Full House Resorts(FLL) - 2023 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited consolidated financial statements detail the company's recent financial performance and position Consolidated Statements of Operations Consolidated Statements of Operations | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $59,382 | $44,383 | $109,488 | $85,806 | | Operating Income (Loss) | $594 | $8,219 | $(6,392) | $13,522 | | 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) | Consolidated Balance Sheets Consolidated Balance Sheets | Metric (in thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $671,134 | $595,329 | | Total Liabilities | $586,801 | $495,538 | | Stockholders' Equity | $84,333 | $99,791 | | Cash and Equivalents | $35,501 | $56,589 | | Restricted Cash | $78,078 | $134,587 | | Long-term Debt, net | $463,654 | $401,852 | Consolidated Statements of Changes in Stockholders' Equity Consolidated Statements of Changes in Stockholders' Equity | Metric (in thousands) | January 1, 2023 | March 31, 2023 | June 30, 2023 | | :--- | :--- | :--- | :--- | | Total Stockholders' Equity | $99,791 | $89,141 | $84,333 | | Net Loss (Q1 2023) | N/A | $(11,415) | N/A | | Net Loss (Q2 2023) | N/A | N/A | $(5,600) | | Stock-based compensation | N/A | $748 | $655 | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows | Metric (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $1,702 | $4,188 | | Net Cash Used in Investing Activities | $(139,204) | $(65,026) | | 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 used in investing activities for H1 2023 included a $50.3 million gaming license payment for The Temporary/American Place and capital expenditures for Chamonix and The Temporary/American Place[217] Condensed Notes to Consolidated Financial Statements Note 1 — Organization - Full House Resorts, Inc owns, leases, operates, develops, manages, and/or invests in casinos and related hospitality and entertainment facilities[33] - The Company operates six casinos and is constructing Chamonix Casino Hotel and designing the permanent American Place casino destination, operating The Temporary by American Place in the interim[39] - The Company benefits from seven permitted sports wagering "skins" – three in Colorado, three in Indiana, and one in Illinois[39] Note 2 — Basis of Presentation and Significant Accounting Policies - The Company updated its reportable segments to Midwest & South, West, and Contracted Sports Wagering, effective Q1 2023, reflecting continued growth and realignment[34][40] - In March 2023, the Company paid $50.3 million to the Illinois Gaming Board for required gaming license fees for The Temporary and American Place, which is deemed to have an indefinite economic life[50] - Revenue recognition for contracted sports wagering includes one-time "market access" fees recorded as long-term liabilities and recognized ratably over contract terms, plus a percentage of revenues subject to annual minimums[57] Deferred Revenue | Deferred Revenue (in thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Current | $2,000 | $1,651 | | Net of Current Portion | $8,524 | $8,856 | | Total | $10,524 | $10,507 | Note 3 — Leases - The Company entered into a 99-year ground lease for American Place in Waukegan, Illinois, with annual rent being the greater of $3.0 million or 2.5% of gross gaming revenue[82] - The Silver Slipper Casino Land Lease extends to 2058 with annual minimum rent of $0.9 million plus contingent rents of 3% of gross gaming revenue above $3.65 million per month[84] Lease Costs | Lease Costs (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Lease Costs | $2,976 | $1,631 | $5,559 | $3,295 | Lease Balances | Lease Balances (in thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Lease Assets | $53,759 | $24,145 | | Total Lease Liabilities | $51,851 | $22,211 | Note 4 — Long-Term Debt - In February 2023, the Company issued an additional $40.0 million of senior secured notes, increasing the total outstanding under the 2028 Notes to $450.0 million. Proceeds were used for The Temporary's opening (including Illinois gaming license fees) and general corporate purposes[96] - The Revolving Credit Facility due 2026 was amended in February 2023, increasing permitted additional indebtedness to $40.0 million and allowing for the issuance of the Additional Notes[5][103] Long-Term Debt | Long-Term Debt (in thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Revolving Credit Facility due 2026 | $27,000 | $0 | | 8.25% Senior Secured Notes due 2028 | $450,000 | $410,000 | | Less: Unamortized debt issuance costs and discounts/premiums, net | $(13,346) | $(8,148) | | Total Long-Term Debt, net | $463,654 | $401,852 | Note 5 — Income Taxes - The Company continues to assess the realizability of deferred tax assets and maintains a valuation allowance against those that cannot be offset by existing deferred tax liabilities[109] Effective Income Tax Rate | Effective Income Tax Rate | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Rate | (11.1)% | 459.3% | (3.2)% | 1.0% | Note 6 — Commitments and Contingencies - Management does not expect the outcome of pending legal proceedings to have a material adverse effect on the Company's financial position, results of operations, and cash flows[111] - The Company entered an agreement with Circa Sports for on-site and online sports wagering in Illinois, receiving a $5 million market access fee and expecting revenue payments (subject to a $5 million annual minimum) to begin in August 2023[112] - A potential "Reconciliation Payment" for Illinois gaming licensure, calculated three years after operations, may be required, equal to 75% of the most lucrative trailing 12-month adjusted gross receipts, offset by prior licensing fees[113] Note 7 — Earnings (Loss) Per Share - Anti-dilutive share-based awards were excluded from the calculation of diluted loss per share due to the net loss[120] Earnings (Loss) Per Share | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Basic Loss Per Share | $(0.16) | $(0.13) | $(0.49) | $(0.12) | | Diluted Loss Per Share | $(0.16) | $(0.13) | $(0.49) | $(0.12) | Note 8 — Share-Based Compensation - In January and Q2 2023, the Company issued performance-based shares to executives, vesting based on compounded annual growth rates of Adjusted EBITDA and Free Cash Flow Per Share for three-year periods ending 2023, 2024, and 2025[121] - As of June 30, 2023, there was approximately $2.9 million of unrecognized compensation cost for unvested stock options (expected over 2.2 years) and $2.0 million for unvested restricted/performance-based shares (expected over 1.4 years)[118] Compensation Expense | Compensation Expense (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Stock options | $372 | $302 | $702 | $520 | | Restricted and performance-based shares | $283 | $185 | $701 | $310 | | Total | $655 | $487 | $1,403 | $830 | Note 9 — Segment Reporting and Disaggregated Revenue - The Company changed its reportable segments to Midwest & South, West, and Contracted Sports Wagering in Q1 2023, based on geographic regions and income type[125] - Adjusted Segment EBITDA is the measure of segment profit, defined as earnings before interest, taxes, depreciation, amortization, preopening, impairment, asset write-offs, disposals, development costs, and non-cash share-based compensation[126] Segment Revenues | Segment Revenues (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Midwest & South | $49,911 | $32,936 | $90,713 | $62,882 | | West | $8,089 | $9,278 | $16,213 | $17,924 | | Contracted Sports Wagering | $1,382 | $2,169 | $2,562 | $5,000 | | Total Revenues | $59,382 | $44,383 | $109,488 | $85,806 | Adjusted Segment EBITDA | Adjusted Segment EBITDA (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Midwest & South | $9,391 | $9,149 | $20,077 | $16,239 | | West | $177 | $1,684 | $234 | $2,191 | | Contracted Sports Wagering | $1,361 | $2,196 | $2,522 | $4,964 | | Total Adjusted Segment EBITDA | $10,929 | $13,029 | $22,833 | $23,394 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, condition, and future outlook Executive Overview - The Company's primary business involves ownership and/or operation of casino and related hospitality and entertainment facilities, including six operating casinos and two under development (Chamonix and American Place)[136] - The Temporary by American Place opened in February 2023 and will operate until the permanent American Place facility is completed[136] - The Company benefits from seven permitted sports wagering "skins" – three in Colorado, three in Indiana, and one in Illinois[136] Recent Developments - The Temporary by American Place opened in February 2023, featuring 940 slot machines, 48 table games, and two restaurants, with a fine-dining restaurant and sportsbook expected later in the year[142] - A new 10-year mobile sports wagering agreement in Colorado began in March 2023, replacing a previous operator, bringing the total active Colorado sports wagering agreements to three with annual minimums of $3 million[143] - The Illinois retail and mobile sports wagering contract, signed in May 2022, includes a $5 million upfront fee and a minimum of $5 million annual revenue, with payments commencing in August 2023[144] - In February 2023, the Company issued an additional $40 million in senior secured notes and amended its credit facility to fund The Temporary's opening (including Illinois gaming license fees) and for general corporate purposes[146][147] Key Performance Indicators - Key performance indicators include slot coin-in and table game drop (volume), slot win and table game hold percentages (win rates), hotel occupancy rate, and Adjusted EBITDA/Adjusted Segment EBITDA (profitability)[149][150][151] - Adjusted Segment EBITDA is a GAAP measure of segment profitability, while Adjusted EBITDA is a non-GAAP measure used for overall performance evaluation and debt covenant compliance[151][228] Results of Operations Consolidated operating results - The Temporary contributed approximately $20.3 million and $30.7 million to revenues for the three and six months ended June 30, 2023, respectively[241] - Operating expenses increased primarily due to The Temporary's operations, including $6.9 million in SG&A and $6.3 million in D&A for the three months, and $9.1 million in SG&A, $10.3 million in D&A, and $10.1 million in preopening costs for the six months[156] Consolidated Operating Results | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $59,382 | $44,383 | $109,488 | $85,806 | | Operating Expenses | $58,788 | $36,164 | $115,880 | $72,284 | | Operating Income (Loss) | $594 | $8,219 | $(6,392) | $13,522 | | Net Loss | $(5,600) | $(4,355) | $(17,015) | $(4,245) | Interest and Other Non-Operating Expenses - Other non-operating income for the six months ended June 30, 2023, included $0.4 million from insurance settlement proceeds related to hurricane damage[256] Interest Expense, Net | Interest Expense, Net (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Interest expense (excluding bond fee amortization and discounts/premiums) | $10,062 | $8,660 | $19,082 | $16,051 | | Capitalized interest | $(4,097) | $(2,083) | $(7,569) | $(3,461) | | Interest income and other | $(1,076) | $0 | $(2,352) | $0 | | Total Interest Expense, Net | $5,633 | $6,988 | $10,452 | $13,387 | Income Tax Expense - The Company does not expect to pay federal income taxes or receive refunds for 2023 due to anticipated taxable losses and continues to evaluate the need for a valuation allowance on deferred tax assets[245] Income Tax Provision (Benefit) | Income Tax Provision (Benefit) (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Income Tax Provision (Benefit) | $561 | $5,567 | $526 | $(45) | | Effective Income Tax Rate | (11.1)% | 459.3% | (3.2)% | 1.0% | Operating Results – Reportable Segments Segment Performance | Segment Performance | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Midwest & South Revenues | $49,911 | $32,936 | $90,713 | $62,882 | | Midwest & South Adjusted Segment EBITDA | $9,391 | $9,149 | $20,077 | $16,239 | | West Revenues | $8,089 | $9,278 | $16,213 | $17,924 | | West Adjusted Segment EBITDA | $177 | $1,684 | $234 | $2,191 | | Contracted Sports Wagering Revenues | $1,382 | $2,169 | $2,562 | $5,000 | | Contracted Sports Wagering Adjusted Segment EBITDA | $1,361 | $2,196 | $2,522 | $4,964 | Midwest & South - Midwest & South total revenues increased by 51.5% (QoQ) and 44.3% (YoY) for the three and six months ended June 30, 2023, primarily due to The Temporary's opening[262] - Same-store revenues (excluding The Temporary) declined by 10.2% (QoQ) and 4.6% (YoY) due to lower casino revenue and a timing difference in the $2.1 million "free play" sale at Rising Star[262][201] - The Temporary contributed $4.1 million and $7.7 million to Adjusted Property EBITDA for the three and six months ended June 30, 2023, respectively, offsetting same-store Adjusted Segment EBITDA declines[174] - The Temporary is not yet at full capacity due to regulatory restrictions (e.g., operating hours, table game wagers) and staffing constraints, with plans to open a third restaurant and on-site sportsbook in H2 2023[202] West - Total revenues for the West segment decreased by 12.8% (QoQ) and 9.5% (YoY) due to planned business disruptions from Chamonix construction, including reduced capacity and temporary absence of hotel rooms and self-parking[176] - Adverse weather, particularly heavy snowfall in Nevada, impacted Grand Lodge Casino's results in Q1 and Q2 2023, delaying seasonal residents' return[178] - Adjusted Segment EBITDA decreased to $0.2 million for both the three and six months ended June 30, 2023, due to Chamonix construction disruptions, additional operating expenses for valet/shuttle services, and maintained payroll despite reduced activity[179] Contracted Sports Wagering - Revenues and Adjusted Segment EBITDA decreased for both periods, primarily because the prior-year periods included accelerated revenue recognition from two agreements that ceased operations in May 2022[208] - The Company is evaluating options for its remaining idle skin in Indiana (utilize itself or find a replacement operator)[208] - Revenue payments for the Illinois sports skin are contractually due to begin in August 2023, with an annualized minimum of $5 million[226] Corporate - Corporate expenses declined by 55.2% (QoQ) and 24.4% (YoY) for the three and six months ended June 30, 2023, mainly due to decreased accrued bonus compensation, partially offset by increased third-party professional services[209] Non-GAAP Financial Measure - Adjusted EBITDA is a non-GAAP measure defined as earnings before interest, taxes, depreciation, amortization, preopening expenses, impairment, asset write-offs, disposals, project development/acquisition costs, and non-cash share-based compensation[228] - Adjusted EBITDA is used as a supplemental disclosure to GAAP measures, widely used in the gaming and hospitality industries for performance evaluation and as a basis for valuation[228] Adjusted EBITDA Reconciliation | Adjusted EBITDA (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Loss | $(5,600) | $(4,355) | $(17,015) | $(4,245) | | Operating Income (Loss) | $594 | $8,219 | $(6,392) | $13,522 | | Adjusted EBITDA | $10,507 | $12,086 | $20,632 | $20,483 | Liquidity and Capital Resources - As of June 30, 2023, the Company had $113.6 million in cash and equivalents, including $78.1 million of restricted cash for Chamonix construction[216] - Management believes current cash balances, available borrowing capacity under the Credit Facility, and operating cash flows will be sufficient to meet liquidity and capital needs for the next 12 months[216] - The Company expects to invest approximately $75 million in The Temporary/American Place project in 2023 (excluding pre-opening and capitalized interest), including $50 million for gaming license payments, and will likely need additional financing for the permanent American Place facility[222] - For Chamonix, the Company expects to invest $115 million in 2023 and the remaining balance in 2024, with an expected opening on December 26, 2023[237] Off-balance Sheet Arrangements - The Company has no off-balance sheet arrangements that are material to its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources[188] Critical Accounting Estimates and Policies - Critical accounting estimates and policies are described in Note 2 of the 2022 Form 10-K, and there have been no significant changes in estimation methods since the end of 2022[189] Forward-Looking Statements - The report contains forward-looking statements regarding growth strategies, construction budgets, operational performance, capital investments, sports wagering contracts, and financial resources, among others[191] - Forward-looking statements are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict and many of which are outside of the Company's control, potentially causing actual results to differ materially[192] - The Company undertakes no obligation to publicly update or revise any forward-looking statements as a result of future developments, events, or conditions, except as required by law[193] Item 3. Quantitative and Qualitative Disclosures about Market Risk No material quantitative or qualitative disclosures about market risk are reported - This section is marked "Not applicable," indicating no material quantitative or qualitative disclosures about market risk[194] Item 4. Controls and Procedures Management confirms the effectiveness of disclosure controls and procedures as of the reporting date - As of June 30, 2023, the CEO and CFO concluded that the Company's disclosure controls and procedures were effective at a reasonable assurance level[196] - There have been no changes in internal control over financial reporting during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[198] PART II OTHER INFORMATION Item 1. Legal Proceedings Ongoing legal proceedings are not expected to materially impact the company's financial position - The Company is subject to various legal and administrative proceedings in the normal course of business[159] - Management does not believe that the final outcome of these matters will have a material adverse effect on the Company's consolidated financial position or results of operations[159] Item 1A. Risk Factors Key risks include regulatory challenges for growth projects and litigation concerning casino licenses - Growth projects, including Chamonix and American Place, may be subject to additional regulatory restrictions, delays, or challenges[160] - Lawsuits filed by an unsuccessful bidder for the Waukegan casino license could negatively impact the Company's ability to secure financing for American Place, delay its opening, or affect licensing[165] - The Illinois Gaming Board approved The Temporary to operate for a third year, but there's a risk of an operations gap between its closing and the permanent American Place opening if construction is delayed further by lawsuits or other factors[166] Item 6. Exhibits A list of exhibits filed with the report includes agreements and officer certifications - Exhibits include employment agreements, certifications of principal executive and financial officers (pursuant to Exchange Act Rule 13a-14(a)/15(d)-14(a) and 18 U.S.C. section 1350), and Inline XBRL documents[168] Signatures The report is certified and signed by the Chief Executive Officer and Chief Financial Officer - The report was signed on August 8, 2023, by Daniel R. Lee (CEO) and Lewis A. Fanger (CFO), certifying compliance with the Securities Exchange Act of 1934[171][172]