Filing Overview
Registrant: Eldorado Resorts, Inc. The supplied metadata identifies Caesars Entertainment, Inc., but the filing text is for Eldorado Resorts, Inc. (Form 10-Q, filed May 9, 2017).
Reporting period: Three months ended March 31, 2017. The company operated seven properties across Nevada, Louisiana, and the Eastern United States. The Isle of Capri acquisition closed on May 1, 2017, after the reporting period.
Key Financial Metrics
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Gross revenue | $219.5 million | $234.6 million | (6.4%) |
| Net operating revenue | $200.9 million | $213.6 million | (5.9%) |
| Operating income | $14.1 million | $18.3 million | (22.5%) |
| Net income | $1.0 million | $3.4 million | (69.7%) |
| Diluted EPS | $0.02 | $0.07 | Down |
| Adjusted EBITDA | $33.4 million | $38.3 million | (12.9%) |
| Cash flow from operations | $5.5 million | $10.9 million | Down |
| Capital expenditures | $6.2 million | $10.6 million | Down |
Operating margin was approximately 7.0%, compared with 8.6% in the prior-year quarter. Net margin was approximately 0.5%, compared with 1.6%.
- Casino revenue was $162.8 million, down from $169.1 million. Food and beverage, hotel, and other revenue also declined.
- Interest expense was $12.7 million, compared with $13.0 million. The company reported no loss on early debt retirement in 2017 versus $0.1 million in 2016.
- Cash and cash equivalents were $44.6 million at March 31, 2017, with restricted cash of $2.1 million. An additional $376.8 million was held in escrow for the Isle transaction.
- Debt consisted principally of $375.0 million of 7% Senior Notes, $375.0 million of 6% Senior Notes, $417.6 million outstanding under the term loan, and $23.0 million under the revolving facility. Reported total debt, net of issuance costs and current portions, was approximately $1.17 billion.
- The existing revolver had $127.0 million of available capacity at March 31, 2017. The company stated that it was in compliance with applicable debt covenants.
Material Changes Versus the Prior Comparable Period
- Revenue and profitability weakened primarily because severe Reno-area weather and road closures reduced visitation, hotel occupancy, and gaming volume. Nevada net revenue fell to $62.7 million from $72.8 million, and segment operating income fell to $1.5 million from $5.6 million.
- Louisiana net revenue declined to $31.9 million from $34.4 million, partly because of weaker high-end play, energy-sector weakness, and a lower table-game hold percentage.
- Eastern net revenue was essentially flat at $106.3 million, while operating income increased to $15.0 million from $13.7 million, supported by cost controls and improved operating margins.
- Acquisition charges increased to $1.6 million from $0.5 million and reflected the pending Isle acquisition. The company also recorded a $0.2 million equity loss from a new hotel partnership at Scioto Downs.
- Marketing and promotions expense increased 5.0%, while general and administrative expense was broadly stable. Corporate expense declined partly because the prior-year period included $1.4 million of severance.
- The company issued $375.0 million of 6% Senior Notes on March 29, 2017, with proceeds placed in escrow pending closing of the Isle transaction.
Acquisition, Outlook, Risks, and Unusual Items
- On May 1, 2017, the company completed the Isle of Capri acquisition. Consideration consisted of approximately $552.0 million in cash and 28.5 million newly issued Eldorado shares, representing an intended mix of 58% cash and 42% equity.
- Financing for the acquisition included a new $1.45 billion term loan, a $300.0 million revolving facility, and the $375.0 million of 6% Senior Notes. The prior credit facility was repaid and terminated at closing.
- Management expected approximately $86.3 million of capital expenditures, $80.0 million of interest payments, and $10.9 million of term-loan principal payments during the remainder of 2017. Management stated that operating cash flow was expected to fund operations, capital needs, and debt service for the foreseeable future.
- The company planned more than $50 million of phased enhancements to its Reno properties, including room renovations, restaurants, entertainment, and other amenities.
- Management identified substantial post-acquisition leverage, integration execution, debt covenant compliance, competition, consumer discretionary spending, regulatory requirements, interest rates, information technology disruptions, construction, and weather as key risks.
- The company expects the revenue-recognition standard effective January 1, 2018 to have a material impact, particularly on loyalty-program accounting and the presentation of promotional allowances. Quantitative effects had not been determined.
- Potential contingencies include gaming-related assessments in Pennsylvania, horsemen and pari-mutuel labor agreements, regulatory approvals, routine litigation, an Isle-related stockholder lawsuit, and environmental obligations. Recorded litigation liabilities were not material, but the Pennsylvania assessments are subject to estimates and future revenue assumptions.
- There were no material changes to previously disclosed risk factors, no off-balance-sheet arrangements, and management concluded that disclosure controls were effective.
Investor Verification Checklist
- Confirm the registrant identity: the filing is for Eldorado Resorts, Inc., not Caesars Entertainment, Inc.
- Reconcile the post-May 1, 2017 capital structure, including the new term loan, revolver, senior notes, refinancing costs, and debt maturities.
- Assess whether the Isle properties, integration costs, synergies, and incremental interest burden improve or reduce consolidated cash flow and leverage.
- Monitor Reno visitation and operating trends after the severe first-quarter weather disruption.
- Compare actual 2017 capital expenditures, interest payments, principal repayments, and operating cash flow with management’s stated expectations.
- Evaluate covenant headroom, liquidity, variable-rate debt exposure, and the company’s ability to service substantially higher post-acquisition debt.
- Review the eventual adoption impact of the new revenue-recognition standard, especially loyalty programs and promotional allowances.