Twin River Worldwide Holdings, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. This filing is by Twin River Worldwide Holdings, Inc. (ticker TRWH), not a filing under the name Bally’s Corp. The company operated gaming, racing, hotel, dining and entertainment properties across multiple U.S. markets. The quarter included Dover Downs and, from January 23, the acquired Black Hawk Casinos.
Key financial results
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $109.1 million | $120.6 million |
| Operating income (loss) | $(3.2) million | $30.3 million |
| Net income (loss) | $(8.9) million | $17.6 million |
| Diluted earnings (loss) per share | $(0.28) | $0.46 |
| Operating margin | (2.9)% | 25.1% |
| Net margin | (8.1)% | 14.6% |
| Adjusted EBITDA (non-GAAP) | $22.1 million | $43.9 million |
| Cash from operations | $17.3 million | $25.0 million |
| Capital expenditures | $3.0 million | $7.5 million |
- Revenue fell 9.5% year over year. Gaming and racing revenue decreased 16.0% to $78.8 million; non-gaming revenue increased 13.2% to $30.4 million. Management said revenue in January and February, before shutdowns, was up $17.1 million, or 23.4%, from the same period in 2019, largely reflecting the acquired properties.
- Adjusted EBITDA declined 49.7%; its margin was approximately 20.2%, versus 36.4% in Q1 2019. The company defines Adjusted EBITDA as a non-GAAP measure; it should not be treated as a substitute for GAAP earnings or cash flow.
- Q1 included an $8.7 million impairment charge related to Black Hawk goodwill and gaming-license intangibles, $5.5 million of share-based compensation, and a $0.9 million insurance recovery gain. Interest expense rose to $11.5 million from $7.1 million.
- The income tax line was a $5.7 million benefit, compared with $5.7 million of tax expense in Q1 2019. The filing attributes the change to lower pretax income, CARES Act effects and other discrete items.
Balance sheet, debt and liquidity
- At March 31, 2020, cash and cash equivalents were $361.6 million, versus $182.6 million at year-end 2019; restricted cash was zero. Net working capital was $322.9 million, compared with $155.2 million at year-end.
- Total debt, including current maturities and before unamortized discounts and financing fees, was $947.8 million: $297.8 million term-loan principal, $250.0 million revolver borrowings and $400.0 million of 6.75% senior notes due 2027. The balance-sheet carrying amount of debt was $933.3 million.
- The company drew the full $250.0 million revolver on March 16 to bolster liquidity. Thus, the higher quarter-end cash balance included borrowed funds. Management said available cash and credit capacity were sufficient for obligations over the next 12 months, while noting the duration of closures and resulting cash needs were uncertain.
- Cash provided by financing activities was $212.2 million, principally from the revolver draw; investing activities used $53.5 million, including $50.5 million net cash consideration for Black Hawk. The company repurchased $31.3 million of shares and paid $3.2 million in dividends during the quarter.
Material changes, outlook and risks
- COVID-19 drove the quarter’s sharp deterioration: Rhode Island properties closed March 14 and all other owned properties closed by March 16. As of the filing, all owned properties and properties under acquisition agreements remained closed and were generating effectively no revenue. The company expected Q2 2020 results to be more severely affected and could not predict reopening dates, operating restrictions, or when demand would recover.
- Management described cost-reduction actions including suspending major capital projects, renegotiating vendor agreements, hiring freezes, headcount reductions and substantial employee furloughs. Reopening plans contemplated screening, social distancing, reduced or no table games initially, enhanced sanitation and masks. These actions and requirements could affect costs, guest demand and the ability to retain or rehire staff.
- On April 24, 2020, lenders amended the credit facility: leverage-ratio testing was replaced through the period ending with delivery of Q1 2021 financial statements by monthly minimum-liquidity requirements—$75 million for April and May 2020, $65 million for June, $55 million for July and $50 million monthly thereafter through March 2021. The amendment also restricted dividends, repurchases, investments and acquisitions other than previously announced transactions, and increased the revolver pricing during the relief period. The company reported compliance with covenants at March 31, before this amendment.
- On May 11, 2020, after the quarter, the company increased its term loan by $275 million at LIBOR plus 8.00%, subject to a 1.00% LIBOR floor, and repaid the $250 million revolver balance. The financing supported the planned Shreveport and MontBleu acquisitions.
- Acquisitions: Black Hawk closed in January for approximately $53.8 million before customary adjustments. The company expected the $230 million Isle Kansas City and Lady Luck Vicksburg transaction to close in Q2 2020, subject to conditions. After quarter-end, it agreed to acquire Shreveport and MontBleu for $155 million and Bally’s Atlantic City for $25 million, subject to adjustments, approvals and other closing conditions.
- The Black Hawk purchase-price allocation remained preliminary. The $8.7 million impairment, including full impairment of the acquired gaming-license intangible and Black Hawk goodwill, could change as valuations are finalized.
- Additional risks include prolonged closures or weak post-reopening demand, fixed costs and debt service, higher interest costs, access to financing, regulatory approvals and gaming rules, acquisition integration, and the possible effects of cost cuts on employees and guests. The filing also describes a Rhode Island investigation involving a former employee and other defendants; the company said authorities advised its counsel that the company and its employees other than the former employee were not investigation targets or subjects.
Most important facts for investors to verify
- Actual reopening dates, operating capacity restrictions, customer demand and cash burn versus management’s liquidity assessment.
- Monthly compliance with the amended liquidity covenant, interest expense under the revised financing, and any additional funding needs.
- Final Black Hawk purchase accounting and impairment amounts, and the closing status, financing and regulatory approvals for each pending acquisition.
- Progress on cost reductions and the effects of furloughs, reopening costs and operating restrictions on margins and cash generation.
- Whether dividends and share repurchases remain suspended, and developments in material legal or regulatory matters.