Business context and reporting period
Twin River Worldwide Holdings, Inc. (ticker TRWH at the time) filed this unaudited Form 10-Q for the quarter ended March 31, 2019. The filing is not under the name Bally’s Corp. Twin River operated gaming, hotel and racing properties in Rhode Island, Mississippi, Delaware and Colorado; it acquired Dover Downs on March 28, so Dover contributed only four days of reported results. Tiverton Casino Hotel, opened in September 2018, had replaced the closed Newport Grand.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Net revenue | $120.6 million | $104.8 million |
| Income from operations | $30.3 million | $24.9 million |
| Net income | $17.6 million | $12.6 million |
| Diluted earnings per share | $0.46 | $0.29 |
| Operating cash flow | $25.0 million | $28.8 million |
| Capital expenditures | $7.5 million | $42.5 million |
- Revenue grew 15.1%; operating income rose 21.8%, and net income increased 39.3%. Operating margin was 25.1%, versus 23.7%; net margin was 14.6%, versus 12.1%.
- Gaming and racing revenue increased 13.2% to $93.8 million; non-gaming revenue rose 22.3% to $26.8 million. Rhode Island drove most of both increases.
- At March 31, cash and cash equivalents were $103.0 million, with a further $9.7 million restricted. Net working capital was negative $12.1 million, versus positive $46.9 million at year-end, largely because the $80 million revolver balance was classified as current.
- Debt principal outstanding was $421.2 million: $341.2 million under the term loan and $80 million under the revolver. The revolver had $70 million available. The company reported compliance with debt covenants.
- Total assets were $951.1 million and total liabilities $548.3 million at quarter-end. Interest expense was $7.1 million, up from $5.7 million.
Material changes and unusual items
- Dover Downs acquisition consideration was approximately $115.9 million, comprising stock and cash; the preliminary purchase-price allocation remained subject to final valuation. Dover contributed $1.5 million of revenue and de minimis net income in the reported quarter.
- Advertising, general and administrative expense rose 18.7% to $46.5 million, including $6.4 million of merger and public-company costs. A $4.9 million decrease in share-based compensation partly offset expense increases.
- Q1 2018 included a $5.9 million Newport Grand disposal loss, which did not recur in Q1 2019. The 2019 effective tax rate was 24.4%, compared with 34.1%.
- The company adopted lease accounting guidance effective January 1, 2019, recording approximately $18.8 million of right-of-use assets and lease liabilities at adoption.
- Cash from operating activities declined by $3.8 million year over year despite higher net income. Investing cash outflow fell substantially as major Tiverton and hotel construction spending tapered; financing cash flow benefited from revolver borrowings and lower term-loan repayments.
Outlook, risks and contingencies
- Management expected 2019 capital spending of approximately $23 million and said operating cash flows, cash on hand and borrowing availability were expected to support operating and internal investment needs for the next 12 months.
- Management targeted initiating a quarterly cash dividend later in 2019 at approximately 1% of the common stock price, subject to conditions; it was also considering share repurchases. These were plans, not guarantees.
- On May 10, 2019, after quarter-end, the company refinanced its prior credit facility: it entered a $300 million term loan and a $250 million revolver, with no revolver borrowings at closing, and issued $400 million of 6.75% senior notes due 2027. Proceeds were used in part to repay the prior facility; the remaining note proceeds were held as cash.
- A proposed acquisition of three Black Hawk, Colorado casinos was expected to close in early 2020, subject to regulatory approval and other customary conditions.
- Management cited competition, including the expected June 2019 opening of Encore Boston Harbor, regulatory and taxation changes, gaming-license risks, acquisition integration and refinancing risks, pension obligations, and economic or weather disruptions. A Rhode Island lawsuit challenged authorization of sports wagering.
- A shareholder lawsuit alleged fiduciary-duty and disclosure violations related to a 2016 tender offer and award payments. The company said it believed the claims lacked merit and did not expect a material adverse effect.
Important facts for investors to verify
- Confirm the filing entity and corporate history: this 2019 report is for Twin River Worldwide Holdings, not a registrant named Bally’s Corp.
- Assess comparable operating performance separately from Dover Downs, which was included for only four days, and account for Tiverton’s ramp-up and the prior-year Newport Grand disposal charge.
- Review the final Dover Downs purchase-price allocation, acquisition integration costs and expected synergies.
- Evaluate the impact of the May 2019 refinancing on interest expense, maturity profile, leverage, liquidity and covenant flexibility.
- Monitor competition and regulatory developments, the Black Hawk transaction, the sports-wagering litigation, and whether the proposed dividend and repurchases proceed.