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 September 30, |
or | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from to |
Commission File No. 1-32583
FULL HOUSE RESORTS, INC.
(Exact name of registrant as specified in its charter)
| | |
Delaware (State or other jurisdiction of incorporation or organization) |
| 13-3391527 (I.R.S. Employer Identification No.) |
| | |
One Summerlin, 1980 Festival Plaza Drive, Suite 680 Las Vegas, Nevada (Address of principal executive offices) | | 89135 (Zip Code) |
(702) (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”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 November 4, 2020,8, 2021, there were 27,105,72834,227,493 shares of Common Stock, $0.0001 par value per share, outstanding.
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
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| Page |
| 3 | ||
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| 3 | |
| Consolidated Balance Sheets at September 30, 2021 and December 31, 2020 |
| 4 |
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| 5 | |
| Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 |
| 6 |
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| 7 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| 42 | ||
| 42 | ||
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| 43 | ||
| 43 | ||
| 43 | ||
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44 | |||
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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 | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Revenues |
| |
|
| |
|
| |
|
| |
|
Casino | | $ | 31,910 | | $ | 30,644 | | $ | 63,616 | | $ | 87,392 |
Food and beverage | |
| 5,612 | |
| 9,262 | |
| 14,596 | |
| 26,783 |
Hotel | |
| 2,511 | |
| 3,077 | |
| 5,204 | |
| 8,843 |
Other operations, including online/mobile sports operations | |
| 1,923 | |
| 1,276 | |
| 3,904 | |
| 3,398 |
Total revenues | |
| 41,956 | |
| 44,259 | |
| 87,320 | |
| 126,416 |
Operating costs and expenses | |
|
| |
|
| |
|
| |
|
|
Casino | |
| 10,125 | |
| 12,188 | |
| 23,886 | |
| 35,565 |
Food and beverage | |
| 5,234 | |
| 10,154 | |
| 14,453 | |
| 28,972 |
Hotel | |
| 1,113 | |
| 2,522 | |
| 2,663 | |
| 7,321 |
Other operations | |
| 564 | |
| 1,189 | |
| 1,441 | |
| 3,030 |
Selling, general and administrative | |
| 12,555 | |
| 12,485 | |
| 35,332 | |
| 38,172 |
Project development costs | |
| 108 | |
| 228 | |
| 423 | |
| 503 |
Depreciation and amortization | |
| 1,848 | |
| 2,089 | |
| 5,868 | |
| 6,263 |
Loss on disposal of assets, net | |
| — | |
| 10 | |
| 439 | |
| 5 |
| |
| 31,547 | |
| 40,865 | |
| 84,505 | |
| 119,831 |
Operating income | |
| 10,409 | |
| 3,394 | |
| 2,815 | |
| 6,585 |
Other (expense) income | |
|
| |
|
| |
|
| |
|
|
Interest expense, net of $208 and $478 capitalized for the three-months ended September 30, 2020 and 2019, and $639 and $608 capitalized for the nine-months ended September 30, 2020 and 2019 | | | (2,391) | | | (2,428) | | | (7,329) | | | (8,062) |
Adjustment to fair value of warrants | |
| (403) | |
| (262) | |
| 1,159 | |
| (161) |
| |
| (2,794) | |
| (2,690) | |
| (6,170) | |
| (8,223) |
Income (loss) before income taxes | |
| 7,615 | |
| 704 | |
| (3,355) | |
| (1,638) |
Income tax (benefit) provision | | | (93) | | | (234) | | | (2) | | | 51 |
Net income (loss) | | $ | 7,708 | | $ | 938 | | $ | (3,353) | | $ | (1,689) |
| | | | | | | | | | | | |
Basic earnings (loss) per share | | $ | 0.28 | | $ | 0.03 | | $ | (0.12) | | $ | (0.06) |
Diluted earnings (loss) per share | | $ | 0.28 | | $ | 0.03 | | $ | (0.17) | | $ | (0.06) |
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Revenues |
| |
|
| |
|
| |
|
| |
|
Casino | | $ | 32,506 | | $ | 31,910 | | $ | 99,217 | | $ | 63,616 |
Food and beverage | |
| 7,092 | |
| 5,612 | |
| 20,633 | |
| 14,596 |
Hotel | |
| 2,469 | |
| 2,511 | |
| 7,190 | |
| 5,204 |
Other operations, including contracted sports wagering | |
| 5,171 | |
| 1,923 | |
| 9,848 | |
| 3,904 |
| |
| 47,238 | |
| 41,956 | |
| 136,888 | |
| 87,320 |
Operating costs and expenses | |
|
| |
|
| |
|
| |
|
|
Casino | |
| 11,261 | |
| 10,125 | |
| 32,687 | |
| 23,886 |
Food and beverage | |
| 6,199 | |
| 5,234 | |
| 17,487 | |
| 14,453 |
Hotel | |
| 1,136 | |
| 1,113 | |
| 3,332 | |
| 2,663 |
Other operations | |
| 576 | |
| 564 | |
| 1,522 | |
| 1,441 |
Selling, general and administrative | |
| 14,791 | |
| 12,555 | |
| 43,211 | |
| 35,332 |
Project development costs | |
| 318 | |
| 108 | |
| 491 | |
| 423 |
Preopening costs | | | 17 | | | — | | | 17 | | | — |
Depreciation and amortization | |
| 1,819 | |
| 1,848 | |
| 5,448 | |
| 5,868 |
Loss on disposal of assets, net | |
| 2 | |
| — | |
| 674 | |
| 439 |
| |
| 36,119 | |
| 31,547 | |
| 104,869 | |
| 84,505 |
Operating income | |
| 11,119 | |
| 10,409 | |
| 32,019 | |
| 2,815 |
Other (expense) income | |
|
| |
|
| |
|
| |
|
|
Interest expense, net of $509 and $208 capitalized for the three-months ended September 30, 2021 and 2020, and $1,017 and $639 capitalized for the nine-months ended September 30, 2021 and 2020 | | | (6,405) | | | (2,391) | | | (17,531) | | | (7,329) |
Loss on extinguishment of debt | | | — | | | — | | | (6,104) | | | — |
Adjustment to fair value of warrants | |
| — | |
| (403) | |
| (1,347) | |
| 1,159 |
| |
| (6,405) | |
| (2,794) | |
| (24,982) | |
| (6,170) |
Income (loss) before income taxes | |
| 4,714 | |
| 7,615 | |
| 7,037 | |
| (3,355) |
Income tax provision (benefit) | | | 95 | | | (93) | | | 379 | | | (2) |
Net income (loss) | | $ | 4,619 | | $ | 7,708 | | $ | 6,658 | | $ | (3,353) |
| | | | | | | | | | | | |
Basic earnings (loss) per share | | $ | 0.13 | | $ | 0.28 | | $ | 0.21 | | $ | (0.12) |
Diluted earnings (loss) per share | | $ | 0.13 | | $ | 0.28 | | $ | 0.19 | | $ | (0.17) |
See condensed notes to consolidated financial statements.
3
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except share data)
| | | | | | |
| | September 30, | | December 31, | ||
|
| 2021 |
| 2020 | ||
ASSETS | | | | | | |
Current assets |
| |
|
| |
|
Cash and equivalents | | $ | 97,926 | | $ | 37,698 |
Restricted cash | | | 176,572 | | | — |
Accounts receivable, net | |
| 4,544 | |
| 4,904 |
Inventories | |
| 2,139 | |
| 1,511 |
Prepaid expenses and other | |
| 5,062 | |
| 2,461 |
| |
| 286,243 | |
| 46,574 |
| | | | | | |
Property and equipment, net | |
| 134,244 | |
| 115,772 |
Operating lease right-of-use assets, net | | | 16,619 | | | 17,361 |
Goodwill | |
| 21,286 | |
| 21,286 |
Other intangible assets, net | |
| 10,904 | |
| 10,963 |
Deposits and other | |
| 796 | |
| 660 |
| | $ | 470,092 | | $ | 212,616 |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
Current liabilities | | | | | | |
Accounts payable | | $ | 10,391 | | $ | 4,191 |
Accrued payroll and related | |
| 5,497 | |
| 2,397 |
Accrued interest | | | 3,386 | | | 38 |
Other accrued liabilities | |
| 9,320 | |
| 10,772 |
Current portion of operating lease obligations | | | 3,492 | | | 3,283 |
Current portion of finance lease obligation | | | 508 | | | 491 |
Current portion of long-term debt | |
| 1,546 | |
| 426 |
Common stock warrant liability | | | — | | | 2,653 |
| |
| 34,140 | |
| 24,251 |
| | | | | | |
Operating lease obligations, net of current portion | |
| 13,813 | |
| 14,914 |
Finance lease obligation, net of current portion | | | 2,914 | | | 3,298 |
Long-term debt, net | |
| 305,329 | |
| 106,832 |
Deferred income taxes, net | |
| 999 | |
| 620 |
Contract liabilities, net of current portion | | | 4,948 | | | 5,398 |
Other long-term liabilities | | | 626 | | | 626 |
| |
| 362,769 | |
| 155,939 |
Commitments and contingencies (Note 8) | |
|
| |
|
|
Stockholders’ equity | |
|
| |
|
|
Common stock, $0.0001 par value, 100,000,000 shares authorized; 35,302,549 and 28,385,299 shares issued and 34,227,493 and 27,124,292 shares outstanding | |
| 4 | |
| 3 |
Additional paid-in capital | |
| 108,586 | |
| 64,826 |
Treasury stock, 1,075,056 and 1,261,007 common shares | |
| (1,311) | |
| (1,538) |
Retained earnings (accumulated deficit) | |
| 44 | |
| (6,614) |
| |
| 107,323 | |
| 56,677 |
| | $ | 470,092 | | $ | 212,616 |
See condensed notes to consolidated financial statements.
| | | | | | |
| | September 30, | | December 31, | ||
|
| 2020 |
| 2019 | ||
ASSETS | | | | | | |
Current assets |
| |
|
| |
|
Cash and equivalents | | $ | 34,032 | | $ | 28,851 |
Restricted cash | | | — | | | 1,000 |
Accounts receivable, net of allowance of $187 and $141 | |
| 1,900 | |
| 2,206 |
Inventories | |
| 1,467 | |
| 2,292 |
Prepaid expenses and other | |
| 2,632 | |
| 3,340 |
| |
| 40,031 | |
| 37,689 |
| | | | | | |
Property and equipment, net | |
| 117,013 | |
| 121,487 |
Operating lease right-of-use assets, net | | | 18,097 | | | 19,171 |
Goodwill | |
| 21,286 | |
| 21,286 |
Other intangible assets, net | |
| 10,987 | |
| 11,056 |
Deposits and other | |
| 633 | |
| 646 |
| | $ | 208,047 | | $ | 211,335 |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
Current liabilities | | | | | | |
Accounts payable | | $ | 3,905 | | $ | 5,216 |
Accrued payroll and related | |
| 3,628 | |
| 3,044 |
Other accrued expenses and other | |
| 9,041 | |
| 10,613 |
Current portion of operating lease obligations | | | 3,263 | | | 2,707 |
Current portion of finance lease obligation | | | 486 | | | 448 |
Current portion of long-term debt | |
| 1,154 | |
| 1,100 |
Common stock warrant liability | | | 896 | | | 2,055 |
| |
| 22,373 | |
| 25,183 |
| | | | | | |
Operating lease obligations, net of current portion | |
| 15,723 | |
| 16,706 |
Finance lease obligation, net of current portion | | | 3,422 | | | 3,829 |
Long-term debt, net | |
| 107,193 | |
| 102,923 |
Deferred income taxes, net | |
| 710 | |
| 712 |
Contract liabilities, net of current portion | | | 5,576 | | | 5,886 |
| |
| 154,997 | |
| 155,239 |
Commitments and contingencies (Note 8) | |
|
| |
|
|
Stockholders’ equity | |
|
| |
|
|
Common stock, $0.0001 par value, 100,000,000 shares authorized; 28,375,291 and 28,345,525 shares issued and 27,105,728 and 27,075,962 shares outstanding | |
| 3 | |
| 3 |
Additional paid-in capital | |
| 64,709 | |
| 64,402 |
Treasury stock, 1,269,563 common shares | |
| (1,548) | |
| (1,548) |
Accumulated deficit | |
| (10,114) | |
| (6,761) |
| |
| 53,050 | |
| 56,096 |
| | $ | 208,047 | | $ | 211,335 |
4
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
(In thousands)
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | (Accumulated | | | | |
| | | | | | | Additional | | | | | | | Deficit) | | Total | |||
| | Common Stock | | Paid-in | | Treasury Stock | | Retained | | Stockholders’ | |||||||||
|
| Shares |
| Dollars |
| Capital |
| Shares |
| Dollars |
| Earnings |
| Equity | |||||
Balance, January 1, 2021 |
| 28,385 | | $ | 3 | | $ | 64,826 |
| 1,261 | | $ | (1,538) | | $ | (6,614) | | $ | 56,677 |
Equity offering, net | | 6,917 | | | 1 | | | 42,973 | | — | | | — | | | — | | | 42,974 |
Exercise of stock options | | — | | | — | | | 36 | | (34) | | | 42 | | | — | | | 78 |
Stock-based compensation |
| — | |
| — | |
| 124 |
| — | |
| — | |
| — | |
| 124 |
Net loss |
| — | |
| — | |
| — |
| — | |
| — | |
| (3,445) | |
| (3,445) |
Balance, March 31, 2021 |
| 35,302 | | | 4 | | | 107,959 |
| 1,227 | | | (1,496) | | | (10,059) | | | 96,408 |
Exercise of stock options | | — | | | — | | | 104 | | (152) | | | 185 | | | — | | | 289 |
Stock-based compensation | | — | | | — | | | 199 | | — | | | — | | | — | | | 199 |
Net income | | — | | | — | | | — | | — | | | — | | | 5,484 | | | 5,484 |
Balance, June 30, 2021 | | 35,302 | | | 4 | | | 108,262 | | 1,075 | | | (1,311) | | | (4,575) | | | 102,380 |
Stock-based compensation | | — | | | — | | | 324 | | — | | | — | | | — | | | 324 |
Net income | | — | | | — | | | — | | — | | | — | | | 4,619 | | | 4,619 |
Balance, September 30, 2021 | | 35,302 | | $ | 4 | | $ | 108,586 |
| 1,075 | | $ | (1,311) | | $ | 44 | | $ | 107,323 |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | Additional | | | | | | | | | Total | |||
| | Common Stock | | Paid-in | | Treasury Stock | | Accumulated | | Stockholders’ | |||||||||
|
| Shares |
| Dollars |
| Capital |
| Shares |
| Dollars |
| Deficit |
| Equity | |||||
Balance, January 1, 2020 |
| 28,346 | | $ | 3 | | $ | 64,402 |
| 1,270 | | $ | (1,548) | | $ | (6,761) | | $ | 56,096 |
Stock-based compensation |
| — | |
| — | |
| 83 |
| — | |
| — | |
| — | |
| 83 |
Net loss |
| — | |
| — | |
| — |
| — | |
| — | |
| (4,358) | |
| (4,358) |
Balance, March 31, 2020 |
| 28,346 | | | 3 | | | 64,485 |
| 1,270 | | | (1,548) | | | (11,119) | | | 51,821 |
Stock grants | | 13 | | | — | | | 24 | | — | | | — | | | — | | | 24 |
Stock-based compensation | | — | | | — | | | 79 | | — | | | — | | | — | | | 79 |
Net loss | | — | | | — | | | — | | — | | | — | | | (6,703) | | | (6,703) |
Balance, June 30, 2020 | | 28,359 | | | 3 | | | 64,588 | | 1,270 | | | (1,548) | | | (17,822) | | | 45,221 |
Stock grants | | 16 | | | — | | | 24 | | — | | | — | | | — | | | 24 |
Stock-based compensation | | — | | | — | | | 97 | | — | | | — | | | — | | | 97 |
Net income | | — | | | — | | | — | | — | | | — | | | 7,708 | | | 7,708 |
Balance, September 30, 2020 | | 28,375 | | $ | 3 | | $ | 64,709 |
| 1,270 | | $ | (1,548) | | $ | (10,114) | | $ | 53,050 |
See condensed notes to consolidated financial statements.
45
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITYCASH FLOWS (Unaudited)
(In thousands)
| | | | | | |
| | Nine Months Ended | ||||
| | September 30, | ||||
|
| 2021 |
| 2020 | ||
Cash flows from operating activities: |
| |
|
| |
|
Net income (loss) | | $ | 6,658 | | $ | (3,353) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |
|
| |
|
|
Depreciation and amortization | |
| 5,448 | |
| 5,868 |
Amortization of debt issuance and warrant costs and other | |
| 991 | |
| 827 |
Stock-based compensation | |
| 647 | |
| 307 |
Change in fair value of stock warrants | |
| 1,347 | |
| (1,159) |
Loss on disposal of assets, net | |
| 674 | |
| 439 |
Proceeds from insurance related to property damage | | | 1,334 | | | 0 |
Loss on extinguishment of debt | | | 6,104 | | | 0 |
Increases and decreases in operating assets and liabilities: | |
|
| |
|
|
Accounts receivable | |
| 360 | |
| 306 |
Prepaid expenses, inventories and other | |
| (3,229) | |
| 1,533 |
Deferred taxes | |
| 379 | |
| (2) |
Common stock warrant liability | | | (4,000) | | | 0 |
Contract liabilities | | | (600) | | | (109) |
Accounts payable and accrued expenses | |
| 3,188 | |
| (1,732) |
Net cash provided by operating activities | |
| 19,301 | |
| 2,925 |
Cash flows from investing activities: | |
|
| |
|
|
Purchase of property and equipment | |
| (17,828) | |
| (1,883) |
Other | |
| (164) | |
| 11 |
Net cash used in investing activities | |
| (17,992) | |
| (1,872) |
Cash flows from financing activities: | |
|
| |
|
|
Proceeds from Senior Secured Notes due 2028 borrowings | |
| 310,000 | |
| 0 |
Proceeds from equity offering, net of issuance costs | | | 42,974 | | | 0 |
Proceeds from CARES Act unsecured loans | |
| 0 | |
| 5,606 |
Payment of debt discount and issuance costs | |
| (9,421) | |
| (1,284) |
Repayment of Senior Secured Notes due 2024 | | | (106,825) | | | (825) |
Prepayment premiums of Senior Secured Notes due 2024 | |
| (1,261) | |
| 0 |
Repayment of finance lease obligation | | | (367) | | | (369) |
Proceeds from exercise of stock options | |
| 367 | |
| 0 |
Other | | | 24 | | | 0 |
Net cash provided by financing activities | |
| 235,491 | |
| 3,128 |
| | | | | | |
Net increase in cash, cash equivalents and restricted cash | |
| 236,800 | |
| 4,181 |
Cash, cash equivalents and restricted cash, beginning of period | |
| 37,698 | |
| 29,851 |
Cash, cash equivalents and restricted cash, end of period | | $ | 274,498 | | $ | 34,032 |
| | | | | | |
Supplemental Cash Flow Information: | |
|
| |
|
|
Cash paid for interest, net of amounts capitalized | | $ | 13,180 | | $ | 6,324 |
Non-Cash Investing Activities: | |
|
| |
|
|
Accounts payable related capital expenditures | | $ | 7,031 | | $ | 265 |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | Additional | | | | | | | | | Total | |||
| | Common Stock | | Paid-in | | Treasury Stock | | Accumulated | | Stockholders’ | |||||||||
|
| Shares |
| Dollars |
| Capital |
| Shares |
| Dollars |
| Deficit |
| Equity | |||||
Balance, January 1, 2020 |
| 28,346 | | $ | 3 | | $ | 64,402 |
| 1,270 | | $ | (1,548) | | $ | (6,761) | | $ | 56,096 |
Stock-based compensation |
| — | |
| — | |
| 83 |
| — | |
| — | |
| — | |
| 83 |
Net loss |
| — | |
| — | |
| — |
| — | |
| — | |
| (4,358) | |
| (4,358) |
Balance, March 31, 2020 |
| 28,346 | | | 3 | | | 64,485 |
| 1,270 | | | (1,548) | | | (11,119) | | | 51,821 |
Stock grants | | 13 | | | — | | | 24 | | — | | | — | | | — | | | 24 |
Stock-based compensation | | — | | | — | | | 79 | | — | | | — | | | — | | | 79 |
Net loss | | — | | | — | | | — | | — | | | — | | | (6,703) | | | (6,703) |
Balance, June 30, 2020 | | 28,359 | | | 3 | | | 64,588 | | 1,270 | | | (1,548) | | | (17,822) | | | 45,221 |
Stock grants | | 16 | | | — | | | 24 | | — | | | — | | | — | | | 24 |
Stock-based compensation | | — | | | — | | | 97 | | — | | | — | | | — | | | 97 |
Net income | | — | | | — | | | — | | — | | | — | | | 7,708 | | | 7,708 |
Balance, September 30, 2020 | | 28,375 | | $ | 3 | | $ | 64,709 |
| 1,270 | | $ | (1,548) | | $ | (10,114) | | $ | 53,050 |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | Additional | | | | | | | | | Total | |||
| | Common Stock | | Paid-in | | Treasury Stock | | Accumulated | | Stockholders’ | |||||||||
|
| 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 |
Stock-based compensation |
| — | |
| — | |
| 86 |
| — | |
| — | |
| — | |
| 86 |
Net loss |
| — | |
| — | |
| — |
| — | |
| — | |
| (1,617) | |
| (1,617) |
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 |
Stock-based compensation | | — | | | — | | | 70 | | — | | | — | | | — | | | 70 |
Net income | | — | | | — | | | — | | — | | | — | | | 938 | | | 938 |
Balance, September 30, 2019 | | 28,337 | | $ | 3 | | $ | 64,243 |
| 1,357 | | $ | (1,654) | | $ | (2,628) | | $ | 59,964 |
See condensed notes to consolidated financial statements.
56
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
| | | | | | |
| | Nine Months Ended | ||||
| | September 30, | ||||
|
| 2020 |
| 2019 | ||
Cash flows from operating activities: |
| |
|
| |
|
Net loss | | $ | (3,353) | | $ | (1,689) |
Adjustments to reconcile net loss to net cash provided by operating activities: | |
|
| |
|
|
Depreciation and amortization | |
| 5,868 | |
| 6,263 |
Amortization of debt issuance and warrant costs and other | |
| 827 | |
| 845 |
Stock-based compensation | |
| 307 | |
| 263 |
Change in fair value of stock warrants | |
| (1,159) | |
| 161 |
Change in fair value of interest rate cap | | | — | | | 90 |
Loss on disposal of assets | |
| 439 | |
| 5 |
Increases and decreases in operating assets and liabilities: | |
|
| |
|
|
Accounts receivable | |
| 306 | |
| 249 |
Prepaid expenses, inventories and other | |
| 1,533 | |
| (1,477) |
Deferred taxes | |
| (2) | |
| 51 |
Deferred revenue | | | (109) | | | 2,000 |
Accounts payable and accrued expenses | |
| (1,732) | |
| (1,048) |
Net cash provided by operating activities | |
| 2,925 | |
| 5,713 |
Cash flows from investing activities: | |
|
| |
|
|
Purchase of property and equipment | |
| (1,883) | |
| (5,662) |
Other | |
| 11 | |
| (563) |
Net cash used in investing activities | |
| (1,872) | |
| (6,225) |
Cash flows from financing activities: | |
|
| |
|
|
Proceeds from Senior Secured Notes borrowings | |
| — | |
| 10,000 |
Proceeds from CARES Act unsecured loans | |
| 5,606 | |
| — |
Payment of debt discount and issuance costs | |
| (1,284) | |
| (1,182) |
Repayment of Senior Secured Notes | |
| (825) | |
| (800) |
Repayment of finance lease obligation | | | (369) | | | (403) |
Proceeds from exercise of stock options | |
| — | |
| 45 |
Net cash provided by financing activities | |
| 3,128 | |
| 7,660 |
| | | | | | |
Net increase in cash, cash equivalents and restricted cash | |
| 4,181 | |
| 7,148 |
Cash, cash equivalents and restricted cash, beginning of period | |
| 29,851 | |
| 20,634 |
Cash, cash equivalents and restricted cash, end of period | | $ | 34,032 | | $ | 27,782 |
| | | | | | |
Supplemental Cash Flow Information: | |
|
| |
|
|
Cash paid for interest, net of amounts capitalized | | $ | 6,324 | | $ | 6,962 |
Non-Cash Investing Activities: | |
|
| |
|
|
Accounts payable related capital expenditures | | $ | 265 | | $ | 651 |
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; four are part of5 casinos: 4 on real estate that it ownswe own or leases,lease and one is1 located within a hotel owned by a third party. Construction continues for a sixth property, Chamonix Casino Hotel (“Chamonix”), adjacent to the Company’s existing Bronco Billy’s Casino and Hotel in Cripple Creek, Colorado. We also benefit from 6 permitted sports wagering “skins,” 3 in Colorado and 3 in Indiana. Other companies operate or will operate these online sports wagering sites under their brands, paying us a percentage of revenues, as defined, subject to annual minimum amounts. NaN of our 6 permitted skins have commenced operations. The following table identifies the propertiesour 5 segments, along with properties and their respective dates of acquisition and locations:
| | |
|
|
Segments and Properties | | Locations | ||
Colorado | | | ||
Bronco Billy’s Casino and Hotel |
| Cripple Creek, CO (near Colorado Springs) | ||
Chamonix Casino Hotel (under construction) | | Cripple Creek, CO (near Colorado Springs) | ||
| | | ||
Rising Star Casino Resort |
|
| ||
| |
| |
|
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”), all operating | | Colorado | ||
Three sports wagering websites (“skins”), two in operation | | Indiana |
The Company manages its casinos based primarily on geographic regions within the United States. See Note 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 enhanced comparability. Such reclassifications had no effect on the previously reported results of operations or financial position.
COVID-19 Pandemic Update. In March 2020, the World Health Organization declared the outbreak of the novel coronavirus as a pandemic (“COVID-19”). Although COVID-19 continues to spread throughout the U.S. and the world, vaccines designed to inhibit the severity and the spread of COVID-19 are now being distributed. As a result, the number of newly reported cases has declined in the U.S. in recent weeks, though new variants could result in a reversal of these trends. For example, the Delta variant of COVID-19 resulted in large increases in the number of COVID-19 cases as it spread globally. COVID-19 has resulted in the implementation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, business restrictions, closing of borders, “shelter-in-place” orders and business closures. In March 2020, pursuant to state government orders, the Company temporarily closed all of its casino properties.
7
As a result, the Company experienced a material decline in its revenues until its properties began reopening when permitted by local authorities. The reopening dates were:
● | Silver Slipper Casino and Hotel ― May 21, 2020 |
● | Grand Lodge Casino and Stockman’s Casino ― June 4, 2020 |
● | Bronco Billy’s Casino and Hotel ― June 15, 2020 |
● | Rising Star Casino Resort ― June 15, 2020. |
During the shutdown period, the Company evaluated labor, marketing and other costs at its businesses so that, upon reopening, its properties could reopen with significantly lower operating costs. As a result, the Company’s operating performance since reopening in mid-2020 has been stronger than pre-pandemic levels, despite business restrictions throughout its properties and certain pandemic-related additional costs. The extent to which the Company’s financial and operating results in future periods may be affected by COVID-19, including the Delta or other variants, will largely depend on future developments, which are highly uncertain and cannot be accurately predicted at this time. Significant uncertainties include the ability to operate; new information which may emerge concerning new strains of COVID-19 and their severity; vaccination rates among the population; the effectiveness of COVID-19 vaccines against variants; any additional actions imposed by governmental authorities (including the potential mandated vaccination or repeated testing of our employees) to contain or minimize the impact of COVID-19 and any variants; increased operating costs and constraints to implement sanitation and social distancing requirements; increased costs for materials due to supply chain constraints; and general economic conditions, among others.
The disruptions arising from COVID-19 continued to impact the Company during the three- and nine-months ended September 30, 2021. The duration and intensity of this global health emergency and related disruptions are uncertain. While each of the Company’s properties are currently open and operating restrictions further information.eased during the third quarter of 2021, the current economic and regulatory environment in each of the Company’s jurisdictions continues to evolve. For example, mask mandates for all employees and guests were re-introduced at our Nevada properties in July 2021 in compliance with recent orders from Nevada state government officials and, in November 2021, new national rules were announced that would require employers with more than 100 employees to ensure their workers are vaccinated against COVID-19 or undergo weekly testing. The manner in which governments will react as the global and regional impact of the COVID-19 pandemic changes over time is uncertain, and such actions could significantly alter the Company’s current operations.
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.
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 in March 2020 pursuant to orders from governmental authorities as a precautionary measure against the ongoing spread of a
7
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 operations through the generation of cash by its reopened properties (including in the third quarter of 2020), its current cash balances and the continued management of labor, marketing expenses, and capital expenditures. 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, or periods, 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 (which compares Adjusted EBITDA for the latest twelve months to debt levels, as defined in the loan agreement) for the periods ended September 30, June 30, and March 31, 2020. Even though results in the recent quarter generally exceeded those of the prior-year quarter, the closure period in early 2020 will continue to affect the leverage ratio for the next few quarters. The parties continue to discuss amending covenants for future quarters in case such amendments are needed. Accounting Standards Codification 205-40 (“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 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.
8
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 cap.asset purchases and acquisitions (see Note 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 commencedplaced into a construction reserve account to fund the completion of the Chamonix construction project.
Accounts Receivable. Accounts receivable consist primarily of casino, hotel and were contractually requiredother receivables, are typically non-interest bearing, and are carried net of an appropriate collection allowance to approximate fair value. Allowances for doubtful accounts are estimated based on specific review of customer accounts including the customers’ willingness and ability to pay and nature of collateral, if any, as well as historical collection experience and current economic and business conditions. Accounts are written off when management deems the account to be separated fromuncollectible and recoveries of accounts previously written off are recorded when received.
| | | | | | | |
(In thousands) | | | September 30, | | December 31, | ||
|
|
| 2021 |
| 2020 | ||
Accounts receivable | | | $ | 4,796 | | $ | 5,080 |
Accounts receivable allowance | | |
| (252) | |
| (176) |
| | | $ | 4,544 | | $ | 4,904 |
At September 30, 2021, the Company’s operating cash. In Marchbalance in accounts receivables includes the sale of “free play” at Rising Star for $2.1 million in September. Because Indiana has a progressive gaming tax system and Rising Star is one of the smaller casinos in the state, the property has consistently sold its ability to deduct “free play” in computing gaming taxes to operators in higher tax tiers (and usually sold in the fourth quarter in prior years). Compared to December 31, 2020, such cash was no longer categorized
8
as restricted, as“free play” at Rising Star for the Company was approved for its “master license” for sports betting bysame amount of $2.1 million in the Colorado Limited Gaming Control Commission on March 19, 2020.fourth quarter.
Revenue Recognition of Accrued Club Points and Deferred Revenues
Accrued Club Points: Operating Revenues and Related Costs and Expenses. The Company’s revenues consist primarily of casino gaming, food and beverage, hotel, and other revenues (such as sports wagering, golf, RV park operations, and entertainment). The majority of the Company’s revenues are derived from casino gaming, principally slot machines.
Gaming revenue is the difference between gaming wins and losses, not the total amount wagered. The Company accounts for its gaming transactions on a portfolio basis as such wagers have similar characteristics and it would not be practical to view each wager on an individual basis.
9
The Company sometimes provides discretionary complimentary goods and services (“discretionary comps”)., primarily to casino customers. For these types of transactions, the Company allocates revenue to the department providing the complimentary goods or services based upon its estimated standalone selling price, offset by a reduction in casino revenues.
Many of the Company’s customers choose to earn points under its customer loyalty programs. As points are accrued, the Company defers a portion of its gaming revenue based on the estimated standalone value of loyalty points being earned by the customer. The standalone value of loyalty points is derived from the retail value of food, beverages, hotel rooms, and other goods or services for which such points may be redeemed. A liability related to these customer loyalty points is recorded, net of estimated breakage and other factors, until the customer redeems these points, primarily for “free casino play,” complimentary dining, or hotel stays. Such liabilities were approximately $1.0$0.6 million for September 30, 20202021 and $1.4$0.8 million for December 31, 2019.2020, and these amounts are included in “other accrued liabilities” on the consolidated balance sheets. Upon redemption, the related revenue is recognized at retail value within the department providing the goods or services.services, offset by a reduction in the liability.
Revenue for food and beverage, hotel, and other revenue transactions is typically the net amount collected from customers for such goods and services, plus the retail value of (i) discretionary comps and (ii) comps provided in return for redemption of loyalty points. The Company records such revenue as the good or service is transferred to the customer. Additionally, the Company may collect deposits in advance for future hotel reservations or entertainment, among other services, which represent obligations toof the Company until the service is provided to the customer.
Deferred Revenues: Market Access Fees from Sports Wagering Agreements. TheIn 2019, the Company entered into several ten-year agreements with various unaffiliated companies allowing for online/mobile sports wagering within Indiana and Colorado, as well as on-site sports wagering at Rising Star Casino Resort and at Bronco Billy’s Casino and Hotelcasinos (the “Sports Agreements”). The contracts differ as to the percentages of revenues that we receive. Also, some contracts require payments in advance of the contract year, while others call for settlement in arrears. As part of these long-term Sports Agreements, the Company received $6 million in one-time market access fees, 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 10 years,each agreement, beginning with the commencement of operations. The current and noncurrent portions
Indiana. Two of the deferred revenues balance totaling $5.88 million for September 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 contracted party for the fourth quarterremaining Sports Agreement is awaiting approval from the state gaming commission prior to commencing operations.
Colorado. The Company’s three Sports Agreements commenced online operations in June 2020, December 2020 and April 2021, respectively.
Deferred revenues also include a total of 2019,$2.0 million related to the annual prepayment of contracted revenue, as did onerequired in two of the Company’s threeSports Agreements. We received $1.0 million of prepaid revenue for contracted mobile sports wagering websitesoperations that commenced in Indiana. In the second quarter ofColorado in December 2020, oneand $1.0 million for contracted sports operations that commenced in Indiana in April 2021.
Such revenues consisted of the Company’s three contracted mobile sports wagering websites in Colorado also commenced operations. In September 2020, on-site sports wagering commenced at Bronco Billy’s.following, as discussed above:
| | | | | | | | |
(In thousands) | | | | September 30, | | December 31, | ||
|
| Balance Sheet Location | | 2021 |
| 2020 | ||
Deferred revenue, current | | Other accrued liabilities | | $ | 1,222 | | $ | 1,372 |
Deferred revenue, net of current portion | | Contract liabilities, net of current portion | | | 4,948 | | | 5,398 |
| | | | $ | 6,170 | | $ | 6,770 |
Income Taxes. For interim income tax reporting for the three- and nine-months ended September 30, 2020,2021, the Company estimates its annual effective tax rate and applies it to its year-to-date pretax income or loss.
10
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.
9
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.
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.
Recently IssuedRecent Accounting Pronouncements Not Yet Adopted
Income Taxes. In December 2019, the Financial Accounting 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 iswas effective for the Company beginning on January 1, 2021, with early adoption permitted. The Company is currently assessing thebut did not have a material impact ASU 2019-12 will have on its consolidated financial statements and footnote disclosures and whether it intends to early adopt the new standard.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 one1 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
11
residual value guarantees or material restrictive covenants, but the land lease at Silver Slipper does include contingent rent, as further discussed below.
Operating Leases
Silver Slipper Casino Land Lease through April 2058 and Options to Purchase. In 2004, 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-acre7-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.
10
The Company 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. Such abatement totaled $155,000 and the value of such abatement will bewas amortized over the remaining term of the lease. This amendment also restricts the Company’s purchase option period for the leased land, so that the Company cannot exercise its purchase option untilFrom April 1, 2022. From such date2022 through October 1, 2027, the Company may buy out the lease for $15.5 million plus a seller-retained interest in Silver Slipper Casino and Hotel’s operations of 3% of net income (as defined) for 10 years following the purchase date.
Bronco Billy’s / Chamonix 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 six6 renewal options in three-year increments to 2035. Bronco Billy’sThe Company considers the renewal options reasonably certain of being 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 theof 2026, with current annual lease term through January 31, 2023, which will increase the monthly rent to $32,500 beginning in February 2021.payments of $0.4 million. 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 / 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 and reopened it in November 2018. 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 also has the right to purchase thereopened casino at any time during the lease term, or as extended. The purchase price is currently $2.7 million if exercised by October 31, 2021 and increases to $2.8 million for purchase dates thereafter.
The Company reopened the closed casino in November 2018, but it did not produce enough incremental revenue to offset the incremental costs, and it was closed in September 2020. The Company has the right to purchase the casino at any time during the lease term, as extended. Currently, the purchase price is $2.8 million as of November 1, 2021.
As part of the Chamonix development project, this building is currently evaluating other conceptsused as office space for construction personnel, obviating the leased space, which is located onneed for construction trailers. The lease includes a key cornerminimum three-year term with annual lease payments of $0.2 million, and was subsequently extended in Cripple Creek, Colorado.June 2021 for an additional two years with annual lease payments of $0.3 million.
Grand Lodge Casino Lease through August 2023. The Company’s subsidiary, Gaming Entertainment (Nevada), LLC, has a lease with Incline Hotel, LLC, the owner of the Hyatt Equities, L.L.C.Regency Lake Tahoe Resort (“Hyatt”Hyatt Lake Tahoe”), to operate the Grand Lodge Casino. The lease was assigned to Incline Hotel, LLC when it purchased the Hyatt Lake Tahoe in September 2021. It 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). HyattThe lessor 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-monthtwelve-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 Hyattfacilities 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. Such reductions totaled $208,000 and such benefit is beingwas amortized over the remaining life of the lease.
Corporate Office Lease through January 2025. The Company leases 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.
12
Finance Lease
Rising Star Casino Hotel Lease through October 2027 and Option to Purchase. The Company’s Indiana subsidiary, Gaming Entertainment (Indiana) LLC, leases a 104-room hotel at Rising Star Casino Resort. At any time during the lease term, the Company has the option to purchase the hotel at a price based upon the hotel’s original cost of $7.7 million, (see Note 4), reduced by the cumulative principal payments made by the Company during the lease term. At September 30, 2020,2021, such net amountpotential purchase price was $3.9$3.4 million. Upon expiration of the lease term in October 2027, (i) the landlord has the right to sell the hotel to the Company, and (ii) the Company has the option to purchase the hotel. In either case, the purchase price is $1 plus closing costs.
11
TableThe components of Contentslease expense are as follows:
| | | | | | | | | | | | | | |
(In thousands) |
| |
| Three Months Ended |
| Nine Months Ended | ||||||||
| | | | September 30, | | September 30, | ||||||||
Lease Costs | | Classification within Statement of Operations | | 2021 |
| 2020 | | 2021 |
| 2020 | ||||
Operating leases: |
|
|
| |
| | |
|
| |
| | |
|
Fixed/base rent |
| Selling, General and Administrative Expenses | | $ | 1,112 | | $ | 1,156 | | $ | 3,357 | | $ | 3,478 |
Short-term payments | | Selling, General and Administrative Expenses | | | 29 | | | — | | | 29 | | | — |
Variable payments |
| Selling, General and Administrative Expenses | |
| 385 | |
| 219 | |
| 1,254 | |
| 442 |
Finance lease: |
|
| |
|
| |
| | |
|
| |
|
|
Amortization of leased assets |
| Depreciation and Amortization | |
| 39 | |
| 39 | |
| 118 | |
| 118 |
Interest on lease liabilities |
| Interest Expense, Net | |
| 38 | |
| 45 | |
| 122 | |
| 139 |
Total lease costs | | | | $ | 1,603 | | $ | 1,459 | | $ | 4,880 | | $ | 4,177 |
Leases recorded on the balance sheet consist of the following:
| | | | | | | | | | | | | | | ||
(In thousands) | | | | | | | | | | | | | | | | |
| | | | September 30, | | December 31, | | | | September 30, | | December 31, | ||||
Leases |
| Balance Sheet Classification |
| 2020 | | 2019 |
| Balance Sheet Classification |
| 2021 | | 2020 | ||||
Assets |
|
|
| |
| |
|
|
|
| |
| |
| ||
Operating lease assets |
| Operating Lease Right-of-Use Assets, Net |
| $ | 18,097 | | $ | 19,171 |
| Operating Lease Right-of-Use Assets, Net |
| $ | 16,619 | | $ | 17,361 |
Finance lease assets |
| Property and Equipment, Net(1) | |
| 4,918 | |
| 5,037 |
| Property and Equipment, Net(1) | |
| 4,762 | |
| 4,879 |
Total lease assets |
|
| | $ | 23,015 | | $ | 24,208 |
|
| | $ | 21,381 | | $ | 22,240 |
| | | | | | | | | | | | | | | ||
Liabilities |
|
| |
|
| |
|
|
|
| |
|
| |
|
|
Current |
|
| |
|
| |
|
|
|
| |
|
| |
|
|
Operating |
| Current Portion of Operating Lease Obligations | | $ | 3,263 | | $ | 2,707 |
| Current Portion of Operating Lease Obligations | | $ | 3,492 | | $ | 3,283 |
Finance |
| Current Portion of Finance Lease Obligation | |
| 486 | |
| 448 |
| Current Portion of Finance Lease Obligation | |
| 508 | |
| 491 |
Noncurrent |
|
| |
| | |
| |
|
| |
| | |
| |
Operating |
| Operating Lease Obligations, Net of Current Portion | |
| 15,723 | |
| 16,706 |
| Operating Lease Obligations, Net of Current Portion | |
| 13,813 | |
| 14,914 |
Finance |
| Finance Lease Obligation, Net of Current Portion | |
| 3,422 | |
| 3,829 |
| Finance Lease Obligation, Net of Current Portion | |
| 2,914 | |
| 3,298 |
Total lease liabilities |
|
| | $ | 22,894 | | $ | 23,690 |
|
| | $ | 20,727 | | $ | 21,986 |
__________
(1) | Finance lease assets are recorded net of accumulated amortization of $3.0 million and $2.8 million as of September 30, |
The components of lease expense are as follows:
| | | | | | | | | | | | | | |
(In thousands) |
| |
| Three Months Ended |
| Nine Months Ended | ||||||||
| | | | September 30, | | September 30, | ||||||||
Lease Costs | | Statement of Operations Classification | | 2020 |
| 2019 | | 2020 |
| 2019 | ||||
Operating leases: |
|
|
| |
| | |
|
| |
| | |
|
Fixed/base rent |
| Selling, General and Administrative Expenses | | $ | 1,156 | | $ | 959 | | $ | 3,478 | | $ | 2,877 |
Variable payments |
| Selling, General and Administrative Expenses | |
| 219 | |
| 146 | |
| 442 | |
| 501 |
Finance lease: |
|
| |
|
| |
| | |
|
| |
|
|
Amortization of leased assets |
| Depreciation and Amortization | |
| 39 | |
| 40 | |
| 118 | |
| 119 |
Interest on lease liabilities |
| Interest Expense, Net | |
| 45 | |
| 51 | |
| 139 | |
| 157 |
Total lease costs | | | | $ | 1,459 | | $ | 1,196 | | $ | 4,177 | | $ | 3,654 |
1213
Maturities of lease liabilities as of September 30, 20202021 are summarized as follows:
| | | | | | |
(In thousands) | | | | | | |
|
| Operating |
| Financing | ||
Years Ending December 31, | | Leases | | Lease(1) | ||
2020 (excluding the nine months ended September 30, 2020) | | $ | 1,212 | | $ | 108 |
2021 | |
| 4,792 | |
| 652 |
2022 | |
| 4,576 | |
| 652 |
2023 | |
| 2,984 | |
| 652 |
2024 | |
| 1,243 | |
| 652 |
Thereafter | |
| 31,116 | |
| 1,847 |
Total future minimum lease payments | |
| 45,923 | |
| 4,563 |
Less: Amount representing interest | |
| (26,937) | |
| (655) |
Present value of lease liabilities | |
| 18,986 | |
| 3,908 |
Less: Current lease obligations | |
| (3,263) | |
| (486) |
Long-term lease obligations | | $ | 15,723 | | $ | 3,422 |
| | | | | | |
(In thousands) | | | | | | |
|
| Operating |
| Financing | ||
Years Ending December 31, | | Leases | | Lease(1) | ||
2021 (excluding the nine months ended September 30, 2021) | | $ | 1,234 | | $ | 108 |
2022 | |
| 4,852 | |
| 652 |
2023 | |
| 3,539 | |
| 652 |
2024 | |
| 1,663 | |
| 652 |
2025 | |
| 1,466 | |
| 652 |
Thereafter | |
| 30,105 | |
| 1,195 |
Total future minimum lease payments | |
| 42,859 | |
| 3,911 |
Less: Amount representing interest | |
| (25,554) | |
| (489) |
Present value of lease liabilities | |
| 17,305 | |
| 3,422 |
Less: Current lease obligations | |
| (3,492) | |
| (508) |
Long-term lease obligations | | $ | 13,813 | | $ | 2,914 |
__________
(1)The Company’s only material finance lease is at Rising Star Casino Resort for a 104-room hotel.
Other information related to lease term and discount rate is as follows:
| | | | | | | | | | | | |
Lease Term and Discount Rate |
| September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 | ||||
Weighted-average remaining lease term |
|
| | |
| |
|
| | |
| |
Operating leases |
| 19.9 | years | | 20.2 | years |
| 20.8 | years | | 20.4 | years |
Finance lease |
| 7.0 | years | | 7.8 | years |
| 6.0 | years | | 6.8 | years |
Weighted-average discount rate |
|
| | |
| |
|
| | |
| |
Operating leases |
| 9.38 | % | | 9.40 | % |
| 9.28 | % | | 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) |
| Nine Months Ended |
| Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
Cash paid for amounts included in the measurement of lease liabilities: | | 2020 | | 2019 | | 2021 | | 2020 | ||||
Operating cash flows for operating leases | | $ | 3,250 | | $ | 2,881 | | $ | 3,652 | | $ | 3,250 |
Operating cash flows for finance lease | | $ | 139 | | $ | 157 | | $ | 122 | | $ | 139 |
Financing cash flows for finance lease | | $ | 369 | | $ | 403 | | $ | 367 | | $ | 369 |
4. ACQUISITIONS
Cripple Creek Land and Real Estate Purchase. As part of the development of Chamonix, the Company purchased Carr Manor, a boutique hotel with 14 guest rooms. This transaction closed on March 31, 2021 as an asset purchase for total consideration of $2.8 million. The purchase included 5 parcels of land, which adds to the Company’s land ownership in Cripple Creek by approximately 1.6 acres and provides additional guest parking. The addition of Carr Manor allows Bronco Billy’s to provide overnight accommodations to its guests during the construction of Chamonix, as many of Bronco Billy’s existing hotel rooms are either currently closed, being utilized by construction personnel, or will be repurposed as part of the construction of Chamonix.
Additionally, on April 16, 2021, the Company purchased a lot and building near its operations in Cripple Creek, Colorado for $600,000.
1314
4. PROPERTY AND EQUIPMENT
Property and equipment, including finance lease assets, consists of the following:
| | | | | | |
(In thousands) | | September 30, | | December 31, | ||
| | 2020 | | 2019 | ||
Land and improvements | | $ | 16,144 | | $ | 16,144 |
Buildings and improvements | |
| 107,360 | |
| 106,946 |
Furniture and equipment | |
| 47,752 | |
| 47,886 |
Finance lease assets (see Note 3) | | | 7,726 | | | 7,726 |
Construction in progress | |
| 11,175 | |
| 10,856 |
| |
| 190,157 | |
| 189,558 |
Less: Accumulated depreciation | |
| (73,144) | |
| (68,071) |
| | $ | 117,013 | | $ | 121,487 |
5. LONG-TERM DEBT
Long-term debt, related discounts and issuance costs consist of the following:
| | | | | | | | | | | | |
(In thousands) | | September 30, | | December 31, | | September 30, | | December 31, | ||||
| | 2020 | | 2019 | | 2021 | | 2020 | ||||
Senior Secured Notes | | $ | 107,100 | | $ | 107,925 | ||||||
Unsecured Loans (CARES Act) | | | 5,606 | | | — | ||||||
Revolving Credit Facility due 2026 | | $ | — | | $ | — | ||||||
Senior Secured Notes due 2028(1) | | | 310,000 | | | — | ||||||
Senior Secured Notes due 2024(2) | | | — | | | 106,825 | ||||||
Unsecured Loans (CARES Act)(3) | | | 5,606 | | | 5,606 | ||||||
Less: Unamortized discounts and debt issuance costs | |
| (4,359) | |
| (3,902) | |
| (8,731) | |
| (5,173) |
| |
| 108,347 | |
| 104,023 | |
| 306,875 | |
| 107,258 |
Less: Current portion of long-term debt | |
| (1,154) | |
| (1,100) | |
| (1,546) | |
| (426) |
| | $ | 107,193 | | $ | 102,923 | | $ | 305,329 | | $ | 106,832 |
__________
(1) | As of September 30, 2021, the estimated fair value of these notes was approximately $333.3 million. The fair value was estimated using quoted market prices for these notes. |
(2) | The estimated fair value for this non-traded debt instrument can be approximated by its respective carrying value because management believes its terms are representative of market conditions. |
(3) | The estimated fair value for this non-traded debt instrument can be approximated by its respective carrying value because of its similar terms to other CARES Act loans. |
Debt Refinancing: Notes Issuance. On February 12, 2021, the Company refinanced its existing outstanding Senior Secured Notes and Waivers. 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 next interest payment due on February 15, 2022.
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 $376,775,payment 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 representations and warranties, financial covenants, and restrictions on dividends customary for notes of this type. Mandatory prepayments, in whole or in part, of the 2028 Notes will be required upon the occurrence of certain events, including sales of certain assets, upon certain changes of control, or should the Company have certain unused funds in the construction disbursement account following the completion of Chamonix.
On or prior to February 15, 2024, the Company may redeem up to 35% of the original principal amount as of the amendment date. Additionally, the Third Amendment increased the optional repayment 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 redemption date. In addition, the Company chooses tomay redeem allsome or a partall of the 2028 Notes prior to orFebruary 15, 2024 at maturity.
On August 12, 2020, due to the impacta redemption price of 100% of the COVID-19 pandemic on the Company’s business operations, particularly in the second quarter of 2020, the Company executed the Fourth Amendment to Indenture dated as of August 12, 2020 (the “Fourth Amendment”) to amend the Indenture to the Notes. 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 Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), as detailed in the following section below. The Company paid an amendment fee of 0.75%, or $805,313, to the holders of its Notes, based on the outstanding balanceprincipal amount of the aggregate principal amount as of the amendment date. Additionally, the Fourth Amendment increased the optional repayment premiums by 25 basis points,2028 Notes, plus accrued and applicable unpaid interest if the Company chooses to redeem all or a part of the Notes prior to, or at, maturity.
Similarly, on November 6, 2020, the Company executed the Fifth Amendment to Indenture dated as of November 6, 2020 (the “Fifth Amendment”) to amend the Indenture to the Notes. The Fifth Amendment deleted the total leverage ratio covenant as of September 30, 2020. The Company paid an amendment fee of 1.00%, or approximately $1.07 million, to the holders of itsredemption date and a “make-whole” premium.
1415
Notes, basedAt any time on or after February 15, 2024, the outstanding balanceCompany may redeem some or all of the aggregate principal amount as of2028 Notes for cash at the amendment date. The Fifth Amendment did not increase the optional repayment premiums that were previously amended by the Third and Fourth Amendments.
The following table summarizes the current debt repayment premiums for the Notes:redemption prices:
| | | |
Redemption Periods |
| Percentage Premium | |
|
|
| % |
|
|
| % |
| |
| % |
The
Prior Notes. On February 2, 2018, the Company sold $100 million of Prior 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%. Interest
The Prior Notes contained certain representations and warranties, events of default, and financial covenants that were more restrictive than the 2028 Notes. For example, the Company was required to maintain a total leverage ratio, which measured Consolidated EBITDA (as defined in the indenture) against outstanding debt. Due to the impact of the COVID-19 pandemic on the Notes is payable quarterlyCompany’s business operations in arrears, on2020, the Company executed amendments, and paid negotiated amendment fees, to delete the total leverage ratio covenant as of March 31, June 30, and September 30, 2020, among other items.
Revolving Credit Facility. On March 31, 2021, the Company entered into an agreement, which provides for a $15.0 million, senior secured five-year revolving credit facility and 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 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, if any such letters of credit are issued. 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 September 30, 2021, there were 0 drawn amounts under the Credit Facility or any outstanding letters of credit.
The Credit Facility is equally and ratably secured by the same assets and guarantees securing the 2028 Notes. The Company may make prepayments of any amounts outstanding under the Credit Facility (without any reduction of the revolving commitments) in 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 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.
The Notes are collateralized by substantially alltrailing twelve-month period must equal or exceed the utilized portion of the Company’s assets and are guaranteed by allCredit Facility, if drawn. The Company was in compliance with this financial covenant as of its material subsidiaries.September 30, 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”), bear interest at a rate of 1.00% per annum, and originally had a two-year term.
Recently-passed legislation16
Legislation subsequently extended the original maturity dates to May 3, 2025 with no change to the annual interest rate. After a 15-month deferment period for principal and interest payments, the Company iswas to be required to make monthly loan payments totaling $128,557 beginning in September 2021 to2021. However, when the Lender. TheCompany submitted its forgiveness application for the Loans, the deferment period was further extended. It will remain extended until the Company receives a formal decision from its Lender regarding forgiveness of the Loans. While management believes that the Loans should fully qualify for forgiveness, there is no certainty that any or all of such Loans will be forgiven. If not forgiven, the Loans may be prepaid at any time prior to maturity with no prepayment penalties. 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 be without jobs or health benefits. There is no certainty that any or all of such Loans will be forgiven.
Maturities of the unsecured loans as of September 30, 2020, unless forgiven, are as follows:
| | | |
(In thousands) | | | |
| | Unsecured | |
For Years Ending December 31, | | Loans | |
2020 | | $ | — |
2021 | | | 426 |
2022 | | | 1,498 |
2023 | | | 1,513 |
2024 | | | 1,528 |
Thereafter | | | 641 |
| | $ | 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, Fourth, and Fifth Amendments deleted the total leverage ratio covenant for the respective periods ended March 31, 2020, June 30, 2020, and September 30, 2020. For the period ending December 31, 2020, the total leverage ratio maximum is 5.50x. There can be no assurances that the Company will remain in compliance with its covenants and/or that it would be successful in obtaining waivers or modifications in the event of noncompliance in the future.
15
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 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 September 30, 2020,period. However, upon redemption of the estimatedwarrants on February 12, 2021, the fair value was determined usingbased on the following assumptions: an expected contractual termnegotiated repurchase price of 5.62 years, an expected stock price volatility rate$4.0 million. This resulted in a final incremental fair value adjustment of 61.9%, an expected dividend yield of 0%, and an expected risk-free interest rate of 0.3%. Decreases in our share price result in decreases$1.3 million in the valuefirst quarter 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.2021.
7. INCOME TAXES
The Company’s effective income tax raterates for the three- and nine-months ended September 30, 2020 was (1.2%)2021 were 2.0% and 0.1%5.4%, respectively, compared to an effective income tax raterates of (33.2%)(1.2)% and (3.1%)0.1% for the corresponding prior-year periods. The Company’s tax rate differsrates differ from the statutory rate of 21.0% primarily due to the effects of valuation allowances against net deferred tax assets, adjustments made to certain deferred taxes, andas well as certain permanent item differences between tax and financial reporting purposes. The Company recorded a benefit of approximately $269,000 during the period ended September 30, 2020, related to the removal of a state deferred balance on indefinite-lived assets.
On March 18, 2020, the Families First Coronavirus Response Act (the “FFCR Act”), and on March 27, 2020, 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 deductibility of interest and the use of net operating losses arising in taxable years beginning after December 31, 2017; however, these benefits do not impact the Company’s current tax provision.
8. COMMITMENTS AND CONTINGENCIES AND SUBSEQUENT EVENT
Litigation
The Company is party to a number of pending legal proceedings related to matters that occurred in the normal course of business. Management does not expect that the outcome of any such proceedings, either individually or in the aggregate, will have a material effect on the Company’s financial position, results of operations and cash flows.
16
Options to Purchase or Lease Land
La Posada del Llano Racetrack ProposalOption Agreement for Public Trust Tidelands Lease in NewMississippi. The Company has been evaluating the potential construction of an additional hotel tower and related amenities at Silver Slipper, a portion of which would extend out over the adjoining Gulf of Mexico. In July 2018,contemplation for such potential future expansion, the Company paid $125,000$5,000 for options to purchasean option agreement – entered into by the Company on June 8, 2021 and approved by the Governor of Mississippi on July 13, 2021 – for a 30-year lease of approximately 520 acresa half-acre of adjoining land in Clovis, New Mexico as parttidelands, with a term extension for another 30 years, if exercised. This initial six-month option can be renewed for 3 additional six-month periods, with the payment of its racetrack casino proposal to the New Mexico Racing Commission. The proposal was in response to the New Mexico Racing Commission’s request$5,000 for proposals related to the potential issuance of the state’s sixth racing license (“RFP”).each extension. In July 2019,November 2021, the Company paid an additional $125,000$5,000 to renew these land options. In August 2019,exercise its first six-month option extension through the New Mexico Racing Commission announced that it would not issue the sixth racing license at this time. Due to uncertainties surrounding the timingend of May 2022.
Upon commencement of the RFP process, as well as uncertainties created bylease, and for the ongoing pandemic,first 18 months or until the Company elected to letbeginning of the New Mexico land options expire in July 2020. Accordingly,next six-month period after the Company wrote-off these option deposits totaling $250,000 in the second quarteropening of 2020, reflectedcommercial operations on the income statement under “Project development costs.”leased premises, whichever occurs sooner, rent would be $10,000 for each six-month period (“Construction Rent”). Construction Rent would terminate no later than 18 months after the commencement of the lease. Thereafter, annual rent would be $105,300, with adjustments, based on the consumer price index on each anniversary. Before construction can commence, additional entitlements are necessary, including certain environmental approvals. There can be no certainty that the tidelands lease option will be exercised or that the contemplated Silver Slipper expansion will be built.
17
9. EARNINGS (LOSS) PER SHARE AND STOCKHOLDERS’ EQUITY
Earnings (Loss) Per Share
The table below reconciles basic and diluted income (loss) per share of common stock:
| | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended | ||||||||||||||||
| | September 30, | | September 30, | | September 30, | | September 30, | ||||||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||||
Numerator: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Net income (loss) - basic | | $ | 7,708 | | $ | 938 | | $ | (3,353) | | $ | (1,689) | ||||||||||||
Net income (loss) ─ basic | | $ | 4,619 | | $ | 7,708 | | $ | 6,658 | | $ | (3,353) | ||||||||||||
Adjustment for assumed conversion of warrants | | | — | | | — | | | (1,159) | | | — | | | — | | | — | | | — | | | (1,159) |
Net income (loss) - diluted | | $ | 7,708 | | $ | 938 | | $ | (4,512) | | $ | (1,689) | ||||||||||||
Net income (loss) ─ diluted | | $ | 4,619 | | $ | 7,708 | | $ | 6,658 | | $ | (4,512) | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Denominator: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Weighted-average common and common share equivalents - basic | |
| 27,106 | |
| 26,980 | |
| 27,087 | |
| 26,963 | ||||||||||||
Weighted-average common and common share equivalents ─ basic | |
| 34,227 | |
| 27,106 | |
| 31,939 | |
| 27,087 | ||||||||||||
Potential dilution from share-based awards | | | 358 | | | 521 | | | — | | | — | | | 2,409 | | | 358 | | | 2,400 | | | — |
Potential dilution from assumed conversion of warrants | |
| — | |
| — | |
| 133 | |
| — | |
| — | |
| — | |
| — | |
| 133 |
Weighted-average common and common share equivalents - diluted | |
| 27,464 | |
| 27,501 | |
| 27,220 | |
| 26,963 | ||||||||||||
Weighted-average common and common share equivalents ─ diluted | |
| 36,636 | |
| 27,464 | |
| 34,339 | |
| 27,220 | ||||||||||||
Anti-dilutive share-based awards and warrants excluded from the calculation of diluted loss per share | |
| 2,360 | |
| 1,901 | |
| 3,534 | |
| 3,959 | |
| 177 | |
| 2,360 | |
| 177 | |
| 3,534 |
Stockholders’ Equity
17
TableOn March 29, 2021, the Company completed an underwritten public offering (the “Offering”) for a total of Contents6,917,250 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
On May 19, 2021, stockholders approved an amendment to the 2015 Equity Incentive Plan (the “2015 Plan”) to increase the number of shares available for issuance by 2,000,000 shares.
Restricted Stock Awards and Performance-Based Shares. On May 19, 2021, the Company issued to non-executive members of its Board of Directors, as compensation for their annual service, a total of 31,512 restricted shares under the 2015 Plan with a one-year vesting period. Additionally, the Company issued 69,975 performance-based shares in January 2021 and a total of 20,750 performance-based shares to three of the Company’s executives in May 2021. The vesting for these performance-based shares is based on the compounded annual growth rate of the Company’s Adjusted EBITDA and Free Cash Flow Per Share, as defined, for the three-year periods ending December 31, 2021, December 31, 2022, and December 31, 2023. For the 2021 period, one-sixth of such performance-based shares will vest on the anniversary date of the award if the Company’s annual Adjusted EBITDA for 2021 reflects at least 10% per annum growth since 2018, and one-sixth of such performance-based shares will vest on the anniversary date if the Company’s annual Free Cash Flow Per Share for 2021 reflects at least 12% per annum growth since 2018. Vesting of the performance-based shares is similar for the 2022 and 2023 periods.
As of September 30, 2020,2021, the Company had 105,6771,740,478 share-based awards authorized by shareholders and available for grant from the 2015 Equity Incentive Plan (the “2015 Plan”).Plan.
18
The following table summarizes information related to the Company’s common stock options as of September 30, 2020:2021:
| | | | | | | | | | |
|
| |
| 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 |
| 388,000 | |
| 1.73 |
| 315,620 | |
| 7.25 |
Exercised |
| — | |
| — |
| (185,951) | |
| 2.00 |
Canceled/Forfeited |
| (8,650) | |
| 2.23 |
| (76,333) | |
| 3.33 |
Expired |
| (25,158) | |
| 2.30 |
| — | |
| — |
Options outstanding at September 30, 2020 |
| 3,198,597 | | $ | 1.71 | |||||
Options exercisable at September 30, 2020 |
| 2,497,262 | | $ | 1.65 | |||||
Options outstanding at September 30, 2021 |
| 3,237,044 | | $ | 2.19 | |||||
Options exercisable at September 30, 2021 |
| 2,614,425 | | $ | 1.66 |
Share-based compensation expense totaled $121,000$324,000 and $70,000$121,000 for the three-months ended September 30, 20202021 and 2019,2020, respectively, and $307,000$647,000 and $263,000$307,000 for the nine-months ended September 30, 2021 and 2020, respectively. The expense for 2021 includes restricted shares issued to non-executive members of the Company’s Board of Directors as compensation for their annual service, and 2019, respectively. includes estimates for certain performance-based shares that were issued to the Company’s executives as noted above.
As of September 30, 2020,2021, there was approximately $0.6$1.7 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 2.12.3 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. Those 5 segments, as of 2021, are: Mississippi, Indiana, Colorado, Nevada, and Contracted Sports Wagering. The casino/resortCompany’s management views the states where each of its casino resorts are located as operating segments, in addition to its contracted sports wagering segment. Operating segments are aggregated based on their similar economic characteristics, types of customers, types of services and products provided, the regulatory environments in which they operate, and their management and reporting structure. During the first quarter of 2021, since it is a significantly different business than its core casino business, the Company changed the aggregation of its operations include four segments: Silver Slipper Casinoto present Contracted Sports Wagering as a separate segment. This change of the reportable segments reflects realignment within the Company stemming from the expansion of the Company’s contracted on-site and Hotel (Hancock County, Mississippi); Rising Star Casino Resort, consistingonline sports wagering skins. Additionally, this new segment breakout aims to enhance transparency of Rising Star Casino Resort (Rising Sun, Indiana)operations and its ferry boat operations (connecting Rising Sun, Indiana with Boone County, Kentucky); Bronco Billy’s Casino and Hotel (includingallows for a more appropriate valuation of the former Christmas Casino and Christmas Inn, both in Cripple Creek, Colorado); and the Northern Nevada segment, consisting of Grand Lodge Casino (Incline Village, Nevada) and Stockman’s Casino (Fallon, Nevada).Company’s various business components.
The Company utilizes Adjusted PropertySegment EBITDA as the measure of segment profit in assessing performance and allocating resources at the reportable segment level. Adjusted PropertySegment EBITDA is defined as earnings before interest and other non-operating income (expense), taxes, depreciation and amortization, pre-openingpreopening expenses, impairment charges, asset write-offs, recoveries, gain (loss) from asset disposals, project development and acquisition costs, non-cash share-based compensation expense, and corporate-related costs and expenses that are not allocated to each property.
18
Tablesegment. As a result of Contentsthe change in reportable segments described above, the Company has recast previously-reported segment information to conform to the current presentation in the following tables for enhanced comparability, which had no effect on previously reported results of operations or financial position.
The following tables present the Company’s segment information:
| | | | | | | | | | | | | | | |
(In thousands) | | Three Months Ended September 30, 2020 | |||||||||||||
|
| Silver |
| | |
| Bronco |
| | |
| | | ||
| | Slipper | | Rising Star | | Billy’s | | Northern | | | | ||||
| | Casino | | Casino | | Casino | | Nevada | | | | ||||
| | and Hotel | | Resort | | and Hotel | | Casinos | | Total | |||||
Total Revenues | | | | | | | | | | | | | | | |
Casino | | $ | 13,972 | | $ | 7,204 | | $ | 6,866 | | $ | 3,868 | | $ | 31,910 |
Food and beverage | |
| 4,231 | |
| 711 | |
| 505 | |
| 165 | |
| 5,612 |
Hotel | |
| 1,303 | |
| 1,034 | |
| 174 | |
| — | |
| 2,511 |
Other operations | |
| 460 | |
| 1,018 | |
| 365 | |
| 80 | |
| 1,923 |
| | $ | 19,966 | | $ | 9,967 | | $ | 7,910 | | $ | 4,113 | | $ | 41,956 |
| | | | | | | | | | | | | | | |
Adjusted Property EBITDA | | $ | 6,495 | | $ | 2,436 | | $ | 3,393 | | $ | 1,032 | | $ | 13,356 |
Other operating costs and expenses: | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | |
| (1,848) |
Corporate expenses | | | | | | | | | | | | | |
| (870) |
Project development costs | | | | | | | | | | | | | |
| (108) |
Stock-based compensation | | | | | | | | | | | | | | | (121) |
Operating income | | | | | | | | | | | | | |
| 10,409 |
Other (expense) income: | | | | | | | | | | | | | | | |
Interest expense, net | | | | | | | | | | | | | |
| (2,391) |
Adjustment to fair value of warrants | | | | | | | | | | | | | |
| (403) |
| | | | | | | | | | | | | | | (2,794) |
Income before income taxes | | | | | | | | | | | | | | | 7,615 |
Income tax benefit | | | | | | | | | | | | | |
| (93) |
Net income | | | | | | | | | | | | | | $ | 7,708 |
19
| | | | | | | | | | | | | | | |
(In thousands) | | Three Months Ended September 30, 2019 | |||||||||||||
|
| Silver |
| | |
| Bronco |
| | |
| | | ||
| | Slipper | | Rising Star | | Billy’s | | Northern | | | | ||||
| | Casino | | Casino | | Casino | | Nevada | | | | ||||
| | and Hotel | | Resort | | and Hotel | | Casinos | | Total | |||||
Total Revenues | | | | | | | | | | | | | | | |
Casino | | $ | 10,718 | | $ | 7,744 | | $ | 6,438 | | $ | 5,744 | | $ | 30,644 |
Food and beverage | |
| 5,676 | |
| 1,760 | |
| 1,345 | |
| 481 | |
| 9,262 |
Hotel | |
| 1,266 | |
| 1,560 | |
| 251 | |
| — | |
| 3,077 |
Other operations | |
| 406 | |
| 671 | |
| 80 | |
| 119 | |
| 1,276 |
| | $ | 18,066 | | $ | 11,735 | | $ | 8,114 | | $ | 6,344 | | $ | 44,259 |
| | | | | | | | | | | | | | | |
Adjusted Property EBITDA | | $ | 3,009 | | $ | 156 | | $ | 1,582 | | $ | 2,108 | | $ | 6,855 |
Other operating costs and expenses: | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | |
| (2,089) |
Corporate expenses | | | | | | | | | | | | | | | (1,064) |
Project development costs | | | | | | | | | | | | | |
| (228) |
Loss on disposal of assets, net | | | | | | | | | | | | | | | (10) |
Stock-based compensation | | | | | | | | | | | | | |
| (70) |
Operating income | | | | | | | | | | | | | |
| 3,394 |
Other (expense) income: | | | | | | | | | | | | | | | |
Interest expense, net | | | | | | | | | | | | | |
| (2,428) |
Adjustment to fair value of warrants | | | | | | | | | | | | | |
| (262) |
| | | | | | | | | | | | | | | (2,690) |
Income before income taxes | | | | | | | | | | | | | | | 704 |
Income tax benefit | | | | | | | | | | | | | |
| (234) |
Net income | | | | | | | | | | | | | | $ | 938 |
| | | | | | | | | | | | | | | | | | |
(In thousands) | | Three Months Ended September 30, 2021 | ||||||||||||||||
| | | | | | | | | | Contracted | | | ||||||
| | | | | | | | | | Sports | | | ||||||
| | Mississippi | | Indiana | | Colorado | | Nevada | | Wagering | | Total | ||||||
Revenues | | | | | | | | | | | | | | | | | | |
Casino | | $ | 14,578 | | $ | 7,906 | | $ | 5,288 | | $ | 4,734 | | $ | — | | $ | 32,506 |
Food and beverage | |
| 5,156 | |
| 891 | |
| 740 | |
| 305 | |
| — | |
| 7,092 |
Hotel | |
| 1,248 | |
| 990 | |
| 231 | |
| — | |
| — | |
| 2,469 |
Other operations, including contracted sports wagering | |
| 556 | |
| 2,799 | |
| 81 | |
| 93 | |
| 1,642 | |
| 5,171 |
| | $ | 21,538 | | $ | 12,586 | | $ | 6,340 | | $ | 5,132 | | $ | 1,642 | | $ | 47,238 |
| | | | | | | | | | | | | | | | | | |
Adjusted Segment EBITDA | | $ | 6,485 | | $ | 3,816 | | $ | 1,543 | | $ | 1,537 | | $ | 1,645 | | $ | 15,026 |
Other operating costs and expenses: | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | | |
| (1,819) |
Corporate expenses | | | | | | | | | | | | | | | | |
| (1,427) |
Project development costs | | | | | | | | | | | | | | | | |
| (318) |
Preopening costs | | | | | | | | | | | | | | | | | | (17) |
Loss on disposal of assets, net | | | | | | | | | | | | | | | | | | (2) |
Stock-based compensation | | | | | | | | | | | | | | | | | | (324) |
Operating income | | | | | | | | | | | | | | | | |
| 11,119 |
Other expense: | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | | | | | | | | | | | | | | |
| (6,405) |
Income before income taxes | | | | | | | | | | | | | | | | | | 4,714 |
Income tax provision | | | | | | | | | | | | | | | | |
| 95 |
Net income | | | | | | | | | | | | | | | | | $ | 4,619 |
20
| | | | | | | | | | | | | | | |
(In thousands) | | Nine Months Ended September 30, 2020 | |||||||||||||
|
| Silver |
| | |
| Bronco |
| | |
| | | ||
| | Slipper | | Rising Star | | Billy’s | | Northern | | | | ||||
| | Casino | | Casino | | Casino | | Nevada | | | | ||||
| | and Hotel | | Resort | | and Hotel | | Casinos | | Total | |||||
Total Revenues | | | | | | | | | | | | | | | |
Casino | | $ | 29,688 | | $ | 14,055 | | $ | 12,357 | | $ | 7,516 | | $ | 63,616 |
Food and beverage | |
| 10,666 | |
| 1,956 | |
| 1,360 | |
| 614 | |
| 14,596 |
Hotel | |
| 2,833 | |
| 2,010 | |
| 361 | |
| — | |
| 5,204 |
Other operations | |
| 994 | |
| 2,204 | |
| 529 | |
| 177 | |
| 3,904 |
| | $ | 44,181 | | $ | 20,225 | | $ | 14,607 | | $ | 8,307 | | $ | 87,320 |
| | | | | | | | | | | | | | | |
Adjusted Property EBITDA | | $ | 9,526 | | $ | 348 | | $ | 2,798 | | $ | 79 | | $ | 12,751 |
Other operating costs and expenses: | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | |
| (5,868) |
Corporate expenses | | | | | | | | | | | | | | | (2,899) |
Project development costs | | | | | | | | | | | | | |
| (423) |
Loss on disposal of asset, net | | | | | | | | | | | | | | | (439) |
Stock-based compensation | | | | | | | | | | | | | |
| (307) |
Operating income | | | | | | | | | | | | | |
| 2,815 |
Other (expense) income: | | | | | | | | | | | | | | | |
Interest expense, net | | | | | | | | | | | | | |
| (7,329) |
Adjustment to fair value of warrants | | | | | | | | | | | | | |
| 1,159 |
| | | | | | | | | | | | | | | (6,170) |
Loss before income taxes | | | | | | | | | | | | | | | (3,355) |
Income tax benefit | | | | | | | | | | | | | |
| (2) |
Net loss | | | | | | | | | | | | | | $ | (3,353) |
| | | | | | | | | | | | | | | | | | |
(In thousands) | | Three Months Ended September 30, 2020 | ||||||||||||||||
| | | | | | | | | | Contracted | | | ||||||
| | | | | | | | | | Sports | | | ||||||
| | Mississippi | | Indiana | | Colorado | | Nevada | | Wagering | | Total | ||||||
Revenues | | | | | | | | | | | | | | | | | | |
Casino | | $ | 13,972 | | $ | 7,204 | | $ | 6,866 | | $ | 3,868 | | $ | — | | $ | 31,910 |
Food and beverage | |
| 4,231 | |
| 711 | |
| 505 | |
| 165 | |
| — | |
| 5,612 |
Hotel | |
| 1,303 | |
| 1,034 | |
| 174 | |
| — | |
| — | |
| 2,511 |
Other operations, including contracted sports wagering | |
| 460 | |
| 616 | |
| 88 | |
| 80 | |
| 679 | |
| 1,923 |
| | $ | 19,966 | | $ | 9,565 | | $ | 7,633 | | $ | 4,113 | | $ | 679 | | $ | 41,956 |
| | | | | | | | | | | | | | | | | | |
Adjusted Segment EBITDA | | $ | 6,495 | | $ | 2,082 | | $ | 3,116 | | $ | 1,032 | | $ | 631 | | $ | 13,356 |
Other operating costs and expenses: | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | | |
| (1,848) |
Corporate expenses | | | | | | | | | | | | | | | | | | (870) |
Project development costs | | | | | | | | | | | | | | | | |
| (108) |
Stock-based compensation | | | | | | | | | | | | | | | | |
| (121) |
Operating income | | | | | | | | | | | | | | | | |
| 10,409 |
Other expenses: | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | | | | | | | | | | | | | | |
| (2,391) |
Adjustment to fair value of warrants | | | | | | | | | | | | | | | | | | (403) |
| | | | | | | | | | | | | | | | | | (2,794) |
Income before income taxes | | | | | | | | | | | | | | | | | | 7,615 |
Income tax benefit | | | | | | | | | | | | | | | | |
| (93) |
Net income | | | | | | | | | | | | | | | | | $ | 7,708 |
21
| | | | | | | | | | | | | | | |
(In thousands) | | Nine Months Ended September 30, 2019 | |||||||||||||
|
| Silver |
| | |
| Bronco |
| | |
| | | ||
| | Slipper | | Rising Star | | Billy’s | | Northern | | | | ||||
| | Casino | | Casino | | Casino | | Nevada | | | | ||||
| | and Hotel | | Resort | | and Hotel | | Casinos | | Total | |||||
Total Revenues | | | | | | | | | | | | | | | |
Casino | | $ | 34,732 | | $ | 22,614 | | $ | 17,244 | | $ | 12,802 | | $ | 87,392 |
Food and beverage | |
| 16,562 | |
| 5,373 | |
| 3,370 | |
| 1,478 | |
| 26,783 |
Hotel | |
| 3,713 | |
| 4,544 | |
| 586 | |
| — | |
| 8,843 |
Other operations | |
| 1,231 | |
| 1,671 | |
| 231 | |
| 265 | |
| 3,398 |
| | $ | 56,238 | | $ | 34,202 | | $ | 21,431 | | $ | 14,545 | | $ | 126,416 |
| | | | | | | | | | | | | | | |
Adjusted Property EBITDA | | $ | 10,448 | | $ | 1,163 | | $ | 3,074 | | $ | 2,516 | | $ | 17,201 |
Other operating costs and expenses: | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | (6,263) |
Corporate expenses | | | | | | | | | | | | | | | (3,582) |
Project development costs | | | | | | | | | | | | | |
| (503) |
Loss on disposal of assets, net | | | | | | | | | | | | | | | (5) |
Stock-based compensation | | | | | | | | | | | | | |
| (263) |
Operating income | | | | | | | | | | | | | |
| 6,585 |
Other (expense) income: | | | | | | | | | | | | | | | |
Interest expense, net | | | | | | | | | | | | | |
| (8,062) |
Adjustment to fair value of warrants | | | | | | | | | | | | | |
| (161) |
| | | | | | | | | | | | | | | (8,223) |
Loss before income taxes | | | | | | | | | | | | | | | (1,638) |
Income tax provision | | | | | | | | | | | | | |
| 51 |
Net loss | | | | | | | | | | | | | | $ | (1,689) |
| | | | | | | | | | | | | | | | | | |
(In thousands) | | Nine Months Ended September 30, 2021 | ||||||||||||||||
| | | | | | | | | | Contracted | | | ||||||
| | | | | | | | | | Sports | | | ||||||
| | Mississippi | | Indiana | | Colorado | | Nevada | | Wagering | | Total | ||||||
Revenues | | | | | | | | | | | | | | | | | | |
Casino | | $ | 47,489 | | $ | 22,507 | | $ | 16,127 | | $ | 13,094 | | $ | — | | $ | 99,217 |
Food and beverage | |
| 15,411 | |
| 2,577 | |
| 1,777 | |
| 868 | |
| — | |
| 20,633 |
Hotel | |
| 3,687 | |
| 3,040 | |
| 463 | |
| — | |
| — | |
| 7,190 |
Other operations, including contracted sports wagering | |
| 1,546 | |
| 3,629 | |
| 259 | |
| 254 | |
| 4,160 | |
| 9,848 |
| | $ | 68,133 | | $ | 31,753 | | $ | 18,626 | | $ | 14,216 | | $ | 4,160 | | $ | 136,888 |
| | | | | | | | | | | | | | | | | | |
Adjusted Segment EBITDA | | $ | 23,097 | | $ | 7,615 | | $ | 5,092 | | $ | 4,173 | | $ | 4,122 | | $ | 44,099 |
Other operating costs and expenses: | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | | |
| (5,448) |
Corporate expenses | | | | | | | | | | | | | | | | | | (4,803) |
Project development costs | | | | | | | | | | | | | | | | |
| (491) |
Preopening costs | | | | | | | | | | | | | | | | | | (17) |
Loss on disposal of assets, net | | | | | | | | | | | | | | | | | | (674) |
Stock-based compensation | | | | | | | | | | | | | | | | |
| (647) |
Operating income | | | | | | | | | | | | | | | | |
| 32,019 |
Other expenses: | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | | | | | | | | | | | | | | |
| (17,531) |
Loss on extinguishment of debt | | | | | | | | | | | | | | | | |
| (6,104) |
Adjustment to fair value of warrants | | | | | | | | | | | | | | | | | | (1,347) |
| | | | | | | | | | | | | | | | | | (24,982) |
Income before income taxes | | | | | | | | | | | | | | | | | | 7,037 |
Income tax provision | | | | | | | | | | | | | | | | |
| 379 |
Net income | | | | | | | | | | | | | | | | | $ | 6,658 |
| | | | | | |
(In thousands) | | September 30, | | December 31, | ||
|
| 2020 |
| 2019 | ||
Total Assets | | | | | | |
Silver Slipper Casino and Hotel | | $ | 84,509 | | $ | 87,980 |
Rising Star Casino Resort | |
| 36,217 | |
| 40,277 |
Bronco Billy's Casino and Hotel | |
| 45,167 | |
| 45,034 |
Northern Nevada Casinos | |
| 13,140 | |
| 18,612 |
Corporate and Other | |
| 29,014 | |
| 19,432 |
| | $ | 208,047 | | $ | 211,335 |
22
| | | | | | | | | | | | | | | | | | |
(In thousands) | | Nine Months Ended September 30, 2020 | ||||||||||||||||
| | | | | | | | | | Contracted | | | ||||||
| | | | | | | | | | Sports | | | ||||||
| | Mississippi | | Indiana | | Colorado | | Nevada | | Wagering | | Total | ||||||
Revenues | | | | | | | | | | | | | | | | | | |
Casino | | $ | 29,688 | | $ | 14,055 | | $ | 12,357 | | $ | 7,516 | | $ | — | | $ | 63,616 |
Food and beverage | |
| 10,666 | |
| 1,956 | |
| 1,360 | |
| 614 | |
| — | |
| 14,596 |
Hotel | |
| 2,833 | |
| 2,010 | |
| 361 | |
| — | |
| — | |
| 5,204 |
Other operations, including contracted sports wagering | |
| 994 | |
| 998 | |
| 170 | |
| 177 | |
| 1,565 | |
| 3,904 |
| | $ | 44,181 | | $ | 19,019 | | $ | 14,248 | | $ | 8,307 | | $ | 1,565 | | $ | 87,320 |
| | | | | | | | | | | | | | | | | | |
Adjusted Segment EBITDA | | $ | 9,526 | | $ | (769) | | $ | 2,448 | | $ | 79 | | $ | 1,467 | | $ | 12,751 |
Other operating costs and expenses: | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | | | | (5,868) |
Corporate expenses | | | | | | | | | | | | | | | | | | (2,899) |
Project development costs | | | | | | | | | | | | | | | | |
| (423) |
Loss on disposal of assets, net | | | | | | | | | | | | | | | | | | (439) |
Stock-based compensation | | | | | | | | | | | | | | | | |
| (307) |
Operating income | | | | | | | | | | | | | | | | |
| 2,815 |
Other (expense) income: | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | | | | | | | | | | | | | | |
| (7,329) |
Adjustment to fair value of warrants | | | | | | | | | | | | | | | | | | 1,159 |
| | | | | | | | | | | | | | | | | | (6,170) |
Loss before income taxes | | | | | | | | | | | | | | | | | | (3,355) |
Income tax benefit | | | | | | | | | | | | | | | | |
| (2) |
Net loss | | | | | | | | | | | | | | | | | $ | (3,353) |
| | | | | | |
(In thousands) | | September 30, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Total Assets | | | | | | |
Mississippi | | $ | 87,371 | | $ | 83,809 |
Indiana | |
| 37,447 | |
| 37,798 |
Colorado | |
| 242,068 | |
| 44,961 |
Nevada | |
| 14,004 | |
| 13,248 |
Contracted Sports Wagering | | | 1,084 | | | 1,329 |
Corporate and Other | |
| 88,118 | |
| 31,471 |
| | $ | 470,092 | | $ | 212,616 |
23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties. Please see “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions that may cause our actual results to differ materially from those discussed in the forward-looking statements. This discussion should be read in conjunction with our historical financial statements and related notes thereto and the other disclosures contained elsewhere in this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and notes for the fiscal year ended December 31, 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 segments, both of our Colorado properties (including our under-construction Chamonix Casino Hotel project, “Chamonix”) as an operating segment, and both of our Nevada properties as onean operating segment. 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.
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 for a 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 |
|
| |
| | | |||
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”), all operating | | Colorado | |||
Three sports wagering websites (“skins”), two in operation | | Indiana |
Our financial results are dependent upon the number of patrons that we attract to our properties and the amounts those guests spend per visit. While we 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 Slipper, our ferry service at Rising Star, and retail outlets and entertainment. We often provide hotel rooms, food and beverages,
24
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.
23
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. in recent weeks, though new variants could result in a reversal of these trends. For example, the Delta variant of COVID-19 resulted in large increases in the number of COVID-19 cases as it spread globally. COVID-19 has 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. We reopenedauthorities in May and June 2020.
During the Silver Slipper Casinoshutdown period, we evaluated labor, marketing and Hotel on May 21, 2020, Grand Lodge Casinoother costs at our businesses so that, upon reopening, our properties could reopen with significantly lower operating costs. As a result, our operating performance since reopening in mid-2020 has been stronger than pre-pandemic levels, despite capacity restrictions throughout our casinos and Stockman’s Casino on June 4, 2020,in our restaurants and Bronco Billy’s Casino and Hotel and Rising Star Casino Resort on June 15, 2020. In the third quarter of 2020, our total operating revenues were nearly comparable to that of the prior-year period, with casino revenues increasing by 4.1%. Additionally, labor and marketing expenses were meaningfully lower during the third quarter of 2020, resulting in operating income nearly tripling versus the third quarter of 2019. The current nine-month period, however, still shows the adverse effects of the multi-month business closures earlier in the year.certain pandemic-related costs. The extent to which our financial and operating results in future periods may be affected by COVID-19, including the Delta or other variants, will largely depend on future developments, which are highly uncertain and cannot be accurately predicted includingat this time. Significant uncertainties include the ability to operate and the operating results of our casinos over the next several months,operate; new information which may emerge concerning the severitynew strains of COVID-19 and their severity; vaccination rates among the population; the effectiveness of COVID-19 vaccines against variants; any additional actions imposed by governmental authorities (including the potential mandated vaccination or repeated testing of our employees) to contain COVID-19 or minimize itsthe impact of COVID-19 and any variants; 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.
The disruptions arising from COVID-19 continued to impact us during the nine-months ended September 30, 2021. The duration and intensity of this global health emergency and related disruptions are uncertain. While each of our properties are currently open and operating restrictions continued to ease during the third quarter of 2021, the current economic and regulatory environment in each of our jurisdictions continues to evolve. For a further discussion regardingexample, mask mandates for all employees and guests were re-introduced at our Nevada properties in July 2021 in compliance with recent orders from Nevada state government officials and, in November 2021, new national rules were announced that would require employers with more than 100 employees to ensure their workers are vaccinated against COVID-19 or undergo weekly testing. The manner in which governments will react as the impactsglobal 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 – Cash Flows and COVID-19 Impact” below.current operations.
Waivers and Amendments25
Debt Covenants. In April, August, and November 2020,Refinancing.On February 12, 2021, we obtained waivers and amendments (the “Waivers and Amendments”) to the indenture dated as of February 2, 2018 (as amended and supplemented, the “Indenture”), which governs the aggregate $110.0issued $310 million of new 2028 Notes. The proceeds were used to redeem all $106.8 million of our 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”).project. Proceeds were also used to pay the transaction fees and expenses related to the offering, leaving approximately $8 million added to our unrestricted cash balances.
On March 31, 2021, we entered into a credit agreement among Full House Resorts, Inc., as borrower, the lenders party thereto, and Capital One, National Association, as administrative agent. The Waiverscredit agreement provides for a $15.0 million, five-year, senior secured revolving credit facility and Amendmentsincludes a letter of credit sub-facility, which may be used for working capital and other ongoing general purposes.
Underwritten Equity Offering. On March 29, 2021, pursuant to an underwritten public offering (the “Equity Offering”), we issued an aggregate of 6,917,250 shares of our common stock, par value $0.0001 per share (the “Common Stock”), including 902,250 shares of Common Stock sold pursuant to the Representative’s exercise of a “greenshoe” option to purchase additional shares of Common Stock to cover over-allotments. The price to the public in the Equity Offering was $6.65 per share of Common Stock. The gross proceeds to the Company were executedapproximately $46.0 million, before deducting underwriting discounts and commissions and our estimated offering expenses. We intend to use the net proceeds from the Equity Offering for development, working capital and general corporate purposes.
Chamonix Casino Hotel Project. In 2018, we began planning and design work on Chamonix, a new and distinct luxury hotel and casino located adjacent to our existing Bronco Billy’s casino. Reflecting changes made to the state’s gaming laws in recognitionNovember 2020, including the elimination of betting limits and the approval of new table games, we increased the size of the impactsChamonix plans by 67% to approximately 300 luxury guest rooms and suites, from our previously-planned 180 guest rooms. Such plans were approved by the Cripple Creek Historic Preservation Commission and Cripple Creek City Council in January and February 2021.
We recently completed the major portion of COVID-19 onthe on-site utility work, and are currently installing footings and structural walls for the hotel towers. Vertical construction is expected to commence within the coming weeks. The three principal guestroom towers are anticipated to “top out” between April and August 2022. The project includes a new casino, approximately 300 luxury guest rooms and suites, parking garage, meeting and entertainment space, outdoor rooftop pool, spa, and fine-dining restaurant. It is still relatively early in the construction process, so estimates of cost and completion dates still contain substantial uncertainty. While the price and availability of construction materials and labor have been volatile due to COVID-19-related supply chain issues, tariffs, and other factors, we are in the process of completing the bidding for a substantial portion of the construction budget, which reduces such uncertainty.
We anticipate requesting an amendment to our business and operations. Pursuantdevelopment agreement with the City of Cripple Creek to allow for the Waivers and Amendments, among other things,project’s completion as late as July 15, 2023, versus the noteholders agreedcurrent date in such agreement of December 31, 2022. We believe that such request will be facilitated, although there is no certainty that this will be the case.
The development plan for our Chamonix site allows us to waive or deleteadd an additional hotel wing at some future date. That additional wing, if constructed, would increase the total leverage ratio covenant forcapacity of our hotel by 23%, to approximately 370 guestrooms. Such addition requires approvals from the measurement periods ending on March 31, 2020, June 30, 2020,Cripple Creek Historic Preservation Commission and September 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 for the Third Amendment and $805,313 for the Fourth Amendment, plus increases in the call premiums and amounts due at maturity amounting to an additional $155,288 and $258,813, respectively. We paid $1,071,000 for the Fifth Amendment.
Such upfront waiver fees were partially offset in recent periods by the decline in LIBOR rates that are used to calculate quarterly interest expense for the Notes.Cripple Creek City Council. There can be no assurance that we will be successful in obtainingobtain such waivers or amendments inapprovals and choose to further expand our Chamonix project. Management recently decided to defer consideration of such expansion until after the future, if needed.completion of Chamonix’s construction.
Bronco Billy’s Expansion Suspended and Colorado Referendum. In March 2020, we suspended construction that had just begun of a parking garage at Bronco Billy’s in order to conserve liquidity during the pandemic. In July 2020, we opened a temporary surface parking lot in such location.
In November 2020, Colorado voters approved several changes to the state’s gaming laws. Those changes eliminated the maximum betting limit of $100 per bet and allowed additional games of chance, including baccarat. These changes will allow the state’s casinos, including Bronco Billy’s, to attract a wealthier clientele and to offer a broader gaming experience. We continue to evaluate a potential major expansion of Bronco Billy’s, which was put on hold when we were required to close due to COVID-19. Whether or not we will be able to complete the Bronco Billy’s expansion in the near future will depend on the operating results of our casinos over the coming months, as well as the capital markets that might be available to us at some
24
future date. The Bronco Billy’s expansion project is planned to include a new luxury hotel, spa, significant convention and entertainment space, and refurbishment and expansion of our casino and food and beverage offerings.
Sports Wagering in Colorado and Indiana. In March 2020, the Colorado Limited Gaming Control Commission approved us for our threeUnder state laws, we are permitted “Sports Betting Master Licenses.” 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,” three in Colorado. On June 4, 2020, the firstColorado 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 contracted websitesskin will launch in Coloradocommence operations in the coming months, pending customary gaming license approvals. Additionally, we commenced on-site sports wagering at Bronco Billy’s on September 24, 2020.
In Indiana, onemonths. We receive a percentage of our three contracted mobile websites for sports wagering launched operations on December 30, 2019. We expect that the two remaining contracted websites will launch in Indiana in the coming months, pending customary gaming license approvals.
defined revenues of 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 websitesgaming revenues, with minimal related expenses.
26
Terre Haute Proposal (American Place in Indiana). In September 2021, in response to an application process launched by the Indiana Gaming Commission (“IGC”), we submitted a proposal for a gaming and entertainment destination for Terre Haute, Indiana. Named “American Place,” it would be developed on 32 acres of land that we currently have commenced operations, our sports wagering revenue, based onunder contract. The site is located approximately one hour west of Indianapolis and within 100 miles of Champaign-Urbana and Decatur, Illinois, as well as Lafayette, Indiana. It is highly visible from Interstate 70 and convenient to the contractual minimums, should total at least $7.0 million onI-70/SR 46 interchange.
Our proposed design is unique in several respects. The four-star, 100-room hotel will be elevated above an annualized basis. Since we incur very little expense relatedinterior greenscape, in a shape resembling a “happy smile.” The hotel will appear to these operations, almost allfloat above a fountain that will surround its base. This design will allow a majority of such revenues should translate into Adjusted Property EBITDA and operating income.
Waukegan Proposal. We continuethe guest rooms to be one of three bidders forlocated on upper levels and to enjoy extended views. Atop the opportunityhotel will be a pool deck and restaurant, featuring sushi and robata grill entrees, overlooking the Wabash Valley. Along the busy neighboring freeway, we plan to build a new casinolarge greenhouse, offering a lush interior environment. Within the greenhouse, the project would have two restaurants that offer “outdoor” dining, even in Waukegan, Illinois, midway between Chicago and Milwaukee. If chosen, we plan to complete the development employing project financing. Accordingly, we recently signed a conditional commitment letter with a multi-billion-dollar investment management firm that has experience with casino construction projects. The commitment letter potentially funds our Waukegan project, named “American Place,” if we are chosen by the Illinois Gaming Board. Under the terms of the commitment letter, the investment firm would provide approximately $300 million of non-recourse, development capital to construct American Place,winter, as well as venues for weddings and other group events. The world-class casino would be located between the hotel and the greenhouse and offer approximately 1,000 slot machines, 50 table games, and a state-of-the-art sportsbook. Atop the casino, we have planned for a solar energy farm, which would provide green, sustainable energy for a portion of the complex’s electrical needs.
We are slated to present our American Place proposal to the IGC on November 17. The IGC has indicated that it expects to select its favored proposal from the four submittals on that same day. If awarded the gaming license, we have proposed to operate a temporary casino whileduring construction of the larger permanent facility, is under construction. We would be required to invest $25 million in the project as equity, will own no less than 60% of the project, and will receive management fees for operating the casino and related amenities. The commitment letter is conditioned upon us being awarded the Waukegan casino license by the Illinois Gaming Board. The financing commitment is also subject to and contingent upon, the Illinois Gaming Board’s review and the investment firm’s further due diligence review, among other items. All of the project financing is anticipated to be limited to the Waukegan project and would not be guaranteed by us or our other subsidiaries. WeIGC approval. However, we can provide no assurances as to the timing or certainty that our project will be chosen by the IGC for the available gaming license in Terre Haute.
Waukegan Proposal (American Place in Illinois). In October 2019, we submitted a proposal to the Illinois Gaming Board (“IGB”) to develop and operate a casino and entertainment destination in Waukegan, Illinois, also to be named American Place. It would include a world-class casino with a state-of-the-art sports book; a premium boutique hotel comprised of 20 villas, each ranging from 1,500 to 2,500 square feet with full butler service; a 1,500-seat live entertainment venue; a gourmet restaurant; additional eateries and bars; and other amenities designed to attract gaming and non-gaming patrons from throughout Chicagoland and beyond. A second phase of American Place is expected to include a four-star hotel with 150 rooms.
We are one of two finalists, each of which presented the merits of its Waukegan proposal to the IGB in October 2021. The IGB has indicated that it expects to select its favored developer for the Waukegan gaming license by early January 2022. If selected, we intend to operate a temporary casino during construction of the larger permanent facility. However, we can provide no assurances as to the timing or certainty that our project will be chosen by the IGB for the available gaming license in Waukegan.
Key Performance Indicators
We use several key performance indicators to evaluate the operations of our properties. These key operating measures are presented as supplemental disclosures because management uses these measures to better understand period-over-period fluctuations in our casino and hotel operating revenues. These key performance indicators include the following:following and are disclosed in our discussions, where applicable, for certain jurisdictions on segment performance:
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.volume, and are monitored on a consolidated basis in relation to slot and table game win. Such metrics can be influenced by marketing activity and, since reopening our properties, have not necessarily been indicative of profitability trends.
Slot win is the difference between customer wagers and customer winnings on slot machines. Table game hold is the difference between the amount of money or markers exchanged into chips at the tables and customer winnings paid. Slot win and table game hold percentages represent the relationship between slot win and coin-in and table game win and drop. Both the win/hold and win/hold percentages are monitored on a consolidated basis in our evaluation of Company performance.
27
Room revenue indicators:
Hotel occupancy rate is an indicator of the utilization of our available rooms. Complimentary room sales, or the retail value of accommodations gratuitously furnished to customers, are included in the calculation of the hotel occupancy rate.
25
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’ssegment’s total revenues.
Results of Operations
Consolidated operating results
The following tables summarize our consolidated operating results for the three- and nine-months ended September 30, 20202021 and 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | Nine Months Ended | | | | | Three Months Ended | | | | | Nine Months Ended | | | | ||||||||||||||||
(In thousands) | | September 30, | | Percent | | September 30, | | Percent | | September 30, | | Increase / | | September 30, | | | ||||||||||||||||||||
|
| 2020 |
| 2019 |
| Change |
| 2020 |
| 2019 |
| Change |
| 2021 |
| 2020 |
| (Decrease) |
| 2021 |
| 2020 |
| Increase | ||||||||||||
Total revenues | | $ | 41,956 | | $ | 44,259 |
| (5.2) | % | | $ | 87,320 | | $ | 126,416 |
| (30.9) | % | ||||||||||||||||||
Revenues | | $ | 47,238 | | $ | 41,956 |
| 12.6 | % | | $ | 136,888 | | $ | 87,320 |
| 56.8 | % | ||||||||||||||||||
Operating expenses | |
| 31,547 | |
| 40,865 |
| (22.8) | % | |
| 84,505 | |
| 119,831 |
| (29.5) | % | |
| 36,119 | |
| 31,547 |
| 14.5 | % | |
| 104,869 | |
| 84,505 |
| 24.1 | % |
Operating income | |
| 10,409 | |
| 3,394 |
| 206.7 | % | |
| 2,815 | |
| 6,585 |
| (57.3) | % | |
| 11,119 | |
| 10,409 |
| 6.8 | % | |
| 32,019 | |
| 2,815 |
| 1,037.4 | % |
Interest and other non-operating expenses, net | |
| 2,794 | |
| 2,690 |
| 3.9 | % | |
| 6,170 | |
| 8,223 |
| (25.0) | % | |
| 6,405 | |
| 2,794 |
| 129.2 | % | |
| 24,982 | |
| 6,170 |
| 304.9 | % |
Income tax (benefit) provision | |
| (93) | |
| (234) |
| (60.3) | % | |
| (2) | |
| 51 |
| (103.9) | % | ||||||||||||||||||
Income tax provision (benefit) | |
| 95 | |
| (93) |
| 202.2 | % | |
| 379 | |
| (2) |
| 19,050.0 | % | ||||||||||||||||||
Net income (loss) | | $ | 7,708 | | $ | 938 |
| 721.7 | % | | $ | (3,353) | | $ | (1,689) |
| 98.5 | % | | $ | 4,619 | | $ | 7,708 |
| (40.1) | % | | $ | 6,658 | | $ | (3,353) |
| 298.6 | % |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | Nine Months Ended | | | | ||||||||
(In thousands) | | September 30, | | Increase / | | September 30, | | | ||||||||||
|
| 2021 |
| 2020 |
| (Decrease) |
| 2021 |
| 2020 |
| Increase | ||||||
Casino revenues | | | | | | | | | | | | | | | | | | |
Slots | | $ | 28,627 | | $ | 27,896 |
| 2.6 | % | | $ | 86,243 | | $ | 55,142 |
| 56.4 | % |
Table games | |
| 3,336 | |
| 3,612 |
| (7.6) | % | |
| 10,717 | |
| 7,437 |
| 44.1 | % |
Other | |
| 543 | |
| 402 |
| 35.1 | % | |
| 2,257 | |
| 1,037 |
| 117.6 | % |
| |
| 32,506 | |
| 31,910 |
| 1.9 | % | |
| 99,217 | |
| 63,616 |
| 56.0 | % |
| | | | | | | | | | | | | | | | | | |
Non-casino revenues, net | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
Food and beverage | |
| 7,092 | |
| 5,612 |
| 26.4 | % | |
| 20,633 | |
| 14,596 |
| 41.4 | % |
Hotel | |
| 2,469 | |
| 2,511 |
| (1.7) | % | |
| 7,190 | |
| 5,204 |
| 38.2 | % |
Other | |
| 5,171 | |
| 1,923 |
| 168.9 | % | |
| 9,848 | |
| 3,904 |
| 152.3 | % |
| |
| 14,732 | |
| 10,046 |
| 46.6 | % | |
| 37,671 | |
| 23,704 |
| 58.9 | % |
Total revenues | | $ | 47,238 | | $ | 41,956 |
| 12.6 | % | | $ | 136,888 | | $ | 87,320 |
| 56.8 | % |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | Nine Months Ended | | | | ||||||||
(In thousands) | | September 30, | | Percent | | September 30, | | Percent | ||||||||||
|
| 2020 |
| 2019 |
| Change |
| 2020 |
| 2019 |
| Change | ||||||
Casino revenues | | | | | | | | | | | | | | | | | | |
Slots | | $ | 27,896 | | $ | 25,132 |
| 11.0 | % | | $ | 55,142 | | $ | 72,418 |
| (23.9) | % |
Table games | |
| 3,612 | |
| 4,993 |
| (27.7) | % | |
| 7,437 | |
| 13,281 |
| (44.0) | % |
Other | |
| 402 | |
| 519 |
| (22.5) | % | |
| 1,037 | |
| 1,693 |
| (38.7) | % |
| |
| 31,910 | |
| 30,644 |
| 4.1 | % | |
| 63,616 | |
| 87,392 |
| (27.2) | % |
| | | | | | | | | | | | | | | | | | |
Non-casino revenues, net | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
Food and beverage | |
| 5,612 | |
| 9,262 |
| (39.4) | % | |
| 14,596 | |
| 26,783 |
| (45.5) | % |
Hotel | |
| 2,511 | |
| 3,077 |
| (18.4) | % | |
| 5,204 | |
| 8,843 |
| (41.2) | % |
Other | |
| 1,923 | |
| 1,276 |
| 50.7 | % | |
| 3,904 | |
| 3,398 |
| 14.9 | % |
| |
| 10,046 | |
| 13,615 |
| (26.2) | % | |
| 23,704 | |
| 39,024 |
| (39.3) | % |
Total revenues | | $ | 41,956 | | $ | 44,259 |
| (5.2) | % | | $ | 87,320 | | $ | 126,416 |
| (30.9) | % |
28
The following discussion is based on our consolidated financial statements for the three- and nine-months ended September 30, 20202021 and 2019.2020. Because all of the Company’s operations were temporarily closed from mid-Marchfor several months during the 2020 through much of the second quarter of 2020,period, the comparisons for the nine-month periods are not particularly meaningful. The periods of 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-months ended September 30, 2021 and 2020 were constrained by the requirements to maintain “social distancing” during the pandemic, including reductionsboth reflect a full quarter of reopened operations. Growth in the number2021 period was due to improved results from our Mississippi and Nevada segments and the sale of slot machines we“free play” that Indiana’s casinos are permitted to operate,transfer to other casino operators within the numberstate, partially offset by the temporary closure of people that we can accommodate at each table game, the seating capacity of our bars and restaurants, and restrictions on the types of food service we can offer. Consolidated total revenues for the nine-month periods ended September 30, 2020 decreased primarilySilver Slipper due to temporary suspensionsthe passage of operations at allHurricane Ida in August 2021 and the impact of our properties, as mandated
26
by state government orderswildfires 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. As a result, our revenues reflectcommunities near Grand Lodge Casino, including over the closure of our properties for approximately two to three months in the current nine-month period, as compared to the prior-year period which includes a full nine months of operations.2021 Labor Day holiday weekend. Of note, “Other Non-casino Revenues” includes $0.7 million and $1.6 million of revenue related to our mobileContracted Sports Wagering segment, compared to $0.7 million in the prior-year period. Currently, five of the Company’s six permitted sports operationswagering “skins” in Indiana and Colorado are live.
Consolidated total revenues for the three- and nine-month periodsnine-months ended September 30, 2020, respectively.2021 reflect a gradual relaxation of pandemic-related restrictions since our reopening in mid-2020, after approximately three months of closure due to the pandemic. Growth during this nine-month period was due to stronger operational performance at Silver Slipper, our sale of “free play” at Rising Star, and the commencement of three additional Sports Agreements (compared to two that were live in the prior-year period). “Other Non-casino Revenues” includes $4.2 million of revenue related to our contracted sports wagering agreements for the nine-months ended September 30, 2021, compared to $1.6 million in the prior-year period. See “Recent Developments“Operating Results – Sports Wagering in Colorado and Indiana”Reportable Segments” below for details.
See further information within our reportable segments described below.
Operating Expenses. Consolidated operating expenses for the three- and nine-months ended September 30, 2021 increased from the prior-year periods, as our workforce was temporarily and dramatically reduced in size for several months during the first half2020 closure period. Upon reopening, we improved operating efficiencies at all of 2020 decreased primarily due toour properties, in part by better matching customer demand with the prolonged closures discussed above. Thisoperating hours of our food and beverage and table games departments. We also significantly reduced our marketing expenses upon reopening, benefiting from analytics provided by new slot marketing systems installed in late 2019. These changes affected marketing, payroll and related expenses across all departments at the Company, as well as numerous volume-related costs, such as gaming taxes, device fees and our cost of the food and beverages served to guests. We also opted to significantly reduce our marketingNote that payroll and related expenses during the closure2020 period although someincluded a brief period of such expenses, suchcontinuing payroll, health care, and related costs for most of our employees as some contracted billboards, could not be reduced. Certain other costs continuedseverance, despite the closures, thereby affecting income, including utility costs, real estate taxes, a much-limited payroll, muchclosure of our rent, and the costs to secure our properties and meet certain gaming regulatory requirements.
We chose to reopen our casinos, when permitted to do so, very cautiously, with limited hours of operation of many amenities and 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, but 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 certain leased games. We have been limited in termsall 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 machinesCompany’s properties 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.
As a result, our operating expenses in the third quarter of 2020 declined significantly, much more so than our revenues. This resulted in significant increases in income across our most important properties, as well as in our margins across all segments.
Operating expenses for the nine-month period ended September 30, 2020 reflect both the reductions from the pandemic period in the first half of the year and the planned cost efficiencies effected in the third quarter.mid-March 2020.
See further information within our reportable segments described below.
27
Interest and Other Non-Operating Expenses.
Interest Expense
Interest expense consists of the following:
| | | | | | | | | | | | |
(In thousands) | | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Interest cost (excluding loan fee amortization) | | $ | 6,557 | | $ | 2,269 | | $ | 17,557 | | $ | 7,141 |
Amortization of debt issuance costs and discount | |
| 357 | |
| 330 | |
| 991 | |
| 827 |
Capitalized interest | |
| (509) | |
| (208) | |
| (1,017) | |
| (639) |
| | $ | 6,405 | | $ | 2,391 | | $ | 17,531 | | $ | 7,329 |
| | | | | | | | | | | | |
(In thousands) | | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Interest cost (excluding loan fee amortization) | | $ | 2,269 | | $ | 2,651 | | $ | 7,141 | | $ | 7,735 |
Amortization of debt issuance costs and discount | |
| 330 | |
| 247 | |
| 827 | |
| 845 |
Change in fair value of interest rate cap agreement | |
| — | |
| 8 | |
| — | |
| 90 |
Capitalized interest | |
| (208) | |
| (478) | |
| (639) | |
| (608) |
| | $ | 2,391 | | $ | 2,428 | | $ | 7,329 | | $ | 8,062 |
29
The decreasesincreases in interest expense for the three- and nine-month periods were 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 for, among other reasons, the three-month London Interbank Offered Rate (“LIBOR”), which affected the totalfunding of our Chamonix project, as discussed under “Recent Developments.” The interest rate due foron the Prior Notes was LIBOR plus 7 percentage points, with a 1% LIBOR floor, resulting in a floating rate of interest that was near the fixed rate coupon of 8.25% on our new debt. The new debt also has a significantly longer term and fewer covenants than the Prior Notes.
Other Non-Operating Expenses, Net
For the three- and nine-month periodsthree-month period ended September 30, 2020,2021, we had approximately $403,000 ofhave no other non-operating expensesitems. Such amount for the nine-month period ended September 30, 2021 totaled $7.5 million, including $6.1 million related to the extinguishment of our Prior Notes and $1.2$1.3 million of other non-operating income fromfor the fair value adjustment to our outstanding warrants, respectively, which iswere repurchased in February 2021. The fair value adjustment reflected an increase in the warrant expense from $2.7 million at December 31, 2020, when the Company’s stock traded at lower prices, to their actual repurchase price of $4.0 million. For the prior-year’s nine-month period, non-operating expenses included a non-cash item primarily related to changes in our stock price. Decreasesbenefit of $1.2 million for the fair value adjustment of the warrants. While the warrants were outstanding, increases in our share price resultresulted in increases in the value of the warrants, causing non-cash expense. Conversely, decreases in our share price resulted 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.
Income Tax Expense.Our effective We recognized income tax rates were (1.2%)provisions of approximately $95,000 and 0.1%$0.4 million for the three- and nine-months ended September 30, 2020,2021, which resulted in effective income tax rates of 2.0% and 5.4%, respectively. We recorded a benefit of approximately $269,000 during the period ended September 30, 2020, as shown below. This benefit relates to the removal of a state deferred balance on indefinite-lived assets.
| | | | | | |
(In thousands) |
| | |
| | |
| | Three Months Ended | | Nine Months Ended | ||
Components of Income Tax | | September 30, 2020 | | September 30, 2020 | ||
Income Tax Expense |
| $ | 176 | | $ | 267 |
Income Tax Benefit |
|
| (269) | |
| (269) |
Income Tax Benefit, net | | $ | (93) | | $ | (2) |
We do not expect to pay any federal income taxes or receive any federal tax refunds related to our 20202021 results. TaxAs we have incurred significant losses incurred in 2020 may offsetprior periods, we anticipate current-year taxable income will be offset by tax loss carryforwards from prior years. Due in future years. However, becausepart to recent profit trends, we continue to evaluate the realizability of the level of uncertainty regarding sufficient prospective income, we currently maintainour deferred tax assets and need for a valuation allowance against our remaining deferred tax assets.on a quarterly basis. In accordance with ASC 740, if we continue to have increased profitability in upcoming periods, then management may conclude a reduction in the valuation allowance is necessary.
Operating Results – Reportable Segments
We manage our casinos based primarily on geographic regions within the United States. Accordingly, Stockman’sStates and Grand Lodge Casino comprisetype of income. For more information, please refer to 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 former Christmas Casino and the Christmas Inn, both located near Bronco Billy’s in Cripple Creek, Colorado.earlier discussion within “Executive Overview” above.
28
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 | | |
| | Nine Months Ended | | |
| ||||||||
| | September 30, | | Percent | | September 30, | | Percent | ||||||||||
|
| 2020 |
| 2019 |
| Change |
| 2020 |
| 2019 |
| Change | ||||||
Total revenues |
| |
|
| |
|
|
| |
| |
|
| |
|
|
| |
Silver Slipper Casino and Hotel |
| $ | 19,966 | | $ | 18,066 |
| 10.5 | % | | $ | 44,181 | | $ | 56,238 |
| (21.4) | % |
Rising Star Casino Resort(1) |
|
| 9,967 | |
| 11,735 |
| (15.1) | % | |
| 20,225 | |
| 34,202 |
| (40.9) | % |
Bronco Billy's Casino and Hotel(1) |
|
| 7,910 | |
| 8,114 |
| (2.5) | % | |
| 14,607 | |
| 21,431 |
| (31.8) | % |
Northern Nevada Casinos |
|
| 4,113 | |
| 6,344 |
| (35.2) | % | |
| 8,307 | |
| 14,545 |
| (42.9) | % |
|
| $ | 41,956 | | $ | 44,259 |
| (5.2) | % | | $ | 87,320 | | $ | 126,416 |
| (30.9) | % |
Adjusted Property EBITDA and Adjusted EBITDA |
|
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
Silver Slipper Casino and Hotel |
| $ | 6,495 | | $ | 3,009 |
| 115.9 | % | | $ | 9,526 | | $ | 10,448 |
| (8.8) | % |
Rising Star Casino Resort(1) |
|
| 2,436 | |
| 156 |
| 1,461.5 | % | |
| 348 | |
| 1,163 |
| (70.1) | % |
Bronco Billy's Casino and Hotel(1) |
|
| 3,393 | |
| 1,582 |
| 114.5 | % | |
| 2,798 | |
| 3,074 |
| (9.0) | % |
Northern Nevada Casinos |
|
| 1,032 | |
| 2,108 |
| (51.0) | % | |
| 79 | |
| 2,516 |
| (96.9) | % |
Adjusted Property EBITDA |
|
| 13,356 | |
| 6,855 |
| 94.8 | % | |
| 12,751 | |
| 17,201 |
| (25.9) | % |
Corporate |
|
| (870) | |
| (1,064) |
| (18.2) | % | |
| (2,899) | |
| (3,582) |
| (19.1) | % |
Adjusted EBITDA |
| $ | 12,486 | | $ | 5,791 |
| 115.6 | % | | $ | 9,852 | | $ | 13,619 |
| (27.7) | % |
30
(1) Includes amounts related toTable of Contents
| | | | | | | | | | | | | | | | | | |
(In thousands) | | Three Months Ended | | |
| | Nine Months Ended | | |
| ||||||||
| | September 30, | | Increase / | | September 30, | | | ||||||||||
|
| 2021 |
| 2020 |
| (Decrease) |
| 2021 |
| 2020 |
| Increase | ||||||
Revenues |
| |
|
| |
|
|
| |
| |
|
| |
|
|
| |
Mississippi |
| $ | 21,538 | | $ | 19,966 |
| 7.9 | % | | $ | 68,133 | | $ | 44,181 |
| 54.2 | % |
Indiana |
|
| 12,586 | |
| 9,565 |
| 31.6 | % | |
| 31,753 | |
| 19,019 |
| 67.0 | % |
Colorado |
|
| 6,340 | |
| 7,633 |
| (16.9) | % | |
| 18,626 | |
| 14,248 |
| 30.7 | % |
Nevada |
|
| 5,132 | |
| 4,113 |
| 24.8 | % | |
| 14,216 | |
| 8,307 |
| 71.1 | % |
Contracted Sports Wagering | | | 1,642 | | | 679 | | 141.8 | % | | | 4,160 | | | 1,565 | | 165.8 | % |
|
| $ | 47,238 | | $ | 41,956 |
| 12.6 | % | | $ | 136,888 | | $ | 87,320 |
| 56.8 | % |
Adjusted Segment EBITDA and Adjusted EBITDA |
|
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
Mississippi |
| $ | 6,485 | | $ | 6,495 |
| (0.2) | % | | $ | 23,097 | | $ | 9,526 |
| 142.5 | % |
Indiana |
|
| 3,816 | |
| 2,082 |
| 83.3 | % | |
| 7,615 | |
| (769) |
| 1,090.2 | % |
Colorado |
|
| 1,543 | |
| 3,116 |
| (50.5) | % | |
| 5,092 | |
| 2,448 |
| 108.0 | % |
Nevada |
|
| 1,537 | |
| 1,032 |
| 48.9 | % | |
| 4,173 | |
| 79 |
| 5,182.3 | % |
Contracted Sports Wagering(1) | | | 1,645 | | | 631 | | 160.7 | % | | | 4,122 | | | 1,467 | | 181.0 | % |
Adjusted Segment EBITDA |
|
| 15,026 | |
| 13,356 |
| 12.5 | % | |
| 44,099 | |
| 12,751 |
| 245.8 | % |
Corporate |
|
| (1,427) | |
| (870) |
| 64.0 | % | |
| (4,803) | |
| (2,899) |
| 65.7 | % |
Adjusted EBITDA |
| $ | 13,599 | | $ | 12,486 |
| 8.9 | % | | $ | 39,296 | | $ | 9,852 |
| 298.9 | % |
| | | | | | | | | | | | | | | | | | |
Adjusted Segment EBITDA Margin | | | | | | | | | | | | | | | | | | |
Mississippi | | | 30.1 | % | | 32.5 | % | (2.4) | pts | | | 33.9 | % | | 21.6 | % | 12.3 | pts |
Indiana | | | 30.3 | % | | 21.8 | % | 8.5 | pts | | | 24.0 | % | | (4.0) | % | 28.0 | pts |
Colorado | | | 24.3 | % | | 40.8 | % | (16.5) | pts | | | 27.3 | % | | 17.2 | % | 10.1 | pts |
Nevada | | | 29.9 | % | | 25.1 | % | 4.8 | pts | | | 29.4 | % | | 1.0 | % | 28.4 | pts |
Contracted Sports Wagering(1) | | | 100.2 | % | | 92.9 | % | 7.3 | pts | | | 99.1 | % | | 93.7 | % | 5.4 | pts |
__________
(1) | Includes nominal reimbursements of related expenses from third-party providers during the quarter ended September 30, 2021. |
The following table summarizes the property’s contracted sports revenue in 2020.consolidated results of our casino activity by key performance indicators as previously defined:
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| | Nine Months Ended | | |
| ||||||||||||
| September 30, | | Increase / | | September 30, | | | ||||||||||||||
(In thousands) | 2021 | | 2020 | | (Decrease) |
| 2021 | | 2020 | | Increase | ||||||||||
| | | | | | | | | | | | | | | | | | | | | |
Slot coin-in | $ | 505,673 | | | $ | 468,958 | | | 7.8 | % | | $ | 1,212,661 | | | $ | 879,975 | | | 37.8 | % |
Slot win | $ | 37,770 | | | $ | 35,289 | | | 7.0 | % | | $ | 94,636 | | | $ | 65,669 | | | 44.1 | % |
Slot hold percentage(1) | | 7.5 | % | | | 7.5 | % | | — | pts | | | 7.8 | % | | | 7.5 | % | | 0.3 | pts |
Table game drop | $ | 21,422 | | | $ | 20,769 | | | 3.1 | % | | $ | 45,497 | | | $ | 40,516 | | | 12.3 | % |
Table game win | $ | 3,397 | | | $ | 3,665 | | | (7.3) | % | | $ | 8,464 | | | $ | 6,545 | | | 29.3 | % |
Table game hold percentage(1) | | 15.9 | % | | | 17.6 | % | | (1.7) | pts | | | 18.6 | % | | | 16.2 | % | | 2.4 | pts |
__________
(1) | The three-year averages for slot hold percentage and table game hold percentage were 7.5% and 17.8%, respectively. |
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Mississippi
Our Mississippi segment consists of the Silver Slipper Casino and Hotel
Hotel. Pursuant to ana pandemic-related order from the state gaming commission, we temporarily suspended operations onfor a portion of the prior-year period, from March 16, 2020 until we were permitted to reopen onthrough May 21, 2020. 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 three-months ended September 30, 2020,2021, total revenues increased by 10.5%7.9%, primarily due to improvementsa result of numerous investments in casino revenues, which increased by 30.4%. Revenues increased despite pandemic-related business constraints and an active hurricane season, which resultedthe property in several brief closuresrecent years. Such investments included a substantial renovation of the property, more so than occurred in the prior-year period. Slot revenue rose 34.0% due to increased coin-in with a relatively flat hold percentage. Table games revenue rose by 26.3% due to a 5.3 percentage point increase in the table games hold percentage, though table games drop declined, in part, due to reduced operating hours and limitations on the number of available table positions. Other casino revenues declined by $101,000, reflecting a lack of meaningful sports book operations until mid-July 2020 and the discontinuationbuffet, a renovated porte cochere, repainted exterior, new energy-efficient building signage, the Beach Club, the Oyster Bar, and the introduction of live keno; the prior-year period reflects a normal quarter ofon-site sports wagering activity and keno operations.
betting. For the nine-months ended September 30, 2020,2021, total revenues decreasedincreased by 21.4%54.2%, primarily due to approximatelyas the 2020 period was impacted by more than two months of closure related to COVID-19. closure.
Casino revenue decreased by 14.5%, reflecting the extended closure period.
Non-casino revenue decreased by 18.4%increased 4.3% and 32.6%60.0% for the three- and nine-month periods ended September 30, 2020,2021, respectively, due to impacts of the casino closurelargely driven by increases in slot revenue. Slot revenue rose by 6.2% and limited operations upon our reopening. The majority of our non-casino revenue is from our food and beverage outlets. Food and beverage revenues declined by 25.5% and 35.6%59.8% for the respective three- and nine-month periods ended September 30, 2020,2021. Table games revenue decreased by 12.2% for the three-month period, mostly due to fewer buffet covers following protocolsa lower table games hold percentage. However, for socially-distanced tables, the eliminationnine-month period, table games revenue increased by 45.7% due to higher volumes, reflecting a full period of certain buffet promotions,operations in 2021. Other casino revenues increased by $134,000 and $1.2 million for the decision to not initially reopenrespective three- and nine-month periods, primarily from our sports book operations.
Non-casino revenue increased by 16.1% and 42.4% for the Oyster Bar,three- and nine-months ended September 30, 2021, driven by revenue growth from our food and beverage outlets of 21.9% and 44.5%, respectively, which could not be operated efficiently while maintaining proper social distancing.historically account for a majority of our non-casino revenue. Hotel revenues decreased slightly by 4.2% for the three-month period due to lower average daily room rates, but increased 3.0%by 30.2% for the nine-months ended September 30, 2021 due to an increase in occupied room-nights. Total occupied room-nights was flat at 10,706 room-nights for the third quarter of 2021, and increased by 38.1% to 32,079 room-nights for the nine-month period, reflecting the temporary closure of Silver Slipper last year.
Adjusted Segment EBITDA for the three-months ended September 30, 2020, with an increase in hotel occupancy offsetting lower average daily room rates. The nine-month period ended September 30, 2020 reflects2021 was flat at $6.5 million, despite the approximately two-monthtemporary closure of the hotel duringproperty due to the heightpassage of Hurricane Ida in August 2021, when the pandemic. Total
29
occupied room-nights increased by 4.7%property incurred additional costs to 10,629 room-nightsprepare for the third quarter of 2020,closure and decreased by 25.0% to 23,232 room-nightsfor cleanup efforts. Adjusted Segment EBITDA for the nine-months ended September 30, 2020.
Adjusted Property EBITDA for the three-month period ended September 30, 20202021 increased by 115.9%142.5%, while the nine-month period decreased by 8.8% due to the closure earlier in the year. Adjusted Property EBITDA for the three months ended September 30, 2020 was driven by a combination of increasesthe increase in casino revenues which saw benefits from our casino remodeling that was completed in mid-2019, anddescribed above, our focus on controlling costs. Such efforts included reducing staff, decreasinglabor and marketing expenses, cancelling free entertainment acts to comply with social distancing limitations on gatherings,costs upon the property’s reopening, and postponing the reopeningapproximately two-month closure in the prior-year period.
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 ana pandemic-related order from the state gaming commission, we temporarily suspended operations onfor a portion of the prior-year period, from March 16, 2020 until we were permitted to reopen onthrough June 15, 2020. 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 quarter and year-to-date periods,three-months ended September 30, 2021, total revenues (excluding contractual minimums related toincreased by 31.6%, reflecting the property’s sportsrelaxation of pandemic-related restrictions in the 2021 period. For the nine-months ended September 30, 2021, total revenues increased by 67.0%, as volumes during the 2020 period were impacted by approximately three months of closure.
Casino revenue agreements of $0.4 millionincreased by 9.8% and $1.2 million60.1% for the respective three- and nine-month periods, driven mainly by slot revenue that increased by 8.4% (or $0.5 million) and 60.5% (or $7.4 million) for the corresponding periods. Table games revenue also meaningfully increased, up 21.7% (or $0.2 million) and 57.5% (or $1.0 million) for the three- and nine-months ended September 30, 2020) decreased2021.
Non-casino revenue increased by $2.2 million98.2% and $15.2 million86.3% for the same periods ended September 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 competitor 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 7.0% and 37.8% for the respective three- and nine-months ended September 30, 2020.2021, primarily due to the sale of “free play” for $2.1 million during the quarter, as well as from hotel operations during the nine-month period. Hotel revenues declined slightly by 4.3% (or $44,000) in the third quarter of 2021 due to a 13.7% reduction in occupied room-nights, but increased by 51.2% (or $1.1 million) for the nine-month period due to higher average daily room rates. Food and beverage revenues decreased by 59.6% and 63.6% forcontinued to improve, especially as capacity restrictions continue to ease in 2021. For the same periods ended September 30, 2020, reflecting the continued closure of Rising Star’s buffet operations and limited operating hours for its other restaurants since permitted to reopen. Hotel revenues also decreased for thecorresponding three- and nine-month periods, due to lower occupancy. Total occupied room-nights decreased 33.1% to 14,798food and beverage revenue increased by 25.3% (or $0.2 million) and 31.8% (or $0.6 million).
32
Adjusted Segment EBITDA for the third quarter of 2020, and decreased 56.3% to 27,262 for the nine-months ended September 30, 2020.
Adjusted Property EBITDA (excluding contractual minimums related to the property’s sports revenue agreements of $0.4 million and $1.2 million for the respective three- and nine-months ended September 30, 2020)2021 increased by $1.9$1.7 million and decreased by $2.0$8.4 million, respectively. The increase was due to the sale of $2.1 million in “free play” in the third quarter. Additionally, Adjusted Segment EBITDA for the same respective periodsnine-month period ended September 30, 2020. The increase for the three-month period was2021 increased due to higher volumes, as Rising Star was closed for a portion of the first and second quarters of 2020; the launch of an improved loyalty program in June 2020; and a focus on marketing and labor efficiencies throughout the property, withincluding operating hours for table games and food and beverage outlets that are more appropriately matched to the demand for such services, as well as the launch of an improved loyalty programservices.
The Company has similarly sold its excess free play in June 2020. Also, a significant mass marketing campaign during the third quarter of 2019 that proved to be unsuccessful was absent in 2020. The nine-month period decrease was due primarily to the prolonged property closure, offsetting improvementsprior years, but generally in the thirdfourth quarter.
Including the contracted sports revenues, revenues and Adjusted Property EBITDA for the third quarter of 2020 were $10.0 million and $2.4 million, respectively. For the nine-month period, such amounts were $20.2 million and $0.3 million, respectively. Currently, only one of our three contracted sports wagering websites is operating in Indiana. The remaining two sports wagering websites are expected to commence operations in the coming months. When all three websites have commenced operations in Indiana, our sports wagering revenue, based on the contractual minimums, should total at least $3.5 million on an annualized basis with few related expenses. Accordingly, we expect that almost all of this amount will be reflected in Adjusted Property EBITDA and operating income.Colorado
In 2019, the Indiana legislature approved a reduction in certain gaming taxes that benefits Rising Star, beginning on July 1, 2021.
Our Colorado segment includes Bronco Billy’s Casino and Hotel
and the Chamonix project. Pursuant to pandemic-related state government orders, we temporarily closed Bronco Billy’s onfor a portion of the prior-year period, from March 17, 2020 until we were permitted by governing authorities to reopen onthrough June 15, 2020. 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.
30
For the three- and nine-monthsthree-months ended September 30, 2020,2021, total revenues (excluding contractual minimums relateddecreased by 16.9%, as operations at Bronco Billy’s were impacted by the loss of all of the property’s on-site parking and many of its hotel rooms due to the property’s sportsconstruction of Chamonix. For the nine-month period, total revenues increased by 30.7%, as volumes during the 2020 period were impacted by approximately three months of closure. To alleviate the lack of on-site parking, we introduced complimentary valet parking, as well as a free shuttle service to an off-site parking lot.
Casino revenue agreementsdecreased by 23.0% for the three-months ended September 30, 2021, but increased by 30.5% for the nine-month period. These changes were largely due to slot revenue, which decreased by 26.2% and increased by 30.4% for the respective periods. Table games revenue increased by $222,000 for the third quarter and by 35.5% for the nine-month period, as table games operations were not permitted to reopen in Cripple Creek until February 2021.
Non-casino revenue consists of $0.3 millionfood and $0.4 millionbeverage revenue. Food and beverage revenues increased by 46.5% and 30.7% for the respective three- and nine-months ended September 30, 2020) decreased by $0.5 millionnine-month periods, though limitations on seating and $7.2 million, respectively, due to the mandated closurereduced operating hours continued for much of our casino for approximately three months and business limitations designed to maintain social distancing, including the continued shutdown of all table games at the property and a steep reduction in the number of slot machines being operated. Casino revenues in the third quarter of 20202021. Hotel revenues increased by 6.7%, reflecting a 15.4% increase in slot revenue due to a 1.0 percentage point increase in the slot hold percentage. We did not have any table games revenue during the third quarter of 2020, as table games are not yet allowed to resume operations in Cripple Creek. For the nine-month period, casino revenues declined32.8% and 28.3% due to the property’s temporary closure. Food and beverage revenues decreased by 62.4% and 59.6% for the respective three- and nine-months ended September 30, 2020nine-month periods, due to the closure, limitations on seating, fewer available food outlets upon reopening, and reduced operating hours. Hotel revenueshigher average daily room rates. Total occupied room-nights decreased by 31.0% and 38.4% for the same respective periods, reflecting limited hotel room availability.
Adjusted Property EBITDA (excluding contractual minimums related21.6% to the property’s sports revenue agreements) nearly doubled to $3.1 million1,521 room-nights for the third quarter of 2020 from2021, reflecting the closure of most of the property’s hotel rooms to accommodate Chamonix, which was overcome by higher average daily room rates. For the nine-month period, total occupied room-nights increased by 16.2% to 2,761 room-nights for the nine-month period, reflecting last year’s closure period for approximately three months.
Adjusted Segment EBITDA for the three-months ended September 30, 2021 decreased by $1.6 million into $1.5 million, and increased by $2.6 million to $5.1 million for the nine-months ended September 30, 2021. The decrease during the quarter was due to disruptions from the construction of Chamonix as described above, including additional operating expenses related to the operation of our new valet and parking shuttle service. Additionally, both of the prior-year period. Expenses during the period were lower due to operational changes, labor controls, more efficient marketing due to improved analytics from Bronco Billy’s new slot marketing system, and decreases in food costs and device fees/taxes. Additionally, Bronco Billy’speriods had a $424,000 benefit in the third quarter of 2020 from the elimination of point redemption liabilities that accrued under the property’s prior loyalty program. For the nine-month period, ended September 30, 2020, Adjusted PropertySegment EBITDA decreased by $0.6 millionincreased due to the approximately three-month closure, offsetting the improvements in the third quarter.
Bronco Billy’s also benefitedrevenue increases described above, improved labor controls, more efficient marketing due to improved analytics from reduced operations of the Christmas Casino, which was a satellite casino that the property opened in November 2018. The Christmas Casino helped to modestly increase our overall revenues in Colorado in 2019, but the increase was insufficient to offset the additional operating costs. We sharply reduced the operating hours of the Christmas Casino following the pandemic closure period, but kept it open for limited hours on weekends so as to safeguard the continuity of the gaming license. We completed the closure of the Christmas Casino in September 2020, after the Colorado Limited Gaming Control Commission approved the reabsorption of the Christmas Casino license back into Bronco Billy’s main casino operations.
Including the contracted sports revenues, revenues and Adjusted Property EBITDA for the third quarter of 2020 were $7.9 million and $3.4 million, respectively. For the nine-month period, such amounts were $14.6 million and $2.8 million, respectively. These figures reflect the launch of one of our three contracted online/mobile sports wagering websites in Colorado on June 4, 2020. The remaining two online/mobile sports wagering websites are expected to commence operations in Colorado in the coming months, subject to the receipt of customary regulatory approvals. Similar to Indiana, when all three of our contracted sports wagering websites have commenced operations in Colorado, our sports wagering revenue, based on the contractual minimums, should total at least $3.5 million on an annualized basis with few related expenses. Accordingly, we expect that almost all of this amount will be reflected in Adjusted Property EBITDA and operating income. We also launched an on-site sportsbooknew slot marketing system installed at Bronco Billy’s in September 2020.late 2019, reductions in food costs and device fees/taxes, and the prior-year’s closure period. Similar to our other properties, Bronco Billy’s paid severance and benefits to many of its employees during part of the 2020 closure period.
The market in Cripple Creek is seasonal, favoring the summer months.
Northern 33
Nevada
The Northern Nevada segment consists of the Grand Lodge and Stockman’s casinoscasinos. Pursuant to pandemic-related state orders, we temporarily closed both Grand Lodge Casino and is historically the smallestStockman’s Casino for a portion of the Company’s segments. prior-year period, from March 17, 2020 through June 4, 2020.
Our Northern Nevada operations have historically been seasonal, with the summer and winter months accounting for a disproportionate share of annual revenues. Additionally, snowfall levels during the winter months can often affect operations, as the Grand Lodge Casino is located near several major ski resorts. Normally, weWe typically benefit from a “good” snow year, resulting in extended periods of operation at the nearby ski areas. There are likely to beHowever, pandemic-related restrictions at the nearby ski resorts in late 2020 and early 2021 affected our business during 2021. The 2020 period was affected by the upcoming ski season and we are unsure how this might affectmandated closure of our business.casinos.
PursuantFor the three-months ended September 30, 2021, total revenues increased by 24.8%, or $1.0million. Stockman’s Casino continued to state government orders on March 17, 2020, we temporarily closed bothbenefit from the relaxation of pandemic-related restrictions, including at the nearby Naval air station. Grand Lodge Casino was adversely affected in the 2021 third quarter by a lower table games hold percentage and Stockman’s Casino until we were permitted to reopen on June 4, 2020. Similar to our other properties, a focus on operational improvements and staffing levels positively improved expenses, but not enough to overcome pandemic-related revenue declines.
31
smoke from significant wildfires in the region, including over the Labor Day holiday weekend. For the three- and nine-months ended September 30, 2020, totalnine-month period, revenues decreasedincreased by 35.2% and 42.9%71.1%, respectively, reflecting nearlyor $5.9 million, due to higher volumes in 2021, as the prior-year periods were impacted by approximately three months of required casino closures throughout the state and pandemic-related declines in the number of guests visiting our two casinos. For example, the hotel that houses Grand Lodge closure.
Casino relies, in part, on destination travel and convention business, which we believe have been adversely affected due to a reluctancerevenues increased by some guests to travel via airplanes22.4%, or to attend group functions during the current pandemic. Grand Lodge’s customer base also includes the local community, which has been less affected by the pandemic. Meanwhile, Stockman’s Casino is located in Fallon, Nevada, near a large Naval Air Station. The Navy has restricted much of its personnel from leaving the base station during the current pandemic, resulting in guest volume declines at Stockman’s Casino.
Accordingly, casino revenues decreased by 32.7% and 41.3% for the respective three- and nine-months ended September 30, 2020 due to business restrictions that resulted in lower guest counts at both properties. While we resumed table games operations starting in the third quarter of 2020 at Grand Lodge Casino, such operations remain closed at Stockman’s Casino. Slot volumes at Grand Lodge Casino and Stockman’s Casino declined 22.6% and 28.1%, respectively, during the third quarter of 2020. Food and beverage revenue at Stockman’s Casino decreased by $0.3 million and $0.9 million, for the respective three-third quarter and nine-months ended September 30, 2020.
Adjusted Property EBITDArose by 74.2%, or $5.6 million, for the nine-month period. Much of that increase was from slot revenue, which grew by $1.3 million and $5.1 million for the three- and nine-month periods, respectively. For the three-months ended September 30, 2021, table games revenue declined by $0.4 million as Grand Lodge Casino’s results were adversely affected by a table games hold percentage that was 8.4 percentage points lower than the three-year average hold percentage. However, for the nine-months ended September 30, 2021, table games revenue rose by $0.4 million due to a higher hold percentage at Grand Lodge. Table games were not open at Stockman’s during the 2021 periods.
Adjusted Segment EBITDA for the three-months ended September 30, 2021 increased by $0.5 million to $1.5 million. For the nine-months ended September 30, 2021, it increased by $4.1 million to $4.2 million. Both higher casino revenues and continued cost controls, specifically regarding labor and marketing expenses, have benefited operating results. As restrictions have eased in Nevada, both properties have improved revenues while continuing to maintain control of expenses.
Contracted Sports Wagering
The Contracted Sports Wagering segment consists of our on-site and online sports wagering skins in Colorado and Indiana. Revenues and Adjusted Segment EBITDA were both approximately $1.6 million during the three-months ended September 30, 2021, and approximately $4.2 million and $4.1 million for the nine-months ended September 30, 2021, respectively. Our fourth and fifth sports wagering skins commenced operations on April 1 and April 23, 2021, resulting in sequential growth in both revenues and Adjusted Segment EBITDA. For the three-month period ended September 30, 2020, decreased by about $1.1when only two sports wagering skins were live, revenues and Adjusted Segment EBITDA were both approximately $0.7 million and $2.4$0.6 million, respectively, due primarily torespectively. During the effects of the state-mandated closure of casinos and the continuing constraints of safety protocols. Management’s decision to not reopen table games during the third quarter of 2020 at Stockman’s Casino – which requires significantly higher labor levels than our slot operations – helped to meaningfully reduce labor expense during the quarter and nine-month period at Stockman’s Casino. As a result, the impact of lower casino revenues for the three- and nine-month periodsnine-months ended September 30, 2020, was partially offset by the reductionrevenues and Adjusted Segment EBITDA were approximately $1.6 million and $1.5 million, respectively.
We receive a percentage of defined revenues of each skin, subject to annual minimums. When all six skins are in labor, helping to mitigate the overall decline in Adjusted Property EBITDA.operation, we should receive a contractual minimum of $7 million on an annualized basis, with minimal related expenses.
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Corporate
Corporate expenses for the three- and nine-month periods ended September 30, 2020 decreased by 18.2% and 19.1%, respectively, primarily2021 rose due to decreases incertain additional professional fees, payrolla gradual resumption of activities in late 2020 following the closure period, and related expenses, implementation of corporate services allocations to casino properties startingan increase in April 2020, and to a lesser extent, a reduction in taxes and travel expenses. During the period thataccrued bonus compensation, reflecting our casinos were closed, we temporarily reduced our corporate staff to a small group of necessary employees.improved operating results.
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. InFor the third quarter of 2020,three-months ended September 30, 2021, a total of $243,000$569,000 was allocated, consistingallocated. For the nine-months ended September 30, 2021, a total of $90,000 of additional costs at Silver Slipper, $46,000 at Bronco Billy’s, $59,000 at Rising Star and $48,000 for Northern Nevada. The allocations were based on total annual revenue in 2019.$1.4 million was allocated. Management believes that such allocations are appropriate, as the corporate team provides additional support to each of our properties, and that theysuch allocations make our financialsegment 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-openingpreopening 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)Cash Flow) is utilized in the covenants within our indenture,credit facility, although not necessarily defined in the same way as above. Adjusted EBITDA is not, however, a measure of financial performance or liquidity under GAAP. Accordingly, 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.
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The following table presents a reconciliation of net income (loss) and operating income to Adjusted EBITDA:
| | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Three Months Ended | | Nine Months Ended | Three Months Ended | | Nine Months Ended | ||||||||||||||||
| September 30, | | September 30, | September 30, | | September 30, | ||||||||||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||||
Net income (loss) | $ | 7,708 | | $ | 938 | | $ | (3,353) | | $ | (1,689) | $ | 4,619 | | $ | 7,708 | | $ | 6,658 | | $ | (3,353) |
Income tax (benefit) provision | | (93) | | | (234) | | | (2) | | | 51 | |||||||||||
Income tax provision (benefit) | | 95 | | | (93) | | | 379 | | | (2) | |||||||||||
Interest expense, net of amounts capitalized | | 2,391 | | | 2,428 | | | 7,329 | | | 8,062 | | 6,405 | | | 2,391 | | | 17,531 | | | 7,329 |
Loss on extinguishment of debt | | — | | | — | | | 6,104 | | | — | |||||||||||
Adjustment to fair value of warrants | | 403 | | | 262 | | | (1,159) | | | 161 | | — | | | 403 | | | 1,347 | | | (1,159) |
Operating income | | 10,409 | | | 3,394 | | | 2,815 | | | 6,585 | | 11,119 | | | 10,409 | | | 32,019 | | | 2,815 |
Project development costs | | 108 | | | 228 | | | 423 | | | 503 | | 318 | | | 108 | | | 491 | | | 423 |
Preopening costs | | 17 | | | — | | | 17 | | | — | |||||||||||
Depreciation and amortization | | 1,848 | | | 2,089 | | | 5,868 | | | 6,263 | | 1,819 | | | 1,848 | | | 5,448 | | | 5,868 |
Loss on disposal of assets, net | | — | | | 10 | | | 439 | | | 5 | | 2 | | | — | | | 674 | | | 439 |
Stock-based compensation | | 121 | | | 70 | | | 307 | | | 263 | | 324 | | | 121 | | | 647 | | | 307 |
Adjusted EBITDA | $ | 12,486 | | $ | 5,791 | | $ | 9,852 | | $ | 13,619 | $ | 13,599 | | $ | 12,486 | | $ | 39,296 | | $ | 9,852 |
3335
The following tables present reconciliations of operating income (loss) to Adjusted PropertySegment EBITDA and Adjusted EBITDA.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, 2021 | Three Months Ended September 30, 2021 | |||||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | (In thousands) | ||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | | | | | | | | | | | | | Adjusted | | | | | | | | | | | | | | | | | | | | Adjusted | ||
| | | | | | | | | | | | | | Property | | | | | | | | | | | | | | | | | | | | Segment | ||
| | Operating | | Depreciation | | Project | | Stock- | | EBITDA and | | Operating | | Depreciation | | Loss on | | Project | | | | Stock- | | EBITDA and | ||||||||||||
| | Income | | and | | Development | | Based | | Adjusted | | Income | | and | | Disposal | | Development | | Preopening | | Based | | Adjusted | ||||||||||||
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| Amortization |
| Costs |
| Compensation |
| EBITDA |
| (Loss) |
| Amortization |
| of Assets |
| Costs |
| Costs |
| Compensation |
| EBITDA | ||||||||||||
Casino properties | |
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| ||||||||||||||||||||||
Silver Slipper Casino and Hotel | | $ | 5,793 | | $ | 702 | | $ | — | | $ | — | | $ | 6,495 | |||||||||||||||||||||
Rising Star Casino Resort | |
| 1,817 | |
| 619 | |
| — | |
| — | |
| 2,436 | |||||||||||||||||||||
Bronco Billy's Casino and Hotel | |
| 3,048 | |
| 345 | |
| — | |
| — | |
| 3,393 | |||||||||||||||||||||
Northern Nevada Casinos | |
| 888 | |
| 144 | |
| — | |
| — | |
| 1,032 | |||||||||||||||||||||
Reporting segments | Reporting segments | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |||||||||||||||
Mississippi | | $ | 5,794 | | $ | 690 | | $ | 1 | | $ | — | | $ | — | | $ | — | | $ | 6,485 | |||||||||||||||
Indiana | |
| 3,247 | |
| 569 | |
| — | |
| — | |
| — | |
| — | |
| 3,816 | |||||||||||||||
Colorado | |
| 1,138 | |
| 387 | |
| 1 | |
| — | |
| 17 | |
| — | |
| 1,543 | |||||||||||||||
Nevada | |
| 1,402 | |
| 135 | |
| — | |
| — | |
| — | |
| — | |
| 1,537 | |||||||||||||||
Contracted Sports Wagering | | | 1,645 | | | — | | | — | | | — | | | — | | | — | | | 1,645 | |||||||||||||||
| |
| 11,546 | |
| 1,810 | |
| — | |
| — | |
| 13,356 | |
| 13,226 | |
| 1,781 | |
| 2 | |
| — | |
| 17 | |
| — | |
| 15,026 |
Other operations | Other operations |
|
| |
|
| |
|
| |
|
| |
|
| Other operations |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Corporate | |
| (1,137) | |
| 38 | |
| 108 | |
| 121 | |
| (870) | |
| (2,107) | |
| 38 | |
| — | |
| 318 | |
| — | |
| 324 | |
| (1,427) |
| | $ | 10,409 | | $ | 1,848 | | $ | 108 | | $ | 121 | | $ | 12,486 | | $ | 11,119 | | $ | 1,819 | | $ | 2 | | $ | 318 | | $ | 17 | | $ | 324 | | $ | 13,599 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended September 30, 2019 | |||||||||||||||||||||||||||||||||
Three Months Ended September 30, 2020 | Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | Adjusted | | | | | | | | | | | | | | Adjusted | ||
| | | | | | | | | | | | | | | | Property | | | | | | | | | | | | | | Segment | |||
| | Operating | | Depreciation | | Loss on | | Project | | Stock- | | EBITDA and | | Operating | | Depreciation | | Project | | Stock- | | EBITDA and | |||||||||||
| | Income | | and | | Disposal | | Development | | Based | | Adjusted | | Income | | and | | Development | | Based | | Adjusted | |||||||||||
| | (Loss) | | Amortization | | of Assets | | Costs | | Compensation |
| EBITDA | | (Loss) | | Amortization | | Costs | | Compensation |
| EBITDA | |||||||||||
Casino properties | |
|
| |
|
| |
|
| |
|
| |
|
| |
| ||||||||||||||||
Silver Slipper Casino and Hotel | | $ | 2,119 | | $ | 883 | | $ | 7 | | $ | — | | $ | — | | $ | 3,009 | |||||||||||||||
Rising Star Casino Resort | |
| (445) | |
| 601 | |
| — | |
| — | |
| — | |
| 156 | |||||||||||||||
Bronco Billy's Casino and Hotel | |
| 1,156 | |
| 423 | |
| 3 | |
| — | |
| — | |
| 1,582 | |||||||||||||||
Northern Nevada Casinos | |
| 1,964 | |
| 144 | |
| — | |
| — | |
| — | |
| 2,108 | |||||||||||||||
Reporting segments | Reporting segments | |
|
| |
|
| |
|
| |
|
| |
| ||||||||||||||||||
Mississippi | | $ | 5,793 | | $ | 702 | | $ | — | | $ | — | | $ | 6,495 | ||||||||||||||||||
Indiana | |
| 1,463 | |
| 619 | |
| — | |
| — | |
| 2,082 | ||||||||||||||||||
Colorado | |
| 2,771 | |
| 345 | |
| — | |
| — | |
| 3,116 | ||||||||||||||||||
Nevada | |
| 888 | |
| 144 | |
| — | |
| — | |
| 1,032 | ||||||||||||||||||
Contracted Sports Wagering | | | 631 | | | — | | | — | | | — | | | 631 | ||||||||||||||||||
| |
| 4,794 | |
| 2,051 | |
| 10 | |
| — | |
| — | |
| 6,855 | |
| 11,546 | |
| 1,810 | |
| — | |
| — | |
| 13,356 |
Other operations | Other operations |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| Other operations |
|
| |
|
| |
|
| |
|
| |
|
|
Corporate | |
| (1,400) | |
| 38 | |
| — | |
| 228 | |
| 70 | |
| (1,064) | |
| (1,137) | |
| 38 | |
| 108 | |
| 121 | |
| (870) |
| | $ | 3,394 | | $ | 2,089 | | $ | 10 | | $ | 228 | | $ | 70 | | $ | 5,791 | | $ | 10,409 | | $ | 1,848 | | $ | 108 | | $ | 121 | | $ | 12,486 |
Operating expenses deducted to arrive at operating income (loss) in the above tables for the three-month period ended September 30, 20202021 and 20192020 included facility rents related to: (i) Silver SlipperMississippi of $0.5 million during 20202021 and $0.4$0.5 million during 2019,2020, (ii) Northern Nevada of $0.5 million during 2021 and $0.4 million during 2020, and $0.5(iii) Colorado of $0.1 million during 2019,2021 and (iii) Bronco Billy’s of $0.2 million for both periods.during 2020.
3436
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Nine Months Ended September 30, 2020 | |||||||||||||||||||||||||||||||||||||||
For the Nine Months Ended September 30, 2021 | For the Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | Adjusted | | | | | | | | | | | | | | | | | | | | Adjusted | ||
| | | | | | | | | | | | | | | | | Property | | | | | | | | | | | | | | | | | | | | Segment | ||
| | Operating | | Depreciation | | Loss on | | Project | | Stock- | | EBITDA and | | Operating | | Depreciation | | Loss on | | Project | | | | Stock- | | EBITDA and | |||||||||||||
| | Income | | and | | Disposal | | Development | | Based | | Adjusted | | Income | | and | | Disposal | | Development | | Preopening | | Based | | Adjusted | |||||||||||||
|
| (Loss) |
| Amortization |
| of Assets |
| Costs |
| Compensation |
| EBITDA |
| (Loss) |
| Amortization |
| of Assets |
| Costs |
| Costs |
| Compensation |
| EBITDA | |||||||||||||
Casino properties | |
|
| |
|
| |
|
| |
|
| |
|
| |
| ||||||||||||||||||||||
Silver Slipper Casino and Hotel | | $ | 7,180 | | $ | 2,346 | | $ | — | | $ | — | | $ | — | | $ | 9,526 | |||||||||||||||||||||
Rising Star Casino Resort | |
| (1,509) | |
| 1,857 | |
| — | |
| — | |
| — | |
| 348 | |||||||||||||||||||||
Bronco Billy's Casino and Hotel | |
| 1,685 | |
| 1,109 | |
| 4 | |
| — | |
| — | |
| 2,798 | |||||||||||||||||||||
Northern Nevada Casinos | |
| (797) | |
| 441 | |
| 435 | |
| — | |
| — | |
| 79 | |||||||||||||||||||||
Reporting segments | Reporting segments | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| ||||||||||||||||||
Mississippi | | $ | 20,484 | | $ | 2,024 | | $ | 589 | | $ | — | | $ | — | | $ | — | | $ | 23,097 | ||||||||||||||||||
Indiana | |
| 5,837 | |
| 1,778 | |
| — | |
| — | |
| — | |
| — | |
| 7,615 | ||||||||||||||||||
Colorado | |
| 3,871 | |
| 1,119 | |
| 85 | |
| — | |
| 17 | |
| — | |
| 5,092 | ||||||||||||||||||
Nevada | |
| 3,761 | |
| 412 | |
| — | |
| — | |
| — | |
| — | |
| 4,173 | ||||||||||||||||||
Contracted Sports Wagering | | | 4,122 | | | — | | | — | | | — | | | — | | | — | | | 4,122 | ||||||||||||||||||
| |
| 6,559 | |
| 5,753 | |
| 439 | |
| — | |
| — | |
| 12,751 | |
| 38,075 | |
| 5,333 | |
| 674 | |
| — | |
| 17 | |
| — | |
| 44,099 |
Other operations | Other operations |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| Other operations |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Corporate | |
| (3,744) | |
| 115 | |
| — | |
| 423 | |
| 307 | |
| (2,899) | |
| (6,056) | |
| 115 | |
| — | |
| 491 | |
| — | |
| 647 | |
| (4,803) |
| | $ | 2,815 | | $ | 5,868 | | $ | 439 | | $ | 423 | | $ | 307 | | $ | 9,852 | | $ | 32,019 | | $ | 5,448 | | $ | 674 | | $ | 491 | | $ | 17 | | $ | 647 | | $ | 39,296 |
| | | | | | | | | | | | | | | | | | |
For the Nine Months Ended September 30, 2019 | ||||||||||||||||||
(In thousands) | ||||||||||||||||||
| | | | | | | | | | | | | | | | | Adjusted | |
| | | | | | | | | | | | | | | | Property | ||
| | Operating | | Depreciation | | Loss on | | Project | | Stock- | | EBITDA and | ||||||
| | Income | | and | | Disposal | | Development | | Based | | Adjusted | ||||||
|
| (Loss) |
| Amortization |
| of Assets |
| Costs |
| Compensation |
| EBITDA | ||||||
Casino properties | |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
Silver Slipper Casino and Hotel | | $ | 7,844 | | $ | 2,599 | | $ | 5 | | $ | — | | $ | — | | $ | 10,448 |
Rising Star Casino Resort | |
| (637) | |
| 1,800 | |
| — | |
| — | |
| — | |
| 1,163 |
Bronco Billy's Casino and Hotel | |
| 1,770 | |
| 1,304 | |
| — | |
| — | |
| — | |
| 3,074 |
Northern Nevada Casinos | |
| 2,070 | |
| 446 | |
| — | |
| — | |
| — | |
| 2,516 |
| |
| 11,047 | |
| 6,149 | |
| 5 | |
| — | |
| — | |
| 17,201 |
Other operations |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Corporate | |
| (4,462) | |
| 114 | |
| — | |
| 503 | |
| 263 | |
| (3,582) |
| | $ | 6,585 | | $ | 6,263 | | $ | 5 | | $ | 503 | | $ | 263 | | $ | 13,619 |
| | | | | | | | | | | | | | | | | | |
For the Nine Months Ended September 30, 2020 | ||||||||||||||||||
(In thousands) | ||||||||||||||||||
| | | | | | | | | | | | | | | | | Adjusted | |
| | | | | | | | | | | | | | | | Segment | ||
| | Operating | | Depreciation | | Loss on | | Project | | Stock- | | EBITDA and | ||||||
| | Income | | and | | Disposal | | Development | | Based | | Adjusted | ||||||
|
| (Loss) |
| Amortization |
| of Assets |
| Costs |
| Compensation |
| EBITDA | ||||||
Reporting segments | |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
Mississippi | | $ | 7,180 | | $ | 2,346 | | $ | — | | $ | — | | $ | — | | $ | 9,526 |
Indiana | |
| (2,626) | |
| 1,857 | |
| — | |
| — | |
| — | |
| (769) |
Colorado | |
| 1,335 | |
| 1,109 | |
| 4 | |
| — | |
| — | |
| 2,448 |
Nevada | |
| (797) | |
| 441 | |
| 435 | |
| — | |
| — | |
| 79 |
Contracted Sports Wagering | | | 1,467 | | | — | | | — | | | — | | | — | | | 1,467 |
| |
| 6,559 | |
| 5,753 | |
| 439 | |
| — | |
| — | |
| 12,751 |
Other operations |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Corporate | |
| (3,744) | |
| 115 | |
| — | |
| 423 | |
| 307 | |
| (2,899) |
| | $ | 2,815 | | $ | 5,868 | | $ | 439 | | $ | 423 | | $ | 307 | | $ | 9,852 |
Operating expenses deducted to arrive at operating income (loss) in the above tables for the nine-month period ended September 30, 20202021 and 20192020 included facility rents related to: (i) Silver SlipperMississippi of $1.7 million during 2021 and $1.2 million during 2020, and $1.3 million during 2019, (ii) Northern Nevada of $1.4 million for both periods, and (iii) Bronco Billy’sColorado of $0.3 million during 2021 and $0.5 million for both periods.during 2020.
37
Liquidity and Capital Resources
Cash Flows and COVID-19 Impact
As of September 30, 2020,2021, we had $34.0$274.5 million of unrestricted cash and equivalents.equivalents, including $176.6 million of restricted cash dedicated to the construction of Chamonix. We estimate that between approximately $7 million and $9 million of cash is used in our current day-to-day operations, including for on-site cash in our slot machines, change and redemption kiosks, and cages. InWe believe that current cash balances, together with the available borrowing capacity under our efforts to preserve liquidity, we halted construction work on our planned parking garage at Bronco Billy’s, on which we had just begun construction. Whether or not werevolving credit facility and cash flows from operating activities, will be ablesufficient to complete the parking garage in the near future will depend on the operating results ofmeet our casinos over the coming 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. At that time, we were unsure as to the potential length of the closure period, the operating restrictions under which we might be allowed to reopen, and the response that our customers would have to the situation and those operating restrictions. Capital was otherwise generally
35
not available to us at the time. Two of our subsidiaries, one in Colorado and one in Indiana, qualified under the Payroll Protection Plan aspect of the CARES Act and utilized the proceeds of such loans to put employees back to work and to pay certain other costs, such as utilities, as was permitted under the CARES Act.
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. We currently believe that we have sufficient liquidity and resources to fund our operations throughcapital resource needs for the generationnext 12 months of cash by our reopened properties (including in the third quarter of 2020), and our current cash balances. However, there can be no assurance that our reopened casinos will be able to continue to be open, given the ongoing pandemic, or that they will continue to generate sufficient cash flow to enable us to pay our indebtedness or fund our other liquidity needs. 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 and safety concerns, operating profits improved over the prior-year period since the full reopening of our company in June 2020. We elected to defer one-third of management salaries until the reopening of at least four of our casinos, including Silver Slipper Casino and Hotel, and recently ended these salary deferrals in August 2020, although deferred amounts remain outstanding. Note that the pandemic has 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 is substantial 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, although there can be no certainty that we will be able to continue to do so.operations.
Cash flows – operating activities. On a consolidated basis, cash provided by operations during the nine monthsnine-months ended September 30, 20202021 was $2.9$19.3 million, compared to cash provided by operations of $5.7$2.9 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 2020 and 2019 periods, ourOur operating cash flows decreasedincreased primarily due to strong performances at each segment during the business interruption2021 period, partially offset by the redemption of our outstanding warrants in February 2021. Additionally, we received approximately $1.3 million of insurance proceeds during 2021 related to repairs for property damage sustained at Silver Slipper from Hurricane Zeta in October 2020. We expect to settle our remaining insurance claims related to such storm in the COVID-19 pandemic. As discussed above, allfourth quarter of the Company’s casinos were closed for approximately three months beginning in mid-March 2020, and various state mandates continue to impact the Company’s ability to fully resume business operations. Since reopening,2021. The temporary closure of our properties have performed well overall when compared to similar months in prior years, including 2019.Spring 2020 affected operating cash flows in the 2020 period.
Cash flows – investing activities. On a consolidated basis, cash used in investing activities during the nine monthsnine-months ended September 30, 20202021 was $1.9$18.0 million, which primarily related to the garage constructioncapital expenditures for Chamonix and real estate purchases in Cripple Creek. This amount also includes approximately $1.7 million for capital expenditures made in 2021 at Bronco Billy’s that was suspended in March 2020 amidst the COVID-19 pandemic.Silver Slipper due to damages from Hurricane Zeta. Cash used in investing activities during the prior-year period was $6.2$1.9 million, which primarily related to capital expenditures for maintenance and certain growth-related projects, including the potential expansion at Bronco Billy’s, the remodeling of the Silver Slipper casino and the renovation of the Stockman’s Steakhouse.Chamonix.
Cash flows – financing activities. On a consolidated basis, cash provided by financing activities during the nine monthsnine-months ended September 30, 20202021 was $3.1$235.5 million. In February and March 2021, respectively, we received $310.0 million comparedof gross proceeds from the issuance of our 2028 Notes and $46.0 million of gross proceeds from our underwritten equity offering. These cash inflows in 2021 were partially offset by the payoff of the Prior Notes (including the related prepayment premiums), as well as expenses related to cashthe issuance of our 2028 Notes, our March 2021 equity offering, and our new $15.0 million revolving credit facility. Cash provided by financing activities of $7.7was $3.1 million in the prior-year period. Comparing the 2020 and 2019 periods, we received proceeds totalingperiod, primarily reflecting $5.6 million related toof new unsecured loans that we took under the CARES Act in 2020 and we issued an additional $10 million of Notes in May 2019, offset in both periods by principal payments on the Notes and the finance lease at Rising Star.2020.
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. We anticipate refinancing 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 proposals in Indiana and Illinois, 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
36
operating cash flow and/or accessSuch factors include the capital markets, including as a resultpotential effects of COVID-19 we couldand its variants. The extent to which our liquidity in future periods may be required to adopt one or more alternatives, suchaffected by COVID-19 and its variants may largely depend on future developments. Such future developments are highly uncertain and cannot be accurately predicted at this time, 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 and Colorado Referendum” for measures that have been implemented as a result of COVID-19.discussed under “Recent Developments.”
Debt
Long-term Debt. As discussed aboveAt September 30, 2021, we had $310.0 million of principal indebtedness outstanding under the 2028 Notes, and no drawn amounts under the Credit Facility or outstanding letters of credit. Additionally, in the “Executive Overview,” we executed the Waivers and Amendments in April, August and November 2020 to amend the Indenture governing the Notes, which included an amendment to waive or delete our total leverage covenant requirement for the periods ended March 31, 2020, June 30, 2020 and September 30, 2020, among other items.
On February 2, 2018, we issued $100 million of Notes and, as noted, on May 10, 2019, we issued an additional $10 million of Notes. The Notes are collateralized by substantially all of our assets and are guaranteed by all of our material subsidiaries. The Notes bear interest at the greatermidst of the three-month LIBOR or 1.0%, pluspandemic when all operations were suspended, we obtained CARES Act Loans totaling $5.6 million. We also owe $3.4 million related to our finance lease of a margin ratehotel at Rising Star.
38
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. For the period ending December 31, 2020, the total leverage ratio maximum is 5.50x. As discussed above, we amended the Indenture to waive or delete the total leverage covenant as of March 31, 2020, June 30, 2020 and September 30, 2020, and waived certain other covenants under the Indenture, reflecting the effects of the temporary closure of our properties due to the pandemic. At current business levels, we may or may not need to amend the total leverage covenant for the fourth and subsequent quarters, despite the fact that the trailing twelve-month measures will continue to reflect the pandemic closure period. If needed, however, there is no guarantee that we will be successful in obtaining such amendments or waivers, 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 about our Indenture governing the Notes.
Unsecured Loans Under the CARES Act. In May 2020, we received approximately $5.6 million of total loan proceeds under the CARES Act for our wholly-owned subsidiaries at Bronco Billy’s and Rising Star. Such funds were principally used, in accordance with the CARES Act, to rehire several hundred employees in advance of, and subsequent to, their reopenings in mid-June. These loans have a 1.0% interest rate and were originally due to mature in May 2022.
Recently-passed legislation extended the original maturity dates to May 2025. Monthly principal and interest payments are now deferred for 15 months. Beginning in September 2021, we are required to make monthly payments of principal and interest to the lender totaling $128,557. 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, including primarily the payroll and health benefits of employees who might otherwise have been without jobs or health benefits. We believe that we will fully use such proceeds for these eligible expenses in the allowed 24-week time period. There is no certainty, however, 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 shares 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
37
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 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 duringrelated to the remainderconstruction of 2020our Chamonix project in Cripple Creek, Colorado, which is currently underway. We currently expect to invest approximately $50 million into the construction of Chamonix in 2021 and more than $130 million in 2022, though some of these payments may not occur until we have a better understandingearly 2023 due to the timing of accounts payable and construction retainage amounts, and potential construction delays caused by challenges created by COVID-19. We believe that the continuing COVID-19 pandemic.
Bronco Billy’s. As discussed above in the “Executive Overview,” we acquired the Imperial Hotel in June 2018, along with other nearby parcels of land, and leased the Imperial Casino in August 2018, all with the intent of potentially expanding Bronco Billy’s. In late 2019 and early 2020, we began construction on certain aspects of such expansion, but suspended construction in March 2020 in light of the COVID-19 pandemic. Whether or not weremaining investment for Chamonix will be able to resume construction in the near future will depend on the operating results offunded from our casinos over the coming months, as well as the capital markets that might be available to us at some future dateexisting cash balances and, certain other issues.potentially, cash flow from operations.
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 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.
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.
Concessions Obtained for Certain Leases.Hyatt Owner’s Option to Purchase our Leasehold Interest and Related Assets. In our effortsOur lease with the owner of the Hyatt Lake Tahoe to preserve cash, we were able to obtain rent concessions inoperate the form of abatements and reductions totaling approximately $0.4 million. In March 2020, we were granted rent abatementsGrand Lodge Casino contains an option for the lessor to purchase our leasehold interest and related casino land lease at Silver Slipper totaling $155,000. In July 2020, we were able to obtain rent credits and reductions totaling $208,000 for the facility lease at Grand Lodge Casino.operating 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.
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
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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-19coronavirus (COVID-19) pandemic and its variants 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)operations; our development and expansion plans, including our currently suspended expansion plans for Bronco Billy’s, ourthe estimated construction commencement, budget, completion and ability to obtain financing for such expansionopening timeline, and the timingexpected amenities, for commencement (or recommencement in the casenew Chamonix Casino Hotel;
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our expectations regarding an amendment to our development agreement with the City of Cripple Creek to extend the Chamonix project’s completion of each phase of such expansion; (v)date; 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 wagering agreements,contracts 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 foursixth and final sports betting websites by our contracting parties in Indiana and Colorado; (vii)“skin” related thereto; our expectations regarding the Waukegan proposal; (viii)and Terre Haute proposals, including the timing of the RFP processes and any decisions thereunder, our ability to obtain either casino license, the expected amenities for both proposals, and, if we are awarded either or both licenses, to obtain financing; our intentions regarding the potential future expansion at Silver Slipper, including the exercise of the tidelands lease option or receipt of any entitlements thereto; our expectation to exercise our 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 impactrefinancing of the eliminationour principal debt; our anticipated capital expenditures; our expectations regarding any forgiveness of betting maximums and approval of additional table games in Colorado; (ix) our ability to use our CARES Act loan proceeds for eligible expense in the permitted time period; (x) our expectations regarding new marketing plans and new labor expense plans that were implemented upon our casino reopenings andLoans; 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; (xi) our estimated operating requirements, including as a resultuse of the impact of COVID-19; (xii) our belief that we have sufficient liquidity and resources to fund our reopened operations; (xiii) our expectations regarding improvements as a result ofnet proceeds from the new slot systems at Rising Star and Bronco Billy’s; (xiv) our intention to focus on improving our operating margins; (xv)Equity Offering; anticipated expenditures as a result of COVID-19; (xvi)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; (xvii)the competitive outlook; our expectations regarding the outcome of legal matters andmatters; the impact of recently-issuedrecently issued accounting standards; and (xviii) 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 affectForward-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 operation, performance, development and resultsfuture of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause future outcomesour actual results and financial condition to change significantlydiffer materially from those set forthindicated in ourthe forward-looking statements including the following risks, uncertaintiesinclude, among others:
Risks Related to our Business and other factors:Operations
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● | Potential requirements for vaccination or regular COVID-19 testing of our |
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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 wildfires, hurricanes, pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases such as the |
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● | Rising operating costs at our |
● | We face the |
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● | The concentration and evolution of the slot machine manufacturing industry could impose additional costs on us. |
● | Our business may be adversely affected by legislation prohibiting tobacco smoking. |
● | We are subject to risks related to corporate social responsibility and reputation. |
Risks Related to Development and Growth Opportunities
● | We are often involved in one or more construction and development projects, including the new Chamonix Casino Hotel, and many factors could prevent us from completing them as planned. |
● | The construction costs for the new Chamonix Casino Hotel may exceed budgeted amounts plus contingencies, which may result in insufficient funds in the construction reserve account to complete the project and may result in the Company accessing its unrestricted cash or other resources to complete the project. There is no certainty that such resources will be available. |
● | There is no assurance that the new Chamonix Casino Hotel will not be subject to additional regulatory restrictions, delays, or challenges. |
● | There is no assurance that the new Chamonix Casino Hotel will be successful. |
● | Failure to comply with the terms of our disbursement agreement could limit our access to funds. |
● | We face a number of challenges prior to opening new or upgraded facilities. |
● | We may face disruption and other difficulties in integrating and managing facilities we have recently developed or acquired, or may develop or acquire in the future. |
● | The construction of the new Chamonix Casino Hotel may inconvenience customers and disrupt business activity at the adjoining Bronco Billy’s casino. |
● | Additional growth projects, including the Waukegan and Terre Haute proposals, or potential enhancements at our properties may require us to raise additional capital. |
● | The casino, hotel and resort industry is capital intensive and we may not be able to finance expansion and renovation projects, which could put us at a competitive disadvantage. |
● | Our ability to receive regulatory approvals required to complete certain acquisitions, mergers, joint ventures, and other developments, as well as other potential delays in completing certain transactions. |
● | Failure to obtain necessary government approvals in a timely manner, or at all. |
● | Insufficient or lower-than-expected results generated from our new developments and acquired properties. |
Risks Related to our Indebtedness
● | Our significant indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations. |
● | Restrictive covenants and limitations in our debt facilities that could significantly affect our ability to borrow additional funds and/or operate our business and could lead to events of default if we do not comply with the covenants. |
● | Our inability to generate sufficient cash flow to service our indebtedness and fund our operating expenses, working capital needs and capital expenditures. |
● | We depend on our subsidiaries for certain dividends, distributions and repayment of our indebtedness. |
● | Our ability to obtain additional financing on commercially reasonable terms may be limited. |
● | The obligations under the 2028 Notes are collateralized by a security interest in substantially all of our assets, so if we default on those obligations, the holders of the 2028 Notes could foreclose on our assets. |
● | Our loans under the CARES Act may be subject to regulatory review. |
● | We and our subsidiaries may still be able to incur substantially more debt. |
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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. |
● | 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 September 30, 2020,2021, 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 September 30, 2020,2021, 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.
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We have established controls and procedures designed at the reasonable assurance level to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to management, including the principal executive officer and the principal financial officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting — There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
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-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 brands2020 (the “Annual Report”). The continuing COVID-19 pandemic, including the perception held by our customers, business partners, other key stakeholdersemergence of new variants, has heightened, and in some cases manifested, certain of the communitiesrisks we normally face 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.including those disclosed in the Annual Report.
Item 1.01 Entry into a Material Definitive Agreement.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
On November 6, 2020, the Company executed the Fifth Amendment dated as of November 6, 2020 to amend the Indenture to the Notes. Reflecting the continuing impact on the Company’s business operations due to the ongoing COVID-19 pandemic, the Fifth Amendment deleted the total leverage ratio covenant as of September 30, 2020. The Company paid an amendment fee of 1.00%, or approximately $1.07 million, to the holders of its Notes, based on the outstanding balance of the aggregate principal amount as of the amendment date.
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 Fifth Amendment does not purport to be complete and is qualified in its entirety by reference to the copy of the Fifth 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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31.2* | | |
32.1** | | |
32.2** | | |
101.INS* | | Inline XBRL Instance Document |
101.SCH* | | Inline XBRL Taxonomy Extension Schema Document |
101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* | | Inline XBRL Taxonomy Extension |
101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104* | | Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) |
* Filed herewith.
** Furnished herewith.
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Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| FULL HOUSE RESORTS, INC. | |
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Date: November | 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: November | By: | /s/ LEWIS A. FANGER |
| | Lewis A. Fanger Chief Financial Officer (on behalf of the Registrant and as principal financial officer and as principal accounting officer) |
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