Business Context and Reporting Period
The filing is Eldorado Resorts, Inc. Form 10-Q for the three months ended March 31, 2019, filed May 7, 2019. The request identifies Caesars Entertainment, Inc.; the supplied filing text does not identify Caesars. Eldorado operated 26 gaming facilities in 12 states, with approximately 28,000 gaming machines, 750 table games and 12,600 hotel rooms.
Results include Grand Victoria Casino acquired in August 2018 and seven Tropicana properties acquired in October 2018. Presque Isle Downs and Nemacolin were sold in January and March 2019, respectively, limiting comparability with the prior-year quarter.
Financial Results and Key Metrics
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Net revenues | $635.8 million | $440.2 million | +44.4% |
| Operating income | $123.6 million | $54.2 million | +128.1% |
| Net income | $38.2 million | $20.9 million | +83.3% |
| Diluted EPS | $0.49 | $0.27 | +81.5% |
| Net cash from operations | $65.4 million | $78.0 million | -16.1% |
| Adjusted EBITDA | $166.7 million | $103.5 million | +61.0% |
Gaming and pari-mutuel revenue was $470.9 million, up 37.1%, while non-gaming revenue was $165.0 million, up 70.7%. Operating margin was approximately 19.4%, compared with 12.3% in the prior-year quarter; net margin was approximately 6.0%, compared with 4.7%.
The quarter included a $22.3 million gain on property disposals, consisting primarily of gains on the Presque Isle Downs and Nemacolin sales. Interest expense increased to $73.5 million from $31.3 million, reflecting acquisition-related debt and the GLPI Master Lease financing obligation. Income tax expense was $10.4 million versus $2.1 million.
Cash and cash equivalents totaled $216.9 million at March 31, 2019; cash, cash equivalents and restricted cash totaled $231.8 million. Total assets were $6.1 billion and stockholders’ equity was $1.1 billion.
Debt, Liquidity and Cash Flow
- Long-term debt, net of discounts and issuance costs, was $3.1 billion, including $956.8 million of term-loan borrowings, $40.0 million drawn on the revolving facility, $600.0 million of 2026 senior notes, $875.0 million of 2025 senior notes, $375.0 million of 2023 senior notes and the $246.0 million Lumière Loan.
- The GLPI Master Lease financing obligation was $962.5 million. Initial annual Master Lease rent was approximately $87.6 million, subject to escalation and variable rent provisions.
- The revolving credit facility had $447.7 million of available borrowing capacity after $12.3 million of outstanding letters of credit.
- Investing cash flow was $129.5 million, primarily due to $177.1 million of net proceeds from the two property sales, partly offset by $38.4 million of capital expenditures.
- Financing cash flow was negative $209.8 million, principally because of $205.0 million of net repayments under the revolving credit facility.
- Management expects operating cash flow to fund operations, capital requirements and debt service for the next twelve months. Planned capital expenditures for the remainder of 2019 were approximately $161.6 million.
Material Changes Versus the Prior Comparable Period
- Reported growth was largely acquisition-driven: Elgin and Tropicana contributed $244.3 million of incremental revenue. Excluding acquisitions and dispositions, revenue decreased 3.8%.
- Excluding acquisition and disposition effects, gaming revenue declined 4.4%, primarily from lower casino volume, reduced promotional and free-play offers, severe weather and construction disruption.
- Management reported cost savings in marketing, food and beverage, labor, purchasing and general and administrative functions. Corporate and property-level margin improvement contributed to higher operating income.
- Severe weather affected all segments, particularly West and Midwest, and Black Hawk renovations disrupted casino floor and hotel availability.
- The company adopted ASC 842 lease accounting prospectively on January 1, 2019, recognizing $282.4 million of operating lease right-of-use assets and $287.1 million of operating lease liabilities, with a $4.7 million after-tax reduction to retained earnings.
- The company entered into a 25-year William Hill agreement effective January 2019 and received a 20% interest in William Hill US and William Hill PLC shares. It also recognized deferred revenue from the William Hill and The Stars Group arrangements.
Outlook, Commentary, Risks and Unusual Items
Management emphasized continued operating efficiencies, property enhancements and integration of the Elgin and Tropicana acquisitions. Planned projects include renovations in Reno and Black Hawk, a new sportsbook at Tropicana Atlantic City and development planning for the Pompano mixed-use project. No formal earnings or revenue guidance was provided in the filing.
- Substantial indebtedness, Master Lease obligations, required capital spending and the October 2020 maturity of the $246.0 million Lumière Loan create significant liquidity requirements.
- The company is required to use commercially reasonable efforts to transfer replacement property to GLPI in connection with the Lumière Loan; if the transaction is not completed by maturity, the loan must be repaid and Master Lease rent may increase.
- Gaming operations are subject to extensive regulation, licensing requirements, gaming taxes and required horsemen and pari-mutuel agreements. Failure to maintain required agreements could affect Mountaineer’s licenses.
- Competition, including legalized online betting and gaming, discretionary consumer spending, interest rates, weather, construction disruption and regulatory changes could adversely affect results.
- Legal proceedings are routine and estimated losses were not material; however, management cautioned that outcomes can be costly and unpredictable. The company reported compliance with all debt and Master Lease covenants at March 31, 2019.
Most Important Facts to Verify
- Confirm the issuer identity: the supplied filing is Eldorado Resorts, Inc., not Caesars Entertainment, Inc.
- Separate acquisition-related revenue and earnings from same-property performance when assessing growth.
- Review debt maturities, variable-rate exposure, Master Lease rent escalators and the Lumière Loan refinancing or replacement-property requirement.
- Reconcile Adjusted EBITDA to GAAP results and consider the effect of the $22.3 million disposal gain and other excluded items.
- Assess whether severe weather, construction disruption and reduced promotional play were temporary or indicate continuing operating pressure.
- Verify the status and economic effects of the William Hill, The Stars Group and Pompano arrangements, including deferred revenue and equity valuation assumptions.