Full House Resorts Announces Results for 2Q
On a consolidated basis, net revenues in the second quarter of 2016 increased 13.4% to $34.8 million, up from $30.7 million in the prior-year period. Adjusted EBITDA rose to $3.4 million in the 2016 second quarter, a 15.6% increase from $2.9 million in the second quarter of 2015. These results reflect 49 days of operating results at Bronco Billy's Casino and Hotel, which the Company acquired on May 13, 2016.
Net loss for the second quarter of 2016 was $2.4 million, or a loss of $0.13 per common share, compared to a net loss of $427,000, or a loss of $0.02 per common share, in the prior-year period. The increase in net loss was primarily due to the following items in the 2016 period: acquisition costs to complete the Company's purchase of Bronco Billy's; debt modification costs related to the Company's amended and restated credit facilities; and an increase in interest expense, as the Company financed its acquisition of Bronco Billy's through a $35 million increase in the size of its credit facilities. Despite the net loss, we produced significant cash flow from operating activities in both periods, as the Company has depreciation and other non-cash charges that are fairly large relative to our Company's size.
"The second quarter was an exciting period for our Company," said Daniel R. Lee, President and Chief Executive Officer of Full House Resorts. "First, we successfully amended, restated, and augmented our first and second lien credit facilities. Our new first lien credit facility matures in May 2019, and we have begun efforts to extend that maturity date even further into the future. By extending the maturity date of our first lien facility, we will also extend the maturity date of our second lien facility. The second lien credit facility matures six months after the first lien facility's maturity date or in May 2022, whichever occurs sooner. In addition to extending our maturity dates, we lowered the interest rate on the second lien credit facility by 75 basis points.
"Additionally," continued Mr. Lee, "we completed our purchase of Bronco Billy's in Cripple Creek, Colorado, using our second lien facility. That property performed very strongly in the second quarter, and continues to perform well thus far in the third quarter. Bronco Billy's has historically been a very stable asset, and we welcome the additional diversity it brings to our Company.
"Our other properties were adversely affected by lower hold percentages, especially Grand Lodge and the Silver Slipper," concluded Mr. Lee. "Additionally, regarding the Silver Slipper in particular, we have seen an increase in promotional activity throughout the Gulf Coast gaming market. We reacted to this in early July with marketing changes that we believe will be beneficial from both a competitive and a financial point of view. At all of our properties, we have identified targeted growth projects that we believe will continue to drive growth for our Company and deliver value for our shareholders."
Second Quarter 2016 Highlights and Subsequent Events
- Net revenues at the Silver Slipper Casino and Hotel rose modestly in the second quarter of 2016 to $14.5 million from $14.4 million in the prior-year quarter. This was despite a table games hold percentage in this year's second quarter of 16.7%, versus 18.7% in the prior-year period and a 17.4% average over the past three years. Adjusted Property EBITDA declined to $2.4 million in the second quarter of 2016 from $2.7 million in the prior-year period. Results in the 2016 period were affected by that adverse hold in the quarter, as well as by heightened competition and promotional activities in the Gulf Coast region. Hotel occupancy improved throughout the quarter, rising to 93% in June 2016. The Company continues to analyze ways to improve its midweek business in both the hotel and the casino.
- At the Rising Star Casino Resort, net revenues improved to $12.1 million in the 2016 second quarter from $11.8 million in the second quarter of 2015. Adjusted Property EBITDA of $432,000 in this year's second quarter compares to $592,000 in the second quarter of 2015, reflecting promotional activities that did not yield the expected benefits in the recent quarter.
- On July 13, 2016, we received a conditional use permit from the Boone County Board of Adjustment for a ferry landing on land that the Company owns in Rabbit Hash, Kentucky. We intend to operate a 10-vehicle ferry boat to significantly shorten the distance for customers traveling from Kentucky to Rising Star, located across the river. Commencement of ferry boat operations remains subject to additional approvals, including from the Army Corps of Engineers and the U.S. Coast Guard.
- As discussed below, the Company acquired the assets and certain liabilities of Bronco Billy's Casino and Hotel on May 13, 2016. From the acquisition date through the end of the second quarter, Bronco Billy's had net revenues of $3.6 million and Adjusted Property EBITDA of $1.1 million. Its Adjusted Property EBITDA margin of 30.4% for the stub period is higher than the Company expects over the longer-term due to a graduated gaming tax structure in Colorado, which has lower gaming tax rates for lower revenue levels. Full House Resorts, as a new gaming licensee in the state, was taxed at these lower revenue levels from May 13 through June 30. On July 1, all gaming license holders in the state reset to the lower revenue levels due to the start of a new fiscal year for the State of Colorado.
- The Northern Nevada segment consists of the Grand Lodge and Stockman’s casinos. The Grand Lodge Casino was also adversely impacted by a table games hold percentage that was 12.1% in the recent quarter, versus 18.0% in the prior-year period and a three-year average of 15.8%. Stockman's Casino continued to benefit from casino layout and other physical improvements made in late 2015. Combined, Northern Nevada net revenues rose 2.3% to $4.7 million from $4.6 million in the 2015 second quarter. Adjusted Property EBITDA for the Northern Nevada segment was $624,000 in the second quarter of 2016 and $679,000 in the 2015 period.
- The Company has been working with its landlord, the Hyatt organization, and the well-known design firm of TAL Studios on a planned $5.0 million renovation of the Grand Lodge Casino over the coming year, $1.5 million of which will be funded by Full House Resorts. The renovation is being carefully planned for the off-season between mid-March and mid-June 2017 and will be implemented without closing the casino. Additionally, the Company has developed plans for the redesign of the main entrances and significant parking access improvements at Stockman's Casino. We expect to begin construction at Stockman's in the third quarter and complete the construction near the end of 2016. For both projects, the Company expects minimal construction disruption.
- On May 13, 2016, the Company completed its purchase of the assets and certain liabilities of Bronco Billy's Casino and Hotel in Cripple Creek, Colorado for $31.1 million, inclusive of an estimate for working capital. Targeting the approximately 700,000 people in the Colorado Springs metropolitan area, Bronco Billy's has approximately 803 slot and video poker machines, 13 table games, a 24-room hotel, a steakhouse, four casual dining outlets, and an outdoor amphitheater. It also controls adjacent land where the Company could eventually build a significantly larger hotel.
- On May 13, 2016, concurrent with its acquisition of Bronco Billy's, the Company successfully amended and restated its first and second lien credit facilities. The new first lien credit facility matures in May 2019, and the new second lien credit facility matures six months after the first lien facility's maturity date or in May 2022, whichever occurs sooner. In addition to extending the maturity dates, the interest rate on the second lien facility was reduced from 14.25% to 13.5%.
- In connection with the amended and restated second lien credit facility, the Company issued warrants to its second lien lenders representing 5% of the outstanding common equity of the Company, as determined on a fully-diluted basis. The warrants have an exercise price of $1.67 (the volume-weighted average trading price of the Company's common stock during a 60-day period bracketing the completion of the financing) and expire May 13, 2026. The warrants also provide the second lien lenders with certain redemption rights, pre-emptive rights to maintain their 5% ownership interest in the Company, piggyback registration rights, and mandatory registration rights after two years. The Company valued the warrants as of the closing date, May 13, 2016, and will continue to value the warrants at the end of every quarterly period. On June 30, 2016, due to the increase in the Company's stock price, the fair value of the warrants increased by $0.2 million. This change in fair value was reflected as part of "Other" non-operating expense on the consolidated statements of operations.
- The Company incurred approximately $485,000 of project development, acquisition, and other expenses during the second quarter of 2016. This amount primarily consists of costs related to the Company's acquisition of Bronco Billy's Casino and Hotel.
Liquidity and Capital Resources
As of June 30, 2016, the Company had $20.6 million in cash and $100.0 million in outstanding principal for its first and second lien debt. Of the Company’s $2.0 million revolving credit facility, none was drawn at June 30, 2016. Net debt as of June 30, 2016 was $79.4 million.