Full House Resorts, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Amounts below are in U.S. dollars; financial statement figures are generally shown in millions. The company operates five casinos in Mississippi, Colorado, Indiana, and Nevada.
Financial performance and liquidity
- Third quarter: Revenue was $42.0 million, down 5.2% year over year. Casino revenue rose 4.1% to $31.9 million, while food and beverage revenue fell 39.4% to $5.6 million and hotel revenue declined 18.4% to $2.5 million.
- Operating income increased to $10.4 million from $3.4 million; operating margin was approximately 24.8%, versus 7.7%. Net income was $7.7 million, or $0.28 per diluted share, versus $0.9 million, or $0.03 per diluted share. Adjusted EBITDA, a non-GAAP measure, was $12.5 million versus $5.8 million.
- First nine months: Revenue was $87.3 million, down 30.9%, reflecting casino closures for roughly two to three months. Operating income fell to $2.8 million from $6.6 million; the company recorded a $3.4 million net loss versus a $1.7 million loss. Adjusted EBITDA was $9.9 million versus $13.6 million.
- Nine-month operating cash flow was $2.9 million, compared with $5.7 million in 2019. Investing activities used $1.9 million, and financing activities provided $3.1 million. Cash and equivalents were $34.0 million at quarter-end, up from $28.9 million at December 31, 2019; restricted cash was zero.
- Current assets were $40.0 million and current liabilities $22.4 million. Long-term debt, net of discounts and issuance costs, was $108.3 million, including $5.6 million in CARES Act loans; total debt principal was approximately $112.7 million. Senior secured notes had a stated current rate of 8.0% and mature in February 2024. Lease liabilities totaled $22.9 million.
Material changes and operating developments
- All casinos closed in March under government orders and reopened between May 21 and June 15. In Q3, revenue was nearly comparable to the prior-year quarter, but social-distancing rules constrained capacity and amenities. Lower labor and marketing costs, among other expense reductions, helped lift quarterly operating income and margins.
- Results varied by property: Q3 revenue rose 10.5% at Silver Slipper, while it fell 15.1% at Rising Star and 35.2% in Northern Nevada. Bronco Billy’s revenue declined 2.5%; its reported segment EBITDA benefited in part from a $424,000 release of prior loyalty-program point liabilities.
- Mobile sports wagering revenue was included in “other” revenue. One contracted mobile wagering site was operating in each of Indiana and Colorado by quarter-end; on-site wagering began at Bronco Billy’s in September. Management estimated that all six contracted sites, once launched, could yield at least $7 million in annual revenue under contractual minimums; this is an expectation, not a reported result.
- The Christmas Casino satellite operation in Cripple Creek closed in September after failing to cover incremental costs. Construction of the Bronco Billy’s parking garage and broader expansion was suspended; the company said any restart depends on operating results and financing availability.
Outlook, risks, and unusual items
- Going concern: Management concluded substantial doubt exists about the company’s ability to continue as a going concern within the assessment period, citing pandemic uncertainty, potential renewed closures or lower business volumes, and debt-covenant risk. Management also said it believed cash, reopened-property cash generation, and expense management would fund operations; those resources and conditions remain uncertain.
- Leverage-ratio covenant requirements were waived or deleted for the March, June, and September 2020 measurement periods. A November 6, 2020 amendment, after quarter-end, deleted the September covenant and required an approximately $1.07 million fee. The maximum leverage ratio for December 2020 was 5.50x; future waivers or compliance were not assured.
- The company received $5.6 million of CARES Act loans at 1% interest. Forgiveness is possible for eligible uses, but is not assured; payments were deferred and scheduled to begin in September 2021 under the amended terms.
- Management identified refinancing the senior notes before their February 2024 maturity as expected, since it did not anticipate generating enough cash to repay them in full. The notes are secured by substantially all company assets. The company also disclosed warrant-holder redemption rights that could create a cash or other obligation; the holders had not exercised them as of the filing.
- No formal financial guidance was provided. The filing highlights COVID-19 and operating restrictions, covenant compliance, refinancing and access to capital, competitive pressures, sports-betting partner performance, and the suspended expansion as significant uncertainties. The filing reported no material expected impact from ordinary-course litigation.
- Other unusual items include a $1.2 million nine-month noncash gain from warrant fair-value changes and a $250,000 project-development write-off after New Mexico land options expired. The filing reported effective income tax rates near zero and a $269,000 benefit from removing a state deferred-tax balance.
Most important facts for investors to verify
- Whether casino operations and cash generation remain adequate under changing COVID-19 conditions and capacity restrictions.
- Subsequent covenant compliance or amendments, the company’s ability to refinance the 2024 notes, and the effect of amendment fees and debt service on liquidity.
- Whether CARES Act loans qualify for forgiveness and when related repayments will be required.
- Actual launch timing, performance, and contractual minimums for the remaining sports-wagering sites.
- Whether the suspended Bronco Billy’s expansion or Waukegan proposal proceeds, and what financing or company investment each would require.