Full House Resorts, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unless noted otherwise, financial figures below are in millions of dollars. The company operates five casinos in four states and is constructing Chamonix Casino Hotel in Colorado; it also receives fees from contracted sports wagering skins.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $47.2 | $42.0 | $136.9 | $87.3 |
| Operating income | $11.1 | $10.4 | $32.0 | $2.8 |
| Net income (loss) | $4.6 | $7.7 | $6.7 | $(3.4) |
| Adjusted EBITDA | $13.6 | $12.5 | $39.3 | $9.9 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $19.3 | $2.9 |
Q3 revenue rose 12.6%, while net income fell 40.1%. Nine-month revenue rose 56.8%; the year-over-year comparison is substantially affected by casino closures during the first half of 2020. Calculated operating margin was approximately 23.5% in Q3 2021 versus 24.8% in Q3 2020, and 23.4% for the 2021 nine-month period versus 3.2% in 2020. Adjusted EBITDA is a non-GAAP measure.
- Revenue growth in Q3 was led by Indiana, Nevada, and contracted sports wagering; Colorado revenue declined 16.9%, primarily amid Chamonix construction disruptions and lost parking and hotel capacity.
- At September 30, cash and equivalents were $97.9 million, plus $176.6 million of restricted cash reserved for Chamonix. The company reported $274.5 million in cash, cash equivalents, and restricted cash combined.
- Gross principal debt included $310 million of 8.25% senior secured notes due 2028 and $5.6 million of CARES Act loans. The balance-sheet carrying amount of long-term debt was $306.9 million, net of discounts and issuance costs. The $15 million revolving facility was undrawn.
- Cash used in investing activities was $18.0 million for the first nine months, primarily for Chamonix and Cripple Creek real estate. Cash provided by financing activities was $235.5 million, largely reflecting the notes issuance and equity offering.
Material changes and unusual items
- In February 2021, the company issued $310 million of 2028 notes, redeemed its prior 2024 notes, and repurchased all outstanding warrants. The refinancing generated a $6.1 million debt-extinguishment loss and contributed to higher interest expense: $6.4 million in Q3 versus $2.4 million a year earlier.
- A March 2021 public equity offering raised approximately $43.0 million net and increased shares outstanding. The company had 34,227,493 common shares outstanding as of November 8, 2021.
- Q3 Indiana results included $2.1 million from selling Rising Star’s ability to deduct free play for gaming-tax purposes. Contracted sports wagering generated $1.6 million of Q3 revenue and $4.2 million for the nine-month period. Five of six permitted skins were operating.
- Q3 operations were affected by Hurricane Ida’s temporary closure and cleanup at Silver Slipper and wildfire smoke near Grand Lodge Casino. Chamonix construction also disrupted Bronco Billy’s operations.
- For the first nine months, the company received $1.3 million of insurance proceeds related to prior property damage. Its effective income tax rate remained low, primarily because of valuation allowances and permanent tax differences.
Outlook, commentary, and risks
- Management said current cash, operating cash flow, and available revolving capacity should be sufficient for the next 12 months. It expected to spend approximately $50 million on Chamonix in 2021 and more than $130 million in 2022, with some payments potentially extending into early 2023.
- Chamonix was under construction; management anticipated the main guestroom towers would top out between April and August 2022. The company was seeking to extend the development-agreement completion deadline to July 15, 2023, from December 31, 2022. Construction costs, materials availability, and timing remained uncertain.
- When all six sports wagering skins are operating, management expected contractual minimum revenue of $7 million annually, with minimal related expenses. One Indiana skin was still awaiting regulatory approval.
- The company had submitted casino-license proposals for Terre Haute, Indiana, and Waukegan, Illinois; neither award was assured. A potential Silver Slipper expansion also remained subject to approvals and a lease-option decision.
- Key risks include COVID-19 and variants, labor and supply-chain constraints, construction overruns or delays, gaming regulation, competition, weather and other disruptions, and the company’s substantial secured debt and related covenants. CARES Act loan forgiveness was not assured. Management reported no material change in previously disclosed risk factors and said routine legal proceedings were not expected to have a material effect.
Important facts for investors to verify
- How Chamonix’s remaining cost, funding, construction schedule, and required city approvals are progressing.
- How much of reported cash is unrestricted and available for operations, given the $176.6 million construction reserve.
- Debt-service burden and covenant terms under the 8.25% notes, and whether CARES Act loans are forgiven.
- Whether the sixth sports wagering skin launches and whether contracted revenue reaches the stated minimums.
- Whether Q3 segment trends persist, particularly Colorado’s construction-related weakness and Indiana’s reliance in part on the unusual free-play sale.