SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| |
(Mark One) | |
☑ | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended September 30, |
or | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from to |
Commission File No. 1-32583
FULL HOUSE RESORTS, INC.
(Exact name of registrant as specified in its charter)
| | |
Delaware (State or other jurisdiction of incorporation or organization) | 13-3391527 (I.R.S. Employer Identification No.) | |
| | |
One Summerlin, 1980 Festival Plaza Drive, Suite 680 Las Vegas, Nevada (Address of principal executive offices) | | 89135 (Zip Code) |
(702) 221-7800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | |
Title of each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $0.0001 par value per share | | FLL | | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitionthe definitions of “large accelerated filer,” “accelerated filer”, “smallfiler,” “smaller reporting company”company,” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ | Accelerated filer ☐ | Emerging growth company ☐ |
Non-accelerated filer ☑ | ||
Smaller reporting company | ||
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act: Yes ☐ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 7, 2017,8, 2021, there were 22,890,82334,227,493 shares of Common Stock, $0.0001 par value per share, outstanding.
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
FORM 10-Q
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II OTHER INFORMATION | |||||
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2
Item 1. Financial Statements
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data) | |||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues | |||||||||||||||
Casino | $ | 39,009 | $ | 36,967 | $ | 110,702 | $ | 97,093 | |||||||
Food and beverage | 8,760 | 8,282 | 24,759 | 21,438 | |||||||||||
Hotel | 2,408 | 2,361 | 6,724 | 6,488 | |||||||||||
Other operations | 1,234 | 1,252 | 3,250 | 3,094 | |||||||||||
Gross revenues | 51,411 | 48,862 | 145,435 | 128,113 | |||||||||||
Less promotional allowances | (7,685 | ) | (7,601 | ) | (21,968 | ) | (20,309 | ) | |||||||
Net revenues | 43,726 | 41,261 | 123,467 | 107,804 | |||||||||||
Operating costs and expenses | |||||||||||||||
Casino | 20,102 | 19,380 | 57,556 | 49,910 | |||||||||||
Food and beverage | 3,466 | 2,817 | 9,598 | 7,090 | |||||||||||
Hotel | 348 | 297 | 826 | 768 | |||||||||||
Other operations | 483 | 475 | 1,333 | 1,236 | |||||||||||
Selling, general and administrative | 13,076 | 12,747 | 39,889 | 36,508 | |||||||||||
Project development, acquisition costs and other | 65 | 439 | 249 | 1,211 | |||||||||||
Depreciation and amortization | 2,193 | 2,203 | 6,428 | 5,795 | |||||||||||
39,733 | 38,358 | 115,879 | 102,518 | ||||||||||||
Operating income | 3,993 | 2,903 | 7,588 | 5,286 | |||||||||||
Other (expense) income | |||||||||||||||
Interest expense, net of $77 capitalized for both 2017 periods | (2,718 | ) | (2,748 | ) | (8,102 | ) | (6,740 | ) | |||||||
Debt modification costs | — | (24 | ) | — | (624 | ) | |||||||||
Adjustment to fair value of warrants | (302 | ) | 181 | (272 | ) | (60 | ) | ||||||||
(3,020 | ) | (2,591 | ) | (8,374 | ) | (7,424 | ) | ||||||||
Income (loss) before income taxes | 973 | 312 | (786 | ) | (2,138 | ) | |||||||||
Provision for income taxes | 184 | 177 | 552 | 458 | |||||||||||
Net income (loss) | $ | 789 | $ | 135 | $ | (1,338 | ) | $ | (2,596 | ) | |||||
Basic income (loss) per share | $ | 0.03 | $ | 0.01 | $ | (0.06 | ) | $ | (0.13 | ) | |||||
Diluted income (loss) per share | $ | 0.03 | $ | — | $ | (0.06 | ) | $ | (0.13 | ) |
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Revenues |
| |
|
| |
|
| |
|
| |
|
Casino | | $ | 32,506 | | $ | 31,910 | | $ | 99,217 | | $ | 63,616 |
Food and beverage | |
| 7,092 | |
| 5,612 | |
| 20,633 | |
| 14,596 |
Hotel | |
| 2,469 | |
| 2,511 | |
| 7,190 | |
| 5,204 |
Other operations, including contracted sports wagering | |
| 5,171 | |
| 1,923 | |
| 9,848 | |
| 3,904 |
| |
| 47,238 | |
| 41,956 | |
| 136,888 | |
| 87,320 |
Operating costs and expenses | |
|
| |
|
| |
|
| |
|
|
Casino | |
| 11,261 | |
| 10,125 | |
| 32,687 | |
| 23,886 |
Food and beverage | |
| 6,199 | |
| 5,234 | |
| 17,487 | |
| 14,453 |
Hotel | |
| 1,136 | |
| 1,113 | |
| 3,332 | |
| 2,663 |
Other operations | |
| 576 | |
| 564 | |
| 1,522 | |
| 1,441 |
Selling, general and administrative | |
| 14,791 | |
| 12,555 | |
| 43,211 | |
| 35,332 |
Project development costs | |
| 318 | |
| 108 | |
| 491 | |
| 423 |
Preopening costs | | | 17 | | | — | | | 17 | | | — |
Depreciation and amortization | |
| 1,819 | |
| 1,848 | |
| 5,448 | |
| 5,868 |
Loss on disposal of assets, net | |
| 2 | |
| — | |
| 674 | |
| 439 |
| |
| 36,119 | |
| 31,547 | |
| 104,869 | |
| 84,505 |
Operating income | |
| 11,119 | |
| 10,409 | |
| 32,019 | |
| 2,815 |
Other (expense) income | |
|
| |
|
| |
|
| |
|
|
Interest expense, net of $509 and $208 capitalized for the three-months ended September 30, 2021 and 2020, and $1,017 and $639 capitalized for the nine-months ended September 30, 2021 and 2020 | | | (6,405) | | | (2,391) | | | (17,531) | | | (7,329) |
Loss on extinguishment of debt | | | — | | | — | | | (6,104) | | | — |
Adjustment to fair value of warrants | |
| — | |
| (403) | |
| (1,347) | |
| 1,159 |
| |
| (6,405) | |
| (2,794) | |
| (24,982) | |
| (6,170) |
Income (loss) before income taxes | |
| 4,714 | |
| 7,615 | |
| 7,037 | |
| (3,355) |
Income tax provision (benefit) | | | 95 | | | (93) | | | 379 | | | (2) |
Net income (loss) | | $ | 4,619 | | $ | 7,708 | | $ | 6,658 | | $ | (3,353) |
| | | | | | | | | | | | |
Basic earnings (loss) per share | | $ | 0.13 | | $ | 0.28 | | $ | 0.21 | | $ | (0.12) |
Diluted earnings (loss) per share | | $ | 0.13 | | $ | 0.28 | | $ | 0.19 | | $ | (0.17) |
See condensed notes to consolidated financial statements.
3
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) | |||||||
September 30, 2017 | December 31, 2016 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
Current assets | |||||||
Cash and equivalents | $ | 22,420 | $ | 27,038 | |||
Accounts receivable, net of collection allowance of $122 and $53 | 1,575 | 1,909 | |||||
Inventories | 1,986 | 1,329 | |||||
Prepaid expenses | 3,745 | 2,809 | |||||
29,726 | 33,085 | ||||||
Property and equipment, net | 114,551 | 111,465 | |||||
Other long-term assets | |||||||
Goodwill | 21,286 | 21,286 | |||||
Intangible assets, net of accumulated amortization of $7,756 and $7,732 | 10,943 | 10,966 | |||||
Deposits and other | 894 | 404 | |||||
33,123 | 32,656 | ||||||
$ | 177,400 | $ | 177,206 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities | |||||||
Accounts payable | $ | 5,321 | $ | 4,910 | |||
Accrued payroll and other | 12,195 | 11,122 | |||||
Current portion of long-term debt | 1,969 | 1,688 | |||||
Current portion of capital lease obligation | 413 | 419 | |||||
19,898 | 18,139 | ||||||
Common stock warrant liability and other long-term obligations | 1,589 | 1,117 | |||||
Deferred taxes | 2,458 | 1,907 | |||||
Long-term debt, net of current portion | 92,939 | 94,246 | |||||
Capital lease obligation, net of current portion | 4,978 | 5,318 | |||||
121,862 | 120,727 | ||||||
Commitments and contingencies (Notes 5 and 7) | |||||||
Stockholders’ equity | |||||||
Common stock, $0.0001 par value, 100,000,000 shares authorized; 24,247,418 and 24,221,558 shares issued and 22,890,823 and 22,864,963 shares outstanding | 2 | 2 | |||||
Additional paid-in capital | 51,668 | 51,271 | |||||
Treasury stock, 1,356,595 common shares | (1,654 | ) | (1,654 | ) | |||
Retained earnings | 5,522 | 6,860 | |||||
55,538 | 56,479 | ||||||
$ | 177,400 | $ | 177,206 |
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except share data)
| | | | | | |
| | September 30, | | December 31, | ||
|
| 2021 |
| 2020 | ||
ASSETS | | | | | | |
Current assets |
| |
|
| |
|
Cash and equivalents | | $ | 97,926 | | $ | 37,698 |
Restricted cash | | | 176,572 | | | — |
Accounts receivable, net | |
| 4,544 | |
| 4,904 |
Inventories | |
| 2,139 | |
| 1,511 |
Prepaid expenses and other | |
| 5,062 | |
| 2,461 |
| |
| 286,243 | |
| 46,574 |
| | | | | | |
Property and equipment, net | |
| 134,244 | |
| 115,772 |
Operating lease right-of-use assets, net | | | 16,619 | | | 17,361 |
Goodwill | |
| 21,286 | |
| 21,286 |
Other intangible assets, net | |
| 10,904 | |
| 10,963 |
Deposits and other | |
| 796 | |
| 660 |
| | $ | 470,092 | | $ | 212,616 |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
Current liabilities | | | | | | |
Accounts payable | | $ | 10,391 | | $ | 4,191 |
Accrued payroll and related | |
| 5,497 | |
| 2,397 |
Accrued interest | | | 3,386 | | | 38 |
Other accrued liabilities | |
| 9,320 | |
| 10,772 |
Current portion of operating lease obligations | | | 3,492 | | | 3,283 |
Current portion of finance lease obligation | | | 508 | | | 491 |
Current portion of long-term debt | |
| 1,546 | |
| 426 |
Common stock warrant liability | | | — | | | 2,653 |
| |
| 34,140 | |
| 24,251 |
| | | | | | |
Operating lease obligations, net of current portion | |
| 13,813 | |
| 14,914 |
Finance lease obligation, net of current portion | | | 2,914 | | | 3,298 |
Long-term debt, net | |
| 305,329 | |
| 106,832 |
Deferred income taxes, net | |
| 999 | |
| 620 |
Contract liabilities, net of current portion | | | 4,948 | | | 5,398 |
Other long-term liabilities | | | 626 | | | 626 |
| |
| 362,769 | |
| 155,939 |
Commitments and contingencies (Note 8) | |
|
| |
|
|
Stockholders’ equity | |
|
| |
|
|
Common stock, $0.0001 par value, 100,000,000 shares authorized; 35,302,549 and 28,385,299 shares issued and 34,227,493 and 27,124,292 shares outstanding | |
| 4 | |
| 3 |
Additional paid-in capital | |
| 108,586 | |
| 64,826 |
Treasury stock, 1,075,056 and 1,261,007 common shares | |
| (1,311) | |
| (1,538) |
Retained earnings (accumulated deficit) | |
| 44 | |
| (6,614) |
| |
| 107,323 | |
| 56,677 |
| | $ | 470,092 | | $ | 212,616 |
See condensed notes to consolidated financial statements.
4
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited) (In thousands) | ||||||||||||||||||||||||||
Common stock | Treasury stock | |||||||||||||||||||||||||
Shares | Dollars | Additional Paid-in Capital | Shares | Dollars | Retained Earnings | Total Stockholders' Equity | ||||||||||||||||||||
Balance, January 1, 2017 | 24,221 | $ | 2 | $ | 51,271 | 1,357 | $ | (1,654 | ) | $ | 6,860 | $ | 56,479 | |||||||||||||
Share-based compensation | 26 | — | 397 | — | — | — | 397 | |||||||||||||||||||
Net loss | — | — | — | — | — | (1,338 | ) | (1,338 | ) | |||||||||||||||||
Balance, September 30, 2017 | 24,247 | $ | 2 | $ | 51,668 | 1,357 | $ | (1,654 | ) | $ | 5,522 | $ | 55,538 |
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
(In thousands)
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | (Accumulated | | | | |
| | | | | | | Additional | | | | | | | Deficit) | | Total | |||
| | Common Stock | | Paid-in | | Treasury Stock | | Retained | | Stockholders’ | |||||||||
|
| Shares |
| Dollars |
| Capital |
| Shares |
| Dollars |
| Earnings |
| Equity | |||||
Balance, January 1, 2021 |
| 28,385 | | $ | 3 | | $ | 64,826 |
| 1,261 | | $ | (1,538) | | $ | (6,614) | | $ | 56,677 |
Equity offering, net | | 6,917 | | | 1 | | | 42,973 | | — | | | — | | | — | | | 42,974 |
Exercise of stock options | | — | | | — | | | 36 | | (34) | | | 42 | | | — | | | 78 |
Stock-based compensation |
| — | |
| — | |
| 124 |
| — | |
| — | |
| — | |
| 124 |
Net loss |
| — | |
| — | |
| — |
| — | |
| — | |
| (3,445) | |
| (3,445) |
Balance, March 31, 2021 |
| 35,302 | | | 4 | | | 107,959 |
| 1,227 | | | (1,496) | | | (10,059) | | | 96,408 |
Exercise of stock options | | — | | | — | | | 104 | | (152) | | | 185 | | | — | | | 289 |
Stock-based compensation | | — | | | — | | | 199 | | — | | | — | | | — | | | 199 |
Net income | | — | | | — | | | — | | — | | | — | | | 5,484 | | | 5,484 |
Balance, June 30, 2021 | | 35,302 | | | 4 | | | 108,262 | | 1,075 | | | (1,311) | | | (4,575) | | | 102,380 |
Stock-based compensation | | — | | | — | | | 324 | | — | | | — | | | — | | | 324 |
Net income | | — | | | — | | | — | | — | | | — | | | 4,619 | | | 4,619 |
Balance, September 30, 2021 | | 35,302 | | $ | 4 | | $ | 108,586 |
| 1,075 | | $ | (1,311) | | $ | 44 | | $ | 107,323 |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | Additional | | | | | | | | | Total | |||
| | Common Stock | | Paid-in | | Treasury Stock | | Accumulated | | Stockholders’ | |||||||||
|
| Shares |
| Dollars |
| Capital |
| Shares |
| Dollars |
| Deficit |
| Equity | |||||
Balance, January 1, 2020 |
| 28,346 | | $ | 3 | | $ | 64,402 |
| 1,270 | | $ | (1,548) | | $ | (6,761) | | $ | 56,096 |
Stock-based compensation |
| — | |
| — | |
| 83 |
| — | |
| — | |
| — | |
| 83 |
Net loss |
| — | |
| — | |
| — |
| — | |
| — | |
| (4,358) | |
| (4,358) |
Balance, March 31, 2020 |
| 28,346 | | | 3 | | | 64,485 |
| 1,270 | | | (1,548) | | | (11,119) | | | 51,821 |
Stock grants | | 13 | | | — | | | 24 | | — | | | — | | | — | | | 24 |
Stock-based compensation | | — | | | — | | | 79 | | — | | | — | | | — | | | 79 |
Net loss | | — | | | — | | | — | | — | | | — | | | (6,703) | | | (6,703) |
Balance, June 30, 2020 | | 28,359 | | | 3 | | | 64,588 | | 1,270 | | | (1,548) | | | (17,822) | | | 45,221 |
Stock grants | | 16 | | | — | | | 24 | | — | | | — | | | — | | | 24 |
Stock-based compensation | | — | | | — | | | 97 | | — | | | — | | | — | | | 97 |
Net income | | — | | | — | | | — | | — | | | — | | | 7,708 | | | 7,708 |
Balance, September 30, 2020 | | 28,375 | | $ | 3 | | $ | 64,709 |
| 1,270 | | $ | (1,548) | | $ | (10,114) | | $ | 53,050 |
See condensed notes to consolidated financial statements.
5
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) | |||||||
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Cash flows from operating activities: | |||||||
Net loss | $ | (1,338 | ) | $ | (2,596 | ) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||
Depreciation and amortization | 6,428 | 5,795 | |||||
Amortization of debt issuance and warrant costs | 661 | 864 | |||||
(Gain) loss on disposal of assets | (2 | ) | 354 | ||||
Share-based compensation | 397 | 315 | |||||
Change in value of stock warrants | 272 | 60 | |||||
Increases and decreases in operating assets and liabilities: | |||||||
Accounts receivable | 334 | (93 | ) | ||||
Prepaid expenses, inventories and other | (1,306 | ) | (1,267 | ) | |||
Deferred taxes | 551 | 459 | |||||
Accounts payable and accrued expenses | 837 | 2,425 | |||||
Net cash provided by operating activities | 6,834 | 6,316 | |||||
Cash flows from investing activities: | |||||||
Acquisition of Bronco Billy's, net of cash acquired | — | (28,369 | ) | ||||
Purchase of property and equipment | (8,952 | ) | (1,736 | ) | |||
Restricted cash | — | 569 | |||||
Refunded deposits and other, net | (163 | ) | 2,861 | ||||
Net cash used in investing activities | (9,115 | ) | (26,675 | ) | |||
Cash flows from financing activities: | |||||||
Repayment of First Lien Term Loan | (1,687 | ) | (2,125 | ) | |||
Repayment of Revolving Loan | — | (2,000 | ) | ||||
Second Lien Term Loan borrowings | — | 35,000 | |||||
Repayment of capital lease obligation | (346 | ) | (338 | ) | |||
Debt issuance costs and other | (304 | ) | (1,670 | ) | |||
Net cash (used in) provided by financing activities | (2,337 | ) | 28,867 | ||||
Net (decrease) increase in cash and equivalents | (4,618 | ) | 8,508 | ||||
Cash and equivalents, beginning of period | 27,038 | 14,574 | |||||
Cash and equivalents, end of period | $ | 22,420 | $ | 23,082 | |||
SUPPLEMENTAL CASH FLOW INFORMATION: | |||||||
Cash paid for interest, net of amounts capitalized | $ | 7,459 | $ | 5,738 | |||
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
| | | | | | |
| | Nine Months Ended | ||||
| | September 30, | ||||
|
| 2021 |
| 2020 | ||
Cash flows from operating activities: |
| |
|
| |
|
Net income (loss) | | $ | 6,658 | | $ | (3,353) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |
|
| |
|
|
Depreciation and amortization | |
| 5,448 | |
| 5,868 |
Amortization of debt issuance and warrant costs and other | |
| 991 | |
| 827 |
Stock-based compensation | |
| 647 | |
| 307 |
Change in fair value of stock warrants | |
| 1,347 | |
| (1,159) |
Loss on disposal of assets, net | |
| 674 | |
| 439 |
Proceeds from insurance related to property damage | | | 1,334 | | | 0 |
Loss on extinguishment of debt | | | 6,104 | | | 0 |
Increases and decreases in operating assets and liabilities: | |
|
| |
|
|
Accounts receivable | |
| 360 | |
| 306 |
Prepaid expenses, inventories and other | |
| (3,229) | |
| 1,533 |
Deferred taxes | |
| 379 | |
| (2) |
Common stock warrant liability | | | (4,000) | | | 0 |
Contract liabilities | | | (600) | | | (109) |
Accounts payable and accrued expenses | |
| 3,188 | |
| (1,732) |
Net cash provided by operating activities | |
| 19,301 | |
| 2,925 |
Cash flows from investing activities: | |
|
| |
|
|
Purchase of property and equipment | |
| (17,828) | |
| (1,883) |
Other | |
| (164) | |
| 11 |
Net cash used in investing activities | |
| (17,992) | |
| (1,872) |
Cash flows from financing activities: | |
|
| |
|
|
Proceeds from Senior Secured Notes due 2028 borrowings | |
| 310,000 | |
| 0 |
Proceeds from equity offering, net of issuance costs | | | 42,974 | | | 0 |
Proceeds from CARES Act unsecured loans | |
| 0 | |
| 5,606 |
Payment of debt discount and issuance costs | |
| (9,421) | |
| (1,284) |
Repayment of Senior Secured Notes due 2024 | | | (106,825) | | | (825) |
Prepayment premiums of Senior Secured Notes due 2024 | |
| (1,261) | |
| 0 |
Repayment of finance lease obligation | | | (367) | | | (369) |
Proceeds from exercise of stock options | |
| 367 | |
| 0 |
Other | | | 24 | | | 0 |
Net cash provided by financing activities | |
| 235,491 | |
| 3,128 |
| | | | | | |
Net increase in cash, cash equivalents and restricted cash | |
| 236,800 | |
| 4,181 |
Cash, cash equivalents and restricted cash, beginning of period | |
| 37,698 | |
| 29,851 |
Cash, cash equivalents and restricted cash, end of period | | $ | 274,498 | | $ | 34,032 |
| | | | | | |
Supplemental Cash Flow Information: | |
|
| |
|
|
Cash paid for interest, net of amounts capitalized | | $ | 13,180 | | $ | 6,324 |
Non-Cash Investing Activities: | |
|
| |
|
|
Accounts payable related capital expenditures | | $ | 7,031 | | $ | 265 |
See condensed notes to consolidated financial statements.
6
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
1. ORGANIZATION
Organization.
Formed as a Delaware corporation in 1987, Full House Resorts, Inc. owns, leases, operates, develops, manages, and/or invests in casinos and related hospitality and entertainment facilities. References in this document toThe Company currently operate five casinos; four are part ofoperates 5 casinos: 4 on real estate that we own or lease and one is1 located within a hotel owned by a third party. Construction continues for a sixth property, Chamonix Casino Hotel (“Chamonix”), adjacent to the Company’s existing Bronco Billy’s Casino and Hotel in Cripple Creek, Colorado. We also benefit from 6 permitted sports wagering “skins,” 3 in Colorado and 3 in Indiana. Other companies operate or will operate these online sports wagering sites under their brands, paying us a percentage of revenues, as defined, subject to annual minimum amounts. NaN of our 6 permitted skins have commenced operations. The following table identifies the propertiesour 5 segments, along with properties and their dates of acquisition and locations:
| | | ||
Segments and Properties | | Locations | ||
Colorado | | | ||
Bronco Billy’s Casino and Hotel | Cripple Creek, CO (near Colorado Springs) | |||
Chamonix Casino Hotel (under construction) | | Cripple Creek, CO (near Colorado Springs) | ||
Indiana | | | ||
Rising Star Casino Resort | Rising Sun, IN (near Cincinnati) | |||
Mississippi | | | ||
Silver Slipper Casino and Hotel | Hancock County, MS (near New Orleans) | |||
Nevada | | | ||
Grand Lodge Casino | Incline Village, NV | |||
Stockman’s Casino | Fallon, NV (one hour east of Reno) | |||
Contracted Sports Wagering | | | ||
Three sports wagering websites (“skins”), all operating | | Colorado | ||
Three sports wagering websites (“skins”), two in operation | | Indiana |
The Company manages its casinos based primarily on geographic regions within the United States. See Note 10Our 2021 results reflect a change in our operating segments. We now break out our on-site and online sports wagering skins in Colorado and Indiana as a standalone segment, Contracted Sports Wagering. Certain reclassifications were made to 2020 amounts to conform to current-period presentation for enhanced comparability. Such reclassifications had no effect on the previously reported results of operations or financial position.
COVID-19 Pandemic Update. In March 2020, the World Health Organization declared the outbreak of the novel coronavirus as a pandemic (“COVID-19”). Although COVID-19 continues to spread throughout the U.S. and the world, vaccines designed to inhibit the severity and the spread of COVID-19 are now being distributed. As a result, the number of newly reported cases has declined in the U.S. in recent weeks, though new variants could result in a reversal of these trends. For example, the Delta variant of COVID-19 resulted in large increases in the number of COVID-19 cases as it spread globally. COVID-19 has resulted in the implementation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, business restrictions, closing of borders, “shelter-in-place” orders and business closures. In March 2020, pursuant to state government orders, the Company temporarily closed all of its casino properties.
7
As a result, the Company experienced a material decline in its revenues until its properties began reopening when permitted by local authorities. The reopening dates were:
● | Silver Slipper Casino and Hotel ― May 21, 2020 |
● | Grand Lodge Casino and Stockman’s Casino ― June 4, 2020 |
● | Bronco Billy’s Casino and Hotel ― June 15, 2020 |
● | Rising Star Casino Resort ― June 15, 2020. |
During the shutdown period, the Company evaluated labor, marketing and other costs at its businesses so that, upon reopening, its properties could reopen with significantly lower operating costs. As a result, the Company’s operating performance since reopening in mid-2020 has been stronger than pre-pandemic levels, despite business restrictions throughout its properties and certain pandemic-related additional costs. The extent to which the Company’s financial and operating results in future periods may be affected by COVID-19, including the Delta or other variants, will largely depend on future developments, which are highly uncertain and cannot be accurately predicted at this time. Significant uncertainties include the ability to operate; new information which may emerge concerning new strains of COVID-19 and their severity; vaccination rates among the population; the effectiveness of COVID-19 vaccines against variants; any additional actions imposed by governmental authorities (including the potential mandated vaccination or repeated testing of our employees) to contain or minimize the impact of COVID-19 and any variants; increased operating costs and constraints to implement sanitation and social distancing requirements; increased costs for materials due to supply chain constraints; and general economic conditions, among others.
The disruptions arising from COVID-19 continued to impact the Company during the three- and nine-months ended September 30, 2021. The duration and intensity of this global health emergency and related disruptions are uncertain. While each of the Company’s properties are currently open and operating restrictions further information.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation.
As permitted by the rules and regulations of the Securities and Exchange Commission (“SEC”), certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company’sThe interim consolidated financial statements of the Company included herein reflect all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary to present fairly the financial position and results of operations for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of annualized results for an entire year.
The consolidated financial statements include the accounts of Full House and its wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.
Fair Value and the Fair Value Input Hierarchy.
Fair value measurements affect8
GAAP categorizes the inputs used for fair value into a three-level hierarchy. “Level 1”hierarchy:
● | Level 1: Observable inputs, such as quoted prices in active markets for identical assets or liabilities; |
● | Level 2: Comparable inputs other than quoted prices that are observable for similar assets or liabilities in less active markets; and |
● | Level 3: Unobservable inputs which may include metrics that market participants would use to estimate values, such as revenue and earnings multiples and relative rates of return. |
The Company utilizes Level 1 inputs are most readily observable, such as quoted prices in an active market for identical assets or liabilities; “Level 2”when measuring the fair value of its 2028 Notes (see Note 5).
The Company utilizes Level 2 inputs such as observable inputs for similar assets in less active markets;when measuring the fair value of its asset purchases and “Level 3” inputs, which are unobservable and may include metrics that market participants would use to estimate values, such as revenue and earnings multiples and relative rates of return.
The Company utilizes Level 3 inputs when measuring the fair value of net assets acquired in business combination transactions, subsequent assessments for impairment, and allmost financial instruments, including but not limited to the estimated fair value of common stock warrants at issuance and for recurring changes in the related warrant liability (see Note 5)6).
Cash Equivalents and Restricted Cash. Cash equivalents include cash involved in operations and cash in excess of daily requirements that is invested in highly liquid, short-term investments with initial maturities of three months or less when purchased.
Restricted cash balances consist of funds initially totaling $180 million, which were placed into a construction reserve account to fund the completion of the Chamonix construction project.
Accounts Receivable. Accounts receivable consist primarily of casino, hotel and other receivables, are typically non-interest bearing, and are carried net of an appropriate collection allowance to approximate fair value. Allowances for doubtful accounts are estimated based on specific review of customer accounts including the customers’ willingness and ability to pay and nature of collateral, if any, as well as historical collection experience and current economic and business conditions. Accounts are written off when management deems the account to be uncollectible and recoveries of accounts previously written off are recorded when received.
| | | | | | | |
(In thousands) | | | September 30, | | December 31, | ||
|
|
| 2021 |
| 2020 | ||
Accounts receivable | | | $ | 4,796 | | $ | 5,080 |
Accounts receivable allowance | | |
| (252) | |
| (176) |
| | | $ | 4,544 | | $ | 4,904 |
At September 30, 2021, the balance in accounts receivables includes the sale of “free play” at Rising Star for $2.1 million in September. Because Indiana has a progressive gaming tax system and Rising Star is one of the smaller casinos in the state, the property has consistently sold its ability to deduct “free play” in computing gaming taxes to operators in higher tax tiers (and usually sold in the fourth quarter in prior years). Compared to December 31, 2020, the balance in accounts receivables includes the sale of “free play” at Rising Star for the same amount of $2.1 million in the fourth quarter.
Revenue Recognition of Accrued Club Points and Deferred Revenues
Accrued Club Points: Operating Revenues and Related Costs and Expenses.The Company’s revenues consist primarily of casino gaming, food and beverage, hotel, and other revenues (such as sports wagering, golf, RV park operations, and entertainment). The majority of the Company’s revenues are derived from casino gaming, principally slot machines.
Gaming revenue is the difference between gaming wins and losses, not the total amount wagered. The Company accounts for its gaming transactions on a portfolio basis as such wagers have similar characteristics and it would not be practical to view each wager on an individual basis.
9
The Company sometimes provides discretionary complimentary goods and services (“discretionary comps”), primarily to casino customers. For these types of transactions, the Company allocates revenue to the department providing the complimentary goods or services based upon its estimated standalone selling price, offset by a reduction in casino revenues.
Many of the Company’s customers choose to earn points under its customer loyalty programs. As points are accrued, the Company defers a portion of its gaming revenue based on the estimated standalone value of loyalty points being earned by the customer. The standalone value of loyalty points is derived from the retail value of food, beverages, hotel rooms, and other goods or services for which such points may be redeemed. A liability related to these customer loyalty points is recorded, net of estimated breakage and other factors, until the customer redeems these points, primarily for “free casino play,” complimentary dining, or hotel stays. Such liabilities were approximately $0.6 million for September 30, 2021 and $0.8 million for December 31, 2020, and these amounts are included in “other accrued liabilities” on the consolidated balance sheets. Upon redemption, the related revenue is recognized at retail value within the department providing the goods or services, offset by a reduction in the liability.
Revenue for food and beverage, hotel, and other revenue transactions is typically the net amount collected from customers for such goods and services, plus the retail value of (i) discretionary comps and (ii) comps provided in return for redemption of loyalty points. The Company records such revenue as the good or service is transferred to the customer. Additionally, the Company may collect deposits in advance for future hotel reservations or entertainment, among other services, which represent obligations of the Company until the service is provided to the customer.
Deferred Revenues: Market Access Fees from Sports Wagering Agreements.In 2019, the Company entered into several ten-year agreements with various unaffiliated companies allowing for online/mobile sports wagering within Indiana and Colorado, as well as on-site sports wagering at Rising Star and Bronco Billy’s casinos (the “Sports Agreements”). The contracts differ as to the percentages of revenues that we receive. Also, some contracts require payments in advance of the contract year, while others call for settlement in arrears. As part of these long-term Sports Agreements, the Company received $6 million in one-time market access fees, which were recorded as a long-term liability in the same amount and are being recognized as revenue ratably over the initial term of each agreement, beginning with the commencement of operations.
Indiana. Two of the Company’s Sports Agreements commenced operations in December 2019 and April 2021, respectively. The contracted party for the remaining Sports Agreement is awaiting approval from the state gaming commission prior to commencing operations.
Colorado. The Company’s three Sports Agreements commenced online operations in June 2020, December 2020 and April 2021, respectively.
Deferred revenues also include a total of $2.0 million related to the annual prepayment of contracted revenue, as required in two of the Sports Agreements. We received $1.0 million of prepaid revenue for contracted sports operations that commenced in Colorado in December 2020, and $1.0 million for contracted sports operations that commenced in Indiana in April 2021.
Such revenues consisted of the following, as discussed above:
| | | | | | | | |
(In thousands) | | | | September 30, | | December 31, | ||
|
| Balance Sheet Location | | 2021 |
| 2020 | ||
Deferred revenue, current | | Other accrued liabilities | | $ | 1,222 | | $ | 1,372 |
Deferred revenue, net of current portion | | Contract liabilities, net of current portion | | | 4,948 | | | 5,398 |
| | | | $ | 6,170 | | $ | 6,770 |
Income Taxes.For interim income tax reporting it was determined thatfor the Company'sthree- and nine-months ended September 30, 2021, the Company estimates its annual effective tax rate could not be reasonably estimated. As a result, theand applies it to its year-to-date pretax income or loss.
10
Reclassifications. The Company used the actual year-to-date effective tax rate to determine the tax expense incurred during the three and nine months ended September 30, 2017 and 2016.
Earnings (Loss) Per Share.
Earnings (loss) per share is net income (loss) applicable to common stock divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects additional dilutive effects for all potentially-dilutive securities, includingLeases. The Company determines if a contract is or contains a lease at inception or modification of the agreement. A contract is or contains a lease if there are identified assets and the right to control the use of an identified asset is conveyed for a period of time in exchange for consideration. Control over the use of the identified asset means that the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.
For material leases with terms greater than a year, the Company records right-of-use (“ROU”) assets and lease liabilities on the balance sheet, as measured on a discounted basis. For finance leases, the Company recognizes interest expense associated with the lease liability and depreciation expense associated with the ROU asset; for operating leases, the Company recognizes straight-line rent expense.
The Company does not recognize ROU assets or lease liabilities for leases with a term of 12 months or less. However, costs related to short-term leases with terms greater than one month, which the Company deems material, are disclosed as a component of lease expenses when applicable. Additionally, the Company accounts for new and existing leases containing both lease and non-lease components (“embedded leases”) together as a single lease component by asset class for gaming-related equipment; therefore, the Company does not allocate contract consideration to the separate lease and non-lease components based on their relative standalone prices.
Finance and operating lease ROU assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement. As the implicit rate is not determinable in most of the Company’s leases, management uses the Company’s incremental borrowing rate as estimated by third-party valuation specialists in determining the present value of future payments based on the information available at the commencement date and/or modification date. The expected lease terms include options to extend the lease when it is reasonably certain that the Company will exercise such options. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease term for operating leases. For finance leases, the ROU asset depreciates on a straight-line basis over the shorter of the lease term or useful life of the ROU asset and the lease liability accretes interest based on the interest method using the discount rate determined at lease commencement.
Recent Accounting Pronouncements
Income Taxes. In December 2019, the Financial Accounting Standards Not Yet Adopted.
The Company expects it will no longer be permitted to recognize revenues for complimentary goods and services provided to customers as an inducement to gamble as gross revenue with a corresponding offset to promotional allowances to arrive at net revenues. Revenues instead will be presented net of the retail value of those complimentary goods and services.
3.
(In thousands) | September 30, 2017 | December 31, 2016 | |||||
(Unaudited) | |||||||
Land and improvements | $ | 15,057 | $ | 14,548 | |||
Buildings and improvements | 106,416 | 102,410 | |||||
Furniture and equipment | 40,586 | 37,312 | |||||
Construction in progress | 2,443 | 868 | |||||
164,502 | 155,138 | ||||||
Less accumulated depreciation and amortization | (49,951 | ) | (43,673 | ) | |||
$ | 114,551 | $ | 111,465 |
The results of operations of Bronco Billy's are includedCompany has no leases in our consolidated financial statements from the date of acquisition. The acquisition was financed primarily through a $35 million increase in our Second Lien Credit Facility (see Note 5). During the fourth quarter of 2016, we completed our valuation analysis of the acquired net assets.
Pro Forma Consolidated Statement of Operations | ||||
(In thousands except per share data, unaudited) | ||||
For the Nine Months Ended September 30, 2016 | ||||
Net revenues | $ | 117,352 | ||
Net loss | (3,372 | ) | ||
Basic and diluted loss per share | (0.17 | ) |
(In thousands) | September 30, 2017 | ||||||||||||||
(unaudited) | |||||||||||||||
Outstanding Principal | Unamortized Discount | Unamortized Debt Issuance Costs | Long-term Debt, Net | ||||||||||||
First Lien Term Loan | $ | 41,625 | $ | — | $ | (374 | ) | $ | 41,251 | ||||||
Revolving Loan | — | — | — | — | |||||||||||
Second Lien Term Loan | 55,000 | (346 | ) | (997 | ) | 53,657 | |||||||||
96,625 | (346 | ) | (1,371 | ) | 94,908 | ||||||||||
Less current portion | (1,969 | ) | — | — | (1,969 | ) | |||||||||
$ | 94,656 | $ | (346 | ) | $ | (1,371 | ) | $ | 92,939 |
(In thousands) | December 31, 2016 | ||||||||||||||
Outstanding Principal | Unamortized Discount | Unamortized Debt Issuance Costs | Long-term Debt, Net | ||||||||||||
First Lien Term Loan | $ | 43,312 | $ | — | $ | (561 | ) | $ | 42,751 | ||||||
Revolving Loan | — | — | — | — | |||||||||||
Second Lien Term Loan | 55,000 | (469 | ) | (1,348 | ) | 53,183 | |||||||||
98,312 | (469 | ) | (1,909 | ) | 95,934 | ||||||||||
Less current portion | (1,688 | ) | — | — | (1,688 | ) | |||||||||
$ | 96,624 | $ | (469 | ) | $ | (1,909 | ) | $ | 94,246 |
11
residual value guarantees or material restrictive covenants, but the land lease at Silver Slipper does include contingent rent, as further discussed below.
Operating Leases
Silver Slipper Casino Land Lease through April 2058 and Options to Purchase.In 2004, ourthe Company’s subsidiary, Silver Slipper Casino Venture, LLC, entered into a land lease with Cure Land Company, LLC for approximately 31 acres of marshlands and a seven-acre7-acre parcel on which the Silver Slipper Casino and Hotel is situated. The land leaseagreement includes fixed, base monthly payments of $77,500 plus contingent rents of 3% of monthly gross gaming revenue (as defined)defined in the lease) in excess of $3.65 million.
The landCompany executed a fourth amendment to the original lease also includes an exclusive option to purchasewith the leased land duringlandlord, effective March 2020, which granted a waiver of base rent for April and May of 2020. Such abatement totaled $155,000 and the period from February 26, 2019value of such abatement was amortized over the remaining term of the lease. From April 1, 2022 through October 1, 2027, the Company may buy out the lease for $15.5 million plus a seller-retained interest in Silver Slipper Casino and Hotel’s operations of 3% of net income (as defined) for ten10 years following the purchase date. In the event that we sell or transfer (i) substantially all of the assets of Silver Slipper Casino Venture, LLC, or (ii) our membership interests in Silver Slipper Casino Venture, LLC in its entirety, the purchase price will increase to $17.1 million plus the retained interest for ten years mentioned above.
Bronco Billy'sBilly’s / Chamonix Lease through January 2035 and Option to Purchase.
Third Street Corner Building through August 2023 and Option to Purchase. The Company leased a nearby closed casino in August 2018 and reopened it in November 2018. The reopened casino did not produce enough incremental revenue to offset the incremental costs, and it was closed in September 2020. The Company has the right to purchase the casino at any time during the lease term, as extended. Currently, the purchase price is $2.8 million as of November 1, 2021.
As part of the Chamonix development project, this building is currently used as office space for construction personnel, obviating the need for construction trailers. The lease includes a minimum three-year term with annual lease payments of $0.2 million, and was subsequently extended in June 2021 for an additional two years with annual lease payments of $0.3 million.
Grand Lodge Casino Lease through August 2023.
In July 1, 2017, and will increase to $166,667 commencing on January 1, 2018. As a condition of the lease, the Company purchased new gaming devices and equipment and made other capital expenditures totaling up to $1.5 million and Hyatt renovated the casino at its sole cost and expense of up to $3.5 million, with both parties completing these renovations during the second quarter of 2017.
Corporate Office Lease through January 2025. The Company leases 4,479 square feet of office space in Las Vegas, Nevada, replacing our previous office space lease that was originally due to expire in May 2018. The new lease terms include a length of 7.6 years,Nevada. Annual rent is approximately $0.2 million and the term of annual rentsthe office lease expires in January 2025.
12
Finance Lease
Rising Star Casino Hotel Lease through October 2027 and Option to Purchase. The Company’s Indiana subsidiary, Gaming Entertainment (Indiana) LLC, leases a 104-room hotel at Rising Star Casino Resort. At any time during the lease term, the Company has the option to purchase the hotel at a price based upon the hotel’s original cost of $7.7 million, reduced by the cumulative principal payments made by the Company during the lease term. At September 30, 2021, such potential purchase price was $3.4 million. Upon expiration of the lease term in October 2027, (i) the landlord has the right to sell the hotel to the Company, and (ii) the Company has the option to purchase the hotel. In either case, the purchase price is $1 plus closing costs.
The components of lease expense are as follows:
| | | | | | | | | | | | | | |
(In thousands) |
| |
| Three Months Ended |
| Nine Months Ended | ||||||||
| | | | September 30, | | September 30, | ||||||||
Lease Costs | | Classification within Statement of Operations | | 2021 |
| 2020 | | 2021 |
| 2020 | ||||
Operating leases: |
|
|
| |
| | |
|
| |
| | |
|
Fixed/base rent |
| Selling, General and Administrative Expenses | | $ | 1,112 | | $ | 1,156 | | $ | 3,357 | | $ | 3,478 |
Short-term payments | | Selling, General and Administrative Expenses | | | 29 | | | — | | | 29 | | | — |
Variable payments |
| Selling, General and Administrative Expenses | |
| 385 | |
| 219 | |
| 1,254 | |
| 442 |
Finance lease: |
|
| |
|
| |
| | |
|
| |
|
|
Amortization of leased assets |
| Depreciation and Amortization | |
| 39 | |
| 39 | |
| 118 | |
| 118 |
Interest on lease liabilities |
| Interest Expense, Net | |
| 38 | |
| 45 | |
| 122 | |
| 139 |
Total lease costs | | | | $ | 1,603 | | $ | 1,459 | | $ | 4,880 | | $ | 4,177 |
Leases recorded on the balance sheet consist of the following:
| | | | | | | | |
(In thousands) | | | | | | | | |
| | | | September 30, | | December 31, | ||
Leases |
| Balance Sheet Classification |
| 2021 | | 2020 | ||
Assets |
|
|
| |
| | |
|
Operating lease assets |
| Operating Lease Right-of-Use Assets, Net |
| $ | 16,619 | | $ | 17,361 |
Finance lease assets |
| Property and Equipment, Net(1) | |
| 4,762 | |
| 4,879 |
Total lease assets |
|
| | $ | 21,381 | | $ | 22,240 |
| | | | | | | | |
Liabilities |
|
| |
|
| |
|
|
Current |
|
| |
|
| |
|
|
Operating |
| Current Portion of Operating Lease Obligations | | $ | 3,492 | | $ | 3,283 |
Finance |
| Current Portion of Finance Lease Obligation | |
| 508 | |
| 491 |
Noncurrent |
|
| |
| | |
| |
Operating |
| Operating Lease Obligations, Net of Current Portion | |
| 13,813 | |
| 14,914 |
Finance |
| Finance Lease Obligation, Net of Current Portion | |
| 2,914 | |
| 3,298 |
Total lease liabilities |
|
| | $ | 20,727 | | $ | 21,986 |
__________
(1) | Finance lease assets are recorded net of accumulated amortization of $3.0 million and $2.8 million as of September 30, 2021 and December 31, 2020, respectively. |
13
Maturities of lease liabilities as of September 30, 2021 are summarized as follows:
| | | | | | |
(In thousands) | | | | | | |
|
| Operating |
| Financing | ||
Years Ending December 31, | | Leases | | Lease(1) | ||
2021 (excluding the nine months ended September 30, 2021) | | $ | 1,234 | | $ | 108 |
2022 | |
| 4,852 | |
| 652 |
2023 | |
| 3,539 | |
| 652 |
2024 | |
| 1,663 | |
| 652 |
2025 | |
| 1,466 | |
| 652 |
Thereafter | |
| 30,105 | |
| 1,195 |
Total future minimum lease payments | |
| 42,859 | |
| 3,911 |
Less: Amount representing interest | |
| (25,554) | |
| (489) |
Present value of lease liabilities | |
| 17,305 | |
| 3,422 |
Less: Current lease obligations | |
| (3,492) | |
| (508) |
Long-term lease obligations | | $ | 13,813 | | $ | 2,914 |
__________
(1)The Company’s only material finance lease is at Rising Star Casino Resort for a 104-room hotel.
Other information related to lease term and discount rate is as follows:
| | | | | | |
Lease Term and Discount Rate | | September 30, 2021 | | December 31, 2020 | ||
Weighted-average remaining lease term |
|
| | |
| |
Operating leases |
| 20.8 | years | | 20.4 | years |
Finance lease |
| 6.0 | years | | 6.8 | years |
Weighted-average discount rate |
|
| | |
| |
Operating leases |
| 9.28 | % | | 9.41 | % |
Finance lease |
| 4.50 | % | | 4.50 | % |
Supplemental cash flow information related to leases is as follows:
| | | | | | |
(In thousands) |
| Nine Months Ended | ||||
| | September 30, | ||||
Cash paid for amounts included in the measurement of lease liabilities: | | 2021 | | 2020 | ||
Operating cash flows for operating leases | | $ | 3,652 | | $ | 3,250 |
Operating cash flows for finance lease | | $ | 122 | | $ | 139 |
Financing cash flows for finance lease | | $ | 367 | | $ | 369 |
4. ACQUISITIONS
Cripple Creek Land and Real Estate Purchase. As part of the development of Chamonix, the Company purchased Carr Manor, a boutique hotel with 14 guest rooms. This transaction closed on March 31, 2021 as an asset purchase for total consideration of $2.8 million. The purchase included 5 parcels of land, which adds to the Company’s land ownership in Cripple Creek by approximately 1.6 acres and provides additional guest parking. The addition of Carr Manor allows Bronco Billy’s to provide overnight accommodations to its guests during the construction of Chamonix, as many of Bronco Billy’s existing hotel rooms are either currently closed, being utilized by construction personnel, or will be repurposed as part of the construction of Chamonix.
Additionally, on April 16, 2021, the Company purchased a lot and building near its operations in Cripple Creek, Colorado for $600,000.
14
5. LONG-TERM DEBT
Long-term debt, related discounts and issuance costs consist of the following:
| | | | | | |
(In thousands) | | September 30, | | December 31, | ||
| | 2021 | | 2020 | ||
Revolving Credit Facility due 2026 | | $ | — | | $ | — |
Senior Secured Notes due 2028(1) | | | 310,000 | | | — |
Senior Secured Notes due 2024(2) | | | — | | | 106,825 |
Unsecured Loans (CARES Act)(3) | | | 5,606 | | | 5,606 |
Less: Unamortized discounts and debt issuance costs | |
| (8,731) | |
| (5,173) |
| |
| 306,875 | |
| 107,258 |
Less: Current portion of long-term debt | |
| (1,546) | |
| (426) |
| | $ | 305,329 | | $ | 106,832 |
__________
(1) | As of September 30, 2021, the estimated fair value of these notes was approximately $333.3 million. The fair value was estimated using quoted market prices for these notes. |
(2) | The estimated fair value for this non-traded debt instrument can be approximated by its respective carrying value because management believes its terms are representative of market conditions. |
(3) | The estimated fair value for this non-traded debt instrument can be approximated by its respective carrying value because of its similar terms to other CARES Act loans. |
Debt Refinancing: Notes Issuance. On February 12, 2021, the Company refinanced its existing outstanding Senior Secured Notes due 2024 (the “Prior Notes”) with the issuance of $310 million aggregate principal amount of 8.25% Senior Secured Notes due 2028 (the “2028 Notes”). The 2028 Notes bear interest at a fixed rate of 8.25% per year and mature on February 15, 2028. There is no mandatory debt amortization prior to the maturity date. Interest on the 2028 Notes is payable on February 15 and August 15 of each year, with the next interest payment due on February 15, 2022.
The net proceeds from the sale of the 2028 Notes were used to redeem all of the Prior Notes (including a 0.90% prepayment premium) and to repurchase all outstanding warrants. Additionally, $180 million of bond proceeds were placed into a construction reserve account to fund construction of Chamonix. Accordingly, this amount is recorded as restricted cash. Net of transaction fees and expenses, approximately $8 million was added to unrestricted cash and equivalents.
The 2028 Notes are guaranteed, jointly and severally (such guarantees, the “Guarantees”), by each of the Company’s restricted subsidiaries (collectively, the “Guarantors”). The 2028 Notes and the Guarantees are the Company’s and the Guarantors’ general senior secured obligations, subject to the terms of the Collateral Trust Agreement (as defined in the Indenture), ranking senior in right of payment to all of the Company’s and the Guarantors’ existing and future debt that is expressly subordinated in right of payment to the 2028 Notes and the Guarantees, if any. The 2028 Notes and the Guarantees will rank equally in right of payment with all of the Company’s and the Guarantors’ existing and future senior debt.
The 2028 Notes contain representations and warranties, financial covenants, and restrictions on dividends customary for notes of this type. Mandatory prepayments, in whole or in part, of the 2028 Notes will be required upon the occurrence of certain events, including sales of certain assets, upon certain changes of control, or should the Company have certain unused funds in the construction disbursement account following the completion of Chamonix.
On or prior to February 15, 2024, the Company may redeem up to 35% of the original principal amount of the 2028 Notes with proceeds of certain equity offerings at a redemption price of 108.25%, plus accrued and unpaid interest to the redemption date. In addition, the Company may redeem some or all of the 2028 Notes prior to February 15, 2024 at a redemption price of 100% of the principal amount of the 2028 Notes, plus accrued and unpaid interest to the redemption date and a tenant improvement allowance“make-whole” premium.
15
At any time on or after February 15, 2024, the Company may redeem some or all of the 2028 Notes for cash at the following redemption prices:
| | | |
Redemption Periods | Percentage Premium | ||
February 15, 2024 to February 14, 2025 | 104.125 | % | |
February 15, 2025 to February 14, 2026 | 102.063 | % | |
February 15, 2026 and Thereafter | | 100.000 | % |
Prior Notes. On February 2, 2018, the Company sold $100 million of Prior Notes to qualified institutional buyers. On May 10, 2019, the Company sold an additional $10 million in aggregate principal amount of Prior Notes. Collectively, the Prior Notes were due to mature on February 2, 2024 and included quarterly principal payments as defined and interest based on the greater of the three-month London Interbank Offered Rate (“LIBOR”) or 1.0%, plus a margin rate of 7.0%.
The Prior Notes contained certain representations and warranties, events of default, and financial covenants that were more restrictive than the 2028 Notes. For example, the Company was required to maintain a total leverage ratio, which measured Consolidated EBITDA (as defined in the indenture) against outstanding debt. Due to the impact of the COVID-19 pandemic on the Company’s business operations in 2020, the Company executed amendments, and paid negotiated amendment fees, to delete the total leverage ratio covenant as of March 31, June 30, and September 30, 2020, among other items.
Revolving Credit Facility. On March 31, 2021, the Company entered into an agreement, which provides for a $15.0 million, senior secured five-year revolving credit facility and includes a letter of credit sub-facility (the “Credit Facility”). The Credit Facility may be used for working capital and other ongoing general purposes.
Until the completion of Chamonix, the interest rate per annum applicable to loans under the Credit Facility will be, at the Company’s option, either (i) LIBOR plus a margin equal to 3.50%, or (ii) a base rate plus a margin equal to 2.50%. After completion of Chamonix (as defined in the agreement), the interest rate per annum applicable to loans under the Credit Facility will be reduced to, at the Company’s option, either (i) LIBOR plus a margin equal to 3.00%, or (ii) a base rate plus a margin equal to 2.00%. The commitment fee per annum payable is equal to 0.50% of the unused portion of the Credit Facility. The Company began occupyinghas also agreed to pay customary letter of credit fees, if any such letters of credit are issued. The Credit Facility is available, subject to the new office spacesatisfaction of customary conditions, until March 31, 2026, at which time all amounts borrowed must be repaid. As of September 30, 2021, there were 0 drawn amounts under the Credit Facility or any outstanding letters of credit.
The Credit Facility is equally and ratably secured by the same assets and guarantees securing the 2028 Notes. The Company may make prepayments of any amounts outstanding under the Credit Facility (without any reduction of the revolving commitments) in June 2017. Duringwhole or in part at any time without penalty.
The Credit Facility contains a number of negative covenants that, subject to certain exceptions, are substantially similar to the thirdcovenants contained in the 2028 Notes. The Credit Facility also requires compliance with a financial covenant as of the last day of each fiscal quarter, such that Adjusted EBITDA (as defined) for the trailing twelve-month period must equal or exceed the utilized portion of the Credit Facility, if drawn. The Company was in compliance with this financial covenant as of September 30, 2021.
Unsecured Loans Under the CARES Act. On May 8, 2020, two wholly-owned subsidiaries of the Company terminatedexecuted promissory notes (the “Promissory Notes”) evidencing unsecured loans in the previous office spaceaggregate amount of $5,606,200 through programs established under the CARES Act (the “Loans”) and administered by the U.S. Small Business Administration (the “SBA”). Such funds were principally used to rehire several hundred employees at Rising Star and Bronco Billy’s in advance of, and subsequent to, their reopenings in mid-June. The Loans were made through Zions Bancorporation, N.A. dba Nevada State Bank (the “Lender”), bear interest at a rate of 1.00% per annum, and originally had a two-year term.
16
Legislation subsequently extended the original maturity dates to May 3, 2025 with no change to the annual interest rate. After a 15-month deferment period for principal and interest payments, the Company was to be required to make monthly loan payments totaling $128,557 beginning in September 2021. However, when the Company submitted its forgiveness application for the Loans, the deferment period was further extended. It will remain extended until the Company receives a formal decision from its Lender regarding forgiveness of the Loans. While management believes that the Loans should fully qualify for forgiveness, there is no certainty that any or all of such Loans will be forgiven. If not forgiven, the Loans may be prepaid at any time prior to maturity with no prepayment penalties.
6. COMMON STOCK WARRANT LIABILITY
On February 12, 2021, the Company used a portion of the proceeds from the 2028 Notes offering to redeem all of its outstanding warrants. As part of the Company’s former Second Lien Credit Facility, which was retired in 2018, the Company granted the second lien lenders 1,006,568 warrants. The settled repurchase price to redeem the warrants was $4.0 million.
The Company previously measured the fair value of the warrants at each reporting period. However, upon redemption of the warrants on February 12, 2021, the fair value was determined based on the negotiated repurchase price of $4.0 million. This resulted in a final incremental fair value adjustment of $1.3 million in the first quarter of 2021.
7. INCOME TAXES
The Company’s effective income tax rates for the three- and nine-months ended September 30, 2021 were 2.0% and 5.4%, respectively, compared to effective income tax rates of (1.2)% and 0.1% for the corresponding prior-year periods. The Company’s tax rates differ from the statutory rate of 21.0% primarily due to the effects of valuation allowances against net deferred tax assets, as well as certain permanent item differences between tax and financial reporting purposes.
8. COMMITMENTS AND CONTINGENCIES AND SUBSEQUENT EVENT
Litigation
The Company is party to a number of pending legal proceedings related to matters that occurred in the normal course of business. Management does not expect that the outcome of any such proceedings, either individually or in the aggregate, will have a material effect on the Company’s financial position, results of operations and cash flows.
Options to Lease Land
Option Agreement for Public Trust Tidelands Lease in Mississippi. The Company has been evaluating the potential construction of an additional hotel tower and related amenities at Silver Slipper, a portion of which would extend out over the adjoining Gulf of Mexico. In contemplation for such potential future expansion, the Company paid $5,000 for an option agreement – entered into by the Company on June 8, 2021 and approved by the Governor of Mississippi on July 13, 2021 – for a 30-year lease effective October 31, 2017of approximately a half-acre of tidelands, with a term extension for another 30 years, if exercised. This initial six-month option can be renewed for 3 additional six-month periods, with the payment of $5,000 for each extension. In November 2021, the Company paying twopaid an additional $5,000 to exercise its first six-month option extension through the end of May 2022.
Upon commencement of the lease, and for the first 18 months or until the beginning of the next six-month period after the opening of commercial operations on the leased premises, whichever occurs sooner, rent would be $10,000 for each six-month period (“Construction Rent”). Construction Rent would terminate no later than 18 months after the commencement of the lease. Thereafter, annual rent would be $105,300, with adjustments, based on the consumer price index on each anniversary. Before construction can commence, additional rent.entitlements are necessary, including certain environmental approvals. There can be no certainty that the tidelands lease option will be exercised or that the contemplated Silver Slipper expansion will be built.
17
Earnings (Loss) Per Share
The weighted-average number of common and common equivalent shares used in the calculation oftable below reconciles basic and diluted income (loss) per share consists of the following:
(In thousands) | Three Months Ended | Nine Months Ended | |||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||
Numerator: | |||||||||||||||
Net income (loss) attributable to Full House Resorts, Inc. - basic | $ | 789 | $ | 135 | $ | (1,338 | ) | $ | (2,596 | ) | |||||
Adjustment for assumed conversion of warrants | — | (181 | ) | — | — | ||||||||||
Net income (loss) attributable to Full House Resorts, Inc. - diluted | $ | 789 | $ | (46 | ) | $ | (1,338 | ) | $ | (2,596 | ) | ||||
Denominator: | |||||||||||||||
Weighted-average common share equivalents - basic | 22,891 | 19,689 | 22,877 | 19,666 | |||||||||||
Potential dilution from share-based awards | 772 | 195 | — | — | |||||||||||
Potential dilution from assumed conversion of warrants | — | 112 | — | — | |||||||||||
Weighted-average common and common share equivalents - diluted | 23,663 | 19,996 | 22,877 | 19,666 | |||||||||||
Anti-dilutive share-based awards and warrants excluded from the calculation of diluted earnings per share | 1,487 | 494 | 3,545 | 3,065 |
| | | | | | | | | | | | |
(In thousands) | | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Numerator: |
| |
|
| |
|
| |
|
| |
|
Net income (loss) ─ basic | | $ | 4,619 | | $ | 7,708 | | $ | 6,658 | | $ | (3,353) |
Adjustment for assumed conversion of warrants | | | — | | | — | | | — | | | (1,159) |
Net income (loss) ─ diluted | | $ | 4,619 | | $ | 7,708 | | $ | 6,658 | | $ | (4,512) |
| | | | | | | | | | | | |
Denominator: | |
|
| |
|
| |
|
| |
|
|
Weighted-average common and common share equivalents ─ basic | |
| 34,227 | |
| 27,106 | |
| 31,939 | |
| 27,087 |
Potential dilution from share-based awards | | | 2,409 | | | 358 | | | 2,400 | | | — |
Potential dilution from assumed conversion of warrants | |
| — | |
| — | |
| — | |
| 133 |
Weighted-average common and common share equivalents ─ diluted | |
| 36,636 | |
| 27,464 | |
| 34,339 | |
| 27,220 |
Anti-dilutive share-based awards and warrants excluded from the calculation of diluted loss per share | |
| 177 | |
| 2,360 | |
| 177 | |
| 3,534 |
Stockholders’ Equity
On March 29, 2021, the Company completed an underwritten public offering (the “Offering”) for a rights offering to existingtotal of 6,917,250 shares of its common stockholders. Because the rights issuance was offered to all existing stockholders at an exercise price that was less than the fairstock, par value of the stock, the weighted average shares outstanding and basic and diluted earnings$0.0001 per share (the “Common Stock”), which includes 902,250 shares of Common Stock sold pursuant to the underwriters’ exercise of an option to purchase additional shares of Common Stock to cover over-allotments. The price to the public in the Offering was $6.65 per share of Common Stock, and net proceeds were adjusted retroactivelyapproximately $43.0 million after deducting underwriting discounts, commissions and offering expenses. The Company intends to reflectuse the bonus element of the rightsnet proceeds from this offering for all periods presented. As a result, the Company retroactively adjusted the basic weighted average number of common shares outstanding from 19,018,809 to 19,689,332 for the three months ended September 30, 2016,general corporate purposes, including its current and from 18,995,279 to 19,665,686 for the nine months ended September 30, 2016.
10. SHARE-BASED COMPENSATION
On May 19, 2021, stockholders approved an amendment to the 2015 Equity Incentive Plan ("2015 Plan"(the “2015 Plan”) that increasedto increase the number of shares of common stock available for issuance underby 2,000,000 shares.
Restricted Stock Awards and Performance-Based Shares. On May 19, 2021, the 2015 Plan from 1,400,000 to 2,500,000. In
As of September 30, 2017, we2021, the Company had 1,037,9061,740,478 share-based awards authorized by shareholders and available for grant from the 2015 Plan.
18
The following table summarizes information related to ourthe Company’s common stock options as of September 30, 2017:
Number of Stock Options | Weighted Average Exercise Price | |||||
Options outstanding at January 1, 2017 | 2,057,950 | $ | 1.42 | |||
Granted | 479,990 | $ | 2.32 | |||
Exercised | — | n/a | ||||
Canceled/Forfeited | — | n/a | ||||
Options outstanding at September 30, 2017 | 2,537,940 | $ | 1.59 | |||
Options exercisable at September 30, 2017 | 1,295,996 | $ | 1.39 |
| | | | | |
|
| |
| Weighted | |
| | Number | | Average | |
| | of Stock | | Exercise | |
| | Options | | Price | |
Options outstanding at January 1, 2021 |
| 3,183,708 | | $ | 1.71 |
Granted |
| 315,620 | |
| 7.25 |
Exercised |
| (185,951) | |
| 2.00 |
Canceled/Forfeited |
| (76,333) | |
| 3.33 |
Expired |
| — | |
| — |
Options outstanding at September 30, 2021 |
| 3,237,044 | | $ | 2.19 |
Options exercisable at September 30, 2021 |
| 2,614,425 | | $ | 1.66 |
Share-based compensation expense totaled $128,000$324,000 and $95,000$121,000 for the three monthsthree-months ended September 30, 20172021 and 2016,2020, respectively, and $397,000$647,000 and $315,000$307,000 for the nine monthsnine-months ended September 30, 20172021 and 2016,2020, respectively. The expense for 2021 includes restricted shares issued to non-executive members of the Company’s Board of Directors as compensation for their annual service, and includes estimates for certain performance-based shares that were issued to the Company’s executives as noted above.
As of September 30, 2017,2021, there was approximately $0.8$1.7 million of unrecognized compensation cost related to unvested stock options previously granted that is expected to be recognized over a weighted averageweighted-average period of 1.4approximately 2.3 years.
11. SEGMENT REPORTING
The Company manages its reporting segments based on geographic regions within the United States.States and type of income. Those 5 segments, as of 2021, are: Mississippi, Indiana, Colorado, Nevada, and Contracted Sports Wagering. The casino/resortCompany’s management views the states where each of its casino resorts are located as operating segments, in addition to its contracted sports wagering segment. Operating segments are aggregated based on their similar economic characteristics, types of customers, types of services and products provided, the regulatory environments in which they operate, and their management and reporting structure. During the first quarter of 2021, since it is a significantly different business than its core casino business, the Company changed the aggregation of its operations include four segments: Silver Slipper Casinoto present Contracted Sports Wagering as a separate segment. This change of the reportable segments reflects realignment within the Company stemming from the expansion of the Company’s contracted on-site and Hotel (Hancock County, Mississippi); Rising Star Casino Resort (Rising Sun, Indiana); Bronco Billy's Casinoonline sports wagering skins. Additionally, this new segment breakout aims to enhance transparency of operations and Hotel (Cripple Creek, Colorado); andallows for a more appropriate valuation of the Northern Nevada segment, consisting of Grand Lodge Casino (Incline Village, Nevada) and Stockman’s Casino (Fallon, Nevada). Bronco Billy's Casino and Hotel was acquired on May 13, 2016.
The Company utilizes Adjusted PropertySegment EBITDA as the measure of segment profit in assessing performance and allocating resources at the reportable segment level. Adjusted PropertySegment EBITDA is defined as earnings before interest and other non-operating income (expense), taxes, depreciation and amortization, pre-openingpreopening expenses, impairment charges, asset write-offs, recoveries, gain (loss) from asset disposals, project development and acquisition costs, non-cash share-based compensation expense, and corporate-related costs and expenses that are not allocated to each property.
The following tables present the Company'sCompany’s segment information:
19
| | | | | | | | | | | | | | | | | | |
(In thousands) | | Three Months Ended September 30, 2021 | ||||||||||||||||
| | | | | | | | | | Contracted | | | ||||||
| | | | | | | | | | Sports | | | ||||||
| | Mississippi | | Indiana | | Colorado | | Nevada | | Wagering | | Total | ||||||
Revenues | | | | | | | | | | | | | | | | | | |
Casino | | $ | 14,578 | | $ | 7,906 | | $ | 5,288 | | $ | 4,734 | | $ | — | | $ | 32,506 |
Food and beverage | |
| 5,156 | |
| 891 | |
| 740 | |
| 305 | |
| — | |
| 7,092 |
Hotel | |
| 1,248 | |
| 990 | |
| 231 | |
| — | |
| — | |
| 2,469 |
Other operations, including contracted sports wagering | |
| 556 | |
| 2,799 | |
| 81 | |
| 93 | |
| 1,642 | |
| 5,171 |
| | $ | 21,538 | | $ | 12,586 | | $ | 6,340 | | $ | 5,132 | | $ | 1,642 | | $ | 47,238 |
| | | | | | | | | | | | | | | | | | |
Adjusted Segment EBITDA | | $ | 6,485 | | $ | 3,816 | | $ | 1,543 | | $ | 1,537 | | $ | 1,645 | | $ | 15,026 |
Other operating costs and expenses: | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | | |
| (1,819) |
Corporate expenses | | | | | | | | | | | | | | | | |
| (1,427) |
Project development costs | | | | | | | | | | | | | | | | |
| (318) |
Preopening costs | | | | | | | | | | | | | | | | | | (17) |
Loss on disposal of assets, net | | | | | | | | | | | | | | | | | | (2) |
Stock-based compensation | | | | | | | | | | | | | | | | | | (324) |
Operating income | | | | | | | | | | | | | | | | |
| 11,119 |
Other expense: | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | | | | | | | | | | | | | | |
| (6,405) |
Income before income taxes | | | | | | | | | | | | | | | | | | 4,714 |
Income tax provision | | | | | | | | | | | | | | | | |
| 95 |
Net income | | | | | | | | | | | | | | | | | $ | 4,619 |
20
(In thousands, unaudited) | |||||||||||||||
For the Three Months Ended, | For the Nine Months Ended, | ||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||
Net Revenues | |||||||||||||||
Silver Slipper Casino and Hotel | $ | 16,425 | $ | 14,987 | $ | 49,520 | $ | 44,326 | |||||||
Rising Star Casino Resort | 12,698 | 12,553 | 37,498 | 36,852 | |||||||||||
Bronco Billy's Hotel and Casino | 7,505 | 7,092 | 20,140 | 10,427 | |||||||||||
Northern Nevada Casinos | 7,098 | 6,629 | 16,309 | 16,199 | |||||||||||
$ | 43,726 | $ | 41,261 | $ | 123,467 | $ | 107,804 | ||||||||
Adjusted Property EBITDA | |||||||||||||||
Silver Slipper Casino and Hotel | $ | 3,054 | $ | 2,304 | $ | 9,013 | $ | 7,335 | |||||||
Rising Star Casino Resort | 728 | 751 | 2,671 | 2,483 | |||||||||||
Bronco Billy's Hotel and Casino | 1,769 | 1,610 | 4,092 | 2,698 | |||||||||||
Northern Nevada Casinos | 1,892 | 1,864 | 2,391 | 3,256 | |||||||||||
7,443 | 6,529 | 18,167 | 15,772 | ||||||||||||
Other operating (expenses) income: | |||||||||||||||
Depreciation and amortization | (2,193 | ) | (2,203 | ) | (6,428 | ) | (5,795 | ) | |||||||
Corporate expenses | (1,064 | ) | (889 | ) | (3,518 | ) | (3,165 | ) | |||||||
Project development and acquisition costs | (53 | ) | (130 | ) | (238 | ) | (902 | ) | |||||||
Gain (loss) on asset disposals, net | (12 | ) | (309 | ) | 2 | (309 | ) | ||||||||
Share-based compensation | (128 | ) | (95 | ) | (397 | ) | (315 | ) | |||||||
Operating income | 3,993 | 2,903 | 7,588 | 5,286 | |||||||||||
Other (expense) income: | |||||||||||||||
Interest expense | (2,718 | ) | (2,748 | ) | (8,102 | ) | (6,740 | ) | |||||||
Debt modification costs | — | (24 | ) | — | (624 | ) | |||||||||
Adjustment to fair value of warrants | (302 | ) | 181 | (272 | ) | (60 | ) | ||||||||
(3,020 | ) | (2,591 | ) | (8,374 | ) | (7,424 | ) | ||||||||
Income (loss) before income taxes | 973 | 312 | (786 | ) | (2,138 | ) | |||||||||
Provision for income taxes | 184 | 177 | 552 | 458 | |||||||||||
Net income (loss) | $ | 789 | $ | 135 | $ | (1,338 | ) | $ | (2,596 | ) |
| | | | | | | | | | | | | | | | | | |
(In thousands) | | Three Months Ended September 30, 2020 | ||||||||||||||||
| | | | | | | | | | Contracted | | | ||||||
| | | | | | | | | | Sports | | | ||||||
| | Mississippi | | Indiana | | Colorado | | Nevada | | Wagering | | Total | ||||||
Revenues | | | | | | | | | | | | | | | | | | |
Casino | | $ | 13,972 | | $ | 7,204 | | $ | 6,866 | | $ | 3,868 | | $ | — | | $ | 31,910 |
Food and beverage | |
| 4,231 | |
| 711 | |
| 505 | |
| 165 | |
| — | |
| 5,612 |
Hotel | |
| 1,303 | |
| 1,034 | |
| 174 | |
| — | |
| — | |
| 2,511 |
Other operations, including contracted sports wagering | |
| 460 | |
| 616 | |
| 88 | |
| 80 | |
| 679 | |
| 1,923 |
| | $ | 19,966 | | $ | 9,565 | | $ | 7,633 | | $ | 4,113 | | $ | 679 | | $ | 41,956 |
| | | | | | | | | | | | | | | | | | |
Adjusted Segment EBITDA | | $ | 6,495 | | $ | 2,082 | | $ | 3,116 | | $ | 1,032 | | $ | 631 | | $ | 13,356 |
Other operating costs and expenses: | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | | |
| (1,848) |
Corporate expenses | | | | | | | | | | | | | | | | | | (870) |
Project development costs | | | | | | | | | | | | | | | | |
| (108) |
Stock-based compensation | | | | | | | | | | | | | | | | |
| (121) |
Operating income | | | | | | | | | | | | | | | | |
| 10,409 |
Other expenses: | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | | | | | | | | | | | | | | |
| (2,391) |
Adjustment to fair value of warrants | | | | | | | | | | | | | | | | | | (403) |
| | | | | | | | | | | | | | | | | | (2,794) |
Income before income taxes | | | | | | | | | | | | | | | | | | 7,615 |
Income tax benefit | | | | | | | | | | | | | | | | |
| (93) |
Net income | | | | | | | | | | | | | | | | | $ | 7,708 |
21
(In thousands) | |||||||
September 30, 2017 | December 31, 2016 | ||||||
(unaudited) | |||||||
Total Assets | |||||||
Silver Slipper Casino and Hotel | $ | 80,830 | $ | 79,975 | |||
Rising Star Casino Resort | 37,066 | 36,444 | |||||
Bronco Billy's Hotel and Casino | 35,777 | 36,732 | |||||
Northern Nevada Casinos | 13,234 | 12,722 | |||||
Corporate and Other | 10,493 | 11,333 | |||||
$ | 177,400 | $ | 177,206 |
| | | | | | | | | | | | | | | | | | |
(In thousands) | | Nine Months Ended September 30, 2021 | ||||||||||||||||
| | | | | | | | | | Contracted | | | ||||||
| | | | | | | | | | Sports | | | ||||||
| | Mississippi | | Indiana | | Colorado | | Nevada | | Wagering | | Total | ||||||
Revenues | | | | | | | | | | | | | | | | | | |
Casino | | $ | 47,489 | | $ | 22,507 | | $ | 16,127 | | $ | 13,094 | | $ | — | | $ | 99,217 |
Food and beverage | |
| 15,411 | |
| 2,577 | |
| 1,777 | |
| 868 | |
| — | |
| 20,633 |
Hotel | |
| 3,687 | |
| 3,040 | |
| 463 | |
| — | |
| — | |
| 7,190 |
Other operations, including contracted sports wagering | |
| 1,546 | |
| 3,629 | |
| 259 | |
| 254 | |
| 4,160 | |
| 9,848 |
| | $ | 68,133 | | $ | 31,753 | | $ | 18,626 | | $ | 14,216 | | $ | 4,160 | | $ | 136,888 |
| | | | | | | | | | | | | | | | | | |
Adjusted Segment EBITDA | | $ | 23,097 | | $ | 7,615 | | $ | 5,092 | | $ | 4,173 | | $ | 4,122 | | $ | 44,099 |
Other operating costs and expenses: | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | | |
| (5,448) |
Corporate expenses | | | | | | | | | | | | | | | | | | (4,803) |
Project development costs | | | | | | | | | | | | | | | | |
| (491) |
Preopening costs | | | | | | | | | | | | | | | | | | (17) |
Loss on disposal of assets, net | | | | | | | | | | | | | | | | | | (674) |
Stock-based compensation | | | | | | | | | | | | | | | | |
| (647) |
Operating income | | | | | | | | | | | | | | | | |
| 32,019 |
Other expenses: | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | | | | | | | | | | | | | | |
| (17,531) |
Loss on extinguishment of debt | | | | | | | | | | | | | | | | |
| (6,104) |
Adjustment to fair value of warrants | | | | | | | | | | | | | | | | | | (1,347) |
| | | | | | | | | | | | | | | | | | (24,982) |
Income before income taxes | | | | | | | | | | | | | | | | | | 7,037 |
Income tax provision | | | | | | | | | | | | | | | | |
| 379 |
Net income | | | | | | | | | | | | | | | | | $ | 6,658 |
22
| | | | | | | | | | | | | | | | | | |
(In thousands) | | Nine Months Ended September 30, 2020 | ||||||||||||||||
| | | | | | | | | | Contracted | | | ||||||
| | | | | | | | | | Sports | | | ||||||
| | Mississippi | | Indiana | | Colorado | | Nevada | | Wagering | | Total | ||||||
Revenues | | | | | | | | | | | | | | | | | | |
Casino | | $ | 29,688 | | $ | 14,055 | | $ | 12,357 | | $ | 7,516 | | $ | — | | $ | 63,616 |
Food and beverage | |
| 10,666 | |
| 1,956 | |
| 1,360 | |
| 614 | |
| — | |
| 14,596 |
Hotel | |
| 2,833 | |
| 2,010 | |
| 361 | |
| — | |
| — | |
| 5,204 |
Other operations, including contracted sports wagering | |
| 994 | |
| 998 | |
| 170 | |
| 177 | |
| 1,565 | |
| 3,904 |
| | $ | 44,181 | | $ | 19,019 | | $ | 14,248 | | $ | 8,307 | | $ | 1,565 | | $ | 87,320 |
| | | | | | | | | | | | | | | | | | |
Adjusted Segment EBITDA | | $ | 9,526 | | $ | (769) | | $ | 2,448 | | $ | 79 | | $ | 1,467 | | $ | 12,751 |
Other operating costs and expenses: | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | | | | (5,868) |
Corporate expenses | | | | | | | | | | | | | | | | | | (2,899) |
Project development costs | | | | | | | | | | | | | | | | |
| (423) |
Loss on disposal of assets, net | | | | | | | | | | | | | | | | | | (439) |
Stock-based compensation | | | | | | | | | | | | | | | | |
| (307) |
Operating income | | | | | | | | | | | | | | | | |
| 2,815 |
Other (expense) income: | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | | | | | | | | | | | | | | |
| (7,329) |
Adjustment to fair value of warrants | | | | | | | | | | | | | | | | | | 1,159 |
| | | | | | | | | | | | | | | | | | (6,170) |
Loss before income taxes | | | | | | | | | | | | | | | | | | (3,355) |
Income tax benefit | | | | | | | | | | | | | | | | |
| (2) |
Net loss | | | | | | | | | | | | | | | | | $ | (3,353) |
| | | | | | |
(In thousands) | | September 30, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Total Assets | | | | | | |
Mississippi | | $ | 87,371 | | $ | 83,809 |
Indiana | |
| 37,447 | |
| 37,798 |
Colorado | |
| 242,068 | |
| 44,961 |
Nevada | |
| 14,004 | |
| 13,248 |
Contracted Sports Wagering | | | 1,084 | | | 1,329 |
Corporate and Other | |
| 88,118 | |
| 31,471 |
| | $ | 470,092 | | $ | 212,616 |
23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties. Please see “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions that may cause our actual results to differ materially from those discussed in the forward-looking statements. This discussion should be read in conjunction with our historical financial statements and related notes thereto and the other disclosures contained elsewhere in this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and notes for the fiscal year ended December 31, 2016,2020, which were included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission ("SEC"(“SEC”) on March 17, 2017.12, 2021. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods. Full House Resorts, Inc., together with its subsidiaries, may be referred to as “Full House”,House,” the “Company”, “we”,“Company,” “we,” “our” or “us”,“us,” except where stated or the context otherwise indicates.
Executive Overview
Our primary business is the ownership and/or operation of casino and related hospitality and entertainment facilities, which includes offering gaming,casino gambling, hotel accommodations, dining, golf, RV camping, sports betting, entertainment, and retail andoutlets, among other amenities. We currently own and/or operate five casino properties in four states -– Mississippi, Colorado, Indiana and Nevada.Nevada – and are constructing a sixth casino hotel in Colorado. We view our Mississippi Colorado and Indiana properties as distinct operating segments, both of our Colorado properties (including our under-construction Chamonix Casino Hotel project, “Chamonix”) as an operating segment, and both of our Nevada properties as onean operating segment.
During the following:
The following table identifies our five segments, along with properties and their locations:
| | | ||
Segments and Properties | | Locations | ||
Colorado | | | ||
Bronco Billy’s Casino and Hotel | Cripple Creek, CO (near Colorado Springs) | |||
Chamonix Casino Hotel (under construction) | | Cripple Creek, CO (near Colorado Springs) | ||
Indiana | | | ||
Rising Star Casino Resort | Rising Sun, IN (near Cincinnati) | |||
Mississippi | | | ||
Silver Slipper Casino and Hotel | Hancock County, MS | |||
Nevada | | | ||
Grand Lodge Casino | Incline Village, NV (North Shore of Lake Tahoe) | |||
Stockman’s Casino | Fallon, NV (one hour east of Reno) | |||
Contracted Sports Wagering | | | ||
Three sports wagering websites (“skins”), all operating | | Colorado | ||
Three sports wagering websites (“skins”), two in operation | | Indiana |
Our financial results are dependent upon the number of patrons that we attract to our properties and the amounts those guests spend per visit. While we do provide credit at some of our casinos where we are permitted to by gaming regulations, most of our revenues are cash-based, through customers wagering with cash or paying for non-gaming services with cash or credit cards. Our revenues are primarily derived from gaming activities, which include slot machines, but also include table games, keno, and keno.sports betting. In addition, we derive a significant amount of revenue from our hotels and our food and beverage outlets. We also derive revenues from our golf course (atat Rising Star, Casino Resort),our recreational vehicle parks (“RV parks”) as owned at Rising Star and managed at Silver Slipper, our ferry service at Rising Star, and retail outlets and entertainment, and expect to derive additional revenues from our newly constructed projects as further described herein. Promotional allowances consist primarily ofentertainment. We often provide hotel rooms, and food and beverages, furnished
24
entertainment, ferry usage, and golf privileges to customers on a complimentary basis. The retailbasis; the value of such services isare included as revenue in those categories, offset by contra-revenue in the respectivecasino revenue classificationscategory. As a result, the casino revenues in our financial statements reflect patron gaming wins and is then deducted as promotional allowanceslosses, reduced by the retail value of complimentary services, the value of free play provided to calculate net revenues. customers, the value of points earned by casino customers that can be redeemed for services or free play, and accruals for certain progressive jackpots offered by the Company.
We may experience significant fluctuations in our quarterly operating results due to seasonality, variations in gaming hold percentages and other factors. Consequently, our operating results for any quarter or year are not necessarily comparable and may not be indicative of future periods’ results.
Our market environment is capital-intensive,highly competitive and capital-intensive. Nevertheless, there are significant restrictions and barriers to entry vis-à-vis opening new casinos in most of the markets in which we operate. We rely on the ability of our properties to generate operating cash flow to pay interest, repay debt, and fund maintenance and certain growth-related capital expenditures. We continuously focus on improving the operating margins of our existing properties through a combination of revenue growth and expense management. We also assess growth and development opportunities, which include capital investments at our existing properties, the development of new properties, and the acquisition of existing properties.
Recent Developments
COVID-19 Pandemic Update. In March 2020, the World Health Organization declared the outbreak of the novel coronavirus as a pandemic (“COVID-19”). Although COVID-19 continues to spread throughout the U.S. and the world, vaccines designed to inhibit the severity and the spread of COVID-19 are now being distributed. As a result, the number of newly-reported cases has declined in the U.S. in recent weeks, though new variants could result in a reversal of these trends. For example, the Delta variant of COVID-19 resulted in large increases in the number of COVID-19 cases as it spread globally. COVID-19 has resulted in the implementation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, business restrictions, closing of borders, “shelter-in-place” orders and business closures. In March 2020, pursuant to state government orders to prevent the spread of COVID-19, we temporarily closed all of our casino properties. As a result, we experienced a material decline in our revenues until our properties reopened when permitted by local authorities in May and June 2020.
During the shutdown period, we evaluated labor, marketing and other costs at our businesses so that, upon reopening, our properties could reopen with significantly lower operating costs. As a result, our operating performance since reopening in mid-2020 has been stronger than pre-pandemic levels, despite capacity restrictions throughout our casinos and in our restaurants and certain pandemic-related costs. The extent to which our financial and operating results in future periods may be affected by COVID-19, including the Delta or other variants, will largely depend on future developments, which are highly uncertain and cannot be accurately predicted at this time. Significant uncertainties include the ability to operate; new information which may emerge concerning new strains of COVID-19 and their severity; vaccination rates among the population; the effectiveness of COVID-19 vaccines against variants; any additional actions imposed by governmental authorities (including the potential mandated vaccination or repeated testing of our employees) to contain or minimize the impact of COVID-19 and any variants; increased operating costs and capacity restrictions as a result of COVID-19; increased costs for materials due to supply chain constraints; and general economic conditions, among others.
The disruptions arising from COVID-19 continued to impact us during the nine-months ended September 30, 2021. The duration and intensity of this global health emergency and related disruptions are uncertain. While each of our properties are currently open and operating restrictions continued to ease during the third quarter of 2021, the current economic and regulatory environment in each of our jurisdictions continues to evolve. For example, mask mandates for all employees and guests were re-introduced at our Nevada properties in July 2021 in compliance with recent orders from Nevada state government officials and, in November 2021, new national rules were announced that would require employers with more than 100 employees to ensure their workers are vaccinated against COVID-19 or undergo weekly testing. The manner in which governments will react as the global and regional impact of the COVID-19 pandemic changes over time is uncertain, and such actions could significantly alter our current operations.
25
Debt Refinancing.On February 12, 2021, we issued $310 million of new 2028 Notes. The proceeds were used to redeem all $106.8 million of our senior secured notes due 2024 (the “Prior Notes”) and to repurchase all outstanding warrants. Additionally, $180 million of bond proceeds were placed in a construction reserve account to fund our Chamonix project, including designing, developing, constructing, equipping and opening the project. Proceeds were also used to pay the transaction fees and expenses related to the offering, leaving approximately $8 million added to our unrestricted cash balances.
On March 31, 2021, we entered into a credit agreement among Full House Resorts, Inc., as borrower, the lenders party thereto, and Capital One, National Association, as administrative agent. The credit agreement provides for a $15.0 million, five-year, senior secured revolving credit facility and includes a letter of credit sub-facility, which may be used for working capital and other ongoing general purposes.
Underwritten Equity Offering. On March 29, 2021, pursuant to an underwritten public offering (the “Equity Offering”), we issued an aggregate of 6,917,250 shares of our common stock, par value $0.0001 per share (the “Common Stock”), including 902,250 shares of Common Stock sold pursuant to the Representative’s exercise of a “greenshoe” option to purchase additional shares of Common Stock to cover over-allotments. The price to the public in the Equity Offering was $6.65 per share of Common Stock. The gross proceeds to the Company were approximately $46.0 million, before deducting underwriting discounts and commissions and our estimated offering expenses. We intend to use the net proceeds from the Equity Offering for development, working capital and general corporate purposes.
Chamonix Casino Hotel Project. In 2018, we began planning and design work on Chamonix, a new and distinct luxury hotel and casino located adjacent to our existing Bronco Billy’s casino. Reflecting changes made to the state’s gaming laws in November 2020, including the elimination of betting limits and the approval of new table games, we increased the size of the Chamonix plans by 67% to approximately 300 luxury guest rooms and suites, from our previously-planned 180 guest rooms. Such plans were approved by the Cripple Creek Historic Preservation Commission and Cripple Creek City Council in January and February 2021.
We recently completed the major portion of the on-site utility work, and are currently installing footings and structural walls for the hotel towers. Vertical construction is expected to commence within the coming weeks. The three principal guestroom towers are anticipated to “top out” between April and August 2022. The project includes a new casino, approximately 300 luxury guest rooms and suites, parking garage, meeting and entertainment space, outdoor rooftop pool, spa, and fine-dining restaurant. It is still relatively early in the construction process, so estimates of cost and completion dates still contain substantial uncertainty. While the price and availability of construction materials and labor have been volatile due to COVID-19-related supply chain issues, tariffs, and other factors, we are in the process of completing the bidding for a substantial portion of the construction budget, which reduces such uncertainty.
We anticipate requesting an amendment to our development agreement with the City of Cripple Creek to allow for the project’s completion as late as July 15, 2023, versus the current date in such agreement of December 31, 2022. We believe that such request will be facilitated, although there is no certainty that this will be the case.
The development plan for our Chamonix site allows us to add an additional hotel wing at some future date. That additional wing, if constructed, would increase the total capacity of our hotel by 23%, to approximately 370 guestrooms. Such addition requires approvals from the Cripple Creek Historic Preservation Commission and Cripple Creek City Council. There can be no assurance that we will obtain such approvals and choose to further expand our Chamonix project. Management recently decided to defer consideration of such expansion until after the completion of Chamonix’s construction.
Sports Wagering in Colorado and Indiana. Under state laws, we are permitted a total of six sports wagering “skins,” three in Colorado and three in Indiana. As of March 31, 2021, three of our six sports wagering skins had commenced operations. The fourth and fifth skins commenced operations on April 1and April 23, 2021, respectively. We believe that the Company’s last remaining skin will commence operations in the coming months. We receive a percentage of defined revenues of each skin, subject to annual minimums. When all six skins are in operation, we should receive a contractual minimum of $7 million per year of sports gaming revenues, with minimal related expenses.
26
Terre Haute Proposal (American Place in Indiana). In September 2021, in response to an application process launched by the Indiana Gaming Commission (“IGC”), we submitted a proposal for a gaming and entertainment destination for Terre Haute, Indiana. Named “American Place,” it would be developed on 32 acres of land that we currently have under contract. The site is located approximately one hour west of Indianapolis and within 100 miles of Champaign-Urbana and Decatur, Illinois, as well as Lafayette, Indiana. It is highly visible from Interstate 70 and convenient to the I-70/SR 46 interchange.
Our proposed design is unique in several respects. The four-star, 100-room hotel will be elevated above an interior greenscape, in a shape resembling a “happy smile.” The hotel will appear to float above a fountain that will surround its base. This design will allow a majority of the guest rooms to be located on upper levels and to enjoy extended views. Atop the hotel will be a pool deck and restaurant, featuring sushi and robata grill entrees, overlooking the Wabash Valley. Along the busy neighboring freeway, we plan to build a large greenhouse, offering a lush interior environment. Within the greenhouse, the project would have two restaurants that offer “outdoor” dining, even in winter, as well as venues for weddings and other group events. The world-class casino would be located between the hotel and the greenhouse and offer approximately 1,000 slot machines, 50 table games, and a state-of-the-art sportsbook. Atop the casino, we have planned for a solar energy farm, which would provide green, sustainable energy for a portion of the complex’s electrical needs.
We are slated to present our American Place proposal to the IGC on November 17. The IGC has indicated that it expects to select its favored proposal from the four submittals on that same day. If awarded the gaming license, we have proposed to operate a temporary casino during construction of the larger permanent facility, subject to IGC approval. However, we can provide no assurances as to the timing or certainty that our project will be chosen by the IGC for the available gaming license in Terre Haute.
Waukegan Proposal (American Place in Illinois). In October 2019, we submitted a proposal to the Illinois Gaming Board (“IGB”) to develop and operate a casino and entertainment destination in Waukegan, Illinois, also to be named American Place. It would include a world-class casino with a state-of-the-art sports book; a premium boutique hotel comprised of 20 villas, each ranging from 1,500 to 2,500 square feet with full butler service; a 1,500-seat live entertainment venue; a gourmet restaurant; additional eateries and bars; and other amenities designed to attract gaming and non-gaming patrons from throughout Chicagoland and beyond. A second phase of American Place is expected to include a four-star hotel with 150 rooms.
We are one of two finalists, each of which presented the merits of its Waukegan proposal to the IGB in October 2021. The IGB has indicated that it expects to select its favored developer for the Waukegan gaming license by early January 2022. If selected, we intend to operate a temporary casino during construction of the larger permanent facility. However, we can provide no assurances as to the timing or certainty that our project will be chosen by the IGB for the available gaming license in Waukegan.
Key Performance Indicators
We use several key performance indicators to evaluate the operations of our properties. These key operating measures are presented as supplemental disclosures because management uses these measures to better understand period-over-period fluctuations in our casino and hotel operating revenues. These key performance indicators include the following:
Gaming revenue indicators:
Slot coin-in is the gross dollar amount wagered in slot machines and table game drop is the total amount of cash or credit exchanged into chips at table games for use by our customers. Slot coin-in and table game drop are indicators of volume.
Slot win is the difference between customer wagers and customer winnings on slot machines. Table game hold is the difference between the amount of money or markers exchanged into chips at the tables and customer winnings paid. Slot win and table game hold percentages represent the relationship between slot win and coin-in and table game win and drop. Both the win/hold and win/hold percentages are monitored on a consolidated basis in our evaluation of Company performance.
27
Room revenue indicators:
Hotel occupancy rate is an indicator of the utilization of our available rooms. Complimentary room sales, or the retail value of accommodations gratuitously furnished to customers, are included in the calculation of the hotel occupancy rate.
Adjusted EBITDA, Adjusted PropertySegment EBITDA and Adjusted PropertySegment EBITDA Margin:
Management uses Adjusted EBITDA as a measure of the Company'sour performance. For a description of Adjusted EBITDA, see "Non-GAAP“Non-GAAP Financial Measure". The Company utilizesMeasure.” We utilize Adjusted PropertySegment EBITDA, a financial measure in accordance with generally accepted accounting principles in the United States of America (“GAAP”), as the measure of segment profit in assessing performance and allocating resources at the reportable segment level. For information regarding our operating segments, see Note 1011 of our Condensed Notes to Consolidated Financial Statements included in this quarterly report. In addition, we use Adjusted PropertySegment EBITDA Margin, which is calculated by dividing Adjusted PropertySegment EBITDA by the property's netsegment’s total revenues.
Results of Operations
Consolidated operating results
The following summarizestables summarize our consolidated operating results for the three- and nine-months ended September 30, 20172021 and 2016:2020:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | Nine Months Ended | | | | ||||||||
(In thousands) | | September 30, | | Increase / | | September 30, | | | ||||||||||
|
| 2021 |
| 2020 |
| (Decrease) |
| 2021 |
| 2020 |
| Increase | ||||||
Revenues | | $ | 47,238 | | $ | 41,956 |
| 12.6 | % | | $ | 136,888 | | $ | 87,320 |
| 56.8 | % |
Operating expenses | |
| 36,119 | |
| 31,547 |
| 14.5 | % | |
| 104,869 | |
| 84,505 |
| 24.1 | % |
Operating income | |
| 11,119 | |
| 10,409 |
| 6.8 | % | |
| 32,019 | |
| 2,815 |
| 1,037.4 | % |
Interest and other non-operating expenses, net | |
| 6,405 | |
| 2,794 |
| 129.2 | % | |
| 24,982 | |
| 6,170 |
| 304.9 | % |
Income tax provision (benefit) | |
| 95 | |
| (93) |
| 202.2 | % | |
| 379 | |
| (2) |
| 19,050.0 | % |
Net income (loss) | | $ | 4,619 | | $ | 7,708 |
| (40.1) | % | | $ | 6,658 | | $ | (3,353) |
| 298.6 | % |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | Nine Months Ended | | | | ||||||||
(In thousands) | | September 30, | | Increase / | | September 30, | | | ||||||||||
|
| 2021 |
| 2020 |
| (Decrease) |
| 2021 |
| 2020 |
| Increase | ||||||
Casino revenues | | | | | | | | | | | | | | | | | | |
Slots | | $ | 28,627 | | $ | 27,896 |
| 2.6 | % | | $ | 86,243 | | $ | 55,142 |
| 56.4 | % |
Table games | |
| 3,336 | |
| 3,612 |
| (7.6) | % | |
| 10,717 | |
| 7,437 |
| 44.1 | % |
Other | |
| 543 | |
| 402 |
| 35.1 | % | |
| 2,257 | |
| 1,037 |
| 117.6 | % |
| |
| 32,506 | |
| 31,910 |
| 1.9 | % | |
| 99,217 | |
| 63,616 |
| 56.0 | % |
| | | | | | | | | | | | | | | | | | |
Non-casino revenues, net | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
Food and beverage | |
| 7,092 | |
| 5,612 |
| 26.4 | % | |
| 20,633 | |
| 14,596 |
| 41.4 | % |
Hotel | |
| 2,469 | |
| 2,511 |
| (1.7) | % | |
| 7,190 | |
| 5,204 |
| 38.2 | % |
Other | |
| 5,171 | |
| 1,923 |
| 168.9 | % | |
| 9,848 | |
| 3,904 |
| 152.3 | % |
| |
| 14,732 | |
| 10,046 |
| 46.6 | % | |
| 37,671 | |
| 23,704 |
| 58.9 | % |
Total revenues | | $ | 47,238 | | $ | 41,956 |
| 12.6 | % | | $ | 136,888 | | $ | 87,320 |
| 56.8 | % |
28
(In thousands) | Three Months Ended September 30, | Percent Change | Nine Months Ended September 30, | Percent Change | |||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||||
Net revenues | $ | 43,726 | $ | 41,261 | 6.0 | % | $ | 123,467 | $ | 107,804 | 14.5 | % | |||||||||
Operating expenses | 39,733 | 38,358 | 3.6 | % | 115,879 | 102,518 | 13.0 | % | |||||||||||||
Operating income | 3,993 | 2,903 | 37.5 | % | 7,588 | 5,286 | 43.5 | % | |||||||||||||
Interest and other non-operating expenses | 3,020 | 2,591 | 16.6 | % | 8,374 | 7,424 | 12.8 | % | |||||||||||||
Income tax expense | 184 | 177 | 4.0 | % | 552 | 458 | 20.5 | % | |||||||||||||
Net income (loss) | $ | 789 | $ | 135 | 484.4 | % | $ | (1,338 | ) | $ | (2,596 | ) | (48.5 | )% |
(In thousands) | Three Months Ended September 30, | Percent Change | Nine Months Ended September 30, | Percent Change | |||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||||
Casino revenues | |||||||||||||||||||||
Slots | $ | 33,862 | $ | 32,372 | 4.6 | % | $ | 96,028 | $ | 83,711 | 14.7 | % | |||||||||
Table games | 5,022 | 4,513 | 11.3 | % | 14,330 | 13,098 | 9.4 | % | |||||||||||||
Other | 125 | 82 | 52.4 | % | 344 | 284 | 21.1 | % | |||||||||||||
39,009 | 36,967 | 5.5 | % | 110,702 | 97,093 | 14.0 | % | ||||||||||||||
Non-casino revenues, net | |||||||||||||||||||||
Food and beverage | 3,283 | 2,860 | 14.8 | % | 9,147 | 7,235 | 26.4 | % | |||||||||||||
Hotel | 568 | 521 | 9.0 | % | 1,309 | 1,254 | 4.4 | % | |||||||||||||
Other | 866 | 913 | (5.1 | )% | 2,309 | 2,222 | 3.9 | % | |||||||||||||
4,717 | 4,294 | 9.9 | % | 12,765 | 10,711 | 19.2 | % | ||||||||||||||
Total net revenues | $ | 43,726 | $ | 41,261 | 6.0 | % | $ | 123,467 | $ | 107,804 | 14.5 | % |
The following discussion is based on our consolidated financial statements for the three- and nine-months ended September 30, 20172021 and 2016. The results of Bronco Billy's is included beginning May 13, 2016, subsequent to the beginning2020. Because all of the prior yearCompany’s operations were temporarily closed for several months during the 2020 period, the comparisons for the nine-month comparative period.
● | Silver Slipper Casino and Hotel ― closed from March 16, 2020 until May 21, 2020 |
● | Grand Lodge Casino and Stockman’s Casino ― closed from March 17, 2020 until June 4, 2020 |
● | Bronco Billy’s Casino and Hotel ― closed from March 17, 2020 until June 15, 2020 |
● | Rising Star Casino Resort ― closed from March 16, 2020 until June 15, 2020. |
Revenues.
ConsolidatedConsolidated total revenues for the nine-months ended September 30, 2021 reflect a gradual relaxation of pandemic-related restrictions since our reopening in mid-2020, after approximately three months of closure due to the pandemic. Growth during this nine-month period was due to stronger operational performance at Silver Slipper, our sale of “free play” at Rising Star, and the commencement of three additional Sports Agreements (compared to two that were live in the prior-year period). “Other Non-casino Revenues” includes $4.2 million of revenue related to our contracted sports wagering agreements for the nine-months ended September 30, 2021, compared to $1.6 million in the prior-year period. See “Operating Results – Reportable Segments” below for details.
Operating Expenses. Consolidated operating expenses for the three- and nine-months ended September 30, 2021 increased from the prior-year periods, as our workforce was temporarily and dramatically reduced in size for several months during the 2020 closure period. Upon reopening, we improved operating efficiencies at all of our properties, including 9.6% at Silver Slipper, 7.1% in Northern Nevada and 5.8% at Bronco Billy's.
See further information within our reportable segments
described below.Interest and Other Non-Operating Expenses.
Interest Expense
Interest expense consists of the following:
| | | | | | | | | | | | |
(In thousands) | | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Interest cost (excluding loan fee amortization) | | $ | 6,557 | | $ | 2,269 | | $ | 17,557 | | $ | 7,141 |
Amortization of debt issuance costs and discount | |
| 357 | |
| 330 | |
| 991 | |
| 827 |
Capitalized interest | |
| (509) | |
| (208) | |
| (1,017) | |
| (639) |
| | $ | 6,405 | | $ | 2,391 | | $ | 17,531 | | $ | 7,329 |
29
(In thousands) | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Interest cost (excluding loan fee amortization) | $ | 2,573 | $ | 2,523 | $ | 7,518 | $ | 5,901 | |||||||
Amortization of debt costs | 222 | 225 | 661 | 839 | |||||||||||
Capitalized interest | (77 | ) | — | (77 | ) | — | |||||||||
$ | 2,718 | $ | 2,748 | $ | 8,102 | $ | 6,740 |
The increaseincreases in interest costexpense for the three- and nine-month period wasperiods were primarily due to thean increase in our debt refinancing completed on May 13, 2016, which resulted in $35levels. In February 2021, we refinanced approximately $106.8 million of additionalthe Prior Notes with $310.0 million of new 2028 Notes for, among other reasons, the funding of our Chamonix project, as discussed under “Recent Developments.” The interest rate on the Prior Notes was LIBOR plus 7 percentage points, with a 1% LIBOR floor, resulting in a floating rate of interest that was near the fixed rate coupon of 8.25% on our new debt. The new debt used primarily to fundalso has a significantly longer term and fewer covenants than the purchase of Bronco Billy's.
Other Non-Operating Expenses, Net
For the three-month periodsperiod ended September 30, 2017 and September 30, 2016, the Company had $0.3 million of2021, we have no other non-operating expense and $0.2 million of non-operating income, respectively, due to the change in fair value of the stock warrants. Foritems. Such amount for the nine-month period ended September 30, 2017, we incurred $0.32021 totaled $7.5 million, including $6.1 million related to the extinguishment of non-operatingour Prior Notes and $1.3 million for the fair value adjustment to our outstanding warrants, which were repurchased in February 2021. The fair value adjustment reflected an increase in the warrant expense from $2.7 million at December 31, 2020, when the changeCompany’s stock traded at lower prices, to their actual repurchase price of $4.0 million. For the prior-year’s nine-month period, non-operating expenses included a non-cash benefit of $1.2 million for the fair value adjustment of the warrants. While the warrants were outstanding, increases in fairour share price resulted in increases in the value of the stock warrants; this amount compares to $0.7 million incurred duringwarrants, causing non-cash expense. Conversely, decreases in our share price resulted in decreases in the prior-year period,value of the decrease resulting primarily from debt modification costs associated with the debt refinancing during 2016.
Income Tax Expense.
We do not expect to pay any federal income taxes or receive any federal tax refunds related to our 20172021 results. TaxAs we have incurred significant losses incurred in 2017 may shelterprior periods, we anticipate current-year taxable income will be offset by tax loss carryforwards from prior years. Due in future years. However, becausepart to recent profit trends, we continue to evaluate the realizability of the level of uncertainty regarding sufficient prospective income, we maintainour deferred tax assets and need for a valuation allowance against our remaining deferred tax assets, as mentioned above.
Operating Results – Reportable Segments
We manage our casinos based primarily on geographic regions within the United States. Accordingly, Stockman’s CasinoStates and Grand Lodge Casino comprisetype of income. For more information, please refer to our Northern Nevada business segment, while Silver Slipper Casino and Hotel, Rising Star Casino Resort and Bronco Billy's Casino and Hotel are each currently distinct segments.
The following table presents detail by segment of our consolidated net revenuerevenues and Adjusted EBITDA. ManagementEBITDA; see “Non-GAAP Financial Measure” for additional information. Additionally, management uses Adjusted PropertySegment EBITDA as the measure of segment profit.profit in accordance with GAAP.
30
| | | | | | | | | | | | | | | | | | |
(In thousands) | | Three Months Ended | | |
| | Nine Months Ended | | |
| ||||||||
| | September 30, | | Increase / | | September 30, | | | ||||||||||
|
| 2021 |
| 2020 |
| (Decrease) |
| 2021 |
| 2020 |
| Increase | ||||||
Revenues |
| |
|
| |
|
|
| |
| |
|
| |
|
|
| |
Mississippi |
| $ | 21,538 | | $ | 19,966 |
| 7.9 | % | | $ | 68,133 | | $ | 44,181 |
| 54.2 | % |
Indiana |
|
| 12,586 | |
| 9,565 |
| 31.6 | % | |
| 31,753 | |
| 19,019 |
| 67.0 | % |
Colorado |
|
| 6,340 | |
| 7,633 |
| (16.9) | % | |
| 18,626 | |
| 14,248 |
| 30.7 | % |
Nevada |
|
| 5,132 | |
| 4,113 |
| 24.8 | % | |
| 14,216 | |
| 8,307 |
| 71.1 | % |
Contracted Sports Wagering | | | 1,642 | | | 679 | | 141.8 | % | | | 4,160 | | | 1,565 | | 165.8 | % |
|
| $ | 47,238 | | $ | 41,956 |
| 12.6 | % | | $ | 136,888 | | $ | 87,320 |
| 56.8 | % |
Adjusted Segment EBITDA and Adjusted EBITDA |
|
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
Mississippi |
| $ | 6,485 | | $ | 6,495 |
| (0.2) | % | | $ | 23,097 | | $ | 9,526 |
| 142.5 | % |
Indiana |
|
| 3,816 | |
| 2,082 |
| 83.3 | % | |
| 7,615 | |
| (769) |
| 1,090.2 | % |
Colorado |
|
| 1,543 | |
| 3,116 |
| (50.5) | % | |
| 5,092 | |
| 2,448 |
| 108.0 | % |
Nevada |
|
| 1,537 | |
| 1,032 |
| 48.9 | % | |
| 4,173 | |
| 79 |
| 5,182.3 | % |
Contracted Sports Wagering(1) | | | 1,645 | | | 631 | | 160.7 | % | | | 4,122 | | | 1,467 | | 181.0 | % |
Adjusted Segment EBITDA |
|
| 15,026 | |
| 13,356 |
| 12.5 | % | |
| 44,099 | |
| 12,751 |
| 245.8 | % |
Corporate |
|
| (1,427) | |
| (870) |
| 64.0 | % | |
| (4,803) | |
| (2,899) |
| 65.7 | % |
Adjusted EBITDA |
| $ | 13,599 | | $ | 12,486 |
| 8.9 | % | | $ | 39,296 | | $ | 9,852 |
| 298.9 | % |
| | | | | | | | | | | | | | | | | | |
Adjusted Segment EBITDA Margin | | | | | | | | | | | | | | | | | | |
Mississippi | | | 30.1 | % | | 32.5 | % | (2.4) | pts | | | 33.9 | % | | 21.6 | % | 12.3 | pts |
Indiana | | | 30.3 | % | | 21.8 | % | 8.5 | pts | | | 24.0 | % | | (4.0) | % | 28.0 | pts |
Colorado | | | 24.3 | % | | 40.8 | % | (16.5) | pts | | | 27.3 | % | | 17.2 | % | 10.1 | pts |
Nevada | | | 29.9 | % | | 25.1 | % | 4.8 | pts | | | 29.4 | % | | 1.0 | % | 28.4 | pts |
Contracted Sports Wagering(1) | | | 100.2 | % | | 92.9 | % | 7.3 | pts | | | 99.1 | % | | 93.7 | % | 5.4 | pts |
__________
(1) | Includes nominal reimbursements of related expenses from third-party providers during the quarter ended September 30, 2021. |
The following table summarizes the consolidated results of our casino activity by key performance indicators as previously defined:
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| | Nine Months Ended | | |
| ||||||||||||
| September 30, | | Increase / | | September 30, | | | ||||||||||||||
(In thousands) | 2021 | | 2020 | | (Decrease) |
| 2021 | | 2020 | | Increase | ||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Slot coin-in | $ | 505,673 | | | $ | 468,958 | | | 7.8 | % | | $ | 1,212,661 | | | $ | 879,975 | | | 37.8 | % |
Slot win | $ | 37,770 | | | $ | 35,289 | | | 7.0 | % | | $ | 94,636 | | | $ | 65,669 | | | 44.1 | % |
Slot hold percentage(1) | | 7.5 | % | | | 7.5 | % | | — | pts | | | 7.8 | % | | | 7.5 | % | | 0.3 | pts |
Table game drop | $ | 21,422 | | | $ | 20,769 | | | 3.1 | % | | $ | 45,497 | | | $ | 40,516 | | | 12.3 | % |
Table game win | $ | 3,397 | | | $ | 3,665 | | | (7.3) | % | | $ | 8,464 | | | $ | 6,545 | | | 29.3 | % |
Table game hold percentage(1) | | 15.9 | % | | | 17.6 | % | | (1.7) | pts | | | 18.6 | % | | | 16.2 | % | | 2.4 | pts |
__________
(1) | The three-year averages for slot hold percentage and table game hold percentage were 7.5% and 17.8%, respectively. |
31
(In thousands) | Three Months Ended September 30, | Percent Change | Nine Months Ended September 30, | Percent Change | |||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||||
Net revenues | |||||||||||||||||||||
Silver Slipper Casino and Hotel | $ | 16,425 | $ | 14,987 | 9.6 | % | $ | 49,520 | $ | 44,326 | 11.7 | % | |||||||||
Rising Star Casino Resort | 12,698 | 12,553 | 1.2 | % | 37,498 | 36,852 | 1.8 | % | |||||||||||||
Bronco Billy's Casino and Hotel | 7,505 | 7,092 | 5.8 | % | 20,140 | 10,427 | N/A | ||||||||||||||
Northern Nevada Casinos | 7,098 | 6,629 | 7.1 | % | 16,309 | 16,199 | 0.7 | % | |||||||||||||
$ | 43,726 | $ | 41,261 | 6.0 | % | $ | 123,467 | $ | 107,804 | 14.5 | % | ||||||||||
Adjusted Property EBITDA and Adjusted EBITDA | |||||||||||||||||||||
Silver Slipper Casino and Hotel | $ | 3,054 | $ | 2,304 | 32.6 | % | $ | 9,013 | $ | 7,335 | 22.9 | % | |||||||||
Rising Star Casino Resort | 728 | 751 | (3.1 | )% | 2,671 | 2,483 | 7.6 | % | |||||||||||||
Bronco Billy's Casino and Hotel | 1,769 | 1,610 | 9.9 | % | 4,092 | 2,698 | N/A | ||||||||||||||
Northern Nevada Casinos | 1,892 | 1,864 | 1.5 | % | 2,391 | 3,256 | (26.6 | )% | |||||||||||||
Adjusted Property EBITDA | 7,443 | 6,529 | 14.0 | % | 18,167 | 15,772 | 15.2 | % | |||||||||||||
Corporate | (1,064 | ) | (889 | ) | 19.7 | % | (3,518 | ) | (3,165 | ) | 11.2 | % | |||||||||
Adjusted EBITDA | $ | 6,379 | $ | 5,640 | 13.1 | % | $ | 14,649 | $ | 12,607 | 16.2 | % |
Mississippi
Our Mississippi segment consists of the Silver Slipper Casino and Hotel
For the three-months ended September 30, 2017 compared to the prior-year periods were attributed to successful marketing and food and beverage promotions that resulted in increases in both customer
Casino revenue increased 15.1%4.3% and 2.5% for the three- and nine-month periods, with the increase for the three-month period primarily due to a higher hold percentage. Non-gaming net revenues (principally food and beverage revenues) grew 27.6% during the quarter and 29.3% during the nine-month period due to certain promotions offered by the property and the opening of a new restaurant in July 2017. Our hotel occupancy was 89.3% compared to 88.0% in the prior-year nine-month period. The growth was achieved despite Hurricanes Harvey and Irma, which were in the Gulf of Mexico and came ashore to the west and east of the property, respectively. The storms did not affect the property directly, but caused weak periods during the quarter, as customers were distracted by the potential storm routes. Flooding in parts of Louisiana similarly affected results in the prior-year period.
Non-casino revenue increased by 16.1% and 42.4% for the three- and nine-months ended September 30, 2021, driven by revenue growth from our food and beverage outlets of 21.9% and 44.5%, respectively, which historically account for a majority of our non-casino revenue. Hotel revenues decreased slightly by 4.2% for the three-month period due to lower average daily room rates, but increased by 30.2% for the nine-months ended September 30, 2021 due to an increase in table games revenue.occupied room-nights. Total occupied room-nights was flat at 10,706 room-nights for the third quarter of 2021, and increased by 38.1% to 32,079 room-nights for the nine-month period, reflecting the temporary closure of Silver Slipper last year.
Adjusted Segment EBITDA for the three-months ended September 30, 2021 was flat at $6.5 million, despite the temporary closure of the property due to the passage of Hurricane Ida in August 2021, when the property incurred additional costs to prepare for closure and for cleanup efforts. Adjusted Segment EBITDA for the nine-months ended September 30, 2021 increased by 142.5%, driven by the increase in revenues described above, our focus on controlling labor and marketing costs upon the property’s reopening, and the approximately two-month closure in the prior-year period.
Indiana
Our Indiana segment consists of Rising Star Casino Resort. Pursuant to a pandemic-related order from the state gaming commission, we temporarily suspended operations for a portion of the prior-year period, from March 16, 2020 through June 15, 2020.
For the three-months ended September 30, 2021, total revenues increased by 31.6%, reflecting the relaxation of pandemic-related restrictions in the 2021 period. For the nine-months ended September 30, 2021, total revenues increased by 67.0%, as volumes during the 2020 period were impacted by approximately three months of closure.
Casino revenue increased by 9.8% and 60.1% for the respective three- and nine-month periods, driven mainly by slot revenue that increased by 8.4% (or $0.5 million) and 60.5% (or $7.4 million) for the corresponding periods. Table games revenuesrevenue also meaningfully increased, 18.7%up 21.7% (or $0.2 million) and 8.0% during57.5% (or $1.0 million) for the three- and nine- month periods, while slotnine-months ended September 30, 2021.
Non-casino revenue increased by 98.2% and 86.3% for the three- and nine-months ended September 30, 2021, primarily due to the sale of “free play” for $2.1 million during the quarter, as well as from hotel operations during the nine-month period. Hotel revenues and non-gaming net revenues were flat during both periods. Our hotel occupancy was 88.5% compared to 86.3%declined slightly by 4.3% (or $44,000) in the prior-yearthird quarter of 2021 due to a 13.7% reduction in occupied room-nights, but increased by 51.2% (or $1.1 million) for the nine-month period.period due to higher average daily room rates. Food and beverage revenues continued to improve, especially as capacity restrictions continue to ease in 2021. For the corresponding three- and nine-month periods, food and beverage revenue increased by 25.3% (or $0.2 million) and 31.8% (or $0.6 million).
32
Adjusted PropertySegment EBITDA for the three-month periodthree- and nine-months ended September 30, 2017 compared2021 increased by $1.7 million and $8.4 million, respectively. The increase was due to the prior-year period decreased 3.1% primarily due to increased selling, general and administrative costs and food and beverage costs. Forsale of $2.1 million in “free play” in the third quarter. Additionally, Adjusted Segment EBITDA for the nine-month period ended September 30, 2017 compared2021 increased due to higher volumes, as Rising Star was closed for a portion of the first and second quarters of 2020; the launch of an improved loyalty program in June 2020; and a focus on marketing and labor efficiencies throughout the property, including operating hours for table games and food and beverage outlets that are more appropriately matched to the demand for such services.
The Company has similarly sold its excess free play in prior years, but generally in the fourth quarter.
Colorado
Our Colorado segment includes Bronco Billy’s Casino and Hotel and the Chamonix project. Pursuant to pandemic-related state orders, we temporarily closed Bronco Billy’s for a portion of the prior-year period, Adjusted Property EBITDA increased 7.6% primarily attributedfrom March 17, 2020 through June 15, 2020.
For the three-months ended September 30, 2021, total revenues decreased by 16.9%, as operations at Bronco Billy’s were impacted by the loss of all of the property’s on-site parking and many of its hotel rooms due to higher revenues. Adjusted Property EBITDA Margin for the quarter was 5.7% versus 6.0% in the prior-year period, and 7.1% duringconstruction of Chamonix. For the nine-month period, versus 6.7%total revenues increased by 30.7%, as volumes during the 2020 period were impacted by approximately three months of closure. To alleviate the lack of on-site parking, we introduced complimentary valet parking, as well as a free shuttle service to an off-site parking lot.
Casino revenue decreased by 23.0% for the three-months ended September 30, 2021, but increased by 30.5% for the nine-month period. These changes were largely due to slot revenue, which decreased by 26.2% and increased by 30.4% for the respective periods. Table games revenue increased by $222,000 for the third quarter and by 35.5% for the nine-month period, as table games operations were not permitted to reopen in Cripple Creek until February 2021.
Non-casino revenue consists of food and beverage revenue. Food and beverage revenues increased by 46.5% and 30.7% for the prior-year period.
Adjusted Segment EBITDA for the three-months ended September 30, 2017, net revenues2021 decreased by $1.6 million to $1.5 million, and Adjusted Property EBITDA were consistent withincreased by $2.6 million to $5.1 million for the Company's expectations and recent historical performance. Adjusted Property EBITDAnine-months ended September 30, 2021. The decrease during the 2016 short-period included lower-than-normal gaming tax expensequarter was due to certain anomaliesdisruptions from the construction of Chamonix as described above, including additional operating expenses related to the timingoperation of our new valet and parking shuttle service. Additionally, both of the acquisitionprior-year periods had a $424,000 benefit from the elimination of point redemption liabilities that accrued under the property’s prior loyalty program. For the nine-month period, Adjusted Segment EBITDA increased due to the revenue increases described above, improved labor controls, more efficient marketing due to improved analytics from a new slot marketing system installed at Bronco Billy’s in late 2019, reductions in food costs and Colorado's graduated gaming tax rate structure. These gaming tax anomalies benefiteddevice fees/taxes, and the second quarterprior-year’s closure period. Similar to our other properties, Bronco Billy’s paid severance and benefits to many of 2016 by approximately $0.3 million.
The market in Cripple Creek is seasonal, favoring the summer months.
33
Nevada
The Nevada segment consists of the Grand Lodge Casino. The renovation included new decor and lighting throughout the casino, along with numerous new slot machines, table games,Stockman’s casinos. Pursuant to pandemic-related state orders, we temporarily closed both Grand Lodge Casino and slot and table chairs. We believe these changes materially improve the ambianceStockman’s Casino for a portion of the casino floor and the overall guest experience. The renovation began during February 2017 and caused us to close portions of our casino floor, which impacted our second quarter financial results. The renovation was completed on-budget and in accordance with our planned construction schedule prior to the start of our busy summer season.
Our Nevada operations have historically been seasonal, with the summer months accounting for a disproportionate share of its annual revenues. Additionally, snowfall levels during the winter months also frequently have a positive or negative effect.can often affect operations, as Grand Lodge Casino is located near several major ski resorts, including Alpine Meadows, Northstar and Squaw Valley. Normally, weresorts. We typically benefit from a "good"“good” snow year, resulting in extended periods of operation at the nearby ski areas. DuringHowever, pandemic-related restrictions at the first quarternearby ski resorts in late 2020 and early 2021 affected our business during 2021. The 2020 period was affected by the mandated closure of 2017, however,our casinos.
For the snowfall was exceptional (onethree-months ended September 30, 2021, total revenues increased by 24.8%, or $1.0million. Stockman’s Casino continued to benefit from the relaxation of pandemic-related restrictions, including at the highest in recorded Lake Tahoe history), resulting in extended periods of road closures and power outages. Nevertheless, we believe that the favorable ski season helped offset part of the construction disruption atnearby Naval air station. Grand Lodge Casino was adversely affected in the 2021 third quarter by a lower table games hold percentage and smoke from significant wildfires in the region, including over the Labor Day holiday weekend. For the nine-month period, revenues increased by 71.1%, or $5.9 million, due to higher volumes in 2021, as the prior-year periods were impacted by approximately three months of closure.
Casino revenues increased by 22.4%, or $0.9 million, for the third quarter and rose by 74.2%, or $5.6 million, for the nine-month period. Much of that increase was from slot revenue, which grew by $1.3 million and $5.1 million for the three- and nine-month periods, respectively. For the three-months ended September 30, 2021, table games revenue declined by $0.4 million as Grand Lodge Casino’s results were adversely affected by a table games hold percentage that was 8.4 percentage points lower than the three-year average hold percentage. However, for the nine-months ended September 30, 2021, table games revenue rose by $0.4 million due to a higher hold percentage at Grand Lodge. Table games were not open at Stockman’s during the 2021 periods.
Adjusted Segment EBITDA for the three-months ended September 30, 2021 increased by $0.5 million to $1.5 million. For the nine-months ended September 30, 2021, it increased by $4.1 million to $4.2 million. Both higher casino revenues and continued cost controls, specifically regarding labor and marketing expenses, have benefited operating results. As restrictions have eased in Nevada, both properties have improved revenues while continuing to maintain control of expenses.
Contracted Sports Wagering
The Contracted Sports Wagering segment consists of our renovation discussed above.on-site and online sports wagering skins in Colorado and Indiana. Revenues and Adjusted Segment EBITDA were both approximately $1.6 million during the three-months ended September 30, 2021, and approximately $4.2 million and $4.1 million for the nine-months ended September 30, 2021, respectively. Our fourth and fifth sports wagering skins commenced operations on April 1 and April 23, 2021, resulting in sequential growth in both revenues and Adjusted Segment EBITDA. For the three-month period ended September 30, 2020, when only two sports wagering skins were live, revenues and Adjusted Segment EBITDA were both approximately $0.7 million and $0.6 million, respectively. During the nine-months ended September 30, 2020, revenues and Adjusted Segment EBITDA were approximately $1.6 million and $1.5 million, respectively.
We receive a percentage of defined revenues of each skin, subject to annual minimums. When all six skins are in operation, we should receive a contractual minimum of $7 million on an annualized basis, with minimal related expenses.
34
Corporate
Corporate expenses increased during bothfor the three- and nine-month periods ended September 30, 2017 primarily2021 rose due to increasescertain additional professional fees, a gradual resumption of activities in salarieslate 2020 following the closure period, and an increase in accrued bonus compensation, reflecting our improved operating results.
In April 2020, we began allocating certain costs to the costproperties, consistent with the practice of health care benefits.
Non-GAAP Financial Measure
“Adjusted EBITDA” is earnings before interest and other non-operating income (expense), taxes, depreciation and amortization, preopening expenses, impairment charges, asset write-offs, recoveries, gain (loss) from asset disposals, project development and acquisition costs, and non-cash share-based compensation expense. Adjusted EBITDA information is presented solely as supplemental disclosure to measures reported in accordance with generally accepted accounting principles in the United States of America (“GAAP”) because management believes these measures are (1)this measure is (i) a widely used measuresmeasure of operating performance in the gaming and hospitality industries (2)and (ii) a principal basis for valuation of gaming and hospitality companies, and (3) arecompanies. In addition, a version of Adjusted EBITDA (known as Consolidated Cash Flow) is utilized in the covenants within our debt agreements,credit facility, although not necessarily defined in the same way as above. Adjusted EBITDA is not, however, a measure of financial performance or liquidity under GAAP. Accordingly, these measuresthis measure should be considered supplemental and not a substitute for net income (loss) or cash flows as an indicator of the Company’s operating performance or liquidity.
The following table presents a reconciliation of Adjusted EBITDA tonet income (loss) and operating income and net income (loss):
| | | | | | | | | | | |
(In thousands) | Three Months Ended | | Nine Months Ended | ||||||||
| September 30, | | September 30, | ||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Net income (loss) | $ | 4,619 | | $ | 7,708 | | $ | 6,658 | | $ | (3,353) |
Income tax provision (benefit) | | 95 | | | (93) | | | 379 | | | (2) |
Interest expense, net of amounts capitalized | | 6,405 | | | 2,391 | | | 17,531 | | | 7,329 |
Loss on extinguishment of debt | | — | | | — | | | 6,104 | | | — |
Adjustment to fair value of warrants | | — | | | 403 | | | 1,347 | | | (1,159) |
Operating income | | 11,119 | | | 10,409 | | | 32,019 | | | 2,815 |
Project development costs | | 318 | | | 108 | | | 491 | | | 423 |
Preopening costs | | 17 | | | — | | | 17 | | | — |
Depreciation and amortization | | 1,819 | | | 1,848 | | | 5,448 | | | 5,868 |
Loss on disposal of assets, net | | 2 | | | — | | | 674 | | | 439 |
Stock-based compensation | | 324 | | | 121 | | | 647 | | | 307 |
Adjusted EBITDA | $ | 13,599 | | $ | 12,486 | | $ | 39,296 | | $ | 9,852 |
35
(In thousands) | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Adjusted EBITDA | $ | 6,379 | $ | 5,640 | $ | 14,649 | $ | 12,607 | |||||||
Depreciation and amortization | (2,193 | ) | (2,203 | ) | (6,428 | ) | (5,795 | ) | |||||||
Gain (loss) on asset disposals | (12 | ) | (309 | ) | 2 | (309 | ) | ||||||||
Project development and acquisition costs | (53 | ) | (130 | ) | (238 | ) | (902 | ) | |||||||
Share-based compensation | (128 | ) | (95 | ) | (397 | ) | (315 | ) | |||||||
Operating income | 3,993 | 2,903 | 7,588 | 5,286 | |||||||||||
Other (expense) income | |||||||||||||||
Interest expense | (2,718 | ) | (2,748 | ) | (8,102 | ) | (6,740 | ) | |||||||
Debt modification costs | — | (24 | ) | — | (624 | ) | |||||||||
Adjustment to fair value of warrants | (302 | ) | 181 | (272 | ) | (60 | ) | ||||||||
(3,020 | ) | (2,591 | ) | (8,374 | ) | (7,424 | ) | ||||||||
Income (loss) before income taxes | 973 | 312 | (786 | ) | (2,138 | ) | |||||||||
Income tax expense | 184 | 177 | 552 | 458 | |||||||||||
Net income (loss) | $ | 789 | $ | 135 | $ | (1,338 | ) | $ | (2,596 | ) |
The following tables present reconciliations of operating income (loss) to Adjusted Segment EBITDA and Adjusted EBITDA.
For the three months ended September 30, 2017 | |||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||
Operating income (loss) | Depreciation and amortization | Loss from asset disposals | Project development and acquisition costs | Share-based compensation | Adjusted EBITDA | ||||||||||||||||||
Casino properties | |||||||||||||||||||||||
Silver Slipper Casino and Hotel | $ | 2,174 | $ | 872 | $ | 8 | $ | — | $ | — | $ | 3,054 | |||||||||||
Rising Star Casino Resort | 117 | 611 | — | — | — | 728 | |||||||||||||||||
Bronco Billy's Casino and Hotel | 1,300 | 468 | 1 | — | — | 1,769 | |||||||||||||||||
Northern Nevada Casinos | 1,685 | 207 | — | — | — | 1,892 | |||||||||||||||||
5,276 | 2,158 | 9 | — | — | 7,443 | ||||||||||||||||||
Other operations | |||||||||||||||||||||||
Corporate | (1,283 | ) | 35 | 3 | 53 | 128 | (1,064 | ) | |||||||||||||||
(1,283 | ) | 35 | 3 | 53 | 128 | (1,064 | ) | ||||||||||||||||
$ | 3,993 | $ | 2,193 | $ | 12 | $ | 53 | $ | 128 | $ | 6,379 |
For the three months ended September 30, 2016 | |||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||
Operating income (loss) | Depreciation and amortization | Loss from asset disposals | Project development and acquisition costs | Share-based compensation | Adjusted EBITDA | ||||||||||||||||||
Casino properties | |||||||||||||||||||||||
Silver Slipper Casino and Hotel | $ | 1,480 | $ | 818 | $ | 6 | $ | — | $ | — | $ | 2,304 | |||||||||||
Rising Star Casino Resort | 83 | 660 | 8 | — | — | 751 | |||||||||||||||||
Bronco Billy's Casino and Hotel | 1,106 | 504 | — | — | — | 1,610 | |||||||||||||||||
Northern Nevada Casinos | 1,350 | 219 | 295 | — | — | 1,864 | |||||||||||||||||
4,019 | 2,201 | 309 | — | — | 6,529 | ||||||||||||||||||
Other operations | |||||||||||||||||||||||
Corporate | (1,116 | ) | 2 | — | 130 | 95 | (889 | ) | |||||||||||||||
(1,116 | ) | 2 | — | 130 | 95 | (889 | ) | ||||||||||||||||
$ | 2,903 | $ | 2,203 | $ | 309 | $ | 130 | $ | 95 | $ | 5,640 |
| | | | | | | | | | | | | | | | | | | | | |
Three Months Ended September 30, 2021 | |||||||||||||||||||||
(In thousands) | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Adjusted | |
| | | | | | | | | | | | | | | | | | | | Segment | |
| | Operating | | Depreciation | | Loss on | | Project | | | | Stock- | | EBITDA and | |||||||
| | Income | | and | | Disposal | | Development | | Preopening | | Based | | Adjusted | |||||||
|
| (Loss) |
| Amortization |
| of Assets |
| Costs |
| Costs |
| Compensation |
| EBITDA | |||||||
Reporting segments | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
Mississippi | | $ | 5,794 | | $ | 690 | | $ | 1 | | $ | — | | $ | — | | $ | — | | $ | 6,485 |
Indiana | |
| 3,247 | |
| 569 | |
| — | |
| — | |
| — | |
| — | |
| 3,816 |
Colorado | |
| 1,138 | |
| 387 | |
| 1 | |
| — | |
| 17 | |
| — | |
| 1,543 |
Nevada | |
| 1,402 | |
| 135 | |
| — | |
| — | |
| — | |
| — | |
| 1,537 |
Contracted Sports Wagering | | | 1,645 | | | — | | | — | | | — | | | — | | | — | | | 1,645 |
| |
| 13,226 | |
| 1,781 | |
| 2 | |
| — | |
| 17 | |
| — | |
| 15,026 |
Other operations |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Corporate | |
| (2,107) | |
| 38 | |
| — | |
| 318 | |
| — | |
| 324 | |
| (1,427) |
| | $ | 11,119 | | $ | 1,819 | | $ | 2 | | $ | 318 | | $ | 17 | | $ | 324 | | $ | 13,599 |
| | | | | | | | | | | | | | | |
Three Months Ended September 30, 2020 | |||||||||||||||
(In thousands) | |||||||||||||||
| | | | | | | | | | | | | | Adjusted | |
| | | | | | | | | | | | | | Segment | |
| | Operating | | Depreciation | | Project | | Stock- | | EBITDA and | |||||
| | Income | | and | | Development | | Based | | Adjusted | |||||
| | (Loss) | | Amortization | | Costs | | Compensation |
| EBITDA | |||||
Reporting segments | |
|
| |
|
| |
|
| |
|
| |
| |
Mississippi | | $ | 5,793 | | $ | 702 | | $ | — | | $ | — | | $ | 6,495 |
Indiana | |
| 1,463 | |
| 619 | |
| — | |
| — | |
| 2,082 |
Colorado | |
| 2,771 | |
| 345 | |
| — | |
| — | |
| 3,116 |
Nevada | |
| 888 | |
| 144 | |
| — | |
| — | |
| 1,032 |
Contracted Sports Wagering | | | 631 | | | — | | | — | | | — | | | 631 |
| |
| 11,546 | |
| 1,810 | |
| — | |
| — | |
| 13,356 |
Other operations |
|
| |
|
| |
|
| |
|
| |
|
| |
Corporate | |
| (1,137) | |
| 38 | |
| 108 | |
| 121 | |
| (870) |
| | $ | 10,409 | | $ | 1,848 | | $ | 108 | | $ | 121 | | $ | 12,486 |
Operating expenses deducted to arrive at operating income (loss) in the above tables for the three-month periodsperiod ended September 30, 20172021 and 20162020 included facility rents related to: (i) Silver SlipperMississippi of $0.4$0.5 million during 20172021 and $0.3$0.5 million during 2016,2020, (ii) Northern Nevada of $0.5 million for both periods presented,during 2021 and $0.4 million during 2020, and (iii) Bronco Billy'sColorado of $84,000 for both periods presented.$0.1 million during 2021 and $0.2 million during 2020.
36
For the nine months ended September 30, 2017 | |||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||
Operating income (loss) | Depreciation and amortization | (Gain) loss from asset disposals | Project development and acquisition costs | Share-based compensation | Adjusted EBITDA | ||||||||||||||||||
Casino properties | |||||||||||||||||||||||
Silver Slipper Casino and Hotel | $ | 6,453 | $ | 2,552 | $ | 8 | $ | — | $ | — | $ | 9,013 | |||||||||||
Rising Star Casino Resort | 812 | 1,859 | — | — | — | 2,671 | |||||||||||||||||
Bronco Billy's Casino and Hotel | 2,691 | 1,407 | (6 | ) | — | — | 4,092 | ||||||||||||||||
Northern Nevada Casinos | 1,842 | 556 | (7 | ) | — | — | 2,391 | ||||||||||||||||
11,798 | 6,374 | (5 | ) | — | — | 18,167 | |||||||||||||||||
Other operations | |||||||||||||||||||||||
Corporate | (4,210 | ) | 54 | 3 | 238 | 397 | (3,518 | ) | |||||||||||||||
(4,210 | ) | 54 | 3 | 238 | 397 | (3,518 | ) | ||||||||||||||||
$ | 7,588 | $ | 6,428 | $ | (2 | ) | $ | 238 | $ | 397 | $ | 14,649 |
For the nine months ended September 30, 2016 | |||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||
Operating income (loss) | Depreciation and amortization | Loss from asset disposals | Project development and acquisition costs | Share-based compensation | Adjusted EBITDA | ||||||||||||||||||
Casino properties | |||||||||||||||||||||||
Silver Slipper Casino and Hotel | $ | 4,847 | $ | 2,482 | $ | 6 | $ | — | $ | — | $ | 7,335 | |||||||||||
Rising Star Casino Resort | 482 | 1,993 | 8 | — | — | 2,483 | |||||||||||||||||
Bronco Billy's Casino and Hotel | 1,975 | 723 | — | — | — | 2,698 | |||||||||||||||||
Northern Nevada Casinos | 2,372 | 589 | 295 | — | — | 3,256 | |||||||||||||||||
9,676 | 5,787 | 309 | — | — | 15,772 | ||||||||||||||||||
Other operations | |||||||||||||||||||||||
Corporate | (4,390 | ) | 8 | — | 902 | 315 | (3,165 | ) | |||||||||||||||
(4,390 | ) | 8 | — | 902 | 315 | (3,165 | ) | ||||||||||||||||
$ | 5,286 | $ | 5,795 | $ | 309 | $ | 902 | $ | 315 | $ | 12,607 |
| | | | | | | | | | | | | | | | | | | | | |
For the Nine Months Ended September 30, 2021 | |||||||||||||||||||||
(In thousands) | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | Adjusted | |
| | | | | | | | | | | | | | | | | | | | Segment | |
| | Operating | | Depreciation | | Loss on | | Project | | | | Stock- | | EBITDA and | |||||||
| | Income | | and | | Disposal | | Development | | Preopening | | Based | | Adjusted | |||||||
|
| (Loss) |
| Amortization |
| of Assets |
| Costs |
| Costs |
| Compensation |
| EBITDA | |||||||
Reporting segments | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
Mississippi | | $ | 20,484 | | $ | 2,024 | | $ | 589 | | $ | — | | $ | — | | $ | — | | $ | 23,097 |
Indiana | |
| 5,837 | |
| 1,778 | |
| — | |
| — | |
| — | |
| — | |
| 7,615 |
Colorado | |
| 3,871 | |
| 1,119 | |
| 85 | |
| — | |
| 17 | |
| — | |
| 5,092 |
Nevada | |
| 3,761 | |
| 412 | |
| — | |
| — | |
| — | |
| — | |
| 4,173 |
Contracted Sports Wagering | | | 4,122 | | | — | | | — | | | — | | | — | | | — | | | 4,122 |
| |
| 38,075 | |
| 5,333 | |
| 674 | |
| — | |
| 17 | |
| — | |
| 44,099 |
Other operations |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Corporate | |
| (6,056) | |
| 115 | |
| — | |
| 491 | |
| — | |
| 647 | |
| (4,803) |
| | $ | 32,019 | | $ | 5,448 | | $ | 674 | | $ | 491 | | $ | 17 | | $ | 647 | | $ | 39,296 |
| | | | | | | | | | | | | | | | | | |
For the Nine Months Ended September 30, 2020 | ||||||||||||||||||
(In thousands) | ||||||||||||||||||
| | | | | | | | | | | | | | | | | Adjusted | |
| | | | | | | | | | | | | | | | Segment | ||
| | Operating | | Depreciation | | Loss on | | Project | | Stock- | | EBITDA and | ||||||
| | Income | | and | | Disposal | | Development | | Based | | Adjusted | ||||||
|
| (Loss) |
| Amortization |
| of Assets |
| Costs |
| Compensation |
| EBITDA | ||||||
Reporting segments | |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
Mississippi | | $ | 7,180 | | $ | 2,346 | | $ | — | | $ | — | | $ | — | | $ | 9,526 |
Indiana | |
| (2,626) | |
| 1,857 | |
| — | |
| — | |
| — | |
| (769) |
Colorado | |
| 1,335 | |
| 1,109 | |
| 4 | |
| — | |
| — | |
| 2,448 |
Nevada | |
| (797) | |
| 441 | |
| 435 | |
| — | |
| — | |
| 79 |
Contracted Sports Wagering | | | 1,467 | | | — | | | — | | | — | | | — | | | 1,467 |
| |
| 6,559 | |
| 5,753 | |
| 439 | |
| — | |
| — | |
| 12,751 |
Other operations |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Corporate | |
| (3,744) | |
| 115 | |
| — | |
| 423 | |
| 307 | |
| (2,899) |
| | $ | 2,815 | | $ | 5,868 | | $ | 439 | | $ | 423 | | $ | 307 | | $ | 9,852 |
Operating expenses deducted to arrive at operating income (loss) in the above tables for the nine month periodsnine-month period ended September 30, 20172021 and 20162020 included facility rents related to: (i) Silver SlipperMississippi of $1.7 million during 2021 and $1.2 million during 2017 and $1.0 million during 2016,2020, (ii) Northern Nevada of $1.4 million duringfor both 2017 and 2016,periods, and (iii) Bronco Billy'sColorado of $251,000$0.3 million during 20172021 and $111,000 from May 13, 2016 through September 30, 2016.$0.5 million during 2020.
37
Liquidity and Capital Resources
Cash Flows
As of September 30, 2017,2021, we had $22.4 million of unrestricted cash and equivalents and our $2 million Revolving Loan under our First Lien Credit Facility was undrawn and fully available. Our ability to draw on our Revolving Loan is subject to, among other terms, our continued ability to meet our various financial covenants. Management estimates that approximately $12$274.5 million of cash and equivalents, including $176.6 million of restricted cash dedicated to the construction of Chamonix. We estimate that between approximately $7 million and $9 million of cash is currently required for theused in our current day-to-day operations, ofincluding for on-site cash in our slot machines, change and redemption kiosks, and cages. We believe that current cash balances, together with the Company.
Cash flows -– operating activities.
Cash flows – investing activities.
On a consolidated basis, cash used in investing activities during theCash flows -– financing activities.
Other Factors Affecting Liquidity
We have significant outstanding debt and contractual obligations, in addition to planned capital expenditures. We expectexpenditures related to meet these obligations andthe construction of Chamonix. Our principal debt matures in February 2028. Certain planned capital expenditure requirements primarily through future anticipated operating cash flows, cashexpenditures designed to grow the Company, such as the potential expansion of Silver Slipper and equivalentsour American Place proposals in Indiana and Illinois, if necessary, available borrowings under our Revolving Loan. We also intendpursued, may require additional financing and/or temporarily reduce the Company’s ability to refinance our existing debt facilities prior to their maturity. However, ourrepay debt.
Our operations are subject to financial, economic, competitive, regulatory and other factors, many of which are beyond our control. If weSuch factors include the potential effects of COVID-19 and its variants. The extent to which our liquidity in future periods may be affected by COVID-19 and its variants may largely depend on future developments. Such future developments are unable to generate sufficient operating cash flow and/or the capital markets do not facilitate the refinancing of our debt, we couldhighly uncertain and cannot be required to adopt one or more alternatives, suchaccurately predicted at this time, as reducing, delaying, or eliminating certain planned capital expenditures, selling assets, or obtaining additional equity financing.
Debt
Long-term Debt.
38
See Note 5 of our Condensed Notes to the accompanying consolidated financial statementsConsolidated Financial Statements included in this quarterly report for more information aboutdetails on our First Lien and Second Lien Credit Facilities.
Other
Capital Investments.
Other Capital Expenditures. Additionally, we may fund various other various capital expenditure projects, depending on our financial resources. Our capital expenditures may fluctuate due to decisions regarding strategic capital investments in new or existing facilities, and the timing of capital investments to maintain the quality of our properties. No assurance can be given that any of our planned capital expenditure projects will be completed or that any completed projects will be successful.
We evaluate projects based on a number of factors, including profitability forecasts, length of the development period, the regulatory and political environment, and the ability to secure the funding necessary to complete the development or acquisition, among other considerations. No assurance can be given that any additional projects will be pursued or completed or that any completed projects will be successful.
Hyatt Owner’s Option to Purchase our Leasehold Interest and Capital Resources
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.
Critical Accounting Estimates and Policies
We describe our critical accounting estimates and policies in Note 2, Basis of Presentation and Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in our Form 10-K for the year ended December 31, 2016.2020. We also discuss our critical accounting estimates and policies in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Form 10-K for the year ended December 31, 2016.2020. There has been no significant change in our critical accounting policies and estimation methods since the end of 2016.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended relating to our financial condition, profitability, liquidity, adequacy of our financial resources, anticipated sources of funds, fluctuations in operating results, revenue sources, business outlook, market forces, corporate strategies, contractual commitments, legal matters, capital requirements and other matters. The(the “Exchange Act”) for which the Private Securities Litigation Reform Act of 1995 provides a safe harbor forharbor. These forward-looking statements. We note that many factors could cause our actual results and experience to change significantly from the anticipated results or expectations expressed in our forward-looking statements. When words and expressionsstatements can be identified by use of terms such as:as “believes,” “expects,” “anticipates,” “estimates,” “plans,” “intends,” “objectives,” “goals,” “aims,” “projects,” “forecasts,” “future,” “possible,” “seeks,” “may,” “could,” “should,” “will,” “might,” “likely,” “enable,” or similar words or expressions, are used in this Form 10-Q, as well as statements containing phrases such as “in our view,” “there can be no assurance,“we cannot assure you,” “although no assurance can be given,” or “there is no way to anticipate with certainty,certainty.” Examples of forward-looking statements include, among others, statements we make regarding our plans, beliefs or expectations regarding our growth strategies; the impact of the coronavirus (COVID-19) pandemic and its variants on our business operations; our development and expansion plans, including the estimated construction commencement, budget, completion and opening timeline, and the expected amenities, for the new Chamonix Casino Hotel;
39
our expectations regarding an amendment to our development agreement with the City of Cripple Creek to extend the Chamonix project’s completion date; our investments in capital improvements and other projects, including the amounts of such investments, the timing of commencement or completion of such capital improvements and projects and the resulting impact on our financial results; our sports wagering contracts with third-party providers, including the expected revenues and expenses and the expected timing for the launch of the sixth and final sports betting “skin” related thereto; our expectations regarding the Waukegan and Terre Haute proposals, including the timing of the RFP processes and any decisions thereunder, our ability to obtain either casino license, the expected amenities for both proposals, and, if we are being made.
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause future outcomesour actual results and financial condition to change significantlydiffer materially from those set forthindicated in ourthe forward-looking statements including the following risks, uncertainties and other factors:
Risks Related to our outstanding warrantsBusiness and options;
● | The outbreak of COVID-19 (coronavirus) and the emergence of new variants, which has significantly impacted the global economy, including the gaming industry. |
● | The impact of COVID-19 and its variants on our business operations, employees, customers and suppliers, including the loss of customers or employees and disruptions and inefficiencies in the supply chain. |
● | Potential requirements for vaccination or regular COVID-19 testing of our employees. |
● | A prolonged closure of our casinos would negatively impact our ability to service our debt. |
● | Significant competition from other gaming and entertainment operations. |
● | Revenue declines if discretionary consumer spending drops due to an economic downturn. |
● | The inability of our contracted sports betting parties, through the use of our permitted website “skins,” to compete effectively, their inability and/or unwillingness to sustain sports betting operations should they experience an extended period of unprofitability, and our inability to replace existing partners or vendors on similar terms as our existing revenue guarantees. |
● | Marine transportation is inherently risky, and insurance may be insufficient to cover losses that may occur to our assets or result from our ferry boat operations. |
● | We derive our revenues and operating income from our casino resort properties located in Mississippi, Colorado, Indiana and Nevada, and are especially subject to certain risks, including economic and competitive risks, associated with the conditions in those areas and in the states from which we draw patrons. |
● | If the lessor of Grand Lodge Casino exercises its buyout rights or if we default on this or on certain other leases, the applicable lessors could terminate the affected leases and we could lose possession of the affected casino. |
● | Adverse weather conditions, road construction, gasoline shortages and other factors affecting our facilities and the areas in which we operate could make it more difficult for potential customers to travel to our properties and deter customers from visiting our properties. |
● | The occurrence of natural disasters, such as wildfires, hurricanes, pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases such as the coronavirus pandemic, or other catastrophic events, including war, terrorism and gun violence. |
40
● | Several of our properties, including Silver Slipper, Bronco Billy’s and Rising Star, are accessed by our customers via routes that have few alternatives. |
● | We may incur property and other losses that are not adequately covered by insurance. |
● | We depend on our key personnel. |
● | Higher wage and benefit costs, including a potential increase in the federal minimum wage. |
● | Rising operating costs at our gaming properties. |
● | We face the risk of fraud and cheating. |
● | Win rates for our gaming operations depend on a variety of factors, some beyond our control. |
● | The concentration and evolution of the slot machine manufacturing industry could impose additional costs on us. |
● | Our business may be adversely affected by legislation prohibiting tobacco smoking. |
● | We are subject to risks related to corporate social responsibility and reputation. |
Risks Related to Development and investments;Growth Opportunities
● | We are often involved in one or more construction and development projects, including the new Chamonix Casino Hotel, and many factors could prevent us from completing them as planned. |
● | The construction costs for the new Chamonix Casino Hotel may exceed budgeted amounts plus contingencies, which may result in insufficient funds in the construction reserve account to complete the project and may result in the Company accessing its unrestricted cash or other resources to complete the project. There is no certainty that such resources will be available. |
● | There is no assurance that the new Chamonix Casino Hotel will not be subject to additional regulatory restrictions, delays, or challenges. |
● | There is no assurance that the new Chamonix Casino Hotel will be successful. |
● | Failure to comply with the terms of our disbursement agreement could limit our access to funds. |
● | We face a number of challenges prior to opening new or upgraded facilities. |
● | We may face disruption and other difficulties in integrating and managing facilities we have recently developed or acquired, or may develop or acquire in the future. |
● | The construction of the new Chamonix Casino Hotel may inconvenience customers and disrupt business activity at the adjoining Bronco Billy’s casino. |
● | Additional growth projects, including the Waukegan and Terre Haute proposals, or potential enhancements at our properties may require us to raise additional capital. |
● | The casino, hotel and resort industry is capital intensive and we may not be able to finance expansion and renovation projects, which could put us at a competitive disadvantage. |
● | Our ability to receive regulatory approvals required to complete certain acquisitions, mergers, joint ventures, and other developments, as well as other potential delays in completing certain transactions. |
● | Failure to obtain necessary government approvals in a timely manner, or at all. |
● | Insufficient or lower-than-expected results generated from our new developments and acquired properties. |
Risks Related to our Indebtedness
● | Our significant indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations. |
● | Restrictive covenants and limitations in our debt facilities that could significantly affect our ability to borrow additional funds and/or operate our business and could lead to events of default if we do not comply with the covenants. |
● | Our inability to generate sufficient cash flow to service our indebtedness and fund our operating expenses, working capital needs and capital expenditures. |
● | We depend on our subsidiaries for certain dividends, distributions and repayment of our indebtedness. |
● | Our ability to obtain additional financing on commercially reasonable terms may be limited. |
● | The obligations under the 2028 Notes are collateralized by a security interest in substantially all of our assets, so if we default on those obligations, the holders of the 2028 Notes could foreclose on our assets. |
● | Our loans under the CARES Act may be subject to regulatory review. |
● | We and our subsidiaries may still be able to incur substantially more debt. |
41
Risks Related to our Legal and construction activities risks;
● | We face extensive regulation from gaming and other regulatory authorities and the cost of compliance or failure to comply with such regulations may adversely affect our business and results of operations. |
● | Changes in legislation and regulation of our business. |
● | Stockholders may be required to dispose of their shares of our common stock if they are found unsuitable by gaming authorities. |
● | We are subject to environmental laws and potential exposure to environmental liabilities. |
● | We are subject to litigation which, if adversely determined, could cause us to incur substantial losses. |
● | Our ferry boat service is highly regulated, which can adversely affect our operations. |
Risks Related to anticipated trends in the gaming industries;
● | Our gaming operations rely heavily on technology services and an uninterrupted supply of electrical power, and if we experience damage or service interruptions, we may have to cease some or all of our operations. |
● | Our information technology and other systems are subject to cyber-security risk, misappropriation of customer information and other breaches of information security. |
General Risks
● | Our ability to utilize our net operating loss, or NOL, carryforwards and certain other tax attributes may be limited. |
● | The market price for our common stock may be volatile, and investors may not be able to sell our stock at favorable prices or at all. |
● | The exercise of outstanding options to purchase common stock may result in substantial dilution and may depress the trading price of our common stock. |
● | The other factors as discussed throughout Part I, Item 1A. “Risk Factors” and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2020. In addition, you should consult other disclosures made by us (such as in our other filings with the SEC or in company press releases) for other factors that may cause actual results to differ materially from those projected by us. You should read this Form 10-Q, and the documents that we reference in this Form 10-Q and have filed with the SEC, and our Annual Report on Form 10-K for the year ended December 31, 2020, with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect. |
We undertake no obligation to publicly update or revise any forward-looking statements as a result of future developments, events or conditions.conditions, except as required by law. New risks emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ significantly from those forecast in any forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
— As of September 30,42
We have established controls and procedures designed at the reasonable assurance level to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to management, including the principal executive officer and the principal financial officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting — There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 1.
Legal ProceedingsWe incurred $55,000 and $98,000 of legal costs during the three and nine-months ended September 30, 2017, respectively, related to this matter. We have received all settlement proceeds. See Part I, Item 1, "Financial Statements" - Note 7 - Litigation for further information.
Item 1A. Risk Factors
There were no material changes from the risk factors set forth under Part I, Item 1A “Risk Factors” section of the Company’sour Annual Report on Form 10-K for the year ended December 31, 2016.
Item 6. Exhibits
| | ||
Exhibit | | Description | |
31.1* | | ||
31.2* | | ||
32.1** | | ||
32.2** | | ||
101.INS* | | Inline XBRL Instance | Document |
101.SCH* | | Inline XBRL Taxonomy Extension Schema | Document |
101.CAL* | | Inline XBRL Taxonomy Extension Calculation | Linkbase Document |
101.DEF* | | Inline XBRL Taxonomy Extension Definition | Linkbase Document |
101.LAB* | | Inline XBRL Taxonomy Extension | Label Linkbase Document |
101.PRE* | | Inline XBRL Taxonomy Extension Presentation |
Linkbase Document | ||
104* | | |
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) |
* Filed herewith.
** Furnished herewith.
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Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | |
| |||
FULL HOUSE RESORTS, INC. | |||
| | | |
Date: November | By: | /s/ DANIEL R. LEE | |
| | Daniel R. Lee Chief Executive Officer (on behalf of the Registrant and as principal executive officer) | |
| | | |
| | | |
Date: November | By: | /s/ LEWIS A. FANGER | |
�� | | Lewis A. Fanger Chief Financial Officer (on behalf of the Registrant and as principal financial officer and as principal accounting officer) |
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