FULL HOUSE RESORTS, INC. The following discussion of our results of operations and financial condition should be read together with the other financial information and consolidated financial statements included in this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the results anticipated in the forward-looking statements as a result of a variety of factors, including those discussed in Part I, Item 1A. "Risk Factors" and elsewhere in this Annual Report on Form 10-K. 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."
Executive Overview
Our primary business is the ownership and/or operation of casino and related hospitality and entertainment facilities, which includes offering casino gambling, hotel accommodations, dining, golfing, RV camping, sports betting, entertainment and retail outlets, among other amenities. We currently operate six casinos: five on real estate that we own or lease and one located within a hotel owned by a third party. Construction continues for a seventh property,Chamonix Casino Hotel ("Chamonix"), adjacent to our existingBronco Billy's Casino and Hotel inCripple Creek, Colorado . We are also designing our permanentAmerican Place casino destination, which will be built adjacent to a temporary facility that we opened inFebruary 2023 named The Temporary byAmerican Place ("The Temporary") (see Note 12 to the consolidated financial statements set forth in Part II, Item 8. "Financial Statements and Supplementary Data"). We intend to operate The Temporary until the opening ofAmerican Place . Additionally, we benefit from seven permitted sports wagering "skins" - three inColorado , three inIndiana , and one inIllinois . Other companies operate or will operate these online sports wagering websites under their brands, paying us a percentage of revenues, as defined, subject to annual minimum amounts.
In addition to our Contracted Sports Wagering segment, we view each of the states that we operate in as distinct operating segments. Our portfolio consists of the following:
Segments and Properties Locations
Bronco Billy's Casino and HotelCripple Creek, CO (nearColorado Springs )Chamonix Casino Hotel (under construction)Cripple Creek, CO (nearColorado Springs )Illinois The Temporary byAmerican Place (opened onFebruary 17, 2023 )Waukegan, IL andAmerican Place (under development) (northern suburb ofChicago )Indiana Rising Star Casino ResortRising Sun, IN (nearCincinnati )Mississippi Silver Slipper Casino and HotelHancock County, MS (nearNew Orleans )Nevada Grand Lodge Casino Incline Village, NV (leased and part of theHyatt Regency Lake Tahoe Resort , Spa and Casino) (North Shore ofLake Tahoe )Stockman's CasinoFallon, NV (one hour east ofReno ) Contracted Sports Wagering Three sports wagering websites ("skins")
Three sports wagering websites ("skins") One sports wagering website ("skin"), expected to commence Spring 2023 Illinois
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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 provide
credit at some of our casinos where permitted 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 slot machines, but also include other gaming activities, including
table games, keno and sports betting. 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 and ferry boat service at Rising Star, our
RV parks owned at Rising Star and managed at Silver Slipper, and retail outlets
and entertainment. We often provide hotel rooms, food and beverages,
entertainment, ferry usage, and golf privileges to customers on a complimentary
basis; the value of such services is included as revenue in those categories,
offset by contra-revenue in the casino revenue category. As a result, the casino
revenues in our financial statements reflect patron gaming wins and losses,
reduced by the retail value of complimentary services, the value of free play
provided to customers, the value of points earned by casino customers that can
be redeemed for services or free play, and adjustments for certain progressive
jackpots offered by the Company.
We set minimum and maximum betting limits for our slot machines and table games
based on market conditions, customer demand and other factors. Our gaming
revenues are derived from a broad base of guests that includes both high- and
low-stakes players. At Silver Slipper, our sports book operations are in
partnership with a company specializing in race and sports betting. At Rising
Star, Bronco Billy's , and The Temporary/American Place , we have contracted with
other companies to operate our online sports wagering skins under their own
brands in exchange for a percentage of revenues, as defined, subject to annual
minimum amounts. Our operating results may also be affected by, among other
things, overall economic conditions affecting the disposable income of our
guests, weather conditions affecting access to our properties, achieving and
maintaining cost efficiencies, taxation and other regulatory changes, and
competitive factors, including but not limited to, additions and improvements to
the competitive supply of gaming facilities, as well as pandemics, epidemics,
widespread health emergencies, or outbreaks of infectious diseases such as the
coronavirus.
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 results in future periods.
Our market environment is highly competitive and capital-intensive.
Nevertheless, there are significant restrictions and barriers to entry vis-à-vis
opening new casinos in most of the markets in which we operate. We rely on the
ability of our properties to generate operating cash flow to pay interest, repay
debt, and fund maintenance and certain growth-related 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 acquisitionof existing properties. Recent DevelopmentsAmerican Place . InDecember 2021 , we were selected by the IGB to develop and operateAmerican Place , our proposal for a casino and entertainment destination inWaukegan, Illinois . While the larger, more lavishAmerican Place facility is under construction, we will operate a temporary casino facility, aptly named The Temporary. Opened inFebruary 2023 , The Temporary was designed to include approximately 1,000 slot machines, 50 table games, a fine-dining restaurant, two additional restaurants, and a center bar. The permanentAmerican Place facility is expected to include a world-class casino with a state-of-the-art sportsbook; a premium boutique hotel comprised of twenty luxurious villas; a 1,500-seat live entertainment venue; and various food and beverage outlets. 37
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To accommodate operations for The Temporary, as well as construction of the permanentAmerican Place facility, we entered into a 99-year ground lease (the "Ground Lease") with theCity of Waukegan, Illinois (the "City") inJanuary 2023 for approximately 32 acres of land (the "City-Owned Parcel"), which is adjacent to a 10-acre parcel of land that we purchased inMarch 2022 for$7.5 million . Annual rent under the Ground Lease is the greater of (i)$3.0 million or (ii) 2.5% of Adjusted Gross Receipts (as defined) generated by either the Temporary orAmerican Place . The Ground Lease is only terminable to the extent that the Development and Host Community Agreement with the City is terminated. We have the right to purchase the City-Owned Parcel at any time during the term of the Ground Lease for$30 million , but if we do so prior to the opening ofAmerican Place , then we must continue to pay rent due to the City under the Ground Lease until the permanent casino is open. For more information, see Note 12 to the consolidated financial statements set forth in Part II, Item 8. "Financial Statements and Supplementary Data." Debt Financing. OnFebruary 21, 2023 , we issued$40.0 million of Additional Notes. The Additional Notes were issued pursuant to an amended indenture governing the$410 million of Existing Notes. In connection with the issuance of the Additional Notes, we entered into a Fourth Supplemental Indenture withWilmington Trust, National Association , as trustee, datedFebruary 21, 2023 (as further amended, the "Indenture"). The Additional Notes are treated as a single series of senior secured debt securities with the Existing Notes and as a single class for all purposes under the Indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. Proceeds from the offering, net of related expenses and discounts, were approximately$34 million .
The Notes bear interest at a rate of 8.25% per year and mature on
Also onFebruary 21, 2023 , we entered into a Second Amendment to the Credit Agreement withCapital One, National Association ("Capital One"), which, among other things, increased the amount of additional Indebtedness permitted under our Credit Agreement, dated as ofMarch 31, 2021 (as further amended, the "Credit Agreement"), permitting the issuance of the Additional Notes. The Notes are guaranteed, jointly and severally (such guarantees, the "Guarantees"), by each of the Company's restricted subsidiaries (collectively, the "Guarantors"). The Notes and the Guarantees are the Company's and the Guarantor's general senior secured obligations, subject to the terms of the Collateral Trust Agreement (as defined in the Indenture), ranking senior in right of payment to all of the Company's and the Guarantor's existing and future debt that is expressly subordinated in right of payment to the Notes and the Guarantees, if any, and ranking equally in right of payment with all of the Company's and the Guarantors' existing and future senior debt. The Notes, together with borrowings under the Credit Facility, are equally and ratably secured by a first priority security interest in, subject to certain exceptions and limitations and the terms of the Collateral Trust Agreement, the Company's and the Guarantors' furniture, equipment, inventory, accounts receivable, other personal property and real property. Additionally, the Notes (but not the borrowings under the Credit Facility) are secured by a first priority security interest in the securities accounts and the deposit accounts established pursuant to the Cash Collateral and Disbursement Agreement. Sports Wagering inIllinois . InMay 2022 , we signed a retail and mobile sports wagering contract forIllinois . Such operations are expected to commence in Spring 2023, pending the receipt of customary gaming approvals. We received an upfront fee of$5 million , which was capitalized and will be amortized over the eight-year term of the agreement that is expected to commence in Spring 2023. We will receive a percentage of revenues (as defined), subject to an annual minimum of$5 million . For more information, see Note 9 to the consolidated financial statements set forth in Part II, Item 8. "Financial Statements and Supplementary Data." Sports Wagering inColorado . InDecember 2022 , we entered into a contract with a third-party to operate mobile sports wagering under our permitted third skin inColorado . The 10-year agreement began its contractual term inMarch 2023 . Such agreement replaces an unrelated operator that ceased operations inMay 2022 . In total, we have three sports wagering agreements inColorado , for which we receive a percentage of revenues (as defined), subject to annual minimums totaling$3 million . For more information, see Note 9 to the consolidated financial statements set forth in Part II, Item 8. "Financial Statements and Supplementary Data." 38 Table of Contents COVID-19 Pandemic Update. The COVID-19 pandemic continues to evolve and certain precautionary and stimulus measures, as well as other factors, have created economic uncertainty both inthe United States and globally, as well as significant and prolonged volatility in, and disruption to, financial markets, labor markets and supply chains. Global supply chain disruptions and other world events have resulted in shipping delays, increased shipping costs, supply shortages, and inflationary pressures, including increases in prices for fuel, food, building materials, labor, and other items. These increased costs, labor shortages, and supply shortages continued to put additional constraints on our operating business and our construction projects for the year endedDecember 31, 2022 . We do not know when, or if, these cost, labor, and supply chain issues will materially alleviate and, accordingly, they may continue to impact our existing business and our construction projects. We believe that we have a strong balance sheet and sufficient liquidity in place. As ofDecember 31, 2022 , we had total cash and cash equivalents of$191.2 million , including$134.6 million of restricted cash reserved to fund the construction ofChamonix , and availability under our revolver. As noted above, we further augmented our liquidity in the first quarter of 2023 through the issuance of$40.0 million of Additional Notes, as well as the drawdown of$36.0 million under our Credit Facility.
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 furnished to customers free of charge, are included in the calculation of the hotel occupancy rate.
Adjusted EBITDA, Adjusted Segment EBITDA and Adjusted Segment EBITDA Margin:
Management uses Adjusted EBITDA as a measure of our performance. For a
description of Adjusted EBITDA see "Non-GAAP Measure." We utilize Adjusted
Segment EBITDA as the measure of segment profitability in assessing performance
and allocating resources at the reportable segment level. For information
regarding our operating segments, see Note 11 to the consolidated financial
statements set forth in Part II, Item 8. "Financial Statements and Supplementary
Data." Additionally, we use Adjusted Segment EBITDA Margin, which is calculated
by dividing Adjusted Segment EBITDA by the property's revenues.
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Results of Operations 2022 Compared to 2021
Consolidated operating results
The following tables summarize our consolidated operating results for the years
ended
Year Ended
(In thousands) December 31, Increase /
2022 2021 (Decrease)
Revenues $ 163,281 $ 180,159 (9.4) %
Operating expenses 150,598 142,605 5.6 %
Operating income 12,683 37,554 (66.2) %Interest and other non-operating expenses, net 27,518 25,413 8.3 % Income tax (benefit) expense (31) 435
(107.1) % Net (loss) income$ (14,804) $ 11,706 (226.5) % Year Ended (In thousands) December 31, Increase / 2022 2021 (Decrease) Casino revenues Slots$ 99,490 $ 113,612 (12.4) % Table games 13,535 13,749 (1.6) % Other 851 3,070 (72.3) % 113,876 130,431 (12.7) % Non-casino revenues, net Food and beverage 26,494 27,347 (3.1) % Hotel 9,282 9,624 (3.6) % Other 13,629 12,757 6.8 % 49,405 49,728 (0.6) % Total revenues$ 163,281 $ 180,159 (9.4) % Year Ended December 31, Increase / (In thousands) 2022 2021 (Decrease) Slot coin-in$ 1,837,852 $ 1,951,311 (5.8) % Slot win(1)$ 135,793 $ 148,232 (8.4) % Slot hold percentage(2) 7.4 % 7.6 % (0.2) pts Table game drop$ 76,130 $ 77,104 (1.3) % Table game win(1)$ 13,733 $ 13,823 (0.7) %
Table game hold percentage(2) 18.0 % 17.9 % 0.1 pts
__________
Does not reflect reductions in casino revenues from "discretionary comps." (1) For details on our customer loyalty programs, see Note 2 to the
consolidated financial statements set forth in Part II, Item 8. "Financial
Statements and Supplementary Data."
(2) The three-year averages for slot hold percentage and table game hold
percentage were 7.5% and 17.9%, respectively.
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The following discussion is based on our consolidated financial statements for
the years ended
Revenues. Consolidated revenues decreased by 9.4% (or$16.9 million ) in 2022, primarily due to a$14.9 million decline in slot revenues from lower volumes at our three properties inColorado ,Mississippi , andIndiana . These lower volumes can be primarily attributed to the absence of government stimulus programs of the same scale as in 2021; construction disruptions atBronco Billy's to advance the completion of ourChamonix project; the launch of competing online sports wagering inLouisiana inJanuary 2022 ; and adverse weather inDecember 2022 across several properties. Additionally, our revenues were impacted by factors that are inherently hard to quantify, as discussed in the "Recent Developments - COVID-19 Pandemic Update " section. These include inflationary pressures, which could affect the spending pattern of customers, as well as labor shortages for us to meet the demands of potential customers. "Other Non-casino Revenues" includes$7.2 million of revenue related to our contracted sports wagering agreements in 2022, compared to$5.9 million in 2021. See "Operating Results -
Reportable Segments " below for details.
Operating expenses. Consolidated operating expenses increased by 5.6% (or$8.0 million ) in 2022, primarily due to$9.5 million of additional preopening costs for The Temporary andChamonix and a$2.6 million increase to food and beverage costs. Such amounts were partially offset by a$4.0 million decrease in casino costs tied to lower volumes than in 2021, as noted above.
See further information within our reportable segments described below.
Interest and other non-operating expense, net.
Interest Expense
(In thousands) Year Ended
December 31,
2022 2021
Interest expense (excluding bond fee amortization and premium)
1,649 1,349
Capitalized interest (10,802) (1,871)
Interest income and other (1,355) -
$ 22,988 $ 23,657
Interest expense decreased marginally due to increases in capitalized interest
related to construction of The Temporary and Chamonix projects, as well as
interest income earned during the year. Both items more than offset the
increased interest expense that resulted from the February 2022 issuance of $100
million of additional senior secured notes. See Note 6 to the consolidated
financial statements set forth in Part II, Item 8. "Financial Statements and
Supplementary Data" for a more detailed discussion.
Other non-operating expense, net
In 2022, we incurred$4.5 million of other non-operating expense, primarily consisting of debt modification costs related to our offering of$100 million of additional notes inFebruary 2022 . In 2021, we incurred$1.8 million of other non-operating expense, which included$0.4 million for the extinguishment of prior debts and$1.3 million for the settlement of our former warrants. See
Note 6 to the consolidated financial statements set forth in Part II, Item 8. "Financial Statements and Supplementary Data" for a more detailed discussion.
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Income taxes. Our effective income tax rates for the years ended
December 31, 2022 and 2021 were 0.2% and 3.6%, respectively. Our tax rates
differ from the statutory rate of 21.0% primarily due to changes in valuation
allowance and items that are permanently treated differently for GAAP and tax
purposes. During 2022, we continued to provide a valuation allowance against our
deferred tax assets ("DTAs"), net of any available deferred tax liabilities, as
applicable, based on our analysis of the timing of reversal of such deferred
taxes. For 2022, the valuation allowance was $15.2 million , compared to
$9.9 million for 2021. In future years, if it is determined that we meet the
more likely than not threshold of utilizing our DTAs, then we may reverse some
or all of our valuation allowance.
We do not expect to pay any federal income taxes or receive any federal tax
refunds related to our 2022 results. We used net operating loss carryforwards
from previous years to offset taxable income generated in 2022. Due to the level
of uncertainty regarding sufficient prospective income as measured under GAAP,
we maintain a valuation allowance against our DTAs, as mentioned above. SeeNote 8 to the consolidated financial statements set forth in Part II, Item 8. "Financial Statements and Supplementary Data" for a more detailed discussion.
Operating results - reportable segments
We manage our casinos based primarily on geographic regions withinthe United States and type of income. For more information, please refer to our earlier discussion within the "Executive Overview" section. The following table presents detail by segment of our consolidated revenues and Adjusted EBITDA (see "Non-GAAP Measure" for more information). Additionally, management uses Adjusted Segment EBITDA as its measure of segment profitability in accordance with GAAP. (In thousands) Year Ended December 31, Increase / 2022 2021 (Decrease) Revenues Mississippi$ 80,860 $ 90,628 (10.8) % Indiana 39,090 41,435 (5.7) % Colorado 16,185 23,660 (31.6) % Nevada 19,950 18,516 7.7 % Contracted Sports Wagering 7,196 5,920 21.6 %$ 163,281 $ 180,159 (9.4) % Adjusted Segment EBITDA and Adjusted EBITDA Mississippi$ 19,488 $ 29,843 (34.7) % Indiana 6,888 8,736 (21.2) % Colorado (688) 5,545 (112.4) % Nevada 4,908 4,933 (0.5) % Contracted Sports Wagering 7,127 5,890 21.0 % Adjusted Segment EBITDA 37,723 54,947 (31.3) % Corporate (5,589) (7,733) (27.7) % Adjusted EBITDA$ 32,134 $ 47,214 (31.9) % Adjusted Segment EBITDA Margin Mississippi 24.1 % 32.9 % (8.8) pts Indiana 17.6 % 21.1 % (3.5) pts Colorado (4.3) % 23.4 % (27.7) pts Nevada 24.6 % 26.6 % (2.0) pts Contracted Sports Wagering 99.0 % 99.5 % (0.5) pts 42 Table of Contents Mississippi OurMississippi segment consists of theSilver Slipper Casino and Hotel . The prior year was among the best in the property's history in terms of casino revenue and total revenue, benefiting from the issuance of government stimulus checks to customers. Compared to 2021, total revenues during 2022 decreased by 10.8% (or$9.8 million ), primarily due to declines in casino revenue of 14.5% (or$9.2 million ). During 2022, slot revenue declined by 12.4% (or$6.6 million ) due to lower volumes. Other casino revenues declined by$2.2 million during 2022, primarily from our on-site sports book that was impacted by the competitive launch of online sports wagering inJanuary 2022 within nearbyLouisiana . Non-casino revenue decreased by 2.3% (or$0.6 million ) during 2022, also due to lower volumes during the year. The majority of our non-casino revenue comes from our food and beverage operations, which revenue declined by 2.6% (or$0.5 million ). Hotel revenue rose by 1.1% (or$0.1 million ), due to higher average daily room rates as compared to 2021, despite a decline in hotel occupancy rates to 91.7% in 2022, as compared to 93.6% in 2021. Adjusted Segment EBITDA decreased by 34.7% (or$10.4 million ) from the prior year, reflecting revenue declines from a lack of stimulus payments and the launch of online sports wagering inLouisiana mentioned above; a$1.8 million increase in food costs; and a$1.4 million increase in property insurance costs.
OurIndiana segment consists of Rising Star Casino Resort. Similar to the Silver Slipper, total revenues for the prior year benefited from customers receiving government stimulus payments. Additionally, a nearby facility with "historical racing machines" (which are a form of slot machine) opened inSeptember 2022 . As a result, total revenues for 2022 decreased by 5.7% (or$2.3 million ), compared to 2021, due to declines in casino revenue of 7.6% (or$2.2 million ). During 2022, slot revenue declined by 5.7% (or$1.5 million ) due to lower volumes, while table game revenue declined by$0.7 million . Non-casino revenue declined by 0.8% (or$0.1 million ) during 2022, also from lower volumes. Increases in food and beverage revenue of 12.0% (or$0.4 million ) nearly offset decreases in other non-casino revenue (3.1%, or$0.1 million ) and hotel revenue (9.7%, or$0.4 million ). Total occupied room-nights declined by 9.2% in 2022 to 47,587 room-nights from 51,951 room-nights in 2021, and average daily room rates also declined. Adjusted Segment EBITDA decreased by 21.2% (or$1.8 million ) from the prior year due to lower volumes as discussed above. Lower volumes led to declines in many variable costs, such as gaming taxes, related fees, and payroll. However, marketing costs during 2022 increased by$0.5 million to address lower volumes, as 2021 was assisted by the issuance of government stimulus checks to customers.
OurColorado segment includesBronco Billy's Casino and Hotel and theChamonix project. TheColorado gaming market, includingCripple Creek , has shown significant growth since betting limits were eliminated inMay 2021 .Bronco Billy's , however, has incurred significant construction disruption, including temporarily-reduced gaming and restaurant capacity and the temporary absence of all on-site hotel rooms and on-site self-parking. Total revenues for 2022 decreased by 31.6% (or$7.5 million ) when compared to 2021, reflecting business disruptions to accommodate the construction ofChamonix . Casino revenue for 2022 decreased by 33.0% (or$6.7 million ), compared to 2021, which was largely due to the construction disruptions mentioned above. Slot revenue declined by 34.5% (or$6.8 million ) during 2022. Table games revenue rose by 18.7% (or$0.1 million ) during 2022 due to a higher hold percentage and increased volumes versus 2021, when table games operations resumed inFebruary 2021 under pandemic-related constraints.
Non-casino revenue decreased by 23.2% (or
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Adjusted Segment EBITDA decreased by$6.2 million , from positive Adjusted Segment EBITDA of$5.5 million to an Adjusted Segment EBITDA loss of$688,000 , due to significant disruptions in 2022 from the construction ofChamonix , as mentioned above. Similar to Rising Star, lower volumes also led to declines in many variable costs, such as gaming taxes, gaming position fees, and food and beverage costs. To alleviate the lack of on-site parking,Bronco Billy's currently offers complimentary valet parking and a free shuttle service to an off-site parking lot, resulting in additional expenses. The casino has also maintained much of its payroll, despite reduced activity levels, anticipating the need for the larger workforce required to open and operateChamonix . In addition to construction disruption due to our neighboringChamonix project, we are currently undergoing a modest refurbishment of a portion ofBronco Billy's , which began inMay 2022 . Accordingly,Bronco Billy's contribution to earnings was impacted by the casino refurbishment (which was completed inDecember 2022 ), and will likely continue to be impacted until restaurant work atBronco Billy's is completed in the third quarter of 2023 andChamonix begins its phased opening, potentially also in the third quarter of 2023. WhenChamonix opens,Bronco Billy's will share the significant on-site parking garage, valet and surface parking capacity of the new casino, and also benefit fromChamonix's adjoining 300-guestroom hotel.
The market in
Nevada
The Nevada segment consists of theGrand Lodge and Stockman's casinos. Our Nevada operations have historically been seasonal, with the summer months accounting for a disproportionate share of annual revenues. Additionally, snowfall levels during the winter months can often affect operations, asGrand Lodge Casino is located near several major ski resorts. We typically benefit from a "good" snow year, resulting in extended periods of operation at the nearby ski areas, although at times, major snowstorms can restrict access to the property. Total revenues for 2022 increased by 7.7% (or$1.4 million ), compared to 2021, primarily due to higher casino revenue at Grand Lodge. Casino revenue increased by 9.1% (or$1.5 million ) in 2022 due to higher revenue from both our slots and table games departments. Slot revenue rose by 5.4% (or$0.8 million ) and table games revenue rose by 34.3% (or$0.8 million ) in 2022, due to increases in both volumes and higher hold percentages. During the third quarter of 2021, Grand Lodge was adversely affected by significant wildfires in the area. Additionally, inJuly 2022 , Stockman's resumed table games operations, which had remained closed sinceMarch 2020 . Adjusted Segment EBITDA was relatively flat at$4.9 million each for 2022 and 2021. Increased volumes - largely reflecting the recovery of tourism to theLake Tahoe region at Grand Lodge during 2022 - resulted in higher variable costs, such as gaming taxes, related fees, and payroll.
Contracted Sports Wagering
The Contracted Sports Wagering segment consists of our on-site and online sports
wagering skins in
For 2022, revenues increased by 21.6% or ($1.3 million ) and Adjusted Segment EBITDA increased by 21.0% or ($1.2 million ), compared to 2021, which results reflect an additional skin that contractually went live onDecember 1, 2021 , as well as an acceleration of deferred revenue for two agreements (one in each ofIndiana andColorado ) that ceased operations inMay 2022 , when one of our contracted parties ceased operations, each inIndiana andColorado . InDecember 2022 , we entered into a sports wagering agreement to replace such operator inColorado . We are currently evaluating whether to utilize the remaining skin inIndiana ourselves or to find a replacement operator for such skin. However, there is no certainty that we will be able to enter into an agreement with a replacement operator or successfully operate the skin ourselves. Additionally, the results of this segment do not yet include income contribution from our agreement for a third party to operate on-site and online sports betting inIllinois . Under such agreement, we will receive a percentage of revenues, as defined in the contract, subject to an annualized minimum of$5 million , with minimal expected expenses. We anticipate theIllinois sports operations will begin in Spring 2023, subject to customary regulatory approvals. For details, see Note 9 to the consolidated financial statements set forth in Part II, Item 8. "Financial Statements and Supplementary Data." 44 Table of Contents Corporate
Corporate expenses declined by 27.7% (or$2.1 million ) in 2022. In 2021, we incurred$2.1 million of costs related to non-recurring corporate initiatives. Additionally, increases to certain third-party costs were offset by a decrease in accrued bonus compensation.
Non-GAAP Measure
"Adjusted EBITDA" is earnings before interest and other non-operating income (expense), taxes, depreciation and amortization, preopening expenses, impairment charges, asset write-offs, recoveries, gain (loss) from asset disposals, project development and acquisition costs, and non-cash share-based compensation expense. Adjusted EBITDA information is presented solely as supplemental disclosure to measures reported in accordance with generally accepted accounting principles inthe United States of America ("GAAP") because management believes this measure is (i) a widely used measure of operating performance in the gaming and hospitality industries and (ii) a principal basis for valuation of gaming and hospitality companies. In addition, a version of Adjusted EBITDA (known as Consolidated Cash Flow) is utilized in the covenants within our credit facility, although not necessarily defined in the same way as above. Adjusted EBITDA is not, however, a measure of financial performance or liquidity under GAAP. Accordingly, this measure should be considered supplemental and not a substitute for net income (loss) or cash flows as an indicator of our operating performance or liquidity. The following table presents a reconciliation of net (loss) income to Adjusted EBITDA: (In thousands) Year Ended December 31, 2022 2021 Net (loss) income$ (14,804) $ 11,706
Income tax (benefit) expense (31)
435
Interest expense, net 22,988
23,657
Loss on modification and extinguishment of debt, net 4,530 409 Adjustment to fair value of warrants
- 1,347
Operating income 12,683
37,554
Project development costs, net 228
782
Preopening costs 9,558
17
Depreciation and amortization 7,930
7,219
Loss on disposal of assets, net 42
676 Stock-based compensation 1,693 966 Adjusted EBITDA$ 32,134 $ 47,214 45 Table of Contents
The following tables present reconciliations of operating income (loss) to Adjusted Segment EBITDA and Adjusted EBITDA:
For the Year EndedDecember 31, 2022 (In thousands) Loss / Adjusted (gain) Segment Operating Depreciation on Project Stock- EBITDA and Income and Disposal Development Preopening Based Adjusted (Loss) Amortization of Assets Costs Costs Compensation EBITDA
Reporting segments Mississippi$ 16,684 $ 2,757 $ 47 $ - $ - $ -$ 19,488 Indiana 4,532 2,356 - - - - 6,888 Colorado (3,544) 1,429 (5) - 1,432 - (688) Nevada 3,938 970 - - - - 4,908 Contracted Sports Wagering 7,127 - - - - - 7,127 28,737 7,512 42 - 1,432 - 37,723 Other operations Corporate (16,054) 418 - 228 8,126 1,693 (5,589)$ 12,683 $ 7,930 $ 42 $ 228$ 9,558 $ 1,693 $ 32,134 For the Year EndedDecember 31, 2021 (In thousands) Adjusted Segment Operating Depreciation Loss on Project Stock- EBITDA and Income and Disposal Development Preopening Based Adjusted (Loss) Amortization of Assets Costs Costs Compensation EBITDA Reporting segments Mississippi$ 26,553 $ 2,701 $ 589 $ - $ - $ -$ 29,843 Indiana 6,396 2,340 - - - - 8,736 Colorado 3,959 1,482 87 - 17 - 5,545 Nevada 4,386 547 - - - - 4,933 Contracted
Sports Wagering 5,890 - - - - - 5,890
47,184 7,070 676 - 17 - 54,947
Other operations
Corporate (9,630) 149 - 782 - 966 (7,733)
$ 37,554 $ 7,219 $ 676 $ 782 $ 17 $ 966 $ 47,214
Operating expenses deducted to arrive at operating income (loss) in the above
tables include facility rents related to: (i) Mississippi of $2.0 million in
2022 and $2.3 million in 2021, (ii) Nevada of $1.8 million in both 2022 and
2021, and (iii) Colorado of $12,000 in 2022 and $0.6 million in 2021. During
2022, $0.9 million of qualifying rent in Colorado was reclassified to preopening
costs for our Chamonix construction project. Finance lease payments of
$0.7 million in both 2022 and 2021 related to Rising Star's smaller hotel within
the Indiana segment are not deducted, as such payments are accounted for as
interest expense and amortization of debt related to the finance obligation.
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Liquidity and Capital Resources
Cash Flows
As ofDecember 31, 2022 , we had$191.2 million of cash and equivalents, including$134.6 million of restricted cash dedicated to the construction ofChamonix . Subsequent to year-end, we closed on the issuance of additional senior secured notes, resulting in net proceeds of approximately$34 million . We currently estimate that between$10 million and$15 million of cash is required for our day-to-day operations, including on-site cash in our slot machines, change and redemption kiosks, and cages. We believe that current cash balances, together with the available borrowing capacity under our revolving credit facility and cash flows from operating activities across our six properties (including The Temporary, which opened inFebruary 2023 ), will be sufficient to meet our liquidity and capital resource needs for the next 12 months of operations. Cash flows - operating activities. On a consolidated basis, cash provided by operations during 2022 was$4.4 million , compared to$29.5 million in 2021. Trends in our operating cash flows tend to follow trends in operating income, excluding non-cash charges, but are also affected by changes in working capital. Our operating cash flows decreased in 2022 primarily due to decreases in revenues and income, which includes preopening expenses incurred for The Temporary (which opened inFebruary 2023 ) andChamonix . Cash flows - investing activities. On a consolidated basis, cash used in investing activities during 2022 was$172.1 million , primarily related to capital expenditures forChamonix andThe Temporary/American Place . In 2021, such amount was$37.2 million , primarily for ourChamonix construction project and real estate purchases inCripple Creek , as well as to repair hurricane damage at Silver Slipper. Cash flows - financing activities. On a consolidated basis, cash provided by financing activities during 2022 was$93.6 million , while cash provided by financing activities during 2021 was$235.3 million . InFebruary 2022 , we received$102.0 million of gross proceeds from the issuance of additional senior secured notes to construct The Temporary. In February andMarch 2021 , respectively, we received$310.0 million of gross proceeds from the issuance of our 2028 Notes and$46.0 million of gross proceeds from our underwritten equity offering. These cash inflows in 2021 were partially offset by the payoff of the Prior Notes (including the related prepayment premiums), as well as expenses related to our debt and equity offerings.
Other Factors Affecting Liquidity
We have significant outstanding debt and contractual obligations, in addition to planned capital expenditures related to the construction ofChamonix andAmerican Place . Our principal debt matures inFebruary 2028 . Certain planned capital expenditures designed to grow the Company, such as the permanentAmerican Place facility and the potential future expansion of Silver Slipper, may require additional financing and/or temporarily reduce the Company's ability to repay debt. Our operations are subject to financial, economic, competitive, regulatory and other factors, many of which are beyond our control. Such factors include the potential effects of COVID-19 and its variants. The extent to which our liquidity in future periods may be affected by COVID-19 and its variants may largely depend on future developments. Such future developments are highly uncertain and cannot be accurately predicted at this time, as discussed under
"Recent Developments."
Long-Term Debt. AtDecember 31, 2022 , we had$410.0 million of principal indebtedness outstanding under the Existing Notes as issued inFebruary 2021 andFebruary 2022 , and no drawn amounts under the Credit Facility or any outstanding letters of credit. With the exception of our Credit Facility, we have fixed interest rates on the remainder of our debt.
See Note 6 and Note 12 to the consolidated financial statements set forth in Part II, Item 8. "Financial Statements and Supplementary Data" for details on our debt obligations.
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Hyatt Option to Purchase our Leasehold Interest and Related Assets. Our lease with Hyatt to operate theGrand Lodge Casino currently has an option for Hyatt to purchase our leasehold interest and related casino operating assets. The lease, which has been extended several times in the past, was subsequently extended through December 31, 2024. See Note 7 and Note 12 to the consolidated financial statements set forth in Part II, Item 8. "Financial Statements and Supplementary Data" for further information about this option and related rental commitments that could affect our liquidity and capital resources. Capital Investments. In addition to normal maintenance capital expenditures, we continue to make significant capital investments related to the construction ofChamonix , The Temporary andAmerican Place . Chamonix ? As previously discussed in "Operating Properties - Chamonix Casino and Hotel " under Part I, Item 1. "Business," we increased the size of theChamonix project's hotel capacity by 67%, to approximately 300 luxury guest rooms and suites from our previously planned 180 guest rooms. To fundChamonix's construction, we issued our 2028 Notes and placed a portion of such proceeds into a restricted cash account dedicated toChamonix's construction (see Note 6 to the consolidated financial statements set forth in Part II, Item 8. "Financial Statements and Supplementary Data"). As ofDecember 31, 2022 , the balance of such restricted cash account was approximately$135 million . We expect to invest all of such amount in 2023, as full completion of construction is expected before the end of 2023.American Place ? As discussed above in the " Executive Overview ," we were selected by the IGB to develop and operateAmerican Place inWaukegan, Illinois . While the larger permanent facility is under construction, we will operate a temporary casino named The Temporary byAmerican Place , which opened inFebruary 2023 . During 2023, we expect to invest approximately$70 million into this project, consisting largely of significant upfront gaming license payments and the recent completion of The Temporary's construction, as well as professional fees related to the design of the permanentAmerican Place facility. We expect to transfer purchased slot machines and other equipment to the permanent casino once opened. See Note 6 and Note 12 to the consolidated financial statements set forth in Part II, Item 8. "Financial Statements and Supplementary Data." Other Capital Expenditures ? Additionally, we may fund various other capital expenditure projects, depending on our financial resources. Our capital expenditures may fluctuate due to decisions regarding strategic capital investments in new or existing facilities, and the timing of capital investments to maintain the quality of our properties. No assurance can be given that any of our planned capital expenditure projects will be completed or that any completed projects will be successful. Our annual capital expenditures typically include some number of new slot machines and related equipment; to some extent, we can coordinate such purchases to match our resources.
We evaluate projects based on a number of factors, including profitability forecasts, length of the development period, the regulatory and political environment, and the ability to secure the funding necessary to complete the development or acquisition, among other considerations. No assurance can be given that any additional projects will be pursued or completed or that any completed projects will be successful.
Principal Debt Arrangements
See Note 6 to the consolidated financial statements set forth in Part II, Item 8. "Financial Statements and Supplementary Data" for more information.
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Critical Accounting Estimates and Policies
Our consolidated financial statements were prepared in conformity with accounting principles generally accepted inthe United States of America . Certain of our accounting policies require that we apply significant judgment in defining the appropriate assumptions for calculating estimates that affect reported amounts and disclosures. By their nature, judgments are subject to an inherent degree of uncertainty, and therefore, actual results may differ from our estimates. We believe the following critical accounting policies affect the most significant judgments and estimates used in the preparation of our consolidated financial statements. Impairment of Long-lived Assets,Goodwill and Indefinite-Lived Intangibles Our long-lived assets include property and equipment, goodwill, and indefinite-lived intangibles, and are evaluated at least annually (and more frequently when circumstances warrant) to determine if events or changes in circumstances indicate that the carrying value may not be recoverable. Examples of such events or changes in circumstances that might indicate impairment testing is warranted might include, as applicable, an adverse change in the legal, regulatory or business climate relative to gaming nationally or in the jurisdictions in which we operate, or a significant long-term decline in historical or forecasted earnings or cash flows or the fair value of our property or business, possibly as a result of competitive or other economic or political factors. In evaluating whether a loss in value is other than temporary, we consider: (i) the length of time and the extent to which the fair value or market value has been less than cost; (ii) the financial condition and near-term prospects of the casino property, including any specific events which may influence the operations; (iii) our intent related to the asset and ability to retain it for a period of time sufficient to allow for any anticipated recovery in fair value; (iv) the condition and trend of the economic cycle; (v) historical and forecasted financial performance; and (vi) trends in the general market. We review the carrying value of our property and equipment used in our operations whenever events or circumstances indicate that the carrying value of an asset may not be recoverable from estimated future undiscounted cash flows expected to result from its use and eventual disposition. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then an impairment is recorded based on the fair value of the asset. Fair value is typically measured using a discounted cash flow model whereby future cash flows are discounted using a weighted-average cost of capital, developed using a standard capital-asset pricing model, based on guideline companies in our industry. We test our goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter or when a triggering event occurs. For our 2022 and 2021 annual impairment tests, we utilized the option to perform a qualitative analysis for our goodwill and indefinite-lived intangibles and concluded it was more likely than not that the fair values of such intangibles exceeded their carrying values. Any impairment charges incurred are not reversed if a subsequent evaluation concludes a higher valuation than the carrying value. For further discussion of goodwill and other intangible assets, see Note 2 and Note 4 to the consolidated financial statements set forth in Part II, Item 8. "Financial Statements and Supplementary Data."
Fixed Asset Capitalization and Depreciation Policies
We define fixed assets as certain property and equipment with economic useful lives that extend beyond a year. Such fixed assets are stated at cost. For the majority of our property and equipment, cost was determined at the acquisition date based on estimated fair values. We acquiredBronco Billy's inMay 2016 , Silver Slipper inOctober 2012 , Rising Star inApril 2011 and Stockman's inJanuary 2007 . Project development costs, which are amounts expended on the pursuit of new business opportunities, acquisition-related costs, as well as other business development activities in the ordinary course of business, are expensed as incurred. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are also expensed as incurred. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the assets. When we construct assets, we capitalize direct costs of the project, including fees paid to architects and contractors and property taxes. Salaries are capitalized only for employees working directly on the project. In addition, interest cost associated with major development and construction projects is capitalized as part of the cost of the project. Interest is typically capitalized on amounts expended on the project using the weighted-average cost of our outstanding borrowings. Capitalization of interest starts when construction activities begin and ceases when construction is substantially complete or development activity is suspended for more than a brief period. 49 Table of Contents We must make estimates and assumptions when accounting for capital expenditures. Whether an expenditure is considered a maintenance expense or a capital asset is sometimes a matter of judgment. When constructing or purchasing assets, we must determine whether existing assets are being replaced or otherwise impaired, which also may be a matter of judgment. In addition, our depreciation expense is highly dependent on the assumptions we make about our assets' estimated useful lives. We determine the estimated useful lives based on our experience with similar assets, engineering studies, and our estimate of the usage of the asset. Whenever events or circumstances occur, which would change the estimated useful life of an asset, we account for the change prospectively.
Income Taxes
We are subject to federal and state taxes inthe United States . Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance recorded against our net DTAs. Such valuation allowance was$15.2 million for 2022 and$9.9 million for 2021. We make these estimates and judgments about our future taxable income that are based on assumptions that are consistent with our future plans. Tax laws, regulations, and administrative practices may be subject to change due to economic or political conditions, including fundamental changes to the applicable tax laws. Our income tax returns are subject to examination by theIRS and other tax authorities. Positions taken in tax returns are sometimes subject to uncertainty in the tax laws and may not ultimately be accepted by theIRS or other tax authorities. We assess our tax positions using a two-step process. A tax position is recognized if it meets a more likely than not threshold. It is then measured at the largest amount of benefit that is greater than 50 percent likely of being realized. Additionally, we recognize accrued interest and penalties, if any, related to unrecognized tax benefits in income tax expense. For further discussion of income taxes, see Note 8 to the consolidated financial statements set forth in Part II, Item 8. "Financial Statements and Supplementary Data."
Recently Issued Accounting Pronouncements Not Yet Adopted
See Note 2 to the consolidated financial statements set forth in Part II, Item 8. "Financial Statements and Supplementary Data" for a discussion of recently issued accounting pronouncements not yet adopted.
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