Full House Resorts, Inc. — FY2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. This is an annual report, not a standalone fourth-quarter filing. The company owns or operates five casinos in Mississippi, Colorado, Indiana and Nevada.
Financial performance and liquidity
| Metric | FY2017 | FY2016 |
|---|---|---|
| Net revenue | $161.3 million | $146.0 million |
| Operating income | $7.1 million | $6.2 million |
| Net loss | $5.0 million | $5.1 million |
| Adjusted EBITDA (non-GAAP) | $16.5 million | $16.2 million |
| Cash from operations | $7.1 million | $7.9 million |
- Net revenue rose 10.5%; casino revenue was $144.5 million and non-casino revenue, net, was $16.8 million. Growth includes a full year of Bronco Billy’s, acquired in May 2016. Excluding that property, consolidated net revenue increased 4.1%.
- Operating margin was approximately 4.4% and net loss margin approximately 3.1%. Adjusted EBITDA margin was approximately 10.2%; Adjusted EBITDA is a non-GAAP measure and is not a substitute for GAAP earnings or cash flow.
- At year-end, cash and equivalents were $19.9 million, total assets $173.5 million and stockholders’ equity $52.0 million. Management estimated about $12 million was needed for day-to-day operations; the $2 million revolving facility was undrawn and available.
- Gross principal debt was $96.1 million at year-end, plus $5.3 million of capital lease obligations. In February 2018, the company issued $100 million of senior secured notes due 2024 and repaid the prior credit facilities. The notes bear interest at the greater of LIBOR or 1%, plus 7%, with quarterly principal payments and potential excess-cash-flow repayments. Management estimated 2018 cash interest expense of about $9 million, including capital lease interest.
- Cash used in investing was $11.2 million, primarily for property projects; cash used in financing was $3.1 million. Cash fell $7.1 million during the year.
Changes and property performance
- Silver Slipper revenue increased 8.4% to $64.0 million and Adjusted Property EBITDA rose 7.4% to $10.7 million. Growth reflected stronger customer counts, gaming volumes and food-and-beverage activity.
- Bronco Billy’s generated $26.2 million in revenue and $4.8 million in Adjusted Property EBITDA in 2017; the prior-year comparison includes only results after its May 2016 acquisition.
- Rising Star revenue was nearly flat at $49.8 million, while Adjusted Property EBITDA declined 8.6% to $2.7 million, amid higher costs, promotional activity and fourth-quarter snowfall.
- Northern Nevada revenue was nearly flat at $21.2 million, while Adjusted Property EBITDA declined 29.2% to $2.8 million. Costs rose, and Grand Lodge Casino faced renovation disruption, paid-parking effects and weather-related visitation changes.
- The company settled Silver Slipper parking-garage litigation for $675,000, recorded as a reduction in selling, general and administrative costs. Hurricane Nate temporarily disrupted Silver Slipper operations but caused no meaningful property damage.
Outlook, risks and contingencies
- The filing gives no formal earnings or revenue guidance. Management expected approximately $4 million of capital investment in 2018, including about $3 million for Rising Star improvements and $0.4 million related to Bronco Billy’s land options.
- A proposed approximately 150-room Bronco Billy’s hotel and associated amenities are contingent on financing and required approvals. The company also planned a Rising Star ferry service to Kentucky; commencement depended on additional approvals, including from the U.S. Army Corps of Engineers and Coast Guard.
- The 2017 Tax Act reduced the federal corporate rate to 21% beginning in 2018. The company recorded a provisional $0.9 million tax benefit but maintained a valuation allowance against deferred tax assets; tax accounting and interpretation remained subject to refinement.
- Warrants issued to prior second-lien lenders carried redemption rights triggered by the February 2018 refinancing. The holders had not exercised those rights as of the filing date; an exercise could require cash payment or issuance of a four-year note at a minimum 13.25% interest rate.
- Key risks include substantial secured debt and covenant compliance, variable-rate interest exposure, regional competition and economic conditions, gaming regulation and taxation, leased-property and lessor purchase rights, construction and permitting delays, weather and limited access routes, insurance adequacy, cybersecurity, and the ability to fund growth. The company reported covenant compliance at December 31, 2017.
- Management said existing resources and expected operating cash flows should fund ongoing operating requirements for the next 12 months, but gave no assurance that financing for growth would be available. The company did not expect to pay dividends in the foreseeable future.
Important facts for investors to verify
- Review the terms, actual borrowing cost and covenant headroom under the February 2018 notes, and the effect of any required excess-cash-flow repayments.
- Confirm whether warrant holders exercised redemption rights after the filing date and assess the resulting liquidity exposure.
- Track operating trends at Rising Star and Northern Nevada, particularly margins, competitive promotions, weather impacts and Grand Lodge parking effects.
- Verify financing, approvals, project budgets and expected returns for the Bronco Billy’s expansion and Rising Star ferry and renovation plans.
- Assess the timing and cost of the Silver Slipper land purchase option, beginning in 2019, and Hyatt’s option to purchase the Grand Lodge Casino leasehold and operating assets, beginning in 2019.
- Monitor the final tax effects of the 2017 Tax Act and the realization of deferred tax assets; the filing does not provide a clear estimate of future taxable income or tax payments.