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."
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 own or operate five casino properties in four states -
Mississippi, Colorado, Indianaand Nevada. We view our Mississippi, Coloradoand Indianaproperties as distinct operating segments and both of our Nevadaproperties as one operating segment. We also benefit from six permitted sports "skins" that we are allowed to operate, three in Coloradoand three in Indiana. We have contracted with other companies to operate these online sports wagering sites under their own brands in exchange for a percentage of revenues, as defined, subject to annual minimum amounts. Construction continues for a sixth property, Chamonix, which will be located adjacent to the Company's existing Bronco Billy'sCasino and Hotel in Cripple Creek, Colorado. It is expected to open in the second quarter of 2023 and will be included in our Coloradosegment. We are also developing American Placein Waukegan, Illinois, including a temporary casino facility named The Temporary that we intend to open in the summer of 2022. We expect to include American Placeas its own segment.
Our portfolio consists of the following:
Silver Slipper Casinoand Hotel Hancock County, MS(near New Orleans) Bronco Billy'sCasino and Hotel Cripple Creek, CO(near Colorado Springs) Rising Star Casino Resort Rising Sun, IN(near Cincinnati) Stockman's Casino Fallon, NV(one hour east of Reno) Grand Lodge Casino Incline Village, NV(leased and part of the Hyatt Regency Lake Tahoe( North Shoreof Lake Tahoe) Resort, Spa and Casino) Chamonix Casino Hotel(under construction) Cripple Creek, CO(near Colorado Springs) American Place(under development) Waukegan, IL(northern suburb of
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 recreational vehicle parks ("RV parks") owned at Rising Starand managed at Silver Slipper, and retail outlets and entertainment. 37
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 both
Rising Starand Bronco Billy's, we have contracted with other companies to operate our on-site and 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. 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 acquisition of existing properties.
COVID-19 Pandemic. In
March 2020, the World Health Organizationdeclared the outbreak of the novel coronavirus as a pandemic ("COVID-19"). Although COVID-19 continues to spread throughout the U.S.and the world, vaccines designed to inhibit the severity and the spread of COVID-19 are now being distributed. At the start of the pandemic, COVID-19 resulted in the implementation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, business restrictions, closing of borders, "shelter-in-place" orders and business closures. In March 2020, pursuant to state government orders to prevent the spread of COVID-19, we temporarily closed all of our casino properties. As a result, we experienced a material decline in our revenues until our properties began reopening when permitted by local authorities. We reopened the Silver Slipper Casino and Hotelon May 21, 2020, Grand Lodge Casinoand Stockman's Casino on June 4, 2020, and Bronco Billy'sCasino and Hotel and Rising Star Casino Resort on June 15, 2020. During the shutdown period, we evaluated labor, marketing and other costs at our businesses so that, upon reopening, our properties could reopen with significantly lower operating costs. As a result, our operating performance since reopening in mid-2020 has been stronger than pre-pandemic levels, despite capacity restrictions throughout our facilities for portions of 2020 and 2021. The extent to which our financial and operating results in future periods may be affected by COVID-19 will largely depend on future developments, which are highly uncertain and cannot be accurately predicted. Significant uncertainties include the ability to operate; new information which may emerge concerning new strains or variants of COVID-19 and their severity; any additional actions imposed by governmental authorities to contain COVID-19 or minimize its impact; increased operating costs in light of social distancing requirements as a result of COVID-19; and general economic conditions, among others. We believe we have a strong balance sheet and sufficient liquidity in place. As of December 31, 2021, we had total cash and cash equivalents of $265.3 million, which includes $176.6 millionof restricted cash reserved to fund the construction of Chamonix, and an undrawn revolver. As noted below, we further augmented our liquidity in February 2022through the issuance of $100.0 millionof Additional Notes and an increase in the size of our Credit Facility from $15.0 millionto $40.0 million. American Place. In December 2021, we were selected by the IGB to develop and operate American Place, our proposal for a casino and entertainment destination in Waukegan, Illinois. The permanent American Placefacility is expected to include a world-class casino with a state-of-the-art sportsbook; a premium boutique hotel comprised of twenty luxurious villas, each ranging from 1,500 to 2,500 square feet with full butler service; a 1,500-seat live entertainment venue; and various food and beverage outlets. While we construct the permanent American Placefacility, we will operate a temporary casino facility named The Temporary by American Place. The Temporary is expected to include approximately 1,000 slot machines, 50 table games, a fine-dining restaurant, two additional restaurants, and a center bar. We intend to open The Temporary in Summer 2022, pending customary regulatory approvals. 38
Debt Financing. Subsequent to year-end, we successfully completed our funding of The Temporary, which is intended to open in Summer 2022. On
February 7, 2022, we closed on our private offering of $100.0 millionin Additional Notes. The Additional Notes were sold at a price of 102.0% of the principal amount and were issued pursuant to an indenture, dated as of February 12, 2021, under which we previously issued $310.0 millionin 2028 Notes. Also in February 2022, we amended our Credit Facility to, among other things, increase its size from $15.0 millionto $40.0 million, all of which is currently available to draw upon.
Key performance indicators
We use several key performance indicators to assess the operations of our properties. These key performance indicators include the following:
Game 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 13 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.
Operating Results – 2021 vs. 2020
Consolidated operating results
The following summarizes our consolidated operating results for the years ended
December 31, 2021and 2020, and reflects the mandatory closure of all of our properties for approximately three months beginning in March 2020due to the pandemic. Year Ended (In thousands) December 31, 2021 2020 Increase Revenues $ 180,159 $ 125,58943.5 % Operating expenses 142,605 115,113 23.9 % Operating income 37,554 10,476 258.5 %
Interest and other non-operating expenses, net 25,413 10,421 143.9 % Income tax expense (benefit) 435 (92)
572.8 % Net income
$ 11,706 $ 1477,863.3 % 39 Table of Contents Year Ended (In thousands) December 31, 2021 2020 Increase Casino revenues Slots $ 113,612 $ 77,43746.7 % Table games 13,749 10,764 27.7 % Other 3,070 2,611 17.6 % 130,431 90,812 43.6 % Non-casino revenues, net Food and beverage 27,347 19,766 38.4 % Hotel 9,624 7,410 29.9 % Other 12,757 7,601 67.8 % 49,728 34,777 43.0 % Total revenues $ 180,159 $ 125,58943.5 %
The following discussion is based on our consolidated financial statements for the years ended
December 31, 2021and 2020, unless otherwise described. Because all of our operations were closed due to COVID-19 government mandates from mid-March 2020through much of the second quarter of 2020, the comparisons for these years are not particularly meaningful. The periods of closure were:
? Silver Slipper Casino and Hotel – closed from
? Rising Star Casino Resort – closed from
Revenues. Consolidated revenues increased by 43.5% in 2021, reflecting approximately three months of closure due to the pandemic in 2020. Growth in 2021 was due to a full year of operations, a gradual relaxation of pandemic-related restrictions, stronger operational performance at Silver Slipper, and contributions from our six contracted sports wagering agreements (compared to three that were live in 2020). "Other Non-casino Revenues" includes
$5.9 millionof revenue related to our contracted sports wagering agreements in 2021, compared to $2.2 millionin 2020. See "Operating Results - Reportable Segments" below for details. Operating expenses. Consolidated operating expenses increased 23.9% in 2021, primarily due to a partial year of operations during the 2020 period and variable costs that increased along with increases in guest volumes. Such variable costs included higher gaming taxes due to additional gaming revenue, and higher food costs related to additional restaurant covers, which altogether accounted for more than half of the increase in operating expenses in 2021. The remaining increase was from selling, general, and administrative expenses, reflecting additional professional fees, a gradual resumption of activities following the closure period in late 2020, an increase in accrued bonus compensation, and $2.1 millionof expenses related to corporate initiatives that are not expected to recur in 2022. While our operating costs increased in 2021, overall operating margins improved. Upon reopening in mid-2020, we improved operating efficiencies at all of our properties, in part by better matching customer demand with the operating hours of our food and beverage and table games departments. We also significantly reduced our marketing expenses upon reopening, benefiting from analytics provided by new slot marketing systems installed in late 2019. These changes affected marketing, payroll and related expenses across all departments at the Company.
See more information in our featured segments described below.
Interest and other non-operating charges, net.
Interest Expense (In thousands) Year Ended
December 31, 20212020
Interest expense (excluding amortization of borrowing costs)
Amortization of loan issue costs and discount 1,349 1,276 Capitalized interest
$ 23,657 $ 9,823Interest expense increased primarily due to an increase in our debt levels. In February 2021, we refinanced all $106.8 millionof our outstanding Senior Secured Notes due 2024 (the "Prior Notes") with $310.0 millionof 2028 Notes, in part to fund our Chamonix project (see Part I, Item 1. "Business - Operating Properties - Chamonix Casino Hotel" ). 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 expenses, net
$1.8 millionin 2021 and $0.6 millionin 2020 of other non-operating expense, primarily from fair value adjustments of our common stock warrant liability. During the period that the warrants were outstanding, increases in our share price resulted in increases in the value of the warrants, causing non-cash expense; conversely, decreases in our share price resulted in decreases in the value of the warrants, causing non-cash income. In 2021, the final fair value adjustment to our outstanding warrants of $1.3 millionwas made when such warrants were repurchased in February 2021. Using a portion of the proceeds from the issuance of the 2028 Notes, we retired all outstanding warrants for $4.0 millionin the first quarter of 2021. Other non-operating expense in 2021 also includes a net loss of $0.4 millionfrom the extinguishment of debts in 2021. This amount consists of a $6.1 millionextinguishment loss related to the February 2021refinancing of our Prior Notes, and a $5.7 milliongain due to the forgiveness of principal and interest in December 2021for CARES Act loans made to certain qualifying subsidiaries.
See Note 6 to the consolidated financial statements in Part II, Item 8. “Financial statements and supplementary data” for a more detailed discussion.
Income taxes. Our effective income tax rate for the years ended
December 31, 2021and 2020 was 3.6% and (167.3)%, respectively. Our tax rate differs from the statutory rate of 21.0% primarily due to the effects of changes in tax law, changes in valuation allowance, and items that are permanently treated differently for GAAP and tax purposes. During 2021, we continued to provide a valuation allowance against our deferred tax assets ("DTAs"), net of any available deferred tax liabilities. 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 against our DTAs.
We do not expect to pay any federal income taxes or receive any federal tax refunds related to our 2021 results. We expect to use net operating loss carryforwards from prior years to offset any taxable income generated in 2021. 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.
See note 9 of the consolidated financial statements in part II, point 8. “Financial statements and additional data” for a more detailed discussion.
41 Table of Contents
Results of operations – reportable segments
We manage our casinos based primarily on geographic regions within
the United States. Our 2021 results reflect a change in our operating segments. We now break out our on-site and online sports wagering skins in Coloradoand Indianaas a standalone segment, Contracted Sports Wagering. Certain reclassifications were made to 2020 amounts to conform to current-period presentation for enhanced comparability. Such reclassifications had no effect on the previously reported results of operations or financial position. See Part I, Item 1. " Business - Introduction" for additional discussion. The following table presents detail by segment of our consolidated revenue and Adjusted EBITDA. Management uses Adjusted Segment EBITDA as its measure of segment profit. (In thousands) Year Ended December 31, 2021 2020 Increase Revenues Mississippi $ 90,628 $ 62,51345.0 % Indiana 41,435 29,524 40.3 % Colorado 23,660 19,614 20.6 % Nevada 18,516 11,732 57.8 % Contracted Sports Wagering 5,920 2,206 168.4 % $ 180,159 $ 125,58943.5 % Adjusted Segment EBITDA and Adjusted EBITDA Mississippi $ 29,843 $ 14,669103.4 % Indiana 8,736 2,444 257.4 % Colorado 5,545 3,790 46.3 % Nevada 4,933 454 986.6 % Contracted Sports Wagering 5,890 2,086 182.4 % Adjusted Segment EBITDA 54,947 23,443 134.4 % Corporate (7,733) (3,789) 104.1 % Adjusted EBITDA $ 47,214 $ 19,654140.2 % Adjusted Segment EBITDA Margin Mississippi 32.9 % 23.5 % 9.4 pts Indiana 21.1 % 8.3 % 12.8 pts Colorado 23.4 % 19.3 % 4.1 pts Nevada 26.6 % 3.9 % 22.7 pts Contracted Sports Wagering 99.5 % 94.6 % 4.9 pts 42 Table of Contents
The following table summarizes the consolidated results of our casino activity by key performance indicators as defined above:
Year Ended December 31, (In thousands) 2021 2020 Increase Slot coin-in
$ 1,951,311 $ 1,380,72741.3 % Slot win $ 148,232 $ 102,86144.1 % Slot hold percentage(1) 7.6 % 7.4 % 0.2 pts Table game drop $ 77,104 $ 61,87324.6 % Table game win $ 13,823 $ 10,96226.1 %
Percentage of participation in table games(1) 17.9% 17.7% 0.2 pt
(1) The three-year averages of the reservation percentage of slot machines and table games
percentage were 7.4% and 17.5%, respectively.
Mississippisegment consists of the Silver Slipper Casino and Hotel. Pursuant to a pandemic-related order from the state gaming commission, we temporarily suspended operations for a portion of the prior year, from March 16, 2020through May 21, 2020. During 2021, we saw the gradual relaxation of various pandemic-related business restrictions. As a result, revenues increased by 45.0% during 2021. Casino revenue increased by 48.5%, driven mainly by higher slot volumes, accompanied by increases to table games volume and hold. Non-casino revenue increased by 37.5% during 2021, also due to the gradual lifting of pandemic-related business restrictions. The majority of our non-casino revenue is from our food and beverage outlets. Food and beverage revenues rose by 39.4%, due to additional buffet covers and strategic buffet promotions. Hotel revenues increased by 26.5%, wherein total occupied room-nights increased by 33.5% to 42,743 room-nights for 2021, despite lower average daily room rates as compared to 2020. Adjusted Segment EBITDA increased by 103.4%, reflecting a focus on marketing and labor improvements. During the shutdown period, we reexamined our cost structure, specifically focusing on labor and marketing efficiencies company-wide. Upon reopening, we ensured that the hours of operations of our amenities were appropriately matched to our business levels. Additionally, Silver Slipper's operational performance reflects the benefit of numerous investments in the property in recent years. Such investments included a substantial renovation of the casino and the buffet, a renovated porte cochère and other sense-of-arrival improvements, the Beach Club, the Oyster Bar, and the introduction of on-site sports betting.
Indianasegment consists of Rising Star Casino Resort. Pursuant to a pandemic-related order from the state gaming commission, we temporarily suspended operations for a portion of the prior year, from March 16, 2020through June 15, 2020. Reflecting the gradual relaxation of pandemic-related business restrictions, revenues increased by 40.3% during 2021. Casino revenue rose by 46.3%, with slot revenues increasing by 53.0% and table games revenues increasing by 34.8%. Both our slot and table games departments benefited from relatively flat hold percentages on higher volumes during 2021. Non-casino revenue increased by 27.1% during 2021 due to higher guest volumes, especially as capacity and operating restrictions continued to ease in 2021. Hotel revenues drove much of this increase, up 35.4%, reflecting an increase in daily average room rates and a 27.9% rise in total occupied room-nights to 51,951 room-nights in 2021. Food and beverage revenues increased by 31.4% during 2021 from increased covers. 43 Table of Contents Adjusted Segment EBITDA increased by 257.4%, reflecting our focus on controlling costs and our revamped marketing approach, as well as capital investments made in recent years. Such capital investments included commencement of our ferry boat service, renovations of the pavilion and much of the hotel, conversion of a deli into a new restaurant, the RV park and a new slot machine management system. Efforts to control costs included reducing staff, decreasing marketing expenses, and replacing our buffet with more efficient food and beverage service options. Additionally, new Indianagaming legislation went into effect on July 1, 2021, including a reduction in certain gaming taxes for Rising Star.
Coloradosegment includes Bronco Billy'sCasino and Hotel and the Chamonixproject. Pursuant to pandemic-related state orders, we temporarily closed Bronco Billy'sfor a portion of the prior year, from March 17, 2020through June 15, 2020. Upon reopening, we resumed construction of Chamonix, which adjoins and will be connected to Bronco Billy's. Such construction has resulted in the loss of all of Bronco Billy'son-site parking, many of its hotel rooms, and some of its casino and restaurant space. To alleviate the lack of on-site parking, we introduced complimentary valet parking, as well as a free shuttle service to an off-site parking lot. Additionally, with the gradual relaxation of pandemic-related business restrictions and elimination of betting limits, revenues increased by 20.6% during 2021. Casino revenue increased by 18.8%, with slot revenues rising by 17.3% and table games revenues increasing by 109.4%. Both the slot and table games departments had relatively flat hold percentages on higher volumes during 2021. Non-casino revenue increased by 33.4% during 2021 due to higher guest volumes, especially as capacity and operating restrictions continued to ease in 2021. Food and beverage revenues drove much of this increase, up by 36.9% during 2021 due to increased covers and the reopening of our steakhouse. Hotel revenues followed with an increase of 23.7%, as higher average daily room rights offset the gradual loss of guestrooms due to Chamonix'sconstruction during 2021 and the impact of the closure period. Adjusted Segment EBITDA increased by 46.3%, reflecting an improved customer experience and analytics from Bronco Billy'snew slot marketing system and labor controls that were partially offset by certain labor expenses related to the pandemic. Results also benefited from the increase in capacity and operations as described above. Nevada
Nevadasegment consists of the Grand Lodge and Stockman's casinos. Our Nevadaoperations are seasonal, with the summer months accounting for a disproportionate share of annual revenues. Winter is a secondary peak season, as Grand Lodge Casinois located near several ski resorts, including Alpine Meadows, Northstarand Palisades Tahoe. We typically benefit from a "good" snow year, resulting in extended periods of operation at the nearby ski areas. This business segment was more negatively affected by the COVID-19 pandemic than our other business segments, as pandemic-related restrictions at the nearby ski resorts in late 2020 and early 2021 affected destination travel to the region. Pursuant to pandemic-related state orders, we temporarily closed both Grand Lodge Casinoand Stockman's Casino for a portion of the prior year, from March 17, 2020through June 4, 2020. Reflecting the gradual relaxation of pandemic-related restrictions, revenues increased by 57.8% during 2021. Casino revenue accounted for most of this increase, rising by 59.0%. Slot revenue increased by 68.2% during 2021 and table games revenues rose by 19.7%, both due to higher slot and table games volumes at Grand Lodge. While we resumed table games operations starting in the third quarter of 2020 at Grand Lodge, such operations remained closed at Stockman's during 2021. Electronic table games have been installed as an alternative to meet this demand at Stockman's.
Adjusted segment EBITDA increased by 986.6%. As restrictions eased in
44 Table of Contents Contracted Sports Wagering The Contracted Sports Wagering segment consists of our on-site and online sports wagering skins in
Coloradoand Indiana. Revenues and Adjusted Segment EBITDA were both $5.9 millionduring 2021, resulting in respective increases of 168.4% and 182.4%, as compared to 2020. Our fourth and fifth sports wagering skins commenced operations on April 1and April 23, 2021, respectively, resulting in sequential growth in both revenues and Adjusted Segment EBITDA. Our sixth skin contractually went live on December 1, 2021, and subsequently received gaming approval on February 28, 2022. As a result, all of our six permitted sports wagering skins were in operation in the fourth quarter of 2021. We receive a percentage of defined revenues of each skin, subject to annual minimums. Such minimums total $7 millionof revenue on an annualized basis under our current agreements, with minimal related expenses. In February 2022, one of our contracted parties for sports wagering informed us of its intent to cease operations on May 15, 2022, which will create one available skin in each of Coloradoand Indiana. We are currently negotiating with other companies to be the replacement operator for such skins. However, no assurance can be given that we will be able to enter into any replacement contract on similar terms or at all. Additionally, we expect to have an available sports skin in Illinois, as we were recently chosen by the IGB to develop and operate a casino in Waukegan, Illinois. Illinoislaw allows one sports skin for each physical casino license, which results in fewer total sports skins than in each of Coloradoand Indiana. Illinoisis also the sixth most populous state in the country, with approximately 12.8 million residents. As a result, we expect to receive better terms for our expected Illinoisskin than for any of our individual skins in Coloradoor Indiana. However, no assurance can be given that we will be able to enter into a contract related to such skin, either on better terms than our other skins or at all.
Corporate expenses increased by 104.1% in 2021, primarily due to
$2.1 millionof expenses related to corporate initiatives that are not expected to recur in 2022. Corporate expenses also increased due to additional professional fees, a gradual resumption of activities in late 2020 following the closure period, and an increase in accrued bonus compensation, reflecting our improved operating results. In Spring 2020, when our casinos were closed, we temporarily reduced our corporate staff to a small group of employees. In 2020, we began allocating certain costs to the properties. Previously, such costs were carried at the corporate level. For 2021, a total of $1.9 millionwas allocated, compared to $0.8 millionin 2020. We believe that such allocations are appropriate, as the corporate team provides additional support to each of our properties, and that such allocations make our segment results more comparable to other casino companies.
"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 in
the 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. 45 Table of Contents The following table presents a reconciliation of net income to Adjusted EBITDA: (In thousands) Year Ended December 31, 2021 2020 Net income $ 11,706 $ 147Income tax expense (benefit) 435 (92)
Interest expense, net of amounts capitalized 23,657 9,823 Loss on extinguishment of debt, net
409 - Adjustment to fair value of warrants 1,347 598 Operating income 37,554 10,476 Project development costs 782 423 Preopening costs 17 - Depreciation and amortization 7,219 7,666 Loss on disposal of assets, net 676 684 Stock-based compensation 966 405 Adjusted EBITDA
$ 47,214 $ 19,654
The following tables provide reconciliations between operating income and Adjusted Segment EBITDA and Adjusted EBITDA:
For the Year Ended
December 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$ - $ - $ - $ 29,843Indiana 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 $ 47,21446 Table of Contents For the Year Ended December 31, 2020(In thousands) Adjusted Segment Operating Depreciation Loss on Project Stock- EBITDA and Income and Disposal Development Based Adjusted (Loss) Amortization of Assets Costs Compensation EBITDA
Reporting segments Mississippi
$ 11,421 $ 3,004 $ 244$ - $ - $ 14,669Indiana (34) 2,478 - - - 2,444 Colorado 2,336 1,450 4 - - 3,790 Nevada (562) 581 435 - - 454 Contracted Sports Wagering 2,086 - - - - 2,086 15,247 7,513 683 - - 23,443 Other operations Corporate (4,771) 153 1
423 405 (3,789)
$ 10,476 $ 7,666 $ 684$ 423 $ 405 $ 19,654Operating expenses deducted to arrive at operating income (loss) in the above tables include facility rents related to: (i) Mississippiof $2.3 millionin 2021 and $1.6 millionin 2020, (ii) Nevadaof $1.8 millionin both 2021 and 2020, and (iii) Coloradoof $0.6 millionin both 2021 and 2020. Finance lease payments of $0.7 millionin both 2021 and 2020 related to Rising Star'ssmaller hotel within the Indianasegment are not deducted, as such payments are accounted for as interest expense and amortization of debt related to the finance obligation.
Cash and capital resources
December 31, 2021, we had $265.3 millionof cash and equivalents, including $176.6 millionof restricted cash dedicated to the construction of Chamonix. We currently estimate that between $7 millionand $9 millionof cash is required for our day-to-day operations, including for 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, 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 2021 was $29.5 million, compared to $9.0 millionin 2020. 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 accounts, such as receivables, prepaid expenses, and payables. Compared to 2020, the increase in our operating cash flows during 2021 was primarily due to our strong operating performance. Such results were brought on by a combination of higher volumes reflecting the gradual relaxation of pandemic-related business restrictions during the 2021 period, as well as more higher operating margins from the reexamination of our cost structure, specifically focusing on labor and marketing efficiencies company-wide. Cash flows - investing activities. On a consolidated basis, cash used in investing activities during 2021 was $37.2 million, compared to $2.6 million2020. Capital expenditures in 2021 primarily related to our Chamonixconstruction project, which continued to progress in 2021, and real estate purchases in Cripple Creek. This amount also includes approximately $2.0 millionfor capital expenditures made in 2021 at Silver Slipper to repair damage caused by Hurricane Zeta. Cash used in investing activities during 2020 were primarily related to capital expenditures for Chamonix. 47
Cash flows - financing activities. On a consolidated basis, cash provided by financing activities during 2021 was
$235.3 million, while cash provided by financing activities during 2020 was $1.5 million. In February and March 2021, respectively, we received $310.0 millionof gross proceeds from the issuance of our 2028 Notes and $46.0 millionof 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 offerings. Cash provided by financing activities in 2020 primarily reflect $5.6 millionof unsecured loans under the CARES Act, which were forgiven in full in accordance with their terms by the U.S. Small Business Administrationin December 2021.
Other factors affecting liquidity
We have significant outstanding debt and contractual obligations, in addition to planned capital expenditures related to the construction of
Chamonixand American Place. Our principal debt matures in February 2028. Certain planned capital expenditures designed to grow the Company, such as the permanent American Placefacility and the potential 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
Long-Term Debt. At
December 31, 2021, we had $310.0 millionof principal indebtedness outstanding under the 2028 Notes, and no drawn amounts under the Credit Facility or outstanding letters of credit. In December 2021, our qualifying subsidiaries' $5.6 millionof CARES Act Loans were forgiven in full per the terms of such loans. We also owe $3.3 millionrelated to our finance lease of a hotel at Rising Star. See Note 6 to the consolidated financial statements set forth in Part II, Item 8. "Financial Statements and Supplementary Data" for details on our debt obligations. Hyatt Option to Purchase our Leasehold Interest and Related Assets. Our lease with Hyatt to operate the Grand Lodge Casinocurrently has an option for Hyatt to purchase our leasehold interest and related casino operating assets. See Note 7 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 2021, we resumed the construction of
Chamonix - As previously discussed above in "Operating Properties - Chamonix Casino and Hotel" under Part I, Item 1. "Business," we increased the size of the
Chamonixproject's hotel capacity by 67%, to approximately 300 luxury guest rooms and suites from our previously planned 180 guest rooms. We also revised our construction budget for Chamonixin January 2022, increasing it from $180 millionto approximately $250 millionto reflect supply chain issues, inflation, and a difficult construction environment. To fund Chamonix'sconstruction, we issued our 2028 Notes and placed a portion of such proceeds into a restricted cash account dedicated to Chamonix's construction (see Note 6 to the consolidated financial statements set forth in Part II, Item 8. "Financial Statements and Supplementary Data"). As of February 28, 2022, the balance of such restricted cash account was approximately $221.4 million. We expect to invest approximately half of such amount in 2022 and the remainder in 2023, with an expected opening of Chamonixin the second quarter of 2023. 48
American Place - As discussed above in the "Executive Overview," we were selected by the IGB to develop and operate
American Placein Waukegan, Illinois. While the larger permanent facility is under construction, we will operate a temporary casino named The Temporary by American Place. During 2022, we plan to invest approximately $100 millionin The Temporary, which includes significant upfront gaming license payments and the purchase of slot machines that are expected to be transferred to the permanent casino once opened. To fund such construction, in February 2022, we issued $100.0 millionof Additional Notes and increased the size of our revolving credit facility to $40.0 million, all of which is currently available to draw upon (see Note 6 to the consolidated financial statements set forth in Part II, Item 8. "Financial Statements and Supplementary Data"). We intend to open The Temporary in Summer 2022, pending customary regulatory approvals. 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 expected profitability, length of development period, regulatory and political environment, and ability to secure the necessary financing to complete the development or project. acquisition, among other considerations. No guarantee can be given that additional projects will be continued or completed or that completed projects will be successful.
Main debt agreements
See Note 6 to the consolidated financial statements included in Part II, Item 8. “Financial statements and additional data” for more information.
Critical accounting estimates and policies
Our consolidated financial statements were prepared in conformity with accounting principles generally accepted in
the 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, Goodwilland 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. 49 Table of Contents 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 2021 and 2020 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.
Capitalization and depreciation policies for fixed assets
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 acquired
Bronco Billy'sin May 2016, Silver Slipper in October 2012, Rising Starin April 2011and Stockman's in January 2007. Project development costs, which are amounts expended on the pursuit of new business opportunities, and acquisition-related costs 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. 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.
We are subject to federal and state taxes in
the 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. 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 the IRSand other tax authorities. Positions taken in tax returns are sometimes subject to uncertainty in the tax laws and may not ultimately be accepted by the IRSor 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 fifty percent likely of being realized. Additionally, we recognize accrued interest and penalties, if any, related to unrecognized tax benefits in income tax expense. 50 Table of Contents
Recently issued accounting pronouncements not yet adopted
See note 2 to the consolidated financial statements in Part II, point 8. “Financial statements and additional data” for a discussion of recently issued accounting pronouncements not yet adopted.
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