Business context and reporting period
Full House Resorts, Inc. filed this Form 10-K for the fiscal year ended December 31, 2015, comparing results with 2014. It owned and operated three casinos and leased and operated a fourth across Mississippi, Indiana and Nevada. The filing is annual; it does not provide a standalone fourth-quarter income statement.
Financial performance and liquidity
| Metric | 2015 | 2014 |
|---|---|---|
| Net revenues | $124.6 million | $121.4 million |
| Operating income (loss) | $5.0 million | $(13.8) million |
| Net loss | $(1.3) million | $(20.8) million |
| Adjusted EBITDA (non-GAAP) | $14.0 million | $10.7 million |
| Cash provided by operations | $7.5 million | $7.6 million |
| Cash used in investing activities | $(14.8) million | $(8.9) million |
| Cash and equivalents at year-end | $14.6 million | $15.6 million |
Net revenue rose 2.6%. Operating margin was approximately 4.0% versus a negative 11.4%; net margin was approximately negative 1.1% versus negative 17.2%. Adjusted EBITDA margin was approximately 11.2% versus 8.8%; these EBITDA figures are non-GAAP and exclude specified costs. Interest expense increased 7.1% to $6.7 million. The company recorded an income tax benefit of $0.3 million and reported diluted loss per share of $0.07.
At year-end, current assets were $23.3 million and current liabilities $17.5 million. Long-term debt was $68.0 million in principal: $48.0 million first-lien and $20.0 million second-lien; the balance sheet classified $6.0 million as current. The company also reported a $6.2 million capital-lease obligation. It had $3.0 million available under its $5.0 million revolving loan, subject to covenant compliance. First-lien debt carried a 4.75% rate at year-end; second-lien interest was variable, with a 13.25%–15.25% range under the amended terms. The company was in compliance with covenants at December 31, 2015.
Material changes versus 2014
- Silver Slipper revenue increased 18.4% to $56.8 million and Adjusted Property EBITDA rose 32.3% to $9.9 million. Its new 129-room hotel opened in phases during 2015; construction cost was approximately $20.5 million.
- Rising Star revenue fell 7.0% to $47.6 million, amid competition, but Adjusted Property EBITDA increased to $4.0 million from $2.2 million. Results included a $1.35 million property-tax refund and reduced ongoing property taxes.
- Northern Nevada revenue fell 4.8% to $20.2 million and Adjusted Property EBITDA declined 13.2% to $3.9 million, affected by weak snow conditions and lower gaming hold percentages.
- Management-fee revenue ended after the Pueblo of Pojoaque contract expired in September 2014. The 2014 comparison also included $11.5 million of impairment charges, $2.7 million in board and executive transition costs, and a $1.7 million settlement loss related to the terminated Fitz Tunica acquisition.
Outlook, risks and unusual items
Management said existing cash, operating cash flow and revolver availability—excluding the pending Bronco Billy’s acquisition—were expected to cover operating and financial obligations for the next 12 months. It expected to refinance debt to meet the April 2017 maturities and fund the acquisition, but stated there was no assurance refinancing would be completed on acceptable terms. The filing gives no quantified earnings or revenue guidance.
The company had agreed to acquire Bronco Billy’s in Colorado for $30 million, subject to working-capital adjustment, and had paid a $2.5 million deposit that could be forfeited in most circumstances if the deal failed. Colorado approved necessary licenses in February 2016; the company expected to close in the second quarter of 2016, subject to remaining approvals and refinancing. In March 2016, the first-lien maturity was extended to April 1, 2017. Also after year-end, Rising Star’s hotel lease was amended to lower rent, extend the term to 2027 and require at least $1 million of property improvements.
Management highlighted substantial leverage, refinancing and covenant risks; variable-rate exposure; competition and regional economic dependence; gaming regulation and taxation; weather and natural-disaster exposure; leased-property and construction risks; and acquisition funding and integration risks. It reported no material expected effect from ordinary-course litigation, while disclosing an appeal and settlement activity concerning Silver Slipper parking-garage repairs. American Place, a proposed $650 million Indianapolis development, remained contingent; the Airport Authority canceled its RFP process in March 2016. The auditor issued an unqualified opinion on the financial statements; the audit did not include an opinion on internal-control effectiveness.
Important facts for investors to verify
- Whether refinancing closed, on what terms, and whether debt maturities and financial covenants were subsequently amended.
- Whether Bronco Billy’s was acquired, total funding and final purchase price, and the status of the $2.5 million deposit.
- Whether property-level revenue and EBITDA trends persisted, especially at Rising Star and Northern Nevada, and the extent to which Rising Star’s improvement depended on the tax refund.
- Whether cash generation, working capital and revolver availability were sufficient to fund debt service and planned capital spending.
- How the Hyatt lease purchase option, higher rents and casino-improvement obligations affect Grand Lodge economics and control.