UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
(Mark One)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2019
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from         to
 Commission File No. 1-32583
 FULL HOUSE RESORTS, INC.
(Exact name of registrant as specified in its charter)  
Delaware
(State or other jurisdiction
of incorporation or organization)
 
13-3391527
(I.R.S. Employer
Identification No.)
 
 
 
One Summerlin, 1980 Festival Plaza Drive, Suite 680
Las Vegas, Nevada
(Address of principal executive offices)
 
89135
(Zip Code)
(702) 221-7800
(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act: 
Title of each Class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.0001 par value per share
 
FLL
 
The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ No o

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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company and/or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer o
Accelerated filer þ
Emerging growth company o
Non-accelerated filer o
Smaller reporting company þ
 


1


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act:  Yes o No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of August 5, 2019, there were 26,980,360 shares of Common Stock, $0.0001 par value per share, outstanding.

 



2



 
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
 
 
 
 
Page
PART I. Financial Information
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
Item 3.
 
Item 4.
 
 
 
 
 
PART II. Other Information
 
 
Item 1.
 
Item 1A.
 
Item 6.
 
 
 
 
 
 

3


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
 
 
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2019
 
2018
 
2019
 
2018
Revenues
 
 
 
 
 
 
 
Casino
$
28,450

 
$
28,632

 
$
56,748

 
$
55,602

Food and beverage
8,863

 
8,783

 
17,521

 
16,722

Hotel
3,051

 
2,582

 
5,766

 
4,865

Other operations
1,299

 
1,230

 
2,122

 
1,969

Net revenues
41,663

 
41,227

 
82,157

 
79,158

Operating costs and expenses
 

 
 

 
 

 
 

Casino
11,592

 
11,282

 
23,377

 
22,366

Food and beverage
9,449

 
9,757

 
18,818

 
18,883

Hotel
2,379

 
2,652

 
4,799

 
5,139

Other operations
1,072

 
834

 
1,841

 
1,348

Selling, general and administrative
13,027

 
12,462

 
25,687

 
24,424

Project development and acquisition costs
142

 
130

 
275

 
167

Depreciation and amortization
2,083

 
2,038

 
4,174

 
4,206

(Gain) loss on sale or disposal of assets, net
(4
)
 
69

 
(5
)
 
79

 
39,740

 
39,224

 
78,966

 
76,612

Operating income
1,923

 
2,003

 
3,191

 
2,546

Other (expense) income
 

 
 

 
 

 
 

Interest expense, net of $83 and $171 capitalized for the three-months ended June 30, 2019 and 2018, and $130 and $216 capitalized for the six-months ended June 30, 2019 and 2018
(2,931
)
 
(2,466
)
 
(5,634
)
 
(5,006
)
Loss on extinguishment of debt
—

 
—

 
—

 
(2,673
)
Adjustment to fair value of warrants
141

 
(80
)
 
101

 
423

 
(2,790
)

(2,546
)
 
(5,533
)
 
(7,256
)
Loss before income taxes
(867
)
 
(543
)
 
(2,342
)
 
(4,710
)
Provision for income taxes
143

 
118

 
285

 
237

Net loss
$
(1,010
)
 
$
(661
)
 
$
(2,627
)
 
$
(4,947
)
 
 
 
 
 
 
 
 
Basic loss per share
$
(0.04
)
 
$
(0.02
)
 
$
(0.10
)
 
$
(0.20
)
Diluted loss per share
$
(0.04
)
 
$
(0.02
)
 
$
(0.10
)
 
$
(0.21
)
 
See condensed notes to consolidated financial statements.

4


FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

June 30,
2019
 
December 31,
2018
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets
 
 
 
Cash and equivalents
$
23,908

 
$
20,634

Accounts receivable, net of allowance of $140 and $98
2,076

 
2,035

Inventories
1,917

 
1,425

Prepaid expenses and other
4,505

 
2,899

 
32,406

 
26,993

 
 
 
 
Property and equipment, net
120,845

 
122,076

Operating lease right-of-use assets, net(1)
18,769

 
—

Goodwill
21,286

 
21,286

Other intangible assets, net
11,102

 
11,145

Deposits and other
691

 
772

 
$
205,099

 
$
182,272

LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities
 

 
 

Accounts payable
$
4,549

 
$
5,917

Accrued payroll and related
4,157

 
3,668

Other accrued expenses and current operating lease obligations(1)
10,357

 
9,704

Current portion of finance lease obligation
493

 
497

Current portion of long-term debt
1,100

 
1,000

Common stock warrant liability
725

 
825

 
21,381

 
21,611

 
 
 
 
Operating lease obligations, net of current portion, and other(1)
16,794

 
166

Finance lease obligation, net of current portion
4,065

 
4,324

Long-term debt, net
102,986

 
94,194

Deferred income taxes, net
2,517

 
2,232

 
147,743

 
122,527

Commitments and contingencies (Notes 3, 5, 6 and 8)


 


Stockholders’ equity
 

 
 

Common stock, $0.0001 par value, 100,000,000 shares authorized; 28,336,955 and 28,288,764 shares issued and 26,980,360 and 26,932,169 shares outstanding
3

 
3

Additional paid-in capital
64,173

 
63,935

Treasury stock, 1,356,595 common shares
(1,654
)
 
(1,654
)
Accumulated deficit
(5,166
)
 
(2,539
)
 
57,356

 
59,745

 
$
205,099

 
$
182,272


(1)
On January 1, 2019, the Company adopted Accounting Standards Codification 842 (“ASC 842”), using the modified retrospective transition method under the effective date approach, which impacts the comparability of these line items.

See condensed notes to consolidated financial statements.

5


FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
(In thousands)
 
 
 
 
Additional Paid-in Capital
 
 
 
Accumulated Deficit
 
Total Stockholders’ Equity
 
 
Common Stock
 
 
Treasury Stock
 
 
 
 
Shares
 
Dollars
 
 
Shares
 
Dollars
 
 
Balance, January 1, 2019
 
28,289

 
$
3

 
$
63,935

 
1,357

 
$
(1,654
)
 
$
(2,539
)
 
$
59,745

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
)
 
(4,156
)
 
58,259

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
)
 
$
(5,166
)
 
$
57,356

 

 
 
 
 
 
 
Additional Paid-in Capital
 
 
 
 
 
Retained Earnings (Deficit)
 
Total Stockholders’ Equity
 
 
Common Stock
 
 
Treasury Stock
 
 
 
 
Shares
 
Dollars
 
 
Shares
 
Dollars
 
 
Balance, January 1, 2018
 
24,294

 
$
2

 
$
51,868

 
1,357

 
$
(1,654
)
 
$
1,832

 
$
52,048

Stock grants
 
34

 
—

 
104

 
—

 
—

 
—

 
104

Equity offering, net
 
3,943

 
1

 
11,425

 
—

 
—

 
—

 
11,426

Stock-based compensation
 
—

 
—

 
128

 
—

 
—

 
—

 
128

Net loss
 
—

 
—

 
—

 
—

 
—

 
(4,286
)
 
(4,286
)
Balance, March 31, 2018
 
28,271

 
3

 
63,525

 
1,357

 
(1,654
)
 
(2,454
)
 
59,420

Equity offering, net
 
—

 
—

 
10

 
—

 
—

 
—

 
10

Stock-based compensation
 
18

 
—

 
175

 
—

 
—

 
—

 
175

Net loss
 
—

 
—

 
—

 
—

 
—

 
(661
)
 
(661
)
Balance, June 30, 2018
 
28,289

 
$
3

 
$
63,710

 
1,357

 
$
(1,654
)
 
$
(3,115
)
 
$
58,944


See condensed notes to consolidated financial statements.

6


FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
 
 
(In thousands)
Six Months Ended 
 June 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net loss
$
(2,627
)
 
$
(4,947
)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
 
 
  

Depreciation and amortization
4,174

 
4,206

Amortization of debt issuance and warrant costs
598

 
398

Stock-based compensation
193

 
407

Change in fair value of stock warrants
(101
)
 
(423
)
Change in fair value of interest rate cap
82

 
1

Loss on extinguishment of debt
—

 
2,673

(Gain) loss on sale or disposal of assets
(5
)
 
79

Increases and decreases in operating assets and liabilities:
 
 
 
Accounts receivable
(41
)
 
230

Prepaid expenses, inventories and other
(2,098
)
 
(1,652
)
Deferred taxes
285

 
237

Accounts payable and accrued expenses
(2,205
)
 
(538
)
Net cash (used in) provided by operating activities
(1,745
)
 
671

Cash flows from investing activities:
 

 
 

Purchase of property and equipment
(3,056
)
 
(6,744
)
Other
(1
)
 
(234
)
Net cash used in investing activities
(3,057
)
 
(6,978
)
Cash flows from financing activities:
 

 
 

Repayment of First and Second Lien Term Loans
—

 
(96,063
)
Prepayment premium of Second Lien Term Loan
—

 
(1,100
)
Proceeds from Senior Secured Notes borrowings
10,000

 
100,000

Payment of debt discount and issuance costs
(1,181
)
 
(4,044
)
Payment of Interest Rate Cap premium
—

 
(238
)
Repayment of Senior Secured Notes
(525
)
 
(500
)
Repayment of finance lease obligation
(263
)
 
(226
)
Proceeds from equity offering
—

 
11,435

Proceeds from exercise of stock options
45

 
—

Other
—

 
(141
)
Net cash provided by financing activities
8,076

 
9,123

 
 
 
 
Net increase in cash and equivalents
3,274

 
2,816

Cash and equivalents, beginning of period
20,634

 
19,910

Cash and equivalents, end of period
$
23,908

 
$
22,726

 
 
 
 
SUPPLEMENTAL CASH FLOW INFORMATION:
 

 
 

Cash paid for interest, net of amounts capitalized
$
4,797

 
$
4,717

NON-CASH INVESTING ACTIVITIES:
 

 
 

Accounts payable related capital expenditures
$
502

 
$
2,073

 
See condensed notes to consolidated financial statements.

7


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 of real estate that it owns or leases, and one is located within a hotel owned by a third party. The following table identifies the properties along with their respective dates of acquisition and locations:

Property
 
Acquisition
Date
 
Location
Silver Slipper Casino and Hotel
 
2012
 
Hancock County, MS
(near New Orleans)
Bronco Billy’s Casino and Hotel
 
2016
 
Cripple Creek, CO
(near Colorado Springs)
Rising Star Casino Resort
 
2011
 
Rising Sun, IN
(near Cincinnati)
Stockman’s Casino
 
2007
 
Fallon, NV
(one hour east of Reno)
Grand Lodge Casino (leased and part of the Hyatt Regency Lake Tahoe Resort, Spa and Casino)
 
2011
 
Incline Village, NV
(North Shore of Lake Tahoe)

The Company manages its casinos based on geographic regions within the United States. See Note 11 for further information.

2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation. As permitted by the rules and regulations of the Securities and Exchange Commission (“SEC”), certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company’s 2018 annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

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.

Fair Value and the Fair Value Input Hierarchy. Fair value measurements affect the Company’s accounting for net assets acquired in acquisition transactions and certain financial assets and liabilities, such as its interest rate cap (“Interest Rate Cap”) agreement and common stock warrant liability. 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 2 inputs when measuring the fair value of its Interest Rate Cap. In order to estimate the fair value of this derivative instrument, the Company obtains valuation reports from the third-party broker that issued the Interest Rate Cap. The report contemplates fair value by using inputs including market-observable data such as interest rate curves, volatilities, and information derived from or corroborated by that market-observable data (see Note 5).

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).

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 entertainment). The majority of the Company’s revenues are derived from casino gaming, principally slot machines.

Gaming revenue is the difference between gaming wins and losses, not the total amount wagered. The Company accounts for its gaming transactions on a portfolio basis as such wagers have similar characteristics and it would not be practical to view each wager on an individual basis.

The Company sometimes provides discretionary complimentary goods and services (“discretionary comps”). For these types of transactions, the Company allocates revenue to the department providing the complimentary goods or services based upon its estimated standalone selling price, offset by a reduction in casino revenues.

Many of the Company’s customers choose to earn points under its customer loyalty programs. As points are accrued, the Company defers a portion of its gaming revenue based on the estimated standalone value of loyalty points being earned by the customer. The standalone value of loyalty points is derived from the retail value of food, beverages, hotel rooms, and other goods or services for which such points may be redeemed. A liability related to these customer loyalty points is recorded, net of estimated breakage and other factors, until the customer redeems these points, primarily for “free casino play/cash back,” complimentary dining, or hotel stays. Such liabilities were approximately $1.5 million for June 30, 2019 and $1.4 million for December 31, 2018. Upon redemption, the related revenue is recognized at retail value within the department providing the goods or services.

Revenue for food and beverage, hotel, and other revenue transactions is typically the net amount collected from the customer for such goods and services, plus the retail value of (i) discretionary comps and (ii) comps provided in return for redemption of loyalty points. The Company records such revenue as the good or service is transferred to the customer. Additionally, the Company may collect deposits in advance for future hotel reservations or entertainment, among other services, which represent obligations to the Company until the service is provided to the customer.

Income Taxes. For interim income tax reporting, it was determined that the Company’s annual effective tax rate could not be reasonably estimated. Therefore, the Company uses the cut-off method, as opposed to the annualized effective tax rate method, which would create a tax expense that is not indicative of the annual tax provision. As a result, the Company used the actual year-to-date effective tax rate to determine the tax expense incurred during the three- and six-months ended June 30, 2019 and 2018.

Reclassifications. The Company made certain minor reclassifications to prior-period amounts to conform to the current-period presentation. Such reclassifications had no effect on the previously reported net loss or stockholders’ equity.

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 common stock options and warrants, using the treasury stock method.


9


New Accounting Pronouncement Implemented

Leases. In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASC 842, which replaces the existing guidance for leases and requires expanded disclosures about leasing activities. 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. ASC 842 requires 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 in the lessee recognizing a right-of-use (“ROU”) asset and a corresponding lease liability on the balance sheet, as measured on a discounted basis for leases with terms greater than a year. For finance leases, the lessee will recognize interest expense associated with the lease liability and depreciation expense associated with the ROU asset; and for operating leases, the lessee will recognize straight-line rent expense. For publicly-traded companies, ASC 842 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018.

Under the previous guidance for leases through December 31, 2018, rental payments for certain property and equipment used in the Company’s operations under long-term operating leases were recognized as rent expense with scheduled rent increases recognized on a straight-line basis over the initial lease term, without recording a lease asset and obligation. Rental payments for other property and equipment held under capital leases were recognized as a reduction of a capital lease obligation and interest expense. The fixed assets acquired pursuant to capital leases were included in property and equipment and amortized over the term of the lease.

Under the modified retrospective transition method, the Company elected to use the effective date approach with the period of adoption on January 1, 2019 as the date of initial application, and therefore, has elected to not recast comparative period financial information. In addition, the Company has elected the package of practical expedients permitted under the transition guidance to allow it to carry forward historical lease classifications, which includes not needing to reassess: (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) measurement of initial direct costs for any existing leases. The Company has also elected the short-term lease measurement and recognition exemption, under which the Company will not recognize ROU assets or lease liabilities for leases with a term of 12 months or less. The Company has also elected the exemption to account 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; as a result, the Company will 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. 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.
 

3. LEASES
 
The Company has no material leases in which it is the lessor. As lessee, the Company has one finance lease for a hotel and various operating leases for land, casino and office space, equipment, buildings, and signage. The Company’s lease terms, including extensions, range from one month to approximately 39 years. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants, but the land lease at Silver Slipper does include contingent rent as further discussed below, along with other agreements deemed material to the Company’s operations.

Operating Leases

Silver Slipper Casino Land Lease through April 2058 and Options to Purchase. In 2004, the Company’s subsidiary, Silver Slipper Casino Venture, LLC, entered into a land lease with Cure Land Company, LLC for approximately 31 acres of marshlands and a seven-acre parcel on which the Silver Slipper Casino and Hotel is situated. The agreement includes fixed, base monthly payments of $77,500 plus contingent rents of 3% of monthly gross gaming revenue (as defined in the lease) in excess of $3.65 million with no scheduled rent increases through the remaining lease term ending in 2058. The land lease currently includes a purchase option at any time through October 1, 2027, 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. In the event that the Company sells or transfers either (i) substantially all of the assets of Silver Slipper Casino Venture, LLC, or (ii) its membership interests in Silver

10


Slipper Casino Venture, LLC in its entirety, the purchase price will increase to $17.1 million, plus the retained interest mentioned above for 10 years. In either case, the Company also has an option to purchase a four-acre portion from the total 38 acres of leased land for $2.0 million in connection with the development of an owned hotel (subject to the same seller-retained interest provisions), which may be exercised at any time and would accordingly, reduce the purchase price of the remaining land by $2.0 million. There are certain other provisions within any buy-out related to water issues at the property, the cost of which is not believed to be material.

Bronco Billy’s Lease through January 2035 and Option to Purchase. Bronco Billy’s leases certain parking lots and buildings, including a portion of the hotel and casino, under a long-term lease. The lease term includes six renewal options in three-year increments to 2035. Bronco Billy’s exercised its first renewal option through January 2020, which included monthly rent of $25,000 for the first two years of the renewal period and $30,000 for the third year that started in February 2019. In May 2019, Bronco Billy’s also exercised its second renewal option to extend the lease term through January 31, 2023, which will increase the monthly rent to $32,500 beginning in February 2021. The lease also contains a $7.6 million purchase option exercisable at any time during the lease term, or as extended, and a right of first refusal on any sale of the property.

Christmas Casino at Bronco Billy’s through August 2021 and Option to Purchase. As part of the Bronco Billy’s expansion, the Company leased a closed casino in August 2018 and opened it as the rebranded Christmas Casino 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 can also purchase the casino at any time during the lease term, or as extended. The purchase price is $2.5 million, if bought by October 31, 2019, and increases by $0.1 million on each anniversary thereafter up to $2.8 million.

Grand Lodge Casino Lease through August 2023. The Company’s subsidiary, Gaming Entertainment (Nevada), LLC, has a lease with Hyatt Equities, L.L.C. (“Hyatt”) to operate the Grand Lodge Casino. The lease is collateralized by the Company’s interests under the lease and property (as defined in the lease) and is subordinate to the liens of the senior secured notes due 2024 (see Note 5). Hyatt has an option, which began on January 1, 2019, to purchase the Company’s leasehold interest and related operating assets of the Grand Lodge Casino, subject to assumption of applicable liabilities. The option price is an amount equal to the Grand Lodge Casino’s positive working capital, plus Grand Lodge Casino’s earnings before interest, income taxes, depreciation and amortization (“EBITDA”) for the twelve-month period preceding the acquisition (or pro-rated if less than twelve months remain on the lease), plus the fair market value of the Grand Lodge Casino’s personal property. The current monthly rent of $166,667 is applicable through the remaining lease term ending in August 2023.

Corporate Office Lease through January 2025. In June 2017, the Company leased 4,479 square feet of office space in Las Vegas, Nevada. Annual rent is approximately $0.2 million and the term of the office lease expires in January 2025.

Finance Lease

Rising Star Casino Hotel Lease through October 2027 and Option to Purchase. The Company’s Indiana subsidiary, Gaming Entertainment (Indiana) LLC, leases a 104-room hotel at Rising Star Casino Resort. At any time during the lease term, the Company has the option to purchase the hotel at a price based upon the project’s actual cost of $7.7 million (see Note 4), reduced by the cumulative principal payments made by the Company during the lease term.  At June 30, 2019, such net amount was $4.6 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


Leases recorded on the balance sheet consist of the following:
(In thousands, Unaudited)
 
 
 
 
 
 
 
 
 
Leases
 
Balance Sheet Classification
 
June 30, 2019
Assets
 
 
 
 
Operating lease assets
 
Operating Lease Right-of-Use Assets, Net
 
$
18,769

Finance lease assets
 
Property and Equipment, Net(1)
 
5,115

Total lease assets
 
 
 
$
23,884

 
 
 
 
 
Liabilities
 
 
 
 
Current
 
 
 
 
Operating
 
Other Accrued Expenses and Current Operating Lease Obligations
 
$
2,219

Finance
 
Current Portion of Finance Lease Obligation
 
493

Noncurrent
 
 
 
 
Operating
 
Operating Lease Obligations, Net of Current Portion, and Other
 
16,794

Finance
 
Finance Lease Obligation, Net of Current Portion
 
4,065

Total lease liabilities
 
 
 
$
23,571

(1
)
 
Finance lease assets are recorded net of accumulated amortization of $2.6 million as of June 30, 2019.


The components of lease expense are as follows:
(In thousands, Unaudited)
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
Lease Costs
 
Statement of Operations Classification
 
 
Operating leases:
 
 
 
 
 
 
Operating leases
 
Selling, General and Administrative Expenses
 
$
958

 
$
1,918

Variable leases
 
Selling, General and Administrative Expenses
 
171

 
355

Finance lease:
 
 
 
 
 
 
Amortization of leased assets
 
Depreciation and Amortization
 
39

 
79

Interest on lease liabilities
 
Interest Expense, Net
 
52

 
106

Total lease costs
 
 
 
$
1,220

 
$
2,458




12


Maturities of lease liabilities as of June 30, 2019 are summarized as follows:
(In thousands, Unaudited)
 
 
 
 
 
 
Operating
Leases
 
Financing
Lease(1)
Year Ending December 31,
 
 
2019 (excluding the six months ended June 30, 2019)
 
$
1,921

 
$
317

2020
 
3,850

 
680

2021
 
3,719

 
652

2022
 
3,503

 
652

2023
 
2,478

 
652

Thereafter
 
32,152

 
2,499

Total future minimum lease payments
 
47,623

 
5,452

Less: Amount representing interest
 
(28,610
)
 
(894
)
Present value of lease liabilities
 
19,013

 
4,558

Less: Current lease obligations
 
(2,219
)
 
(493
)
Long-term lease obligations
 
$
16,794

 
$
4,065

(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
 
June 30, 2019
 
 
(Unaudited)
Weighted-average remaining lease term
 
 
Operating leases
 
21.1 years
Finance lease
 
8.3 years
Weighted-average discount rate
 
 
Operating leases(1)
 
9.42%
Finance lease
 
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, Unaudited)
 
 
 
 
Six Months Ended 
 June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows for operating leases
 
$
1,928

Operating cash flows for finance lease
 
$
106

Financing cash flows for finance lease
 
$
263




13


4. PROPERTY AND EQUIPMENT
 Property and equipment, including finance lease assets, consists of the following:
(In thousands)
June 30,
2019
 
December 31,
2018
 
(Unaudited)
 
 
Land and improvements
$
15,835

 
$
15,786

Buildings and improvements
108,533

 
108,214

Furniture and equipment
44,776

 
43,740

Finance lease assets (see Note 3)
7,726

 
7,726

Construction in progress
8,193

 
6,864

 
185,063

 
182,330

Less: Accumulated depreciation
(64,218
)
 
(60,254
)
 
$
120,845

 
$
122,076


5. LONG-TERM DEBT
 
Long-term debt, related discounts and issuance costs consist of the following:

(In thousands)
June 30,
2019
 
December 31, 2018
 
(Unaudited)
 
 
Senior Secured Notes
$
108,475

 
$
99,000

Less: Unamortized discounts and debt issuance costs
(4,389
)
 
(3,806
)
 
104,086

 
95,194

Less: Current portion of long-term debt
(1,100
)
 
(1,000
)
 
$
102,986

 
$
94,194


Senior Secured Notes. On May 10, 2019, the Company entered into a Notes Purchase Agreement under which it agreed to sell an additional $10 million in aggregate principal amount of its senior secured notes due 2024 (the “Incremental Notes”) to qualified institutional buyers. The Company has used or expects to use the proceeds from the Incremental Notes to (i) provide additional liquidity for the construction of the Phase One parking garage at Bronco Billy’s Casino and Hotel and other capital expenditures; (ii) pay fees and expenses incurred in connection with the Incremental Notes offering; and (iii) provide funds for general corporate purposes. The Incremental Notes were issued on the same day at a price of 99.01% of their face value (a 0.99% original issue discount) pursuant to the indenture (as amended and supplemented, the “Indenture”), dated as of February 2, 2018. The Indenture governs the $100 million of senior secured notes due 2024 (the “Original Notes”) previously issued by the Company on February 2, 2018. The Incremental Notes have the same maturity date and interest rate as the Original Notes, are part of the same series as the Original Notes, and are treated as a single class together with the Original Notes (collectively, the “Notes”) for all purposes under the Indenture.

Also, on May 10, 2019, the Company executed the Second Amendment to the Indenture dated as of May 10, 2019, which (i) increased the principal amount required to be redeemed each quarter from $250,000 to $275,000 in total aggregate of the Notes, beginning June 30, 2019; (ii) permitted liens incurred in connection with the Cripple Creek Expansion Project; and (iii) changed the total leverage ratio as described in the Indenture and below under “Covenants.”

The Notes bear interest at the greater of the three-month London Interbank Offered Rate (“LIBOR”) or 1.0%, plus a margin rate of 7.0%. Interest on the Notes is payable quarterly in arrears, on March 31, June 30, September 30 and December 31 of each year until the Notes mature on February 2, 2024. On each interest payment date, the Company is required to make principal payments of $275,000 with a balloon payment for the remaining $103.5 million due upon maturity.


14


The Company may redeem all or a part of the Notes plus the premium as set forth below, plus accrued and applicable unpaid interest:

Redemption Periods
 
Percentage Premium
On February 2, 2019 to February 1, 2020
 
2.0%
On February 2, 2020 to February 1, 2021
 
1.5%
On February 2, 2021 to February 1, 2022
 
0.5%
On or after February 2, 2022
 
—%

The Notes are collateralized by substantially all of the Company’s assets and are guaranteed by all of its material subsidiaries.

Interest Rate Cap Agreement. The Company maintains an Interest Rate Cap from Capital One, N.A. (“Capital One”) in order to manage expected interest rate increases on the Notes. The agreement is for a notional amount of $50 million and expires on March 31, 2021. The Interest Rate Cap has a strike rate of 3.00% and resets every three months at the end of March, June, September, and December. If the three-month LIBOR exceeds the strike rate at the end of any covered period, the Company will receive cash payments from Capital One. For details regarding fair value measurements, see Note 2.

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) in calculating the numerator of such ratio. For the remainder of this year, the total leverage ratio requirement has been adjusted to 6.00x as a result of the issuance of the Incremental Notes.

The Company was in compliance with its covenants as of June 30, 2019. However, there can be no assurances that the Company will remain in compliance with all covenants in the future and/or that it would be successful in obtaining waivers or modifications in the event of noncompliance.

6. COMMON STOCK WARRANT LIABILITY

As part of the Company’s former Second Lien Credit Facility, on May 13, 2016, the Company granted the Second Lien Credit Facility lenders 1,006,568 warrants, which have an exercise 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 of 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.

The Company measures the fair value of the warrants at each reporting period (see Note 2). At June 30, 2019, the estimated fair value was determined using the following assumptions: an expected contractual term of 6.87 years, an expected stock price volatility rate of 44.65%, an expected dividend yield of 0%, and an expected risk-free interest rate of 1.87%.


15


7. INCOME TAXES
 
The Company’s effective income tax rate for the three- and six-months ended June 30, 2019 was (16.5)% and (12.2)%, respectively, compared to an effective income tax rate of (21.7)% and (5.0)% in the corresponding prior-year periods. The Company’s tax rate differs from the statutory rate of 21.0% primarily due to the effects of valuation allowances against net deferred tax assets, as well as certain permanent item differences between tax and financial reporting purposes.

8. COMMITMENTS AND CONTINGENCIES
 
Litigation

The Company is party to a number of pending legal proceedings related to matters that occurred in the normal course of business. Management does not expect that the outcome of any such proceedings, either individually or in the aggregate, will have a material effect on the Company’s financial position, results of operations and cash flows.

Options to Purchase or Lease Land

La Posada del Llano Racetrack Proposal in New Mexico. During July 2018, the Company paid $125,000 for options to purchase approximately 520 acres of adjoining land in Clovis, New Mexico as part of its racetrack casino proposal to the New Mexico Racing Commission. The proposal was in response to the New Mexico Racing Commission’s request for proposals related to the potential issuance of the state’s sixth racing license. During July 2019, the Company paid an additional $125,000 in total to renew these two options, as detailed below. In August 2019, the New Mexico Racing Commission announced that it would not issue the sixth racing license at this time, but may do so in the future.

•
A $75,000 option to purchase 200 acres of land, which ends on the earlier of either July 2019 or 60 days following the granting of the sixth license to conduct horseracing by the New Mexico Racing Commission and New Mexico Gaming Control Board (“License Award”) and all related approvals, permits, and other licenses. In July 2019, the Company extended the purchase option by one year for another $75,000 under the same terms. Prior to the end of this first option extension, the Company may extend the purchase option by one year for an additional $75,000 under the same terms. Additionally, prior to the end of this first extension period, or as further extended, the Company may purchase the land for $1.4 million, which can be reduced by the option payments.
•
A $50,000 option to purchase 320 acres of land, which ends on the earlier of either July 2019 or 60 days following the granting of the License Award and all related approvals, permits, and other licenses. In July 2019, the Company extended the purchase option by one year for another $50,000 under the same terms. Prior to the end of this option extension, the Company may purchase the land for $1.6 million, which can be reduced by the option payments.

9. EARNINGS (LOSS) PER SHARE AND STOCKHOLDERS’ EQUITY

The table below reconciles basic and diluted loss per share of common stock:

(In thousands, unaudited)
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Numerator:
 
 
 
 
 
 
 
Net loss – basic
$
(1,010
)
 
$
(661
)
 
$
(2,627
)
 
$
(4,947
)
Adjustment for assumed conversion of warrants
(141
)
 
—

 
(101
)
 
(423
)
Net loss – diluted
$
(1,151
)
 
$
(661
)
 
$
(2,728
)
 
$
(5,370
)
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted-average common share equivalents – basic
26,969

 
26,922

 
26,955

 
25,077

Potential dilution from assumed conversion of warrants
217

 
—

 
232

 
499

Weighted-average common and common share equivalents – diluted
27,186

 
26,922

 
27,187

 
25,576

Anti-dilutive share-based awards and warrants excluded from the calculation of diluted loss per share
2,699

 
3,540

 
2,699

 
2,533


16


10. SHARE-BASED COMPENSATION

As of June 30, 2019, the Company had 703,635 share-based awards authorized by shareholders and available for grant from the 2015 Equity Incentive Plan.

The following table summarizes information related to the Company’s common stock options as of June 30, 2019:

 
Number
of Stock
Options
 
Weighted
Average
Exercise Price
Options outstanding at January 1, 2019
2,575,774

 
$
1.67

Granted
176,900

 
2.20

Exercised
(26,667
)
 
1.70

Canceled/Forfeited
(26,666
)
 
2.01

Options outstanding at June 30, 2019
2,699,341

 
$
1.70

Options exercisable at June 30, 2019
2,193,273

 
$
1.54


Share-based compensation expense totaled $107,000 and $175,000 for the three months ended June 30, 2019 and 2018, respectively, and $193,000 and $407,000 for the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019, there was approximately $0.4 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 1.9 years.

As compensation for their annual service, the Company issued a total of 21,524 restricted shares under the 2015 Plan with a one-year transfer restriction to certain non-executive members of its Board of Directors in May 2019.

11. SEGMENT REPORTING AND DISAGGREGATED REVENUE
 
The Company manages its casinos based on geographic regions within the United States. The casino/resort operations include four segments: Silver Slipper Casino and Hotel (Hancock County, Mississippi); Rising Star Casino Resort, consisting of Rising Star Casino Resort (Rising Sun, Indiana) and its ferry boat operations (connecting Rising Sun, Indiana with Boone County, Kentucky); Bronco Billy’s Casino and Hotel (including the Christmas Casino & 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).

The Company utilizes Adjusted Property EBITDA as the measure of segment profit in assessing performance and allocating resources at the reportable segment level. Adjusted Property EBITDA is defined as earnings before interest and other non-operating income (expense), taxes, depreciation and amortization, pre-opening expenses, impairment charges, asset write-offs, recoveries, gain (loss) from asset disposals, project development and acquisition costs, non-cash share-based compensation expense, and corporate-related costs and expenses that are not allocated to each property.

The following tables present the Company’s segment information:


17


(In thousands, unaudited)
Three Months Ended June 30, 2019
 
Silver Slipper Casino and Hotel
 
Rising Star Casino Resort
 
Bronco Billy’s Casino and Hotel
 
Northern Nevada Casinos
 
Corporate
 
Total
Revenues
 
 
 
 
 
 
 
 
 
 
 
Casino
$
11,636

 
$
7,526

 
$
5,563

 
$
3,725

 
$
—

 
$
28,450

Food and beverage
5,515

 
1,800

 
1,051

 
497

 
—

 
8,863

Hotel
1,305

 
1,560

 
186

 
—

 
—

 
3,051

Other operations
436

 
712

 
77

 
74

 
—

 
1,299

 
$
18,892

 
$
11,598

 
$
6,877

 
$
4,296

 
$
—

 
$
41,663

 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
2,655

 
$
(41
)
 
$
397

 
$
245

 
$
(4,266
)
 
$
(1,010
)
Interest expense, net
5

 
52

 
—

 
—

 
2,874

 
2,931

Adjustment to fair value of warrants
—

 
—

 
—

 
—

 
(141
)
 
(141
)
Income tax provision
65

 
—

 
49

 
23

 
6

 
143

Operating income (loss)
2,725

 
11

 
446

 
268

 
(1,527
)
 
1,923

Depreciation and amortization
869

 
593

 
434

 
149

 
38

 
2,083

Gain on sale or disposal of asset, net
—

 
—

 
(4
)
 
—

 
—

 
(4
)
Project development and acquisition costs
—

 
—

 
—

 
—

 
142

 
142

Share-based compensation
—

 
—

 
—

 
—

 
107

 
107

Corporate
—

 
—

 
—

 
—

 
1,240

 
1,240

Adjusted Property EBITDA
$
3,594

 
$
604

 
$
876

 
$
417

 
$
—

 
$
5,491


(In thousands, unaudited)
Three Months Ended June 30, 2018
 
Silver Slipper Casino and Hotel
 
Rising Star Casino Resort
 
Bronco Billy’s Casino and Hotel
 
Northern Nevada Casinos
 
Corporate
 
Total
Revenues
 
 
 
 
 
 
 
 
 
 
 
Casino
$
11,438

 
$
7,974

 
$
5,373

 
$
3,847

 
$
—

 
$
28,632

Food and beverage
4,824

 
2,291

 
1,182

 
486

 
—

 
8,783

Hotel
835

 
1,586

 
161

 
—

 
—

 
2,582

Other operations
395

 
677

 
79

 
79

 
—

 
1,230

 
$
17,492

 
$
12,528

 
$
6,795

 
$
4,412

 
$
—

 
$
41,227

 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
2,302

 
$
114

 
$
762

 
$
265

 
$
(4,104
)
 
$
(661
)
Interest expense, net
5

 
58

 
—

 
—

 
2,403

 
2,466

Adjustment to fair value of warrants
—

 
—

 
—

 
—

 
80

 
80

Income tax provision
65

 
—

 
49

 
—

 
4

 
118

Operating income (loss)
2,372

 
172

 
811

 
265

 
(1,617
)
 
2,003

Depreciation and amortization
811

 
603

 
377

 
208

 
39

 
2,038

Loss on sale or disposal of asset, net
—

 
1

 
68

 
—

 
—

 
69

Project development and acquisition costs
—

 
—

 
—

 
—

 
130

 
130

Share-based compensation
—

 
—

 
—

 
—

 
175

 
175

Corporate
—

 
—

 
—

 
—

 
1,273

 
1,273

Adjusted Property EBITDA
$
3,183

 
$
776

 
$
1,256

 
$
473

 
$
—

 
$
5,688


18


(In thousands, unaudited)
Six Months Ended June 30, 2019
 
Silver Slipper Casino and Hotel
 
Rising Star Casino Resort
 
Bronco Billy’s Casino and Hotel
 
Northern Nevada Casinos
 
Corporate
 
Total
Revenues
 
 
 
 
 
 
 
 
 
 
 
Casino
$
24,015

 
$
14,869

 
$
10,806

 
$
7,058

 
$
—

 
$
56,748

Food and beverage
10,886

 
3,613

 
2,025

 
997

 
—

 
17,521

Hotel
2,449

 
2,983

 
334

 
—

 
—

 
5,766

Other operations
824

 
1,000

 
152

 
146

 
—

 
2,122

 
$
38,174

 
$
22,465

 
$
13,317

 
$
8,201

 
$
—

 
$
82,157

 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
5,582

 
$
(298
)
 
$
515

 
$
60

 
$
(8,486
)
 
$
(2,627
)
Interest expense, net
12

 
106

 
—

 
(1
)
 
5,517

 
5,634

Adjustment to fair value of warrants
—

 
—

 
—

 
—

 
(101
)
 
(101
)
Income tax provision
131

 
—

 
99

 
47

 
8

 
285

Operating income (loss)
5,725

 
(192
)
 
614

 
106

 
(3,062
)
 
3,191

Depreciation and amortization
1,716

 
1,199

 
881

 
302

 
76

 
4,174

Gain on sale or disposal of asset, net
(1
)
 
—

 
(4
)
 
—

 
—

 
(5
)
Project development and acquisition costs
—

 
—

 
—

 
—

 
275

 
275

Share-based compensation
—

 
—

 
—

 
—

 
193

 
193

Corporate
—

 
—

 
—

 
—

 
2,518

 
2,518

Adjusted Property EBITDA
$
7,440

 
$
1,007

 
$
1,491

 
$
408

 
$
—

 
$
10,346

 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, unaudited)
Six Months Ended June 30, 2018
 
Silver Slipper Casino and Hotel
 
Rising Star Casino Resort
 
Bronco Billy’s Casino and Hotel
 
Northern Nevada Casinos
 
Corporate
 
Total
Revenues
 
 
 
 
 
 
 
 
 
 
 
Casino
$
22,488

 
$
15,499

 
$
10,347

 
$
7,268

 
$
—

 
$
55,602

Food and beverage
9,169

 
4,348

 
2,258

 
947

 
—

 
16,722

Hotel
1,612

 
2,974

 
279

 
—

 
—

 
4,865

Other operations
732

 
934

 
153

 
150

 
—

 
1,969

 
$
34,001

 
$
23,755

 
$
13,037

 
$
8,365

 
$
—

 
$
79,158

 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
4,294

 
$
(88
)
 
$
944

 
$
44

 
$
(10,141
)
 
$
(4,947
)
Interest expense, net
9

 
116

 
—

 
—

 
4,881

 
5,006

Loss on extinguishment of debt
—

 
—

 
—

 
—

 
2,673

 
2,673

Adjustment to fair value of warrants
—

 
—

 
—

 
—

 
(423
)
 
(423
)
Income tax provision
131

 
—

 
99

 
—

 
7

 
237

Operating income (loss)
4,434

 
28

 
1,043

 
44

 
(3,003
)
 
2,546

Depreciation and amortization
1,631

 
1,232

 
849

 
416

 
78

 
4,206

Loss on sale or disposal of asset, net
1

 
9

 
69

 
—

 
—

 
79

Project development and acquisition costs
—

 
—

 
—

 
—

 
167

 
167

Share-based compensation
—

 
—

 
—

 
—

 
407

 
407

Corporate
—

 
—

 
—

 
—

 
2,351

 
2,351

Adjusted Property EBITDA
$
6,066

 
$
1,269

 
$
1,961

 
$
460

 
$
—

 
$
9,756


19


(In thousands)
June 30,
2019
 
December 31,
2018
 
(Unaudited)
 
 
Total Assets
 
 
 
     Silver Slipper Casino and Hotel
$
87,526

 
$
79,094

     Rising Star Casino Resort
40,110

 
39,722

     Bronco Billy’s Casino and Hotel
43,327

 
42,780

     Northern Nevada Casinos
18,739

 
12,395

     Corporate and Other
15,397

 
8,281

 
$
205,099

 
$
182,272



20


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, 2018, which were included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 14, 2019. 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, RV camping, sports betting, entertainment and retail outlets, among other amenities. We own or operate five casino properties in four states: Mississippi, Colorado, Indiana and Nevada. We view our Mississippi, Colorado and Indiana properties as distinct operating segments and both of our Nevada properties as one operating segment.

Our portfolio consists of the following:
Property
 
Acquisition
Date
 
Location
Silver Slipper Casino and Hotel
 
2012
 
Hancock County, MS
(near New Orleans)
Bronco Billy’s Casino and Hotel
 
2016
 
Cripple Creek, CO
(near Colorado Springs)
Rising Star Casino Resort
 
2011
 
Rising Sun, IN
(near Cincinnati)
Stockman’s Casino
 
2007
 
Fallon, NV
(one hour east of Reno)
Grand Lodge Casino (leased and part of the Hyatt Regency Lake Tahoe Resort, Spa and Casino)
 
2011
 
Incline Village, NV
(North Shore of Lake Tahoe)

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 and ferry boat service at Rising Star, our RV parks as owned at Rising Star and managed at Silver Slipper, and retail outlets and entertainment. We often provide hotel rooms and food and beverages 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. 

Our market environment is highly competitive and capital-intensive. 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.


21


Recent Developments

Increase in Amount of Senior Secured Notes. In May 2019, we sold an additional $10 million in aggregate principal amount of senior secured notes due 2024 (the “Incremental Notes”), which were issued on the same day at a price of 99.01% of their face value (a 0.99% original issue discount) pursuant to the indenture (as amended and supplemented, the “Indenture”), dated as of February 2, 2018. The Indenture governs $100 million of senior secured notes due 2024 (the “Original Notes”) that we previously issued on February 2, 2018. The Incremental Notes have the same maturity date, interest rate, class and series as the Original Notes (collectively, the “Notes”) for all purposes under the Indenture. Proceeds from the Incremental Notes have been used or are expected to be used to (i) provide additional liquidity for the construction of the Phase One parking garage at Bronco Billy’s Casino and Hotel and other capital expenditures (as described below); (ii) pay fees and expenses incurred in connection with the Incremental Notes offering; and (iii) provide funds for general corporate purposes.

Bronco Billy’s Expansion. In 2018, we began our expansion of Bronco Billy’s, which we anticipate completing in two phases. Phase One of the Bronco Billy’s expansion project includes the construction of an approximately 300-space parking garage and connector building, the purchase of the Imperial Hotel in June 2018 and certain other parcels of land, and the reopening and rebranding of the Imperial Casino and Hotel as the Christmas Casino & Inn in November 2018. We began construction on the parking garage, the major component of Phase One, in the second quarter of 2019 and expect to complete Phase One in the first half of 2020. Phase Two of the Bronco Billy’s expansion project, which is expected to include a new luxury hotel tower, spa, convention and entertainment center, two new restaurants, and a significant upgrade to the Bronco Billy’s casino, is contingent upon receipt of financing on acceptable terms, among other contingencies.

Racetrack Proposal. In the second quarter of 2019, we renewed our two purchase options through July 2020 for approximately 520 acres of adjoining land in Clovis, New Mexico as part of our racetrack casino proposal (see Note 8). In August 2019, the New Mexico Racing Commission announced that it would not issue the sixth racing license at this time, but may do so in the future.

Key Performance Indicators

We use several key performance indicators to evaluate the operations of our properties. These key performance indicators include the following:

 Gaming revenue indicators:

Slot coin-in is the gross dollar amount wagered in slot machines and table game drop is the total amount of cash or credit exchanged into chips at table games for use by our customers. Slot coin-in and table game drop are indicators of volume.

Slot win is the difference between customer wagers and customer winnings on slot machines. Table game hold is the difference between the amount of money or markers exchanged into chips at the tables and customer winnings paid. Slot win and table game hold percentages represent the relationship between slot win and coin-in and table game win and drop.

 Room revenue indicators:

Hotel occupancy rate is an indicator of the utilization of our available rooms. Complimentary room sales, or the retail value of accommodations gratuitously furnished to customers, are included in the calculation of the hotel occupancy rate.

Adjusted EBITDA, Adjusted Property EBITDA and Adjusted Property 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 Property EBITDA 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 Property EBITDA Margin which is calculated by dividing Adjusted Property EBITDA by the property’s net revenues.


22


Results of Operations
 
Consolidated operating results
The following tables summarize our consolidated operating results for the three- and six-months ended June 30, 2019 and 2018:
(In thousands)
Three Months Ended 
 June 30,
 
 
 
Six Months Ended 
 June 30,
 
 
 
2019
 
2018
 
Percent Change
 
2019
 
2018
 
Percent Change
Net revenues
$
41,663

 
$
41,227

 
1.1
 %
 
$
82,157

 
$
79,158

 
3.8
 %
Operating expenses
39,740

 
39,224

 
1.3
 %
 
78,966

 
76,612

 
3.1
 %
Operating income
1,923

 
2,003

 
(4.0
)%
 
3,191

 
2,546

 
25.3
 %
Interest and other non-operating expenses, net
2,790

 
2,546

 
9.6
 %
 
5,533

 
7,256

 
(23.7
)%
Income tax expense
143

 
118

 
21.2
 %
 
285

 
237

 
20.3
 %
Net loss
$
(1,010
)
 
$
(661
)
 
52.8
 %
 
$
(2,627
)
 
$
(4,947
)
 
(46.9
)%


(In thousands)
Three Months Ended 
 June 30,
 
 
 
Six Months Ended 
 June 30,
 
 
 
2019
 
2018
 
Percent Change
 
2019
 
2018
 
Percent Change
Casino revenues
 
 
 
 
 
 
 
 
 
 
 
Slots
$
23,813

 
$
24,281

 
(1.9
)%
 
$
47,286

 
$
46,768

 
1.1
 %
Table games
4,168

 
4,232

 
(1.5
)%
 
8,288

 
8,587

 
(3.5
)%
Other
469

 
119

 
294.1
 %
 
1,174

 
247

 
375.3
 %
 
28,450

 
28,632

 
(0.6
)%
 
56,748

 
55,602

 
2.1
 %
Non-casino revenues, net
 
 
 

 
 
 
 
 
 
 
 
Food and beverage
8,863

 
8,783

 
0.9
 %
 
17,521

 
16,722

 
4.8
 %
Hotel
3,051

 
2,582

 
18.2
 %
 
5,766

 
4,865

 
18.5
 %
Other
1,299

 
1,230

 
5.6
 %
 
2,122

 
1,969

 
7.8
 %
 
13,213

 
12,595

 
4.9
 %
 
25,409

 
23,556

 
7.9
 %