Full House Resorts, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; compared with Q1 2015. Full House owned or operated four casino properties in Mississippi, Indiana and Nevada. Figures below are in millions unless otherwise noted.
Financial performance
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Net revenue | $32.0 | $29.1 |
| Operating income (loss) | $1.5 | $(0.01) |
| Interest expense, net | $1.8 | $1.5 |
| Net loss | $(0.3) | $(1.8) |
| Basic and diluted loss per share | $(0.02) | $(0.09) |
| Operating cash flow | $1.9 | $1.6 |
| Capital expenditures | $0.2 | $4.9 |
Net revenue increased 10.1%; operating margin was approximately 4.8% (derived from reported figures). Management-reported Adjusted EBITDA, a non-GAAP measure, rose 66.7% to $3.6 million, or approximately 11.1% of net revenue. It is not a substitute for GAAP earnings or cash flow. Interest expense increased 16.5%; the company remained loss-making after interest and taxes. Income tax expense was $0.1 million despite a pretax loss, reflecting the valuation allowance and other tax items.
Liquidity, debt and balance sheet
At March 31, cash and equivalents were $13.1 million, restricted cash $0.6 million, and current assets $21.7 million. Management estimated approximately $12 million was needed for day-to-day operations. Of the $5 million revolving facility, $3 million was available, subject to covenant compliance.
Credit-facility principal totaled $65 million: $43 million first-lien term debt, $2 million revolver borrowings and $20 million second-lien debt. Reported debt carrying value was $64.0 million, net of issuance costs; capital-lease obligations totaled approximately $6.0 million. The first-lien rate was 4.75% and the second-lien rate 14.25%. Both facilities matured April 1, 2017. The first-lien maturity was extended from October 2016, and the company made $3 million in first-term-loan repayments during the quarter. It reported covenant compliance at quarter-end, but noted future compliance was not assured.
Cash declined $1.5 million during the quarter, principally because $3.3 million of financing outflows—including debt repayments—exceeded operating cash generation and limited investing outflows.
Material changes and management commentary
- Revenue increased at all three reporting segments. Silver Slipper revenue rose 8.2%, supported by its hotel, which opened in phases in 2015; its Adjusted Property EBITDA fell slightly to $2.7 million as promotional, gaming-tax and other costs rose. Rising Star revenue increased 10.2% and Adjusted Property EBITDA rose to $1.3 million, with reported margin improving to 10.6% from 1.8%. Northern Nevada revenue rose 15.8% and Adjusted Property EBITDA reached $0.8 million, helped by better ski-season conditions and higher table-game hold.
- Operating expenses increased 4.7%, less than revenue growth. Lower depreciation and amortization partly offset increased casino and selling, general and administrative costs.
- Operating cash flow improved year over year, while investing outflows fell sharply because Silver Slipper hotel construction had driven substantial spending in Q1 2015.
- The Rising Star hotel lease was extended to October 2027 with lower scheduled rent payments, and requires at least $1 million of property improvements by March 31, 2017.
Outlook, risks and contingencies
The company expected to refinance its first- and second-lien debt and close its $30 million Bronco Billy’s acquisition in Colorado in Q2 2016, subject to remaining regulatory approvals and customary conditions. It had paid a $2.5 million deposit and expected the refinancing to fund the acquisition. The purchase agreement could be terminated by the seller if closing had not occurred by May 14, 2016. Management believed existing liquidity was adequate for the next 12 months excluding the acquisition, but emphasized that refinancing was necessary: operating cash flow was unlikely to repay debt at its April 2017 maturities. Management expressed confidence in refinancing but gave no assurance it would succeed or on acceptable terms.
Planned investment included approximately $1.5 million for Grand Lodge gaming equipment, at least $1 million at Rising Star, and the Bronco Billy’s purchase. Results are exposed to gaming competition and regulation, economic conditions, weather and seasonality, gaming hold fluctuations, and access to financing. The company also disclosed an appeal concerning Silver Slipper parking-garage repair costs; it had settled with the architect, while the contractor litigation remained on appeal. Management said other ordinary-course proceedings were not expected to have a material effect.
Important facts for investors to verify
- Whether refinancing was completed, on what terms, and whether it funded Bronco Billy’s before the purchase agreement deadline.
- Subsequent covenant compliance, available liquidity and ability to meet the April 2017 debt maturities.
- Bronco Billy’s regulatory approvals, closing costs and expected financing needs.
- Whether property-level revenue growth translated into sustained margins and operating cash flow, particularly at Silver Slipper.
- Progress and funding of required and planned capital improvements, and the outcome of the contractor appeal.