Full House Resorts, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Dollar amounts below are in millions unless stated otherwise.
Business context
Full House owns or operates six casinos and is constructing Chamonix Casino Hotel in Colorado. It opened The Temporary by American Place in Waukegan, Illinois, on February 17, 2023, while developing a permanent American Place destination. The company also earns revenue from contracted sports-wagering arrangements. It realigned reporting segments to Midwest & South, West, and Contracted Sports Wagering.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change / context |
|---|---|---|---|
| Revenue | $50.1 | $41.4 | Up 21.0%; The Temporary contributed about $10.4 |
| Operating income (loss) | $(7.0) | $5.3 | Higher operating costs, including preopening expenses |
| Net income (loss) | $(11.4) | $0.1 | Loss per share: $(0.33), basic and diluted |
| Adjusted EBITDA | $10.1 | $8.4 | Up 20.6%; non-GAAP measure |
| Operating cash flow | $(7.3) | $(8.0) | Cash used in operations |
| Investing cash flow | $(101.7) | $(31.9) | Included $50.3 Illinois gaming-license payment and construction spending |
Casino revenue rose 23.7% to $36.0; food and beverage revenue increased 17.6% to $7.7. Hotel revenue was $2.1, down 1.6%, and other revenue was $4.3, up 18.3%. Companywide Adjusted EBITDA margin was approximately 20.2%, versus 20.3% a year earlier, calculated as Adjusted EBITDA divided by revenue.
Midwest & South revenue was $40.8, with segment Adjusted EBITDA of $10.7 and a 26.2% margin. West revenue declined 6.0% to $8.1 and segment Adjusted EBITDA fell to $0.1. Contracted sports-wagering revenue and segment Adjusted EBITDA were each $1.2, down from $2.8, reflecting prior-year accelerated deferred revenue from agreements that later ceased operations. Excluding The Temporary, Midwest & South same-store revenue increased 1.4% and same-store segment Adjusted EBITDA was essentially flat.
At March 31, cash and equivalents were $40.8 and restricted cash was $101.6, for combined cash and restricted cash of $142.4. Restricted cash is dedicated to Chamonix construction. Current assets were $155.7 and current liabilities were $65.3; this comparison includes restricted cash and does not represent freely available liquidity. Total assets were $674.5 and stockholders’ equity was $89.1.
Outstanding principal debt comprised $450.0 of 8.25% senior secured notes due 2028 and $27.0 drawn on a $40.0 revolving facility due 2026. Long-term debt, net of issuance costs and discounts, was $463.0. The company also reported $46.5 of operating lease liabilities and $5.7 of finance lease liabilities. Management stated that cash, available revolver capacity, and operating cash flow should be sufficient for the next 12 months, including construction activities.
Material changes and unusual items
- The Temporary generated approximately $10.4 of revenue and $3.6 of segment Adjusted EBITDA during its first roughly six weeks of operations. Its opening and ramp-up contributed substantially to both revenue growth and higher expenses.
- Operating expenses rose 58.1% to $57.1. Preopening costs were $10.5, compared with $0.8 a year earlier; depreciation and amortization increased to $5.9 from $1.8.
- The company issued $40.0 of additional 8.25% notes in February and drew $36.0 on the revolver before repaying $9.0; $27.0 remained drawn at quarter-end. The offering generated approximately $34.0 net of expenses and discounts.
- The $50.3 Illinois gaming-license fee was recorded as an intangible asset. Illinois may require a further reconciliation payment based on gaming results, calculated three years after gaming operations begin and, if due, payable in installments.
- Interest expense, net, declined to $4.8 from $6.4, primarily due to more interest capitalized on construction and interest income. The prior-year comparison included a $4.4 debt-modification loss; Q1 2023 included a $0.4 insurance-settlement gain.
- The income tax benefit was only $0.04, versus $5.6 a year earlier. Management said the 2023 benefit may reverse in future interim periods and maintained a valuation allowance on deferred tax assets not offset by deferred tax liabilities.
Outlook, commentary, and risks
- Management expected Chamonix to open in December 2023 and expected to invest substantially all of the $134.6 construction reserve held at December 31, 2022 during 2023.
- The Temporary was operating with limited hours, fewer than its permitted 50 table games at peak periods, and only one restaurant in Q1. Management reported expanded hours and maximum wagers permitted in April, a second restaurant opened in April, and a third was expected in the second half of 2023. These plans remain subject to operating and regulatory conditions.
- The permanent American Place remains under development. The company expected approximately $70 of 2023 investment in the Illinois project, including the license payment already made. Management noted that the permanent facility may require additional financing and could temporarily reduce capacity to repay debt.
- Illinois sports wagering under the Circa Sports agreement was expected to launch by August 2023, subject to customary regulatory approvals, with a $5 annual minimum revenue payment once operations commence. The company said there is no certainty it can replace or self-operate its remaining idle Indiana sports-wagering skin.
- West results were affected by Chamonix construction disruptions, reduced capacity, added parking costs, and severe snowfall affecting Grand Lodge Casino. The company cited seasonality in its Colorado and Nevada markets.
- The company is considering a Silver Slipper hotel-tower and amenities expansion, but construction is not assured and additional approvals are required. It also hopes to extend the Grand Lodge Casino lease, currently through December 31, 2024, but stated there is no certainty of an extension.
- Management reported no material expected adverse effect from pending ordinary-course legal matters, no material changes to previously disclosed risk factors, and effective disclosure controls at a reasonable-assurance level.
Important facts for investors to verify
- Whether The Temporary can sustain its initial operating contribution as hours, table games, restaurants, and other amenities ramp up.
- Chamonix’s construction progress, remaining cost, use of restricted funds, and expected December 2023 opening.
- Funding needs and financing terms for the permanent American Place project, alongside the company’s debt service and 2028 note maturity.
- Whether Illinois sports wagering launches by the expected date and whether the contractual minimums are realized; also the status of the idle Indiana skin.
- The timing and potential amount of any Illinois gaming-license reconciliation payment, which depends on future gaming receipts and is not clearly quantifiable in this filing.
- Cash availability after distinguishing unrestricted cash from construction-restricted cash, and actual compliance with debt covenants as projects progress.