Full House Resorts, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Dollar amounts below are in millions unless otherwise noted. The company operates five casino properties across Mississippi, Colorado, Indiana and Nevada.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $14.5 | $41.7 | $45.4 | $82.2 |
| Operating income (loss) | $(4.2) | $1.9 | $(7.6) | $3.2 |
| Net income (loss) | $(6.7) | $(1.0) | $(11.1) | $(2.6) |
| Adjusted EBITDA (non-GAAP) | $(1.4) | $4.3 | $(2.6) | $7.8 |
| Operating cash flow | Not separately stated | Not separately stated | $(6.4) | $(1.7) |
- Q2 revenue fell 65.2%; casino revenue declined 61.5%, food and beverage 77.5%, and hotel 76.4%. Q2 net loss per share was $0.25 basic and diluted.
- Q2 Adjusted EBITDA margin was approximately negative 9.5% (Adjusted EBITDA divided by revenue); the comparable 2019 margin was approximately 10.2%. Adjusted EBITDA is a non-GAAP measure.
- Cash and equivalents were $26.5 at June 30, versus $28.9 at December 31, 2019. Current assets were $33.4 and current liabilities $26.1.
- Debt included $107.4 of senior secured notes and $5.6 of CARES Act loans. The notes bear interest at 8.0% as of June 30 and mature February 2024, with a $103.5 balloon payment due at maturity. Lease liabilities totaled $23.3.
- Six-month investing cash use was $1.4; financing provided $4.4, including $5.6 of CARES Act loan proceeds. Cash paid for interest was $4.3 for the six-month period.
Material changes and operating developments
- Government orders closed all casinos in March. Silver Slipper reopened May 21; Grand Lodge and Stockman’s reopened June 4; Bronco Billy’s and Rising Star reopened June 15. Closures and restricted operations drove the steep year-over-year revenue decline.
- Management reported June 2020 Adjusted EBITDA of $2.6, versus $1.6 in June 2019, despite operating restrictions. June property results varied: Silver Slipper’s Adjusted Property EBITDA rose 28.5%; Rising Star’s rose 33.3%; Bronco Billy’s rose 94.5%; Northern Nevada’s declined.
- For the six months, Adjusted Property EBITDA was negative $0.6, versus positive $10.3 in 2019. Silver Slipper generated $3.0; Rising Star, Bronco Billy’s and Northern Nevada recorded losses.
- Management reduced staffing, marketing and operating hours and delayed reopening some amenities. Operating capacity, table games, food service and entertainment remained constrained after reopening.
Outlook, risks and unusual items
- Going concern: Management concluded substantial doubt exists about the company’s ability to continue as a going concern within the applicable look-forward period, given pandemic uncertainty and covenant risks. It also said it believed available cash and cost controls could fund reopened operations. These statements reflect uncertainty, not assurance.
- Debt covenants: Amendments waived the leverage covenant for March 31 and June 30, 2020. An August 12, 2020 amendment—after quarter-end—also permitted the CARES Act loans and carried an $805,313 fee. Future covenant amendments were under discussion, with no assurance of success. Maximum leverage ratios were 5.75x through September 30 and 5.50x through December 31, 2020.
- CARES Act loans: The $5.6 loans bear 1% interest and may be forgiven in whole or part if eligibility requirements are met; the company cautioned that forgiveness is not certain. Payments were scheduled to begin in December 2020.
- Development and sports wagering: Bronco Billy’s parking-garage construction was suspended; remaining Phase One cost was estimated at about $16. Phase Two depends on financing and other contingencies. Management expected remaining contracted sports-betting websites in Colorado and Indiana to launch by the end of Q3 2020, subject to approvals; stated contractual minimum revenue could total at least $7.0 annualized once all six sites operate.
- Unusual items: The company wrote off $0.25 of New Mexico racetrack land-option deposits in Q2. It recorded a $0.44 loss on asset disposal and $1.56 of six-month non-cash income from warrant fair-value changes. Rent concessions totaled approximately $0.4.
- Key risks include renewed closures or weaker visitation, added costs from health protocols, covenant compliance and refinancing, debt repayment, sports-betting partner performance, and the suspended expansion. The company said it expects to need to refinance its principal debt before maturity.
Most important facts for investors to verify
- Whether post-reopening revenue and cash generation persisted beyond the reported June results, and the effects of capacity restrictions or renewed closures.
- Whether the company obtained covenant relief for future periods and remained in compliance with its debt obligations.
- Actual cash needs, unrestricted liquidity, and ability to service or refinance the 2024 notes and CARES Act loans.
- Whether CARES Act loan forgiveness was obtained and whether the contracted sports-betting sites launched and met contractual minimums.
- Whether the going-concern uncertainty, suspended Bronco Billy’s construction, or other contingencies changed after the filing date.