Twin River Worldwide Holdings, Inc. 2018 Form 10-K Summary
Filing identity: The provided filing is for Twin River Worldwide Holdings, Inc., not Bally’s Corp. It covers the fiscal year ended December 31, 2018, and was filed April 1, 2019. The company operated gaming and racing facilities in Rhode Island, Mississippi, and Colorado. Dover Downs was acquired on March 28, 2019, after the reporting period, and therefore is not included in 2018 results.
Business Context and Reporting Period
- Reportable segments were Rhode Island, Biloxi, and Other. Rhode Island included Twin River Casino Hotel, the newly opened Tiverton Casino Hotel, and Newport Grand until its closure.
- Tiverton Casino Hotel opened September 1, 2018, following the August 28, 2018 closure of Newport Grand. A 136-room hotel at Twin River Casino Hotel opened in October 2018.
- Gaming generated approximately 75% of net revenue in 2018; food and beverage generated approximately 11%.
- The common stock began trading on the NYSE on March 29, 2019, under the symbol TRWH. The company was an emerging growth company and newly public during the filing process.
Financial Performance and Liquidity
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Net revenue | $437.5 million | $421.1 million | Up 3.9% |
| Income from operations | $120.6 million | $123.7 million | Down 2.5% |
| Net income | $71.4 million | $62.2 million | Up 14.8% |
| Net income applicable to common stockholders | $72.1 million | $59.9 million | Up 20.3% |
| Diluted earnings per share | $1.87 | $1.56 | Up 19.9% |
| Net cash provided by operating activities | $109.2 million | $107.8 million | Up $1.4 million |
| Capital expenditures | $128.9 million | $47.9 million | Up substantially |
| Cash and cash equivalents | $77.6 million | $85.8 million | Down $8.2 million |
| Cash and restricted cash | $81.4 million | $93.2 million | Down $11.8 million |
| Long-term debt, net | $390.6 million | $357.9 million | Up $32.7 million |
| Total shareholders’ equity | $298.7 million | $176.8 million | Up $121.9 million |
Operating margin declined to 27.6% from 29.4%. Net margin increased to 16.3% from 14.8%, primarily because the Tax Cuts and Jobs Act reduced the effective tax rate to 27.0% from 38.4%. Interest expense was $23.0 million, compared with $22.8 million in 2017.
At December 31, 2018, the company had $342.4 million of term-loan principal and $55.0 million drawn on its revolving facility. The revolver capacity was $150.0 million, with $45.0 million available. The term loan matured in July 2020 and the revolving facility in January 2020. The company reported compliance with its debt covenants.
Material Changes Versus the Prior Comparable Period
- Rhode Island gaming and racing revenue increased $10.8 million, or 4.5%, principally from Tiverton, partly offset by Newport Grand’s closure.
- Rhode Island non-gaming revenue increased $4.0 million, including contributions from Tiverton and the new Twin River hotel.
- Gaming and racing expenses increased 7.6%, and non-gaming expenses increased 8.9%, reflecting Tiverton start-up costs, higher labor and benefits, premium-game expenses, and a $1.4 million pension audit adjustment.
- Advertising, general and administrative expense increased modestly to $156.0 million. The company incurred $6.6 million of merger and public-company preparation costs, partly offset by lower liability-classified share-based compensation expense.
- Expansion and pre-opening costs increased to $2.7 million from $0.2 million. The company also recorded a $6.5 million disposal loss related to Newport Grand.
- Capital spending was concentrated in Tiverton Casino Hotel, $94.6 million, and the Twin River hotel, $22.4 million.
- The company adopted ASC Topic 606 using the full retrospective method and retrospectively restated revenue presentation. The adoption changed the classification of complimentary services and promotional allowances but did not change income from operations for the comparative periods.
Outlook, Management Commentary, Risks, and Unusual Items
- Management expected approximately $23 million of capital expenditures in 2019, reflecting completion of the Tiverton and Twin River hotel projects, with additional post-merger spending.
- Management believed operating cash flow, cash balances, and revolver availability would support working capital and near-term capital needs, but stated that the credit facilities would need to be refinanced or extended before their 2020 maturities.
- The company expected to begin an approximately 1% annualized quarterly cash dividend later in 2019, subject to board approval, debt covenants, the Regulatory Agreement, and financial conditions.
- The March 2019 Dover Downs merger issued shares representing 7.225% of the combined company and involved preliminary consideration of approximately $115.9 million, including cash used to retire Dover Downs debt. Dover Downs results were not included in 2018.
- Competitive pressure was expected to increase from Massachusetts casinos, including MGM Springfield and the planned Encore Boston Harbor, as well as regional casinos, tribal gaming, internet gaming, and sports wagering.
- The business is subject to extensive gaming regulation, licensing requirements, gaming taxes, and the Rhode Island Regulatory Agreement, which restricts certain expansion, financing, ownership, and distribution activities.
- Key financial risks include variable-rate debt, refinancing risk, concentrated dependence on Rhode Island, Mississippi, and Delaware markets, discretionary consumer spending, weather and natural disasters, cybersecurity, technology-service interruptions, labor costs, and multiemployer pension obligations.
- Unusual 2018 items included the Newport Grand disposal loss, Tiverton pre-opening costs, a $3.7 million pension-plan withdrawal liability charge, merger and public-company costs, and a $12.5 million reduction in income-tax expense due principally to federal tax reform.
- A Delaware Chancery Court action filed by Chatham Asset Management and affiliates alleged fiduciary breaches and disclosure issues related to a 2016 tender offer and executive awards. Management considered the claims without merit and did not expect a material adverse effect.
Most Important Facts to Verify
- Confirm that the intended issuer is Twin River Worldwide Holdings, Inc.; the source filing does not identify Bally’s Corp. as the registrant.
- Verify post-period effects of the Dover Downs merger, including purchase accounting, incremental debt, integration costs, and the contribution of Dover Downs to consolidated results.
- Review the maturity and refinancing status of the term loan and revolving facility, including variable-rate exposure and covenant restrictions.
- Assess whether Tiverton and the Twin River hotel achieved expected revenue and profitability after their first full operating year.
- Evaluate the impact of Massachusetts and regional gaming competition, sports betting expansion, and changes in gaming taxes or regulations.
- Review the company’s cash dividend and capital-allocation decisions against liquidity, debt covenants, and the Rhode Island Regulatory Agreement.
- Examine multiemployer pension exposure, regulatory licensing requirements, pending litigation, and potential impairment of goodwill or gaming-related intangible assets.