UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One) | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended | |
or | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to |
Commission File No.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
(Address of principal executive offices) | (Zip Code) |
(
(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 |
The |
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☐ | 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 May 5, 2022, there were
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
2
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 | ||||||
March 31, | ||||||
| 2022 |
| 2021 | |||
Revenues |
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Casino | $ | | $ | | ||
Food and beverage |
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Hotel |
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Other operations, including contracted sports wagering |
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Operating costs and expenses |
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Casino |
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Food and beverage |
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Hotel |
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Other operations |
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Selling, general and administrative |
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Project development costs |
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Preopening costs | | — | ||||
Depreciation and amortization |
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Loss on disposal of assets, net |
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Operating income |
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Other expense |
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Interest expense, net of amounts capitalized | ( | ( | ||||
Loss on modification and extinguishment of debt | ( | ( | ||||
Adjustment to fair value of warrants |
| — |
| ( | ||
| ( |
| ( | |||
Loss before income taxes |
| ( |
| ( | ||
Income tax (benefit) provision | ( | | ||||
Net income (loss) | $ | | $ | ( | ||
Basic earnings (loss) per share | $ | — | $ | ( | ||
Diluted earnings (loss) per share | $ | — | $ | ( |
See condensed notes to consolidated financial statements.
3
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except share data)
March 31, | December 31, | |||||
| 2022 |
| 2021 | |||
ASSETS | ||||||
Current assets |
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Cash and equivalents | $ | | $ | | ||
Restricted cash | | | ||||
Accounts receivable, net of reserves of $ |
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Inventories |
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Prepaid expenses and other |
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Property and equipment, net |
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Operating lease right-of-use assets, net | | | ||||
Goodwill |
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Other intangible assets, net |
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Deposits and other |
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Deferred income taxes, net | | — | ||||
$ | | $ | | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
Current liabilities | ||||||
Accounts payable | $ | | $ | | ||
Accrued payroll and related |
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Accrued interest | | | ||||
Other accrued liabilities |
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Current portion of operating lease obligations | | | ||||
Current portion of finance lease obligation | | | ||||
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Operating lease obligations, net of current portion |
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Finance lease obligation, net of current portion | | | ||||
Long-term debt, net |
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Deferred income taxes, net |
| — |
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Contract liabilities, net of current portion | | | ||||
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Commitments and contingencies (Note 7) |
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Stockholders’ equity |
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Common stock, $ |
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Additional paid-in capital |
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Treasury stock, |
| ( |
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Retained earnings |
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$ | | $ | |
See condensed notes to consolidated financial statements.
4
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
(In thousands)
Additional | Total | ||||||||||||||||||
Common Stock | Paid-in | Treasury Stock | Retained | Stockholders’ | |||||||||||||||
Shares | Dollars | Capital | Shares | Dollars | Earnings | Equity | |||||||||||||
Balance, January 1, 2022 | | $ | | $ | | | $ | ( | $ | | $ | | |||||||
Issuance of stock on | — | — | | ( | | — | | ||||||||||||
Stock-based compensation | — |
| — |
| | — |
| — | — |
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Net income | — |
| — |
| — | — |
| — | |
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Balance, March 31, 2022 | | $ | | $ | | | $ | ( | $ | | $ | |
Additional | Total | ||||||||||||||||||
Common Stock | Paid-in | Treasury Stock | Accumulated | Stockholders’ | |||||||||||||||
Shares | Dollars | Capital | Shares | Dollars | Deficit | Equity | |||||||||||||
Balance, January 1, 2021 | | $ | | $ | | | $ | ( | $ | ( | $ | | |||||||
Equity offering, net | |
| |
| | — |
| — | — |
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Issuance of stock on options exercised | — | — | | ( | | — | | ||||||||||||
Stock-based compensation | — | — | | — | — | — | | ||||||||||||
Net loss | — |
| — |
| — | — |
| — | ( |
| ( | ||||||||
Balance, March 31, 2021 | | $ | | $ | | | $ | ( | $ | ( | $ | |
See condensed notes to consolidated financial statements.
5
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Three Months Ended | ||||||
March 31, | ||||||
| 2022 |
| 2021 | |||
Cash flows from operating activities: |
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Net income (loss) | $ | | $ | ( | ||
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: |
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Depreciation and amortization |
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Amortization of debt issuance costs and discounts (premium) on debt |
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Stock-based compensation |
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Change in fair value of stock warrants |
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Loss on disposal of assets, net |
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Loss on modification and extinguishment of debt | | | ||||
Increases and decreases in operating assets and liabilities: |
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Accounts receivable |
| ( |
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Prepaid expenses, inventories and other |
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Deferred taxes |
| ( |
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Common stock warrant liability | | ( | ||||
Contract liabilities | ( | ( | ||||
Accounts payable and accrued expenses |
| ( |
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Net cash (used in) provided by operating activities |
| ( |
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Cash flows from investing activities: |
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Purchase of property and equipment |
| ( |
| ( | ||
Other |
| ( |
| ( | ||
Net cash used in investing activities |
| ( |
| ( | ||
Cash flows from financing activities: |
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Proceeds from Senior Secured Notes due 2028 borrowings |
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Proceeds from premium on Senior Secured Notes due 2028 borrowings | | | ||||
Proceeds from equity offering, net of issuance costs | | | ||||
Payment of debt discount and issuance costs |
| ( |
| ( | ||
Repayment of Senior Secured Notes due 2024 | | ( | ||||
Prepayment premiums of Senior Secured Notes due 2024 |
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| ( | ||
Repayment of finance lease obligation | ( | ( | ||||
Proceeds from exercise of stock options |
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Other | ( | | ||||
Net cash provided by financing activities |
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Net increase in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash, beginning of period |
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Cash, cash equivalents and restricted cash, end of period | $ | | $ | | ||
Supplemental Cash Flow Information: |
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Cash paid for interest, net of amounts capitalized | $ | | $ | | ||
Non-Cash Investing Activities: |
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Accounts payable related capital expenditures | $ | | $ | |
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
In December 2021, Full House was selected by the Illinois Gaming Board (“IGB”) to develop its American Place project in Waukegan, Illinois, a northern suburb of Chicago. During the period that the permanent American Place facility is under construction, we intend to operate a temporary casino facility named The Temporary. In May 2022, we commenced construction of The Temporary, which is expected to open in Fall 2022, subject to customary regulatory approvals.
The following table identifies our segments, along with properties and their locations:
Segments and Properties | Locations | |
Colorado | ||
Bronco Billy’s Casino and Hotel |
| Cripple Creek, CO (near Colorado Springs) |
Chamonix Casino Hotel (under construction) | Cripple Creek, CO (near Colorado Springs) | |
Illinois | ||
The Temporary and American Place (under construction) | Waukegan, IL (northern suburb of Chicago) | |
Indiana | ||
Rising Star Casino Resort |
| Rising Sun, IN (near Cincinnati) |
Mississippi | ||
Silver Slipper Casino and Hotel |
| Hancock County, MS (near New Orleans) |
Nevada | ||
Grand Lodge Casino |
| Incline Village, NV |
Stockman’s Casino |
| Fallon, NV (one hour east of Reno) |
Contracted Sports Wagering | ||
Three sports wagering websites (“skins”) | Colorado | |
Three sports wagering websites (“skins”) | Indiana | |
One sports wagering website (“skin”) upon opening of The Temporary | Illinois |
The Company manages its casinos based on geographic regions within the United States. See Note 10 for further information.
COVID-19 Pandemic Update. The COVID-19 pandemic continues to evolve. Governmental authorities continue to update their precautionary measures and promote vaccination programs to manage the spread of the virus as different variants of the virus surface and subside. The Company has generally benefited from the gradual relaxation of pandemic-related business restrictions since 2021.
7
However, the COVID-19 pandemic, and certain precautionary measures, have created economic uncertainty both in the United States and globally, as well as significant volatility in, and disruption to, financial markets, labor markets and supply chains. Global supply chain disruptions have resulted in shipping delays, increased shipping costs, supply shortages, and inflationary pressures, including overall increases in prices such as fuel, food, and building materials. These increased costs and supply shortages continued to put additional constraints on our operating business and our construction projects for the three months ended March 31, 2022. We do not know when these cost constraints and supply chain issues will materially alleviate and, accordingly, they may continue to impact our existing business and our construction projects in the near term.
We believe that as the COVID-19 pandemic evolves, the direct and indirect impacts on global macro-economic conditions, as well as conditions specific to us, are becoming more difficult to isolate or quantify. In addition, these direct and indirect factors can make it difficult to isolate and quantify the portion of our costs that are a direct result of the pandemic versus costs arising from factors that may have been influenced by the pandemic, including supply chain constraints, increased prices and inflationary pressures, and changes in the spending patterns of customers. These factors and their effects on our operations may persist for a longer period, even after the COVID-19 pandemic has subsided.
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 2021 annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
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. Fair value measurements are also used in the Company’s periodic assessments of long-lived tangible and intangible assets for possible impairment, including for property and equipment, goodwill, and other intangible assets. Fair value is defined as the expected price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
GAAP categorizes the inputs used for fair value into a three-level hierarchy:
● | Level 1: Observable inputs, such as quoted prices in active markets for identical assets or liabilities; |
● | Level 2: Comparable inputs other than quoted prices that are observable for similar assets or liabilities in less active markets; and |
● | Level 3: Unobservable inputs which may include metrics that market participants would use to estimate values, such as revenue and earnings multiples and relative rates of return. |
The Company utilizes Level 1 inputs when measuring the fair value of its 2028 Notes (see Note 5).
The Company utilizes Level 2 inputs when measuring the fair value of its 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.
8
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 placed into a construction reserve account for the completion of the Chamonix construction project.
Accounts Receivable. Accounts receivable consist primarily of casino, hotel and other receivables, are typically non-interest bearing, and are carried net of an appropriate reserve to approximate fair value. Reserves are estimated based on specific review of customer accounts including the customers’ willingness and ability to pay and nature of collateral, if any, as well as historical collection experience and current economic and business conditions. Accounts are written off when management deems the account to be uncollectible and recoveries of accounts previously written off are recorded when received. Management believes that, as of March 31, 2022, no significant concentrations of credit risk existed for which a reserve had not already been recorded.
Revenue Recognition:
Accrued Club Points and Customer Loyalty Programs: Operating Revenues and Related Costs and Expenses. The Company’s revenues consist primarily of casino gaming, food and beverage, hotel, and other revenues (such as sports wagering, golf, RV park operations, and entertainment). The majority of the Company’s revenues are derived from casino gaming, principally slot machines.
Gaming revenue is the difference between gaming wins and losses, not the total amount wagered. The Company accounts for its gaming transactions on a portfolio basis as such wagers have similar characteristics and it would not be practical to view each wager on an individual basis.
The Company sometimes provides discretionary complimentary goods and services (“discretionary comps”). For these types of transactions, the Company allocates revenue to the department providing the complimentary goods or services based upon its estimated standalone selling price, offset by a reduction in casino revenues.
Many of the Company’s customers choose to earn points under its customer loyalty programs. As points are accrued, the Company defers a portion of its gaming revenue based on the estimated standalone value of loyalty points being earned by the customer. The standalone value of loyalty points is derived from the retail value of food, beverages, hotel rooms, and other goods or services for which such points may be redeemed. A liability related to these customer loyalty points is recorded, net of estimated breakage and other factors, until the customer redeems these points under loyalty programs by property for various benefits, primarily for “free casino play,” complimentary dining, or hotel stays, among others, depending on each property’s specific offers. Upon redemption, the related revenue is recognized at retail value within the department providing the goods or services. Unredeemed points are forfeited if the customer becomes and remains inactive for a specified period of time. Such liabilities were approximately $
Revenue for food and beverage, hotel, and other revenue transactions is typically the net amount collected from customers for such goods and services, plus the retail value of (i) discretionary comps and (ii) comps provided in return for redemption of loyalty points. The Company records such revenue as the good or service is transferred to the customer. Additionally, the Company may collect deposits in advance for future hotel reservations or entertainment, among other services, which represent obligations of the Company until the service is provided to the customer.
9
Deferred Revenues: Market Access Fees from Sports Wagering Agreements. The Company entered into several agreements with various unaffiliated companies allowing for online sports wagering within Indiana, Colorado and Illinois, as well as on-site sports wagering at Rising Star Casino Resort, Bronco Billy’s Casino and Hotel, and The Temporary/American Place (the “Sports Agreements”). As part of these long-term Sports Agreements, the Company received one-time market access fees totaling $
Indiana.
Colorado. The Company’s
Illinois. The Company signed a Sports Agreement in May 2022 for Illinois. Such operations are expected to commence either concurrent with, or after, the opening of The Temporary, upon receipt of customary gaming approvals.
In addition to the market access fees, deferred revenue includes the annual prepayment of contracted revenue, as required in
Deferred revenues consisted of the following, as discussed above:
(In thousands) | March 31, | December 31, | ||||||
| Balance Sheet Location | 2022 |
| 2021 | ||||
Deferred revenue, current | Other accrued liabilities | $ | | $ | | |||
Deferred revenue, net of current portion | Contract liabilities, net of current portion | | | |||||
$ | | $ | |
In February 2022,
Other Revenues. The transaction price of rooms, food and beverage, and retail contracts is the net amount collected from the customer for such goods and services. The transaction price for such contracts is recorded as revenue when the good or service is transferred to the customer over their stay at the hotel or when the delivery is made for the food, beverage, retail and other contracts. Sales and usage-based taxes are excluded from revenues.
Revenue by Source. The Company presents earned revenue as disaggregated by the type or nature of the good or service (casino, food and beverage, hotel, and other operations comprised mainly of retail, golf, entertainment, and contracted sports wagering) and by relevant geographic region within Note 10.
Income Taxes. For interim income tax reporting for the three-months ended March 31, 2022, 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 share-based awards outstanding under the Company’s stock compensation plan and warrants, using the treasury stock method.
Leases. The Company determines if a contract is or contains a lease at inception or modification of the agreement. A contract is or contains a lease if there are identified assets and the right to control the use of an identified asset is conveyed for a period of time in exchange for consideration. Control over the use of the identified asset means that the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.
For material leases with terms greater than a year, the Company records right-of-use (“ROU”) assets and lease liabilities on the balance sheet, as measured on a discounted basis. For finance leases, the Company recognizes interest expense associated with the lease liability and depreciation expense associated with the ROU asset; for operating leases, the Company recognizes straight-line rent expense.
The Company does not recognize ROU assets or lease liabilities for leases with a term of 12 months or less. However, costs related to short-term leases with terms greater than one month, which the Company deems material, are disclosed as a component of lease expenses when applicable. Additionally, the Company accounts for new and existing leases containing both lease and non-lease components (“embedded leases”) together as a
by asset class for gaming-related equipment; therefore, the Company does not allocate contract consideration to the separate lease and non-lease components based on their relative standalone prices.Finance and operating lease ROU assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement. As the implicit rate is not determinable in most of the Company’s leases, management uses the Company’s incremental borrowing rate as estimated by third-party valuation specialists in determining the present value of future payments based on the information available at the commencement date and/or modification date. The expected lease terms include options to extend the lease when it is reasonably certain that the Company will exercise such options. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease term for operating leases. For finance leases, the ROU asset depreciates on a straight-line basis over the shorter of the lease term or useful life of the ROU asset and the lease liability accretes interest based on the interest method using the discount rate determined at lease commencement.
3. LEASES
The Company has no leases in which it is the lessor. As lessee, the Company has
11
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
From April 1, 2022 through October 1, 2027, the Company may buy out the lease for $
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
Third Street Corner Building through August 2023 and Option to Purchase. The Company leased a nearby closed casino in August 2018 and reopened it in November 2018. The reopened casino did not produce enough incremental revenue to offset the incremental costs, and it was closed in September 2020. The Company has the right to purchase the casino at any time during the extended lease term for $
As part of the Chamonix development project, this building is currently used as office space for construction personnel, obviating the need for construction trailers. The lease had an initial
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 Regency Lake Tahoe Resort (“Hyatt Lake Tahoe”), to operate the Grand Lodge Casino. 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 Notes (see Note 5). The 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
Corporate Office Lease through January 2025. The Company leases
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
12
The components of lease expense are as follows:
(In thousands) |
|
| Three Months Ended | |||||
March 31, | ||||||||
Lease Costs | Classification within Statement of Operations | 2022 |
| 2021 | ||||
Operating leases: |
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Fixed/base rent |
| Selling, General and Administrative Expenses | $ | | $ | | ||
Short-term payments | Selling, General and Administrative Expenses | | — | |||||
Variable payments |
| Selling, General and Administrative Expenses |
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Finance lease: |
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Amortization of leased assets |
| Depreciation and Amortization |
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Interest on lease liabilities |
| Interest Expense, Net |
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Total lease costs | $ | | $ | |
Leases recorded on the balance sheet consist of the following:
(In thousands) | ||||||||
March 31, | December 31, | |||||||
Leases |
| Balance Sheet Classification |
| 2022 | 2021 | |||
Assets |
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Operating lease assets |
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| $ | | $ | | ||
Finance lease assets |
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Total lease assets |
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| $ | | $ | | ||
Liabilities |
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Current |
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Operating |
| $ | | $ | | |||
Finance |
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Noncurrent |
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Operating |
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Finance |
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Total lease liabilities |
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| $ | | $ | |
__________
(1) | Finance lease assets are recorded net of accumulated amortization of $ |
13
Maturities of lease liabilities as of March 31, 2022 are summarized as follows:
(In thousands) | ||||||
| Operating |
| Financing | |||
Years Ending December 31, | Leases | Lease(1) | ||||
2022 (excluding the three months ended March 31, 2022) | $ | | $ | | ||
2023 |
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2024 |
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2025 |
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2026 |
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Thereafter |
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Total future minimum lease payments |
| |
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Less: Amount representing interest |
| ( |
| ( | ||
Present value of lease liabilities |
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| | ||
Less: Current lease obligations |
| ( |
| ( | ||
Long-term lease obligations | $ | | $ | |
__________
(1)The Company’s only material finance lease is at Rising Star Casino Resort for a
Other information related to lease term and discount rate is as follows:
Lease Term and Discount Rate | March 31, 2022 | December 31, 2021 | ||||
Weighted-average remaining lease term |
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| |||
Operating leases |
| years | years | |||
Finance lease |
| years | years | |||
Weighted-average discount rate |
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| |||
Operating leases |
| % | % | |||
Finance lease |
| % | % |
Supplemental cash flow information related to leases is as follows:
(In thousands) |
| Three Months Ended | ||||
March 31, | ||||||
Cash paid for amounts included in the measurement of lease liabilities: | 2022 | 2021 | ||||
Operating cash flows for operating leases | $ | | $ | | ||
Operating cash flows for finance lease | $ | | $ | | ||
Financing cash flows for finance lease | $ | | $ | |
4. ACQUISITIONS
Fountain Square of Waukegan Land Purchase. In connection with the development of its American Place project in Waukegan, Illinois, the Company entered into an agreement in January 2022 to purchase approximately
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5. LONG-TERM DEBT
Long-term debt, related premium (discount) and issuance costs consist of the following:
(In thousands) | March 31, | December 31, | ||||
2022 | 2021 | |||||
Revolving Credit Facility due 2026 | $ | — | $ | — | ||
Senior Secured Notes due 2028(1) | | | ||||
Less: Unamortized debt issuance costs and premium/(discount), net |
| ( |
| ( | ||
$ | | $ | |
__________
(1) | The estimated fair value of these notes was approximately $ |
Senior Secured Notes due 2028. On February 12, 2021, the Company refinanced all $
On February 7, 2022, the Company closed a private offering of $
The Notes bear interest at a fixed rate of
The Notes are guaranteed, jointly and severally (such guarantees, the “Guarantees”), by each of the Company’s restricted subsidiaries (collectively, the “Guarantors”). The Notes and the Guarantees are the Company’s and the Guarantors’ general senior secured obligations, subject to the terms of the Collateral Trust Agreement (as defined in the Indenture), ranking senior in right of payment to all of the Company’s and the Guarantors’ existing and future debt that is expressly subordinated in right of payment to the Notes and the Guarantees, if any. The Notes and the Guarantees will rank equally in right of payment with all of the Company’s and the Guarantors’ existing and future senior debt.
The 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 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.
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On or prior to February 15, 2024, the Company may redeem up to
At any time on or after February 15, 2024, the Company may redeem some or all of the Notes for cash at the following redemption prices:
Redemption Periods |
| Percentage Premium | |
February 15, 2024 to February 14, 2025 |
| | % |
February 15, 2025 to February 14, 2026 |
| | % |
February 15, 2026 and Thereafter | | % |
Revolving Credit Facility due 2026. On February 7, 2022, the Company entered into a First Amendment to Credit Agreement with Capital One, N.A., which, among other things, increased the borrowing capacity under the Company’s Credit Agreement, dated as of March 31, 2021, from $
Under the First Amendment to Credit Agreement, the interest rate per annum applicable to loans under the Credit Facility was amended to be, at the Company’s option, either (i) the Secured Overnight Financing Rate (“SOFR”) plus a margin equal to
The Credit Facility is equally and ratably secured by the same assets and guarantees securing the 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 Notes. The Credit Facility also requires compliance with a financial covenant as of the last day of each fiscal quarter, such that Adjusted EBITDA (as defined) for the trailing twelve-month period must equal or exceed the utilized portion of the Credit Facility, if drawn. The Company was in compliance with this financial covenant as of March 31, 2022.
6. INCOME TAXES
The Company’s effective income tax rate for the three-months ended March 31, 2022 and 2021 was
The Company continues to assess the realizability of deferred tax assets (“DTAs”) and concluded that it has not met the “more likely than not” threshold. As of March 31, 2022, the Company continues to provide a valuation allowance against its DTAs that cannot be offset by existing deferred tax liabilities. In accordance with Accounting Standards Codification 740 (“ASC 740”), this assessment has taken into consideration the jurisdictions in which these DTAs reside. The valuation allowance against DTAs has no effect on the actual taxes paid or owed by the Company.
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In the future, if it is determined that we meet the “more likely than not” threshold of utilizing our deferred tax assets as required under ASC 740, we may reverse some or all of our valuation allowance. We will continue to evaluate the need for the valuation allowance during each interim period in 2022. Should we continue on our trend of improving net income results in recent years, absent any unforeseen impact to our operations, we expect that the valuation allowance could be reversed by the end of 2022. Such valuation allowance and its potential reversal has no impact on the actual income taxes paid or the Company’s financial situation.
7. COMMITMENTS AND CONTINGENCIES AND SUBSEQUENT EVENT
Litigation
The Company is party to a number of pending legal proceedings related to matters that occurred in the normal course of business. Management does not expect that the outcome of any such proceedings, either individually or in the aggregate, will have a material effect on the Company’s financial position, results of operations and cash flows.
Options to Lease Land
Option Agreement for Public Trust Tidelands Lease in Mississippi. The Company has been evaluating the potential construction of an additional hotel tower and related amenities at Silver Slipper, a portion of which would extend out over the adjoining Gulf of Mexico. In contemplation for such potential future expansion, the Company paid $
Upon commencement of the lease, and for the first 18 months or until the beginning of the next
Contracted Sports Wagering in Illinois
In May 2022, the Company entered into an agreement with an affiliate of Circa Sports to jointly develop and manage on-site sportsbooks at both The Temporary and American Place casinos in Illinois. Circa Sports currently operates at Circa Resort & Casino in Las Vegas, and offers online sports wagering in several states. In addition to the on-site sportsbook, Circa Sports will utilize the Company’s expected mobile sports skin to conduct Internet sports wagering throughout the state. In exchange for such rights, the Company subsequently received a market access fee of $
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8. EARNINGS (LOSS) PER SHARE AND STOCKHOLDERS’ EQUITY
Earnings (Loss) Per Share
The table below reconciles basic and diluted earnings (loss) per share of common stock:
(In thousands) | Three Months Ended | |||||
March 31, | ||||||
| 2022 |
| 2021 | |||
Numerator: |
|
|
|
| ||
Net income (loss) ─ basic | $ | | $ | ( | ||
Net income (loss) ─ diluted | $ | | $ | ( | ||
Denominator: |
|
|
|
| ||
Weighted-average common and common share equivalents ─ basic |
| |
| | ||
Potential dilution from share-based awards | | — | ||||
Weighted-average common and common share equivalents ─ diluted |
| |
| | ||
Anti-dilutive share-based awards excluded from the calculation of diluted loss per share |
| |
| |
9. SHARE-BASED COMPENSATION
Performance-Based Shares. The Company issued a total of
On March 14, 2022, the Company issued
As of March 31, 2022, the Company had
The following table summarizes information related to the Company’s common stock options as of March 31, 2022:
|
| Weighted | |||
Number | Average | ||||
of Stock | Exercise | ||||
Options | Price | ||||
Options outstanding at January 1, 2022 |
| | $ | | |
Granted |
| |
| | |
Exercised |
| ( |
| | |
Canceled/Forfeited |
| — |
| — | |
Expired |
| — |
| — | |
Options outstanding at March 31, 2022 |
| | $ | | |
Options exercisable at March 31, 2022 |
| | $ | |
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Components of compensation expense are as follows:
(In thousands) | Three Months Ended | |||||
March 31, | ||||||
Compensation Expense | 2022 | 2021 | ||||
Stock options | $ | | $ | | ||
Restricted and performance-based shares |
| |
| | ||
$ | | $ | |
As of March 31, 2022, there was approximately $
10. SEGMENT REPORTING AND DISAGGREGATED REVENUE
The Company manages its reporting segments based on geographic regions within the United States and type of income. Its current operating segments, as of 2022, are: Mississippi, Indiana, Colorado, Nevada, and Contracted Sports Wagering. The Company’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 geography, economic characteristics, types of customers, types of services and products provided, the regulatory environments in which they operate, and their management and reporting structure.
The Company utilizes Adjusted Segment EBITDA as the measure of segment profit in assessing performance and allocating resources at the reportable segment level. Adjusted Segment EBITDA is defined as earnings before interest and other non-operating income (expense), taxes, depreciation and amortization, preopening expenses, impairment charges, asset write-offs, recoveries, gain (loss) from asset disposals, project development and acquisition costs, non-cash share-based compensation expense, and corporate-related costs and expenses that are not allocated to each segment.
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The following tables present the Company’s segment information:
(In thousands) | Three Months Ended March 31, 2022 | |||||||||||||||||
Contracted | ||||||||||||||||||
Sports | ||||||||||||||||||
Mississippi | Indiana | Colorado | Nevada | Wagering | Total | |||||||||||||
Revenues | ||||||||||||||||||
Casino | $ | | $ | | $ | | $ | | $ | — | $ | | ||||||
Food and beverage |
| |
| |
| |
| |
| — |
| | ||||||
Hotel |
| |
| |
| |
| — |
| — |
| | ||||||
Other operations, including |
| |
| |
| |
| |
| |
| | ||||||
$ | | $ | | $ | | $ | | $ | | $ | | |||||||
Adjusted Segment EBITDA | $ | | $ | | $ | ( | $ | | $ | | $ | | ||||||
Other operating expenses: | ||||||||||||||||||
Depreciation and amortization |
| ( | ||||||||||||||||
Corporate expenses |
| ( | ||||||||||||||||
Project development costs |
| ( | ||||||||||||||||
Preopening costs | ( | |||||||||||||||||
Loss on disposal of assets, net | ( | |||||||||||||||||
Stock-based compensation | ( | |||||||||||||||||
Operating income |
| | ||||||||||||||||
Other expenses: | ||||||||||||||||||
Interest expense, net |
| ( | ||||||||||||||||
Loss on modification of debt |
| ( | ||||||||||||||||
( | ||||||||||||||||||
Loss before income taxes |