Executive Summary / Key Takeaways

• Full House Resorts is undergoing a significant transformation, shifting from a collection of smaller regional casinos to a focus on two major growth drivers: the newly opened Chamonix Casino Hotel in Colorado and the planned permanent American Place facility in Illinois.
• Recent financial performance reflects this transition, with Q1 2025 revenue growth driven by the ramp-up of these key properties, although operational inefficiencies at Chamonix initially weighed on profitability.
• Management is implementing significant operational and marketing changes, including new leadership at core properties and enhanced data-driven strategies, aiming to improve efficiency and accelerate the maturation of Chamonix and American Place.
• The investment thesis is centered on the successful execution of the American Place permanent facility ($325M incremental cost, targeting 2027 opening) and the maturation of Chamonix (targeting $20M+ EBITDA in ~3 years, $50M by 2030), which management believes will substantially increase EBITDA and unlock shareholder value.
• Key risks include execution risk on development and ramp-up, the ability to secure favorable financing for the permanent American Place project in potentially volatile debt markets, and competitive pressures from larger, more technologically advanced operators and online gaming.

A Regional Operator's Ambitious Transformation

Full House Resorts, Inc. (NASDAQ: FLL) operates in the dynamic U.S. casino and hospitality sector, strategically positioning itself within regional markets. Unlike large-scale integrated resort operators like Caesars Entertainment (CZR) or MGM Resorts International (MGM), FLL has historically focused on smaller, community-integrated properties. However, the company is currently in the midst of a significant, multi-year transformation driven by substantial capital investments in two key projects: the recently opened Chamonix Casino Hotel in Cripple Creek, Colorado, and the planned permanent American Place facility in Waukegan, Illinois. This strategic pivot aims to elevate FLL's scale, asset quality, and profitability, fundamentally altering its competitive standing and investment profile.

FLL's history reflects a pattern of opportunistic growth and portfolio management. From establishing properties like the Silver Slipper in Mississippi and operating the Grand Lodge Casino in Nevada, the company has built a base in diverse regional markets. More recently, it ventured into contracted sports wagering, securing skins in multiple states, though this segment faces challenges from market consolidation dominated by giants like DraftKings (DKNG) and FanDuel. The pursuit and development of American Place and Chamonix represent the most ambitious chapter yet, requiring significant capital and operational focus. This strategic evolution also includes portfolio optimization, such as the recent sale of the small Stockmans Casino in Nevada, deemed non-core, and the proposed relocation of the Rising Star Casino in Indiana, which operates in a saturated and geographically challenging market.

While FLL does not possess proprietary gaming machine technology akin to a manufacturing company, Despite lacking proprietary, quantifiable technology differentiators, its operational and marketing strategies leverage technology to enhance efficiency and customer engagement. This includes sophisticated database marketing techniques, transitioning from costly physical mailers to more efficient email campaigns, and utilizing targeted advertising algorithms. On the operational front, the company focuses on integrating systems for seamless customer experience, such as improving TITO ticket functionality between adjacent properties like Chamonix and Bronco Billys. Furthermore, investments in high-quality amenities like the spa and salon at Chamonix, supported by modern hospitality technology for bookings and service delivery, serve as differentiators designed to attract a higher-end customer and fill crucial midweek occupancy. Management is actively working to optimize these technological applications, such as refining advertising spend targeting and improving staffing for amenities, to drive profitability. The strategic intent behind these technological efforts is to improve customer acquisition and retention efficiency, enhance the guest experience, and ultimately boost revenue and margins, providing a competitive edge in its targeted regional markets.

Performance Reflecting a Transition

The first quarter of 2025 provides a snapshot of FLL's ongoing transition. Consolidated total revenues increased by 7.3% year-over-year to $75.1 million, a direct result of the continued ramp-up of operations at American Place and the phased opening of Chamonix. However, consolidated operating expenses also rose by 5.4% to $74.3 million, reflecting the increased costs associated with operating these larger, newer facilities, including higher casino, food and beverage, hotel, and selling, general and administrative expenses.

Looking at segment performance, the Midwest South segment, anchored by American Place, saw revenues increase by 4.6% to $57.2 million. American Place continues to be a bright spot, achieving a record gaming revenue month in March 2025, nearing $11 million, and steadily growing its customer database. This growth at American Place offset revenue declines at Silver Slipper and Rising Star during the quarter. Adjusted Segment EBITDA for the Midwest South rose by 3.4% to $13.1 million, benefiting from American Place's strength and initial cost-saving efforts under new leadership at Silver Slipper, though partially offset by increased marketing and labor costs at American Place as it continues to build its business.

The West segment, now featuring the recently completed Chamonix, experienced a significant 19.8% increase in revenues to $15.6 million. This growth is almost entirely attributable to Chamonix's contribution, integrating with the existing Bronco Billys. However, early operational inefficiencies and the costs associated with training new staff and implementing marketing initiatives resulted in a $2.3 million decline in Adjusted Segment EBITDA compared to the prior year, landing at $2.5 million. Management acknowledges this initial drag but views it as a temporary phase in the ramp-up process.

The Contracted Sports Wagering segment saw relatively flat revenues at $2.3 million but a 12.7% increase in Adjusted Segment EBITDA to $2.2 million, primarily due to the absence of a credit loss provision taken in the prior year. However, the outlook for this segment is challenged, with the company's operator in Colorado and Indiana discontinuing operations, leaving FLL with idle skins and no certainty of finding new partners on favorable terms in a market dominated by a few large players. FLL's remaining Illinois contract with Circa, a niche player, is its most significant asset in this space.

Overall, while revenue growth is evident, the profitability picture in Q1 2025 reflects the costs of ramping up major new assets. The company reported a net loss of $9.8 million for the quarter, compared to a $11.3 million net loss in the prior-year period.

Competitive Landscape and Strategic Positioning

FLL operates in a highly competitive environment against a diverse set of rivals, ranging from large national operators to smaller regional players and increasingly, online gaming platforms. Compared to industry giants like Caesars Entertainment and MGM Resorts International, FLL operates at a significantly smaller scale. While CZR and MGM boast vast portfolios, strong national brands, and substantial investments in digital gaming and advanced operational technology, FLL's strength lies in its focused approach to specific regional markets where it aims to be a dominant, high-quality operator.

Quantitatively, FLL's financial metrics reflect its smaller scale and current development phase. Its TTM EBITDA margin of 14.70% trails CZR's 32.01% and MGM's 26.52% (based on recent data), indicating lower operational efficiency at present, partly due to the ramp-up costs of new properties. Similarly, FLL's TTM Net Profit Margin of -13.18% highlights the impact of interest expense and development costs compared to CZR's -1.95% and MGM's 3.84%. FLL's Debt/Equity ratio of 17.10 is notably higher than CZR's 5.73 and MGM's 10.45, reflecting the leverage taken on for its capital projects.

However, FLL's strategy is not to compete head-to-head with these giants on every front. Instead, it focuses on underserved markets where regulatory barriers to entry are high, providing a degree of protection. In Cripple Creek, FLL's Chamonix is positioned as the premier luxury resort, significantly larger and more upscale than existing competitors like Century Casinos (CNTY) or the Golden Nugget (formerly Wildwood). While CNTY operates on a similar scale to FLL overall, FLL aims to differentiate through asset quality and guest experience in its key markets. Management believes Chamonix's unparalleled amenities in its market will attract customers who previously traveled further for a high-quality gaming experience, expanding the overall market rather than solely taking share from existing, lower-tier operators. Early signs in Cripple Creek suggest FLL has more than doubled its market share without significantly impacting competitors, supporting the view of an undersaturated market.

In Illinois, American Place benefits from being the sole casino in the large Lake County market, a demographically rich area. While Bally's (BALY) operates a temporary casino in downtown Chicago, FLL management prefers their position due to a more favorable tax rate and a less capital-intensive permanent development plan ($325M vs. billions). The success of Hard Rock's permanent facility in Rockford, which saw revenues double after replacing a temporary structure in a smaller market, serves as a positive indicator for American Place's potential.

The sports wagering segment highlights the challenge of competing against dominant national brands. The loss of operators for skins in Colorado and Indiana underscores the difficulty for smaller players to maintain a foothold against the marketing power and established customer bases of DraftKings and FanDuel.

Overall, FLL's competitive positioning is defined by its strategic focus on developing high-quality assets in specific, less saturated regional markets. While it faces financial and scale disadvantages compared to national leaders, its success hinges on leveraging its regulatory licenses and asset quality to capture market share and drive profitability within its chosen niches, rather than competing across the board.

Outlook and Path to Maturation

Management's outlook is centered on the successful maturation of Chamonix and the development of the permanent American Place, which are expected to be the primary drivers of future EBITDA growth.

For Chamonix, management expects performance to improve significantly throughout 2025. Following initial operational inefficiencies and marketing adjustments, they anticipate the property will achieve profitability in the second quarter of 2025, become more profitable in the third quarter, and contribute positively to the company's bottom line for the full year. They are targeting $20 million in Adjusted EBITDA for Chamonix within approximately three years and believe the property has the potential to reach $50 million annually by 2030, citing comparisons to successful operators in the broader Colorado market like Monarch (MCRI). This growth is expected to be driven by continued revenue ramp-up as awareness builds and the customer database matures, coupled with significant cost savings already identified and implemented.

At American Place, the temporary facility is expected to continue its strong performance, with management projecting Adjusted EBITDA in the mid-thirties millions for 2025, potentially reaching $50 million before the permanent facility opens. The focus is now on the permanent American Place, for which design work is actively underway. Management intends to break ground in the second half of 2025 and targets an opening by August 2027, coinciding with the temporary permit's expiration. The estimated incremental cost for this facility is $325 million. Management is highly confident that the permanent facility will generate significantly higher revenues and achieve stronger margins (mid-thirties or above) compared to the temporary structure, based on the experience of comparable projects in other markets.

Financing the permanent American Place is a critical component of the outlook. Management plans to refinance its existing 8.25% Senior Secured Notes due 2028 sometime within the next year. They intend to use this opportunity to secure a new debt structure, potentially including a larger revolving credit facility, to fund the construction. Management is explicit that they will not issue equity at current valuation levels, viewing it as too dilutive. They are confident in their ability to secure debt financing, citing positive signs in the bond market and multiple potential avenues, including a backup private equity facility. They believe they have sufficient liquidity and time to navigate the financing process, as the majority of the construction spend is back-ended towards the latter half of the two-year build period.

Beyond these two core projects, management is pursuing the potential relocation of Rising Star to Fort Wayne, Indiana. While this requires legislative approval and is uncertain, a state study is underway, expected by year-end 2025. Management views this as a significant long-term growth opportunity that could yield substantial EBITDA, far exceeding the value of selling the current property.

Risks to this outlook include the inherent execution risk in completing large construction projects on time and within budget, particularly the permanent American Place. The ability to secure favorable debt financing in potentially volatile market conditions is also a key risk. The ramp-up of Chamonix may be slower or less profitable than anticipated. Regulatory risks persist, including the Illinois Reconciliation Payment obligation and the uncertainty surrounding the Rising Star relocation proposal. Competitive pressures, particularly from larger operators and the evolving online gaming landscape, could impact market share and revenue growth. Seasonality, especially in the Colorado and Tahoe markets, and variations in gaming hold percentages can also cause quarterly fluctuations.

Conclusion

Full House Resorts is at a pivotal juncture, transitioning its portfolio and operational focus towards larger, higher-quality assets in strategically chosen regional markets. The investment thesis is a high-stakes bet on management's ability to successfully execute the development of the permanent American Place and accelerate the maturation of Chamonix. While recent financial results reflect the costs and initial inefficiencies of this transition, management has articulated clear strategies, implemented significant operational changes, and provided specific targets for future performance.

The successful ramp-up of Chamonix to profitability in 2025 and its trajectory towards targeted EBITDA levels, coupled with securing financing and commencing construction on the permanent American Place, are critical milestones to watch. If management delivers on these initiatives, leveraging operational improvements, targeted marketing, and the quality of its new assets to drive revenue growth and margin expansion, the company believes it can significantly increase its EBITDA generation and unlock substantial shareholder value, potentially positioning itself as a compelling growth story within the regional gaming sector despite the competitive landscape and inherent development risks.