Full House Resorts, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report; the provided filing does not give a clear standalone fourth-quarter financial comparison.
Business context
Full House owns or operates five casino properties in Mississippi, Colorado, Indiana and Nevada, with related hotel, food and beverage, entertainment and other operations. It also earns revenue from contracted online sports wagering and was developing a new casino hotel in Cripple Creek, Colorado.
Key financial results
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $125.6 million | $165.4 million | Down 24.1% |
| Operating income | $10.5 million | $6.2 million | Up 68.5% |
| Operating margin | 8.3% | 3.8% | Improved |
| Net income (loss) | $0.1 million | ($5.8 million) | Returned to profit |
| Adjusted EBITDA | $19.7 million | $15.9 million | Up 23.3% |
| Adjusted EBITDA margin | 15.6% | 9.6% | Improved |
| Operating cash flow | $9.0 million | $10.5 million | Down |
| Cash and equivalents at year-end | $37.7 million | $28.9 million | Up |
Revenue fell as all properties closed for roughly three months beginning in March 2020 and subsequently operated under capacity and service restrictions. Casino revenue declined 19.9%; food and beverage revenue fell 43.6%, and hotel revenue fell 35.8%. Operating expenses decreased 27.7%, reflecting closures and cost reductions. Adjusted EBITDA is a non-GAAP measure and should not be treated as a substitute for GAAP earnings or cash flow.
At December 31, 2020, the company reported $106.8 million of principal under its prior secured notes, $5.6 million of CARES Act loans and a $3.8 million finance lease obligation. In February 2021, it issued $310 million of 8.25% senior secured notes due 2028, used proceeds to repay the prior notes and redeem warrants, and reserved $180 million for the Cripple Creek project. The new notes are secured by substantially all company assets and have no mandatory principal amortization before maturity.
Material changes and unusual items
- Despite lower full-year revenue, Adjusted EBITDA increased, with management attributing the improvement to cost controls, labor and marketing efficiencies, and stronger post-reopening performance.
- Adjusted Property EBITDA increased at Silver Slipper, Rising Star and Bronco Billy’s; Northern Nevada’s declined sharply amid weaker visitation, closures and capacity limits.
- Contracted mobile sports operations generated $2.2 million of revenue in 2020, versus $0.1 million in 2019. Management expected the six Colorado and Indiana wagering “skins,” once all launched, to provide at least $7 million in annual revenue, subject to contract terms and operator performance.
- The company closed the unprofitable Christmas Casino in Cripple Creek in September 2020, while continuing to use its inn for Bronco Billy’s guests. A $424,000 benefit from eliminating prior loyalty-program point liabilities contributed to Bronco Billy’s 2020 segment results.
- Hurricane Zeta temporarily closed Silver Slipper and caused approximately $5 million of damage, most of which management said was covered by insurance.
Outlook, risks and contingencies
- Management restarted the expanded Cripple Creek project in February 2021. The plan calls for approximately 300 rooms and an expected investment of $180 million, funded from the notes offering, with completion targeted for the fourth quarter of 2022. Construction costs, timing, approvals and project demand remain uncertain.
- COVID-19 restrictions and customer demand remained uncertain; additional closures or restrictions could impair operating cash flow and debt service capacity.
- Management said operating performance after reopening was stronger than pre-pandemic levels despite restrictions, and expected cash, operations and refinancing proceeds to support operations and the planned project. These expectations are subject to substantial risks and are not guarantees.
- The company remains exposed to high leverage, debt covenants and secured-creditor claims; its ability to service debt depends on cash generation and continued casino operations.
- The Waukegan, Illinois casino proposal remained contingent on winning a state license and satisfying financing conditions. A proposed financing commitment anticipated a $25 million company equity investment, but was conditional and not assured.
- The CARES Act loans totaled $5.6 million; the company intended to seek forgiveness, but stated there was no assurance of approval. Litigation was described as routine, with management not expecting a material adverse outcome.
Most important facts for investors to verify
- Post-year-end performance, including the effects of remaining pandemic-related operating restrictions and customer demand.
- Actual Cripple Creek construction costs, funding draws, required approvals and progress toward the targeted 2022 opening.
- Debt service capacity under the $310 million, 8.25% secured notes and compliance with indenture restrictions.
- Launch and performance of the remaining sports wagering skins, including whether contractual minimums are collected.
- Whether the CARES Act loans are forgiven and whether the Waukegan license and proposed financing proceed.
The auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting as of December 31, 2020.