So we're doing that quite well there.

Tomorrow we turn it over to Santa Clause and it becomes the Christmas casino for about 2 months. This will be the fourth year we've done this. We brought in the live reindeer again which are always a popular draw. We have a farmer we rent live reindeer from. We always got some criticism in the past that we haven't even celebrated Thanksgiving yet and we're introducing Christmas casino. Of course, we don't want to go and hang up hundreds of thousands of dollars of Christmas décor just for a couple of weeks. So we do stretch it as much as we can.

But this year we have reacted to that, not only do we have live reindeer but we have a flock of live turkeys and we have a hay maze which are kind of Thanksgiving oriented, all kind of tongue in cheek and it's a little bit like a theme park, you have to kind of add something new and different each year. This year in our showroom there we have like a large space that doubles as a ballroom and a showroom. We have a dinner theater play which is a musical version of the movie The Christmas Story with the little boys trying to get the BB gun rifle; very popular movie. There's now a musical play based on it. And we will be featuring that on weekends during the holiday season. We also have a new Christmas tree that has animatronics ornaments on it and we have a simulated North Pole which a column of ice with a cooling system to keep it frozen. But we've also got kind of an exciting drawing going on. If you go there and play, you can enter into a drawing that we will hold in February for a trip for 2 to the actual North Pole. Working with a company called Polar Expeditions, it's about a $60,000 value but you can actually go to the North Pole if you want. You end up flying to a town called Longyearbyen which is an extreme Northern Norway and Archipelago go out there. And from there you go on a Russian military aircraft that lands on the ice. You spend at least one night in a heated tent and then they put you on a helicopter and of course the icecap moves a little bit every day, so they have to use GPS to find out where the North Pole is that day and they land at the North Pole and you can have a polar drink and then retrace your steps back.

So -- and so we've arranged for a drawing or 2 people to take a trip to the actual North Pole and we think it will be a pretty big draw. We did something similar down at the Silver Slipper this summer where we gave away a Tesla Model 3 which is the car that's very hard to get. We were able to get our hands on one and had it as a giveaway. It's actually kind of funny, the couple that won it looked like they're right out of Duck Dynasty and they wanted the car. And so they have the car. We always give them the option of cash. In that case, we were kind of hoping they would take the cash so we could market the car again but they took the car and that's great and so here we're doing something that most people wouldn't even think of doing on their own. So it's -- having a lottery of dreams, if you will, if you want to go to the North Pole, come on down and put your name in and you could win it.

Now the Christmas casino has been successful at that property for 3 years now, this will be the fourth, and it took what we're money losing months and made them profitable months which helped the property quite a bit. In Colorado we ended up with a different situation as we started assembling the land to build a 4-star, 4 diamond hotel at Bronco Billy's, one of the landowners that had land that we really kind of wanted, maybe needed, also owned a historical hotel with 12 rooms in it and a non-historical building that was built to house the casino in the 1990s. The casino operator in that building had gone out of business. It had different names but I think the most recent name was called Big Jim's. And so the owner of this said, well, if you want my land please take everything I have. He and his wife are in their mid-70s and he was looking to just move on. And after some negotiation, we agreed to buy the hotel at least the casino with the right to buy it and bought the piece of land where parking, part of the parking, garage goes.

And the lease is pretty reasonable. It's $2 -- low $200,000 a year and we have the right to buy it for $2 million, it escalates up over time. When we looked at the results at Big Jim's, it didn't make money but it didn't make money because it was a small -- it was a small freestanding casino, it had to have its own accounting department, surveillance department, HR department, slot system and everything else. And it's about a hundred feet away from Bronco Billy's. So it does not, if you walk down the street, there's 4 storefronts that we don't own between this building and Bronco Billy's but it's on a pretty key corner that we're not on otherwise. And that was important for us to be at that corner because we needed to tell, in the future, we needed to tell people to turn right at that corner to get to our parking garage. And if you didn't own a piece of land at that corner, I wasn't quite sure how to get that message out.

But it also does tie in, not at the street front, but at the back and so we were able to run fiber optic lines and so connecting to Bronco Billy's and so we can operate it as an annex to Bronco Billy's and so we don't have all of the overhead that Big Jim's did. So if all we do is the revenues that Big Jim's did, we can make money on it. But then we thought, we don't want to just open something called Big Jim's, like most of the casinos in Cripple Creek are kind of all of this kind of old, faux western gold rush theme and we just wanted to be different and do something that would bring people up there. We had had some experience with the Christmas casino because of Indiana and so we said, you know what, let's make this a year-round Christmas casino.

A lot of tourist towns will have a year-round Christmas store. Obviously it probably draws better in the winter than it does in the summer but there's a big Christmas store in Santa Fe, there's -- I have a friend who has a hotel in Pigeon Forge, Tennessee called The Inn At Christmas Place and she does very well on a year-round basis. And so we decided to make it a year-round Christmas themed thing called the Christmas Casino and Inn by Bronco Billy's and we say by Bronco Billy's so people understand that the points they accumulate there can be redeemed for meals at the bigger casino and so on.

And we opened it with a bit of a splash, a PR driven splash, last week. We hadn't gone up on any paid media because frankly the paid media was so expensive because of yesterday's election. So despite not having any paid media, I will tell you for the first 4 days of the month, and in both the first 4 days of this year and the first 4 days of last year included a weekend, our coin in was up 26% at Bronco Billy's and that's despite there having been a snowstorm on Saturday where, I guess, the road was so icy that a snowplow tipped over and blocked the road for a while. And so at least so far we seem to be off to a pretty good start.

We did have a customer win a jackpot at Bronco Billy's so the net win number wasn't quite as good as that 26% increase but jackpots happen all of the time and the real key number is what's the coin in and the coin in so far has been up very nicely. And so this is -- I think our total investment into the core in this place is about a million dollars. It has a large rotating Christmas tree, it has a hand carved 17 foot tall Christmas pyramid, it's one of those things with the fan on top and if you have a small version there's candles on it and the candles drive the fan and everything rotates, it's kind of a German/European thing. And we had one made in Germany and brought over and installed and then the ceiling has a -- we replaced all of the acoustic tiles with new ones that have fiber optic cabling into it so it looks like a Starry Night and every few seconds there's a shooting star across the casino ceiling.

We've got the quarter mile of Christmas garland, 9 large nutcrackers, a wall with 30 cuckoo clocks on it; not a very big space but it's kind of a jewel box of kind of Christmas stuff and of course we have things like eggnog and a little restaurant in the back that has things that are naughty and nice and so far it's doing very well. And in fact, I also know the slot machines at that particular casino this past weekend did twice as much win per slot machine per day or almost twice as much win per slot machine per day as the Bronco Billy's historical average. So anyway, so it's off doing well.

The bigger move in Cripple Creek, of course, is the hotel and refurbishing part of the existing casino. The first phase of that bigger project is to build the parking garage and the reason for that is the hotel will use up the surface parking lots that Bronco Billy's is currently using and we don't want to put Bronco Billy's out of business while we're building the bigger expansion. So we have to build the parking garage first. We had a -- all of the city approvals were obtained last summer for closing certain streets and approvals of the design and so on. We had a competitor sued saying that the city shouldn't have given those approvals; sued us and sued the city. We won the suit on summary judgment and so we expect to begin construction on that parking garage by year-end.

And once Phase 1 is done and we have the money today and cash flow to build Phase 1, that parking garage is going to take about ten months. It's a pretty complicated construction environment and it's a pretty complicated parking garage because of the way the terrain is. And then Phase 2 we think we can have open in late 2020. We still have to arrange the financing for Phase 2. I don't want to have the negative carry for the ten-months while we're building the parking garage so we're probably 6 months away from where we would go to arrange that financing and we'll deal with that with the financial markets as is appropriate at that time.

The -- so that's Colorado. At the Silver Slipper, that first tower, which we opened 2.5 years ago, is now running about 90% occupancy and definitely helps their casino and everything else stay busy. It's only 128 rooms. We've started the engineering and architecture for an expansion there and it works out. The best way to expand it is to actually go out over the water. There's an old abandoned peer there and we would replace the peer with the hotel tower that goes out over the water. Everything is muddy down there anyway, everything is unpiling, so it doesn't really matter whether you drive the pilings into the sand on the beach or into the shallow water in the Gulf but it is pretty complicated to build that out over the water because of the regulatory structure, the water bottoms are actually owned by the state of Mississippi so we need to arrange a long-term lease with the state and we've got some very preliminary discussions with the state about that. We also will need a variety of environmental approvals and [corp.] of engineering approvals and so on.

We would also look to expand our parking lots which means wetlands mitigation and there's a process to do that although it too is complicated. We think it's probably going to take a couple of years to get all of the regulatory approvals and then it can be built in about a year. So we've started that process, it's a little ways down the road but of course every day you get closer to being able to build something. You're actually generating value for the company.

So in New Mexico, we submitted a very exciting proposal during the quarter for a casino in Clovis, New Mexico. We have an option on 520 acres of land that's almost one square mile and it includes a mile of frontage on the key road coming into town. Why Clovis, other than that's where Buddy Holly made his records, no, it's Clovis because it's the closest location you can be to Amarillo and Lubbock, Texas. Texas is unlikely to legalize casino gaming anytime soon and it's actually forbidden in the Texas constitution and changing the constitution requires a 2/3 vote of the house and 2/3 vote of the Senate and a majority vote of the people which is very unlikely to happen and at least in our lifetimes.

As many of you know, Lewis, Alex and I in a former life at Pinnacle were pretty successful in developing casinos in Lake Charles, Louisiana which we're really catering to Houston which was 2.5 hours away. Clovis is a similar market. There's about a million people in that area called the Llano Estacado and so it's not as big an opportunity as Lake Charles but on the other hand, Full House isn't as big a company as Pinnacle was. But it -- Amarillo and Lubbock are each a little less than 2 hours away from Clovis.

Now the state of New Mexico has a number of tribal casinos and the treaties with those tribes allows racetracks to offer up to 750 slot machines at each track plus a simulcast facility which is really another name for race and sportsbook. Sports betting isn't legal there yet but we expect it will be now that the federal law has changed and the treaties with the tribes allow up to 6 racinos. There are currently 5. So the Racing Commission put out a request for permission, proposals, regarding the sixth. They have 5 proposals. Three of them are in Clovis, which is not surprising. If you just study a map for an hour, you'll see Clovis is kind of the logical place where you're going to generate the most revenues and the most jobs and the most benefit for the state and also the most benefit for the racing industry.

One is in a town called Tucumcari which is a very small town, but it's right off the interstate between Amarillo and Albuquerque. It's a little further from Amarillo then is Clovis and a lot further from Lubbock than is Clovis. So we don't think Tucumcari does quite as much for the state or the horseracing industry as would Clovis and the fifth proposal is in a town called Lordsburg which is extreme Southwest New Mexico and almost nobody lives down there. But it's a couple hours from Tucson and so the thought is they would draw traffic from Tucson but there are pretty large tribal casinos around Tucson, pretty good quality casinos too. So we think it really comes down to the 3 proposals in Clovis. We're the ones with by far the largest piece of land and the most frontage on the main road and the most ambitious project. We're proposing a project that would cost about $200 million and the other proposals are between $50 million and $70 million. Now there's a casino in Hobbs, New Mexico which was built for a little less than $50 million and a year and a half later was sold to [PEN] for about $200 million and it seems to be very successful for PEN , I think they're happy with it and so we kind of looked at it and said this is a pretty similar market and we're happy -- I mean, look, it would be great to build something for $50 million and flip it for $200 million, but I don't know that we would win that contest but we're happy to build something for $200 million that makes a high return investment for a long period of time.

And so that's kind of how we went at it. We're the largest company in this, we're a small company, but in this contest, we're the biggest company. We're the only public company. We proposed to build a hotel with 300 hotel rooms, up to 750 slot machines, a simulcast facility that would be at least a race book but more than likely also a sportsbook before we open. 18-hole golf course, an RV park, 5 miles of equestrian trials, a spa, and then we have kind of a unique approach to the racetrack itself and kind of attempting to reinvent the race industry a little bit. So for example, the slot machines, we talked with our slot provider or slot guys who do the computers in the back, and they'll be able to sit at a slot machine, bet on a horserace and actually watch the horserace at the slot machine.

We have a virtual reality bar where you can -- if you bet on a horse you can sit at a stool at the bar that's a saddle and put on the virtual reality goggles that are hooked up to a…

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Lewis A. Fanger, Full House Resorts, Inc. - Senior VP, CFO & Treasurer [4]

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GoPro.

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Daniel R. Lee, Full House Resorts, Inc. - President, CEO & Director [5]

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GoPro that's on the jockey helmet and actually ride the race without risking life and limb. And then probably the most exciting part of this is what we've termed the moving grandstand which is really a modern electric streetcar which are quite and which accelerate quickly and the seats on it would be all facing the side and set up in tiers and we could put approximately 200 people on it and you can follow the race right up and close all of the way around the track and horseracing has always been exciting, it's most exciting if you're a jockey, if you're actually sitting in the grandstand, it's kind of hard to see a lot of the action so we developed a way to actually see the action.

So about a month ago the racing commission had each proponent make a presentation. They had site visits for each of them. 3 weeks from now in Albuquerque they're having each proponent appear to answer any questions they may have. Most observers seem to expect the Racing Commission to make a decision in the next couple of months. Look, we think our proposal is the best by a pretty wide mark but there are 5 proposals, so I give us 30% to 50% chance of being chosen. I think it's better than 20% chance and if we are chosen, it's a big opportunity for our company.

And obviously we often look at acquisitions and other things we can do to build shareholder value and we have a number of things in the works but nothing yet to announce. Lewis just slipped me a note to point out that if you were to back out that game last year, it always gives the accountants hives when you do that, but if you do it, the Silver Slipper was up about 29%. And the reason why they don't want you to back it out, I get it, we were incurring legal costs basically we came in and the lawsuit already started.

Somebody built the parking garage without rebar in it believe it or not which makes it a pretty unsafe parking garage and we spent the money to repair it, as it recall, it was like $2 million, and we sued the architect and the contractor, and we incurred quite a few legal fees in the process. The architect, if I remember correctly, filed bankruptcy or the other way around. There wasn't a whole lot of money we get from them. They did have some insurance. We got some recovery. And because we expensed the legal fees as ordinary course, which is appropriate, when we got reimbursed for those legal fees and had a settlement, that came through as ordinary credit just as we had ordinary expense. And so it is part of the EBDIT that we had in the previous year. But obviously, it's kind of a nonrecurring part of that EBDIT. So if you're trying to figure out, was it operationally a good quarter, yes, we were up, like, 29%. So that's the answer there.

Happy to take any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question from Chad Beynon with Macquarie.

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Jordan Maxwell Bender, Macquarie Research - Analyst [2]

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It's Jordan Bender on for Chad today. You sort of touched on it a little bit with the ferry boat service. Have you guys seen any new business coming through that or any incremental new royalty sign-ups?

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Daniel R. Lee, Full House Resorts, Inc. - President, CEO & Director [3]

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Well, the first question is yes. It -- the comparisons are a little complicated because last year, we had a marketing program that was very expensive and it drove our revenues but not our income. And so we're comparing against a period where we had kind of exaggerated revenues. But we think if we adjust for that factor, the ferry is definitely contributing to our business, which is just kind of hard to quantify. Your second point is actually a good point. I'll go find out. I don't know the answer, but I'd be surprised if it's not driving more sign-ups because we do reimburse the ferry fare if you are a member of the Slot Club and you go into the casino and you sign up. And so I don't know the number, but I would expect that it is increasing our sign-ups.

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Lewis A. Fanger, Full House Resorts, Inc. - Senior VP, CFO & Treasurer [4]

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Yes. And part of it, too, is we had a date that kept shifting for the opening of the ferry boat service. And so we were hesitant to go out and launch a big marketing program, not knowing exactly when that ferry service would start. But what we did do very recently was go and send out some very targeted mailers to the Boone County, Kentucky side and included, not a surprise, a free ferry trip as well as a free buffet. And so those people are starting to come in now.

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Daniel R. Lee, Full House Resorts, Inc. - President, CEO & Director [5]

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There were -- we went into this. It was kind of a -- went out on a limb a little bit. I mean, I don't think a casino has ever -- to my knowledge, never started a ferry service. I mean, it's a car ferry service. And you think, well, we ran the numbers multiple times, multiple ways, and I guess the first fear was what if nobody shows up. It hasn't been a problem. I mean, on some Saturdays and Sundays, we've had -- we filled the queuing lines and had a backup on the road. And so that -- people are showing up, they are using it. A pretty healthy chunk of those people are ending up in the casino. Now is this just like let's try it once? Is it -- it does seem to be pretty -- weather influences it, but weather influences our business anyway. But there was one day where it rained all day and the number of cars carried was a lot less than it is on days when it's nice, and that was kind of an interesting data point. But if you start running the math and you say like we know we average between $60 and $65 per each admission into the casino, and so if 20% of those 10,000 people now recognize it was only 2/3 of the days in the month it was running and it wasn't even running the full schedule on all of those days, but if you get an extra 1,000 people or 2,000 people or 3,000 people a month in the casino at $60 a head, it moves the needle, and our tax rate there is fairly low. And for the couple of million bucks we spent getting this ferry up and running, it's pretty clear the returns going to be good. I don't think it takes the property to $20 million a year of EBDIT. But do we get a real nice return on what we spent? Yes. And frankly, we're pretty good at that stuff, at finding the small investments that can get us a high return like this little Christmas casino. It's just based on winter weeks operations. It's pretty clear we're going to get a pretty high return on that. And there's other stuff like we built the RV park and it has a nice return. This is at Rising Sun that opened a year ago, and it's building every month now, but I will tell you the return there was a little disappointing. But there is a return and it's probably been more like 10% than 20%, but there's a return. And so I think the -- it's still early on some of this stuff, still early on the ferry, but the early numbers are pretty promising. So...

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Jordan Maxwell Bender, Macquarie Research - Analyst [6]

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Got it. And then turning over to Mississippi. How have you fared against the recent competition? And do you expect any loss of business, especially with this new property openings down the road in Biloxi in 2019?

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Daniel R. Lee, Full House Resorts, Inc. - President, CEO & Director [7]

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Well, the big expansion is in Gulfport at Island View. They spent like $75 million. Island View is privately owned by 2 individuals, and they make a lot of money. And I think every year they seem to reinvest like half of that into something new at the property. And so they've grown to be pretty impressive. I don't think they're getting a huge return on this new casino they did, but they probably are getting a return. In our case, we've done fine anyway. Now it helped because we had the beach club this summer. We had the oyster bar this year, but we also had a bunch of new marketing programs. We looked at it and said, okay, we've got this expansion by competitor; we better ramp up and market. And it worked, and so we had the best quarter it's had since the first year it opened despite the competition throughout that quarter of that expansion. So the -- I think Island View either grew the market a little. If you look at the Baton Rouge numbers in Louisiana, they've been pretty bad in part because Baton Rouge restricts smoking now, which it didn't use to as a city. So the casinos there have become nonsmoking. But the irony is the expansion at Island View is a nonsmoking casino. So -- but you start looking where the -- if they grew the market -- and they may have grown the market some. If they took share, it wasn't from us. It might have been from Baton Rouge. It might have been from the Hollywood Casino that's between us and Island View, and we've held their own. Now Biloxi is quite a ways away from us actually. It's like 1 hour east of us, and the customers to Biloxi come from the East. But I'm not sure which casino are you talking about opening in 2019 because the Scarlet Pearl that opened 2 years ago has not gotten a very good return on their investment. And that's a pretty mature market that's pretty dominated by Beau Rivage and maybe 2 other properties, the Hard Rock and Boyd's property. And it's a mature market. And even where we are -- like, we're pretty happy with how we're doing at the Silver Slipper. But on a trailing 12-month basis, it's something like $12 million or $13 million of EBDIT roughly. And I think if you were to build it today, when it was originally built, it was $80 million, and that hotel tower was another $21 million, and it was built 10 years ago. So if you were to build it today, it's probably $120 million. And at least in the casino industry you wouldn't build the casino for a 10% return. And so I'm not sure the numbers work for somebody to build a new casino in the market. Now the irony is it does work to add to an existing one. Like we can add a hotel tower and we don't have to add to the front desk; we don't have to add to restaurants. We would add some meeting space. We have no meeting space on the property at all. So we would add a ballroom and a junior ballroom that can also be used for entertainment events, but you have a fixed cost of operating what we have. And if you can add some hotel rooms or add other amenities that will drive business to the property, you can make those numbers work. But it's a market where I think it's hard to justify building a completely new place. It's not so hard to justify expanding an existing one, whether that's us or some competitor. Just -- are you aware of something opening in 2019 in Biloxi because I'm not? And there's almost always somebody running around trying to get something financed, but I'm not aware of one actually under construction.

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Jordan Maxwell Bender, Macquarie Research - Analyst [8]

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Pardon, sorry. I just remember seeing the increased competition in the market.

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Daniel R. Lee, Full House Resorts, Inc. - President, CEO & Director [9]

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Okay.

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Lewis A. Fanger, Full House Resorts, Inc. - Senior VP, CFO & Treasurer [10]

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No, no it's -- I mean, you're -- we're pleased with how we're performing right now. I do have to [post-script] Dan really quick because the accounting team will kick me if I don't. Adjusted EBITDA is the best running third quarter opening year but every others that we drew out was true for any quarter. So -- but our net revenue, as I said, is the best that we've had in history in any quarter.

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Daniel R. Lee, Full House Resorts, Inc. - President, CEO & Director [11]

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The Biloxi customers come mostly from the East, from like the Florida Panhandle and Mobile and so on because if you're coming from Louisiana you've got to drive by a whole bunch of us to get to Biloxi and we get -- we don't get a lot of people from Tallahassee and so it's really kind of different markets. Next question?

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Operator [12]

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And next we'll move to David Bain with Roth Capital.

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David Brian Bain, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [13]

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Great. I think we covered a lot of ground but I guess on Cripple Creek, one of your competitors released earnings today and showed margins in the high 30's. And I'm wondering what Bronco Billy's -- does it have, in your view, 30%-plus margin potential? Do you have any intermediate term target margins maybe you could share with us?

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Daniel R. Lee, Full House Resorts, Inc. - President, CEO & Director [14]

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Yes, we saw that earnings and they are impressive margins, to be honest, I think we probably have room for margin improvement. I don't know if we can quite get to those numbers but 38% is impressive in any market anywhere. Yes, part of Bronco Billy's has always been giving away food like we have a $0.49 breakfast that's a real breakfast and it's $0.49 and people queue up on a Saturday, it's a fairly small outlet that gives the $0.49 breakfast so we give beepers and they spend 2 hours in the casino waiting to get their $0.49 breakfast. So it's really about a $20.00 breakfast. But in terms of the accounting, we lose money on that $0.49 breakfast, it's kind of part of what the property does. And Century -- I mean, we have 16 hotel rooms above our casino now. Ten in a place called the American which I recently found out was actually built as a bordello in the 1800's that's kind of half a block away from us and then we have the [Imperial Hotel] that's now part of the Christmas casino with 12 rooms. But Century has probably the best hotel rooms in town, I think I've stayed at virtually everybody and once you're in their rooms they're okay. That -- they're the best rooms in town, that doesn't mean they're great rooms, but they're probably the best in town and what I remember was most unique about it was to get to my room I had to go through a banquet room, which was a bit odd. And so I -- look, kudos to them for that margin. I'm not sure that we can get to that sort of margin but I think we probably have room for some margin improvement over time. So…

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Lewis A. Fanger, Full House Resorts, Inc. - Senior VP, CFO & Treasurer [15]

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Okay, and -- for what it's worth Dave too, we were going into the opening of this Christmas casino using our team to really construct nearly everything in it but there was an active and continues to be a discussion around here, about what now right? And so we hesitated with pushing too much on the margin front going into that opening but trust me when I say everything is being looked at pretty diligently.

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David Brian Bain, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [16]

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Okay, understood. And then if you were awarded the, or if you are awarded the 6 gaming license in New Mexico in the next few months, can you describe the process from there and give any sort of timing milestones?

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Daniel R. Lee, Full House Resorts, Inc. - President, CEO & Director [17]

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Well, we don't know what they will do because they're kind of writing their own playbook and every state does it a little differently but the process that we have seen in other jurisdictions and so this may portend what they'll do is they'll pick somebody and then sit down and negotiate a development agreement with them. Like we have a development agreement now with the city of Cripple Creek and that development agreement would allow a certain amount of time to come up with working drawings and financing and then a timeline to actually start construction and be opened by a certain date and so this license was granted years ago to a place called Raton which I guess means mouse in Spanish, so I don't -- I think they should change the name of their town. But it was going to be in Raton which is up by the Colorado border, not very many people live there and the guy who got it ran around trying to get his financing and never pulled it together. So then the state went to pull it back and they got involved in litigation and it went on for years. I think this time they'll probably be pretty careful to have a development agreement with tighter timelines and if you don't live to it they can take the license back because they want the jobs, they want the tax revenues and all of that stuff and that's a process we're familiar with. I think this will be my 12th casino, 13th casino, and there's almost always some sort of an agreement with the regulators with timelines in it and you negotiate that and you live to the timelines and you have a successful project. I mean, those agreements aren't there to hurt or benefit the company. They're there because everybody wants it to happen, it's a win/win. We make money on it, the state gets tax revenues and jobs and so you're negotiating something that is a route to success. Nah, exactly what their process will be, I don't know, but that would be the normal process.

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David Brian Bain, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [18]

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Okay, great. And then I don't know if this is the best conference call question but anything politically that could be helpful or that we should -- that could be of interest to Full House from yesterday either in (inaudible) or New Mexico or really anywhere?

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Daniel R. Lee, Full House Resorts, Inc. - President, CEO & Director [19]

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In New Mexico, I guess it's just a note. The Racing Commission is 5 members and they're all appointed by the governor. The sitting governor is a republican and she was term limited out so she did not run for reelection. The person who won is a democrat. So you will have a change in the executive office in New Mexico. Now talking to our advisors in New Mexico, they have a pretty high opinion of the new governor, she won quite handedly by the way, she was pretty well known in the state, and she -- they think she's going to be kind of a pro business, wants the jobs, wants the tax revenues, type of governor. Now how does that interplay with a group of members of a Racing Commission who are appointed by a Republican? I don't know. Okay, but I think that's -- time will tell. We don't know. That may cause them to speed up to try to get it done by year-end or the new -- it's not a big state. It's a little bit like Nevada where it's large geographically but most of the people live in Albuquerque, Santa Fe area. So they all kind of know each other. So it wouldn't surprise me at all if the new governor knows some of the people on the Racing Commission and there aren't some discussions behind the scenes how to make it a smooth process but I'm guessing. So in Indiana I think the big thing is that the Centaur Racetracks were sold to Caesars and Rod Ratcliff had been kind of our nemesis in blocking us from getting permission to develop something new in Indiana. Lots of discussions of what might happen, could happen, will happen there. Don't know. Caesars didn't start off on a good footing there. They apparently threatened -- they overlooked something. Those racetracks had a thing where if they changed hands there would be a $50 million transfer tax, unless they changed hands subsequent to a bankruptcy then the transfer tax was waived; the lenders back 12, 15 years ago required that. Apparently Caesars bought them thinking they had both gone through bankruptcy when only one of them had, the other one had done a consensual restructuring but never actually filed bankruptcy. And so when the -- so they agreed to pay a very big price for those 2 racetracks; a couple of billion dollars. And then we're kind of rudely surprised that there was a $50 million transfer tax that somebody had overlooked. We even heard that they might be suing their law firm and all of this stuff but they lobbied the gaming commission and even the state legislature to somehow not have this and they had plans, and they still have plans, to spend quite a bit of money on the [Harris] facility, or Caesars facility that's down near Louisville and I guess they threatened that they might not build that if the Gaming Commission didn't change their mind and not impute this transfer tax and of course the Gaming Commission views it as pretty straightforward, and I think it is pretty straightforward. It's what the law says. And apparently they were so angry at the way Caesars was behaving, kind of throwing their weight around, they fined them $1 million which is like pretty unheard -- I mean, it's not unusual to have fines and we've had some pretty stiff fines for little stuff. I got fined $5000 once for walking through a kitchen without my name badge on and we've been fined $20,000 for cameras going out. We've never had a million dollar fine and I hope we never do. And you have to have proper deference; these regulators -- this is a regulated business and we operate at their behest, their permission, right? And so you have to be very careful. So Caesars didn't make any friends there this past year and I think the guy who caused them to have that fine has been reassigned or maybe left Caesars but -- and so we're coming up on a legislative session here where all sorts of things are going to be on the table and they -- and Indiana is one of those states where the legislature meets every year but on the years where it's an even year like 2018, it's supposed to be a shorter -- well, it is a shorter session and the discussions are supposed to relate only to financial issues. And so something like another casino of some sort would normally be considered on odd-numbered years. So the legislative session coming up could be an interesting one. We'll see.

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Operator [20]

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(Operator Instructions)

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Lewis A. Fanger, Full House Resorts, Inc. - Senior VP, CFO & Treasurer [21]

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Oh, I'm sorry. I was going to say, it's probably time for just one last question.

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Operator [22]

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Okay, and we'll take that from Gary Ribe with MACRO Consulting.

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Gary Ribe, [23]

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Actually, my questions have been answered so I don't have anything but good job on everything.

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Daniel R. Lee, Full House Resorts, Inc. - President, CEO & Director [24]

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Okay, thank you very much.

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Lewis A. Fanger, Full House Resorts, Inc. - Senior VP, CFO & Treasurer [25]

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Well hold on, there's one last person. Thanks, Gary. Thanks for doing that. We've got one last person in the queue then, let's take that last one.

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Operator [26]

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All right, and we'll move to Jim Marrone with Singular Research.

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Jim Marrone, Singular Research, LLC - Equity Research Analyst [27]

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I was just kind of inquiring about maybe wage pressures, there seems to be creeping up for a lot of industries out there and I'm just wondering if you see that as a real potential headwind going forward? I kind of noticed just looking at the operating cost in the last quarter that the food and beverage and hotel costs were considerably higher than that. I don't know how much of that was attributed to wages but can you maybe comment on what you foresee finishing in 2018 and going into 2019?

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Daniel R. Lee, Full House Resorts, Inc. - President, CEO & Director [28]

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Okay, well I think you have to be careful looking at our financials because GAAP changed and so it's not -- if you're looking at the normal financials, it's not apples to apples and that's true of any casino company. We do provide a supplemental table where you can kind of look at it. Our food and beverage operations are bigger now because of the oyster bar in the Silver Slipper and of course now we've -- the Christmas casino has that restaurant I mentioned. But otherwise not a lot changed. We get affected in -- at the Silver Slipper by the price of Dungeness crab believe it or not. We go through, I lost track now, 20 truckloads of Dungeness crab a year and I mean, semitrailer truckloads that come from Puget Sound. It's a -- we may be the biggest purveyor of Dungeness crab in the country and it's a very popular thing in our buffet. And if the price of crab goes up or down our food cost goes up or down. But the -- now in the minimum wage, it's actually a household topic at my home because my wife just won her congressional race to be the democrat congresswomen for the Third District of Nevada in the upcoming congress and of course the democratic party always talk about an increase in minimum wage and I always tell her that please, change the tenor of the conversation; let's have minimum 3 week vacations. It took the federal law to say 40-hour workweeks and as a developed country we're one of the very few that do not have a mandated minimum vacation period. And I think if you're trying to figure out what would be better for quality of life, a minimum vacation period would be much more important than minimum wage. But the other thing about the minimum wage is first off, it's a little bit of a phantom thing because unemployment is so low. We have troubled signing employees and so the minimum wage went up in Colorado and that is a little bit of a factor to us, but it's a bigger factor of just trying to find employees when unemployment in Colorado Springs is something like 3% and it's hard to find employees and as we get into building this hotel, the question comes up of who are we going to find the people to build the hotel? In our case, we're planning to use Yates Construction and Yates is one of those guys, one of the 6 or so construction companies who are supposed to build the wall and we've kind of said please don't go so fast on building the wall because we're going to build this hotel. And that's a joke by the way. But I think it is an issue and I think you're starting to see wage pressure everywhere and I think the minimum wage is a political topic but the low unemployment rate makes it increase the minimum wage almost superfluous. Whereas if people had a minimum 3 week vacation period, now recognize in Europe it's 4, 5 and 6 weeks depending on the country, that would be a huge boom for Las Vegas or any casino hotel somewhere because it's a -- my wife now being a congresswoman from Nevada like please talk about a 3 week vacation not -- The other thing that happens is as wage rates go up, you obviously look for ways to become more efficient with the payroll. And we're looking at a lot of that stuff. Kiosks in our casino that will help make it easier for people to do things and maybe we don't have to run the Players Club as much or staff it as much because people can do their own redemptions. They do that at Stations Casinos here in Las Vegas very effectively.

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Lewis A. Fanger, Full House Resorts, Inc. - Senior VP, CFO & Treasurer [29]

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And people prefer it.

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Daniel R. Lee, Full House Resorts, Inc. - President, CEO & Director [30]

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People prefer it, right. And you'll notice at airports now the newly renovated airports, and I know everybody on this call travels quite a bit, you'll see these tables and counters with iPads on them and if you've used them, they work pretty well. You sit down, you put in your flight number and then you order your food and somewhere in the bowels of the terminal somebody cooks it and deliver -- and they deliver it to you. Well, it actually is better than the normal restaurant experience where you're waiting for the waitress to notice that you're there and she brings you menu and then she has to go back and take your order and all of this. No, you have one transaction with the waiter or waitress that when they bring your food and leave it, you've already paid for it, you've already swiped your credit card, then you leave and somebody clears your dishes. And we've been looking at that. I'm not sure we have a food and beverage outlet that fits that but as we develop new places we will certainly look to implement stuff like that because that saves you a lot of payroll and you'll notice Starbucks, McDonalds are going that way. You can order it on your app before you even get there and in the front desk the Monte Carlo Casino, which I was actually instrumental in developing 25 years ago, MGM has renovated it, it's now called the Park MGM, they actually did a really good job with it. They took out their buffet completely and replaced it with meeting room space which has me scratching my head thinking we lose money on these buffets, can we do something smarter? But they also have almost no front desk. You go in and there's like 25 kiosks to check in and you give it your driver's license, you give it your credit card and it spits out your room key and you go to your room. And I stood there looking at it, it's a 3000 room hotel and it's almost like the self-checkout at Lowes or Home Depot or something and now, and right next door to it of course is Bellagio which is a 3000 room hotel or a little more than 3000 rooms, and I thought, I think I would rather check in on a Friday night at Monte Carlo because Bellagio might have ten desk clerks servicing people and Monte Carlo has 25 kiosks. So there are ways to use technology to actually provide better customer service with fewer employees and I think ultimately the wage pressure is going to move our whole economy that direction and I think that's a good thing and in our business we're trying to figure out how to do some of that stuff as well.

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Lewis A. Fanger, Full House Resorts, Inc. - Senior VP, CFO & Treasurer [31]

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Hey Jim, I just want to -- point you to the -- if you go to the tables at the back, it's going to be the second financial table and Dan is right, it's the new accounting standard 606 is really what is responsible for the entire change that you're speaking of. If you look at the food and beverage expense line, it looks like it went up by a factor of 3 times but if you actually do a true apples to apples without 606, our food and beverage costs actually went down. Hotel costs actually -- they did go up a little bit but they only went up by about $15,000. But look at that second table at the end of the earnings release.

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Jim Marrone, Singular Research, LLC - Equity Research Analyst [32]

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I was really more addressing the wage pressure but that's also been very well explained as well.

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Daniel R. Lee, Full House Resorts, Inc. - President, CEO & Director [33]

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Yes, I will point out also that in some of our markets, some of our customers earn minimum wage so there is a little bit of an offset there sometimes.

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Operator [34]

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Everyone that concludes our conference call for today. Thank you all for your participation, you may now disconnect.