Full House Resorts, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Full House operated five casinos and was constructing Chamonix Casino Hotel in Colorado and The Temporary by American Place in Illinois.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $44.4 million | $47.4 million | $85.8 million | $89.7 million |
| Operating income | $8.2 million | $12.2 million | $13.5 million | $20.9 million |
| Operating margin | 18.5% | 25.7% | 15.8% | 23.3% |
| Net income (loss) | $(4.4) million | $5.5 million | $(4.2) million | $2.0 million |
| Adjusted EBITDA (non-GAAP) | $12.1 million | $14.9 million | $20.5 million | $25.7 million |
| Cash provided by operating activities | Not reported quarterly | $4.2 million | $18.8 million |
Q2 casino revenue fell 14.9% to $29.5 million; other operations revenue rose 95.3% to $5.6 million, including contracted sports wagering. Q2 Adjusted EBITDA margin was approximately 27.2%, versus 31.5% a year earlier. Interest expense was $7.0 million for Q2 and $13.4 million for the first half. Q2 pretax income of $1.2 million was offset by a $5.6 million tax provision, producing a 459.3% effective tax rate; management said year-to-date actual tax results were used because the annual rate could not be reasonably estimated.
Liquidity, debt and investment
- At June 30, cash and equivalents were $108.2 million; restricted cash was $190.2 million and dedicated to Chamonix construction. The company estimated $7–9 million of cash was used in day-to-day operations.
- Long-term debt was $410 million principal, reported net at $401.0 million. The 8.25% senior secured notes mature in February 2028; the company had no revolver borrowings and a $1 million standby letter of credit. The $40 million revolving facility matures in 2026.
- First-half investing cash outflow was $65.0 million, primarily for construction. Financing cash inflow was $93.9 million, including proceeds from $100 million of additional notes issued at 102% of principal.
- Management said cash, available revolver capacity and operating cash flows were expected to cover liquidity needs for the next 12 months, including construction. Chamonix’s revised budget was approximately $250 million, with expected opening in mid-2023; planned investment was approximately $100 million in 2022 and $125 million in 2023. The Temporary was expected to open in Q4 2022, subject to approvals, with planned investment of approximately $80 million in 2022 and $20 million in 2023.
Material changes and management commentary
- Revenue declined 6.4% in Q2 and 4.3% in the first half; Adjusted EBITDA decreased 19.0% and 20.3%, respectively. Management cited the absence of prior-year stimulus at comparable levels, competition from online sports wagering in Louisiana, and construction disruptions in Colorado.
- Mississippi revenue and Adjusted Segment EBITDA declined, including pressure from lower casino activity and increased insurance and food costs. Colorado revenue declined 35.6% in Q2 as construction constrained parking, hotel rooms and casino space; management expected disruption through Chamonix’s mid-2023 completion, with a separate modest refurbishment also affecting results.
- Indiana results benefited from a $2.1 million Q2 sale of free-play tax deductions, a revenue source whose timing and recurrence are not assured. Contracted sports wagering revenue included accelerated recognition of $1.6 million after a partner ceased operations in May; replacement operators were not assured.
- The Illinois Circa Sports agreement generated a nonrefundable $5 million market-access fee in May and provides for at least $5 million annualized revenue once operations begin, subject to regulatory approvals.
- Management reported continuing inflation, labor shortages, supply constraints and construction delays. It said these effects may persist and are difficult to separate from broader pandemic-related impacts. Nevada operations are seasonal, and company results can fluctuate with gaming hold rates and customer demand.
- Management maintained a valuation allowance against deferred tax assets, while noting that continued profitability could support a reversal by year-end 2022; any reversal would not itself affect taxes paid. The filing reported no material changes to previously disclosed risk factors and no expected material effect from ordinary-course litigation.
Most important facts for investors to verify
- Whether construction schedules and budgets for Chamonix and The Temporary remain achievable amid cost, labor and supply-chain pressures, and whether required approvals are obtained.
- How much of reported cash is available for general use, given the $190.2 million restricted construction balance and substantial planned capital spending.
- Ability to service the 8.25% notes and fund the permanent American Place project and other commitments; management noted some future projects may require additional financing.
- Underlying casino trends and segment profitability after adjusting for one-time or timing-sensitive items, including the Indiana free-play sale and accelerated sports-wagering revenue.
- Whether replacement sports-wagering partners are secured for the vacated Colorado and Indiana skins, and whether Illinois operations launch as planned.
- The effect of the unusually large Q2 tax provision and the company’s deferred-tax-asset valuation allowance on future reported earnings.