Business context and reporting period
Full House Resorts, Inc. filed this unaudited Form 10-Q for the three months ended March 31, 2021. The company operated five casinos in four states and was constructing Chamonix Casino Hotel in Cripple Creek, Colorado. It also held six permitted sports-wagering “skins”; five had launched by the filing date. Amounts below are in millions of dollars unless noted.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Revenue | $42.2 | $30.9 | Up 36.8%; prior-year comparison includes casino closures beginning in mid-March 2020 |
| Operating income (loss) | $8.7 | $(3.4) | Operating margin was approximately 20.6% in 2021 |
| Adjusted EBITDA | $10.8 | $(1.2) | Non-GAAP measure; approximately 25.5% of revenue in 2021 |
| Net loss | $(3.4) | $(4.4) | Loss per diluted share was $(0.13), versus $(0.22) |
| Interest expense, net | $4.5 | $2.5 | Higher primarily due to increased debt following refinancing |
| Operating cash flow | $8.3 | $(4.2) | Improved with stronger operations and working-capital movements |
| Investing cash flow | $(3.4) | $(1.0) | 2021 use primarily related to Chamonix-area property purchases and capital spending |
| Cash and equivalents | $98.0 | — | At March 31, 2021; additional restricted cash of $179.9 was reserved for Chamonix |
Casino revenue rose 54.5% to $32.1 million. Food and beverage revenue declined 12.7% to $6.1 million; hotel revenue increased 12.0% to $2.2 million; and other operations revenue rose 61.0% to $1.8 million. Management said pandemic-related capacity and service restrictions continued to constrain results.
Debt, financing, and material changes
- In February, the company issued $310 million of 8.25% senior secured notes due 2028, redeeming its prior notes due 2024 and repurchasing outstanding warrants. The refinancing generated a $6.1 million extinguishment loss; the warrant repurchase also resulted in a $1.3 million fair-value expense.
- $180 million of the note proceeds was placed in restricted construction reserves for Chamonix. The company reported approximately $8 million of additional unrestricted cash from the refinancing after fees and expenses.
- At March 31, 2021, reported long-term debt, net of discounts and issuance costs, was $306.1 million, including $310 million principal on the 2028 Notes and $5.6 million of CARES Act loans. The notes have no mandatory amortization before maturity.
- A $15 million, five-year secured revolving credit facility was established on March 31, 2021; it was undrawn at quarter-end. The company reported compliance with its facility covenants.
- A March public equity offering of 6.9 million shares generated approximately $43.0 million net proceeds. Shares outstanding increased substantially during the quarter.
- Adjusted Segment EBITDA improved to $12.7 million from a loss of $0.1 million; corporate expenses increased to $1.9 million from $1.1 million.
Outlook, commentary, and risks
- Chamonix construction was underway; management expected substantial completion in Q4 2022 and estimated investment of approximately $50 million in 2021 and $130 million in 2022. The project’s completion, costs, funding sufficiency, and commercial success are uncertain.
- Management expected the sixth sports-wagering skin to launch in the next few months. With all six operating, the company expected contractual minimum sports-wagering revenue of $7 million annually, with minimal related expenses; this is an expectation, not a reported result.
- An Indiana gaming-tax reduction was expected to take effect July 1, 2021; management estimated annual savings of approximately $2.5 million based on recent activity.
- The company remained a bidder for a Waukegan, Illinois casino license; selection timing and outcome were uncertain.
- COVID-19 continued to affect operations. Properties were open and restrictions had eased, but future health conditions, government measures, capacity constraints, supply costs, and economic conditions could affect results.
- Other risks include significant indebtedness and secured collateral, construction delays or cost overruns, competition, seasonal and weather effects, dependence on third-party sports-wagering operators, and regulatory approvals. Management did not expect pending ordinary-course litigation to materially affect results.
Important facts for investors to verify
- Whether Chamonix remains on schedule and within budget, and whether restricted construction funds will be sufficient.
- Unrestricted liquidity and debt-service capacity, including the terms, covenants, and availability of the revolving facility.
- Actual launches and economics of the remaining sports-wagering skin versus the projected $7 million annual minimum.
- How casino demand, operating capacity, and margins perform as pandemic-related restrictions change; Q1 2020 is a closure-affected comparison period.
- The impact of the equity issuance on per-share results and potential dilution from outstanding stock awards.
- Whether CARES Act loans are forgiven; the filing states that forgiveness is uncertain.