Full House Resorts, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Full House operated five casinos in Mississippi, Indiana, Colorado and Nevada, operated contracted sports-wagering “skins,” and was constructing Chamonix Casino Hotel in Colorado. Comparisons with 2020 are significantly affected by pandemic-related property closures in the prior-year period.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $47.4 million | $14.5 million | $89.7 million | $45.4 million |
| Operating income (loss) | $12.2 million | $(4.2) million | $20.9 million | $(7.6) million |
| Net income (loss) | $5.5 million | $(6.7) million | $2.0 million | $(11.1) million |
| Diluted earnings (loss) per share | $0.15 | $(0.25) | $0.06 | $(0.46) |
| Adjusted EBITDA | $14.9 million | $(1.4) million | $25.7 million | $(2.6) million |
| Cash from (used in) operating activities | — | $18.8 million | $(6.4) million |
Q2 revenue rose 226.9% year over year and first-half revenue rose 97.6%. Casino revenue was the largest contributor; contracted sports wagering generated $1.5 million in Q2 and $2.5 million in the first half. Q2 Adjusted Segment EBITDA was positive in every segment, totaling $16.4 million before $1.5 million of corporate costs. The company reported Q2 operating and net margins of approximately 25.7% and 11.6%, respectively; first-half margins were approximately 23.3% and 2.3%.
First-half investing cash outflow was $10.6 million, primarily for Chamonix and Cripple Creek property purchases, including Hurricane Zeta-related work at Silver Slipper. Financing activities provided $235.6 million, primarily reflecting the bond and equity offerings.
Liquidity, debt and capital
- At June 30, cash and equivalents were $105.0 million and restricted cash was $176.6 million, for total cash and restricted cash of $281.5 million. Restricted funds are dedicated to Chamonix construction.
- Debt included $310 million principal amount of 8.25% senior secured notes due 2028 and $5.6 million of CARES Act loans. Debt carrying value, net of discounts and issuance costs, was $306.5 million. The notes have no mandatory principal amortization before maturity.
- The company refinanced its prior 2024 notes in February, redeemed outstanding warrants, and entered into an undrawn $15 million revolving credit facility due 2026. It reported compliance with the facility’s covenants at quarter-end.
- A March public offering of 6.9 million shares generated approximately $43.0 million net proceeds. Shares outstanding were 34.2 million as of August 9, 2021.
- Management said cash, operating cash flows and available revolver capacity were expected to cover liquidity and capital needs for the next 12 months. The company estimated $7–9 million of cash is used in day-to-day operations.
Material changes and unusual items
- The 2021 results reflect a rebound from the 2020 closures; management cautioned that year-over-year comparisons are not particularly meaningful. Lower operating costs and tighter labor and marketing controls also supported post-reopening performance.
- First-half interest expense increased to $11.1 million from $4.9 million, mainly reflecting higher debt after the $310 million refinancing. First-half results included a $6.1 million loss on extinguishment of debt and a $1.3 million warrant fair-value expense associated with warrant redemption.
- Management presented contracted sports wagering as a separate reportable segment in 2021 and recast prior-period segment information for comparability.
- The company received $1.3 million of insurance proceeds during the first half for Hurricane Zeta property damage and expected to settle remaining claims in Q3.
Outlook, commentary and risks
- Chamonix: Substantial completion was expected in Q4 2022; management estimated approximately $50 million of construction investment in 2021 and another $130 million in 2022. The planned property includes approximately 300 rooms. An additional wing that could raise capacity to about 370 rooms remained under evaluation and would require approvals. Management cautioned that cost and completion estimates remain uncertain.
- Sports wagering: Five of six permitted skins were operating; the final skin was expected to launch in the coming months. With all six operating, management expected contractual minimum sports-wagering revenue of $7 million annually, with minimal related expenses.
- Other opportunities: The company continued to pursue the Waukegan, Illinois casino license, with no assurance of selection or timing. A possible Silver Slipper expansion remained contingent on approvals and entitlements; no decision to build was assured.
- COVID-19: All properties were open and restrictions eased during Q2, but Delta-variant developments and government actions remained uncertain. Nevada mask requirements for employees and guests were reinstated in July 2021. Potential effects include operating restrictions, cost increases, supply-chain constraints and reduced customer demand.
- Other risks and contingencies: Chamonix cost overruns, delays or insufficient construction-reserve funds could require unrestricted cash or other financing. CARES Act loan forgiveness was uncertain. Management did not expect pending ordinary-course litigation to materially affect the company. No formal earnings guidance was provided.
Important facts for investors to verify
- Chamonix construction spending, schedule, total funding needs and progress against the restricted construction reserve.
- Whether the final sports-wagering skin launches and whether contracted minimum revenues are achieved.
- Cash available for general use versus restricted cash, and the company’s capacity to service its 8.25% debt while funding development.
- Operating performance as comparisons normalize beyond the prior-year closure period, including the sustainability of cost controls and segment margins.
- COVID-19 and regulatory developments, CARES Act loan forgiveness, Hurricane Zeta insurance recoveries, and any approvals or decisions concerning Silver Slipper or Waukegan.