I analyzed Nevada Gaming
Control Board (NGCB) gaming abstract data between FY2013 and FY2017 for casino operators with gaming revenue greater than $1M to develop insight into the
Carson valley casino market financial model. I reviewed market level financial statements
and data points published by the NGCB. I also developed my own calculations
as follows:
NGCB Data
Balance Sheet
Combined Income Statement
Casino Department Income
Statement
Rooms Department Income
Statement
Food Department Income
Statement
Beverage Department Income
Statement
Other Income Department Income
Statement
Number of Employees by Year
Hotel Room Availability
and Occupancy
Operating and Financial
Ratios
My Calculations
Sources and uses of cash flow
Debt (leverage) metrics
EBITDA and free cash flow
Total labor costs as
percentage of revenue
Slot volume and win trends
by day and month
Overview of The Market
The market is primarily a
gaming market as gaming revenue has comprised approximately 65% to total
revenue for several years with the majority of gaming revenue being slot
revenue (approximately 94% of total gaming revenue between January 2014 and
April 2018). Within the slot department, approximately 70% of market level volume
is generated by multi denominational games. Remaining revenue in FY2017
consists of room (7.1%), food (15%),
beverage (6.5%) and other revenue (6.3%). I characterize the market as a "market
share market" due to the fact that overall market level revenue growth has
been flat since FY2009 with the number of properties and hotel rooms being relatively
stable for several years.
Profitability
For FY2017, total revenue
less, cost of sales (13.1%), departmental expenses (44%) and G&A (35.4%) equaled
pretax income of 7.5%. Departmental costs and margins were relatively stable between
FY2013 and FY2016 resulting in pretax income of 4.8%, 2.4%, 3.8% and 5.6%
indicating that operators operate in a low margin environment. The market
generated positive EBITDA between FY2013 and FY2017 at a range of 10% to 13% .
Departmental profits are
primarily generated by the casino department and essentially the slot department.
Casino department profits dominate overall profitability as the casino
department contributed between 91% to 95% of total property departmental income
between FY2014 and FY2017. The biggest operating cost is labor cost as total departmental
and G&A labor costs ranged between 21% to 22% and 9% to 10% of total
revenues between FY2014 and FY2017.
Cash Flows
Carson Valley casinos
generated cash flow from operations between FY 2014 and FY2017, invested in
land & improvements, buildings, furniture & equipment, leasehold
improvements and CIP while borrowing, as long term debt increased in FY2017 and
FY2015 and decreased in FY2016 and FY2014. The market also generated free cash
flow in each of FY2014 - FY2017, defined as net income plus depreciation before
maintenance and general cap ex.
Balance Sheet
The balance sheet shrunk
between 2007 to 2011 and remained relatively stable through FY2016 ($103.2m) before
expanding to $114.2m in FY2017 primarily due to an investment in fixed assets.
Working capital has been positive between FY2013 and FY2017 at a working
capital ratio of 1.8 to 2.0 while cash has comprised approximately 16% to 20%
of total assets. Debt to total capital has ranged between 47% to 60% between
FY2013 and FY2017 while net debt to EBITDA has ranged between 1.7 x to 2.4x
between FY2013 and FY2017. Interest coverage is 7.8x for FY2017 and has ranged
from 5.3x to 7.1x between FY2013 and FY2016. Debt primarily consists of
mortgage debt, debentures & bonds and notes.
Returns on Capital
Carson Valley casinos
generated positive ROIC (8.5%, 10.3%, 14% and 17%), ROA (6.7%, 8.4%, 10.8%, and
13%) and ROE between FY2014 and FY2017. My DuPont ROE calculation (defined as
net income divided by revenue x
revenue to total assets x total assets
to equity = ROE) indicates that between FY2014 and FY 2017 the majority of ROE
is attributed to leverage based on total assets to equity levels (3x to 4x
between FY2014 and FY 2017) as pretax operating margins were narrow (2.4% to
7.5% between FY 2014 and FY2017) and asset turnover declined (1.56x, 1.51x, 1.45x
and 1.34x between FY2014 to FY2017).
Room Statistics
Occupancy in the market
has run between 50% and 55% between FY2014 and FY2017 with trough to peak occupancy
running between 32% and 72% between winter and summer periods. REVPAR has
averaged $43, $38, $35 and $33 for FY2017, FY2016, FY2015 and FY2014 while the
room supply has remained stable. Average slot, food and beverage revenue per
room has remained stable between FY2014 and FY2017.
Recent Trends and Conclusion
Slot volume has increased
since mid calendar 2017 through the latest NGCB data point, May 2018 resulting
in an upward Y/Y trend in WPU creating the possibility of incremental top line
revenue, flow through and margin expansion. See Figures 1 and 2 below. I will
wait and see what is reported in the FY2018 NGCB abstract results. The results
discussed here are based on aggregate numbers for 15 licensees with average
assets of $7.5M and average revenue of $10.2M for FY2017. Individual operators will perform better and
worse than the averages and have stronger and weaker balance sheets, due to
differences in business strategy, asset mix, management ability, property
history and legacy issues, among other factors that affect casino financial
models and results. The market has generated cash flow, pretax income, EDITDA and
returns on capital despite flat top line revenue for several years. The market
is expected to remain competitive and in a "market share mode." See
below for FY2017 financial model data.
For a view of select data and charts that accompany this article see:
https://www.slideshare.net/GreggCarlson1/carson-valley-casino-market-financial-model-104134223?qid=7dc68030-c7ae-4a01-858f-fea9cbb3f521&v=&b=&from_search=1
For a view of select data and charts that accompany this article see:
https://www.slideshare.net/GreggCarlson1/carson-valley-casino-market-financial-model-104134223?qid=7dc68030-c7ae-4a01-858f-fea9cbb3f521&v=&b=&from_search=1
Gregg Carlson
No comments:
Post a Comment