Wednesday, May 14, 2014

Full House Resorts Inc Reports Weak Quarter & Stock Tumbles

Several years ago I had a position in Full House Resorts (FLL) and ended up keeping a measly 25 shares after selling the the rest of the shares I had for a profit. So the stock has stayed on my watchlist for a while now and I've monitored the companies progress.

When I initially invested, Full House Resorts a few years ago they had a cleaner balance sheet. They were more of a manager of casino properties, and I like that since they didn't have to be the one's on the hook for an expensive remodel every decade ... which seems like the norm in the casino/hotel business. Since 2012 they have acquired Silver Slipper Casino, Lease/Purchase the Rising Star Casino, and acquired the Fitz Casino

I'd call that a spending spree!



Since 2012 - the stock is trading down about 40% - so investors clearly haven't benefited from the acquisitions & increased debt levels the company has had to take on in order to buy, renovate and maintain these new properties.

The company is now under a large mountain of debt (see page 12) and is beginning to look like most casino stocks. Below is what the company just had to say about it's recent quarter. I have added bold text for emphasis.
Revenues
The $8.7 million, or 22%, decrease in total revenues for the three months ended March 31, 2014 primarily consisted of the following changes by revenue type: an $8.3 million, or 23%, decrease in casino revenues, a $0.2 million, or 8%, decrease in food and beverage revenues, and a $0.2 million, or 16%, decrease in all other revenues. The decrease in total revenues was primarily due to decreases in casino revenues, as discussed below, by property. Total slot revenues accounted for approximately 87% of casino revenues in 2014 and 85% of casino revenues in 2013. The decrease in food and beverage and other revenues was primarily due to decreased revenues at the Rising Star Casino Resort, as discussed below.
The $8.7 million decrease in total revenues was principally related to a $6.4 million, or 32%, decrease in our Midwest segment revenues primarily as a result of increased competition and adverse weather conditions, a $1.4 million, or 10%, decrease in our Gulf Coast segment revenues primarily due to adverse weather conditions and a $0.9 million, or 18%, decrease in our Northern Nevada segment revenues due to poor ski conditions in the Lake Tahoe area and continuing economic weakness.
The $6.4 million decrease in our Midwest segment revenues was mainly the result of lower casino revenues at the Rising Star Casino Resort, which decreased $6.0 million, or 33%, as well as a $0.2 million, or 81%, decrease in other revenues and a $0.1 million, or 17%, decrease in food and beverage revenues. The decrease was primarily a result of increased competition due to the opening of an Ohio racino in December 2013, a new casino in Cincinnati, Ohio, which opened in March 2013, coupled with adverse weather conditions in the Midwest that affected the entire Indiana/Ohio market. Rising Star’s slot coin-in in 2014 was 32% below the prior year period and table drop was down 30% compared to the prior year period. The win percentages for slots were consistent with the win percentages in the prior year, whereas the table hold decreased slightly over the prior year period.
The $1.4 million decrease in our Gulf Coast segment revenues was the result of lower casino revenues at the Silver Slipper Casino, primarily as a result of adverse weather conditions. Silver Slipper’s slot coin-in in 2014 was 12% below the prior year period and table drop was down slightly compared to the prior year period, although the win and hold percentages for slots and table games increased 1% and 12%, respectively, over the prior year period.
The $0.9 million decrease in our Northern Nevada segment revenues was the result of $0.8 million, or 23% lower revenues at the Grand Lodge Casino and $0.1 million, or 7%, lower revenues at the Stockman’s Casino due to lower casino revenues.  The lower casino revenues at the Grand Lodge Casino was primarily a result of lower volume due to poor ski conditions which provided little draw from the excellent weather of our feeder markets in central California. Slot coin-in and win percentage for the Grand Lodge Casino were both down in 2014, 8% and 11%, respectively, as compared to the prior year period. The lower casino revenues at the Stockman’s Casino were primarily a result of lower volume due to continuing economic weakness. Stockman’s slot coin-in in 2014 was 12% below the prior year period, although the win percentage for slots increased 4% over the prior year period.
(Source: Page 22 Q1 2014 10-Q)

Awesome ... so Full House totally bricks the quarter and is blaming the weather and 'economic weakness' which must be the stock line the companies executives are still using since 2008, poor weather conditions ... which I can buy, but shows you as investors that you need to pay attention to your meteorologist when you invest in this stock. Finally, the company mentions competition - which is never going to slow down and will continue to be a fight they will wage. For a company who has been on a buying spree, you'd sure like to see them have a better suitcase of excuses, but the executives at FLL do not ... they use the same old excuses why they fell on their face this quarter.

You'd also think that after spending millions to acquire and renovate several casinos during the last few years, they'd have a cleaner balance sheet but they don't. Take a look at the Goodwill & Intangible assets (in bold below) .... I'm not sure what those are for, but it's fair to say you could cut those in half for the majority of companies out there, except for one's with actual brand recognition like Coca-Cola or Apple.

That leaves the company 76.7 Million of debt, with 14.5 million in cash and 91.6 million in property, which needs to be remodeled & upgraded to compete in this business - so it's worth a lot less than that.

 
March 31,
2014
  
December 31,
2013
 
  
(Unaudited)
    
ASSETS
      
Current assets
      
Cash and equivalents
 $14,519  $14,936 
Accounts receivable, net of allowance for doubtful accounts of $429 and $471
  1,735   1,869 
Prepaid expenses
  4,757   6,288 
Other
  735   726 
   21,746   23,819 
Property and equipment, net of accumulated depreciation of  $24,907 and $23,096
  91,671   91,168 
         
Other long-term assets
        
Goodwill
  18,127   18,127 
Intangible assets, net of accumulated amortization of  $4,697 and $4,055
  14,909   15,533 
Long-term deposits
  2,593   761 
Loan fees, net of accumulated amortization of $2,698 and $2,327
  3,189   3,558 
Deferred tax asset
  1,321   1,321 
   40,139   39,300 
  $153,556  $154,287 
LIABILITIES AND STOCKHOLDERS’ EQUITY
        
Current liabilities
        
Accounts payable
 $2,347  $2,661 
Accrued player club points and progressive jackpots
  1,848   1,999 
Accrued payroll and related
  2,921   3,276 
Other accrued expenses
  2,469   3,139 
Deferred tax liability
  66   66 
Current portion of capital lease obligation
  689   736 
   10,340   11,877 
         
Long-term debt, net of current portion
  59,500   57,500 
Deferred tax liability
  113   113 
Capital lease obligation, net of current portion
  6,793   6,983 
   76,746   76,473 
Stockholders’ equity
        
Common stock, $.0001 par value, 100,000,000 shares authorized; 20,227,276 and 20,107,276 shares issued
  2   2 
Additional paid-in capital
  45,428   45,350 
Treasury stock, 1,356,595 common shares
  (1,654)  (1,654)
Retained earnings
  33,034   34,116 
   76,810   77,814 
  $153,556  $154,28
 

With the stock trading off 15%+ today, a quick scan of these numbers and competitive casino industry environment makes it easy to see why investors are avoiding this stock. If I didn't have 25 shares just sitting in my account, I'd long forgot about this gaming operator - and you'd be wise to stay away from investing in Full House Resorts.

Disclosure:
I own 25 shares after selling a larger lot years ago.
I advise selling or shorting this company.

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