UNITED STATES
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 |
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 ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☑ No ☐
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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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: ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of August 7, 2020,May 10, 2021, there were 27,105,72834,109,158 shares of Common Stock, $0.0001 par value per share, outstanding.
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
FORM 10-Q
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
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2
PART I – FINANCIAL INFORMATION
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | Three Months Ended | ||||||||||||
| | June 30, | | June 30, | | March 31, | ||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2021 |
| 2020 | ||||||
Revenues |
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Casino | | $ | 10,955 | | $ | 28,450 | | $ | 31,706 | | $ | 56,748 | | $ | 32,064 | | $ | 20,751 |
Food and beverage | |
| 1,994 | |
| 8,863 | |
| 8,984 | |
| 17,521 | |
| 6,101 | |
| 6,990 |
Hotel | |
| 719 | |
| 3,051 | |
| 2,693 | |
| 5,766 | |
| 2,211 | |
| 1,974 |
Other operations, including online/mobile sports operations | |
| 843 | |
| 1,299 | |
| 1,981 | |
| 2,122 | ||||||
Total revenues | |
| 14,511 | |
| 41,663 | |
| 45,364 | |
| 82,157 | ||||||
Other operations, including online/mobile sports | |
| 1,832 | |
| 1,138 | ||||||||||||
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| 42,208 | |
| 30,853 | ||||||||||||
Operating costs and expenses | |
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Casino | |
| 3,470 | |
| 11,592 | |
| 13,803 | |
| 23,377 | |
| 10,339 | |
| 10,333 |
Food and beverage | |
| 2,083 | |
| 9,449 | |
| 9,219 | |
| 18,818 | |
| 5,360 | |
| 7,136 |
Hotel | |
| 377 | |
| 2,379 | |
| 1,550 | |
| 4,799 | |
| 1,056 | |
| 1,173 |
Other operations | |
| 273 | |
| 1,072 | |
| 835 | |
| 1,841 | |
| 395 | |
| 562 |
Selling, general and administrative | |
| 9,796 | |
| 13,027 | |
| 22,777 | |
| 25,687 | |
| 14,413 | |
| 12,981 |
Project development costs | |
| 259 | |
| 142 | |
| 315 | |
| 275 | |
| 47 | |
| 56 |
Depreciation and amortization | |
| 1,980 | |
| 2,083 | |
| 4,020 | |
| 4,174 | |
| 1,800 | |
| 2,040 |
Loss (gain) on disposal of assets, net | |
| 439 | |
| (4) | |
| 439 | |
| (5) | ||||||
Loss on disposal of assets, net | |
| 104 | |
| — | ||||||||||||
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| 18,677 | |
| 39,740 | |
| 52,958 | |
| 78,966 | |
| 33,514 | |
| 34,281 |
Operating (loss) income | |
| (4,166) | |
| 1,923 | |
| (7,594) | |
| 3,191 | ||||||
Operating income (loss) | |
| 8,694 | |
| (3,428) | ||||||||||||
Other (expense) income | |
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Interest expense, net of $211 and $83 capitalized for the three-months ended June 30, 2020 and 2019, and $431 and $130 capitalized for the six-months ended June 30, 2020 and 2019 | | | (2,447) | | | (2,931) | | | (4,938) | | | (5,634) | ||||||
Interest expense, net of amounts capitalized of $259 and $220 | | | (4,456) | | | (2,491) | ||||||||||||
Loss on extinguishment of debt | | | (6,134) | | | — | ||||||||||||
Adjustment to fair value of warrants | |
| (94) | |
| 141 | |
| 1,562 | |
| 101 | |
| (1,347) | |
| 1,656 |
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| (2,541) | |
| (2,790) | |
| (3,376) | |
| (5,533) | |
| (11,937) | |
| (835) |
Loss before income taxes | |
| (6,707) | |
| (867) | |
| (10,970) | |
| (2,342) | |
| (3,243) | |
| (4,263) |
Income tax (benefit) provision | | | (4) | | | 143 | | | 91 | | | 285 | ||||||
Income tax provision | | | 202 | | | 95 | ||||||||||||
Net loss | | $ | (6,703) | | $ | (1,010) | | $ | (11,061) | | $ | (2,627) | | $ | (3,445) | | $ | (4,358) |
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Basic loss per share | | $ | (0.25) | | $ | (0.04) | | $ | (0.41) | | $ | (0.10) | | $ | (0.13) | | $ | (0.16) |
Diluted loss per share | | $ | (0.25) | | $ | (0.04) | | $ | (0.46) | | $ | (0.10) | | $ | (0.13) | | $ | (0.22) |
See condensed notes to consolidated financial statements.
3
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except share data)
| | | | | | | | | | | | |
| | June 30, | | December 31, | | March 31, | | December 31, | ||||
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| 2020 |
| 2019 |
| 2021 |
| 2020 | ||||
ASSETS | | | | | | | | | | | | |
Current assets |
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Cash and equivalents | | $ | 26,495 | | $ | 28,851 | | $ | 98,005 | | $ | 37,698 |
Restricted cash | | | — | | | 1,000 | | | 179,923 | | | — |
Accounts receivable, net of allowance of $199 and $141 | |
| 1,784 | |
| 2,206 | ||||||
Accounts receivable, net of allowance of $191 and $176 | |
| 3,801 | |
| 4,904 | ||||||
Inventories | |
| 1,780 | |
| 2,292 | |
| 1,629 | |
| 1,511 |
Prepaid expenses and other | |
| 3,298 | |
| 3,340 | |
| 3,354 | |
| 2,461 |
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| 33,357 | |
| 37,689 | |
| 286,712 | |
| 46,574 |
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Property and equipment, net | |
| 118,199 | |
| 121,487 | |
| 117,763 | |
| 115,772 |
Operating lease right-of-use assets, net | | | 18,917 | | | 19,171 | | | 16,600 | | | 17,361 |
Goodwill | |
| 21,286 | |
| 21,286 | |
| 21,286 | |
| 21,286 |
Other intangible assets, net | |
| 11,010 | |
| 11,056 | |
| 10,941 | |
| 10,963 |
Deposits and other | |
| 622 | |
| 646 | |
| 641 | |
| 660 |
| | $ | 203,391 | | $ | 211,335 | | $ | 453,943 | | $ | 212,616 |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | |
Accounts payable | | $ | 7,284 | | $ | 5,216 | | $ | 5,658 | | $ | 4,191 |
Accrued payroll and related | |
| 2,532 | |
| 3,044 | |
| 3,696 | |
| 2,397 |
Other accrued expenses and other | |
| 8,878 | |
| 10,613 | ||||||
Other accrued liabilities | |
| 14,310 | |
| 10,810 | ||||||
Current portion of operating lease obligations | | | 3,166 | | | 2,707 | | | 3,283 | | | 3,283 |
Current portion of finance lease obligation | | | 481 | | | 448 | | | 490 | | | 491 |
Current portion of long-term debt | |
| 3,253 | |
| 1,100 | |
| 799 | |
| 426 |
Common stock warrant liability | | | 493 | | | 2,055 | | | — | | | 2,653 |
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| 26,087 | |
| 25,183 | |
| 28,236 | |
| 24,251 |
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Operating lease obligations, net of current portion | |
| 16,130 | |
| 16,706 | |
| 14,094 | |
| 14,914 |
Finance lease obligation, net of current portion | | | 3,546 | | | 3,829 | | | 3,179 | | | 3,298 |
Long-term debt, net | |
| 105,876 | |
| 102,923 | |
| 305,280 | |
| 106,832 |
Deferred income taxes, net | |
| 803 | |
| 712 | |
| 822 | |
| 620 |
Contract liabilities, net of current portion | | | 5,728 | | | 5,886 | | | 5,298 | | | 5,398 |
Other long-term liabilities | | | 626 | | | 626 | ||||||
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| 158,170 | |
| 155,239 | |
| 357,535 | |
| 155,939 |
Commitments and contingencies (Note 8) | |
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Stockholders’ equity | |
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Common stock, $0.0001 par value, 100,000,000 shares authorized; 28,359,397 and 28,345,525 shares issued and 27,089,834 and 27,075,962 shares outstanding | |
| 3 | |
| 3 | ||||||
Common stock, $0.0001 par value, 100,000,000 shares authorized; 35,302,549 and 28,385,299 shares issued and 34,075,350 and 27,124,292 shares outstanding | |
| 4 | |
| 3 | ||||||
Additional paid-in capital | |
| 64,588 | |
| 64,402 | |
| 107,959 | |
| 64,826 |
Treasury stock, 1,269,563 common shares | |
| (1,548) | |
| (1,548) | ||||||
Treasury stock, 1,227,199 and 1,261,007 common shares | |
| (1,496) | |
| (1,538) | ||||||
Accumulated deficit | |
| (17,822) | |
| (6,761) | |
| (10,059) | |
| (6,614) |
| |
| 45,221 | |
| 56,096 | |
| 96,408 | |
| 56,677 |
| | $ | 203,391 | | $ | 211,335 | | $ | 453,943 | | $ | 212,616 |
See condensed notes to consolidated financial statements.
4
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Additional | | | | | | | | | Total | | | | | | | Additional | | | | | | | | | Total | ||||||
| | Common Stock | | Paid-in | | Treasury Stock | | Accumulated | | Stockholders’ | | Common Stock | | Paid-in | | Treasury Stock | | Accumulated | | Stockholders’ | ||||||||||||||||||
|
| Shares |
| Dollars |
| Capital |
| Shares |
| Dollars |
| Deficit |
| Equity |
| Shares |
| Dollars |
| Capital |
| Shares |
| Dollars |
| Deficit |
| Equity | ||||||||||
Balance, January 1, 2020 |
| 28,346 | | $ | 3 | | $ | 64,402 |
| 1,270 | | $ | (1,548) | | $ | (6,761) | | $ | 56,096 | |||||||||||||||||||
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 |
| — | |
| — | |
| 83 |
| — | |
| — | |
| — | |
| 83 |
| — | |
| — | |
| 124 |
| — | |
| — | |
| — | |
| 124 |
Net loss |
| — | |
| — | |
| — |
| — | |
| — | |
| (4,358) | |
| (4,358) |
| — | |
| — | |
| — |
| — | |
| — | |
| (3,445) | |
| (3,445) |
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 | |||||||||||||||||||
Balance, March 31, 2021 |
| 35,302 | | $ | 4 | | $ | 107,959 |
| 1,227 | | $ | (1,496) | | $ | (10,059) | | $ | 96,408 |
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| | | | | | | Additional | | | | | | | | | Total | | | | | | | Additional | | | | | | | | | Total | ||||||
| | Common Stock | | Paid-in | | Treasury Stock | | Accumulated | | Stockholders’ | | Common Stock | | Paid-in | | Treasury Stock | | Accumulated | | Stockholders’ | ||||||||||||||||||
|
| Shares |
| Dollars |
| Capital |
| Shares |
| Dollars |
| Deficit |
| Equity |
| Shares |
| Dollars |
| Capital |
| Shares |
| Dollars |
| Deficit |
| Equity | ||||||||||
Balance, January 1, 2019 |
| 28,289 | | $ | 3 | | $ | 63,935 |
| 1,357 | | $ | (1,654) | | $ | (939) | | $ | 61,345 | |||||||||||||||||||
Exercise of stock options |
| 26 | |
| — | |
| 45 |
| — | |
| — | |
| — | |
| 45 | |||||||||||||||||||
Balance, January 1, 2020 |
| 28,346 | | $ | 3 | | $ | 64,402 |
| 1,270 | | $ | (1,548) | | $ | (6,761) | | $ | 56,096 | |||||||||||||||||||
Stock-based compensation |
| — | |
| — | |
| 86 |
| — | |
| — | |
| — | |
| 86 |
| — | |
| — | |
| 83 |
| — | |
| — | |
| — | |
| 83 |
Net loss |
| — | |
| — | |
| — |
| — | |
| — | |
| (1,617) | |
| (1,617) |
| — | |
| — | |
| — |
| — | |
| — | |
| (4,358) | |
| (4,358) |
Balance, March 31, 2019 |
| 28,315 | | | 3 | | | 64,066 |
| 1,357 | | $ | (1,654) | | | (2,556) | | | 59,859 | |||||||||||||||||||
Stock grants | | 22 | | | — | | | 48 | | — | | | — | | | — | | | 48 | |||||||||||||||||||
Stock-based compensation | | — | | | — | | | 59 | | — | | | — | | | — | | | 59 | |||||||||||||||||||
Net loss | | — | | | — | | | — | | — | | | — | | | (1,010) | | | (1,010) | |||||||||||||||||||
Balance, June 30, 2019 | | 28,337 | | $ | 3 | | $ | 64,173 | | 1,357 | | $ | (1,654) | | $ | (3,566) | | $ | 58,956 | |||||||||||||||||||
Balance, March 31, 2020 |
| 28,346 | | $ | 3 | | $ | 64,485 |
| 1,270 | | $ | (1,548) | | $ | (11,119) | | $ | 51,821 |
See condensed notes to consolidated financial statements.
5
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
| | | | | | | | | | | | |
| | Six Months Ended | | Three Months Ended | ||||||||
| | June 30, | | March 31, | ||||||||
|
| 2020 |
| 2019 |
| 2021 |
| 2020 | ||||
Cash flows from operating activities: |
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Net loss | | $ | (11,061) | | $ | (2,627) | | $ | (3,445) | | $ | (4,358) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
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Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |
|
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Depreciation and amortization | |
| 4,020 | |
| 4,174 | |
| 1,800 | |
| 2,040 |
Amortization of debt issuance and warrant costs and other | |
| 496 | |
| 598 | |
| 284 | |
| 225 |
Stock-based compensation | |
| 186 | |
| 193 | |
| 124 | |
| 83 |
Change in fair value of stock warrants | |
| (1,562) | |
| (101) | |
| 1,347 | |
| (1,656) |
Change in fair value of interest rate cap | | | — | | | 82 | ||||||
Loss (gain) on disposal of assets | |
| 439 | |
| (5) | ||||||
Loss on disposal of assets | |
| 104 | |
| — | ||||||
Loss on extinguishment of debt | | | 6,134 | | | — | ||||||
Increases and decreases in operating assets and liabilities: | |
|
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| |
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Accounts receivable | |
| 422 | |
| (41) | |
| 1,103 | |
| 1,682 |
Prepaid expenses, inventories and other | |
| 554 | |
| (2,098) | |
| (1,011) | |
| 331 |
Deferred taxes | |
| 91 | |
| 285 | |
| 202 | |
| 95 |
Deferred revenue | | | (58) | | | — | ||||||
Common stock warrant liability | | | (4,000) | | | — | ||||||
Contract liabilities | | | (350) | | | (25) | ||||||
Accounts payable and accrued expenses | |
| 112 | |
| (2,205) | |
| 5,999 | |
| (2,583) |
Net cash used in operating activities | |
| (6,361) | |
| (1,745) | ||||||
Net cash provided by (used in) operating activities | |
| 8,291 | |
| (4,166) | ||||||
Cash flows from investing activities: | |
|
| |
|
| |
|
| |
|
|
Purchase of property and equipment | |
| (1,375) | |
| (3,056) | |
| (3,413) | |
| (1,031) |
Other | |
| 22 | |
| (1) | |
| (8) | |
| 33 |
Net cash used in investing activities | |
| (1,353) | |
| (3,057) | |
| (3,421) | |
| (998) |
Cash flows from financing activities: | |
|
| |
|
| |
|
| |
|
|
Proceeds from Senior Secured Notes borrowings | |
| — | |
| 10,000 | ||||||
Proceeds from CARES Act unsecured loans | |
| 5,606 | |
| — | ||||||
Proceeds from Senior Secured Notes due 2028 borrowings | |
| 310,000 | |
| — | ||||||
Proceeds from equity offering, net of issuance costs | | | 42,974 | | | — | ||||||
Payment of debt discount and issuance costs | |
| (447) | |
| (1,181) | |
| (9,510) | |
| — |
Repayment of Senior Secured Notes | |
| (550) | |
| (525) | ||||||
Repayment of Senior Secured Notes due 2024 | | | (106,825) | | | (275) | ||||||
Prepayment premiums of Senior Secured Notes due 2024 | |
| (1,261) | |
| — | ||||||
Repayment of finance lease obligation | | | (251) | | | (263) | | | (120) | | | (95) |
Proceeds from exercise of stock options | |
| — | |
| 45 | |
| 78 | |
| — |
Net cash provided by financing activities | |
| 4,358 | |
| 8,076 | ||||||
Other | | | 24 | | | — | ||||||
Net cash provided by (used in) financing activities | |
| 235,360 | |
| (370) | ||||||
| | | | | | | | | | | | |
Net (decrease) increase in cash, cash equivalents and restricted cash | |
| (3,356) | |
| 3,274 | ||||||
Net increase (decrease) in cash, cash equivalents and restricted cash | |
| 240,230 | |
| (5,534) | ||||||
Cash, cash equivalents and restricted cash, beginning of period | |
| 29,851 | |
| 20,634 | |
| 37,698 | |
| 29,851 |
Cash, cash equivalents and restricted cash, end of period | | $ | 26,495 | | $ | 23,908 | | $ | 277,928 | | $ | 24,317 |
| | | | | | | | | | | | |
Supplemental Cash Flow Information: | |
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| |
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| |
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| |
|
|
Cash paid for interest, net of amounts capitalized | | $ | 4,336 | | $ | 4,797 | | $ | 812 | | $ | 2,248 |
Non-Cash Investing Activities: | |
|
| |
|
| |
|
| |
|
|
Accounts payable related capital expenditures | | $ | 137 | | $ | 502 | | $ | 478 | | $ | 80 |
See condensed notes to consolidated financial statements.
6
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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 to “Full House,” the “Company,” “we,” “our,” or “us” refer to Full House Resorts, Inc. and its subsidiaries, except where stated or the context otherwise indicates.
The Company currently operates five casinos;casinos: four are part ofon real estate that it ownswe own or leases,lease and one is located within a hotel owned by a third party. Construction is currently underway at 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 six permitted sports wagering “skins,” three in Colorado and three 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. Five of our six permitted skins have commenced operations. The following table identifies the propertiesour five segments, along with properties and their respective dates of acquisition and 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 | |
| |
|
| |
|
|
| ||
|
|
| ||
Grand Lodge Casino |
|
| Incline Village, NV | |
Stockman’s Casino | Fallon, NV (one hour east of Reno) | |||
Contracted Sports Wagering | | | ||
Three sports wagering websites (“skins”) | | Colorado | ||
Three sports wagering websites (“skins”) | | Indiana |
The Company manages its casinos based primarily on geographic regions within the United States. See Note 11Our 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 further information.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. from levels seen in late 2020 and early 2021. 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 capacity restrictions throughout its casinos and in its restaurants 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 will largely depend on future developments, which are highly uncertain and cannot be accurately predicted. Significant uncertainties include the ability to operate; new information which may emerge concerning new strains of COVID-19 and their severity; any additional actions imposed by governmental authorities to contain COVID-19 or minimize its impact; 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 months ended March 31, 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 have eased over recent weeks, the current economic and regulatory environment in each of the Company’s jurisdictions continues to evolve. 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 the Company’s current operations.
During the first quarter of 2021, the Company completed several transactions, which include:
● | The February 2021 refinancing of its Senior Secured Notes due 2024 with $310 million of 8.25% Senior Secured Notes due 2028 (the “2028 Notes”), as further described in Note 5 below; |
● | The creation of a restricted cash account, initially funded with $180 million dedicated to the construction of Chamonix, as further described in Note 2 below; |
● | The March 2021 completion of an underwritten public offering of 6,917,250 shares of the Company’s common stock, resulting in gross proceeds of approximately $46.0 million, as further described in Note 9 below; and |
● | An agreement entered into in March 2021 providing for a $15.0 million, five-year, senior secured revolving credit facility to provide additional liquidity, if needed, as further described in Note 5 below. |
As of March 31, 2021, the Company had total cash and cash equivalents of $277.9 million, including $179.9 million in restricted cash.
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’s 20192020 annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2020.
The 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.
8
The consolidated financial statements include the accounts of Full House and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Liquidity, Going Concern and Management Plans. The consolidated financial statements have been prepared on the going concern basis of accounting, assuming the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company’s casinos are its primary sources of income and operating cash flows and they are relied upon to remain in compliance with debt covenants and meet the Company’s obligations when due. As described in Note 5, the Senior Secured Notes agreement requires the Company to maintain a total leverage ratio covenant, which measures Consolidated EBITDA (as defined in the indenture) against outstanding debt. As detailed in Notes 2 and 14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, the Company temporarily suspended operations at its casinos and hotels
7
in March 2020 pursuant to orders from governmental authorities as a precautionary measure against the ongoing spread of a highly contagious coronavirus that was declared a pandemic (“COVID-19”) by the World Health Organization. The Company’s properties began reopening when permitted by local authorities, beginning with the Silver Slipper Casino and Hotel on May 21, 2020, Grand Lodge Casino and Stockman’s Casino on June 4, 2020, and Bronco Billy’s Casino and Hotel and Rising Star Casino Resort on June 15, 2020. The Company believes it has sufficient resources to fund its reopened operations through its current cash balances and the management of labor, marketing expenses, and capital expenditures. Also, as discussed herein, operating profits in June 2020 were higher than levels in June 2019. However, management does not control and is not qualified to predict the ongoing effects of the continuing pandemic.
As described in Notes 2 and 14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, a significant period of closure or significant declines in business volumes could negatively impact our ability to remain in compliance with our debt covenants. In the event that the Company would fail to meet its debt covenants in the next twelve months from the issuance of the consolidated financial statements, the Company would either seek covenant waivers or attempt to amend its covenants, though there is no certainty that the Company would be successful in such efforts. For example, the Company’s lenders agreed to amend our leverage covenant for the period ended June 30, 2020, and the parties collectively continue to discuss amending covenants for future quarters. ASC 205-40, Going Concern, calls for management to evaluate whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within twelve months after the date that the financial statements are issued. Because of the length of this look-forward period and the substantial items that are outside of the Company’s control, and despite its intent and best efforts to overcome the challenges in the current environment, management concluded that there is substantial doubt as to the Company’s ability to continue as a going concern. The Company is attempting to mitigate the impacts of COVID-19 on the Company through the plans described above. The consolidated financial statements do not include adjustments that might result from the outcome of this uncertainty.
Fair Value and the Fair Value Input Hierarchy. Fair value measurements affect the Company’s accounting for net assets acquired in acquisition transactions and certain financial assets and liabilities, such as its interest rate cap (“Interest Rate Cap”) agreement and common stock warrant liability.liabilities. Fair value measurements are also used in the Company’s periodic assessments of long-lived tangible and intangible assets for possible impairment, including for property and equipment, goodwill, and other intangible assets. Fair value is defined as the expected price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
GAAP categorizes the inputs used for fair value into a three-level 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 when measuring the fair value of its 2028 Notes (see Note 5).
The Company utilizes Level 2 inputs when measuring the fair value of its Interest Rate Capasset purchases and acquisitions (see Note 5)4).
The Company utilizes Level 3 inputs when measuring the fair value of net assets acquired in business combination transactions, subsequent assessments for impairment, and most 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 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 funds received from certain sports wagering agreements that had not commenced and were contractually requiredplaced into a construction reserve account to be separated fromfund the Company’s operating cash. In March 2020, such cash was no longer categorized as restricted, as the Company was approved for its “master license” for sports betting by the Colorado Limited Gaming Control Commission on March 19, 2020.
8
Cash, cash equivalents and restricted cash consistedcompletion of the following:
| | | | | | | |
(In thousands) | | | June 30, | | December 31, | ||
|
|
| 2020 |
| 2019 | ||
Cash and equivalents | | | $ | 26,495 | | $ | 28,851 |
Restricted cash | | |
| — | |
| 1,000 |
| | | $ | 26,495 | | $ | 29,851 |
Chamonix construction project.
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.
The Company sometimes provides discretionary complimentary goods and services (“discretionary comps”). 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 $1.4$0.7 million each for June 30,March 31, 2021 and $0.8 million for December 31, 2020, and December 31, 2019.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.
9
Revenue for food and beverage, hotel, and other revenue transactions is typically the net amount collected from the customercustomers 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 to the Company until the service is provided to the customer.
Deferred Revenues: Market Access Fees from Sports Wagering Agreements. These liabilities were created in the third quarter ofIn 2019, when the Company entered into several 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 Casino Resort and at Bronco Billy’s Casino and Hotel (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 longer-termlong-term Sports Agreements, the Company received $6 million in one-time market access fees, in cash, which were recorded as a long-term liability in the same amount and will beare being recognized as revenue ratably over the initial term length of each agreement of 10 years, beginning with the commencement of operations. The current and noncurrent portions
Indiana. Two of the deferred revenues balance totaling $5.93 million for June 30, 2020 is included with “Other accrued expenses and other” and “Contract liabilities, net of current portion” on the consolidated balance sheets, respectively. Of the Company’s Sports Agreements on-site sports wagering commenced at Rising Staroperations in December 2019 and April 2021, respectively. The remaining Sports Agreement is expected to go live in the fourth quarter of 2019, as did one of thenext few months.
Colorado. The Company’s three contracted mobile sports wagering websites commenced online operations in Indiana. In June of 2020, oneDecember 2020 and April 2021.
Deferred revenues consisted of the Company’s three contracted mobile sports wagering websites in Colorado also commenced operations.following as discussed above:
| | | | | | | | |
(In thousands) | | | | March 31, | | December 31, | ||
|
| Balance Sheet Location | | 2021 |
| 2020 | ||
Deferred revenue, current | | Other accrued liabilities | | $ | 1,122 | | $ | 1,372 |
Deferred revenue, net of current portion | | Contract liabilities, net of current portion | | | 5,298 | | | 5,398 |
| | | | $ | 6,420 | | $ | 6,770 |
Income Taxes. For interim income tax reporting for the three- and six-monthsthree-months ended June 30, 2020,March 31, 2021, the Company estimates its annual effective tax rate and applies it to its year-to-date pretax income or loss.
9
Reclassifications. The Company made certain minor financial statement presentation reclassifications to prior-period amounts to conform to the current-period presentation. Such reclassifications had no effect on the previously reported results of operations or financial position.
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, including commonshare-based awards outstanding under the Company’s stock optionscompensation plan and warrants, using the treasury stock method.
Leases. 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. Accounting Standards Codification 842 (“ASC 842”) requires
For material leases with terms greater than a dual approach for lessee accounting under which a lessee would classify and account for leases as either finance leases or operating leases, both of which result inyear, the lessee recognizing aCompany records right-of-use (“ROU”) assetassets and a corresponding lease liabilityliabilities on the balance sheet, as measured on a discounted basis for leases with terms greater than a year.basis. For finance leases, the lessee will recognizeCompany recognizes interest expense associated with the lease liability and depreciation expense associated with the ROU asset; for operating leases, the lessee will recognizeCompany recognizes straight-line rent expense.
10
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.payments based on the information available at the commencement date and/or modification date. The expected lease terms include options to extend or terminate 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.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
Recently IssuedIncome Taxes. In December 2019, the Financial Accounting Standards.Standards Board (“FASB”) issued Accounting Standards Update No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). This standard simplifies the accounting for income taxes and includes removal of certain exceptions to the general principles of ASC 740, Income Taxes, and updates and simplifies certain areas of the codification. ASU 2019-12 was effective for the Company beginning on January 1, 2021, but did not have a material impact on its financial statements upon adoption.
The Company believes that there are no other recently-issued accounting standards not yet effective that are currently likely to have a material impact on its financial statements.
3. LEASES
The Company has no leases in which it is the lessor. As lessee, the Company has one finance lease for a hotel and various operating leases for land, casino and office space, equipment, buildings, and signage. The Company’s lease terms, including extensions, range from one month to approximately 3837 years. The Company’s lease agreements do not contain any material 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, the 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-acre parcel on which the Silver Slipper Casino and Hotel is situated. The agreement includes fixed, base monthly payments of $77,500 plus contingent rents of 3% of monthly gross gaming revenue (as defined in the lease) in excess of $3.65 million, with no scheduled base rent increases through the remaining lease term ending in 2058.
Effective March 2020, theThe Company later executed a fourth amendment to the original lease with the landlord, effective March 2020, which granted a waiver of base rent for April and May of 2020. WithSuch abatement totaled $155,000 and the value of such abatement totaling $155,000will be amortized over the remaining term of undiscounted cash, the Company
10
chose to remeasure this lease in order to more fairly represent the reduction in payments.lease. This amendment also restricts the Company’s purchase option period for the leased land, so that the Company may notcannot exercise its purchase option until April 1, 2022. From such date through October 1, 2027, the Company canmay buy out thisthe 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 10 years following the purchase date.
11
Bronco Billy’s Lease through January 2035 and Option to Purchase. Bronco Billy’s leases certain parking lots and buildings, including a portion of the hotel and casino, under a long-term lease. The lease term includes six renewal options in three-year increments to 2035. Bronco Billy’s exercised its first renewal option through January 2020, and currently pays $30,000 per month in rent. In May 2019, Bronco Billy’s also exercised its second renewal option to extend the lease term through January 31, 2023 which will increase the monthly rent toand currently pays $32,500 beginningper month in February 2021.rent. The lease also contains a $7.6 million purchase option exercisable at any time during the lease term, or as extended, and a right of first refusal on any sale of the property.
Christmas Casino at Bronco Billy’sChamonix / Third Street Corner Building through August 20212023 and Option to Purchase. As part of the Bronco Billy’s expansion, theThe Company leased a nearby closed casino in August 2018, which it rebranded and opened it as the rebranded Christmas Casinoreopened in November 2018. The reopened casino did not produce enough incremental revenue to offset the incremental costs, and it was closed in September 2020. As part of the Chamonix development project, this building is currently used as office space for construction personnel. The lease includes a minimum three-year term with annual lease payments of $0.2 million, and can be extended an additional two years with annual lease payments of $0.3 million. The Company can also has the right to purchase the casino at any time during the lease term, or as extended. The purchase price is $2.6currently $2.7 million if boughtexercised by October 31, 2020, increasing by $0.1 million on each anniversary thereafter up2021 and increases to $2.8 million.million for purchase dates thereafter.
Grand Lodge Casino Lease through August 2023. The Company’s subsidiary, Gaming Entertainment (Nevada), LLC, has a lease with Hyatt Equities, L.L.C. (“Hyatt”) to operate the Grand Lodge Casino. The lease is collateralized by the Company’s interests under the lease and property (as defined in the lease) and is subordinate to the liens of the senior secured notes due 20242028 Notes (see Note 5). Hyatt currently has an option to purchase the Company’s leasehold interest and related operating assets of the Grand Lodge Casino, subject to assumption of applicable liabilities. The option price is an amount equal to the Grand Lodge Casino’s positive working capital, plus Grand Lodge Casino’s earnings before interest, income taxes, depreciation and amortization (“EBITDA”) for the twelve-month period preceding the acquisition (or pro-rated if less than twelve months remain on the lease), plus the fair market value of the Grand Lodge Casino’s personal property. The current monthly rent of $166,667 is applicable through the remaining lease term ending in August 2023.
In July 2020, the Company executed a fifth amendment to the Hyatt lease that retroactively reduced rent amounts due during the closure period, specifically a 25% reduction in rent for March 2020 and a 50% reduction in rent for each of April and May of 2020. WithSuch reductions totaled $208,000 and such concessions totalingbenefit is being amortized over $208,000the remaining life of undiscounted cash, the Company will remeasure this lease in the third quarter of 2020 to reflect the reduction in average monthly lease expenses.lease.
Corporate Office Lease through January 2025. In June 2017, theThe Company leasedleases 4,479 square feet of office space in Las Vegas, Nevada. Annual rent is approximately $0.2 million and the term of the office lease expires in January 2025.
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 project’s actualhotel’s original cost of $7.7 million, (see Note 4), reduced by the cumulative principal payments made by the Company during the lease term. At June 30, 2020,March 31, 2021, such net amount was $4.0$3.7 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 | ||||
| | | | March 31, | ||||
Lease Costs | | Statement of Operations Classification | | 2021 |
| 2020 | ||
Operating leases: |
|
|
| |
| | |
|
Fixed/base rent |
| Selling, General and Administrative Expenses | | $ | 1,159 | | $ | 1,200 |
Variable payments |
| Selling, General and Administrative Expenses | |
| 402 | |
| 154 |
Finance lease: |
|
| |
|
| |
|
|
Amortization of leased assets |
| Depreciation and Amortization | |
| 39 | |
| 40 |
Interest on lease liabilities |
| Interest Expense, Net | |
| 43 | |
| 32 |
Total lease costs | | | | $ | 1,643 | | $ | 1,426 |
1112
Leases recorded on the balance sheet consist of the following:
| | | | | | | | | | | | | | | | |
(In thousands) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Leases |
| Balance Sheet Classification |
| June 30, 2020 | | December 31, 2019 |
| Balance Sheet Classification |
| March 31, 2021 | | December 31, 2020 | ||||
Assets |
|
|
| |
| | |
|
|
|
| |
| | |
|
Operating lease assets |
| Operating Lease Right-of-Use Assets, Net |
| $ | 18,917 | | $ | 19,171 |
| Operating Lease Right-of-Use Assets, Net |
| $ | 16,600 | | $ | 17,361 |
Finance lease assets |
| Property and Equipment, Net(1) | |
| 4,958 | |
| 5,037 |
| Property and Equipment, Net(1) | |
| 4,840 | |
| 4,879 |
Total lease assets |
|
| | $ | 23,875 | | $ | 24,208 |
|
| | $ | 21,440 | | $ | 22,240 |
| | | | | | | | | | | | | | | | |
Liabilities |
|
| |
|
| |
|
|
|
| |
|
| |
|
|
Current |
|
| |
|
| |
|
|
|
| |
|
| |
|
|
Operating |
| Current Portion of Operating Lease Obligations | | $ | 3,166 | | $ | 2,707 |
| Current Portion of Operating Lease Obligations | | $ | 3,283 | | $ | 3,283 |
Finance |
| Current Portion of Finance Lease Obligation | |
| 481 | |
| 448 |
| Current Portion of Finance Lease Obligation | |
| 490 | |
| 491 |
Noncurrent |
|
| |
| | |
| |
|
| |
| | |
| |
Operating |
| Operating Lease Obligations, Net of Current Portion | |
| 16,130 | |
| 16,706 |
| Operating Lease Obligations, Net of Current Portion | |
| 14,094 | |
| 14,914 |
Finance |
| Finance Lease Obligation, Net of Current Portion | |
| 3,546 | |
| 3,829 |
| Finance Lease Obligation, Net of Current Portion | |
| 3,179 | |
| 3,298 |
Total lease liabilities |
|
| | $ | 23,323 | | $ | 23,690 |
|
| | $ | 21,046 | | $ | 21,986 |
__________
(1) | Finance lease assets are recorded net of accumulated amortization of $2.9 million and $2.8 million as of |
The components of lease expense are as follows:
| | | | | | | | | | | | | | |
(In thousands) |
| |
| Three Months Ended |
| Six Months Ended | ||||||||
| | | | June 30, | | June 30, | ||||||||
Lease Costs | | Statement of Operations Classification | | 2020 |
| 2019 | | 2020 |
| 2019 | ||||
Operating leases: |
|
|
| |
| | |
|
| |
| | |
|
Fixed/base rent |
| Selling, General and Administrative Expenses | | $ | 1,199 | | $ | 958 | | $ | 2,399 | | $ | 1,918 |
Variable payments |
| Selling, General and Administrative Expenses | |
| 4 | |
| 171 | |
| 158 | |
| 355 |
Finance lease: |
|
| |
|
| |
| | |
|
| |
|
|
Amortization of leased assets |
| Depreciation and Amortization | |
| 39 | |
| 39 | |
| 79 | |
| 79 |
Interest on lease liabilities |
| Interest Expense, Net | |
| 62 | |
| 52 | |
| 94 | |
| 106 |
Total lease costs | | | | $ | 1,304 | | $ | 1,220 | | $ | 2,730 | | $ | 2,458 |
12
Maturities of lease liabilities as of June 30, 2020March 31, 2021 are summarized as follows:
| | | | | | | | | | | | |
(In thousands) | | | | | | | | | | | | |
|
| Operating |
| Financing |
| Operating |
| Financing | ||||
Years Ending December 31, | | Leases | | Lease(1) | | Leases | | Lease(1) | ||||
2020 (excluding the six months ended June 30, 2020) | | $ | 2,397 | | $ | 272 | ||||||
2021 | |
| 4,684 | |
| 652 | ||||||
2021 (excluding the three months ended March 31, 2021) | | $ | 3,574 | | $ | 435 | ||||||
2022 | |
| 4,468 | |
| 652 | |
| 4,576 | |
| 652 |
2023 | |
| 2,876 | |
| 652 | |
| 2,984 | |
| 652 |
2024 | |
| 1,135 | |
| 652 | |
| 1,243 | |
| 652 |
2025 | |
| 1,046 | |
| 652 | ||||||
Thereafter | |
| 31,017 | |
| 1,847 | |
| 30,070 | |
| 1,195 |
Total future minimum lease payments | |
| 46,577 | |
| 4,727 | |
| 43,493 | |
| 4,238 |
Less: Amount representing interest | |
| (27,281) | |
| (700) | |
| (26,116) | |
| (569) |
Present value of lease liabilities | |
| 19,296 | |
| 4,027 | |
| 17,377 | |
| 3,669 |
Less: Current lease obligations | |
| (3,166) | |
| (481) | |
| (3,283) | |
| (490) |
Long-term lease obligations | | $ | 16,130 | | $ | 3,546 | | $ | 14,094 | | $ | 3,179 |
__________
(1)The Company’s only material finance lease is at Rising Star Casino Resort for a 104-room hotel.
13
Other information related to lease term and discount rate is as follows:
| | | | | | | | | | | | |
Lease Term and Discount Rate |
| June 30, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 | ||||
Weighted-average remaining lease term |
|
| | |
| |
|
| | |
| |
Operating leases |
| 19.8 | years | | 20.2 | years |
| 20.97 | years | | 20.4 | years |
Finance lease |
| 7.3 | years | | 7.8 | years |
| 6.5 | years | | 6.8 | years |
Weighted-average discount rate |
|
| | |
| |
|
| | |
| |
Operating leases |
| 9.40 | % | | 9.40 | % |
| 9.43 | % | | 9.41 | % |
Finance lease |
| 4.50 | % | | 4.50 | % |
| 4.50 | % | | 4.50 | % |
(1)Upon adoption of the new lease standard, discount rates used for existing operating leases were established on January 1, 2019.
Supplemental cash flow information related to leases is as follows:
| | | | | | | | | | | | |
(In thousands) |
| Six Months Ended |
| Three Months Ended | ||||||||
| | June 30, | | March 31, | ||||||||
Cash paid for amounts included in the measurement of lease liabilities: | | 2020 | | 2019 | | 2021 | | 2020 | ||||
Operating cash flows for operating leases | | $ | 1,659 | | $ | 1,928 | | $ | 1,218 | | $ | 1,209 |
Operating cash flows for finance lease | | $ | 94 | | $ | 106 | | $ | 43 | | $ | 32 |
Financing cash flows for finance lease | | $ | 251 | | $ | 263 | | $ | 120 | | $ | 95 |
13
4. PROPERTY AND EQUIPMENTACQUISITIONS
PropertyCripple Creek Land and equipment, including finance lease assets, consistsReal Estate Purchase. As part of the following:development of Chamonix, the Company closed on the purchase of 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 (see Note 2). The purchase included five 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, as Bronco Billy’s existing hotel rooms are either currently closed or will be demolished as part of the construction of Chamonix.
| | | | | | |
(In thousands) | | June 30, | | December 31, | ||
| | 2020 | | 2019 | ||
Land and improvements | | $ | 16,144 | | $ | 16,144 |
Buildings and improvements | |
| 107,139 | |
| 106,946 |
Furniture and equipment | |
| 48,260 | |
| 47,886 |
Finance lease assets (see Note 3) | | | 7,726 | | | 7,726 |
Construction in progress | |
| 10,916 | |
| 10,856 |
| |
| 190,185 | |
| 189,558 |
Less: Accumulated depreciation | |
| (71,986) | |
| (68,071) |
| | $ | 118,199 | | $ | 121,487 |
5. LONG-TERM DEBT
Long-term debt, related discounts and issuance costs consist of the following:
| | | | | | | | | | | | |
(In thousands) | | June 30, | | December 31, | | March 31, | | December 31, | ||||
| | 2020 | | 2019 | | 2021 | | 2020 | ||||
Senior Secured Notes | | $ | 107,375 | | $ | 107,925 | ||||||
Unsecured Loans (CARES Act) | | | 5,606 | | | — | ||||||
Senior Secured Notes due 2028(1) | | $ | 310,000 | | $ | — | ||||||
Senior Secured Notes due 2024(2) | | | — | | | 106,825 | ||||||
Unsecured Loans (CARES Act)(2) | | | 5,606 | | | 5,606 | ||||||
Less: Unamortized discounts and debt issuance costs | |
| (3,852) | |
| (3,902) | |
| (9,527) | |
| (5,173) |
| |
| 109,129 | |
| 104,023 | |
| 306,079 | |
| 107,258 |
Less: Current portion of long-term debt | |
| (3,253) | |
| (1,100) | |
| (799) | |
| (426) |
| | $ | 105,876 | | $ | 102,923 | | $ | 305,280 | | $ | 106,832 |
__________
(1) | As of March 31, 2021, the estimated fair value of these notes was approximately $331.8 million. The fair value was estimated using quoted market prices for these notes (see Note 2). |
(2) | The estimated fair value for these non-traded debt instruments can be approximated by their respective carrying values because management believes their terms are representative of market conditions. |
14
Debt Refinancing: Notes Issuance. On February 12, 2021, the Company refinanced its existing outstanding Senior Secured Notes and Waiver. On April 28, 2020, the Company executed the Third Amendment to Indenture dated as of April 28, 2020 (the “Third Amendment”) to amend the Indenture dated as of February 2, 2018 (as amended and supplemented, the “Indenture”), which governs the senior secured notes due 2024 issued by(the “Prior Notes”) with the Company in theissuance of $310 million aggregate principal amount of $110.0 million (collectively,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 “Notes”). Reflectingmaturity date. Interest on the impact2028 Notes is payable on February 15 and August 15 of each year, with the first interest payment due on August 15, 2021.
The net proceeds from the sale of the temporary closures2028 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 properties duerestricted subsidiaries (collectively, the “Guarantors”). The 2028 Notes and the Guarantees are the Company’s and the Guarantors’ general senior secured obligations, subject to COVID-19, the Third Amendment (i) deletedterms of the total leverage ratio covenant as of March 31, 2020, and (ii) resolved any potential ambiguities regarding a qualified auditor opinionCollateral Trust Agreement (as defined in the Indenture), ranking senior in right of payment to all of the Company’s Annual Report on Form 10-K forand the year ended December 31, 2019. The Company paid an amendment feeGuarantors’ existing and future debt that is expressly subordinated in right of 0.35%, or $376,775payment to the holders2028 Notes and the Guarantees, if any. The 2028 Notes and the Guarantees will rank equally in right of its Notes, based on the outstanding balancepayment with all of the aggregateCompany’s and the Guarantors’ existing and future senior debt.
The 2028 Notes contain customary representations and warranties, financial covenants, and restrictions on dividends. Mandatory prepayments 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, we may redeem up to 35% of the original principal amount as of the amendment date. Additionally, the Third Amendment increased the optional premiums by 15 basis points,2028 Notes with proceeds of certain equity offerings at a redemption price of 108.25%, plus accrued and applicable unpaid interest ifto the Company chooses toredemption date. In addition, we may redeem allsome or a partall of the 2028 Notes prior to orFebruary 15, 2024 at maturity.
On August 12, 2020, the Company executed the Fourth Amendment to Indenture dated asa redemption price of August 12, 2020 (the “Fourth Amendment”) to amend the Indenture to the “Notes.” Reflecting the adverse impact on the Company’s business operations due to the ongoing COVID-19 pandemic, the Fourth Amendment (i) deleted the total leverage ratio covenant as of June 30, 2020, and (ii) permitted the incurrence of $5.6 million of unsecured loans under the CARES Act, as detailed below. The Company paid an amendment fee of 0.75%, or $805,313 to the holders of its Notes, based on the outstanding balance100% of the aggregate principal amount as of the amendment date. Additionally, the Fourth Amendment increased the optional premiums by 25 basis points,2028 Notes, plus accrued and applicable unpaid interest ifto the redemption date and a “make-whole” premium.
At any time on or after February 15, 2024, the Company chooses tomay redeem allsome or a partall of the 2028 Notes prior to, orfor cash at maturity. Thethe following table summarizes the current debt repayment premiums for the Notes:redemption prices:
| | | |
Redemption Periods |
| Percentage Premium | |
|
|
| % |
|
|
| % |
| |
| % |
14
ThePrior Notes bearto 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 atbased on the greater of the three-month London Interbank Offered Rate (“LIBOR”) or 1.0%, plus a margin rate of 7.0%. InterestThe Prior Notes also had a prepayment premium of 0.9% when repaid on February 12, 2021.
The Prior Notes contained customary representations and warranties, events of default, and financial covenants. 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 Notes is payable quarterlyCompany’s business operations in arrears, on2020, the Company executed amendments to delete the total leverage ratio covenant as of March 31, June 30, and September 30, 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 Decemberincludes 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
15
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 has also agreed to pay customary letter of credit fees. The Credit Facility is available, subject to the satisfaction of customary conditions, until March 31, 2026, at which time all amounts borrowed must be repaid. As of March 31, 2021, there were no 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 whole 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 covenants contained in the 2028 Notes. The Credit Facility also includes a requirement that the Company maintain, for the first two fiscal quarters following the closing of the Credit Facility, cash and equivalents totaling at least $20.0 million, excluding any amounts in the construction reserve accounts reserved for construction of Chamonix. The Credit Facility also requires compliance with a financial covenant as of the last day of each year until the Notes mature on February 2, 2024. On each interest payment date, the Company is required to make principal payments of $275,000 with a balloon paymentfiscal quarter, such that Adjusted EBITDA (as defined) for the remaining $103.5 million due upon maturity. Additionally, excludingtrailing twelve-month period must equal or exceed the exercise of any optional early redemptions, the Company will pay a debt redemption premium of $0.4 million at maturity, as required by the Third and Fourth Amendments and detailed in the table above.
The Notes are collateralized by substantially allutilized portion of the Company’s assets and are guaranteed by allCredit Facility, if drawn. The Company was in compliance with both covenants as of its material subsidiaries.March 31, 2021.
Unsecured Loans Under the CARES Act. On May 8, 2020, two wholly-owned subsidiaries of the Company executed promissory notes (the “Promissory Notes”) evidencing unsecured loans in the aggregate 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”), have a two-year term, bear interest at a rate of 1.00% per annum, and mature on May 3, 2022. originally had a two-year term.
Recently-passed legislation allows forextended the original maturity date to potentially be extendeddates to May 3, 2025. Monthly2025 with no change to the annual interest rate. After a 15-month deferment period for principal and interest payments, are deferred for six months. Beginning in December 2020, the Company is required to make monthly loan payments of principal and interest to the Lender.totaling $128,557 beginning in September 2021. The Loans may be prepaid at any time prior to maturity with no prepayment penalties. Such Loans may be forgiven, either in whole or in part, depending on the amount of such proceeds that are used for certain eligible expenses over a 24-week period, including primarily the payroll and health benefits of employees who might otherwise behave been without jobs or health benefits. ThereThe Company has through the maturity date of the loans to apply for forgiveness; however, there is no certainty that any or all of such Loans will be forgiven.
Maturities of the unsecured loans as of June 30, 2020 are as follows:
| | | |
(In thousands) | | | |
| | Unsecured | |
For Years Ending December 31, | | Loans | |
2020 | | $ | 282 |
2021 | | | 3,750 |
2022 | | | 1,574 |
| | $ | 5,606 |
Covenants. The Indenture governing the Notes contains customary representations and warranties, events of default, and positive and negative covenants, including financial covenants. The Company is required to maintain a total leverage ratio, which measures Consolidated EBITDA (as defined in the Indenture) against outstanding debt. The Company is allowed to deduct up to $15 million of its cash and equivalents (beyond estimated cash utilized in daily operations) from its total debt when calculating the numerator of such ratio. The Third and Fourth Amendments deleted the total leverage ratio covenant for the periods ended March 31, 2020 and June 30, 2020. For the remainder of the year, the total leverage ratio maximum is 5.75x through September 30, 2020 and 5.50x through December 31, 2020. Due to the impact of COVID-19, the Company is currently in discussions with its lenders regarding amendments with respect to leverage ratio covenants in future periods. However, there can be no assurances that the Company will remain in compliance with all covenants and/or that it would be successful in obtaining waivers or modifications in the event of noncompliance in the future.
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, on May 13, 2016,which was retired in 2018, the Company granted the Second Lien Credit Facilitysecond lien lenders 1,006,568 warrants, which have an exercisewarrants. The settled repurchase price of $1.67 and expire on May 13, 2026. The warrants also provide for redemption rights, preemptive rights under certain circumstances to maintain their ownership interest in the Company, piggyback registration rights and mandatory registration rights. In addition to a refinancing, the redemption rights allow the warrant-holders, at their option, to require the Company to repurchase all or a portion ofredeem the warrants upon the occurrence of certain events, including: (i) a liquidity event, as defined in the warrant purchase agreement, or (ii) the Company’s insolvency. The repurchase value is the 21-day average price of the Company’s common stock at the time of such liquidity event, net of the warrant exercise price. If the redemption rights are exercised, the repurchase amount is payable by
15
the Company in cash or through the issuance of an unsecured note with a four-year term and a minimum interest rate of 13.25%, as further defined in the warrant purchase agreement, and would be guaranteed by the Company’s subsidiaries. Alternatively, the warrant-holders may choose to have the Company register and sell the shares related to the warrants through a public stock offering.
The Company’s debt refinancing of the Second Lien Credit Facility during 2018 was considered a “triggering event” for the possible redemption or registration of the warrants. The Company’s warrant-holders have not yet requested the redemption or registration of their outstanding warrants, though they may do so on any six-month anniversary of the refinancing date prior to warrant expiration. Accordingly, the obligation is reflected as a current liability.$4.0 million.
The Company measurespreviously measured the fair value of the warrants at each reporting period (see Note 2). At June 30, 2020,However, upon redemption of the estimatedwarrants on February 12, 2021, the fair value was determined usingbased on the following assumptions:repurchase price of $4.0 million. This resulted in an expected contractual termincremental fair value adjustment of 5.87 years, an expected$1.3 million in the quarter, to increase the warrant liability from $2.7 million at December 31, 2020, when the Company’s stock price volatility rate of 61.62%, an expected dividend yield of 0%, and an expected risk-free interest rate of 0.38%.traded at lower prices.
7. INCOME TAXES
The Company’s effective income tax rate for the three-three-months ended March 31, 2021 and six-months ended June 30, 2020 was 0.1%(6.2)% and (0.8%)(2.2)%, respectively, compared to an effective income tax rate of (16.5%) and (12.2%) for the corresponding prior-year periods.respectively. The Company’s tax rate differs 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.
On March 18, 2020, the Families First Coronavirus Response Act (the “FFCR Act”), and on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) were each enacted in response to COVID-19. The FFCR Act and the CARES Act contain numerous income tax provisions, such as relaxing limitations on the deductibility16
8. COMMITMENTS AND CONTINGENCIES
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 Purchase or Lease Land and Real Estate Purchases
La Posada del Llano Racetrack Proposal in New Mexico. Cripple Creek Land and Real Estate Purchases.In July 2018, On April 16, 2021, the Company paid $125,000purchased a lot and building near its operations in Cripple Creek, Colorado for options to purchase approximately 520 acres of adjoining land in Clovis, New Mexico as part of its racetrack casino proposal to the New Mexico Racing Commission. The proposal was in response to the New Mexico Racing Commission’s request for proposals related to the potential issuance of the state’s sixth racing license (“RFP”). In July 2019, the Company paid an additional $125,000 to renew these land options. In August 2019, the New Mexico Racing Commission announced that it would not issue the sixth racing license at this time. Due to uncertainties surrounding the timing of the RFP process, as well as uncertainties created by the ongoing pandemic, the Company elected to let the New Mexico land options expire in July 2020. Accordingly, the Company wrote-off these option deposits totaling $250,000 in the second quarter of 2020, reflected on the income statement under “Project development costs.”$600,000.
16
9. EARNINGS (LOSS) PER SHARE AND STOCKHOLDERS’ EQUITY
Earnings (Loss) Per Share
The table below reconciles basic and diluted loss per share of common stock:
| | | | | | | | | | | | | | | | | | |
(In thousands) | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended March 31, | ||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2021 |
| 2020 | ||||||
Numerator: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Net loss - basic | | $ | (6,703) | | $ | (1,010) | | $ | (11,061) | | $ | (2,627) | ||||||
Net loss – basic | | $ | (3,445) | | $ | (4,358) | ||||||||||||
Adjustment for assumed conversion of warrants | | | — | | | (141) | | | (1,562) | | | (101) | | | — | | | (1,656) |
Net loss - diluted | | $ | (6,703) | | $ | (1,151) | | $ | (12,623) | | $ | (2,728) | ||||||
Net loss – diluted | | $ | (3,445) | | $ | (6,014) | ||||||||||||
| | | | | | | | | | | | | | | | | | |
Denominator: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Weighted-average common and common share equivalents - basic | |
| 27,079 | |
| 26,969 | |
| 27,077 | |
| 26,955 | |
| 27,357 | |
| 27,076 |
Potential dilution from assumed conversion of warrants | |
| — | |
| 217 | |
| 182 | |
| 232 | |
| — | |
| 364 |
Weighted-average common and common share equivalents - diluted | |
| 27,079 | |
| 27,186 | |
| 27,259 | |
| 27,187 | |
| 27,357 | |
| 27,440 |
Anti-dilutive share-based awards and warrants excluded from the calculation of diluted loss per share | |
| 4,204 | |
| 2,699 | |
| 3,198 | |
| 2,699 | |
| 3,140 | |
| 2,844 |
Stockholders’ Equity
On March 29, 2021, the Company completed an underwritten public offering (the “Offering”) for a total of 6,917,250 shares of its common stock, par value $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 approximately $43.0 million after deducting underwriting discounts, commissions and offering expenses. The Company intends to use the net proceeds from this offering for general corporate purposes, including its current and future development projects.
10. SHARE-BASED COMPENSATION
As of June 30, 2020,March 31, 2021, the Company had 122,4138,000 share-based awards authorized by shareholders and available for grant from the 2015 Equity Incentive Plan (the “2015 Plan”).
17
The following table summarizes information related to the Company’s common stock options as of June 30, 2020:March 31, 2021:
| | | | | | | | | | |
|
| |
| Weighted |
| |
| Weighted | ||
| | Number | | Average | | Number | | Average | ||
| | of Stock | | Exercise | | of Stock | | Exercise | ||
| | Options | | Price | | Options | | Price | ||
Options outstanding at January 1, 2020 |
| 2,844,405 | | $ | 1.71 | |||||
Options outstanding at January 1, 2021 |
| 3,183,708 | | $ | 1.71 | |||||
Granted |
| 362,000 | |
| 1.73 |
| 32,027 | |
| 3.93 |
Exercised |
| — | |
| — |
| (67,616) | |
| 2.29 |
Canceled/Forfeited |
| (8,650) | |
| 2.23 |
| (8,000) | |
| 1.73 |
Expired |
| — | |
| — |
| — | |
| — |
Options outstanding at June 30, 2020 |
| 3,197,755 | | $ | 1.71 | |||||
Options exercisable at June 30, 2020 |
| 2,369,088 | | $ | 1.61 | |||||
Options outstanding at March 31, 2021 |
| 3,140,119 | | $ | 1.72 | |||||
Options exercisable at March 31, 2021 |
| 2,432,757 | | $ | 1.63 |
Share-based compensation expense totaled $103,000$124,000 and $107,000$83,000 for the three-months ended June 30,March 31, 2021 and 2020, respectively. The expense for 2021 includes estimates for certain performance-based shares in connection with the employment agreement of Daniel R. Lee, the Company’s President and 2019, respectively, and $186,000 and $193,000Chief Executive Officer, as well as his awarded stock options conditioned upon stockholders increasing the number of shares available for issuance under the six-months ended June 30, 2020 and 2019, respectively.2015 Plan. As of June 30, 2020,March 31, 2021, there was approximately $0.7$0.8 million of unrecognized compensation cost related to unvested stock options previously granted that is expected to be recognized over a weighted-average period of approximately 2.32.0 years.
11. SEGMENT REPORTING AND DISAGGREGATED REVENUE
The Company manages its casinosreporting segments based on geographic regions within the United States.States and type of income. The casino/resort operations include four segments: Silver Slipper Casinofive segments as of 2021: Mississippi, Indiana, Colorado, Nevada, and Hotel (Hancock County, Mississippi); Rising Star Casino Resort, consistingContracted Sports Wagering. The Company’s management views the states where each of Rising Star Casino Resort (Rising Sun, Indiana)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 ferry boatcore casino business, the Company changed the aggregation of its operations (connecting Rising Sun, Indiana with Boone County, Kentucky); Bronco Billy’s 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 (includingonline sports wagering skins. Additionally, this new segment breakout aims to enhance transparency of operations and allow more appropriate valuation of the Christmas Casino & Inn, both in Cripple Creek, Colorado); and the
17
Northern Nevada segment, consisting of Grand Lodge Casino (Incline Village, Nevada) and Stockman’s Casino (Fallon, Nevada).Company’s various business components. See Note 1 for further information.
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-opening 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.
Thesegment. As a result of the change in reportable segments described above, the Company has recast previously-reported segment information to conform to the current presentation in the following tables present the Company’s segment information:for enhanced comparability, which had no effect on previously reported results of operations or financial position.
| | | | | | | | | | | | | | | | | | |
(In thousands) | | Three Months Ended June 30, 2020 | ||||||||||||||||
|
| Silver |
| | |
| Bronco |
| | |
| | |
| | | ||
| | Slipper | | Rising Star | | Billy’s | | Northern | | | | | | | ||||
| | Casino | | Casino | | Casino | | Nevada | | | | | | | ||||
| | and Hotel | | Resort | | and Hotel | | Casinos | | Corporate | | Total | ||||||
Total Revenues | | | | | | | | | | | | | | | | | | |
Casino | | $ | 6,645 | | $ | 1,824 | | $ | 1,486 | | $ | 1,000 | | $ | — | | $ | 10,955 |
Food and beverage | |
| 1,757 | |
| 91 | |
| 88 | |
| 58 | |
| — | |
| 1,994 |
Hotel | |
| 560 | |
| 118 | |
| 41 | |
| — | |
| — | |
| 719 |
Other operations | |
| 160 | |
| 554 | |
| 101 | |
| 28 | |
| — | |
| 843 |
| | $ | 9,122 | | $ | 2,587 | | $ | 1,716 | | $ | 1,086 | | $ | — | | $ | 14,511 |
| | | | | | | | | | | | | | | | | | |
Adjusted Property EBITDA | | $ | 1,200 | | $ | (995) | | $ | (118) | | $ | (562) | | $ | — | | $ | (475) |
Other operating costs and expenses: | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | | |
| (1,980) |
Corporate expenses | | | | | | | | | | | | | | | | |
| (910) |
Project development costs | | | | | | | | | | | | | | | | |
| (259) |
Loss on disposal of asset, net | | | | | | | | | | | | | | | | | | (439) |
Stock-based compensation | | | | | | | | | | | | | | | | | | (103) |
Operating loss | | | | | | | | | | | | | | | | |
| (4,166) |
Other (expense) income: | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | | | | | | | | | | | | | | |
| (2,447) |
Adjustment to fair value of warrants | | | | | | | | | | | | | | | | |
| (94) |
| | | | | | | | | | | | | | | | | | (2,541) |
Loss before income taxes | | | | | | | | | | | | | | | | | | (6,707) |
Income tax benefit | | | | | | | | | | | | | | | | |
| (4) |
Net loss | | | | | | | | | | | | | | | | | $ | (6,703) |
18
The following tables present the Company’s segment information:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Three Months Ended June 30, 2019 | | Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||||||||
|
| Silver |
| | |
| Bronco |
| | |
| | |
| | | | | | | | | | | | Contracted | | | ||||||||
| | Slipper | | Rising Star | | Billy’s | | Northern | | | | | | | | | | | | | | | | Sports | | | ||||||||||
| | Casino | | Casino | | Casino | | Nevada | | | | | | | | Mississippi | | Indiana | | Colorado | | Nevada | | Wagering | | Total | ||||||||||
| | and Hotel | | Resort | | and Hotel | | Casinos | | Corporate | | Total | ||||||||||||||||||||||||
Total Revenues | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Revenues | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Casino | | $ | 11,636 | | $ | 7,526 | | $ | 5,563 | | $ | 3,725 | | $ | — | | $ | 28,450 | | $ | 16,040 | | $ | 6,715 | | $ | 5,264 | | $ | 4,045 | | $ | — | | $ | 32,064 |
Food and beverage | |
| 5,515 | |
| 1,800 | |
| 1,051 | |
| 497 | |
| — | |
| 8,863 | |
| 4,693 | |
| 748 | |
| 413 | |
| 247 | |
| — | |
| 6,101 |
Hotel | |
| 1,305 | |
| 1,560 | |
| 186 | |
| — | |
| — | |
| 3,051 | |
| 1,170 | |
| 919 | |
| 122 | |
| — | |
| — | |
| 2,211 |
Other operations | |
| 436 | |
| 712 | |
| 77 | |
| 74 | |
| — | |
| 1,299 | |
| 453 | |
| 208 | |
| 106 | |
| 76 | |
| 989 | |
| 1,832 |
| | $ | 18,892 | | $ | 11,598 | | $ | 6,877 | | $ | 4,296 | | $ | — | | $ | 41,663 | | $ | 22,356 | | $ | 8,590 | | $ | 5,905 | | $ | 4,368 | | $ | 989 | | $ | 42,208 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted Property EBITDA | | $ | 3,594 | | $ | 604 | | $ | 876 | | $ | 417 | | $ | — | | $ | 5,491 | ||||||||||||||||||
Adjusted Segment EBITDA | | $ | 7,630 | | $ | 1,134 | | $ | 1,710 | | $ | 1,224 | | $ | 976 | | $ | 12,674 | ||||||||||||||||||
Other operating costs and expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | | |
| (2,083) | | | | | | | | | | | | | | | | |
| (1,800) |
Corporate expenses | | | | | | | | | | | | | | | | | | (1,240) | | | | | | | | | | | | | | | | |
| (1,905) |
Project development costs | | | | | | | | | | | | | | | | |
| (142) | | | | | | | | | | | | | | | | |
| (47) |
Gain on disposal of assets, net | | | | | | | | | | | | | | | | | | 4 | ||||||||||||||||||
Loss on disposal of asset, net | | | | | | | | | | | | | | | | | | (104) | ||||||||||||||||||
Stock-based compensation | | | | | | | | | | | | | | | | |
| (107) | | | | | | | | | | | | | | | | | | (124) |
Operating income | | | | | | | | | | | | | | | | |
| 1,923 | | | | | | | | | | | | | | | | |
| 8,694 |
Other (expense) income: | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Other expenses: | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Interest expense, net | | | | | | | | | | | | | | | | |
| (2,931) | | | | | | | | | | | | | | | | |
| (4,456) |
Loss on extinguishment of debt | | | | | | | | | | | | | | | | |
| (6,134) | ||||||||||||||||||
Adjustment to fair value of warrants | | | | | | | | | | | | | | | | |
| 141 | | | | | | | | | | | | | | | | | | (1,347) |
| | | | | | | | | | | | | | | | | | (2,790) | | | | | | | | | | | | | | | | | | (11,937) |
Loss before income taxes | | | | | | | | | | | | | | | | | | (867) | | | | | | | | | | | | | | | | | | (3,243) |
Income tax provision | | | | | | | | | | | | | | | | |
| 143 | | | | | | | | | | | | | | | | |
| 202 |
Net loss | | | | | | | | | | | | | | | | | $ | (1,010) | | | | | | | | | | | | | | | | | $ | (3,445) |
19
| | | | | | | | | | | | | | | | | | |
(In thousands) | | Six Months Ended June 30, 2020 | ||||||||||||||||
|
| Silver |
| | |
| Bronco |
| | |
| | |
| | | ||
| | Slipper | | Rising Star | | Billy’s | | Northern | | | | | | | ||||
| | Casino | | Casino | | Casino | | Nevada | | | | | | | ||||
| | and Hotel | | Resort | | and Hotel | | Casinos | | Corporate | | Total | ||||||
Total Revenues | | | | | | | | | | | | | | | | | | |
Casino | | $ | 15,715 | | $ | 6,852 | | $ | 5,491 | | $ | 3,648 | | $ | — | | $ | 31,706 |
Food and beverage | |
| 6,436 | |
| 1,244 | |
| 855 | |
| 449 | |
| — | |
| 8,984 |
Hotel | |
| 1,530 | |
| 976 | |
| 187 | |
| — | |
| — | |
| 2,693 |
Other operations | |
| 534 | |
| 1,186 | |
| 164 | |
| 97 | |
| — | |
| 1,981 |
| | $ | 24,215 | | $ | 10,258 | | $ | 6,697 | | $ | 4,194 | | $ | — | | $ | 45,364 |
| | | | | | | | | | | | | | | | | | |
Adjusted Property EBITDA | | $ | 3,032 | | $ | (2,088) | | $ | (596) | | $ | (953) | | $ | — | | $ | (605) |
Other operating costs and expenses: | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | | |
| (4,020) |
Corporate expenses | | | | | | | | | | | | | | | | | | (2,029) |
Project development costs | | | | | | | | | | | | | | | | |
| (315) |
Loss on disposal of asset, net | | | | | | | | | | | | | | | | | | (439) |
Stock-based compensation | | | | | | | | | | | | | | | | |
| (186) |
Operating loss | | | | | | | | | | | | | | | | |
| (7,594) |
Other (expense) income: | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | | | | | | | | | | | | | | |
| (4,938) |
Adjustment to fair value of warrants | | | | | | | | | | | | | | | | |
| 1,562 |
| | | | | | | | | | | | | | | | | | (3,376) |
Loss before income taxes | | | | | | | | | | | | | | | | | | (10,970) |
Income tax provision | | | | | | | | | | | | | | | | |
| 91 |
Net loss | | | | | | | | | | | | | | | | | $ | (11,061) |
20
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Six Months Ended June 30, 2019 | | Three Months Ended March 31, 2020 | ||||||||||||||||||||||||||||||||
|
| Silver |
| | |
| Bronco |
| | |
| | |
| | | | | | | | | | | | Contracted | | | ||||||||
| | Slipper | | Rising Star | | Billy’s | | Northern | | | | | | | | | | | | | | | | Sports | | | ||||||||||
| | Casino | | Casino | | Casino | | Nevada | | | | | | | | Mississippi | | Indiana | | Colorado | | Nevada | | Wagering | | Total | ||||||||||
| | and Hotel | | Resort | | and Hotel | | Casinos | | Corporate | | Total | ||||||||||||||||||||||||
Total Revenues | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Revenues | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Casino | | $ | 24,015 | | $ | 14,869 | | $ | 10,806 | | $ | 7,058 | | $ | — | | $ | 56,748 | | $ | 9,070 | | $ | 5,028 | | $ | 4,005 | | $ | 2,648 | | $ | — | | $ | 20,751 |
Food and beverage | |
| 10,886 | |
| 3,613 | |
| 2,025 | |
| 997 | |
| — | |
| 17,521 | |
| 4,679 | |
| 1,153 | |
| 767 | |
| 391 | |
| — | |
| 6,990 |
Hotel | |
| 2,449 | |
| 2,983 | |
| 334 | |
| — | |
| — | |
| 5,766 | |
| 969 | |
| 858 | |
| 147 | |
| — | |
| — | |
| 1,974 |
Other operations | |
| 824 | |
| 1,000 | |
| 152 | |
| 146 | |
| — | |
| 2,122 | |
| 374 | |
| 208 | |
| 63 | |
| 69 | |
| 424 | |
| 1,138 |
| | $ | 38,174 | | $ | 22,465 | | $ | 13,317 | | $ | 8,201 | | $ | — | | $ | 82,157 | | $ | 15,092 | | $ | 7,247 | | $ | 4,982 | | $ | 3,108 | | $ | 424 | | $ | 30,853 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted Property EBITDA | | $ | 7,440 | | $ | 1,007 | | $ | 1,491 | | $ | 408 | | $ | — | | $ | 10,346 | ||||||||||||||||||
Adjusted Segment EBITDA | | $ | 1,831 | | $ | (1,490) | | $ | (471) | | $ | (390) | | $ | 390 | | $ | (130) | ||||||||||||||||||
Other operating costs and expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | | | | (4,174) | | | | | | | | | | | | | | | | |
| (2,040) |
Corporate expenses | | | | | | | | | | | | | | | | | | (2,518) | | | | | | | | | | | | | | | | | | (1,119) |
Project development costs | | | | | | | | | | | | | | | | |
| (275) | | | | | | | | | | | | | | | | |
| (56) |
Gain on disposal of assets, net | | | | | | | | | | | | | | | | | | 5 | | | | | | | | | | | | | | | | | | — |
Stock-based compensation | | | | | | | | | | | | | | | | |
| (193) | | | | | | | | | | | | | | | | |
| (83) |
Operating income | | | | | | | | | | | | | | | | |
| 3,191 | ||||||||||||||||||
Operating loss | | | | | | | | | | | | | | | | |
| (3,428) | ||||||||||||||||||
Other (expense) income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | | | | | | | | | | | | | | |
| (5,634) | | | | | | | | | | | | | | | | |
| (2,491) |
Loss on extinguishment of debt | | | | | | | | | | | | | | | | |
| — | ||||||||||||||||||
Adjustment to fair value of warrants | | | | | | | | | | | | | | | | |
| 101 | | | | | | | | | | | | | | | | | | 1,656 |
| | | | | | | | | | | | | | | | | | (5,533) | | | | | | | | | | | | | | | | | | (835) |
Loss before income taxes | | | | | | | | | | | | | | | | | | (2,342) | | | | | | | | | | | | | | | | | | (4,263) |
Income tax provision | | | | | | | | | | | | | | | | |
| 285 | | | | | | | | | | | | | | | | |
| 95 |
Net loss | | | | | | | | | | | | | | | | | $ | (2,627) | | | | | | | | | | | | | | | | | $ | (4,358) |
| | | | | | | | | | | | |
(In thousands) | | June 30, | | December 31, | | March 31, | | December 31, | ||||
|
| 2020 |
| 2019 |
| 2021 |
| 2020 | ||||
Total Assets | | | | | | | | | | | | |
Silver Slipper Casino and Hotel | | $ | 84,928 | | $ | 87,980 | ||||||
Rising Star Casino Resort | |
| 39,813 | |
| 40,277 | ||||||
Bronco Billy's Casino and Hotel | |
| 46,505 | |
| 45,034 | ||||||
Northern Nevada Casinos | |
| 14,023 | |
| 18,612 | ||||||
Mississippi | | $ | 85,467 | | $ | 83,809 | ||||||
Indiana | |
| 35,268 | |
| 37,798 | ||||||
Colorado | |
| 227,580 | |
| 44,961 | ||||||
Nevada | |
| 13,082 | |
| 13,248 | ||||||
Contracted Sports Wagering | | | 1,948 | | | 1,329 | ||||||
Corporate and Other | |
| 18,122 | |
| 19,432 | |
| 90,598 | |
| 31,471 |
| | $ | 203,391 | | $ | 211,335 | | $ | 453,943 | | $ | 212,616 |
2120
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, 2019,2020, which were included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 30, 2020.12, 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,” the “Company,” “we,” “our” or “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 casino gambling, hotel accommodations, dining, golfing,golf, RV camping, sports betting, entertainment, and retail outlets, among other amenities. We currently own or operate five casino properties in four states: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 segmentssegments. Because they share certain overhead costs, we view both of our Colorado properties (including our Chamonix construction project) as an operating segment, and both of our Nevada properties as onean operating segment. We also benefit from six permitted sports “skins” that we are allowed to operate, three in Colorado and three in Indiana. We have contracted with other companies to operate these online sports wagering sites under their own brands in exchange for a percentage of revenues, as defined, subject to annual minimum amounts. As of this report date, five of our six permitted skins have commenced operations. We expect our last remaining skin to begin operations in Indiana in the next few months.
Our portfolio consistsDuring the first quarter of 2021, because it is a significantly different business from our core casinos, we changed the following:aggregation of our operations to present Contracted Sports Wagering as a separate segment. This enhances transparency of our operations and allows more appropriate valuation of our various business components.
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) | ||
| | | ||
Rising Star Casino Resort | Rising Sun, IN (near Cincinnati) | |||
| |
| ||
Silver Slipper Casino and Hotel |
|
| Hancock County, MS | |
| |
|
| |
|
|
| ||
|
|
| ||
Grand Lodge Casino |
|
| Incline Village, NV | |
Stockman’s Casino | Fallon, NV (one hour east of Reno) | |||
Contracted Sports Wagering | | | ||
Three sports wagering websites (“skins”) | | Colorado | ||
Three sports wagering websites (“skins”) | | 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 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 slot machines, but also include table games, keno, and 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 at Rising Star, our recreational vehicle parks (“RV parks”) as owned at Rising Star and managed at Silver
21
Slipper, our ferry service at Rising Star, and retail outlets and entertainment. We often provide hotel rooms, and food and beverages, entertainment, ferry usage, and golf privileges to customers on a complimentary basis; the value of such services are included as revenue in those categories, offset by contra-revenue in the casino revenue category. As a result, the casino revenues in our financial statements reflect patron gaming wins and losses, reduced by the retail value of complimentary services, the value of free play provided to 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.
22
Our market environment is 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.Pandemic Update.In March 2020, the World Health Organization declared the outbreak of the novel coronavirus as a pandemic (“COVID-19”), which. Although COVID-19 continues to be spread throughout the U.S. and the world.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. from levels seen in late 2020 and early 2021. COVID-19 has drivenresulted 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”“shelter-in-place” orders and business closures. PursuantIn March 2020, pursuant to state government orders to prevent the spread of COVID-19, we temporarily closed all of our casino properties in March 2020.properties. As a result, we experienced a material decline in our revenues until our properties began reopeningreopened when permitted by local authorities startingin 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 the Silver Slipper Casino and Hotel on May 21, 2020, Grand Lodge Casino and Stockman’s Casino on June 4, 2020, and Bronco Billy’s Casino and Hotel and Rising Star Casino Resort on June 15, 2020. Whilesignificantly lower operating costs. As a result, our business performed largely as expectedoperating performance since reopening in January, February and early March of 2020 – and performed very well overall in June 2020 after reopening,mid-2020 has been stronger than pre-pandemic levels, despite significant constraints on our business, like limited table games and slot capacity no permitted entertainment or special events, and reduced restaurant hours and capacity – the closure ofrestrictions throughout our casinos for several months resultedand in our total operating revenues decreasing through a majority of the second quarter in 2020.restaurants and certain pandemic-related costs. The extent to which our financial and operating results in future periods may be affected by COVID-19 will largely depend on future developments, which are highly uncertain and cannot be accurately predicted, includingpredicted. Significant uncertainties include the operating results of our casinos over the next several months,ability to operate; new information which may emerge concerning the severitynew strains of COVID-19 and their severity; any additional actions imposed by governmental authorities to contain COVID-19 or minimize its impact,impact; increased operating costs in light of social distancing requirementsand capacity restrictions as a result of COVID-19COVID-19; increased costs for materials due to supply chain constraints; and general economic conditions, among others. For a further discussion regarding
The disruptions arising from COVID-19 continued to impact us during the impactsthree months ended March 31, 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 have eased over recent weeks, the current economic and regulatory environment in each of our jurisdictions continues to evolve. The manner in which governments will react as the global and regional impact of the COVID-19 onpandemic changes over time is uncertain, and such actions could significantly alter our business, see “Liquidity and Capital Resources – COVID-19 Impact on Liquidity” below.current operations.
Waiver and AmendmentDebt Refinancing. On February 12, 2021, we issued $310 million of Debt Covenants. In April and August 2020, we obtained waivers and amendments (the “Waivers and Amendments”)new 2028 Notes. The proceeds were used to the indenture dated asredeem all $106.8 million of February 2, 2018 (as amended and supplemented, the “Indenture”), which governs the aggregate $110.0 million ofour senior secured notes due 2024 (collectively,(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 “Notes”). The Waiversproject. Proceeds were also used to pay the transaction fees and Amendments were executed in recognition of the impacts of COVID-19 on our business and operations. Pursuantexpenses related to the Waiversoffering, leaving approximately $8 million added to our unrestricted cash balances.
22
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 Amendments, among other things,commissions and our estimated offering expenses. We intend to use the noteholders agreed to deletenet proceeds from the total leverage ratio covenantEquity Offering for the measurement periods ending on March 31, 2020development, working capital and June 30, 2020, to permit the incurrence of $5.6 million of unsecured loans under the CARES Act, and to waive the requirement to deliver a financial statement to each noteholder without a “going-concern” or like qualification or exception. In consideration for the amendments and one-time waivers, we paid the noteholders waiver fees of $376,775 and $805,313 for the Third and Fourth Amendments, respectively. Such upfront waiver fees were partially offset by the decline in LIBOR rates that are used to calculate quarterly interest expense for the Notes. We also agreed to increase the call premium to noteholders upon optional redemption of the Notes by a total of 40 basis points for all periods on or after February 2, 2020, as well as on any amounts outstanding at maturity. We continue to discuss the amendment of covenant levels for future quarters; however, there can be no assurance that we will be successful in our efforts to obtain such future waivers or amendments.general corporate purposes.
New Credit Facility. 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.
Chamonix Casino Hotel Growth 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 Expansion Suspended. In Marchcasino. 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 Chamonix 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 lightJanuary and February 2021. Construction of COVID-19, we suspended construction of the Phase One parking garage at Bronco Billy’s. In July 2020, we opened a temporary surface parking lot in such location. Whether or not we will be able to complete the parking garageChamonix is currently underway, with substantial completion expected in the near future will depend on the operating resultsfourth quarter of our casinos over the next several months, as well as the capital markets that might be available to us at some future date. Phase Two of the Bronco Billy’s expansion project, which is expected to include a new luxury hotel tower, spa, convention and entertainment space, and two new restaurants, is contingent upon receipt of financing on acceptable terms, among other contingencies.2022.
Sports Wagering in Colorado and Indiana. In Colorado, the Colorado Limited Gaming Control Commission approved us for our threeUnder state laws, we are permitted “Sports Betting Master Licenses” in March 2020. Additionally, in April 2020, our three providers for mobilea total of six sports wagering were approved for their “Temporary Internet Sports Betting Operator Licenses.“skins,” On June 4, 2020, onethree in Colorado and three in Indiana. As of March 31, 2021, three of our contractedsix sports wagering websites launched in Colorado.skins had commenced operations. The fourth and fifth skins commenced operations on April 1and April 23, 2021, respectively. We expectbelieve that the twoCompany’s last remaining
23
contracted websites will have launched in Colorado by the enddefined revenues of the third quarter of 2020, pending customary gaming license approvals.
In Indiana, one of our three contracted websites for sports wagering launched operations on December 30, 2019. The remaining two companies await licensure, which we believe may occur by the end of the third quarter of 2020.
each skin, subject to annual minimums. When all six skins are in operation, we should receive a contractual minimum of our contracted$7 million per year of sports wagering websites have commenced operations, our sports wagering revenue, based on the contractual minimums, should total at least $7.0 million on an annualized basis. We expect to havegaming revenues with minimal ongoing costs related to these sports wagering websites.expenses.
Waukegan Proposal.Proposal (American Place). While we remain focused on conserving capital and reopening our operations, weWe continue to be one of three bidders for the opportunity to build a new casino in Waukegan, Illinois, midway between Chicago and Milwaukee.Milwaukee, an area with high population density and no existing casino. If chosen,awarded the license by the Illinois Gaming Board (“IGB”), we anticipate developing thisintend to develop and operate a temporary casino on that site while a permanent casino (named “American Place”) is being constructed. American Place is expected to include a world-class casino with a state-of-the-art sportsbook; a premium boutique hotel comprised of twenty luxurious villas, each ranging from 1,500 to 2,500 square feet with full butler service; a 1,500-seat live entertainment venue; and various food and beverage outlets. American Place was one of three proposals certified by the Waukegan City Council in late 2019. At that time, the city’s consultant ranked American Place as the top proposal amongst the various submissions on numerous different criteria.
According to the IGB, the process for it to choose the preferred developer has been slowed by the COVID-19 pandemic. In December 2020, the IGB issued a joint venture, employing project financing. There isrequest for proposals (“RFP”) for an investment bank or similar consultant to advise the IGB in assessing the various proposals. In April 2021, the IGB indicated that it received at least one response to its RFP. The IGB Administrator has indicated that he believes the IGB can make a preliminary suitability determination within six months of hiring an appropriate financial consultant. We can provide no assurances as to the timing or certainty that weour project will be chosen to develop such a casino, that we will find a suitable partner, or that project financing will be available.by the Illinois Gaming Board 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 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.
23
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.
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 our performance. For a description of Adjusted EBITDA, see “Non-GAAP Financial Measure.” 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 11 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 total revenues.
24
Results of Operations
Consolidated operating results
The following tables summarize our consolidated operating results for the three-three-months ended March 31, 2021 and six-months ended June 30, 2020 and 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | Six Months Ended | | | | | Three Months Ended | | | | |||||||||||||
(In thousands) | | June 30, | | Percent | | | June 30, | | Percent | | March 31, | | Percent | ||||||||||||||
|
| 2020 |
| 2019 |
| Change |
| 2020 |
| 2019 |
| Change |
| 2021 |
| 2020 |
| Change | |||||||||
Total revenues | | $ | 14,511 | | $ | 41,663 |
| (65.2) | % | | $ | 45,364 | | $ | 82,157 |
| (44.8) | % | |||||||||
Revenues | | $ | 42,208 | | $ | 30,853 |
| 36.8 | % | ||||||||||||||||||
Operating expenses | |
| 18,677 | |
| 39,740 |
| (53.0) | % | |
| 52,958 | |
| 78,966 |
| (32.9) | % | |
| 33,514 | |
| 34,281 |
| (2.2) | % |
Operating (loss) income | |
| (4,166) | |
| 1,923 |
| (316.6) | % | |
| (7,594) | |
| 3,191 |
| (338.0) | % | |||||||||
Operating income (loss) | |
| 8,694 | |
| (3,428) |
| (353.6) | % | ||||||||||||||||||
Interest and other non-operating expenses, net | |
| 2,541 | |
| 2,790 |
| (8.9) | % | |
| 3,376 | |
| 5,533 |
| (39.0) | % | |
| 11,937 | |
| 835 |
| 1,329.6 | % |
Income tax (benefit) provision | |
| (4) | |
| 143 |
| (102.8) | % | |
| 91 | |
| 285 |
| (68.1) | % | |||||||||
Income tax provision | |
| 202 | |
| 95 |
| 112.6 | % | ||||||||||||||||||
Net loss | | $ | (6,703) | | $ | (1,010) |
| 563.7 | % | | $ | (11,061) | | $ | (2,627) |
| 321.1 | % | | $ | (3,445) | | $ | (4,358) |
| (20.9) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | Six Months Ended | | | | | Three Months Ended | | | | |||||||||||||
(In thousands) | | June 30, | | Percent | | | June 30, | | Percent | | March 31, | | Percent | ||||||||||||||
|
| 2020 |
| 2019 |
| Change |
| 2020 |
| 2019 |
| Change |
| 2021 |
| 2020 |
| Change | |||||||||
Casino revenues | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Slots | | $ | 9,889 | | $ | 23,813 |
| (58.5) | % | | $ | 27,246 | | $ | 47,286 |
| (42.4) | % | | $ | 27,060 | | $ | 17,359 |
| 55.9 | % |
Table games | |
| 1,072 | |
| 4,168 |
| (74.3) | % | |
| 3,825 | |
| 8,288 |
| (53.8) | % | |
| 3,868 | |
| 2,751 |
| 40.6 | % |
Other | |
| (6) | |
| 469 |
| (101.3) | % | |
| 635 | |
| 1,174 |
| (45.9) | % | |
| 1,136 | |
| 641 |
| 77.2 | % |
| |
| 10,955 | |
| 28,450 |
| (61.5) | % | |
| 31,706 | |
| 56,748 |
| (44.1) | % | |
| 32,064 | |
| 20,751 |
| 54.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-casino revenues, net | |
|
| |
|
|
|
| |
|
| |
|
|
|
| | |
|
| |
|
|
|
| | |
Food and beverage | |
| 1,994 | |
| 8,863 |
| (77.5) | % | |
| 8,984 | |
| 17,521 |
| (48.7) | % | |
| 6,101 | |
| 6,990 |
| (12.7) | % |
Hotel | |
| 719 | |
| 3,051 |
| (76.4) | % | |
| 2,693 | |
| 5,766 |
| (53.3) | % | |
| 2,211 | |
| 1,974 |
| 12.0 | % |
Other | |
| 843 | |
| 1,299 |
| (35.1) | % | |
| 1,981 | |
| 2,122 |
| (6.6) | % | |
| 1,832 | |
| 1,138 |
| 61.0 | % |
| |
| 3,556 | |
| 13,213 |
| (73.1) | % | |
| 13,658 | |
| 25,409 |
| (46.2) | % | |
| 10,144 | |
| 10,102 |
| 0.4 | % |
Total revenues | | $ | 14,511 | | $ | 41,663 |
| (65.2) | % | | $ | 45,364 | | $ | 82,157 |
| (44.8) | % | | $ | 42,208 | | $ | 30,853 |
| 36.8 | % |
24
The following discussion is based on our consolidated financial statements for the three-three-months ended March 31, 2021 and six-months ended June 30, 2020 and 2019.2020. Because all of the Company’s operations were temporarily closed, from mid-March 2020 through much of the second quarter of 2020,comparisons for the year-over-year comparisonsthree-month period are not particularly meaningful. The Company has thus, on a supplemental basis, also provided the results for the monthperiods of June under “Operating Results – Reportable Segments” below, in addition to the quarterly results. Although not all of the Company’s operations were open for the entirety of the month of June 2020, management believes the June 2020 to June 2019 comparison to be more relevant than the year-over-year second quarter comparisons. The Company does not intend to release monthly results on an ongoing basis.closure were:
● | 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. Consolidated total revenues for the three-three-months ended March 31, 2021 were constrained by requirements to maintain “social distancing” during the ongoing COVID-19 pandemic, including reductions in the number of slot machines we are permitted to operate, the number of people that we can accommodate at each table game, the seating capacity of our bars and six-month periods ended June 30,restaurants, and restrictions on the types of food service we can offer. Despite these constraints, total revenues increased due largely to approximately two weeks of property closures in the 2020 decreased primarilyperiod, as noted above, as well as improved spending levels per guest at Silver Slipper. Food and beverage revenues declined in the first quarter of 2021, due to suspended operations at all ofpandemic-related operating constraints and fewer food-related marketing offers. Hotel revenue improved, as our properties, as mandated by state government ordershotels were generally permitted to operate in mid-March 2020 in response to COVID-19. The first of our properties reopened on May 21, 2020, and all of our properties had reopened by June 15, 2020. This resulted in our revenues reflecting activities for roughly half of the six-month2021 period as compared to the prior-year period which includes a full six months of operations.without operating restrictions. Of note, “Other Non-casino Revenues” includes $0.5 million and $0.9$1.0 million of revenue related to our mobile sports operations for the three-three-month period ended March 31, 2021. See “Operating Results – Reportable Segments” below for details.
See further information within our reportable segments described below.
Operating Expenses. Consolidated operating expenses in the first quarter of 2021 decreased primarily due to improved labor efficiencies upon the reopening of our casino properties, as well as reductions in operating hours at our property’s food and six-month periods ended June 30,beverage and table games departments. This affected payroll and related expenses across all departments at the Company, as well as numerous volume-related costs, such as our cost of the food and beverages served to guests. Note that payroll and related expenses during the 2020 period included a brief period of continuing payroll, health care, and related costs for most of our employees as severance, despite the closure of all of the Company’s properties in mid-March 2020. See “Recent Developments – Sports WageringWe also opted to significantly reduce our marketing expenses upon reopening, benefiting from analytics provided by new marketing systems installed in Coloradolate 2019.
We chose to reopen our casinos, when permitted to do so, very cautiously, with limited hours of operation of many amenities and Indiana”minimal staffing, as we were unsure as to the customer response. As the capacity of our restaurants was limited in order to ensure social distancing, we chose to eliminate certain promotions, like “2-for-1” buffets and a “$0.49 breakfast,” which were loss leaders that could not be easily accommodated with our reduced restaurant capacity. We reduced the number of slot machines we operate, again to assure social distancing and, in some cases, as required to do so by the gaming authorities. This resulted in reductions in certain taxes based on the number of machines, as well as the amounts we pay for details.certain leased games. Until recently, we were limited in terms of the numbers of people who can participate at each table game, again to ensure social distancing, and we offset this by increasing the minimum wagers on our table games so as to afford to pay the dealers and other required personnel with fewer people playing each game. Meanwhile, we expanded the number of stadium gaming and similar machines in the vicinity of our table games, to accommodate customers who may not want to play at higher table game minimums. We also used the closure period to revamp much of our marketing programs, particularly at Rising Star and Bronco Billy’s, which had recently installed new, state-of-the-art slot machine systems and therefore had much better marketing data than was available previously. The improved marketing data allowed us to focus our attention and benefits on our most important customers, while we were also able to identify groups of customers who had historically been receiving benefits that were not justified by their levels of play.
See further information within our reportable segments described below.
25
Operating Expenses. Consolidated operating expenses for the three- and six-month periods ended June 30, 2020 likewise decreased due to the prolonged closures discussed above, especially for payroll and related expenses across all departments at the Company. A majority of this decrease, particularly in casino expenses, can be attributed to lower gaming-related taxes, device fees and labor costs at all of our properties, especially Rising Star and Silver Slipper, as a result of decreased volumes and capacity limitations in compliance with social distancing protocols. Upon our reopening, fewer marketing comps were offered to our guests, as our restaurants and other amenities were already capacity-constrained, thus resulting in fewer comp redemptions versus more-typical periods in 2019. Decreased volume corresponded to lower food and beverage expenses as there were fewer buffet guests and restaurant covers. The decrease in hotel expenses was due to the scaling back of our workforce and overhead costs, after a brief period of continued wages and health benefits beyond the casino closures. To a lesser extent, decreases in the gaming-related variable rent at Silver Slipper and marketing expenditures (as part of selling, general, and administrative costs) at all of our properties for the overall quarter also contributed to the decrease in consolidated operating expenses.
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 | | Six Months Ended | | Three Months Ended | ||||||||||||
| | June 30, | | June 30, | | March 31, | ||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2021 |
| 2020 | ||||||
Interest cost (excluding loan fee amortization) | | $ | 2,387 | | $ | 2,593 | | $ | 4,873 | | $ | 5,084 | | $ | 4,431 | | $ | 2,486 |
Amortization of debt issuance costs and discount | |
| 271 | |
| 408 | |
| 496 | |
| 598 | |
| 284 | |
| 225 |
Change in fair value of interest rate cap agreement | |
| — | |
| 13 | |
| — | |
| 82 | ||||||
Capitalized interest | |
| (211) | |
| (83) | |
| (431) | |
| (130) | |
| (259) | |
| (220) |
| | $ | 2,447 | | $ | 2,931 | | $ | 4,938 | | $ | 5,634 | | $ | 4,456 | | $ | 2,491 |
The decreasesincrease in interest expense for the three- and six-month periods werethree-month period was primarily due to an increase in our debt levels. In February 2021, we refinanced approximately $106.8 million of the decline inPrior Notes with $310.0 million of new 2028 Notes as discussed under “Recent Developments.” Note that the three-month London Interbank Offered Rate (“LIBOR”), which affected the total interest rate due foron the Prior Notes as well aswas LIBOR plus 7 percentage points, with a 1% LIBOR floor, resulting in a floating rate of interest that was near the increase in capitalized interest forfixed rate coupon on the new debt of 8.25%. The new debt also has a significantly longer term than the Prior Notes. The additional proceeds are being used to, among other things, fund our expansion project at Bronco Billy’s, which we suspended in March 2020 due to COVID-19.Chamonix project.
Other Non-Operating Expenses, Net
For the three- and six-month periodsthree-month period ended June 30, 2020,March 31, 2021, we had approximately $94,000 of other non-operating expense and $1.6$7.5 million of other non-operating income fromexpenses, consisting of $6.1 million related to the extinguishment of our Prior Notes and $1.3 million for the fair value adjustment to our outstanding warrants, respectively, which iswere repurchased in February 2021. The fair value was determined based on the repurchase price of $4.0 million. The fair value adjustment reflected an increase in the warrant expense from $2.7 million at December 31, 2020, when the Company’s stock traded at lower prices, to the actual repurchase price of $4.0 million. For the prior-year period, we had a non-cash item related to changes in our stock price. Decreasesbenefit of $1.7 million for the fair value adjustment of the warrants, reflecting a decline in our share price result in decreases in the value of the warrants, causing non-cash income. Conversely, increases in our share price result in increases in the value of the warrants, causing non-cash expense.during that quarter.
Income Tax Expense.We recognized an income tax benefit of approximately $4,000 and an income tax provision of $0.1 millionexpense for the three-three-months ended March 31, 2021 and six-months ended June 30, 2020, which resulted in effective income tax rates of 0.1%(6.2)% and (0.8%)(2.2)%, respectively. We recorded a liability of approximately $237,000 during the quarter ended March 31, 2021 as shown below. This expense relates to the required adoption of ASU 2019-12 (see Note 2 of our Condensed Notes to Consolidated Financial Statements included in this quarterly report).
| | | |
(In thousands) |
| | |
| | Three Months Ended | |
Components of Income Tax | | March 31, 2021 | |
Income tax benefit |
| $ | (35) |
Income tax expense |
|
| 237 |
Income tax expense, net | | $ | 202 |
We do not expect to pay any federal income taxes or receive any federal tax refunds related to our 20202021 results. Tax losses incurred in 20202021 may offset taxable income in future years and we have significant tax loss carryforwards from prior years. However, because of the level of uncertainty regarding sufficient prospective income, we currently maintain a valuation allowance against our remaining deferred tax assets.
Operating Results – Reportable Segments
We manage our casinos based primarily on geographic regions within the United States and type of income. For more information, please refer to our earlier discussion within “Executive Overview” above.
26
Operating Results – Reportable Segments
We manage our casinos based on geographic regions within the United States. Accordingly, Stockman’s and Grand Lodge Casino comprise our Northern Nevada business segment, while Silver Slipper, Bronco Billy’s and Rising Star are distinct segments. Our Rising Star segment includes ferry boat operations between Indiana and Kentucky, and our Bronco Billy’s segment includes the Christmas Casino & Inn, near Bronco Billy’s in Cripple Creek, Colorado.
The following table presents detail by segment of our consolidated total revenuerevenues and Adjusted EBITDA; see “Non-GAAP Financial Measure” for additional information. Additionally, management uses Adjusted PropertySegment EBITDA as the measure of segment profit in accordance with GAAP.
| | | | | | | | | | | | |
(In thousands) | | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Total revenues |
| |
|
| |
|
| |
|
| |
|
Silver Slipper Casino and Hotel | | $ | 9,122 | | $ | 18,892 | | $ | 24,215 | | $ | 38,174 |
Rising Star Casino Resort(1) | |
| 2,587 | |
| 11,598 | |
| 10,258 | |
| 22,465 |
Bronco Billy's Casino and Hotel(1) | |
| 1,716 | |
| 6,877 | |
| 6,697 | |
| 13,317 |
Northern Nevada Casinos | |
| 1,086 | |
| 4,296 | |
| 4,194 | |
| 8,201 |
| | $ | 14,511 | | $ | 41,663 | | $ | 45,364 | | $ | 82,157 |
Adjusted Property EBITDA and Adjusted EBITDA | |
|
| |
|
| |
|
| |
|
|
Silver Slipper Casino and Hotel | | $ | 1,200 | | $ | 3,594 | | $ | 3,032 | | $ | 7,440 |
Rising Star Casino Resort(1) | |
| (995) | |
| 604 | |
| (2,088) | |
| 1,007 |
Bronco Billy's Casino and Hotel(1) | |
| (118) | |
| 876 | |
| (596) | |
| 1,491 |
Northern Nevada Casinos | |
| (562) | |
| 417 | |
| (953) | |
| 408 |
Adjusted Property EBITDA | |
| (475) | |
| 5,491 | |
| (605) | |
| 10,346 |
Corporate | |
| (910) | |
| (1,240) | |
| (2,029) | |
| (2,518) |
Adjusted EBITDA | | $ | (1,385) | | $ | 4,251 | | $ | (2,634) | | $ | 7,828 |
| ��� | | | | | | | |
(In thousands) | Three Months Ended | | |
| ||||
| March 31, | | Percent | |||||
| 2021 |
| 2020 |
| Change | |||
Revenues | |
|
| |
|
|
| |
Mississippi | $ | 22,356 | | $ | 15,092 |
| 48.1 | % |
Indiana |
| 8,590 | |
| 7,247 |
| 18.5 | % |
Colorado |
| 5,905 | |
| 4,982 |
| 18.5 | % |
Nevada |
| 4,368 | |
| 3,108 |
| 40.5 | % |
Contracted Sports Wagering | | 989 | | | 424 | | 133.3 | % |
| $ | 42,208 | | $ | 30,853 |
| 36.8 | % |
Adjusted Segment EBITDA and Adjusted EBITDA |
|
| |
|
|
|
| |
Mississippi | $ | 7,630 | | $ | 1,831 |
| 316.7 | % |
Indiana |
| 1,134 | |
| (1,490) |
| 176.1 | % |
Colorado |
| 1,710 | |
| (471) |
| 463.1 | % |
Nevada |
| 1,224 | |
| (390) |
| 413.8 | % |
Contracted Sports Wagering | | 976 | | | 390 | | 150.3 | % |
Adjusted Segment EBITDA |
| 12,674 | |
| (130) |
| 9,849 | % |
Corporate |
| (1,905) | |
| (1,119) |
| 70.2 | % |
Adjusted EBITDA | $ | 10,769 | | $ | (1,249) |
| 962.2 | % |
(1) Includes amounts related to the property’s contracted sports revenue in 2020.
Mississippi
Our Mississippi segment consists of the Silver Slipper Casino and Hotel
Hotel. Pursuant to an order from the state gaming commission, we temporarily suspended operations on March 16, 2020 until we2020. We were permitted to reopen on May 21, 2020. Total revenues in the month of June 2020 were $6.4 million versus $6.6 million in June 2019, in part due to a reduction in the number of available slot and table games throughout our casino. Adjusted Property EBITDA in June 2020 increased 28.5% to $1.7 million from $1.3 million in June 2019, despite numerous operating restrictions, representing the combined favorable effects of pent-up customer demand, newcomers seeking new avenues of entertainment, and potentially an infusion of discretionary income to households through government aid. During the shutdown period, we reexamined our staff levels company-wide and we chose to reopen conservatively in terms of amenities and hours of operations.
For the respective three- and six-monthsthree-months ended June 30, 2020, totalMarch 31, 2021, revenues decreasedincreased by 51.7% and 36.6%48.1%, respectively, primarily due to impacts of COVID-19. Casinoimprovements in casino revenues, which increased by 76.8%. Slot revenue decreased by 42.9% and 34.6% for the three- and six-month periods ended June 30, 2020, respectively,rose 74.6% due to impacts of the casino closureincreased coin-in and limited operations upon our reopening. Declinesa slight increase in slot revenues were also attributed to limited machine availabilityhold percentage. Table games revenue rose by 93.0% due to social distancing, while declinesincreased drop and an 8.9 percentage point increase in the table games revenue were due to limited staffing and fewer allowed customers at each table game. Sportshold percentage. Other casino revenues increased by $484,000, primarily reflecting higher volumes from our sports book operations remained closed at the end of June 2020.operations.
Non-casino revenue decreasedincreased by 65.9% and 40.0%4.9% for the three- and six-month periodsthree-month period ended June 30, 2020, respectively,March 31, 2021, principally due to impacts of the casino closure and limited operations upongrowth in our reopening. The majority of our non-casino revenue is from our food and beverage outlets. Food and beveragehotel operations. Hotel revenues declined by 68.2% and 40.9%increased 20.6% for the respective
27
three- and six-month periodsthree-months ended June 30, 2020, dueMarch 31, 2021. Total occupied room-nights increased by 32.2% to fewer buffet covers following protocols with socially distanced tables, the elimination of certain buffet promotions, and the decision to temporarily keep the Oyster Bar closed. Despite higher daily average room rates in 2020, declines in hotel revenues by 57.1% and 37.5%10,437 room-nights for the respective three- and six-month periods ended June 30, 2020 werefirst quarter of 2021, due to the closure ofperiod in the hotel during the height of the pandemic. Total occupied room-nights decreased by 56.3% to 4,712 room-nights for the second quarter of 2020, and decreased by 39.5% to 12,604 room-nights for the six-months ended June 30, 2020. For the month of June, hotel occupancy was 90.2% in 2020 (with higher average daily room rates) versus 95.6% in 2019.prior-year’s quarter.
Adjusted PropertySegment EBITDA for the three- and six-month periodsthree-month period ended June 30, 2020 decreased by 66.6% and 59.2%, respectively, due to the reasons described above. However, as noted above, Adjusted Property EBITDA for the month ended June 30, 2020March 31, 2021 increased by 28.5% as compared to316.7% driven by a combination of increases in casino revenues, which was affected last year by the prior-year’s month fromproperty’s closure in March 2020, and our concerted efforts to scale down operations. Such efforts included reducing staff, decreasingfocus on controlling labor and marketing expenses, cancelling free entertainment acts to comply with social distancing limitations on gatherings, and postponingcosts upon the reopeningproperty’s reopening.
Indiana
Our Indiana segment consists of certain amenities, such as the Oyster Bar, or limiting their hours of operation. Volume-related costs were also lower, such as lower food costs at the buffet due to fewer covers in light of capacity constraints.
Rising Star Casino Resort
Resort. Pursuant to an order from the state gaming commission, we temporarily suspended operations on March 16, 2020 until we were permitted to reopen on June 15, 2020. Total
For the quarter ended March 31, 2021, total revenues in the month of June 2020 were $2.3 million versus $3.8 million in June 2019, though the 2020 period includes onlyincreased by 18.5%, or $1.3 million. This increase was due to increased volumes and a higher slot hold percentage, along with approximately two weeks of reopened operations. Adjusted Property EBITDAclosure in June 2020March 2020. Casino revenue increased 33.3% to $168,000 from $126,000 in June 2019. During the shutdown period, we reexamined our staff levels company-wide and we chose to reopen conservatively in terms of amenities and hours of operations.
We installed a new slot marketing system in the fourth quarter of 2019 that improved the customer experience. The new slot marketing system also provides us with significantly better analytical information about our customers. Using that data, upon reopening, we launched a new loyalty program at Rising Star.
For the quarter and year-to-date periods, total revenues (excluding contractual minimums related to the property’s sports revenue agreements of $0.4 million and $0.8 millionby 33.6% for the respective three- and six-monthsthree-months ended June 30, 2020) decreased by $9.4 million and $13.0 million for the same periods ended June 30, 2020. This decrease was due to lower business volumes, primarily due to the impacts of COVID-19, as well as an increase in competition. A casino near Louisville opened a large new casino in mid-December, replacing its original casino boat. Additionally, on January 1, 2020, racetrack casinos near Indianapolis began offering live table games. Casino revenue decreased by 75.8% and 53.9% for the respective three- and six-months ended June 30, 2020.March 31, 2021. Food and beverage revenues decreased by 94.9%35.1%, as reduced operating hours, social distancing requirements and 65.6% forrevised marketing strategies reduced the same periods ended June 30, 2020, while hotel revenues also decreased for the three- and six-month periods with lower occupancy. Due to the closure, total occupied room-nights decreased by 91.9% to 1,675 for the second quarternumber of 2020, and decreased by 69.0% to 12,464 for the six-months ended June 30, 2020.
Adjusted Property EBITDA (excluding contractual minimums related to the property’s sports revenue agreements of $0.4 million and $0.8 million for the respective three- and six-months ended June 30, 2020) decreased by approximately $2.0 million and $3.9 million for the same respective periods ended June 30, 2020 due primarily to the prolonged property closure. Including the contracted sports revenues, revenues and Adjusted Property EBITDA for the second quarter of 2020 were $2.6 million and $(1.0) million, respectively. We expect thatcovers in our two remaining online/mobile sports wagering websites will commence operations in the third quarter of 2020, subject to the receipt of customary regulatory approvals.
In 2019, the state legislature approved new gaming legislation that reduces certain gaming taxes for casino operators in the state, including Rising Star, beginning on July 1, 2021.
2827
restaurants. Hotel revenues, increased for the three-month period by 7.1% due to the closure period in the prior-year’s quarter. Total occupied room-nights increased 7.4% to 11,592 for the first quarter of 2021.
Adjusted Segment EBITDA increased by $2.6 million for the quarter ended March 31, 2021. The increase was due to increased volumes and a focus on labor efficiencies throughout the property, with operating hours for table games and food and beverage outlets more appropriately matched to the demand for such services, as well as the launch of an improved loyalty program in June 2020.
In 2019, the Indiana legislature approved a reduction in certain gaming taxes that benefits Rising Star, beginning on July 1, 2021. Based on activity levels in recent years, we estimate that the new gaming tax schedule will save us approximately $2.5 million per year.
Colorado
Our Colorado segment includes Bronco Billy’s Casino and Hotel
and the Chamonix development project. Pursuant to state government orders, we temporarily closed Bronco Billy’s on March 17, 2020 until we were permitted by governing authorities to reopen on June 15, 2020. For the month of June 2020, total revenues declined to $1.7 million from $2.3 million in June 2019, though the 2020 period includes only approximately two weeks of reopened operations. Adjusted Property EBITDA for the one-month period increased 94.5%. During the shutdown period, we reexamined our staff levels company-wide and we chose to reopen conservatively in terms of amenities and hours of operations.
Similar to Rising Star, we installed a new slot marketing system in the fourth quarter of 2019 that improved the customer experience. The new slot marketing system also provides us with significantly better analytical information about our customers. Using that data, upon reopening, we launched a new loyalty program at Bronco Billy’s. During the month, new customer counts increased, likely reflecting that people generally prefer to drive to our nearby casinos than fly elsewhere in the current pandemic. Government efforts to sustain local economies likely also contributed to our increase in operating profits since reopening, as did the lack of competing entertainment options such as movie theaters, concerts, and other nightlife.
For the three- and six-monthsthree-months ended June 30, 2020,March 31, 2021, total revenues (excluding contractual minimums relatedincreased by 18.5%, or $0.9 million, due largely to an increase in casino revenue, as last year’s period included the property’s sportstemporary government-mandated shutdown. Casino revenue agreements of $82,500, which commenced on June 4, 2020) decreased by $5.2 million and $6.7 million, respectively, due to the mandated closure of our casino from March 17, 2020 until June 15, 2020. This lengthy closure resulted in a decrease of casino revenues of 73.3% and 49.2% for the respective three- and six-months ended June 30, 2020, reflecting the adverse effect of the casino closure on gaming volumes. Upon reopening, we had (and continue to have) constraints on our operations to comply with social distancing protocols, including a reduction in the numberfirst quarter of machines2021 increased by 31.4%. Table games revenue decreased 77.2% as, unlike our slot operations, table games operations were not permitted to nearly half of our prior capacity and a state-mandated suspension of table games.reopen until February 2021. Food and beverage revenues decreased by 91.6% and 57.8%46.1% for the respective three- and six-monthsthree-months ended June 30, 2020March 31, 2021 due to the closure, limitations on seating, reduced operating hours, and fewer available food outlets upon reopening, and a reduction in hours of operation. Similarly, hotelfood-based marketing offers. Hotel revenues decreased by 78.3% and 44.0% for the same respective periods. However, one of our three contracted online/mobile sports wagering websites (“skins”) in Colorado commenced on June 4, 2020, contributing $82,500 to other non-casino revenues. We expect that the remaining two contracted sports wagering websites in Colorado will be operational before the end17.1%, reflecting limited hotel room availability, as many of the third quarterproperty’s hotel rooms were closed to facilitate construction of 2020.Chamonix.
Adjusted PropertySegment EBITDA (excluding contractual minimums relatedincreased by 463.1% to the property’s sports revenue agreements) decreased by approximately $1.1 million and $2.2$1.7 million for the respective three- and six-months ended June 30, 2020,first quarter of 2021 due to the reasons described above. Including the amounts related to the contracted sportsincreased gaming revenue, minimums, Adjusted Property EBITDA for the second quarter of 2020 decreased by approximately $1.0 million, reflecting the launch of one of our three contracted sports wagering websites in early June 2020, as well as reductions in expenses. Our expenses improved labor controls, more efficient marketing due to reduced staffingimproved analytics from Bronco Billy’s new slot marketing system, and operations upon our reopening, as well as decreases in food costs and device fees/taxes, marketing expenses,taxes. The property was also closed for approximately two weeks of the prior-year’s quarter and comp redemptions duepaid severance and benefits to social distancing limitations on gatherings.many of its employees during that period, despite being closed.
The market in Cripple Creek is seasonal, favoring the summer months.
Northern Nevada
The Nevada segment consists of the Grand Lodge and Stockman’s casinos and is historically the smallest of the Company’s segments. Pursuant to state government orders, we temporarily closed both Grand Lodge Casino and Stockman’s Casino from March 17, 2020 until we were permitted to reopen on June 4, 2020.
Our Northern Nevada operations have historically been seasonal, with the summer months accounting for a disproportionate share of 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” snow year, resulting in extended periods of operation at the nearby ski areas. However, pandemic-related restrictions at the nearby ski resorts in late 2020 and early 2021 affected our business in the first quarter of 2021. The 2020 period was affected by the mandated closure of our casinos.
Pursuant to state government orders onFor the three-months ended March 17, 2020, we temporarily closed both Grand Lodge Casino and Stockman’s Casino until we were permitted to reopen on June 4, 2020. Combined, Northern Nevada31, 2021, total revenues increased by 40.5%. An increase in this year’s hold percentage helped with the month of June 2020 were $1.1 million versus $1.6 millionimprovement over last year’s first quarter, which also included the shutdown in June 2019. Adjusted Property EBITDA was $208,000 in June 2020 versus $257,000 in June 2019, reflecting restrictions prohibiting most Navy personnel from leavingmid-March. Casino revenues increased by 52.8% for the base station nearthree-month period ended March 31, 2021. While table games at Stockman’s Casinohave not yet reopened, table games revenue improved overall by 38.2% due to increased hold at Grand Lodge. Slot revenue improved by 57.3%, due to increases in both slot handle and the pandemic, as well as a decline in guests tohold percentage.
Adjusted Segment EBITDA for the destination hotel that houses Grand Lodge Casino. Similar to our other properties, a focus on reduced amenitiesthree-month period ended March 31, 2021 increased by about $1.6 million. The impact of higher casino revenues and staffing positively affectedcontinued cost controls, specifically regarding labor and marketing expenses, but not enough to overcome pandemic-related challenges for guests to visit our two properties.have
2928
produced an improvement in Adjusted Segment EBITDA. As restrictions have eased in Northern Nevada, both properties have improved revenues while continuing to maintain control of expenses.
Contracted Sports Wagering
The Contracted Sports Wagering segment consists of our on-site and online sports wagering skins in Colorado and Indiana. Revenues and Adjusted Segment EBITDA were both approximately $1.0 million in the first quarter of 2021, reflecting a full quarter of operations of three of our six permitted sports wagering skins. For the three- and six-months ended June 30, 2020, total revenues decreased by 74.7% and 48.9%, respectively, reflecting nearly three months of required casino closures throughout the state. Casino revenues decreased by 73.2% and 48.3% for the respective three- and six-months ended June 30, 2020. Food and beverage revenue at Stockman’s Casino decreased by $0.4 million and $0.5 million for the respective three- and six-months ended June 30, 2020. At both Grand Lodge and Stockman’s Casino, we did not operate table games during the secondfirst quarter of 2020, thoughwhen only one sports wagering skin was live, such amounts were both approximately $0.4 million.
On April 1 and April 23, 2021, respectively, our fourth and fifth sports wagering skins commenced operations. We believe that our last remaining skin will commence operations in the next few months. We receive a percentage of defined revenues of each skin, subject to annual minimums. When all six skins are in operation, we did reintroduce table games at Grand Lodge shortly thereafter.should receive a contractual minimum of $7 million on an annualized basis, with minimal related expenses.
Adjusted Property EBITDA for the three- and six-month periods ended June 30, 2020 decreased by about $1.0 million and $1.4 million respectively, due primarily to the effects of the state-mandated closure of casinos. This also reflects restrictions on Navy personnel from leaving the base station near Stockman’s Casino, as well as a decline in guests to the destination hotel that houses Grand Lodge Casino. The decision to not reopen table games during the second quarter of 2020 – which requires significantly higher labor levels than our slot operations – helped to meaningfully reduce labor expense during the quarter. As a result, the impact of lower casino revenues after reopening in June 2020 was substantially offset by the reduction in labor, helping to mitigate the overall decline in Adjusted Property EBITDA in that month.
Corporate
Corporate expenses for the three- and six-month periodsthree-month period ended June 30, 2020 decreased by 26.6% and 19.4%, respectively, primarilyMarch 31, 2021 increased in part due to decreasesan increase in professional fees, payroll andaccrued bonuses related expenses, implementationto the Company’s improved operating results, as well as an adjustment to franchise taxes. These increases were slightly offset by the allocation of corporate services allocationsservice costs to the casino properties starting in April 2020, and to a lesser extent, a reduction in taxes and travel expenses. In April 2020, after the mid-March 2020 closurefirst quarter of the Company’s properties, the Company reduced its corporate staff to a small group of necessary employees. As of June 30, 2020, the Company had not yet rehired most members of its corporate team.2021.
In April 2020, we began allocating certain costs to the properties, consistent with the practice of most public casino companies. Previously, such costs were carried at the corporate level. In the secondfirst quarter of 2021, a total of $184,000$405,000 was allocated. The allocations were based on total annual revenue in 2019. The financial results in the second quarter reflect $64,000allocated, consisting of $128,000 of additional costs at the Silver Slipper, $31,000$112,000 at Bronco Billy’s, $44,000$92,000 at Rising Star and $45,000$73,000 for Northern Nevada. Management believes that such allocations are appropriate and that they make the Company’sour financial results more comparable to other casino companies.
Non-GAAP Financial Measure
“Adjusted EBITDA” is earnings before interest and other non-operating income (expense), taxes, depreciation and amortization, pre-opening 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 this measure is (i) a widely used measure of operating performance in the gaming and hospitality industries and (ii) a principal basis for valuation of gaming and hospitality companies. In addition, a version of Adjusted EBITDA (known as Consolidated EBITDA) is utilized in the covenants within our indenture, 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, this 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.
3029
The following table presents a reconciliation of net loss and operating income (loss) income to Adjusted EBITDA:
| | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | One Month Ended | | Three Months Ended | | Six Months Ended | | Three Months Ended | ||||||||||||||||
| | June 30, | | June 30, | | June 30, | | March 31, | ||||||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2021 |
| 2020 | ||||||||
Net income (loss) | | $ | 430 | | $ | (93) | | $ | (6,703) | | $ | (1,010) | | $ | (11,061) | | $ | (2,627) | ||||||
Income tax (benefit) provision | | | (4) | | | 143 | | | (4) | | | 143 | | | 91 | | | 285 | ||||||
Net loss | | $ | (3,445) | | $ | (4,358) | ||||||||||||||||||
Income tax provision | | | 202 | | | 95 | ||||||||||||||||||
Interest expense, net of amounts capitalized | | | 685 | | | 903 | | | 2,447 | | | 2,931 | | | 4,938 | | | 5,634 | | | 4,456 | | | 2,491 |
Adjustment to fair value of warrants(1) | | | 94 | | | (141) | | | 94 | | | (141) | | | (1,562) | | | (101) | ||||||
Loss on extinguishment of debt | | | 6,134 | | | — | ||||||||||||||||||
Adjustment to fair value of warrants | | | 1,347 | | | (1,656) | ||||||||||||||||||
Operating income (loss) | | | 1,205 | | | 812 | | | (4,166) | | | 1,923 | | | (7,594) | | | 3,191 | | | 8,694 | | | (3,428) |
Project development costs | | | 255 | | | 51 | | | 259 | | | 142 | | | 315 | | | 275 | | | 47 | | | 56 |
Depreciation and amortization | | | 635 | | | 695 | | | 1,980 | | | 2,083 | | | 4,020 | | | 4,174 | | | 1,800 | | | 2,040 |
Loss (gain) on disposal of assets, net | | | 436 | | | (4) | | | 439 | | | (4) | | | 439 | | | (5) | ||||||
Loss on disposal of assets, net | | | 104 | | | — | ||||||||||||||||||
Stock-based compensation | | | 51 | | | 58 | | | 103 | | | 107 | | | 186 | | | 193 | | | 124 | | | 83 |
Adjusted EBITDA | | $ | 2,582 | | $ | 1,612 | | $ | (1,385) | | $ | 4,251 | | $ | (2,634) | | $ | 7,828 | | $ | 10,769 | | $ | (1,249) |
(1) The fair value of the warrants is measured at the end of each quarter, not on a monthly basis.
31
The following tables present reconciliations of operating income (loss) to Adjusted PropertySegment EBITDA and Adjusted EBITDA.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
One Month Ended June 30, 2020 | ||||||||||||||||||||||||||||||||||||
Three Months Ended March 31, 2021 | Three Months Ended March 31, 2021 | |||||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | (In thousands) | ||||||||||||||||||||||||||||||||||
|
| | |
| | |
| | |
| | |
| | |
| Adjusted | | | | | | | | | | | | | | | | | | ||
| | | | | | | | | | | | | | | | | Property | | | | | | | | | | | | | | | | | Adjusted | ||
| | Operating | | Depreciation | | Loss on | | Project | | | | EBITDA and | | | | | | | | | | | | | | | | | Segment | |||||||
| | Income | | and | | Disposal | | Development | | Stock-Based | | Adjusted | | Operating | | Depreciation | | Loss on | | Project | | Stock- | | EBITDA and | ||||||||||||
| | (Loss) | | Amortization | ��� | of Assets |
| Costs | | Compensation |
| EBITDA | | Income | | and | | Disposal | | Development | | Based | | Adjusted | ||||||||||||
Casino properties | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Silver Slipper Casino and Hotel | | $ | 1,424 | | $ | 250 | | $ | — | | $ | — | | $ | — | | $ | 1,674 | ||||||||||||||||||
Rising Star Casino Resort | |
| (37) | |
| 205 | |
| — | |
| — | |
| — | |
| 168 | ||||||||||||||||||
Bronco Billy’s Casino and Hotel | |
| 557 | |
| 120 | |
| — | |
| — | |
| — | |
| 677 | ||||||||||||||||||
Northern Nevada Casinos | |
| (277) | |
| 49 | |
| 436 | |
| — | |
| — | |
| 208 | ||||||||||||||||||
|
| (Loss) |
| Amortization |
| of Assets |
| Costs |
| Compensation |
| EBITDA | ||||||||||||||||||||||||
Reporting segments | Reporting segments | |
|
| |
|
| |
|
| |
|
| |
|
| |
| ||||||||||||||||||
Mississippi | | $ | 6,948 | | $ | 660 | | $ | 22 | | $ | — | | $ | — | | $ | 7,630 | ||||||||||||||||||
Indiana | |
| 518 | |
| 616 | |
| — | |
| — | |
| — | |
| 1,134 | ||||||||||||||||||
Colorado | |
| 1,281 | |
| 347 | |
| 82 | |
| — | |
| — | |
| 1,710 | ||||||||||||||||||
Nevada | |
| 1,085 | |
| 139 | |
| — | |
| — | |
| — | |
| 1,224 | ||||||||||||||||||
Contracted Sports Wagering | | | 976 | | | — | | | — | | | — | | | — | | | 976 | ||||||||||||||||||
| |
| 1,667 | |
| 624 | |
| 436 | |
| — | |
| — | |
| 2,727 | |
| 10,808 | |
| 1,762 | |
| 104 | |
| — | |
| — | |
| 12,674 |
Other operations | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| Other operations |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Corporate | |
| (462) | |
| 11 | |
| — | |
| 255 | |
| 51 | |
| (145) | |
| (2,114) | |
| 38 | |
| — | |
| 47 | |
| 124 | |
| (1,905) |
| | $ | 1,205 | | $ | 635 | | $ | 436 | | $ | 255 | | $ | 51 | | $ | 2,582 | | $ | 8,694 | | $ | 1,800 | | $ | 104 | | $ | 47 | | $ | 124 | | $ | 10,769 |
| | | | | | | | | | | | | | | | | | |
One Month Ended June 30, 2019 | ||||||||||||||||||
(In thousands) | ||||||||||||||||||
|
| | |
| | |
| | |
| | |
| | |
| Adjusted | |
| | | | | | | | | | | | | | | | | Property | |
| | Operating | | Depreciation | | Gain on | | Project | | | | EBITDA and | ||||||
| | Income | | and | | Disposal | | Development | | Stock-Based | | Adjusted | ||||||
| | (Loss) | | Amortization | | of Assets |
| Costs | | Compensation |
| EBITDA | ||||||
Casino properties | | | | | | | | | | | | | | | | | | |
Silver Slipper Casino and Hotel | | $ | 1,012 | | $ | 291 | | $ | — | | $ | — | | $ | — | | $ | 1,303 |
Rising Star Casino Resort | |
| (73) | |
| 199 | |
| — | |
| — | |
| — | |
| 126 |
Bronco Billy’s Casino and Hotel | |
| 208 | |
| 144 | |
| (4) | |
| — | |
| — | |
| 348 |
Northern Nevada Casinos | |
| 208 | |
| 49 | |
| — | |
| — | |
| — | |
| 257 |
| �� |
| 1,355 | |
| 683 | |
| (4) | |
| — | |
| — | |
| 2,034 |
Other operations | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Corporate | |
| (543) | |
| 12 | |
| — | |
| 51 | |
| 58 | |
| (422) |
| | $ | 812 | | $ | 695 | | $ | (4) | | $ | 51 | | $ | 58 | | $ | 1,612 |
Operating expenses deducted to arrive at operating income (loss) in the above tables for the one-month period ended June 30, 2020 and 2019 included facility rents related to: (i) Silver Slipper of $0.2 million for both periods, (ii) Northern Nevada of $0.2 million for both periods, and (iii) Bronco Billy’s of $50,000 during 2020 and $51,000 during 2019.
3230
| | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, 2020 | ||||||||||||||||||
(In thousands) | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Adjusted | |
| | | | | | | | | | | | | | | | | Property | |
| | Operating | | Depreciation | | Loss on | | Project | | | | | EBITDA and | |||||
| | Income | | and | | Disposal | | Development | | Stock-Based | | Adjusted | ||||||
|
| (Loss) |
| Amortization |
| of Assets |
| Costs |
| Compensation |
| EBITDA | ||||||
Casino properties | |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
Silver Slipper Casino and Hotel | | $ | 398 | | $ | 802 | | $ | — | | $ | — | | $ | — | | $ | 1,200 |
Rising Star Casino Resort | |
| (1,611) | |
| 616 | |
| — | |
| — | |
| — | |
| (995) |
Bronco Billy's Casino and Hotel | |
| (498) | |
| 376 | |
| 4 | |
| — | |
| — | |
| (118) |
Northern Nevada Casinos | |
| (1,145) | |
| 148 | |
| 435 | |
| — | |
| — | |
| (562) |
| |
| (2,856) | |
| 1,942 | |
| 439 | |
| — | |
| — | |
| (475) |
Other operations |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Corporate | |
| (1,310) | |
| 38 | |
| — | |
| 259 | |
| 103 | |
| (910) |
| | $ | (4,166) | | $ | 1,980 | | $ | 439 | | $ | 259 | | $ | 103 | | $ | (1,385) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, 2019 | |||||||||||||||||||||||||||||||||
Three Months Ended March 31, 2020 | Three Months Ended March 31, 2020 | ||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | Adjusted | | | | | | | | | | | | | | Adjusted | ||
| | | | | | | | | | | | | | | | Property | | | | | | | | | | | | | | Segment | |||
| | Operating | | Depreciation | | Gain on | | Project | | | | | EBITDA and | | Operating | | Depreciation | | Project | | Stock- | | EBITDA and | ||||||||||
| | Income | | and | | Disposal of | | Development | | Stock-Based | | Adjusted | | Income | | and | | Development | | Based | | Adjusted | |||||||||||
| | (Loss) | | Amortization | | Assets | | Costs | | Compensation |
| EBITDA | | (Loss) | | Amortization | | Costs | | Compensation |
| EBITDA | |||||||||||
Casino properties | |
|
| |
|
| |
|
| |
|
| |
|
| |
| ||||||||||||||||
Silver Slipper Casino and Hotel | | $ | 2,725 | | $ | 869 | | $ | — | | $ | — | | $ | — | | $ | 3,594 | |||||||||||||||
Rising Star Casino Resort | |
| 11 | |
| 593 | |
| — | |
| — | |
| — | |
| 604 | |||||||||||||||
Bronco Billy's Casino and Hotel | |
| 446 | |
| 434 | |
| (4) | |
| — | |
| — | |
| 876 | |||||||||||||||
Northern Nevada Casinos | |
| 268 | |
| 149 | |
| — | |
| — | |
| — | |
| 417 | |||||||||||||||
Reporting segments | Reporting segments | |
|
| |
|
| |
|
| |
|
| |
| ||||||||||||||||||
Mississippi | | $ | 988 | | $ | 843 | | $ | — | | $ | — | | $ | 1,831 | ||||||||||||||||||
Indiana | |
| (2,112) | |
| 622 | |
| — | |
| — | |
| (1,490) | ||||||||||||||||||
Colorado | |
| (858) | |
| 387 | |
| — | |
| — | |
| (471) | ||||||||||||||||||
Nevada | |
| (540) | |
| 150 | |
| — | |
| — | |
| (390) | ||||||||||||||||||
Contracted Sports Wagering | | | 390 | | | — | | | — | | | — | | | 390 | ||||||||||||||||||
| |
| 3,450 | |
| 2,045 | |
| (4) | |
| — | |
| — | |
| 5,491 | |
| (2,132) | |
| 2,002 | |
| — | |
| — | |
| (130) |
Other operations | Other operations |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| Other operations |
|
| |
|
| |
|
| |
|
| |
|
|
Corporate | |
| (1,527) | |
| 38 | |
| — | |
| 142 | |
| 107 | |
| (1,240) | |
| (1,296) | |
| 38 | |
| 56 | |
| 83 | |
| (1,119) |
| | $ | 1,923 | | $ | 2,083 | | $ | (4) | | $ | 142 | | $ | 107 | | $ | 4,251 | | $ | (3,428) | | $ | 2,040 | | $ | 56 | | $ | 83 | | $ | (1,249) |
Operating expenses deducted to arrive at operating income (loss) in the above tables for the three-month period ended June 30,March 31, 2021 and 2020 and 2019 included facility rents related to: (i) Silver SlipperMississippi of $0.3$0.6 million during 20202021 and $0.4 million during 2019,2020, (ii) Northern Nevada of $0.5 million for both periods, and (iii) Bronco Billy’sColorado of $0.2 million for both periods.
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| | | | | | | | | | | | | | | | | | |
For the Six Months Ended June 30, 2020 | ||||||||||||||||||
(In thousands) | ||||||||||||||||||
| | | | | | | | | | | | | | | | | Adjusted | |
| | | | | | | | | | | | | | | | | Property | |
| | Operating | | Depreciation | | Loss on | | Project | | | | | EBITDA and | |||||
| | Income | | and | | Disposal | | Development | | Stock-Based | | Adjusted | ||||||
|
| (Loss) |
| Amortization |
| of Assets |
| Costs |
| Compensation |
| EBITDA | ||||||
Casino properties | |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
Silver Slipper Casino and Hotel | | $ | 1,386 | | $ | 1,646 | | $ | — | | $ | — | | $ | — | | $ | 3,032 |
Rising Star Casino Resort | |
| (3,326) | |
| 1,238 | |
| — | |
| — | |
| — | |
| (2,088) |
Bronco Billy's Casino and Hotel | |
| (1,363) | |
| 763 | |
| 4 | |
| — | |
| — | |
| (596) |
Northern Nevada Casinos | |
| (1,685) | |
| 297 | |
| 435 | |
| — | |
| — | |
| (953) |
| |
| (4,988) | |
| 3,944 | |
| 439 | |
| — | |
| — | |
| (605) |
Other operations |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Corporate | |
| (2,606) | |
| 76 | |
| — | |
| 315 | |
| 186 | |
| (2,029) |
| | $ | (7,594) | | $ | 4,020 | | $ | 439 | | $ | 315 | | $ | 186 | | $ | (2,634) |
| | | | | | | | | | | | | | | | | | |
For the Six Months Ended June 30, 2019 | ||||||||||||||||||
(In thousands) | ||||||||||||||||||
| | | | | | | | | | | | | | | | | Adjusted | |
| | | | | | | | | | | | | | | | Property | ||
| | Operating | | Depreciation | | Gain on | | Project | | | | | EBITDA and | |||||
| | Income | | and | | Disposal of | | Development | | Stock-Based | | Adjusted | ||||||
|
| (Loss) |
| Amortization |
| Assets |
| Costs |
| Compensation |
| EBITDA | ||||||
Casino properties | |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
Silver Slipper Casino and Hotel | | $ | 5,725 | | $ | 1,716 | | $ | (1) | | $ | — | | $ | — | | $ | 7,440 |
Rising Star Casino Resort | |
| (192) | |
| 1,199 | |
| — | |
| — | |
| — | |
| 1,007 |
Bronco Billy's Casino and Hotel | |
| 614 | |
| 881 | |
| (4) | |
| — | |
| — | |
| 1,491 |
Northern Nevada Casinos | |
| 106 | |
| 302 | |
| — | |
| — | |
| — | |
| 408 |
| |
| 6,253 | |
| 4,098 | |
| (5) | |
| — | |
| — | |
| 10,346 |
Other operations |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Corporate | |
| (3,062) | |
| 76 | |
| — | |
| 275 | |
| 193 | |
| (2,518) |
| | $ | 3,191 | | $ | 4,174 | | $ | (5) | | $ | 275 | | $ | 193 | | $ | 7,828 |
Operating expenses deducted to arrive at operating income (loss) in the above tables for the six-month period ended June 30, 2020 and 2019 included facility rents related to: (i) Silver Slipper of $0.7 million during 2020 and $0.9 million during 2019, (ii) Northern Nevada of $0.9 million for both periods, and (iii) Bronco Billy’s of $0.3 million for both periods.
Liquidity and Capital Resources
Cash Flows
As of June 30, 2020,March 31, 2021, we had $26.5$277.9 million of unrestricted cash and equivalents.equivalents, including $179.9 million of restricted cash dedicated to the construction of Chamonix. We estimate that between approximately $7 million and $9 million of cash is used in our current day-to-day operations, including for on-site cash in our slot machines, change and redemption kiosks, and cages. In our efforts to preserve liquidity, we halted construction work on our parking garage. Whether or not we will be able to complete the parking garage in the near future will depend on the operating results of our casinos over the next several months, as well as the capital markets that might be available to us at some future date. In May 2020, we received approximately $5.6 million of loan proceeds under the CARES Act.
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Our casinos are our primary sources of income and operating cash flows and they were closed for approximately three months as a result of COVID-19. Since reopening, our casinos have performed well, though there can be no assurance that our reopened casinos will continue to generate sufficient cash flow from operations or that future borrowings will be available in amounts sufficient to enable us to pay our indebtedness or fund our other liquidity needs. In this section, we have described actions with respect to our liquidity that we have taken as a result of COVID-19.
Cash flows – operating activities. On a consolidated basis, cash used inprovided by operations during the sixthree months ended June 30, 2020March 31, 2021 was $6.4$8.3 million, compared to cash used inby operations of $1.7$4.2 million in the prior-year period. Trends in our operating cash flows tend to follow trends in operating income, excluding non-cash charges, but are also affected by changes in working capital. Comparing the 20202021 and 20192020 periods, our operating cash flows decreasedincreased primarily due to strong performances at each segment and the unforeseen business interruption from the COVID-19 pandemic. As discussed above, alltemporary closure of the Company’s casinos were closed for approximately three months beginningour properties in mid-MarchMarch 2020.
Cash flows – investing activities. On a consolidated basis, cash used in investing activities during the sixthree months ended June 30, 2020March 31, 2021 was $1.4$3.4 million, which primarily related to the garage construction at Bronco Billy’s that was suspended in March 2020 amidst the COVID-19 pandemic.purchase of Carr Manor and other land parcels related to our Chamonix project. Cash used in investing activities during the prior-year period was $3.1$1.0 million, which primarily related to capital expenditures for maintenance and certain growth-related projects, including the expansion at Bronco Billy’s and the remodeling of the Silver Slipper casino.Chamonix.
Cash flows – financing activities. On a consolidated basis, cash provided by financing activities during the sixthree months ended June 30, 2020March 31, 2021 was $4.4$235.4 million, compared to cash provided byused in financing activities of $8.1$0.4 million in the prior-year period. Comparing the 2020In February and 2019 periods,March 2021, respectively, we received $310.0 million of gross proceeds totaling $5.6from the issuance of our 2028 Notes and gross proceeds of $46.0 million through our underwritten equity offering. These cash inflows in 2021 were offset by the payoff of the Prior Notes along with related prepayment premiums, as well as expenses related to unsecured loans under the CARES Act in 2020issuance of our 2028 Notes, our March 2021 equity offering, and the additional $10our new $15.0 million revolving credit facility.
31
Other Factors Affecting Liquidity
We have significant outstanding debt and contractual obligations, in addition to potential futureplanned capital expenditures.expenditures related to the construction of Chamonix. Our principal debt matures in February 2024 and we anticipate needing to refinance this debt prior to its maturity, as we are unlikely to generate sufficient cash flow in the interim to completely repay these obligations.2028. Certain planned capital expenditures designed to grow the Company, such as the potential expansion of Silver Slipper and our American Place proposal, if pursued, would likelymay require additional financing including perhapsand/or temporarily reduce the issuance of additional debt and potentially some form of equity financing, if available at such time.Company’s ability to repay debt. Our operations are subject to financial, economic, competitive, regulatory and other factors, many of which are beyond our control. If we are unable to generate sufficient operating cash flow and/or access the capital markets, including as a result of COVID-19, we could be required to adopt one or more alternatives, such as reducing, delaying, or eliminating certain planned capital expenditures, selling assets, obtaining additional equity financing, or borrowing at higher costs of capital. See “Bronco Billy’s Expansion Suspended” for measures that have been implemented as a result of COVID-19.
Debt
Long-term Debt. As discussed above in the “Executive Overview,” we executed the Waivers and Amendments in April 2020 and August 2020 to amend the Indenture governing the Notes, which included an amendment to delete our total leverage covenant requirement for the periods endedAt March 31, 2020, and June 30, 2020, among other items.we had $310.0 million of principal indebtedness outstanding under the 2028 Notes. Additionally, in the midst of the pandemic when all operations were suspended, we obtained the CARES Act Loans totaling $5.6 million. We also owe $3.7 million related to our finance lease of a hotel at Rising Star.
8.25% Senior Secured Notes due 2028.On February 2, 2018,12, 2021, we issued $100refinanced all of our outstanding Prior Notes through the issuance of $310 million of Notes and on May 10, 2019, we issued an additional $10 million of Notes.new senior secured notes due 2028. The 2028 Notes are collateralizedsecured by liens on substantially all of our assets and are guaranteed by all of our materialrestricted subsidiaries. The total $110We placed $180 million of the debt proceeds into a construction reserve account dedicated to the construction of Chamonix.
The 2028 Notes bear interest at the greater of the three-month LIBOR or 1.0%, plus a marginfixed rate of 7.0%. The Indenture governing8.25% per year and mature on February 15, 2028. There is no mandatory debt amortization prior to the Notes provides for a 50 basis point interest premium if Mr. Lee reduces his equity interests by 50% or more while serving as our CEO. Mr. Lee has no current intention to sell any shares.maturity date. Interest on the 2028 Notes is payable quarterly in arrears, on February 15 and August 15 of each year.
Senior Secured Revolving Credit Facility due 2026. On March 31, June 30, September 302021, we entered into a credit agreement for a $15.0 million senior secured five-year revolving credit facility and December 31includes a letter of each year untilcredit sub-facility. The credit facility may be used for working capital and other ongoing general purposes, excluding project costs for Chamonix, which was separately funded. The credit facility is equally and ratably secured by the same assets securing the 2028 Notes, mature on February 2, 2024. On each interest payment date (as amended), we are required to make principal payments of $275,000 with a balloon payment forand borrowings under the remaining $103.5 million due upon maturity. The Waivers and Amendments also increased the amount due upon prepayment or maturity by a total of 40 basis points, applied to the aggregate principal amount of the Notes repaid. As of June 30, 2020, the total balance of the Notes was $107.4 million, currently accruing interest at a rate of 8.00%. Mandatory prepayments of the Notescredit facility will be required upon the occurrence of certain events, including sales of certain assets. We may redeem the Notes, in whole or in part, at any time at the applicable redemption price plus accrued and unpaid interest. The
35
redemption price (as amended) is currently 101.9% through February 1, 2021, 100.9% through February 1, 2022, and 100.4% thereafter.
The Indenture governing the Notes contains customary representations and warranties, events of default, and positive and negative covenants. We are required to maintain financial covenants, including a total leverage ratio, which measures Consolidated EBITDA (as defined in the Indenture) against outstanding debt. The total leverage ratio maximum is 5.75x through September 30, 2020 and 5.50x from October 1, 2020 through December 31, 2020. As discussed above, we amended the Indenture to delete the total leverage covenant as of March 31, 2020 and June 30, 2020, and waived certain other covenants under the Indenture. We are currently in discussions to amend the total leverage covenant for future quarters, reflecting the effects of the temporary closureguaranteed by all of our properties, but there is no guarantee that we will be successful in such efforts, in which case we may not be able to comply with such covenants in future periods. See Note 5 to the accompanying consolidated financial statements for more information aboutassets and guarantees by all of our Indenture governing the Notes.subsidiaries.
Unsecured Loans Under the CARES Act. InOn May 8, 2020, we received approximately $5.6 milliontwo of total loan proceeds underour wholly-owned subsidiaries obtained the CARES Act for our two wholly-owned subsidiaries at Bronco Billy’s and Rising Star.Loans in the aggregate amount of $5.6 million. 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. These loans have a 1.0% interest rate and mature in May 2022. Recently-passed legislation allows formid-June 2020 from the maturity date to potentially be extended to May 2025. Monthly principal and interest payments are deferred for six months. Beginning in December 2020, we are required to make monthly payments of principal and interest to the lender. The Loans may be prepaid at any time prior to maturity with no prepayment penalties.mandated closures. Such unsecured loans may be forgiven, either in whole or in part, depending on the amount of such proceeds that are used for certain eligible expenses over a 24-week period, including primarily the payroll and health benefits of employees who might otherwise behave been without jobs or health benefits. We believe that we will fully use such proceeds forintend to seek forgiveness of these eligible expenses inloans, as permitted by the allowed 24-week time period. Therelegislation, but there is no certainty that any or all of such loans will be forgiven.
Common Stock Warrants. In connection with the former Second Lien Credit Facility, we have warrants outstanding, representing rights to purchase approximately 1.0 million sharesSee Note 5 of our common stock. The warrants include redemption rights which allow the warrant-holders, at their option,Condensed Notes to require us to repurchase all or a portion of the warrants upon the occurrence of certain triggering events. The refinancing of the Second Lien Credit Facility qualified as a triggering event. Accordingly, we have reclassified the obligation to current. As of the date ofConsolidated Financial Statements included in this filing, the Second Lien Lenders have not exercised such redemption rights. If they do exercise their redemption rights, we have the option of paying them in cash or with a four-year notequarterly report for details on terms stipulated in the warrant agreement, or by registering and selling the shares related to the warrants through a public offering. See Note 6 to the accompanying consolidated financial statements for further information about these warrants which could affect our liquidity and capital resources.debt obligations.
Hyatt Option to Purchase our Leasehold Interest and Related Assets. Our lease with Hyatt to operate the Grand Lodge Casino contains an option for Hyatt, which began on January 1, 2019, to purchase our leasehold interest and related casino operating assets. See Note 3 to the accompanying consolidated financial statements for further information.Other
Capital Investments. In addition to normal maintenance capital expenditures, we madeintend to make significant capital investments through March 31, 2020, but have curtailed making any significant additional capital investments during the remainder of 2020 until we have a better understanding of our financial position in the midst of the COVID-19 pandemic.
Bronco Billy’s. As discussed above in the “Executive Overview,” we began Phase One of the two-phase expansion of our Bronco Billy’s property with our purchase of the Imperial Hotel in June 2018, along with other nearby parcels of land, and our lease of the Imperial Casino in August 2018. The remainder of Phase One includesrelated to the construction of a 319-space parking garage and connector building. In March 2020,our Chamonix growth project in light ofCripple Creek, Colorado, which is currently underway. We currently expect to invest approximately $50 million into the COVID-19 pandemic, we suspended construction of the parking garage. We estimate that the remaining cost for Phase One’s parking garage is approximately $16 million. Whether or not we willChamonix in 2021 and an additional $130 million in 2022, with its opening expected to be able to complete the parking garage in the near future will depend on the operating resultsfourth quarter of our casinos over the next several months, as well as the capital markets that might be available to us at some future date.2022.
Other Capital Expenditures. Additionally, we may fund various other capital expenditure projects, depending on our financial resources and subject to the impacts of the COVID-19 pandemic described herein.resources. Our capital expenditures may fluctuate due to decisions regarding strategic capital investments in new or existing facilities, and the timing of capital
36
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. Our annual capital expenditures typically include some number of new slot machines and related equipment; to some extent, we can coordinate such purchases to match our resources.
32
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.
COVID-19 Impact on Liquidity. As described in Note 2, in their effortsHyatt Option to controlPurchase our Leasehold Interest and Related Assets. Our lease with Hyatt to operate the spread of COVID-19, various state governments temporarily closed each of our casinos in March 2020. We began reopening when permitted by local authorities, beginning with the Silver Slipper Casino and Hotel on May 21, 2020, Grand Lodge Casino contains an option for Hyatt to purchase our leasehold interest and Stockman’s Casino on June 4, 2020, and Bronco Billy’s Casino and Hotel and Rising Star Casino Resort on June 15, 2020.
We currently believe that we have sufficient liquidity and resources to fund our reopened operations, through our current cash balances, the management of labor, marketing expenses and capital expenditures, andrelated casino operating profits that have outperformed the prior-year periods since reopening. To preserve liquidity, upon the temporary closure of our properties in March 2020, we significantly reduced staffing levels at each of our properties and at our corporate office from approximately 1,600 individuals to approximately 30, in addition to a small number of surveillance and security personnel. We used the shutdown period to reexamine our staffing levels company-wide, and we chose to reopen our properties conservatively in terms of amenities and hours of operation, given the uncertainties created by the pandemic. As a result, despite significant constraints on our operations in order to ensure social distancing and address appropriate health safety concerns, operating profits improved in the month of June 2020 versus June 2019. We elected to suspend construction of the parking garage at Bronco Billy’s, allowing us to use the cash designated for such construction to provide us with additional liquidity. We also elected to defer one-third of management salaries until at least four of our casinos, including Silver Slipper Casino and Hotel, have reopened, and recently ended these salary deferrals in August 2020. In addition, to allow us to rehire several hundred employees at Rising Star and Bronco Billy’s in preparation for, and subsequent to, the reopening of these businesses, we obtained the Loans pursuant to programs established under the CARES Act, as discussed above. In connection with the reopening of our casinos, social distancing requirements have resulted in additional expenditures, such as additional costs to sanitize equipment between guests, to police social distancing, and to provide masks and other protective equipment to employees and guests.
Because of the length of the look-forward period and the substantial items that are outside of its control, and despite its intent and best efforts to overcome the challenges in the current environment, management concluded that there could be some doubt as to our ability to continue as a going concern, particularly if rising levels of COVID-19 cases result in additional closures of some or all of the our casinos. We are attempting to continue to mitigate the impacts of COVID-19 on us through the plans described above.
Concessions Obtained for Certain Leases. In our efforts to preserve cash, we were able to obtain rent concessions in the form of abatements and reductions totaling approximately $0.4 million. In March 2020, we were granted rent abatements for the casino land lease at Silver Slipper totaling $155,000. Subsequently in July 2020, we were able to obtain rent credits and reductions totaling $208,000 for the facility lease at Grand Lodge Casino.assets. See Note 3 to the accompanying consolidated financial statements for details.further information.
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.
37
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, 2019.2020. 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, 2019.2020. There has been no significant change in our estimation methods since the end of 2019.2020.
Forward-Looking Statements
This Quarterly Report on Form 10 Q10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for which the Private Securities Litigation Reform Act of 1995 provides a safe harbor. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations and intentions. They are not historical facts and are typicallycan be identified by the use of terms such 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, 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.” Specifically, this Quarterly Report on Form 10 Q containsExamples of forward-looking statements relating to (i)include, among others, statements we make regarding our plans, beliefs or expectations regarding our growth strategies; (ii) the impact of the COVID-19 pandemic on our business operations and financial condition; (iii) our expectations regarding the intended use and the potential forgiveness of loans received under the CARES Act; (iv)coronavirus (COVID-19) pandemic; our development and expansion plans, including our currently suspended expansion plansthe estimated commencement, completion and opening timeline for Bronco Billy’s, our budget and ability to obtain financing for such expansion and the timing for commencement (or recommencement in the case of Phase One) or completion of each phase of such expansion; (v)new Chamonix casino hotel; our investments in capital improvements and other projects; (vi)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 wageringrevenue agreements with third-party providers, including the expected revenues and expenses duration of terms and the expected timing for the launch and commencement of the remaining four sports betting websites by“skins” related thereto; the Waukegan proposal, including our contracting parties in Indianaability to obtain the casino license and, Colorado; (vii)if we are awarded such license, to obtain financing; management’s expectation to exercise its buyout option on the Silver Slipper Casino and Hotel; the adequacy of our financial resources to fund operating requirements and planned capital expenditures and to meet our debt and contractual obligations; our expectations regarding the Waukegan proposal; (viii)refinancing of our expectations regarding new marketing plans and new labor expense plans that were implemented uponprincipal debt; our casino reopenings andanticipated capital expenditures; our intentions to seek forgiveness of the CARES Act Loans; our beliefs regarding compliance with our liquidity and financial covenants; our intentions regarding the benefit of such plans to the properties’ long-term expense structure; (ix) our estimated operating requirements, including as a resultuse of the impact of COVID-19; (x) our belief that we have sufficient liquidity and resources to fund our reopened operations; (xi) our expectations regarding improvements as a result ofnet proceeds from the new slot systems at Rising Star and Bronco Billy’s; (xii) our intention to focus on improving our operating margins; (xiii)Equity Offering; the anticipated expenditures as a result of COVID-19; (xiv)or potential legislative actions; our beliefs regardingin connection with our marketing efforts; the factors that affect the financial performance of our properties; the adequacy of our insurance; (xv)the competitive outlook; our expectations regarding the outcome of legal matters andmatters; the impact of recently-issuedrecently issued accounting standards; and (xvi) our estimates regarding the cash used in our day-to-day operations; and expectationsour estimates regarding certain accounting and tax matters, including estimated savings as a result of the new gaming tax schedule, among others.
Various matters may affect the operation, performance, development and results of our business and could cause future outcomes to change significantly from those set forth in our forward-looking statements, including the following risks, uncertainties and other factors:
3833
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 our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others:
Risks Related to our Business and Operations
● | The outbreak of COVID-19 (coronavirus), which has significantly impacted the |
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● | Marine transportation is inherently risky, and insurance may be insufficient to cover losses that may occur to our |
● | 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, |
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the areas in which we operate could make it more difficult for potential customers to travel to our |
● | The occurrence of natural disasters, such as hurricanes, pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases such as the |
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Risks Related to Development and Growth Opportunities
● | We are often involved in one or more construction and development projects, including the |
● | The construction costs for the new Cripple Creek 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 new Cripple Creek casino hotel will not be subject to additional regulatory restrictions, delays, or challenges. |
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● | Failure to comply with the terms of our |
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● | The construction of the |
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Risks Related to our Indebtedness
● | Our significant indebtedness could adversely affect our |
● | 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. |
Risks Related to our Legal and Regulatory Environment
● | 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 Technology
● | 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. |
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● | The other factors |
We undertake no obligation to publicly update or revise any forward-looking statements as a result of future developments, events or 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 June 30, 2020,March 31, 2021, we completed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in the Exchange Act Rule 13a-15(e) and 15d-15(e)). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2020,March 31, 2021, our disclosure controls and procedures are effective at a reasonable assurance level in timely alerting them to material information relating to us, which is required to be included in our periodic SEC filings.
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
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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.
We are subject to various legal and administrative proceedings relating to personal injuries, employment matters, commercial transactions and other matters arising in the normal course of business. We do not believe that the final outcome of these matters will have a material adverse effect on our consolidated financial position or results of operations. We maintain what we believe is adequate insurance coverage to further mitigate the risks of such proceedings.
In addition toThere were no material changes from the risk factors previously disclosed inset forth under Part I, Item 1A “Risk Factors” section of our Annual Report on Form 10-K10 K for the year ended December 31, 2019, the following risk factor was identified:
We are subject to risks related to corporate social responsibility and reputation.
Many factors influence our reputation and the value of our brands including the perception held by our customers, business partners, other key stakeholders and the communities in which we do business. Our business faces increasing scrutiny related to environmental, social and governance activities and risk of damage to our reputation and the value of our brands if we fail to act responsibly in a number of areas, such as diversity and inclusion, environmental stewardship, climate change, workplace conduct, human rights, philanthropy and support for local communities. Any harm to our reputation could impact employee engagement and retention and the willingness of customers and our partners to do business with us, which could have a material adverse effect on our business, results of operations and cash flows.
2020.
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Item 1.01 Entry into a Material Definitive Agreement.
On August 12, 2020, the Company executed the Fourth Amendment dated as of August 12, 2020 to amend the Indenture to the Notes. Reflecting the adverse impact on the Company’s business operations due to the ongoing COVID-19 pandemic, the Fourth Amendment (i) deleted the total leverage ratio covenant as of June 30, 2020, and (ii) permitted the incurrence of $5.6 million of unsecured loans under the CARES Act. The Company paid an amendment fee of 0.75%, or $805,313 to the holders of its Notes, based on the outstanding balance of the aggregate principal amount as of the amendment date. Additionally, the Fourth Amendment increased the optional premiums by 25 basis points, plus accrued and applicable unpaid interest, if the Company chooses to redeem all or a part of the Notes prior to, or at, maturity. The following table summarizes the current debt repayment premiums for the Notes:
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The Notes bear interest at the greater of the three-month LIBOR or 1.0%, plus a margin rate of 7.0%. Interest on the Notes is payable quarterly in arrears, on March 31, June 30, September 30 and December 31 of each year until the Notes mature on February 2, 2024. On each interest payment date, the Company is required to make principal payments of $275,000 with a balloon payment for the remaining $103.5 million due upon maturity. Additionally, excluding the exercise of any optional early redemptions, the Company will pay a debt redemption premium of $0.4 million at maturity, as required by the Third and Fourth Amendments and detailed in the table above.
The Notes are collateralized by substantially all of the Company’s assets and are guaranteed by all of its material subsidiaries.
The foregoing description of the Fourth Amendment does not purport to be complete and is qualified in its entirety by reference to the copy of the Fourth Amendment attached as Exhibit 4.2 to this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
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Exhibit | | Description |
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10.1 | | |
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31.1* | | |
31.2* | | |
32.1** | | |
32.2** | | |
101.INS* | | XBRL Instance |
101.SCH* | | XBRL Taxonomy Extension Schema |
101.CAL* | | XBRL Taxonomy Extension Calculation |
101.DEF* | | XBRL Taxonomy Extension Definition |
101.LAB* | | XBRL Taxonomy Extension Labels |
101.PRE* | | XBRL Taxonomy Extension Presentation |
* 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.
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| FULL HOUSE RESORTS, INC. | |
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Date: | By: | /s/ DANIEL R. LEE |
| | Daniel R. Lee Chief Executive Officer (on behalf of the Registrant and as principal executive officer) |
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Date: | 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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