Full House Resorts, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; filed November 7, 2022. Amounts below are in millions unless noted.
Business context
Full House operates five casinos and is constructing Chamonix Casino Hotel in Colorado and The Temporary by American Place in Illinois. Its revenue is primarily gaming, with additional hotel, food and beverage, and contracted sports wagering revenue.
Financial results and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $41.4 | $47.2 | $127.2 | $136.9 |
| Operating income | $2.4 | $11.1 | $15.9 | $32.0 |
| Operating margin | 5.8% | 23.5% | 12.5% | 23.4% |
| Net income (loss) | $(3.6) | $4.6 | $(7.8) | $6.7 |
| Adjusted EBITDA | $7.8 | $13.6 | $28.2 | $39.3 |
Adjusted EBITDA is a non-GAAP measure. Its margin was 18.7% in Q3 2022 versus 28.8% in Q3 2021, and 22.2% for the first nine months versus 28.7% in the prior-year period. Net interest expense was $5.8 million in Q3 and $19.2 million year to date. Nine-month debt modification and extinguishment costs were $4.5 million.
For the first nine months, operating cash flow was $0.04 million, capital expenditures were $116.1 million, and financing cash flow was $93.7 million. Cash and equivalents were $85.7 million at September 30; restricted cash of $156.1 million was dedicated to Chamonix construction. Management said cash, available credit and operating cash flows were expected to meet liquidity needs for the next 12 months, including construction.
Long-term debt, net of issuance costs, was $401.4 million; principal outstanding on the 8.25% Senior Secured Notes due 2028 was $410 million. The $40 million revolving facility was undrawn, with a $1 million standby letter of credit outstanding. The company reported compliance with the facility’s financial covenant.
Changes versus prior-year periods
- Revenue fell 12.4% in Q3 and 7.1% year to date; casino revenue declined 8.6% and 11.0%, respectively. Management cited reduced stimulus-related customer spending, competition from online sports wagering in nearby Louisiana, and construction disruption at Bronco Billy’s.
- Operating expenses increased 8.0% in Q3 and 6.1% year to date, driven largely by preopening costs, insurance, and food and beverage costs. Preopening costs were $2.6 million in Q3 and $4.9 million year to date.
- Adjusted Segment EBITDA declined 40.3% in Q3 and 26.6% year to date. Colorado was especially affected by Chamonix construction disruption, with segment EBITDA of $36,000 in Q3 and a $49,000 loss year to date. Nevada revenue and segment EBITDA improved.
- Debt principal rose by $100 million following the February 2022 issuance of additional 8.25% notes. Capital spending drove property and equipment to $272.1 million from $149.5 million at year-end 2021.
Outlook, commentary and risks
- Chamonix’s budget was revised to approximately $250 million, with expected opening in mid-2023; management estimated investment of about $100 million for 2022 and $125 million for 2023. Construction disruptions and a refurbishment are expected to weigh on Bronco Billy’s results into 2023.
- The Temporary was under construction, with opening anticipated within three months of quarter-end, subject to regulatory approvals. Planned investment was approximately $40 million in 2022 and $60 million in 2023. Illinois sports wagering with Circa Sports was anticipated to launch in spring 2023, subject to approvals; the agreement includes a minimum annualized revenue payment of $5 million once operations commence.
- Supply-chain constraints, labor shortages, inflation, and higher fuel, food, and building-material costs may continue to affect operations and projects. Management said the timing and extent of relief were uncertain.
- Two contracted sports wagering operators ceased operations in May 2022, leaving one idle skin each in Colorado and Indiana. The company was evaluating replacement operators or self-operation, with no assurance of favorable terms.
- The Grand Lodge Casino lease expires in August 2023; extension is uncertain, and the landlord has an option to purchase the casino leasehold interest and related assets. Management said pending ordinary-course legal matters were not expected to have a material effect. No material changes to previously disclosed risk factors were reported.
No formal earnings guidance was provided in the supplied filing text. Construction budgets, spending plans, and expected opening dates are management estimates and remain subject to execution, approvals, and other risks. The company maintained a valuation allowance against deferred tax assets.
Most important facts for investors to verify
- Construction progress, total funding needs, and opening timing for Chamonix and The Temporary, including exposure to cost inflation and delays.
- Whether operating cash generation improves from the near break-even nine-month level while capital spending remains elevated.
- Revenue and margin trends at Mississippi, Indiana, and Colorado, and whether construction disruption and competitive pressures ease.
- Debt service capacity on $410 million of 8.25% notes, remaining restricted construction funds, and covenant headroom.
- Actual launch and economics of Illinois sports wagering, replacement or use of idle Colorado and Indiana skins, and renewal or disposition of the Grand Lodge lease.