Full House Resorts, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; filed May 10, 2022. Full House operates five casinos and is developing Chamonix in Colorado and The Temporary/American Place in Illinois.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $41.4 million | $42.2 million |
| Operating income | $5.3 million | $8.7 million |
| Net income (loss) | $0.1 million | $(3.4) million |
| Adjusted EBITDA (non-GAAP) | $8.4 million | $10.8 million |
| Operating cash flow | $(8.0) million | $8.3 million |
| Capital expenditures / investing cash flow | $(31.9) million | $(3.4) million |
- Operating margin was approximately 12.8%, down from 20.6%. Casino revenue fell 9.3%; food and beverage rose 6.7%, hotel revenue declined 1.4%, and other revenue increased 99.2%.
- Operating expenses rose 7.8% to $36.1 million. Net interest expense rose to $6.4 million from $4.5 million, while debt modification/extinguishment losses were $4.4 million versus $6.1 million.
- Income tax benefit was $5.6 million despite a $5.5 million pretax loss, producing reported net income of $0.1 million. The effective tax rate was 102.0%; management said the benefit was expected to reverse in later interim periods as pretax income offsets the year-to-date loss.
- Cash and equivalents were $109.0 million and restricted cash was $210.5 million at quarter-end, for $319.5 million combined. Restricted cash is dedicated to Chamonix construction.
- Long-term debt, net, was $400.6 million; principal outstanding on the 8.25% Senior Secured Notes due 2028 was $410 million. A $40 million revolving facility was undrawn, with a $1 million standby letter of credit reported as of the filing date. The company also reported $3.2 million of finance lease obligations.
- Working capital was approximately $297.1 million, including restricted cash. Management believed available cash, the revolver and operating cash flows would cover liquidity and capital needs for the next 12 months.
Changes versus prior year
- Revenue decreased 1.9%, while Adjusted EBITDA declined 22.0%. Management cited lower casino results, adverse gaming hold at certain properties, Louisiana online sports wagering competition, construction disruption in Colorado, and the absence of comparable government stimulus support.
- Colorado revenue fell 28.3% and Adjusted Segment EBITDA moved to a $0.3 million loss from $1.7 million of income, reflecting Chamonix-related disruption and added parking/shuttle costs. Mississippi Adjusted Segment EBITDA fell 22.0%; Nevada fell 32.4%. Indiana EBITDA was essentially flat.
- Contracted sports wagering revenue and Adjusted Segment EBITDA each rose to $2.8 million from about $1.0 million, partly reflecting an additional skin and accelerated recognition of deferred revenue.
- Operating cash flow shifted from $8.3 million provided to $8.0 million used, while investing outflow increased with project spending. The company issued $100 million of additional 8.25% notes at 102% of principal in February 2022 to fund The Temporary and other corporate purposes.
Outlook, commentary and risks
- The Temporary was under construction beginning May 2022 and was expected to open in Fall 2022, subject to regulatory approvals. The company planned to invest approximately $100 million in 2022 for its development, equipment and opening.
- Chamonix’s budget was increased from $180 million to approximately $250 million, citing supply-chain constraints, inflation and difficult construction conditions. Expected investment was approximately $125 million in 2022 and $100 million in 2023, with opening expected in Q2 2023. Chamonix construction disrupted Bronco Billy’s; refurbishment effects were expected to continue until expanded amenities were completed in 2023.
- In May 2022, the company signed an Illinois sports wagering agreement with a Circa Sports affiliate, received a $5 million market access fee, and expected to receive at least $5 million annually on an annualized basis once the mobile skin launches, subject to approvals. These are subsequent-period developments, not Q1 revenue.
- A contracted sports wagering operator planned to cease operations May 15, 2022, leaving one available skin each in Colorado and Indiana. Replacement negotiations were ongoing, with no assurance of similar replacement terms.
- Management cited continuing COVID-19-related uncertainty, inflation, labor and supply-chain pressures, rising construction costs, competitive conditions, seasonality and gaming-hold volatility. The filing gave no formal earnings or revenue guidance.
- Legal proceedings were described as arising in the normal course; management did not expect them to materially affect the company. No material risk-factor changes from the 2021 Form 10-K were reported.
Important facts for investors to verify
- Construction progress, final cost and opening timing for Chamonix and The Temporary, and the funding required for the permanent American Place facility.
- Whether the $210.5 million restricted construction balance and other financing sources remain sufficient as project costs evolve.
- Operating trends excluding unusual gaming-hold results, construction disruption, accelerated sports-contract revenue recognition and the unusual tax benefit.
- Whether the terminated Colorado and Indiana sports wagering skins are replaced, and whether Illinois approvals and expected Circa Sports payments materialize.
- Debt-service capacity under the 8.25% notes, future capital needs, and any subsequent change in liquidity or the revolving facility’s availability.