Full House Resorts, Inc. — 2015 Third-Quarter Form 10-Q
Reporting period: Three and nine months ended September 30, 2015; comparison with the corresponding 2014 periods. Amounts are in millions unless otherwise indicated. The company owns Silver Slipper, Rising Star and Stockman’s casinos and operates the leased Grand Lodge Casino.
Financial performance
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Net revenue | $34.3 | $32.9 | $94.1 | $94.7 |
| Operating income (loss) | $3.3 | $2.7 | $4.3 | $(9.1) |
| Net income (loss) | $2.0 | $(0.8) | $(0.1) | $(10.3) |
| Adjusted EBITDA (non-GAAP) | $6.3 | $5.2 | $11.3 | $10.3 |
| Operating cash flow | — | $5.6 | $6.5 |
Q3 net revenue rose 4.1%, and operating income rose 22.7%; reported net income improved from a loss to a profit. Nine-month revenue declined 0.6%, while the net loss narrowed substantially. The prior-year nine-month period included an $11.5 million non-cash impairment charge at Rising Star; 2014 Q3 also included a $1.7 million settlement loss. Interest expense was $1.8 million in Q3 and $4.9 million for the nine months, higher than the prior-year periods, principally reflecting Silver Slipper hotel borrowing and the higher Second Lien rate. The Q3 tax benefit was $0.6 million; the nine-month benefit was $0.4 million, with tax results affected by valuation-allowance changes.
Performance differed by property. Silver Slipper revenue increased 23% in Q3 and 16.5% year to date, as its 129-room hotel opened in phases and was completed in September. Rising Star revenue fell 6.2% in Q3 and 11.8% year to date amid competition. Northern Nevada revenue fell 4.6% and 5.3%, respectively, reflecting lower gaming hold and, year to date, weak Lake Tahoe snow conditions. Q3 property Adjusted EBITDA margins were 16.2% at Silver Slipper, 19.5% at Rising Star and 32.7% for Northern Nevada; these are non-GAAP measures, not consolidated GAAP margins.
Financial position, liquidity and debt
- At September 30, cash and equivalents were $13.9 million, with a further $0.6 million restricted for Silver Slipper construction. Management estimated about $12 million was needed for day-to-day operations. Of the $5 million revolving facility, $0.5 million was drawn and $4.5 million available, subject to covenants.
- Debt was $68.0 million: $47.5 million on the First Term Loan, $0.5 million on the revolving loan and $20.0 million on the Second Term Loan. The balance sheet classified $6.0 million as current and $62.0 million as long-term. Capital lease obligations totaled about $6.3 million.
- First Lien debt matured October 1, 2016; Second Lien debt matured April 1, 2017. The First Lien rate was 4.75%; the Second Lien rate was 14.25% at the stated rate before its amended leverage-based pricing terms. The facilities are secured by substantially all company assets.
- Operating cash flow was $5.6 million; investing cash outflow was $13.8 million, largely hotel construction and the Bronco Billy’s deposit; financing cash inflow was $6.5 million. Cash declined $1.7 million from year-end 2014.
The company reported compliance with amended debt covenants at quarter-end. It cautioned that future compliance is not assured. Management said cash, operating cash flow and revolver availability—excluding the acquisition—were expected to cover obligations over the next 12 months, but refinancing was needed because the company was unlikely to generate enough cash to repay principal at scheduled maturities.
Material developments, outlook and risks
- Silver Slipper hotel: The completed 129-room hotel cost approximately $20.5 million. About $1.4 million remained to be paid at quarter-end, funded by $0.6 million in the construction trust and working capital. Management expected remaining-2015 capital expenditures to be below operating cash generated during that period.
- Bronco Billy’s: The company agreed to acquire the Colorado casino’s operating assets and assume certain liabilities for $30 million, subject to customary adjustments and a possible reduction to $28.5 million based on specified EBITDA. A $2.5 million deposit had been paid. Closing was expected in late 2015 or early 2016, dependent on refinancing, gaming approvals and other conditions. Management expected the property to exceed the agreement’s $4.7 million EBITDA threshold based on results to date; the agreement also provides a termination option if EBITDA is below $4.5 million.
- Refinancing: Management intended to refinance existing first- and second-lien debt, potentially increasing facility size to fund Bronco Billy’s. It believed refinancing was achievable but stated there was no assurance of success or favorable terms. The first-lien maturity had been extended to October 2016, and lenders amended financial covenants, including adjustments related to the delayed hotel opening.
- Other plans and receipts: The company proposed a $650 million Indianapolis lifestyle complex with a casino, contingent on selection, changes in gaming law, regulatory approvals, partners and financing; management emphasized there was no certainty it would proceed. Expected fourth-quarter receipts included $0.8 million in federal and state tax refunds, a $1.4 million Indiana property-tax settlement and the remaining $0.25 million Nambe settlement installment.
- Legal and regulatory matters: The company appealed the dismissal of its suit seeking reimbursement for approximately $1.6 million in Silver Slipper parking-garage repairs. It reported no expectation that other ordinary-course proceedings would materially affect results. Gaming regulation, competition, weather, taxes, financing access, acquisition integration and construction-related risks remain relevant.
No quantified full-year earnings or revenue guidance is provided. Management’s forward-looking statements about liquidity, refinancing, acquisition timing and property performance are subject to significant conditions and uncertainties. Adjusted EBITDA is a supplemental non-GAAP measure and should not be treated as a substitute for GAAP earnings or operating cash flow.
Most important facts for investors to verify
- Whether the company completed refinancing on workable terms and maintained compliance with tightening leverage covenants and debt-service requirements.
- Whether Bronco Billy’s closed, received required gaming approvals, met the contractual EBITDA tests and delivered the anticipated results.
- Whether Silver Slipper’s hotel ramp-up generated durable revenue and cash flow sufficient to cover remaining costs and debt service.
- Whether stated liquidity, including the revolver and anticipated tax and settlement receipts, proved adequate while preserving operating cash needs.
- The outcome of the parking-garage appeal and any material developments in regulatory, competitive or other legal matters.