Business context and reporting period
Full House Resorts, Inc. operates three owned casino properties and operates a fourth under lease. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2015; comparisons are with the corresponding 2014 periods. The Silver Slipper’s 129-room hotel began a phased opening in May 2015.
Financial performance and liquidity
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Net revenue | $30.7 million | $31.3 million | $59.8 million | $61.8 million |
| Operating income (loss) | $1.0 million | $(11.6) million | $1.0 million | $(11.7) million |
| Net income (loss) | $(0.4) million | $(8.5) million | $(2.2) million | $(9.6) million |
| Adjusted EBITDA | $2.9 million | $2.6 million | $5.1 million | $5.2 million |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $0.9 million | $2.5 million |
Q2 net-revenue operating margin was approximately 3.4%; Q2 Adjusted EBITDA margin was approximately 9.6%. For the six-month period, those margins were approximately 1.7% and 8.5%, respectively. Adjusted EBITDA is a non-GAAP measure and is not a substitute for GAAP results or cash flow.
At June 30, cash and equivalents were $14.5 million, versus $15.6 million at year-end 2014. The company reported $3.0 million available under its $5.0 million revolving facility and estimated that about $12 million was needed for day-to-day operations. Six-month investing cash outflow was $9.3 million, primarily for Silver Slipper hotel construction; financing cash inflow was $7.3 million.
Long-term debt, including current maturities, was $68.4 million at June 30, compared with $60.6 million at December 31, 2014; capital lease obligations totaled $6.5 million. Current assets were $21.8 million and current liabilities $18.2 million. First-lien debt carried a 4.75% rate; second-lien debt carried 14.25% before the subsequent amendment.
Material changes versus prior period
- Net revenue declined 1.9% in Q2 and 3.2% for the first half. Casino revenue fell 2.2% in Q2 and 3.1% year to date; stronger food, beverage, and hotel revenue partly offset casino declines.
- Silver Slipper revenue rose 15.3% in Q2 and 13.3% year to date, with Adjusted Property EBITDA up 25.1% and 25.2%, respectively, supported by promotional activity, improved food offerings, and the hotel opening.
- Rising Star revenue declined 13.1% in Q2 and 14.6% year to date amid regional competition. Cost controls lifted its Q2 Adjusted Property EBITDA, but its first-half result declined.
- Northern Nevada revenue fell 8.2% in Q2 and 5.9% year to date, reflecting lower gaming volumes and poor snow conditions affecting Grand Lodge visitation. The Pueblo of Pojoaque management contract had expired in September 2014.
- The prior-year periods included an $11.5 million non-cash impairment charge for Rising Star goodwill and gaming license; its absence is the main reason reported operating loss improved substantially.
Outlook, risks, contingencies, and unusual items
- Management expected the Silver Slipper hotel to be completed in Q3 2015. Approximately $18.5 million of the estimated $20 million project cost had been incurred by June 30; remaining costs were expected to be funded with construction-loan availability and working capital.
- On August 5, 2015, amendments effective as of June 30 revised financial covenants and extended first-lien facility maturity to October 1, 2016. The company said it was covenant-compliant at June 30, but warned future compliance and refinancing were not assured. Management believed available cash, operating cash flow, and revolver access would cover obligations for the next 12 months, while also stating operating cash flow was unlikely to repay existing debt at maturity.
- On July 24, the company settled a Nambe Pueblo matter for $500,000, payable in two installments; the first was received July 31. The recovery and a $50,000 collection fee were recognized in Q2 as a change in estimate.
- The company submitted an August 2015 proposal for a $650 million Indianapolis lifestyle complex with a casino. Selection, gaming-law changes, regulatory approvals, partners, and financing are uncertain; there is no assurance the project will proceed.
- Other risks include regional competition, weather and seasonality, construction execution, gaming regulation and taxes, covenant compliance, and access to refinancing. The company reported pending claims involving Silver Slipper parking-garage repairs and Indiana property-tax assessments, whose outcomes it could not predict.
Important facts for investors to verify
- Progress, final cost, opening schedule, and cash contribution of the Silver Slipper hotel.
- Debt maturities, covenant headroom, required principal payments, and the company’s ability to refinance before maturity.
- Whether Silver Slipper’s gains can offset ongoing competitive pressure at Rising Star and weaker Northern Nevada results.
- Actual operating cash generation and cash available above the company’s stated day-to-day operating needs.
- Status and funding requirements of the Indianapolis proposal, and outcomes of the disclosed legal and tax matters.