Full House Resorts, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing was signed March 30, 2020. Full House operated five casinos across Mississippi, Colorado, Indiana and Nevada.
Financial performance
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Net revenue | $165.4 million | $163.9 million | +0.9% |
| Operating income | $6.2 million | $7.4 million | -16.3% |
| Net loss | $5.8 million | $4.4 million | Loss increased |
| Adjusted EBITDA | $15.9 million | $17.7 million | -9.7% |
| Cash from operating activities | $10.5 million | $9.8 million | +$0.7 million |
| Cash used in investing activities | $8.7 million | $17.4 million | Lower outflow |
Casino revenue declined 0.8% to $113.4 million, as slot revenue fell 1.9% and table-game revenue fell 4.6%. Non-casino revenue rose 5.0% to $52.0 million, led by hotel revenue growth of 16.9%. The filing attributes consolidated revenue growth to hotel and sports-wagering increases, which offset gaming declines.
Adjusted Property EBITDA was $20.7 million, down 7.1%. Silver Slipper revenue rose 5.6% and property EBITDA rose 8.5% to $13.2 million; its EBITDA margin improved to 18.0% from 17.5%. Rising Star revenue fell 4.9% and EBITDA fell 52.6% to $1.3 million, with margin declining to 2.9% from 5.8%. Bronco Billy’s revenue rose 2.1%, but EBITDA fell 23.4% to $3.0 million; margin declined to 10.9% from 14.5%. Northern Nevada revenue fell 2.7% and EBITDA fell 6.3%; margin was 16.5%, versus 17.2%.
At December 31, 2019, unrestricted cash and equivalents were $28.9 million and restricted cash was $1.0 million. Total assets were $211.3 million and stockholders’ equity was $56.1 million. Cash from operations included $6.0 million in sports-wagering market-access fees. Management estimated about $10 million was needed for day-to-day operations.
Senior secured notes had $107.9 million principal outstanding, were secured by substantially all company assets, and bear interest at the greater of three-month LIBOR or 1%, plus 7%. The notes mature in February 2024, with a $103.5 million balloon payment then; estimated 2020 cash interest was approximately $10 million, including finance-lease interest. The company reported covenant compliance at year-end. A $50 million notional interest-rate cap at a 3% strike runs through March 31, 2021. Operating lease liabilities were $19.4 million and the finance lease obligation was $4.3 million.
Material changes and drivers
- Silver Slipper benefited from marketing initiatives, operating efficiencies, property improvements and a full year of sportsbook operations. Management described 2019 as the property’s best year in its 13-year history.
- Rising Star faced new competition and several weeks of slot-system installation downtime; increased marketing and ferry operating costs also weighed on results.
- Bronco Billy’s incurred more than $1 million of incremental Christmas Casino costs without sufficient offsetting revenue. Colorado’s minimum-wage increase also affected results.
- Interest expense rose to $10.7 million from $10.3 million, primarily due to the additional $10 million of notes issued in May 2019 and higher average LIBOR. A $1.2 million non-cash warrant fair-value expense replaced $1.7 million of non-cash warrant fair-value income in 2018; 2018 also included a $2.7 million debt-extinguishment loss.
- Capital spending fell to $8.1 million from $17.1 million. The company adopted the new lease accounting standard in 2019, recognizing operating lease right-of-use assets and liabilities; comparative balance-sheet figures were not recast.
Outlook, risks and contingencies
- COVID-19 and going concern: All casinos were temporarily closed by state orders between March 16 and 18, 2020. The company said the duration and business impact could not be reasonably estimated and could be material. It reduced staffing and paused Bronco Billy’s parking-garage construction. The auditor’s report and management’s disclosure state that the closures and covenant uncertainty raise substantial doubt about the company’s ability to continue as a going concern; the financial statements include no adjustments for the outcome. Management believed available cash could sustain reduced operations beyond then-mandated closure periods, but warned that prolonged closures or weak reopening volumes could threaten covenant compliance and debt payments.
- Development: Remaining Phase One parking-garage costs at Bronco Billy’s were estimated at approximately $17 million; construction was paused and resumption timing was unknown. Phase Two requires acceptable financing and other contingencies. The Waukegan casino application remained subject to Illinois Gaming Board award. New Mexico had deferred issuing its sixth racing license.
- Sports wagering: Agreements provided $6 million in one-time access fees, received in 2019 and recorded as deferred revenue to be recognized over the initial 10-year term beginning when operations commence. Once all agreements are operating, the company anticipated at least $7 million in aggregate annual minimum revenue, with minimal ongoing company expense expected. One Indiana mobile operator had launched in December 2019; the remaining Indiana operators and Colorado operations were expected to launch in 2020. These are expectations, not guaranteed realized results.
- Other risks: Significant debt and restrictive covenants, refinancing needs before the 2024 maturity, variable interest rates and LIBOR transition, regional competition, gaming regulation, leased-property exposure, construction financing, and warrant redemption or dilution. The company reported no legal proceeding expected to have a material adverse effect.
Key facts for investors to verify
- Post-year-end casino reopening dates, customer demand and actual cash burn against the company’s liquidity estimate.
- Current covenant headroom, lender waivers or amendments, and ability to service or refinance the secured notes.
- Sports-wagering launch progress and whether the stated annual minimum revenues are being earned and recognized.
- Bronco Billy’s construction restart decision, remaining project costs and funding; also the performance and cost-reduction plan for Christmas Casino.
- Operating performance at Rising Star and Northern Nevada amid competition, and whether the 2019 slot-system disruption had lasting effects.
- Potential cash or equity consequences of the approximately 1.0 million outstanding warrants and their redemption rights.