Company Quick10K Filing
Quick10K
Full House Resorts
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$2.18 27 $59
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2018-11-07 Earnings, Exhibits
8-K 2018-10-01 Officers, Exhibits
8-K 2018-08-09 Earnings, Exhibits
8-K 2018-06-20 Enter Agreement, Exhibits
8-K 2018-05-23 Shareholder Vote
8-K 2018-05-11 Earnings, Exhibits
8-K 2018-03-26 Other Events, Exhibits
8-K 2018-03-19 Enter Agreement, Regulation FD, Exhibits
8-K 2018-03-01 Earnings, Exhibits
8-K 2018-02-02 Enter Agreement, Off-BS Arrangement, Other Events, Exhibits
MAR Marriott
HLT Hilton Worldwide Holdings
H Hyatt Hotels
CZR Caesars Entertainment
PLNT Planet Fitness
WH Wyndham Hotels & Resorts
RRR Red Rock Resorts
XHR Xenia Hotels & Resorts
MCRI Monarch Casino & Resort
DDE Dover Downs Gaming & Entertainment
FLL 2018-09-30
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-31.1 exhibit311q32018.htm
EX-31.2 exhibit312q32018.htm
EX-32.1 exhibit321q32018.htm
EX-32.2 exhibit322q32018.htm

Full House Resorts Earnings 2018-09-30

FLL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 fullhouseresorts10-qxq32018.htm 10-Q Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
(Mark One)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2018
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from         to
 Commission File No. 1-32583

 FULL HOUSE RESORTS, INC.
(Exact name of registrant as specified in its charter)  
Delaware
(State or other jurisdiction
of incorporation or organization)
 
13-3391527
(I.R.S. Employer
Identification No.)
 
 
 
One Summerlin, 1980 Festival Plaza Drive, Suite 680
Las Vegas, Nevada
(Address of principal executive offices)
 
89135
(Zip Code)
(702) 221-7800
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ   No o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ   No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company and/or emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, “small reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer o
Accelerated Filer o
Non Accelerated Filer þ
Smaller reporting company þ
Emerging growth company o
 

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
 
As of November 5, 2018, there were 26,932,169 shares of Common Stock, $0.0001 par value per share, outstanding.
 

1




 
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 
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
Revenues
 
 
 
 
 
 
 
Casino (1)
$
30,767

 
$
39,009

 
$
86,369

 
$
110,702

Food and beverage (1)
9,371

 
8,760

 
26,093

 
24,759

Hotel (1)
2,583

 
2,408

 
7,448

 
6,724

Other operations
1,307

 
1,234

 
3,276

 
3,250

Gross revenues (1)
44,028

 
51,411

 
123,186

 
145,435

Less promotional allowances (1)

 
(7,685
)
 

 
(21,968
)
Net revenues
44,028

 
43,726

 
123,186

 
123,467

Operating costs and expenses
 

 
 

 
 

 
 

Casino (1)
11,934

 
20,102

 
34,300

 
57,556

Food and beverage (1)
10,301

 
3,466

 
29,184

 
9,598

Hotel (1)
2,708

 
348

 
7,847

 
826

Other operations (1)
958

 
483

 
2,306

 
1,333

Selling, general and administrative (1)
11,769

 
13,076

 
36,193

 
39,902

Preopening costs
140

 

 
140

 

Project development and acquisition costs
390

 
53

 
557

 
238

Depreciation and amortization
2,094

 
2,193

 
6,300

 
6,428

Loss (gain) on disposal of assets, net

 
12

 
79

 
(2
)
 
40,294

 
39,733

 
116,906

 
115,879

Operating income
3,734

 
3,993

 
6,280

 
7,588

Other (expense) income
 

 
 

 
 

 
 

Interest expense, net of $112 and $77 capitalized for the three-months ended September 30, 2018 and 2017, and $328 and $77 capitalized for the nine-months ended September 30, 2018 and 2017
(2,513
)
 
(2,718
)
 
(7,519
)
 
(8,102
)
Loss on extinguishment of debt

 

 
(2,673
)
 

Adjustment to fair value of warrants
463

 
(302
)
 
886

 
(272
)
 
(2,050
)

(3,020
)
 
(9,306
)
 
(8,374
)
Income (loss) before income taxes
1,684

 
973

 
(3,026
)
 
(786
)
Provision for income taxes
119

 
184

 
356

 
552

Net income (loss)
$
1,565

 
$
789

 
$
(3,382
)
 
$
(1,338
)
 
 
 
 
 
 
 
 
Basic earnings (loss) per share
$
0.06

 
$
0.03

 
$
(0.13
)
 
$
(0.06
)
Diluted earnings (loss) per share
$
0.04

 
$
0.03

 
$
(0.16
)
 
$
(0.06
)
 
(1)
On January 1, 2018, the Company adopted Accounting Standards Codification No. 606, Revenue from Contracts with Customers (“ASC 606”), using the modified retrospective method, which impacts the comparability of these line items.

See condensed notes to consolidated financial statements.

3



FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
 
September 30,
2018
 
December 31,
2017
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets
 
 
 
Cash and equivalents
$
20,841

 
$
19,910

Accounts receivable, net of allowance of $148 and $103
1,764

 
1,760

Inventories
1,425

 
1,692

Prepaid expenses and other
3,660

 
2,849

 
27,690

 
26,211

 
 
 
 
Property and equipment, net
121,325

 
114,058

Goodwill
21,286

 
21,286

Intangible assets, net of accumulated amortization of $7,795 and $7,763
11,169

 
10,936

Deposits and other
920

 
994

 
$
182,390

 
$
173,485

LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities
 

 
 

Accounts payable
$
5,067

 
$
5,182

Accrued payroll and related
3,401

 
3,115

Other accrued expenses
9,203

 
8,846

Common stock warrant liability
1,611

 

Current portion of long-term debt
1,000

 
1,000

Current portion of capital lease obligation
474

 
421

 
20,756

 
18,564

 
 
 
 
Other long-term obligations
172

 
2,689

Long-term debt, net of current portion, unamortized discount and issuance costs
94,262

 
93,566

Capital lease obligation, net of current portion
4,465

 
4,861

Deferred tax liability
2,112

 
1,757

 
121,767

 
121,437

Commitments and contingencies (Notes 6, 7 and 9)


 


Stockholders’ equity
 

 
 

Common stock, $0.0001 par value, 100,000,000 shares authorized; 28,288,764 and 24,294,084 shares issued and 26,932,169 and 22,937,489 shares outstanding
3

 
2

Additional paid-in capital
63,824

 
51,868

Treasury stock, 1,356,595 common shares
(1,654
)
 
(1,654
)
Retained earnings (deficit)
(1,550
)
 
1,832

 
60,623

 
52,048

 
$
182,390

 
$
173,485


See condensed notes to consolidated financial statements.

4



FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
 
 
Treasury Stock
 
 
 
 
 
 
Shares
 
Dollars
 
Additional Paid-in Capital
 
Shares
 
Dollars
 
Retained Earnings (Deficit)
 
Total Stockholders’ Equity
Balance, January 1, 2018
 
24,294

 
$
2

 
$
51,868

 
1,357

 
$
(1,654
)
 
$
1,832

 
$
52,048

Stock grants
 
34

 

 
104

 

 

 

 
104

Equity offering
 
3,943

 
1

 
11,425

 

 

 

 
11,426

Stock-based compensation
 

 

 
128

 

 

 

 
128

Net loss
 

 

 

 

 

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

 
3

 
63,525

 
1,357

 
(1,654
)
 
(2,454
)
 
59,420

Equity offering
 

 

 
10

 

 

 

 
10

Stock-based compensation
 
18

 

 
175

 

 

 

 
175

Net loss
 

 

 

 

 

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

 
3

 
63,710

 
1,357

 
(1,654
)
 
(3,115
)
 
58,944

Stock-based compensation
 

 

 
114

 

 

 

 
114

Net income
 

 

 

 

 

 
1,565

 
1,565

Balance, September 30, 2018
 
28,289

 
$
3

 
$
63,824

 
1,357

 
$
(1,654
)
 
$
(1,550
)
 
$
60,623

 

 
 
Common Stock
 
 
 
Treasury Stock
 
 
 
 
 
 
Shares
 
Dollars
 
Additional Paid-in Capital
 
Shares
 
Dollars
 
Retained Earnings
 
Total Stockholders’ Equity
Balance, January 1, 2017
 
24,221

 
$
2

 
$
51,271

 
1,357

 
$
(1,654
)
 
$
6,860

 
$
56,479

Stock-based compensation
 

 

 
93

 

 

 

 
93

Net loss
 

 

 

 

 

 
(602
)
 
(602
)
Balance, March 31, 2017
 
24,221

 
2

 
51,364

 
1,357

 
(1,654
)
 
6,258

 
55,970

Stock-based compensation
 
26

 

 
176

 

 

 

 
176

Net loss
 

 

 

 

 

 
(1,525
)
 
(1,525
)
Balance, June 30, 2017
 
24,247

 
2

 
51,540

 
1,357

 
(1,654
)
 
4,733

 
54,621

Stock-based compensation
 

 

 
128

 

 

 

 
128

Net income
 

 

 

 

 

 
789

 
789

Balance, September 30, 2017
 
24,247

 
$
2

 
$
51,668

 
1,357

 
$
(1,654
)
 
$
5,522

 
$
55,538


See condensed notes to consolidated financial statements.

5



FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
 
 
 
 
Nine Months Ended 
 September 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net loss
$
(3,382
)
 
$
(1,338
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
  

Depreciation and amortization
6,300

 
6,428

Amortization of debt issuance and warrant costs
595

 
661

Share-based compensation
521

 
397

Change in fair value of stock warrants
(886
)
 
272

Debt extinguishment costs
2,673

 

Loss (gain) on disposal of assets and other
39

 
(2
)
Increases and decreases in operating assets and liabilities:
 
 
 
Accounts receivable
(3
)
 
334

Prepaid expenses, inventories and other
(545
)
 
(1,306
)
Deferred taxes
356

 
551

Accounts payable and accrued expenses
749

 
837

Net cash provided by operating activities
6,417

 
6,834

Cash flows from investing activities:
 

 
 

Purchase of property and equipment
(13,854
)
 
(8,952
)
Other
(341
)
 
(163
)
Net cash used in investing activities
(14,195
)
 
(9,115
)
Cash flows from financing activities:
 

 
 

Repayment of First and Second Lien Term Loans
(96,063
)
 
(1,687
)
Prepayment premium of Second Lien Term Loan
(1,100
)
 

Proceeds from Senior Secured Notes borrowings
100,000

 

Payment of debt issuance costs
(4,092
)
 
(304
)
Payment of Interest Rate Cap premium
(238
)
 

Repayment of Senior Secured Notes principal
(750
)
 

Repayment of capital lease obligation
(342
)
 
(346
)
Proceeds from equity offering
11,435

 

Other
(141
)
 

Net cash provided by (used in) financing activities
8,709

 
(2,337
)
 
 
 
 
Net increase (decrease) in cash and equivalents
931

 
(4,618
)
Cash and equivalents, beginning of period
19,910

 
27,038

Cash and equivalents, end of period
$
20,841

 
$
22,420

 
 
 
 
SUPPLEMENTAL CASH FLOW INFORMATION:
 

 
 

Cash paid for interest, net of amounts capitalized
$
6,953

 
$
7,459

NON-CASH INVESTING ACTIVITIES:
 

 
 

Accounts payable related capital expenditures
$
700

 
$
1,864

 
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.

We currently operate five casinos; four are part of real estate that we own or lease and one is located within a hotel owned by a third party. The following table identifies the properties along with their respective dates of acquisition and locations:

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

We manage our casinos based on geographic regions within the United States.  See Note 12 for further information.

2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation. As permitted by the rules and regulations of the Securities and Exchange Commission (“SEC”), certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company’s 2017 annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

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 our accounting for net assets acquired in acquisition transactions and certain financial assets and liabilities, such as our interest rate cap (“Interest Rate Cap”) agreement and common stock warrant liability. Fair value measurements are also used in our 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.


7



GAAP categorizes the inputs used for fair value into a three-level hierarchy:

Level 1: Observable inputs, such as quoted prices in active markets for identical assets or liabilities;
Level 2: Comparable inputs other than quoted prices that are observable for similar assets or liabilities in less active markets; and
Level 3: Unobservable inputs which may include metrics that market participants would use to estimate values, such as revenue and earnings multiples and relative rates of return.

The Company utilizes Level 2 inputs when measuring the fair value of its Interest Rate Cap. In order to estimate the fair value of this derivative instrument, the Company obtains valuation reports from the third-party broker that issued the Interest Rate Cap. The report contemplates fair value by using inputs including market-observable data such as interest rate curves, volatilities, and information derived from or corroborated by that market-observable data (see Note 6).

The Company utilizes Level 3 inputs when measuring the fair value of net assets acquired in business combination transactions, subsequent assessments for impairment, and most financial instruments, including but not limited to the estimated fair value of common stock warrants at issuance and for recurring changes in the related warrant liability (see Note 7).

Operating Revenues and Related Costs and Expenses. The Company adopted a new revenue standard (see Note 3) effective January 1, 2018. The Company’s revenues consist primarily of casino gaming, food and beverage, hotel, and other revenues (such as entertainment). The majority of our revenues are derived from casino gaming, principally slot machines.

Gaming revenue is the difference between gaming wins and losses, not the total amount wagered. We account for our 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.

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

Some of our customers choose to earn points under our customer loyalty programs. As points are accrued, we defer a portion of our gaming revenue based on the estimated standalone value of loyalty points being earned by the customer. The standalone value of loyalty points is derived from the retail value of food, beverages, hotel rooms, and other goods or services for which such points may be redeemed. A liability related to these customer loyalty points is recorded, net of estimated breakage and other factors, until the customer redeems these points, primarily for “free casino play/cash back,” complimentary dining, or hotel stays. Upon redemption, the related revenue is recognized at retail value within the department providing the goods or services.

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

Other notable changes of the new revenue recognition standard include:

The Company no longer presents a promotional allowances line item on its consolidated statement of operations, as revenues are now allocated between casino revenue and other revenue categories.
The Company no longer reclassifies the estimated cost of complimentaries provided to a gaming customer from other expense categories to casino operating expenses.

Income Taxes. For interim income tax reporting, it was determined that the Company’s annual effective tax rate could not be reasonably estimated. As a result, the Company used the actual year-to-date effective tax rate to determine the tax expense incurred during the three- and nine-months ended September 30, 2018 and 2017.

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

Earnings (Loss) Per Share. Earnings (loss) per share is net income (loss) applicable to common stock divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects additional dilutive effects for all potentially-dilutive securities, including common stock options and warrants, using the treasury stock method.

8





3. NEW ACCOUNTING PRONOUNCEMENTS
 
New Accounting Pronouncements Implemented

Statement of Cash Flows. In January 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments,” otherwise referred to as “ASU 2016-15.” ASU 2016-15 amends the guidance of Accounting Standards Codification (“ASC”) Topic 230 on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of ASU 2016-15 is to reduce the diversity in practice that has resulted from the lack of consistent principles, specifically clarifying the guidance on eight cash flow issues. The adoption did not and is not expected to have a material impact on our consolidated financial statements.

Revenue from Contracts with Customers. In January 2018, the Company adopted ASC 606, Revenue from Contracts with Customers (“ASC 606”) using the modified retrospective method, which applies to all contracts that are written, oral or implied by customary business practices.

The comparative information as of and for the three- and nine-months ended September 30, 2017 has not been restated and continues to be reported under the accounting standards in effect for that period. The adoption of ASC 606 for 2018 has not and is not expected to have an aggregate material impact on operating income, net income, or cash flows on an ongoing basis.

The impact of adoption on our consolidated statement of operations is shown below. Note that we did not present any balance sheet effects, as the amounts are immaterial.
(In thousands, unaudited)
 
 
 
 
 
 
Three Months Ended September 30, 2018
Statement of Operations
As Reported
 
Balances without Adoption of ASC 606
 
Effect of Change
Higher/(Lower)
Revenues
 
 
 
 
 
Casino
$
30,767

 
$
39,837

 
$
(9,070
)
Food and beverage
9,371

 
9,293

 
78

Hotel
2,583

 
2,369

 
214

Promotional allowances

 
(8,315
)
 
8,315

 
 
 
 
 
 
Costs and expenses
 
 
 
 
 
Casino
11,934

 
20,239

 
(8,305
)
Food and beverage
10,301

 
3,337

 
6,964

Hotel
2,708

 
363

 
2,345

Other operations
958

 
460

 
498

Selling, general and administrative
11,769

 
13,736

 
(1,967
)
Operating income
3,734

 
3,732

 
2

Income before income taxes
1,684

 
1,682

 
2

Net income
1,565

 
1,563

 
2



9



(In thousands, unaudited)
 
 
 
 
 
 
Nine Months Ended September 30, 2018
Statement of Operations
As Reported
 
Balances without Adoption of ASC 606
 
Effect of Change
Higher/(Lower)
Revenues
 
 
 
 
 
Casino
$
86,369

 
$
111,063

 
$
(24,694
)
Food and beverage
26,093

 
25,877

 
216

Hotel
7,448

 
6,828

 
620

Promotional allowances

 
(22,968
)
 
22,968

 
 
 
 
 
 
Costs and expenses
 
 
 
 
 
Casino
34,300

 
57,184

 
(22,884
)
Food and beverage
29,184

 
9,527

 
19,657

Hotel
7,847

 
981

 
6,866

Other operations
2,306

 
1,287

 
1,019

Selling, general and administrative
36,193

 
41,718

 
(5,525
)
Operating income
6,280

 
6,303

 
(23
)
Loss before income taxes
(3,026
)
 
(3,003
)
 
(23
)
Net loss
(3,382
)
 
(3,359
)
 
(23
)

New Accounting Pronouncements to be Implemented

Leases. In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” (“ASU 2016-02”), which replaces the existing guidance in ASC 840, Leases. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. ASU 2016-02 requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use asset and a corresponding lease liability. The Company is currently assessing the impact that adoption of this guidance will have on its consolidated financial statements and footnote disclosures.

Management believes that there are no other recently-issued accounting standards not yet effective that are currently likely to have a material impact on our financial statements.

4. REVENUE

Our revenue, disaggregated by type of revenue and segment, is as follows:

(In thousands, unaudited)
Three Months Ended September 30, 2018
 
Silver Slipper Casino and Hotel
 
Rising Star Casino Resort
 
Bronco Billy’s Casino and Hotel
 
Northern Nevada Casinos
 
Total
Revenues
 
 
 
 
 
 
 
 
 
Casino
$
11,635

 
$
7,697

 
$
5,607

 
$
5,828

 
$
30,767

Food and beverage
5,061

 
2,262

 
1,577

 
471

 
9,371

Hotel
800

 
1,555

 
228

 

 
2,583

Other operations
391

 
714

 
108

 
94

 
1,307

 
$
17,887

 
$
12,228

 
$
7,520

 
$
6,393

 
$
44,028



10



(In thousands, unaudited)
Nine Months Ended September 30, 2018
 
Silver Slipper Casino and Hotel
 
Rising Star Casino Resort
 
Bronco Billy’s Casino and Hotel
 
Northern Nevada Casinos
 
Total
Revenues
 
 
 
 
 
 
 
 
 
Casino
$
34,123

 
$
23,194

 
$
15,955

 
$
13,097

 
$
86,369

Food and beverage
14,231

 
6,610

 
3,835

 
1,417

 
26,093

Hotel
2,412

 
4,529

 
507

 

 
7,448

Other operations
1,122

 
1,650

 
260

 
244

 
3,276

 
$
51,888

 
$
35,983

 
$
20,557

 
$
14,758

 
$
123,186


We have accruals for certain liabilities with customers, including liabilities for our customer loyalty programs and progressive jackpot liabilities. Such liabilities were $3.4 million at September 30, 2018 and $3.2 million at December 31, 2017.

5. PROPERTY AND EQUIPMENT
 Property and equipment, including capital lease assets, consists of the following:
(In thousands)
September 30,
2018
 
December 31,
2017
 
(Unaudited)
 
 
Land and improvements
$
16,002

 
$
15,376

Buildings and improvements
113,174

 
106,728

Furniture and equipment
43,673

 
41,281

Construction in progress
6,674

 
2,723

 
179,523

 
166,108

Less: Accumulated depreciation
(58,198
)
 
(52,050
)
 
$
121,325

 
$
114,058


6. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION
 
Long-Term Debt

Long-term debt, related discounts and issuance costs consist of the following:

(In thousands)
September 30,
2018
 
December 31, 2017
 
(Unaudited)
 
 
Senior Secured Notes
$
99,250

 
$

First Lien Term Loan

 
41,063

Revolving Loan

 

Second Lien Term Loan

 
55,000

 
99,250

 
96,063

Less: Discounts and unamortized debt issuance costs
(3,988
)
 
(1,497
)
 
95,262

 
94,566

Less: Current portion of long-term debt
(1,000
)
 
(1,000
)
 
$
94,262

 
$
93,566



11



Senior Secured Notes. On February 2, 2018, we sold $100 million of senior secured notes due 2024 (the “Notes”) to qualified institutional buyers. The Notes were issued on the same day at a price of 98% of their face value (a 2% original issue discount). Proceeds from the Notes were used to (i) pay fees and expenses incurred in connection with the debt offering; (ii) refinance the entire amounts outstanding under the First and Second Lien Credit Facilities; (iii) provide ongoing working capital; and (iv) provide funds for capital expenditures and for general corporate purposes. As of February 2, 2018, immediately prior to the issuance of the Notes, we had approximately $41 million outstanding under the First Lien Credit Facility and $55 million outstanding under the Second Lien Credit Facility, which were extinguished at a loss of $2.7 million, reflecting the call premiums on such debt and the write-off of unamortized debt issuance costs.

The Notes bear interest at the greater of the three-month London Interbank Offered Rate (“LIBOR”) or 1.0%, plus a margin rate of 7.0%. Interest on the Notes is payable quarterly in arrears, on March 31, June 30, September 30 and December 31 of each year until the Notes mature on February 2, 2024. On each interest payment date, we are required to make principal payments of $250,000 with a balloon payment for the remaining $94 million due upon maturity.

At any time prior to February 2, 2019, the Company may redeem all or a part of the Notes at a redemption price equal to 100% of the principal amount of Notes redeemed, plus the “Applicable Premium” (as defined in the indenture governing the Notes and similar to a “make whole” provision) and accrued and unpaid interest.

On or after February 2, 2019, the Company may redeem all or a part of the Notes plus the premium as set forth below, plus accrued and applicable unpaid interest:

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

The Notes are collateralized by substantially all of our assets and are guaranteed by all of our material subsidiaries. 

Interest Rate Cap Agreement. In April 2018, the Company purchased an Interest Rate Cap from Capital One, N.A. (“Capital One”) for $238,000 in order to manage expected interest rate increases on the Notes. The agreement is for a notional amount of $50 million and expires on March 31, 2021. The Interest Rate Cap has a strike rate of 3.00% and resets every three months at the end of March, June, September, and December. If the three-month LIBOR exceeds the strike rate at the end of any covered period, the Company will receive cash payments from Capital One.

Based on fair value measurements using Level 2 inputs (see Note 2), the Company adjusts the carrying value of the Interest Rate Cap quarterly. Since the Company did not elect for hedge accounting, any adjustments to the carrying value between reporting periods will be charged to interest expense on the consolidated statement of operations. In order to estimate the fair value of this derivative instrument, the Company obtains valuation reports from the third-party issuer of the Interest Rate Cap. Fair value of the Company’s Interest Rate Cap at September 30, 2018 was $278,079 and is presented on the consolidated balance sheet under non-current assets as “Deposits and other”.

Covenants. The indenture governing the Notes contains customary representations and warranties, events of default, and positive and negative covenants, including financial covenants. We are required to maintain a total leverage ratio (as defined below), which measures Consolidated EBITDA (as defined in the indenture) against outstanding debt. We are allowed to deduct up to $15 million of our cash and equivalents (beyond estimated cash utilized in daily operations) in calculating the numerator of such ratio.

12



Four Fiscal Quarters Ending
 
Maximum
Total Leverage
Ratio
September 30, 2018
 
5.50 to 1.00
December 31, 2018
 
5.25 to 1.00
March 31, 2019
 
5.00 to 1.00
June 30, 2019
 
5.00 to 1.00
September 30, 2019
 
4.75 to 1.00
December 31, 2019
 
4.75 to 1.00
March 31, 2020
 
4.50 to 1.00
June 30, 2020
 
4.50 to 1.00
September 30, 2020
 
4.25 to 1.00
December 31, 2020
 
4.25 to 1.00
March 31, 2021
 
4.25 to 1.00
June 30, 2021
 
4.25 to 1.00
September 30, 2021 and the last day of each fiscal quarter thereafter
 
4.00 to 1.00

We were in compliance with our covenants as of September 30, 2018. However, there can be no assurances that we will remain in compliance with all covenants in the future and/or that we would be successful in obtaining waivers or modifications in the event of noncompliance.

Capital Lease

Our Indiana subsidiary, Gaming Entertainment (Indiana) LLC, leases a 104-room hotel at Rising Star Casino Resort. At any time during the lease term, we have the option to purchase the hotel at a price based upon the project’s actual cost of $7.7 million, reduced by the cumulative principal payments made by the Company during the lease term.  At September 30, 2018, such net amount was $4.9 million. Upon expiration of the lease term in October 2027, (i) the Landlord has the right to sell the hotel to us, and (ii) we have the option to purchase the hotel.  In either case, the purchase price is $1 plus closing costs. 

7. COMMON STOCK WARRANT LIABILITY

The refinancing disclosed in Note 6 is considered a “triggering event” for the possible redemption or registration of the warrants, as further detailed below. The Company’s warrant-holders have not yet requested the redemption or registration of their outstanding warrants, though they may do so on any six-month anniversary of the refinancing date prior to warrant expiration. Accordingly, the obligation is reflected as a current liability as of September 30, 2018.

As part of the Company’s former Second Lien Credit Facility, on May 13, 2016, the Company granted the Second Lien Credit Facility lenders 1,006,568 warrants. The warrants have an exercise price of $1.67 and expire on May 13, 2026. The warrants also provide for redemption rights, preemptive rights under certain circumstances to maintain their ownership interest in the Company, piggyback registration rights and mandatory registration rights. In addition to a refinancing, the redemption rights allow the warrant-holders, at their option, to require the Company to repurchase all or a portion of the warrants upon the occurrence of certain events, including: (i) a liquidity event, as defined in the warrant purchase agreement, or (ii) the Company’s insolvency. The repurchase value is the 21-day average price of the Company’s common stock at the time of such liquidity event, net of the warrant exercise price. If the redemption rights are exercised, the repurchase amount is payable by the Company in cash or through the issuance of an unsecured note with a four-year term and a minimum interest rate of 13.25%, as further defined in the warrant purchase agreement, and would be guaranteed by the Company’s subsidiaries. Alternatively, the warrant-holders may choose to have the Company register and sell the shares related to the warrants through a public stock offering.

We measure the fair value of the warrants at each reporting period. Due to the variable terms regarding the timing of the settlement of the warrants, the Company utilized a “Monte Carlo” simulation approach to measure the fair value of the warrants. The simulation included certain estimates by Company management regarding the estimated timing of the settlement of the warrants. Significant increases or decreases in those management estimates would result in a significantly higher or lower fair value measurement. At September 30, 2018, the simulation included the following assumptions: an expected contractual term of 7.62 years, an expected stock price volatility rate of 42.90%, an expected dividend yield of 0%, and an expected risk-free interest

13



rate of 3.03%. The common stock warrant liability at September 30, 2018 was $1.6 million compared to $2.5 million at December 31, 2017.

8. INCOME TAXES
 
The Company’s effective income tax rate for the three- and nine-months ended September 30, 2018 was 7.1% and (11.8)%, respectively, compared to an effective income tax rate of 18.9% and (70.2)% in the corresponding prior-year periods. Our tax rate differs from the statutory rate of 21.0% primarily due to the effects of valuation allowances against net deferred tax assets, as well as certain permanent item differences between tax and financial reporting purposes.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “2017 Tax Act”).  The 2017 Tax Act establishes new tax laws that will affect 2018 and beyond, including, but not limited to: (i) reduction of the U.S. federal corporate tax rate from 35% to 21%; (ii) elimination of the corporate alternative minimum tax; (iii) limitations on the deductibility of interest expense; (iv) limitations on the deductibility of certain executive compensation; and (v) limitations on the use of net operating losses (“NOLs”) generated after December 31, 2017 to reduce taxable income.

The SEC staff issued Staff Accounting Bulletin (“SAB”) 118, which provides guidance on accounting for the tax effects of the 2017 Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the 2017 Tax Act enactment date for companies to complete the accounting under Accounting Standards Codification (“ASC”) 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the 2017 Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the 2017 Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements.  If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the 2017 Tax Act.

As of September 30, 2018, the Company was able to reasonably estimate the effects of the 2017 Tax Act and recorded provisional adjustments associated with the effects on existing deferred tax balances. The Company will continue to make and refine its calculations as additional analysis is completed and further guidance is provided. The provisional amount recorded related to the remeasurement of its deferred tax balance at December 31, 2017 remains unchanged as of September 30, 2018. We do not expect to pay any federal income taxes or receive any federal tax refunds related to our 2018 results. Tax losses incurred in 2018 may shelter taxable income in future years. However, because of the level of uncertainty regarding sufficient prospective income, we maintain a valuation allowance against our remaining deferred tax assets.

9. COMMITMENTS AND CONTINGENCIES
 
Litigation

We are 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 our financial position, results of operations and cash flows.

Options to Purchase or Lease Land and Buildings

Bronco Billy’s Expansion. During November 2017, the Company capitalized $0.2 million of costs for options to either purchase or lease various buildings and land in Cripple Creek, Colorado, near Bronco Billy’s. The options include:

A land lease with purchase option, consisting of a closed casino that was renovated and reopened on November 1, 2018 as the Christmas Casino. The Company exercised the lease option during the second quarter of 2018, with a lease commencement of August 2018. The lease includes a minimum three-year term with annual lease payments of $0.2 million, and can be extended an additional two years with annual lease payments of $0.3 million. The Company can also purchase the casino prior to lease-end at a price that increases over time, with a purchase price of $2.5 million if bought by October 31, 2019, and increasing by $0.1 million on each anniversary thereafter up to $2.8 million;
An option to purchase land improved with a hotel for $1.7 million, which the Company exercised during the second quarter of 2018 and now owns; and
An option to purchase land for $0.3 million, which the Company exercised during the first quarter of 2018 and now owns.


14



The Company also had a short-term lease on a parking lot behind Bronco Billy’s that included an option to purchase the lot for $1.2 million. The Company exercised its right to purchase such land in June 2018 and closed on the purchase in August 2018.

La Posada del Llano Racetrack Proposal in New Mexico. During July 2018, the Company paid $125,000 for options to purchase approximately 520 acres of adjoining land in Clovis, New Mexico as part of its racetrack casino proposal to the New Mexico Racing Commission. The proposal was in response to the New Mexico Racing Commission’s request for proposals related to the potential issuance of the state’s sixth racing license. The options include:

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

Operating Leases
 
In addition to the following leases, we have less-significant operating leases for certain office and warehouse facilities, office equipment, signage and land.

Silver Slipper Casino Land Lease through April 2058 and Options to Purchase.  In 2004, our subsidiary, Silver Slipper Casino Venture, LLC, entered into a land lease with Cure Land Company, LLC for approximately 31 acres of marshlands and a seven-acre parcel on which the Silver Slipper Casino and Hotel is situated. The land lease includes base monthly payments of $77,500 plus contingent rents of 3% of monthly gross gaming revenue (as defined in the lease agreement) in excess of $3.65 million. Total rent payments during the nine-months ended September 30, 2018 were $1.2 million.

The land lease also includes an exclusive option to purchase the leased land during the period from February 26, 2019 through October 1, 2027, for $15.5 million plus a seller-retained interest in Silver Slipper Casino and Hotel’s operations of 3% of net income (as defined) for ten years following the purchase date. In the event that we sell or transfer (i) substantially all of the assets of Silver Slipper Casino Venture, LLC, or (ii) our membership interests in Silver Slipper Casino Venture, LLC in its entirety, the purchase price will increase to $17.1 million plus the retained interest mentioned above for ten years.

Bronco Billy’s Lease through January 2035 and Option to Purchase.  Bronco Billy’s leases certain parking lots and buildings, including a portion of the hotel and casino, under a long-term lease. The lease term includes six renewal options in three-year increments to 2035. Bronco Billy’s exercised its first renewal option through January 2020, which increased the monthly rents from $18,500 to $25,000 for the first two years of the renewal period and $30,000 for the third year. The lease also contains a $7.6 million purchase option exercisable at any time during the lease and a right of first refusal on any sale of the property.

Grand Lodge Casino Lease through August 2023.  Our subsidiary, Gaming Entertainment (Nevada), LLC, has a lease with Hyatt Equities, L.L.C. (“Hyatt”) to operate the Grand Lodge Casino.  The lease is collateralized by the Company’s interests under the lease and property as defined in the lease and is subordinate to the liens of the Notes. Hyatt has an option, beginning January 1, 2019, to purchase our leasehold interest and related operating assets of the Grand Lodge Casino subject to assumption of applicable liabilities. The option price is an amount equal to the Grand Lodge Casino’s positive working capital, plus Grand Lodge Casino’s earnings before interest, income taxes, depreciation and amortization (“EBITDA”) for the twelve-month period preceding the acquisition (or pro-rated if less than twelve months remain on the lease), plus the fair market value of the Grand Lodge Casino’s personal property. On January 1, 2018, the monthly rent payment increased from $145,833 to $166,667.

Corporate Office Lease. In June 2017, the Company began occupying 4,479 square feet of office space in Las Vegas, Nevada. The office lease terms include an expiration date in January 2025 and approximately $0.2 million of annual rents.


15



10. EARNINGS (LOSS) PER SHARE AND STOCKHOLDERS EQUITY

The table below reconciles basic and diluted loss per share of common stock:
(In thousands, unaudited)
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
 
2018
 
2017
 
2018
 
2017
Numerator:
 
 
 
 
 
 
 
Net income (loss) - basic
$
1,565

 
$
789

 
$
(3,382
)
 
$
(1,338
)
Adjustment for assumed conversion of warrants
(463
)
 

 
(886
)
 

Net income (loss) - diluted
$
1,102

 
$
789

 
$
(4,268
)
 
$
(1,338
)
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted-average common share equivalents - basic
26,932

 
22,891

 
25,702

 
22,877

Potential dilution from share-based awards
1,101

 
772

 

 

Potential dilution from assumed conversion of warrants
457

 

 
486

 

Weighted-average common and common share equivalents - diluted
28,490

 
23,663

 
26,188

 
22,877

Anti-dilutive share-based awards and warrants excluded from the calculation of diluted loss per share
152

 
1,487

 
2,576

 
3,545


In March 2018, we completed a registered direct offering for a total of 3,943,333 shares of our common stock at a price of $3.00 per share, resulting in net proceeds to us of approximately $11.4 million. We intend to use the net proceeds from this offering for general corporate purposes, including Phase One of our planned expansion of Bronco Billy’s Casino and Hotel in Cripple Creek, Colorado.

11. SHARE-BASED COMPENSATION

As of September 30, 2018, we had 902,059 share-based awards authorized by shareholders and available for grant from the 2015 Equity Incentive Plan.

The following table summarizes information related to our common stock options as of September 30, 2018:
 
Number
of Stock
Options
 
Weighted
Average
Exercise Price
Options outstanding at January 1, 2018
2,491,274

 
$
1.59

Granted
152,000

 
2.97

Exercised

 

Canceled/Forfeited
(16,666
)
 
2.01

Expired
(50,834
)
 
$
1.64

Options outstanding at September 30, 2018
2,575,774

 
$
1.67

Options exercisable at September 30, 2018
1,876,118

 
$
1.45


Share-based compensation expense totaled $114,000 and $128,000 for the three-months ended September 30, 2018 and 2017, respectively, and $521,000 and $397,000 for the nine-months ended September 30, 2018 and 2017, respectively. As of September 30, 2018, there was approximately $0.5 million of unrecognized compensation cost related to unvested stock options previously granted that is expected to be recognized over a weighted-average period of approximately one year.

As compensation for their annual service, the Company issued in May 2018 to certain non-executive members of its Board of Directors a total of 17,910 restricted shares under the 2015 Plan with a one-year transfer restriction.


16



12. SEGMENT REPORTING
 
We manage our casinos based on geographic regions within the United States. The casino/resort operations include four segments: Silver Slipper Casino and Hotel (Hancock County, Mississippi); Rising Star Casino Resort, consisting of Rising Star Casino Resort (Rising Sun, Indiana) and our ferry boat operations (connecting Rising Sun, Indiana with Boone County, Kentucky); Bronco Billy’s Casino and Hotel (including the Christmas Casino & Inn, in Cripple Creek, Colorado); and the Northern Nevada segment, consisting of Grand Lodge Casino (Incline Village, Nevada) and Stockman’s Casino (Fallon, Nevada).

The Company utilizes Adjusted Property EBITDA as the measure of segment profit in assessing performance and allocating resources at the reportable segment level. Adjusted Property EBITDA is defined as earnings before interest and other non-operating income (expense), taxes, depreciation and amortization, 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 property.

The following tables present the Company’s segment information:
(In thousands, unaudited)
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
Net Revenues
 
 
 
 
 
 
 
     Silver Slipper Casino and Hotel
$
17,887

 
$
16,425

 
$
51,888

 
$
49,520

     Rising Star Casino Resort
12,228

 
12,698

 
35,983

 
37,498

     Bronco Billy’s Casino and Hotel
7,520

 
7,505

 
20,557

 
20,140

     Northern Nevada Casinos
6,393

 
7,098

 
14,758

 
16,309

 
$
44,028

 
$
43,726

 
$
123,186

 
$
123,467

Adjusted Property EBITDA
 
 
 
 
 
 
 
     Silver Slipper Casino and Hotel
$
3,072

 
$
3,054

 
$
9,138

 
$
9,013

     Rising Star Casino Resort
831

 
728

 
2,100

 
2,671

     Bronco Billy’s Casino and Hotel
1,463

 
1,769

 
3,424

 
4,092

     Northern Nevada Casinos
2,066

 
1,892

 
2,526

 
2,391

 
7,432

 
7,443

 
17,188

 
18,167

Other operating costs and expenses:
 
 
 
 
 
 
 
Depreciation and amortization
(2,094
)
 
(2,193
)
 
(6,300
)
 
(6,428
)
Corporate expenses
(960
)
 
(1,064
)
 
(3,311
)
 
(3,518
)
Preopening costs
(140
)
 

 
(140
)
 

Project development and acquisition costs
(390
)
 
(53
)
 
(557
)
 
(238
)
Gain (loss) on disposals

 
(12
)
 
(79
)
 
2

Share-based compensation
(114
)
 
(128
)
 
(521
)
 
(397
)
Operating income
3,734

 
3,993

 
6,280

 
7,588

Other (expense) income:
 
 
 
 
 
 
 
Interest expense
(2,513
)
 
(2,718
)
 
(7,519
)
 
(8,102
)
Loss on extinguishment of debt

 

 
(2,673
)
 

Adjustment to fair value of warrants
463

 
(302
)
 
886

 
(272
)
 
(2,050
)
 
(3,020
)
 
(9,306
)
 
(8,374
)
Income (loss) before income taxes
1,684

 
973

 
(3,026
)
 
(786
)
Provision for income taxes
119

 
184

 
356

 
552

Net income (loss)
$
1,565

 
$
789

 
$
(3,382
)
 
$
(1,338
)



17



(In thousands)
September 30,
2018
 
December 31,
2017
 
(Unaudited)
 
 
Total Assets
 
 
 
     Silver Slipper Casino and Hotel
$
79,358

 
$
80,780

     Rising Star Casino Resort
40,302

 
36,327

     Bronco Billy’s Casino and Hotel
40,893

 
35,567

     Northern Nevada Casinos
11,998

 
12,235

     Corporate and Other
9,839

 
8,576

 
$
182,390

 
$
173,485



18



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties. Please see “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions that may cause our actual results to differ materially from those discussed in the forward-looking statements. This discussion should be read in conjunction with our historical financial statements and related notes thereto and the other disclosures contained elsewhere in this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and notes for the fiscal year ended December 31, 2017, which were included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 8, 2018. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods. Full House Resorts, Inc., together with its subsidiaries, may be referred to as “Full House”, the “Company”, “we”, “our” or “us”, except where stated or the context otherwise indicates.
 
Executive Overview

Our primary business is the ownership and/or operation of casino and related hospitality and entertainment facilities, which includes gaming, hotel, dining, entertainment, retail and other amenities. We own and/or operate five casino properties in four states: Mississippi, Colorado, Indiana and Nevada. We view our Mississippi, Colorado and Indiana properties as distinct operating segments and both of our Nevada properties as one operating segment. In late September 2018, we commenced ferry boat service at Rising Star Casino Resort. With the addition of this new operation between Indiana and Kentucky, the Rising Star Casino Resort segment includes ferry boat operations starting in the third quarter of 2018. On November 1, 2018, we opened the Christmas Casino & Inn in Cripple Creek, Colorado, which we will include as part of the Bronco Billy’s operation.

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

Our financial results are dependent upon the number of patrons that we attract to our properties and the amounts those guests spend per visit. While we do provide credit at some of our casinos where we are permitted to by gaming regulations, most of our revenues are cash-based, through customers wagering with cash or paying for non-gaming services with cash or credit cards. Our revenues are primarily derived from gaming activities, which include slot machines, table games and keno. In addition, we derive a significant amount of revenue from our hotels and our food and beverage outlets. We also derive revenues from our golf course (at Rising Star Casino Resort), retail outlets and entertainment, and expect to derive additional revenues from our newly-constructed projects and new ferry boat service as further described herein. Promotional allowances in 2017 consist primarily of hotel rooms and food and beverages furnished to customers on a complimentary basis. Historically, the retail value of such services was included in the respective revenue classifications and then deducted as promotional allowances to calculate net revenues. With the adoption of the new revenue recognition standard discussed below, amounts historically included in the promotional allowances line have been eliminated as they are now included as a contra-revenue, primarily to casino revenues. We may experience significant fluctuations in our quarterly operating results due to seasonality, variations in gaming hold percentages and other factors. Consequently, our operating results for any quarter or year are not necessarily comparable and may not be indicative of future periods’ results. 

The casino resort industry is capital-intensive, and we rely on the ability of our properties to generate operating cash flow to pay interest, repay debt, and fund maintenance capital expenditures. We continuously focus on improving the operating margins of our existing properties through a combination of revenue growth and expense management. We also assess growth and development opportunities, which include capital investments at our existing properties, the development of new properties, and the acquisition of existing properties.


19




Bronco Billys Expansion

In November 2017, we announced plans to build a new luxury hotel tower in Cripple Creek, Colorado, adjoining and integral with our existing Bronco Billy’s Casino and Hotel. The expansion, which we anticipate completing in two phases, is expected to include a spa, parking garage, convention and entertainment space, and a high-end restaurant.

Phase One of the Bronco Billy’s expansion project includes the construction of a 286-space parking garage and the purchase of the Imperial Hotel, which the Company acquired in June 2018. We also exercised our options to purchase certain parcels of land adjacent to Bronco Billy’s. As part of Phase One, we refurbished and reopened the Imperial Casino as the Christmas Casino, which occurred on November 1, 2018, and intend to complete the refurbishment of the Imperial Hotel. Our lease for the new Christmas Casino commenced August 13, 2018 and includes an option to extend such lease or to purchase. The anticipated total budget of Phase One, including real estate purchases, the Christmas Casino & Inn, and the cost of a connector building between the parking garage and casino that was previously included as a part of Phase Two, is approximately $19 million, of which we have invested $4.3 million to date.

Phase Two of the Bronco Billy’s expansion project, which includes construction of the new luxury hotel tower, spa, convention and entertainment space, and high-end restaurant, is contingent upon receipt of financing on acceptable terms, among other contingencies. We received a 4-0 vote from the Cripple Creek City Council in favor of certain variances and other approvals necessary for the expansion in April 2018, as well as final approvals from the Cripple Creek City Council and approval of a development agreement in June 2018. Such approvals included the vacation of two streets bifurcating the property. A group of competitors filed suit against the Company and the City of Cripple Creek for having granted such approvals. However, in October 2018, the court granted a Motion to Dismiss the suit based on the plaintiffs’ lack of standing. The plaintiffs have a 49-day window to appeal, which concludes at the end of November 2018. However, we do not expect that any such appeals will delay or prevent the project.

Key Performance Indicators

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

 Gaming revenue indicators:

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

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

 Room revenue indicators:

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

Adjusted EBITDA, Adjusted Property EBITDA and Adjusted Property EBITDA Margin:

Management uses Adjusted EBITDA as a measure of our performance. For a description of Adjusted EBITDA see “Non-GAAP Financial Measure.” We utilize Adjusted Property EBITDA as the measure of segment profit in assessing performance and allocating resources at the reportable segment level. For information regarding our operating segments, see Note 12 of our Condensed Notes to Consolidated Financial Statements included in this quarterly report. In addition, we use Adjusted Property EBITDA Margin which is calculated by dividing Adjusted Property EBITDA by the property’s net revenues.

20



Results of Operations
 
Consolidated operating results
The following tables summarize our consolidated operating results for the three- and nine-months ended September 30, 2018 and 2017. We adopted Accounting Standards Codification 606 for Revenue from Contracts with Customers (“ASC 606”) on January 1, 2018. See Notes 2 and 3 of our Condensed Notes to Consolidated Financial Statements for more details regarding this new revenue recognition standard, as well as a summary of its effects on our revenues and expenses. We do not expect that this new revenue recognition standard will have an aggregate material impact on operating income, net income, or cash flows on an ongoing basis. However, due to the adoption of the new revenue recognition standard, departmental revenues and expenses varied significantly due to reclassifications between the various departments, in addition to other changes discussed in Note 3.

(In thousands)
Three Months Ended 
 September 30,
 
Difference
 
2018
 
2017
 
Percent
 
Total
 
ASC 606
 
Other
Net revenues
$
44,028

 
$
43,726

 
0.7
 %
 
$
302

 
$
(463
)
 
$
765

Operating expenses
40,294

 
39,733

 
1.4
 %
 
561

 
(465
)
 
1,026

Operating income
3,734

 
3,993

 
(6.5
)%
 
(259
)
 
2

 
(261
)
Interest and other non-operating expenses, net
2,050

 
3,020

 
(32.1
)%
 
(970
)
 

 
(970
)
Income tax expense
119

 
184

 
(35.3
)%
 
(65
)
 

 
(65
)
Net income
$
1,565

 
$
789

 
98.4
 %
 
$
776

 
$
2

 
$
774


(In thousands)
Nine Months Ended 
 September 30,
 
Difference
 
2018
 
2017
 
Percent
 
Total
 
ASC 606
 
Other
Net revenues
$
123,186

 
$
123,467

 
(0.2
)%
 
$
(281
)
 
$
(890
)
 
$
609

Operating expenses
116,906

 
115,879

 
0.9
 %
 
1,027

 
(867
)
 
1,894

Operating income
6,280

 
7,588

 
(17.2
)%
 
(1,308
)
 
(23
)
 
(1,285
)
Interest and other non-operating expenses, net
9,306

 
8,374

 
11.1
 %
 
932

 

 
932

Income tax expense
356

 
552

 
(35.5
)%
 
(196
)
 

 
(196
)
Net loss
$
(3,382
)
 
$
(1,338
)
 
152.8
 %
 
$
(2,044
)
 
$
(23
)
 
$
(2,021
)


The following tables detail our net revenues for the three- and nine-months ended September 30, 2018 and 2017, which are comprised of casino and non-casino operations.  Non-casino revenues for the periods ended 2017 are shown below as net of promotional allowances, which differ from gross amounts presented on the consolidated statement of operations.  We believe this presentation is appropriate for our discussions as it includes the allocation of promotional allowances made to the respective revenue categories, when compared to the single line item shown on the consolidated statement of operations.  Additionally, we do not believe presenting promotional allowances herein for the 2017 periods is beneficial to our comparisons, as we no longer present that line for the current periods in 2018 due to the adoption of the new revenue recognition standard (see Note 2).



21



(In thousands)
Three Months Ended 
 September 30,
 
Difference
 
2018
 
2017
 
Percent
 
Total
 
ASC 606
 
Other
Casino revenues
 
 
 
 
 
 
 
 
 
 
 
Slots
$
25,541

 
$
33,862

 
(24.6
)%
 
$
(8,321
)
 
$
(9,070
)
 
$
749

Table games
4,999

 
5,022

 
(0.5
)%
 
(23
)
 

 
(23
)
Other
227

 
125

 
81.6
 %
 
102

 

 
102

 
30,767

 
39,009

 
(21.1
)%
 
(8,242
)
 
(9,070
)
 
828

Non-casino revenues, net
 
 
 

 
 
 
 
 
 
 
 
Food and beverage
9,371

 
3,283

 
185.4
 %
 
6,088

 
6,045

 
43

Hotel
2,583

 
568

 
354.8
 %
 
2,015

 
2,140

 
(125
)
Other
1,307

 
866

 
50.9
 %
 
441

 
422

 
19

 
13,261

 
4,717

 
181.1
 %
 
8,544

 
8,607

 
(63
)
Total net revenues
$
44,028

 
$
43,726

 
0.7
 %
 
$
302

 
$
(463
)
 
$
765


(In thousands)
Nine Months Ended 
 September 30,
 
Difference
 
2018
 
2017
 
Percent
 
Total
 
ASC 606
 
Other
Casino revenues
 
 
 
 
 
 
 
 
 
 
 
Slots
$
72,309

 
$
96,028

 
(24.7
)%
 
$
(23,719
)
 
$
(24,694
)
 
$
975

Table games
13,586

 
14,330

 
(5.2
)%
 
(744
)
 

 
(744
)
Other
474

 
344

 
37.8
 %
 
130

 

 
130

 
86,369

 
110,702

 
(22.0
)%
 
(24,333
)
 
(24,694
)
 
361

Non-casino revenues, net
 
 
 

 
 
 
 
 
 
 
 
Food and beverage
26,093

 
9,147

 
185.3
 %
 
16,946

 
16,735

 
211

Hotel
7,448

 
1,309

 
469.0
 %
 
6,139

 
6,175

 
(36
)
Other
3,276

 
2,309

 
41.9
 %
 
967

 
894

 
73

 
36,817

 
12,765

 
188.4
 %
 
24,052

 
23,804

 
248

Total net revenues
$
123,186

 
$
123,467

 
(0.2
)%
 
$
(281
)
 
$
(890
)
 
$
609


The following discussion is based on our consolidated financial statements for the three- and nine-months ended September 30, 2018 and 2017.
 
Revenues. Consolidated net revenues for the three-month period increased primarily due to higher slot and food revenues at Silver Slipper, along with Silver Slipper’s addition of sports book operations in late August 2018, in partnership with a company specializing in race and sports betting. These gains were partially offset by revenue declines at Rising Star and our Northern Nevada operations and, to a lesser extent, the adoption of the new revenue recognition standard.

Consolidated net revenues for the nine-month period decreased primarily due to the new revenue recognition standard and adverse weather throughout the Company’s portfolio in the first quarter of 2018. These declines were substantially offset by revenue growth in the second and third quarters of 2018.

See further information within our reportable segments described below.

Operating Expenses. Consolidated operating expenses for the three-month period increased primarily due to added preopening costs as well as project development and acquisition costs within the quarter, which account for 94.5% of the total change. Likewise for the nine-month period, these same costs accounted for 67.9% of the total change in consolidated operating expenses with the remaining increases due to increased labor costs and company-wide increases to healthcare and benefits costs. See further information within our reportable segments described below.

Expenses for individual departments varied significantly due to the new revenue recognition standard, as the new standard no longer requires us to reclassify the estimated cost of complimentaries provided to a gaming customer from other expense

22



categories to casino expenses. See Notes 2 and 3 of our Condensed Notes to Consolidated Financial Statements for more details regarding the new revenue recognition standard, which impacted reporting for casino expenses by $(8.3) million, food and beverage expenses by $7.0 million, and hotel expenses by $2.3 million for the three-month period. For the nine-month period, the new revenue recognition standard impacted reporting for casino expenses by $(22.9) million, food and beverage expenses by $19.7 million, and hotel expenses by $6.9 million.


Interest and Other Non-Operating Expenses.

Interest Expense

Interest expense consists of the following:
    
(In thousands)
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
Interest cost (excluding loan fee amortization)
$
2,469

 
$
2,573

 
$
7,292

 
$
7,518

Amortization of debt issuance costs and discount
197

 
222

 
595

 
661

Change in fair value of interest rate cap agreement
(41
)
 

 
(40
)
 

Capitalized interest
(112
)
 
(77
)
 
(328
)
 
(77
)
 
$
2,513

 
$
2,718

 
$
7,519

 
$
8,102

 
The decreases in interest expense above for the respective three- and nine-month periods were primarily due to the refinancing of our debt in February 2018 with $100 million of new senior secured notes due 2024 (the “Notes”), which had a lower effective interest rate than our prior credit facilities, and the increased capitalization of interest expense during the 2018 period.

Other Non-Operating Expenses, Net

For the three-month period ended September 30, 2018, we had $0.5 million of other non-operating income from the fair value adjustment to our outstanding warrants, which is a non-cash item related to changes in the Company’s stock price. For the nine-month period ended September 30, 2018, we incurred $1.8 million of other non-operating expenses, due to a loss on the extinguishment of debt and a fair value adjustment to our outstanding warrants. This compares to $302,000 and $272,000 of other non-operating expense, respectively, for the three- and nine-month periods ended September 30, 2017, due to a fair value adjustment to our warrants.
    
 Income Tax Expense. Income tax expense was $0.1 million and $0.4 million for the three- and nine-month periods ended September 30, 2018. Income tax expense did not change significantly and the effects of the Tax Cuts and Jobs Act (the “2017 Tax Act”) were not material.

We do not expect to pay any federal income taxes or receive any federal tax refunds related to our 2018 results. Tax losses incurred in 2018 may shelter taxable income in future years. However, because of the level of uncertainty regarding sufficient prospective income, we maintain a valuation allowance against our remaining deferred tax assets.
 
Operating Results – Reportable Segments

We manage our casinos based on geographic regions within the United States. Accordingly, Stockman’s Casino and Grand Lodge Casino comprise our Northern Nevada business segment. With the addition of ferry boat operations in late September of 2018, our Rising Star Casino Resort segment now includes ferry boat operations between Indiana and Kentucky, while Silver Slipper Casino and Hotel and Bronco Billy’s Casino and Hotel each remain as distinct segments. On November 1, 2018, we opened the Christmas Casino & Inn in Cripple Creek, Colorado, which we will include as part of the Bronco Billy’s operation.
 
The following table presents detail by segment of our consolidated net revenue and Adjusted EBITDA. Management uses Adjusted Property EBITDA as the measure of segment profit. The comparability of the information for the periods presented was not materially affected by the implementation of the new revenue recognition standard.

23



(In thousands)
Three Months Ended 
 September 30,
 
Percent Change
 
Nine Months Ended 
 September 30,
 
Percent Change
 
2018
 
2017
 
 
2018
 
2017
 
Net revenues
 
 
 
 
 
 
 
 
 
 
 
Silver Slipper Casino and Hotel
$
17,887