Business Context and Reporting Period
Company: Full House Resorts, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2008
Business Overview: The Company develops, manages, and invests in gaming opportunities. Key operations include Stockman's Casino in Nevada, a 50% interest in Gaming Entertainment (Delaware), LLC (GED), and a consolidated 50% joint venture, Gaming Entertainment (Michigan), LLC (GEM), managing the development of the FireKeepers Casino in Michigan.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2008 |
|---|---|---|
| Total Revenues | $2,444,326 | $7,400,919 |
| Net Income | $539,673 | $1,611,905 |
| Net Income Per Share (Basic/Diluted) | $0.03 | $0.08 |
| Cash and Cash Equivalents | $6,620,762 (as of Sep 30, 2008) | |
| Net Cash Provided by Operating Activities | $1,550,235 (Nine Months) | |
| Total Long-Term Debt | $3,753,590 (excluding current portion) | |
| Current Ratio (Approx.) | 1.0x ($8.08M Current Assets / $1.56M Current Liab) |
Material Changes vs. Prior Period
- Revenue: For the nine months ended September 30, 2008, total operating revenues increased by 3.2% ($229,468) compared to the prior year. This increase was driven by a full nine months of Stockman's Casino operations (vs. eight months in 2007) and higher slot/table game revenues, offset by the absence of a one-time $283,554 buyout payment received in 2007.
- Operating Gains: Operating gains increased significantly by 43.0% ($1.64 million) for the nine-month period. This was primarily due to a $1.25 million unrealized gain on notes receivable related to the FireKeepers project and increased equity income from the Delaware joint venture (GED).
- Debt Reduction: Long-term debt decreased substantially. The Company utilized proceeds from the sale of the Holiday Inn Express ($6.96 million) and repayment of tribal advances ($9.25 million) to pay down a reducing revolving loan, reducing the balance from $10.9 million to $3.9 million.
- Project Status: The FireKeepers Casino in Michigan secured $340 million in financing in May 2008. Conversely, the Company discontinued the Nambé Pueblo project in March 2008 and delayed the estimated opening of the Montana project to Q2 2010 due to regulatory delays.
Outlook, Risks, and Management Commentary
- Guidance & Outlook: Management expects the FireKeepers Casino to open in the third quarter of 2009. The Company anticipates continued downward pressure on cash receipts due to the negative macroeconomic environment and a contraction in credit availability.
- Liquidity: As of September 30, 2008, the Company held $6.6 million in cash with approximately $5.3 million available on its revolving credit facility. Management believes current resources are adequate for near-term requirements but notes uncertainty regarding future credit markets.
- Legal Contingency: On October 20, 2008, the Company and certain officers were sued by RAM Entertainment, LLC and Robert A. Mathewson alleging breach of contract regarding settlement proceeds from a 2005 arbitration. Management believes the allegations are without merit and intends to defend vigorously.
- Stock Repurchase: The Board authorized a $1 million stock repurchase plan in July 2008, expanded to an additional $1 million in October 2008. Through September 30, 2008, the Company repurchased 119,671 shares for $182,010.
- Uninsured Deposits: The Company holds cash deposits substantially in excess of federally insured limits, posing a risk of loss given recent economic developments.
Investor Verification Checklist
- FireKeepers Financing: Verify the status of the $340 million Senior Secured Notes and the timeline for the remaining $5 million note receivable repayment contingent on casino opening.
- Montana Project Delays: Confirm the impact of the delayed opening date (now Q2 2010) on the fair value of the Montana notes receivable and contract rights.
- Legal Proceedings: Monitor the outcome of the lawsuit filed by RAM Entertainment regarding the 2005 Torres-Martinez Tribe settlement.
- Credit Facility Covenants: Review compliance with the reducing revolving loan covenants, specifically the funded debt to EBITDA ratio and fixed charge coverage ratio.
- Unrealized Gains: Assess the sustainability of net income, which was significantly boosted by $1.97 million in unrealized gains on tribal notes receivable during the nine-month period.