Filing Overview
Registrant: Eldorado Resorts, Inc. The provided filing does not match the metadata company name “Caesars Entertainment, Inc.” This is an unaudited Form 10-Q for the three and nine months ended September 30, 2015, filed November 9, 2015.
The company operates casino, racetrack, hotel and pari-mutuel properties in Nevada, Louisiana, West Virginia, Pennsylvania and Ohio. Comparability with 2014 is limited because the September 2014 results include MTR Gaming only after the September 19, 2014 merger.
Financial Performance and Position
| Metric | Q3 2015 | Q3 2014 | 9M 2015 | 9M 2014 |
|---|---|---|---|---|
| Net operating revenues | $183.5 million | $78.9 million | $533.6 million | $197.7 million |
| Operating income | $24.1 million | $2.8 million | $59.2 million | $11.1 million |
| Net income (loss) | $5.4 million | $(4.1) million | $4.0 million | $(3.5) million |
| Basic EPS | $0.12 | $(0.16) | $0.09 | $(0.14) |
| Net operating margin | 13.1% | 3.5% | 11.1% | 5.6% |
- MTR Gaming contributed $119.9 million of Q3 net operating revenue and $349.7 million for the nine-month period. It contributed $15.4 million of Q3 operating income and $42.0 million for nine months.
- Combined Adjusted EBITDA, a non-GAAP measure, was $36.1 million in Q3 and $100.2 million for nine months, compared with $33.3 million and $97.2 million, respectively, in the comparable periods. Adjusted EBITDA margins were approximately 19.7% and 18.8%.
- Q3 revenue increased 132.5% and nine-month revenue increased 169.9%, primarily because MTR Gaming was consolidated for a full comparable period in 2015. Excluding MTR Gaming, revenue increased 1.6% in Q3 and 1.4% for nine months.
- Cash provided by operating activities was $20.5 million for the first nine months, compared with $20.4 million in 2014. Capital expenditures were $24.4 million versus $4.6 million.
- Investing cash flow was a use of $78.3 million, including a $55.5 million escrow deposit related to the pending Circus Reno/Silver Legacy acquisition.
- Cash and cash equivalents were $48.8 million at September 30, 2015, excluding $1.6 million of restricted cash and $55.5 million of acquisition escrow cash. Total current assets were $132.3 million and current liabilities were $70.0 million.
- Carrying-value long-term debt, including the current portion, was approximately $790.6 million. Gross principal outstanding included $375.0 million of senior notes, $423.9 million of term debt, $18.0 million drawn on the revolver and approximately $6 million of capital leases.
- The company had $132.0 million of available revolving-credit capacity. Variable-rate borrowings totaled approximately $442 million, or about 54% of long-term debt.
Material Changes Versus the Prior Comparable Period
- The July 2015 refinancing replaced the Resorts Senior Secured Notes and MTR Second Lien Notes with $375 million of 7.0% senior notes due 2023, a $425 million term loan and a $150 million revolving facility. The company recorded a $1.8 million net loss on early retirement of debt.
- Interest expense increased to $14.5 million in Q3 and $48.9 million for nine months, compared with $5.6 million and $13.4 million, respectively, mainly because of MTR Gaming and the post-merger capital structure.
- Depreciation and amortization increased to $14.0 million in Q3 and $42.5 million for nine months, reflecting the acquired MTR Gaming assets and purchase-accounting adjustments.
- Q3 Eldorado Reno and Eldorado Shreveport revenue was broadly stable, while operating income improved to $6.3 million and $5.8 million, respectively. MTR Gaming Q3 Adjusted EBITDA declined to $26.0 million from $27.7 million on the combined comparison, and nine-month Adjusted EBITDA declined to $74.9 million from $78.7 million.
- Promotional allowances fell to 10.2% of casino revenue in both Q3 and the nine-month period, versus 18.2% and 20.9%, respectively, in 2014.
- Capital expenditures increased substantially, particularly at MTR Gaming, which incurred $18.2 million of the $24.4 million total.
Outlook, Risks and Unusual Items
- Management stated that operating cash flow is expected to fund operations, capital requirements and debt service for the foreseeable future, but cautioned that there is no assurance it will be sufficient.
- The company expected to spend approximately $4.6 million on capital expenditures during the remainder of 2015, net of anticipated West Virginia reimbursements.
- The company expected to close the $72.5 million Circus Reno/Silver Legacy purchase in November 2015, subject to regulatory approvals and other conditions. The transaction also involved assuming approximately $80.5 million of Silver Legacy credit-facility debt. There was no assurance regarding closing or timing.
- $55.5 million was held in acquisition escrow. Separately, $50 million of senior-note proceeds was restricted and would be subject to special mandatory redemption if the acquisition was not completed by April 1, 2016.
- Key operating risks include substantial indebtedness, restrictive leverage and interest-coverage covenants, variable interest rates, gaming regulation, increased regional and Native American competition, weaker discretionary spending, and the impact of a smoking ban at Mountaineer.
- The company disclosed a material weakness in internal control over financial reporting related to accounting for the debt refinancing and the financial-statement close process. Management stated that the related earnings-release amount was corrected in the Form 10-Q and that a remediation program would be implemented.
- Pennsylvania gaming assessments were estimated at $4.5 million at September 30, 2015, subject to revision. Litigation liabilities were described as immaterial; an Ohio gaming-related case remained pending.
- No formal earnings or revenue guidance was provided in the filing.
Investor Verification Checklist
- Confirm the issuer identity: the filing is for Eldorado Resorts, Inc., not Caesars Entertainment, Inc.
- Assess the comparability of reported growth given the MTR Gaming merger and the use of non-GAAP combined Adjusted EBITDA.
- Review the refinancing documents, interest rates, maturity schedule and leverage and interest-coverage covenant headroom.
- Verify completion, funding and debt-assumption terms of the Circus Reno/Silver Legacy acquisition and the treatment of escrowed proceeds.
- Monitor remediation of the disclosed material weakness and any subsequent correction or restatement.
- Evaluate cash generation after interest expense, capital expenditures, acquisition spending and required gaming assessments.