Full House Resorts, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. The company operates six casinos and is developing Chamonix Casino Hotel in Colorado and permanent American Place in Illinois; The Temporary by American Place opened in February 2023. Unless otherwise stated, financial amounts below are in millions.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $71.5 | $41.4 | $181.0 | $127.2 |
| Operating income | $10.4 | $2.4 | $4.0 | $15.9 |
| Net income (loss) | $4.6 | $(3.6) | $(12.4) | $(7.8) |
| Diluted earnings (loss) per share | $0.13 | $(0.10) | $(0.36) | $(0.23) |
| Adjusted EBITDA (non-GAAP) | $20.6 | $7.8 | $41.3 | $28.2 |
| Cash from operating activities | — | $3.2 | $0.04 | |
| Cash used in investing activities | — | $(169.8) | $(117.2) |
Q3 revenue rose 72.8%; nine-month revenue rose 42.3%. Casino revenue was $50.2 million in Q3 and $131.6 million year to date. Q3 operating margin was approximately 14.5%, versus 5.8% a year earlier; nine-month operating income declined despite higher revenue, reflecting higher operating costs, depreciation, and preopening expenses. Adjusted EBITDA is a company-defined non-GAAP measure and should not be treated as a substitute for GAAP earnings or cash flow.
Balance sheet, debt and liquidity
- At September 30, cash and equivalents were $25.9 million; restricted cash was $58.0 million, principally reserved for Chamonix construction. Combined cash and restricted cash was $84.0 million.
- Long-term debt, net of issuance costs and discounts, was $464.4 million, including $450.0 million of 8.25% senior secured notes due 2028 and $27.0 million drawn on a $40.0 million revolving facility. Gross principal borrowings were $477.0 million. The company reported compliance with the revolving facility’s financial covenant.
- Operating lease liabilities totaled $45.8 million and finance lease liabilities $4.8 million. The 99-year Waukegan ground lease began with The Temporary’s opening.
- Operating cash flow was $3.2 million, while investing outflows were $169.8 million, including $119.9 million of capital expenditures and the $50.3 million Illinois gaming-license payment. Financing activities provided $59.4 million. Cash, cash equivalents and restricted cash fell $107.2 million during the nine-month period.
- Management expects cash, available borrowing capacity and operating cash flow to meet liquidity needs for the next 12 months, including construction. It estimates $10–$15 million of cash is needed for day-to-day operations.
Changes and operating drivers
- The Temporary contributed $23.9 million of Q3 revenue and $54.6 million for the nine months, driving much of the consolidated growth. It generated $6.8 million and $14.5 million of Adjusted Segment EBITDA, respectively.
- Existing Midwest & South same-store revenue declined 3.2% in Q3 and 4.2% year to date; same-store Adjusted Segment EBITDA fell 11.0% and 20.5%. Management cited weaker casino revenue, lower holds at Silver Slipper, competition affecting Rising Star, and higher insurance and labor costs.
- West revenue was up 3.8% in Q3 but down 4.6% year to date; year-to-date segment Adjusted EBITDA fell 43.7%. Chamonix construction disrupted capacity and parking at Bronco Billy’s, while severe winter weather affected Grand Lodge.
- Contracted sports wagering Q3 revenue and Adjusted Segment EBITDA were each $7.9 million, including $5.8 million of accelerated revenue from two agreements terminated in September. Excluding such acceleration and new Illinois activity, same-store sports wagering revenue grew 24.8% in Q3 but declined 11.8% year to date.
Outlook, risks and unusual items
- Chamonix was scheduled to open December 26, 2023. The company expected to invest approximately $100 million of construction-reserve funds in 2023 and the remaining balance in 2024. The filing describes the schedule as an expectation, not a guarantee.
- For American Place, the company expected approximately $75 million of 2023 investment, including the $50 million license payment, and stated that additional financing will likely be needed for the permanent facility. Litigation over the Waukegan license could hinder financing or delay construction. A delay could create an operating gap when The Temporary’s approved third year ends.
- Illinois may require a further gaming-license reconciliation payment, calculated three years after gaming operations commence and payable in installments if due; the filing does not provide a clear value for any future payment.
- Two sports wagering agreements ceased operations, leaving two idle skins in Indiana and one in Colorado. The company said replacement operators or self-operation are possible but not assured. The related terminations accelerated recognition of $5.8 million of revenue in Q3.
- Other notable items include $12.6 million of nine-month preopening costs, $22.5 million of depreciation and amortization, and a $50.3 million Illinois gaming-license payment. The company maintains a valuation allowance against deferred tax assets it concluded did not meet the more-likely-than-not realizability threshold.
- Management said ordinary-course litigation is not expected to materially affect results. However, the Waukegan license litigation remains a project risk. The Grand Lodge lease runs through December 31, 2024; extension is uncertain. Management reported disclosure controls were effective at a reasonable assurance level and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Chamonix opened on schedule and within the remaining construction budget, and whether project completion affects access to restricted cash or borrowing terms.
- American Place financing needs, construction timeline, license-related litigation and the potential for a gap in casino operations after The Temporary’s authorized term.
- How much of reported revenue and EBITDA growth is recurring, given The Temporary’s ramp-up and the $5.8 million sports-contract termination acceleration.
- Performance trends at existing properties, particularly same-store declines, West-segment construction disruption, and the impact of competition, weather, insurance and labor costs.
- Liquidity and debt-service capacity as capital spending continues, including revolving-facility availability, covenant compliance, and the potential Illinois reconciliation payment.