Twin River Worldwide Holdings, Inc. — Q3 2019 Form 10-Q
Issuer and period: The supplied filing is for Twin River Worldwide Holdings, Inc. (NYSE: TRWH), not a filing identified as Bally’s Corp. It covers the quarter and nine months ended September 30, 2019; financial statements are unaudited. Comparisons are with the corresponding 2018 periods unless noted.
Business context
The company operated gaming, racing, hotel, food and beverage businesses in Rhode Island, Mississippi, Delaware and Colorado. Dover Downs was acquired on March 28, 2019, so 2019 results include its operations from that date, while 2018 comparisons do not. Tiverton Casino Hotel opened in September 2018, and Newport Grand closed in August 2018.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $129.3 million | $110.5 million | $393.2 million | $326.1 million |
| Operating income | $21.5 million | $29.7 million | $85.6 million | $86.0 million |
| Net income | $7.0 million | $16.4 million | $41.8 million | $49.3 million |
| Diluted EPS | $0.18 | $0.45 | $1.07 | $1.21 |
| Operating margin | 16.6% | 26.8% | 21.8% | 26.4% |
| Net margin | 5.4% | 14.8% | 10.6% | 15.1% |
Quarterly revenue rose 17.0%; nine-month revenue rose 20.6%. The filing attributes much of the increase to the Dover Downs acquisition and Tiverton’s contribution. Despite higher revenue, operating income and net income declined, reflecting higher operating costs, depreciation, corporate and administrative expenses, and interest expense.
- Revenue mix: Q3 gaming revenue was $88.3 million, hotel $11.1 million, food and beverage $18.1 million, racing $3.3 million and other $8.6 million. Q3 Rhode Island revenue fell 14.4% in gaming and racing versus the prior year, chiefly amid increased New England competition.
- Cash flow: Nine-month operating cash flow was $72.7 million, versus $82.0 million. Investing cash outflow was $33.9 million, versus $97.9 million, as major construction spending fell; financing cash inflow was $114.5 million, versus $8.6 million.
- Liquidity: September 30 cash and restricted cash totaled $234.7 million, compared with $81.4 million at year-end 2018. Current assets were $290.0 million and current liabilities $96.9 million; reported net working capital was $193.2 million.
- Debt: Long-term debt, including current portion and net of discounts and fees, was $684.2 million at September 30, compared with $394.2 million at December 31, 2018. The company issued $400 million of 6.75% senior notes due 2027 and entered a $300 million term loan and $250 million revolver facility in May. The revolver was undrawn at quarter-end; the term-loan rate was 4.79%. The company reported compliance with debt covenants.
- Capital returns: The company repurchased 6.6 million shares for approximately $163.1 million during the first nine months, including a $74 million tender offer, and paid approximately $4.1 million in dividends. $83.2 million remained under its $250 million capital return authorization at quarter-end.
Material changes and management commentary
Q3 revenue increased $18.8 million, but operating income declined $8.2 million and net income declined $9.4 million. Nine-month operating income was nearly flat, while net income decreased $7.5 million. Interest expense increased to $11.5 million for Q3 and $28.5 million year to date, primarily due to higher borrowings and interest rates; the nine-month period also included a $1.5 million debt extinguishment and modification loss.
Management said new competition in New England, including Encore Boston Harbor, significantly affected Twin River Casino Hotel revenue and drove increased marketing and promotional activity. Management expected unusually high competitive activity to moderate over time and said new initiatives were intended to recapture market share. Tiverton was described as resilient and Hard Rock Biloxi performance as strong. The company expected 2019 capital spending of approximately $28 million and believed operating cash flow, existing cash and credit availability would support foreseeable needs.
Outlook, acquisitions, risks and unusual items
- The company expected the acquisition of three Black Hawk, Colorado casinos to close in early 2020, subject to regulatory approvals. It agreed to acquire Isle Kansas City and Lady Luck Vicksburg for $230 million in cash, subject to conditions and approvals, with closing expected in early to mid-2020. Mississippi approval was received in October 2019; Missouri approval remained outstanding. These are forward-looking expectations, not completed transactions in this reporting period.
- Management said the acquisitions, if completed, would expand and diversify the operating footprint. The filing provides no formal earnings or revenue guidance.
- On November 5, 2019, Colorado voters approved sports gambling; the company said the expected Black Hawk acquisition would include rights to three sports gaming licenses.
- A Rhode Island State Police investigation began with search warrants in June 2019 concerning the relationship between a non-officer management employee and a food-court lessee. The company said it was cooperating; the Attorney General’s office had advised that the company and its employees other than that individual were not targets or subjects as of the filing. The outcome was uncertain.
- A Delaware Chancery Court action brought by a shareholder and affiliates alleges fiduciary breaches relating to a 2016 tender offer, disclosures and award-related payments. The company disputed the claims and said it intended to defend the action.
- The company identified risks from competition, gaming regulation and taxation, acquisition approvals and integration, refinancing, consumer spending, weather, cybersecurity and litigation. A regulatory agreement amendment effective November 13, 2019 includes restrictions on certain actions, including restricted payments and additional debt if a defined leverage ratio exceeds 4.75:1.00.
- Unusual comparability items include the 2018 Newport Grand disposal loss of $6.5 million and 2018 Tiverton pre-opening costs. 2019 included acquisition, integration and restructuring expenses of $11.0 million for nine months. Dover Downs purchase accounting remained preliminary at September 30, though management did not expect material changes.
Important facts for investors to verify
- Confirm the issuer identity: this document is Twin River Worldwide Holdings, Inc. (TRWH), not a filing naming Bally’s Corp.
- Separate organic operating trends from acquired Dover Downs revenue and the full-period contribution of Tiverton; assess the effect of competition on Rhode Island gaming and racing.
- Review the drivers of the margin and earnings declines, particularly operating expenses, marketing, corporate costs and higher interest expense.
- Assess debt service and refinancing exposure, covenant terms, planned excess-cash-flow repayments beginning in 2020, and funding needs for proposed acquisitions and capital returns.
- Track regulatory approvals and closing conditions for the pending acquisitions, and updates on the Rhode Island investigation and shareholder litigation.
- Check final Dover Downs purchase accounting and actual capital spending against management’s approximately $28 million 2019 estimate.