Q2 2021 Century Casinos Inc Earnings Call
Yeah.
Welcome to the century casinos Q2, 2021earnings conference call.
This call will be recorded at.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session.
I would like to introduce our host for today's call Mr. Peter Hudson Jerry Mr. Hudson You may begin.
Good morning, everyone and thank you for joining our earnings call with.
With me on the call are my co CEO and the chairman of century casinos Erwin Heitzman.
That is our chief financial Officer Margaret Stapleton.
As always before we begin we would like to remind you that we will be discussing forward looking information.
Which involves a number of risks and uncertainties that may cause actual results to differ materially from all forward looking statements.
The company undertakes no obligation to update or revise the forward looking statements.
As a result of new information future events or otherwise.
They provide a detailed discussion of the various risk factors in our SEC filings and the courage you to review these filings.
In addition throughout our call or we refer to several non-GAAP financial measures, including but not limited to adjusted EBITDA.
Reconciliations for non-GAAP performance and liquidity measures to the appropriate GAAP measures can be found in our news release and the SEC filing.
And in the Investor section of our website at C N T Y dot com.
I'll now provide an overview of the second quarter results after debt WP acumen day session.
The second quarter was an outstanding performance for our company and our entire team.
Our focused operating strategy produced strong and robust margins and we generated the highest quarterly EBITDA in the history of our company.
We're happy to report $92.2 million of revenue and $25.2 million of adjusted EBITDA.
This is a new quarterly record for century casinos.
On a consolidated basis, the EBITDA margin in the quarter was 27, 4% all of these numbers are substantially better than what the street expected.
The quarter showed continued strength and momentum across all of our local and regional properties and businesses.
The results were driven almost exclusively by our properties in the U S.
Because of our casinos in Poland, and Canada were closed for most of the quarter.
To help you opened in late May and early June respectively, and has been profitable since day 1.
As most other local and regional casinos, we continued to penetrate from strong demand.
From the strong preference for close to home entertainment and from the fiscal stimulus.
All of debt has improved visitation as well as spending levels at our casinos and together with our disciplined and efficient operating strategy contributed to this great results across our portfolio.
Okay.
Our cost structure is more streamlined and all marketing and promotional investments and more targeted.
Which translates into increased spend per visit especially from our most radio for players.
And it's very good to see that strong operating performance from the first half of the year also continuing into July.
We realized there's a bit more uncertainty today about the pandemic, but we're still confident in our ability to generate results well above pre COVID-19 levels. As we continued to successfully execute our operating philosophy with a tight focus on the right customer.
Yeah.
Our business is largely gaming centric only a minority of our revenue is coming from non gaming amenities and many of those are open on a limited basis only.
And that results in an overall lower cost structure.
You can only open more non gaming amenities like spanned the opening hours as demand picks up for that so that should grow in a profitable way.
At this point, we haven't seen any significant impact of more aggressive marketing from our competitors.
Even as other entertainment options Las Vegas for example has started to come back quite strongly.
That's very encouraging and debt as Wayne has continued into July.
Yeah, and the ongoing strength the growth of our core properties are delivering.
We continue to pursue initiatives to improve and expand our businesses for them.
Yeah.
We are developing into a multi channel gaming company.
6 traditional casinos in Colorado, Missouri and in Canada.
With 3 racetrack and casino resorts in West Virginia, Canada.
And a variety of operations and partnerships in off track betting sports betting and I gaming.
While the traditional casino table and slot games still accounts for the vast majority of our revenue.
The revenue from I gaming sports betting at Parimutuel betting has for the first time.
Surpass the revenue generated from our hotels or it could be operations and has become the second highest revenue generator for us.
And that comes as you know without any significant investment from our side whatsoever.
During the quarter, our operating partners Rush Street, and William Hill launched a gaming in West, Virginia and for all Master license.
And the second of our 3 Colorado sports betting partnerships plants to go lives for next month.
Yeah.
But while digital gaming is an attractive way to grow our company.
See even more upside by reinvesting into our existing casino assets.
I Wonder if these opportunities is our casino in Colorado, Missouri, which was being at very strong pro forma in our regional portfolio.
We are currently in the planning phase of developing land based casino and hotel facility at Carrabba's Sweet.
Which means significantly enhanced the guest experience and expand the reach and catchment area of that property.
As soon as we firmed up the plans and Capex numbers, we'd provide what the for information about this exciting project.
Now a quick look at our balance sheet and liquidity.
As a result of our strong operating performance and careful management of Capex.
We are in a much stronger financial position today than pre COVID-19.
Net cash provided by operating activities was 7.5 million day quarter.
Based on 25.2 million net adjusted EBITDA, that's a conversion rate of 69%.
Debt rate is driven in part by regulatory regimes in best Kachina, an oral pill for Canada, where the regulatory bodies pay for half 2 almost all of the slot machine and related Capex.
Yeah.
The strength of our operating performance net of our current cash position increased to 72 million.
That's the end of June.
Outstanding debt of 184 million for a net debt sits at habit for 112 as of June 30.
Based on trailing 12 month net debt to adjusted EBITDA ratio is a healthy 2.0.
We have a well maintained asset base.
Minimal levels of maintenance capex to sustain current levels of profitability.
And we have no substantial debt maturities before 'twenty 'twenty 6.
Yeah.
And I'll take a quick look at the performance of each operating segment, starting with Colorado.
As you see it is as you've seen it wasn't excellent quarter for our properties in Cripple Creek and Central City.
Both casinos clearly outpaced even pre COVID-19 levels.
The biggest difference is debt or better players spent considerably more time on all slots and tables than before.
Net operating revenue was up 37% over Q2.19.
And it was up 29% over the first quarter of this year.
Adjusted EBITDA more than doubled compared to Q2.19.
And because it's up 55% over the first quarter of this year.
And the EBIT margin channel second quarter record of 40 per cent.
On the first table limits in Colorado increased an additional table games, such as baccarat rollout.
As a result, the dropped out gaming tables was up almost 30 per cent compared to 2019.
Moving on to Missouri.
Our most important market in terms of EBITDA and cash flow generation.
And again the results for the quarter were fantastic Quentin volumes on the slots and drop at the gaming tables continue to be at historically high levels.
Net operating revenue was up 48% over Q2.2019.
I think it was up 11% for the first quarter of this year.
And adjusted EBIT for more than doubled compared to Q2.19 Andy.
And it was up 12% over the first quarter of each year.
EBITDA margin is second quarter.
The percent truly remarkable.
Marketing spend continues to remain significantly below pre COVID-19 levels and.
And it's expected to continue at its current run rate moving forward.
The reductions that we made in advertising direct mail and promotion expense appear to be sustainable and has not had any negative impact from gaming volumes.
A couple of weeks ago.
As announced the pretty input breakthrough in Missouri with the change of the Missouri law that requires each casino to be a floating facility.
Going forward, the Missouri Gaming Commission, we'd have the ability to prove our casinos facility as long as it is located within 1000 feet of the Mississippi, and Missouri Rivers and includes a container with at least 2000 gallons with water being at the facility.
This change opens the opportunity for our property in Colorado, Sweden.
Which by the way the last remaining your bid book Riverboat casinos in an open world in Missouri to move to a non floating facility.
And in preparation for that we purchased some patents up land and a small existing 2 story hotel.
These land purchases provide strategic options for the future Casino and hotel development and third access to parking.
They have already started working with architects developed plans for a new casino and hotel for CDP.
That would be a very exciting development with the target that Oh ROI of over 20 per cent.
Okay.
Next is west, Virginia, where they operate the mountaineer casino racetrack and resort.
Net operating revenue was down 6% over Q2 thousand 19.
But it was up 28% over the first growth this year.
Adjusted EBITDA increased by 5% over Q2.19.
And he goes up 72% over the first quarter of this year.
He's a very good results, especially because of temporary smoking ban was in place for the first part of the quarter.
Have you had to pre screen and take the temperature of all guests until the middle of the quarter.
It was only 2 weeks before the end of the quarter debt the COVID-19 restrictions were lifted.
The F&B outlets are open with limited hours of operation.
The convention space remains closed until tell us operating with limited capacity.
Because of its resort destination character on cash.
And yet it usually draws quite an awful lot of its business from customers staying for a night or 2.
Challenging in the last 1 for Mark.
But now for the last couple of months, we've seen strong uptick in business, which we believe is directly linked to more people getting debt explanations and feeding comfort or getting out of the house for short trips and overnight space.
You're starting to see indications that the regional destination business is returning.
Hotel reservations have increased for the highest literally more than a year.
Yeah.
Yeah.
Internationally.
Our operations in Poland, but closed for most of the quarter.
He opened at the end of May.
This has been very strong since day 1.
Adjusted EBITDA, averaging between 700000 and $1 million per month.
As reported we are in talks with several parties about the sales of our Polish casinos.
3 companies are on the shortlist and deep in negotiations with them are ongoing.
We are getting closer.
It's too early to predict the outcome of these negotiations.
Yeah.
And in Canada. We've also closed for most of the quarter.
To reopen on June 10.
For the first 3 weeks the operated with restrictions, including a 25 per cent occupancy capacity, social distancing protocols and mandatory mask requirements.
On July 1.
But the government relax COVID-19 restrictions province wide.
Eliminating caps and occupancy social distancing and the mascot requirement.
And again, there was strong demand from day, 1 after reopening.
And coupled with labor efficiencies, we are seeing increased EBITDA margins throughout our Canadian properties.
You can't have that'd be also look forward to the arrival of online sports betting.
Which could provide significant upside for all centered profits of corporate though where we have for out of 28 licenses.
Yeah.
That finishes for roundup of our operations.
In conclusion, I'd like to say that the second quarter was not that read market for performance for our company at all like tie up team.
Our nationwide portfolio continues to generate robust levels of EBITDA and our operating strategy and tight focus on the right customer producing the highest margins in our history.
And we do believe that our strong performances since reopening are largely sustained it for.
With almost all of our revenue coming from customers, who live within that wanted to have our strive from our properties.
We have successfully executed a strategy built on our premium local customers.
We stay firmly committed to our operating strategy.
<unk> increased EBITDA as a result of our continued operating discipline and a tight focus on the right customer.
Looking for what the trends you saw across all businesses in the first and second quarters are continuing into July and early August.
In fact, some of our Canadian casinos set all time coin indirect cuts from July.
And finally, we're looking at a handful of possible acquisition opportunities.
All in the U S.
To sort of broaden our footprint and leverage our successful operating model.
Yeah.
On behalf of the company's management and board I'd like to thank our team members, our guests and our stockholders for their continued loyalty and enthusiasm as we manage our businesses through these challenging times.
I. Thank you for your attention and we can now start the Q&A session.
Operator go ahead please.
Thank you ladies and gentlemen at this time, we will conduct a question and answer session.
If you would like to ask a question. Please press star 1 on your phone now and you'll be placed in the queue in the order you received.
If you find that your question has been answered you may remove yourself from the queue by pressing the pound key.
We're now ready to begin.
And our first question comes from the lineup, David Bain with B Riley.
Great. Thank you very nice results and exciting opportunity Carruthers for.
I guess first maybe if you could speak a little bit more to the M&A dynamic in the current environment, just assuming you know price creep out there is it still overall rational in your view or are you seeing supply levels, where you feel.
You can still do 1 acquisition a year ago, including this year.
Thanks, Dave.
Yes.
Debt.
M&A landscape is.
This is a little bit a low quiet compared to a couple of years ago.
But there are some interesting targets out there okay.
Obviously, the big the Big question is valuation and.
It's that's really the 1 and only.
Focus point.
Targets out there and they are interesting and they are stable also.
Right, great upside for us and fits very well into our portfolio.
To do it why.
1 acquisition.
Every every trade it for 18 months is absolutely still our goal.
Okay great.
Gotcha.
A couple more but I'll, just I know or eliminate the 2 I'm going to I'll go with Colorado I mean looking at the early results Post Amendment 77, Disentrance debt you sided you know we've seen some capacity announcements in that market.
Do you plan on reassessing, the previous hotel room for expansion or or any other opportunities in Colorado to expand.
Oh man.
At this point, we are not for what we win something else.
Going back to expanding our capacity.
In particular in non quickly we think we would like to see how the how the competition is doing with Tam expansion for us.
I thought for what we're doing in clinical quake is something different with pending employee housing.
Which might be awaiting sometime in the first.
First half for Santos 92, and we think that will give us a.
Competitive edge because employment up each day is a it's a huge topic.
Okay, great very nice for once again, thank you.
And your next question comes from line of Jeff stature with Stifel.
Hey, good morning, everyone and thanks for taking our questions and congrats on a nice set of results here.
I want to.
Just follow the Erwin and your comments on how the labor market I wanted to kind of drill in a little bit more here you know aside from Colorado, which I think it has been historically a pretty tight labor market are you are you are.
Having issues hiring across any of your other markets.
And if so how should we think about that dynamic relative to the margin profile you've been running over the past several quarters.
Hum.
We experienced some pressure like everybody in the industry, but it's Matt children.
And we don't think that between whatever we do will have for any significant impact on our research going full book.
Perfect very helpful. Julien for the margin profile a bit more here you talked to a day bad this decision to bring back from non gaming amenities back on line over time do you still expect certain amenities to stay out of the business permanently what are you hearing from customers here or are they fairly agnostic for things.
Like buffet is coming back or is your expectation.
That that all of those call it loss leader amenities come back.
Once COVID-19 is fully in the rearview mirror.
And I think it's a very thoughtful growth.
We feel that our customers are happy with let's say offering them now even if it is significantly less than they do stupid pre COVID-19.
And they can say interesting phenomenon to see we don't see any price for for example, total to come out for the buffet.
Keeping in mind also that are the same maybe valued partner for Vegas, it's a completely different for chase.
Milk for socket.
Perfect. That's all from me and I'll pass it on I appreciate all the color guys.
And once again, ladies and gentlemen, if you do have a question that is star then the number 1 on your telephone keypad and your next question comes from the line of Chad Beynon with Macquarie.
Good morning, guys. This is Jordan Bender on for Chad I, just want to revisit Colorado for a second here.
And in terms of the Max back are you starting to see.
People come to the market net might have been going to other markets, where they were when they need on their debt or are you really just seeing kind of that your core customer it's true that need more for machines.
Hum.
Yeah.
It takes us I think you're mainly referring to line, yes, you I'm sorry, yeah nationally.
We see if we see a couple of new customers are coming in but I should also say that we have taken a comes out with a pump that approach, which we thought for the maximum pain States. We also.
We don't want to expose our casinos tool tool to reskill for high expectations.
Some other casinos states not all of them successfully.
We decided to close low end step by step.
There's also the training of pounds top United States it'll be sent me a chance to get used to state by state for the higher limits and we have an increasingly true tends to and we think there is more to go having said that are impacting particularly in day in the tender meeting Blake from Sanford Chicken market. We do not think that we can end with line.
<unk> to compete with the large market participants there.
Awesome. Thanks, and then in terms of mountaineer, you kind of talked about how the COVID-19 restrictions impacted results from the quarter and the margin expansion, you're seeing there isn't quite up to what you're seeing in terms of the basis per.
<unk> growth versus your other markets as the restrictions kind of loosen. The air do you expect to start to see that market grow margin a little bit more I guess to the outside disproportional to your other U S assets.
I didn't hear the first about the other person, which which market are you asking about.
Our West Virginia.
West, Virginia in West, Virginia, and as Peter mentioned earlier, we had day obviously.
Obviously this is Jason the only states. We also all costs for Mercer for quite an extent also coming from the neighboring states and.
And so whatever happens he sells for input for you or maybe impactful to our casinos are we have been burdened by COVID-19 restrictions off on to the clients. They tend to quantum and everything has been and restrictions have gone and since then we see all volume Swedish shooting up.
And and we are again as pizza.
Tonight looks very faintly and Oh, they only positive so we see more we at least.
We think it's the only way, possibly we also can exceed pre COVID-19 levels rather quickly.
And.
And again with regard to the mix of day Oh. We also in addition for the troops.
For the pure gaming people seem to be happy with what for what they find.
All of a sudden a nice results and thank you.
Thank you Joe.
And there are no further questions at this time I'll now hand, the call back over to Peter for closing remarks.
Alright. Thank you everybody for your interest in century casinos and your participation into court.
For a recording of the call. Please visit the financial section of our website at CMT White Dot com.
That's our best wishes for Q2, Thanks, again and goodbye.
This concludes today's conference call. Thank you for attending you may now disconnect.
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