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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from         to

Commission File No. 1-32583

FULL HOUSE RESORTS, INC.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction

of incorporation or organization)

    

13-3391527

(I.R.S. Employer

Identification No.)

One Summerlin, 1980 Festival Plaza Drive, Suite 680

Las Vegas, Nevada

(Address of principal executive offices)

89135

(Zip Code)

(702) 221-7800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class

  

Trading Symbol(s)

  

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

FLL

The Nasdaq Stock Market LLC

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

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

Large accelerated filer

Accelerated filer

Emerging growth company

Non-accelerated filer

Smaller reporting company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act:  

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

As of August 4, 2023, there were 34,577,688 shares of Common Stock, $0.0001 par value per share, outstanding.

Table of Contents

FULL HOUSE RESORTS, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

Page

PART I
FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

3

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022

3

Consolidated Balance Sheets at June 30, 2023 and December 31, 2022

4

Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022

5

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022

6

Condensed Notes to Consolidated Financial Statements

8

Note 1 ⸺ Organization

8

Note 2 ⸺ Basis of Presentation and Significant Accounting Policies

8

Note 3 ⸺ Leases

12

Note 4 ⸺ Long-Term Debt

15

Note 5 ⸺ Income Taxes

17

Note 6 ⸺ Commitments and Contingencies

18

Note 7 ⸺ Earnings (Loss) Per Share

18

Note 8 ⸺ Share-Based Compensation

19

Note 9 ⸺ Segment Reporting and Disaggregated Revenue

20

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

38

Item 4.

Controls and Procedures

39

PART II
OTHER INFORMATION

Item 1.

Legal Proceedings

39

Item 1A.

Risk Factors

39

Item 6.

Exhibits

41

Signatures

42

2

Table of Contents

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

Six Months Ended

June 30, 

June 30, 

    

2023

    

2022

    

2023

    

2022

Revenues

 

  

 

  

 

  

 

  

Casino

$

45,359

$

29,488

$

81,346

$

58,572

Food and beverage

 

8,673

 

6,933

 

16,333

 

13,444

Hotel

 

2,348

 

2,407

 

4,492

 

4,586

Other operations, including contracted sports wagering

 

3,002

 

5,555

 

7,317

 

9,204

 

59,382

 

44,383

 

109,488

 

85,806

Operating costs and expenses

 

  

 

  

 

 

Casino

 

16,990

 

10,106

 

30,334

 

19,981

Food and beverage

 

9,030

 

6,752

 

16,485

 

13,320

Hotel

 

1,228

 

1,197

 

2,447

 

2,268

Other operations

 

705

 

545

 

1,187

 

1,007

Selling, general and administrative

 

21,577

 

14,184

 

39,806

 

29,577

Project development costs

 

17

 

17

 

24

 

182

Preopening costs

1,086

1,534

11,583

2,320

Depreciation and amortization

 

8,155

 

1,834

 

14,014

 

3,626

(Gain) loss on disposal of assets

 

 

(5)

 

3

 

58,788

 

36,164

 

115,880

 

72,284

Operating income (loss)

 

594

 

8,219

 

(6,392)

 

13,522

Other (expense) income

 

Interest expense, net

(5,633)

(6,988)

(10,452)

(13,387)

Loss on modification of debt

(19)

(4,425)

Gain on insurance settlement

355

 

(5,633)

(7,007)

(10,097)

(17,812)

(Loss) income before income taxes

 

(5,039)

 

1,212

 

(16,489)

 

(4,290)

Income tax provision (benefit)

561

5,567

526

(45)

Net loss

$

(5,600)

$

(4,355)

$

(17,015)

$

(4,245)

Basic loss per share

$

(0.16)

$

(0.13)

$

(0.49)

$

(0.12)

Diluted loss per share

$

(0.16)

$

(0.13)

$

(0.49)

$

(0.12)

See condensed notes to consolidated financial statements.

3

Table of Contents

FULL HOUSE RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except share data)

June 30, 

December 31, 

    

2023

    

2022

ASSETS

Current assets

 

  

 

  

Cash and equivalents

$

35,501

$

56,589

Restricted cash

78,078

134,587

Accounts receivable, net of reserves of $216 and $249

 

6,136

 

4,082

Inventories

 

1,868

 

1,479

Prepaid expenses and other

 

5,928

 

6,184

 

127,511

 

202,921

Property and equipment, net

 

410,496

 

339,057

Operating lease right-of-use assets, net

46,293

15,771

Finance lease right-of-use assets, net

2,979

3,808

Goodwill

 

21,286

 

21,286

Other intangible assets, net

 

61,103

 

10,869

Deposits and other

 

1,466

 

1,617

$

671,134

$

595,329

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

Accounts payable

$

6,459

$

4,602

Construction payable

25,890

30,279

Accrued payroll and related

 

3,247

 

3,784

Accrued interest

13,867

12,966

Other accrued liabilities

 

11,759

 

9,964

Current portion of operating lease obligations

3,588

2,485

Current portion of finance lease obligation

1,605

1,581

 

66,415

65,661

Operating lease obligations, net of current portion

 

42,902

 

13,418

Finance lease obligations, net of current portion

3,756

4,727

Long-term debt, net

 

463,654

 

401,852

Deferred income taxes, net

 

1,550

 

1,024

Contract liabilities, net of current portion

8,524

8,856

 

586,801

 

495,538

Commitments and contingencies (Note 6)

 

  

 

  

Stockholders’ equity

 

  

 

  

Common stock, $0.0001 par value, 100,000,000 shares authorized; 35,302,549 and 35,302,549 shares issued and 34,577,688 and 34,407,654 shares outstanding

 

4

 

4

Additional paid-in capital

 

111,940

 

110,590

Treasury stock, 724,861 and 894,895 common shares

 

(884)

 

(1,091)

Accumulated deficit

 

(26,727)

 

(9,712)

 

84,333

 

99,791

$

671,134

$

595,329

See condensed notes to consolidated financial statements.

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FULL HOUSE RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands)

Additional

Total

Common Stock

Paid-in

Treasury Stock

Accumulated

Stockholders’

Shares

Dollars

Capital

Shares

Dollars  

Deficit

Equity

Balance, January 1, 2023

35,302

$

4

$

110,590

895

$

(1,091)

$

(9,712)

$

99,791

Options exercised

12

(4)

5

17

Stock-based compensation

748

 

748

Net loss

(11,415)

 

(11,415)

Balance, March 31, 2023

35,302

4

111,350

891

(1,086)

(21,127)

89,141

Options exercised and
restricted stocks vested

(65)

(166)

202

137

Stock-based compensation

655

655

Net loss

(5,600)

(5,600)

Balance, June 30, 2023

35,302

$

4

$

111,940

725

$

(884)

$

(26,727)

$

84,333

Additional

Total

Common Stock

Paid-in

Treasury Stock

Retained

Stockholders’

Shares

Dollars

Capital

Shares

Dollars  

Earnings

Equity

Balance, January 1, 2022

35,302

$

4

$

108,911

1,060

$

(1,292)

$

5,092

$

112,715

Options exercised and
restricted stocks vested

14

(103)

125

139

Stock-based compensation

343

343

Net income

110

110

Balance, March 31, 2022

35,302

4

109,268

957

(1,167)

5,202

113,307

Restricted stocks vested

(47)

(39)

47

Stock-based compensation

487

487

Net loss

(4,355)

(4,355)

Balance, June 30, 2022

35,302

$

4

$

109,708

918

$

(1,120)

$

847

$

109,439

See condensed notes to consolidated financial statements.

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FULL HOUSE RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

Six Months Ended

June 30, 

    

2023

    

2022

Cash flows from operating activities:

 

  

 

  

Net loss

$

(17,015)

$

(4,245)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

Depreciation and amortization

 

14,014

 

3,626

Amortization of debt issuance costs, discounts and premiums

 

1,291

 

797

Non-cash change in ROU operating lease assets

1,997

1,648

Stock-based compensation

 

1,403

 

830

Loss on disposal of assets

 

 

3

Gain on insurance settlement

(355)

Loss on modification of debt

4,425

Other operating activities

773

Deferred income taxes

 

526

 

(45)

Increases and decreases in operating assets and liabilities:

 

Accounts receivable

 

(2,054)

 

(4,196)

Prepaid expenses, inventories and other

 

(133)

 

(1,309)

Operating lease liabilities

(1,933)

(1,747)

Contract liabilities

18

3,238

Accounts payable and other liabilities

 

3,170

 

1,163

Net cash provided by operating activities

 

1,702

 

4,188

Cash flows from investing activities:

 

Capital expenditures

 

(89,309)

 

(64,061)

Proceeds from insurance settlement related to property damage

355

Acquisition of intangible assets

(50,250)

Other

 

 

(965)

Net cash used in investing activities

 

(139,204)

 

(65,026)

Cash flows from financing activities:

 

Proceeds from Senior Secured Notes due 2028 borrowings

 

40,000

 

100,000

Proceeds from premium on Senior Secured Notes due 2028 borrowings

2,000

Payment of debt discount and issuance costs

 

(6,490)

 

(7,841)

Borrowings under revolving credit facility

36,000

Repayment of revolving credit facility borrowings

(9,000)

Repayment of finance lease obligations

(759)

(254)

Proceeds from exercise of stock options

 

154

 

139

Other

(108)

Net cash provided by financing activities

 

59,905

 

93,936

Net (decrease) increase in cash, cash equivalents and restricted cash

 

(77,597)

 

33,098

Cash, cash equivalents and restricted cash, beginning of period

 

191,176

 

265,293

Cash, cash equivalents and restricted cash, end of period

$

113,579

$

298,391

See condensed notes to consolidated financial statements.

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FULL HOUSE RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) – (Continued)

(In thousands)

Six Months Ended

June 30, 

2023

    

2022

Supplemental Cash Flow Disclosure:

Cash paid for interest, net of amounts capitalized

$

10,721

$

13,745

Supplemental Schedule of Non-Cash Investing and Financing Activities:

 

  

 

  

Accounts payable related capital expenditures

$

25,949

$

12,089

Right-of-use assets obtained in exchange for operating lease liabilities

30,178

264

Right-of-use asset and liability remeasurements:

Operating leases

2,341

Financing leases

(207)

See condensed notes to consolidated financial statements.

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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 six casinos: five on real estate that we own or lease and one located within a hotel owned by a third party. We are currently constructing our seventh property, Chamonix Casino Hotel (“Chamonix”), adjacent to our existing Bronco Billy’s Casino and Hotel in Cripple Creek, Colorado. We are also designing our permanent American Place casino destination, which will be built adjacent to a temporary facility that we opened in February 2023, named The Temporary by American Place (“The Temporary”). We intend to operate The Temporary until the opening of the permanent American Place facility. Additionally, we benefit from seven permitted sports wagering “skins” – three in Colorado, three in Indiana, and one in Illinois. Other companies operate or will operate these online sports wagering websites under their brands, paying us a percentage of revenues, as defined, subject to annual minimum amounts.

Starting in the first quarter of 2023, the Company updated its reportable segments to Midwest & South, West, and Contracted Sports Wagering. This change reflects a realignment within the Company as a result of our continued growth. See Note 9 for additional information about the Company’s segments.  

The following table presents selected information concerning our segments:

Segments and Properties

 Locations

Midwest & South

The Temporary by American Place (opened on February 17, 2023)
and American Place (under development)

Waukegan, IL
(northern suburb of Chicago)

Silver Slipper Casino and Hotel

 

Hancock County, MS (near New Orleans)

Rising Star Casino Resort

 

Rising Sun, IN (near Cincinnati)

West

Bronco Billy’s Casino and Hotel

 

Cripple Creek, CO (near Colorado Springs)

Chamonix Casino Hotel (scheduled to open December 26, 2023)

Cripple Creek, CO (near Colorado Springs)

Grand Lodge Casino
(leased and part of the Hyatt Regency Lake Tahoe Resort, Spa and Casino)

 

Incline Village, NV
(North Shore of Lake Tahoe)

Stockman’s Casino

 

Fallon, NV (one hour east of Reno)

Contracted Sports Wagering

Three sports wagering websites (“skins”)

Colorado

Three sports wagering websites (“skins”), one of which is currently idle

Indiana

One sports wagering website (“skin”), commencing in August 2023

Illinois

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 2022 annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

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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.

Methods and assumptions used to estimate the fair value of financial instruments are affected by the duration of the instruments and other factors used by market participants to estimate value. The carrying amounts for cash and equivalents, restricted cash, accounts receivable, and accounts payable approximate their estimated fair value because of the short durations of the instruments and inconsequential rates of interest.

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, interest-bearing account to fund the completion of the Chamonix construction project, in accordance with the Company’s debt covenants.

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 June 30, 2023, no significant concentrations of credit risk existed for which a reserve had not already been recorded.

In March 2023, Rising Star sold its available “free play” for $2.1 million. We received all of such amount in July 2023. Because Indiana has a progressive gaming tax system and Rising Star is one of the smaller casinos in the state, the property has consistently sold its ability to deduct “free play” in computing gaming taxes to operators in higher tax tiers. It sold such “free play” in the second quarter of 2022 for a similar amount.

Other Intangible Assets. In March 2023, the Company paid $50.3 million to the Illinois Gaming Board (“IGB”) for required gaming license fees to operate The Temporary, and upon its opening, American Place. Management has deemed the gaming license in Illinois as having an indefinite economic life, as such license is eligible for renewal every four years if all regulatory requirements are met. There may be an additional one-time reconciliation fee, depending on interim gaming revenues, which is calculated three years after commencing operations and can be paid over a six-year period. See Note 6 for details.

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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.

The transaction price for a casino wager is the difference between gaming wins and losses, not the total amount wagered. As such wagers have similar characteristics, the Company accounts for its gaming transactions on a portfolio basis by recognizing net win per gaming day versus 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 casino customers choose to earn points under its customer loyalty programs. As points are accrued, the Company defers a portion of its casino 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 for various loyalty program 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 $0.7 million for each of June 30, 2023 and December 31, 2022, and these amounts are included in “other accrued liabilities” on the consolidated balance sheets.

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

Deferred Revenues: Market Access Fees from Sports Wagering Agreements. 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 The Temporary/American Place (the “Sports Agreements”). As part of these long-term Sports Agreements, the Company received one-time “market access” fees, which are recorded as long-term liabilities and then recognized as revenue ratably over the initial contract terms (or as accelerated due to early termination), beginning with the commencement of operations.

Indiana. The Company’s three Sports Agreements commenced operations in December 2019, April 2021 and December 2021. One of these Sports Agreements ceased operations in May 2022. Under the Company’s two active Sports Agreements in Indiana, we receive a percentage of revenues (as defined), subject to annual minimums totaling $2.0 million. For its idle skin, the Company continues to evaluate whether to utilize the remaining skin itself or utilize a replacement operator for such skin. There is no certainty that the Company will be able to enter into an agreement with a replacement operator or successfully operate the skin itself.

Colorado. The Company’s three Sports Agreements commenced operations in June 2020, December 2020 and April 2021. One of these Sports Agreements ceased operations in May 2022. In December 2022, the Company signed a Sports Agreement with a new third party for this available skin, which upfront fee was capitalized and is being amortized over the 10-year term of the agreement that contractually commenced in March 2023, even though the operator is still pending the receipt of customary regulatory approvals. Under the Company’s three active Sports Agreements in Colorado, we receive a percentage of revenues (as defined), subject to annual minimums totaling $3.0 million.

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Illinois. In May 2022, the Company signed a Sports Agreement for its sole Illinois sports skin and received an upfront fee of $5.0 million, which was capitalized and will be amortized over the eight-year term of the agreement. The Company will also receive a percentage of revenues (as defined), subject to a minimum of $5.0 million per year. Revenue payments under the agreement are due to begin in August 2023.

In addition to the “market access” fees, deferred revenue includes quarterly and annual prepayments of contracted revenue, as required in three of the Sports Agreements. As of June 30, 2023, $1.3 million of such deferred revenue has been recognized during the year.

Deferred revenues consisted of the following, as discussed above:

(In thousands)

June 30, 

December 31, 

    

Balance Sheet Location

2023

    

2022

Deferred revenue, current

Other accrued liabilities

$

2,000

$

1,651

Deferred revenue, net of current portion

Contract liabilities, net of current portion

8,524

8,856

$

10,524

$

10,507

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 9.

Income Taxes. For interim income tax reporting for the three and six months ended June 30, 2023, the Company estimates its annual effective tax rate and applies it to its year-to-date pretax income or loss.

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, 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, as well as depreciation (or amortization) expense associated with the ROU asset, depending on whether those ROU assets are expected to transfer to the Company upon lease expiration. If ownership of a finance lease ROU asset is expected to transfer to the Company upon lease expiration, then it is included with the Company’s property and equipment; other qualifying finance lease ROU assets, based on other classifying criteria under Accounting Standards Codification 842 (“ASC 842”), are disclosed separately as “Finance Lease Right-of-Use Assets, Net.” For operating leases, the Company recognizes straight-line rent expense.

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The Company does not recognize ROU assets or lease liabilities for leases with a term of 12 months or less. However, costs related to short-term leases with terms greater than one month, which the Company deems material, are disclosed as a component of lease expenses when applicable. Additionally, the Company accounts for new and existing leases containing both lease and non-lease components (“embedded leases”) together as a single lease component by asset class for gaming-related equipment; therefore, the Company does not allocate contract consideration to the separate lease and non-lease components based on their relative standalone prices.

Finance and operating lease ROU assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement, plus any qualifying initial direct costs paid prior to commencement for ROU assets. 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 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 for operating leases. For finance leases, the ROU asset depreciates/amortizes on a straight-line basis over the shorter of the lease term or useful life of the ROU asset as applicable, and the lease liability accretes interest based on the interest method using the discount rate determined at lease commencement.

Preopening costs. Preopening costs are related to the preopening phases of new ventures, in accordance with accounting standards regarding start-up activities, and are expensed as incurred. These costs consist of payroll, advertising, outside services, organizational costs and other expenses directly related to both the Chamonix and The Temporary/American Place developments.

Debt Issuance Costs and Debt Discounts/Premiums. Debt issuance costs and debt discounts/premiums incurred in connection with the issuance of debt have been included as a component of the carrying amount of debt, and are amortized/accreted over the contractual term of the debt to interest expense, using the straight-line method, which approximates the effective interest method. When its existing debt agreements are determined to have been modified, the Company amortizes/accretes such costs to interest expense using the effective interest method over the terms of the modified debt agreement.

Recently Issued Accounting Pronouncements Not Yet Adopted. The Company believes that there are no other recently-issued accounting standards not yet effective that are currently likely to have a material impact on its financial statements.

3. LEASES

The Company has no material leases in which it is the lessor. As lessee, the Company has finance leases for a hotel and certain equipment and operating leases for land, casino and office space, equipment, and buildings. The Company’s remaining lease terms, including extensions, range from one month to approximately 99 years. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants, but the land leases at Silver Slipper and The Temporary/American Place do include contingent rent, as further discussed below.

Operating Leases

Waukegan Ground Lease through February 2122 and Option to Purchase. In January 2023, the Company’s subsidiary, FHR-Illinois, LLC, entered into a 99-year ground lease (the “Ground Lease”) for approximately 32 acres of land (the “City-Owned Parcel”) with the City of Waukegan in Illinois (the “City”).  The ground lease commenced concurrently with the opening of The Temporary on February 17, 2023. The City-Owned Parcel and an adjacent 10-acre parcel owned by the Company comprise the location of American Place, including The Temporary. Annual rent under the Ground Lease is the greater of (i) $3.0 million (the “Annual Guaranteed Minimum Rent”), or (ii) 2.5% of gross gaming revenue (as defined in the lease) generated by either the Temporary or American Place.

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The Company has the right to purchase the City-Owned Parcel at any time during the term of the Ground Lease for $30 million. If it does so prior to the opening of the permanent American Place facility, then it must continue to pay rent due to the City under the Ground Lease until the permanent casino is open.

Silver Slipper Casino Land Lease through April 2058 and Option 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. Annual minimum rent is $0.9 million throughout the lease term until 2058, plus contingent rents of 3% of gross gaming revenue (as defined in the lease) in excess of $3.65 million per month.

Through October 1, 2027, the Company may buy out the lease for $15.5 million, plus a seller-retained interest in Silver Slipper Casino and Hotel’s operations of 3% of net income (as defined) for 10 years following the purchase date.

Bronco Billy’s / Chamonix Lease through January 2035 and Option to Purchase. The Bronco Billy’s subsidiary leases certain parcels, 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. The Company exercised its third renewal option to extend the lease term through January 2026, with current annual lease payments of $0.4 million. Annual minimum rent will increase to $0.5 million starting in February 2026 with adjustments on each anniversary thereafter, based on the consumer price index. The lease 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.

Grand Lodge Casino Lease through December 2024. 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 4). The lessor 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 12-month period preceding the acquisition (or pro-rated if less than 12 months remain on the lease), plus the fair market value of the Grand Lodge Casino’s personal property.

The current annual rent of $2.0 million is applicable through the remaining lease term. In February 2023, the lease was amended to extend the current term through December 31, 2024 (with no changes to rent). Accordingly, the Company remeasured this lease’s related ROU asset and liability balances on its balance sheet upon the effective date of the amendment.

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

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-guestroom hotel at Rising Star Casino Resort. At any time during the lease term, the Company has the option to purchase the hotel, and approximately 3.01 acres of land on which it resides, at a price based upon the hotel’s original cost of $7.7 million, reduced by the cumulative principal payments made by the Company during the lease term. At June 30, 2023, such potential purchase price was $2.5 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.

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The components of lease expenses are as follows:

(In thousands)

    

    

Three Months Ended

    

Six Months Ended

Classification within

June 30, 

June 30, 

Lease Costs

Statement of Operations

2023

 

2022

2023

 

2022

Operating leases:

 

 

 

  

  

 

  

  

Fixed/base rent

 

Selling, General and Administrative Expenses

$

2,170

$

1,172

$

3,962

$

2,337

Short-term payments

Selling, General and Administrative Expenses

33

22

70

Variable payments

 

Selling, General and Administrative Expenses

 

349

 

352

 

654

 

738

Finance leases:

 

  

Amortization of leased assets

 

Depreciation and Amortization

 

348

 

39

 

701

 

78

Interest on lease liabilities

 

Interest Expense, Net

 

109

 

35

 

220

 

72

Total lease costs

$

2,976

$

1,631

$

5,559

$

3,295

Leases recorded on the balance sheet consist of the following:

(In thousands)

June 30, 

December 31, 

Leases

    

Balance Sheet Classification

    

2023

2022

Assets

 

  

 

  

Operating lease assets

   

Operating Lease Right-of-Use Assets, Net

   

$

46,293

$

15,771

Finance lease assets

 

Property and Equipment, Net(1)

 

4,487

 

4,566

Finance lease assets

Finance Lease Right-of-Use Assets, Net(2)

2,979

3,808

Total lease assets

 

  

$

53,759

$

24,145

Liabilities

 

  

Current

 

  

Operating

 

Current Portion of Operating Lease Obligations

$

3,588

$

2,485

Finance

 

Current Portion of Finance Lease Obligation

 

1,605

 

1,581

Noncurrent

 

  

Operating

 

Operating Lease Obligations, Net of Current Portion

 

42,902

 

13,418

Finance

 

Finance Lease Obligation, Net of Current Portion

 

3,756

 

4,727

Total lease liabilities

 

  

$

51,851

$

22,211

__________

(1)Finance lease assets are recorded net of accumulated amortization of $3.2 million for each of June 30, 2023 and December 31, 2022.
(2)These finance lease assets are recorded separately from Property and Equipment due to meeting qualifying classification criteria under ASC 842, but ownership of such assets is not expected to transfer to the Company upon term expiration. Additionally, amortization of these assets are expensed over the duration of the lease term or the assets’ estimated useful lives, whichever is earlier.

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Maturities of lease liabilities as of June 30, 2023 are summarized as follows:

(In thousands)

    

Operating

    

Financing

Years Ending December 31, 

Leases

Leases

2023 (excluding the six months ended June 30, 2023)

$

3,848

$

979

2024

 

7,735

 

1,957

2025

 

5,722

 

1,939

2026

 

4,864

 

652

2027

 

4,515

 

489

Thereafter

 

316,582

 

Total future minimum lease payments

 

343,266

 

6,016

Less: Amount representing interest

 

(296,776)

 

(655)

Present value of lease liabilities

 

46,490

 

5,361

Less: Current lease obligations

 

(3,588)

 

(1,605)

Long-term lease obligations

$

42,902

$

3,756

Other information related to lease term and discount rate is as follows:

June 30, 

December 31, 

Lease Term and Discount Rate

2023

2022

Weighted-average remaining lease term

 

  

  

Operating leases

 

66.3

years

23.2

years

Finance lease

 

3.3

years

3.7

years

Weighted-average discount rate

 

Operating leases

 

10.89

%

9.73

%

Finance leases

 

7.74

%

7.08

%

Supplemental cash flow information related to leases is as follows:

(In thousands)

    

Six Months Ended

June 30, 

Cash paid for amounts included in the measurement of lease liabilities:

2023

2022

Operating cash flows for operating leases

$

3,898

$

2,436

Operating cash flows for finance leases

$

220

$

72

Financing cash flows for finance leases

$

759

$

254

4. LONG-TERM DEBT

Long-term debt consists of the following:

(In thousands)

June 30, 

December 31, 

2023

2022

Revolving Credit Facility due 2026

$

27,000

$

8.25% Senior Secured Notes due 2028

450,000

410,000

Less: Unamortized debt issuance costs and discounts/premiums, net

 

(13,346)

 

(8,148)

$

463,654

$

401,852

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Senior Secured Notes due 2028. On February 12, 2021, the Company issued $310.0 million aggregate principal amount of 8.25% Senior Secured Notes due 2028 (the “2028 Notes”) to refinance all of its prior notes and repurchase all of its outstanding warrants. Additionally, $180 million of bond proceeds were initially placed into a construction reserve account to fund the construction of Chamonix, which was later increased to $221 million in January 2022 to reflect an expansion of the project.

On February 7, 2022, the Company closed a private offering for an additional $100.0 million of Senior Secured Notes due 2028, which sold at a price of 102.0% of such principal amount. Proceeds from this sale were used: (i) to develop, equip and open The Temporary, which the Company intends to operate while it designs and constructs its permanent American Place facility, (ii) to pay the transaction fees and expenses of such offer and sale, and (iii) for general corporate purposes. The additional notes from this sale were issued pursuant to the indenture, dated as of February 12, 2021 (the “Original Indenture”), to which the Company issued the $310.0 million of 2028 Notes described above. In connection with the issuance of the additional notes in February 2022, the Company and the subsidiary guarantors party to the Original Indenture also entered into three Supplemental Indentures with Wilmington Trust, National Association, as trustee.

On February 21, 2023, the Company issued an additional $40.0 million of senior secured notes (the “Additional Notes”), thereby increasing the outstanding borrowing under the 2028 Notes to $450.0 million (collectively, the “Notes”). Related to the issuance of the Additional Notes, the Company further amended the indenture governing the Notes (collectively, the “Amended Indenture”) and amended its revolving credit facility. Proceeds from the offering of the Additional Notes, net of related expenses and discounts, were approximately $34 million and were used: (i) to open The Temporary, including the payment of related Illinois gaming license fees in March 2023, and (ii) for general corporate purposes. The Additional Notes are essentially identical to the 2028 Notes, as they are treated as a single series of senior secured debt securities with the 2028 Notes and also as a single class for all purposes under the Amended Indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase.

The Notes bear interest at a fixed rate of 8.25% per year and mature on February 15, 2028. There is no mandatory debt amortization prior to the maturity date. Interest on the Notes is payable on February 15 and August 15 of each year.

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 Amended 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, 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 (unless such net proceeds are reinvested in the business), upon certain changes of control, or should the Company have certain unused funds in the construction disbursement account following the completion of Chamonix.

On or prior to February 15, 2024, the Company may redeem up to 35% of the original principal amount of the Notes with proceeds of certain equity offerings at a redemption price of 108.25%, plus accrued and unpaid interest to the redemption date. In addition, the Company may redeem some or all of the Notes prior to February 15, 2024 at a redemption price of 100% of the principal amount of the Notes, plus accrued and unpaid interest to the redemption date and a “make-whole” premium.

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

 

104.125

%

February 15, 2025 to February 14, 2026

 

102.063

%

February 15, 2026 and Thereafter

100.000

%

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Table of Contents

Revolving Credit Facility due 2026. On February 7, 2022, the Company entered into a First Amendment to Credit Agreement with Capital One, N.A. (“Capital One”), which, among other things, increased the borrowing capacity under the Company’s Credit Agreement, dated as of March 31, 2021, from $15.0 million to $40.0 million. The amended $40.0 million senior secured revolving credit facility matures on March 31, 2026 and includes a letter of credit sub-facility. The senior secured revolving credit facility may be used for working capital and other ongoing general purposes.

On February 21, 2023, the Company entered into a Second Amendment to Credit Agreement with Capital One, which, among other things, increased the amount of additional indebtedness permitted under the Company’s Credit Agreement from $25.0 million to $40.0 million (collectively, the “Credit Facility”). Such amendment permitted the issuance of the Additional Notes, as described above.

The interest rate per annum applicable to loans under the Credit Facility is currently, at the Company’s option, either (i) the Secured Overnight Financing Rate (“SOFR”) plus a margin equal to 3.50% and a Term SOFR adjustment of 0.15%, or (ii) a base rate plus a margin equal to 2.50%. Upon completion of Chamonix (as defined in the agreement), the interest rate per annum applicable to loans under the Credit Facility will be reduced to, at the Company’s option, either (i) SOFR plus a margin equal to 3.00% and a Term SOFR adjustment of 0.15%, or (ii) a base rate plus a margin equal to 2.00%.

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 12-month period must equal or exceed the utilized portion of the Credit Facility, if drawn. As of June 30, 2023, the Company was in compliance with this financial covenant and $27.0 million of borrowings remain outstanding under the Credit Facility.

Fair Value of Long-Term Debt. The estimated fair value of the Notes was approximately $421.6 million for June 30, 2023 and $360.6 million for December 31, 2022, which values were estimated using quoted market prices (Level 1 inputs). The fair value of the Credit Facility approximates its carrying amount as it is revolving, variable rate debt, and is classified as a Level 2 measurement.

5. INCOME TAXES

The Company’s effective income tax rates for the three and six months ended June 30, 2023 were (11.1%) and (3.2%), respectively, compared to effective income tax rates of 459.3% and 1.0% for the corresponding prior-year periods. The changes in the effective income tax rates were primarily due to the Company’s projections for pre-tax book income in 2023, the effects of tax amortization on indefinite-lived intangibles in 2023 and valuation allowances. The Company’s income tax provision or benefit for interim periods has been determined using an estimate of its annual effective tax rate (“AETR”), adjusted for discrete items.

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 June 30, 2023, 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.

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Table of Contents

6. 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.

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. In addition to the on-site sportsbook, Circa Sports will utilize the Company’s expected mobile sports skin to conduct Internet sports wagering throughout Illinois. In exchange for such rights, the Company received a non-refundable market access fee of $5 million in May 2022, which was recorded as a long-term liability under deferred revenues. The Company will also receive a percentage of revenues (as defined), subject to a minimum of $5 million per year, once Circa Sports launches operations in Illinois. Such launch is contingent upon receipt of customary regulatory approvals. Under the agreement, the Company will begin to receive revenue payments for its Illinois sports skin in August 2023, irrespective of whether its sports wagering operations have begun. The term of the agreement is for eight years, followed by two four-year extension opportunities at the option of Circa Sports.

Contingent Gaming License Fees in Illinois

As required for its gaming licensure at The Temporary/American Place, the Company may be required to make a “Reconciliation Payment” to the State of Illinois. The Reconciliation Payment is calculated three years after the commencement of gaming operations in Illinois in an amount equal to 75% of the adjusted gross receipts for the most lucrative trailing 12-month period of operations, offset by certain licensing fees already paid by the Company in the first quarter of 2023. If such calculation of the Reconciliation Payment results in a negative amount, the Company is not entitled to reimbursement of any licensing fees previously paid. The Reconciliation Payment, if any, is due in annual installments over a period of six years, beginning in the fourth year of gaming operations.

7. EARNINGS (LOSS) PER SHARE

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

(In thousands)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2023

    

2022

    

2023

    

2022

Numerator:

 

  

 

  

 

  

 

  

Net loss ─ basic

$

(5,600)

$

(4,355)

$

(17,015)

$

(4,245)

Net loss ─ diluted

$

(5,600)

$

(4,355)

$

(17,015)

$

(4,245)

Denominator:

 

  

 

  

 

  

 

  

Weighted-average common shares ─ basic

 

34,496

 

34,364

 

34,453

 

34,313

Potential dilution from share-based awards

52

45

Weighted-average common and common share equivalents ─ diluted

 

34,496