Full House Resorts, Inc. — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014; the filing reports annual results, not standalone fourth-quarter results. Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
Business context
Full House owned and operated Silver Slipper Casino in Mississippi, Rising Star Casino Resort in Indiana, and Stockman’s Casino in Nevada, and operated the leased Grand Lodge Casino in Nevada. Gaming was the principal revenue source. Its management contract for Pueblo of Pojoaque facilities expired in September 2014.
Financial results and liquidity
| Metric | 2014 | 2013 |
|---|---|---|
| Net revenue | $121.4 | $144.7 |
| Operating income (loss) | ($13.8) | $2.9 |
| Net loss | ($20.8) | ($4.0) |
| Adjusted EBITDA (non-GAAP) | $10.5 | $17.1 |
| Cash from operations | $7.6 | $12.3 |
| Cash used in investing activities | ($8.9) | ($6.5) |
| Cash from (used in) financing activities | $2.1 | ($11.5) |
- Net revenue declined 16.1%; casino revenue fell 16.7%. Slot revenue was $94.2 million, down 17.5%.
- Operating margin was approximately negative 11.4%, versus positive 2.0% in 2013; net margin was approximately negative 17.2%, versus negative 2.7%.
- At year-end, cash and equivalents were $15.6 million, current assets $23.1 million, and current liabilities $17.8 million. Income tax receivable was $3.1 million.
- Debt was $60.6 million: $38.6 million first-lien term debt at 4.75%, $2.0 million revolving debt, and $20.0 million second-lien debt at 14.25%. The separate capital-lease obligation was $6.9 million. Most assets secure the credit facilities.
- The company reported compliance with debt covenants at December 31, 2014. The filing states that future compliance and refinancing are not assured.
Changes, outlook and material items
- Revenue declines reflected new competition in southwest Ohio, severe weather affecting Indiana and Mississippi, and construction disruption at Silver Slipper. Rising Star revenue fell 26.1%; Silver Slipper fell 7.0%.
- Rising Star recorded $11.5 million of impairment charges: $9.9 million for its gaming license and $1.6 million for goodwill. The company cited weak economic conditions, lower discretionary spending, and Indiana competition. In 2013, it recorded a $4.0 million goodwill impairment at Stockman’s.
- Adjusted EBITDA decreased 38.2%. Corporate and executive transition costs were $2.7 million; the company also recorded a $1.7 million settlement loss related to the terminated Majestic Star acquisition. That proposed $62.0 million purchase was abandoned after financing proved unavailable, and the parties settled their dispute.
- The Silver Slipper hotel project was budgeted at approximately $20 million, including capitalized interest. A redesign added nine suites, reduced the planned room count to approximately 129, and added about $1 million to expected cost. The company expected the standard rooms to open in Q2 2015, with the suites shortly afterward.
- Management said cash, operating cash flow, and the revolving facility were expected to cover operating and financial obligations for the next 12 months, but also stated operating cash flow was unlikely to repay debt at maturity and refinancing discussions had begun. First-lien debt matured in June 2016; the second-lien maturity was extended to April 2017 in a January 2015 amendment.
- In November 2014, a shareholder settlement led to board and leadership changes. CEO Daniel Lee received options on 943,834 shares at a $1.25 exercise price. Former CEO Andre Hilliou and former COO Mark Miller received severance payments of approximately $645,000 and $600,000, respectively, in January 2015.
- The company identified significant risks from leverage, covenant requirements, refinancing needs, regional gaming competition, regulatory and licensing requirements, weather and natural disasters, insurance availability, construction completion, and concentration of revenues in Indiana and Mississippi. The Indiana Department of Revenue proposed a $1.6 million sales-and-use-tax assessment; Full House protested it and accrued $0.25 million.
Important facts for investors to verify
- Progress, final cost, financing, and opening performance of the Silver Slipper hotel.
- Debt covenant headroom, cash generation, remaining revolving availability, and ability to refinance debt before maturity.
- Whether Rising Star’s operating trends and asset valuations improve, and whether further impairment charges arise.
- Competitive and weather effects on casino revenue, especially at Rising Star and Silver Slipper.
- Outcome of the protested Indiana tax assessment and renewal of Silver Slipper’s gaming license, due to expire in July 2015.
- Reconciliation of non-GAAP Adjusted EBITDA to GAAP results and the assumptions used in impairment valuations.