Full House Resorts, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This filing reports full-year results, not a separate fourth-quarter financial summary. Full House operated six casinos, while Chamonix Casino Hotel was under construction and the permanent American Place was in development. The Temporary by American Place opened in Waukegan, Illinois, on February 17, 2023.
Financial performance
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $163.3 million | $180.2 million | Down 9.4% |
| Operating income | $12.7 million | $37.6 million | Down 66.2% |
| Operating margin | 7.8% | 20.8% | Down 13.0 percentage points |
| Net income (loss) | $(14.8) million | $11.7 million | Declined $26.5 million |
| Adjusted EBITDA | $32.1 million | $47.2 million | Down 31.9% |
| Adjusted EBITDA margin | 19.7% | 26.2% | Down 6.5 percentage points |
| Cash provided by operations | $4.4 million | $29.5 million | Down $25.1 million |
| Capital expenditures | $170.9 million | $37.0 million | Primarily growth projects |
Casino revenue fell 12.7% to $113.9 million; non-casino revenue was nearly flat at $49.4 million. Slot revenue was $99.5 million, down 12.4%. Contracted sports wagering revenue increased to $7.2 million from $5.9 million.
At December 31, 2022, cash and equivalents were $56.6 million and restricted cash was $134.6 million, principally reserved for Chamonix construction; together these totaled $191.2 million. The $40 million revolving credit facility was undrawn at year-end. The company reported $410 million principal amount of 8.25% senior secured notes due February 2028, plus a $2.8 million finance lease balance. In January 2023, it drew $36 million on the revolver; in February 2023, it issued another $40 million of notes, receiving approximately $34 million net proceeds. Substantially all assets secure the notes and credit facility.
Material changes and operating drivers
- Revenue decreased mainly because of lower slot volumes at Colorado, Mississippi and Indiana properties. Management cited the absence of stimulus payments comparable to 2021, construction disruption at Bronco Billy’s, online sports wagering competition in Louisiana, December weather and inflation and labor pressures.
- Operating expenses increased 5.6%, including $9.6 million of preopening costs for Chamonix and The Temporary. Higher food costs also contributed; lower casino costs partly offset the increase.
- Mississippi revenue declined 10.8% and Adjusted Segment EBITDA fell 34.7%. Silver Slipper generated 49.5% of company revenue and 51.7% of Adjusted Segment EBITDA, leaving results materially dependent on that property.
- Colorado revenue declined 31.6%; the segment recorded a $0.7 million Adjusted EBITDA loss versus $5.5 million of positive EBITDA in 2021, largely reflecting Chamonix-related disruption and Bronco Billy’s closures and reduced capacity.
- Indiana revenue fell 5.7% and Adjusted Segment EBITDA declined 21.2%, with lower volumes and new nearby competition. Nevada revenue rose 7.7%, while Adjusted Segment EBITDA was approximately flat.
- Operating cash flow fell as earnings declined and preopening costs were incurred. Investing cash outflow was $172.1 million, primarily for Chamonix and American Place-related construction.
Outlook, risks and unusual items
- Management expected phased opening of Chamonix to begin in the third quarter of 2023; the project budget was approximately $250 million. About $134.6 million of restricted construction cash remained at year-end, and management expected to invest it during 2023. The filing identifies cost escalation, labor and supply constraints, draw conditions and completion timing as risks.
- The Temporary began operating below full capacity. Management planned to expand games and operating hours and open additional restaurants during 2023. The permanent American Place was subject to design and regulatory approvals. The City of Waukegan agreement calls for completion of American Place construction within 36 months of The Temporary’s opening; Illinois rules limit The Temporary’s operation to two years unless an extension is approved.
- For 2023, the company estimated approximately $70 million of American Place-related investment. Management stated that year-end cash, revolver availability and operating cash flows were expected to meet liquidity and capital needs for the following 12 months, while noting that permanent American Place and other projects may require additional financing.
- Sports agreements provide annual minimums totaling $3 million in Colorado and, once launched and subject to approvals, $5 million in Illinois. The company had not selected a replacement operator or decided whether to self-operate its idle Indiana skin. Sports wagering outcomes and contractual minimums depend on partner performance and regulatory approvals.
- Unusual items included $9.6 million of preopening costs and $4.5 million of debt modification and extinguishment expense. Interest expense was partly offset by $10.8 million of capitalized interest on construction. The company recorded a $15.2 million valuation allowance against deferred tax assets and reported a 0.2% effective tax rate.
- Key risks include substantial debt and restrictive covenants, construction funding and execution, reliance on Silver Slipper, competition and economic sensitivity, weather and access disruptions, gaming regulation, labor and input-cost inflation, cybersecurity, and the possibility of inadequate insurance. Management did not expect pending ordinary-course litigation to materially affect financial position, results or cash flows.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded internal controls were effective.
Important facts for investors to verify
- Whether Chamonix opens on schedule and within budget, and whether the construction-account draw requirements are met.
- American Place’s final project scope, total financing requirement, regulatory approvals and ability to open before The Temporary’s permitted operating period expires.
- Post-year-end liquidity and leverage, including the $36 million revolver draw, $40 million note issuance, interest burden and covenant headroom.
- Whether core-property volumes and margins recover, particularly at Silver Slipper and Bronco Billy’s, and how competition and weather affect performance.
- Whether Illinois and Colorado sports wagering operations launch as planned and whether contractual minimums are achieved; the status of the idle Indiana skin.
- The assumptions supporting the deferred-tax-asset valuation allowance and management’s stated expectation that it could be reversed if results improve.