Full House Resorts, Inc. — Q1 2015 Form 10-Q
Business and period: Unaudited results for the three months ended March 31, 2015, compared with Q1 2014. Full House owned Silver Slipper, Rising Star and Stockman’s casinos, and operated the leased Grand Lodge Casino. Its Buffalo Thunder management contract expired in September 2014.
Financial performance
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Net revenue | $29.1 million | $30.4 million | Down 4.5% |
| Operating loss | $14,000 | $91,000 | Improved $77,000 |
| Interest and other expense | $1.513 million | $1.517 million | Down $4,000 |
| Net loss | $1.755 million | $1.082 million | Loss widened $673,000 |
| Loss per diluted share | $0.09 | $0.06 | Loss per share increased |
| Adjusted EBITDA | $2.141 million | $2.498 million | Down 14.3% |
| Operating cash flow | $1.586 million | $1.814 million | Down $228,000 |
Operating margin was approximately negative 0.05% of net revenue, versus negative 0.30% a year earlier; net margin was approximately negative 6.0%, versus negative 3.6%. Casino revenue fell 4.1%, including a 5.6% decline in slots; non-casino revenue, net of promotional allowances, rose 10.3%. The income tax line was a $228,000 expense despite the pretax loss, versus a $526,000 benefit in Q1 2014. Management attributed this to a deferred-tax valuation allowance and tax amortization of indefinite-lived intangibles.
Cash and equivalents were $14.337 million at quarter-end, down from $15.639 million at December 31, 2014. Current assets were $19.253 million and current liabilities $17.240 million. Long-term debt, including its current portion, totaled $63.092 million; capital lease obligations totaled $6.730 million. Investing activities used $5.134 million, primarily for Silver Slipper hotel construction; financing activities provided $2.246 million. Capital expenditures were $4.900 million, net of construction payables.
Material changes and operating drivers
- Silver Slipper: Net revenue increased 11.4% to $13.724 million and operating income rose to $1.558 million from $750,000. Management cited higher patron counts, marketing changes and better weather. Construction disruption continued.
- Rising Star: Net revenue fell 16.1% to $11.115 million; its operating loss widened to $483,000 from $250,000. Management cited competitive pressure from nearby casinos and lower gaming revenue, partly offset by cost reductions.
- Northern Nevada: Net revenue declined 3.2% to $4.245 million; operating income fell to $83,000 from $148,000, mainly due to lower gaming revenue at Stockman’s.
- Management-fee revenue fell from $494,000 to zero following expiration of the Pueblo of Pojoaque contract. Lower casino expenses and SG&A, plus reduced depreciation and amortization, helped offset revenue declines; Adjusted EBITDA nevertheless decreased.
Liquidity, outlook and risks
- At March 31, the $5 million revolving facility was available; the company said approximately $12 million of cash was needed for day-to-day operations. It drew $2 million on the revolver on April 1. The company received a $3.1 million federal tax refund in March.
- The Silver Slipper hotel project was budgeted at approximately $20 million, including capitalized interest. The planned 129-room hotel, redesigned to include nine suites, was expected to open in phases in Q2 2015. At March 31, $15.7 million had been invested; management expected to fund remaining costs with $4.4 million of term-loan availability and $1.6 million of working capital.
- Management believed cash, operating cash flow and revolver availability would meet obligations over the next 12 months, but said it was unlikely to generate enough operating cash flow to repay existing debt at maturity. It had begun refinancing discussions to extend maturities and/or adjust covenants. The first-lien facility matures June 2016 and the second-lien facility April 2017; the second-lien rate was 14.25%.
- The company reported compliance with debt covenants at March 31, but cautioned that future compliance and lender waivers were not assured. It identified risks including competition, economic conditions, construction, gaming regulation and taxes, weather, and access to financing. It also noted uncertainty around refinancing and the Grand Lodge lease, which expires in August 2018 and includes a lessor purchase option.
- In April, the company settled an Indiana sales-and-use-tax assessment for $237,000, including interest and penalties, and paid it. Management said pending ordinary-course legal matters were not expected to have a material adverse effect. No material changes to the 2014 Form 10-K risk factors were reported.
Important facts for investors to verify
- Progress, final cost and phased opening of the Silver Slipper hotel, and the expected operating contribution after opening.
- Rising Star’s performance amid regional competition and whether cost reductions can offset continued gaming-revenue pressure.
- Refinancing progress, debt maturities, borrowing availability, covenant headroom and the effect of the high-cost second-lien debt.
- Cash needs and liquidity after the April revolver draw, hotel spending and the Indiana assessment payment.
- Whether the Grand Lodge lease is extended or its purchase option is exercised, and any resulting impact on operations.