Full House Resorts, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; comparisons are with the three months ended March 31, 2018. Full House operated five casinos across Mississippi, Colorado, Indiana and Nevada.
Financial performance
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Net revenue | $40.5 million | $37.9 million | +6.8% |
| Operating income | $1.3 million | $0.5 million | +133.5% |
| Operating margin | 3.1% | 1.4% | Improved |
| Net loss | $1.6 million | $4.3 million | Loss narrowed |
| Adjusted EBITDA (non-GAAP) | $3.6 million | $3.0 million | +19.6% |
| Cash used in operating activities | $0.7 million | $0.5 million | Use increased |
Casino revenue rose 4.9% to $28.3 million; food and beverage increased 9.1% to $8.7 million, and hotel revenue increased 18.9% to $2.7 million. Interest expense was $2.7 million, versus $2.5 million. Basic and diluted loss per share were each $0.06, compared with $0.18 and $0.20, respectively, in the prior-year quarter.
Cash and equivalents were $18.4 million at March 31, down from $20.6 million at year-end. Net cash used in investing activities was $1.3 million, mainly for capital spending; financing activities used $0.3 million. Long-term debt carrying value was $95.1 million, including $1.0 million classified as current; the Notes’ principal balance was $98.75 million. The Notes bear interest at three-month LIBOR, subject to a 1.0% floor, plus 7.0%, and mature in 2024. Finance lease liabilities were $4.7 million. Adoption of ASC 842 added $19.3 million of operating lease right-of-use assets and $19.5 million of operating lease liabilities to the balance sheet.
Material changes and operating drivers
- Silver Slipper revenue grew 16.8% to $19.3 million and Adjusted Property EBITDA rose 33.4% to $3.8 million; management cited stronger slot and food and beverage results, sports book operations, improved weather and expense management.
- Rising Star revenue fell 3.2% to $10.9 million and Adjusted Property EBITDA declined 18.1% to $0.4 million, with flooding, highway repaving and ferry ramp-up costs weighing on results.
- Bronco Billy’s revenue increased 3.2% to $6.4 million, but Adjusted Property EBITDA fell 12.8% to $0.6 million, reflecting weather, marketing and higher labor costs. Added hotel rooms contributed to hotel revenue growth.
- Northern Nevada revenue decreased 1.2% to $3.9 million. A lower Grand Lodge table-games hold rate (9.0%, versus 14.6% a year earlier) offset improved visitation and slot revenue.
- Consolidated Adjusted EBITDA margin, calculated from reported Adjusted EBITDA and revenue, was approximately 8.8%, versus 7.9%.
Outlook, risks and unusual items
- No formal earnings or revenue guidance is provided. Management said it believed resources were adequate for operating needs over the next 12 months, while noting uncertainty around cash generation, financing access and growth funding.
- Management expected to complete an additional $10 million issuance of senior secured Notes shortly after filing, with proceeds intended for Bronco Billy’s Phase One and general corporate purposes. Completion was not assured.
- Bronco Billy’s Phase One, including a parking garage and connector building, was expected to cost about $15.5 million to complete and finish in the first half of 2020. Phase Two, including a hotel tower and other additions, depends on acceptable financing and other contingencies.
- Other planned spending included a Silver Slipper renovation estimated at less than $1 million. The company had invested approximately $0.3 million in it through quarter-end.
- The company was in compliance with debt covenants at March 31, 2019. Leverage limits were 5.00x through June 30 and 4.75x through December 31, 2019; future compliance is not assured. Management estimated about $10 million of cash was needed for daily operations.
- Approximately 1.0 million warrants had potential redemption rights following the 2018 refinancing; holders had not exercised them as of the filing. A redemption could require cash, a four-year note with a minimum 13.25% interest rate, or a registered share sale.
- Results were affected by seasonality, weather, gaming hold variability, competition, construction and financing risks, and substantial indebtedness. Management reported no material change in previously disclosed risk factors; routine legal proceedings were not expected to have a material effect.
- The 2018 comparison was not recast for ASC 842, limiting comparability of lease-related balance-sheet items. The 2018 quarter also included a $2.7 million loss on extinguishment of debt, contributing to the year-over-year narrowing of the net loss.
Important facts for investors to verify
- Whether the additional $10 million Notes issuance was completed and how its proceeds were used.
- Cash generation, cash available beyond the estimated $10 million operating requirement, and progress against debt covenants.
- Bronco Billy’s Phase One cost, schedule and funding; whether Phase Two obtains acceptable financing.
- Warrant-holder decisions and potential liquidity impact if redemption rights are exercised.
- Whether property-level trends persist, particularly Rising Star’s recovery and the effect of Grand Lodge’s table-games hold volatility.