Full House Resorts, Inc. — Q1 2018 Form 10-Q
Business and period. Full House owns or operates five casinos in Mississippi, Colorado, Indiana and Nevada. This filing covers the three months ended March 31, 2018; comparisons are with Q1 2017 unless noted. Results are seasonal and can be affected by weather and gaming hold.
Financial performance
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Net revenue | $37.9 million | $39.6 million |
| Operating income | $0.5 million | $2.3 million |
| Net loss | $4.3 million | $0.6 million |
| Adjusted EBITDA (non-GAAP) | $3.0 million | $4.6 million |
| Operating cash flow | $(0.5) million | $1.5 million |
Reported net revenue fell 4.3%; management attributed the decline mainly to adverse weather. ASC 606 adoption accounted for approximately 21.6% of the reported revenue decline and significantly shifted presentation among casino, food and beverage, hotel and expense lines. The company said ASC 606 was not expected to materially affect operating income, net income or cash flow on an ongoing basis. On the filing’s adoption comparison, Q1 2018 net loss without ASC 606 would have been $4.266 million versus $4.286 million as reported.
Operating margin was approximately 1.4%, versus 5.7% in Q1 2017; Adjusted EBITDA margin was approximately 7.9%, versus 11.6%. Interest expense was $2.5 million, down from $2.7 million, but included a $2.7 million debt-extinguishment loss. A $0.5 million warrant fair-value gain partly offset that charge. Basic and diluted loss per share were $0.18 and $0.20, respectively.
Property Adjusted EBITDA was $2.9 million at Silver Slipper (down 5.5%), $0.5 million at Rising Star (down 62.6%), $0.7 million at Bronco Billy’s (down 16.7%), and $(0.01) million at Northern Nevada versus $0.6 million a year earlier. Rising Star was affected by heavy snow and temporary access-road closures; Northern Nevada faced low early-quarter snowfall and reduced ski-area visitation. Bronco Billy’s revenue grew 6.5%, but higher operating costs reduced property EBITDA.
Liquidity, debt and capital
Cash and equivalents were $27.7 million at March 31, 2018, up from $19.9 million at year-end. Management estimated approximately $12 million was needed for day-to-day operations. Cash used in investing was $1.4 million, and financing provided $9.8 million, including $11.4 million net proceeds from a March equity offering.
In February, the company issued $100 million of senior secured notes due 2024 at 98% of face value, refinancing approximately $96 million of prior first- and second-lien debt. The notes bear interest at the greater of three-month LIBOR or 1%, plus 7%, with $250,000 principal installments each quarter and approximately $94 million due at maturity. Debt carrying value was $95.5 million, net of discounts and issuance costs; capital lease obligations totaled $5.2 million. The notes are secured by substantially all assets, include leverage covenants, and the company reported covenant compliance at quarter-end. The leverage limits tighten over time. An interest-rate cap covering $50 million notional was entered into in April, after quarter-end.
Operating cash flow declined from the prior-year period, principally because of weather-related business-volume weakness. Management believed available cash and anticipated operating cash flow and credit would fund operating requirements for the next 12 months, but cautioned that additional financing may be needed for growth or other needs and is not assured.
Outlook, plans and risks
No formal earnings guidance was provided. The company expected to invest approximately $9 million in listed capital projects during the remainder of 2018. Rising Star improvements, including a ferry service, were expected to cost about $4 million in total; service was targeted to begin in Q3 2018, subject to completion and approvals. Bronco Billy’s Phase One expansion was budgeted at approximately $14 million, with $7.5 million expected to be invested in 2018. Phase Two, including a planned 150-room hotel and other amenities, remained contingent on final approvals, financing and other conditions. Final city approvals were expected in June 2018.
Outstanding warrants representing rights to buy about 1.0 million shares became eligible for redemption or registration following the refinancing. Holders had not exercised those rights as of the filing; a cash repurchase or four-year note could affect liquidity if exercised. Other key risks include substantial debt and refinancing needs, covenant compliance, project financing and execution, weather, competition, labor costs, gaming regulation, and potential dilution from warrants and options. Management said pending ordinary-course legal matters were not expected to have a material effect. No material risk-factor changes from the 2017 Form 10-K were reported.
Important facts for investors to verify
- Separate operating and cash-flow trends from ASC 606 presentation changes when comparing reported revenue and departmental expenses.
- Monitor property-level recovery from weather disruption, especially Rising Star and Northern Nevada, and the effect of labor and benefit costs on margins.
- Review the notes’ interest-rate terms, scheduled principal payments, tightening leverage covenants and the large 2024 maturity.
- Track whether warrant holders exercise redemption rights and the resulting cash, debt or dilution impact.
- Confirm financing, approvals, budget and timing for Bronco Billy’s and Rising Star projects; projected completion dates and spending are forward-looking estimates.